SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of March 2008
PETROCHINA COMPANY LIMITED
16 ANDELU, DONGCHENG DISTRICT
BEIJING, THE PEOPLE'S REPUBLIC OF CHINA, 100011
(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.)
Form 20-F [X] Form 40-F [ ]
(Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes [ ] No [X]
(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-__________)
PetroChina Company Limited (the "Registrant") is furnishing under the cover
of Form 6-K the Registrant's announcement of a summary of the 2007 Annual
Report.
This announcement contains "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements
are, by their nature, subject to significant risks and uncertainties. These
forward-looking statements include, without limitation, statements relating to:
- the Registrant's plan to continue to place top priority on resources
exploration and development and further consolidate its leading
position of the upstream business in China;
- the Registrant's plan to speed up modification of the strategic
structure of its refinery and petrochemical business and to develop
such business in an orderly and efficient manner;
- the Registrant's plan to enhance the construction of strategic
pipelines and the domestic pipeline network; and
- the Registrant's other future plans and prospects.
These forward-looking statements reflect our current views with respect to
future events and are not a guarantee of future performance. Actual results may
differ materially from information contained in these forward-looking statements
as a result of a number of factors, including, without limitation:
- fluctuations in crude oil and natural gas prices;
- failure to achieve continued exploration success;
- failure or delay in achieving production from development projects;
- failure to complete the proposed acquisition of certain overseas
assets as planned;
- change in demand for competing fuels in the target market;
- continued availability of capital and financing;
- general economic, market and business conditions;
- changes in policies, laws or regulations of the PRC and other
jurisdictions in which the Registrant and its subsidiaries conduct
business; and
- other factors beyond the Registrant's control.
We do not intend to update or otherwise revise the forward-looking
statements in this announcement, whether as a result of new information, future
events or otherwise. Because of these risks, uncertainties and assumptions, the
forward-looking events and circumstances discussed in this announcement might
not occur in the way we expect, or at all.
You should not place undue reliance on any of these forward-looking
statements.
(PETROCHINA COMPANY LIMITED LOGO)
(Chinese Characters)
PETROCHINA COMPANY LIMITED
(a joint stock limited company incorporated in the People's Republic of China
with limited liability)
(HONG KONG STOCK EXCHANGE STOCK CODE: 857
SHANGHAI STOCK EXCHANGE STOCK CODE: 601857)
RESULTS ANNOUNCEMENT FOR THE YEAR ENDED DECEMBER 31, 2007
(SUMMARY OF THE 2007 ANNUAL REPORT)
1 IMPORTANT NOTICE
1.1 The Board of Directors of PetroChina Company Limited (the "Company"), the
Supervisory Committee and the Directors, Supervisors and Senior Management
of the Company warrant that there are no material omissions from, or
misrepresentation or misleading statements contained in this announcement,
and jointly and severally accept full responsibility for the truthfulness,
accuracy and completeness of the information contained in this
announcement.
This announcement is a summary of the 2007 Annual Report. Full version of
the 2007 Annual Report can be downloaded from the websites of the Shanghai
Stock Exchange (website: http://www.sse.com.cn), The Stock Exchange of Hong
Kong Limited (the "Hong Kong Stock Exchange") (website:
http://www.hkex.com.hk) and the Company (website:
http://www.petrochina.com.cn). Investors should read the 2007 Annual Report
carefully for more details.
1.2 The 2007 Annual Report has been approved unanimously at the tenth meeting
of the Third Session of the Board. No Director has any doubt as to, or the
inability to warrant, the truthfulness, accuracy and completeness of the
2007 Annual Report.
1.3 Mr Duan Wende, Director of the Company, was absent from the tenth meeting
of the Third Session of the Board. Mr Duan Wende authorised in writing Mr
Zhou Jiping to attend this meeting by proxy and to exercise his voting
rights on his behalf.
1.4 The financial statements of the Company and its subsidiaries (the "Group")
for the year ended December 31, 2007 prepared in accordance with the Basic
Standard and 38 specific standards of Accounting Standards for Business
Enterprises issued by the Ministry of Finance (the "MOF") on February 15,
2006, Application Guidance of Accounting Standard for Business Enterprises,
Interpretation of Accounting Standards for Business Enterprises
1
and other regulations issued thereafter (hereafter referred to as the
"Accounting Standard for Business Enterprises", "China Accounting
Standards" or "CAS") and the International Financial Reporting Standards
("IFRS") have been audited by PricewaterhouseCoopers Zhong Tian CPAs
Limited Company and PricewaterhouseCoopers, respectively, and both firms
have issued unqualified opinions on the financial statements.
1.5 Mr Jiang Jiemin, Chairman of the Board and President of the Company, and Mr
Zhou Mingchun, Chief Financial Officer and Head of the Finance Department
of the Company, warrant the truthfulness and completeness of the financial
statements in the 2007 Annual Report.
2
2 BASIC INFORMATION OF THE COMPANY
2.1 BASIC INFORMATION OF THE COMPANY
STOCK NAME PetroChina PetroChina PetroChina
STOCK CODE 857 PTR 601857
PLACE OF LISTING Hong Kong Stock Exchange The New York Stock Shanghai Stock
Exchange, Inc Exchange
REGISTERED ADDRESS AND World Tower, 16 Andelu, Dongcheng
OFFICE ADDRESS District, Beijing, PRC
POSTAL CODE 100011
WEBSITE http://www.petrochina.com.cn
EMAIL ADDRESS xwzou@petrochina.com.cn
2.2 CONTACT PERSONS OF THE COMPANY AND MEANS OF COMMUNICATION
SECRETARY TO THE BOARD OF REPRESENTATIVE ON REPRESENTATIVE OF THE HONG
DIRECTORS SECURITIES MATTERS KONG REPRESENTATIVE OFFICE
--------------------------------- ------------------------ --------------------------
NAME Li Huaiqi Liang Gang Mao Zefeng
ADDRESS World Tower, 16 Andelu, Dongcheng Suite 3606, Tower 2, Lippo
District, Beijing, PRC Centre, 89 Queensway, Hong Kong
POSTAL CODE 100011
TELEPHONE 86 (10)8488 6270 86 (10)8488 6959 (852) 2899 2010
FACSIMILE 86 (10)8488 6260 86 (10)8488 6260 (852) 2899 2390
EMAIL ADDRESS xwzou@petrochina.com.cn liangg@petrochina.com.cn hko@petrochina.com.hk
3
3 SUMMARY OF ACCOUNTING DATA AND FINANCIAL INDICATORS
3.1 KEY ACCOUNTING DATA AND FINANCIAL INDICATORS PREPARED UNDER IFRS
Unit: RMB Million
------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR-ON-YEAR YEAR ENDED
ITEMS DECEMBER 31, 2007 DECEMBER 31, 2006 CHANGE (%) DECEMBER 31, 2005
----- ----------------- ----------------- ------------ -----------------
Turnover 835,037 688,978 21.2 552,229
Profit attributable to
equity holders of the
Company 145,625 142,224 2.4 133,362
Cash flows from operating
activities 203,748 198,102 2.9 203,885
Basic and diluted earnings
per share for profit
attributable to equity
holders of the Company
(RMB/share) 0.81 0.79 2.0 0.75
Cash flows from operating
activities per share
(RMB/share) 1.13 1.11 1.8 1.15
AS AT DECEMBER AS AT DECEMBER YEAR-ON-YEAR AS AT DECEMBER 31,
ITEMS 31, 2007 31, 2006 CHANGE (%) 2005
----- -------------- -------------- ------------ ------------------
Total assets 1,060,131 872,163 21.6 778,067
Equity attributable to
equity holders of the
Company 733,405 586,677 25.0 515,389
Net assets per share
(RMB/share) 4.01 3.28 22.3 2.88
3.2 KEY ACCOUNTING DATA AND FINANCIAL INDICATORS PREPARED UNDER CAS
3.2.1 Key accounting data
Unit: RMB Million
------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR-ON-YEAR YEAR ENDED
ITEMS DECEMBER 31, 2007 DECEMBER 31, 2006 CHANGE (%) DECEMBER 31, 2005
----- ----------------- ----------------- ------------ -----------------
Operating income 835,037 688,978 21.2 552,229
Operating profit 193,958 192,325 0.8 189,369
Profit before taxation 192,825 189,790 1.6 185,029
Net profit
attributable to
equity holders of the
Company 134,574 136,229 (1.2) 127,867
Net profit after
deducting non-
recurring profit/loss
items attributable to
equity holders of the
Company 136,025 138,277 (1.6) 127,660
Net cash flows from
operating activities 210,819 205,442 2.6 209,548
AS AT DECEMBER AS AT DECEMBER YEAR-ON-YEAR AS AT DECEMBER 31,
ITEMS 31, 2007 31, 2006 CHANGE (%) 2005
----- -------------- -------------- ------------ ------------------
Total assets 994,092 815,144 22.0 725,414
Equity attributable
to equity holders of
the Company 677,367 541,467 25.1 476,238
4
3.2.2 Key financial indicators
Unit: RMB
------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR-ON-YEAR YEAR ENDED
ITEMS DECEMBER 31, 2007 DECEMBER 31, 2006 CHANGE (%) DECEMBER 31, 2005
----- ----------------- ----------------- ------------------ -----------------
Basic earnings per share 0.75 0.76 (1.3) 0.72
Diluted earnings per share 0.75 0.76 (1.3) 0.72
Basic earnings per share after
deducting non-recurring
profit/loss items 0.76 0.77 (1.3) 0.72
Fully diluted return on net (5.3)
assets (%) 19.9 25.2 percentage point) 26.8
Weighted average return on net (3.5)
assets (%) 22.8 26.3 percentage point) 28.9
Fully diluted return on net
assets after deducting non- (5.4)
recurring profit/loss items (%) 20.1 25.5 percentage point) 26.8
Weighted average return on net
assets after deducting
non-recurring profit/loss (3.7)
items (%) 23.0 26.7 percentage point) 28.8
Net cash flows per share from
operating activities 1.17 1.15 1.7 1.19
AS AT DECEMBER AS AT DECEMBER YEAR-ON-YEAR AS AT DECEMBER 31,
ITEM 31, 2007 31, 2006 CHANGE (%) 2005
---- -------------- -------------- ------------ ------------------
Net assets per share
attributable to equity holders
of the Company 3.70 3.02 22.5 2.66
3.2.3 Non-recurring profit/loss item
[X] Applicable [ ] Not applicable
Unit: RMB Million
-----------------
YEAR ENDED
DECEMBER 31, 2007
NON-RECURRING PROFIT/LOSS ITEMS (PROFIT)/LOSS
------------------------------- -----------------
Loss on disposal of non-current assets* 753
Other non-operating net income and expenses 1,371
Government grants (388)
Tax effect of non-recurring profit/loss items (443)
-----
Total 1,293
=====
* Excluding exploratory dry holes
3.2.4 Items to which fair value measurement is applied
[ ] Applicable [X] Not applicable
5
3.3 DIFFERENCES BETWEEN CAS AND IFRS
[X] Applicable [ ] Not applicable
Unit: RMB Million
---------------------------------------
CAS IFRS
------- -----------------------------
Net profit (including minority interest) for the
year ended December 31, 2007 143,494 155,229
Equity (including minority interest) as at
December 31, 2007 715,071 776,347
Analysis of differences See Section 9.2.3 for details
6
4 CHANGES IN SHARE CAPITAL AND INFORMATION ON SHAREHOLDERS
4.1 CHANGES IN SHAREHOLDINGS
Unit: Shares
PRE-MOVEMENT INCREASE/DECREASE (+/-) POST-MOVEMENT
-------------------------- ----------------------------------------------------- --------------------------
CONVERSION
NUMBERS OF PERCENTAGE BONUS FROM NUMBERS OF PERCENTAGE
SHARES (%) NEW ISSUE ISSUE RESERVES OTHERS SUB-TOTAL SHARES (%)
--------------- ---------- -------------- ----- ---------- ------ -------------- --------------- ----------
I Shares with
selling
restrictions 157,922,077,818 88.21 +1,000,000,000 -- -- -- +1,000,000,000 158,922,077,818 86.83
1. State-owned
shares 157,922,077,818 88.21 -- -- -- -- -- 157,922,077,818 86.29
2. Shares held by
state-owned
companies -- -- -- -- -- -- -- -- --
3. Shares held by
other
domestic
investors -- -- +1,000,000,000 -- -- -- +1,000,000,000 1,000,000,000 0.54
of which:
Shares held
by companies
other than
state-owned
companies -- -- +1,000,000,000 -- -- -- +1,000,000,000 1,000,000,000 0.54
Shares held
by domestic
natural
persons -- -- -- -- -- -- -- -- --
4. Shares
held by
foreign
investors -- -- -- -- -- -- -- -- --
II Shares
without
selling
restrictions 21,098,900,000 11.79 +3,000,000,000 -- -- -- +3,000,000,000 24,098,900,000 13.17
1. RMB-
denominated
ordinary
shares -- -- +3,000,000,000 -- -- -- +3,000,000,000 3,000,000,000 1.64
2. Shares
traded in
non-RMB
currencies
and listed
domestically -- -- -- -- -- -- -- -- --
3. Shares listed
overseas 21,098,900,000 11.79 -- -- -- -- -- 21,098,900,000 11.53
4. Others -- -- -- -- -- -- -- -- --
III Total Shares 179,020,977,818 100.00 +4,000,000,000 -- -- -- +4,000,000,000 183,020,977,818 100.00
7
Changes in Shares with Selling Restrictions
Unit: Shares
NUMBER OF
NUMBER OF SHARES NUMBER OF ADDITIONAL NUMBER OF
WITH SELLING SHARES WITH SHARES WITH SHARES WITH
RESTRICTIONS AT SELLING SELLING SELLING EXPIRY DATE
NAME OF THE BEGINNING OF RESTRICTIONS RESTRICTIONS IN RESTRICTIONS AT OF SELLING
SHAREHOLDERS 2007 EXPIRED IN 2007 2007 THE END OF 2007 REASONS FOR SELLING RESTRICTIONS RESTRICTIONS
------------ ---------------- --------------- --------------- --------------- -------------------------------- ------------
China National 157,922,077,818 0 0 157,922,077,818 In October 2007, the Company November 5,
Petroleum offered its RMB-denominated 2010
Corporation ordinary shares (A shares) to
("CNPC") the public for the first time.
At that time, CNPC undertook
that "for a period of 36 months
commencing from the date of
listing of the A shares of the
Company on the Shanghai Stock
Exchange, it will not transfer
or entrust others for the
management of the A shares which
it holds, or allow such shares
to be repurchased by the
Company. However, certain shares
held by CNPC, which may be
subsequently listed on overseas
stock exchanges after obtaining
necessary approvals in the PRC,
are not subject to the
restriction of the 36-month
lock-up period."
Shares placed 0 0 1,000,000,000 1,000,000,000 In October 2007, the Company February 5,
off-line offered its RMB-denominated 2008
ordinary shares (A shares) to
the public for the first time.
Shares that have been placed
with target placees off-line are
subject to a lock-up period of
three months from the date of
listing of the shares on the
Shanghai Stock Exchange.
--------------- --- ------------- ---------------
Total 157,922,077,818 0 1,000,000,000 158,922,077,818 -- --
--------------- --- ------------- ---------------
4.2 NUMBER OF SHAREHOLDERS AND THEIR SHAREHOLDINGS
The number of shareholders of the Company as at December 31, 2007 was
1,883,990, including 1,879,207 holders of A shares and 4,783 holders of H shares
(including holders of the American Depository Shares). The public float of the
Company satisfied the requirements of the Rules Governing the Listing of
Securities on the Hong Kong Stock Exchange (the "Listing Rules").
8
4.2.1 Shareholdings of the top ten shareholders Unit: Shares
Unit: Shares
NUMBER OF NUMBER OF
SHARES WITH SHARES PLEDGED
PERCENTAGE OF NUMBER OF SELLING OR SUBJECT TO
NAME OF SHAREHOLDERS NATURE OF SHARES SHAREHOLDING (%) SHARES HELD RESTRICTIONS LOCK-UPS
-------------------- ------------------ ---------------- --------------- --------------- --------------
CNPC(1) State-owned shares 86.29 157,922,077,818 157,922,077,818 0
HKSCC Nominees Limited(2) H shares 11.44 20,937,754,152 0 0
China Life Insurance
(Group) Company-
Traditional- Ordinary
Insurance Product(3) A shares 0.031 56,797,000 25,069,000 0
China Life Insurance
Company Limited -
Dividends - Personal
Dividends - 005L -FH002
Shanghai(3) A shares 0.016 30,238,570 25,069,000 0
China Life Insurance
Company Limited -
Traditional -
Ordinary Insurance
Product - 005L - CT001
Shanghai(3) A shares 0.014 25,069,000 25,069,000 0
China Life Insurance
Company Limited -
Dividends - Group
Dividends - 005L -FH001
Shanghai(3) A shares 0.014 25,069,000 25,069,000 0
Ping An Life Insurance
Company of China, Ltd. -
Traditional - Ordinary
Insurance Products(3) A shares 0.014 25,069,000 25,069,000 0
New China Life Insurance
Company Limited-Dividends
-Group Dividends-018L
FH001 Shanghai(3) A shares 0.014 25,069,000 25,069,000 0
Ping An Life Insurance
Company of China, Ltd. -
Proprietary Funds(3) A shares 0.014 25,069,000 25,069,000 0
Ping An Life Insurance
Company of China, Ltd.
-Dividends-Personal
Insurance Dividends(3) A shares 0.014 25,069,000 25,069,000 0
Note 1: CNPC is a substantial shareholder within the meaning of the Securities
and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (the "Securities
and Futures Ordinance") whose interest is recorded in the register of
interests in shares and short positions kept by the Company pursuant to
Section 336 of the Securities and Futures Ordinance.
Note 2: HKSCC Nominees Limited is a subsidiary of the Hong Kong Stock Exchange
and its principal business is to act as nominee on behalf of shareholders.
9
Note 3: Placees placed with A shares of the Company off-line who became one of
the top ten shareholders of the Company shall not trade or transfer the
shares held by them within three months commencing from November 5, 2007.
4.2.2 Shareholdings of top ten shareholders of shares without selling
restrictions
Unit: Shares
RANKING NAME OF SHAREHOLDERS NUMBER OF SHARES HELD TYPES OF SHARES
------- -------------------- --------------------- ---------------
1 HKSCC Nominees Limited 20,937,754,152 H shares
2 China Life Insurance (Group) Company - Traditional - Ordinary
Insurance Products 31,728,000 A shares
3 Bank of China -- Shanghai and Shenzhen 300 Index Jiashi Securities
Investment Fund 14,035,426 A shares
4 China Construction Bank -- Boshi Yufu Securities Investment Fund 12,626,642 A shares
5 China Pacific Insurance (Group) Co., Ltd. -- Group Level--Proprietary
Funds -- 012G--ZY001 Shanghai 7,387,982 A shares
6 Ling Foo Sang and Wong Ngar Kum 6,912,000 H shares
7 Tongde Securities Investment Fund 6,906,951 A shares
8 Baosteel Co., Ltd. 6,440,000 A shares
9 Sinochem Corporation 5,819,000 A shares
10 China Life Insurance Company Limited -- Dividends--Personal
Dividends-- 005L--FH002 Shanghai 5,169,570 A shares
Statement on the connection or activities acting in concert among the
above-mentioned shareholders: Except for China Life Insurance (Group)
Company-Traditional-Ordinary Insurance Products, China Life Insurance Company
Limited - Dividends - Personal Dividends-005L-FH002 Shanghai, China Life
Insurance Company Limited- Traditional-Ordinary Insurance Product-005L-CT001
Shanghai and China Life Insurance Company Limited-Dividends-Group
Dividends-005L-FH001 Shanghai, all of which are under the management of China
Life Insurance Asset Management Co., Ltd and Ping An Life Insurance Company of
China, Ltd.-Traditional-Ordinary Insurance Products, Ping An Life Insurance
Company of China, Ltd.-Proprietary Funds and Ping An Life Insurance Company of
China, Ltd.-Dividends-Personal Insurance Dividends, all of which are under the
management of Ping An Asset Management Co. Ltd., the Company is not aware of any
connection among or between the top ten shareholders and top ten shareholders of
shares without selling restrictions or that they are persons acting in concert
as provided for in the Measures for the Administration of Acquisitions by Listed
Companies.
4.2.3 Shareholdings of Substantial Shareholders of H Shares
As at December 31, 2007, according to the register of interests in shares
and short positions kept by the Company pursuant to Section 336 of the
Securities and Futures Ordinance, the person in the following table and note has
an interest or short position in the H shares of the Company:
10
PERCENTAGE OF SUCH
SHARES IN THAT CLASS OF PERCENTAGE OF TOTAL
NAME OF SHAREHOLDER NUMBER OF SHARES THE ISSUED SHARE CAPITAL (%) SHARE CAPITAL (%)
------------------- ----------------- ---------------------------- -------------------
UBS AG (Note) 1,089,453,631 (L) 5.16 (L) 0.60
414,468,390 (S) 1.96 (S) 0.23
Note: UBS AG, through various wholly-owned subsidiaries, has an interest in
1,089,453,631 H shares of the Company.
As at December 31, 2007, save as disclosed above, no person (other than a
Director, Supervisor or senior management of the Company) has an interest or
short position in the H shares of the Company according to the register of
interests in shares and short positions kept by the Company pursuant to Section
336 of the Securities and Futures Ordinance.
4.3 INFORMATION ON CONTROLLING SHAREHOLDER AND THE ULTIMATE CONTROLLER
4.3.1 Change in the controlling shareholders and the ultimate controller
during the reporting period
[ ] Applicable [X] Not applicable
4.3.2 Information on controlling shareholder and the ultimate controller
The controlling shareholder of the Company is CNPC which was established in
July 1998. CNPC is a petroleum and petrochemical conglomerate that was formed in
the wake of the restructuring launched by the State Council to restructure the
predecessor of CNPC, China National Petroleum Company
(Chinese Characters). CNPC is also a state-authorised investment
corporation and state-owned enterprise and its registered capital is
RMB240,440.02 million. Its legal representative is Mr Jiang Jiemin. CNPC is an
integrated energy corporation with businesses covering oil and gas exploration
and development, refining and petrochemical, oil product marketing, oil and gas
storage and transportation, oil trading, engineering and technical services and
petroleum equipment manufacturing. CNPC is the ultimate controller of the
Company.
4.3.3 The equity interest structure and controlling relationship between
the Company and the ultimate controller
|------------------------------|
| CNPC |
|------------------------------|
|
| 86.29%
\|/
|------------------------------|
| PetroChina Company Limited |
|------------------------------|
11
5 DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
5.1 INFORMATION ON THE CHANGES IN THE SHAREHOLDING IN THE COMPANY HELD BY
AND REMUNERATION OF THE DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
5.1.1 Information on current Directors
NUMBER OF SHARES HELD
IN THE COMPANY
REMUNERATION WHETHER RECEIVED ---------------------
RECEIVED FROM THE REMUNERATION FROM AS AT AS AT
COMPANY IN 2007 OFFICES HELD IN DECEMBER DECEMBER
NAME GENDER AGE POSITION TERM (RMB'000) CNPC 31, 2006 31, 2007
--------------- ------ --- --------------- --------------- ----------------- ----------------- --------- ---------
Chairman and
Jiang Jiemin(1) M 52 President 2007.05-2010.05 916 No 0 0
Executive
Director/
Senior Vice
Duan Wende(1) M 56 President 2007.05-2010.05 824 No 0 0
Non-Executive
Zheng Hu M 61 Director 2006.05-2009.05 -- Yes 0 0
Non-Executive
Zhou Jiping M 55 Director 2007.05-2010.05 -- Yes 0 0
Non-Executive
Wang Yilin M 51 Director 2005.11-2008.11 -- Yes 0 0
Non-Executive
Zeng Yukang M 57 Director 2005.11-2008.11 -- Yes 0 0
Non-Executive
Gong Huazhang M 61 Director 2005.11-2008.11 -- Yes 0 0
Non-Executive
Jiang Fan M 44 Director 2005.11-2008.11 499 No 0 0
Independent
Non-Executive
Chee-Chen Tung M 65 Director 2005.11-2008.11 264 No 0 0
Independent
Non-Executive
Liu Hongru M 77 Director 2005.11-2008.11 349 No 0 0
Independent
Non-Executive
Franco Bernabe M 59 Director 2006.05-2009.05 257 No 0 0
5.1.2 Information on current Supervisors
NUMBER OF SHARES HELD
IN THE COMPANY
REMUNERATION WHETHER RECEIVED ---------------------
RECEIVED FROM THE REMUNERATION FROM AS AT AS AT
COMPANY IN 2007 OFFICES HELD IN DECEMBER DECEMBER
NAME GENDER AGE POSITION TERM (RMB'000) CNPC 31, 2006 31, 2007
--------------- ------ --- --------------- --------------- ----------------- ----------------- --------- ---------
Chairman of 2005.11-2008.11 -- Yes 0 0
Supervisory
Wang Fucheng M 57 Committee
Wen Qingshan M 49 Supervisor 2005.11-2008.11 -- Yes 0 0
Sun Xianfeng M 55 Supervisor 2007.05-2010.05 -- Yes 0 0
Zhang Jinzhu M 59 Supervisor 2007.05-2010.05 333 No 0 0
Supervisor
appointed by
employees'
Qin Gang M 54 representatives 2005.11-2008.11 469 No 0 0
Independent
Li Yongwu M 63 Supervisor 2005.11-2008.11 315 No 0 0
Independent
Wu Zhipan M 51 Supervisor 2005.11-2008.11 319 No 0 0
12
5.1.3 Other members of the Senior Management
NUMBER OF SHARES HELD
IN THE COMPANY
REMUNERATION WHETHER RECEIVED ----------------------
RECEIVED FROM THE REMUNERATION FROM AS AT AS AT
COMPANY IN 2007 OFFICES HELD IN DECEMBER DECEMBER
NAME GENDER AGE POSITION TERM (RMB'000) CNPC 31, 2006 31, 2007
---------------- ------ --- ------------------ -------- ----------------- ----------------- ---------- ---------
Liao Yongyuan(1) M 45 Vice President 2005.11- 712 No 0 0
Jia Chengzao(1) M 59 Vice President 2005.11- 667 No 0 0
Hu Wenrui(1) M 58 Vice President 2005.11- 667 No 0 0
Sun Longde M 45 Vice President 2007.06- 493 No 0 0
Shen Diancheng M 48 Vice President 2007.06- 457 No 0 0
Liu Hongbin M 44 Vice President 2007.06- 269 No 0 0
Chief Financial
Zhou Mingchun M 40 Officer 2007.06- 425 No 0 0
Li Hualin M 45 Vice President 2007.11- -- No 0 0
Lin Aiguo M 49 Chief Engineer 2007.06- 422 No 0 0
Secretary to the
Li Huaiqi(1) M 58 Board of Directors 2001.08- 667 No 0 0
Note 1: Remuneration excludes the deferred payment paid by the Company to the
relevant Directors and senior management of the Company in respect of their
salaries from 2004 to 2006 in the aggregate amount of RMB3,740,000 pursuant
to the relevant provisions of the PRC Government.
Each member of the senior management of the Company (including the
executive Directors and Supervisors) has entered into a performance appraisal
agreement with the Company. The remuneration policy of the senior management of
the Company links the financial interest of the senior management with the
operating results of the Company and the performance of the Company's shares in
the market.
13
6 DIRECTORS' REPORT
6.1 DISCUSSION AND ANALYSIS OF THE OVERALL OPERATIONS DURING THE REPORTING
PERIOD
6.1.1 Review of Results of Operations
In 2007, faced with new changes and new trends in the macro environment
both domestically and globally, the Company upheld the guiding principle of
scientific development and implemented firmly the three main strategies in the
areas of resources, marketing and internationalisation of operations. The
Company optimised production arrangements and strengthened operations and
management. The Company's production and operating activities were conducted
smoothly and its principal operations continued to expand in scale. Safety
production and environmental protection improved steadily. The overall business
strengths of the Company were enhanced markedly.
1. MARKET REVIEW
(1) Crude Oil Market Review
In 2007, on the whole, international crude oil prices continued to soar. In
particular, since September 2007, oil prices broke the US$80 per barrel and
US$90 per barrel marks, reaching nearly US$100 per barrel by the end of the
year. In general, market considered the surge in the crude oil prices was
primarily due to factors including strong growth in demand, a decline in crude
oil inventories, speculative activities, geopolitical instabilities in certain
oil producing countries and continued weakening of the US dollars. The annual
average prices for WTI, Brent and Minas crude oil were US$72.16, US$72.38 and
US$73.40 per barrel, respectively, representing an increase of US$6.12, US$7.32
and US$8.16 per barrel, respectively, over the annual average prices in 2006.
Corresponding to the rise in international crude oil prices, the average price
for domestic crude oil in 2007 was higher than that of 2006.
According to the relevant statistics, domestic crude oil imports continued
to increase in 2007 by 14.4% to a net total of 159 million tons compared with
the previous year. Domestic crude oil output and the amount of crude oil
processed reached 186 million tons and 306 million tons, respectively.
(2) Refined Products Market Review
In 2007, domestic refined product prices were still under the macro
economic controls of the PRC Government, resulting in such prices were lower
than the prices in the international market. Annual average ex-factory prices of
domestic gasoline and diesel were RMB5,071 per ton and RMB4,653 per ton
respectively, being RMB1,225 and RMB1,513 lower than the CIF per ton prices
quoted in the Singapore market, respectively, while the maximum price difference
reaching over RMB2,000 per ton in 2007. During the second half of 2007,
international crude
14
oil prices rocketed and as a result, domestic refineries incurred heavy losses
in processing. Production ceased in certain local refineries. Supply in the
refined products market was once very tight. On November 1, 2007, the PRC
Government raised the ex-factory prices of gasoline, diesel and aviation fuel by
RMB500 per ton. Balance of demand and supply was basically restored after such
price increase.
According to the relevant information, nominal consumption of domestic
refined products increased by 6.9% to 186 million tons in 2007.
(3) Chemical Products Market Review
The PRC economy maintained steady and rapid growth in 2007 with an increase
in the GDP of 11.4%. The rapid growth of the PRC economy has created a steady
increase in the domestic demand for petrochemical products, including a 10.6%
growth in the nominal consumption of plastic materials. Notwithstanding an
increase in the production of petrochemical products in 2007 as a result of the
commencement of production by certain newly installed facilities, amongst which
the production capacity of polyethylene and polypropylene was increased by
approximately 15% and 18% respectively as compared with those of the previous
year, the overall increase in the supply of petrochemical products was moderate
and limited and the supply remained relatively tight in the chemical products
market as a result of the declining volume of import in chemical products. The
prices of petrochemical products rocketed and the overall prices of
petrochemical products were increased by 3.3% when compared with that of the
previous year.
(4) Natural Gas Market Review
In 2007, the domestic natural gas market developed rapidly with strong
growth in demand for natural gas. The external sales of natural gas reached 43.6
billion cubic metres, representing an increase of 22% as compared to that of the
previous year. On August 30, 2007, the PRC Government promulgated the Policies
on Natural Gas Utilisation in order to ease the supply-and-demand tension of
natural gas, optimise the utilisation structure of natural gas and promote the
idea of reducing energy consumption and emissions. In addition, with a view to
guide the market towards a more rationalised consumption of natural gas and to
narrow the difference between domestic natural gas prices and alternative energy
prices, the PRC Government raised the basic ex-factory price of natural gas for
industrial use by RMB400 per thousand cubic metre on November 10, 2007.
2. BUSINESS REVIEW
(1) Exploration and Production
In 2007, the Group stepped up oil and gas exploration in the PRC. Major
breakthroughs of strategic significance were achieved through further geological
research and emphasis on the application of new technologies, and concerted
efforts on oil and gas exploration activities. In
15
particular, the Company discovered the Jidong Nanpu Oilfield which is with
relatively high crude oil reserves. Moreover, significant progress was achieved
during the oil and gas exploration in the Sichuan Basin, the Erdos Basin, the
Songliao Basin and the Tarim Basin. With a better composition of orderly managed
reserves, the Company has entered into the peak in the growth of reserves. In
respect of overseas oil and gas exploration, new progress was made with
discovery of relatively high reserves in regions including Chad and Kazakhstan.
In 2007, the Group achieved crude oil reserve replacement ratio of 1.104 and
natural gas reserve replacement ratio of 3.238.
In the development of domestic oilfields, the policy of "steady development
in the east, and rapid development in the west" was upheld. New ways in the
exploration of oilfield and natural gas fields were actively adopted. The
Company has extensively initiated works for the secondary recovery of mature
oilfields so as to maintaining a steady oil and gas production through the
deployment of various comprehensive measures including deepening fine reservoir
characterisation, stabilising oil production by water-cut control, tertiary oil
recovery and so forth, as well as actively promoting sophisticated technologies
such as horizontal application and under-balanced drilling. The foundation for
oil stabilization in the mature oilfields has been consolidated. The Company has
also conducted overall assessment, planning and development building up the
production capacity in new fields. In respect of regions outside China, various
measures were adopted to slow down the reduction in the productivity of mature
oilfields, strengthen the organisational operation and management of drilling
and maintenance of wells and enhance the productivity of newly discovered wells.
Through the above measures, in 2007, the total crude oil and natural gas output
of the Group was 1,110.0 million barrels of oil equivalent, including 838.8
million barrels of crude oil and 1,627.0 billion cubic feet of marketable
natural gas. In 2007, the lifting cost for the oil and gas operations of the
Group was US$7.75 per barrel, representing an increase of 15.0% from US$6.74 per
barrel in 2006.
SUMMARY OF OPERATIONS OF THE EXPLORATION AND PRODUCTION SEGMENT
YEAR-ON-YEAR
UNIT 2007 2006 CHANGE (%)
------------------ ------- ------- ------------
Crude oil output Million barrels 838.8 830.7 1.0
Marketable natural gas output Billion cubic feet 1,627.0 1,371.9 18.6
Oil and natural gas equivalent output Million barrels 1,110.0 1,059.4 4.8
Proved reserves of crude oil Million barrels 11,706 11,618 0.8
Proved reserves of natural gas Billion cubic feet 57,111 53,469 6.8
Proved developed reserves of crude oil Million barrels 9,047 9,185 (1.5)
Proved developed reserves of natural gas Billion cubic feet 26,047 22,564 15.4
(2) Refining and Marketing
In 2007, faced with the growing demand in the market, the Group organised
refining processing meticulously, scientifically modified refining arrangements,
and optimised allocation of resources actively. Safe, steady, long-term,
full-load and optimised production was achieved resulting from improvement of
the production control management system. Crude oil
16
processing and production of key refined products reached a historically high
level. In order to react to changes in the sales market proactively, resources
were organised through various means. Production, transportation and
distribution arrangements were enhanced and better co-ordinated. Allocation of
resources was optimised. The scale of sales to end-users was expanded. The level
of retail sales management and the quality of services were enhanced
continuously. All these have paved the way to form a strongly focused and highly
efficient nationwide distribution network throughout the PRC, thereby ensuring a
gradual stable market supply. The Group's refineries processed 823.6 million
barrels of crude oil, approximately 80% of which was supplied by the Exploration
and Production segment. The Group produced approximately 71.38 million tons of
gasoline, diesel and kerosene and sold approximately 85.74 million tons of these
products. The cash processing cost of the Group's refineries decreased from
RMB169 per ton in 2006 to RMB155 per ton in 2007.
SUMMARY OF OPERATIONS OF THE REFINING AND MARKETING SEGMENT
YEAR-ON-YEAR CHANGE
UNIT 2007 2006 (%)
--------------- ------ ------ --------------------
Processed crude oil Million barrels 823.6 785.0 4.9
Gasoline, kerosene and diesel output '000 ton 71,381 68,318 4.5
of which: Gasoline '000 ton 22,019 22,027 (0.04)
Kerosene '000 ton 2,017 2,064 (2.3)
Diesel '000 ton 47,345 44,227 7.0
Crude oil processing load % 97.7 95.9 1.8 percentage point
Light products yield % 73.99 73.48 0.5 percentage point
Refining yield % 93.01 92.17 0.8 percentage point
Market share in retail % 37.0 34.7 2.3 percentage point
Number of service stations Unit 18,648 18,207 2.4
of which: owned service stations Unit 17,070 16,624 2.7
Sales volume per service station Ton/day 8.4 7.8 7.7
(3) Chemicals and Marketing
In 2007, the Group achieved economies of scale and steady operations in the
Chemical and Marketing segment. Key technological and economic indicators
improved continuously. Allocation of resources and production mix were further
optimised. The production of chemical products and ethylene reached 15.55
million tons and 2.58 million tons, respectively.
SUMMARY OF OPERATIONS OF THE CHEMICALS AND MARKETING SEGMENT
YEAR-ON-YEAR
OUTPUT OF KEY CHEMICAL PRODUCTS UNIT 2007 2006 CHANGE (%)
------------------------------- -------- ----- ----- ------------
Ethylene '000 ton 2,581 2,068 24.8
Synthetic resin '000 ton 3,962 3,061 29.4
Synthetic fibre raw materials and polymer '000 ton 1,459 1,232 18.4
Synthetic rubber '000 ton 311 312 (0.3)
Urea '000 ton 3,634 3,576 1.6
17
(4) Natural Gas and Pipeline
The Group proceeded with the construction of oil and gas pipelines on
schedule and in an orderly manner. A number of long-distance main pipelines,
among them the Lanzhou-Yinchuan Gas Transmission Pipeline of the West-East Gas
Pipeline, the Daqing-Harbin Gas Transmission Pipeline and the Dagang-Zaozhuang
Refined Oil Pipeline, were completed during 2007. A nationwide gas pipeline
network is being formed connecting the four gas zones of the Company. Despatch
priority of natural gas was centralised which could ensure safety in the gas
transmission. Natural gas sales business has leveraged the advantage of the
nationwide gas pipeline network and achieved an overall balanced development in
the production, transportation and marketing, thereby ensuring a safe and steady
supply of natural gas in key cities and key customers.
SUMMARY OF OPERATIONS OF THE NATURAL GAS AND PIPELINE SEGMENT
YEAR-ON-YEAR
UNIT 2007 2006 CHANGE (%)
---------- ------ ------ ------------
Crude oil pipeline Kilometres 10,559 9,620 9.8
Refined oil pipeline Kilometres 2,669 2,413 10.6
Natural gas pipeline Kilometres 22,043 20,590 7.1
6.1.2 Management Discussion and Analysis
The following discussion and analysis should be read in conjunction with
the audited financial statements of the Group and the notes thereto set out in
the 2007 Annual Report.
1. The financial data sets out below is extracted from the audited
financial statements of the Group prepared under IFRS
(1) Consolidated Operating Results
For the twelve months ended December 31, 2007, profit before taxation of
the Group was RMB204,381 million, representing an increase of 2.6% compared with
the previous year. Net profit attributable to equity holders of the Company
("Net profit") was RMB145,625 million, representing an increase of 2.4% compared
with the previous year. The main performance indicators of the Group have
achieved record high again and the overall business strengths of the Group
improved markedly. Major discoveries were made through the Group's oil and gas
exploration. The oil and gas output reached another historical high in 2007.
Production and marketing of refined products were steady, and the Group was able
to effectively meet market demands. There was rapid progress in the development
of natural gas pipelines, and construction of key projects was smooth.
Development of the international operations of the Group has continued, paving
the way for gradual expansion in the scale of the business of the Group's
international operations.
18
For the twelve months ended December 31, 2007, the basic and diluted
earnings per share attributable to equity holders of the Company were RMB0.81
(2006: RMB0.79).
Turnover Turnover increased 21.2% from RMB688,978 million for the twelve
months ended December 31, 2006 to RMB835,037 million for the twelve months ended
December 31, 2007. This was primarily due to the increases in the selling prices
and changes in the sales volume of major products including crude oil, natural
gas and refined products, and the efforts made by the Group in expanding
resources and developing markets by making use of the opportunities presented by
persistently high prices in crude oil and petrochemical products in the
international market. In addition, the increase of the sales of oil and gas
products during the year also increased the turnover of the Group. The table
below sets out the external sales volume and average realised prices for major
products sold by the Group for 2006 and 2007 and percentages of change in the
sales volume and average realised prices during these two years.
SALES VOLUME ('000 TON) AVERAGE REALISED PRICE (RMB/TON)
------------------------------- --------------------------------
PERCENTAGE OF PERCENTAGE OF
2007 2006 CHANGE (%) 2007 2006 CHANGE (%)
------ ------ ------------- ------ ------ -------------
Crude oil* 18,730 20,066 (6.7) 3,594 3,487 3.1
Natural gas (million cubic metre,
RMB/'000 cubic metre) 43,570 35,715 22.0 693 678 2.2
Gasoline 27,003 23,899 13.0 5,168 5,035 2.6
Diesel 54,377 48,516 12.1 4,668 4,411 5.8
Kerosene 3,782 2,054 84.1 4,684 4,502 4.0
Heavy oil 8,772 8,009 9.5 2,519 2,482 1.5
Polyethylene 2,102 1,590 32.2 10,497 10,299 1.9
Lubricant 2,378 2,059 15.5 6,420 6,433 (0.2)
* The external sales volume of crude oil listed above is crude oil produced
by the Company.
Operating Expenses Operating expenses increased 29.4% from RMB491,002
million for the twelve months ended December 31, 2006 to RMB635,182 million for
the twelve months ended December 31, 2007, of which:
Purchases, Services and Other Expenses Purchases, services and other
expenses increased 36.7% from RMB271,123 million for the twelve months ended
December 31, 2006 to RMB370,740 million for the twelve months ended December 31,
2007. This was primarily due to (1) an increase in the purchase prices and
purchase volume of crude oil, feedstock oil and refined products from external
suppliers that resulted in the increase in the purchase costs; and (2) an
increase in the lifting costs of oil and gas operations and the processing cost
of the Group's refineries that resulted from the increase in prices of raw
materials, fuel, energy and other production materials in the PRC as well as an
expansion of the production scale of the Group. In addition, the increase in the
purchase expenses also resulted from an increase in the refined product supply
operations in 2007.
Employee Compensation Costs The remuneration paid by the Group in cash rose
15.3% or increased RMB3,752 million from RMB24,538 million to RMB28,290 million
for 2007. Other employees' costs increased RMB7,703 million from RMB14,623
million to RMB22,326
19
million for 2007. As a result of the above increment, employees' compensation
costs and benefits increased RMB11,455 million. This was primarily due to (1) an
increase in the level of salaries and performance bonuses as a result of growth
in the performance of the Group and the increase in the commodity price; (2) an
increase in the employees' compensation costs that resulted from the expansion
of the scale of operations and the retail network of the Group; and (3) a
sequential increase in the welfare expenses as a result of an increase in the
salaries.
Exploration Expenses Exploration expenses increased 9.7% from RMB18,822
million for the twelve months ended December 31, 2006 to RMB20,648 million for
the twelve months ended December 31, 2007. To further boost crude oil and
natural gas resources, the Group undertook more exploration activities for crude
oil and natural gas.
Depreciation, Depletion and Amortisation Depreciation, depletion and
amortisation increased 8.5% from RMB61,388 million for the twelve months ended
December 31, 2006 to RMB66,625 million for the twelve months ended December 31,
2007. This was primarily due to an increase in depreciation, depletion and
amortisation that resulted from an increase in the average amount of property,
plant and equipment and the average net value of oil and gas properties during
2007.
Selling, General and Administrative Expenses Selling, general and
administrative expenses increased 19.3% from RMB43,235 million for the twelve
months ended December 31, 2006 to RMB51,576 million for the twelve months ended
December 31, 2007. This was primarily due to an increase in transportation,
leasing, maintenance and other related costs that resulted from expansion in the
production scale and business development.
Taxes other than Income Taxes Taxes other than income taxes increased 30.1%
from RMB56,666 million for the twelve months ended December 31, 2006 to
RMB73,712 million for the twelve months ended December 31, 2007. The increase
was primarily due to a sharp increase in the payment of the special levy on the
sale of domestic crude oil by the Group as international crude oil prices
remained high throughout 2007.
Profit from Operations As a result of the factors discussed above, profit
from operations increased 0.9% from RMB197,976 million for the twelve months
ended December 31, 2006 to RMB199,855 million for the twelve months ended
December 31, 2007.
Net Exchange Loss For the twelve months ended December 31, 2007, a net
exchange loss of RMB866 million was recorded. For the twelve months ended
December 31, 2006, there was net exchange gain of RMB74 million. The increase in
the net exchange loss was primarily due to a combination of the effects of the
appreciation of Renminbi against the United States Dollar and other currencies.
Net Interest Expenses Net interest expenses increased 39.1% from RMB1,154
million for the twelve months ended December 31, 2006 to RMB1,605 million for
the twelve months ended December 31, 2007. The increase in net interest expenses
was primarily due to an increase in
20
interest expenses recognised as a result of the accretion expense in relation to
asset retirement obligations.
Profit Before Taxation Profit before taxation rose by 2.6% from RMB199,173
million for the twelve months ended December 31, 2006 to RMB204,381 million for
the twelve months ended December 31, 2007.
Taxation Taxation decreased 1.3% from RMB49,776 million for the twelve
months ended December 31, 2006 to RMB49,152 million for the twelve months ended
December 31, 2007. The decrease was primarily due to a reduction in the income
tax of the Group for the twelve months ended December 31, 2007 as the Group
reassessed its deferred taxes based on the enacted corporate income tax rate
under the Corporate Income Tax Law of the PRC which came into effect on January
1, 2008.
Net Profit As a result of the factors discussed above, net profit increased
2.4% from RMB142,224 million for the twelve months ended December 31, 2006 to
RMB145,625 million for the twelve months ended December 31, 2007.
(2) Segment Information
EXPLORATION AND PRODUCTION
Turnover
Turnover increased 11.1% from RMB421,340 million for the twelve months
ended December 31, 2006 to RMB468,175 million for the twelve months ended
December 31, 2007. The increase was primarily due to an increase in the prices
and sales volume of crude oil and natural gas. The average realised crude oil
price of the Group in 2007 was US$65.27 per barrel, representing an increase of
9.1% from US$59.81 per barrel compared with the previous year.
Operating Expenses
Operating expenses increased 29.8% from RMB201,480 million for the twelve
months ended December 31, 2006 to RMB261,588 million for the twelve months ended
December 31, 2007. The increase was primarily due to a sharp increase in the
payment of the special levy on the sale of domestic crude oil by the Group as
international crude oil prices remained high throughout 2007.
Profit from Operations
Profit from operations decreased 6.0% from RMB219,860 million for the
twelve months ended December 31, 2006 to RMB206,587 million for the twelve
months ended December 31, 2007. The Exploration and Production segment remains
the main source of profit of the Group.
21
REFINING AND MARKETING
Turnover
Turnover rose 23.5% from RMB543,299 million for the twelve months ended
December 31, 2006 to RMB670,844 million for the twelve months ended December 31,
2007. The increase was due to an increase in the realised selling prices of, and
changes in the sales volume of, key refined products. The Refining and Marketing
segment is the main source of external sales revenue of the Group.
Operating Expenses
Operating expenses increased 20.8% from RMB572,463 million for the twelve
months ended December 31, 2006 to RMB691,524 million for the twelve months ended
December 31, 2007. The increase was primarily due to an increase in the purchase
costs of crude oil, feedstock oil and refined products from external suppliers,
and an increase in the selling, general and administrative expenses. In
addition, the increase in the operating expenses also resulted from an increase
in the level of refined product supply operations in 2007.
Loss from Operations
Loss from operations amounted to RMB20,680 million for the twelve months
ended December 31, 2007, representing a reduction of RMB8,484 million for the
twelve months ended December 31, 2006. The loss from the Refining and Marketing
segment was primarily due to the control of the domestic prices of refined
products by the PRC Government, as a result of which despite persistently high
crude oil prices, prices of refined products were lower than that of the
international market.
CHEMICALS AND MARKETING
Turnover
Turnover rose 24.1% from RMB82,791 million for the twelve months ended
December 31, 2006 to RMB102,718 million for the twelve months ended December 31,
2007. The growth in turnover was primarily due to an increase in the selling
prices and sales volume of certain chemical products.
Operating Expenses
Operating expenses increased 22.1% from RMB77,733 million for the twelve
months ended December 31, 2006 to RMB94,887 million for the twelve months ended
December 31, 2007. The increase was primarily due to an increase in the purchase
costs for direct materials and selling, general and administrative expenses.
22
Profit from Operations
Profit from operations increased 54.8% from RMB5,058 million for the twelve
months ended December 31, 2006 to RMB7,831 million for the twelve months ended
December 31, 2007. Benefiting from the advantages created by the integration of
production and marketing of chemical products, the volumes of production of high
value-added and special products were increased to a great extent, and operating
efficiency and profitability continued to improve in the Chemicals and Marketing
segment.
NATURAL GAS AND PIPELINE
Turnover
Turnover increased 28.6% from RMB38,917 million for the twelve months ended
December 31, 2006 to RMB50,066 million for the twelve months ended December 31,
2007. The increase was primarily due to an increase in the sales volume and
selling prices of natural gas, and an increase in the volume of natural gas from
pipeline transmission and the average price for pipeline transmission of natural
gas.
Operating Expenses
Operating expenses increased 25.5% from RMB29,931 million for the twelve
months ended December 31, 2006 to RMB37,571 million for the twelve months ended
December 31, 2007. The increase was primarily due to an increase in the purchase
costs of natural gas and an increase in depreciation charges.
Profit from Operations
Profit from operations increased 39.0% from RMB8,986 million for the twelve
months ended December 31, 2006 to RMB12,495 million for the twelve months ended
December 31, 2007. The natural gas and pipeline business grew rapidly and has
become a new profit growth engine of the Group.
23
(3) Assets, Liabilities and Equity
The following table sets out the key items in the consolidated balance
sheet of the Group:
AS AT DECEMBER 31, 2007 AS AT DECEMBER 31, 2006 PERCENTAGE OF CHANGE
RMB MILLION RMB MILLION %
----------------------- ----------------------- --------------------
Total assets 1,060,131 872,163 21.6
Current assets 231,175 162,222 42.5
Non-current assets 828,956 709,941 16.8
Total liabilities 283,784 254,572 11.5
Current liabilities 198,095 179,879 10.1
Non-current liabilities 85,689 74,693 14.7
Equity attributable to equity
holders of the Company 733,405 586,677 25.0
Share capital 183,021 179,021 2.2
Reserves 217,952 143,564 51.8
Retained earnings 332,432 264,092 25.9
Total equity 776,347 617,591 25.7
Total assets amounted to RMB1,060,131 million, representing an increase of
21.6% from that at the end of 2006, of which:
Current assets amounted to RMB231,175 million, representing an increase of
42.5% from the current assets as at the end of 2006. The increase in the current
assets was primarily due to: an increase in cash, cash equivalents and time
deposits with maturities over three months but within one year in the aggregate
amount of RMB31,965 million resulting from a combination effect of the issuance
of A shares by the Company and an increase in the investment activities
expenditures of the Company; an increase in inventories of an amount of
RMB12,429 million as a result of rising prices and volume of inventories; an
increase in accounts receivable in the amount of RMB9,931 million as a result of
the development of the principal operations and the increase in income from the
principal operations of the Group and an increase in advances in the amount of
RMB12,737 million as a result of an increase in investment expenditures.
Non-current assets amounted to RMB828,956 million, representing an increase
of 16.8% from the non-current assets as at the end of 2006. The increase in
non-current assets was primarily due to an increase in capital expenditures,
resulting in an increase in property, plant and equipment (including fixed
assets, oil and gas properties etc.) in the amount of RMB117,545 million.
Total liabilities amounted to RMB283,784 million, representing an increase
of 11.5% from the total liabilities as at the end of 2006, of which:
Current liabilities amounted to RMB198,095 million, representing an
increase of 10.1% from the current liabilities as at the end of 2006. The
increase in current liabilities was primarily due to an increase in procurement
expenditure that resulted in an increase in accounts payable and accrued
liabilities of RMB24,171 million.
24
Non-current liabilities amounted to RMB85,689 million, representing an
increase of 14.7% from the non-current liabilities as at the end of 2006. The
increase in non-current liabilities was primarily due to an increase in
estimated liabilities of RMB6,280 million in relation to assets retirement
obligations, and an increase in long-term borrowings of RMB4,054 million.
Equity attributable to the equity holders of the Company amounted to
RMB733,405 million, representing an increase of 25.0% from the equity
attributable to equity holders of the Company as at the end of 2006. The
increase in equity attributable to the Company's equity holders was primarily
due to an increase in the amount of the retained earnings and the issuance of A
shares resulting in an increase in the share capital and reserves.
(4) Cash Flows
The primary sources of funds of the Group are cash generated from operating
activities and short-term and long-term borrowings. The funds of the Group are
mainly used for operating activities, capital expenditures, repayment of
short-term and long-term borrowings and distribution of dividends to equity
holders of the Company.
The table below sets forth the cash flows of the Group for the year ended
December 31, 2007 and December 31, 2006 respectively and the amount of cash and
cash equivalents as at the end of each year:
YEAR ENDED DECEMBER 31,
-------------------------
2007 2006
RMB MILLION RMB MILLION
----------- -----------
Net cash flows generated from operating activities 203,748 198,102
Net cash flows used for investing activities (184,205) (158,451)
Net cash flows used for financing activities (2,648) (71,739)
Currency translation differences 40 (258)
Cash and cash equivalents as at the end of year 65,494 48,559
NET CASH FLOWS GENERATED FROM OPERATING ACTIVITIES
The net cash flows of the Group generated from operating activities for the
twelve months ended December 31, 2007 was RMB203,748 million, representing an
increase of 2.9% compared with RMB198,102 million generated for the twelve
months ended December 31, 2006. As at December 31, 2007, the Group had cash and
cash equivalents of RMB65,494 million. The cash and cash equivalents were mainly
denominated in Renminbi (approximately 88.9% were denominated in Renminbi, and
approximately 11.1% were denominated in United States Dollars).
25
NET CASH FLOWS USED FOR INVESTING ACTIVITIES
The net cash flows of the Group used for investing activities for the
twelve months ended December 31, 2007 was RMB184,205 million, representing an
increase of 16.3% compared with RMB158,451 million used for the twelve months
ended December 31, 2006. The net increase in cash flows used for investing
activities was primarily due to an increase in capital expenditures paid in cash
during the year.
NET CASH FLOWS USED FOR FINANCING ACTIVITIES
The net cash flows of the Group used for financing activities for the
twelve months ended December 31, 2007 was RMB2,648 million, representing a
decrease of RMB69,091 million compared with RMB71,739 million used for the
twelve months ended December 31, 2006. The net decrease was primarily due to an
increase in the amount of cash flows generated from financing activities of the
Group as a result of the issuance of A shares by the Company during the year.
The net borrowings of the Group as at December 31, 2007 and December 31,
2006, respectively, are as follows:
AS AT DECEMBER 31, 2007 AS AT DECEMBER 31, 2006
RMB MILLION RMB MILLION
----------------------- -----------------------
Short-term borrowings (including current
portion of long-term borrowings) 30,934 35,763
Long-term borrowings 39,688 35,634
------- -------
Total borrowings 70,622 71,397
------- -------
Less: Cash and cash equivalents (65,494) (48,559)
------- -------
Net borrowings 5,128 22,838
======= =======
Maturities of long-term borrowings of the Group are as follows:
PRINCIPAL AS AT PRINCIPAL AS AT
DECEMBER 31, 2007 DECEMBER 31, 2006
RMB MILLION RMB MILLION
----------------- -----------------
To be repaid within one year 12,200 20,607
To be repaid within one to two years 5,754 11,797
To be repaid within two to five years 19,898 10,449
To be repaid after five years 14,036 13,388
------ ------
51,888 56,241
====== ======
Of the total borrowings of the Group as at December 31, 2007, approximately
17.0% were fixed-rate loans and approximately 83.0% were floating-rate loans. Of
the borrowings as at December 31, 2007, approximately 67.4% were denominated in
Renminbi, approximately 28.8% were denominated in United States Dollars,
approximately 2.8% were denominated in Hong Kong Dollars, approximately 0.6%
were denominated in Singapore Dollars,
26
approximately 0.3% were denominated in Euro and approximately 0.1% were
denominated in Japanese Yen.
As at December 31, 2007, the gearing ratio of the Group (gearing ratio =
interest-bearing debts/(interest-bearing debts + total equity)) was 8.3% (10.4%
as at December 31, 2006).
(5) Capital Expenditures
For the twelve months ended December 31, 2007, capital expenditures of the
Group increased 22.1% to RMB181,583 million from RMB148,746 million for the
twelve months ended December 31, 2006. The increase in capital expenditures was
primarily due to an increase in expenditures relating to crude oil and natural
gas exploration and development , and construction of major petrochemical
projects in 2007 as well as increases in the prices of steel, fuel oil, water,
electricity and other production materials.
FOR THE TWELVE MONTHS
ENDED DECEMBER 31,
---------------------------------
ESTIMATES
2007 2006 FOR 2008
--------------- --------------- ---------------
RMB RMB RMB
MILLION % MILLION % MILLION %
------- ----- ------- ----- ------- -----
Exploration and Production 134,256* 73.94 105,192* 70.72 132,300* 63.64
Refining and Marketing 26,546 14.62 19,206 12.91 23,000 11.06
Chemicals and Marketing 8,165 4.50 10,681 7.18 13,200 6.35
Natural Gas and Pipeline 11,003 6.06 11,309 7.60 37,700 18.13
Other 1,613 0.88 2,358 1.59 1,700 0.82
------- ----- ------- ----- ------- -----
Total 181,583 100 148,746 100 207,900 100
======= ===== ======= ===== ======= =====
----------
* If investments related to geological and geophysical exploration costs were
included, the capital expenditures and investments for the Exploration and
Production segment for 2006 and 2007, and the estimates for the same in
2008 would be RMB114,520 million, RMB145,743 million and RMB143,200
million, respectively.
Exploration and Production
The majority of the Group's capital expenditures were related to the
Exploration and Production segment. For the twelve months ended December 31,
2007, capital expenditures in relation to the Exploration and Production segment
amounted to RMB134,256 million, including RMB23,914 million for oil and gas
exploration activities and RMB91,463 million for oil and gas development
activities. The increase in capital expenditures was primarily due to an
increase in expenditures relating to oil and gas exploration and development of
new proven oilfields and gas fields which reflects the Group's goal to boost
reserves and achieve steady growth of oil and gas output.
The Group anticipates that capital expenditures for the Exploration and
Production segment for 2008 will amount to RMB132,300 million. Approximately
RMB24,200 million will be used for oil and gas exploration, and RMB90,500
million will be used for oil and gas development. Exploration and development
activities will mainly emphasise the overall control
27
of Jidong Nanpu region and other regions. Construction of new proven oilfields
and gas fields will be carried out, while secondary recovery of and steady
production of mature oilfields will also be emphasised.
Refining and Marketing
Capital expenditures for the Group's Refining and Marketing segment for the
twelve months ended December 31, 2007 amounted to RMB26,546 million, including
RMB6,580 million was used in the expansion of the highly efficient retail sales
network of refined products and storage infrastructure facilities for oil
products and RMB15,266 million was used in the reconstruction of refining
facilities. The increase in these capital expenditures was primarily due to the
construction and expansion of refining facilities.
The Group anticipates that capital expenditures for the Refining and
Marketing segment for 2008 will amount to RMB23,000 million, of which
approximately RMB16,100 million for construction and expansion of refining
facilities, which mainly include the construction of large scale refining
projects such as Dalian Petrochemical, Dushanzi Petrochemical, Guangxi
Petrochemical and Fushun Petrochemical, and approximately RMB6,900 million for
investments in the expansion of the sales network for refined products and
construction of storage infrastructure facilities for oil products.
Chemicals and Marketing
Capital expenditures for the Chemicals and Marketing segment for the twelve
months ended December 31, 2007 amounted to RMB8,165 million, which were used
mainly for the construction and expansion of petrochemical facilities.
The Group anticipates that capital expenditures for the Chemicals and
Marketing segment for 2008 will amount to RMB13,200 million, which are expected
to be used primarily for the construction and expansion of petrochemical
facilities including large scale ethylene projects such as Dushanzi
Petrochemical, Daqing Petrochemical, Fushun Petrochemical and Sichuan
Petrochemical.
Natural Gas and Pipeline
Capital expenditures in the Natural Gas and Pipeline segment for the twelve
months ended December 31, 2007 amounted to RMB11,003 million. The Group incurred
RMB8,980 million of these expenditures on the construction of long distance
pipelines.
The Group anticipates that capital expenditures for the Natural Gas and
Pipeline segment for 2008 will amount to RMB37,700 million, which are expected
to be used primarily for main oil and gas transmission projects such as the
Lanzhou-Zhengzhou-Changsha refined oil pipeline project, the Second West-East
Gas Pipeline project and associated gas storage facilities and LNG projects.
28
Others
Capital expenditures for Other segment (including research and development
activities) for the twelve months ended December 31, 2007 were RMB1,613 million.
The Group anticipates that capital expenditures for Other segment for 2008
will amount to approximately RMB1,700 million, which are expected to be used
primarily for research and development activities and for implementation of ERP
and other information systems.
2. The financial data set out below is extracted from the audited financial
statements of the Group prepared under CAS
(1) Income from principal operations, cost of principal operations and
profit from principal operations by segments under CAS are set out below:
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
2007 2006
----------- -----------
RMB MILLION RMB MILLION
----------- -----------
INCOME FROM PRINCIPAL OPERATIONS
Exploration and production 455,244 410,357
Refining and marketing 662,322 534,985
Chemicals and marketing 99,864 79,153
Natural gas and pipeline 49,299 38,642
Other 871 1,015
Inter-segment elimination (458,484) (398,449)
Consolidated income from principal operations 809,116 665,703
COST OF PRINCIPAL OPERATIONS
Exploration and production 179,380 138,221
Refining and marketing 620,758 505,275
Chemicals and marketing 83,699 64,580
Natural gas and pipeline 35,524 27,995
Other 211 1,028
Inter-segment elimination (457,551) (397,729)
Consolidated cost of principal operations 462,021 339,370
PROFIT FROM PRINCIPAL OPERATIONS
Exploration and production 223,876 235,353
Refining and marketing 25,562 15,285
Chemicals and marketing 15,821 14,309
Natural gas and pipeline 13,077 10,102
Other 654 (33)
Consolidated profit from principal operations 278,990 275,016
NET PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY 134,574 136,229
29
(2) Financial data prepared under CAS
AS AT DECEMBER AS AT DECEMBER PERCENTAGE
31, 2007 31, 2006 OF CHANGE
-------------- -------------- ----------
RMB MILLION RMB MILLION %
-------------- -------------- ----------
Total assets 994,092 815,144 22.0
Current assets 236,228 164,717 43.4
Non-current assets 757,864 650,427 16.5
Total liabilities 279,021 247,549 12.7
Current liabilities 201,654 180,465 11.7
Non-current liabilities 77,367 67,084 15.3
Equity to equity holders of the Company 677,367 541,467 25.1
Total equity 715,071 567,595 26.0
For reasons for changes, please read part 1(3) in 6.1.2
(3) Principal operations by segment and by product under CAS
INCOME FROM COST OF
PRINCIPAL PRINCIPAL YEAR-ON-YEAR YEAR-ON-YEAR
OPERATIONS OPERATIONS CHANGE IN INCOME CHANGE IN COST INCREASE OR
FOR THE YEAR FOR THE YEAR FROM PRINCIPAL OF PRINCIPAL DECREASE IN
ENDED 2007 ENDED 2007 MARGIN* OPERATIONS OPERATIONS MARGIN
------------ ------------ ------- ---------------- -------------- -----------
PERCENTAGE
BY SEGMENT RMB MILLION RMB MILLION % % % POINT
-------------------------- ------------ ------------ ------- ---------------- -------------- -----------
Exploration and production 455,244 179,380 49.2 10.9 29.8 (8.2)
Refining and marketing 662,322 620,758 3.9 23.8 22.9 1.0
Chemicals and marketing 99,864 83,699 15.8 26.2 29.6 (2.2)
Natural gas and pipeline 49,299 35,524 26.5 27.6 26.9 0.4
Other 871 211 -- -- -- --
Inter-segment elimination (458,484) (457,551) -- -- -- --
------- ------- ---- ---- ---- ----
Total 809,116 462,021 34.5 21.5 36.1 (6.8)
======= ======= ==== ==== ==== ====
----------
* Margin=Profit from principal operations /Income from principal operations
(4) Principal operations by regions under CAS
YEAR-ON-YEAR
2007 2006 CHANGE
------- ------- ------------
RMB RMB
REVENUE FROM EXTERNAL CUSTOMERS MILLION MILLION %
------------------------------- ------- ------- ------------
PRC 807,706 665,267 21.4
Other 27,331 23,711 15.3
Total 835,037 688,978 21.2
TOTAL ASSETS
PRC 924,931 765,373 20.8
Other 69,161 49,771 39.0
Total 994,092 815,144 22.0
30
(5) Principal subsidiaries and associates of the Group
AMOUNT OF AMOUNT OF
REGISTERED TOTAL TOTAL NET
CAPITAL SHAREHOLDING ASSETS LIABILITIES PROFIT
---------- ------------ --------- ----------- -------
RMB RMB RMB RMB
NAME OF COMPANY MILLION % MILLION MILLION MILLION
--------------- ---------- ------------ --------- ----------- -------
Daqing Oilfield Company Limited 47,500 100.00 142,211 28,228 61,888
CNPC Exploration and Development Company Limited 100 50.00 69,161 24,698 12,396
Dalian West Pacific Petrochemical Co., Ltd. USD258
million 28.44 14,223 10,890 610
China Marine Bunker (PetroChina) Co., Ltd. 1,000 50.00 6,254 4,012 274
6.2 BUSINESS PROSPECT
Looking forward in 2008, the global economy will hopefully maintain steady
growth, and the Chinese economy will maintain its rapid growth momentum. These
will continue to fuel the demand for oil and natural gas and petrochemical
products. Government regulations will become more stringent. The public will be
more concerned with changes in crude oil prices and stability in oil and gas
supply. Confronted with complicated and ever changing external environment, and
ever increasing market competition, the Group will seek new growth engines
positively in order to achieve good and rapid business developments, and
continue to implement the three main strategies in the areas of resources,
marketing and internationalisation of operations. The Group will continue to
place top priority on resources exploration and development and further
consolidate its leading position of the upstream business in China. The Group
will speed up modification of the strategic structure of its refinery and
petrochemical business and to develop such business in an orderly and efficient
manner. Sales of refined products and petrochemical products could be improved
to ensure market supply. Construction of strategic pipelines and the domestic
pipeline network will be enhanced with a view to building up a diversified oil
and gas supply system. The Group will continue to enhance international energy
co-operation opportunities in order to be mutually benefited, and endeavour to
achieve efficient and sustainable development of its overseas businesses.
In respect of exploration and production, the Group will continue to place
top priority on resources exploration and development and further consolidate
the leading position of its upstream business in China. The Group will stress
the parallel development of oil and gas exploration, carry out exploration at
the key basins and focus on key preliminary exploration projects. Exploration of
mature oilfields will be enhanced, and venture into the exploration of new
oilfields will be pushed forward actively. The Group will endeavour to unearth
sizeable and high quality reserves with a view to meet the annual reserves
target. In oilfield exploration, emphasis will be placed on the overall
development of new oilfields. The Group has extensively initiated works to
achieve a steady oil and gas production in mature oilfields through the
deployment of various comprehensive measures including conducting secondary
recovery of mature oilfields, strengthening the descriptive analysis of reserves
and unearthing potential resources. In natural gas exploration, emphasis will be
placed on construction in key
31
gas regions, overall planning and development and production planning.
Production capacity will be enhanced at a quicker pace so that rapid growth of
natural gas production can be sustained.
In respect of refining and petrochemicals, the Group will speed up
modification of the strategic structure of its refinery and petrochemical
business to expedite and facilitate the construction of large-scale refinery and
petrochemical bases and to develop such business in an orderly and efficient
manner. The Group will strive to meet market requirements for refined products
and petrochemical products necessitated by rapid growth in the economic and
social developments by improving production organisation and management,
arranging for resources processing in a scientific manner, and ensuring full
load operation of refinery facilities and high load, safe and steady operation
of petrochemical facilities. The Group will continue to improve different
economic and technological indicators, optimise product mix, and improve market
competitiveness.
In respect of the sale of refined products, the Group will further improve
the refined products sales and distribution network and sales information
system. Efforts will be made to explore profitable markets. Regulated management
of service stations and regulated sales of refinery products will be
strengthened with a view to increase the retail sales and daily sales of
individual service station. The Group will endeavour to improve the marketing
quality and operating efficiency of the sale of high quality lubricants
business. Increasing efforts will be made to achieve overall balance of better
resources allocation, optimisation and utilisation of resources in various
markets in order to ensure supply of refined products in the domestic market.
In respect of natural gas and pipeline construction, the Group will
continue to pursue actively key construction projects. Construction of the four
major strategic oil and gas pipelines in the northwestern, northeastern and
southwestern China as well as in the sea and the domestic trunk pipeline network
will be sped up. Storage and transportation facilities and resources despatch
capabilities will be improved. A nationwide pipeline network and supply system
characterised by diversification of resources, flexible despatch priority and
stable supply will be established. Overall balance of the allocation of natural
gas resources will be enhanced. Linkage of production, transportation and
marketing will be enhanced. Utilisation of gas will be optimised, and marketing
efficacy could be boosted. Further studies on extended natural gas business will
be conducted with a view to achieving secondary value-added benefits to the
application of natural gas.
In respect of international operations, the Group will continue to enhance
international energy co-operation opportunities in order to obtain mutual
benefits, and endeavour to achieve efficient and sustainable development of the
scale of its overseas businesses. The Group will focus on oil and gas
exploration, continue to expand the scale of reserves and speed up the pace of
overseas businesses development. Subject to proper risk management, the Group
will develop its current businesses steadily in the global market, continue to
utilise various business forms, and gradually improving the allocation of
resources of the Group to an international level.
32
In respect of safety and environmental protection, the Group will continue
to adhere firmly to the principle of "prioritising of safety, environmental
protection and people-orientation" and minimise potential risks in full force.
The Group will promote the effective operation of the Health, Safety and
Environment (HSE) management system. The Group will put its emphasis on energy
saving, water saving and land saving and reducing emission of pollutants, and
continue to improve efficiency in utilisation of resources.
In its future development, the Group will continue to emphasise two main
guiding principles, namely, scientific development and social harmony. The Group
will continue to conduct its business in a prudent and steady manner, thereby
increasingly enhancing its corporate value and actively fulfilling its economic,
environmental and social responsibilities to maximise returns to its equity
holders, the society and its staff.
6.3 RISK FACTORS
During the course of its production and operations, the Group actively took
various measures to avoid and mitigate all types of risks. However, in practice,
it may not be possible to prevent all risks and uncertainties completely.
1. Industry Regulations and Tax Policies Risk
Like other oil and gas companies in China, the Group's operating activities
are subject to extensive regulations and controls by the PRC Government. These
regulations and controls, such as by way of issue of exploration and production
licences, the imposition of industry-specific taxes and levies and the
implementation of environmental policies and safety standards etc., are expected
to have impact on the Group's operating activities. Any future changes in the
PRC governmental policies in respect of oil and gas industry may also affect the
Group's business operations.
Taxes and levies are one of the major external factors affecting the
operations of the Group. The PRC Government is actively progressing taxation
reform which may lead to changes in the taxes and levies relating to the
operations of the Group, thereby affecting the operating results of the Company.
2. Price Fluctuations of Crude Oil and Refined Products Risk
The Group is engaged in a wide range of petroleum-related activities. The
prices of crude oil and refined products in the international market are
affected by various factors such as changes in global and regional politics and
economy, the supply and demand conditions of crude oil and refined products and
unexpected political events and disputes with international repercussions. The
domestic crude oil price is determined with reference to international price of
crude oil, and in 2006, the PRC established new refined products pricing
mechanism based on macro economic controls. However, as affected by the macro
economic controls in the PRC, the prices of domestic refined products were not
adjusted in line with the prices in the
33
international market. The Group has not adopted any commodity derivative
instruments to hedge against potential price fluctuations of crude oil and
refined products. Therefore, the Group is exposed to general price fluctuations
of oil and gas commodities in 2008 and thereafter.
3. Foreign Exchange Rate Risk
The Group conducts its business primarily in Renminbi. Currently, the PRC
Government has implemented a regulated floating exchange rate regime based on
market supply and demand with reference to a basket of currencies. However,
Renminbi is still regulated in capital projects. The exchange rates of Renminbi
are affected by domestic and international economic developments and political
changes, and supply and demand for Renminbi. Future exchange rates of Renminbi
against other currencies could vary significantly from the current exchange
rates, hence affects the operating results and financial position of the Group.
4. Market Competition Risk
The Group has distinctive advantages in resources, and is occupying a
leading position in the oil and gas industry in the PRC. At present, major
competitors of the Group are other large domestic oil and petrochemical
producers and sellers. With the gradual opening up of the domestic oil and
petrochemical industry, certain large foreign oil and petrochemical companies
have become competitors of the Group in certain regions and segments. The
exploration and production business and natural gas and pipeline business of the
Group have been in a leading position in China, but the refining and marketing
business and the chemicals and marketing business of the Company are facing
relatively keen competition.
5. Uncertainty of the Oil and Gas Reserves
According to industry characteristics and international customs, the crude
oil and natural gas reserves data disclosed by the Group are estimates only. The
Group has already engaged evaluation companies who are internationally
recognised to evaluate the crude oil and natural gas reserves of the Group on a
periodic basis. However, the reliability of reserve estimate depends on a number
of factors, assumptions and variables, such as the quality and quantity of
technical and economic data, the prevailing oil and gas prices applicable to the
production of the Group etc., many of which are beyond the control of the Group
and may be adjusted over time. Results of drilling, testing and exploration
results after the date of the estimates may also result in revision to the
reserves data of the Group.
6. Hidden Hazards Risks and Force Majeure Risk
Oil and gas exploration, development, storage and transportation and the
production, storage and transportation of refined products and petrochemical
products are faced with certain risks, which may cause unexpected or dangerous
events, such as personal injuries or death, property damage, environmental
damage and interruption of operations etc. With the expansion
34
of operations scale and regions, the safety risks faced by the Group also
increase accordingly. Meanwhile, new regulations adopted in recent years set out
higher standard for safety production. The Group has implemented a strict HSE
management system and used its best endeavours to prevent the occurrence of
various accidents. However, the Group cannot completely avoid potential
financial losses caused by such contingent incidents. In addition, natural
disasters such as earthquake, typhoon, tsunami and emergency public health
events may cause losses to the properties and personnel of the Group, and may
affect the normal operations of the Group.
35
6.4 USE OF PROCEEDS FROM FUND RAISING
[X] Applicable [ ] Not applicable
Unit: RMB million
TOTAL AMOUNT OF In October 2007, the TOTAL AMOUNT Out of the proceeds raised for the
PROCEEDS Company issued 4 billion A OF PROCEEDS following five projects in the amount of
shares. The total proceeds USED THIS YEAR RMB37,770 million, RMB13,943 million were
and net proceeds from such used. Balance of the net proceeds would be
issuance were RMB66,800 used as additional working capital and for
million and RMB66,243 general commercial purpose.
million respectively.
ACCUMULATED Same as above.
AMOUNT OF
PROCEEDS USED
MODIFICATION PROPOSED ACTUAL PROGRESS ESTIMATED
COMMITTED PROJECT OF THE PROJECT INVESTMENT INVESTMENT AS PLANNED RETURN PROJECT RETURN
----------------- -------------- ---------- ---------- ---------- --------- --------------
Project to increase No 6,840 2,718 Yes Internal To be
the crude oil rate of confirmed only
production capacity return above upon
of Changqing Oilfield 12% commissioning
Project to increase No 5,930 1,772 Yes Internal To be
the crude oil rate of confirmed only
production capacity return above upon
of Daqing Oilfield 12% commissioning
Project to increase No 1,500 495 Yes Internal To be
the crude oil rate of confirmed only
production capacity return above upon
of Jidong Oilfield 12% commissioning
Dushanzi No 17,500 8,867 Yes Internal To be
Petrochemical's rate of confirmed only
projects - return above upon
processing and 12% commissioning
refining
sulphur-bearing
crude oil imported
from Kazakhstan and
ethylene technology
development projects
Daqing Petrochemical No 6,000 91 Yes Internal To be
1.2 million rate of confirmed only
tons/year ethylene return above upon
redevelopment and 12% commissioning
expansion project
Total 37,770 13,943 -- --
Projects not --
progressing as
planned and not
achieving estimated
return
Projects modified
and modification --
procedures
Application and The unutilised portion of the net proceeds of RMB37,770 million from the A share issuance
status of unused has been deposited into the designated bank accounts maintained by the Company.
proceeds
36
6.5 PROJECTS NOT FUNDED BY PROCEEDS FROM FUND RAISING
[X] Applicable [ ] Not applicable
Unit: RMB million
TOTAL PROJECT
NAME OF PROJECT AMOUNT PROGRESS OF PROJECT PROJECT RETURN
--------------- ------------- ------------------------------- -------------------
Dalian Petrochemical 10,789 Construction of part of the To be confirmed
technological development production facilities has been only upon
project - processing 20 million completed and production has commissioning
tons of imported commenced.
sulphur-bearing crude oil per
year
Guangxi Petrochemical project 15,166 Installation of preliminary To be confirmed only
refining 10 million tons of parts has been completed and upon commissioning
crude oil per year construction has commenced.
Sichuan Petrochemical project 21,019 Preliminary work of the project To be confirmed only
with an ethylene output of 0.8 has been completed and ordering upon commissioning
million tons per year of equipment has commenced.
Fushun Petrochemical one 12,524 Preliminary work of the project To be confirmed only
million tons per year ethylene has been completed and ordering upon commissioning
technology development project of equipment has commenced.
Lanzhou-Zhengzhou-Changsha 11,429 Installation of preliminary To be confirmed only
Refined Oil Pipeline parts has been completed and upon commissioning
construction has commenced.
Total 70,927 --
6.6 EXPLANATION OF THE BOARD OF DIRECTORS ABOUT THE ACCOUNTING FIRM'S
"OTHER THAN STANDARD UNQUALIFIED OPINION"
[ ] Applicable [X] Not applicable
6.7 PROFIT FORECAST FOR THE NEXT FISCAL YEAR
[ ] Applicable [X] Not applicable
6.8 PROFIT DISTRIBUTION PLAN FROM THE BOARD OF DIRECTORS
The Board recommends to pay final dividends of RMB0.156859 per share
(inclusive of applicable tax) based on 45% of the net profit of the Group for
the twelve months ended December 31, 2007 under IFRS after deducting the interim
dividends for 2007 paid on September 28, 2007. The proposed final dividends are
subject to equity holders' review and approval at the forthcoming annual general
meeting to be held on May 15, 2008. The final dividends will be paid to equity
holders whose names appear on the register of members of the Company at the
close of business on May 28, 2008. The register of members of H shares will be
closed from May 22, 2008 to May 28, 2008 (both days inclusive) during which
period no transfer of H shares will be registered. In order to qualify for the
final dividends, holders of H shares must lodge all transfer documents together
with the relevant share certificates at Hong Kong Registrars Limited no later
than 4:00 p.m. on May 21, 2008. Equity holders of A shares
37
whose names appear on the register of members of the Company maintained at China
Securities Depository and Clearing Corporation Limited Shanghai Branch Company
at the close of trading on the Shanghai Stock Exchange in the afternoon of May
28, 2008 are eligible for the final dividends.
In accordance with the relevant provisions of the Company's Articles of
Association, dividends payable to the Company's equity holders shall be declared
in Renminbi. Dividends payable to the holders of A shares shall be paid in
Renminbi while dividends payable to the holders of H shares shall be paid in
Hong Kong Dollars. The amount of Hong Kong Dollars payable shall be calculated
on the basis of the average of the closing exchange rate for Renminbi to Hong
Kong Dollar as announced by the People's Bank of China for the week prior to the
declaration of the dividends.
38
7 SIGNIFICANT EVENTS
7.1 ACQUISITION OF ASSETS
[X] Applicable [ ] Not applicable
NET PROFIT NET PROFIT
CONTRIBUTED CONTRIBUTED WHETHER WHETHER
TO THE GROUP TO THE GROUP OWNERSHIP CONTRACTUAL
SINCE THE FROM THE OF THE RIGHTS AND
DATE OF THE BEGINNING OF WHETHER RELEVANT OBLIGATIONS
ACQUISITION THE YEAR TO CONSTITUTE ASSETS HAS HAVE BEEN
COUNTERPARTY AND DATE OF ACQUISITION TO THE END THE END OF CONNECTED BEEN FULLY FULLY
ASSETS ACQUIRED ACQUISITION PRICE OF 2007 2007 TRANSACTION TRANSFERRED TRANSFERRED
---------------- ----------- ----------- ------------ ------------ ----------- ----------- -----------
Acquisition from August 23, RMB1,652 Not Not Yes, based Yes Yes
CNPC of the assets 2007 million applicable applicable on
engaged in risk valuation
operation service
business
The above transaction did not have any impact on the continuity of
operation and management stability of the Group and is advantageous to the
future financial position and operating results of the Group.
7.2 SALE OF ASSETS
[X] Applicable [ ] Not applicable
WHETHER
NET PROFIT CONTRACTUAL
CONTRIBUTED WHETHER RIGHTS AND
TO THE GROUP OWNERSHIP OBLIGATIONS
SINCE THE OF THE RELATED TO
BEGINNING OF WHETHER RELEVANT THE ASSETS
THE YEAR TO CONSTITUTE ASSETS HAS HAVE BEEN
COUNTERPARTY PRICE OF THE THE DATE OF PROFIT/(LOSS) CONNECTED BEEN FULLY FULLY
AND ASSETS SOLD DATE OF SALE SALE THE SALE FROM THE SALE TRANSACTION TRANSFERRED TRANSFERRED
--------------- ------------ ------------ ------------ ------------- ------------ ----------- -----------
Disposal of May 16, RMB1.01 RMB115 RMB292 Yes, based Yes Yes
70% equity 2007 billion million million on valuation
interest in
China National
United Oil
Corporation to
CNPC
The above transaction did not have any impact on the continuity of
operation and management stability of the Group.
7.3 MATERIAL GUARANTEE
At December 31, 2007, the Group had contingent liabilities in respect of
guarantees made to China Petroleum Finance Company Limited ("CP Finance", a
subsidiary of CNPC):
39
DECEMBER 31, DECEMBER 31,
2007 2006
------------ ------------
RMB MILLION RMB MILLION
------------ ------------
Guarantee of borrowings of associates provided by CP Finance 77 162
Guarantee of borrowings of third parties provided by a
state-controlled bank -- 41
--- ---
77 203
=== ===
During the reporting period, the Company did not provide any guarantee to
its shareholders, ultimate controller and their respective associates nor
provided any guarantee, directly or indirectly, to companies with liabilities to
assets ratio exceeding 70%. During the reporting period, the aggregate amount of
the guarantees provided by the Company was not in excess of 50% of the net
assets of the Company.
7.4 MATERIAL CONNECTED TRANSACTIONS
The information set out in the tables below is principally extracted from
the financial statements of the Group prepared in accordance with CAS.
7.4.1 Connected sales and purchases
[X] Applicable [ ] Not applicable
SALES OF GOODS AND PROVISION OF
SERVICES TO CONNECTED PARTY PURCHASE OF GOODS AND SERVICES
------------------------------- FROM CONNECTED PARTY
PERCENTAGE OF THE ---------------------------------
TOTAL AMOUNT OF PERCENTAGE OF THE
TRANSACTION THE TYPE OF TRANSACTION TOTAL AMOUNT OF THE
AMOUNT TRANSACTION AMOUNT TYPE OF TRANSACTION
----------- ----------------- ----------- -------------------
CONNECTED PARTY RMB MILLION % RMB MILLION %
--------------- ----------- ----------------- ----------- -------------------
CNPC and its subsidiaries 31,325 3.75 146,381 20.26
Other connected parties 21,755 2.61 29,375 4.07
Total 53,080 6.36 175,756 24.33
------ ---- ------- -----
7.4.2 Connected obligatory rights and debts
[X] Applicable [ ] Not applicable
FUNDS PROVIDED FUNDS PROVIDED TO THE
TO CONNECTED PARTY GROUP BY CONNECTED PARTY
------------------------- -------------------------
OCCURRENCE OCCURRENCE
AMOUNT BALANCE AMOUNT BALANCE
CONNECTED PARTIES RMB MILLION RMB MILLION RMB MILLION RMB MILLION
----------------- ----------- ----------- ----------- -----------
CNPC and its subsidiaries -- -- (2,680) 24,482
Other connected parties 45 1,814 -- --
Total 45 1,814 (2,680) 24,482
-- ----- ------ ------
7.5 ENTRUSTED MONEY MANAGEMENT
[ ] Applicable [X] Not applicable
40
7.6 PERFORMANCE OF COMMITMENTS
[X] Applicable [ ] Not applicable
Specific undertakings made by CNPC, the controlling shareholder of the
Company, and performance of the undertakings as at December 31, 2007:
NAME OF
SHAREHOLDER UNDERTAKING PERFORMANCE OF UNDERTAKING
----------- --------------------------- ------------------------------------------------------------------
CNPC According to the As at December 31, 2007, CNPC had obtained formal land use right
Restructuring Agreement certificates in relation to 27,554 out of 28,649 parcels of land
entered into between CNPC and some building ownership certificates for the buildings
and the Company on March pursuant to the undertaking in the Restructuring Agreement, but
10, 2000, CNPC has has completed none of the necessary governmental procedures for
undertaken to indemnify the the service stations located on collectively-owned land. The use
Company against any claims of and the conduct of relevant activities at the above-mentioned
or damages arising or parcels of land, service stations and buildings are not affected
resulting from certain by the fact that the relevant land use right certificates or
matters in the individual building ownership certificates have not been obtained
Restructuring Agreement. or the fact that the relevant governmental procedures have not
been completed. The outcome of the above events will not have
material adverse effect on the operating results and the financial
position of the Group.
According to the At present, CNPC operated the following businesses which are
Non-Competition Agreement identical or similar to the core businesses of the Group:
entered into between CNPC
and the Company on March 1. Overseas operations which are identical or similar to the core
10, 2000, CNPC has businesses of the Group.
undertaken to the Company
that CNPC will not, and CNPC has overseas operations in relation to exploration and
will procure its production of crude oil and natural gas as well as production,
subsidiaries not to, storage and transportation of petroleum, chemical and related
develop, operate, assist in petroleum products. CNPC has oil and gas exploration and
operating nor participate development operations in many overseas countries and regions.
in any businesses by itself
or jointly with another As the laws of the countries where ADS are listed prohibit their
company within or outside citizens from directly or indirectly financing or investing in the
the PRC that will compete oil and gas projects in certain countries, CNPC did not inject the
with or lead to competition overseas oil and gas projects in certain countries to the Company.
with the core businesses of
the Group. According to the 2. The existing projects of CNPC (Hong Kong) Limited
Agreement, CNPC has also
granted to the Company Prior to the Company's listing on the Hong Kong Stock Exchange,
pre-emptive rights to CNPC (Hong Kong) Limited had three projects as follows: (1) blocks
transaction with regards to 9-1 to 9-5 of the Karamay Oilfield of Xinjiang; (2) Leng Jiapu
part of its assets. Oilfield in Liaohe; (3) Sukothai Oilfield in Thailand with
production right concession. After the establishment of the
Company, CNPC (Hong Kong) Limited engaged in additional overseas
projects.
Upon establishment of the Company, CNPC's interests in CNPC (Hong
Kong) Limited were not injected to the Company because CNPC (Hong
Kong) Limited had businesses both in China and overseas. Without
prior consent of the independent shareholders of CNPC (Hong Kong)
Limited, the overseas businesses of CNPC (Hong Kong) Limited may
not be restructured as part of the restructuring of the Company.
To date, compared to the Company, the total asset and revenue of
CNPC (Hong Kong) Limited is relatively small. The core businesses
of each of CNPC (Hong Kong) Limited and the Group will not
constitute substantive competition with the Company.
3. Five sets of chemical production facilities
Five sets of chemical production facilities, namely, an advanced
alcohol facility, an acrylonitrile facility, a polybutadiene
rubber facility, an acrylic fibre chemical facility and a facility
comprising of four styrene units have been wholly owned by CNPC
since the Company's establishment. Other than the advanced alcohol
facility which has ceased production, the rest of the five sets of
facilities are under normal operation.
Given the five sets of chemical production facilities are
relatively small in scale, low in productivity and profitability
as compared with similar facilities of the Group, they will not
constitute substantive competition with the principal businesses
of the Group.
4. Service stations wholly owned by CNPC or jointly owned by CNPC
and third parties CNPC also owns a number of service stations
(those service stations were not injected into the Company due to
ambiguity in the ownership). Given the sales of refined oil
products of these service stations are relatively small as
compared with that of the Company, they will not constitute
substantive competition with the Company.
CNPC undertook that "for a CNPC has not violated the relevant undertaking.
period of 36 months
commencing from the date of
listing of the A shares of
the Company on the Shanghai
Stock Exchange, it will not
transfer or entrust others
for the management of the A
shares which it holds, or
allow such shares to be
repurchased by the
Company. However, certain
shares held by CNPC, which
may be subsequently listed
on overseas stock exchanges
after obtaining necessary
approvals in the PRC, are
not subject to the
restriction of the 36-month
lock-up period."
41
7.7 MATERIAL LITIGATION AND ARBITRATION
[ ] Applicable [X] Not applicable
7.8 OTHER SIGNIFICANT EVENTS
7.8.1 Investments in securities
[ ] Applicable [X] Not applicable
7.8.2 Investment in securities of other listed companies
[ ] Applicable [X] Not applicable
7.8.3 Investment in securities of non-listed financial institutions
[ ] Applicable [X] Not applicable
7.8.4 Sale and purchase of securities of other listed companies
[ ] Applicable [X] Not applicable
7.8.5 During the reporting period, the 98 PetroChina Corporate Bond ("98
Oil Bond") was due on September 8, 2007 and the principal and interests of
the bond were paid as scheduled. The total issue amount of the 98 Oil Bond
was RMB1.35 billion for a term of 8 years. The par interest rate was in the
form of fixed interest rate at 4.5% per annum.
42
8 REPORT OF THE SUPERVISORY COMMITTEE
The Supervisory Committee is of the opinion that the Company's operation is
in compliance with law. It is satisfied with the Company's financial position,
use of proceeds of fund raising, acquisition and disposal of assets and
connected transactions.
43
9 FINANCIAL STATEMENTS
9.1 AUDITORS' OPINION
Financial Statements [ ] Unaudited [X] Audited
Auditors' opinion [X] Standard unqualified [ ] Other than standard
opinion unqualified opinion
9.2 THE GROUP'S BALANCE SHEETS, PROFIT AND LOSS ACCOUNTS/ INCOME
STATEMENTS, CASH FLOW STATEMENTS AND CHANGES IN EQUITY, WITH
COMPARATIVES
9.2.1 Financial statements prepared in accordance with IFRS
1. Consolidated Profit and Loss Account
2007 2006
NOTES RMB MILLION RMB MILLION
----- ----------- -----------
TURNOVER (i) 835,037 688,978
-------- --------
OPERATING EXPENSES
Purchases, services and other (370,740) (271,123)
Employee compensation costs (50,616) (39,161)
Exploration expenses, including exploratory dry holes (20,648) (18,822)
Depreciation, depletion and amortisation (66,625) (61,388)
Selling, general and administrative expenses (51,576) (43,235)
Taxes other than income taxes (73,712) (56,666)
Other expense, net (1,265) (607)
-------- --------
TOTAL OPERATING EXPENSES (635,182) (491,002)
-------- --------
PROFIT FROM OPERATIONS 199,855 197,976
-------- --------
FINANCE COSTS
Exchange gain 1,693 1,830
Exchange loss (2,559) (1,756)
Interest income 1,990 2,066
Interest expense (3,595) (3,220)
-------- --------
TOTAL NET FINANCE COSTS (2,471) (1,080)
-------- --------
SHARE OF PROFIT OF ASSOCIATES AND JOINTLY
CONTROLLED ENTITIES 6,997 2,277
-------- --------
PROFIT BEFORE TAXATION (ii) 204,381 199,173
TAXATION (iii) (49,152) (49,776)
-------- --------
PROFIT FOR THE YEAR 155,229 149,397
======== ========
ATTRIBUTABLE TO:
Equity holders of the Company 145,625 142,224
Minority interest 9,604 7,173
-------- --------
155,229 149,397
======== ========
BASIC AND DILUTED EARNINGS PER SHARE FOR PROFIT
ATTRIBUTABLE TO EQUITY HOLDERS OF
THE COMPANY DURING THE YEAR (RMB) (iv) 0.81 0.79
======== ========
DIVIDENDS ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY (v) 64,517 68,589
======== ========
44
2. Consolidated Balance Sheet
2007 2006
RMB MILLION RMB MILLION
----------- -----------
NON CURRENT ASSETS
Property, plant and equipment 762,882 645,337
Investments in associates and jointly
controlled entities 26,535 32,956
Available-for-sale financial assets 2,581 2,054
Advance operating lease payments 23,417 20,468
Intangible and other assets 8,488 6,627
Time deposits with maturities over one year 5,053 2,499
-------- --------
TOTAL NON CURRENT ASSETS 828,956 709,941
-------- --------
CURRENT ASSETS
Inventories 88,467 76,038
Accounts receivable 18,419 8,488
Prepaid expenses and other current assets 36,018 23,281
Notes receivable 4,735 2,844
Time deposits with maturities over three months but
within one year 18,042 3,012
Cash and cash equivalents 65,494 48,559
-------- --------
TOTAL CURRENT ASSETS 231,175 162,222
-------- --------
CURRENT LIABILITIES
Accounts payable and accrued liabilities 144,353 120,182
Income tax payable 11,709 17,744
Other taxes payable 11,099 6,190
Short-term borrowings 30,934 35,763
-------- --------
TOTAL CURRENT LIABILITIES 198,095 179,879
-------- --------
NET CURRENT ASSETS / (LIABILITIES) 33,080 (17,657)
-------- --------
TOTAL ASSETS LESS CURRENT LIABILITIES 862,036 692,284
======== ========
EQUITY
Equity attributable to equity holders of the Company:
Share capital 183,021 179,021
Retained earnings 332,432 264,092
Reserves 217,952 143,564
-------- --------
733,405 586,677
Minority interest 42,942 30,914
-------- --------
TOTAL EQUITY 776,347 617,591
-------- --------
NON CURRENT LIABILITIES
Long-term borrowings 39,688 35,634
Asset retirement obligations 24,761 18,481
Deferred taxation 20,205 19,583
Other long-term obligations 1,035 995
-------- --------
TOTAL NON CURRENT LIABILITIES 85,689 74,693
-------- --------
TOTAL EQUITY AND NON CURRENT LIABILITIES 862,036 692,284
======== ========
45
3. Consolidated Cash Flow Statement
2007 2006
RMB MILLION RMB MILLION
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES 203,748 198,102
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (172,511) (130,409)
Acquisition of investments in associates and jointly
controlled entities (1,903) (1,173)
Acquisition of available-for-sale financial assets (324) (62)
Consolidation/(acquisition) of PetroKazakhstan Inc. 1,542 (21,376)
Net proceeds from investments in collateralised
loans with maturities not greater than three months -- 235
Acquisition of intangible assets (2,521) (1,358)
Acquisition of other non-current assets (857) (1,706)
Purchase of minority interest in listed subsidiaries (149) (4,095)
Other purchase of minority interest (29) (640)
Repayment of capital by associates and jointly
controlled entities 6,618 99
Proceeds from disposal of property, plant
and equipment 1,014 346
Proceeds from disposal of investments in associates
and jointly controlled entities 1,033 69
Proceeds from disposal of available-for-sale
financial assets 276 4
Proceeds from disposal of intangible and other
non-current assets -- 2
Dividends received 1,463 2,099
Increase in time deposits with maturities over
three months (17,857) (486)
-------- --------
NET CASH USED FOR INVESTING ACTIVITIES (184,205) (158,451)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of short-term borrowings (33,027) (28,349)
Repayments of long-term borrowings (24,071) (17,587)
Dividends paid to minority interest (6,150) (3,033)
Dividends paid to equity holders of the Company (64,517) (68,589)
Issuance of A shares 66,243 --
Increase in short-term borrowings 36,842 30,183
Increase in long-term borrowings 20,650 14,195
Capital contribution from minority interest 1,349 1,492
Change in other long-term obligations 33 (51)
-------- --------
NET CASH USED FOR FINANCING ACTIVITIES (2,648) (71,739)
-------- --------
TRANSLATION OF FOREIGN CURRENCY 40 (258)
-------- --------
Increase/ (Decrease) in cash and cash equivalents 16,935 (32,346)
Cash and cash equivalents at beginning of the year 48,559 80,905
-------- --------
Cash and cash equivalents at end of the year 65,494 48,559
======== ========
46
4. Selected notes from the financial statements prepared in accordance with
IFRS
(i) TURNOVER
Turnover represents revenues from the sale of crude oil, natural gas,
refined products and petrochemical products and from the transportation of crude
oil and natural gas.
(ii) PROFIT BEFORE TAXATION
2007 2006
RMB MILLION RMB MILLION
----------- -----------
Profit before taxation is arrived at after crediting and
charging of the following items:
Crediting
Dividend income from available-for-sale financial
assets 111 208
Reversal of provision for impairment of receivables 2,473 460
Reversal of impairment of available-for-sale
financial assets -- 4
Reversal of write down in inventories 98 180
Charging
Amortisation on intangible and other assets 1,491 1,250
Auditors' remuneration 119 140
Cost of inventories (approximates cost of goods sold)
recognised as expense 459,472 341,456
Depreciation on property, plant and equipment,
including impairment provision
- owned assets 63,349 58,669
- assets under finance leases 6 6
Impairment of available-for-sale financial assets -- 36
Provision for impairment of receivables 120 144
Interest expense (Note a) 3,595 3,220
Loss on disposal of property, plant and equipment 1,808 1,753
Operating lease expenses 7,439 5,378
Repair and maintenance 10,691 9,233
Research and development expenses 5,315 4,260
Transportation expenses 20,540 17,872
Write down in inventories 153 320
(a) Interest Expense
Interest Expense 5,329 4,535
Less: Amounts capitalised (1,734) (1,315)
-------- --------
3,595 3,220
======== ========
(iii) TAXATION
2007 2006
RMB MILLION RMB MILLION
----------- -----------
Income tax 48,332 50,972
Deferred tax 820 (1,196)
------ -------
49,152 49,776
====== =======
47
In accordance with the relevant PRC income tax rules and regulations, the
PRC corporate income tax rate applicable to the Group is principally 33% (2006:
33%). Operations of the Group in certain regions in China have qualified for
certain tax incentives in the form of reduced income tax rate to 15% through the
year 2010 and accelerated depreciation of certain property, plant and equipment.
The tax on the Group's profit before taxation differs from the theoretical
amount that would arise using the corporate income tax rate in the PRC
applicable to the Group as follows:
2007 2006
RMB RMB
MILLION MILLION
------- -------
Profit before taxation 204,381 199,173
------- -------
Tax calculated at a tax rate of 33% 67,446 65,727
Prior year tax return adjustment 451 243
Effect of income taxes from international operations
in excess of taxes at the PRC statutory tax rate 644 1,512
Effect of preferential tax rate (16,930) (14,169)
Effect of changes in PRC corporate income tax rate (3,758) --
Tax effect of income not subject to tax (3,138) (1,602)
Tax effect of taxable items deductible not expensed (2,365) --
Tax effect of expenses not deductible for tax purposes 3,884 2,466
Tax effect of unused tax losses which had expired 2,918 --
Tax effect of temporary differences in relation to
certain crude oil sales which no longer existed at
year end -- (4,401)
------- -------
Taxation 49,152 49,776
======= =======
On March 16, 2007, the National People's Congress approved the Corporate
Income Tax Law of the PRC (the "new CIT Law"), which is effective from January
1, 2008. Under the new CIT Law, the corporate income tax rate applicable to the
Group is reduced to 25% from January 1, 2008, replacing the previously
applicable tax rate of 33%.
The management of the Group has reassessed its tax position in the year
ended December 31, 2007 by reference to the enacted new CIT Law and accordingly
a net decrease in deferred tax charge for the year ended December 31, 2007 of
RMB3,758 million was recorded.
(iv) BASIC AND DILUTED EARNINGS PER SHARE
Basic and diluted earnings per share for the year ended December 31, 2007
have been computed by dividing profit for the year attributable to equity
holders of the Company by the weighted average number of 179,700 million shares
issued and outstanding for the year.
Basic and diluted earnings per share for the year ended December 31, 2006
have been computed by dividing profit for the year attributable to equity
holders of the Company by the number of 179,021 million shares issued and
outstanding for the year.
48
There are no potential dilutive ordinary shares.
(v) DIVIDENDS ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY
2007 2006
RMB RMB
MILLION MILLION
------- -------
Final dividends attributable to equity
holders of the Company for 2005 (a) -- 32,282
Interim dividends attributable to equity
holders of the Company for 2006 (b) -- 36,307
Final dividends attributable to equity
holders of the Company for 2006 (c) 27,694 --
Interim dividends attributable to equity
holders of the Company for 2007 (d) 36,823 --
------ ------
64,517 68,589
====== ======
(a) Final dividends attributable to equity holders of the Company in respect of
2005 of RMB0.180325 per share amounting to a total of RMB32,282 million
were approved by the shareholders in the Annual General Meeting on May 26,
2006 and accounted for in equity as an appropriation of retained earnings
in the year ended December 31, 2006, and were paid on June 9, 2006.
(b) Interim dividends attributable to equity holders of the Company in respect
of 2006 of RMB0.202806 per share amounting to a total of RMB36,307 million
were accounted for in equity as an appropriation of retained earnings in
the year ended December 31, 2006, and were paid on September 26, 2006.
(c) Final dividends attributable to equity holders of the Company in respect of
2006 of RMB0.154699 per share amounting to a total of RMB27,694 million
were approved by the shareholders in the Annual General Meeting on May 16,
2007 and accounted for in equity as an appropriation of retained earnings
in the year ended December 31, 2007, and were paid on June 1, 2007.
(d) Interim dividends attributable to equity holders of the Company in respect
of 2007 of RMB0.205690 per share amounting to a total of RMB36,823 million
were accounted for in equity as an appropriation of retained earnings in
the year ended December 31, 2007, and were paid on September 28, 2007.
(e) At the meeting on March 19, 2008, the Board of Directors proposed final
dividends attributable to equity holders of the Company in respect of 2007
of RMB 0.156859 per share amounting to a total of RMB28,708 million. These
consolidated financial statements do not reflect this dividend payable as
the final dividends were proposed after the balance sheet date and will be
accounted for in equity as an appropriation of retained earnings in the
year ending December 31, 2008 when approved at the forthcoming Annual
General Meeting.
49
9.2.2 Financial statements prepared in accordance with CAS
(1) Consolidated and Company Balance Sheets
Unit: RMB million
---------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2007 2006 2007 2006
ASSETS THE GROUP THE GROUP THE COMPANY THE COMPANY
------ ------------ ------------ ------------ ------------
CURRENT ASSETS
Cash at bank and on hand 88,589 54,070 78,332 48,029
Notes receivable 4,735 2,844 3,988 2,097
Accounts receivable 18,419 8,488 2,131 583
Advances to suppliers 20,386 12,664 16,086 8,924
Interest receivable 109 81 109 81
Dividends receivable 18 13 85 80
Other receivables 15,444 10,515 24,173 12,903
Inventories 88,467 76,038 70,284 60,269
Current portion of non-current
assets 59 -- 59 --
Other current assets 2 4 2 4
------- ------- ------- -------
TOTAL CURRENT ASSETS 236,228 164,717 195,249 132,970
------- ------- ------- -------
NON CURRENT ASSETS
Available-for-sale financial assets 2,530 1,860 1,456 793
Long-term equity investments 22,686 30,361 104,691 115,624
Fixed assets 247,803 231,590 199,411 179,669
Oil and gas properties 326,328 270,496 231,921 191,866
Construction in progress 105,634 64,652 85,597 53,471
Construction materials 6,927 8,664 5,455 7,614
Fixed assets pending disposal 287 279 282 249
Intangible assets 20,022 16,127 16,356 12,233
Long-term prepaid expenses 12,028 11,194 9,924 9,210
Deferred tax assets 12,871 14,391 9,048 7,790
Other non-current assets 748 813 -- --
------- ------- ------- -------
TOTAL NON-CURRENT ASSETS 757,864 650,427 664,141 578,519
------- ------- ------- -------
TOTAL ASSETS 994,092 815,144 859,390 711,489
======= ======= ======= =======
50
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2007 2006 2007 2006
LIABILITIES AND SHAREHOLDERS' EQUITY THE GROUP THE GROUP THE COMPANY THE COMPANY
------------------------------------ ------------ ------------ ------------ ------------
CURRENT LIABILITIES
Short-term borrowings 18,734 15,156 17,898 10,612
Notes payable 1,143 1,045 -- --
Accounts payable 104,460 77,936 66,877 56,386
Advances from customers 12,433 11,590 10,443 8,977
Employee Compensation payable 11,585 11,368 10,751 9,426
Taxes payable 22,808 24,174 13,793 19,630
Interest payable 173 200 61 67
Dividends payable 89 95 -- --
Other payables 17,849 18,367 46,582 45,044
Provisions 715 115 75 95
Current portion of non-current liabilities 11,652 20,407 9,029 16,998
Other current liabilities 13 12 -- --
------- ------- ------- -------
TOTAL CURRENT LIABILITIES 201,654 180,465 175,509 167,235
------- ------- ------- -------
NON-CURRENT LIABILITIES
Deferred income 76 -- 62 --
Long-term borrowings 35,305 30,401 29,044 24,165
Debentures payable 4,383 4,645 3,500 3,500
Long-term payables 57 50 56 50
Grants payable 774 737 710 679
Provisions 24,761 18,481 15,307 11,269
Deferred tax liabilities 11,883 12,480 6,598 5,543
Other non-current liabilities 128 290 123 233
------- ------- ------- -------
TOTAL NON-CURRENT LIABILITIES 77,367 67,084 55,400 45,439
------- ------- ------- -------
TOTAL LIABILITIES 279,021 247,549 230,909 212,674
------- ------- ------- -------
SHAREHOLDERS' EQUITY
Share capital 183,021 179,021 183,021 179,021
Capital surplus 122,192 59,797 125,848 63,348
Surplus reserves 102,696 89,928 91,596 78,828
Undistributed profits 270,544 213,255 228,016 177,618
Currency translation differences (1,086) (534) -- --
------- ------- ------- -------
Equity attributable to equity holders of
the Company 677,367 541,467 628,481 498,815
------- ------- ------- -------
Minority interest 37,704 26,128 -- --
------- ------- ------- -------
TOTAL SHAREHOLDERS' EQUITY 715,071 567,595 628,481 498,815
------- ------- ------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 994,092 815,144 859,390 711,489
======= ======= ======= =======
51
(2) Consolidated and Company Income Statements
Unit: RMB million
-------------------------------------------------
2007 2006 2007 2006
--------- --------- ----------- -----------
ITEMS THE GROUP THE GROUP THE COMPANY THE COMPANY
----- --------- --------- ----------- -----------
1. OPERATING INCOME 835,037 688,978 595,734 505,632
Less: Cost of sales (487,112) (362,590) (405,180) (337,585)
Tax and levies on
operations (68,678) (51,692) (41,786) (31,437)
Selling expenses (41,345) (35,050) (33,293) (27,133)
General and
administrative expenses (49,324) (44,429) (35,044) (32,252)
Finance expenses (2,869) (1,322) (1,331) (687)
Asset impairment losses 1,948 (2,914) 1,529 (1,938)
Add: Investment income 6,301 1,344 57,614 66,470
Including: Share of
profit of associates
and jointly controlled
entities 6,283 1,253 673 478
-------- -------- -------- --------
2. OPERATING PROFIT 193,958 192,325 138,243 141,070
-------- -------- -------- --------
Add: Non-operating income 3,098 1,645 2,179 1,665
Less: Non-operating expenses (4,231) (4,180) (3,824) (3,708)
Including: Losses on
disposal of non-current
assets (1,576) (1,962) (1,358) (1,404)
-------- -------- -------- --------
3. PROFIT BEFORE TAXATION 192,825 189,790 136,598 139,027
-------- -------- -------- --------
Less: Taxation (49,331) (47,043) (8,915) (7,328)
-------- -------- -------- --------
4. NET PROFIT 143,494 142,747 127,683 131,699
-------- -------- -------- --------
Net profit attributable to 134,574 136,229 127,683 131,699
equity holders of the Company
Minority interest 8,920 6,518 -- --
5. EARNINGS PER SHARE (BASED ON
GROUP'S NET PROFIT ATTRIBUTABLE
TO EQUITY HOLDERS OF THE COMPANY)
Basic earnings per share
(RMB) 0.75 0.76 0.71 0.74
Diluted earnings per share
(RMB) 0.75 0.76 0.71 0.74
======== ======== ======== ========
52
(3) Consolidated and Company Cash Flow Statements
Unit: RMB million
-------------------------------------------------
2007 2006 2007 2006
--------- --------- ----------- -----------
ITEMS THE GROUP THE GROUP THE COMPANY THE COMPANY
----- --------- --------- ----------- -----------
1. CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from sales of goods and rendering of services 965,346 820,389 695,780 602,560
Refund of taxes and levies 960 728 854 595
Cash received relating to other operating activities 697 201 2,237 7,104
-------- -------- -------- --------
SUB-TOTAL OF CASH INFLOWS 967,003 821,318 698,871 610,259
-------- -------- -------- --------
Cash paid for goods and services (459,872) (368,323) (415,800) (354,847)
Cash paid to and on behalf of employees (50,420) (37,670) (35,378) (26,927)
Payments of taxes and levies (188,367) (156,416) (92,248) (64,418)
Cash paid relating to other operating activities (57,525) (53,467) (54,287) (46,255)
-------- -------- -------- --------
SUB-TOTAL OF CASH OUTFLOWS (756,184) (615,876) (597,713) (492,447)
-------- -------- -------- --------
NET CASH FLOWS FROM OPERATING ACTIVITIES 210,819 205,442 101,158 117,812
-------- -------- -------- --------
2. CASH FLOWS FROM INVESTING ACTIVITIES
Cash received from disposal of investments 7,927 407 1,389 296
Consolidation of PetroKazakhstan Inc. 1,542 -- -- --
Deregistration of wholly-owned subsidiaries to branches -- -- 32 --
Cash received from returns on investments 3,425 4,092 67,561 68,417
Net cash received from disposal of fixed assets, oil and gas
properties, intangible assets and other long-term assets 1,014 348 425 193
-------- -------- -------- --------
SUB-TOTAL OF CASH INFLOWS 13,908 4,847 69,407 68,906
-------- -------- -------- --------
Cash paid to acquire fixed assets, oil and gas properties,
intangible assets and other long-term assets (180,692) (139,167) (137,395) (113,690)
Cash paid to acquire investments (20,262) (27,832) (19,468) (11,860)
Including: Cash paid to purchase shares of listed
subsidiaries (149) (4,095) (149) (4,095)
-------- -------- -------- --------
SUB-TOTAL OF CASH OUTFLOWS (200,954) (166,999) (156,863) (125,550)
-------- -------- -------- --------
NET CASH FLOWS FROM INVESTING ACTIVITIES (187,046) (162,152) (87,456) (56,644)
-------- -------- -------- --------
3. CASH FLOWS FROM FINANCING ACTIVITIES
Cash received from capital contributions 1,349 1,492 -- --
Including: Cash received from minority shareholders'
capital contributions to subsidiaries 1,349 1,492 -- --
Cash received from borrowings 57,492 44,378 43,308 31,064
Cash received from issuance of A shares 66,243 -- 66,243 --
Cash received relating to other financing activities 427 260 407 148
-------- -------- -------- --------
SUB-TOTAL OF CASH INFLOWS 125,511 46,130 109,958 31,212
-------- -------- -------- --------
Cash repayments of borrowings (57,098) (45,925) (38,782) (31,343)
Cash payments for interest expenses and distribution of
dividends or profits (74,821) (75,323) (69,199) (71,761)
Including: Subsidiaries' cash payments for distribution
of dividends or profits to minority shareholders (6,150) (3,033) -- --
Cash payments relating to other financing activities (470) (260) (376) (61)
-------- -------- -------- --------
SUB-TOTAL OF CASH OUTFLOWS (132,389) (121,508) (108,357) (103,165)
-------- -------- -------- --------
NET CASH FLOWS FROM FINANCING ACTIVITIES (6,878) (75,378) 1,601 (71,953)
-------- -------- -------- --------
4. EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 40 (258) -- --
-------- -------- -------- --------
5. NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS 16,935 (32,346) 15,303 (10,785)
-------- -------- -------- --------
Add: Cash and cash equivalents at beginning of the year 48,559 80,905 45,029 55,814
-------- -------- -------- --------
6. CASH AND CASH EQUIVALENTS AT END OF THE YEAR 65,494 48,559 60,332 45,029
======== ======== ======== ========
53
(4) Consolidated Statement of Changes in Equity
Unit: RMB million
----------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY ATTRIBUTABLE TO COMPANY
-------------------------------------------------------
UNDIST- CURRENCY TOTAL
SHARE CAPITAL SURPLUS RIBUTED TRANSLATION MINORITY SHAREHOLDERS'
ITEMS CAPITAL SURPLUS RESERVES PROFIT DIFFERENCES INTEREST EQUITY
----- -------- -------- -------- -------- ----------- -------- -------------
BALANCE AT DECEMBER 31, 2005 179,021 72,276 76,573 164,065 -- 25,020 516,955
-------- -------- -------- -------- -------- -------- --------
First adoption of Accounting
Standards for Business Enterprises -- (10,313) -- (5,095) (289) (1,024) (16,721)
-------- -------- -------- -------- -------- -------- --------
BALANCE AT JANUARY 1, 2006 179,021 61,963 76,573 158,970 (289) 23,996 500,234
-------- -------- -------- -------- -------- -------- --------
CHANGES IN THE YEAR OF 2006 -- (2,166) 13,355 54,285 (245) 2,132 67,361
-------- -------- -------- -------- -------- -------- --------
Net profit -- -- -- 136,229 -- 6,518 142,747
-------- -------- -------- -------- -------- -------- --------
Losses recognised directly in equity -- (2,166) -- -- (245) (2,878) (5,289)
-------- -------- -------- -------- -------- -------- --------
Currency translation differences -- -- -- -- (245) (208) (453)
Purchase of minority interest in
subsidiaries -- (2,166) -- -- -- (2,569) (4,735)
Other -- -- -- -- -- (101) (101)
-------- -------- -------- -------- -------- -------- --------
Sub-total -- (2,166) -- 136,229 (245) 3,640 137,458
-------- -------- -------- -------- -------- -------- --------
Shareholders' contribution and
withdrawal -- -- -- -- -- 1,492 1,492
-------- -------- -------- -------- -------- -------- --------
Capital contribution by shareholders -- -- -- -- -- 1,492 1,492
-------- -------- -------- -------- -------- -------- --------
Profit distribution -- -- 13,355 (81,944) -- (3,000) (71,589)
-------- -------- -------- -------- -------- -------- --------
Appropriation to surplus reserves -- -- 13,355 (13,355) -- -- --
Distribution to shareholders -- -- -- (68,589) -- (3,000) (71,589)
-------- -------- -------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 2006 179,021 59,797 89,928 213,255 (534) 26,128 567,595
======== ======== ======== ======== ======== ======== ========
BALANCE AT JANUARY 1, 2007 179,021 59,797 89,928 213,255 (534) 26,128 567,595
-------- -------- -------- -------- -------- -------- --------
CHANGES IN THE YEAR OF 2007 4,000 62,395 12,768 57,289 (552) 11,576 147,476
-------- -------- -------- -------- -------- -------- --------
Net profit -- -- -- 134,574 -- 8,920 143,494
-------- -------- -------- -------- -------- -------- --------
Gains or losses recognised directly
in equity -- 152 -- -- (552) (708) (1,108)
-------- -------- -------- -------- -------- -------- --------
Currency translation differences -- -- -- -- (552) (620) (1,172)
Purchase of minority interest in
subsidiaries -- (109) -- -- -- (69) (178)
Fair value changes of
available-for-sale financial assets -- 261 -- -- -- -- 261
Other -- -- -- -- -- (19) (19)
-------- -------- -------- -------- -------- -------- --------
Sub-total -- 152 -- 134,574 (552) 8,212 142,386
-------- -------- -------- -------- -------- -------- --------
Shareholders' contribution and
withdrawal 4,000 62,243 -- -- -- 9,508 75,751
-------- -------- -------- -------- -------- -------- --------
Capital contribution by shareholders
- issuance of A shares 4,000 62,243 -- -- -- -- 66,243
Capital contribution by shareholders
- other -- -- -- -- -- 1,349 1,349
Consolidation of PetroKazakhstan Inc. -- -- -- -- -- 8,159 8,159
-------- -------- -------- -------- -------- -------- --------
Profit distribution -- -- 12,768 (77,285) -- (6,144) (70,661)
-------- -------- -------- -------- -------- -------- --------
Appropriation to surplus reserves -- -- 12,768 (12,768) -- -- --
Distribution to shareholders -- -- -- (64,517) -- (6,144) (70,661)
-------- -------- -------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 2007 183,021 122,192 102,696 270,544 (1,086) 37,704 715,071
======== ======== ======== ======== ======== ======== ========
54
9.2.3 Significant differences between IFRS and CAS
The financial statements of the Group prepared in accordance with CAS
differ in certain material aspects from those in accordance with IFRS. A
statement of reconciliation of such differences is set out below:
2007 2006
CONSOLIDATED NET PROFIT NOTES RMB MILLION RMB MILLION
----------------------- ----- ----------- -----------
Net profit under IFRS 155,229 149,397
Adjustments:
Depreciation of oil and gas properties (1) (7,463) (9,173)
Amortisation of revaluation for assets other
than fixed assets and oil and gas
properties in 1999 (2) (75) (81)
Disposal of revaluation for assets other
than fixed assets and oil and gas
properties in 1999 (2) (382) --
Depreciation and depletion of revaluation
for fixed assets and oil and gas
properties in 2003 (3) (162) (111)
Reversal of reversed impairment for
non-current assets (4) -- (4)
Disposal difference due to the reversal of
reversed impairment for non-current assets (4) 142 --
Reversal of safety funds accrued under CAS
which do not meet the liability
definition under IFRS (5) (3,559) --
Other (57) (14)
Deferred taxation (6) (179) 2,733
-------- --------
Net profit for the year under CAS 143,494 142,747
======== ========
DECEMBER 31, DECEMBER 31,
2007 2006
CONSOLIDATED SHAREHOLDERS' EQUITY NOTES RMB MILLION RMB MILLION
--------------------------------- ----- ------------ ------------
Shareholders' equity under IFRS 776,347 617,591
Adjustments:
Depletion of oil and gas properties (1) (79,662) (72,199)
Revaluation and amortisation and disposal of
revaluation for assets other than fixed
assets and oil and gas properties in 1999 (2) 409 866
Revaluation and depreciation and depletion of
revaluation for fixed assets and oil and
gas properties in 2003 (3) 337 499
Reversal of reversed impairment for
non-current assets and the disposal
difference due to that (4) (92) (234)
Reversal of safety funds accrued under CAS
which do not meet the liability definition
under IFRS (5) (3,559) --
Currency translation differences (390) (787)
Other 525 524
Deferred taxation (6) 21,156 21,335
-------- --------
Shareholders' equity under CAS 715,071 567,595
======== ========
(1) Depletion for oil and gas properties is provided using the unit of
production method under IFRS, while the straight-line method is used under
CAS.
(2) During the Restructuring in 1999, valuation was carried out on June 30,
1999 for assets and liabilities CNPC invested. Valuation results from China
Enterprise Appraisals are all recognised in financial statements under CAS.
However, in the financial statements under IFRS, revaluation
55
model is used in subsequent measurement by the Group only for fixed assets
and oil and gas properties. Consequently, valuation results other than
fixed assets and oil and gas properties are not recognised in the financial
statements under IFRS.
(3) As revaluation model is used in subsequent measurement for fixed assets and
oil and gas properties by the Group under IFRS, revaluation should be
carried out by independent appraisers regularly. In order to meet the
requirement of IFRS, on September 30, 2003, a revaluation of the Group's
refining and chemical production equipment was undertaken by a firm of
independent valuers, China United Assets Appraiser Co., Ltd., in the PRC on
a depreciated replacement cost basis. The result of revaluation is
recognised in the financial statements under IFRS. However, fixed assets
and oil and gas properties are measured by cost model under CAS.
Consequently, these revaluation results are not recognised in the financial
statements under CAS.
(4) Under CAS, once recognised, the impairment loss for long-term assets, such
as fixed assets, oil and gas properties, intangible assets and long-term
equity investment, cannot be reversed in subsequent accounting periods.
However, under IFRS, once changes have been indicated for various factors
based on which impairment for long term assets was provided and make the
recoverable amount higher than the carrying amount, the impairment loss
recognised previously shall be reversed.
(5) In accordance with the "Temporary regulation for safety expense financial
management of high risk industry" from MOF of PRC, this safety fund has
been accrued for the Group's oil and gas exploration, refinery and chemical
production activities within PRC from January 1, 2007. This safety fund has
been recognised into the Group's income statement. The accrued safety fund
will be used for improving the safety conditions of production. As the
Group did not have specific utilisation plan for this accrued safety fund
as at December 31, 2007, it was reversed under IFRS.
(6) The consequences of (1)-(5) and other differences between IFRS and CAS on
deferred taxation.
9.3 EXPLANATION FOR CHANGES IN ACCOUNTING POLICY, ACCOUNTING ESTIMATE OR
RECOGNITION POLICY AS COMPARED WITH THOSE FOR LAST ANNUAL REPORT
[X] Applicable [ ] Not applicable
On January 1, 2007, the Group adopted the CAS. The financial statements of
the Group for the year ended December 31, 2007 are the first set of annual
financial statements prepared in accordance with CAS.
The Company is an H shares-listed company which, up to December 31, 2006,
used to prepare its consolidated financial statements in accordance with both
the "Accounting System for Business Enterprises" issued on December 29, 2000 and
the Accounting Standards for Business Enterprises and other regulations
applicable that were issued before February 15, 2006 (the "old CAS") in China
and the IFRS. According to the related regulations in CAS "Interpretation No.1",
the comparative figures in respect of 2006 were retrospectively adjusted and
restated to reflect these adjustments according to the differences between the
standards under CAS and the old CAS, in addition to the retrospective
adjustments required by article 5 to 19 of CAS 38 "Initial Implementation of
Accounting Standards for Business Enterprises".
56
The main retrospective adjustments include:
- Equity investment differences arising from a business combination
under common control and other credit equity investment differences of
long-term equity investment under the equity method were written off.
- Goodwill arising from a business combination under common control was
written off.
- Recognition of deferred tax assets and liabilities related to the
temporary differences between the carrying amount of assets or
liabilities and their tax bases, and the deductible loss and tax
credits that can be carried forward.
- Long-term equity investments in subsidiaries are retrospectively
adjusted in the Company's separate financial statements as if the
subsidiaries have been accounted for at cost from the initial
recognition.
9.4 NATURE, CORRECTED AMOUNT, REASON AND IMPACT OF MATERIAL ACCOUNTING ERROR
There is no material accounting error in the current reporting period.
9.5 CHANGES IN THE SCOPE OF CONSOLIDATION AS COMPARED WITH THOSE FOR LAST
ANNUAL REPORT
[X] Applicable [ ] Not applicable
On December 28, 2006, the Group acquired a 67% equity interest in
PetroKazakhstan Inc. from CNPC International Limited, a subsidiary of CNPC for a
consideration of RMB21,376 million. Pursuant to the shareholders' agreement in
relation to the acquisition of PetroKazakhstan Inc., each shareholder had a veto
right relating to certain financial and operating decisions, and the Group was
therefore considered to have joint control over PetroKazakhstan Inc.. As such,
in accordance with the Group's accounting policy, the Group accounted for its
investment in PetroKazakhstan Inc. using the equity method of accounting from
December 28, 2006.
On December 12, 2007, through a supplementary agreement between the Group
and the minority shareholder of PetroKazakhstan Inc., the Group gained control
over PetroKazakhstan Inc. from that date. Therefore, as of the date it acquired
control over PetroKazakhstan Inc., December 12, 2007, the Group accounts for its
investment in PetroKazakhstan Inc. as a subsidiary.
57
10 REPURCHASE, SALE OR REDEMPTION OF SECURITIES
The Company or any of its subsidiaries did not sell any securities of the
Company, nor did it repurchase or redeem any of the securities of the Company
during the twelve months ended December 31, 2007.
58
11 COMPLIANCE WITH THE MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS OF
LISTED ISSUERS
The Company has adopted the Model Code for Securities Transactions for
Directors of Listed Issuers contained in Appendix 10 of the Listing Rules (the
"MODEL CODE"). The Company has made an inquiry with all its Directors and
Supervisors. Each Director and Supervisor has confirmed to the Company that each
of them has complied with the requirements set out in the Model Code.
59
12 COMPLIANCE WITH THE CODE ON CORPORATE GOVERNANCE PRACTICES
The Company is dedicated to enhancing the level of its corporate
governance. The Company has complied with the code provisions under the Code on
Corporate Governance Practices under the Listing Rules applicable during the
year ended December 31, 2007, except that since May 20, 2007, the roles of the
chairman and the president were held by the same person. Following the
retirement of Mr Chen Geng, the then chairman of the Board, Mr Jiang Jiemin, who
was the president and vice chairman of the Company, has since May 20, 2007 been
appointed as the chairman of the Board concurrently with his role as the
president of the Company. With his extensive experience in China's oil and gas
industry and substantial knowledge of the operations and management of the
Company, the Board believes that Mr Jiang will continue to provide strong
leadership to the Board and facilitate the Company to implement its plans and
strategies smoothly and effectively. The Board believes that such change in the
management structure will not affect the operations and business development and
corporate governance of the Company. In view of the importance of the role as
the president, should there be a candidate with the suitable credentials, the
Board will consider appointing a new president to comply with the relevant
requirement under the Code on Corporate Governance Practices.
60
13 AUDIT COMMITTEE
The members of the audit committee of the Company formed pursuant to
Appendix 14 of the Listing Rules include Mr Franco Bernabe, Mr Chee-Chen Tung,
Mr Liu Hongru and Mr Gong Huazhang. The main responsibilities of the audit
committee are the review and monitoring of the form of financial submissions and
the internal control mechanism of the Group and giving advice to the Board of
Directors. The audit committee of the Company has reviewed and confirmed the
final results announcement and the 2007 Annual Report for the twelve months
ended December 31, 2007.
The figures in respect of the results announcement of the Group's results
for the year ended December 31, 2007 have been agreed by the Company's auditors
to the amounts set out in the Group's audited consolidated financial statements
for the twelve months ended December 31, 2007.
By Order of the Board of Directors
PETROCHINA COMPANY LIMITED
JIANG JIEMIN
Chairman
Beijing, the PRC
March 19, 2008
As at the date of this announcement, the Board comprises Mr Jiang Jiemin as
the Chairman; Mr Duan Wende as executive director; Mr Zheng Hu, Mr Zhou Jiping,
Mr Wang Yilin, Mr Zeng Yukang, Mr Gong Huazhang and Mr Jiang Fan as
non-executive directors; and Mr Chee-Chen Tung, Mr Liu Hongru and Mr Franco
Bernabe as independent non-executive directors.
This announcement contains certain forward-looking statements with respect
to the financial position, financial results and business of the Group. These
forward-looking statements are, by their names, subject to significant risk and
uncertainties because they relate to events and depend on circumstances that may
occur in the future and are beyond our control. The forward-looking statements
reflect the Group's current views with respect of future events and are not a
guarantee of future performance. Actual results may differ materially from
information contained in the forward-looking statements.
This announcement is published in English and Chinese. In the event of any
inconsistency between the two versions, the Chinese version shall prevail.
The Company will hold an online investor presentation in respect of the
results of the Group for the year ended December 31, 2007 at the Online Road
Show Centre of the China Securities Journal (www.cs.com.cn) on March 28, 2008
from 9:30 a.m. to 11:30 am (Beijing time). The senior management of the Company
will respond online to the questions from the investors relating to the results
of the Group for the year ended December 31, 2007, the production and operations
of the Group and related questions. Shareholders of the Company and investors
are welcome to participate.
61
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this announcement to be signed on its behalf by
the undersigned, thereunto duly authorized.
PetroChina Company Limited
Dated: March 20, 2008 By: /s/ Li Huaiqi
------------------------------------
Name: Li Huaiqi
Title: Company Secretary