Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Washington, D.C. 20549
Form 20-F
|
(Mark One)
|
||
|
o
|
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
12(g)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
| or | ||
|
þ
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
| For the fiscal year ended December 31, 2009. | ||
| or | ||
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
| or | ||
|
o
|
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
| Date of event requiring this shell company report | ||
| For the transition period from to |
Commission File Number
1-15006
(Exact name of Registrant as
specified in its charter)
PetroChina Company
Limited
(Translation of
Registrant’s name into English)
The People’s Republic of
China
(Jurisdiction of incorporation or organization)
(Jurisdiction of incorporation or organization)
9 Dongzhimen North Street
Dongcheng District, Beijing 100007
The People’s Republic of China,
Dongcheng District, Beijing 100007
The People’s Republic of China,
(Address of principal executive
offices)
Li Hualin
Telephone number: 8610 59986223
Facsimile number: 8610 62099557
Email address: suxinliang@petrochina.com.cn
Address: 9 Dongzhimen North Street, Dongcheng District, Beijing 100007 The People’s Republic of China
(Name, telephone, e-mail and/or facsimile number and address of registrant’s contact person)
Telephone number: 8610 59986223
Facsimile number: 8610 62099557
Email address: suxinliang@petrochina.com.cn
Address: 9 Dongzhimen North Street, Dongcheng District, Beijing 100007 The People’s Republic of China
(Name, telephone, e-mail and/or facsimile number and address of registrant’s contact person)
Securities registered or to be
registered pursuant to Section 12(b) of the Act.
|
Title of Each Class
|
Name of Each Exchange on Which Registered
|
|
|
American Depositary Shares, each representing 100 H Shares, par
value RMB1.00 per share*
|
New York Stock Exchange, Inc. | |
|
H Shares, par value RMB1.00 per share
|
New York Stock Exchange, Inc.** |
Securities registered or to be
registered pursuant to Section 12(g) of the Act.
None
(Title of Class)
(Title of Class)
Securities for which there is a
reporting obligation pursuant to Section 15(d) of the
Act.
None
(Title of Class)
(Title of Class)
Indicate the number of outstanding shares of each of the
issuer’s classes of capital or common stock as of the close
of the period covered by the annual report:
|
A Shares, par value RMB1.00 per share***
|
161,922,077,818 (1) | |
|
H Shares, par value RMB1.00 per share
|
21,098,900,000**** |
| (1): | Includes 157,764,597,259 A Shares held by CNPC and 4,157,480,559 A Shares held by the public shareholders. |
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes
þ
No
o
If this is an annual or transition report, indicate by check
mark if the registrant is not required to file reports pursuant
to Section 13 or 15(d) of the Securities Exchange Act of
1934.
Yes
o
No
þ
Note — Checking the box above will not relieve any
registrant required to file reports pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 from their
obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) or
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes
þ
No
o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such files).
Yes
o
No
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer or a non-accelerated
filer. See definition of “accelerated filer and large
accelerated filer” in
Rule 12b-2
of the Exchange Act (Check one):
| Large Accelerated Filer þ | Accelerated Filer o | Non-Accelerated Filer o |
Indicate by check mark which basis of accounting the registrant
has used to prepare the financial statements included in this
filing:
| o U.S. GAAP | þ International Financial Reporting Standards as issued by the International Accounting Standards Board | o Other |
If “Other” has been checked in response to the
previous question, indicate by check mark which financial
statement item the registrant has elected to follow.
Item 17
o
Item 18
o
If this is an annual report, indicate by check mark whether the
registrant is a shell company (as defined in
Rule 12b-2
of the Exchange Act).
Yes
o
No
þ
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS)
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12,
13 or 15(d) of the Securities Exchange Act of 1934 subsequent to
the distribution of securities under a plan confirmed by a court.
Yes
o
No
o
| * | PetroChina’s H Shares are listed and traded on The Stock Exchange of Hong Kong Limited. | |
| ** | Not for trading, but only in connection with the registration of American Depository Shares. | |
| *** | PetroChina’s A Shares became listed on the Shanghai Stock Exchange on November 5, 2007. | |
| **** | Includes 1,970,667,300 H Shares represented by American Depositary Shares. |
Table of Contents
Table of
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CERTAIN
TERMS AND CONVENTIONS
Conventions
Which Apply to this Annual Report
Unless the context otherwise requires, references in this annual
report to:
| • | “CNPC” or “CNPC group” are to our parent, China National Petroleum Corporation and its affiliates and subsidiaries, excluding PetroChina, its subsidiaries and its interests in long-term investments, and where the context refers to any time prior to the establishment of CNPC, those entities and businesses which were contributed to CNPC upon its establishment. | |
| • | “PetroChina”, “we”, “our”, “our company”, “the company” and “us” are to: |
| • | PetroChina Company Limited, a joint stock company incorporated in the People’s Republic of China with limited liability and its subsidiaries and branch companies, or | |
| • | the CNPC group’s domestic crude oil and natural gas exploration and production, refining and marketing, chemicals and natural gas businesses that were transferred to us in the restructuring of the CNPC group in 1999. |
| • | “PRC” or “China” is to the People’s Republic of China, but does not apply to Hong Kong, Macau or Taiwan for purposes of this annual report. |
We publish our consolidated financial statements in Renminbi or
RMB. The audited consolidated financial statements included in
this annual report have been prepared as if the operations and
businesses transferred to us from CNPC were transferred as of
the earliest period presented or from the date of establishment
of the relevant unit, whichever is later, and conducted by us
throughout the period. In this annual report, IFRS refers to
International Financial Reporting Standards as issued by the
International Accounting Standards Board.
In December 2008, the United States Securities and Exchange
Commission (the “SEC“or the “Commission”)
announced that it had approved revisions designed to modernize
the oil and gas company reserves reporting requirements. The
revisions became effective on January 1, 2010. For purposes
of this annual report, the oil and gas reserve disclosure rules
prior to the effectiveness of the revisions are referred to
herein as the “old SEC reserve rules.” The new oil and
gas reserve disclosure rules that became effective on
January 1, 2010 are referred to herein as the “new SEC
reserve rules.” Our reserve-related disclosure as of and
for the years ended December 31, 2007 and 2008 comply with
the old SEC reserve rules. Our reserve-related disclosure as of
and for the year ended December 31, 2009 complies with the
new SEC reserve rules.
Conversion
Table
|
1 barrel-of-oil
equivalent
|
= 1 barrel of crude oil | = 6,000 cubic feet of natural gas | ||
|
1 cubic meter
|
= 35.315 cubic feet | |||
|
1 ton of crude oil
|
= 1 metric ton of crude oil | = 7.389 barrels of crude oil (assuming an API gravity of 34 degrees) |
Certain
Oil and Gas Terms
Unless the context indicates otherwise, the following terms have
the meanings shown below:
| “acreage” | The total area, expressed in acres, over which an entity has interests in exploration or production. Net acreage is the entity’s interest, expressed in acres, in the relevant exploration or production area. | |
| “API gravity” | An indication of the density of crude oil or other liquid hydrocarbons as measured by a system recommended by the American Petroleum Institute (API), measured in degrees. The lower the API gravity, the heavier the compound. |
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| “condensate” | Light hydrocarbon substances produced with natural gas that condense into liquid at normal temperatures and pressures associated with surface production equipment. | |
| “crude oil” | Crude oil, including condensate and natural gas liquids. | |
| “developed reserves” | Under the new SEC reserve rules, developed reserves are reserves of any category that can be expected to be recovered: | |
| (i) through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well; and | ||
| (ii) through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well. | ||
| “development cost” | For a given period, costs incurred to obtain access to proved reserves and to provide facilities for extracting, treating, gathering and storing the oil and gas. | |
| “finding cost” | For a given period, costs incurred in identifying areas that may warrant examination and in examining specific areas that are considered to have prospects of containing oil and gas reserves, including costs of drilling exploratory wells and exploratory-type test wells. Finding cost is also known as exploration cost. | |
| “lifting cost” | For a given period, costs incurred to operate and maintain wells and related equipment and facilities, including applicable operating costs of support equipment and facilities and other costs of operating and maintaining those wells and related equipment and facilities. Lifting cost is also known as production cost. | |
| “natural gas liquids” | Hydrocarbons that can be extracted in liquid form together with natural gas production. Ethane and pentanes are the predominant components, with other heavier hydrocarbons also present in limited quantities. | |
| “offshore” | Areas under water with a depth of five meters or greater. | |
| “onshore” | Areas of land and areas under water with a depth of less than five meters. | |
| “primary distillation capacity” | At a given point in time, the maximum volume of crude oil a refinery is able to process in its basic distilling units. | |
| “proved developed reserves” | Under the old SEC reserve rules, proved developed reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Additional oil and gas expected to be obtained through the application of fluid injection or other improved recovery techniques for supplementing the natural forces and mechanisms of primary recovery are included as “proved developed reserves” only after testing by a pilot project or after the operation of an installed program has confirmed through production response that increased recovery will be achieved. | |
| “proved reserves” | Under the new SEC reserve rules, proved reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically |
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| producible — from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations — prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time. | ||
| (i) The area of the reservoir considered as proved includes: | ||
| (A) The area identified by drilling and limited by fluid contacts, if any, and (B) Adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis of available geoscience and engineering data. | ||
| (ii) In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons (LKH) as seen in a well penetration unless geoscience, engineering, or performance data and reliable technology establishes a lower contact with reasonable certainty. | ||
| (iii) Where direct observation from well penetrations has defined a highest known oil (HKO) elevation and the potential exists for an associated gas cap, proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geoscience, engineering, or performance data and reliable technology establish the higher contact with reasonable certainty. | ||
| (iv) Reserves which can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when: | ||
| (A) Successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program was based; and (B) The project has been approved for development by all necessary parties and entities, including governmental entities. | ||
| (v) Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average price during the 12-month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions. | ||
| Under the old SEC reserve rules, proved reserves are estimated quantities of crude oil and natural gas which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and |
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| operating conditions, i.e., prices and costs as of the date the estimate is made. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not of escalations based upon future conditions. | ||
| “proved undeveloped reserves” | Under the old SEC reserve rules, proved undeveloped reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Reserves on undrilled acreage shall be limited to those drilling units offsetting productive units that are reasonably certain of production when drilled. Proved reserves for other undrilled units can be claimed only where it can be demonstrated with certainty that there is continuity of production from the existing productive formation. Under no circumstances should estimates for proved undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual tests in the area and in the same reservoir. | |
| “reserve-to-production ratio” | For any given well, field or country, the ratio of proved reserves to annual production of crude oil or, with respect to natural gas, to wellhead production excluding flared gas. | |
| “sales gas” | Marketable production of gas on an “as sold” basis, excluding flared gas, injected gas and gas consumed in operations. | |
| “undeveloped reserves” | Under the new SEC reserve rules, undeveloped reserves are reserves of any category that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. | |
| (i) Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances. | ||
| (ii) Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless the specific circumstances, justify a longer time. | ||
| (iii) Under no circumstances shall estimates for undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, or by other evidence using reliable technology establishing reasonable certainty. | ||
| “water cut” | For a given oil region, the percentage that water constitutes of all fluids extracted from all wells in that region. |
References to:
| • | BOE is to barrels-of-oil equivalent, | |
| • | Mcf is to thousand cubic feet, and | |
| • | Bcf is to billion cubic feet. |
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Table of Contents
FORWARD-LOOKING
STATEMENTS
This annual report contains “forward-looking
statements” within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities and 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 amounts and nature of future exploration, development and other capital expenditures; | |
| • | future prices and demand for crude oil, natural gas, refined products and chemical products; | |
| • | development projects; | |
| • | exploration prospects; | |
| • | reserves potential; | |
| • | production of oil and gas and refined and chemical products; | |
| • | development and drilling potential; | |
| • | expansion and other development trends of the oil and gas industry; | |
| • | the planned development of our natural gas operations; | |
| • | the planned expansion of our refined product marketing network; | |
| • | the planned expansion of our natural gas infrastructure; | |
| • | the anticipated benefit from the acquisition of certain overseas assets from CNPC, our parent company; | |
| • | the plan to continue to pursue attractive business opportunities outside China; | |
| • | our future overall business development and economic performance; | |
| • | our anticipated financial and operating information regarding, and the future development and economic performance of our business; | |
| • | our anticipated market risk exposure arising from future changes in interest rates, foreign exchange rates and commodity prices; and | |
| • | other prospects of our business and operations. |
The words “anticipate”, “believe”,
“could”, “estimate”, “expect”,
“intend”, “may”, “plan”,
“seek”, “will” and “would” and
similar expressions, as they related to us, are intended to
identify a number of these forward-looking statements.
By their nature, forward-looking statements involve risks and
uncertainties because they relate to events and depend on
circumstances that will occur in the future and are beyond our
control. The 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 the forward-looking statements as a
result of a number of factors, including, without limitation,
the risk factors set forth in this annual report and the
following:
| • | fluctuations in crude oil and natural gas prices; | |
| • | failure to achieve continued exploration success; | |
| • | failures or delays in achieving production from development projects; | |
| • | continued availability of capital and financing; | |
| • | acquisitions and other business opportunities that we may pursue; | |
| • | general economic, market and business conditions, including volatility in interest rates, changes in foreign exchange rates and volatility in commodity markets; |
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| • | liability for remedial actions under environmental regulations; | |
| • | impact of the PRC’s entry into the World Trade Organization; | |
| • | the actions of competitors; | |
| • | wars and acts of terrorism or sabotage; | |
| • | changes in policies, laws or regulations of the PRC, including changes in applicable tax rates; | |
| • | the other changes in global economic and political conditions affecting the production, supply and demand and pricing of crude oil, refined products, petrochemical products and natural gas; and | |
| • | the other risk factors discussed in this annual report, and other factors beyond our control. |
You should not place undue reliance on any forward-looking
statement.
Not applicable. However, see “Item 6 —
Directors, Senior Management and Employees —
Directors, Senior Management and Supervisors.”
Not applicable.
Exchange
Rates
The following table sets forth the high and low noon buying
rates between Renminbi and U.S. dollars for each month
during the previous six months and the most recent practicable
date:
| Noon Buying Rate (1) | ||||||||
| High | Low | |||||||
| (RMB per US$) | ||||||||
|
December 2009
|
6.8299 | 6.8244 | ||||||
|
January 2010
|
6.8295 | 6.8258 | ||||||
|
February 2010
|
6.8330 | 6.8258 | ||||||
|
March 2010
|
6.8270 | 6.8254 | ||||||
|
April 2010
|
6.8275 | 6.8240 | ||||||
|
May 2010
|
6.8310 | 6.8245 | ||||||
|
June 2010 (ending as of June 18)
|
6.8323 | 6.8267 | ||||||
| (1) | The exchange rates reflect the noon buying rates as set forth in the H.10 statistical release of the Federal Reserve Board. |
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Average
Noon Buying
Rates
(1)
The following table sets forth the average noon buying rates
between Renminbi and U.S. dollars for each of 2005, 2006,
2007, 2008 and 2009, calculated by averaging the noon buying
rates on the last day of each month during the relevant year:
|
Average Noon
|
||||
| Buying Rate | ||||
| (RMB per US$) | ||||
|
2005
|
8.1826 | |||
|
2006
|
7.9579 | |||
|
2007
|
7.5806 | |||
|
2008
|
6.9193 | |||
|
2009
|
6.8295 | |||
| (1) | For periods prior to January 1, 2009, the exchange rates reflect the noon buying rates as reported by the Federal Reserve Bank of New York. For periods after January 1, 2009, the exchange rates reflect the noon buying rates as set forth in the H.10 statistical release of the Federal Reserve Board. |
Selected
Financial Data
Historical
Financial Information
You should read the selected historical financial data set forth
below in conjunction with the consolidated financial statements
of PetroChina and their notes and “Item 5 —
Operating and Financial Review and Prospects” included
elsewhere in this annual report. The selected historical income
statement and cash flow data for the years ended
December 31, 2007, 2008 and 2009 and the selected
historical statement of financial position data as of
December 31, 2008 and 2009 set forth below are derived from
our audited consolidated financial statements included elsewhere
in this annual report. The selected historical income statement
data and cash flow data for the years ended December 31,
2005 and 2006 and the selected statement of financial position
data as of December 31, 2005, 2006 and 2007 set forth below
are derived from our audited financial statements not included
in this annual report. Our consolidated financial statements
were prepared in accordance with IFRS as issued by the
International Accounting Standards Board. The financial
information included in this section may not necessarily reflect
our results of operations, financial position and cash flows in
the future.
| Year Ended December 31, (1) | ||||||||||||||||||||
| 2005 | 2006 | 2007 | 2008 | 2009 | ||||||||||||||||
| RMB | RMB | RMB | ||||||||||||||||||
| RMB | RMB | |||||||||||||||||||
| (In millions, except for per share and per ADS data) | ||||||||||||||||||||
|
Income Statement Data
|
||||||||||||||||||||
|
Turnover
|
554,063 | 691,448 | 837,542 | 1,072,604 | 1,019,275 | |||||||||||||||
|
Operating expenses
|
||||||||||||||||||||
|
Purchases, services and other
|
(199,317 | ) | (270,112 | ) | (369,786 | ) | (562,851 | ) | (492,472 | ) | ||||||||||
|
Employee compensation costs
|
(29,770 | ) | (39,292 | ) | (50,940 | ) | (62,167 | ) | (65,977 | ) | ||||||||||
|
Exploration expenses, including exploratory dry holes
|
(15,569 | ) | (18,827 | ) | (20,956 | ) | (21,879 | ) | (19,398 | ) | ||||||||||
|
Depreciation, depletion and amortization
|
(51,803 | ) | (62,155 | ) | (67,423 | ) | (94,759 | ) | (92,259 | ) | ||||||||||
|
Selling, general and administrative expenses
|
(36,650 | ) | (43,400 | ) | (52,389 | ) | (59,617 | ) | (65,423 | ) | ||||||||||
|
Taxes other than income taxes
|
(23,997 | ) | (57,208 | ) | (73,806 | ) | (124,132 | ) | (135,465 | ) | ||||||||||
|
Other (expenses)/incomes, net
|
(3,083 | ) | (430 | ) | (1,225 | ) | 12,372 | (4,837 | ) | |||||||||||
|
Total operating expenses
|
(360,189 | ) | (491,424 | ) | (636,525 | ) | (913,033 | ) | (875,831 | ) | ||||||||||
|
Profit from operations
|
193,874 | 200,024 | 201,017 | 159,571 | 143,444 | |||||||||||||||
|
Share of profit of affiliates and jointly controlled entities
|
2,002 | 1,686 | 6,445 | 4,290 | 1,184 | |||||||||||||||
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| Year Ended December 31, (1) | ||||||||||||||||||||
| 2005 | 2006 | 2007 | 2008 | 2009 | ||||||||||||||||
| RMB | RMB | RMB | ||||||||||||||||||
| RMB | RMB | |||||||||||||||||||
| (In millions, except for per share and per ADS data) | ||||||||||||||||||||
|
Exchange gain (loss), net
|
85 | 272 | (751 | ) | (1,081 | ) | (783 | ) | ||||||||||||
|
Interest income
|
2,036 | 2,148 | 2,101 | 2,277 | 1,459 | |||||||||||||||
|
Interest expense
|
(2,929 | ) | (3,328 | ) | (3,673 | ) | (3,044 | ) | (5,272 | ) | ||||||||||
|
Profit before income tax expense
|
195,068 | 200,802 | 205,139 | 162,013 | 140,032 | |||||||||||||||
|
Income tax expense
|
(54,912 | ) | (50,615 | ) | (49,802 | ) | (35,211 | ) | (33,473 | ) | ||||||||||
|
Profit for the year
|
140,156 | 150,187 | 155,337 | 126,802 | 106,559 | |||||||||||||||
|
Other comprehensive income/(loss)
|
||||||||||||||||||||
|
Foreign currency translation difference
|
(799 | ) | (358 | ) | (1,852 | ) | (2,676 | ) | (3,500 | ) | ||||||||||
|
Income/(loss) from the change in the fair value of the financial
assets available for sale
|
83 | (4 | ) | 395 | (340 | ) | 191 | |||||||||||||
|
Income tax relating to components of other comprehensive
income/(loss)
|
(28 | ) | 2 | (87 | ) | 67 | (38 | ) | ||||||||||||
|
Other comprehensive loss (after tax net)
|
(744 | ) | (360 | ) | (1,544 | ) | (2,949 | ) | (3,347 | ) | ||||||||||
|
Total comprehensive income for the year
|
139,412 | 149,827 | 153,793 | 123,853 | 103,212 | |||||||||||||||
|
Profit for the year attributable to:
|
||||||||||||||||||||
|
Owners of the company
|
134,381 | 143,498 | 146,796 | 114,453 | 103,387 | |||||||||||||||
|
Non-controlling interest
|
5,775 | 6,689 | 8,541 | 12,349 | 3,172 | |||||||||||||||
| 140,156 | 150,187 | 155,337 | 126,802 | 106,559 | ||||||||||||||||
|
Basic and diluted earnings per share for profit
|
||||||||||||||||||||
|
attributable to owners of the
company
(2)
|
0.76 | 0.80 | 0.82 | 0.63 | 0.56 | |||||||||||||||
|
Basic and diluted earnings per ADS for profit
|
||||||||||||||||||||
|
attributable to owners of the
company
(3)
|
76.02 | 80.16 | 81.69 | 62.54 | 56.49 | |||||||||||||||
| As of December 31, (1) | ||||||||||||||||||||
| 2005 | 2006 | 2007 | 2008 | 2009 | ||||||||||||||||
| RMB | RMB | RMB | RMB | RMB | ||||||||||||||||
| (In millions, except for per share and per ADS data) | ||||||||||||||||||||
|
Statement of Financial Position Data
|
||||||||||||||||||||
|
Inventories
|
62,782 | 76,081 | 88,507 | 90,670 | 114,781 | |||||||||||||||
|
Cash and cash equivalents
|
83,034 | 50,869 | 68,817 | 33,150 | 86,925 | |||||||||||||||
|
Total current assets
|
178,926 | 165,778 | 235,902 | 224,946 | 294,383 | |||||||||||||||
|
Total non-current assets
|
606,483 | 714,509 | 833,709 | 971,289 | 1,155,905 | |||||||||||||||
|
Total current liabilities
|
156,878 | 181,993 | 200,150 | 265,651 | 388,553 | |||||||||||||||
|
Total non-current liabilities
|
81,862 | 75,675 | 86,742 | 82,744 | 154,034 | |||||||||||||||
|
Equity attributable to owners of the company
|
517,921 | 590,414 | 738,246 | 790,910 | 847,223 | |||||||||||||||
|
Non-controlling interest
|
28,748 | 32,205 | 44,473 | 56,930 | 60,478 | |||||||||||||||
|
Total equity
|
546,669 | 622,619 | 782,719 | 847,840 | 907,701 | |||||||||||||||
|
Share capital
|
179,021 | 179,021 | 183,021 | 183,021 | 183,021 | |||||||||||||||
|
Other Financial Data
|
||||||||||||||||||||
|
Dividend per share
|
0.34 | 0.36 | 0.36 | 0.28 | 0.25 | |||||||||||||||
|
Dividend per ADS
|
33.80 | 35.75 | 36.25 | 28.14 | 25.42 | |||||||||||||||
|
Capital expenditures
|
(125,814 | ) | (149,493 | ) | (182,678 | ) | (232,377 | ) | (266,836 | ) | ||||||||||
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| As of December 31, (1) | ||||||||||||||||||||
| 2005 | 2006 | 2007 | 2008 | 2009 | ||||||||||||||||
| RMB | RMB | RMB | RMB | RMB | ||||||||||||||||
| (In millions, except for per share and per ADS data) | ||||||||||||||||||||
|
Cash Flow Data
|
||||||||||||||||||||
|
Net cash flows from operating activities
|
207,656 | 202,701 | 207,633 | 172,465 | 261,972 | |||||||||||||||
|
Net cash flows used for investing activities
|
(91,445 | ) | (159,065 | ) | (183,656 | ) | (211,797 | ) | (261,453 | ) | ||||||||||
|
Net cash flows from/used in financing activities
|
(46,083 | ) | (75,385 | ) | (5,838 | ) | 3,777 | 53,077 | ||||||||||||
| (1) | Due to business combinations under common control completed in 2005, 2008 and 2009, the relevant financial statements of our company have been restated in a manner similar to a uniting of interests whereby the assets and liabilities acquired are accounted for at carryover predecessor values to the other party to the business combination with all periods presented as if our operations and the business acquired have always been combined. The difference between the consideration paid by us and the net assets or liabilities of the business acquired is adjusted against equity. | |
| (2) | The basic and diluted earnings per share for the year ended December 31, 2005 was calculated by dividing the net profit with the weighted average number of 176,770 million shares issued and outstanding for the year presented. The basic and diluted earnings per share for the year ended December 31, 2006 was calculated by dividing the net profit with the number of 179,021 million shares issued and outstanding for the year presented. The basic and diluted earnings per share for the year ended December 31, 2007 was calculated by dividing the net profit with the weighted average number of 179,700 million shares issued and outstanding for the year presented. The basic and diluted earnings per share for the year ended December 31, 2008 was calculated by dividing the net profit with the number of 183,021 million shares issued and outstanding for the year presented. The basic and diluted earnings per share for the year ended December 31, 2009 was calculated by dividing the net profit with the number of 183,021 million shares issued and outstanding for the year presented. | |
| (3) | The basic and diluted earnings per ADS for the year ended December 31, 2005 was calculated by dividing net profit with the weighted average number of 176,770 million shares issued and outstanding for the year presented, each ADS representing 100 H Shares. The basic and diluted earnings per ADS for the year ended December 31, 2006 was calculated by dividing the net profit with the weighted average number of 179,021 million shares issued and outstanding for the year presented, each ADS representing 100 H Shares. The basic and diluted earnings per ADS for the year ended December 31, 2007 was calculated by dividing the net profit with the weighted average number of 179,700 million shares issued and outstanding for the year presented, each ADS representing 100 H Shares. The basic and diluted earnings per ADS for the year ended December 31, 2008 was calculated by dividing the net profit with the number of 183,021 million shares issued and outstanding for the year presented, each ADS representing 100 H Shares. The basic and diluted earnings per ADS for the year ended December 31, 2009 was calculated by dividing the net profit with the number of 183,021 million shares issued and outstanding for the year presented, each ADS representing 100 H Shares. |
Risk
Factors
Our business is primarily subject to various changing
competitive, economic and social conditions in the PRC. Such
changing conditions entail certain risks, which are described
below.
| • | The global financial crisis and economic downturn have adversely affected economies and businesses around the world, including in China. Due to the global economical downturn and a decrease in consumer demand, the economic situation in China has been quite severe since the second half of 2008. Although the Chinese economy has recovered recently, it is uncertain whether such recovery will continue into the rest of 2010 and beyond. Any recurrence of the global financial crisis which may be sparked by the recent market volatility attributed to concerns over several European countries including Greece, Portugal, Ireland and Spain may cause a further decline in the PRC economy. This change in the macro-economic conditions has and is expected to continue to have an adverse impact on our business and operations. Our profitability may be adversely affected due to the low growth in oil and gas demand. We have experienced pricing pressure on |
12
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| our refined products, which has an adverse effect on our profitability. These factors may also lead to intensified competition for market share and available margin, with consequential potential adverse effects on volumes. The financial and economic situation may have a negative impact on third parties with whom we do, or may do, business. Any of these factors may affect our results of operations, financial condition and liquidity. |
| • | In early 2003, several regions in Asia, including Hong Kong and China, were affected by the outbreak of SARS. Furthermore, in early 2008, severe snowstorms hit many areas of China and particularly affected southern China. Additionally, in May 2008, a major earthquake struck China’s populous Sichuan Province, causing great loss of life, numerous injuries, property loss and disruption to the local economy. Finally, in April 2009, an outbreak of H1N1 influenza occurred in Mexico and the United States and human cases of swine flu were and continue to be discovered in China and Hong Kong. Any future outbreak of SARS, avian flu or similar adverse public health development or an increase in the severity of H1N1 influenza or other contagious diseases, extreme unexpected bad weather or severe natural disasters would adversely affect our business and operating results. | |
| • | Our operations are affected by the volatility of prices for crude oil and refined products. We and China Petroleum and Chemical Corporation, or Sinopec, set our crude oil median prices monthly based on the Singapore trading prices for crude oil. In 2006, the PRC government, under its macroeconomic controls, introduced a mechanism for determining domestic prices of refined products. On December 18, 2008, the PRC government further modified this mechanism by linking the domestic prices of refined oil products to a number of factors, including international market prices, average domestic processing cost, tax, selling expenses and appropriate profit margin. Historically, international prices for crude oil and refined products have fluctuated widely in response to changes in many factors, such as global and regional economic and political developments, and global and regional supply and demand for crude oil and refined products. We do not have, and will not have, control over the factors affecting international prices for crude oil and refined products. A decline in crude oil prices will reduce our crude oil revenues derived from external customers. If crude oil prices remain at a low level for a prolonged period, our company has to determine and estimate whether our oil and gas assets may suffer impairment losses and, if so, the amount of the impairment losses. An increase in crude oil prices may, however, increase the production costs of refined products. In addition, a decline in refined products prices will reduce our revenue derived from refining operations. An increase in the refined products prices, however, will increase the production costs of chemical products which use refined products as raw materials. |
In addition to the adverse effect on our revenues, margins and
profitability from any future fall in oil and natural gas
prices, a prolonged period of low prices or other indicators
would lead to a review for impairment of our oil and natural gas
properties. This review would reflect management’s view of
long-term oil and natural gas prices. Such a review could result
in a charge for impairment which could have a significant effect
on our results of operations in the period in which it occurs.
| • | The crude oil and natural gas reserve data in this annual report are only estimates. The reliability of reserve estimates depends on a number of factors, assumptions and variables, such as the quality and quantity of our technical and economic data and the prevailing oil and gas prices applicable to our production, some of which are beyond our control and may prove to be incorrect over time. Results of drilling, testing and production after the date of the estimates may require substantial upward or downward revisions in our reserve data. Our actual production, revenues and expenditures with respect to our reserves may differ materially from these estimates because of these revisions. | |
| • | Our proved crude oil reserves decreased gradually and modestly from 2001 to 2003 because the decrease in the crude oil reserves in our Daqing and Liaohe oil regions could not be offset by the increase in the crude oil reserves in our oil regions in northwestern China, such as the Xinjiang oil region, the Changqing oil and gas region and the Tarim oil region. Our proved crude oil reserves increased slightly in 2004, 2005, 2006 and 2007 compared to prior years. Our proved crude oil reserves slightly decreased in China in 2008 and 2009 as a result of the lower oil price in 2008 and 2009. We are actively pursuing business opportunities outside China to supplement our domestic resources. For instance, we acquired certain overseas crude oil and natural |
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| gas assets from CNPC. We cannot assure you, however, that we can successfully locate sufficient alternative sources of crude oil supply or at all due to the complexity of the international political, economic and other conditions. If we fail to obtain sufficient alternative sources of crude oil supply, our results of operations and financial condition may be materially and adversely affected. |
| • | The oil, gas and petrochemicals industries are highly competitive. There is strong competition, both within the oil and gas industry and with other industries, in supplying the fuel needs of commerce, industry and the home. Competition puts pressure on product prices, affects oil products marketing and requires continuous management focus on reducing unit costs and improving efficiency. The implementation of our growth strategy requires continued technological advances and innovation, including advances in exploration, production, refining, petrochemicals manufacturing technology and advances in technology related to energy usage. Our performance could be impeded if competitors developed or acquired intellectual property rights to technology that we required or if our innovation lagged the industry. | |
| • | Exploring for, producing and transporting crude oil and natural gas and producing and transporting refined products and chemical products involve many hazards. These hazards may result in: |
| • | fires; | |
| • | explosions; | |
| • | spills; | |
| • | blow-outs; and | |
| • | other unexpected or dangerous conditions causing personal injuries or death, property damage, environmental damage and interruption of operations. |
Some of our oil and natural gas fields are surrounded by
residential areas or located in areas where natural disasters,
such as earthquakes, floods and sandstorms, tend to occur more
frequently than in other areas. As with many other companies
around the world that conduct similar businesses, we have
experienced accidents that have caused property damage and
personal injuries and death.
Significant operating hazards and natural disasters may cause
partial interruptions to our operations and property and
environmental damage that could have an adverse impact on our
financial condition.
We maintain insurance coverage against some, but not all,
potential losses. We may suffer material losses resulting from
uninsurable or uninsured risks or insufficient insurance
coverage.
| • | As of December 31, 2009, CNPC beneficially owned approximately 86.285% of our share capital. This ownership percentage enables CNPC to elect our entire board of directors without the concurrence of any of our other shareholders. Accordingly, CNPC is in a position to: |
| • | control our policies, management and affairs; | |
| • | subject to applicable PRC laws and regulations and provisions of our articles of association, affect the timing and amount of dividend payments and adopt amendments to certain of the provisions of our articles of association; and | |
| • | otherwise determine the outcome of most corporate actions and, subject to the regulatory requirements of the jurisdictions in which our shares are listed, cause our company to effect corporate transactions without the approval of minority shareholders. |
CNPC’s interests may sometimes conflict with those of some
or all of our minority shareholders. We cannot assure you that
CNPC, as our controlling shareholder, will always vote its
shares in a way that benefits our minority shareholders.
| • | CNPC may choose to undertake, without our involvement, overseas investments and operations in the oil and gas industry, including exploration and production of oil and gas, refining and LNG projects. CNPC’s overseas asset portfolio includes oil and gas development projects in Iran and Sudan, which countries are on the sanction list published and administrated by the Office of Foreign Assets Control, or OFAC, of the |
14
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| U.S. Department of Treasury. Certain U.S.-based investors may not wish to invest, and have proposed or adopted divestment or similar initiatives regarding investments, in companies that do business with countries on OFACs sanction list. These investors may not wish to invest, and may divest their investment, in us because of our relationship with CNPC and its investments and activities in those OFAC sanctioned countries. As a result, the trading prices of our ADSs may be materially and adversely affected. |
| • | In addition to its relationship with us as our controlling shareholder, CNPC by itself or through its affiliates also provides us with certain services and products necessary for our business activities, such as construction and technical services, production services and supply of material services. The interests of CNPC and its affiliates as providers of these services and products to us may conflict with our interests. Although we have entered into a Comprehensive Products and Services Agreement with CNPC and our transactions with CNPC over the past three years have been conducted on open, fair and competitive commercial terms, we have only limited leverage in negotiating with CNPC and its affiliates over the specific terms of the agreements for the future provision of these services and products. | |
| • | The eastern and southern regions of China have a higher demand for refined products and chemical products than the western and northern regions. Most of our refineries and chemical plants are located in the western and northern regions of China. We incur relatively higher transportation costs for delivery of our refined products and chemical products to certain areas of the eastern and southern regions from our refineries and chemical plants in western and northern China. While we continue to expand the sales of these products in the eastern and southern regions of China, we face strong competition from Sinopec and China National Offshore Oil Corp, or CNOOC. As a result, we expect that we will continue to encounter difficulty in increasing our sales of refined products and chemical products in these regions. | |
| • | We are currently constructing new, and expanding some existing, refinery and petrochemical facilities and constructing several natural gas and oil pipelines, which could require substantial capital expenditures and investments. We cannot assure you that the cash generated by our operations will be sufficient to fund these development plans or that our actual future capital expenditures and investments will not significantly exceed our current planned amounts. If either of these conditions arise, we may have to seek external financing to satisfy our capital needs. Our inability to obtain sufficient funding for our development plans could adversely affect our business, financial condition and results of operations. | |
| • | Compliance with changes in laws, regulations and obligations relating to climate change or environmental protection could result in substantial capital expenditure and reduced profitability from changes in operating costs. | |
| • | We are also subject to a number of risks relating to the PRC and the PRC oil and gas industry. These risks are described as follows: |
| • | Our operations, like those of other PRC oil and gas companies, are subject to extensive regulations and control by the PRC government. These regulations and control affect many material aspects of our operations, such as exploration and production licensing, industry-specific and product-specific taxes and fees and environmental and safety standards. As a result, we may face significant constraints on our ability to implement our business strategies, to develop or expand our business operations or to maximize our profitability. Our business may also be adversely affected by future changes in certain policies of the PRC government with respect to the oil and gas industry. For example, since March 26, 2006, we have been subject to a crude oil special gain levy imposed by the PRC government. On June 1, 2010, the Ministry of Finance and the State Administration of Taxation jointly promulgated a new resource tax regulation for the extraction of crude oil and natural gas. Pursuant to this regulation, effective from June 1, 2010, the resource tax payable by the resource tax payers in connection with their extraction of crude oil and natural gas in Xinjiang shall be collected based on value instead of volume. In the future if the Ministry of Finance and the State Administration of Taxation promulgate similar regulations applicable to any other provinces or regions in China, our results of operations may be adversely affected. | |
| • | Currently, the PRC government must approve the construction and major renovation of significant refining and petrochemical facilities as well as the construction of significant natural gas and refined |
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| product pipelines and storage facilities. We presently have several significant projects pending approval from the relevant government authorities and will need approvals from the relevant government authorities in connection with several other significant projects. We do not have control over the timing and outcome of the final project approvals. |
| • | We receive most of our revenues in Renminbi. A portion of our Renminbi revenues must be converted into other currencies to meet our foreign currency obligations. The existing foreign exchange limitations under the PRC laws and regulations could affect our ability to obtain foreign exchange through debt financing, or to obtain foreign exchange for capital expenditures. The value of Renminbi against U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. On July 21, 2005, the PRC government introduced a floating exchange rate system to allow the value of the Renminbi to fluctuate within a regulated band based on market supply and demand and by reference to a basket of foreign currencies. From July 21, 2005 to December 31, 2009, the value of the Renminbi has appreciated significantly against the U.S. dollar. The appreciation of Renminbi against U.S. dollar may cause a decrease in our exportation of our products. |
| • | A number of provinces and regions in which our oil and gas exploration and production activities are located have promulgated environment protection regulations, which set forth specific abandonment and disposal processes for oil and gas exploration and production activities. We have established standard abandonment procedures, including plugging all retired wells, dismantling all retired metering stations and other related facilities and performing site restoration, in response to the issuance of these provincial and regional regulations. As to the oil and gas properties that were retired prior to the issuance of such regulations, we believe that the activities required to retire these assets need not to be performed to the level that would be in compliance with the regulations and our internal policy. The costs associated with these activities have not been included in the asset retirement obligations accrued since the issuance of these regulations. However, the governments of these provinces and regions could enact new regulations, amend the current regulations or retroactively apply the relevant requirements. If any of these regulations is determined to be applicable to assets other than those that were retired subsequent to the dates that these regulations were issued, we could be required to incur substantial costs associated with such asset retirement obligations. In addition, there may be additional provincial governments to enact new regulations that may require our company to perform additional asset retirement activities related to the assets retired before the establishment of our company’s internal policy and areas in which these assets were or continue to be located. Such potential new regulations could increase our asset retirement costs. | |
| • | Because PRC laws, regulations and legal requirements dealing with economic matters are relatively new and continue to evolve, and because of the limited volume of published judicial interpretations and the non-binding nature of prior court decisions, the interpretation and enforcement of these laws, regulations and legal requirements involve some uncertainty. Because the PRC Company Law is different in certain important aspects from company laws in the United States, Hong Kong and other common law jurisdictions, and because the PRC securities laws and regulations are still at an early stage of development, you may not enjoy shareholders’ protections that you may be entitled to in other jurisdictions. | |
| • | SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company in the United States to include a management report on such company’s internal control over financial reporting in its annual report, which contains management’s assessment of the effectiveness of the company’s internal control over financial reporting. Although our management concluded that our internal control over our financial reporting for the fiscal year ended December 31, 2009 was effective, we may discover other deficiencies in the course of our future evaluation of our internal control over our financial reporting and may be unable to remediate such deficiencies in a timely manner. If we fail to maintain the adequacy of our internal control over financial reporting, we may not be able to conclude that we have effective internal control over financial reporting on an ongoing basis, in accordance with the Sarbanes-Oxley Act. Moreover, effective internal control is necessary for us to produce reliable financial reports and is important to prevent fraud. As a result, our failure to achieve and maintain effective internal control over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the trading prices of our ADSs, H Shares or A Shares. |
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See also “Item 4 — Information on our
Company — Regulatory Matters”,
“Item 5 — Operating and Financial Review and
Prospects”, “Item 8 — Financial
Information” and “Item 11 —
Quantitative and Qualitative Disclosures About Market Risk”.
| ITEM 4 — | INFORMATION ON THE COMPANY |
Introduction
History
and Development of Our Company
Overview
of Our Operations
We are one of the largest companies in China in terms of sales.
We are engaged in a broad range of petroleum and natural gas
related activities, including:
| • | the exploration, development, production and sale of crude oil and natural gas; | |
| • | the refining of crude oil and petroleum products, as well as the production and marketing of basic petrochemical products, derivative chemical products and other chemical products; | |
| • | the marketing and trading of refined oil products; and | |
| • | the transmission of natural gas, crude oil and refined oil products as well as the sale of natural gas. |
Prior to 2009, our business consisted of exploration and
production segment, refining and marketing segment, chemicals
and marketing segment, and natural gas and pipeline segment. We
restructured our business segmentation in 2009 by dividing our
business into four segments, including exploration and
production, refining and chemicals, marketing segment, and
natural gas and pipeline. As a result, the refining and
chemicals segment now consists of the refining of crude oil and
petroleum products, as well as the production and marketing of
basic petrochemical products, derivative chemical products and
other chemical products. The marketing segment now consists of
the marketing and trading of refined oil products.
We are China’s largest producer of crude oil and natural
gas. Currently, substantially all of our crude oil and natural
gas reserves and production-related assets are located in China.
In the year ended December 31, 2009, we had turnover of RMB
1,019,275 million and profit attributable to the owners of
our company of RMB 103,387 million.
Our exploration, development and production activities commenced
in the early 1950s, when we conducted exploration activities in
the Yumen oil region in northwestern China. The discovery of
crude oil in 1959 in northeastern China’s Daqing oil
region, one of the world’s largest oil regions in terms of
proved crude oil reserves, marked the beginning of our
large-scale upstream activities. Over more than five decades, we
have conducted crude oil and natural gas exploration activities
in many regions of China. As of December 31, 2009, we had
estimated proved reserves of approximately 11,262.6 million
barrels of crude oil and approximately 63,243.8 billion
cubic feet of natural gas. We believe that we hold production
licenses for a majority of China’s proved crude oil
reserves and proved natural gas reserves. In the year ended
December 31, 2009, we produced 843.5 million barrels
of crude oil and 2,112.2 billion cubic feet of natural gas
for sale, representing an average production of
2.31 million barrels of crude oil and 5.79 billion
cubic feet of natural gas for sale per day. In the year ended
December 31, 2009, a substantial majority of crude oil we
sold was supplied to our refineries.
We commenced limited refining activities in the mid-1950s, when
we began producing gasoline and diesel at refineries in the
Yumen oil region. Our chemicals operations commenced in the
early 1950s, when we began producing urea at our first
petrochemical plant in Lanzhou in northwestern China. In the
early 1960s, we began producing ethylene. We now operate 30
enterprises located in nine provinces, four autonomous regions
and three municipalities to engage in refining of crude oil and
petroleum products, as well as the production and marketing of
basic petrochemical products, derivative chemical products and
other chemical products. In 2009, our refineries processed
approximately 828.6 million barrels of crude oil or an
average of 2.3 million barrels per day. In 2009, we
produced approximately 73.2 million tons of gasoline,
diesel and kerosene. In 2009, approximately 75.4% of the crude
oil processed in our refineries was provided by our exploration
and production segment and approximately
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23.0% of the crude oil processed in our refineries was imported.
We are one of the major producers of ethylene in China. We
produced 2,988.9 thousand tons of ethylene in 2009. In 2009, we
produced 2,434.1 thousand tons of polyethylene, 1,800.9 thousand
tons of polypropylene and 201.8 thousand tons of ABS,
respectively.
As of December 31, 2009, our retail distribution network
consisted of 16,607 service stations that we own and operate and
655 franchise service stations. In 2009, we sold approximately
101.25 million tons of gasoline, diesel and kerosene in
total.
We are China’s largest natural gas transporter and seller
in terms of sales volume. Our natural gas transmission and
marketing activities commenced in Sichuan in southwestern China
in the 1950s. In 2009, our sales of natural gas totaled
2,105.1 billion cubic feet. As of December 31, 2009,
we owned and operated regional natural gas pipeline networks
consisting of 28,595 kilometers of pipelines. As of
December 31, 2009, we owned and operated a crude oil
pipeline network consisting of 13,164 kilometers of pipelines
with an average daily throughput of approximately
3.03 million barrels of crude oil. As of December 31,
2009, we also had a refined product pipeline network consisting
of 8,868 kilometers of pipelines with an average daily
throughput of approximately 48,803 tons of refined products.
We have increased our efforts to pursue attractive business
opportunities outside China as part of our business growth
strategy to utilize both domestic and international resources to
strengthen our competitiveness. Since 2005, we have acquired
interests in various oil and natural gas assets in twelve
countries, including, among others, Kazakhstan, Venezuela and
Iraq, which significantly expanded our overseas operations and
effectively increased our oil and gas reserves and production
volumes. In November 2009, we signed a contract to develop
Iraq’s Rumaila oilfield, pursuant to which we hold a 37%
stake in the operation of Rumaila project. In January 2010, we
entered into a development and production contract in respect of
the Halfaya Oilfield in Iraq for a term of 20 years,
pursuant to which we own a 37.5% of the participating interest
in Halfaya oilfield. We are currently assessing the feasibility
of making further investments in international oil and gas
markets.
In the year ended December 31, 2009, we imported
approximately 326.5 million barrels of crude oil, as
compared to 281.1 million barrels and 272.3 million
barrels of crude oil in the years ended December 31, 2008
and 2007, respectively.
Acquisitions
On May 15, 2009, PetroChina Kunlun Gas Limited
(“Kunlun Gas”), a wholly owned subsidiary of our
company, entered into a transfer agreement with each of China
Huayou Group Corporation and China Petroleum Pipeline Bureau,
wholly owned subordinated entities of CNPC, pursuant to which
Kunlun Gas agreed to acquire city gas business from the
transferors. The targets of the acquisitions include the equity
interests in eight companies held by China Huayou Group
Corporation and China Petroleum Pipeline Bureau and relevant
assets owned by China Huayou Group Corporation. Upon completion
of the acquisition agreement, Kunlun Gas paid the transferors a
consideration of approximately RMB1,093.9 million.
On June 18, 2009, an acquisition agreement was entered into
between PetroChina West Pipeline Branch Company and CNPC West
Pipeline Company Limited, pursuant to which Western Pipeline
Branch Company agreed to acquire the western pipeline assets
from the transferor. Upon completion of the acquisition on
June 30, 2009, the parties referred to the appraised net
assets value of the western pipeline assets as at March 31,
2009, the valuation date, and adjusted the consideration by
reference to the change in the net asset value of the western
pipeline assets for the period from the valuation date to the
completion date on a
dollar-for-dollar
basis. The final consideration paid by our company to the
transferor was approximately RMB8,355.4 million.
On August 28, 2009, our company entered into an equity
transfer agreement with CNPC Exploration and Development Company
Ltd. (“CNPC E&D”) and CNPC Central Asia Petroleum
Company Limited (“CNPC Central Asia”), pursuant to
which our company agreed to acquire the 100% share capital in
South Oil Exploration and Development Co., Ltd. from CNPC
E&D and CNPC Central Asia. Upon completion of the
acquisition, the company will pay a consideration of
approximately RMB2,813.3 million to CNPC E&D and CNPC
Central Asia. Such consideration will be adjusted by reference
to the final appraised value filed with the State-owned Assets
Supervision and Administration Commission. Any net profit or
loss incurred during the period from the valuation
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date to the completion date shall be attributable to the
transferors. As at the end of the reporting period, the
transaction has not yet been completed.
On August 28, 2009, several asset transfer agreements were
entered into between ten of our company’s branch companies
and ten subordinated entities of CNPC (including CNPC Daqing
Petrochemical Factory), pursuant to which our company agreed to
acquire refinery equipment assets from the transferors. Upon
completion of the acquisition on November 30, 2009, the
parties referred to the appraised net asset value of the
refinery equipment assets as at February 28, 2009, the
valuation date, and adjusted the consideration by reference to
the change in the net asset value of the refinery equipment
assets for the period from the valuation date to the completion
date on a
dollar-for-dollar
basis. The final consideration paid by our company to the
transferors was approximately RMB11,327.2 million.
On August 28, 2009, PetroChina Amu Darya Natural Gas
Exploration and Development (Beijing) Company Limited, a wholly
owned subsidiary of the company, and China National Petroleum
Corporation International (“CNPCI”), a subsidiary of
CNPC, entered into the Contractual Rights Transfer Agreement,
pursuant to which we have agreed to acquire from CNPCI the
contractual rights under the production sharing contract on the
Bagtyiarlyk area at Amu Darya Right Bank in Turkmenistan, and
the relevant assets and liabilities formed in the course of
CNPCI’s fulfillment of the same. Upon completion of the
acquisition, the company will pay the consideration in the sum
of approximately US$1,186.5 million (approximately
RMB8,106.6 million), of which the company will pay
approximately US$350.5 million in cash to CNPCI, and assume
bank loans amounting to approximately US$836.0 million owed
by CNPCI in the course of performing its obligations under the
production sharing contract. The consideration is determined by
reference to the valuation results and will be adjusted by
reference to the final valuation results filed with the
State-owned Assets Supervision and Administration Commission and
the change in value of the net asset in connection with this
acquisition for the period from the valuation date to the
completion date. As at the end of the reporting period, the
acquisition has not yet been completed. The Amu Darya Project is
an offshore natural gas project cooperation between CNPC and the
Government of Turkmenistan on a product sharing basis. The
product sharing contract under the Amu Darya Project involves an
area of approximately 14,300 square kilometers. The term of
the contract is 35 years.
On December 30, 2009, Kunlun Gas, a wholly owned subsidiary
of our company, and Daqing Petroleum Administrative Bureau, a
wholly owned subordinated entity of CNPC, entered into an asset
transfer agreement, pursuant to which Kunlun Gas will acquire
the 100% equity interest in Daqing Oilfield Zhongqing Gas
Holdings Co., Ltd. held by Daqing Petroleum Administrative
Bureau. Upon completion of the acquisition, Kunlun Gas will pay
to the Daqing Petroleum Administrative Bureau the consideration
in the amount of approximately RMB1,088.1 million,
representing the net asset value of the target equity interest
as at the date of valuation. This consideration will be adjusted
by any gain/loss attributable to the target equity interest
which arise between the reference date of valuation and the
completion date on the basis of such floor price of the target
equity interest as submitted for the open tender by the Daqing
Petroleum Administrative Bureau. As at the end of the reporting
period, the acquisition has not yet been completed.
In addition, we have launched a series of overseas acquisitions,
for example:
| • | In May 2009, PetroChina International (Singapore) Pte. Ltd., an indirectly wholly owned subsidiary of our company, acquired from Keppel Oil and Gas Services Pte Ltd approximately 45.51% share capital in Singapore Petroleum Company Limited (“SPC”) and completed the mandatory general cash offer for all the remaining shares in the capital of SPC in October, 2009; | |
| • | In November 2009, Mangistau Investments B.V., a joint venture equally owned by CNPC E&D and JSC National Company “KazMunayGas”, acquired 100% of the common shares of JSC Mangistaumunaigas, which is one of the major oil-producing companies in Kazakhstan. CNPC E&D is 50% owned by our company; | |
| • | In February 2010, PetroChina International Investment Company Limited, a subsidiary of our company, and Canada’s Athabasca Oil Sands Corp. (“AOSC”) entered into a share purchase agreement, a joint venture agreement, a shareholder agreement, a loan agreement and a put/call option agreement for the acquisition of the oil sand asset projects of AOSC; and |
19
Table of Contents
| • | In March 2010, CS CSG (Australia) Pty Ltd entered into an acquisition agreement with Arrow Energy Limited (“Arrow”) for the acquisition of all the shares in Arrow. Arrow is an Australian integrated energy company focusing on the development of coal seam gas throughout eastern Australia and Asia. CS CSG (Australia) Pty Ltd is a joint venture equally owned by PetroChina International (Singapore) Pte. Ltd. and Shell Energy Holdings Australia Ltd. |
Our
Corporate Organization and Shareholding Structure
We were established as a joint stock company with limited
liability under the Company Law of the PRC on November 5,
1999 as part of a restructuring in which CNPC transferred to us
most of the assets and liabilities of CNPC relating to its
exploration and production, refining and marketing, chemicals
and natural gas businesses. CNPC retained the assets and
liabilities relating to its remaining businesses and operations,
including assets and liabilities relating to international
exploration and production and refining and pipeline operations.
CNPC is our primary provider of a wide range of services and
products. On April 7, 2000, we completed a global offering
of H Shares and ADSs. In September 2005, we completed a
follow-on offering of over 3 billion H Shares at the price
of HK$6.00 per share. In October 2007, we issued 4 billion
A Shares at an issue price of RMB 16.7 per share. The A Shares
were listed on the Shanghai Stock Exchange on November 5,
2007. As of December 31, 2009, CNPC beneficially owned
157,919,717,259 shares, which include 155,120,000 H Shares
indirectly held by CNPC through Fairy King Investments Limited,
an overseas wholly owned subsidiary of CNPC, representing
approximately 86.285% of the share capital of PetroChina.
The following chart illustrates our corporate organization
structure as of December 31, 2009:
| (1) | Indicates approximate shareholding. | |
| (2) | Indicates approximate shareholding, including the 155,120,000 H Shares indirectly held by CNPC through Fairy King Investments Limited, an overseas wholly owned subsidiary of CNPC, as of December 31, 2009. | |
| (3) | Includes PetroChina Planning & Engineering Institute, PetroChina Exploration & Development Research Institute, IT Service Center, PetroChina Petrochemical Research Institute and several other companies. |
20
Table of Contents
The following chart illustrates our management structure:
21
Table of Contents
For a description of our principal subsidiaries, see
Note 19 to our consolidated financial statements.
General
Information
Our legal name is “
” and
its English translation is PetroChina Company Limited. Our
headquarters are located at 9 Dongzhimen North Street, Dongcheng
District, Beijing, China, 100007, and our telephone number at
this address is
(86-10)
5998-6223.
Our website address is www.petrochina.com.cn. The information on
our website is not part of this annual report.
” and
its English translation is PetroChina Company Limited. Our
headquarters are located at 9 Dongzhimen North Street, Dongcheng
District, Beijing, China, 100007, and our telephone number at
this address is
(86-10)
5998-6223.
Our website address is www.petrochina.com.cn. The information on
our website is not part of this annual report.
Our agent for service of process in the United States is CT
Corporation System, located at 111 Eighth Avenue, New York, New
York 10011.
22
Table of Contents
23
Table of Contents
Exploration
and Production
We engage in crude oil and natural gas exploration, development
and production. Substantially all of our total estimated proved
crude oil and natural gas reserves are located in China,
principally in northeastern, northern, southwestern and
northwestern China. The Songliao basin, located in Heilongjiang
and Jilin provinces in northeastern China, including the Daqing
and Jilin oil regions, accounted for 37.6% of our proved crude
oil reserves as of December 31, 2009 and 39.9% of our crude
oil production in 2009. We also have significant crude oil
reserves and operations in the area around the Bohai Bay. The
Bohai Bay basin includes the Liaohe, Dagang, Huabei and Jidong
oil regions and accounted for 19.5% of our proved crude oil
reserves as of December 31, 2009 and 17.8% of our crude oil
production in 2009. In 2009, we discovered Tanan, Nanbeier,
Yongpinghe and Honggouzi oil fields. Our proved natural gas
reserves and production are generally concentrated in
northwestern and southwestern China, specifically in the Erdos,
Tarim and Sichuan basins. As of December 31, 2009, our
overseas proved crude oil reserves accounted for 6.6% of our
total proved crude oil reserves and our overseas proved natural
gas reserves accounted for 1.4% of our total proved natural gas
reserves. In 2009, our overseas crude oil production accounted
for 10.4% of our total crude oil production and our overseas
natural gas production accounted for 4.5% of our total natural
gas production.
We currently hold exploration and exploitation licenses for oil
and gas (including coal seam gas) covering a total area of
approximately 458.7 million acres, consisting of the
exploration licenses covering a total area of approximately
436.7 million acres and the exploitation licenses covering
a total area of approximately 22.0 million acres. In 2009,
our exploration and production segment had profit from
operations of RMB 105,019 million.
To further develop our crude oil and natural gas businesses, we
have obtained oil and gas exploration licenses covering an area
of 41.82 million acres in South China Sea. The crude oil
and natural gas exploration in that area is currently under way.
Reserves
Our estimated proved reserves as of December 31, 2009
totaled approximately 11,262.6 million barrels of crude oil
and approximately 63,243.8 billion cubic feet of natural
gas. As of December 31, 2009, proved developed reserves
accounted for 69.9% and 48.9% of our total proved crude oil and
natural gas reserves, respectively. Total proved hydrocarbon
reserves on a
barrels-of-oil
equivalent basis increased by 1.8% from approximately
21,419.5 million
barrels-of-oil
equivalent as of December 31, 2008 to approximately
21,803.2 million
barrels-of-oil
equivalent as of December 31, 2009, taking account of our
overseas crude oil reserves of 747.0 million barrels and
overseas natural gas reserves of 866.9 billion cubic feet,
totaling 891.5 million
barrels-of-oil
equivalent. Natural gas as a percentage of total proved
hydrocarbon reserves increased from 47.6% as of
December 31, 2008 to 48.3% as of December 31, 2009.
We prepared our reserve estimates as of December 31, 2007,
2008 and 2009 on the basis of reports prepared by two
independent engineering consultants, DeGolyer &
MacNaughton and Gaffney, Cline & Associates
(Consultants) Pte Ltd. Our reserve estimates include only crude
oil and natural gas which we believe can be reasonably produced
within the current terms of our production licenses. See
“Regulatory Matters — Exploration Licenses and
Production Licenses” for a discussion of our production
licenses. Also see “Item 3 — Key
Information — Risk Factors” for a discussion of
the uncertainty inherent in the estimation of proved reserves.
Our reserve data for 2009 was prepared in accordance with the
SEC’s final rules on “Modernization of Oil and Gas
Reporting”, which became effective on January 1, 2010
and for annual reports for accounting periods ending on or after
December 31, 2009. The comparative information for 2007 and
2008 is not restated.
New
SEC Reserve Disclosures
In December 2008, the SEC announced that it had approved
revisions designed to modernize the oil and gas company reserve
reporting requirements. The most significant amendments to the
requirements included the following:
| • | Economic producibility of reserves and discounted cash flows are now based on a 12-month unweighted average commodity price unless contractual arrangements designate the price to be used. |
24
Table of Contents
| • | Probable and possible reserves may be disclosed separately on a voluntary basis. | |
| • | Reserves may be classified as proved undeveloped if there is a high degree of confidence that the quantities will be recovered and they are scheduled to be drilled within the next five years, unless the specific circumstances justify a longer time. | |
| • | Reserves may be estimated through the use of reliable technology in addition to flow tests and production history. | |
| • | Additional disclosure is required regarding the qualifications of the chief technical person who oversees the reserves estimation process. We are also required to provide a general discussion of our internal controls used to assure the objectivity of the reserves estimate. | |
| • | Reserves in foreign countries or continents must be presented separately if they represent more than 15% of our total oil and gas proved reserves. | |
| • | The definition of oil and gas producing activities has expanded and focuses on the marketable product rather than the method of extraction. |
All reserve estimates involve some degree of uncertainty. The
uncertainty depends chiefly on the amount of reliable geological
and engineering data available at the time of the estimate and
the interpretation of these data.
Internal
Controls Over Reserves Estimates
We have appointed a Reserve Assessment Directing Team (the
“RAD Team”). The leader of the RAD Team is our Vice
President in charge of our upstream business. The
responsibilities of the RAD Team include:
| • | formulation of reserve development strategies; | |
| • | arrangement of annual reserves; and | |
| • | review of the reserve assessment results. |
We have established a special reserve management department in
our exploration and production segment. Each of the officers and
employees of that department has over 20 years’
experience in oil industry and over 10 years’
experience in SEC-guided reserve assessment. Many members of
that department have national-level registered qualifications in
reserve expertise. Each regional company has established a
reserve management committee and a multi-disciplinary reserve
study office. The reserve study office is responsible for the
calculation of the newly discovered reserves and updating of the
assessment of the existing reserves. The results of our oil and
gas reserve assessment are subject to a two-level review by both
the regional companies and our exploration and production
company and the final examination and approval of the RAD Team.
In addition, we commissioned independent assessment firms to
independently reassess our annually assessed proved reserves in
accordance with relevant SEC rules. We disclose the proved
reserves so assessed by the independent assessment firms
pursuant to relevant SEC requirements.
Third-Party
Reserve Report
We commissioned DeGolyer and MacNaughton, an independent
petroleum engineering consulting firm based in the United
States, to carry out an independent assessment of our reserves
in China and certain other countries as of December 31,
2007, 2008 and 2009. DeGolyer and MacNaughton has been providing
petroleum consulting services throughout the world for over
70 years. DeGolyer and MacNaughton does not have any
financial interest, including stock ownership, in our company.
The fees of DeGolyer and MacNaughton are not contingent on the
results of its evaluation.
Mr. R.M. Shuck, a Senior Vice President with DeGolyer and
MacNaughton is primarily responsible for the preparation of our
reserve report. Mr. R.M. Shuck is a petroleum engineer and
a Registered Professional Engineer in the State of Texas.
Mr. R.M. Shuck is also a member of the Society of Petroleum
Engineers and has 32 years of experience in oil and gas
reservoir studies and evaluations.
25
Table of Contents
We also commissioned Gaffney, Cline & Associates
(Consultants) Pte Ltd, as independent reserve auditors, to carry
out an independent assessment of our reserves estimation and
valuation in Algeria, Chad, Kazakhstan and Venezuela as of
December 31, 2007, 2008 and 2009. Gaffney,
Cline & Associates (Consultants) Pte Ltd’s senior
partners, officers, and employees have no direct or indirect
financial interest in either our company or our affiliated
companies. Gaffney, Cline & Associates (Consultants)
Pte Ltd’s remuneration was not in any way contingent upon
reported reserve estimates.
The reserve report of Gaffney, Cline & Associates
(Consultants) Pte Ltd has been compiled under the supervision of
Mr. David S. Ahye Mr. Ahye is Gaffney,
Cline & Associates (Consultants) Pte Ltd’s
regional director for the Asia Pacific region, based in
Singapore. He has over 30 years’ experience in the
petroleum industry and has managed numerous reserves
certification audits. Mr. Ahye holds a Bachelor’s
Degree (Honors) in Chemical Engineering.
For detailed information about our net proved reserves
estimates, please refer to the summary of the reports of
DeGolyer & MacNaughton and Gaffney, Cline &
Associates (Consultants) Pte Ltd as filed hereto as
exhibit 15.1 and exhibit 15.2 of this annual report.
The following table sets forth our estimated proved reserves
(including proved developed reserves and proved undeveloped
reserves), proved developed reserves and proved undeveloped
reserves of crude oil and natural gas as of December 31,
2007, 2008 and 2009.
| Crude Oil | Natural Gas (1) | Combined (1) | ||||||||||
| (Millions of barrels) | (Bcf) | (BOE, in millions) | ||||||||||
|
Proved developed and undeveloped reserves
|
||||||||||||
|
Reserves as of December 31, 2007
|
11,705.6 | 57,110.6 | 21,223.9 | |||||||||
|
Revisions of previous estimates
|
(574.0 | ) | (636.3 | ) | (680.0 | ) | ||||||
|
Extensions and discoveries
|
885.4 | 6,579.0 | 1,982.0 | |||||||||
|
Improved recovery
|
75.0 | 0 | 75.0 | |||||||||
|
Production for the year
|
(870.7 | ) | (1,864.1 | ) | (1,181.4 | ) | ||||||
|
Reserves as of December 31, 2008
|
11,221.3 | 61,189.2 | 21,419.5 | |||||||||
|
Revisions of previous estimates
|
(192.6 | ) | (1,272.8 | ) | (404.6 | ) | ||||||
|
Extensions and discoveries
|
1,004.5 | 5,439.6 | 1,911.1 | |||||||||
|
Improved recovery
|
72.9 | 0 | 72.9 | |||||||||
|
Production for the year
|
(843.5 | ) | (2,112.2 | ) | (1,195.7 | ) | ||||||
|
Reserves as of December 31, 2009
|
11,262.6 | 63,243.8 | 21,803.2 | |||||||||
|
Proved developed reserves
|
||||||||||||
|
As of December 31, 2007
|
9,047.1 | 26,047.1 | 13,388.3 | |||||||||
|
As of December 31, 2008
|
8,324.1 | 26,666.8 | 12,768.6 | |||||||||
|
As of December 31, 2009
|
7,870.8 | 30,948.8 | 13,038.9 | |||||||||
|
Proved undeveloped reserves
|
||||||||||||
|
As of December 31, 2007
|
2,658.5 | 31,063.5 | 7,835.6 | |||||||||
|
As of December 31, 2008
|
2,897.2 | 34,522.4 | 8,650.9 | |||||||||
|
As of December 31, 2009
|
3,391.8 | 32,295.0 | 8,774.3 | |||||||||
| (1) | Represents natural gas remaining after field separation for condensate removal and reduction for flared gas. |
26
Table of Contents
The following tables set forth our crude oil and natural gas
proved reserves and proved developed reserves by region as of
December 31, 2007, 2008 and 2009.
| As of December 31, | ||||||||||||||||||||||||
| 2007 | 2008 | 2009 | ||||||||||||||||||||||
|
Proved
|
Proved
|
Proved
|
||||||||||||||||||||||
|
Developed
|
Developed
|
Developed
|
||||||||||||||||||||||
|
and
|
Proved
|
and
|
Proved
|
and
|
Proved
|
|||||||||||||||||||
| Undeveloped | Developed | Undeveloped | Developed | Undeveloped | Developed | |||||||||||||||||||
| (Millions of barrels) | ||||||||||||||||||||||||
|
Crude oil reserves
|
||||||||||||||||||||||||
|
Daqing
|
3,856.1 | 3,324.3 | 3,548.0 | 2,912.0 | 3,463.4 | 2,740.8 | ||||||||||||||||||
|
Liaohe
|
1,121.0 | 888.1 | 895.9 | 675.2 | 795.7 | 581.8 | ||||||||||||||||||
|
Xinjiang
|
1,354.9 | 1,198.9 | 1,302.6 | 1,106.6 | 1,395.1 | 1,117.6 | ||||||||||||||||||
|
Changqing
|
1,488.9 | 1,194.8 | 1,624.5 | 1,256.7 | 1,783.8 | 1,298.8 | ||||||||||||||||||
|
Jilin
|
784.2 | 463.4 | 819.8 | 441.0 | 771.6 | 393.4 | ||||||||||||||||||
|
Dagang
|
523.2 | 346.7 | 520.8 | 352.7 | 602.9 | 364.9 | ||||||||||||||||||
|
Tarim
|
590.3 | 379.7 | 594.0 | 371.3 | 584.8 | 277.0 | ||||||||||||||||||
|
Huabei
|
448.0 | 307.0 | 431.5 | 281.8 | 487.9 | 298.5 | ||||||||||||||||||
|
Qinghai
|
200.1 | 186.3 | 177.8 | 157.5 | 176.6 | 146.5 | ||||||||||||||||||
|
Tuha
|
164.7 | 91.7 | 162.3 | 97.8 | 134.6 | 87.9 | ||||||||||||||||||
|
Sichuan
|
9.5 | 4.4 | 13.1 | 3.6 | 19.9 | 3.5 | ||||||||||||||||||
|
Jidong
|
413.1 | 126.0 | 379.2 | 133.5 | 314.0 | 95.0 | ||||||||||||||||||
|
Other
regions
(1)
|
751.5 | 535.8 | 751.8 | 534.4 | 732.3 | 465.1 | ||||||||||||||||||
|
Total
|
11,705.6 | 9,047.1 | 11,221.3 | 8,324.1 | 11,262.6 | 7,870.8 | ||||||||||||||||||
| As of December 31, | ||||||||||||||||||||||||
| 2007 | 2008 | 2009 | ||||||||||||||||||||||
|
Proved
|
Proved
|
Proved
|
||||||||||||||||||||||
|
Developed
|
Developed
|
Developed
|
||||||||||||||||||||||
|
and
|
Proved
|
and
|
Proved
|
and
|
Proved
|
|||||||||||||||||||
| Undeveloped | Developed | Undeveloped | Developed | Undeveloped | Developed | |||||||||||||||||||
| (Bcf) | ||||||||||||||||||||||||
|
Natural gas
reserves
(2)
|
||||||||||||||||||||||||
|
Sichuan
|
10,400.5 | 4,365.5 | 11,285.4 | 4,030.4 | 11,177.3 | 4,219.0 | ||||||||||||||||||
|
Changqing
|
19,105.0 | 6,943.9 | 19,261.7 | 6,901.6 | 20,363.2 | 9,884.4 | ||||||||||||||||||
|
Xinjiang
|
1,537.1 | 999.3 | 4,061.8 | 2,028.7 | 3,497.9 | 2,156.6 | ||||||||||||||||||
|
Daqing
|
3,039.7 | 1,046.2 | 2,961.1 | 960.6 | 3,028.1 | 1,261.4 | ||||||||||||||||||
|
Qinghai
|
4,352.8 | 3,003.5 | 4,302.1 | 2,948.4 | 4,903.2 | 3,554.9 | ||||||||||||||||||
|
Tarim
|
15,114.3 | 7,918.8 | 15,516.4 | 7,722.7 | 16,892.1 | 7,758.3 | ||||||||||||||||||
|
Liaohe
|
386.4 | 296.2 | 283.2 | 193.6 | 133.9 | 100.5 | ||||||||||||||||||
|
Tuha
|
581.6 | 350.4 | 609.4 | 382.3 | 589.8 | 397.0 | ||||||||||||||||||
|
Huabei
|
193.1 | 119.2 | 207.8 | 133.7 | 140.0 | 119.6 | ||||||||||||||||||
|
Dagang
|
347.4 | 197.1 | 289.7 | 148.9 | 261.7 | 93.1 | ||||||||||||||||||
|
Jilin
|
1,169.9 | 104.1 | 1,180.5 | 113.4 | 1,177.0 | 450.6 | ||||||||||||||||||
|
Jidong
|
191.4 | 40.4 | 203.3 | 96.7 | 137.5 | 31.8 | ||||||||||||||||||
|
Other
regions
(1)
|
691.4 | 662.5 | 1,026.8 | 1,005.8 | 942.1 | 921.6 | ||||||||||||||||||
|
Total
|
57,110.6 | 26,047.1 | 61,189.2 | 26,666.8 | 63,243.8 | 30,948.8 | ||||||||||||||||||
| (1) | Represents Yumen and other oil regions and our overseas oil and gas fields as a result of our acquisition of overseas assets. | |
| (2) | Represents natural gas remaining after field separation for condensate removal and reduction for flared gas. |
27
Table of Contents
Exploration
and Development
We are currently conducting exploration and development efforts
in 12 provinces, two municipalities under the direct
administration of the central government and three autonomous
regions in China. We believe that we have more extensive
experience in the exploration and development of crude oil and
natural gas than any of our principal competitors in China.
Since the early 1950s, we have been working on developing
exploration and recovery technologies and methods tailored to
the specific geological conditions in China.
The following table sets forth the number of wells we drilled,
or in which we participated, and the results thereof, for the
periods indicated.
|
Year
|
Daqing | Xinjiang | Liaohe | Changqing | Huabei | Dagang | Sichuan | Others (1) | Total | |||||||||||||||||||||||||||||
|
2007
|
Net exploratory wells drilled (2) | 294 | 183 | 68 | 447 | 104 | 70 | 48 | 415 | 1,629 | ||||||||||||||||||||||||||||
| Crude oil | 103 | 103 | 49 | 186 | 47 | 59 | 3 | 141 | 691 | |||||||||||||||||||||||||||||
| Natural gas | 12 | 15 | — | 41 | — | — | 30 | 16 | 114 | |||||||||||||||||||||||||||||
| Dry (3) | 179 | 65 | 19 | 220 | 57 | 11 | 15 | 258 | 824 | |||||||||||||||||||||||||||||
| Net development wells drilled (2) | 4,670 | 1,350 | 529 | 3,087 | 528 | 260 | 83 | 2,377 | 12,884 | |||||||||||||||||||||||||||||
| Crude oil | 4,643 | 1,346 | 515 | 2,652 | 259 | 252 | 8 | 2,208 | 11,883 | |||||||||||||||||||||||||||||
| Natural gas | 17 | 4 | 11 | 384 | 269 | 8 | 75 | 163 | 931 | |||||||||||||||||||||||||||||
| Dry (3) | 10 | — | 3 | 51 | — | — | — | 6 | 70 | |||||||||||||||||||||||||||||
|
2008
|
Net exploratory wells drilled (2) | 234 | 162 | 63 | 583 | 94 | 91 | 67 | 354 | 1,648 | ||||||||||||||||||||||||||||
| Crude oil | 71 | 72 | 38 | 207 | 42 | 69 | 2 | 136 | 637 | |||||||||||||||||||||||||||||
| Natural gas | 1 | 15 | 0 | 26 | 0 | 0 | 38 | 12 | 92 | |||||||||||||||||||||||||||||
| Dry (3) | 162 | 75 | 25 | 350 | 52 | 22 | 27 | 206 | 919 | |||||||||||||||||||||||||||||
| Net development wells drilled (2) | 4,238 | 1,887 | 356 | 5,079 | 415 | 238 | 100 | 2,887 | 15,200 | |||||||||||||||||||||||||||||
| Crude oil | 4,223 | 1,868 | 349 | 4,469 | 225 | 226 | 2 | 2,685 | 14,047 | |||||||||||||||||||||||||||||
| Natural gas | 4 | 18 | 6 | 528 | 186 | 8 | 77 | 179 | 1,006 | |||||||||||||||||||||||||||||
| Dry (3) | 11 | 1 | 1 | 82 | 4 | 4 | 21 | 23 | 147 | |||||||||||||||||||||||||||||
|
2009
|
Net exploratory wells drilled (2) | 306 | 149 | 77 | 688 | 77 | 67 | 61 | 369 | 1,794 | ||||||||||||||||||||||||||||
| Crude oil | 297 | 140 | 77 | 540 | 77 | 67 | 2 | 258 | 1,458 | |||||||||||||||||||||||||||||
| Natural gas | 9 | 9 | 0 | 148 | 0 | 0 | 59 | 111 | 336 | |||||||||||||||||||||||||||||
| Dry (3) | 227 | 69 | 58 | 331 | 27 | 22 | 29 | 278 | 1,041 | |||||||||||||||||||||||||||||
| Net development wells drilled (2) | 4,924 | 681 | 93 | 7,288 | 299 | 155 | 147 | 1,516 | 15,103 | |||||||||||||||||||||||||||||
| Crude oil | 4,923 | 674 | 84 | 6,808 | 224 | 148 | 8 | 1,162 | 14,031 | |||||||||||||||||||||||||||||
| Natural gas | 1 | 7 | 9 | 480 | 75 | 7 | 139 | 354 | 1,072 | |||||||||||||||||||||||||||||
| Dry (3) | 10 | 0 | 0 | 133 | 0 | 0 | 23 | 5 | 171 | |||||||||||||||||||||||||||||
| (1) | Represents the Jilin, Tarim, Tuha, Qinghai, Jidong, Yumen and other oil regions. | |
| (2) | “Net” wells refer to the wells after deducting interests of others. No third parties own any interests in any of our wells. | |
| (3) | “Dry” wells are wells with insufficient reserves to sustain commercial production. |
28
Table of Contents
Oil-and-Gas
Properties
The following table sets forth our interests in developed and
undeveloped acreage by oil region and in productive crude oil
and natural gas wells as of December 31, 2009.
| Acreage (1) | ||||||||||||||||||||||||
| Productive Wells (1) | Developed | Undeveloped | ||||||||||||||||||||||
|
Oil Region
|
Crude Oil | Natural Gas | Crude Oil | Natural Gas | Crude Oil | Natural Gas | ||||||||||||||||||
| (Thousands of acres) | ||||||||||||||||||||||||
|
Daqing
|
46,044 | 252 | 839.2 | 85.3 | 811.0 | 112.6 | ||||||||||||||||||
|
Liaohe
|
17,454 | 658 | 194.8 | 35.9 | 92.9 | 6.4 | ||||||||||||||||||
|
Xinjiang
|
19,792 | 134 | 304.1 | 52.0 | 167.6 | 27.2 | ||||||||||||||||||
|
Jilin
|
16,159 | 197 | 304.7 | 34.1 | 322.0 | 19.6 | ||||||||||||||||||
|
Changqing
|
23,397 | 3,853 | 548.5 | 2,202.8 | 537.4 | 2,725.5 | ||||||||||||||||||
|
Huabei
|
5,710 | 110 | 148.9 | 12.3 | 65.4 | 2.9 | ||||||||||||||||||
|
Dagang
|
3,503 | 72 | 107.4 | 24.5 | 87.8 | 21.4 | ||||||||||||||||||
|
Tuha
|
1,727 | 114 | 51.5 | 24.8 | 24.4 | 10.7 | ||||||||||||||||||
|
Tarim
|
1,025 | 249 | 107.0 | 75.7 | 62.7 | 275.3 | ||||||||||||||||||
|
Sichuan
|
423 | 1,826 | 335.5 | 401.3 | — | 520.9 | ||||||||||||||||||
|
Other
regions
(2)
|
5,526 | 517 | 74.5 | 32.5 | 58.9 | 25.2 | ||||||||||||||||||
|
Total
|
140,760 | 7,982 | 3,016.1 | 2,981.1 | 2,230.1 | 3,747.8 | ||||||||||||||||||
| (1) | Includes all wells and acreage in which we have an interest. No third parties own any interests in any of our wells or acreage. | |
| (2) | Represents the Qinghai, Jidong and Yumen and other oil regions. |
Approximately 66.0% of our proved crude oil reserves are
concentrated in the Daqing, Liaohe and Xinjiang oil regions and
the Changqing oil and gas region, and approximately 84.3% of our
proved natural gas reserves are concentrated in the Changqing
oil and gas region, the Tarim oil and gas region, the Sichuan
gas region and the Qinghai oil region. We believe that the
Erdos, Junggar, and Songliao basins and Bohai Bay have the
highest potential for increasing our crude oil reserve base
through future exploration and development, and that the Erdos,
Tarim, Sichuan, and Qaidam basins have the highest potential for
increasing our natural gas reserve base through future
exploration and development.
Production
The following table sets forth our historical average net daily
crude oil and natural gas production by region and our average
sales price for the periods ended December 31, 2007, 2008
and 2009.
|
For the Year Ended
|
||||||||||||||||
| December 31, |
% of
|
|||||||||||||||
| 2007 | 2008 | 2009 | 2009 Total | |||||||||||||
|
Crude oil
production
(1)
|
||||||||||||||||
|
(thousands of barrels per day, except percentages or otherwise
indicated)
|
||||||||||||||||
|
Daqing
|
847.3 | 813.2 | 806.2 | 34.9 | ||||||||||||
|
Liaohe
|
231.3 | 224.6 | 202.4 | 8.8 | ||||||||||||
|
Xinjiang
|
249.4 | 246.9 | 220.5 | 9.5 | ||||||||||||
|
Changqing
|
246.9 | 279.8 | 318.1 | 13.8 | ||||||||||||
|
Tarim
|
131.6 | 132.7 | 112.2 | 4.9 | ||||||||||||
|
Huabei
|
90.8 | 89.7 | 86.3 | 3.7 | ||||||||||||
|
Jilin
|
120.0 | 121.2 | 115.5 | 5.0 | ||||||||||||
29
Table of Contents
|
For the Year Ended
|
||||||||||||||||
| December 31, |
% of
|
|||||||||||||||
| 2007 | 2008 | 2009 | 2009 Total | |||||||||||||
|
Dagang
|
91.2 | 92.2 | 87.8 | 3.8 | ||||||||||||
|
Tuha
|
44.8 | 46.7 | 32.8 | 1.4 | ||||||||||||
|
Other
(2)
|
264.5 | 332.0 | 329.2 | 14.2 | ||||||||||||
|
Total
|
2,317.8 | 2,379.0 | 2,311.0 | 100 | ||||||||||||
|
Annual production (million barrels)
|
846.0 | 870.7 | 843.5 | |||||||||||||
|
Average sales price
|
||||||||||||||||
|
(RMB per barrel)
|
496.3 | 608.1 | 368.2 | |||||||||||||
|
(US$ per barrel)
|
65.27 | 87.55 | 53.9 | |||||||||||||
|
Natural gas
production
(1)(3)
|
||||||||||||||||
|
(millions of cubic feet per day, except percentages or otherwise
indicated)
|
||||||||||||||||
|
Sichuan
|
1,329.8 | 1,364.6 | 1,381.4 | 23.9 | ||||||||||||
|
Changqing
|
838.4 | 1,024.5 | 1,434.1 | 24.8 | ||||||||||||
|
Daqing
|
123.7 | 136.0 | 156.5 | 2.7 | ||||||||||||
|
Qinghai
|
286.0 | 378.1 | 378.1 | 6.5 | ||||||||||||
|
Tuha
|
111.5 | 107.0 | 94.0 | 1.6 | ||||||||||||
|
Xinjiang
|
102.3 | 129.9 | 173.4 | 3.0 | ||||||||||||
|
Liaohe
|
43.9 | 40.8 | 38.7 | 0.7 | ||||||||||||
|
Huabei
|
39.1 | 38.9 | 45.1 | 0.8 | ||||||||||||
|
Tarim
|
1,383.1 | 1,564.1 | 1,650.3 | 28.5 | ||||||||||||
|
Dagang
|
43.0 | 44.2 | 43.1 | 0.7 | ||||||||||||
|
Other
(4)
|
158.7 | 265.2 | 392.0 | 6.8 | ||||||||||||
|
Total
|
4,459.5 | 5,093.3 | 5,786.7 | 100 | ||||||||||||
|
Annual production (Bcf)
|
1,627.7 | 1,864.2 | 2,112.2 | |||||||||||||
|
Average sales price
|
||||||||||||||||
|
(RMB per Mcf)
|
29.2 | 32.8 | 32.7 | |||||||||||||
|
(US$ per Mcf)
|
3.84 | 4.72 | 4.78 | |||||||||||||
| (1) | Production volumes for each region include our share of the production from all of our cooperative projects with foreign companies in that region. | |
| (2) | Represents production from the Qinghai, Jidong, Yumen and other oil regions and our share of overseas production as a result of our acquisition of overseas assets. | |
| (3) | Represents production of natural gas for sale. | |
| (4) | Represents production from the Jilin, Jidong, Yumen and other oil regions and our share of overseas production as a result of our acquisition of overseas assets. |
In 2009, we supplied approximately 81.1% of our total crude oil
sales to our refineries, 5.5% to Sinopec’s refineries, 9.4%
to companies or entities outside China, and the remaining 4.0%
to regional refineries or other entities. We entered into a
crude oil mutual supply framework agreement with Sinopec on
December 30, 2009 for the supply of crude oil to each
other’s refineries in 2010. Under this agreement, we agreed
in principle to supply 5.41 million tons of crude oil to
Sinopec. For the years ended December 31, 2007, 2008 and
2009, the average lifting costs of our crude oil and natural gas
production were US$7.75 per
barrel-of-oil
equivalent, US$9.48 per
barrel-of-oil
equivalent and US$9.12 per
barrel-of-oil
equivalent, respectively.
30
Table of Contents
Principal
Oil and Gas Regions
Daqing
Oil Region
The Daqing oil region, our largest oil and gas producing
property, is located in the Songliao basin and covers an area of
approximately one million acres. The successful discovery and
development of the oil fields in the Daqing oil region marked a
critical breakthrough in the history of both our company and the
PRC oil and gas industry. In terms of proved hydrocarbon
reserves and annual production, the Daqing oil region is the
largest oil region in China and one of the most prolific oil and
gas properties in the world. We commenced exploration activities
in the Daqing oil region in 1955 and discovered oil in the
region in 1959. Annual crude oil production volume in the Daqing
oil region reached one million barrels per day in 1976 and
remained relatively stable until 2002. In 2007, 2008 and 2009,
our crude oil production volume in the Daqing oil region was
847.3 thousand barrels per day, 813.2 thousand barrels per day,
and 806.2 thousand barrels per day, respectively. As of
December 31, 2009, we produced crude oil from 20 fields in
the Daqing oil region.
As of December 31, 2009, our proved crude oil reserves in
the Daqing oil region were 3,463.4 million barrels,
representing 30.8% of our total proved crude oil reserves. The
proved crude oil reserves in our Daqing oil region have
gradually decreased since 1996 because the crude oil production
exceeded the crude oil reserve additions in our Daqing oil
region in each year since 1996. As of December 31, 2007,
2008 and 2009, the proved crude oil reserves in our Daqing oil
region were 3,856.1 million barrels, 3,548.0 million
barrels, and 3,463.4 million barrels, respectively. In
2009, our oil fields in the Daqing oil region produced an
average of 806.2 thousand barrels of crude oil per day,
representing approximately 34.9% of our total daily crude oil
production. The crude oil production in our Daqing oil region
decreased by 0.86% from 297.6 million barrels in 2008 to
294.3 million barrels in 2009. In 2009, the crude oil
reserve-to-production
ratio of the Daqing oil region was 11.6 years, compared to
11.92 years in 2008.
The crude oil we produce in the Daqing oil region has an average
API gravity of 35.7 degrees. In 2009, the crude oil we produced
in the Daqing oil region had an average water cut of 91.5%,
increased from the average water cut of 91.2% in 2008.
The crude oil in the Daqing oil region is primarily located in
large reservoirs with relatively moderate depths of
approximately 900 meters to 1,500 meters and with relatively
simple geological structures and most of the crude oil produced
at Daqing is medium viscosity oil. Crude oil produced using
enhanced recovery techniques accounted for 27.0%, 27.4%, and
30.5% of our crude oil production from the Daqing oil region in
2007, 2008 and 2009, respectively.
Because our oil fields in the Daqing oil region are relatively
mature, the difficulty of extracting crude oil from these fields
has increased in recent years and is likely to continue to
increase gradually in the future. As a result, our lifting costs
at these fields increased by 4.0% from US$9.72 per barrel for
the year ended December 31, 2008 to US$10.11 per barrel for
the year ended December 31, 2009. However, we have adopted
a number of measures to control the increase in our lifting
costs at these fields. Those measures include:
| • | implementing ground optimization and simplification projects and reducing investments with low or no return so as to control cost from the source; and | |
| • | applying new technologies to reduce energy consumption to increase our ability to maximize profit. |
Although we plan to continue to carry out these measures to
control the increase in our lifting costs, we expect our lifting
costs at these fields will continue to increase gradually in the
future.
We have an extensive transportation infrastructure network to
transport crude oil produced in the Daqing oil region to
internal and external customers in northeastern China and
beyond. Crude oil pipelines link our oil fields in the Daqing
oil region to the port of Dalian and the port of Qinhuangdao in
Bohai Bay, providing efficient transportation for selling Daqing
crude oil. These crude oil pipelines have an aggregate length of
2,500 kilometers and an aggregate throughput capacity of
approximately 1,067.7 thousand barrels per day.
Daqing’s crude oil has a low sulfur and high paraffin
content. As many refineries in China, particularly those in
northeastern China, are configured to refine Daqing crude oil,
we have a stable market for the crude oil we produce
31
Table of Contents
in the Daqing oil region. In 2009, we refined approximately
76.5% of Daqing crude oil in our own refineries, exported
approximately 1.7% and sold the remaining portion to Sinopec or
other local refineries.
Liaohe
Oil Region
The Liaohe oil region is one of our four largest crude oil
producing properties and is located in the northern part of the
Bohai Bay basin. We began commercial production in the Liaohe
oil region in 1971. The Liaohe oil region covers a total area of
approximately 580,000 acres.
As of December 31, 2009, our proved crude oil reserves in
the Liaohe oil region were 795.7 million barrels,
representing 7.1% of our total proved oil reserves. In 2009, our
oil fields in the Liaohe oil region produced an average of 202.4
thousand barrels of crude oil per day, representing
approximately 8.8% of our total daily crude oil production. In
2008, the crude oil
reserve-to-production
ratio in the Liaohe oil region was 11.4 years. In 2009, the
crude oil we produced in the Liaohe oil region had an average
API gravity of 26 degrees and an average water cut of 81.4%. We
have proved crude oil reserves in 38 fields in the Liaohe oil
region, all of which are currently in production. We produce
several varieties of crude oil in the Liaohe oil region, ranging
from light crude oil to heavy crude oil and high pour point
crude oil.
We have easy access to crude oil pipelines for Liaohe crude oil.
The pipelines linking Daqing to Dalian port and Qinhuangdao port
pass through the Liaohe oil region. In 2009, we sold about
approximately 87.4% of the crude oil we produced at the Liaohe
oil region to our own refineries.
Xinjiang
Oil Region
The Xinjiang oil region is one of our four largest crude oil
producing properties and is located in the Junggar basin in
northwestern China. We commenced our operations in the Xinjiang
oil region in 1951. The Xinjiang oil region covers a total area
of approximately 900,000 acres.
As of December 31, 2009, our proved crude oil reserves in
the Xinjiang oil region were 1,395.1 million barrels,
representing 12.4% of our total proved crude oil reserves. In
2009, our oil fields in the Xinjiang oil region produced an
average of 220.5 thousand barrels of crude oil per day,
representing approximately 9.5% of our total daily crude oil
production. In 2009, the crude oil
reserve-to-production
ratio at the Xinjiang oil region was 17.2 years. In 2009,
the crude oil we produced in the Xinjiang oil region had an
average API gravity of 36.8 degrees and an average water cut of
77.5%.
Sichuan
Gas Region
We began natural gas exploration and production in Sichuan in
the 1950s. The Sichuan gas region covers a total area of
approximately 2.3 million acres. The natural gas
reserve-to-production
ratio in the Sichuan gas region was approximately
22.2 years in 2009. As of December 31, 2009, we had
112 natural gas fields under development in the Sichuan gas
region.
As of December 31, 2009, our proved natural gas reserves in
the Sichuan gas region were 11,177,3 billion cubic feet,
representing 17.7% of our total proved natural gas reserves and
a decrease of 1.0% from 11,285.4 billion cubic feet as of
December 31, 2008. In 2009, our natural gas production for
sale in the Sichuan gas region reached 504.2 billion cubic
feet, representing 23.9% of our total natural gas production for
sale and an increase of 1.0% from 499.4 billion cubic feet
in 2008.
In 2007, we discovered significant natural gas reserves in the
Guang’an field in the Sichuan gas region in our border
expansion in that region. As of December 31, 2009, the
Guang’an gas field had a proved natural gas reserve of
1,541.8 billion cubic feet. We have developed a broad range
of technologies relating to natural gas exploration, production,
pipeline systems and marketing activities tailored to local
conditions in Sichuan.
Changqing
Oil and Gas Region
The Changqing oil and gas region covers parts of Shaanxi
Province and Gansu Province and the Ningxia and Inner Mongolia
Autonomous Regions. We commenced operations in the Changqing oil
and gas region in 1970. As
32
Table of Contents
of December 31, 2009, our proved crude oil reserves in the
Changqing oil region were 1,783.8 million barrels,
representing 15.8% of our total proved crude oil reserves. In
2009, our crude oil production in the Changqing oil region were
an average of 318.1 thousand barrels per day, representing
approximately 13.8% of our total daily crude oil production. In
2009, the crude oil
reserve-to-production
ratio at the Changqing oil region was 18.1 years. In 2009,
the crude oil we produced in the Changqing oil region had an
average API gravity of 35 degrees and an average water cut of
51.3%.
In the early 1990s, we discovered the Changqing gas field, which
had total estimated proved natural gas reserves of
20,363.2 billion cubic feet as of December 31, 2009,
representing 32.2% of our total proved natural gas reserves. In
January 2001, we discovered the Sulige gas field, which had
total estimated proved natural gas reserves of
7,674.1 billion cubic feet as of December 31, 2009.
Sulige gas field is currently the largest gas field in China. In
2009 we produced 523.4 billion cubic feet of natural gas
for sale in the Changqing oil and gas region, representing an
increase of 39.6% from 375.0 billion cubic feet in 2008.
Tarim
Oil and Gas Region
The Tarim oil and gas region is located in the Tarim basin in
northwestern China with a total area of approximately
590,000 acres. As of December 31, 2009, our proved
crude oil reserves in the Tarim oil region were
584.8 million barrels. The Kela 2 natural gas field, which
we discovered in 1998 in the Tarim oil and gas region, had
proved natural gas reserves of approximately
5,439.2 billion cubic feet as of December 31, 2009. As
of December 31, 2009, the proved natural gas reserves in
the Tarim oil and gas region reached 16,892.1 billion cubic
feet, representing 26.7% of our total proved natural gas
reserves.
In 2009, we produced 602.4 billion cubic feet of natural
gas for sale in the Tarim oil and gas region. We have completed
the construction of the pipelines to deliver natural gas in the
Tarim oil and gas region to the central and eastern regions of
China where there is strong demand for natural gas transmitted
through our West to East natural gas pipeline project. See
“— Natural Gas and Pipeline — Nature
Gas Transmission Infrastructure” for a discussion of our
West to East natural gas pipeline project. The commencement of
the operation of this West to East natural gas pipeline
significantly increased our natural gas production in the Tarim
oil and gas region.
33
Table of Contents
34
Table of Contents
Refining
and Chemicals
We now operate 30 enterprises located in nine provinces, four
autonomous regions and three municipalities to engage in
refining of crude oil and petroleum products, as well as the
production and marketing of basic petrochemical products,
derivative chemical products and other chemical products.
In 2009, our refining and chemicals segment had a profit from
operations of RMB17,308 million.
The following sets forth the highlights of our refining and
chemicals segment in 2009:
| • | as of December 31, 2009, our refineries’ annual primary distillation capacity totaled 975 million barrels of crude oil per year, or 2,671.2 thousand barrels per day; | |
| • | we processed 828.6 million barrels of crude oil, or 2.3 million barrels per day; and | |
| • | we produced approximately 73.2 million tons of gasoline, diesel and kerosene. |
Refining
Refined
Products
We produce a wide range of refined products at our refineries.
Some of the refined products are for our internal consumption
and used as raw materials in our petrochemical operation. The
table below sets forth production volumes for our principal
refined products for each of the years ended December 31,
2007, 2008 and 2009.
| Year Ended December 31, | ||||||||||||
|
Product
|
2007 | 2008 | 2009 | |||||||||
| (In thousands of tons) | ||||||||||||
|
Diesel
|
47,345.4 | 48,294.4 | 48,827.7 | |||||||||
|
Gasoline
|
22,018.7 | 23,465.2 | 22,114.3 | |||||||||
|
Fuel oil
|
4,162.0 | 4,076.5 | 3,057.1 | |||||||||
|
Naphtha
|
7,491.9 | 7,225.8 | 8,041.2 | |||||||||
|
Asphalt
|
1,563.4 | 2,093.3 | 2,307.1 | |||||||||
|
Kerosene
|
2,017.2 | 2,208.8 | 2,252.9 | |||||||||
|
Lubricants
|
1,760.4 | 1,767.9 | 1,401.1 | |||||||||
|
Paraffin
|
1,003.0 | 948.5 | 770.5 | |||||||||
|
Total
|
87,362.0 | 90,080.4 | 88,771.9 | |||||||||
In recent years, we have made significant capital investments in
facility expansions and upgrades to improve product quality to
meet evolving market demand and environmental requirements in
China. In each of the years ended December 31, 2007, 2008
and 2009, our capital expenditures for our refining and
chemicals segment were RMB21,499 million,
RMB30,619 million and RMB42,558 million, respectively.
These capital expenditures were incurred primarily in connection
with the expansion of our refining facilities and the upgrading
of our product quality. In 2009, we had completed the
construction or renovation of 18 refining projects including,
among others, the expansion of the 5 million tons per year
refining unit at Huhhot Petrochemical, the renovation of the
5 million tons per year refining unit at Ningxia
Petrochemical, and the expansion of the 320,000 tons per year
styrene unit at Jilin Petrochemical. In addition, we have also
focused on enhancing our processing technologies and methods.
These efforts have enabled us to improve the quality of refined
products at our refineries, particularly that of gasoline and
diesel. We believe that our refined products are capable of
meeting product specification and environmental protection
requirements as set by the PRC government.
Our
Refineries
Most of our refineries are strategically located close to our
crude oil production and storage bases, along our crude oil and
refined product transmission pipelines
and/or
railways, which provide our refineries with secure supplies of
crude oil and facilitate our distribution of refined products to
the domestic markets. In each of the years
35
Table of Contents
ended December 31, 2007, 2008 and 2009, our exploration and
production operations supplied approximately 80%, 77% and 75.4%,
respectively, of the crude oil processed in our refineries.
The table below sets forth certain operating statistics
regarding our refineries as of December 31, 2007, 2008 and
2009.
| As of December 31, | ||||||||||||
| 2007 | 2008 | 2009 | ||||||||||
|
Primary distillation
capacity
(1)
(thousand barrels per day)
|
||||||||||||
|
Lanzhou Petrochemical
|
212.6 | 212.6 | 212.6 | |||||||||
|
Dalian Petrochemical
|
415.0 | 415.0 | 415.0 | |||||||||
|
Fushun Petrochemical
|
186.2 | 186.2 | 236.9 | |||||||||
|
Dushanzi Petrochemical
|
121.5 | 121.5 | 202.4 | |||||||||
|
Daqing Petrochemical
|
121.5 | 121.5 | 121.5 | |||||||||
|
Jinzhou Petrochemical
|
131.6 | 131.6 | 131.6 | |||||||||
|
Jinxi Petrochemical
|
131.6 | 131.6 | 131.6 | |||||||||
|
Jilin Petrochemical
|
141.7 | 141.7 | 141.7 | |||||||||
|
Urumqi Petrochemical
|
121.5 | 121.5 | 121.5 | |||||||||
|
Other refineries
|
996.9 | 996.9 | 956.4 | |||||||||
|
Total
|
2,580.1 | 2,580.1 | 2,671.2 | |||||||||
|
Refining throughput
(thousand barrels per day)
|
||||||||||||
|
Lanzhou Petrochemical
|
213.9 | 202.3 | 211.6 | |||||||||
|
Dalian Petrochemical
|
233.5 | 267.2 | 281.5 | |||||||||
|
Fushun Petrochemical
|
196.6 | 193.1 | 187.9 | |||||||||
|
Dushanzi Petrochemical
|
81.2 | 90.0 | 120.9 | |||||||||
|
Daqing Petrochemical
|
124.3 | 117.1 | 124.7 | |||||||||
|
Jinzhou Petrochemical
|
133.6 | 132.5 | 117.2 | |||||||||
|
Jinxi Petrochemical
|
133.6 | 126.8 | 79.9 | |||||||||
|
Jilin Petrochemical
|
146.1 | 136.3 | 144.9 | |||||||||
|
Urumqi Petrochemical
|
106.1 | 110.3 | 106.3 | |||||||||
|
Other refineries
|
887.6 | 946.4 | 895.3 | |||||||||
|
Total
|
2,256.5 | 2,322.0 | 2,270.2 | |||||||||
| As of December 31, | ||||||||||||
| 2007 | 2008 | 2009 | ||||||||||
|
Conversion
equivalent
(2)
(percent)
|
||||||||||||
|
Lanzhou Petrochemical
|
53.3 | 53.3 | 53.3 | |||||||||
|
Dalian Petrochemical
|
27.8 | 44.9 | 44.9 | |||||||||
|
Fushun Petrochemical
|
70.7 | 70.7 | 55.6 | |||||||||
|
Dushanzi Petrochemical
|
41.7 | 41.7 | 57.0 | |||||||||
|
Daqing Petrochemical
|
76.7 | 80.0 | 80.0 | |||||||||
|
Jinzhou Petrochemical
|
84.6 | 84.6 | 84.6 | |||||||||
|
Jinxi Petrochemical
|
66.2 | 66.2 | 66.2 | |||||||||
|
Jilin Petrochemical
|
61.4 | 61.4 | 61.4 | |||||||||
|
Urumqi Petrochemical
|
51.7 | 51.7 | 56.7 | |||||||||
|
Average of other refineries
|
53.2 | 55.5 | 56.9 | |||||||||
| (1) | Represents the primary distillation capacity of crude oil and condensate. |
36
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| (2) | Stated in fluid catalytic cracking, delayed coking and hydrocracking equivalent/ topping (percentage by weight), based on 100% of balanced distillation capacity. |
In each of the years ended December 31, 2007, 2008 and
2009, the average utilization rate of the primary distillation
capacity at our refineries was 97.7%, 94.9% and 87.7%,
respectively. The average yield for our four principal refined
products (gasoline, kerosene, diesel and lubricants) at our
refineries was 65.6%, 65.8% and 65.4%, respectively, in the same
periods. “Yield” represents the number of tons of a
refined product expressed as a percentage of the number of tons
of crude oil from which that product is processed. In each of
the years ended December 31, 2007, 2008 and 2009, the yield
for all refined products at our refineries was 93.0%, 92.7% and
93.1%, respectively.
Dalian Petrochemical, Fushun Petrochemical, Lanzhou
Petrochemical and Dushanzi Petrochemical were our leading
refineries in terms of both primary distillation capacity and
throughput in 2009. They are all located close to our major oil
fields in the northeast and northwest regions of China and
produce a wide range of refined products. Lanzhou Petrochemical
has a strategic position in our plan to expand our markets in
refined product sales in the southwestern and central regions of
China. It is located in the northwestern part of China,
providing easy access to markets in the southwestern and central
regions in China. As of December 31, 2009, these four
refineries had an aggregate primary distillation capacity of
389.4 million barrels per year, or 1,066.9 thousand barrels
per day, representing approximately 39.9% of the total primary
distillation capacity of all our refineries as of the same date.
In 2009, these four refineries processed an aggregate of
292.7 million barrels of crude oil, or 801.9 thousand
barrels per day, representing approximately 35.3% of our total
throughput in the same period.
To maintain effective operations of our facilities and lower
production costs, we have endeavored to achieve the most
cost-efficient proportions of various types of crude oil in our
refining process. We purchase a portion of our crude oil
requirements from third-party international suppliers located in
different countries and regions. As a result, in 2009, we
purchased a small amount of crude oil, through independent
suppliers, from Sudan, a country that is on the
U.S. sanction list. The Sudanese crude oil we purchased
were mingled with crude oil from other sources during the
refining process.
Chemicals
Most of our chemical plants are near to our refineries and are
also connected with the refineries by pipelines, providing
additional production flexibility and opportunities for cost
competitiveness. Our exploration and production and natural gas
and pipeline operations supply substantially all of the
hydrocarbon feedstock requirements for our chemicals operations.
We believe that the proximity of our refineries to our chemical
plants promotes efficiency in production, secures feedstock
supply and minimizes the risk of production interruption. Our
production capacity and our market share in China for chemical
products allow us to solidify our dominant position in the
northern and western regions of China. In addition, our stable
customer base in the eastern and southern regions of China
provides us with the opportunity to expand our market share in
these regions.
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Our
Chemical Products
The table below sets forth the production volumes of our
principal chemical products for each of the years ended
December 31, 2007, 2008 and 2009.
| Year Ended December 31, | ||||||||||||
| 2007 | 2008 | 2009 | ||||||||||
| (In thousand tons) | ||||||||||||
|
Basic petrochemicals
|
||||||||||||
|
Propylene
|
3,083.2 | 3,152.4 | 3,278.0 | |||||||||
|
Ethylene
|
2,581.5 | 2,675.6 | 2,988.9 | |||||||||
|
Benzene
|
827.8 | 943.5 | 1,021.7 | |||||||||
|
Derivative petrochemicals
|
||||||||||||
|
Synthetic resin
|
||||||||||||
|
Polyethylene
|
2,101.2 | 2,153.7 | 2,434.1 | |||||||||
|
Polypropylene
|
1,630.2 | 1,730.0 | 1,800.9 | |||||||||
|
ABS
|
215.0 | 198.9 | 201.8 | |||||||||
|
Other synthetic resin products
|
16.1 | 16.9 | 43.5 | |||||||||
|
Synthetic fiber
|
||||||||||||
|
Polyacrylic fiber
|
79.3 | 61.6 | 72.6 | |||||||||
|
Terylene fiber
|
48.1 | 35.7 | 19.6 | |||||||||
|
Other synthetic fiber products
|
9.3 | 9.0 | 8.0 | |||||||||
|
Synthetic rubber
|
||||||||||||
|
Styrene butadiene rubber
|
210.6 | 249.6 | 300.8 | |||||||||
|
Other synthetic rubber products
|
100.0 | 94.4 | 119.3 | |||||||||
|
Intermediates
|
||||||||||||
|
Alkylbenzene
|
197.5 | 205.4 | 176.6 | |||||||||
|
Other chemicals
|
||||||||||||
|
Urea
|
3,634.5 | 3,823.7 | 3,973.3 | |||||||||
We are one of the major producers of ethylene in China. We use
the bulk of the ethylene we produce as a principal feedstock for
the production of many chemical products, such as polyethylene.
As of December 31, 2009, our annual ethylene production
capacity was 3,710 thousand tons, representing an increase of
36.9% from 2,710 thousand tons in the year ended
December 31, 2008. Our production volume of ethylene
increased by 11.7% from 2,675.6 thousand tons in 2008 to 2,988.9
thousand tons in 2009. The petrochemical ethylene projects at
Fushun Petrochemical, Sichuan Petrochemical and Daqing
Petrochemical have been approved by the National Development and
Reform Commission and we are currently in the process of
implementing these projects.
In 2009, the monthly average capacity utilization rate at our
ethylene production facilities was 98.6%. The cost of ethylene
production is an important component of our overall chemical
production costs. Reduction of energy consumption and raw
material loss is a key factor in reducing ethylene production
costs. We have implemented a series of measures to reduce energy
consumption. The average energy consumption of our ethylene
production facilities was 743.8, 713.8 and 682.2 kilograms of
standard oil per ton in 2007, 2008 and 2009, respectively. We
plan to continue to implement measures to reduce our energy
consumption.
The average ethylene percentage loss at our chemical plants in
2009 was 0.86%. High ethylene percentage loss has contributed to
the relatively high cost of our ethylene production. In order to
reduce high ethylene percentage loss in our ethylene production,
we will continue to implement a series of measures at our
chemical plants in the future, such as improving our process
management of key units for ethylene production, reducing
unplanned temporary interruptions of our chemical facilities and
enhancing pyrolysis material composition and production plans.
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We produce a number of synthetic resin products, including
polyethylene, polypropylene and ABS. As of December 31,
2009, our production capacities for polyethylene, polypropylene
and ABS were 3,112 thousand tons, 2,524 thousand tons and 325
thousand tons, respectively. In 2009, we produced 2,434.1
thousand tons of polyethylene, 1,800.9 thousand tons of
polypropylene and 201.8 thousand tons of ABS, respectively,
which respectively increased by 13.0% , 4.1% and 1.5% as
compared with 2008. Currently, China imports significant volumes
of these products to meet the domestic demand due to an
inadequate supply of domestically produced polyethylene and
polypropylene. We intend to increase the production, and improve
the quality, of these products. We are building new production
facilities with new technology for the production of these
products in Daqing Petrochemical, Daqing Refining and Chemical,
Fushun Petrochemical, Sichuan Petrochemical/Jilin Petrochemical
and other branch companies to meet this target.
Marketing
of Chemicals
Our chemical products are distributed to a number of industries
that manufacture components used in a wide range of
applications, including automotive, construction, electronics,
medical manufacturing, printing, electrical appliances,
household products, insulation, packaging, paper, textile,
paint, footwear, agriculture and furniture industries.
The following table sets forth the sales volumes of our chemical
products by principal product category for each of the years
ended December 31, 2007, 2008 and 2009.
| Year Ended December 31, | ||||||||||||
|
Product
|
2007 | 2008 | 2009 | |||||||||
| (In thousands of tons) | ||||||||||||
|
Derivative petrochemicals
|
||||||||||||
|
Synthetic resin
|
||||||||||||
|
Polyethylene
|
2,102.4 | 2,194.9 | 2,350.5 | |||||||||
|
Polypropylene
|
1,434.8 | 1,549.1 | 1,939.0 | |||||||||
|
ABS
|
216.7 | 327.1 | 302.4 | |||||||||
|
Synthetic fiber
|
||||||||||||
|
Terylene fiber
|
56.6 | 41.7 | 18.7 | |||||||||
|
Polyacrylic fiber
|
71.6 | 67.5 | 107.5 | |||||||||
|
Synthetic rubber
|
||||||||||||
|
Butadiene styrene rubber
|
219.0 | 233.8 | 327.0 | |||||||||
|
Intermediates
|
||||||||||||
|
Alkylbenzene
|
156.6 | 164.6 | 165.4 | |||||||||
|
Other chemicals
|
||||||||||||
|
Urea
|
3,662.2 | 4,393.2 | 4,054.1 | |||||||||
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40
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Marketing
We engage in the marketing of refined products through 31
regional sales branch companies, three distribution branch
companies, one lubricants branch company and one fuel oil
company. These operations include the transportation and storage
of the refined products, and the wholesale, retail and export of
gasoline, diesel, kerosene, lubricant, paraffin, asphalt and
other refined products. For the year ended December 31,
2009, our marketing segment had an profit from operations of
RMB13,265 million. In 2009, we sold approximately
101.25 million tons of gasoline, diesel and kerosene.
We market a wide range of refined products, including gasoline,
diesel, kerosene and lubricants, through an extensive network of
sales personnel and independent distributors and a broad
wholesale and retail distribution system across China. As of
December 31, 2009, our marketing network consisted of:
| • | Approximately 837 regional wholesale distribution outlets nationwide. Substantially all of these outlets are located in high demand areas such as economic centers across China, particularly in the coastal areas, along major railways and along the Yangtze River; and | |
| • | 16,607 service stations owned and operated by us and 655 franchise service stations owned and operated by third parties. |
In 2009, we sold approximately 95.4 million tons of
gasoline and diesel. The PRC government and other institutional
customers, including railway, transportation and fishery
operators, are our long-term purchasers of the gasoline and
diesel that we produce. We sell gasoline and diesel to these
customers at the supply prices for special customers published
by the PRC government. See “— Regulatory
Matters — Pricing — Refined Products”
for a discussion of refined product pricing. In 2009, sales of
gasoline and diesel to these customers accounted for
approximately 2.3% and 8.5% of our total sales of gasoline and
diesel, respectively.
The following table sets forth our refined product sales volumes
for each of the years ended December 31, 2007, 2008 and
2009.
| Year Ended December 31, | ||||||||||||
|
Product
|
2007 | 2008 | 2009 | |||||||||
| (In thousands of tons) | ||||||||||||
|
Diesel
|
54,376.9 | 56,081.0 | 64,659.4 | |||||||||
|
Gasoline
|
27,003.1 | 29,399.4 | 30,777.1 | |||||||||
|
Kerosene
|
3,781.8 | 4,797.6 | 5,816.9 | |||||||||
|
Lubricants
|
2,378.4 | 2,003.4 | 1,795.8 | |||||||||
Wholesale
Marketing
We sell refined products both directly and through independent
distributors into various wholesale markets, as well as to
utility, commercial, petrochemical, aviation, agricultural,
fishery and transportation companies in China. Our gasoline and
diesel sales also include the amount we transferred to our
retail operations. We made wholesale sales of approximately
2.35 million tons of gasoline and diesel to Sinopec in
2009, representing approximately 2.5% of our total sales of
these products in the same period.
Retail
Marketing
The weighted average sales volume of gasoline and diesel per
business day at our service station network was 8.4 tons per
service station in 2007, 9.6 tons per service station in 2008
and 10.1 tons per service station in 2009.
We sell our refined products to service stations owned and
operated by CNPC. These service stations sell exclusively
refined products produced or supplied by us in accordance with
contractual arrangements between CNPC and us. Under these
contractual arrangements, we also provide supervisory support to
these service stations.
We currently use “
” for all our service
stations.
” for all our service
stations.
Most of the service stations in our service station network are
concentrated in the northern, northeastern and northwestern
regions of China where we have a dominant wholesale market
position. However, the eastern and
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southern regions of China have a higher demand for gasoline and
diesel. We have made significant efforts in recent years to
expand our sales and market share in the eastern and southern
regions of China through expanding the number of our service
stations and storage facilities in these regions.
We invested a total of RMB10,177 million in expanding our
service station network in 2009. In 2009, we sold approximately
27,847 thousand tons of gasoline and diesel through our owned
and franchised service stations in the eastern and southern
regions of China, as compared to approximately 25,660 thousand
tons and 26,370 thousand tons we sold in 2007 and 2008,
respectively.
In 2009, we acquired or constructed an aggregate of 692 service
stations that are owned and operated by us, of which 480 are in
the eastern and southern regions of China. We plan to further
increase our retail market share and improve the efficiency of
our retail operations, with a continued focus on the eastern and
southern regions of China.
We plan to invest approximately RMB12,000 million in 2010
to expand our service station network and storage infrastructure
by developing new oil storage facilities, service stations and
informationization projects.
The following table sets forth the number of service stations in
our marketing network as of December 31, 2009:
|
Owned and operated by
us
(1)
|
16,607 | |||
|
Franchised
|
655 | |||
|
Total
|
17,262 |
| (1) | Includes 462 service stations owned and operated by BP PetroChina Petroleum Company Limited. |
In order to improve the efficiency and profitability of our
service station network, through several years’ efforts, we
have completed the standardization upgrade of most of our
service stations and have further standardized our service
procedures, staff uniforms and client service quality of all our
service stations. We have been making great efforts to implement
a centralized service station computerized management system
covering all the service stations across the country. We plan to
use this system in all our service stations across the country
by end of 2010. In addition, we are making great efforts to
promote the use of pre-paid gasoline/diesel filling cards at our
service stations. We are developing convenience-store-like
service stations with a view to improving the management and
client service quality of our service stations. In addition to
selling gasoline and diesel, we have planned to gradually
increase the sale of lubricants and other non-fuel products at
our service stations.
42
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43
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Natural
Gas and Pipeline
We are China’s largest natural gas transporter and seller
in terms of sales volume, with turnover of
RMB77,658 million and total sales volume of
2,105.1 billion cubic feet in 2009. In 2009, our natural
gas and pipeline segment generated profit from operations of
RMB19,046 million. We sell natural gas primarily to
fertilizer and chemical companies, commercial users and
municipal utilities owned by local governments. In addition, we
also conduct the operation of crude oil and refined product
transmission in the natural gas and pipeline segment.
The following table sets forth the length of our natural gas
pipelines as of December 31, 2007, 2008 and 2009 and the
volume of natural gas sold by us in each of the years ended
December 31, 2007, 2008 and 2009.
|
As of December 31 or Year
|
||||||||||||
| Ended December 31, | ||||||||||||
| 2007 | 2008 | 2009 | ||||||||||
|
Total length of natural gas pipelines (km)
|
22,043 | 24,037 | 28,595 | |||||||||
|
Total length of crude oil pipeline (km)
|
10,559 | 11,028 | 13,164 | |||||||||
|
Total length of refined oil products pipeline (km)
|
2,669 | 2,656 | 8,868 | |||||||||
|
Total volume of natural gas
sold
(1)
(Bcf)
|
1,538.7 | 1,802.8 | 2,105.1 | |||||||||
| (1) | Representing the natural gas sold to third parties |
Our
Principal Markets for Natural Gas
In 2009, 23.0%, 22.8%, 23.6%, 17.9%, 4.9% and 7.8% of our
natural gas sales were to the southwestern, northern, eastern,
northwestern, northeastern and central regions of the PRC,
respectively.
Currently, Sichuan Province and Chongqing Municipality in
southwest China are two of our principal markets for natural
gas. We sold 454.3 billion cubic feet of natural gas to
Sichuan Province and Chongqing Municipality in 2009,
representing approximately 21.6% of our total natural gas sales
in 2009. We supply natural gas to Sichuan Province and Chongqing
Municipality from our exploration and production operations in
the Sichuan oil region. Our natural gas pipelines in these areas
are well developed, consisting of a natural gas transmission
network with a total length of approximately 7,305 kilometers.
As these areas lack adequate supply of alternative energy
resources, such as coal, we believe that we can further expand
our natural gas sales as energy demand increases in these areas.
Beijing Municipality, Tianjin Municipality, Hebei Province and
Shandong Province in northern China have high energy consumption
levels. These areas are also important markets for our natural
gas transmission and marketing business. We sold an aggregate of
415.8 billion cubic feet of natural gas to these areas in
2009, as compared to 349 billion cubic feet in 2008. Our
natural gas sales to Beijing Municipality increased 15.6% from
197.2 billion cubic feet in 2008 to 227.8 billion
cubic feet in 2009. We supply natural gas to Beijing
Municipality, Tianjin Municipality and Hebei Province primarily
from the Changqing oil region through the Shaanxi to Beijing
natural gas pipeline, which is one of our natural gas trunk
pipelines, and from the Huabei and Dagang oil regions.
Currently, we have 3,090 kilometers of natural gas pipelines in
these areas.
Shanghai Municipality, Jiangsu Province, Zhejiang Province and
Anhui Province located in Yangtze River Delta of eastern China
have become our significant natural gas markets. In 2009, we
sold 496.5 billion cubic feet of natural gas to this area,
representing approximately 23.6% of our total natural gas sales
in 2009.
Each year, we must supply natural gas to customers subject to
the government-formulated guidance supply plan first as required
by the PRC government. We enter into natural gas supply
contracts with those customers on the basis of the amount of
natural gas to be supplied according to the guidance supply plan
for the following year’s supply.
Driven by environmental and efficiency concerns, the PRC
government is increasingly encouraging industrial and
residential use of natural gas to meet primary energy and
environmental protection needs. The PRC government has adopted a
number of laws and regulations to require municipal governments
to increase the use of clean energy, such as natural gas and
liquefied petroleum gas, to replace the use of raw coal. Several
municipal governments, including that of Beijing, have adopted
policies to facilitate natural gas consumption in order to
reduce the air
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pollution level. The PRC government has also adopted a
preferential value-added tax rate of 13% for natural gas
production as compared to a 17% value-added tax rate for crude
oil production.
We believe that these policies have had a positive effect on the
development and consumption of natural gas in many
municipalities that are our existing or potential markets for
natural gas. We believe that these favorable policies will
continue to benefit our natural gas business.
Natural
Gas Transmission Infrastructure
As of December 31, 2009, our natural gas and pipeline
segment owned and operated approximately 25,517 kilometers of
natural gas pipelines in China, which represented the vast
majority of China’s onshore natural gas pipelines. Our
existing natural gas pipelines form regional natural gas supply
networks in northwestern, southwestern, northern and central
China as well as the Yangtze River Delta. Our experience in the
design, construction management and operation of our natural gas
pipelines has enabled us to develop relatively advanced
technologies and skills in China in long distance pipeline
design, construction and automated operational communications.
We believe that we will continue to benefit from those
technologies and skills in the future expansion of our natural
gas pipeline networks and their ancillary facilities.
As of December 31, 2009, we constructed and operated the
following main natural gas pipelines in China:
West
to East Natural Gas Pipelines
Completed in 2004, the main line of our West to East natural gas
pipelines project links our natural gas fields in Xinjiang and
Changqing with Henan Province, Anhui Province, Shanghai
Municipality and other areas in the Yangtze River Delta. The
total length of the main line is 3,839 kilometers.
The West to East natural gas pipelines project also includes
three additional connecting pipelines. These lines are:
(i) Hebei to Nanjing pipeline, completed in January 2006,
starting at Qingshan, Jiangsu Province and ending at Anping,
Hebei Province, with a length of 886 kilometers;
(ii) Huaiyang to Wuhan pipeline, completed in December
2006, starting at Huaiyang, Anhui Province and ending at Wuhan,
Hubei Province, with a length of 455 kilometers; and
(iii) Lanzhou to Yinchuan pipeline, completed in July 2007,
starting at Lanzhou, Gansu Province and ending at Yinchuan,
Ningxia Autonomous Region, with a total length of 402 kilometers.
Our West to East natural gas pipelines has a designed annual
throughput capacity of 423.8 billion cubic feet. As of
December 31, 2009, we entered into long-term
take-or-pay
contracts with 95 subscribers and distributors to supply them
with natural gas through the West to East natural gas pipelines.
We sold 496.5 billion cubic feet of natural gas through
these pipelines in 2009, representing approximately 23.6% of our
total natural gas sales in 2009.
We believe that the successful completion of this natural gas
pipelines project and associated storage facilities
substantially enhanced our ability to capitalize on the
anticipated growth in demand of natural gas in the destination
regions. We are currently expanding the transmission capacity of
the West to East natural gas pipelines by upgrading the existing
gas compression stations and building additional stations to
increase the throughput capacity. In addition, we began
constructing the second phase of West to East natural gas
pipelines project in February 2008, which will connect Xinjiang
Autonomous Region, Gansu Province, Ningxia Autonomous Region and
Shaanxi Province with a natural gas pipeline of 4,843 kilometers.
Zhong
County to Wuhan Municipality natural gas pipeline
The Zhong County to Wuhan Municipality natural gas pipeline
links our natural gas fields in the Sichuan gas region to Wuhan
Municipality and other regions in Hubei Province and Hunan
Province, with a total length of 1,375 kilometers, including the
main line of 719 kilometers and three branch lines with a total
length of 656 kilometers. This line has a designed annual
throughput capacity of 105.9 billion cubic feet. The main
line and its Xiangfan branch line and Huangshi branch line were
completed and put into commercial operation in December 2004 and
the Xiangtan branch line was completed and put into commercial
operation in July 2005.
As of December 31, 2009, we entered into long-term
take-or-pay
contracts with 29 subscribers and distributors to supply them
with natural gas through our Zhong County to Wuhan Municipality
natural gas pipeline. We sold
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77.7 billion cubic feet of natural gas through this
pipeline in 2009, representing approximately 3.7% of our total
natural gas sales for the period.
The
First and Second Shaanxi to Beijing Municipality natural gas
pipelines
The Shaanixi to Beijing Municipality natural gas pipelines link
our Changqing oil and gas region with Shaanxi Province, Shanxi
Province, Hebei Province and Beijing Municipality. The first
line was completed in September 1997, with a length of 910
kilometers and a designed annual throughput capacity of
116.5 billion cubic feet. The second line was completed in
July 2005, with a total length of 940 kilometers and a designed
annual throughput capacity of 423.8 billion cubic feet.
As of December 31, 2009, we entered into long-term
take-or-pay
contracts with 78 subscribers and distributors to supply them
with natural gas through our Shaanxi to Beijing Municipality
natural gas pipelines. We sold 412.8 billion cubic feet of
natural gas through these pipelines in 2009, representing
approximately 19.7% of our total natural gas sales in 2009.
In addition to the major transmission infrastructures described
above, we also operate other natural gas pipelines linking our
domestic gas fields to natural gas consumption markets in China,
including the pipeline network within the Sichuan gas region,
the Sebei to Xining to Lanzhou natural gas pipeline, the Daqing
to Harbin natural gas pipeline and Daqing to Qiqihar gas
pipeline.
In 2008, we also commenced the construction of several natural
gas pipeline projects to expand our existing transmission
infrastructures. These projects include, but are not limited to,
(i) Yongqing to Tangshan to Qinhuangdao natural gas
pipeline of 321 kilometers that connects Beijing Municipality,
Tianjin Municipality and Hebei Province, (ii) Changling to
Changchun to Jihua natural gas pipeline of 221 kilometers that
runs within the Jilin oil and gas region, and (iii) Naxi to
Anbian natural gas pipeline of 106 kilometers that runs within
the Sichuan gas region. The construction of these projects has
been completed.
In 2009, we commenced the construction of the second West to
East Pipeline, the third Shaanxi-Beijing Pipeline, the Taian to
Qingdao Pipeline and the Qinhuangdao to Shenyang Pipeline
projects. The second West to East Pipeline includes one main
line, 8 branch lines and 3 underground storage facilities, with
a total length of 8,704 kilometers. The main line of the second
West to East Pipeline has a length of 4,978 kilometers. The
western section of the main line extends from Horgos to Zhongwei
with a length of 2,461 kilometers and a designed annual
throughput capacity of 30 billion cubic feet. The eastern
section of the main line extends from Zhongwei to Guangzhou with
a length of 2,517 kilometers and a designed annual throughput
capacity of 28 billion cubic feet. The third Shaanxi to
Beijing Pipeline has a total length of 819.2 kilometers and a
designed annual throughput capacity of 15 billion cubic
feet. The Taian to Qingdao Pipeline has a total length of 355
kilometers and a designed annual throughput capacity of
15 billion cubic feet. The Qinhuangdao to Shenyang Pipeline
has a total length of 421 kilometers and a designed annual
throughput capacity of 15 billion cubic feet.
Crude Oil
and Refined Product Transportation and Storage
Infrastructure
We have an extensive network for the transportation, storage and
distribution of both crude oil and refined products, which
covers many regions of China. Our goal is to exploit and
optimize our existing infrastructure to further consolidate our
presence as the leading integrated oil and gas company in China.
In 2005, we completed the construction of the PRC portion of the
Sino-Kazakhstan oil pipeline. The PRC portion, starting at Ala
Mountain Pass and ending at Dushanzi in Xinjiang Autonomous
Region, has a total length of 246 kilometers. Commercial
operation of the Sino-Kazakhstan oil pipeline was commenced in
July 2006.
In June 2007, we completed the construction and commenced the
commercial operation of the Dagang to Zaozhuang oil pipeline,
which starts at Dagang, Tianjin and ends at Zaozhuang, Shandong
Province, with a total length of 679 kilometers.
The Lanzhou to Zhengzhou to Changsha refined oil pipeline was
approved by the National Development and Reform Commission in
December 2007 and we commenced the construction of that pipeline
thereafter. We
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finished the construction and commenced the operation of the
section from Lanzhou to Zhengzhou in April 2009 and the section
from Zhengzhou to Wuhan in August 2009.
In May 2009, we commenced the construction of the Mohe to Daqing
section on the Russia to China crude oil transmission pipeline.
This section has a length of 927 kilometers and a designed
annual throughput capacity of 15 million tons.
As of December 31, 2009, our crude oil transportation and
storage infrastructure consisted of:
| • | 13,164 kilometers of crude oil pipelines with an average daily throughput of approximately 3.03 million barrels; and | |
| • | crude oil storage facilities with an aggregate storage capacity of approximately 21.7 million cubic meters. |
We deliver crude oil to customers through our pipeline and
storage facility network, through crude oil storage facilities
that we lease from third parties and by ships leased by
customers. In 2009, approximately 90.21% of our crude oil
production was delivered to refineries through our crude oil
pipeline network. During the past three years, we have not
experienced any delays in delivering crude oil due to pipeline
capacity constraints.
Our transportation and storage infrastructure also includes:
| • | 8,868 kilometers of refined product pipelines with an average daily throughput of approximately 48,803 tons; and | |
| • | refined product storage facilities with a total storage capacity of approximately 26.0 million cubic meters. |
Most of our refineries are located in the northeastern and
northwestern regions of China. Our ability to distribute
products through our own product distribution infrastructure to
the eastern and southern regions will provide us with greater
flexibility in supplying refined products to the domestic
markets across China. We plan to continue to enhance our product
distribution infrastructure in the northeastern, northwestern,
northern and southwestern regions where we already have a
significant market share, and to expand our product distribution
infrastructure in the eastern and southern regions by acquiring
and constructing transportation storage facilities and
distribution storage facilities in these regions.
Together with the expansion of our service stations, we expect
that our pipelines, primary storage and secondary distribution
storage facilities will significantly enhance our existing
distribution infrastructure for refined products. We believe
that our enhanced distribution infrastructure will help us
increase the sales of our refined products.
Competition
As an oil and gas company operating in a competitive industry,
we compete in each of our business segments in both China and
international markets for desirable business prospects and for
customers. Our principal competitors in China are Sinopec,
including its subsidiary China National Star Petroleum
Corporation, or CNSPC, and CNOOC.
Exploration
and Production Operations
We are the largest onshore oil and gas company in China in terms
of proved crude oil and natural gas reserves as well as crude
oil and natural gas production and sales. However, we compete
with Sinopec for the acquisition of desirable crude oil and
natural gas prospects. Similarly, we face some competition in
the development of offshore oil and gas resources. We believe
that our experience in crude oil and natural gas exploration and
production and our advanced exploration and development
technologies that are suitable for diverse geological conditions
in China will enable us to maintain our dominant position in
discovering and developing crude oil and natural gas reserves in
China.
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Refining
and Chemicals Operations and Marketing Operations
We compete with Sinopec in our refining and chemicals operations
and marketing operations on the basis of price, quality and
customer service. Most of our refineries and chemical plants are
located in the northeastern and northwestern regions of China
where we have the dominant market share for refined products and
chemical products. We sell the remainder of our refined products
and chemical products to the eastern, southern, southwestern and
central-southern regions of China, where our products have a
considerable market share. The eastern and southern regions of
China, where refined products and chemical products are in
higher demand, are important markets for our refined products
and chemical products. Sinopec has a strong presence in the
eastern and southern regions of China in competition with us,
and most of Sinopec’s refineries, chemical plants and
distribution networks are located in these regions in close
proximity to these markets. Moreover, as the newly constructed
facilities of CNOOC commenced operation in the same region,
large quantity of chemical products have been marketed into that
area. As a result, the competition has further intensified. We
expect that we will continue to face competition from, among
other competitors, Sinopec and CNOOC in our refined products and
chemical products sales in these regions. See
“Item 3 — Key Information — Risk
Factors”.
We also face competition from imported refined products and
chemical products on the basis of price and quality. As a result
of China’s entry into the WTO and the continuous expansion
of China’s free trade zones, competition from foreign
producers of refined products and chemical products has
increased and the retail and wholesale markets in China for
refined products and chemical products will be gradually opened
to foreign competition as tariff and non-tariff barriers for
imported refined products and chemical products are being lifted
over time. For example, sales of chemical products imported from
the Middle East have increased rapidly in China in recent years.
We will face more and more challenges in the competition of
refined and chemical products. All these force us to reduce our
production costs, improve the quality of our products and
optimize our product mix. See “Item 3 — Key
Information — Risk Factors”.
Natural
Gas and Pipeline Operations
We are the largest natural gas supplier in the PRC. Currently,
we face very limited competition in the supply of natural gas in
Beijing Municipality, Tianjin Municipality, Hebei Province,
Shanghai Municipality, Jiangsu Province, Zhejiang Province,
Anhui Province, Henan Province, Hubei Province, Hunan Province
and the northwestern regions of China, our existing principal
markets for natural gas. Currently, Sinopec has natural gas
fields in Sichuan Province and Chongqing Municipality and sells
natural gas to users in Sichuan and Chongqing. We, therefore,
have limited competition from Sinopec in our markets in Sichuan
Province and Chongqing Municipality. Further, we intend to
expand our markets for natural gas into the coastal regions in
southeastern China where we may face competition from CNOOC and,
to a lesser extent, Sinopec. We believe that our dominant
natural gas resources base, our relatively advanced technologies
and skills in managing long distance pipelines will enable us to
continue to be a dominant player in the natural gas markets in
China.
Environmental
Matters
Together with other companies in the industries in which we
operate, we are subject to numerous national, regional and local
environmental laws and regulations and environmental regulations
promulgated by the governments in whose jurisdictions we have
operations. These laws and regulations concern our oil and gas
exploration and production operations, petroleum and
petrochemical products and other activities. In particular, some
of these laws and regulations:
| • | require an environmental evaluation report to be submitted and approved prior to the commencement of exploration, production, refining and chemical projects; | |
| • | restrict the type, quantities, and concentration of various substances that can be released into the environment in connection with drilling and production activities; | |
| • | limit or prohibit drilling activities within protected areas and certain other areas; and |
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| • | impose penalties for pollution resulting from oil, natural gas and petrochemical operations, including criminal and civil liabilities for serious pollution. |
These laws and regulations may also restrict air emissions and
discharges to surface and subsurface water resulting from the
operation of natural gas processing plants, chemical plants,
refineries, pipeline systems and other facilities that we own.
In addition, our operations are subject to laws and regulations
relating to the generation, handling, storage, transportation,
disposal and treatment of solid waste materials.
We anticipate that the environmental laws and regulations to
which we are subject will become increasingly strict and are
therefore likely to have an increasing impact on our operations.
It is difficult, however, to predict accurately the effect of
future developments in such laws and regulations on our future
earnings and operations. Some risk of environmental costs and
liabilities is inherent in certain of our operations and
products, as it is with other companies engaged in similar
businesses. We cannot assure you that material costs and
liabilities will not be incurred. However, we do not currently
expect any material adverse effect on our financial condition or
results of operations as a result of compliance with such laws
and regulations. We paid pollutant discharge fees of
approximately RMB231 million, RMB200 million and
RMB301 million in 2007, 2008 and 2009, respectively.
To meet future environmental obligations, we are engaged in a
continuous program to develop effective environmental protection
measures. This program includes research on:
| • | building environment-friendly projects; | |
| • | reducing sulphur levels in heavy fuel oil and diesel fuel; | |
| • | reducing olefin and benzene content in gasoline, and continuously reducing the quantity of emissions and effluents from our refineries and petrochemical plants; and | |
| • | developing and installing monitoring systems at our pollutant discharge openings and developing environmental impact assessments for construction projects. |
Our capital expenditures on environmental programs in 2007, 2008
and 2009 were approximately RMB2,299 million,
RMB1,366 million and RMB1,336 million, respectively.
Because a number of our production facilities are located in
populated areas, we have established a series of preventative
measures to improve the safety of our employees and surrounding
residents and minimize disruptions or other adverse effects on
our business. These measures include:
| • | providing each household in areas surrounding our production facilities with printed materials to explain and illustrate safety and protection knowledge and skills; and | |
| • | enhancing the implementation of various effective safety production measures we have adopted previously. |
We believe that these preventative measures have helped minimize
the possibility of incidents that may result in serious
casualties and environmental consequences. In addition, the
adoption of these preventative measures has not required
significant capital expenditures to date, and therefore, will
not have a material adverse effect on our results of operations
and financial condition.
Legal
Proceedings
We are involved in certain legal proceedings concerning matters
arising in the ordinary course of our business. We believe,
based on currently available information, that these
proceedings, individually or in the aggregate, will not have a
material adverse effect on our results of operations or
financial condition.
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Properties
Under a restructuring agreement we entered into with CNPC on
March 10, 2000, CNPC undertook to us the following:
| • | CNPC would use its best endeavors to obtain formal land use right licenses to replace the entitlement certificates in relation to the 28,649 parcels of land, which were leased or transferred to us from CNPC, within one year from August, September and October 1999 when the relevant entitlement certificates were issued; | |
| • | CNPC would complete, within one year from November 5, 1999, the necessary governmental procedures for the requisition of the collectively owned land on which 116 service stations owned by us are located; and | |
| • | CNPC would obtain individual building ownership certificates in our name for all of the 57,482 buildings transferred to us by CNPC, before November 5, 2000. |
As of December 31, 2009, CNPC obtained formal land use
right certificates for 27,765 of the 28,649 parcels of land and
ownership certificates for some buildings. The governmental
procedures for the above-mentioned service stations located on
collectively owned land have not been completed to date. We
believe that the use of and the conduct of relevant activities
at the above-mentioned parcels of land, service stations and
buildings are not affected by the fact that the relevant land
use right certificates or building ownership certificates have
not been obtained or the fact that the relevant governmental
procedures have not been completed. Our directors believe that
this will not have any material adverse effect on our results of
operations and financial condition.
We hold exploration and production licenses covering all of our
interests in developed and undeveloped acreage, oil and natural
gas wells and relevant facilities. See
“— Exploration and Production —
Properties”.
Intellectual
Property
Our company logo “
” is jointly owned by
us and CNPC and has been used since December 26, 2004. We
have applied for trademark registrations of the logo with the
State Trademark Bureau of the PRC. To date, several of our
applications have been approved and others are either in the
process of review or public announcement phase. In addition, we
have applied for international trademark registration for our
logo in other jurisdictions. We have received 27 Madrid
International Trademark Registration Certificates for our logo
covering 50 jurisdictions and 390 trademark registration
certificates from individual countries and regions.
” is jointly owned by
us and CNPC and has been used since December 26, 2004. We
have applied for trademark registrations of the logo with the
State Trademark Bureau of the PRC. To date, several of our
applications have been approved and others are either in the
process of review or public announcement phase. In addition, we
have applied for international trademark registration for our
logo in other jurisdictions. We have received 27 Madrid
International Trademark Registration Certificates for our logo
covering 50 jurisdictions and 390 trademark registration
certificates from individual countries and regions.
As of December 31, 2009, we owned approximately 3,800
patents in China and other jurisdictions. We were granted 700
patents in China in 2009.
Regulatory
Matters
Overview
China’s oil and gas industry is subject to extensive
regulation by the PRC government with respect to a number of
aspects of exploration, production, transmission and marketing
of crude oil and natural gas as well as production,
transportation and marketing of refined products and chemical
products. The following central government authorities exercise
control over various aspects of China’s oil and gas
industry:
| • | The Ministry of Land and Resources has the authority for granting, examining and approving oil and gas exploration and production licenses, the administration of registration and transfer of exploration and production licenses. | |
| • | The Ministry of Commerce: |
| • | sets the import and export volume quotas for crude oil and refined products according to the overall supply and demand for crude oil and refined products in China as well as the WTO requirements for China; |
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| • | issues import and export licenses for crude oil and refined products to oil and gas companies that have obtained import and export quotas; and | |
| • | examines and approves production sharing contracts and Sino-foreign equity and cooperative joint venture contracts. |
| • | The National Development and Reform Commission: |
| • | has the industry administration and policy coordination authority over China’s oil and gas industry; | |
| • | determines mandatory minimum volumes and applicable prices of natural gas to be supplied to certain fertilizer producers; | |
| • | publishes guidance prices for natural gas and retail median guidance prices for certain refined products, including gasoline and diesel; | |
| • | approves significant petroleum, natural gas, oil refinery and chemical projects set forth under the Catalogues of Investment Projects Approved by the Central Government; and | |
| • | approves Sino-foreign equity and cooperative projects exceeding certain capital amounts. |
Exploration
Licenses and Production Licenses
The Mineral Resources Law authorizes the Ministry of Land and
Resources to exercise administrative authority over the
exploration and production of mineral resources within the PRC.
The Mineral Resources Law and its supplementary regulations
provide the basic legal framework under which exploration
licenses and production licenses are granted. The Ministry of
Land and Resources has the authority to issue exploration
licenses and production licenses. Applicants must be companies
approved by the State Council to engage in oil and gas
exploration and production activities.
Applicants for exploration licenses must first register with the
Ministry of Land and Resources blocks in which they intend to
engage in exploration activities. The holder of an exploration
license is obligated to make a progressively increasing annual
minimum exploration investment relating to the exploration
blocks in respect of which the license is issued. Investments
range from RMB2,000 per square kilometer for the initial year to
RMB5,000 per square kilometer for the second year, and to
RMB10,000 per square kilometer for the third and subsequent
years. Additionally, the holder has to pay an annual exploration
license fee that starts at RMB100 per square kilometer for each
of the first three years and increases by an additional RMB100
per square kilometer per year for subsequent years up to a
maximum of RMB500 per square kilometer. The maximum term of an
oil and natural gas exploration license is seven years, subject
to twice renewal upon expiration of the original term, with each
renewal being up to two years. At the exploration stage, an
applicant can also apply for a progressive exploration and
production license that allows the holder to test and develop
reserves not yet fully proven. Upon the detection and
confirmation of the quantity of reserves in a certain block, the
holder must apply for a production license based on economic
evaluation, market conditions and development planning in order
to shift into the production phase in a timely fashion. In
addition, the holder needs to obtain the right to use that block
of land. Generally, the holder of a full production license must
obtain a land use rights certificate for industrial land use
covering that block of land.
The Ministry of Land and Resources issues production licenses to
applicants on the basis of the reserve reports approved by the
relevant authorities. Production license holders are required to
pay an annual production right usage fee of RMB1,000 per square
kilometer. Administrative rules issued by the State Council
provide that the maximum term of a production license is
30 years. In accordance with a special approval from the
State Council, the Ministry of Land and Resources has issued
production licenses with terms coextensive with the projected
productive life of the assessed proven reserves as discussed
above. Each of our production licenses is renewable upon our
application 30 days prior to expiration. If oil and gas
prices increase, the productive life of our crude oil and
natural gas reservoirs may be extended beyond the current terms
of the relevant production licenses.
Among the major PRC oil and gas companies, the exploration
licenses and production licenses held by PetroChina, Sinopec and
CNOOC account for the majority of mining rights in China. Among
those companies,
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PetroChina and Sinopec primarily engage in onshore exploration
and production, while CNOOC primarily engages in offshore
exploration and production.
Pricing
Crude
Oil
PetroChina and Sinopec set their crude oil median prices each
month based on the average Singapore market FOB prices for crude
oil of different grades in the previous month. In addition,
PetroChina and Sinopec negotiate a premium or discount to
reflect transportation costs, the differences in oil quality and
market supply and demand. The National Development and Reform
Commission will mediate if PetroChina and Sinopec cannot agree
on the amount of premium or discount.
Refined
Products
Since October 2001, PetroChina has set its retail prices within
an 8% floating range of the published retail median guidance
prices of gasoline and diesel published by the National
Development and Reform Commission (but after March 26,
2006, the price of diesel for fishing vessels has been set in
line with the published retail base price, with no upward
adjustment for the time being). These retail median guidance
prices of gasoline and diesel vary in each provincial level
distribution region. From October 2001 to early 2006, the
National Development and Reform Commission published the retail
median guidance prices of gasoline and diesel from time to time
based on the weighted average FOB Singapore, Rotterdam and New
York trading prices for diesel and gasoline plus transportation
costs and taxes. Generally, adjustments were made only if the
weighted average prices fluctuate beyond 8% of the previously
published retail median guidance price. In 2006, the PRC
government, under its macro economic controls, introduced a
mechanism for determining the prices of refined products.
On December 18, 2008, the PRC government further improved
the pricing mechanism and the domestic prices of refined oil
products continue to be indirectly linked to the international
market. Under the improved mechanism, the domestic selling price
of the refined oil products are determined on the basis of the
corresponding international crude oil prices and by taking
consideration of the average domestic processing cost, tax,
selling expenses and appropriate profit margin. The prices of
diesel and gasoline continue to follow the government set prices
and the government guiding prices. The retail pries of diesel
and gasoline are subject to highest retail prices set by the
government. The highest retail price is determined on the basis
of the ex-works price and the profit margin for retailing
activities.
On May 7, 2009, the National Development and Reform
Commission promulgated and implemented the
Measures for
Administration of Petroleum Price
(on trial) (the “Oil
Price Measures”). The Oil Price Measures officially
specifies the relevant conditions and mechanisms for the
adjustment of the prices of China’s domestic refined oil
products. Under the Oil Price Measures, when the change in the
average price of crude oil on the international market for 22
consecutive days exceeds 4%, prices of domestic refined oil
products may be adjusted accordingly. When the price of crude
oil on the international market becomes lower than US$80 per
barrel, the prices of domestic refined oil products shall be
computed on the basis of normal profit margin for processing. On
the contrary, when the price of crude oil on the international
market becomes higher than US$80 per barrel, the profit margin
for processing shall be reduced until being reduced to zero.
When the price of crude oil becomes higher than US$130 per
barrel, appropriate financial and tax policies shall be adopted
to ensure the production and supply of refined oil products and
the stability of the domestic gasoline and diesel prices.
Retailers of refined oil products may set the retail prices
freely as long as their retail prices are not higher than the
highest retail prices of gasoline and diesel set by the
government.
Chemical
Products
PetroChina determines the prices of all of its chemical products.
Natural
Gas
The price of natural gas has two components: ex-works price and
pipeline transportation tariff.
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Prior to December 26, 2005, ex-works prices varied
depending on whether or not the natural gas sold was within the
government-formulated natural gas supply plan. For natural gas
sold within the government-formulated supply plan, the National
Development and Reform Commission fixed ex-works prices
according to the nature of the customers. Most of these
customers were fertilizer producers. For natural gas sold to
customers not subject to the government-formulated supply plan,
the National Development and Reform Commission published median
guidance ex-works prices, and allowed natural gas producers to
adjust prices upward or downward by up to 10%.
On December 26, 2005, the National Development and Reform
Commission reformed the mechanism for setting the ex-works
prices of domestic natural gas by changing the ex-works prices
to governmental guidance prices, and categorizing domestic
natural gas into two categories. On the basis of the ex-works
price set by the government, subject to the negotiations between
the seller and the buyer, the actual ex-works price of the first
category may float upward or downward up to 10%; while the
actual ex-works price of the second category may float upward up
to 10% and downward to any level. The price of the first
category will be adjusted to the same level as the second
category within three to five years. The National Development
and Reform Commission does not allow PetroChina and Sinopec to
charge different prices towards internal and external
enterprises. On November 10, 2007, the National Development
and Reform Commission increased the ex-works price of the
industrial use natural gas by RMB400/thousand cubic meters.
On June 1, 2010, the National Development and Reform
Commission raised the median ex-works prices of the domestic
onshore natural gas and as a result of that, the median ex-works
price of all the oil and gas fields in China increased by
RMB0.23/cubic meter. At the same time, the National Development
and Reform Commission combined the first category and the second
category median ex-works prices of the natural gas from Dagang
Oil Field, Liaohe Oil Field and Zhongyuan Oil Field, thus ending
the “dual-track natural gas pricing system” as
described above. In addition, the National Development and
Reform Commission expanded the floating range of the median
ex-works price by allowing the median ex-works price to float
upward to 10% and downward to any level.
PetroChina negotiates the actual ex-works price with natural gas
users within the benchmark price and the adjustment range set by
the government.
The National Development and Reform Commission sets the pipeline
transportation tariff for the natural gas transported by
pipelines constructed prior to 1991. For natural gas transported
by pipelines constructed after 1991, PetroChina submits to the
National Development and Reform Commission for examination and
approval proposed pipeline transmission tariffs based on the
capital investment made in the pipeline, the depreciation period
for the pipeline, the ability of end users to pay and
PetroChina’s profit margin.
On April 25, 2010, the National Development and Reform
Commission adjusted the originally government-set flat pipeline
transportation tariff for the natural gas transported by
pipelines. As a result of such adjustment, our average pipeline
transportation tariff for the natural gas transported by
pipelines increased from RMB0.06 per cubic meter to RMB0.14 per
cubic meter.
Production
and Marketing
Crude
Oil
Each year, the National Development and Reform Commission
publishes the projected target for the production and sale of
crude oil by PetroChina, Sinopec and CNOOC, based on the
domestic consumption estimates submitted by domestic producers,
including PetroChina, Sinopec and CNOOC, the production of these
companies as well as the forecast of international crude oil
prices. The actual production levels are determined by the
producers themselves and may vary from the submitted estimates.
Since January 1, 2007, when the Measures on the
Administration of the Refined Products Market promulgated by the
Ministry of Commerce became effective, qualified domestic
producers are permitted to engage in the sale and storage of
crude oil. Foreign companies are also allowed to establish and
invest in enterprises to conduct crude oil business.
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Refined
Products
Previously, only PetroChina, Sinopec and joint ventures
established by the two companies had the right to conduct
gasoline and diesel wholesale business. Other companies,
including foreign invested companies, were not allowed to engage
in wholesale of gasoline and diesel in China’s domestic
market. In general, only domestic companies, including
Sino-foreign joint venture companies, were permitted to engage
in retail of gasoline and diesel. Since December 11, 2004,
wholly foreign-owned enterprises are permitted to conduct
refined oil retail business. Since January 1, 2007, when
the Measures on the Administration of the Refined Products
Market became effective, all entities meeting certain
requirements are allowed to submit applications to the Ministry
of Commerce to conduct refined oil products wholesale, retail
and storage businesses.
Natural
Gas
The National Development and Reform Commission publishes each
year the production targets for natural gas producers based on
the annual production target prepared on the basis of
consumption estimates submitted by all natural gas producers
such as PetroChina. The National Development and Reform
Commission also formulates the annual natural gas guidance
supply plan, which requires natural gas producers to distribute
a specified amount of natural gas to specified fertilizer
producers, municipal governments and enterprises. The actual
production levels of natural gas, except the amount supplied to
the fertilizer producers, are determined by the natural gas
producers.
Foreign
Investments
Cooperation
in Exploration and Production with Foreign
Companies
Currently, only CNPC and Sinopec have the right to cooperate
with foreign companies in onshore crude oil and natural gas
exploration and production in China. CNOOC has the right to
cooperate with foreign companies in offshore crude oil and
natural gas exploration and production in China.
Sino-foreign cooperation projects and foreign parties in onshore
oil and gas exploration and production in China are generally
selected through open bids and bilateral negotiations. Those
projects are generally conducted through production sharing
contracts. The Ministry of Commerce must approve those contracts.
As authorized by the Regulations of the PRC on Exploration of
Onshore Petroleum Resources in Cooperation with Foreign
Enterprises, CNPC has the right to enter into joint cooperation
arrangements with foreign oil and gas companies for onshore
crude oil and natural gas exploration and production. PetroChina
does not have the capacity to enter into production sharing
contracts directly with foreign oil and gas companies under
existing PRC law. Accordingly, CNPC will continue to enter into
production sharing contracts. After signing a production sharing
contract, CNPC will, subject to approval of the Ministry of
Commerce, assign to PetroChina most of its commercial and
operational rights and obligations under the production sharing
contract as required by the Non-competition Agreement between
CNPC and PetroChina. See “Item 7 — Major
Shareholders and Related Party Transactions — Contract
for the Transfer of Rights under Production Sharing
Contracts”.
Transportation
and Refining
Since December 1, 2007, PRC regulations encourage foreign
investment in the construction and operation of oil and gas
pipelines and storage facilities but restrict foreign investment
in refineries with an annual capacity of 8 million tons or
lower. Construction of new refinery or ethylene facilities,
expansion of existing refinery facilities and upgrading of
existing ethylene facilities by increasing annual production
capacity of more than 200 thousand tons are subject to the
approval of relevant government authorities. The ethylene
production projects with an annual production capacity exceeding
800 thousand tons must be majority-owned by Chinese parties.
Furthermore, when appropriate, projects must receive necessary
approvals from relevant PRC government agencies. See
“Item 3 — Key Information — Risk
Factors”.
Import
and Export
Since January 1, 2002, state-owned trading companies have
been allowed to import crude oil under an automatic licensing
system. Non-state-owned trading companies have been allowed to
import crude oil and refine
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products subject to quotas. The export of crude oil and refined
oil products by both state-owned trading companies and
non-state-owned trading companies is subject to quota control.
The Ministry of Commerce has granted PetroChina the right to
conduct crude oil and refined product import and export business.
Capital
Investment and Financing
Capital investments in exploration and production of crude oil
and natural gas made by Chinese oil and gas companies are
subject to approval by or filing with relevant government
authorities. The following projects are subject to approval by
the National Development and Reform Commission:
(1) new oil field development projects with an annual
capacity of 1 million tons or above and new gas field
development projects with an annual capacity of 2 billion
cubic meters or above;
(2) facilities for taking delivery of, storing or
transporting imported liquefied natural gas, and cross-province
(region or municipality) major oil transmission pipeline
facilities;
(3) cross-province (region or municipality) gas
transmission facilities, or gas transmission facilities with an
annual capacity of 500 million cubic meters or above;
(4) new refineries, first expansion of existing refineries,
new ethylene projects, and transformation or expansion of
existing ethylene projects which will result in an additional
annual capacity of 200 thousand tons;
(5) new PTA, PX, MDI and TDI projects, and transformation
of existing PTA and PX projects which will result in an
additional capacity of 100 thousand tons;
(6) potassium mineral fertilizer projects with an annual
capacity of 500 thousand tons or more; and
(7) national crude oil reserve facilities.
Taxation,
Fees and Royalty
PetroChina is subject to a variety of taxation, fees and
royalty. The table below sets forth the various taxation, fees
and royalty payable by PetroChina or by Sino-foreign oil and gas
exploration and development cooperative projects. Since
January 1, 2000, PetroChina and its wholly owned
subsidiary, Daqing Oilfield Company Limited, and branch
companies have been taxed on a consolidated basis as approved by
the Ministry of Finance and the State Taxation Bureau.
|
Tax Item
|
Tax Base
|
Tax Rate
|
||
|
Enterprise income tax
|
Taxable income | Effective January 1, 2008, charged at the legal rate of 25%. However, certain of our qualified operations in west regions of the PRC are entitled to a rate of 15% prior to 2010. | ||
|
Value-added tax
|
Turnover | 13% for liquified natural gas, natural gas, liquified petroleum gas, agricultural film and fertilizers and 17% for other items. | ||
| Sales volume | 5% for the Sino-foreign oil and gas exploration and development cooperative projects. However input value-added tax cannot be deducted. | |||
|
Business tax
|
Income from transportation services | 3% | ||
|
Consumption tax
|
Aggregate volume sold or self-consumed | Effective January 1, 2009, the unit tax amount of the consumption tax for refined oil products was increased as follows: | ||
| RMB1.0 per liter for unleaded gasoline | ||||
| RMB0.8 per liter for diesel. |
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|
Tax Item
|
Tax Base
|
Tax Rate
|
||
| RMB1.0 per liter for naphtha, solvent naphtha and lubricants. | ||||
| RMB0.8 per liter for fuel oil | ||||
|
Resource tax
|
Aggregate volume sold or self-consumed | Effective July 1, 2005, resource tax applicable to crude oil of our company was adjusted upward from the original RMB8 to 30 per ton to RMB14 to 30 per ton, and the resource tax for natural gas was adjusted from the original RMB2 to 15 per thousand cubic meter to RMB7 to 15 per thousand cubic meter. | ||
| The actual applicable rate for each oil field may differ, depending on the resource differences, volume of the exploration and production activities and costs required for the production at the particular oil field. | ||||
| Effective from June 1, 2010, the resource tax payable by the resource tax payers in connection with their extraction of crude oil and natural gas in Xinjiang shall be collected based on value at the rate of 5%. The amount of the resource tax payable = sales value × tax rate. Taxpayers shall be eligible for a reduced resource tax rate in connection with their extraction of viscous oil, high pour-point oil, and high sour natural gas as well as enhanced oil recovery. | ||||
|
Compensatory fee for mineral resources
|
Turnover | 1% for crude oil and natural gas | ||
|
Crude oil special gain levy
|
Sales amount above specific threshold | Effective March 26, 2006, levied on the domestic crude oil sold at or above US$40/barrel, with a five-level progressive tax rates, varying from 20% to 40% | ||
|
Exploration license fee
|
Area | RMB100 to 500 per square kilometer per year | ||
|
Production license fee
|
Area | RMB1,000 per square kilometer per year | ||
|
Royalty
fee
(1)
|
Production volume | Progressive rate of 0-12.5% for crude oil and 0-3% for natural gas |
| (1) | Payable only by Sino-foreign oil and gas exploration and development cooperative projects. The project entity of those cooperative projects is not subject to any other resource tax or fee. |
The PRC Highway Law, as amended on October 31, 1999,
provides that the PRC government will collect funds for highway
maintenance by imposing fuel taxes. On December 18, 2008,
the State Council promulgated the
Circular on Implementing
the Reform of Refined Oil Product Pricing and Relevant Tax and
Charge Collection
. According to the Circular, effective
January 1, 2009, the PRC government ceased to impose the
fuel oil tax. Instead, as part of the reform of the refined oil
product pricing, the government used the existing system of
taxation, methods of tax collection and means of taxation
administration to further improve the refined oil product
pricing mechanism. As a result, the unit tax amount of the
consumption tax for refined oil products was increased.
56
Table of Contents
Environmental
Regulations
We are subject to various PRC national environmental laws and
regulations and also environmental regulations promulgated by
the local governments in whose jurisdictions we have operations.
China has adopted extensive environmental laws and regulations
that affect the operation of the oil and gas industry. There are
national and local standards applicable to emissions control,
discharges to surface and subsurface water and disposal, and the
generation, handling, storage, transportation, treatment and
disposal of solid waste materials.
The environmental regulations require a company, such as us, to
register or file an environmental impact report with the
relevant environmental bureau for approval before it undertakes
any construction of a new production facility or any major
expansion or renovation of an existing production facility. The
new facility or the expanded or renovated facility will not be
permitted to operate unless the relevant environmental bureau
has inspected to its satisfaction that environmental equipment
that satisfies the environmental protection requirements has
been installed for the facility. A company that wishes to
discharge pollutants, whether it is in the form of emission,
water or materials, must submit a pollutant discharge
declaration statement detailing the amount, type, location and
method of treatment. After reviewing the pollutant discharge
declaration, the relevant environmental bureau will determine
the amount of discharge allowable under the law and will issue a
pollutant discharge license for that amount of discharge subject
to the payment of discharge fees. If a company discharges more
than is permitted in the pollutant discharge license, the
relevant environmental bureau can fine the company up to several
times the discharge fees payable by the offending company for
its allowable discharge, or require the offending company to
close its operation to remedy the problem.
| ITEM 4A — | UNRESOLVED STAFF COMMENTS |
We do not have any unresolved Staff comments that are required
to be disclosed under this item.
| ITEM 5 — | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
General
You should read the following discussion together with our
consolidated financial statements and their notes included
elsewhere in this annual report. Our consolidated financial
statements have been prepared in accordance with IFRS.
Overview
We are engaged in a broad range of petroleum and natural gas
related activities, including:
| • | the exploration, development, production and sale of crude oil and natural gas; | |
| • | the refining of crude oil and petroleum products, and the production and marketing of basic petrochemical products, derivative chemical products and other chemical products; | |
| • | marketing and trading of refined oil products; and | |
| • | the transmission of natural gas, crude oil and refined oil products as well as the sale of natural gas. |
We are China’s largest producer of crude oil and natural
gas and are one of the largest companies in China in terms of
sales. In the year ended December 31, 2009, we produced
approximately 843.5 million barrels of crude oil and
approximately 2,122.2 billion cubic feet of natural gas for
sale. Our refineries also processed approximately
828.6 million barrels of crude oil in the year ended
December 31, 2009. In the year ended December 31,
2009, we had turnover of RMB1,019,275 million and profit
attributable to the owners of our company of
RMB103,387 million.
Factors
Affecting Results of Operations
Our results of operations and the
period-to-period
comparability of our financial results are affected by a number
of external factors, including changes in the prices of crude
oil, refined products, natural gas and chemical products,
decrease in our crude oil reserves in China and fluctuations in
exchange rates and interest rates.
57
Table of Contents
Crude
Oil Prices
Our results of operations are substantially affected by crude
oil prices. Our actual realized crude oil prices include a
premium on, or discount from, the median prices which primarily
reflects transportation costs, differences in oil quality and
market supply and demand conditions.
The table below sets forth the median prices for our principal
grades of crude oil in 2007, 2008 and 2009 and the negotiated
premiums or discounts applicable to those grades of crude oil
since 2007.
|
Median Prices for Principal Grades of
|
||||||||||||||||||||||||||||
| Crude Oil (RMB/Barrel) |
Premium/(Discount)
|
|||||||||||||||||||||||||||
|
Year 2007
|
Year 2008
|
Year 2009
|
(RMB/Barrel) | |||||||||||||||||||||||||
|
Grade of Crude Oil
|
Benchmark | Average | Average | Average | 2007 | 2008 | 2009 | |||||||||||||||||||||
|
Daqing
|
Cinta | 536 | 701 | 390 | (3.8 | ) | (3.8 | ) | (3.8 | ) | ||||||||||||||||||
|
Jidong
|
Cinta | 536 | 701 | 390 | (3.8 | ) | (3.8 | ) | (3.8 | ) | ||||||||||||||||||
|
Huabei
|
Cinta | 536 | 701 | 390 | (3.9 | ) | (3.9 | ) | (3.9 | ) | ||||||||||||||||||
|
Dagang
|
Duri | 512 | 651 | 350 | (4 | ) | (4 | ) | (4 | ) | ||||||||||||||||||
|
Tarim
|
Cinta | 536 | 701 | 390 | (51 | ) | (51 | ) | (51 | ) | ||||||||||||||||||
|
Tuha
|
Minas | 571 | 729 | 418 | (36 | ) | (36 | ) | (36 | ) | ||||||||||||||||||
Increases or decreases in the price of crude oil in China have a
significant effect on the turnover from our exploration and
production segment. Our turnover from the exploration and
production segment for the year ended December 31, 2009 was
RMB 405,326 million, representing a decrease of 35.3% from
RMB626,367 million for the year ended December 31,
2008, mainly as a result of the decreases in the prices of crude
oil. In the year ended December 31, 2009, our average
realized selling price for crude oil was RMB368 per barrel,
decreased by 39.5% from RMB608 per barrel in the year ended
December 31, 2008. See “Item 4 —
Information on the Company — Regulatory
Matters — Pricing” for a more detailed discussion
of current PRC crude oil pricing regulations.
Refined
Product Prices
From October 2001 to December 18, 2008, we and Sinopec set
our retail prices within an 8% floating range of the median
gasoline and diesel guidance prices published by the National
Development and Reform Commission or its predecessor, the State
Planning Commission. Beginning from December 19, 2008, the
PRC government set upper limits for the retail prices of various
refined oil products, which had previously been allowed to float
within a floating range of the median guidance prices. We
determine the prices of other refined products with reference to
the published median guidance prices of gasoline and diesel. Our
retail prices may differ from those of Sinopec within a given
market. Our average realized selling prices tend to be higher in
the western and northern regions of China, where we dominate the
market, as compared to our average realized selling prices in
the eastern and southern regions, where Sinopec has a stronger
presence. See “Item 4 — Information on the
company — Regulatory Matters — Pricing”
for a more detailed discussion of current PRC refined products
pricing regulations.
58
Table of Contents
As of the end of 2008, the ex works prices were RMB 6,229 per
ton for 90# gasoline and RMB 5,625 per ton for 0# diesel. The
following table sets forth the adjustments that were made to
such median prices from January 2009 to June 18, 2010, as
published by the National Development and Reform Commission.
|
90(#)
|
0(#)
|
|||||||
|
Date
|
Gasoline | Diesel | ||||||
| (RMB/ton) | (RMB/ton) | |||||||
|
January 15, 2009
|
(140 | ) | (160 | ) | ||||
|
March 25, 2009
|
290 | 180 | ||||||
|
June 10, 2009
|
400 | 400 | ||||||
|
June 30, 2009
|
600 | 600 | ||||||
|
July 29, 2009
|
(220 | ) | (220 | ) | ||||
|
September 2, 2009
|
300 | 300 | ||||||
|
September 30, 2009
|
(190 | ) | (190 | ) | ||||
|
November 10, 2009
|
480 | 480 | ||||||
|
April 14, 2010
|
320 | 320 | ||||||
|
June 1, 2010
|
(230 | ) | (220 | ) | ||||
Chemical
Product Prices
We determine and set the prices of all chemical products
produced by our chemicals business segment based on market
conditions.
Natural
Gas Prices
Our natural gas price is comprised of the ex-works price and
pipeline transportation tariff.
We negotiate the actual ex-works price with natural gas users on
the basis of the benchmark price set by the government and the
adjustment range. See “Item 4 — Information
on the company — Regulatory Matters —
Pricing” for a more detailed discussion of current PRC
natural gas products pricing regulations.
Foreign
Currency Exposure
For a discussion of the effect of exchange rate fluctuations on
our results of operations, please see
“Item 11 — Quantitative and Qualitative
Disclosures About Market Risk — Foreign Exchange Rate
Risk”.
Interest
Rate Exposure
For a discussion of the effect of interest rate changes on our
results of operations, please see “Item 11 —
Quantitative and Qualitative Disclosures About Market
Risk — Interest Rate Risk”.
Critical
Accounting Policies
The preparation of our consolidated financial statements
requires our management to select and apply significant
accounting policies, the application of which may require
management to make judgments and estimates that affect the
reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities as of the date of our
financial statements, and the reported amounts of turnover and
expenses during the reporting period. Notwithstanding the
presentation of our principal accounting policies in Note 3
to our consolidated financial statements included elsewhere in
this annual report, we have identified the accounting policies
below as most critical to our business operations and the
understanding of our financial condition and results of
operations presented in accordance with IFRS. Although these
estimates are based on our management’s best knowledge of
current events and actions, actual results ultimately may differ
from those estimates.
59
Table of Contents
Accounting
for Oil and Gas Exploration and Production
Activities
We use the successful efforts method of accounting, with
specialized accounting rules that are unique to the oil and gas
industry, for oil and gas exploration and production activities.
Under this method, geological and geophysical costs incurred are
expensed prior to the discovery of proved reserves. However, all
costs for developmental wells, support equipment and facilities,
and mineral interests in oil and gas properties are capitalized.
Costs of exploratory wells are capitalized as construction in
progress pending determination of whether the wells find proved
reserves. For exploratory wells located in regions that do not
require substantial capital expenditures before the commencement
of production, the evaluation of the economic benefits of the
reserves in such wells will be completed within one year
following the completion of the exploration drilling. Where such
evaluation indicates that no economic benefits can be obtained,
the relevant costs of exploratory wells will be converted to dry
hole exploration expenses. The relevant costs will be
capitalized if the evaluation indicates that economic benefits
can be obtained. For wells that found economically viable
reserves in areas where a major capital expenditure would be
required before production can begin, the related well costs
remain capitalized only if additional drilling is under way or
firmly planned. Otherwise the well costs are expensed as dry
holes. We have no costs of unproved properties capitalized in
oil and gas properties.
Oil
and Gas Reserves
The estimation of the quantities of recoverable oil and gas
reserves in oil and gas fields is integral to effective
management of our exploration and production operations. Because
of the subjective judgments involved in developing and assessing
such information, engineering estimates of the quantities of
recoverable oil and gas reserves in oil and gas fields are
inherently imprecise and represent only approximate amounts.
Before estimated oil and gas reserves are designated as
“proved”, certain engineering criteria must be met in
accordance with industry standards and the regulations of the
SEC. Proved oil and gas reserves are the estimated quantities of
crude oil and natural gas which geological and engineering data
demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and
operating conditions. Therefore, these estimates do not include
probable or possible reserves. Our proved reserve estimates are
updated annually by independent, qualified and experienced oil
and gas reserve engineering firms in the United States. Our oil
and gas reserve engineering department has policies and
procedures in place to ensure that these estimates are
consistent with these authoritative guidelines. Among other
factors as required by authoritative guidelines, this estimation
takes into account recent information about each field,
including production and seismic information, estimated
recoverable reserves of each well, and oil and gas prices and
operating costs as of the date the estimate is made. Prices
include consideration of changes in existing prices provided
only by contractual arrangements, but not on escalations based
upon future conditions. Therefore, as prices and cost levels
change from year to year, the estimate of proved reserves also
changes. We have no costs of unproved properties capitalized in
oil and gas properties.
Despite the inherent imprecision in these engineering estimates,
estimated proved oil and gas reserve quantity has a direct
impact on certain amounts reported in the financials statements.
In addition to the capitalization of costs related to oil and
gas properties on the balance sheet discussed earlier, estimated
proved reserves also impact the calculation of depreciation,
depletion and amortization expenses of oil and gas properties.
The cost of oil and gas properties is amortized at the field
level on the unit of production method. Unit of production rates
are based on the total oil and gas reserves estimated to be
recoverable from existing facilities based on the current terms
of our production licenses. Our reserve estimates include only
crude oil and natural gas which management believes can be
reasonably produced within the current terms of the production
licenses that are granted by the Ministry of Land and Resources,
ranging from 30 years to 55 years from the effective
date of issuance in March 2000, renewable upon application
30 days prior to expiration. Consequently, the impact of
changes in estimated proved reserves is reflected prospectively
by amortizing the remaining book value of the oil and gas
property assets over the expected future production. If proved
reserve estimates are revised downward, earnings could be
affected by higher depreciation expense or an immediate
write-down of the property’s book value had the downward
revisions been significant See “— Property, Plant
and Equipment” below. Given our large number of producing
properties in our portfolio, and the estimated proved reserves,
it is unlikely that any changes in reserve estimates will have a
significant effect on prospective charges for depreciation,
depletion and amortization expenses.
60
Table of Contents
In addition, due to the importance of these estimates to better
understanding the perceived value and future cash flows of a
company’s oil and gas operations, we have also provided
supplemental disclosures of “proved” oil and gas
reserve estimates prepared in accordance with authoritative
guidelines elsewhere in this annual report.
Property,
Plant and Equipment
We record property, plant and equipment, including oil and gas
properties, initially at cost less accumulated depreciation,
depletion and amortization. Cost represents the purchase price
of the asset and other costs incurred to bring the asset into
existing use. Subsequent to their initial recognition, property,
plant and equipment are carried at revalued amount, being the
estimated fair value at the date of the revaluation less
accumulated depreciation and impairment losses. Revaluations are
performed by independent qualified valuers on a periodic basis
to ensure that the carrying amount does not differ materially
from that which would be determined using fair value at the
balance sheet date. Revaluation surpluses realized through the
depreciation or disposal of revalued assets are retained in the
revaluation reserve and will not be available to offset against
possible future revaluation losses. As disclosed in Note 16
to our consolidated financial statements included elsewhere in
this annual report, our property, plant and equipment, excluding
oil and gas reserves, were revalued as of June 30, 1999.
Subsequently, our refining and chemical production equipment and
oil and gas properties were revalued as of September 30,
2003 and our oil and gas properties as of March 31, 2006.
Depreciation, depletion and amortization to write off the cost
or valuation of each asset, other than oil and gas properties,
to its residual value is calculated using the straight-line
method over the estimated useful life of such asset as follows:
|
Buildings and plant
|
8-40 years | |||||||
|
Equipment and machinery
|
4-30 years | |||||||
|
Motor vehicles
|
4-14 years | |||||||
|
Other
|
5-12 years |
We do not provide depreciation for construction in progress
until it is completed and ready for use.
The useful lives of non-oil and gas properties are estimated at
the time these purchases are made after considering future
changes, business developments and our strategies. Estimated
production lives for oil and gas properties are also made after
considering the specific factors discussed under
“— Oil and Gas Reserves” above. Should there
be unexpected adverse changes in these circumstances or events,
which include, among others, declines in projected operating
results and negative industry or economic trends we would be
required to assess the need to shorten the useful lives
and/or
make
impairment provisions.
In performing this impairment assessment, we review internal and
external sources of information to identify indications of these
unexpected adverse changes. The sources utilized to identify
indications of impairment are often subjective in nature and
require us to use judgment in applying such information to our
businesses. Our interpretation of this information has a direct
impact on whether an impairment assessment is performed as at
any given balance sheet date. Such information is particularly
significant as it relates to our oil and gas properties. If an
indication of impairment is identified, the recoverable amount
of each cash generating unit is estimated, which is the higher
of its fair value net of selling cost and its value in use,
which is the estimated net present value of future cash flows to
be derived from the continuing use of the asset and from its
ultimate disposal. To the extent the carrying amount of a cash
generating unit exceeds the recoverable amount, an impairment
loss is recognized in the income statement.
Depending on our assessment of the overall materiality of the
asset under review and complexity of deriving reasonable
estimates of the recoverable value, we may perform such
assessment utilizing internal resources or we may engage
external advisors to advise us in making this assessment.
Regardless of the resources utilized, we are required to make
many assumptions in making this assessment, including our
utilization of such asset, plans to continue to produce and
develop proved and associated probable or possible reserves, the
cash flows to be generated based on assumptions for future
commodity prices and development costs, appropriate market
discount rates and the projected market and regulatory
conditions. Changes in any of these assumptions could result in
a material change to future estimates of the recoverable value
of any asset.
61
Table of Contents
Provision
for Asset Decommissioning
Provision is recognized for the future decommissioning and
restoration of oil and gas properties. The amounts of the
provision recognized are the present values of the estimated
future expenditures. The estimation of the future expenditures
is based on current local conditions and requirements, including
legal requirements, technology, price level, etc. In addition to
these factors, the present values of these estimated future
expenditures are also impacted by the estimation of the economic
lives of oil and gas properties. Changes in any of these
estimates will impact the operating results and the financial
position of the company over the remaining economic lives of the
oil and gas properties.
Operating
Results
The following discussion is based on our historical results of
operations. As a result of the factors discussed above, such
results of operations may not be indicative of our future
operating performance. In 2009, we restated our consolidated
financial statements to reflect the corporate mergers between
the certain subsidiaries of our company and the certain
subsidiaries of CNPC. These corporate mergers, whether
individually or taken as a whole, do not have a significant
effect on our company.
Our income statement for each of the years ended
December 31, 2007, 2008 and 2009 is summarized in the table
below.
| Year Ended December 31, | ||||||||||||
| 2007 | 2008 | 2009 | ||||||||||
| (RMB in millions) | ||||||||||||
|
Turnover
|
837,542 | 1,072,604 | 1,019,275 | |||||||||
|
Operating expenses
|
(636,525 | ) | (913,033 | ) | (875,831 | ) | ||||||
|
Profit from operations
|
201,017 | 159,571 | 143,444 | |||||||||
|
Exchange gain (loss), net
|
(751 | ) | (1,081 | ) | (783 | ) | ||||||
|
Interest expense, net
|
(1,572 | ) | (767 | ) | (3,813 | ) | ||||||
|
Share of profit of affiliates and jointly controlled entities
|
6,445 | 4,290 | 1,184 | |||||||||
|
Profit before income tax expense
|
205,139 | 162,013 | 140,032 | |||||||||
|
Income tax expense
|
(49,802 | ) | (35,211 | ) | (33,473 | ) | ||||||
|
Profit for the year attributable to non-controlling interest
|
(8,541 | ) | (12,349 | ) | (3,172 | ) | ||||||
|
Profit for the year attributable to owners of the company
|
146,796 | 114,453 | 103,387 | |||||||||
The table below sets forth our turnover by business segment for
each of the years ended December 31, 2007, 2008 and 2009 as
well as the percentage changes in turnover for the periods shown.
|
2008
|
2009
|
|||||||||||||||||||
|
vs.
|
vs.
|
|||||||||||||||||||
| 2007 | 2008 | 2007 | 2009 | 2008 | ||||||||||||||||
| (RMB in millions, except percentages) | ||||||||||||||||||||
|
Turnover
|
||||||||||||||||||||
|
Exploration and production
|
473,117 | 626,367 | 32.4 | % | 405,326 | (35.3 | % | |||||||||||||
|
Refining and chemicals
|
481,726 | 560,729 | 16.4 | % | 501,300 | (10.6 | )% | |||||||||||||
|
Marketing
|
584,115 | 778,141 | 33.2 | % | 768,295 | (1.3 | )% | |||||||||||||
|
Natural gas and pipeline
|
50,066 | 63,315 | 26.5 | % | 77,658 | 22.7 | % | |||||||||||||
|
Other
|
1,718 | 1,418 | (17.5 | )% | 1,372 | (3.2 | )% | |||||||||||||
|
Total
|
1,590,742 | 2,029,970 | 27.6 | % | 1,753,951 | (13.6 | )% | |||||||||||||
|
Less intersegment sales
|
(753,200 | ) | (957.366 | ) | 27.1 | % | (734,676 | ) | (23.3 | )% | ||||||||||
|
Consolidated net sales from operations
|
837,542 | 1,072,604 | 28.1 | % | 1,019,275 | (5.0 | )% | |||||||||||||
62
Table of Contents
The table below sets forth our operating income by business
segment for each of the years ended December 31, 2007, 2008
and 2009, as well as the percentage changes in operating income
for the periods shown. Other profit from operations shown below
consists of research and development, business services and
infrastructure support to our operating business segments.
|
2008
|
2009
|
|||||||||||||||||||
|
vs.
|
vs.
|
|||||||||||||||||||
| 2007 | 2008 | 2007 | 2009 | 2008 | ||||||||||||||||
| (RMB in millions, except percentages) | ||||||||||||||||||||
|
Profit (loss) from operations
|
||||||||||||||||||||
|
Exploration and production
|
207,749 | 240,470 | 15.8 | % | 105,019 | (56.3 | )% | |||||||||||||
|
Refining and chemicals
|
(23,659 | ) | (93,830 | ) | — | 17,308 | — | |||||||||||||
|
Marketing
|
10,810 | 7,982 | (26.2 | )% | 13,265 | 66.2 | % | |||||||||||||
|
Natural gas and pipeline
|
12,495 | 16,057 | 28.5 | % | 19,046 | 18.6 | % | |||||||||||||
|
Other
|
(6,378 | ) | (11,108 | ) | — | (11,194 | ) | — | ||||||||||||
|
Total
|
201,017 | 159,571 | (20.6 | )% | 143,444 | (10.1 | )% | |||||||||||||
Year
Ended December 31, 2009 Compared to Year Ended
December 31, 2008
Consolidated
Results of Operations
Overview
Our profit before taxation was RMB140,032 million for the
year ended December 31, 2009, representing a decrease of
13.6% compared with the previous period. Profit attributable to
the owners of the company for the year ended December 31,
2009 was RMB103,387 million, representing a decrease of
9.7% compared with the previous period. For the year ended
December 31, 2009, the basic and diluted earnings per share
attributable to the owners of the company were RMB0.56 while the
same for 2008 was RMB0.63.
Turnover.
Turnover decreased 5.0% from
RMB1,072,604 million for the year ended December 31,
2008 to RMB1,019,275 million for the year ended
December 31, 2009. This was primarily due to decreases in
the selling prices and changes in the sales volume of major
products including crude oil, gasoline, diesel and kerosene.
The table below sets out the external sales volume and average
realized prices for major products sold by us for 2008 and 2009
and percentages of change in the sales volume and average
realized prices during these two years.
| Sales Volume (’000 ton) | Average Realized Price (RMB/ton) | |||||||||||||||||||||||
|
Percentage of
|
Percentage of
|
|||||||||||||||||||||||
| 2009 | 2008 | Change (%) | 2009 | 2008 | Change (%) | |||||||||||||||||||
|
Crude oil*
|
53,768 | 38,603 | 39.3 | 2,750 | 4,348 | (36.8 | ) | |||||||||||||||||
|
Natural gas (million cubic
metre, RMB/’000 cubic metre) |
59,614 | 51,054 | 16.8 | 814 | 813 | 0.1 | ||||||||||||||||||
|
Gasoline
|
30,777 | 29,399 | 4.7 | 5,763 | 5,881 | (2.0 | ) | |||||||||||||||||
|
Diesel
|
64,659 | 56,081 | 15.3 | 4,965 | 5,526 | (10.2 | ) | |||||||||||||||||
|
Kerosene
|
5,817 | 4,798 | 21.2 | 3,896 | 6,355 | (38.7 | ) | |||||||||||||||||
|
Heavy oil
|
8,472 | 7,061 | 20.0 | 2,903 | 3,541 | (18.0 | ) | |||||||||||||||||
|
Polyethylene
|
2,349 | 2,195 | 7.0 | 8,430 | 10,219 | (17.5 | ) | |||||||||||||||||
|
Lubricant
|
1,796 | 2,003 | (10.3 | ) | 7,204 | 7,515 | (4.1 | ) | ||||||||||||||||
| * | The crude oil listed above represents all the external sales volume of crude oil of the company. |
63
Table of Contents
Operating Expenses.
Operating expenses
decreased 4.1% from RMB913,033 million for the year ended
December 31, 2008 to RMB875,831 million for the year
ended December 31, 2009, of which:
Purchases, Services and Other
Expenses.
Purchases, services and other
expenses decreased 12.5% from RMB562,851 million for the
year ended December 31, 2008 to RMB492,472 million for
the year ended December 31, 2009. This was primarily due to
(1) a decrease in the purchase prices of crude oil and
feedstock oil from external suppliers that resulted in a
decrease in purchase costs; (2) a decrease in the prices of
raw materials, fuel, energy and other production materials as
well as changes in inventories that resulted in a decrease in
purchase costs.
Employee Compensation Costs.
Employee
compensation costs of the company were RMB65,977 million
for the year ended December 31, 2009, representing an
increase of 6.1% compared with that of last year. Taking into
account factors including the expansion of business of the
company, the level of employee compensation was basically the
same as that of last year, which demonstrated that the company
has maintained effective control on labor cost.
Exploration Expenses.
Exploration
expenses decreased 11.3% from RMB21,879 million for the
year ended December 31, 2008 to RMB19,398 million for
the year ended December 31, 2009. This was primarily due to
adjustments made by the company to optimize the structure and
workload of exploration and to further strengthen the management
of oil and gas exploration as well as control over the process
of exploration.
Depreciation, Depletion and
Amortization.
Depreciation, depletion and
amortization decreased 2.6% from RMB94,759 million for the
year ended December 31, 2008 to RMB92,259 million for
the year ended December 31, 2009. This was primarily due to
the impairment charges recorded by the company against its
refining assets and oil and gas properties in 2008.
Selling, General and Administrative
Expenses.
Selling, general and administrative
expenses increased 9.7% from RMB59,617 million for the year
ended December 31, 2008 to RMB65,423 million for the
year ended December 31, 2009. This was primarily due to
higher production safety expenses in 2009 as required by the
relevant PRC regulations.
Taxes Other than Income Taxes.
Taxes
other than income taxes increased 9.1% from
RMB124,132 million for the year ended December 31,
2008 to RMB135,465 million for the year ended
December 31, 2009. The change was primarily due to
(1) a significant decrease in the payment of the special
levy on the sale of domestic crude oil by the company compared
with that of last year, from RMB85,291 million for the year
ended December 31, 2008 to RMB20,020 million for the
year ended December 31, 2009; (2) a sharp increase in
consumption tax expenses borne by the company as a result of the
implementation of a new policy on fuel consumption tax in 2009,
from RMB13,570 million for the year ended December 31,
2008 to RMB82,429 million for the year ended
December 31, 2009; and (3) an increase of
RMB5,368 million in urban maintenance and construction tax
and educational surcharge as a result of the increase in tax
payments including fuel consumption tax.
Other Incomes/(Expenses), net.
Other
incomes/expenses, net was RMB4,837 million for the year
ended December 31, 2009, while other incomes, net was
RMB12,372 million for the year ended December 31,
2008. This was primarily due to the recognition by the company
of government grants for the supply of crude oil and refined
products in 2008.
Profit from Operations.
Profit from
operations of the company for the year ended December 31,
2009 was RMB143,444 million, representing a decrease of
10.1% from RMB159,571 million for the preceding year.
Net Exchange Loss.
Net exchange loss
decreased from RMB1,081 million for the year ended
December 31, 2008 to RMB783 million for the year ended
December 31, 2009. The decrease in the net exchange loss
was primarily due to the appreciation of the Renminbi against
the U.S. dollar and other currencies in 2008 being more
significant than the changes in exchange rates in 2009.
Net Interest Expenses.
Net interest
expenses increased 397.1% from RMB767 million for the year
ended December 31, 2008 to RMB3,813 million for the
year ended December 31, 2009. The increase in net interest
expenses was primarily due to the combined effect of a
substantial increase in the outstanding balance of interest-
64
Table of Contents
bearing debts and a decrease in interest income resulting from a
decrease in the average outstanding balance of deposits.
Profit before Income Tax
Expense.
Profit before income tax expense
decreased 13.6% from RMB162,013 million for the year months
ended December 31, 2008 to RMB140,032 million for the
year ended December 31, 2009.
Income Tax Expense.
Income tax expense
decreased 4.9% from RMB35,211 million for the year ended
December 31, 2008 to RMB33,473 million for the year
ended December 31, 2009. The decrease was primarily due to
a reduction in the taxable income for the year and taxation
adjustments.
Profit for the Year.
Profit for the
year decreased 16.0% from RMB126,802 million for the year
ended December 31, 2008 to RMB106,559 million for the
year ended December 31, 2009.
Profit Attributable to Non-controlling Interest of the
Company.
As international crude oil prices in
2009 were lower than that during 2008, certain subsidiaries of
the company recorded material decreases in profits. This
resulted in a significant decrease in the profit attributable to
non-controlling interest, from RMB12,349 million for the
year ended December 31, 2008 to RMB3,172 million for
the year ended December 31, 2009.
Profit Attributable to Owners of the
Company.
Profit attributable to the owners of
the company decreased 9.7% from RMB114,453 million for the
year ended December 31, 2008 to RMB103,387 million for
the year ended December 31, 2009.
Exploration
and Production
Turnover.
Turnover decreased 35.3% from
RMB626,367 million for the year ended December 31,
2008 to RMB405,326 million for the year ended
December 31, 2009. The decrease was primarily due to a
significant decrease in crude oil prices.
Operating Expenses.
Operating expenses
decreased 22.2% from RMB385,897 million for the year ended
December 31, 2008 to RMB300,307 million for the year
ended December 31, 2009. The decrease was primarily due to
a decrease in the purchase costs of imported crude oil as
international crude oil prices remained low throughout 2009 and
a sharp decrease in the payment of special levy on the sale of
domestic crude oil by the company.
Profit from Operations.
Impacted by
factors such as the sharp decrease in crude oil prices, the
profit from operations for the year ended December 31, 2009
was RMB105,019 million, representing a decrease of 56.3%
from RMB240,470 million for the preceding year. However,
the exploration and production segment remains the most
important contributor to the profit of the company.
Refining
and Chemicals
Turnover.
Turnover decreased 10.6% from
RMB560,729 million for the year ended December 31,
2008 to RMB501,300 million for the year ended
December 31, 2009. The decrease was primarily due to
decrease in the selling prices of key refining and chemical
products.
Operating Expenses.
Operating expenses
decreased 26.1% from RMB654,559 million for the year ended
December 31, 2008 to RMB483,992 million for the year
ended December 31, 2009. The decrease was primarily due to
the international crude oil price being lower than last year,
which resulted in a decrease in the purchase costs of crude oil
and feedstock oil from external suppliers.
Profit/Loss from Operations.
The profit
from operations amounted to RMB17,308 million for the year
ended December 31, 2009, compared with a loss of
RMB93,830 million for the year ended December 31, 2008.
Marketing
Turnover.
Turnover decreased 1.3% from
RMB778,141 million for the year ended December 31,
2008 to RMB768,295 million for the year ended
December 31, 2009. The decrease in turnover was primarily
due to a
65
Table of Contents
decrease in the selling prices of refined products and
reductions in sales revenues from the oil products trading
business.
Operating Expenses.
Operating expenses
decreased 2.0% from RMB770,159 million for the year ended
December 31, 2008 to RMB755,030 million for the year
ended December 31, 2009. The decrease was primarily due to
a decrease in the purchase costs of refined products from
external suppliers, together with a decrease in expenses
relating to the oil products trading business.
Profit from Operations.
Profit from
operations was RMB13,265 million for the year ended
December 31, 2009, representing an increase of 66.2% from
RMB7,982 million for the proceeding year.
Natural
Gas and Pipeline
Turnover.
Turnover increased 22.7% from
RMB63,315 million for the year ended December 31, 2008
to RMB77,658 million for the year ended December 31,
2009. The increase was primarily due to an increase in the
natural gas sales volume and the volume of natural gas from
pipeline transmission.
Operating Expenses.
Operating expenses
increased 24.0% from RMB47,258 million for the year ended
December 31, 2008 to RMB58,612 million for the year
ended December 31, 2009. The increase was primarily due to
an increase in the purchase costs of natural gas.
Profit from Operations.
Profit from the
natural gas and pipeline segment to the company continue to
grow. Profit from operations of the natural gas and pipeline
segment was RMB19,046 million for the year ended
December 31, 2009, representing an increase of 18.6% from
RMB16,057 million for the year ended December 31, 2008.
Year
Ended December 31, 2008 Compared to Year Ended
December 31, 2007
Consolidated
Results of Operations
Overview
Our profit before taxation was RMB162,013 million for the
year ended December 31, 2008, representing a decrease of
21.0% compared with the previous period. Profit attributable to
the owners of the company was RMB114,453 million,
representing a decrease of 22.0% compared with the previous
period. For the year ended December 31, 2008, the basic and
diluted earnings per share attributable to the owners of the
company were RMB0.63 while the same for 2007 was RMB0.82.
Turnover.
Our turnover increased 28.1%
from RMB837,542 million for the year ended
December 31, 2007 to RMB1,072,604 million for the year
ended December 31, 2008. 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 certain
refined products, and the efforts made by us in expanding
resources and developing markets by leveraging on the
opportunities presented by high prices in crude oil and
petrochemical products in the international market. In addition,
the increase of the trading business of refined oil products
during the year also increased our turnover.
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Table of Contents
The table below sets out the external sales volume and average
realized prices for major products sold by us for 2007 and 2008
and percentages of change in the sales volume and average
realized prices during these two years.
| Sales Volume (’000 ton) | Average Realized Price (RMB/ton) | |||||||||||||||||||||||
|
Percentage of
|
Percentage of
|
|||||||||||||||||||||||
| 2008 | 2007 | Change (%) | 2008 | 2007 | Change (%) | |||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Crude oil*
|
38,603 | 29,154 | 32.4 | 4,348 | 3,659 | 18.8 | ||||||||||||||||||
|
Natural gas (million cubic metre, RMB/’000 cubic metre)
|
51,054 | 43,570 | 17.2 | 813 | 693 | 17.3 | ||||||||||||||||||
|
Gasoline
|
29,399 | 27,003 | 8.9 | 5,881 | 5,168 | 13.8 | ||||||||||||||||||
|
Diesel
|
56,081 | 54,377 | 3.1 | 5,526 | 4,668 | 18.4 | ||||||||||||||||||
|
Kerosene
|
4,798 | 3,782 | 26.9 | 6,355 | 4,684 | 35.7 | ||||||||||||||||||
|
Heavy oil
|
7,061 | 8,772 | (19.5 | ) | 3,541 | 2,519 | 40.6 | |||||||||||||||||
|
Polyethylene
|
2,195 | 2,102 | 4.4 | 10,219 | 10,497 | (2.6 | ) | |||||||||||||||||
|
Lubricant
|
2,003 | 2,378 | (15.8 | ) | 7,515 | 6,420 | 17.1 | |||||||||||||||||
| * | The crude oil listed above represents all the external sales volume of crude oil of the company. |
Operating Expenses.
Operating expenses
increased 43.4% from RMB636,525 million for the year ended
December 31, 2007 to RMB913,033 million for the year
ended December 31, 2008, of which:
Purchases, Services and Other
Expenses.
Purchases, services and other
expenses increased 52.2% from RMB369,786 million for the
year ended December 31, 2007 to RMB562,851 million for
the year ended December 31, 2008. 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;
(2) an increase in the lifting costs of oil and gas
operations and the processing costs of our 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 our production scale; and (3) impairment
losses for decline in the value of inventories in the amount of
RMB8,608 million were recorded during 2008, which was
driven by the low price market conditions. In addition, the
increase in the purchase expenses was also due to an increase in
our refined oil products trading operations in 2008.
Employee Compensation Costs.
Employee
compensation costs were RMB62,167 million for the year
ended December 31, 2008, representing an increase of 11.7%
compared with that of 2007. This increase in employee
compensation costs was mainly due to the adjustment to the level
of salaries in line with the domestic commodity prices.
Exploration Expenses.
Exploration
expenses increased 4.4% from RMB20,956 million for the year
ended December 31, 2007 to RMB21,879 million for the
year ended December 31, 2008. To further boost crude oil
and natural gas resources, we undertook more exploration
activities for crude oil and natural gas.
Depreciation, Depletion and
Amortisation.
Depreciation, depletion and
amortisation increased 40.5% from RMB67,423 million for the
year ended December 31, 2007 to RMB94,759 million for
the year ended December 31, 2008. This was primarily due to
(1) an increase in depreciation, depletion and amortisation
that resulted from an increase in the average costs of fixed
assets and the average net value of oil and gas properties; and
(2) as a result of the significant volatility in
international crude oil prices in 2008 and deterioration in the
overall international and domestic economic conditions since the
fourth quarter of 2008 which resulted in the recoverable amounts
of certain property, plant and equipment being less than their
carrying amounts, we recorded impairment charges of
RMB11,949 million and RMB4,235 million against the
refining and chemical production assets and oil and gas
properties, respectively.
Selling, General and Administrative
Expenses.
Selling, general and administrative
expenses increased 13.8% from RMB52,389 million for the
year ended December 31, 2007 to RMB59,617 million for
the year ended December 31, 2008. This was primarily due to
an increase in transportation, maintenance and other related
costs that resulted from expansion in production scale and
business development.
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Table of Contents
Taxes Other than Income Taxes.
Taxes
other than income taxes increased 68.2% from
RMB73,806 million for the year ended December 31, 2007
to RMB124,132 million for the year ended December 31,
2008. The increase was primarily due to an increase of
RMB40,629 million compared with 2007 in the payment of the
special levy on the sale of domestic crude oil by us as the
average crude oil prices remained high throughout 2008.
Other Incomes/(Expenses), net.
Other
incomes, net, was RMB12,372 million for the year ended
December 31, 2008, while the other expenses, net, was
RMB1,225 million for the year ended December 31, 2007.
This was primarily due to the recognition of government grants
to our company for imported crude oil and refined products by
the PRC government in the amount of RMB15,700 million.
Profit from Operations.
As a result of
the factors discussed above, profit from operations decreased
20.6% from RMB201,017 million for the year ended
December 31, 2007 to RMB159,571 million for the year
ended December 31, 2008.
Net Exchange Loss.
Net exchange loss
increased from RMB751 million for the year ended
December 31, 2007 to RMB1,081 million for the year
ended December 31, 2008. The increase in the net exchange
loss was primarily due to the combined effect of the
appreciation of Renminbi against the United States Dollar and
other currencies.
Net Interest Expenses.
Net interest
expenses decreased 51.2% from RMB1,572 million for the year
ended December 31, 2007 to RMB767 million for the year
ended December 31, 2008. The decrease in net interest
expenses was primarily due to the combined effect of a decrease
in the interest expenses from the sharp reduction of average
interest rates on loans and an increase in interest income from
an increase in the average outstanding balance of deposits.
Profit before Income Tax
Expense.
Profit before income tax expense
decreased 21.0% from RMB205,139 million for the year ended
December 31, 2007 to RMB162,013 million for the year
ended December 31, 2008.
Income Tax Expense.
Income tax expense
decreased 29.3% from RMB49,802 million for the year ended
December 31, 2007 to RMB35,211 million for the year
ended December 31, 2008. The decrease was primarily due to
the combined effect of a reduction in the taxable income and the
reduction of corporate income tax rate for 2008.
Profit Attributable to Owners of the
Company.
As a result of the factors discussed
above, profit attributable to the owners of the company was
RMB114,453 million for the year ended December 31,
2008, a decrease of 22.0% from 2007.
Exploration
and Production
Turnover.
Turnover from our exploration
and production segment increased 32.4% from
RMB473,117 million for the year ended December 31,
2007 to RMB626,367 million for the year ended
December 31, 2008. The increase was primarily due to an
increase in the prices and sales volume of crude oil and natural
gas.
Intersegment sales turnover increased 32.1% from
RMB378,888 million for the year ended December 31,
2007 to RMB500,522 million for the year ended
December 31, 2008. This increase was mainly due to an
increase in the prices of crude oil and natural gas and an
increase in the intersegment sales volume.
Operating Expenses.
Operating expenses
increased 45.4% from RMB265,368 million for the year ended
December 31, 2007 to RMB385,897 million for the year
ended December 31, 2008. The increase was primarily due to:
(1) a significant increase in the expenses for crude oil
imports; (2) an increase in the payment of the special levy
on our sale of domestic crude oil as international crude oil
prices were higher in 2008; (3) impairment charges for oil
and gas properties increased sharply as a result of the
significant volatility in the international crude oil prices.
Profit from Operations.
Profit from
operations increased 15.8% from RMB207,749 million for the
year ended December 31, 2007 to RMB240,470 million for
the year ended December 31, 2008. The profit from the
exploration and production segment reached a historically high
level.
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Table of Contents
Refining
and Chemicals
Turnover.
Turnover from our refining
and chemicals segment rose 16.4% from RMB481,726 million
for the year ended December 31, 2007 to
RMB560,729 million for the year ended December 31,
2008. The increase was primarily due to an increase in the
selling prices and an increase in the processing quantity.
Intersegment sales turnover increased 20.0% from
RMB330,281 million for the year ended December 31,
2007 to RMB396,410 million for the year ended
December 31, 2008. This increase was primarily due to
increases in the selling prices and increase in intersegment
sales volume of key refined products.
Operating Expenses.
Operating expenses
increased 29.5% from RMB505,385 million for the year ended
December 31, 2007 to RMB654,559 million for the year
ended December 31, 2008. The increase was primarily due to
an increase in the purchase costs of crude oil, feedstock oil
and refined products from external suppliers.
Loss from Operations.
Loss from
operations amounted to RMB93,830 million for the year ended
December 31, 2008, representing an increase of
RMB70,171 million in loss from the year ended
December 31, 2007. The loss was primarily due to
(i) the fact that there was a substantial increase in the
prices of refined oil products on the international market but
the prices of the refined oil products in China’s domestic
market were much lower than those on the international market
due to China’s macro-economic control, and (ii) a
substantial decline in domestic market demands for certain
chemical products in the second half of 2008 caused by the
global financial crisis. In addition, impairment charges for
refining production assets increased significantly compared with
that of 2007 due to the deterioration of overall economic
conditions in 2008.
Marketing
Turnover.
Turnover from our marketing
segment rose 33.2% from RMB584,115 million for the year
ended December 31, 2007 to RMB778,141 million for the
year ended December 31, 2008. The growth was primarily due
to an increase in the selling prices and sales volume of certain
refined oil products.
Operating Expenses.
Operating expenses
increased 34.3% from RMB573,305 million for the year ended
December 31, 2007 to RMB770,159 million for the year
ended December 31, 2008. The increase was primarily due to
an increase in the prices and sales of refined oil products and
an increase in the trading business of oil products.
Profit from Operations.
Profit from
operations decreased 26.2% from RMB10,810 million for the
year ended December 31, 2007 to RMB7,982 million for
the year ended December 31, 2008. The decrease was mainly
due to the significant increase of the impairment charges for
inventory in 2008 compared with that of 2007.
Natural
Gas and Pipeline
Turnover.
Turnover from our natural gas
and pipeline segment increased 26.5% from RMB50,066 million
for the year ended December 31, 2007 to
RMB63,315 million for the year ended December 31,
2008. The increase was primarily due to an increase in the
selling prices of natural gas and an increase in the sales
volume.
Operating Expenses.
Operating expenses
increased 25.8% from RMB37,571 million for the year ended
December 31, 2007 to RMB47,258 million for the year
ended December 31, 2008. 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 28.5% from RMB12,495 million for the
year ended December 31, 2007 to RMB16,057 million for
the year ended December 31, 2008. The natural gas and
pipeline business developed rapidly and has continued to
increase its contributions to the income of our company.
Liquidity
and Capital Resources
Our primary sources of funding include cash generated by
operating activities and short-term and long-term borrowings.
Our primary uses of funds were for operating activities,
acquisitions, capital expenditures, repayment of short-term and
long-term borrowings and distributions of dividends to
shareholders. Our payments to CNPC are limited to dividends and
payments for services provided to us by CNPC. In the year ended
December 31, 2009, we distributed as dividends 45% of our
reported income for the year attributable to our shareholders.
See “Item 8
69
Table of Contents
Financial Information — Dividend Policy” for a
discussion of factors which may affect the determination by our
board of directors of the appropriate level of dividends.
Our financing ability may be limited by our financial condition,
our results of operations and the international and domestic
capital markets. Prior to accessing the international and
domestic capital markets, we must obtain approval from the
relevant PRC government authorities. In general, we must obtain
PRC government approval for any project involving significant
capital investment for our refining and chemicals, marketing and
natural gas and pipeline segments. For a more detailed
discussion of factors which may affect our ability to satisfy
our financing requirements, see “Item 3 —
Key Information — Risk Factors”.
We plan to fund the capital and related expenditures described
in this annual report principally through cash from operating
activities, short-term and long-term borrowings and cash and
cash equivalents. Net cash flows from operating activities in
the year ended December 31, 2009 was
RMB261,972 million. As of December 31, 2009, we had
cash and cash equivalents of RMB86,925 million. While each
of the projects described in this annual report for which
significant capital expenditures will be required is important
to our future development, we do not believe that failure to
implement any one of these projects would have a material
adverse effect on our financial condition or results of
operations. If the price of crude oil undergoes a steep decline
in the future, it is likely that we would delay or reduce the
scale of the capital expenditures for our exploration and
production segment.
In October 2007, we issued 4 billion A Shares, which have
been listed and traded on the Shanghai Stock Exchange since
November 5, 2007. The total proceeds and net proceeds from
such issuance were RMB66,800 million and
RMB66,243 million respectively. Of the net proceeds,
approximately RMB6,840 million were used for the project to
increase the crude oil production capacity of Changqing
Oilfield; approximately RMB5,930 million were used for the
project to increase the crude oil production capacity of Daqing
Oilfield; approximately RMB1,500 million were used for the
project to increase the crude oil production capacity of Jidong
Oilfield; approximately RMB17,500 million were used for the
project to process and refine sulphur-bearing crude oil imported
from Kazakhstan and the ethylene technology development project
of Dushanzi Petrochemical, and approximately
RMB6,000 million were used for the 1.2 million
tons/year ethylene redevelopment and expansion project of Daqing
Petrochemical. The balance of the net proceeds will be used as
additional working capital and for general commercial purpose. A
total of RMB61,621 million were used by the end of 2009,
and the unused amount currently is deposited a special bank
account of our company.
We currently do not have any outstanding options, warrants or
other rights for any persons to require us to issue any common
stock at a price below its market value. We do not currently
intend to issue any such rights or to otherwise issue any common
stock for a price below its market value.
In addition, we did not have for the year ended
December 31, 2009, and do not currently have, any
transactions, arrangements or other relationships with
unconsolidated entities or other persons that are reasonably
likely to materially affect the liquidity or availability of or
requirements for our capital resources.
The table below sets forth our cash flows for each of the years
ended December 31, 2007, 2008 and 2009 and our cash
equivalents at the end of each period.
| Year Ended December 31, | ||||||||||||
| 2007 | 2008 | 2009 | ||||||||||
| (RMB in millions) | ||||||||||||
|
Net cash flows from operating activities
|
207,663 | 172,465 | 261,972 | |||||||||
|
Net cash flows used for investing activities
|
(183,656 | ) | (211,797 | ) | (261,453 | ) | ||||||
|
Net cash flows from financing activities
|
(5,838 | ) | 3,777 | 53,077 | ||||||||
|
Currency translation difference
|
(221 | ) | (112 | ) | 179 | |||||||
|
Cash and cash equivalents at year end
|
68,817 | 33,150 | 86,925 | |||||||||
Our cash and cash equivalents increased by 162.2% from
RMB33,150 million as of December 31, 2008 to
RMB86,925 million as of December 31, 2009.
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Table of Contents
Net Cash
Flows from Operating Activities
Our net cash flows from operating activities for the year ended
December 31, 2009 was RMB261,972 million, representing
an increase of 51.9% compared with RMB172,465 million
generated for the year ended December 31, 2008. This was
mainly due to the decrease in cash outflow arising from the
strengthened working capital management by the company in
response to the global financial crisis, and the reduction of
value-added taxes as a result of the new pricing mechanism for
refined products implemented by the PRC government. As at
December 31, 2009, the company had cash and cash
equivalents of RMB86,925 million. The cash and cash
equivalents were mainly denominated in Renminbi (approximately
77.2% were denominated in Renminbi, approximately 17.2% were
denominated in U.S. dollar, approximately 4.5% were
denominated in HK dollar and approximately 1.1% were denominated
in other currencies).
Our net cash flows from operating activities was
RMB172,465 million for the year ended December 31,
2008, representing a decrease of 16.9% from
RMB207,663 million for the year ended December 31,
2007, mainly as a result of a decrease in our profit
attributable to the owners of the company compared with that of
2007. As of December 31, 2008, our cash and cash
equivalents amounted to RMB33,150 million, which were
mainly denominated in RMB (approximately 67.7% were denominated
in Renminbi, and approximately 32.3% were denominated in
U.S. dollar).
Net Cash
Flows Used for Investing Activities
Our net cash flows used for investing activities for the year
ended December 31, 2009 was RMB261,453 million,
representing an increase of 23.4% compared with
RMB211,797 million used for investing activities for the
year ended December 31, 2008. The net increase was
primarily due to an increase in capital expenditures paid in
cash during the year as a result of the construction of the
strategic projects (including the Second West-East Gas Pipeline
project) and major programs by the company.
Our net cash flows used for investing activities for the year
ended December 31, 2008 was RMB211,797 million,
representing an increase of 15.3% compared with
RMB183,656 million used for investing activities for the
year ended December 31, 2007. The net increase in cash used
for investing activities was primarily due to an increase in
capital expenditures paid in cash during the year.
Net Cash
Flows from Financing Activities
Our net cash flows from financing activities for year ended
December 31, 2009 was RMB53,077 million, while our net
cash flows from financing activities for the year ended
December 31, 2008 was RMB3,777 million. This increase
was primarily because we increased our financing activities in
response to the financial crisis.
Our net cash flows from financing activities for the year ended
December 31, 2008 was RMB3,777 million, while our net
cash flows from financing activities for the year ended
December 31, 2007 was RMB5,838 million. This decrease
was primarily due to an increase in the amount of net borrowings
and capital contributions by minority shareholders during the
year.
Our net borrowings as of December 31, 2007, 2008 and 2009
were as follows:
| December 31, | ||||||||||||
| 2007 | 2008 | 2009 | ||||||||||
| (RMB in millions) | ||||||||||||
|
Short-term debt (including current portion of long-term debt)
|
31,578 | 93,670 | 148,851 | |||||||||
|
Long-term debt
|
40,067 | 32,852 | 85,471 | |||||||||
|
Total debt
|
71,645 | 126,522 | 234,322 | |||||||||
|
Less:
|
||||||||||||
|
Cash and cash equivalents
|
68,817 | 33,150 | 86,925 | |||||||||
|
Net debt
|
2,828 | 93,372 | 147,397 | |||||||||
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Of our total borrowings as at December 31, 2009,
approximately 69.7% were fixed-rate loans and approximately
30.3% were floating-rate loans. Of the borrowings as at
December 31, 2009, approximately 83.2% were denominated in
Renminbi, approximately 16.7% were denominated in
U.S. dollar, and approximately 0.1% were denominated in
Euro dollar.
Of our total borrowings as at December 31, 2008,
approximately 67.1% were fixed-rate loans and approximately
32.9% were floating-rate loans. Of the borrowings as at
December 31, 2008, approximately 84.3% were denominated in
Renminbi, approximately 15.5% were denominated in
U.S. dollar, and approximately 0.2% were denominated in
Euro dollar.
Our debt to capital ratio (calculated by dividing
interest-bearing debts by the aggregate of interest-bearing
debts and shareholder’s equity) as of December 31,
2009 was 20.5%, as compared to 13.0% as of December 31,
2008.
Capital
Expenditures and Investments
For the year ended December 31, 2009, our capital
expenditures increased 14.8% to RMB266,836 million from
RMB232,377 million for the year ended December 31,
2008. The increase in capital expenditures was primarily due to
an increase in expenditures relating to construction of sales
network and construction of natural gas pipelines by our company.
The table below sets forth our capital expenditures and
investments by business segment for each of the years ended
December 31, 2007, 2008 and 2009 as well as those
anticipated for the year ending December 31, 2010. Actual
capital expenditures and investments for periods after
January 1, 2010 may differ from the amounts indicated
below.
|
2010
|
||||||||||||||||||||||||||||||||
| 2007 | 2008 | 2009 | Anticipated | |||||||||||||||||||||||||||||
|
(RMB in
|
(RMB in
|
(RMB in
|
(RMB in
|
|||||||||||||||||||||||||||||
| millions) | % | millions) | % | millions) | % | millions) | % | |||||||||||||||||||||||||
|
Exploration and
production
(1)
|
135,351 | 74.1 | 157,194 | 67.6 | 129,017 | 48.4 | 157,700 | 53.9 | ||||||||||||||||||||||||
|
Refining and chemicals
|
21,499 | 11.8 | 30,619 | 13.2 | 42,558 | 15.9 | 49,500 | 16.9 | ||||||||||||||||||||||||
|
Marketing
|
13,212 | 7.2 | 4,974 | 2.1 | 18,174 | 6.8 | 19,600 | 6.7 | ||||||||||||||||||||||||
|
Natural gas and pipeline
|
11,003 | 6.0 | 36,848 | 15.9 | 74,754 | 28.0 | 62,000 | 21.2 | ||||||||||||||||||||||||
|
Corporate and other
|
1,613 | 0.9 | 2,742 | 1.2 | 2,333 | 0.9 | 3,900 | 1.3 | ||||||||||||||||||||||||
|
Total
|
182,678 | 100.0 | 232,377 | 100.0 | 266,836 | (2) | 100.00 | 292,700 | 100.00 | |||||||||||||||||||||||
| (1) | If investments related to geological and geophysical exploration costs are included, the capital expenditures and investments for the exploration and production segment for 2008 and 2009, and the estimates for the same in 2010 would be RMB168,732 million, RMB138,396 million and RMB169,000 million, respectively. | |
| (2) | The capital expenditure for 2009 has excluded the consideration for the acquisition of Singapore Petroleum Company Limited in the amount of Singapore dollars (“S$”)3,239 million (approximately RMB15,296 million). |
As of December 31, 2009, the capital expenditures
contracted for at the balance sheet date but not recognized in
our consolidated financial statements were approximately
RMB56,657 million.
Exploration
and Production
A majority of our capital expenditures and investments relate to
our exploration and production segment. For each of the three
years ended December 31, 2007, 2008, and 2009, capital
expenditures in relation to the exploration and production
segment amounted to RMB135,351 million,
157,194 million, 129,017 million, respectively. The
capital expenditures and investments in the exploration and
production segment were primarily used for large oil and gas
exploration projects such as in the oil and gas fields located
in Changqing, Daqing, Tarim and Southwestern
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Table of Contents
oil and gas fields in China and Aktyubinsk oil and gas fields
and for the construction of key production capacities for
various oil and gas fields.
We anticipate that capital expenditures for the exploration and
production segment for the year ended December 31, 2010
will amount to approximately RMB157,700 million, of which
approximately RMB29,000 million will be mainly used for oil
and gas exploration activities, and approximately
RMB128,700 million will be used for the oil and gas
developmen activities. Domestic exploration activities will be
mainly focused on the overall development of regions in Songliao
Basin, Bohai Basin, Erdos Basin, Sichuan Basin, Tarim Basin and
other key oil and gas regions. Development activities will be
focused on the construction of new proved oil and gas fields,
while the steady and increasing production of Daqing, Changqing,
Tarim and Southwestern oil and gas fields will also be
emphasized; oil and gas exploration and development in Central
Asia and the Middle East will be the focus of our overseas
development efforts.
Refining
and Chemicals
Our capital expenditures for our refining and chemicals segment
for each of the years ended December 31, 2007, 2008 and
2009 were RMB21,499 million, RMB30,619 million and
RMB42,558 million, respectively.
Our anticipated capital expenditures for our refining and
chemicals segment for the year ending December 31, 2010
amount to RMB49,500 million, which include:
| • | approximately RMB26,400 million for the construction and expansion of our refining facilities, mainly including the construction of large-sized refining projects in Sichuan Petrochemical and Huhhot Petrochemical; and | |
| • | approximately RMB23,100 million for the construction of our chemical facilities, mainly including the large-sized ethylene projects at Sichuan Petrochemical, Fushun Petrochemical and Daqing Petrochemical. |
Marketing
Our capital expenditures for our marketing segment for each of
the years ended December 31, 2007, 2008 and 2009 were
RMB13,212 million, RMB4,974 million and
RMB18,174 million, respectively. Our capital expenditures
for the marketing segment in 2009 were mainly used for the
construction of service stations, storage facilities and other
facilities for our sales network.
Our anticipated capital expenditures for our marketing segment
for the year ending December 31, 2010 amount to
RMB19,600 million, which are expected to be mainly used for
the construction and expansion of our sales network.
Natural
Gas and Pipeline
Our capital expenditures for the natural gas and pipeline
segment for each of the three years ended December 31,
2007, 2008 and 2009 were RMB11,003 million,
RMB36,848 million and RMB74,754, respectively. Our capital
expenditures for the natural gas and pipeline segment in 2009
were mainly used for the construction of the Second
West-to-East
Pipeline project, the Russia to China crude oil transmission
pipeline and the
Lanzhou-Zhengzhou-Changsha
refined oil product transmission pipeline project.
Our anticipated capital expenditures for our natural gas and
pipeline segment for the year ending December 31, 2010
amount to approximately RMB62,000 million, which are
expected to be used primarily for the construction of major oil
and gas transmission projects such as the second phase of the
West-to-East
Gas Pipeline project, the Russia to China crude oil transmission
pipeline and associated liquefied natural gas and gas storage
facilities.
Others
Our non-segment-specific capital expenditures and investments
for each of the years ended December 31, 2007, 2008 and
2009 were RMB1,613 million, RMB2,742 million and
RMB2,333 million, respectively.
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Table of Contents
Our anticipated non-segment-specific capital expenditures and
investments for the year ending December 31, 2010 amount to
RMB3,900 million. These planned capital expenditures and
investments mainly include capital expenditures for scientific
research activities and the construction of the information
system.
Off-Balance
Sheet Arrangements
There are no off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures
or capital resources that is material to investors.
Long-Term
Contractual Obligations and Other Commercial
Commitments and Payment Obligations
Commitments and Payment Obligations
All information that is not historical in nature disclosed under
“Item 5 — Operating and Financial Review and
Prospects — Long-Term Contractual Obligations and
Other Commercial Commitments and Payment Obligations” is
deemed to be a forward looking statement. See
“Forward-Looking Statements” for additional
information.
The tables below set forth certain information in connection
with our long-term contractual obligations and other commercial
commitments outstanding as of December 31, 2009.
| Payment Due by Period | ||||||||||||||||||||
|
Less Than
|
After
|
|||||||||||||||||||
|
Contractual Obligations
|
Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | |||||||||||||||
| (RMB in millions) | ||||||||||||||||||||
|
Long-term debt
|
99,700 | 14,229 | 49,473 | 25,560 | 10,438 | |||||||||||||||
|
Capital lease obligations
|
— | — | — | — | — | |||||||||||||||
|
Operating leases
|
93,934 | 4,071 | 6,383 | 6,095 | 77,385 | |||||||||||||||
|
Capital commitments
|
56,657 | 44,306 | 11,996 | 65 | 290 | |||||||||||||||
|
Unconditional purchase obligations
|
1,817 | 796 | 836 | 60 | 125 | |||||||||||||||
|
Other long-term obligations
|
— | — | — | — | — | |||||||||||||||
|
Total contractual cash obligations
|
252,108 | 63,402 | 68,688 | 31,780 | 88,238 | |||||||||||||||
| Amount of Commitment Expiration per Period | ||||||||||||||||||||
|
Total
|
||||||||||||||||||||
|
Amounts
|
Less Than
|
Over
|
||||||||||||||||||
|
Other Commercial Commitments
|
Committed | 1 Year | 1-3 Years | 3-5 Years | 5 Years | |||||||||||||||
| (RMB in millions) | ||||||||||||||||||||
|
Lines of credit
|
— | — | — | — | — | |||||||||||||||
|
Standby letters of credit
|
— | — | — | — | — | |||||||||||||||
|
Guarantees
|
21 | — | 21 | — | — | |||||||||||||||
|
Total commercial commitments
|
21 | — | 21 | — | — | |||||||||||||||
We are obligated to make annual payment with respect to our
exploration and production licenses to the Ministry of Land and
Resources. The table below sets forth the estimated amount of
the annual payments in the next five years:
|
Year
|
Annual Payment | |||
| (RMB in millions) | ||||
|
2010
|
1,000 | |||
|
2011
|
1,000 | |||
|
2012
|
1,000 | |||
|
2013
|
1,000 | |||
|
2014
|
1,000 | |||
74
Table of Contents
Assets
Retirement Obligation
A number of provinces and regions in which our oil and gas
exploration and production activities are located have
promulgated environment protection regulations, which set forth
specific abandonment and disposal processes for oil and gas
exploration and production activities. We have established
standard abandonment procedures, including plugging all retired
wells, dismantling all retired metering stations and other
related facilities and performing site restoration, in response
to the issuance of these provincial and regional regulations. An
additional obligation of RMB7,162 million was recorded in
2009.
Research
and Development
We have a research and development management department,
directly under which there are three research institutions.
Except for our branch companies which are engaged in marketing
activities, each of our branch companies has its own research
and development management department. Most of our branch
companies have their own research institutions. Our research and
development management departments are mainly responsible for
managing and coordinating the research and development
activities conducted by each of the research institutions. As of
December 31, 2009, we had 19,800 employees engaged in
research and development functions.
In each of the years ended December 31, 2007, 2008 and
2009, our total expenditures for research and development were
approximately RMB5,315 million, RMB7,760 million and
RMB9,887 million, respectively.
Exploration
and Production
Most of China’s major oil and gas fields are characterized
by a broad range of geological conditions, and a majority of
China’s oil and gas fields are in continental sedimentary
basins with complex structures. Our research and development
efforts with respect to our exploration and production business
focus on:
| • | theories and technologies of crude oil and natural gas exploration; | |
| • | oil and gas development and surface engineering technology; | |
| • | oil and gas production and pipeline transportation; and | |
| • | security, energy conservation and environment protection. |
Refining
and Chemicals
Currently, our research and development efforts in the refining
and chemicals segment are focusing on the following areas:
| • | technology for clean refined oil products; | |
| • | core technology for heavy oil processing; | |
| • | technology for developing high quality and high value synthetic resin products; | |
| • | high performance synthetic rubber products; and | |
| • | production technology for low cost chemical raw materials. |
Trend
Information
The world economic situation and energy industry are developing
and changing rapidly. China may encounter unexpected challenges
and obstacles in maintaining a stable economic development. The
rebound of China’s domestic demand for refined oil products
is still subject to many uncertainties. The competition on
China’s domestic petroleum and petrochemical market will be
more intense.
Other than as disclosed above and elsewhere in this annual
report, we are not aware of any trends, uncertainties, demands,
commitments or events for the periods from January 1, 2007
to December 31, 2009 that are reasonably likely to have a
material adverse effect on our net revenues, income,
profitability, liquidity or capital
75
Table of Contents
resources, or that would cause the disclosed financial
information to be not necessarily indicative of future operating
results or financial conditions.
Other
Information
Inflation
Inflation or deflation has not had a significant impact on our
results of operations for the year ended December 31, 2009.
Related
Party Transactions
For a discussion of related party transactions, see
“Item 7 — Major Shareholders and Related
Party Transactions — Related Party Transactions”
and Note 37 to our consolidated financial statements
included elsewhere in this annual report.
Environmental
Expenses
We paid pollutant discharge fees of approximately
RMB231 million, RMB200 million and
RMB301 million, respectively, in 2007, 2008 and 2009. Our
capital expenditures on environmental programs in 2007, 2008 and
2009 were approximately RMB2,299 million,
RMB1,366 million and 1,336 million, respectively.
Recent
Developments in IFRS
As we prepared our consolidated financial statements in
accordance with IFRS, any adoption of new standards or amendment
or interpretation to existing standards, when effective, may
affect our consolidated results of operation, consolidated
financial position and consolidated cash flows.
The following standards and interpretations to existing
standards, which are relevant to our operations, have been
published and are mandatory for accounting periods beginning on
or after January 1, 2010. We have not adopted these
standards or interpretations as of December 31, 2009.
IFRS 3 (Revised), ‘Business combinations’ —
effective July 1, 2009. The revised standard continues to
apply the acquisition method to business combinations, with some
significant changes. For example, all payments to purchase a
business are to be recorded at fair value at the acquisition
date, with contingent payments classified as debt subsequently
re-measured through the statement of comprehensive income. There
is a choice on an
acquisition-by-acquisition
basis to measure the non-controlling interest in the acquiree
either at fair vale or at the non-controlling interest’s
proportionate share of the acquiree’s net assets. All
acquisition-related costs should be expensed. The company will
apply the revised standard prospectively to all business
combinations for which the acquisition date is on or after
January 1, 2010.
IFRS 5 (Amendment), ‘Non-current assets held for sale and
discontinued operations’ — effective July 1,
2009. The amendment clarifies that all of a subsidiary’s
assets and liabilities are classified as held for sale if a
partial disposal plan results in loss of control, and relevant
disclosure should be made for this subsidiary if the definition
of a discontinued operation is met. The Company is currently
evaluating the impact of the amendment on the consolidated
financial statements but it is not expected to have any
significant impact.
IFRS 5 (Amendment), ‘Measurement of non-current assets (or
disposal groups) classified as
held-for-sale’ —
effective January 1, 2010. The amendment is part of the
IASB’s annual improvements project published in April 2009.
The amendment provides clarification that IFRS 5 specifies the
disclosures required in respect of non-current assets (or
disposal groups) classified as
held-for-sale
or discontinued operations. It also clarifies that the general
requirement of IAS 1 still apply, particularly paragraph 15
(to achieve a fair presentation) and paragraph 125 (sources
of estimation uncertainty) of IAS 1. The company is currently
evaluating the impact of the amendment on the disclosures in the
consolidated financial statements but it is not expected to have
any significant impact.
IAS 1 (Amendment), ‘Presentation of financial
statements’ — effective January 1, 2010. The
amendment is part of the IASB’s annual improvements project
published in April 2009. The amendment provides clarification
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Table of Contents
that the potential settlement of a liability by the issuance of
equity is not relevant to its classification as current or non
current. By amending the definition of current liability, the
amendment permits a liability to be classified as non-current
(provided that the entity has an unconditional right to defer
settlement by transfer of cash or other assets for at least
12 months after the accounting period) notwithstanding the
fact that the entity could be required by the counterparty to
settle in shares at any time. The company is currently
evaluating the impact of the amendment on the consolidated
financial statements but it is not expected to have any
significant impact.
IAS 27 (Revised), ‘Consolidated and separate financial
statements’ — effective July 1, 2009. The
revised standard requires the effects of all transactions with
non-controlling interests to be recorded in equity if there is
no change in control and these transactions will no longer
result in goodwill or gains and losses. IAS 27 (Revised) also
specifies the accounting when control is lost. Any remaining
interest in the entity is re-measured to fair value and a gain
or loss is recognized in profit or loss. The company will apply
the revised standard prospectively to transactions with
non-controlling interests from January 1, 2010.
IAS 38 (Amendment), ‘Intangible Assets’ —
effective January 1, 2010. The amendment is part of the
IASB’s annualimprovements project published in April 2009
and the company will apply IAS 38 (Amendment) from the date IFRS
3 (Revised) is adopted. The amendment clarifies guidance in
measuring the fair value of an intangible asset acquired in a
business combination and it permits the grouping of intangible
assets as a single asset if each asset has similar useful
economic lives. The company is currently evaluating the impact
of the amendment on the consolidated financial statements but it
is not expected to have any significant impact.
Directors,
Senior Management and Supervisors
Currently, our board of directors consists of fourteen
directors, five of whom are independent non-executive directors.
The directors are elected at a meeting of our shareholders for a
term of three years. The directors may be re-elected and
re-appointed upon the expiration of
his/her
term
of office. The functions and duties conferred on the board of
directors include:
| • | convening shareholders’ meetings and reporting its work to the shareholders’ meetings; | |
| • | implementing the resolutions of the shareholders’ meetings; | |
| • | determining our business plans and investment plans; | |
| • | formulating our annual budget and final accounts; | |
| • | formulating our proposals for dividend and bonus distributions and for the increase or reduction of capital; and | |
| • | exercising other powers, functions and duties as conferred by our articles of association. |
Eight of the directors are currently affiliated with CNPC or an
affiliate of CNPC.
The PRC Company Law requires a joint stock company with limited
liability to establish a supervisory board. This requirement is
reflected in our articles of association. The supervisory board
is responsible for monitoring our financial matters and
overseeing the corporate actions of our board of directors and
our management personnel. The supervisory board consists of nine
supervisors, six of whom are elected, including four
shareholders representatives and two independent supervisors,
and may be removed, by the shareholders in a general meeting and
three of whom are employees’ representatives who are
elected by our staff, and may be removed, by our staff. Four of
our supervisors are affiliated with CNPC. The term of office of
our supervisors is three years. The supervisors may be
re-elected and re-appointed upon the expiration of
his/her
term
of office. An elected supervisor cannot concurrently hold the
position of a director, manager or financial controller. The
functions and powers conferred on the supervisory board include:
| • | attending board meetings; | |
| • | examining our financial affairs; |
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Table of Contents
| • | examining balance sheets, profit and loss accounts, business reports, dividend distribution proposals and other financial information proposed at shareholders’ meetings by the directors from time to time; and | |
| • | overseeing the actions of our board of directors and our senior management personnel in carrying out their duties. |
In the event that any action of our directors adversely affects
our interests, supervisors shall confer with or initiate legal
proceedings against such directors on our behalf. A resolution
proposed at any meeting of the supervisory board shall be
adopted only if it is approved by two-thirds or more of our
supervisors.
Our senior management is appointed by and serves at the
discretion of our board of directors. The following table sets
forth certain information concerning our current directors,
supervisors and executive officers.
|
Name
|
Age |
Position
|
Date of
Election
(1)
|
|||||||
|
Jiang Jiemin
|
54 | Chairman of the board of directors | May 15, 2008 | |||||||
|
Zhou Jiping
|
57 | Vice Chairman of the board of directors and president | May 15, 2008 | |||||||
|
Wang Yilin
|
53 | Director | May 15, 2008 | |||||||
|
Zeng Yukang
|
59 | Director | May 15, 2008 | |||||||
|
Wang Fucheng
|
59 | Director | May 15, 2008 | |||||||
|
Li Xinhua
|
56 | Director | May 15, 2008 | |||||||
|
Liao Yongyuan
|
47 | Director and vice president | May 15, 2008 | |||||||
|
Wang Guoliang
|
57 | Director | May 15, 2008 | |||||||
|
Jiang Fan
|
46 | Director | May 15, 2008 | |||||||
|
Chee-Chen Tung
|
67 | Independent non-executive director | May 15, 2008 | |||||||
|
Liu Hongru
|
79 | Independent non-executive director | May 15, 2008 | |||||||
|
Franco Bernabè
|
61 | Independent non-executive director | May 15, 2008 | |||||||
|
Li Yongwu
|
65 | Independent non-executive director | May 15, 2008 | |||||||
|
Cui Junhui
|
63 | Independent non-executive director | May 15, 2008 | |||||||
|
Li Hualin
|
47 | Vice President and Secretary to the board of directors | ||||||||
|
Sun Longde
|
47 | Vice president | ||||||||
|
Shen Diancheng
|
50 | Vice president | ||||||||
|
Liu Hongbin
|
46 | Vice president | ||||||||
|
Zhou Mingchun
|
42 | Chief financial officer | ||||||||
|
Zhao Zhengzhang
|
53 | Vice president | ||||||||
|
Bo Qiliang
(2)
|
47 | Chief engineer | ||||||||
|
Sun Bo
(2)
|
49 | Vice President | ||||||||
|
Lin Aiguo
|
51 | Chief engineer | ||||||||
|
Wang Daofu
|
54 | Chief geologist | ||||||||
|
Huang Weihe
|
52 | Chief engineer | ||||||||
|
Chen Ming
|
59 | Chairman of the supervisory board | ||||||||
|
Wen Qingshan
|
51 | Supervisor | ||||||||
|
Sun Xianfeng
|
57 | Supervisor | ||||||||
|
Yu Yibo
|
46 | Supervisor | ||||||||
|
Wang Yawei
|
55 | Supervisor | ||||||||
|
Qin Gang
|
56 | Supervisor | ||||||||
|
Wang Shali
|
55 | Supervisor | ||||||||
|
Li Yuan
|
62 | Independent supervisor | ||||||||
|
Wang
Daocheng
(3)
|
69 | Independent supervisor | ||||||||
78
Table of Contents
| (1) | For directors only. | |
| (2) | Mr. Bo Qiliang and Mr. Sun Bo were appointed as Vice Presidents of our company from January 2010. | |
| (3) | Mr. Wang Daocheng has been acting as our independent supervisor since May 2009. |
Directors
Jiang Jiemin,
aged 54, is the Chairman of our
company and the General Manager of CNPC. Mr. Jiang is a
senior economist and has been awarded with post-graduate
qualification. Mr. Jiang has over 35 years of working
experience in China’s oil and gas industry. He was made
Deputy Director of the Shengli Petroleum Administration Bureau
in March 1993, Senior Executive of the Qinghai Petroleum
Administration Bureau in June 1994 and Director of Qinghai
Petroleum Administration Bureau in November 1994, and Assistant
to the General Manager and Team Leader for the Restructuring and
Listing Preparatory Team of CNPC in February 1999, and a
Director and Vice President of our company in November 1999.
Mr. Jiang was appointed Deputy Provincial Governor of the
Qinghai Province in June 2000, was made a member of the
provincial party committee of the Qinghai Province and Deputy
Provincial Governor of Qinghai in November 2000, and the deputy
secretary of the provincial party committee of Qinghai Province
and Deputy Provincial Governor of Qinghai in June 2003.
Mr. Jiang became the Deputy General Manger of CNPC in April
2004, and Vice Chairman and President of our company in May
2004. Mr. Jiang has been the General Manager of CNPC since
November 2006, and the Chairman of our company since May 2007.
Mr. Jiang stepped down as the President of our company in
May 2008.
Zhou Jiping,
aged 57, is the Vice Chairman and
President of our company and a Deputy General Manager of CNPC.
Mr. Zhou is a professor-level senior engineer and holds a
master’s degree. He has nearly 40 years of working
experience in China’s oil and gas industry. In November
1996, he was appointed Deputy Director of the International
Exploration and Development Cooperation Bureau of China National
Petroleum Corporation and Deputy General Manager of China
National Oil & Gas Exploration and Development
Corporation. In December 1997, he was appointed General Manager
of China National Oil & Gas Exploration and
Development Corporation and Deputy Director of the International
Exploration and Development Cooperation Bureau of China National
Petroleum Corporation, and in August 2001, he was appointed
Assistant to the General Manager of CNPC and General Manager of
China National Oil & Gas Exploration and Development
Corporation. Mr. Zhou has been a Deputy General Manager of
CNPC since December 2003, and a Director of our company since
May 2004. In May 2008, Mr. Zhou was appointed the Vice
Chairman and President of our company.
Wang Yilin,
aged 53, is a Director of our company
and a Deputy General Manager of CNPC. Mr. Wang is a
rofessor-level senior engineer and holds a doctoral degree. He
has over 25 years of working experience in China’s oil
and gas industry. Mr. Wang was appointed the Deputy
Director and Chief Exploration Geologist of Xinjiang Petroleum
Administration Bureau in June 1996, and the General Manager of
our Xinjiang Oilfield Company in September 1999. He was
appointed the Senior Executive of Karamay City and Xinjiang
Petroleum Administration Bureau and the General Manager of our
Xinjiang Oilfield Company in June 2001. In July 2003, he was
appointed Assistant to General Manager of CNPC. In December
2003, he was appointed Deputy General Manager of CNPC. From May
2004, he ceased to work as the Senior Executive of Karamay City
and Xinjiang Petroleum Administration Bureau and the General
Manager of our Xinjiang Oilfield Company. From July 2004 to July
2007, he concurrently worked as the Safety Director of CNPC. He
has been a Director of our company since November 2005.
Zeng Yukang,
aged 59, is a Director of our company
and a Deputy General Manager of CNPC. Mr. Zeng is a
professor-level senior economist and holds a college degree. He
has over 40 years of working experience in China’s oil
and gas industry. Mr. Zeng had been the Senior Executive of
the Exploration and Development Institute of Daqing Petroleum
Administration Bureau since December 1996. From February 2000,
he was appointed the Standing Deputy Director of Daqing
Petroleum Administration Bureau. From March 2001 to February
2008 he was acting as the Director of Daqing Petroleum
Administration Bureau, and in November 2002, he was appointed
the Assistant to the General Manager of CNPC. He has been a
Deputy General Manager of CNPC since September 2005, and a
Director of our company since November 2005.
Wang Fucheng,
aged 59, is a Director of our
company and concurrently a Deputy General Manager of CNPC.
Mr. Wang is a professor-level senior economist and holds a
bachelor’s degree. Mr. Wang has over 40 years of
working
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experience in China’s oil and gas industry. From August
1986, Mr. Wang worked as Senior Executive of the Shengli
Petroleum Administration Bureau. Since December 1992,
Mr. Wang had worked as Senior Executive of the Liaohe
Petroleum Exploration Administration Bureau. Since November
1997, Mr. Wang had worked as Director of the Liaohe
Petroleum Exploration Administration Bureau. Since October 1999,
Mr. Wang had been the General Manager of the Liaohe
Oilfield Branch of our company. Mr. Wang had been a
Director of our company from June 2000. Mr. Wang was
appointed a Vice President of our company in July 2000. From
November 2005 to May 2008, Mr. Wang had worked as the
Chairman of the Supervisory Board of our company. Mr. Wang
has been a Deputy General Manager of CNPC since September 2007.
In May 2008, Mr. was again appointed Director of our company.
Li Xinhua,
aged 56, is a Director of our company
and a Deputy General Manager of CNPC. Mr. Li is a senior
engineer and holds a college degree. Mr. Li has nearly
35 years of working experience in China’s
petrochemical industry. In June, 1985 Mr. Li was appointed
the Vice Director of Yunnan Province Natural Gas Chemical Plant,
in February 1992 the Director of Yunnan Province Natural Gas
Chemical Plant, in March 1997 the Chairman and General Manager
of Yunnan Province Yuntianhua Group, in March 2002 the Assistant
Governor of Yunnan Province, In January 2003 the Deputy Governor
of Yunnan Province, and in April 2007a Deputy General Manager of
CNPC. Since May 2008, Mr. Li has been acting as a Director
of our company.
Liao Yongyuan,
aged 47, is a Director and Vice
President of our company and concurrently serves as the Deputy
General Manager and Safety Director of CNPC. Mr. Liao holds
a master’s degree and is a professor-level senior engineer.
He has over 25 years of working experience in China’s
oil and gas industry. He was Deputy Director of the New Zone
Exploration and Development Department of China National
Petroleum Corporation from June 1996, the Standing Deputy
Commander and then Commander of Tarim Petroleum Exploration and
Development Headquarters from November 1996. He was the General
Manager of Tarim Oilfield Branch Company from September 1999,
and also Deputy Director of Gansu Provincial Economic and Trade
Committee from October 2001. He has worked as the Assistant to
the General Manager of CNPC since January 2004 and has been
concurrently the Head of Coordination Team for Oil Enterprises
in Sichuan and Chongqing and Director of Sichuan Petroleum
Administration since April 2004. He has been a Vice President of
our company since November 2005. He was appointed a Deputy
General Manager of CNPC in February 2007, and Safety Director of
CNPC in July 2007. He has been a Director of our company since
May 2008.
Wang Guoliang,
aged 57, is a Director of our
company and the General Accountant of CNPC. Mr Wang is a
professor-level senior accountant and holds a master’s
degree. Mr Wang has nearly 30 years of working experience
in China’s oil and gas industry. Mr Wang had worked as the
Vice President of China Petroleum Finance Company Limited from
October 1995. In November 1997, he was appointed a Deputy
General Manager and the General Accountant of China National
Oil & Gas Exploration and Exploitation Corporation. Mr
Wang had been the Chief Financial Officer of our company from
November 1999. He was appointed General Accountant of CNPC in
February 2007, and Director of our company in May 2008.
Jiang Fan,
aged 46, is a Director of our company
and the General Manager of Dalian Petrochemical Company.
Mr. Jiang is a professor-level senior engineer and holds a
master’s degree. He has nearly 25 years of working
experience in China’s oil and gas industry. Mr. Jiang
was appointed the Deputy Manager of Dalian Petrochemical Company
in December 1996 and the Deputy General Manager of Dalian
Petrochemical Company in September 1999. He has been the General
Manager of Petrochina Dalian Petrochemical Company since
February 2002, and a Director of our company since November 2005.
Independent
Non-executive Directors
Chee-Chen Tung,
aged 67, is an independent
non-executive Director of our company. Mr. Tung is the
Chairman and Chief Executive Officer of Orient Overseas
(International) Limited. He was educated at the University of
Liverpool, England, where he received his Bachelor of Science
degree. He later acquired a Master’s degree in Mechanical
Engineering at the Massachusetts Institute of Technology in the
United States. He served as Chairman of the Hong Kong
Shipowners’ Association between 1993 and 1995. From 1999 to
2001, he was the Chairman of the Hong Kong General Chamber of
Commerce. He is an independent non-executive director of
Zhejiang Expressway Co., Ltd., BOC Hong Kong (Holdings) Limited,
Wing Hang Bank Limited, Sing Tao News Corporation Limited,
Cathay Pacific Airways Limited and U-Ming Marine Transport
Corporation, and a member
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of the Hong Kong Port Development Board. Mr. Tung is also
the Chairman of the Institute for Shipboard Education
Foundation, the Chairman of the Advisory Council and a member of
the Board of Trustees of the Hong Kong Polytechnic University
and a member of the Board of Trustees of the International
Academic Center of the University of Pittsburgh and the School
of Foreign Service of Georgetown University. Mr. Tung has
been an independent non-executive Director of our company since
November 1999.
Liu Hongru,
aged 79, is an independent
non-executive Director of our company. Mr. Liu is a
professor and holds a doctoral degree. He graduated from the
Faculty of Economics of the University of Moscow in 1959 with an
associate Doctoral degree. Mr. Liu worked as Vice Governor
of the Agricultural Bank of China, Vice-Governor of the
People’s Bank of China, Deputy Director of the State
Economic Restructuring Committee, and the Chairman of the China
Securities Regulatory Commission. Mr. Liu is also a
professor at the Peking University, the Postgraduate School of
the People’s Bank of China and the City University of Hong
Kong. Mr. Liu also serves as a non-executive director of OP
Financial Investments Limited and possesses the accounting or
financial management qualification required under the
Rules Governing the Listing of Securities on the Stock
Exchange Hong Kong Limited. Mr. Liu was appointed an
independent Supervisor of our company in December 1999. After
his resignation from this position as independent supervisor,
Mr. Liu was appointed an independent non-executive Director
of our company in November 2002.
Franco Bernabè,
aged 61, is an independent
non-executive Director of our company. He holds a doctoral
degree in political economics. He is currently the Chief
Executive Officer of Telecom Italia (serving a second time).
Prior to that, he held the responsibilities of the chairman of
the Franco Bernabè Group, the Vice Chairman of H3G, the
Vice Chairman of Rothschild Europe, a non-executive director of
Pininfarina Spa and an independent non-executive director of
Areoportidi Bologna. Mr. Bernabè joined ENI in 1983 to
become an assistant to the chairman; in 1986 he became director
for development, planning and control; and between 1992 and 1998
he was the Chief Executive Officer of ENI. Mr. Bernabè
led the restructuring program of the ENI Group, making it one of
the world’s most profitable oil companies. Between 1998 and
1999, Mr. Bernabè was the Chief Executive Officer of
Telecom Italia. Between 1999 and 2000, he has also served as a
special representative of the Italian government for the
reconstruction of the Balkan region. He was the Chairman of
La Biennale di Venezia from 2001 to 2003 and has been the
Chairman of the Modern Arts Museum of Trento and Rovereto since
2005. Prior to his joining ENI, Mr. Bernabè was the
head of economic studies at FIAT. Mr. Bernabè was a
senior economist at the OECD Department of Economics and
Statistics in Paris. Earlier he was a professor of economic
politics at the School of Industrial Administration, Turin
University. He had also served on the Advisory Board of the
Council of Foreign Relations and is currently an International
Governor of the Peres Center for Peace. Mr. Bernabè
has been an independent non-executive Director of our company
since June 2000.
Li Yongwu,
aged 65, is an independent
non-executive Director of our company. Mr. Li is a senior
engineer and holds a bachelor’s degree. In June 1991,
Mr. Li was appointed as the Director of Tianjin Chemicals
Bureau. In July 1993, he was appointed as the Director of
Tianjin Economic Committee. He was elected as the Vice Minister
of the PRC Ministry of Chemical Industry in April 1995. He
became Director of the State’s Petroleum and Chemical
Industry Bureau in March 1998. In April 2001, he was appointed a
Deputy Director of the Liaison Office of the Central Government
at the Special Administrative Region of Macau. In December 2004,
he was appointed the Vice President of China Petroleum and
Petrochemical Industry Association. In May 2005, he became the
Chairman of China Petroleum and Petrochemical Industry
Association and in November 2005, he became an Independent
Supervisor of our company. In 2003, he was elected as a standing
member of the Tenth Chinese People’s Consultative
Conference. In May 2008, Mr. Li was appointed an
independent non-executive Director of our company.
Cui Junhui,
aged 63, is an independent
non-executive Director of our company. Mr. Cui is a
representative of the 11th National People’s Congress
of the PRC and a Committee Member of the Financial and Economic
Affairs Committee of the National People’s Congress of the
PRC. He is holder of a postgraduate degree (part-time study).
The positions he held include Deputy Director of the Tax Bureau
of Shandong Province and the Director of State Tax Bureau of
Shandong Province. From January 2000 to January 2007, he served
as a Deputy Director of the State Administration of Taxation. In
December 2006, he was made a Vice President of China Society of
Taxation and a Vice President of China Charity Federation.
Mr. Cui was elected as a representative of the
11th National People’s Congress and a member of the
Financial and Economic Affairs Committee of the National
People’s Congress in March 2008. In April 2008, Mr Cui was
elected as the President of the sixth term of the Chinese
Taxation Institute. Mr. Cui has served as a non-executive
Director of our company since May 2008.
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Secretary
to the Board of Directors
Li Hualin,
aged 47, is the Secretary to the Board
of Directors and Vice President of our company and Vice Chairman
and General Manager of China Petroleum Hongkong (Holding)
Limited. Mr Li holds a master’s degree and is a
professor-level senior economist. Mr Li has 25 years of
experience in the oil and gas industry in China. In March 1993,
Mr Li became the Deputy Director-General of the Houston Office
of China National Petroleum Company. In May 1995, he was
appointed as the director and General Manager of China National
Oil and Gas Corporation (Canada). In December 1997, Mr. Li
became the Deputy General Manager of the China National Oil and
Gas Exploration Development Corporation and the Chairman and
General Manager of CNPC International (Canada) Ltd. In September
1999, Mr. Li became the General Manager of CNPC
International (Kazakhstan) Ltd. whilst remaining as the Deputy
General Manager of the China National Oil and Gas Exploration
and Development Corporation. In January 2001, Mr. Li became
the Deputy General Manager of China Petroleum Hongkong (Holding)
Limited. In December 2001, he was appointed as the Chairman of
Shenzhen Petroleum Industrial Co., Ltd. From July 2006,
Mr Li became the Vice-Chairman and General Manager of China
Petroleum Hongkong (Holding) Limited, whilst remaining as the
Chairman of Shenzhen Petroleum Industrial Co., Ltd. Mr. Li
has been acting as the Vice President of our company while
concurrently acting as the General Manager of China Petroleum
Hong Kong (Holding) Limited since November 2007. Mr. Li was
appointed as the Secretary to the Board of Directors of our
company in May 2009.
Other
Senior Management Personnel
Sun Longde,
aged 47, is a Vice President of our
company. Mr. Sun is a professor-level senior engineer and
holds a doctoral degree. He has 25 years of working
experience in China’s oil and geological industry.
Mr. Sun was appointed the Deputy Chief Geologist of Xianhe
Oil Extraction Plant and Deputy Manager of Dongxin Oil
Extraction Plant of Shengli Petroleum Administration Bureau in
January 1994, Chief Deputy Director-General of Exploration
Business Department of Shengli Petroleum Administration Bureau
in April 1997, the Manager of Exploration &
Development Company of Shengli Petroleum Administration Bureau
in September 1997, Chief Geologist of Tarim Petroleum
Exploration & Development Headquarters in November
1997, Deputy General Manager of PetroChina Tarim Oilfield
Company in September 1999 and the General Manager of PetroChina
Tarim Oilfield Company in July 2002. Mr. Sun has been a
Vice President of our company since June 2007.
Shen Diancheng,
aged 50, is the Vice President of
our company and concurrently and concurrently the General
Manager of the Refining & Chemicals Company of our
company. Mr. Shen is a professor-level senior engineer and
holds a college degree. He has 25 years of working
experience in China’s oil and gas industry. Mr. Shen
was appointed the Deputy Manager of the Chemical Agent Plant of
Daqing Oilfield in June 1994, the Deputy Manager, Standing
Deputy Director and acting Manager of the General Chemical Plant
of Daqing Oilfield in January 1997, the Standing Deputy General
Manager of PetroChina Daqing Refining & Chemical
Company in October 2000, the General Manager of PetroChina
Liaoyang Petrochemical Company in April 2002, and the General
Manager of PetroChina Jilin Petrochemical Company in November
2005. Mr. Shen has been the Vice President of our company
and General Manager of Chemical &
Marketing Company since June 2007. Mr. Shen has served
as the Vice President of our company and concurrently as the
General Manager of the Refining and Chemicals Company since
November 2007.
Liu Hongbin,
aged 46, is the Vice President of our
company and concurrently the General Manager of the Marketing
Company of our company. Mr. Liu is a senior engineer and
holds a college degree. He has 25 years of working
experience in China’s oil and gas industry. Mr. Liu
was appointed the Vice President of Exploration &
Development Research Institute of Yumen Petroleum Administration
Bureau in May 1991, the Director of the Development Division of
Tuha Petroleum Exploration & Development Headquarters
in October 1994, the Chief Engineer of Tuha Petroleum
Exploration & Development Headquarters in June 1995,
the Deputy General Manager of PetroChina Tuha Oilfield Company
in July 1999, the Commander of Tuha Petroleum
Exploration & Development Headquarters in July 2000,
the General Manager of the Planning Department of our company in
March 2002 and the Director of the Planning Department of CNPC
in September 2005. Mr. Liu has become a Vice President of
our company since June 2007. Mr. Liu has served as the Vice
President of our company and concurrently as the General Manager
of the Marketing Company since November 2007.
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Zhou Mingchun,
aged 42, is the Chief Financial
Officer of our company and currently the General Manager of the
Finance Department of our company. Mr. Zhou is a
professor-level senior accountant and holds a master’s
degree. He has nearly 20 years of working experience in
China’s oil and gas industry. Mr. Zhou was appointed
the Director of the Finance Division and the Director-General of
Financial Settlement Centre of Daqing Petroleum Administration
Bureau in October 1998, the principal officer of the
Finance & Assets Division of Daqing Oilfield Company
in 1999, the director and Deputy Chief Accountant of Daqing
Oilfield Company Limited in January 2000, the director and Chief
Accountant of Daqing Oilfield Company Limited in October 2000,
and the General Manager of the Finance Department of our company
in March 2002. Mr. Zhou serves as the Chief Financial
Officer of our company from June 2007.
Zhao Zhengzhang,
aged 53, is a Vice President of
our company and concurrently the General Manager of Exploration
and Production Company of our company. Mr Zhao holds a
master’s degree. He is a professor-level senior engineer
and has nearly 25 years of working experience in
China’s oil and industry. In June 1996, Mr Zhao was
appointed as the Deputy Director of the New District Exploration
Department of China National Petroleum Company. In November
1996, he was appointed as Deputy Director of the Exploration
Bureau of China National Petroleum Company and Director of the
New District Exploration Department. In October 1998, Mr Zhao
was appointed as Deputy Director of the Exploration Department
of China National Petroleum Company. In September 1999, he was
appointed as a member of the Preparatory Group of CNPC
Exploration and Production Company. In December 1999, Mr Zhao
was appointed as Deputy General Manager of CNPC Exploration and
Production Company. In January 2005, he was appointed as Senior
Executive and Deputy General Manager of CNPC Exploration and
Production Company. In January 2006, he was appointed as the
General Manager of CNPC Exploration and Production Company. In
May 2008, Mr Zhao was appointed as a Vice President of the
company and the General Manager of the Exploration and
Production Company.
Bo Qiliang,
aged 47, is the Vice President of our
company and concurrently the General Manager of PetroChina
International Ltd. Mr. Bo holds a doctor’s degree and
is a professor-level senior engineer. He has nearly
25 years of working experience in China’s oil and gas
industry. In June 2001, he obtained his master of business
administration degree from the Massachusetts Institute of
Technology, USA. In June 2005, he obtained his doctor’s
degree from China University of Petroleum (Beijing), majoring in
Oil and Gas Field Development. Mr. Bo became the Vice
President of the Scientific Research Institute of Petroleum
Exploration and Development in February 1997, key leader of CNPC
International (E&D) Ltd. in December 2001, Senior Deputy
General Manager of China National Oil and Gas Exploration and
Development Corporation in October 2004, President of
PetroKazakhstan Inc. and was concurrently leader of the
Kazakhstan Coordination and Steering Team since November 2005,
General Manager of China National Oil and Gas Exploration and
Development Corporation since September 2008. Mr. Bo began
to act as the General Manager of PetroChina International Ltd.
while concurrently acting as the General Manager of China
National Oil and Gas Exploration and Developing Corporation from
November 2009. Mr. Bo has been acting as the Vice President
of our company and concurrently as the General Manager at
PetroChina International Ltd. since January 2010.
Sun Bo,
aged 49, is the Vice President of our
company and the General Manager of Tran-Asia Gas Pipeline
Company Limited. Mr. Sun is a professor-level senior
engineer and has over 25 years of working experience in
China’s oil and gas industry. He was appointed the Deputy
General Manager of Al Waha Oil Company Ltd. in June 1996; Vice
President of CNPC International (Venezuela) Ltd. in October
1998; Chief Engineer and Deputy General Manager of China
National Oil and Gas Exploration and Development Corporation and
concurrently President of CNPC International (Venezuela) Ltd. in
September 1999; General Manager of China Petroleum
Engineering & Construction Corporation in January
2004; Vice Chairman and President of CNPC Services &
Engineering Ltd. and concurrently General Manager of China
Petroleum Engineering & Construction Corporation in
June 2006. Mr. Sun was appointed as the General Manager of
Trans-Asia Gas Pipeline Company Limited in September 2007.
Mr. Sun has been acting as the Vice President of our
company and the General Manager of Tran-Asia Gas Pipeline
Company Limited in January 2010.
Lin Aiguo,
aged 51, is the Chief Engineer of our
company. Mr. Lin is a professor-level senior engineer and
holds a college degree. He has over 30 years of working
experience in China’s oil and petrochemical industry.
Mr. Lin was appointed the Deputy Manager and the Standing
Deputy Manager of Shengli Refinery of Qilu Petrochemical Company
in July 1993, the Deputy General Manager of Dalian West Pacific
Petrochemical Co. Ltd.
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in May 1996, and the General Manager of Dalian West Pacific
Petrochemical Co. Ltd. in August 1998, and the General Manager
of Refining & Marketing Company of our company in
December 2002. Mr. Lin serves as the Chief Engineer of our
company from June 2007.
Wang Daofu,
aged 54, is the General Geologist of
our company and Director of the Exploration and Development
Institute. Mr Wang is a professor-level senior engineer and
holder of a doctorate degree. He has over 25 years of
working experience in China’s oil and gas industry. He was
appointed Deputy General Manager of PetroChina Changqing
Oilfield Company in September 1999 and General Manager of
PetroChina Changqing Oilfield Company in January 2003. He was
elected as a representative of the 11th National
People’s Congress of the PRC in 2008. Mr. Wang has
become the General Geologist of our company since May 2008.
Mr. Wang has been acting concurrently as the Director of
the Exploration and Development Institute since September 2008.
Huang Weihe,
aged 52, is the Chief Engineer of our
company and the General Manager of PetroChina Natural Gas and
Pipelines Company. Mr Huang is a professor-level senior engineer
and holds a doctorate degree. He has over 25 years of
working experience in China’s oil and gas industry. In
December 1998, he was appointed as Deputy Director of the
Petroleum and Pipelines Bureau. In November 1999, he was
appointed Deputy Director of the Petroleum and Pipelines Bureau
while concurrently acting as Chief Engineer. In October 2000, Mr
Huang was appointed as the General Manager of PetroChina
Pipelines Company and in May 2002, concurrently as the General
Manger of PetroChina
West-to-East
Natural Gas Transmission Pipelines Company. In November 2002, Mr
Huang was appointed as the General Manager of PetroChina
West-to-East
Natural Gas Transmission Pipelines Company. In December 2002, he
was appointed as the General Manager of PetroChina Natural Gas
and Pipelines Company under the company and the General Manager
of PetroChina
West-to-East
Natural Gas Transmission Pipelines Company. In February 2006, Mr
Huang ceased to be the General Manager of PetroChina Natural Gas
Transmission Pipelines Company. In May 2008, Mr Huang was
appointed as the Chief Engineer of the company and the General
Manager of PetroChina Natural Gas and Pipelines Company.
Supervisors
Chen Ming,
aged 59, is the Chairman of the
Supervisory Board of our company. Mr. Chen is a
professor-level senior economist and holds a bachelor’s
degree. He has over 35 years of working experience in
China’s oil and gas industry. Mr. Chen was appointed
Deputy Commissioner of CNPC in November 1996, Deputy Director of
the Supervisory Department of CNPC in October 1998, Deputy
General Manager of Human Resource Department of our company and
concurrently Director of the Supervisory Department of our
company in September 1999, General Manager of the Supervisory
Department of our company in September 2001, Assistant to the
General Manager of CNPC in January 2007, and Team Leader of the
Discipline Team of CNPC in September 2007. He has been acting as
the Chairman of our Supervisory Board since May 2008.
Wen Qingshan,
aged 51, is a Supervisor of our
company and the Deputy Chief Accountant of CNPC and the Director
of the Finance and Assets Department of CNPC. Mr. Wen is a
professor-level senior accountant and holds a master’s
degree in economics. Mr. Wen has nearly 30 years of
working experience in China’s petrochemical industry. He
had acted as the Deputy Director of the Finance and Assets
Department of CNPC from May 1999 and Director of the Finance and
Assets Department of CNPC from May 2002. He has been a
Supervisor of our company since November 2002. He has been
acting as the Deputy Chief Accountant and the Director of the
Finance and Assets Department of CNPC since November 2007.
Sun Xianfeng,
aged 57, is a Supervisor and the
General Manager of the Audit Department of our company.
Mr. Sun is a senior economist and holds a bachelor’s
degree. Mr. Sun has nearly 40 years of working
experience in China’s oil and gas industry. Mr. Sun
worked as Deputy Director of the Supervisory Bureau of China
National Petroleum Corporation from November 1996, and was
transferred to the Eighth Office of the State Council Compliance
Inspectors’ General Office (Supervisory Committee of
Central Enterprises Working Commission) as its temporary head in
June 1998. He was appointed the Deputy Director of the Audit
Department of CNPC in October 2000. He was appointed as the Vice
Director of the Audit Department and the concurrently the
Director of the Audit Institute in December 2000. Mr. Sun
has been the Director of the Audit Department of CNPC and the
Director of the Audit Service Centre since April 2004.
Mr. Sun has been a Supervisor of our company since May
2004. In October 2005, Mr Sun was appointed as a concurrent
State-owned Company Supervisor from State-owned
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Assets Supervision and Administration Commission to CNPC.
Mr. Sun has been acting as the General Manager of the Audit
Department of our company since July 2007.
Yu Yibo,
aged 46, is a Supervisor and the General
Manager of the Capital Operation Department of our company.
Mr. Yu is a professor-level senior accountant and holds a
doctoral degree. Mr. Yu has 10 years of working
experience in China’s oil and gas industry. In February
1999, Mr. Yu was appointed as a member of the Restructuring
and Listing Preparatory Team of CNPC . In September 1999,
Mr. Yu was appointed as the Deputy General Manager of the
Finance Department of our company. Mr. Yu had been acting
as the Deputy General Manager of PetroChina Dagang Oilfield
Branch Company from March 2002 to October 2002. In April 2003,
Mr. Yu was appointed as the General Manager of the Capital
Operation Department of our company. Mr. Yu has been acting
as a Supervisor of our company since May 2008.
Wang Yawei,
aged 55, is an employee representative
of the Supervisory Committee of our company and a Senior
Executive of the Daqing Refining & Chemicals Company
of our company. Mr. Wang is a professor-level senior
engineer and holds a master’s degree. He has over
25 years of working experience in China’s oil and gas
industry. Mr. Wang was acting as the Deputy Director of
Daqing Petroleum Administration Bureau since November 1997 and
as the Chairman of the Labour Union of Daqing Petroleum
Administration Bureau since March 2001. He was appointed as the
Chairman of the Labour Union of Daqing Oilfield Company Limited
in February 2008. Since May 2008, Mr. Wang has been acting
as a Supervisor of our company. Mr. Wang has served as the
principal officer of Daqing Refining and Chemical since August
2009.
Qin Gang,
aged 56, is an employee representative
of the Supervisory Board of our company and a Senior Executive
and Chairman of the Labor Union of PetroChina West-East Gas
Pipeline Company. Mr. Qin is a senior engineer and has
nearly 40 years of experience in China’s oil and gas
industry. Mr. Qin had acted as a Deputy Commander of Tarim
Petroleum Exploration and Development Headquarters since
November 1997 and a Deputy General Manager of Tarim Oilfield
Company since September 1999. In July 2002, Mr. Qin was
appointed as the Chairman of Labour Union of PetroChina Tarim
Oilfield Company. Mr. Qin has been the Senior Executive and
the Chairman of the Labor Union of Petrochina West-East Gas
Pipeline Company since June 2007. Since November 2005,
Mr. Qin has become a member of our Supervisory Board.
Wang Shali,
female, aged 55, is an employee
representative of Supervisory Board of our company and a Senior
Executive of PetroChina International Ltd. Ms. Wang is a
professor-level senior economist and holder of a master’s
degree. She has nearly 40 years of working experience in
China’s oil and gas industry. She was appointed as the
General Economist of China National Oil and Gas Exploration and
Development Corporation in November 1996 and Deputy General
Manger and General Economist of China National Oil and Gas
Exploration and Development Corporation in December 1997. Ms
Wang began to act concurrently as the Executive Deputy General
Manager of the CNPC International (Nile) Company in April 1998.
She was appointed as the Deputy General Manger of China National
Oil and Gas Exploration and Development Corporation and the
leader of the Project Coordination Group in August 2004, and the
Senior Deputy General Manager of the CNPC Exploration and
Development Company in June 2006. She has been acting as a
Supervisor of our company since May 2008. In September 2008, Ms
Wang was appointed as Senior Executive, Senior Deputy General
Manager and General Legal Counsel of CNPC Exploration and
Development Company Limited. Ms. Wang ceased to act as the
General Legal Counsel of CNPC Exploration and Development
Company Limited in April 2009. Ms. Wang has acted
concurrently as a Senior Executive of PetroChina International
Ltd. since November 2009.
Li Yuan,
aged 62, is an independent Supervisor of
our company. Mr. Li was graduated from Renmin University of
China with a bachelor’s degree in Economics.
Mr. Li’s past positions include Deputy Director of the
Foreign Affairs Department of Ministry of Petroleum Industry,
Team Leader of the Business Team of the CPC Central
Committee’s General Office, Director of the Administrative
Reform Bureau of the Political System Reform Studies Office of
the CPC Central Committee, Director of the Distribution
Department of the National Economic System Reform Committee,
Deputy Director of the State Administration of Land, and Deputy
Minister and concurrently the Deputy Chief Land Inspector of the
Ministry of Land and Resources. Mr. Li is now a Deputy
Director of the Committee of Population, Resources and
Environment of the 11th National Committee of the Chinese
People’s Political Consultative Conference, and has been
acting as an independent Supervisor of our company since May
2008.
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Wang Daocheng,
aged 69, is an independent
supervisor of our company. Mr. Wang is currently the
President of the China Institute of Internal Audit. He is a
senior auditor and holds a bachelor’s degree. He has over
40 years of experience in finance and auditing. From 1981
to 1984, he led the preparatory committee within the audit
department of the Ministry of Finance and headed the science and
technology training centre of the National Audit Office as well
as the financial and monetary authority. From August 1984, Mr
Wang held a number of positions, including Deputy Director of
Xicheng District Audit Bureau of Beijing, Deputy Director of the
Research Department of the National Audit Office, and
successively, the Deputy Director of the General Affairs Bureau,
Deputy Director of the Foreign Investment Bureau, Director of
the Foreign Investment Department, Director of the Financial
Audit Department and Director of the General Office of the
National Audit Office. From March 1999 to March 2005, Mr Wang
headed the discipline inspection panel of the Central Commission
for Discipline Inspection in the National Audit Office. In June
2005, he became the President of the China Institute of Internal
Audit. Mr. Wang has been an independent supervisor of our
company since May 2009.
Compensation
Senior
Management Compensation System
The senior management members’ compensation has two
components, namely, fixed salaries and variable compensation.
The variable component, which accounts for approximately 75% of
the total compensation package, is linked to the attainment of
specific performance targets, such as our income for the year,
return on capital and the individual performance evaluation
results.
Directors’
and Supervisors’ Compensation
Our directors and supervisors, who hold senior management
positions or are otherwise employed by us, receive compensation
in the form of salaries, housing allowances, other allowances
and benefits in kind, including our contribution to the pension
plans for these directors and supervisors.
The aggregate amount of salaries, housing allowances, other
allowances and benefits in kind paid by us to the five highest
paid individuals of PetroChina during the year ended
December 31, 2009 was RMB3,251,352. We paid RMB182,700 as
our contribution to the pension plans in respect of those
individuals in the year ended December 31, 2009.
The aggregate amount of salaries or other compensation, housing
allowances, other allowances and benefits in kind paid by us to
our directors, who hold senior management positions or are
otherwise employed by us, during the year ended
December 31, 2009 was RMB1,940,739.16.
Save as disclosed, no other payments have been paid or are
payable, in respect of the year ended December 31, 2009, by
us or any of our subsidiaries to our directors. In addition, we
have no service contracts with our directors that provide for
benefits to our directors upon the termination of their
employment with us.
In 2009, we paid RMB132,620.16 as our contribution to the
pension plans in respect of our directors and supervisors, who
hold senior management positions or are otherwise employed by
us. The aggregate amount of salaries or other compensation,
housing allowances, other allowances and benefits in kind paid
by us to our supervisors, who hold senior management positions
or are otherwise employed by us, during the year ended
December 31, 2009 was RMB507,180.2.
For discussions about the compensations of our individual
directors and supervisors, please see Note 11 to our
consolidated financial statements included elsewhere in this
annual report.
Board
Practices
Our board of directors has four principal committees: an audit
committee, an investment and development committee, an
evaluation and remuneration committee and a health, safety and
environment committee.
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Audit
Committee
Our audit committee is currently composed of three non-executive
independent directors, Mr. Franco Bernabè,
Mr. Chee-Chen Tung and Mr. Cui Junhui, and one
non-executive director, Mr. Wang Guoliang. Mr. Franco
Bernabè serves as the chairman of the committee. Under our
audit committee charter, the chairman of the committee must be
an independent director and all resolutions of the committee
must be approved by independent directors. The audit
committee’s major responsibilities include:
| • | supervising the integrity of financial reporting process to ensure fair, transparent and true financial disclosure; | |
| • | reviewing and evaluating the effectiveness of the internal control and risk management framework; | |
| • | inspecting and supervising the effectiveness of the internal audit functions; | |
| • | reviewing and supervising the engagement and work of external auditors, including evaluating the performance of external auditors annually and raising proposals together with the supervisory board to the shareholders’ meetings with respect to the engagement, re-engagement and dismissal of external auditors and the compensation of such external auditors; | |
| • | receiving, keeping and dealing with complaints regarding accounting, internal control or auditing matters; and | |
| • | receiving and dealing with anonymous submissions and complaints by employees regarding accounting or auditing matters, and keeping such submission and complaints confidential, and other duties from time to time provided by applicable laws and regulations and listing rules of the market where the securities of our company listed. |
Investment
and Development Committee
The current members of our investment and development committee
are Mr. Li Yongwu, as chairman of the committee and
Mr. Wang Yilin and Mr. Li Xinhua, as members of the
committee. The investment and development committee’s major
responsibilities include:
| • | studying the long-term development strategies of the company as proposed by our president and making recommendations to the board of directors; | |
| • | studying the annual investment budget and the adjustment proposal regarding the investment plan as proposed by our president and making recommendations to the board of directors; | |
| • | reviewing preliminary feasibility studies and feasibility studies for material investment and financing proposals, material capital operation projects and material asset operation projects subject to the approval of the board of directors and making recommendations to the board of directors; and | |
| • | studying any other significant matters that may affect the development of the company and making recommendations to the board of directors. |
Evaluation
and Remuneration Committee
The current members of our evaluation and remuneration committee
are Mr. Liu Hongru, as chairman of the committee,
Mr. Chee-Chen Tung and Mr. Wang Fucheng, as members of
the committee. The evaluation and remuneration committee’s
major responsibilities include:
| • | studying the criteria for and conducting the evaluation of the performance of the directors and the management members and making recommendations to the board of directors; | |
| • | studying and reviewing the director and management compensation policies and proposals, including the policies and proposals regarding the compensation payable to directors and senior management for their loss of positions or retirement; |
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| • | organizing the evaluation of the performance of our president and reporting the evaluation result to the board of directors, supervising the evaluation of the performance of our senior vice presidents, vice presidents, chief financial officer and other senior management members conducted under the leadership of the president; and | |
| • | studying our incentive plan, compensation plan and stock appreciation rights plan, supervising and evaluating the implementation of these plans and making recommendations for improvements to and perfection of such plans. |
Health,
Safety and Environment Committee
The current members of our health, safety and environment
committee are Mr. Liao Yongyuan, as chairman of the
committee, Mr. Zeng Yukang and Mr. Jiang Fan, as
member of the committee. The health, safety and environment
committee’s major responsibilities include:
| • | supervising the effective implementation of our Health, Safety and Environmental Protection Plan (HSE Plan); | |
| • | making recommendations to the board of directors and our president for major decisions or major issues with respect of health, safety and environmental protection that may affect the company; and | |
| • | inquiring the occurrence of and responsibilities for material accidents with respect to the operation, property and assets, employees and other facilities of the company, and supervising the treatment of such accidents. |
Employees
As of December 31, 2007, 2008 and 2009, we had 466,502,
477,780 and 539,168 employees, respectively (excluding
temporary staff). The table below sets forth the number of our
employees by business segment as of December 31, 2009.
| Employees | % of Total | |||||||
|
Exploration and production
|
265,499 | 49.24 | ||||||
|
Refining and chemicals
|
178,689 | 33.15 | ||||||
|
Marketing
|
68,803 | 12.76 | ||||||
|
Natural gas and pipeline
|
20,667 | 3.83 | ||||||
|
Other
(1)
|
5,510 | 1.02 | ||||||
|
Total
|
539,168 | 100.0 | ||||||
| (1) | Including the numbers of employees of the management of our headquarters, specialized companies, PetroChina Exploration & Development Research Institute, PetroChina Planning & Engineering Institute, Petrochemical Research Institute and other units. |
Our employees participate in various basic social insurance
plans organized by municipal and provincial governments whereby
we are required to make monthly contributions to these plans at
certain rates of the employees’ salary as stipulated by
relevant local regulations. Expenses incurred by us in
connection with the retirement benefit plans were approximately
RMB5,754 million, RMB6,997 million and
RMB8,437 million, respectively, for the years ended
December 31, 2007, 2008 and 2009, respectively.
In 2009, we have not experienced any strikes, work stoppages,
labor disputes or actions which affected the operation of any of
our businesses. Our company maintains good relationship with our
employees.
Share
Ownership
Other than two supervisors, our directors, senior officers and
supervisors do not have share ownership in PetroChina or any of
PetroChina’s affiliates. As at May 31, 2010,
Mr. Yu Yibo, one of our supervisors, held 66,500 A shares
of our company, including shares acquired on the secondary
market and Ms. Wang Shali, one of our supervisors, held
7,000 A shares and 18,000 H shares of our company.
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Table of Contents
Major
Shareholders
Prior to the restructuring of the CNPC group in November 1999,
CNPC was one of the largest companies in the PRC in terms of
sales. As part of the restructuring of the CNPC group, CNPC
transferred to PetroChina substantially all its businesses and
assets in China relating to the exploration and production of
crude oil and natural gas, refining and marketing, chemicals and
natural gas sales and transmission. Since the restructuring of
the CNPC group, CNPC has engaged in crude oil and natural gas
exploration and production business activities outside the PRC
and limited chemicals production and retail of refined products.
CNPC’s primary business activities relate to the provision
of various services and products to PetroChina.
PetroChina was established on November 5, 1999 with CNPC as
its sole promoter. As of May 31, 2010, CNPC beneficially
owned 158,035,717,259 shares, which include 271,120,000 H
shares indirectly held by CNPC through Fairy King Investments
Limited, an overseas wholly owned subsidiary of CNPC,
representing approximately 86.348% of the share capital of
PetroChina, and, accordingly, CNPC is our controlling
shareholder.
The following table sets forth the major shareholders of our A
shares as of May 31, 2010:
|
Percentage
|
||||||||||||||||
|
of the
|
||||||||||||||||
|
Issued Share
|
Percentage
|
|||||||||||||||
|
Capital of the
|
of
|
|||||||||||||||
|
Same
|
the Total
|
|||||||||||||||
|
Number of Shares
|
Class of
|
Share
|
||||||||||||||
|
Name of Shareholders
|
Class of Shares | Held | Shares (%) | Capital (%) | ||||||||||||
|
CNPC
|
A shares | 157,764,597,259 | 97.432 | 86.200 | ||||||||||||
The following table sets forth the major shareholders of our H
shares as of May 31, 2010:
|
Percentage of
|
||||||||||||||||
|
Such Shares
|
||||||||||||||||
|
in That Class
|
Percentage of
|
|||||||||||||||
|
Class of
|
of the Issued
|
Total Share
|
||||||||||||||
|
Name of Shareholder
|
Shares | Number of Shares | Share Capital (%) | Capital (%) | ||||||||||||
|
CNPC
|
H shares | 271,120,000 (1 | ) | 1.285 | 0.148 | |||||||||||
|
JPMorgan Chase & Co.
|
H shares | 1,132,355,050 (2 | ) | 5.37 | 0.62 | |||||||||||
| (1) | Held by Fairy King Investments Limited, an overseas wholly-owned subsidiary of CNPC. | |
| (2) | Includes (i) 61,594,980 shares held by JPMorgan Chase & Co. through various subsidiaries in short position in its capacity as beneficial owner and (ii) 1,070,760,070 shares held by JPMorgan Chase & Co. through various subsidiaries in long position in its capacity as beneficial owner, investment manager and custodian/approved lending agent under Hong Kong laws. |
Related
Party Transactions
CNPC is a controlling shareholder of our company. We enter into
extensive transactions with CNPC and other members of the CNPC
group, all of which constitute related party transactions for
us. We also continue to carry out existing continuing
transactions with other related parties in the reporting period.
One-off
Related Party Transactions
Acquisition
of City Gas Business from CNPC
On May 15, 2009, Kunlun Gas, a wholly owned subsidiary of
our company, entered into a transfer agreement with each of
China Huayou Group Corporation and China Petroleum Pipeline
Bureau, wholly owned subordinated entities of CNPC, pursuant to
which Kunlun Gas agreed to acquire city gas business from the
transferors. The targets of the acquisitions include the equity
interests in eight companies held by China Huayou Group
Corporation and China Petroleum Pipeline Bureau and relevant
assets owned by China Huayou Group Corporation. Upon completion
of the acquisition agreement, Kunlun Gas paid the transferors a
consideration of approximately RMB1,093.9 million.
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Acquisition
of Western Pipeline Assets of CNPC
On June 18, 2009, an acquisition agreement was entered into
between PetroChina West Pipeline Branch Company and CNPC West
Pipeline Company Limited, pursuant to which Western Pipeline
Branch Company agreed to acquire the western pipeline assets
from the transferor. Upon completion of the acquisition on
June 30, 2009, the parties referred to the appraised net
assets value of the western pipeline assets as at March 31,
2009, the valuation date, and adjusted the consideration by
reference to the change in the net asset value of the western
pipeline assets for the period from the valuation date to the
completion date on a
dollar-for-dollar
basis. The final consideration paid by our company to the
transferor was approximately RMB8,355.4 million.
Acquisition
of 100% Equity Interest in South Oil from CNPC
On August 28, 2009, our company entered into an equity
transfer agreement with CNPC E&D and CNPC Central Asia,
pursuant to which our company agreed to acquire the 100% share
capital in South Oil from CNPC E&D and CNPC Central Asia.
Upon completion of the acquisition, the company will pay a
consideration of approximately RMB2,813.3 million to CNPC
E&D and CNPC Central Asia. Such consideration will be
adjusted by reference to the final appraised value filed with
the State-owned Assets Supervision and Administration
Commission. Any net profit or loss incurred during the period
from the valuation date to the completion date shall be
attributable to the transferors. As at the end of the reporting
period, the transaction has not yet been completed.
Acquisition
of the Refinery Equipment Assets from CNPC
On August 28, 2009, several asset transfer agreements were
entered into between ten of our company’s branch companies
and ten subordinated entities of CNPC (including CNPC Daqing
Petrochemical Factory), pursuant to which our company agreed to
acquire refinery equipment assets from the transferors. Upon
completion of the acquisition on November 30, 2009, the
parties referred to the appraised net asset value of the
refinery equipment assets as at February 28, 2009, the
valuation date, and adjusted the consideration by reference to
the change in the net asset value of the refinery equipment
assets for the period from the valuation date to the completion
date on a
dollar-for-dollar
basis. The final consideration paid by our company to the
transferors was approximately RMB11,327.2 million.
Acquisition
of the Contractual Rights under the Production Sharing Contract
from CNPC
On August 28, 2009, PetroChina Amu Darya Natural Gas
Exploration and Development (Beijing) Company Limited, a wholly
owned subsidiary of the company, and CNPCI, a subsidiary of
CNPC, entered into the Contractual Rights Transfer Agreement,
pursuant to which we have agreed to acquire from CNPCI the
contractual rights under the production sharing contract on the
Bagtyiarlyk area at Amu Darya Right Bank in Turkmenistan, and
the relevant assets and liabilities formed in the course of
CNPCI’s fulfillment of the same. Upon completion of the
acquisition, the company will pay the consideration in the sum
of approximately US$1,186.5 million (approximately
RMB8,106.6 million), of which the company will pay
approximately US$350.5 million in cash to CNPCI, and assume
bank loans amounting to approximately US$836.0 million owed
by CNPCI in the course of performing its obligations under the
production sharing contract. The consideration is determined by
reference to the valuation results and will be adjusted by
reference to the final valuation results filed with the
State-owned Assets Supervision and Administration Commission and
the change in value of the net asset in connection with this
acquisition for the period from the valuation date to the
completion date. As at the end of the reporting period, the
acquisition has not yet been completed.
Acquisition
of the Equity Interest in Zhongqing Gas from CNPC
On December 30, 2009, Kunlun Gas, one of our wholly owned
subsidiaries, and Daqing Petroleum Administrative Bureau, a
wholly owned subordinated entity of CNPC, entered into an asset
transfer agreement, pursuant to which Kunlun Gas will acquire
the 100% equity interest in Zhongqing Gas held by Daqing
Petroleum Administrative Bureau. Upon completion of the
acquisition, Kunlun Gas will pay to the Daqing Petroleum
Administrative Bureau the consideration in the amount of
approximately RMB1,088.1 million, representing the net
asset value of the target equity interest as at the date of
valuation. This consideration will be adjusted by any gain/loss
attributable to the target equity interest which arise between
the reference date of valuation and the completion date on the
basis
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of such floor price of the target equity interest as submitted
for the open tender by the Daqing Petroleum Administrative
Bureau. As at the end of the reporting period, the acquisition
has not yet been completed.
Subscription
of Additional Share Capital of China Petroleum Finance Co., Ltd
(CPF)
On March 25, 2010, our company entered into a Subscription
Agreement with CPF and CNPC, pursuant to which we have agreed to
unilaterally contribute a total capital of approximately
RMB9.6 billion to (a) subscribe for a total of
RMB2.4 billion new registered capital of CPF and
(b) account the remaining approximately RMB7.2 billion
into the capital reserves of CPF. The capital contribution by
our company to CPF will be paid in cash in full with our own
funds at the closing date agreed in the Subscription Agreement.
Following the completion of this subscription, we will hold 49%
and CNPC will hold 51% of the enlarged total registered capital
of CPF.
Continuing
Related Party Transactions
During the reporting period, our company continued to engage in
a variety of continuing related party transactions with CNPC,
which provide a number of services to us. These transactions are
governed by several agreements between CNPC and us, including
the comprehensive products and services agreement and its
supplemental agreements, product and service implementation
agreements, land use rights leasing contract, buildings leasing
contract and buildings supplementary leasing agreement,
intellectual property licensing contracts, contract for the
transfer of rights under production sharing contracts and
guarantee of debts contract. A detailed discussion of these
agreements is set forth in Note 37 to our consolidated
financial statements included elsewhere in this annual report
and under the heading “Item 7 — Major
Shareholders and Related Party Transactions — Related
Party Transactions” in our annual report on
Form 20-F
filed with the SEC on May 27, 2008.
Our comprehensive products and services agreement and its
supplemental agreements expired on December 31, 2008. On
August 27, 2008, we and CNPC entered into a new
comprehensive products and services agreement that incorporates
the provisions from the previous agreements and became effective
on January 1, 2009 for a period of three years. As of
December 31, 2009, the balance of the amount of our debts
guaranteed by CNPC and its affiliates was RMB
1,154.0 million.
During the reporting period, we continue to carry out a number
of continuing related party transactions with CNPC Exploration
and Development Company Limited, Beijing Gas Group Co., Ltd. and
China Railway Materials and Suppliers Corporation. A detailed
discussion of our relationships and transactions with these
parties is set forth in Note 37 to our consolidated
financial statements included elsewhere in this annual report
and under the heading “Item 7 — Major
Shareholders and Related Party Transactions — Related
Party Transactions” in our annual report on
Form 20-F
filed with the Securities and Exchange Commission on
May 27, 2008.
Loans
from Related Parties
As of December 31, 2009, we had unsecured short-term and
long-term loans from CNPC and its affiliates in an aggregate
amount of RMB77,305 million with an average annual interest
rate of 3.35%.
Interests
of Experts and Counsel
Not applicable.
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Table of Contents
Financial
Statements
See pages F-1 to F-56 following Item 19.
Dividend
Policy
Our board of directors will declare dividends, if any, in
Renminbi on a per share basis and will pay such dividends in
Renminbi with respect to A Shares and HK dollars with respect to
H Shares. Any final dividend for a financial year shall be
subject to shareholders’ approval. The Bank of New York
will convert the HK dollar dividend payments and distribute them
to holders of ADSs in U.S. dollars, less expenses of
conversion. The holders of the A Shares and H Shares will share
proportionately on a per share basis in all dividends and other
distributions declared by our board of directors.
The declaration of dividends is subject to the discretion of our
board of directors. Our board of directors will take into
account factors including the following:
| • | general business conditions; | |
| • | our financial results; | |
| • | capital requirements; | |
| • | contractual restrictions on the payment of dividends by us to our shareholders or by our subsidiaries to us; | |
| • | our shareholders’ interests; | |
| • | the effect on our debt ratings; and | |
| • | other factors our board of directors may deem relevant. |
We may only distribute dividends after we have made allowance
for:
| • | recovery of losses, if any; | |
| • | allocations to the statutory common reserve fund; and | |
| • | allocations to a discretionary common reserve fund if approved by our shareholders. |
The allocation to the statutory funds is 10% of our income for
the year attributable to our shareholders determined in
accordance with PRC accounting rules. Under PRC law, our
distributable earnings will be equal to our income for the year
attributable to our shareholders determined in accordance with
PRC accounting rules or IFRS, whichever is lower, less
allocations to the statutory and discretionary funds.
We believe that our dividend policy strikes a balance between
two important goals:
| • | providing our shareholders with a competitive return on investment; and | |
| • | assuring sufficient reinvestment of profits to enable us to achieve our strategic objectives. |
A dividend of RMB0.12417 per share (inclusive of applicable tax)
for the six months ended June 30, 2009 was paid to our
shareholders on October 16, 2009. The board of directors
proposed to distribute the final dividend of RMB0.13003 per
share (inclusive of applicable tax) which was calculated on the
basis of the balance between 45% of our income for the year
attributable to our shareholders under IFRS for the year ended
December 31, 2009 and the interim dividend for 2008 which
was paid on October 16, 2009. The final dividend to be paid
for the year ended December 31, 2009 was approved by the
annual shareholders’ meeting held on May 20, 2010. The
payment will be made to shareholders whose names appear on the
register of the company at close of business on June 2,
2010.
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Table of Contents
Significant
Changes
Operating
and Financial Results in the First Quarter of 2010
In the first quarter of 2010, net profit attributable to our
company’s shareholders was RMB32,492 million, and the
basic earnings per share was RMB0.18, up 71.2%
year-on-year.
In the first quarter of 2010, we produced 210 million
barrels of crude oil, representing an increase of 2.1% as
compared with the same period last year, and produced
609.9 billion cubic feet of marketable natural gas,
representing an increase of 16.5% as compared with the same
period last year. In the first quarter of 2010, we processed
215 million barrels of crude oil, representing an increase
of 16.2% compared with the same period last year; produced
18.824 million tons of gasoline, diesel and kerosene,
representing an increase of 15.0% as compared with the same
period last year; and produced 0.908 million tons of
ethylene, representing an increase of 37.0% as compared with the
same period last year. In the first quarter of 2010, we sold
27.05 million tons of gasoline, diesel and kerosene,
representing an increase of 27.3% as compared with the same
period last year.
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Table of Contents
Nature of
the Trading Market and Market Price Information
Our ADSs, each representing 100 H Shares, par value RMB1.00 per
H Share, have been listed and traded on the New York Stock
Exchange since April 6, 2000 under the symbol
“PTR”. Our H Shares have been listed and traded on the
Hong Kong Stock Exchange since April 7, 2000. In September
2005, our company issued an additional 3,196,801,818 H Shares.
CNPC also sold 319,680,182 state-owned shares it held
concurrently with our company’s issuance of new H Shares in
September 2005. In October 2007, PetroChina issued
4 billion A Shares and these shares were listed on the
Shanghai Stock Exchange on November 5, 2007. Following the
issuance of A Shares, all the domestic shares of our company
existing prior to the issuance of A Shares, i.e. the shares held
by CNPC (our controlling shareholder) in our company, have been
registered with China Securities Depository and Clearing
Corporation Limited as tradable A Shares. The New York Stock
Exchange, the Hong Kong Stock Exchange and Shanghai Stock
Exchange are the principal trading markets for our ADSs, H
Shares and A Shares, respectively.
As of December 31, 2009, there were 21,098,900,000 H Shares
and 161,922,077,818 A Shares issued and outstanding. As of
December 31, 2009, there were 311 registered holders of
American depositary receipts evidencing 19,706,673 ADSs. The
depositary of the ADSs is the Bank of New York.
The high and low closing sale prices of our A Shares on the
Shanghai Stock Exchange, of H Shares on the Hong Kong Stock
Exchange and of the ADSs on the New York Stock Exchange for each
year from 2005 through 2009 for each quarter from 2008 to 2010
(up to the end of the first quarter of 2010), and for each month
from December 2009 to June 2010 (through June 18,
2010) are set forth below.
|
Price Per H
|
||||||||||||||||||||||||
| Share | Price Per ADS | Price Per A Share | ||||||||||||||||||||||
| HK$ | US$ | RMB | ||||||||||||||||||||||
| High | Low | High | Low | High | Low | |||||||||||||||||||
|
Annual Data
|
||||||||||||||||||||||||
|
2005
|
7.35 | 4.025 | 94.50 | 51.65 | — | — | ||||||||||||||||||
|
2006
|
11.12 | 6.35 | 142.12 | 83.50 | — | — | ||||||||||||||||||
|
2007
|
19.90 | 8.57 | 263.70 | 109.55 | 43.96 | 29.24 | ||||||||||||||||||
|
2008
|
14.24 | 4.25 | 182.12 | 57.25 | 31.31 | 9.95 | ||||||||||||||||||
|
2009
|
10.48 | 5.10 | 133.65 | 64.09 | 16.38 | 10.02 | ||||||||||||||||||
|
Quarterly Data
|
||||||||||||||||||||||||
|
2008
|
||||||||||||||||||||||||
|
First quarter
|
14.24 | 9.17 | 182.12 | 120.63 | 31.31 | 16.99 | ||||||||||||||||||
|
Second quarter
|
12.12 | 9.77 | 156.97 | 125.92 | 18.35 | 14.94 | ||||||||||||||||||
|
Third quarter
|
10.66 | 7.45 | 136.92 | 92.79 | 15.63 | 10.17 | ||||||||||||||||||
|
Fourth quarter
|
8.14 | 4.25 | 104.30 | 57.25 | 12.19 | 9.95 | ||||||||||||||||||
|
2009
|
||||||||||||||||||||||||
|
First quarter
|
7.82 | 5.10 | 101.25 | 64.09 | 12.16 | 10.02 | ||||||||||||||||||
|
Second quarter
|
9.41 | 6.11 | 122.78 | 80.98 | 14.48 | 11.22 | ||||||||||||||||||
|
Third quarter
|
9.49 | 7.66 | 122.34 | 101.31 | 16.38 | 12.57 | ||||||||||||||||||
|
Fourth quarter
|
10.48 | 8.52 | 133.65 | 109.67 | 14.16 | 12.98 | ||||||||||||||||||
|
2010
|
||||||||||||||||||||||||
|
First quarter
|
10.18 | 8.25 | 130.51 | 106.30 | 14.28 | 12.65 | ||||||||||||||||||
|
Monthly Data
|
||||||||||||||||||||||||
|
2009
|
||||||||||||||||||||||||
|
December
|
9.92 | 8.97 | 128.01 | 116.43 | 13.99 | 13.06 | ||||||||||||||||||
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| Price Per H Share | Price Per ADS | Price Per A Share | ||||||||||||||||||||||
| HK$ | US$ | RMB | ||||||||||||||||||||||
| High | Low | High | Low | High | Low | |||||||||||||||||||
|
2010
|
||||||||||||||||||||||||
|
January
|
10.18 | 8.80 | 130.51 | 111.49 | 14.28 | 13.08 | ||||||||||||||||||
|
February
|
9.13 | 8.25 | 116.58 | 106.30 | 13.05 | 12.70 | ||||||||||||||||||
|
March
|
9.25 | 8.75 | 119.82 | 111.78 | 13.06 | 12.65 | ||||||||||||||||||
|
April
|
9.55 | 8.92 | 122.67 | 113.26 | 13.23 | 11.92 | ||||||||||||||||||
|
May
|
8.99 | 7.97 | 115.74 | 101.92 | 11.97 | 10.73 | ||||||||||||||||||
|
June (through June 18, 2010)
|
8.99 | 8.1 | 115.57 | 104.04 | 11.05 | 10.34 | ||||||||||||||||||
The closing prices per A Share, per H Share and per ADS on June
18, 2010 were RMB10.58, HK$8.82 and US$114.51, respectively.
Memorandum
and Articles of Association
Our
Articles of Association Currently in Effect
The following is a summary based on the significant provisions
of our articles of association currently in effect, which is
filed with the Commission as an exhibit to this annual report on
Form 20-F.
We hereby incorporate by reference the relevant exhibit to this
annual report.
Objectives
and Purposes
We are a joint stock limited company established in accordance
with the company Law and certain other laws and regulations of
the PRC. We are registered with the PRC State Administration for
Industry and Commerce with a business license number being
100000000032522. Article 10 of our articles of association
provides that our scope of businesses includes, among other
things, exploration and production of oil and natural gas;
production and sale of crude oil, refined oil, petrochemical and
chemical products; import and export; construction and operation
of oil and natural gas pipelines; technical development,
consultation and service for oil exploration and petrochemistry
and related engineering; sale of materials, equipment and
machines necessary for production and construction of oil and
gas, petrochemicals and pipelines.
Enforceability
of Shareholders’ Rights
Our articles of association provide that all differences or
claims
| • | between a holder of H Shares and us; | |
| • | between a holder of H Shares and any of our directors, supervisors, president, senior vice presidents, vice presidents, chief financial officer or other senior officers; or | |
| • | between a holder of H Shares and a holder of domestic shares, arising from any provision of the articles of association, any right or obligation conferred or imposed by the PRC Company Law or any other relevant law or administrative regulation which concerns our affairs must, with certain exceptions, be referred to arbitration at either the China International Economic and Trade Arbitration Commission in the PRC or the Hong Kong International Arbitration Center. Our articles of association provide that such arbitration will be final and conclusive. |
If the directors, president, senior vice presidents, chief
financial officer or any other executive officers violate any
laws, administrative regulations or the articles of association
of our company during the performance of their corporate duties,
which results in any damage to our company, shareholders
individually or in the aggregate hold more than 1% of the shares
in our company for a consecutive 180 days shall have the
right to request our supervisory
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board in writing to bring a lawsuit to the competent courts. If
our supervisory board violates any laws, administrative
regulations or the articles of association of our company during
the performance of its corporate duties, which results in any
damage to our company, the shareholders may request our board of
directors in writing to bring a lawsuit to the competent courts.
If the supervisory board or the board of directors refuses to
bring such lawsuits upon receiving the written request of the
shareholders, or fails to file such lawsuit within 30 day
following their receipt of such written request, or in case of
emergency under which our company would sustain losses hard to
be recovered if such lawsuit fails to be filed immediately, such
shareholders as described in the above paragraph shall have the
right, in the interests of our company, to bring a lawsuit
directly in their own name.
If any third parties infringe our legal interests and make our
company sustain any losses, the shareholders described in the
above paragraphs may file a lawsuit to the competent court in
accordance with the provisions in the above two paragraphs.
Restrictions
on Transferability and the Share Register
The articles of association provide that PRC investors are not
entitled to be registered as holders of H Shares.
As provided in the articles of association, we may refuse to
register a transfer of H Shares unless:
| • | any relevant transfer fee is paid; | |
| • | the instrument of transfer is accompanied by the share certificates to which it relates, or such other evidence is given as may be reasonably necessary to show the right of the transferor to make the transfer; | |
| • | the instrument of transfer is in respect of one class of shares only; and | |
| • | the transfer is conducted in accordance with the laws and administrative regulations of or required by the securities exchanges on which the shares are listed. |
Our articles of association provide that the shares held by our
promoter in our company may not be transferred within one year
from the establishment date of our company. The shares issued
prior to the public offering of our company may not be
transferred within one year from the date the stocks issued in
such public offering commencing to be listed on the relevant
stock exchange.
The directors, supervisors, president, senior vice presidents,
vice presidents, chief financial officer and other executive
officers shall report the number and change of the number of
shares they hold in our company, and may not transfer more than
25% of the total number of shares
he/she
holds
in our company in each year during
his/her
term
of office. No shares held by such persons in our company may be
transferred (i) within one year from the date the stocks of
our company commencing to be listed on the relevant stock
exchange, or (ii) within half a year from the date of their
resignation or removal, other than any transfer of such shares
due to judicial enforcement, inheritance, legacy, or partition
of property by operation of law.
If any director, supervisor, president, senior vice president,
vice president, chief financial officer and any other executive
officer holds less than 1,000 shares in our company, the
transfer of such shares is not subject to the above restriction
on the percentage of share transfer, all of which may be
transferred in one time.
If the directors, supervisors, president, senior vice
presidents, vice presidents, chief financial officer and other
executive officers or the shareholders holding at least 5% of
the domestic shares of our company sell the shares they hold in
our company within six months of acquiring the same, or buy such
shares back within six months of selling the same, the gains
obtained therefrom shall belong to our company and the board of
directors of the company shall recover such gains from them and
disclose the relevant situation timely. However, a securities
company that underwrote shares on a firm commitment basis and
which, after purchasing the shares remaining after the sale,
holds at least 5% of the shares shall not be subject to the six
month time limit when selling such shares.
If the board of directors of our company fails to act in
accordance with the preceding paragraph, the shareholders shall
have the right to demand that the board of directors act within
30 days. If the board of directors of our company fails to
act within such
30-day
time
period, the shareholders shall have the right, in the interests
of our
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company, to directly institute legal proceedings in a competent
court in their own name. If the board of directors of our
company fails to act in accordance with the above provisions,
the responsible directors shall be jointly and severally liable
in accordance with the law.
We are required to keep a register of our shareholders which
shall be comprised of various parts, including one part which is
to be maintained in Hong Kong in relation to H Shares to be
listed on the Hong Kong Stock Exchange.
Dividends
We may distribute dividends twice a year, with the final
dividend for any financial year being subject to the approval of
the shareholders by way of an ordinary resolution. The articles
of association allow for distribution of dividends in the form
of cash or shares or any other form permitted under applicable
laws and regulations. If a proposal concerning distribution of
dividends in the form of cash or shares or conversion of the
common reserve fund into share capital is approved in a
shareholders’ meeting, we shall implement a specific plan
in connection with such proposal within two months following the
shareholders’ meeting.
Dividends may only be distributed, however, after allowance has
been made for:
| • | recovery of losses, if any and the statutory common reserve fund is not enough to recover such losses; | |
| • | allocations to the statutory common reserve fund; and | |
| • | allocations to a discretionary common reserve fund if approved by the shareholders. |
We shall allocate ten percent of income for the year
attributable to the equity holders of our company to the
statutory common reserve fund. If the statutory common reserve
fund of our company amounts to more than 50% of our registered
capital, we may cease any further allocation.
If the shareholders’ meeting of our company distributes
profits to our shareholders before recovering the losses and
making allocations to the statutory common reserve fund, the
shareholders must return such profits they have received to our
company. The shares held by our company in itself do not
participate any dividends distribution.
The articles of association require us to appoint on behalf of
the holders of H Shares a receiving agent which is registered as
a trust corporation under the Trustee Ordinance of Hong Kong to
receive dividends declared by us in respect of the H Shares on
behalf of such shareholders. The articles of association require
that cash dividends in respect of H Shares be declared in
Renminbi and paid by us in HK dollars.
Voting
Rights and Shareholders’ Meetings
Our board of directors will convene a shareholders’ annual
general meeting once every year and within six months’ from
the end of the preceding financial year. Our board will convene
an extraordinary general meeting within two months of the
occurrence of any one of the following events:
| • | where the number of directors is less than the number stipulated in the PRC Company law or two-thirds of the number specified in our articles of association; | |
| • | where our unrecovered losses reach one-third of the total amount of our share capital; | |
| • | where shareholders individually or in the aggregate holding 10% or more of our issued and outstanding voting shares request in writing the convening of an extraordinary general meeting; | |
| • | where our board deems necessary or our supervisory board so request; or | |
| • | any other events provided by applicable laws, administrative regulations, rules or the articles of association of our company. |
Meetings of a special class of shareholders must be called in
certain enumerated situations when the rights of the holders of
such class of shares may be modified or adversely affected, as
discussed below. Shareholders holding 3% or more of the total
number of voting shares may present special proposals ten days
prior to the annual shareholders meetings and shall deliver such
proposal in writing to the persons convening such
shareholders’ meetings. The matters proposed in the special
proposals shall fall within the scope of the functions and
powers of
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shareholders meetings, and such proposals shall have specific
subjects as well as specific matters to be resolved, and shall
be in compliance with the requirements of applicable laws,
administrative regulations and the articles of association of
our company. The persons convening the shareholders’
meetings shall send additional notices of shareholders’
meetings within two days after receiving such proposals and
announce the matters proposed therein.
All shareholders’ meetings must be convened by our board by
written notice given to shareholders not less than 45 days
before the meeting. Based on the written replies received by us
20 days before a shareholders’ meeting, we will
calculate the number of voting shares represented by
shareholders who have indicated that they intend to attend the
meeting. Otherwise, we will, within five days, inform the
shareholders again of the motions to be considered and the date
and venue of the meeting by way of public announcement. After
the announcement is made, the shareholders’ meeting may be
convened. The accidental omission by us to give notice of a
meeting to, or the non-receipt of notice of a meeting by, a
shareholder will not invalidate the proceedings at that
shareholders’ meeting.
Shareholders at meetings have the rights, among other things, to
approve or reject the annual profit distribution plans, the
annual budget, the financial statements, an increase or decrease
in share capital, the issuance of debentures, the merger or
liquidation of PetroChina, any amendment to our articles of
association, external guarantees, purchase or sale of
significant assets of PetroChina, change of the purposes of the
funds raised and our stock incentive plans. In addition, the
rights of a class of shareholders may not be modified or
abrogated, unless approved by a special resolution of all
shareholders at a general shareholders’ meeting and by a
special resolution of shareholders of that class of shares at a
separate meeting. Our articles of association enumerate, without
limitation, certain amendments which would be deemed to be a
modification or abrogation of the rights of a class of
shareholders, including increasing or decreasing the number of
shares of a class disproportionate to increases or decreases of
other classes of shares, removing or reducing rights to receive
dividends in a particular currency or creating shares with
voting or equity rights superior to shares of such class.
Each H Share is entitled to one vote on all matters submitted to
a vote of our shareholders at all shareholders’ meetings,
except for meetings of a special class of shareholders where
only holders of shares of the affected class are entitled to
vote on the basis of one vote per share of the affected class.
The shares held by our company in itself are not entitled to any
vote, and such shares will not be included in the total number
of voting shares in any shareholders’ meeting. When any
shareholder is required to abstain from voting on any particular
resolution or restricted to voting only for or against any
particular resolution under the Rules Governing the Listing
of Securities on the Stock Exchange Hong Kong Limited, or the
HKSE Listing Rules, any votes cast by or on behalf of such
shareholder in contravention of such requirement or restriction
shall not be counted.
Shareholders are entitled to attend and vote at meetings either
in person or by proxy. Proxies must be in writing and deposited
at our legal address, or such other place as is specified in the
meeting notice, not less than 24 hours before the time for
holding the meeting at which the proxy proposes to vote or the
time appointed for the passing of the relevant resolutions. When
the instrument appointing a proxy is executed by the
shareholder’s attorney-in -fact, such proxy when deposited
must be accompanied by a notarially certified copy of the
relevant power of attorney or other authority under which the
proxy was executed.
Except for those actions discussed below which require
supermajority votes, resolutions of the shareholders are passed
by a simple majority of the voting shares held by shareholders
who are present in person or by proxy. Special resolutions must
be passed by more than two-thirds of the voting rights
represented held by shareholders who are present in person or by
proxy.
The following decisions must be adopted by special resolution:
| • | an increase or reduction of our share capital or the issue of shares of any class, warrants and other similar securities; | |
| • | the issue of our debentures; | |
| • | our division, merger, dissolution and liquidation; | |
| • | amendments to our articles of association; |
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| • | any purchase or sale of significant assets or any guarantee provided by our company within one year exceeding 30% of our most recent audited aggregate assets; | |
| • | stock incentive plans; and | |
| • | any other matters required by applicable laws, administrative regulations or our articles of association, or considered by the shareholders in a general meeting and which they have resolved by way of an ordinary resolution to be of a nature which may have a material impact on us and should be adopted by special resolution. |
All other actions taken by the shareholders, including the
appointment and removal of our directors and independent
auditors and the declaration of normal dividend payments or
stock distributions, will be decided by an ordinary resolution
of the shareholders.
In addition, certain amendments to the articles of association
require the approval and consent of the relevant PRC authorities.
If any resolutions of our shareholders’ meetings or our
board meetings violate any applicable laws or administrative
regulations, the shareholders shall have the right to request
competent courts to decide that such resolutions are invalid. If
the procedures to convene any shareholders’ meetings or any
board meetings or any voting methods violate any applicable
laws, administrative regulations or our articles of association,
or any resolutions violate our articles of association, the
shareholders shall, within 60 days from the adoption of
such resolutions, have the right to request competent courts to
cancel such resolutions.
There are no limitations imposed by PRC law or our articles of
association on the right of non-residents or foreign
shareholders to hold or vote our company’s shares, other
than limitations that would generally apply to all of the
shareholders.
Board
of Directors
Directors will be elected by shareholders at a general meeting.
Because the shares do not have cumulative voting rights, a
holder of a majority of our shares is able to elect all of the
directors. Directors are elected for a term of not more than
three years.
Meetings of the board of directors shall be held at least four
times every year and shall be convened by the Chairman of the
board of directors, who shall notify all directors 14 days
before each meeting.
Our board of directors is accountable to the shareholders in
general meetings and exercises the following functions and
powers to:
(a) be responsible for the convening of shareholders’
meetings and reporting on its work to the shareholders at such
meetings;
(b) implement the resolutions passed by the shareholders in
general meetings;
(c) determine our business plans and investment proposals;
(d) formulate our annual preliminary and final budgets;
(e) formulate our profit distribution proposal and loss
recovery proposals;
(f) formulate proposals for the increase or reduction of
our registered capital and the issuance of our debentures or
other securities and listings;
(g) draw up plans for our acquisition of our shares or our
merger, division or dissolution, or change of our corporation
form;
(h) decide on our internal management structure;
(i) appoint or remove our president and to appoint or
remove the vice presidents and other senior officers, including
the financial controller, based on the recommendation of the
general manager, and to decide on their remuneration;
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(j) formulate our basic management system;
(k) formulate proposals for any amendment of our articles
of association;
(l) manage the information disclosures of our
company; and
(m) exercise any other powers conferred by the shareholders
in general meetings.
Except for items (f), (g) and (k), which require the
affirmative vote of more than two-thirds of all of our
directors, resolutions on any other items may be approved by the
affirmative vote of a simple majority of our directors.
A director shall abstain from voting on any resolutions of the
board of directors if
he/she
or
any of
his/her
associates or the relevant significant shareholder is interested
therein, and
he/she
shall
not be counted in the quorum of the directors for such meetings.
The board of directors shall transact its businesses by
convening a board meeting instead of by circulation of papers.
If an independent non-executive director or any of its
associates does not have any significant interest in the matters
to be resolved in a board meeting,
he/she
shall
attend the board meeting. For purpose of this paragraph, the
relevant significant shareholder and the associate herein have
the same meaning ascribed to it in the HKSE Listing Rules. If
any listing rules of other stock exchanges on which our stocks
listed have stricter stipulations on the abstention of voting by
directors, then such stipulations shall be followed.
In addition to obligations imposed by laws, administrative
regulations or the listing rules of the stock exchanges on which
our H Shares are listed, the articles of association place on
each of our directors, supervisors, president, senior vice
presidents, vice presidents and any other senior officers a duty
to each shareholder, in the exercise of our functions and powers
entrusted to such person:
| • | not to cause us to exceed the scope of business stipulated in our business license; | |
| • | to act honestly in our best interests; | |
| • | not to expropriate our property in any way, including, without limitation, usurpation of opportunities which benefit us; and | |
| • | not to expropriate the individual rights of shareholders, including, without limitation, rights to distributions and voting rights, save and except according to a restructuring which has been submitted to the shareholders for their approval in accordance with the articles of association. |
Our articles of association further place on each of our
directors, supervisors, president, vice presidents and senior
officers:
| • | a duty, in the exercise of such person’s powers and discharge of such person’s duties, to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances; | |
| • | a fiduciary obligation, in the exercise of our powers entrusted to him or her, not to place himself or herself in a position where his or her duty to us and his or her interests may conflict; and | |
| • | a duty not to direct a person or entity related or connected to a director, supervisor, president, vice president or senior officer in certain relationships enumerated in the articles of association to act in a manner which such director, supervisor, president, vice president or senior officer is prohibited from doing. |
Subject to compliance with all relevant laws and administrative
regulations, the shareholders in a general meeting may by
ordinary resolution remove any director before the expiration of
his term of office. Subject to certain qualifications, a
director, supervisor, president, vice president or other senior
officer may be relieved of liability for a specific breach of
his or her duties by the informed consent of shareholders in a
general meeting.
Supervisory
Board
The Supervisory board is composed of nine members appointed to
monitor our financial matters:
| • | to review the periodic reports prepared by the board of directors and issue written opinions in connection with such review; |
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| • | to verify financial reports and other financial information which have been prepared by the board and which are proposed to be presented at shareholders’ meetings; | |
| • | to oversee our directors, president, vice presidents and other senior officers in order to prevent such persons from abusing their authority or infringing upon our interest; and | |
| • | to contact with the directors on behalf of our company, or bring lawsuits against the directors, president, senior vice president, vice president, chief financial officer or any other executive officers pursuant to Article 152 of the PRC Company Law. |
The rights of the supervisory board are generally limited to
investigating and reporting to shareholders and management on
our affairs and to calling shareholders’ extraordinary
general meetings.
At least one third of the members of the supervisory board will
be employee representatives elected by our employees. The
remaining members will be appointed by the shareholders in a
general meeting. One member of the supervisory board shall be
the chairman. A member of the supervisory board may not be a
director, the president, a vice president or the chief financial
officer. The term of office of each member of the supervisory
board is three years, including the term of office of the
chairman of the supervisory board, both of which terms are
renewable upon re-election and re-appointment. Reasonable
expenses incurred by the supervisory board in carrying out its
duties will be paid by us.
The supervisory board is accountable, and will report, to the
shareholders in the shareholders’ meetings.
Restrictions
on Large or Controlling Shareholders
Our articles of association provide that, in addition to any
obligation imposed by laws and administrative regulations or
required by the listing rules of the stock exchanges on which
our H Shares are listed, a controlling shareholder shall not
exercise his voting rights in a manner prejudicial to the
interests of the shareholders generally or of some part of the
shareholders:
| • | to relieve a director or supervisor from his or her duty to act honestly in our best interests; | |
| • | to approve the expropriation by a director or supervisor of our assets in any way, including, without limitation, opportunities which may benefit us; or | |
| • | to approve the expropriation by a director or supervisor of the individual rights of other shareholders, including, without limitation, rights to distributions and voting rights, except according to a restructuring of our company which has been submitted for approval by the shareholders in a general meeting in accordance with our articles of association. |
A controlling shareholder, however, will not be precluded by our
articles of association or any laws and administrative
regulations or the listing rules of the stock exchanges on which
our H Shares are listed from voting on these matters.
A controlling shareholder is defined by our articles of
association as any person who acting alone or in concert with
others:
| • | is in a position to elect more than one-half of the board of directors; | |
| • | has the power to exercise, or to control the exercise of, 30% or more of our voting rights; | |
| • | holds 30% or more of our issued and outstanding shares; or | |
| • | has de facto control of us in any other way. |
On May 15, 2008, our annual shareholders’ meeting for
2007 approved certain amendments to our articles of association.
Those amendments were approved by the State-owned Assets
Supervision and Administration Commission on October 24,
2008.
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Material
Contracts
We have not entered into any material contracts other than in
the ordinary course of business and other than those described
under Item 4 — Information on the Company,
Item 7 — Major Shareholders and Related Party
Transactions or elsewhere in this Form annual report.
Foreign
Exchange Controls
The Renminbi currently is not a freely convertible currency. We
receive most of our revenues in Renminbi. A portion of our
Renminbi revenues must be converted into other currencies to
meet our foreign currency obligations, including:
| • | debt service on foreign currency-denominated debt; | |
| • | purchases of imported equipment and materials; and | |
| • | payment of any dividends declared in respect of the H Shares. |
Under the existing foreign exchange regulations in China, we may
undertake current account foreign exchange transactions,
including the payment of dividends, without prior approval from
the State Administration of Foreign Exchange by producing
commercial documents evidencing such transactions, provided that
they are processed through Chinese banks licensed to engage in
foreign exchange transactions.
Foreign exchange transactions under the capital account,
including principal payments with respect to foreign
currency-denominated obligations, continue to be subject to
limitations and require the prior approval of the State
Administration of Foreign Exchange. These limitations could
affect our ability to obtain foreign exchange through debt
financing, or to obtain foreign exchange for capital
expenditures.
We have been, and will continue to be, affected by changes in
exchange rates in connection with our ability to meet our
foreign currency obligations and will be affected by such
changes in connection with our ability to pay dividends on the H
Shares in Hong Kong dollars and on ADSs in U.S. dollars. We
believe that we have or will be able to obtain sufficient
foreign exchange to continue to satisfy these obligations. We do
not engage in any financial contract or other arrangement to
hedge our currency exposure.
We are not aware of any other PRC laws, decrees or regulations
that restrict the export or import of capital or that affect the
remittance of dividends, interest or other payments to
non-resident holders.
Taxation
The following discussion addresses the main PRC and United
States tax consequences of the ownership of H Shares or ADSs
purchased held by the investor as capital assets.
PRC
Taxation
Dividends
and Individual Investors
On July 21, 1993, the PRC State Administration of Taxation
issued the
Notice Concerning the Taxation of Gains on
Transfer and Dividends from Shares (Equities) Received by
Foreign Investment Enterprises, Foreign Enterprises and Foreign
Individuals
(the “Tax Notice”). According to the
Tax Notice, dividends paid by a PRC company to foreign
individuals with respect to shares listed on an overseas stock
exchange (“Overseas Shares”), including the H Shares
and ADSs, were provisionally exempted from PRC withholding tax
for the time being.
The first amendment to the
Individual Income Tax Law of the
PRC
became effective on January 1, 1994 and states that
it supersedes any contradictory prior administrative regulation
concerning individual income tax. The amended Individual Income
Tax Law can be interpreted as providing that all foreign
individuals are subject to the 20% withholding tax on dividends
paid by a PRC company on its Overseas Shares unless specifically
exempted by the financial authority of the State Council of the
PRC. However, in a letter dated July 26, 1994 to the former
State Commission for Restructuring the Economic System, the
former State Council Securities Committee and the China
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Securities Regulatory Commission, the PRC State Administration
of Taxation restated the exemption. In the event that the letter
is withdrawn, a 20% tax may be withheld on dividends paid to
you, subject to reduction by an applicable tax treaty between
China and the country where you reside. To date, the relevant
tax authorities have not collected withholding tax from dividend
payments on such Shares exempted under the Tax Notice.
Dividends
and Foreign Enterprises
Prior to January 1, 2008, on which the
Enterprise Income
Tax Law of the PRC
became effective, dividends paid by a PRC
company to foreign enterprises with respect to Overseas Shares
were provisionally exempted from PRC FEIT according to the Tax
Notice.
Pursuant to the
Enterprise Income Tax Law of the PRC
which is effective from January 1, 2008 and the
implementing rules thereunder, and the
Circular on Issues
Concerning the Withholding of Corporate Income Tax by PRC
Resident Enterprises from Dividends Payable to H Share
Non-resident Corporate Shareholders
, or the Circular, each
PRC resident enterprise, when paying any of its H share
non-resident corporate shareholders any dividends for 2008 and
the years thereafter, is required to withhold the corporate
income tax from such dividends at a uniform rate of 10%. After
its receipt of any dividends on its H shares, an H share
non-resident corporate shareholder may by itself or through an
agent or the withholding agent, apply to the competent taxation
authority for the treatment under the applicable tax treaty
(arrangement) against the documents evidencing that such
shareholder is qualified to be a beneficial owner as defined
under the applicable tax treaty (arrangement). The competent tax
authority after having verified the correctness of such
documents, shall refund the difference between the amount of the
tax actually paid by such shareholder and the amount of the tax
payable by such shareholder as calculated on the basis of the
rate stipulated in the applicable tax treaty (arrangement).
Tax
Treaties
If you are a tax resident or citizen of a country that has
entered into a double-taxation treaty with the PRC, you may be
entitled to a reduction in the amount of tax withheld, if any,
imposed on the payment of dividends. The PRC currently has such
treaties with a number of countries, including but not limited
to:
| • | the United States; | |
| • | Australia; | |
| • | Canada; | |
| • | France; | |
| • | Germany; | |
| • | Japan; | |
| • | Malaysia; | |
| • | Singapore; | |
| • | the United Kingdom; and | |
| • | the Netherlands. |
Under certain treaties, the rate of withholding tax imposed by
China’s taxation authorities may be reduced. Pursuant to
the
Measures for the Administration of the Enjoyment by
Non-residents of the Treatments under the Tax Treaties
(Trial) promulgated by the State Administration of Taxation
on August 24, 2009, non-PRC resident are required to apply
for approval or filing in order to claim any benefit under tax
treaties.
Capital
Gains
The fifth amendment to the
Individual Income Tax Law of the
PRC,
which became effective on March 1, 2008, provides
for a capital gain tax of 20% on individuals. The
Provisions
for Implementing the Individual Income Tax Law of the PRC
as
amended on February 18, 2008, provides that the measures to
levy individual income tax on the
103
Table of Contents
gains realized on the sale of shares will be made in the future
by the Ministry of Finance and subject to the approval of the
State Council. However, the Tax Notice provides that gains
realized by foreign individuals upon the sale of Overseas Shares
are not subject to withholding tax for the time being. On
March 30, 1998, the Ministry of Finance and the State
Administration of Taxation issued notices providing that
temporarily no capital gains tax will be imposed on gains from
the sale of shares by individuals. However, it is uncertain
whether the above exemption for foreign individuals will
continue to apply or be renewed in the future. If such exemption
does not apply or is not renewed, and the Tax Notice is found
not to apply, an individual holder of H Shares or ADSs may be
subject to a 20% tax on capital gains, unless reduced by an
applicable double taxation treaty.
Before the effectiveness of the new Enterprise Income Tax Law,
gains realized by foreign enterprises that are holders of
Overseas Shares excluding the shares held through their PRC
domestic establishments were exempted from the withholding tax
according to the Tax Notice. However, the
Circular of the
Ministry of Finance and the State Administration of Taxation
concerning Several Preferential Policies for Enterprise Income
Tax
(Cai Shui [2008] No.) promulgated on February 22,
2008 provides that, other than those preferential policies
specially stipulated thereunder, any other preferential policies
concerning enterprise income tax that were implemented prior to
January 1, 2008 shall all be repealed. The Tax Notice does
not fall into the category of preferential policies defined
under the
Circular of the Ministry of Finance and the State
Administration of Taxation concerning Several Preferential
Policies for Enterprise Income Tax
.
Under the Enterprise Income Tax Law that became effective on
January 1, 2008, capital gains realized by foreign
enterprises which are non-resident enterprises in the PRC upon
the sale of Overseas Shares are generally subject to a PRC
withholding tax levied at a rate of 10%, unless exempted or
reduced pursuant to an applicable double-taxation treaty or
other exemptions. Currently pursuant to the
Circular of the
State Administration of Taxation on Printing and Issuing the
Interim Measures for Administration of Withholding at Source of
Income Tax of Non-resident Enterprises
promulgated on
January 9, 2009, where both parties to the transaction of
equity transfer are non-resident enterprises and such
transaction is conducted outside the territory of PRC, the
non-resident enterprise that receives incomes shall, by itself
or through its agent, declare and pay tax to the competent tax
authority in the place where the Chinese enterprise whose
equities have been transferred is located.
Additional
PRC Tax Considerations
Under the Provisional Regulations of the People’s Republic
of China Concerning the Stamp Duty, a stamp duty is not imposed
by the PRC on the transfer of shares, such as the H Shares or
ADSs, of PRC publicly traded companies that take place outside
of China.
United
States Federal Income Taxation
The following is a general discussion of the material United
States federal income tax consequences of purchasing, owning and
disposing of the H Shares or ADSs if you are a U.S. holder,
as defined below, and hold the H Shares or ADSs as capital
assets within the meaning of Section 1221 of the Internal
Revenue Code of 1986, as amended, or the Code. This discussion
does not address all of the tax consequences relating to the
purchase, ownership and disposition of the H Shares or ADSs, and
does not take into account U.S. holders who may be subject
to special rules including:
| • | tax-exempt entities; | |
| • | certain insurance companies; | |
| • | broker-dealers; | |
| • | traders in securities that elect to mark to market; | |
| • | U.S. holders liable for alternative minimum tax; | |
| • | U.S. holders that own 10% or more of our voting stock; | |
| • | U.S. holders that hold the H Shares or ADSs as part of a straddle or a hedging or conversion transaction; or | |
| • | U.S. holders whose functional currency is not the U.S. dollar. |
104
Table of Contents
This discussion is based on the Code, its legislative history,
final, temporary and proposed United States Treasury regulations
promulgated thereunder, published rulings and court decisions as
in effect on the date hereof, all of which are subject to
change, or changes in interpretation, possibly with retroactive
effect. In addition, this discussion is based in part upon
representations of the depositary and the assumption that each
obligation in the deposit agreement and any related agreements
will be performed according to its terms.
You are a “U.S. holder” if you are:
| • | a citizen or resident of the United States for United States federal income tax purposes; | |
| • | a corporation, or other entity treated as a corporation for United States federal income tax purposes, created or organized under the laws of the United States or any political subdivision thereof; | |
| • | an estate the income of which is subject to United States federal income tax without regard to its source; or | |
| • | a trust: |
| • | subject to the primary supervision of a United States court and the control of one or more United States persons; or | |
| • | that has elected to be treated as a United States person under applicable United States Treasury regulations. |
If a partnership holds the H Shares or ADSs, the tax treatment
of a partner generally will depend on the status of the partner
and the activities of the partnership. If you are a partner of a
partnership that holds the H Shares or ADSs, we urge you to
consult your tax advisors regarding the consequences of the
purchase, ownership and disposition of the H Shares or ADSs.
This discussion does not address any aspects of United States
taxation other than federal income taxation.
We urge you to consult your tax advisors regarding the United
States federal, state, local and
non-United
States tax consequences of the purchase, ownership and
disposition of the H Shares or ADSs.
In general, if you hold American depositary receipts evidencing
ADSs, you will be treated as the owner of the H Shares
represented by the ADSs. The following discussion assumes that
we are not a passive foreign investment company, or PFIC, as
discussed under “PFIC Rules” below.
Distributions
on the H Shares or ADSs
The gross amount of any distribution (without reduction for any
PRC tax withheld) we make on the H Shares or ADSs out of our
current or accumulated earnings and income (as determined for
United States federal income tax purposes) will be includible in
your gross income as dividend income when the distribution is
actually or constructively received by you, in the case of the H
Shares, or by the depositary in the case of ADSs. Subject to
certain limitations, dividends paid for taxable years beginning
prior to January 1, 2011 to non-corporate
U.S. holders, including individuals, may be eligible for a
reduced rate of taxation if we are deemed to be a
“qualified foreign corporation” for United States
federal income tax purposes. A qualified foreign corporation
includes:
| • | a foreign corporation that is eligible for the benefits of a comprehensive income tax treaty with the United States that includes an exchange of information program; or | |
| • | a foreign corporation if its stock with respect to which a dividend is paid (or ADSs backed by such stock) is readily tradable on an established securities market within the United States, |
but does not include an otherwise qualified foreign corporation
that is a PFIC in the taxable year that the dividend is paid or
in the prior taxable year. We believe that we will be a
qualified foreign corporation so long as we are not a PFIC and
we are considered eligible for the benefits of the Agreement
between the Government of the United States of America and the
Government of the People’s Republic of China for the
Avoidance of Double Taxation and the Prevention of Tax Evasion
with Respect to Taxes on Income, or the Treaty. Our status as a
qualified foreign corporation, however, may change.
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Table of Contents
Distributions that exceed our current and accumulated earnings
and profits will be treated as a return of capital to you to the
extent of your basis in the H Shares or ADSs and thereafter as
capital gain. Any dividend will not be eligible for the
dividends-received deduction generally allowed to United States
corporations in respect of dividends received from United States
corporations. The amount of any distribution of property other
than cash will be the fair market value of such property on the
date of such distribution.
If we make a distribution paid in HK dollars, you will be
considered to receive the U.S. dollar value of the
distribution determined at the spot HK dollar/ U.S. dollar
rate on the date such distribution is received by you or by the
depositary, regardless of whether you or the depositary convert
the distribution into U.S. dollars. Any gain or loss
resulting from currency exchange fluctuations during the period
from the date the dividend payment is includible in your income
to the date you or the depositary convert the distribution into
U.S. dollars will be treated as United States source
ordinary income or loss for foreign tax credit limitation
purposes.
Subject to various limitations, any PRC tax withheld from
distributions in accordance with PRC law, as limited by the
Treaty, will be deductible or creditable against your United
States federal income tax liability. For foreign tax credit
limitation purposes, dividends paid on the H Shares or ADSs will
be foreign source income, and will be treated as “passive
category income” or, in the case of some U.S. holders,
“general category income.” You may not be able to
claim a foreign tax credit (and instead may claim a deduction)
for
non-United
States taxes imposed on dividends paid on the H Shares or ADSs
if you (i) have held the H Shares or ADSs for less than a
specified minimum period during which you are not protected from
risk of loss with respect to such Shares, or (ii) are
obligated to make payments related to the dividends (for
example, pursuant to a short sale).
Sale,
Exchange or Other Disposition
Upon a sale, exchange or other disposition of the H Shares or
ADSs, you will recognize a capital gain or loss for United
States federal income tax purposes in an amount equal to the
difference between the U.S. dollar value of the amount
realized and your tax basis, determined in U.S. dollars, in
such H Shares or ADSs. Any gain or loss will generally be United
States source gain or loss for foreign tax credit limitation
purposes. Capital gain of certain non-corporate
U.S. holders, including individuals, is generally taxed at
a reduced rate where the property has been held more than one
year. Your ability to deduct capital losses is subject to
limitations. If any PRC tax is withheld from your gain on a
disposition of H Shares or ADSs, such tax would only be
creditable against your United States federal income tax
liability to the extent that you have foreign source income.
However, in the event that such PRC tax is withheld, a
U.S. holder that is eligible for the benefit of the Treaty
may be able to treat the gain as foreign source income for
foreign tax credit satisfaction purposes. You are urged to
consult your tax advisors regarding the United States federal
income tax consequences if PRC tax is withheld from your gain on
the sale or other disposition of H Shares or ADSs, including the
availability of a foreign tax credit under your particular
circumstances.
If you are paid in a currency other than U.S. dollars, any
gain or loss resulting from currency exchange fluctuations
during the period from the date of the payment resulting from
sale, exchange or other disposition to the date you convert the
payment into U.S. dollars will be treated as United States
source ordinary income or loss for foreign tax credit limitation
purposes.
PFIC
Rules
In general, a foreign corporation is a PFIC for any taxable year
in which, after applying relevant look-through rules with
respect to the income and assets of subsidiaries:
| • | 75% or more of its gross income consists of passive income, such as dividends, interest, rents and royalties; or | |
| • | 50% or more of the average quarterly value of its assets consists of assets that produce, or are held for the production of, passive income. |
We believe that we did not meet either of the PFIC tests in the
taxable year that ended December 31, 2009 and believe that
we will not meet either of the PFIC tests in current or
subsequent taxable years and therefore will not be
106
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treated as a PFIC for such periods. However, there can be no
assurance that we will not be a PFIC in the current or
subsequent taxable years.
If we were a PFIC in any taxable year that you held the H Shares
or ADSs, you generally would be subject to special rules with
respect to “excess distributions” made by us on the H
Shares or ADSs and with respect to gain from your disposition of
the H Shares or ADSs. An “excess distribution”
generally is defined as the excess of the distributions you
receive with respect to the H Shares or ADSs in any taxable year
over 125% of the average annual distributions you have received
from us during the shorter of the three preceding years or your
holding period for the H Shares or ADSs. Generally, you would be
required to allocate any excess distribution or gain from the
disposition of the H Shares or ADSs ratably over your holding
period for the H Shares or ADSs. The portion of the excess
distribution or gain allocated to a prior taxable year, other
than a year prior to the first year in which we became a PFIC,
would be taxed at the highest United States federal income tax
rate on ordinary income in effect for such taxable year, and you
would be subject to an interest charge on the resulting tax
liability, determined as if the tax liability had been due with
respect to such particular taxable years. The portion of the
excess distribution or gain that is not allocated to prior
taxable years, together with the portion allocated to the years
prior to the first year in which we became a PFIC, would be
included in your gross income for the taxable year of the excess
distribution or disposition and taxed as ordinary income.
The foregoing rules with respect to excess distributions and
dispositions may be avoided or reduced if you are eligible for
and timely make a valid “mark-to -market” election. If
your H Shares or ADSs were treated as shares regularly traded on
a “qualified exchange” for United States federal
income tax purposes and a valid mark-to -market election was
made, in calculating your taxable income for each taxable year
you generally would be required to take into account as ordinary
income or loss the difference, if any, between the fair market
value and the adjusted tax basis of your H Shares or ADSs at the
end of your taxable year. However, the amount of loss you would
be allowed is limited to the extent of the net amount of
previously included income as a result of the mark-to -market
election. The New York Stock Exchange on which the ADSs are
traded is a qualified exchange for United States federal income
tax purposes.
Alternatively, a timely election to treat us as a qualified
electing fund under Section 1295 of the Code could be made
to avoid the foregoing rules with respect to excess
distributions and dispositions. You should be aware, however,
that if we become a PFIC, we do not intend to satisfy record
keeping requirements that would permit you to make a qualified
electing fund election.
If you own the H Shares or ADSs during any year that we are a
PFIC, you must file Internal Revenue Service, or IRS,
Form 8621 for each taxable year in which you recognize
gain, receive distributions, or make a reportable election with
respect to such H Shares or ADSs, and file any such other form
as is required by the United States Treasury Department. We
encourage you to consult your own tax advisor concerning the
United States federal income tax consequences of holding the H
Shares or ADSs that would arise if we were considered a PFIC.
Backup
Withholding and Information Reporting
In general, information reporting requirements will apply to
dividends in respect of the H Shares or ADSs or the proceeds of
the sale, exchange, or redemption of the H Shares or ADSs paid
within the United States, and in some cases, outside of the
United States, other than to various exempt recipients,
including corporations. In addition, you may, under some
circumstances, be subject to “backup withholding” with
respect to dividends paid on the H Shares or ADSs or the
proceeds of any sale, exchange or transfer of the H Shares or
ADSs, unless you
| • | are a corporation or fall within various other exempt categories, and, when required, demonstrate this fact; or | |
| • | provide a correct taxpayer identification number on a properly completed IRS Form W-9 or a substitute form, certify that you are exempt from backup withholding and otherwise comply with applicable requirements of the backup withholding rules. |
Any amount withheld under the backup withholding rules generally
will be creditable against your United States federal income tax
liability provided that you furnish the required information to
the IRS in a timely manner. If you do not provide a correct
taxpayer identification number you may be subject to penalties
imposed by the IRS.
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Recent
Legislative Developments
Newly enacted legislation requires certain U.S. holders who
are individuals, estates or trusts to pay up to an additional
3.8% tax on, among other things, dividends and capital gains for
taxable years beginning after December 31, 2012. In
addition, for taxable years beginning after March 18, 2010,
new legislation requires certain U.S. holders who are
individuals that hold certain foreign financial assets (which
may include the H Shares or ADSs) to report information relating
to such assets, subject to certain exceptions. You should
consult your own tax advisors regarding the effect, if any, of
this legislation on your ownership and disposition of the H
Shares or ADSs.
Documents
on Display
You may read and copy documents referred to in this annual
report on
Form 20-F
that have been filed with the U.S. Securities and Exchange
Commission at the Commission’s public reference room
located at 100 F Street, N.E., Room 1580,
Washington, D.C. 20549. Please call the Commission at
1-800-SEC-0330
for further information on the public reference rooms and their
copy charges.
The Commission allows us to “incorporate by reference”
the information we file with the Commission. This means that we
can disclose important information to you by referring you to
another document filed separately with the Commission. The
information incorporated by reference is considered to be part
of this annual report on
Form 20-F.
In the normal course of business, we hold or issue various
financial instruments which expose us to interest rate and
foreign exchange rate risks. Additionally, our operations are
affected by certain commodity price movements. We historically
have not used derivative instruments for hedging or trading
purposes. Such activities are subject to policies approved by
our senior management. Substantially all of the financial
instruments we hold are for purposes other than trading. We
regard an effective market risk management system as an
important element of our treasury function and are currently
enhancing our systems. A primary objective of our market risk
management is to implement certain methodologies to better
measure and monitor risk exposures.
The following discussions and tables, which constitute
“forward-looking statements” that involve risks and
uncertainties, summarize our market-sensitive financial
instruments including fair value, maturity and contract terms.
Such discussions address market risk only and do not present
other risks which we face in the normal course of business.
Interest
Rate Risk
Our interest risk exposure arises from changing interest rates.
The tables below provide information about our financial
instruments including various debt obligations that are
sensitive to changes in interest rates. The tables present
principal cash flows and related weighted-average interest rates
at expected maturity dates. Weighted-average variable rates are
based on effective rates as of December 31, 2007, 2008 and
2009. The information is presented in Renminbi equivalents, our
reporting currency.
Foreign
Exchange Rate Risk
We conduct our business primarily in Renminbi. However, a
portion of our RMB revenues are converted into other currencies
to meet foreign currency financial instrument obligations and to
pay for imported equipment, crude oil and other materials.
Foreign currency payments for imported equipment represented
13.6%, 5.8% and 5.0% of our total payments for equipment in
2007, 2008 and 2009 respectively. Foreign currency payments for
imported crude oil and other materials represented 1.9%, 2.8%
and 1.4% of our total payments for materials in 2007, 2008 and
2009 respectively.
The Renminbi is not a freely convertible currency. Limitation in
foreign exchange transactions imposed by the PRC government
could cause future exchange rates to vary significantly from
current or historical exchange rates.
108
Table of Contents
The tables below provide information about our financial
instruments including foreign currency denominated debt
instruments that are sensitive to foreign currency exchange
rates. The tables below summarize such information by presenting
principal cash flows and related weighted-average interest rates
at expected maturity dates in RMB equivalents, using the
exchange rates in effect as of December 31, 2007, 2008 and
2009, respectively.
December 31,
2009
|
Percentage
|
||||||||||||||||||||||||||||||||||||
|
to Total
|
||||||||||||||||||||||||||||||||||||
| Expected Maturity Date |
Long-Term
|
Fair
|
||||||||||||||||||||||||||||||||||
| 2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | Total | Debt (%) | Value | ||||||||||||||||||||||||||||
| (RMB equivalent in millions, except percentages) | ||||||||||||||||||||||||||||||||||||
|
Long term debt
|
||||||||||||||||||||||||||||||||||||
|
Loans in RMB
|
||||||||||||||||||||||||||||||||||||
|
Fixed rate
|
233 | 221 | 5560 | — | — | 26 | 6,040 | 6.06 | % | 5,824 | ||||||||||||||||||||||||||
|
Average interest rate
|
4.64 | % | 4.78 | % | 4.32 | % | — | — | 2.91 | % | — | — | — | |||||||||||||||||||||||
|
Variable
rate
(1)
|
11,306 | 135 | 68 | 33 | 552 | 6,045 | 18,139 | 18.19 | % | 18,139 | ||||||||||||||||||||||||||
|
Average interest rate
|
4.90 | % | 5.38 | % | 5.33 | % | 5.40 | % | 6.03 | % | 3.07 | % | — | — | — | |||||||||||||||||||||
|
Loans in Euros
|
||||||||||||||||||||||||||||||||||||
|
Fixed rate
|
16 | 16 | 16 | 16 | 15 | 113 | 192 | 0.19 | % | 65 | ||||||||||||||||||||||||||
|
Average interest rate
|
2.12 | % | 2.12 | % | 2.12 | % | 2.12 | % | 2.12 | % | 2.11 | % | — | — | — | |||||||||||||||||||||
|
Variable rate
|
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
|
Average interest rate
|
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
|
Loans in United States Dollars
|
||||||||||||||||||||||||||||||||||||
|
Fixed rate
|
37 | 37 | 37 | 37 | 37 | 1,225 | 1,410 | 1.41 | % | 1,517 | ||||||||||||||||||||||||||
|
Average interest rate
|
1.43 | % | 1.43 | % | 1.43 | % | 1.43 | % | 1.43 | % | 5.95 | % | — | — | — | |||||||||||||||||||||
|
Variable rate
|
2,456 | 9,632 | 1,580 | 83 | 8,287 | 2,735 | 24,733 | 24,85 | % | 24,733 | ||||||||||||||||||||||||||
|
Average interest rate
|
1.00 | % | 1.95 | % | 2.54 | % | 1.91 | % | 1.80 | 1.72 | % | — | — | — | ||||||||||||||||||||||
|
Loans in Japanese Yen
|
||||||||||||||||||||||||||||||||||||
|
Fixed rate
|
10 | — | — | — | — | — | 10 | 0.01 | % | 10 | ||||||||||||||||||||||||||
|
Average interest rate
|
2.42 | % | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
|
Variable rate
|
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
|
Average interest rate
|
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
|
Debentures in United States Dollar
|
||||||||||||||||||||||||||||||||||||
|
Fixed Rate
|
171 | 171 | — | — | — | 294 | 636 | 0.64 | % | 630 | ||||||||||||||||||||||||||
|
Average interest rate
|
9.50 | % | 9.50 | % | — | — | — | 3.00 | % | — | — | — | ||||||||||||||||||||||||
|
Debentures in RMB
|
||||||||||||||||||||||||||||||||||||
|
Fixed rate
|
— | 2,000 | — | 1,500 | — | — | 3,500 | 3.51 | % | 3,516 | ||||||||||||||||||||||||||
|
Average interest rate
|
— | 3.76 | % | — | 4.11 | % | — | — | — | — | — | |||||||||||||||||||||||||
|
Medium term note in RMB
|
||||||||||||||||||||||||||||||||||||
|
Fixed rate
|
— | — | 30,000 | — | 15,000 | — | 45,000 | 45.14 | % | 43,587 | ||||||||||||||||||||||||||
|
Average interest rate
|
— | — | 2.49 | % | — | 3.35 | % | — | — | — | — | |||||||||||||||||||||||||
|
Total
|
14,229 | 12,212 | 37,261 | 1,669 | 23,891 | 10,438 | 99,700 | 100.00 | % | 98,061 | ||||||||||||||||||||||||||
109
Table of Contents
December 31,
2008
|
Percentage
|
||||||||||||||||||||||||||||||||||||
|
to Total
|
||||||||||||||||||||||||||||||||||||
| Expected Maturity Date |
Long-Term
|
Fair
|
||||||||||||||||||||||||||||||||||
| 2009 | 2010 | 2011 | 2012 | 2013 | Thereafter | Total | Debt (%) | Value | ||||||||||||||||||||||||||||
| (RMB equivalent in millions, except percentages) | ||||||||||||||||||||||||||||||||||||
|
Long term debt
|
||||||||||||||||||||||||||||||||||||
|
Loans in RMB
|
||||||||||||||||||||||||||||||||||||
|
Fixed rate
|
2 | 2 | — | — | — | 3 | 7 | 0.02 | % | 5 | ||||||||||||||||||||||||||
|
Average interest rate
|
0 | 7.47 | % | — | — | — | 0 | — | — | — | ||||||||||||||||||||||||||
|
Variable
rate
(1)
|
5,220 | 11,351 | 274 | 20 | — | 6,000 | 22,865 | 59.59 | % | 22,865 | ||||||||||||||||||||||||||
|
Average interest rate
|
6.07 | % | 5.51 | % | 5.84 | % | 6.20 | % | — | 6.26 | % | — | — | — | ||||||||||||||||||||||
|
Loans in Euros
|
||||||||||||||||||||||||||||||||||||
|
Fixed rate
|
15 | 17 | 17 | 16 | 16 | 126 | 207 | 0.54 | % | 147 | ||||||||||||||||||||||||||
|
Average interest rate
|
2.11 | % | 2.12 | % | 2.12 | % | 2.12 | % | 2.12 | % | 2.10 | % | — | — | — | |||||||||||||||||||||
|
Variable rate
|
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
|
Average interest rate
|
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
|
Loans in United States Dollars
|
||||||||||||||||||||||||||||||||||||
|
Fixed rate
|
66 | 37 | 37 | 37 | 37 | 416 | 630 | 1.64 | % | 367 | ||||||||||||||||||||||||||
|
Average interest rate
|
3.88 | % | 1.43 | % | 1.43 | % | 1.43 | % | 1.43 | % | 1.38 | % | — | — | — | |||||||||||||||||||||
|
Variable rate
|
63 | 3,826 | 2,805 | 248 | 254 | 3,132 | 10,328 | 26.92 | % | 10,328 | ||||||||||||||||||||||||||
|
Average interest rate
|
2.36 | % | 2.80 | % | 2.88 | % | 6.23 | % | 6.15 | % | 2.94 | % | — | — | — | |||||||||||||||||||||
|
Loans in Japanese Yen
|
||||||||||||||||||||||||||||||||||||
|
Fixed rate
|
7 | 13 | — | — | — | — | 20 | 0.05 | % | 19 | ||||||||||||||||||||||||||
|
Average interest rate
|
2.42 | % | 2.42 | % | — | — | — | — | — | — | — | |||||||||||||||||||||||||
|
Variable rate
|
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
|
Average interest rate
|
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
|
Debentures in United States Dollars
|
||||||||||||||||||||||||||||||||||||
|
Fixed rate
|
171 | 171 | 171 | — | — | 301 | 814 | 2.12 | % | 758 | ||||||||||||||||||||||||||
|
Average interest rate
|
9.50 | % | 9.50 | % | 9.50 | % | — | — | 3.00 | % | — | — | — | |||||||||||||||||||||||
|
Debentures in RMB
|
||||||||||||||||||||||||||||||||||||
|
Fixed rate
|
— | — | 2,000 | — | 1,500 | — | 3,500 | 9.12 | % | 3,262 | ||||||||||||||||||||||||||
|
Average interest rate
|
— | — | 3.76 | % | — | 4.11 | % | — | — | — | — | |||||||||||||||||||||||||
|
Total
|
5,544 | 15,417 | 5,304 | 321 | 1,807 | 9,978 | 38,371 | 100.00 | % | 37,751 | ||||||||||||||||||||||||||
December 31,
2007
|
Percentage
|
||||||||||||||||||||||||||||||||||||
|
to Total
|
||||||||||||||||||||||||||||||||||||
| Expected Maturity Date |
Long-Term
|
Fair
|
||||||||||||||||||||||||||||||||||
| 2008 | 2009 | 2010 | 2011 | 2012 | Thereafter | Total | Debt (%) | Value | ||||||||||||||||||||||||||||
| (RMB equivalent in millions, except percentages) | ||||||||||||||||||||||||||||||||||||
|
Long term debt
|
||||||||||||||||||||||||||||||||||||
|
Loans in RMB
|
||||||||||||||||||||||||||||||||||||
|
Fixed rate
|
272 | — | 2 | — | 1 | — | 275 | 0.53 | % | 254 | ||||||||||||||||||||||||||
|
Average interest rate
|
3.83 | % | — | 0 | — | 0 | — | — | — | — | ||||||||||||||||||||||||||
|
Variable
rate
(1)
|
7,280 | 5,220 | 11,182 | 10 | 20 | 8,700 | 32,412 | 62.45 | % | 32,412 | ||||||||||||||||||||||||||
|
Average interest rate
|
5.49 | % | 5.07 | % | 5.46 | % | 6.89 | % | 6.89 | % | 5.84 | % | — | — | — | |||||||||||||||||||||
|
Loans in Euros
|
||||||||||||||||||||||||||||||||||||
|
Fixed rate
|
16 | 16 | 16 | 16 | 16 | 167 | 247 | 0.48 | % | 163 | ||||||||||||||||||||||||||
|
Average interest rate
|
2.12 | % | 2.12 | % | 2.12 | % | 2.12 | % | 2.12 | % | 2.10 | % | — | — | — | |||||||||||||||||||||
|
Variable rate
|
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
|
Average interest rate
|
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
110
Table of Contents
|
Percentage
|
||||||||||||||||||||||||||||||||||||
|
to Total
|
||||||||||||||||||||||||||||||||||||
| Expected Maturity Date |
Long-Term
|
Fair
|
||||||||||||||||||||||||||||||||||
| 2008 | 2009 | 2010 | 2011 | 2012 | Thereafter | Total | Debt (%) | Value | ||||||||||||||||||||||||||||
| (RMB equivalent in millions, except percentages) | ||||||||||||||||||||||||||||||||||||
|
Loans in United States Dollars
|
||||||||||||||||||||||||||||||||||||
|
Fixed rate
|
137 | 79 | 45 | 39 | 39 | 468 | 807 | 1.56 | % | 539 | ||||||||||||||||||||||||||
|
Average interest rate
|
5.25 | % | 3.62 | % | 1.44 | % | 1.43 | % | 1.43 | % | 1.38 | % | — | — | — | |||||||||||||||||||||
|
Variable rate
|
4,234 | 249 | 2,629 | 77 | 3,431 | 2,867 | 13,487 | 25.99 | % | 13,487 | ||||||||||||||||||||||||||
|
Average interest rate
|
4.92 | % | 5.33 | % | 5.07 | % | 5.50 | % | 7.40 | % | 5.12 | % | — | — | — | |||||||||||||||||||||
|
Loans in Japanese Yen
|
||||||||||||||||||||||||||||||||||||
|
Fixed rate
|
20 | 9 | 8 | — | — | — | 37 | 0.07 | % | 36 | ||||||||||||||||||||||||||
|
Average interest rate
|
3.40 | % | 2.42 | % | 2.42 | % | — | — | — | — | — | — | ||||||||||||||||||||||||
|
Variable rate
|
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
|
Average interest rate
|
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
|
Debentures in United States Dollars
|
||||||||||||||||||||||||||||||||||||
|
Fixed rate
|
241 | 181 | 184 | 183 | — | 334 | 1,123 | 2.17 | % | 1,123 | ||||||||||||||||||||||||||
|
Average interest rate
|
10.83 | % | 9.50 | % | 9.50 | % | 9.50 | % | — | 3.30 | % | — | — | — | ||||||||||||||||||||||
|
Debentures in RMB
|
||||||||||||||||||||||||||||||||||||
|
Fixed rate
|
— | — | — | 2,000 | — | 1,500 | 3,500 | 6.75 | % | 2,981 | ||||||||||||||||||||||||||
|
Average interest rate
|
— | — | — | 3.76 | % | — | 4.11 | % | — | — | — | |||||||||||||||||||||||||
|
Total
|
12,200 | 5,754 | 14,066 | 2,325 | 3,507 | 14,036 | 51,888 | 100.00 | % | 50,995 | ||||||||||||||||||||||||||
| (1) | Due to the declining interest rates in recent years in China, the PRC government has implemented a program to adjust interest rates on certain fixed RMB loans periodically to reflect the market rates in effect published by the People’s Bank of China, or the PBOC, from time to time. As a result, these previously fixed RMB loans are categorized as variable rate loans as of December 31, 2007, 2008 and 2009. The newly adjusted rates usually become effective one year after the announcement by the PBOC. The average interest rates on these loans are calculated based on the then effective rates as of December 31, 2007, 2008 and 2009, respectively. |
Commodity
Price Risk
We are engaged in a wide range of petroleum-related activities
and purchase certain quantity of oil from the international
market to meet our demands. 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 demand and supply of crude oil and refined
products, as well as unexpected events and disputes with
international repercussions. The domestic crude oil price is
determined with reference to the international price of crude
oil whereby the prices of domestic refined products were allowed
to adjust more in line with the prices in the international
crude oil market. Other than certain subsidiaries of our
company, we generally do not use any derivative instruments to
evade such price risks.
111
Table of Contents
Fees paid
by our ADS holders
The Bank of New York Mellon, the depositary of our ADS program,
collects its fees for delivery and surrender of ADSs directly
from investors depositing shares or surrendering ADSs for the
purpose of withdrawal or from intermediaries acting for them.
The depositary collects fees for making distributions to
investors by deducting those fees from the amounts distributed
or by selling a portion of distributable property to pay the
fees. The depositary may generally refuse to provide
fee-attracting services until its fees for those services are
paid.
|
Persons Depositing or Withdrawing Shares Must Pay:
|
For:
|
|
| $5.00 (or less) per 100 ADSs (or portion of 100 ADSs) | Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property | |
| Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates | ||
| $0.02 (or less) per ADS | Any cash distribution to ADS registered holders | |
| A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs | Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS registered holders | |
|
Registration or transfer fees
|
Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares | |
|
Expenses of the depositary
|
Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement) | |
| Converting foreign currency to U.S. dollars | ||
| Taxes and other governmental charges the depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes | As necessary | |
| Any charges incurred by the depositary or its agents for servicing the deposited securities | As necessary |
Fees and
Payments from the Depositary to Us
From January 1, 2009 to December 31, 2009, we received
from the depositary a reimbursement of US$473,333.11, net of
withholding tax, for our continuing annual stock exchange
listing fees and our expenses incurred in connection with
investor relationship programs. In addition, the depositary has
agreed to reimburse us certain amount per year of the facility,
including but not limited to, investor relations expenses or any
other American depositary receipts program related expenses. The
amount of such reimbursements is subject to certain limits.
None.
None.
112
Table of Contents
Evaluation
of the Management on Disclosure Controls and
Procedures
Our Chairman, who performs the functions of Chief Executive
Officer, and our Chief Financial Officer, after evaluating the
effectiveness of PetroChina’s disclosure controls and
procedures (as defined in the United States Exchange Act
Rules 13a-15(e)
and 15d(e)) as of the end of the period covered by this annual
report, have concluded that, as of such date, our company’s
disclosure controls and procedures were effective to ensure that
material information required to be disclosed in the reports
that we file and furnish under the Exchange Act is recorded,
processed, summarized and reported, within the time periods
specified in the Securities and Exchange Commission’s rules
and regulations and that such information is accumulated and
communicated to our company’s management, including our
principal executive and financial officers, as appropriate, to
allow timely decisions regarding required disclosure.
Management’s
Report on Internal Control over Financial Reporting
Our company’s management is responsible for establishing
and maintaining adequate internal control over financial
reporting, as defined in Exchange Act
Rules 13a-15(f).
Under the supervision and with the participation of our
company’s management, including our principal executive
officer and principal financial officer, our company evaluated
the effectiveness of the its internal control over financial
reporting based on criteria established in the framework in
Internal Control — Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, our company’s
management has concluded that its internal control over
financial reporting was effective as of December 31, 2009.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies and procedures may deteriorate.
The effectiveness of our company’s internal control over
financial reporting as of December 31, 2009 has been
audited by PricewaterhouseCoopers (Certified Public Accountants,
Hong Kong), our company’s independent registered public
accountants, as stated in its report attached hereto.
Changes
in Internal Control over Financial Reporting
During the year ended December 31, 2009, there were no
changes in the company’s internal control over financial
reporting that have materially affected, or are reasonably
likely to materially affect, our company’s internal control
over financial reporting.
Our audit committee is composed of three non-executive
independent directors, Messrs. Franco Bernabè,
Chee-Chen Tung and Cui Junhui, and one non-executive director,
Wang Guoliang. See “Item 6 — Directors,
Senior Management and Employees — Board
Practices — Audit Committee”. Cui Junhui, our
non-executive independent director has been confirmed as a
“financial expert,” as defined in Item 16A of
Form 20-F.
We have adopted a Code of Ethics that applies to our Chief
Executive Officer, Chief Financial Officer, Chief Accounting
Officer, other executives and senior officers and a separate
Code of Ethics that applies to all of our employees. We have
included these two Codes of Ethics as Exhibit 11.1 and 11.2
to this annual report.
These two Codes of Ethics are also posted on our website,
www.petrochina.com.cn,
and may be accessed as follows:
1. From our main web page, first click on “Investor
Relations”.
2. Next, click on “Corporate Governance
Structure”.
113
Table of Contents
3. Finally, click on “Code of Ethics for Senior
Management” or “Code of Ethics for Employees of
PetroChina Company Limited”.
PricewaterhouseCoopers (Certified Public Accountants, Hong Kong)
has served as PetroChina’s independent registered public
accountants for each of the fiscal years in the three-year
period ended December 31, 2009, for which audited financial
statements appear in this annual report on
Form 20-F.
The auditors are elected annually at the annual general meeting
of PetroChina.
The offices of PricewaterhouseCoopers (Certified Public
Accountants, Hong Kong) are located at Prince’s Building,
22nd Floor, Central, Hong Kong.
The following table presents the aggregate fees for professional
audit services and other services rendered by
PricewaterhouseCoopers (Certified Public Accountants, Hong Kong)
to PetroChina for each of the years ended December 31, 2008
and 2009.
| December 31, | ||||||||
| 2008 | 2009 | |||||||
| RMB | RMB | |||||||
| (In millions) | ||||||||
|
Audit fees
|
95 | 80 | ||||||
|
Audit-related fees
|
— | — | ||||||
|
Tax fees
|
— | — | ||||||
|
All other fees
|
— | — | ||||||
|
Total
|
95 | 80 | ||||||
Audit fees consist of fees billed for the annual audit services
and other audit services, which are those services that only the
external auditor reasonably can provide, and include the group
audit, statutory audits, and assistance with and review of
documents filed with SEC.
Tax fees include fees billed for tax compliance services and the
aggregate fees are less than RMB1 million for each of years
ended December 31, 2008 and 2009.
Audit
Committee Pre-approved Policies and Procedures
Currently, all audit services to be provided by our independent
registered public accountants, PricewaterhouseCoopers (Certified
Public Accountants, Hong Kong), must be approved by our audit
committee.
During 2009, services relating to all non-audit-related fees
provided to us by PricewaterhouseCoopers (Certified Public
Accountants, Hong Kong) were approved by our audit committee in
accordance with the
de minimis
exception to the
pre-approval requirement provided by paragraph (c)(7)(i)(C) of
Rule 2-01
of
Regulation S-X.
We rely on an exemption contained in paragraph (b)(1)(iv)(D) of
Rule 10A-3
under the Securities and Exchange Act of 1934, as amended, from
the New York Stock Exchange listing requirement that each member
of the audit committee of a listed issuer must be independent.
Our single non-independent audit committee member, who is a
representative of CNPC, has only observer status on the audit
committee of our board of directors and is not an executive
officer of our company, which qualifies us for the exemption
from the independence requirements available under paragraph
(b)(1)(iv)(D) of
Rule 10A-3.
See “Item 6 — Directors, Senior Management
and Employees — Board Practice — Audit
Committee.” We believe our reliance on this exemption does
not have any adverse effect on the ability of our audit
committee to act independently.
114
Table of Contents
Not applicable.
None.
We are incorporated under the laws of the People’s Republic
of China, or the PRC, with A Shares publicly traded on the
Shanghai Stock Exchange, or the SSE and H Shares publicly traded
on the Hong Kong Stock Exchange, or the HKSE and American
Deposit Shares representing H Shares on the NYSE. As a result,
our corporate governance framework is subject to the mandatory
provisions of the PRC Company Law and the Corporate Governance
Rules as well as the securities laws, regulations and the
listing rules of Hong Kong and the United States.
The following discussion summarizes the significant differences
between our corporate governance practices and those that would
apply to a U.S. domestic issuer under the NYSE corporate
governance rules.
Director
Independence
Under the NYSE corporate governance rule 303A.01, a listed
company must have a majority of independent directors on its
board of directors. A company of which more than 50% of the
voting power is held by an individual, a group or another
company, or a controlled company, is not required to comply with
this requirement. We are not required under the PRC Company Law
and the HKSE Listing Rules to have a majority of independent
directors on our board of directors. Currently, five of our
fourteen directors are independent non-executive directors.
Under the NYSE corporate governance rule 303A.03, the
non-management directors of a listed company must meet at
regularly scheduled executive sessions without management. There
are no mandatory requirements under the PRC Company Law and the
HKSE Listing Rules that a listed company should hold, and we
currently do not hold, such executive sessions.
Nominating/Corporate
Governance Committee
Under the NYSE corporate governance rule 303A.04, a listed
company must have a nominating/corporate governance committee
composed entirely of independent directors, with a written
charter that covers certain minimum specified duties, but a
controlled company is not required to comply with this
requirement. We are not required under the PRC Company Law and
the HKSE Listing Rules to have, and we do not currently have, a
nominating/corporate governance committee.
Compensation
Committee
Under the NYSE corporate governance rule 303A.05, a listed
company must have a compensation committee composed entirely of
independent directors, with a written charter that covers
certain minimum specified duties. A controlled company is not
required to comply with this requirement. We are not required
under the PRC Company Law to have a compensation committee.
Under the Corporate Governance Code of the HKSE Listing Rules, a
listed company must have a remuneration committee composed of a
majority of independent non-executive directors, with a written
terms of references that covers certain minimum specified duties.
We currently do not have a compensation committee composed
entirely of independent directors. However, we have an
evaluation and remuneration committee including a majority of
independent non-executive directors.
115
Table of Contents
Corporate
Governance Guidelines
Under the NYSE corporate governance rule 303A.09, a listed
company must adopt and disclose corporate governance guidelines
that cover certain minimum specified subjects. We are not
required under the PRC Company Law and the HKSE Listing Rules to
have, and we do not currently have, formal corporate governance
guidelines.
However, we have the Articles of Association, the Rules and
Procedures of Board of Directors and the Trial Implementation
Rules for Compensation of Senior Management that address the
following subjects:
| • | director qualification standards and responsibilities; | |
| • | key board committee responsibilities; | |
| • | director compensation; and | |
| • | director orientation and continuing education. |
In addition, under the HKSE Listing Rules, we are expected to
comply with, but may choose to deviate from, certain code
provisions in the Corporate Governance Code of the Listing Rules
which sets forth the principles and standards of corporate
governance for listed companies. Pursuant to the HKSE Listing
Rules, if we choose to deviate from any code provisions of the
Corporate Governance Code, we must disclose such deviations in
our annual report.
In 2009, we formulated the Administrative Measures on
Independent Directors, the Administrative Rules on Holding of
Company Shares by Directors, Supervisors and Senior Management,
the Administrative Measures on Investor’s Relationship and
the rules and procedures of the Audit Committee, the Performance
Review and Compensation Committee, the Investment and
Development Committee, and the Safety and Environmental
Protection Committee. All these policies have further enhanced
our corporate governance system and can ensure the better
performance of duties of directors, supervisors, senior managers
and committee members.
Code of
Business Conduct and Ethics
Under the NYSE corporate governance rule 303A.10, a listed
company must adopt and disclose its code of business conduct and
ethics for directors, officers and employees, and promptly
disclose any waivers of the code for directors or executive
officers. We adopted our code of business conduct and ethics for
senior management on March 23, 2004 and have disclosed the
content of this code on our website and in the annual report on
Form 20-F
for the fiscal year ended December 31, 2003. In addition,
we adopted our code of business conduct and ethics for employees
on March 2, 2005 and have disclosed the content of this
code on our website. We are not required under the PRC Company
Law and the HKSE Listing Rules to have, and we do not currently
have, a code of business conduct and ethics for directors.
However, pursuant to the HKSE Listing Rules, all of our
directors must comply with the Model Code for Securities
Transactions by Directors of Listed Companies (the “Model
Code”) as set out in the Listing Rules. The Model Code sets
forth required standards with which the directors of a listed
company must comply in securities transactions of the listed
company.
Certification
Requirements
Under the NYSE corporate governance rule 303A.12(a), each
listed company CEO must certify to the NYSE each year that he or
she is not aware of any violation by the company of NYSE
corporate governance listing standards. Our CEO is not required
under the PRC Company Law and the HKSE Listing Rules to submit,
and our CEO does not currently submit, such certification.
We have elected to provide the financial statements and related
information specified in Item 18 in lieu of Item 17.
116
Table of Contents
See
page F-1
to F-56 following Item 19.
(a) See Item 18 for a list of the financial statements
as part of this annual report.
(b) Exhibits to this annual report.
|
Exhibit
|
||||
|
Number
|
Description of Exhibits
|
|||
| 1 | .1 | Articles of Association (as amended) (English translation) (5) | ||
| 1 | .2 | Articles of Association (as amended on May 15, 2008) (English translation) (5) | ||
| 4 | .1 | 2010 Management Performance Contract (English Translation) | ||
| 4 | .2 | Risk Operation Service Business Assets Transfer Agreement, dated August 23, 2007, between CNPC and PetroChina (English Translation) (5) | ||
| 4 | .3 | Capital Injection Agreement Concerning CNPC Exploration and Development Company Limited, dated December 27, 2007, among CNODC, CNPC E&D and PetroChina (English Translation) (5) | ||
| 4 | .4 | Annual Crude Oil Mutual Supply Framework Agreement, dated December 30, 2009, between China Petroleum and Chemical Corporation and PetroChina (English translation) | ||
| 4 | .5 | Second Supplemental Agreement to Comprehensive products and Services Agreement, dated September 1, 2005, between CNPC and PetroChina (English translation) (2) | ||
| 4 | .6 | Supplementary Agreement to Comprehensive Products and Services Agreement, dated June 9, 2005, between CNPC and PetroChina (English Translation) (3) | ||
| 4 | .7 | Form of Non-competition Agreement between CNPC and PetroChina (together with English translation) (4) | ||
| 4 | .8 | Form of Comprehensive Products and Services Agreement between CNPC and PetroChina (together with English translation) (4) | ||
| 4 | .9 | Form of Land Use Rights Leasing Contract between CNPC and PetroChina (together with English translation) (4) | ||
| 4 | .10 | Form of Buildings Leasing Contract between CNPC and PetroChina (together with English translation) (4) | ||
| 4 | .11 | Form of Trademark Licensing Contract between CNPC and PetroChina (together with English translation) (4) | ||
| 4 | .12 | Form of Patent and Know-how Licensing Contract between CNPC and PetroChina (together with English translation) (4) | ||
| 4 | .13 | Form of Computer Software Licensing Contract between CNPC and PetroChina (together with English translation) (4) | ||
| 4 | .14 | Form of Contract for Transfer of Rights under Production Sharing Contracts between CNPC and PetroChina (together with English translation)(4) | ||
| 4 | .15 | Form of Guarantee of Debts Contract between CNPC and PetroChina (together with English translation) (4) | ||
| 4 | .16 | Form of Contract for the Supervision of Certain Sales Enterprises between CNPC and PetroChina (together with English translation) (4) | ||
| 4 | .17 | Form of Agreement for Transfer of Rights and Interests under the Crude Oil Premium and Discount Calculation Agreement between China Petrochemical Corporation, CNPC and PetroChina (together with English translation) (4) | ||
| 4 | .18 | Form of Agreement for the Transfer of Rights and Interests under the Retainer Contracts relating to Oil Exploration and Exploitation in Lengjiapu Area, Liaohe Oil Region and No. 9.1-9.5 Areas, Karamay Oil Field (together with English translation) (4) | ||
| 4 | .19 | Inspection and Maintenance Business Equity and Assets Transfer Agreement, dated April 28, 2008, between CNPC and Petrochina (English translation) (6) | ||
| 4 | .20 | Assets Transfer Agreement, date June 10, 2008, between Petrochina and CNPC (English translation) (6) | ||
117
Table of Contents
|
Exhibit
|
||||
|
Number
|
Description of Exhibits
|
|||
| 4 | .21 | Agreement for the Sale and Purchase of Shares in Sun World Limited, dated August 27, 2008, among Petrochina, CNPC and China Petroleum Hong Kong (Holding) Limited (English translation) (6) | ||
| 4 | .22 | Form of Risk Operation Service Business Assets Transfer Agreements, dated August November 19, 2008, among six branch companies of Petrochina and six subordinate enterprises of CNPC (English translation) (6) | ||
| 4 | .23 | Equity Interests Transfer Agreement, dated May 15, 2009, between PetroChina Kunlun Gas Limited and China Petroleum Pipeline Bureau; Form of Equity Interests Transfer Agreements, dated May 15, 2009, between PetroChina Kunlun Gas Limited and China Huayou Group Corporation; Assets Transfer Agreement, dated May 15, 2009, between PetroChina Kunlun Gas Limited and China Petroleum Pipeline Bureau (English translation) (6) | ||
| 4 | .24 | Asset Transfer Agreement, dated June 18, 2009, between PetroChina West Pipeline Company and CNPC West Pipeline Company Limited (English translation) | ||
| 4 | .25 | Equity Transfer Agreement, dated August 28, 2009, among CNPC E&D, CNPC Central Asia and PetroChina (English translation) | ||
| 4 | .26 | Asset Transfer Agreement, dated August 28, 2009, between ten branch companies of PetroChina and ten subordinated entities of CNPC including CNPC Daqing Petrochemical Factory (English translation) | ||
| 4 | .27 | Contractual Rights Transfer Agreement, dated August 28, 2009, between Beijing Amu Darya Company and CNPCI (English translation) | ||
| 4 | .28 | Equity Transfer Agreement, dated December 30, 2009, between PetroChina Kunlun Gas Limited and Daqing Petroleum Administrative Bureau (English translation) | ||
| 4 | .29 | Subscription Agreement, Dated March 25, 2010 among PetroChina, CNPC and CPF (English translation) | ||
| 8 | .1 | List of major subsidiaries | ||
| 11 | .1 | Code of Ethics for Senior Management (3) | ||
| 11 | .2 | Code of Ethics for Employees (3) | ||
| 12 | .1 | Certification of Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| 12 | .2 | Certification of Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| 13 | .1 | Certification of Chief Executive Officer required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
| 13 | .2 | Certification of Chief Financial Officer required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
| 15 | .1 | Reserve Report for the year ended on December 31, 2009 prepared by DeGolyer and MacNaughton | ||
| 15 | .2 | Reserve Report for the year ended on December 31, 2009 prepared by Gaffney, Cline & Associates (Consultants) Pte Ltd | ||
| (1) | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2006 (File No. 1-15006) filed with the Commission. | |
| (2) | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2005 (File No. 1-15006) filed with the Commission. | |
| (3) | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2004 (File No. 1-15006) filed with the Commission. | |
| (4) | Incorporated by reference to our Registration Statement on Form F-1 (File No. 333-11566) filed with the Commission, as declared effective on March 29, 2000. | |
| (5) | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2007 (File No. 1-15006) filed with the Commission. | |
| (6) | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2008 (File No. 1-15006) filed with the Commission. |
118
Table of Contents
SIGNATURE
The registrant hereby certifies that it meets all of the
requirements for filing on
Form 20-F
and that it has duly caused and authorized the undersigned to
sign this annual report on its behalf.
PETROCHINA COMPANY LIMITED
/s/ Li
Hualin
Name: Li Hualin
| Title: | Secretary to Board of Directors |
Date: June 25, 2010
119
Table of Contents
INDEX OF
CONSOLIDATED FINANCIAL STATEMENTS
| Page | ||||
|
PetroChina Company Limited and its Subsidiaries
|
||||
|
Consolidated Financial Statements
|
||||
| F-2 | ||||
| F-3 | ||||
| F-4 | ||||
| F-5 | ||||
| F-7 | ||||
| F-8 | ||||
| F-49 | ||||
F-1
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of PetroChina Company Limited:
In our opinion, the accompanying consolidated statement of
financial position and the related consolidated statement of
comprehensive income, of changes in equity and of cash flows
(“consolidated financial statements”) present fairly,
in all material respects, the financial position of PetroChina
Company Limited (the “Company”) and its subsidiaries
(collectively referred to as the “Group”) at
December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2009 in conformity with
International Financial Reporting Standards as issued by the
International Accounting Standards Board. Also in our opinion,
the Company maintained, in all material respects, effective
internal control over financial reporting as of
December 31, 2009, based on criteria established in
Internal Control — Integrated Framework
issued
by the Committee of Sponsoring Organisations of the Treadway
Commission (“COSO”). The Company’s management is
responsible for these financial statements, for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express opinions
on these financial statements and on the Company’s internal
control over financial reporting based on our integrated audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial
statements are free of material misstatement and whether
effective internal control over financial reporting was
maintained in all material respects. Our audits of the
consolidated financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the
consolidated financial statements, assessing the accounting
principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. Our
audit of internal control over financial reporting included
obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists,
and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk.
Our audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorisations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorised acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers
Hong Kong, May 20, 2010
F-2
Table of Contents
PETROCHINA
COMPANY LIMITED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the Year Ended December 31, 2009, 2008 and 2007
(Amounts in millions)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the Year Ended December 31, 2009, 2008 and 2007
(Amounts in millions)
| Notes | 2009 | 2008 | 2007 | |||||||||||
| RMB | RMB | RMB | ||||||||||||
|
TURNOVER
|
6 | 1,019,275 | 1,072,604 | 837,542 | ||||||||||
|
OPERATING EXPENSES
|
||||||||||||||
|
Purchases, services and other
|
(492,472 | ) | (562,851 | ) | (369,786 | ) | ||||||||
|
Employee compensation costs
|
8 | (65,977 | ) | (62,167 | ) | (50,940 | ) | |||||||
|
Exploration expenses, including exploratory dry holes
|
(19,398 | ) | (21,879 | ) | (20,956 | ) | ||||||||
|
Depreciation, depletion and amortisation
|
(92,259 | ) | (94,759 | ) | (67,423 | ) | ||||||||
|
Selling, general and administrative expenses
|
(65,423 | ) | (59,617 | ) | (52,389 | ) | ||||||||
|
Taxes other than income taxes
|
9 | (135,465 | ) | (124,132 | ) | (73,806 | ) | |||||||
|
Other (expenses)/income, net
|
(4,837 | ) | 12,372 | (1,225 | ) | |||||||||
|
TOTAL OPERATING EXPENSES
|
(875,831 | ) | (913,033 | ) | (636,525 | ) | ||||||||
|
PROFIT FROM OPERATIONS
|
143,444 | 159,571 | 201,017 | |||||||||||
|
FINANCE COSTS
|
||||||||||||||
|
Exchange gain
|
552 | 1,774 | 1,808 | |||||||||||
|
Exchange loss
|
(1,335 | ) | (2,855 | ) | (2,559 | ) | ||||||||
|
Interest income
|
1,459 | 2,277 | 2,101 | |||||||||||
|
Interest expense
|
10 | (5,272 | ) | (3,044 | ) | (3,673 | ) | |||||||
|
TOTAL NET FINANCE COSTS
|
(4,596 | ) | (1,848 | ) | (2,323 | ) | ||||||||
|
SHARE OF PROFIT OF ASSOCIATES AND JOINTLY CONTROLLED
ENTITIES
|
17 | 1,184 | 4,290 | 6,445 | ||||||||||
|
PROFIT BEFORE INCOME TAX EXPENSE
|
7 | 140,032 | 162,013 | 205,139 | ||||||||||
|
INCOME TAX EXPENSE
|
12 | (33,473 | ) | (35,211 | ) | (49,802 | ) | |||||||
|
PROFIT FOR THE YEAR
|
106,559 | 126,802 | 155,337 | |||||||||||
|
OTHER COMPREHENSIVE INCOME:
|
||||||||||||||
|
Currency translation differences
|
(3,500 | ) | (2,676 | ) | (1,852 | ) | ||||||||
|
Fair value gain/(loss) from
available-for-sale
financial assets
|
191 | (340 | ) | 395 | ||||||||||
|
Income tax relating to components of other comprehensive
income/(loss)
|
(38 | ) | 67 | (87 | ) | |||||||||
|
OTHER COMPREHENSIVE LOSS, NET OF TAX
|
(3,347 | ) | (2,949 | ) | (1,544 | ) | ||||||||
|
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
|
103,212 | 123,853 | 153,793 | |||||||||||
|
PROFIT FOR THE YEAR ATTRIBUTABLE TO:
|
||||||||||||||
|
Owners of the Company
|
103,387 | 114,453 | 146,796 | |||||||||||
|
Non-controlling interest
|
3,172 | 12,349 | 8,541 | |||||||||||
| 106,559 | 126,802 | 155,337 | ||||||||||||
|
TOTAL COMPREHENSIVE INCOME FOR THE YEAR ATTRIBUTABLE TO:
|
||||||||||||||
|
Owners of the Company
|
102,067 | 113,044 | 146,144 | |||||||||||
|
Non-controlling interest
|
1,145 | 10,809 | 7,649 | |||||||||||
| 103,212 | 123,853 | 153,793 | ||||||||||||
|
BASIC AND DILUTED EARNINGS PER SHARE FOR PROFIT ATTRIBUTABLE
TO OWNERS OF THE COMPANY (RMB)
|
14 | 0.56 | 0.63 | 0.82 | ||||||||||
The accompanying notes are an integral part of these financial
statements.
F-3
Table of Contents
PETROCHINA
COMPANY LIMITED
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As of December 31, 2009 and 2008
(Amounts in millions)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As of December 31, 2009 and 2008
(Amounts in millions)
| Notes | 2009 | 2008 | ||||||||||
| RMB | RMB | |||||||||||
|
NON-CURRENT ASSETS
|
||||||||||||
|
Property, plant and equipment
|
16 | 1,075, 467 | 900,424 | |||||||||
|
Investments in associates and jointly controlled entities
|
17 | 28,223 | 28,850 | |||||||||
|
Available-for-sale
financial assets
|
18 | 2,343 | 2,034 | |||||||||
|
Advance operating lease payments
|
20 | 30,236 | 26,280 | |||||||||
|
Intangible and other assets
|
21 | 18,017 | 10,694 | |||||||||
|
Deferred tax assets
|
31 | 289 | 497 | |||||||||
|
Time deposits with maturities over one year
|
1,330 | 2,510 | ||||||||||
|
TOTAL NON-CURRENT ASSETS
|
1,155,905 | 971,289 | ||||||||||
|
CURRENT ASSETS
|
||||||||||||
|
Inventories
|
22 | 114,781 | 90,685 | |||||||||
|
Accounts receivable
|
23 | 28,785 | 16,810 | |||||||||
|
Prepaid expenses and other current assets
|
24 | 59,595 | 69,557 | |||||||||
|
Notes receivable
|
25 | 4,268 | 4,319 | |||||||||
|
Time deposits with maturities over three months but within one
year
|
29 | 10,425 | ||||||||||
|
Cash and cash equivalents
|
26 | 86,925 | 33,150 | |||||||||
|
TOTAL CURRENT ASSETS
|
294,383 | 224,946 | ||||||||||
|
CURRENT LIABILITIES
|
||||||||||||
|
Accounts payable and accrued liabilities
|
27 | 204,739 | 156,780 | |||||||||
|
Income taxes payable
|
9,721 | 1,271 | ||||||||||
|
Other taxes payable
|
25,242 | 13,930 | ||||||||||
|
Short-term borrowings
|
28 | 148,851 | 93,670 | |||||||||
|
TOTAL CURRENT LIABILITIES
|
388,553 | 265,651 | ||||||||||
|
NET CURRENT LIABILITIES
|
(94,170 | ) | (40,705 | ) | ||||||||
|
TOTAL ASSETS LESS CURRENT LIABILITIES
|
1,061,735 | 930,584 | ||||||||||
|
EQUITY
|
||||||||||||
|
EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY:
|
||||||||||||
|
Share capital
|
29 | 183,021 | 183,021 | |||||||||
|
Retained earnings
|
424,067 | 378,473 | ||||||||||
|
Reserves
|
30 | 240,135 | 229,416 | |||||||||
|
TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY
|
847,223 | 790,910 | ||||||||||
|
NON-CONTROLLING INTEREST
|
60,478 | 56,930 | ||||||||||
|
TOTAL EQUITY
|
907,701 | 847,840 | ||||||||||
|
NON-CURRENT LIABILITIES
|
||||||||||||
|
Long-term borrowings
|
28 | 85,471 | 32,852 | |||||||||
|
Asset retirement obligations
|
32 | 44,747 | 36,262 | |||||||||
|
Deferred tax liabilities
|
31 | 21,449 | 12,466 | |||||||||
|
Other long-term obligations
|
2,367 | 1,164 | ||||||||||
|
TOTAL NON-CURRENT LIABILITIES
|
154,034 | 82,744 | ||||||||||
|
TOTAL EQUITY AND NON-CURRENT LIABILITIES
|
1,061,735 | 930,584 | ||||||||||
The accompanying notes are an integral part of these financial
statements.
|
|
|
|
||
|
Chairman
|
Vice Chairman and President | Chief Financial Officer | ||
|
Jiang Jiemin
|
Zhou Jiping | Zhou Mingchun |
F-4
Table of Contents
PETROCHINA
COMPANY LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2009, 2008 and 2007
(Amounts in millions)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2009, 2008 and 2007
(Amounts in millions)
| 2009 | 2008 | 2007 | ||||||||||
| RMB | RMB | RMB | ||||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
||||||||||||
|
Profit for the year
|
106,559 | 126,802 | 155,337 | |||||||||
|
Adjustments for:
|
||||||||||||
|
Income tax expense
|
33,473 | 35,211 | 49,802 | |||||||||
|
Depreciation, depletion and amortisation
|
92,259 | 94,759 | 67,423 | |||||||||
|
Capitalised exploratory costs charged to expense
|
10,019 | 10,341 | 9,161 | |||||||||
|
Share of profit of associates and jointly controlled entities
|
(1,184 | ) | (4,290 | ) | (6,445 | ) | ||||||
|
(Reversal) of provision/provision for impairment of receivables,
net
|
(123 | ) | 4 | (2,318 | ) | |||||||
|
Write down in inventories, net
|
354 | 8,593 | 55 | |||||||||
|
Impairment of
available-for-sale
financial assets, net
|
2 | 45 | — | |||||||||
|
Impairment of investments in associates and jointly controlled
entities
|
8 | 29 | 5 | |||||||||
|
Loss on disposal of property, plant and equipment
|
1,642 | 2,602 | 1,808 | |||||||||
|
Loss/(gain) on disposal of intangible and other assets
|
10 | 19 | (2 | ) | ||||||||
|
(Gain)/loss on disposal of investments in associates and jointly
controlled entities
|
(33 | ) | 3 | (320 | ) | |||||||
|
Gain on disposal of
available-for-sale
financial assets
|
(4 | ) | (5 | ) | (142 | ) | ||||||
|
Gain on disposal of subsidiaries
|
(22 | ) | (259 | ) | — | |||||||
|
Dividend income
|
(177 | ) | (252 | ) | (126 | ) | ||||||
|
Interest income
|
(1,459 | ) | (2,277 | ) | (2,101 | ) | ||||||
|
Interest expense
|
5,272 | 3,044 | 3,673 | |||||||||
|
Advance payments on long-term operating leases
|
(6,045 | ) | (4,675 | ) | (4,803 | ) | ||||||
|
Changes in working capital:
|
||||||||||||
|
Accounts receivable and prepaid expenses and other current assets
|
16,240 | (26,815 | ) | (16,054 | ) | |||||||
|
Inventories
|
(20,044 | ) | (10,775 | ) | (12,041 | ) | ||||||
|
Accounts payable and accrued liabilities
|
41,637 | (5,715 | ) | 19,799 | ||||||||
|
CASH FLOWS GENERATED FROM OPERATIONS
|
278,384 | 226,389 | 262,711 | |||||||||
|
Income taxes paid
|
(16,412 | ) | (53,924 | ) | (55,048 | ) | ||||||
|
NET CASH FLOWS FROM OPERATING ACTIVITIES
|
261,972 | 172,465 | 207,663 | |||||||||
The accompanying notes are an integral part of these financial
statements.
F-5
Table of Contents
PETROCHINA
COMPANY LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS — (Continued)
For the Year Ended December 31, 2009, 2008 and 2007
(Amounts in millions)
CONSOLIDATED STATEMENT OF CASH FLOWS — (Continued)
For the Year Ended December 31, 2009, 2008 and 2007
(Amounts in millions)
| 2009 | 2008 | 2007 | ||||||||||
| RMB | RMB | RMB | ||||||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
||||||||||||
|
Capital expenditures
|
(257,562 | ) | (215,610 | ) | (173,528 | ) | ||||||
|
Acquisition of investments in associates and jointly controlled
entities
|
(1,487 | ) | (3,641 | ) | (1,903 | ) | ||||||
|
Acquisition of
available-for-sale
financial assets
|
(111 | ) | (23 | ) | (328 | ) | ||||||
|
Consolidation of PetroKazakhstan Inc.
|
— | — | 1,542 | |||||||||
|
Acquisition of intangible assets and other non-current assets
|
(3,505 | ) | (3,909 | ) | (3,378 | ) | ||||||
|
Purchase of non-controlling interest
|
(533 | ) | (177 | ) | (178 | ) | ||||||
|
Acquisition of subsidiaries
|
(16,451 | ) | (6,693 | ) | — | |||||||
|
Repayment of capital by associates and jointly controlled
entities
|
— | — | 6,618 | |||||||||
|
Proceeds from disposal of property, plant and equipment
|
4,053 | 436 | 1,028 | |||||||||
|
Proceeds from disposal of investments in associates and jointly
controlled entities
|
139 | 67 | 1,033 | |||||||||
|
Proceeds from disposal of subsidiaries
|
60 | 535 | — | |||||||||
|
Proceeds from disposal of
available-for-sale
financial assets
|
136 | 52 | 276 | |||||||||
|
Proceeds from disposal of intangible and other non-current assets
|
26 | 37 | — | |||||||||
|
Interest received
|
1,425 | 2,365 | 2,074 | |||||||||
|
Dividends received
|
783 | 4,095 | 1,113 | |||||||||
|
Decrease in time deposits with maturities over three months
|
11,574 | 10,669 | (18,025 | ) | ||||||||
|
NET CASH FLOWS USED FOR INVESTING ACTIVITIES
|
(261,453 | ) | (211,797 | ) | (183,656 | ) | ||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
||||||||||||
|
Repayments of short-term borrowings
|
(113,212 | ) | (84,471 | ) | (33,556 | ) | ||||||
|
Repayments of long-term borrowings
|
(7,947 | ) | (14,196 | ) | (24,218 | ) | ||||||
|
Interest paid
|
(5,238 | ) | (4,065 | ) | (4,232 | ) | ||||||
|
Dividends paid to non-controlling interest
|
(2,425 | ) | (2,805 | ) | (4,832 | ) | ||||||
|
Dividends paid to owners of the Company
|
(50,092 | ) | (52,835 | ) | (64,517 | ) | ||||||
|
Dividends paid to owners from business combinations
pre-acquisition
|
— | (801 | ) | (9 | ) | |||||||
|
Issuance of A shares
|
— | — | 66,243 | |||||||||
|
Increase in short-term borrowings
|
157,576 | 153,444 | 37,236 | |||||||||
|
Increase in long-term borrowings
|
67,880 | 4,472 | 20,650 | |||||||||
|
Capital contribution from non-controlling interest
|
7,098 | 8,788 | 1,364 | |||||||||
|
Capital reduction of subsidiaries
|
(671 | ) | (3,754 | ) | — | |||||||
|
Increase in other long-term obligations
|
108 | — | 33 | |||||||||
|
NET CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES
|
53,077 | 3,777 | (5,838 | ) | ||||||||
|
TRANSLATION OF FOREIGN CURRENCY
|
179 | (112 | ) | (221 | ) | |||||||
|
Increase/(decrease) in cash and cash equivalents
|
53,775 | (35,667 | ) | 17,948 | ||||||||
|
Cash and cash equivalents at beginning of the year
|
33,150 | 68,817 | 50,869 | |||||||||
|
Cash and cash equivalents at end of the year
|
86,925 | 33,150 | 68,817 | |||||||||
The accompanying notes are an integral part of these financial
statements.
F-6
Table of Contents
PETROCHINA
COMPANY LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the Year Ended December 31, 2009, 2008 and 2007
(Amounts in millions)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the Year Ended December 31, 2009, 2008 and 2007
(Amounts in millions)
|
Non-
|
||||||||||||||||||||||||
|
Controlling
|
Total
|
|||||||||||||||||||||||
| Attributable to Owners of the Company | Interest | Equity | ||||||||||||||||||||||
|
Share
|
Retained
|
|||||||||||||||||||||||
| Capital | Earnings | Reserves | Subtotal | |||||||||||||||||||||
| RMB | RMB | RMB | RMB | RMB | RMB | |||||||||||||||||||
|
Balance at December 31, 2006
|
179,021 | 267,850 | 143,552 | 590,423 | 31,749 | 622,172 | ||||||||||||||||||
|
Business combinations under common control
|
— | (183 | ) | 174 | (9 | ) | 456 | 447 | ||||||||||||||||
|
Balance at January 1, 2007
|
179,021 | 267,667 | 143,726 | 590,414 | 32,205 | 622,619 | ||||||||||||||||||
|
Total comprehensive income/(loss) for the year ended
December 31, 2007
|
— | 146,796 | (652 | ) | 146,144 | 7,649 | 153,793 | |||||||||||||||||
|
Special Reserve-Safety Fund Reserve
|
— | (3,536 | ) | 3,536 | — | — | — | |||||||||||||||||
|
Transfer to reserves
|
— | (12,768 | ) | 12,768 | — | — | — | |||||||||||||||||
|
Final dividend for 2006
|
— | (27,694 | ) | — | (27,694 | ) | — | (27,694 | ) | |||||||||||||||
|
Interim dividend for 2007 (Note 15)
|
— | (36,823 | ) | — | (36,823 | ) | — | (36,823 | ) | |||||||||||||||
|
Dividends to non-controlling interest
|
— | — | — | — | (4,823 | ) | (4,823 | ) | ||||||||||||||||
|
Purchase of non-controlling interest in subsidiaries
|
— | — | (113 | ) | (113 | ) | (65 | ) | (178 | ) | ||||||||||||||
|
Consolidation of PetroKazakhstan Inc.
|
— | — | — | — | 8,101 | 8,101 | ||||||||||||||||||
|
Issuance of A shares
|
4,000 | — | 62,243 | 66,243 | — | 66,243 | ||||||||||||||||||
|
Capital contribution from non-controlling interest
|
— | — | — | — | 1,364 | 1,364 | ||||||||||||||||||
|
Dividends to owners from business combinations
pre-acquisition
|
— | (2 | ) | — | (2 | ) | (15 | ) | (17 | ) | ||||||||||||||
|
Other
|
— | — | 77 | 77 | 57 | 134 | ||||||||||||||||||
|
Balance at December 31, 2007
|
183,021 | 333,640 | 221,585 | 738,246 | 44,473 | 782,719 | ||||||||||||||||||
|
Total comprehensive income/(loss) for the year ended
December 31, 2008
|
— | 114,453 | (1,409 | ) | 113,044 | 10,809 | 123,853 | |||||||||||||||||
|
Special Reserve-Safety Fund Reserve
|
— | (3,214 | ) | 3,214 | — | — | — | |||||||||||||||||
|
Transfer to reserves
|
— | (12,770 | ) | 12,770 | — | — | — | |||||||||||||||||
|
Final dividends for 2007 (Note 15)
|
— | (28,708 | ) | — | (28,708 | ) | — | (28,708 | ) | |||||||||||||||
|
Interim dividends for 2008 (Note 15)
|
— | (24,127 | ) | — | (24,127 | ) | — | (24,127 | ) | |||||||||||||||
|
Dividends to non-controlling interest
|
— | — | — | — | (2,842 | ) | (2,842 | ) | ||||||||||||||||
|
Purchase of non-controlling interest in subsidiaries
|
— | — | (17 | ) | (17 | ) | (160 | ) | (177 | ) | ||||||||||||||
|
Capital contribution from non-controlling interest
|
— | — | — | — | 8,788 | 8,788 | ||||||||||||||||||
|
Capital reduction of subsidiaries
|
— | — | (61 | ) | (61 | ) | (3,693 | ) | (3,754 | ) | ||||||||||||||
|
Dividends to owners from business combinations
pre-acquisition |
— | (801 | ) | — | (801 | ) | — | (801 | ) | |||||||||||||||
|
Disposal of subsidiaries
|
— | — | — | — | (429 | ) | (429 | ) | ||||||||||||||||
|
Acquisition of a subsidiary
|
— | — | (6,693 | ) | (6,693 | ) | — | (6,693 | ) | |||||||||||||||
|
Other
|
— | — | 27 | 27 | (16 | ) | 11 | |||||||||||||||||
|
Balance at December 31, 2008
|
183,021 | 378,473 | 229,416 | 790,910 | 56,930 | 847,840 | ||||||||||||||||||
|
Total comprehensive income/(loss) for the year ended
December 31, 2009
|
— | 103,387 | (1,320 | ) | 102,067 | 1,145 | 103,212 | |||||||||||||||||
|
Special Reserve-Safety Fund Reserve
|
— | 2,280 | 1,325 | 3,605 | 3 | 3,608 | ||||||||||||||||||
|
Transfer to reserves
|
— | (9,981 | ) | 9,981 | — | — | — | |||||||||||||||||
|
Final dividends for 2008 (Note 15)
|
— | (27,367 | ) | — | (27,367 | ) | — | (27,367 | ) | |||||||||||||||
|
Interim dividends for 2009 (Note 15)
|
— | (22,725 | ) | — | (22,725 | ) | — | (22,725 | ) | |||||||||||||||
|
Dividends to non-controlling interest
|
— | — | — | — | (2,358 | ) | (2,358 | ) | ||||||||||||||||
|
Acquisition of subsidiaries
|
— | — | (248 | ) | (248 | ) | 590 | 342 | ||||||||||||||||
|
Purchase of non-controlling interest in subsidiaries
|
— | — | (179 | ) | (179 | ) | (354 | ) | (533 | ) | ||||||||||||||
|
Capital contribution from non-controlling interest
|
— | — | 1,158 | 1,158 | 5,940 | 7,098 | ||||||||||||||||||
|
Capital reduction of a subsidiary
|
— | — | — | — | (1,354 | ) | (1,354 | ) | ||||||||||||||||
|
Other
|
— | — | 2 | 2 | (64 | ) | (62 | ) | ||||||||||||||||
|
Balance at December 31, 2009
|
183,021 | 424,067 | 240,135 | 847,223 | 60,478 | 907,701 | ||||||||||||||||||
The accompanying notes are an integral part of these financial
statements.
F-7
Table of Contents
PETROCHINA
COMPANY LIMITED
(Amounts in millions unless otherwise stated)
1 ORGANISATION
AND PRINCIPAL ACTIVITIES
PetroChina Company Limited (the “Company”) was
established as a joint stock company with limited liability on
November 5, 1999 by China National Petroleum Corporation
(“CNPC”) as the sole proprietor in accordance with the
approval Guo Jing Mao Qi Gai [1999] No. 1024 “Reply on
the approval of the establishment of PetroChina Company
Limited” from the former State Economic and Trade
Commission of the People’s Republic of China
(“China” or “PRC”). CNPC restructured
(“the Restructuring”) and injected its core business
and the related assets and liabilities into the Company. CNPC is
a wholly state-owned company registered in China. The Company
and its subsidiaries are collectively referred to as the
“Group”.
The Group is principally engaged in (i) the exploration,
development and production and marketing of crude oil and
natural gas; (ii) the refining of crude oil and petroleum
products, production and marketing of primary petrochemical
products, derivative petrochemical products and other chemical
products; (iii) the marketing of refined products and
trading business; and (iv) the transmission of natural gas,
crude oil and refined products and the sale of natural gas
(Note 38).
2 BASIS
OF PREPARATION
The consolidated financial statements and the statement of
financial position of the Company have been prepared in
accordance with the International Financial Reporting Standards
(“IFRSs”) as issued by the International Accounting
Standards Board (“IASB”). The consolidated financial
statements and the statement of financial position of the
Company have been prepared under the historical cost convention
except as disclosed in the accounting policies below.
The preparation of financial statements in conformity with IFRSs
requires the use of estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the statement
of financial position and the reported amounts of revenues and
expenses during the reporting period. Although these estimates
are based on management’s best knowledge of current events
and actions, actual results may ultimately differ from those
estimates. The areas involving a higher degree of judgement or
complexity, or areas where assumptions and estimates are
significant to the consolidated financial statements are
disclosed in Note 5.
3 SUMMARY
OF PRINCIPAL ACCOUNTING POLICIES
(a) Basis
of consolidation
Subsidiaries are those entities in which the Group has an
interest of more than one half of the voting rights or otherwise
has the power to govern the financial and operating policies.
A subsidiary is consolidated from the date on which control is
transferred to the Group and is no longer consolidated from the
date that control ceases. The purchase method of accounting is
used to account for the acquisition of subsidiaries except for
business combinations under common control. The cost of an
acquisition is measured as the fair value of the assets given
up, shares issued or liabilities undertaken at the date of
acquisition plus costs directly attributable to the acquisition.
Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured
initially at their fair values at the acquisition date,
irrespective of the extent of any non-controlling interest. The
excess of the cost of an acquisition over the fair value of the
Group’s share of the identifiable net assets of the
subsidiary acquired is recorded as goodwill. If the cost of
acquisition is less than the fair value of the Group’s
share of the identifiable net assets of the subsidiary acquired,
the difference is recognised directly in the consolidated profit
or loss.
An acquisition of a business which is a business combination
under common control is accounted for in a manner similar to a
uniting of interests whereby the assets and liabilities acquired
are accounted for at carryover predecessor values to the other
party to the business combination with all periods presented as
if the operations of
F-8
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
the Group and the business acquired have always been combined.
The difference between the consideration paid by the Group and
the net assets or liabilities of the business acquired is
adjusted against equity.
Intercompany transactions, balances and unrealised gains on
transactions between group companies are eliminated; unrealised
losses are also eliminated but considered an impairment
indicator of the asset transferred. Where necessary, accounting
policies of subsidiaries have been changed to ensure consistency
with the policies adopted by the Group.
A listing of the Group’s principal subsidiaries is set out
in Note 19.
(b) Investments
in associates
Associates are entities over which the Group has significant
influence but not control, generally accompanying a shareholding
of between 20% and 50% of the voting rights. Investments in
associates are accounted for by the equity method of accounting
in the consolidated financial statements of the Group and are
initially recognised at cost. Under this method of accounting
the Group’s share of the post-acquisition profits or losses
of associates is recognised in the consolidated profit or loss
and its share of post-acquisition movements in other
comprehensive income is recognised in other comprehensive
income. The cumulative post-acquisition movements are adjusted
against the carrying amounts of the investments. When the
Group’s share of losses in an associate equals or exceeds
its interest in the associate, including any other unsecured
receivables, the Group does not recognise further losses, unless
it has incurred obligations or made payments on behalf of the
associate. Unrealised gains on transactions between the Group
and its associates are eliminated to the extent of the
Group’s interest in the associates; unrealised losses are
also eliminated unless the transaction provides evidence of an
impairment of the asset transferred. The Group’s investment
in associates includes goodwill identified on acquisition, net
of any accumulated loss and is tested for impairment as part of
the overall balance. Goodwill represents the excess of the cost
of an acquisition over the fair value of the Group’s share
of the net identifiable assets of the acquired associate at the
date of acquisition.
A listing of the Group’s principal associates is shown in
Note 17.
(c) Investments
in jointly controlled entities
Jointly controlled entities are those over which the Group has
contractual arrangements to jointly share control with one or
more parties. The Group’s interest in jointly controlled
entities is accounted for by the equity method of accounting
(Note 3(b)) in the consolidated financial statements.
A listing of the Group’s principal jointly controlled
entities is shown in Note 17.
(d) Transactions
with non-controlling interest
The Group applies a policy of treating transactions with
non-controlling interests as transactions with owners in their
capacity as owners of the Group. Gains and losses resulting from
disposals to non-controlling interests are recorded in equity.
The differences between any consideration paid and the relevant
share of the carrying value of net assets of the subsidiary
acquired resulting from the purchase from non-controlling
interests, are recorded in equity.
(e) Foreign
currencies
Items included in the financial statements of each entity in the
Group are measured using the currency of the primary economic
environment in which the entity operates (“the functional
currency”). Most assets and operations of the Group are
located in the PRC (Note 38), and the functional currency
of the Company and most of the consolidated subsidiaries is the
Renminbi (“RMB”). The consolidated financial
statements are presented in the presentation currency of RMB.
F-9
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
Foreign currency transactions of the Group are accounted for at
the exchange rates prevailing at the respective dates of the
transactions; monetary assets and liabilities denominated in
foreign currencies are translated at exchange rates at the date
of the statement of financial position; gains and losses
resulting from the settlement of such transactions and from the
translation of monetary assets and liabilities are recognised in
the consolidated profit or loss.
For the Group entities that have a functional currency different
from the Group’s presentation currency, assets and
liabilities for each statement of financial position presented
are translated at the closing rate at the date of the statement
of financial position. Income and expenses for each statement of
comprehensive income presented are translated at the average
exchange rates for each period and the resulting exchange
differences are recognised in other comprehensive income.
(f) Property,
plant and equipment
Property, plant and equipment, including oil and gas properties
(Note 3(g)), are recorded at cost less accumulated
depreciation, depletion and amortisation. Cost represents the
purchase price of the asset and other costs incurred to bring
the asset into existing use. Subsequent to their initial
recognition, property, plant and equipment are carried at
revalued amounts. Revaluations are performed by independent
qualified valuers on a periodic basis.
In the intervening years between independent revaluations, the
directors review the carrying values of the property, plant and
equipment and adjustments are made if the carrying values differ
materially from their respective fair values.
Increases in the carrying values arising from revaluations are
recognised in other comprehensive income and accumulated in
equity under the heading of revaluation reserve. Decreases in
the carrying values arising from revaluations are first offset
against increases from earlier revaluations in respect of the
same assets and are thereafter charged to the consolidated
profit or loss. All other decreases in carrying values are
charged to the consolidated profit or loss. Any subsequent
increases are credited to the consolidated profit or loss up to
the respective amounts previously charged.
Revaluation surpluses realised through the depreciation or
disposal of revalued assets are retained in the revaluation
reserve and will not be available for offsetting against future
revaluation losses.
Depreciation, to write off the cost or valuation of each asset,
other than oil and gas properties (Note 3(g)), to their
residual values over their estimated useful lives is calculated
using the straight-line method.
The Group uses the following useful lives for depreciation
purposes:
|
|
||||
|
Buildings
|
8-40 years | |||
|
Equipment and Machinery
|
4-30 years | |||
|
Motor vehicles
|
4-14 years | |||
|
Other
|
5-12 years | |||
|
|
||||
No depreciation is provided on construction in progress until
the assets are completed and ready for use.
The assets’ residual values and useful lives are reviewed,
and adjusted if appropriate, at the end of each reporting period.
Property, plant and equipment, including oil and gas properties
(Note 3(g)), are reviewed for possible impairment when
events or changes in circumstances indicate that the carrying
amount may not be recoverable. An impairment loss is recognised
for the amount by which the carrying amount of a cash generating
unit exceeds the
F-10
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
higher of its fair value less costs to sell and its value in
use, which is the estimated net present value of future cash
flows to be derived from the cash generating unit.
Gains and losses on disposals of property, plant and equipment
are determined by reference to their carrying amounts and are
recorded in the consolidated profit or loss.
Interest and other costs on borrowings to finance the
construction of property, plant and equipment are capitalised
during the period of time that is required to complete and
prepare the asset for its intended use. Costs for repairs and
maintenance activities are expensed as incurred except for costs
of components that result in improvements or betterments which
are capitalised as part of property, plant and equipment and
depreciated over their useful lives.
(g) Oil
and gas properties
The successful efforts method of accounting is used for oil and
gas exploration and production activities. Under this method,
all costs for development wells, support equipment and
facilities, and proved mineral interests in oil and gas
properties are capitalised. Geological and geophysical costs are
expensed when incurred. Costs of exploratory wells are
capitalised as construction in progress pending determination of
whether the wells find proved oil and gas reserves. Proved oil
and gas reserves are the estimated quantities of crude oil and
natural gas, which, by analysis of geoscience and engineering
data, can be estimated with reasonable certainty to be
economically producible from a given date forward, from known
reservoirs, and under existing economic conditions, operating
methods, and government regulation before the time at which
contracts providing the right to operate expire, unless evidence
indicates that renewal is reasonably certain, regardless of
whether the estimate is a deterministic estimate or
probabilistic estimate. Existing economic conditions include
prices and costs at which economic producibility from a
reservoir is to be determined. The price shall be the average
price during the
12-month
period before the ending date of the period covered by the
report, determined as an unweighted arithmetic average of the
first-day-of-the-month
price for each month within such period, unless prices are
defined by contractual arrangements, excluding escalations based
upon future conditions. The costs shall be that prevailing at
the end of the period.
Exploratory wells in areas not requiring major capital
expenditures are evaluated for economic viability within one
year of completion of drilling. The related well costs are
expensed as dry holes if it is determined that such economic
viability is not attained. Otherwise, the related well costs are
reclassified to oil and gas properties and are subject to
impairment review (Note 3(f)). For exploratory wells that
are found to have economically viable reserves in areas where
major capital expenditure will be required before production can
commence, the related well costs remain capitalised only if
additional drilling is underway or firmly planned. Otherwise the
related well costs are expensed as dry holes. The Group does not
have any significant costs of unproved properties capitalised in
oil and gas properties.
The Ministry of Land and Resources in China issues production
licenses to applicants on the basis of the reserve reports
approved by relevant authorities.
The cost of oil and gas properties is amortised at the field
level based on the units of production method. Units of
production rates are based on oil and gas reserves estimated to
be recoverable from existing facilities based on the current
terms of the Group’s production licenses.
(h) Intangible
assets
Expenditures on acquired patents, trademarks, technical know-how
and licenses are capitalised at historical cost and amortised
using the straight-line method over their estimated useful
lives. Intangible assets are not subsequently revalued. The
carrying amount of each intangible asset is reviewed annually
and adjusted for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognised whenever the
carrying amount of an asset exceeds its recoverable amount and
is recognised in the
F-11
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
consolidated profit or loss. The recoverable amount is measured
as the higher of fair value less costs to sell and value in use
which is the estimated net present value of future cash flows to
be derived from the asset.
(i) Financial
assets
Financial assets are classified into the following categories:
financial assets at fair value through profit or loss,
held-to-maturity
investments, loans and receivables and
available-for-sale
financial assets. The classification depends on the purpose for
which the financial assets were acquired. Management determines
the classification of its financial assets at initial
recognition. The Group has only loans and receivables and
available-for-sale
financial assets. The detailed accounting policies for loans and
receivables and
available-for-sale
financial assets held by the Group are set out below.
(i) Loans
and receivables
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. They are included in current assets, except for those
with maturities greater than 12 months after the date of
the statement of financial position, which are classified as
non-current assets. The Group’s loans and receivables
comprise accounts receivable, notes receivable, other
receivables, time deposits and cash and cash equivalents. The
recognition methods for loans and receivables are disclosed in
the respective policy notes.
(ii) Available-for-sale
financial assets
Available-for-sale
financial assets are non-derivatives that are either designated
in this category or not classified in any of the other
categories; these are included in non-current assets unless
management intends to dispose of the investment within
12 months of the date of the statement of financial
position. The Group’s
available-for-sale
financial assets primarily comprise unquoted equity instruments.
Regular purchases and sales of
available-for-sale
financial assets are recognised on settlement date, the date
that the asset is delivered to or by the Group (the effective
acquisition or sale date).
Available-for-sale
financial assets are initially recognised at fair value plus
transaction costs.
Available-for-sale
financial assets are derecognised when the rights to receive
cash flows from the investments have expired or have been
transferred and the Group has transferred substantially all
risks and rewards of ownership in the investment.
Available-for-sale
financial assets are measured at fair value except where there
are no quoted market prices in active markets and the fair
values cannot be reliably measured using valuation techniques.
Available-for-sale
financial assets that do not have quoted market prices in active
markets and whose fair value cannot be reliably measured are
carried at cost. The Group assesses at each date of the
statement of financial position whether there is objective
evidence that an
available-for-sale
financial asset is impaired. The amount of the impairment loss
is measured as the difference between the carrying amount of the
available-for-sale
financial asset and the present value of the estimated cash
flows.
(j) Leases
Leases of property, plant and equipment where the Group assumes
substantially all the benefits and risks of ownership are
classified as finance leases. The Group has no significant
finance leases.
Leases of assets under which a significant portion of the risks
and benefits of ownership are effectively retained by the
lessors are classified as operating leases. Payments made under
operating leases (net of any incentives received from the
lessors) are expensed on a straight-line basis over the lease
terms. Payments made to the PRC’s land authorities to
secure land use rights are treated as operating leases. Land use
rights are generally obtained through advance lump-sum payments
and the terms of use range up to 50 years.
F-12
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
(k) Inventories
Inventories include oil products, chemical products and
materials and supplies which are stated at the lower of cost and
net realisable value. Cost is primarily determined by the
weighted average cost method. The cost of finished goods
comprises raw materials, direct labour, other direct costs and
related production overheads, but excludes borrowing costs. Net
realisable value is the estimated selling price in the ordinary
course of business, less the cost of completion and selling
expenses.
(l) Accounts
receivable
Accounts receivable are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method, less provision made for impairment of these
receivables. Such provision for impairment is established if
there is objective evidence that the Group will not be able to
collect amounts due according to the original terms of the
receivables. The factors the Group considers when assessing
whether an account receivable is impaired include but are not
limited to significant financial difficulties of the customer,
probability that the debtor will enter bankruptcy or financial
reorganisation and default or delinquency in payments. The
amount of the provision is the difference between the
asset’s carrying amount and the present value of estimated
future cash flows, discounted at the original effective interest
rate.
(m) Cash
and cash equivalents
Cash and cash equivalents comprise cash in hand, deposits held
with banks and highly liquid investments with original
maturities of three months or less from the time of purchase.
(n) Accounts
payable
Accounts payable are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method.
(o) Borrowings
Borrowings are recognised initially at fair value, net of
transaction costs incurred. In subsequent periods, borrowings
are stated at amortised cost using the effective yield method.
Any difference between proceeds (net of transaction costs) and
the redemption value is recognised in the consolidated profit or
loss over the period of the borrowings.
Borrowing costs are recognised as an expense in the period in
which they are incurred except for the portion eligible for
capitalisation as part of qualifying property, plant and
equipment.
Borrowings are classified as current liabilities unless the
Group has unconditional rights to defer settlements of the
liabilities for at least 12 months after the reporting
period.
(p) Taxation
Deferred tax is provided in full, using the liability method,
for temporary differences arising between the tax bases of
assets and liabilities and their carrying values in the
financial statements. However, deferred tax is not accounted for
if it arises from initial recognition of an asset or liability
in a transaction other than a business combination that at the
time of the transaction affects neither accounting nor taxable
profit or loss. Deferred tax is determined using tax rates that
have been enacted or substantively enacted by the date of the
statement of financial position and are expected to apply to the
period when the related deferred tax asset is realised or
deferred tax liability is settled.
F-13
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
The principal temporary differences arise from depreciation on
oil and gas properties and equipment and provision for
impairment of receivables, inventories, investments and
property, plant and equipment. Deferred tax assets relating to
the carry forward of unused tax losses are recognised to the
extent that it is probable that future taxable income will be
available against which the unused tax losses can be utilised.
The Group also incurs various other taxes and levies that are
not income taxes. “Taxes other than income taxes”,
which form part of operating expenses, primarily comprise a
special levy on domestic sales of crude oil (Note 9),
consumption tax (Note 9), resource tax, urban construction
tax, education surcharges and business tax.
(q) Revenue
recognition
Sales are recognised upon delivery of products and customer
acceptance or performance of services, net of sales taxes and
discounts. Revenues are recognised only when the Group has
transferred to the buyer the significant risks and rewards of
ownership of the goods in the ordinary course of the
Group’s activities, and when the amount of revenue and the
costs incurred or to be incurred in respect of the transaction
can be measured reliably and collectability of the related
receivables is reasonably assured.
The Group markets a portion of its natural gas under
take-or-pay
contracts. Customers under the
take-or-pay
contracts are required to take or pay for the minimum natural
gas deliveries specified in the contract clauses. Revenue
recognition for natural gas sales and transmission tariff under
the
take-or-pay
contracts follows the accounting policies described in this
note. Payments received from customers for natural gas not yet
taken are recorded as deferred revenues until actual deliveries
take place.
(r) Provisions
Provisions are recognised when the Group has present legal or
constructive obligations as a result of past events, it is
probable that an outflow of resources will be required to settle
the obligations, and reliable estimates of the amounts can be
made.
Provision for future decommissioning and restoration is
recognised in full on the installation of oil and gas
properties. The amount recognised is the present value of the
estimated future expenditure determined in accordance with local
conditions and requirements. A corresponding addition to the
related oil and gas properties of an amount equivalent to the
provision is also created. This is subsequently depreciated as
part of the costs of the oil and gas properties. Any change in
the present value of the estimated expenditure other than due to
passage of time which is regarded as interest expense, is
reflected as an adjustment to the provision and oil and gas
properties.
(s) Research
and development
Research expenditure incurred is recognised as an expense. Costs
incurred on development projects are recognised as intangible
assets to the extent that such expenditure is expected to
generate future economic benefits.
(t) Retirement
benefit plans
The Group contributes to various employee retirement benefit
plans organised by PRC municipal and provincial governments
under which it is required to make monthly contributions to
these plans at prescribed rates for its employees in China. The
relevant PRC municipal and provincial governments undertake to
assume the retirement benefit obligations of existing and future
retired employees of the Group in China. The Group has similar
retirement benefit plans for its employees in its overseas
operations. Contributions to these PRC and overseas plans are
charged to expense as incurred. In addition, the Group joined
the corporate annuity plan approved by relevant PRC authorities.
Contribution to the annuity plan is charged to expense as
incurred.
F-14
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
The Group currently has no additional material obligations
outstanding for the payment of retirement and other
post-retirement benefits of employees in the PRC or overseas
other than what described above.
(u) New
accounting developments
(i) New
and amended standards adopted by the Group
The Group adopted the following relevant new and amended IFRSs
as of January 1, 2009:
IFRS 7 ‘Financial instruments — Disclosures’
(Amendment) — effective January 1, 2009. The
amendment requires enhanced disclosures about fair value
measurement and liquidity risk. In particular, the amendment
requires disclosure of fair value measurements by level of a
fair value measurement hierarchy. The amendment did not have a
material impact on the disclosures in the consolidated financial
statements.
IFRS 8, ‘Operating segments’ — effective
January 1, 2009. IFRS 8 replaces IAS 14, ‘Segment
reporting’. It requires a ‘management approach’
under which segment information is presented on the same basis
as that used for internal reporting purposes (Note 38).
IAS 1 (Revised), ‘Presentation of financial
statements’ — effective January 1, 2009. The
revised standard requires all changes in equity arising from
transactions with owners in their capacity as owners and the
related current and deferred tax impacts be presented separately
from non-owner changes in equity. Recognised income and expenses
shall be presented in a single statement (a statement of
comprehensive income) or in two statements (a statement of
profit and loss and a statement of comprehensive income),
separately from owner changes in equity.
The Group has elected to present recognised income and expenses
in a single statement of comprehensive income and these
consolidated financial statements have been prepared under the
revised disclosure requirements.
IAS 19 (Amendment), ‘Employee benefits’ —
effective January 1, 2009. The amendment clarifies that the
distinction between short-term and long-term employee benefits
will be based on whether benefits are due to be settled within
or after 12 months of employee service being rendered. The
amendment did not have any significant impact on the
consolidated financial statements.
IAS 23 (Amendment), ‘Borrowing costs’ —
effective January 1, 2009. The amendment requires an entity
to capitalise borrowing costs directly attributable to the
acquisition, construction or production of a qualifying asset
(one that takes a substantial period of time to get ready for
use or sale) as part of the cost of that asset. The option of
immediately expensing those borrowing costs will be removed. The
amendment did not have any impact on the consolidated financial
statements as the Group has always capitalised borrowing costs
directly attributable to the acquisition, construction or
production of qualifying assets.
IAS 24 (Revised), ‘Related Party
Disclosures’ — effective January 1, 2011.
The revised standard exempts disclosures in relation to related
party transactions and outstanding balances, including
commitments, with a government that has control, joint control
or significant influence over the reporting entity and another
entity that is related party because the same government has
control, joint control or significant influence over both the
reporting entity and the other entity. The Group has elected to
early adopt the partial exemption in paragraphs 25 -27 of
the revised standard for government-related entities from
January 1, 2009.
IAS 28 (Amendment), ‘Investments in
associates’ — effective January 1, 2009. The
amendment requires an investment in an associate be treated as a
single asset for the purposes of impairment testing and any
impairment loss is not allocated to specific assets included
within the investment, for example, goodwill. Reversals of
impairment are recorded as an adjustment to the investment
balance to the extent that the recoverable amount of the
associate increases. The amendment did not have any significant
impact on the consolidated financial statements.
IAS 36 (Amendment), ‘Impairment of assets’ —
effective January 1, 2009. The amendment requires that
where fair value less costs to sell is calculated on the basis
of discounted cash flows, disclosures equivalent to those
F-15
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
for
value-in-use
calculation should be made. The amendment did not have any
significant impact on the consolidated financial statements.
IAS 38 (Amendment), ‘Intangible assets’ —
effective January 1, 2009. The amendment requires a
prepayment only be recognised in the event that payment has been
made in advance of obtaining right of access to goods or receipt
of services. The amendment did not have any significant impact
on the consolidated financial statements.
(ii) Standards,
amendments and interpretations to existing standards that are
not yet effective and have not been early adopted by the Group
The following relevant IFRSs, amendments to existing IFRSs and
interpretation of IFRSs have been published and are mandatory
for accounting periods beginning on or after January 1,
2010 or later periods and have not been early adopted by the
Group:
IFRS 3 (Revised), ‘Business combinations’. The revised
standard continues to apply the acquisition method to business
combinations, with some significant changes. For example, all
payments to purchase a business are to be recorded at fair value
at the acquisition date, with contingent payments classified as
debt subsequently re-measured through the statement of
comprehensive income. There is a choice on an
acquisition-by-acquisition
basis to measure the non-controlling interest in the acquiree
either at fair vale or at the non-controlling interest’s
proportionate share of the acquiree’s net assets. All
acquisition-related costs should be expensed. The Group will
apply the revised standard prospectively to all business
combinations for which the acquisition date is on or after
January 1, 2010.
IFRS 5 (Amendment), ‘Non-current assets held for sale and
discontinued operations’ — effective July 1,
2009. The amendment clarifies that all of a subsidiary’s
assets and liabilities are classified as held for sale if a
partial disposal plan results in loss of control, and relevant
disclosure should be made for this subsidiary if the definition
of a discontinued operation is met. The Group is currently
evaluating the impact of the amendment on the consolidated
financial statements but it is not expected to have any
significant impact.
IFRS 5 (Amendment), ‘Measurement of non-current assets (or
disposal groups) classified as
held-for-sale’ —
effective January 1, 2010. The amendment is part of the
IASB’s annual improvements project published in April 2009.
The amendment provides clarification that IFRS 5 specifies the
disclosures required in respect of non-current assets (or
disposal groups) classified as
held-for-sale
or discontinued operations. It also clarifies that the general
requirement of IAS 1 still apply, particularly paragraph 15
(to achieve a fair presentation) and paragraph 125 (sources
of estimation uncertainty) of IAS 1. The Group is currently
evaluating the impact of the amendment on the disclosures in the
consolidated financial statements but it is not expected to have
any significant impact.
IAS 1 (Amendment), ‘Presentation of financial
statements’ — effective January 1, 2010. The
amendment is part of the IASB’s annual improvements project
published in April 2009. The amendment provides clarification
that the potential settlement of a liability by the issuance of
equity is not relevant to its classification as current or non
current. By amending the definition of current liability, the
amendment permits a liability to be classified as non-current
(provided that the entity has an unconditional right to defer
settlement by transfer of cash or other assets for at least
12 months after the accounting period) notwithstanding the
fact that the entity could be required by the counterparty to
settle in shares at any time. The Group is currently evaluating
the impact of the amendment on the consolidated financial
statements but it is not expected to have any significant impact.
IAS 27 (Revised), ‘Consolidated and separate financial
statements’ — effective July 1, 2009. The
revised standard requires the effects of all transactions with
non-controlling interests to be recorded in equity if there is
no change in control and these transactions will no longer
result in goodwill or gains and losses. IAS 27 (Revised) also
specifies the accounting when control is lost. Any remaining
interest in the entity is re-measured to fair value and a gain
or loss is recognised in profit or loss. The Group will apply
the revised standard prospectively to transactions with
non-controlling interests from January 1, 2010.
F-16
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
IAS 38 (Amendment), ‘Intangible Assets’ —
effective January 1, 2010. The amendment is part of the
IASB’s annual improvements project published in April 2009
and the Group will apply IAS 38 (Amendment) from the date IFRS 3
(Revised) is adopted. The amendment clarifies guidance in
measuring the fair value of an intangible asset acquired in a
business combination and it permits the grouping of intangible
assets as a single asset if each asset has similar useful
economic lives. The Group is currently evaluating the impact of
the amendment on the consolidated financial statements but it is
not expected to have any significant impact.
4 FINANCIAL
RISK AND CAPITAL MANAGEMENT
4.1 Financial
risk factors
The Group’s activities expose it to a variety of financial
risks, including market risk, credit risk and liquidity risk.
(a) Market
risk
(i) Foreign
exchange risk
The Group conducts its business primarily in RMB, but maintains
a portion of its assets in other currencies to pay for imported
crude oil, imported equipment and other materials and to meet
foreign currency financial liabilities. The Group is exposed to
currency risks arising from fluctuations in various foreign
currency exchange rates against the RMB. The RMB is not a freely
convertible currency and is regulated by the PRC government.
Limitations on foreign exchange transactions imposed by the PRC
government could cause future exchange rates to vary
significantly from current or historical exchange rates. The
Group did not enter into material hedge contracts to hedge
against its foreign exchange rate risk during the current year.
(ii) Interest
rate risk
The Group has no significant interest rate risk on
interest-bearing assets. The Group’s exposure to interest
rate risk arises from its borrowings. The Group’s
borrowings at floating rates expose the Group to cash flow
interest rate risk and its borrowings at fixed rates expose the
Group to fair value interest rate risk. However, the exposure to
interest rate risk is not material to the Group. A detailed
analysis of the Group’s borrowings, together with their
respective interest rates and maturity dates, is included in
Note 28.
(iii) Price
risk
The Group is engaged in a wide range of petroleum-related
activities. Prices of crude oil and petroleum products are
affected by a wide range of global and domestic factors which
are beyond the control of the Group. The fluctuations in such
prices may have favourable or unfavourable impacts on the Group.
(b) Credit
risk
Credit risk arises from cash and cash equivalents, time deposits
with banks and credit exposure to customers with outstanding
receivable balances.
A substantial portion of the Group’s cash at bank and time
deposits are placed with the major state-owned banks and
financial institutions in China and management believes that the
credit risk is low.
The Group performs ongoing assessment of the credit quality of
its customers and sets appropriate credit limits taking into
account the financial position and past history of defaults of
customers. The Group’s accounts receivable balances over
3 years have been substantially provided for and accounts
receivable balances within one year are generally neither past
due nor impaired. The Group’s accounts receivable balances
that are neither past due nor impaired are with customers with
no recent history of default.
F-17
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
The carrying amounts of cash and cash equivalents, time deposits
placed with banks, accounts receivable, other receivables and
notes receivable included in the consolidated statement of
financial position represent the Group’s maximum exposure
to credit risk. No other financial assets carry a significant
exposure to credit risk.
The Group has no significant concentration of credit risk.
(c) Liquidity
risk
The Group’s liquidity risk management involves maintaining
sufficient cash and cash equivalents and availability of funding
through an adequate amount of committed credit facilities.
Given the low level of gearing and continued access to funding,
the Group believes that its liquidity risk is not material.
Analysis of the Group’s financial liabilities based on the
remaining period at the date of the statement of financial
position to the contractual maturity dates are presented in
Note 28.
4.2 Capital
management
The Group’s objectives when managing capital are to
safeguard its ability to continue as a going concern, optimise
returns for owners and to minimise its cost of capital. In
meeting its objectives of managing capital, the Group may issue
new shares, adjust its debt levels or the mix between short-term
and long-term borrowings.
The Group monitors capital on the basis of the gearing ratio
which is calculated as interest-bearing
borrowings/(interest-bearing borrowings + total equity). The
gearing ratio at December 31, 2009 is 20.5% (2008: 13.0%).
4.3 Fair
value estimation
The methods and assumptions applied in determining the fair
value of each class of financial assets and financial
liabilities of the Group at December 31, 2009 and 2008 are
disclosed in the respective accounting policies.
The carrying amounts of the following financial assets and
financial liabilities approximate their fair value as all of
them are short-term in nature: cash and cash equivalents, time
deposits with maturities over three months but within one year,
accounts receivable, other receivables, trade payables, other
payables and short-term borrowings. The fair values of fixed
rate long-term borrowings are likely to be different from their
respective carrying amounts. Analysis of the fair values and
carrying amounts of long-term borrowings are presented in
Note 28.
5 CRITICAL
ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgements are regularly evaluated and are based
on historical experience and other factors, including
expectations of future events that are believed to be reasonable
under the circumstances.
The matters described below are considered to be the most
critical in understanding the estimates and judgements that are
involved in preparing the Group’s consolidated financial
statements.
(a) Estimation
of oil and natural gas reserves
Estimates of oil and natural gas reserves are key elements in
the Group’s investment decision-making process. They are
also an important element in testing for impairment. Changes in
proved oil and natural gas reserves, particularly proved
developed reserves, will affect
unit-of-production
depreciation, depletion and amortisation recorded in the
Group’s consolidated financial statements for property,
plant and equipment related to oil and gas production
activities. A reduction in proved developed reserves will
increase depreciation, depletion and amortisation charges.
Proved reserve estimates are subject to revision, either upward
or downward, based on new
F-18
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
information, such as from development drilling and production
activities or from changes in economic factors, including
product prices, contract terms, evolution of technology or
development plans.
(b) Estimation
of impairment of property, plant and equipment
Property, plant and equipment, including oil and gas properties,
are reviewed for possible impairments when events or changes in
circumstances indicate that the carrying amount may not be
recoverable. Determination as to whether and how much an asset
is impaired involves management estimates and judgements such as
the future price of crude oil, refined and chemical products and
the production profile. However, the impairment reviews and
calculations are based on assumptions that are consistent with
the Group’s business plans. Favourable changes to some
assumptions may allow the Group to avoid the need to impair any
assets in these years, whereas unfavourable changes may cause
the assets to become impaired.
(c) Estimation
of asset retirement obligations
Provision is recognised for the future decommissioning and
restoration of oil and gas properties. The amounts of the
provision recognised are the present values of the estimated
future expenditures. The estimation of the future expenditures
is based on current local conditions and requirements, including
legal requirements, technology, price levels, etc. In addition
to these factors, the present value of these estimated future
expenditures are also impacted by the estimation of the economic
lives of oil and gas properties. Changes in any of these
estimates will impact the operating results and the financial
position of the Group over the remaining economic lives of the
oil and gas properties.
6 TURNOVER
Turnover represents revenues from the sale of crude oil, natural
gas, refined products and petrochemical products and from the
transportation of crude oil, refined products and natural gas.
Analysis of turnover by segment is shown in Note 38.
F-19
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
7 PROFIT
BEFORE INCOME TAX EXPENSE
| 2009 | 2008 | 2007 | ||||||||||
| RMB | RMB | RMB | ||||||||||
|
Items credited and debited in arriving at the profit before
income tax expense include:
|
||||||||||||
|
Credited
|
||||||||||||
|
Dividend income from
available-for-sale
financial assets
|
177 | 252 | 126 | |||||||||
|
Reversal of provision for impairment of receivables
|
240 | 184 | 2,473 | |||||||||
|
Reversal of write down in inventories
|
23 | 15 | 98 | |||||||||
|
Government grants(i)
|
1,097 | 16,914 | 1,197 | |||||||||
|
Charged
|
||||||||||||
|
Amortisation on intangible and other assets
|
2,153 | 1,888 | 1,507 | |||||||||
|
Auditors’ remuneration
|
80 | 95 | 119 | |||||||||
|
Cost of inventories recognised as expense
|
613,702 | 662,758 | 459,281 | |||||||||
|
Provision for impairment of receivables
|
117 | 188 | 155 | |||||||||
|
Loss on disposal of property, plant and equipment
|
1,642 | 2,602 | 1,808 | |||||||||
|
Operating lease expenses
|
7,367 | 6,819 | 7,448 | |||||||||
|
Research and development expenses
|
9,887 | 7,760 | 5,315 | |||||||||
|
Write down in inventories
|
377 | 8,608 | 153 | |||||||||
| (i) | Government grants during the year 2008 primarily comprise financial support measures provided by the PRC government to ensure supply of crude oil and refined products in the domestic market implemented from 2008. |
8 EMPLOYEE
COMPENSATION COSTS
| 2009 | 2008 | 2007 | ||||||||||
| RMB | RMB | RMB | ||||||||||
|
Wages, salaries and allowances
|
44,202 | 39,008 | 32,856 | |||||||||
|
Social security costs
|
21,775 | 23,159 | 18,084 | |||||||||
| 65,977 | 62,167 | 50,940 | ||||||||||
Social security costs mainly represent contributions to plans
for staff welfare organised by the PRC municipal and provincial
governments and others including contributions to the retirement
benefit plans (Note 33).
9 TAXES
OTHER THAN INCOME TAXES
Taxes other than income taxes include consumption taxes of RMB
82,429 for the year ended December 31, 2009 (2008: RMB
13,570, 2007: RMB 12,931) and special levies on domestic sales
of crude oil of RMB 20,020 for the year ended December 31,
2009 (2008: RMB 85,291, 2007: RMB 44,662).
F-20
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
10 INTEREST
EXPENSE
| 2009 | 2008 | 2007 | ||||||||||
| RMB | RMB | RMB | ||||||||||
|
Interest on
|
||||||||||||
|
Bank loans
|
||||||||||||
|
— wholly repayable within five years
|
1,339 | 2,065 | 2,058 | |||||||||
|
— not wholly repayable within five years
|
90 | 22 | 181 | |||||||||
|
Other loans
|
||||||||||||
|
— wholly repayable within five years
|
4,624 | 1,365 | 1,643 | |||||||||
|
— not wholly repayable within five years
|
477 | 598 | 327 | |||||||||
|
Accretion expense (Note 32)
|
1,943 | 1,746 | 1,202 | |||||||||
|
Less: Amounts capitalised
|
(3,201 | ) | (2,752 | ) | (1,738 | ) | ||||||
| 5,272 | 3,044 | 3,673 | ||||||||||
Amounts capitalised are borrowing costs that are attributable to
the construction of a qualifying asset. The average interest
rate used to capitalise such borrowings cost was 5.184% per
annum for the year ended December 31, 2009.
11 EMOLUMENTS
OF DIRECTORS AND SUPERVISORS
Details of the emoluments of directors and supervisors for the
years ended December 31, 2009, 2008 and 2007 are as follows:
| 2009 | 2008 | 2007 | ||||||||||||||||||||||
|
Fee for
|
Salaries,
|
|||||||||||||||||||||||
|
Directors
|
Allowances
|
Contribution
|
||||||||||||||||||||||
|
and
|
and Other
|
to Retirement
|
||||||||||||||||||||||
|
Name
|
Supervisors | Benefits | Benefit Scheme | Total | Total | Total | ||||||||||||||||||
| RMB’000 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | |||||||||||||||||||
|
Chairman:
|
||||||||||||||||||||||||
|
Mr. Chen Geng(i)
|
— | — | — | — | — | 598 | ||||||||||||||||||
|
Mr. Jiang Jiemin
|
— | — | — | — | — | 916 | ||||||||||||||||||
| — | — | — | — | — | 1,514 | |||||||||||||||||||
|
Vice Chairman:
|
||||||||||||||||||||||||
|
Mr. Zhou Jiping
|
— | 737 | 37 | 774 | 515 | — | ||||||||||||||||||
|
Executive directors:
|
||||||||||||||||||||||||
|
Mr. Duan Wende(iii)
|
— | — | — | — | 366 | 824 | ||||||||||||||||||
|
Mr. Liao Yongyuan
|
— | 710 | 37 | 747 | 869 | — | ||||||||||||||||||
| — | 710 | 37 | 747 | 1,235 | 824 | |||||||||||||||||||
F-21
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
| 2009 | 2008 | 2007 | ||||||||||||||||||||||
|
Fee for
|
Salaries,
|
|||||||||||||||||||||||
|
Directors
|
Allowances
|
Contribution
|
||||||||||||||||||||||
|
and
|
and Other
|
to Retirement
|
||||||||||||||||||||||
|
Name
|
Supervisors | Benefits | Benefit Scheme | Total | Total | Total | ||||||||||||||||||
| RMB’000 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | |||||||||||||||||||
|
Non-executive directors:
|
||||||||||||||||||||||||
|
Mr. Wang Yilin
|
— | — | — | — | — | — | ||||||||||||||||||
|
Mr. Zeng Yukang
|
— | — | — | — | — | — | ||||||||||||||||||
|
Mr. Wang Fucheng
|
— | — | — | — | — | — | ||||||||||||||||||
|
Mr. Wang Guoliang
|
— | — | — | — | — | — | ||||||||||||||||||
|
Mr. Li Xinhua
|
— | — | — | — | — | — | ||||||||||||||||||
|
Mr. Jiang Fan
|
— | 494 | 25 | 519 | 569 | 499 | ||||||||||||||||||
|
Mr. Chee-chen Tung
|
260 | — | — | 260 | 249 | 264 | ||||||||||||||||||
|
Mr. Liu Hongru
|
339 | — | — | 339 | 343 | 349 | ||||||||||||||||||
|
Mr. Li Yongwu(ii)
|
344 | — | — | 344 | 197 | — | ||||||||||||||||||
|
Mr. Cui Junhui
|
348 | — | — | 348 | 331 | — | ||||||||||||||||||
|
Mr. Franco Bernabè
|
246 | — | — | 246 | 243 | 257 | ||||||||||||||||||
| 1,537 | 494 | 25 | 2,056 | 1,932 | 1,369 | |||||||||||||||||||
|
Supervisors:
|
||||||||||||||||||||||||
|
Mr. Chen Ming
|
— | — | — | — | — | — | ||||||||||||||||||
|
Mr. Wen Qingshan
|
— | — | — | — | — | — | ||||||||||||||||||
|
Mr. Sun Xianfeng
|
— | — | — | — | — | — | ||||||||||||||||||
|
Mr. Yu Yibo
|
— | — | — | — | — | — | ||||||||||||||||||
|
Mr. Xu Fengli(i)
|
— | — | — | — | — | 264 | ||||||||||||||||||
|
Mr. Wang Yawei
|
— | — | — | — | — | — | ||||||||||||||||||
|
Mr. Qin Gang
|
— | 507 | 34 | 541 | 521 | 469 | ||||||||||||||||||
|
Ms. Wang Shali
|
— | — | — | — | — | — | ||||||||||||||||||
|
Mr. Li Yongwu(ii)
|
— | — | — | — | 110 | 315 | ||||||||||||||||||
|
Mr. Zhang Jinzhu(iii)
|
— | — | — | — | 206 | 333 | ||||||||||||||||||
|
Mr. Wu Zhipan(iv)
|
107 | — | — | 107 | 234 | 319 | ||||||||||||||||||
|
Mr. Li Yuan
|
217 | — | — | 217 | 124 | — | ||||||||||||||||||
|
Mr. Wang Daocheng(iv)
|
117 | — | — | 117 | — | — | ||||||||||||||||||
| 441 | 507 | 34 | 982 | 1,195 | 1,700 | |||||||||||||||||||
| 1,978 | 2,448 | 133 | 4,559 | 4,877 | 5,407 | |||||||||||||||||||
| (i) | No longer a director or supervisor since May 16, 2007. | |
| (ii) | Elected as an independent non-executive director in May 16, 2008 and no longer a supervisor since then. | |
| (iii) | No longer an executive director or a supervisor since May 16, 2008. | |
| (iv) | Mr. Wu Zhipan no longer as a supervisor since May 12, 2009 and Mr. Wang Daocheng was elected as a supervisor since then. | |
| (v) | Emoluments exclude the one-off payments by the Company to some of the independent non-executive directors of approximately RMB7.30 million in 2009. |
The emoluments of the directors and supervisors fall within the
following bands (including directors and supervisors whose term
expired during the year):
| 2009 | 2008 | 2007 | ||||||||||
| Number | Number | Number | ||||||||||
|
RMB Nil — RMB 1 million
|
24 | 25 | 20 | |||||||||
F-22
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
None of the directors and supervisors has waived their
remuneration during the year ended December 31, 2009 (2008:
None, 2007: None).
The five highest paid individuals in the Company for each of the
three years ended December 31, 2009, 2008 and 2007 were
also directors or supervisors and their emoluments are reflected
in the analysis shown above.
During 2009, 2008 and 2007 the Company did not incur any
severance payment to any director for loss of office or any
payment as inducement to any director to join the Company.
12 INCOME
TAX EXPENSE
| 2009 | 2008 | 2007 | ||||||||||
| RMB | RMB | RMB | ||||||||||
|
Current taxes
|
24,862 | 43,423 | 48,995 | |||||||||
|
Deferred taxes (Note 31)
|
8,611 | (8,212 | ) | 807 | ||||||||
| 33,473 | 35,211 | 49,802 | ||||||||||
In accordance with the relevant PRC income tax rules and
regulations, the PRC corporate income tax rate applicable to the
Group is principally 25% for the years ended December 31,
2009 and 2008 and 33% for 2007. Operations of the Group in
certain regions in China have qualified for certain tax
incentives in the form of a preferential income tax rate of 15%
through the year 2010.
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:
| 2009 | 2008 | 2007 | ||||||||||
| RMB | RMB | RMB | ||||||||||
|
Profit before income tax expense
|
140,032 | 162,013 | 205,139 | |||||||||
|
Tax calculated at a tax rate of 25% (2007: 33%)
|
35,008 | 40,503 | 67,696 | |||||||||
|
Prior year tax return adjustment
|
(2,216 | ) | 25 | 451 | ||||||||
|
Effect of income taxes from international operations in excess
of taxes at the PRC statutory tax rate
|
1,820 | 6,876 | 633 | |||||||||
|
Effect of preferential tax rate
|
(5,502 | ) | (10,907 | ) | (17,043 | ) | ||||||
|
Effect of change in statutory income tax rates on deferred taxes
|
(184 | ) | (3,134 | ) | (3,788 | ) | ||||||
|
Tax effect of income not subject to tax
|
(1,140 | ) | (1,357 | ) | (2,840 | ) | ||||||
|
Tax effect of taxable items deductible for tax purposes
|
— | — | (2,365 | ) | ||||||||
|
Tax effect of expenses not deductible for tax purposes
|
5,687 | 3,205 | 4,140 | |||||||||
|
Tax effect of unused tax losses which had expired
|
— | — | 2,918 | |||||||||
|
Taxation
|
33,473 | 35,211 | 49,802 | |||||||||
13 PROFIT
ATTRIBUTABLE TO OWNERS OF THE COMPANY
The profit attributable to owners of the Company is dealt with
in the consolidated financial statements of the Group to the
extent of RMB 103,387 for the year ended December 31, 2009
(2008: RMB 114,453, 2007: RMB 146,796).
F-23
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
14 BASIC
AND DILUTED EARNINGS PER SHARE
Basic and diluted earnings per share for the year ended
December 31, 2009 and December 31, 2008 have been
computed by dividing profit for the year attributable to owners
of the Company by the 183,021 million shares issued and
outstanding for the year.
Basic and diluted net income per share for the year ended
December 31, 2007 have been computed by dividing income 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.
There are no potentially dilutive ordinary shares.
15 DIVIDENDS
| 2009 | 2008 | 2007 | ||||||||||
| RMB | RMB | RMB | ||||||||||
|
Interim dividends attributable to owners of the Company for 2009
(note a)
|
22,725 | — | — | |||||||||
|
Proposed final dividends attributable to owners of the Company
for 2009 (note b)
|
23,799 | — | — | |||||||||
|
Interim dividends attributable to owners of the Company for 2008
(note c)
|
— | 24,127 | — | |||||||||
|
Final dividends attributable to owners of the Company for 2008
(note d)
|
— | 27,367 | — | |||||||||
|
Interim dividends attributable to owners of the Company for 2007
(note e)
|
— | — | 36,823 | |||||||||
|
Final dividends attributable to owners of the Company for 2007
(note f)
|
— | — | 28,708 | |||||||||
| 46,524 | 51,494 | 65,531 | ||||||||||
| (a) | Interim dividends attributable to owners of the Company in respect of 2009 of RMB 0.12417 yuan per share amounting to a total of RMB 22,725 and were paid on October 16, 2009. | |
| (b) | At the meeting on March 25, 2010, the Board of Directors proposed final dividends attributable to owners of the Company in respect of 2009 of RMB 0.13003 yuan per share amounting to a total of RMB 23,799. These consolidated financial statements do not reflect this dividend payable as the final dividends were proposed after the reporting period and will be accounted for in equity as an appropriation of retained earnings in the year ending December 31, 2010 when approved at the forthcoming Annual General Meeting. | |
| (c) | Interim dividends attributable to owners of the Company in respect of 2008 of RMB 0.13183 yuan per share amounting to a total of RMB 24,127 and were paid on October 16, 2008. | |
| (d) | Final dividends attributable to owners of the Company in respect of 2008 of RMB 0.14953 yuan per share amounting to a total of RMB 27,367 were approved by the shareholders in the Annual General Meeting on May 12, 2009 and were paid on June 19, 2009. | |
| (e) | Interim dividends attributable to owners of the Company in respect of 2007 of RMB 0.205690 yuan per share amounting to a total of RMB 36,823 and were paid on September 28, 2007. |
| (f) | Final dividends attributable to owners of the Company in respect of 2007 of RMB 0.156859 yuan per share amounting to a total of RMB 28,708 and were paid on June 13, 2008. |
F-24
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
16 PROPERTY,
PLANT AND EQUIPMENT
|
Equipment
|
||||||||||||||||||||||||||||
|
Oil and Gas
|
and
|
Motor
|
Construction
|
|||||||||||||||||||||||||
|
Year Ended December 31, 2009
|
Buildings | Property | Machinery | Vehicles | Other | in Progress | Total | |||||||||||||||||||||
| RMB | RMB | RMB | RMB | RMB | RMB | RMB | ||||||||||||||||||||||
|
Cost or valuation
|
||||||||||||||||||||||||||||
|
At beginning of the year
|
99,680 | 790,354 | 366,953 | 17,537 | 9,924 | 172,353 | 1,456,801 | |||||||||||||||||||||
|
Additions
|
4,516 | 11,141 | 27,315 | 3,277 | 2,880 | 236,285 | 285,414 | |||||||||||||||||||||
|
Transfers
|
9,746 | 97,136 | 62,540 | — | 1,497 | (170,919 | ) | — | ||||||||||||||||||||
|
Disposals or write offs
|
(2,167 | ) | (5,838 | ) | (3,842 | ) | (503 | ) | (3,107 | ) | (11,614 | ) | (27,521 | ) | ||||||||||||||
|
Currency translation differences
|
(415 | ) | (3,944 | ) | (402 | ) | (127 | ) | (143 | ) | (626 | ) | (5,657 | ) | ||||||||||||||
|
At end of the year
|
110,910 | 888,849 | 452,564 | 20,184 | 11,051 | 225,479 | 1,709,037 | |||||||||||||||||||||
|
Accumulated depreciation
and impairment |
||||||||||||||||||||||||||||
|
At beginning of the year
|
(27,710 | ) | (317,301 | ) | (196,842 | ) | (8,536 | ) | (5,723 | ) | (265 | ) | (556,377 | ) | ||||||||||||||
|
Charge for the year
|
(5,614 | ) | (57,088 | ) | (24,988 | ) | (1,657 | ) | (1,012 | ) | (11 | ) | (90,370 | ) | ||||||||||||||
|
Disposals or write offs or transfers
|
1,087 | 3,455 | 3,363 | 378 | 2,873 | — | 11,156 | |||||||||||||||||||||
|
Currency translation differences
|
124 | 1,497 | 179 | 83 | 137 | 1 | 2,021 | |||||||||||||||||||||
|
At end of the year
|
(32,113 | ) | (369,437 | ) | (218,288 | ) | (9,732 | ) | (3,725 | ) | (275 | ) | (633,570 | ) | ||||||||||||||
|
Net book value
|
||||||||||||||||||||||||||||
|
At end of the year
|
78,797 | 519,412 | 234,276 | 10,452 | 7,326 | 225,204 | 1,075,467 | |||||||||||||||||||||
F-25
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
|
Equipment
|
||||||||||||||||||||||||||||
|
Oil and Gas
|
and
|
Motor
|
Construction
|
|||||||||||||||||||||||||
|
Year Ended December 31, 2008
|
Buildings | Property | Machinery | Vehicles | Other | in Progress | Total | |||||||||||||||||||||
| RMB | RMB | RMB | RMB | RMB | RMB | RMB | ||||||||||||||||||||||
|
Cost or valuation
|
||||||||||||||||||||||||||||
|
At beginning of the year
|
90,951 | 676,011 | 334,948 | 15,284 | 9,034 | 113,283 | 1,239,511 | |||||||||||||||||||||
|
Additions
|
1,006 | 14,382 | 3,720 | 2,816 | 288 | 220,202 | 242,414 | |||||||||||||||||||||
|
Transfers
|
10,287 | 106,930 | 32,296 | — | 930 | (150,443 | ) | — | ||||||||||||||||||||
|
Disposals or write offs
|
(2,317 | ) | (3,946 | ) | (3,631 | ) | (496 | ) | (222 | ) | (10,341 | ) | (20,953 | ) | ||||||||||||||
|
Currency translation differences
|
(247 | ) | (3,023 | ) | (380 | ) | (67 | ) | (106 | ) | (348 | ) | (4,171 | ) | ||||||||||||||
|
At end of the year
|
99,680 | 790,354 | 366,953 | 17,537 | 9,924 | 172,353 | 1,456,801 | |||||||||||||||||||||
|
Accumulated depreciation and impairment
|
||||||||||||||||||||||||||||
|
At beginning of the year
|
(22,907 | ) | (269,289 | ) | (167,074 | ) | (7,446 | ) | (5,050 | ) | (285 | ) | (472,051 | ) | ||||||||||||||
|
Charge for the year
|
(5,869 | ) | (50,848 | ) | (31,916 | ) | (1,466 | ) | (946 | ) | (1 | ) | (91,046 | ) | ||||||||||||||
|
Disposals or write offs or transfers
|
1,008 | 1,868 | 2,039 | 340 | 214 | 20 | 5,489 | |||||||||||||||||||||
|
Currency translation differences
|
58 | 968 | 109 | 36 | 59 | 1 | 1,231 | |||||||||||||||||||||
|
At end of the year
|
(27,710 | ) | (317,301 | ) | (196,842 | ) | (8,536 | ) | (5,723 | ) | (265 | ) | (556,377 | ) | ||||||||||||||
|
Net book value
|
||||||||||||||||||||||||||||
|
At end of the year
|
71,970 | 473,053 | 170,111 | 9,001 | 4,201 | 172,088 | 900,424 | |||||||||||||||||||||
The depreciation charge of the Group for the year ended
December 31, 2009 included impairment losses of RMB 1,580
and RMB 478 (2008: RMB 4,235 and RMB 11,950, 2007: RMB Nil and
RMB 294) primarily related to certain of the Group’s
oil and gas properties and refining and chemical production
assets. The carrying values of these assets were written down to
their recoverable values.
A valuation of all of the Group’s property, plant and
equipment, excluding oil and gas reserves, was carried out
during 1999 by independent valuers on a depreciated replacement
cost basis. As at 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 revaluation surplus net of applicable deferred
income taxes was credited to equity.
As at March 31, 2006, a revaluation of the Group’s oil
and gas properties was undertaken by independent valuers, China
United Assets Appraiser Co., Ltd. and China Enterprise
Appraisals, on a depreciated replacement cost basis. The
revaluation did not result in significant differences from their
carrying values.
F-26
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
The following table indicates the changes to the Group’s
exploratory well costs, which are included in construction in
progress, for the years ended December 31, 2009, 2008 and
2007.
| 2009 | 2008 | 2007 | ||||||||||
| RMB | RMB | RMB | ||||||||||
|
At beginning of the year
|
15,853 | 11,975 | 9,005 | |||||||||
|
Additions to capitalised exploratory well costs pending the
determination of proved reserves
|
22,891 | 26,503 | 23,067 | |||||||||
|
Reclassified to wells, facilities, and equipment based on the
determination of proved reserves
|
(11,504 | ) | (12,284 | ) | (10,936 | ) | ||||||
|
Capitalised exploratory well costs charged to expense
|
(10,019 | ) | (10,341 | ) | (9,161 | ) | ||||||
|
At end of the year
|
17,221 | 15,853 | 11,975 | |||||||||
The following table provides an aging of capitalised exploratory
well costs based on the date the drilling was completed.
|
December 31,
|
December 31,
|
|||||||
| 2009 | 2008 | |||||||
| RMB | RMB | |||||||
|
One year or less
|
15,560 | 14,318 | ||||||
|
Over one year
|
1,661 | 1,535 | ||||||
|
Balance at December 31
|
17,221 | 15,853 | ||||||
RMB 1,661 at December 31, 2009 of capitalised exploratory
well costs over one year are principally related to wells that
are under further evaluation of drilling results or pending
completion of development planning to ascertain economic
viability.
17 INVESTMENTS
IN ASSOCIATES AND JOINTLY CONTROLLED ENTITIES
The summarised financial information of the Group’s
principal associates and jointly controlled entities, including
the aggregated amounts of assets, liabilities, revenues, profit
or loss and the interest held by the Group were as follows:
|
Country of
|
Interest
|
Type of
|
||||||||||||||||||||||||||
|
Name
|
Incorporation | Assets | Liabilities | Revenues | Profit/(loss) | Held % | Share | |||||||||||||||||||||
| RMB | RMB | RMB | RMB | |||||||||||||||||||||||||
|
As of or for the year ended December 31, 2009:
|
||||||||||||||||||||||||||||
|
Dalian West Pacific
Petrochemical Co., Ltd. |
PRC | 10,168 | 12,228 | 28,205 | 1,076 | 28.44 | ordinary | |||||||||||||||||||||
|
China Marine Bunker (PetroChina) Co., Ltd.
|
PRC | 6,546 | 3,501 | 27,510 | 358 | 50.00 | ordinary | |||||||||||||||||||||
|
As of or for the year ended December 31, 2008:
|
||||||||||||||||||||||||||||
|
Dalian West Pacific
Petrochemical Co., Ltd. |
PRC | 10,433 | 13,182 | 41,643 | (5,660 | ) | 28.44 | ordinary | ||||||||||||||||||||
|
China Marine Bunker (PetroChina) Co., Ltd.
|
PRC | 6,619 | 3,972 | 43,037 | 392 | 50.00 | ordinary | |||||||||||||||||||||
Dividends received and receivable from associates and jointly
controlled entities were RMB 568 in 2009 (2008: RMB 3,886, 2007:
RMB 991).
F-27
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
In 2009, investments in associates and jointly controlled
entities of RMB 345 (2008: RMB 36, 2007: RMB 833) were
disposed of, resulting in a gain of RMB 33 (2008: A loss of RMB
3, 2007: A gain of RMB 320).
18 AVAILABLE-FOR-SALE
FINANCIAL ASSETS
|
December 31,
|
December 31,
|
|||||||
| 2009 | 2008 | |||||||
| RMB | RMB | |||||||
|
Available-for-sale
financial assets
|
2,799 | 2,509 | ||||||
|
Less: Impairment losses
|
(456 | ) | (475 | ) | ||||
| 2,343 | 2,034 | |||||||
Available-for-sale
financial assets comprise principally unlisted equity securities.
In 2009,
available-for-sale
financial assets of RMB 137 (2008: RMB 74, 2007: RMB
145) were disposed of, resulting in the realisation of a
gain of RMB 4 (2008: RMB 5, 2007: RMB 142).
19 SUBSIDIARIES
The principal subsidiaries of the Group are:
|
Attributable
|
||||||||||||||||
|
Country of
|
Paid-Up
|
Type of
|
Equity
|
|||||||||||||
|
Company Name
|
Incorporation |
Capital
|
Legal Entity
|
Interest %
|
Principal Activities
|
|||||||||||
| (RMB) | ||||||||||||||||
|
Daqing Oilfield Company Limited
|
PRC | 47,500 |
Limited liability
company |
100.00 | Exploration, production and sale of crude oil and natural gas | |||||||||||
|
CNPC Exploration and Development Company Limited
|
PRC | 16,100 |
Limited liability
company |
50.00 | Exploration, production and sale of crude oil and natural gas in and outside the PRC | |||||||||||
|
PetroKazakhstan Inc.
|
Canada | US Dollar 665 |
Joint stock company
with limited liability |
67.00 | Exploration, production and sale of crude oil and natural gas outside the PRC | |||||||||||
|
PetroChina Hong Kong Limited
|
Hong Kong | HK Dollar 7,592 |
Limited liability
company |
100.00 | Investment holding. The principal activities of its subsidiaries, associates and jointly controlled entities are the exploration and production of crude oil and natural gas in and outside the PRC | |||||||||||
Business combinations under common control between certain
subsidiaries of the Group and subsidiaries of CNPC were
completed during the year and accordingly, the financial
statements have been restated. These business combinations are
not individually or in aggregate material to the Group.
F-28
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
20 ADVANCE
OPERATING LEASE PAYMENTS
|
December 31,
|
December 31,
|
|||||||
| 2009 | 2008 | |||||||
| RMB | RMB | |||||||
|
Land use rights
|
19,901 | 16,954 | ||||||
|
Advance lease payments
|
10,335 | 9,326 | ||||||
| 30,236 | 26,280 | |||||||
Land use rights have terms up to 50 years. Advance lease
payments are principally for use of land
sub-leased
from entities other than the PRC land authorities. These advance
operating lease payments are amortised over the related lease
terms using the straight-line method.
21 INTANGIBLE
AND OTHER ASSETS
| December 31, 2009 | December 31, 2008 | |||||||||||||||||||||||
|
Accumulated
|
Accumulated
|
|||||||||||||||||||||||
| Cost | amortisation | Net | Cost | amortisation | Net | |||||||||||||||||||
| RMB | RMB | RMB | RMB | RMB | RMB | |||||||||||||||||||
|
Patents
|
3,076 | (1,939 | ) | 1,137 | 3,071 | (1,729 | ) | 1,342 | ||||||||||||||||
|
Technical know-how
|
1,654 | (242 | ) | 1,412 | 372 | (174 | ) | 198 | ||||||||||||||||
|
Goodwill(i)
|
2,818 | — | 2,818 | 148 | — | 148 | ||||||||||||||||||
|
Other
|
11,025 | (2,992 | ) | 8,033 | 7,098 | (2,109 | ) | 4,989 | ||||||||||||||||
|
Intangible assets
|
18,573 | (5,173 | ) | 13,400 | 10,689 | (4,012 | ) | 6,677 | ||||||||||||||||
|
Other assets
|
4,617 | 4,017 | ||||||||||||||||||||||
| 18,017 | 10,694 | |||||||||||||||||||||||
| (i) | During the current year, the Group through PetroChina International (Singapore) Pte. Ltd. (an indirectly wholly owned subsidiary of the Company), acquired 100% of the share capital in Singapore Petroleum Company Limited for cash consideration of Singapore Dollars S$3,239 (approximately RMB 15,296). At the date of acquisition, the fair value of the net assets in Singapore Petroleum Company Limited is S$2,668 (approximately RMB 12,597) and consequently, goodwill of S$571 (approximately RMB 2,699) was recognised. |
Patents principally represent expenditure incurred in acquiring
processes and techniques that are generally protected by the
relevant government authorities. Technical know-how is amounts
attributable to operational technology acquired in connection
with the purchase of equipment. The costs of technical know-how
are included as part of the purchase price and are separately
distinguishable from the other assets acquired.
F-29
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
22 INVENTORIES
| December 31, 2009 | December 31, 2008 | |||||||
| RMB | RMB | |||||||
|
Crude oil and other raw materials
|
30,928 | 31,319 | ||||||
|
Work in progress
|
7,006 | 3,472 | ||||||
|
Finished goods
|
77,685 | 65,074 | ||||||
|
Spare parts and consumables
|
28 | 31 | ||||||
| 115,647 | 99,896 | |||||||
|
Less: Write down in inventories
|
(866 | ) | (9,211 | ) | ||||
| 114,781 | 90,685 | |||||||
The carrying amounts of inventories of the Group, which are
carried at net realisable value, amounted to RMB 7,216
(2008: RMB 53,551) at December 31, 2009.
23 ACCOUNTS
RECEIVABLE
|
December 31,
|
December 31,
|
|||||||
| 2009 | 2008 | |||||||
| RMB | RMB | |||||||
|
Accounts receivable
|
30,909 | 19,233 | ||||||
|
Less: Provision for impairment of receivables
|
(2,124 | ) | (2,423 | ) | ||||
| 28,785 | 16,810 | |||||||
The aging analysis of accounts receivable at December 31,
2009 and December 31, 2008 is as follows:
|
December 31,
|
December 31,
|
|||||||
| 2009 | 2008 | |||||||
| RMB | RMB | |||||||
|
Within 1 year
|
28,579 | 16,563 | ||||||
|
Between 1 to 2 years
|
112 | 156 | ||||||
|
Between 2 to 3 years
|
84 | 25 | ||||||
|
Over 3 years
|
2,134 | 2,489 | ||||||
| 30,909 | 19,233 | |||||||
The Group offers its customers credit terms up to 180 days.
Movements in the provision for impairment of accounts receivable
are as follows:
| 2009 | 2008 | |||||||
| RMB | RMB | |||||||
|
At beginning of the year
|
2,423 | 2,880 | ||||||
|
Provision for impairment of accounts receivable
|
38 | 36 | ||||||
|
Receivables written off as uncollectible
|
(232 | ) | (388 | ) | ||||
|
Reversal of provision for impairment of accounts receivable
|
(105 | ) | (105 | ) | ||||
|
At end of the year
|
2,124 | 2,423 | ||||||
F-30
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
24 PREPAID
EXPENSES AND OTHER CURRENT ASSETS
|
December 31,
|
December 31,
|
|||||||
| 2009 | 2008 | |||||||
| RMB | RMB | |||||||
|
Other receivables
|
8,528 | 10,122 | ||||||
|
Advances to suppliers
|
36,009 | 37,209 | ||||||
| 44,537 | 47,331 | |||||||
|
Less: Provision for impairment
|
(3,741 | ) | (3,943 | ) | ||||
| 40,796 | 43,388 | |||||||
|
Prepaid income taxes
|
— | — | ||||||
|
Value-added tax recoverable
|
15,663 | 25,677 | ||||||
|
Prepaid expenses
|
421 | 275 | ||||||
|
Other current assets
|
2,715 | 217 | ||||||
| 59,595 | 69,557 | |||||||
Other receivables consist primarily of taxes other than income
tax refunds, subsidies receivable, and receivables for the sale
of materials and scrap.
25 NOTES RECEIVABLE
Notes receivable represent mainly bills of acceptance issued by
banks for the sale of goods and products. All notes receivable
are due within one year.
26 CASH
AND CASH EQUIVALENTS
The weighted average effective interest rate on bank deposits
was 1.46% per annum for the year ended December 31, 2009
(2008: 2.24% per annum).
27 ACCOUNTS
PAYABLE AND ACCRUED LIABILITIES
|
December 31,
|
December 31,
|
|||||||
| 2009 | 2008 | |||||||
| RMB | RMB | |||||||
|
Trade payables
|
62,840 | 38,795 | ||||||
|
Advances from customers
|
21,193 | 13,008 | ||||||
|
Salaries and welfare payable
|
5,105 | 6,377 | ||||||
|
Accrued expenses
|
31 | 20 | ||||||
|
Dividends payable by subsidiaries to non-controlling shareholders
|
105 | 154 | ||||||
|
Interest payable
|
1,448 | 156 | ||||||
|
Construction fee and equipment cost payables
|
93,920 | 79,491 | ||||||
|
Other payables
|
20,097 | 18,779 | ||||||
| 204,739 | 156,780 | |||||||
Other payables consist primarily of customer deposits.
F-31
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
The aging analysis of trade payables at December 31, 2009
and 2008 is as follows:
|
December 31,
|
December 31,
|
|||||||
| 2009 | 2008 | |||||||
| RMB | RMB | |||||||
|
Within 1 year
|
60,420 | 36,892 | ||||||
|
Between 1 to 2 years
|
1,404 | 1,054 | ||||||
|
Between 2 to 3 years
|
505 | 306 | ||||||
|
Over 3 years
|
511 | 543 | ||||||
| 62,840 | 38,795 | |||||||
28 BORROWINGS
(a) Short-term
borrowings
|
December 31,
|
December 31,
|
|||||||
| 2009 | 2008 | |||||||
| RMB | RMB | |||||||
|
Bank loans
|
||||||||
|
— secured
|
1,876 | 1,841 | ||||||
|
— unsecured
|
18,377 | 25,111 | ||||||
|
Loans from CNPC and a fellow CNPC subsidiary
|
54,369 | 60,819 | ||||||
|
Short-term financing bills
|
60,000 | — | ||||||
|
Other
|
— | 1 | ||||||
| 134,622 | 87,772 | |||||||
|
Current portion of long-term borrowings
|
14,229 | 5,898 | ||||||
| 148,851 | 93,670 | |||||||
(b) Long-term
borrowings
|
December 31,
|
December 31,
|
|||||||||
|
Interest rates and final maturities
|
2009 | 2008 | ||||||||
| RMB | RMB | |||||||||
|
Renminbi — denominated borrowings:
|
||||||||||
|
Bank loans for the development of oil fields and construction of
refining plants
|
Floating interest rate at 5.35% per annum as of December 31, 2009, with maturities through 2010 | 100 | 200 | |||||||
|
Bank loans for working capital
|
Majority floating interest rates ranging from 4.86% to 6.23% per annum as of December 31, 2009, with maturities through 2019 | 7,013 | 6,409 | |||||||
F-32
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
|
December 31,
|
December 31,
|
|||||||||
|
Interest rates and final maturities
|
2009 | 2008 | ||||||||
| RMB | RMB | |||||||||
|
Loans from CNPC and a fellow CNPC subsidiary for the development
of oil fields and construction of refining plants
|
Majority floating interest rates ranging from 2.48% to 5.04% per annum as of December 31, 2009, with maturities through 2032 | 16,262 | 16,181 | |||||||
|
Working capital loans from a fellow CNPC subsidiary
|
Fixed interest rates ranging from 4.32% to 4.90% per annum as of December 31, 2009, with maturities through 2012 | 760 | 456 | |||||||
|
Working capital loans
|
Majority fixed interest rates ranging from 2.55% to 6.32% per annum as of December 31, 2009, with no fixed repayment terms | 44 | 5 | |||||||
|
Corporate debenture for the development of oil and gas properties
|
Fixed interest rates ranging from 3.76% to 4.11% per annum as of December 31, 2009, with maturities through 2013 | 3,500 | 3,500 | |||||||
|
Medium-term notes for the development of oil and gas properties
|
Fixed interest rates ranging from 2.28% to 3.35% per annum as of December 31, 2009, with maturities through 2014 | 45,000 | — | |||||||
|
US Dollar — denominated borrowings:
|
||||||||||
|
Bank loans for the development of oil fields and construction of
refining plants
|
Fixed interest rates ranging from zero to 1.50% per annum as of December 31, 2009, with maturities through 2038 | 240 | 278 | |||||||
|
Bank loans for the development of oil fields and construction of
refining plants
|
Floating interest rates ranging from LIBOR plus 0.50% to LIBOR plus 3.00% per annum as of December 31, 2009, with maturities through 2014 | 4,577 | 3,825 | |||||||
|
Bank loans for working capital
|
Floating interest rates ranging from LIBOR plus 0.30% to LIBOR plus 2.00% per annum as of December 31, 2009, with maturities through 2014 | 10,632 | 2,392 | |||||||
F-33
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
|
December 31,
|
December 31,
|
|||||||||
|
Interest rates and final maturities
|
2009 | 2008 | ||||||||
| RMB | RMB | |||||||||
|
Loans from a fellow CNPC subsidiary for the development of oil
fields and construction of refining plants
|
Floating interest rates ranging from LIBOR plus 0.30% to 0.40% per annum as of December 31, 2009, with maturities through 2020 | 2,688 | 2,691 | |||||||
|
Loans from fellow CNPC subsidiaries for working capital
|
Majority floating interest rate at LIBOR plus 1.00% per annum as of December 31, 2009, with maturities through 2015 | 7,674 | 851 | |||||||
|
Loans for the development of oil fields and construction of
refining plants
|
Fixed interest rate at 1.55% per annum as of December 31, 2009, with maturities through 2022 | 325 | 352 | |||||||
|
Loans for working capital
|
Floating interest rate at 5.00% per annum as of December 31, 2009, with no fixed repayment terms | 47 | 569 | |||||||
|
Corporate debenture for the development of oil fields and
construction of refining plants
|
Fixed interest rate at 3.00% per annum as of December 31, 2009, with maturities through 2019 | 295 | 301 | |||||||
|
Corporate debenture for the development of oil and gas properties
|
Fixed interest rate at 9.50% per annum as of December 31, 2009, with maturities through 2011 | 341 | 513 | |||||||
|
Japanese Yen — denominated borrowings:
|
||||||||||
|
Bank loans for the development of oil fields and construction of
refining plants
|
Fixed interest rate at 2.42% per annum as of December 31, 2009, with maturities through 2010 | 10 | 20 | |||||||
|
Euro — denominated borrowings:
|
||||||||||
|
Bank loans for the development of oil fields and construction of
refining plants
|
Fixed interest rates ranging from 2.00% to 2.30% per annum as of December 31, 2009, with maturities through 2023 | 192 | 207 | |||||||
|
Total long-term borrowings
|
99,700 | 38,750 | ||||||||
|
Less: Current portion of long-term borrowings
|
(14,229 | ) | (5,898 | ) | ||||||
| 85,471 | 32,852 | |||||||||
For loans denominated in RMB with floating interest rates, the
interest rates are re-set annually on the respective anniversary
dates based on interest rates announced by the People’s
Bank of China. For loans
F-34
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
denominated in currencies other than RMB with floating interest
rates, the interest rates are re-set quarterly or semi-annually
as stipulated in the respective agreements. Other loans
represent loans from independent third parties other than banks.
Borrowings of the Group of RMB 1,154 were guaranteed by CNPC and
its subsidiaries at December 31, 2009 (2008: RMB 941).
The Group’s borrowings include secured liabilities
totalling RMB 7,904 at December 31, 2009 (2008: RMB 3,403).
These borrowings are mainly secured over certain of the
Group’s notes receivable, inventories, fixed assets,
intangible assets, cash and cash equivalents and time deposits
with maturities over one year amounting to RMB 8,693(2008:RMB
4,031).
|
December 31,
|
December 31,
|
|||||||
| 2009 | 2008 | |||||||
| RMB | RMB | |||||||
|
Total borrowings:
|
||||||||
|
— interest free
|
51 | 53 | ||||||
|
— at fixed rates
|
163,155 | 85,170 | ||||||
|
— at floating rates
|
71,116 | 41,299 | ||||||
| 234,322 | 126,522 | |||||||
|
Weighted average effective interest rates:
|
||||||||
|
— bank loans
|
3.10 | % | 4.20 | % | ||||
|
— loans from CNPC and fellow CNPC subsidiaries
|
3.21 | % | 4.32 | % | ||||
|
— corporate debentures
|
4.31 | % | 4.51 | % | ||||
|
— medium-term notes
|
2.78 | % | — | |||||
|
— short-term notes
|
2.01 | % | — | |||||
|
— other loans
|
2.22 | % | 3.05 | % | ||||
The carrying amounts and fair values of long-term borrowings are
as follows:
| Carrying Amounts | ||||||||
|
December 31,
|
December 31,
|
|||||||
| 2009 | 2008 | |||||||
| RMB | RMB | |||||||
|
Bank loans
|
22,764 | 13,331 | ||||||
|
Loans from CNPC and fellow CNPC subsidiaries
|
27,384 | 20,179 | ||||||
|
Corporate debentures
|
4,136 | 4,314 | ||||||
|
Medium-term notes
|
45,000 | — | ||||||
|
Other
|
416 | 926 | ||||||
| 99,700 | 38,750 | |||||||
F-35
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
| Fair Values | ||||||||
|
December 31,
|
December 31,
|
|||||||
| 2009 | 2008 | |||||||
| RMB | RMB | |||||||
|
Bank loans
|
22,601 | 13,111 | ||||||
|
Loans from CNPC and fellow CNPC subsidiaries
|
27,377 | 20,179 | ||||||
|
Corporate debentures
|
4,146 | 4,020 | ||||||
|
Medium-term notes
|
43,587 | — | ||||||
|
Other
|
350 | 798 | ||||||
| 98,061 | 38,108 | |||||||
The fair values are based on discounted cash flows using
applicable discount rates based upon the prevailing market rates
of interest available to the Group for financial instruments
with substantially the same terms and characteristics at the
dates of the statement of financial position. Such discount
rates ranged from 1.02% to 5.93% per annum as of
December 31, 2009 (2008: 1.47% to 7.41%) depending on the
type of the borrowings. The carrying amounts of short-term
borrowings approximate their fair values.
Maturities of long-term borrowings at the dates indicated below
are as follows:
|
December 31,
|
December 31,
|
|||||||
|
Bank Loans
|
2009 | 2008 | ||||||
| RMB | RMB | |||||||
|
Within one year
|
8,756 | 579 | ||||||
|
Between one to two years
|
2,996 | 9,991 | ||||||
|
Between two to five years
|
10,668 | 2,395 | ||||||
|
After five years
|
344 | 366 | ||||||
| 22,764 | 13,331 | |||||||
|
December 31,
|
December 31,
|
|||||||
|
Loans Other than Bank Loans
|
2009 | 2008 | ||||||
| RMB | RMB | |||||||
|
Within one year
|
5,473 | 5,319 | ||||||
|
Between one to two years
|
9,216 | 5,451 | ||||||
|
Between two to five years
|
52,153 | 5,037 | ||||||
|
After five years
|
10,094 | 9,612 | ||||||
| 76,936 | 25,419 | |||||||
29 SHARE
CAPITAL
|
December 31,
|
December 31,
|
|||||||
| 2009 | 2008 | |||||||
| RMB | RMB | |||||||
|
Registered, issued and fully paid:
|
||||||||
|
A shares
|
161,922 | 161,922 | ||||||
|
H shares
|
21,099 | 21,099 | ||||||
| 183,021 | 183,021 | |||||||
F-36
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
In accordance with the Restructuring Agreement between CNPC and
the Company effective as of November 5, 1999, the Company
issued 160 billion state-owned shares in exchange for the
assets and liabilities transferred to the Company by CNPC. The
160 billion state-owned shares were the initial registered
capital of the Company with a par value of RMB 1.00 yuan per
share.
On April 7, 2000, the Company issued
17,582,418,000 shares, represented by 13,447,897,000 H
shares and 41,345,210 ADSs (each representing 100 H shares) in a
global initial public offering (“Global Offering”) and
the trading of the H shares and the ADSs on the Stock Exchange
of Hong Kong Limited and the New York Stock Exchange commenced
on April 7, 2000 and April 6, 2000, respectively. The
H shares and ADSs were issued at prices of HK$1.28 per H share
and US$16.44 per ADS respectively for which the net proceeds to
the Company were approximately RMB 20 billion. The shares
issued pursuant to the Global Offering rank equally with
existing shares.
Pursuant to the approval of the China Securities Regulatory
Commission, 1,758,242,000 state-owned shares of the Company
owned by CNPC were converted into H shares for sale in the
Global Offering.
In September 2005, the Company issued 3,196,801,818 new H shares
at HK$6.00 per share and net proceeds to the Company amounted to
approximately RMB 19,692. CNPC also sold
319,680,182 state-owned shares it held concurrently with
PetroChina’s sale of new H shares in September 2005.
On November 5, 2007, the Company issued 4,000,000,000 new A
shares at RMB 16.70 yuan per share and net proceeds to the
Company amounted to approximately RMB 66,243 and the listing and
trading of the A shares on the Shanghai Stock Exchange commenced
on November 5, 2007.
Following the issuance of the A shares, all the existing
state-owned shares issued before November 5, 2007 held by
CNPC have been registered with the China Securities Depository
and Clearing Corporation Limited as A shares.
Shareholders’ rights are governed by the Company Law of the
PRC that requires an increase in registered capital to be
approved by the shareholders in shareholders’ general
meetings and the relevant PRC regulatory authorities.
F-37
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
30 RESERVES
| 2009 | 2008 | |||||||
| RMB | RMB | |||||||
|
Revaluation Reserve
|
||||||||
|
Beginning balance
|
79,946 | 79,946 | ||||||
|
Ending balance
|
79,946 | 79,946 | ||||||
|
Capital Reserve
|
||||||||
|
Beginning balance
|
53,362 | 53,362 | ||||||
|
Ending balance
|
53,362 | 53,362 | ||||||
|
Statutory Common Reserve Fund
(Note a)
|
||||||||
|
Beginning balance
|
115,466 | 102,696 | ||||||
|
Transfer from retained earnings
|
9,981 | 12,770 | ||||||
|
Ending balance
|
125,447 | 115,466 | ||||||
|
Special Reserve-Safety Fund Reserve
|
||||||||
|
Beginning balance
|
6,750 | 3,536 | ||||||
|
Safety fund reserve
|
1,325 | 3,214 | ||||||
|
Ending balance
|
8,075 | 6,750 | ||||||
|
Currency translation differences
|
||||||||
|
Beginning balance
|
(2,726 | ) | (1,554 | ) | ||||
|
Currency translation differences
|
(1,460 | ) | (1,172 | ) | ||||
|
Ending balance
|
(4,186 | ) | (2,726 | ) | ||||
|
Other reserves
|
||||||||
|
Beginning balance
|
(23,382 | ) | (16,401 | ) | ||||
|
Purchase of non-controlling interest in subsidiaries
|
(179 | ) | (17 | ) | ||||
|
Acquisition of subsidiaries
|
(248 | ) | (6,693 | ) | ||||
|
Capital reduction of a subsidiary
|
— | (61 | ) | |||||
|
Fair value gain/(loss) on
available-for-sale
financial assets
|
140 | (237 | ) | |||||
|
Capital contribution from non-controlling interest
|
1,158 | — | ||||||
|
Other
|
2 | 27 | ||||||
|
Ending balance
|
(22,509 | ) | (23,382 | ) | ||||
| 240,135 | 229,416 | |||||||
| (a) | Pursuant to the PRC regulations and the Company’s Articles of Association, the Company is required to transfer 10% of its net profit, as determined under the PRC accounting regulations, to a Statutory Common Reserve Fund (“Reserve Fund”). Appropriation to the Reserve Fund may cease when the fund aggregates to 50% of the Company’s registered capital. The transfer to this reserve must be made before distribution of dividends to shareholders. | |
| The Reserve Fund shall only be used to make good previous years’ losses, to expand the Company’s production operations, or to increase the capital of the Company. Upon approval of a resolution of shareholders’ in a general meeting, the Company may convert its Reserve Fund into share capital and issue bonus shares to existing shareholders in proportion to their original shareholdings or to increase the nominal value of each share currently held by them, provided that the balance of the Reserve Fund after such issuance is not less than 25% of the Company’s registered capital. |
F-38
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
| (b) | According to the relevant PRC regulations, the distributable reserve is the lower of the retained earnings computed under PRC accounting regulations and IFRS. As of December 31, 2009, the Company’s distributable reserve amounted to RMB 358,415 (2008: RMB 316,708). |
31 DEFERRED
TAXATION
Deferred taxation is calculated on temporary differences under
the liability method using a principal tax rate of 25% at
December 31,2009 and 2008 and 33% at December 31,2007.
The movements in the deferred taxation account are as follows:
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| RMB | RMB | RMB | ||||||||||
|
At beginning of the year
|
11,969 | 20,571 | 19,979 | |||||||||
|
Transfer to profit and loss (Note 12)
|
8,611 | (8,212 | ) | 807 | ||||||||
|
Charge/(credit) to other comprehensive income
|
38 | (67 | ) | 87 | ||||||||
|
Acquisition of a subsidiary
|
991 | — | (174 | ) | ||||||||
|
Currency translation differences
|
(420 | ) | (364 | ) | (128 | ) | ||||||
|
Others
|
(29 | ) | 41 | — | ||||||||
|
At end of the year
|
21,160 | 11,969 | 20,571 | |||||||||
Deferred tax balances before offset are attributable to the
following items:
|
December 31,
|
December 31,
|
|||||||
| 2009 | 2008 | |||||||
| RMB | RMB | |||||||
|
Deferred tax assets:
|
||||||||
|
Current:
|
||||||||
|
Receivables and inventories
|
7,173 | 9,165 | ||||||
|
Tax losses of subsidiaries
|
166 | 294 | ||||||
|
Non-current:
|
||||||||
|
Impairment of long-term assets
|
3,983 | 4,580 | ||||||
|
Other
|
2,379 | 885 | ||||||
|
Total deferred tax assets
|
13,701 | 14,924 | ||||||
|
Deferred tax liabilities:
|
||||||||
|
Non-current:
|
||||||||
|
Accelerated tax depreciation
|
32,348 | 24,613 | ||||||
|
Other
|
2,513 | 2,280 | ||||||
|
Total deferred tax liabilities
|
34,861 | 26,893 | ||||||
|
Net deferred tax liabilities
|
21,160 | 11,969 | ||||||
F-39
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
Deferred tax balances after offset are listed as below:
|
December 31,
|
December 31,
|
|||||||
| 2009 | 2008 | |||||||
| RMB | RMB | |||||||
|
Deferred tax assets
|
289 | 497 | ||||||
|
Deferred tax liabilities
|
21,449 | 12,466 | ||||||
There were no material unrecognised tax losses at
December 31, 2009 and 2008.
32 ASSET
RETIREMENT OBLIGATIONS
| 2009 | 2008 | 2007 | ||||||||||
| RMB | RMB | RMB | ||||||||||
|
At beginning of the year
|
36,262 | 24,761 | 18,481 | |||||||||
|
Liabilities incurred
|
7,162 | 10,033 | 4,818 | |||||||||
|
Consolidation of PetroKazakhstan Inc.
|
— | — | 385 | |||||||||
|
Liabilities settled
|
(434 | ) | (169 | ) | (110 | ) | ||||||
|
Accretion expense (Note 10)
|
1,943 | 1,746 | 1,202 | |||||||||
|
Currency translation differences
|
(186 | ) | (109 | ) | (15 | ) | ||||||
|
At end of the year
|
44,747 | 36,262 | 24,761 | |||||||||
Asset retirement obligations relate to oil and gas properties
(Note 16).
33 PENSIONS
The Group participates in various employee retirement benefit
plans (Note 3(t)). Expenses incurred by the Group in
connection with the retirement benefit plans for the year ended
December 31, 2009 amounted to RMB 8,437 (2008: RMB
6,997, 2007: RMB 5,754).
34 CONTINGENT
LIABILITIES
(a) Bank
and other guarantees
At December 31, 2009, borrowings of associates of RMB 21
(2008: RMB 43) from China Petroleum Finance Company Limited
(“CP Finance”, a subsidiary of CNPC) were guaranteed
by the Group. The Group had contingent liabilities in respect of
the guarantees from which it is anticipated that no material
liabilities will arise.
(b) Environmental
liabilities
China has adopted extensive environmental laws and regulations
that affect the operation of the oil and gas industry. Under
existing legislation, however, management believes that there
are no probable liabilities, except for the amounts which have
already been reflected in the consolidated financial statements,
which may have a material adverse effect on the financial
position of the Group.
(c) Legal
contingencies
Notwithstanding certain insignificant lawsuits as well as other
proceedings outstanding, management believes that any resulting
liabilities will not have a material adverse effect on the
financial position of the Group.
F-40
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
(d) Leasing
of roads, land and buildings
As at December 31, 2009, CNPC is still in the process of
completing the process of obtaining the formal land use right
certificates, necessary governmental procedures for the
requisition of collectively-owned land on which gas stations are
located and building ownership certificates for buildings
transferred to the Group under the Restructuring Agreement
entered into between the Company and CNPC in 2000.
Management confirms that the use of and the conduct of relevant
activities at the above-mentioned parcels of land, service
stations and buildings are not affected by the fact that the
certain relevant land use right certificates or individual
building ownership certificates have not been obtained to date
or the fact that the relevant governmental procedures have not
been completed. In management’s opinion, the outcome of the
above events will not have a material adverse effect on the
financial position of the Group.
(e) Group
insurance
The Group has insurance coverage for vehicles and certain assets
that are subject to significant operating risks, third-party
liability insurance against claims relating to personal injury,
property and environmental damages that result from accidents
and also employer liabilities insurance. The potential effect on
the financial position of the Group of any liabilities resulting
from future uninsured incidents cannot be estimated by the Group
at present.
35 COMMITMENTS
(a) Operating
lease commitments
Operating lease commitments of the Group are mainly for leasing
of land, buildings and equipment. Leases range from 1 to
50 years and usually do not contain renewal options. Future
minimum lease payments as of December 31, 2009 and 2008
under non-cancellable operating leases are as follows:
|
December 31,
|
December 31,
|
|||||||
| 2009 | 2008 | |||||||
| RMB | RMB | |||||||
|
No later than one year
|
4,071 | 3,634 | ||||||
|
Later than one year and no later than five years
|
12,478 | 12,492 | ||||||
|
Later than five years
|
77,385 | 78,970 | ||||||
| 93,934 | 95,096 | |||||||
(b) Capital
commitments
At December 31, 2009, the Group’s capital commitments
contracted but not provided for were RMB 56,657 (2008: RMB
22,719).
(c) Exploration
and production licenses
The Company is obligated to make annual payments with respect to
its exploration and production licenses to the Ministry of Land
and Resources. Payments incurred were approximately RMB 752 for
the year ended December 31, 2009 (2008: RMB 944).
F-41
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
Estimated annual payments for the next five years are as follows:
|
December 31,
|
December 31,
|
|||||||
| 2009 | 2008 | |||||||
| RMB | RMB | |||||||
|
Within one year
|
1,000 | 1,000 | ||||||
|
Between one and two years
|
1,000 | 1,000 | ||||||
|
Between two and three years
|
1,000 | 1,000 | ||||||
|
Between three and four years
|
1,000 | 1,000 | ||||||
|
Between four and five years
|
1,000 | 1,000 | ||||||
36 MAJOR
CUSTOMERS
The Group’s major customers are as follows:
| 2009 | 2008 | 2007 | ||||||||||||||||||||||
|
Percentage
|
Percentage
|
Percentage
|
||||||||||||||||||||||
|
of total
|
of total
|
of Total
|
||||||||||||||||||||||
| Revenue | revenue | Revenue | revenue | Revenue | revenue | |||||||||||||||||||
| RMB | % | RMB | % | RMB | % | |||||||||||||||||||
|
China Petroleum & Chemical Corporation
|
67,137 | 7 | 57,594 | 5 | 50,292 | 6 | ||||||||||||||||||
|
CNPC and its subsidiaries
|
32,437 | 3 | 46,645 | 4 | 31,325 | 4 | ||||||||||||||||||
| 99,574 | 10 | 104,239 | 9 | 81,617 | 10 | |||||||||||||||||||
37 RELATED
PARTY TRANSACTIONS
CNPC, the controlling shareholder of the Company, is a
state-controlled enterprise directly controlled by the PRC
government. The PRC government is the Company’s ultimate
controlling party.
Related parties include CNPC and its subsidiaries, other
state-owned enterprises and their subsidiaries which the PRC
government has control, joint control or significant influence
over and enterprises which the Group is able to control, jointly
control or exercise significant influence over, key management
personnel of the Company and CNPC and their close family members.
(a) Transactions
with CNPC and its subsidiaries, associates and jointly
controlled entities of the Group
The Group has extensive transactions with other companies in the
CNPC and its subsidiaries. Due to these relationships, it is
possible that the terms of the transactions between the Group
and other members of the CNPC and its subsidiaries are not the
same as those that would result from transactions with other
related parties or wholly unrelated parties.
The principal related party transactions with CNPC and its
subsidiaries, associates and jointly controlled entities of the
Group which were carried out in the ordinary course of business,
are as follows:
On August 27, 2008, the Company and CNPC entered into a
Comprehensive Products and Services Agreement (“the
Comprehensive Products and Services Agreement”), amending
the original Comprehensive Products and Services Agreements and
the First Supplemental Agreement and the Second Supplemental
Agreement thereto. The Comprehensive Products and Services
Agreement provide for a range of products and services which may
be required and requested by either party. The products and
services to be provided by the CNPC and its subsidiaries to the
Group under the Comprehensive Products and Services Agreement
include construction and
F-42
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
technical services, production services, supply of material
services, social services, ancillary services and financial
services. The products and services are provided in accordance
with (1) government-prescribed prices; or (2) where
there is no government-prescribed price, with reference to
relevant market prices; or (3) where neither (1) nor
(2) is applicable, the actual cost incurred or the agreed
contractual price.
| • | Sales of goods represent the sale of crude oil, refined products, chemical products and natural gas, etc. The total amount of these transactions amounted to RMB 37,448 in the year ended December 31, 2009 (2008: RMB 51,714, 2007: RMB 49,662). | |
| • | Sales of services principally represent the provision of services in connection with the transportation of crude oil and natural gas, etc. The total amount of these transactions amounted to RMB 7,128 in the year ended December 31, 2009 (2008: RMB 9,300, 2007: RMB 3,418). | |
| • | Purchases of goods and services principally represent construction and technical services, production services, social services, ancillary services and material supply services, etc. The total amount of these transactions amounted to RMB 199,826 in the year ended December 31, 2009 (2008: RMB 204,670, 2007: RMB 169,755). | |
| • | Purchase of assets principally represent the purchases of manufacturing equipment, office equipment and transportation equipment, etc. The total amount of these transactions amounted to RMB 2,327 in the year ended December 31, 2009 (2008: RMB 3,576, 2007: RMB 2,404). | |
| • | Amounts due from and to CNPC and its subsidiaries, associates and jointly controlled entities of the Group included in the following accounts captions are summarised as follows: |
|
December 31,
|
December 31,
|
|||||||
| 2009 | 2008 | |||||||
| RMB | RMB | |||||||
|
Accounts receivable
|
3,780 | 4,737 | ||||||
|
Prepayments and other receivables
|
16,548 | 15,816 | ||||||
|
Accounts payable and accrued liabilities
|
57,076 | 42,121 | ||||||
| • | Interest income represents interests from deposits placed with CP Finance. The total interest income amounted to RMB 143 in the year ended December 31, 2009 (2008: RMB 114, 2007: RMB 159). The balance of deposits at 31 December 2009 was RMB 10,433 (2008: RMB 8,424). | |
| • | Purchases of financial service principally represent interest charged on the loans from CNPC and fellow CNPC subsidiaries, insurance fee, etc. The total amount of these transactions amounted to RMB 3,541 in the year ended December 31, 2009 (2008: RMB 1,623, 2007: RMB 1,388). Information on loans from related parties are included in Note 28. |
On March 10, 2000, the Company and CNPC entered into a Land
Use Rights Leasing Contract. The Land Use Rights Leasing
Contract provides for the lease of 42,476 parcels of land to the
business units of the Group with an aggregate area of
approximately 1,145 million square meters of land located
throughout the PRC for a term of 50 years at an annual fee
of RMB 2,000. The total fee payable for the lease of all such
property may, after every 10 years, be adjusted by
agreement between the Company and CNPC.
On March 10, 2000, the Company and CNPC entered into a
Buildings Leasing Contract. Under the Buildings Leasing
Contract, 191 buildings covering an aggregate area of
269,770 square meters located throughout the PRC were
leased at an aggregate annual fee of RMB 39 for a term of
20 years. The Company also entered into a Supplemental
Buildings Leasing Agreement with CNPC on September 26,
2002, which became effective on January 1, 2003 to lease
additional 404 buildings covering 442,730 square meters at
an annual rental of approximately RMB 157. The Supplemental
Buildings Leasing Agreement will expire at the same time as the
Buildings Leasing Agreement.
F-43
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
(b) Key
management compensation
| Year Ended December 31 | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| RMB’000 | RMB’000 | RMB’000 | ||||||||||
|
Emoluments and other benefits
|
9,885 | 10,581 | 10,273 | |||||||||
|
Contribution to retirement benefit scheme
|
479 | 444 | 345 | |||||||||
| 10,364 | 11,025 | 10,618 | ||||||||||
(c) Transactions
with other state-controlled entities in the PRC
Apart from transactions with CNPC and its subsidiaries,
associates and jointly controlled entities of the Group, the
Group has transactions with other state-controlled entities
include but not limited to the following:
• Sales and purchases of goods and services,
• Purchases of assets,
• Lease of assets; and
• Bank deposits and borrowings
These transactions are conducted in the ordinary course of
business.
38 SEGMENT
INFORMATION
With effect from January 1, 2009, the Group has redefined
its operating segments as follows:
• The businesses of refining of crude oil and
petroleum products and the production and marketing of primary
petrochemical products, derivative petrochemical products and
other chemical products have been combined to form a new
Refining and Chemicals segment.
• The marketing of refined products and trading
businesses are now included in a new Marketing segment.
The Group is principally engaged in a broad range of petroleum
related products, services and activities. From a products and
services perspective and pursuant to the above re-segmentation,
the Group’s operating segments comprise: Exploration and
Production, Refining and Chemicals, Marketing, and Natural Gas
and Pipeline. Comparative amounts have been restated to reflect
the re-segmentation. Additionally, the Group has presented
geographical information based on entities located in regions
with similar risk profile.
The Exploration and Production segment is engaged in the
exploration, development, production and marketing of crude oil
and natural gas.
The Refining and Chemicals segment is engaged in the refining of
crude oil and petroleum products, production and marketing of
primary petrochemical products, and derivative petrochemical
products and other chemical products.
The Marketing segment is engaged in the marketing of refined
products and the trading of crude oil and petrochemical products.
The Natural Gas and Pipeline segment is engaged in the
transmission of natural gas, crude oil and refined products and
the sale of natural gas.
The Other segment relates to cash management and financing
activities, the corporate center, research and development, and
other business services supporting the operating business
segments of the Group.
F-44
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
Sales between operating segments are conducted principally at
market prices. On the basis of these operating segments, the
management of the Company assesses the segmental operating
results and allocates resources.
The accounting policies of the operating segments are the same
as those described in Note 3 — “Summary of
Principal Accounting Policies”.
The segment information for the operating segments for the years
ended December 31, 2009, 2008 and 2007 is as follows:
|
Exploration
|
Refining
|
Natural
|
||||||||||||||||||||||
|
and
|
and
|
Gas and
|
||||||||||||||||||||||
|
Year Ended December 31, 2009
|
Production | Chemicals | Marketing | Pipeline | Other | Total | ||||||||||||||||||
| RMB | RMB | RMB | RMB | RMB | RMB | |||||||||||||||||||
|
Turnover
|
405,326 | 501,300 | 768,295 | 77,658 | 1,372 | 1,753,951 | ||||||||||||||||||
|
Less: intersegment sales
|
(308,649 | ) | (381,522 | ) | (35,489 | ) | (8,756 | ) | (260 | ) | (734,676 | ) | ||||||||||||
|
Turnover from external customers
|
96,677 | 119,778 | 732,806 | 68,902 | 1,112 | 1,019,275 | ||||||||||||||||||
|
Depreciation, depletion and amortisation
|
(64,595 | ) | (11,824 | ) | (7,088 | ) | (7,694 | ) | (1,058 | ) | (92,259 | ) | ||||||||||||
|
Profit/(loss) from operations
|
105,019 | 17,308 | 13,265 | 19,046 | (11,194 | ) | 143,444 | |||||||||||||||||
|
Finance costs:
|
||||||||||||||||||||||||
|
Exchange gain
|
552 | |||||||||||||||||||||||
|
Exchange loss
|
(1,335 | ) | ||||||||||||||||||||||
|
Interest income
|
1,459 | |||||||||||||||||||||||
|
Interest expense
|
(5,272 | ) | ||||||||||||||||||||||
|
Total net finance costs
|
(4,596 | ) | ||||||||||||||||||||||
|
Share of profit of associates and jointly controlled entities
|
590 | 53 | 519 | 8 | 14 | 1,184 | ||||||||||||||||||
|
Profit before income tax expense
|
140,032 | |||||||||||||||||||||||
|
Income tax expense
|
(33,473 | ) | ||||||||||||||||||||||
|
Profit for the year
|
106,559 | |||||||||||||||||||||||
|
Segment assets
|
756,122 | 256,040 | 237,534 | 198,774 | 1,095,827 | 2,544,297 | ||||||||||||||||||
|
Other assets
|
289 | |||||||||||||||||||||||
|
Investments in associates and jointly controlled entities
|
22,183 | 579 | 5,393 | 68 | — | 28,223 | ||||||||||||||||||
|
Elimination of intersegment balances(a)
|
(1,122,521 | ) | ||||||||||||||||||||||
|
Total assets
|
1,450,288 | |||||||||||||||||||||||
|
Segment capital expenditure and acquisition
|
||||||||||||||||||||||||
|
— Capital expenditure
|
129,017 | 42,558 | 18,174 | 74,754 | 2,333 | 266,836 | ||||||||||||||||||
|
— Acquisition (Note 21)
|
— | — | 15,296 | — | — | 15,296 | ||||||||||||||||||
| 282,132 | ||||||||||||||||||||||||
|
Segment liabilities
|
280,573 | 98,590 | 142,254 | 92,538 | 357,107 | 971,062 | ||||||||||||||||||
|
Other liabilities
|
56,412 | |||||||||||||||||||||||
|
Elimination of intersegment balances(a)
|
(484,887 | ) | ||||||||||||||||||||||
|
Total liabilities
|
542,587 | |||||||||||||||||||||||
F-45
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
|
Exploration
|
Refining
|
Natural
|
||||||||||||||||||||||
|
and
|
and
|
Gas and
|
||||||||||||||||||||||
|
Year Ended December 31, 2008
|
Production | Chemicals | Marketing | Pipeline | Other | Total | ||||||||||||||||||
| RMB | RMB | RMB | RMB | RMB | RMB | |||||||||||||||||||
|
Turnover
|
626,367 | 560,729 | 778,141 | 63,315 | 1,418 | 2,029,970 | ||||||||||||||||||
|
Less: intersegment sales
|
(500,522 | ) | (396,410 | ) | (53,557 | ) | (6,706 | ) | (171 | ) | (957,366 | ) | ||||||||||||
|
Turnover from external customers
|
125,845 | 164,319 | 724,584 | 56,609 | 1,247 | 1,072,604 | ||||||||||||||||||
|
Depreciation, depletion and amortisation
|
(58,927 | ) | (22,796 | ) | (5,871 | ) | (6,310 | ) | (855 | ) | (94,759 | ) | ||||||||||||
|
Profit/(loss) from operations
|
240,470 | (93,830 | ) | 7,982 | 16,057 | (11,108 | ) | 159,571 | ||||||||||||||||
|
Finance costs:
|
||||||||||||||||||||||||
|
Exchange gain
|
1,774 | |||||||||||||||||||||||
|
Exchange loss
|
(2,855 | ) | ||||||||||||||||||||||
|
Interest income
|
2,277 | |||||||||||||||||||||||
|
Interest expense
|
(3,044 | ) | ||||||||||||||||||||||
|
Total net finance costs
|
(1,848 | ) | ||||||||||||||||||||||
|
Share of profit/(loss) of associates and jointly controlled
entities
|
4,561 | (609 | ) | 314 | 5 | 19 | 4,290 | |||||||||||||||||
|
Profit before income tax expense
|
162,013 | |||||||||||||||||||||||
|
Income tax expense
|
(35,211 | ) | ||||||||||||||||||||||
|
Profit for the year
|
126,802 | |||||||||||||||||||||||
|
Segment assets
|
662,454 | 290,758 | 197,950 | 121,368 | 973,128 | 2,245,658 | ||||||||||||||||||
|
Other assets
|
497 | |||||||||||||||||||||||
|
Investments in associates and jointly controlled entities
|
24,021 | 1,686 | 3,074 | 20 | 49 | 28,850 | ||||||||||||||||||
|
Elimination of intersegment balances(a)
|
(1,078,770 | ) | ||||||||||||||||||||||
|
Total assets
|
1,196,235 | |||||||||||||||||||||||
|
Segment capital expenditure
|
157,194 | 30,619 | 4,974 | 36,848 | 2,742 | 232,377 | ||||||||||||||||||
|
Segment liabilities
|
264,230 | 70,879 | 132,340 | 53,294 | 334,972 | 855,715 | ||||||||||||||||||
|
Other liabilities
|
27,667 | |||||||||||||||||||||||
|
Elimination of intersegment balances(a)
|
(534,987 | ) | ||||||||||||||||||||||
|
Total liabilities
|
348,395 | |||||||||||||||||||||||
F-46
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
|
Exploration
|
Refining
|
Natural
|
||||||||||||||||||||||
|
and
|
and
|
Gas and
|
||||||||||||||||||||||
|
Year Ended December 31, 2007
|
Production | Chemicals | Marketing | Pipeline | Other | Total | ||||||||||||||||||
| RMB | RMB | RMB | RMB | RMB | RMB | |||||||||||||||||||
|
Turnover
|
473,117 | 481,726 | 584,115 | 50,066 | 1,718 | 1,590,742 | ||||||||||||||||||
|
Less: intersegment sales
|
(378,888 | ) | (330,281 | ) | (36,773 | ) | (6,610 | ) | (648 | ) | (753,200 | ) | ||||||||||||
|
Turnover from external customers
|
94,229 | 151,445 | 547,342 | 43,456 | 1,070 | 837,542 | ||||||||||||||||||
|
Depreciation, depletion and amortisation
|
(43,731 | ) | (11,504 | ) | (5,615 | ) | (5,926 | ) | (647 | ) | (67,423 | ) | ||||||||||||
|
Profit/(loss) from operations
|
207,749 | (23,659 | ) | 10,810 | 12,495 | (6,378 | ) | 201,017 | ||||||||||||||||
|
Finance costs:
|
||||||||||||||||||||||||
|
Exchange gain
|
1,808 | |||||||||||||||||||||||
|
Exchange loss
|
(2,559 | ) | ||||||||||||||||||||||
|
Interest income
|
2,101 | |||||||||||||||||||||||
|
Interest expense
|
(3,673 | ) | ||||||||||||||||||||||
|
Total net finance costs
|
(2,323 | ) | ||||||||||||||||||||||
|
Share of profit of associates and jointly controlled entities
|
5,908 | 463 | 55 | 2 | 17 | 6,445 | ||||||||||||||||||
|
Profit before income tax expense
|
205,139 | |||||||||||||||||||||||
|
Income tax expense
|
(49,802 | ) | ||||||||||||||||||||||
|
Profit for the year
|
155,337 | |||||||||||||||||||||||
|
Segment assets
|
558,589 | 212,179 | 151,758 | 80,252 | 819,153 | 1,821,931 | ||||||||||||||||||
|
Other assets
|
307 | |||||||||||||||||||||||
|
Investments in associates and jointly controlled entities
|
21,069 | 2,279 | 2,734 | 17 | 68 | 26,167 | ||||||||||||||||||
|
Elimination of intersegment balances(a)
|
(778,794 | ) | ||||||||||||||||||||||
|
Total assets
|
1,069,611 | |||||||||||||||||||||||
|
Segment capital expenditure
|
135,351 | 21,499 | 13,212 | 11,003 | 1,613 | 182,678 | ||||||||||||||||||
|
Segment liabilities
|
227,965 | 75,155 | 98,023 | 39,790 | 188,774 | 629,707 | ||||||||||||||||||
|
Other liabilities
|
43,792 | |||||||||||||||||||||||
|
Elimination of intersegment balances(a)
|
(386,607 | ) | ||||||||||||||||||||||
|
Total liabilities
|
286,892 | |||||||||||||||||||||||
Geographical
information
| Turnover | Non-Current Assets(b) | |||||||||||||||||||||||
|
Year Ended December 31,
|
2009 | 2008 | 2007 | 2009 | 2008 | 2007 | ||||||||||||||||||
| RMB | RMB | RMB | RMB | RMB | RMB | |||||||||||||||||||
|
Mainland China
|
790,748 | 824,703 | 716,134 | 1,073,865 | 902,370 | 765,571 | ||||||||||||||||||
|
Other
|
228,527 | 247,901 | 121,408 | 78,078 | 63,878 | 60,057 | ||||||||||||||||||
| 1,019,275 | 1,072,604 | 837,542 | 1,151,943 | 966,248 | 825,628 | |||||||||||||||||||
| (a) | Elimination of intersegment balances represents elimination of intersegment accounts and investments. | |
| (b) | Non-current assets mainly include non-current assets other than financial instruments and deferred tax assets. |
F-47
Table of Contents
PETROCHINA
COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS —
(Continued)
(Amounts in millions unless otherwise stated)
(Amounts in millions unless otherwise stated)
39 EVENTS
AFTER THE REPORTING PERIOD
On February 5, 2010, the Company issued the first tranche
of medium-term notes for the year 2010 amounting to RMB
11 billion for a term of 7 years at an interest rate
of 4.60% per annum.
On May 15, 2010, the Company issued the second tranche of
medium-term notes for the year 2010 amounting to RMB
20 billion for a term of 7 years (with an option to
determine the interest rate for the issuer and a put option for
the investors in these notes at the end of the 5th year) at
an interest rate of 3.97% per annum.
On May 19, 2010, the Company issued the third tranche of
medium-term notes for the year 2010 amounting to RMB
20 billion for a term of 5 years at an interest rate
of 3.97% per annum.
40 APPROVAL
OF FINANCIAL STATEMENTS
The financial statements were approved by the Board of Directors
on March 25, 2010 and were approved by shareholders at the
Annual General Meeting held on May 20, 2010.
F-48
Table of Contents
PETROCHINA
COMPANY LIMITED
PRODUCTION ACTIVITIES (UNAUDITED)
(Amounts in millions unless otherwise stated)
In accordance with the Accounting Standards Update
2010-03
Extractive Activities — Oil and Gas (Topic 932):
Oil and Gas Reserve Estimation and Disclosures (an update of
Accounting Standards Codification Topic 932 Extractive
Activities — Oil and Gas or “ASC 932”)
issued by the Financial Accounting Standards Board and
corresponding disclosure requirements of the
U.S. Securities and Exchange Commission, this section
provides supplemental information on oil and gas producing
activities of the Company and its subsidiaries (the
“Group”) and also the Group’s investments that
are accounted for using the equity method of accounting.
The supplemental information presented below covers the
Group’s proved oil and gas reserves estimates, historical
cost information pertaining to capitalised costs, costs incurred
for property acquisitions, exploration and development
activities, result of operations for oil and gas producing
activities, standardised measure of estimated discounted future
net cash flows and changes in estimated discounted future net
cash flows.
The “Other” geographic area includes oil and gas
producing activities principally in countries such as
Kazakhstan, Venezuela and Indonesia. As the Group does not have
significant reserves held through its investments accounted for
using the equity method, information presented in relation to
these equity method investments are presented in the aggregate.
Proved
Oil and Gas Reserve Estimates
Proved oil and gas reserves cannot be measured exactly. Reserve
estimates are based on many factors related to reservoir
performance that require evaluation by the engineers
interpreting the available data, as well as price and other
economic factors. The reliability of these estimates at any
point in time depends on both the quality and quantity of the
technical and economic data, and the production performance of
the reservoirs as well as engineering judgment. Consequently,
reserve estimates are subject to revision as additional data
become available during the producing life of a reservoir. When
a commercial reservoir is discovered, proved reserves are
initially determined based on limited data from the first well
or wells. Subsequent data may better define the extent of the
reservoir and additional production performance, well tests and
engineering studies will likely improve the reliability of the
reserve estimate. The evolution of technology may also result in
the application of improved recovery techniques such as
supplemental or enhanced recovery projects, or both, which have
the potential to increase reserves.
Proved oil and gas reserves are the estimated quantities of
crude oil and natural gas, which, by analysis of geoscience and
engineering data, can be estimated with reasonable certainty to
be economically producible from a given date forward, from known
reservoirs, and under existing economic conditions, operating
methods, and government regulation before the time at which
contracts providing the right to operate expire, unless evidence
indicates that renewal is reasonably certain, regardless of
whether the estimate is a deterministic estimate or
probabilistic estimate.
Existing economic conditions include prices and costs at which
economic producibility from a reservoir is to be determined. The
price shall be the average price during the
12-month
period before the ending date of the period covered by the
report, determined as an unweighted arithmetic average of the
first-day-of-the-month
price for each month within such period, unless prices are
defined by contractual arrangements, excluding escalations based
upon future conditions. The costs shall be that prevailing at
the end of the period.
Proved developed oil and gas reserves are proved reserves that
can be expected to be recovered:
a. Through existing wells with existing equipment and
operating methods or in which the cost of the required equipment
is relatively minor compared with the cost of a new well.
b. Through installed extraction equipment and
infrastructure operational at the time of the reserves estimate
if the extraction is by means not involving a well.
Proved undeveloped oil and gas reserves are proved reserves that
are expected to be recovered from new wells on undrilled
acreage, or from existing wells where a relatively major
expenditure is required for recompletion.
F-49
Table of Contents
PETROCHINA
COMPANY LIMITED
SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND
PRODUCTION ACTIVITIES (UNAUDITED)
(Amounts in millions unless otherwise stated)
SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND
PRODUCTION ACTIVITIES (UNAUDITED)
(Amounts in millions unless otherwise stated)
Proved reserve estimates as of December 31, 2009, 2008 and
2007 were based on reports prepared by DeGolyer and MacNaughton
and Gaffney, Cline & Associates, independent
engineering consultants.
Estimated quantities of net proved crude oil and condensate and
natural gas reserves and of changes in net quantities of proved
developed and undeveloped reserves for each of the periods
indicated are as follows:
|
Crude Oil and
|
Total
|
|||||||||||
| Condensate | Natural Gas | — All Products | ||||||||||
|
(Millions
|
(Billions
|
(Million barrels of
|
||||||||||
| of barrels) | of cubic feet) | oil equivalent) | ||||||||||
|
Proved developed and undeveloped reserves
|
||||||||||||
|
The Group
|
||||||||||||
|
Reserves at December 31, 2006
|
11,618 | 53,469 | 20,529 | |||||||||
|
Changes resulting from:
|
||||||||||||
|
Revisions of previous estimates
|
84 | (1,062 | ) | (93 | ) | |||||||
|
Improved recovery
|
79 | — | 79 | |||||||||
|
Extensions and discoveries
|
764 | 6,331 | 1,819 | |||||||||
|
Production
|
(839 | ) | (1,627 | ) | (1,110 | ) | ||||||
|
Reserves at December 31, 2007
|
11,706 | 57,111 | 21,224 | |||||||||
|
Changes resulting from:
|
||||||||||||
|
Revisions of previous estimates
|
(574 | ) | (637 | ) | (680 | ) | ||||||
|
Improved recovery
|
75 | — | 75 | |||||||||
|
Extensions and discoveries
|
885 | 6,579 | 1,982 | |||||||||
|
Production
|
(871 | ) | (1,864 | ) | (1,181 | ) | ||||||
|
Reserves at December 31, 2008
|
11,221 | 61,189 | 21,420 | |||||||||
|
Changes resulting from:
|
||||||||||||
|
Revisions of previous estimates
|
(192 | ) | (1,273 | ) | (405 | ) | ||||||
|
Improved recovery
|
73 | — | 73 | |||||||||
|
Extensions and discoveries
|
1,005 | 5,440 | 1,911 | |||||||||
|
Production
|
(844 | ) | (2,112 | ) | (1,196 | ) | ||||||
|
Reserves at December 31, 2009
|
11,263 | 63,244 | 21,803 | |||||||||
|
Proved developed reserves at:
|
||||||||||||
|
December 31, 2007
|
9,047 | 26,047 | 13,388 | |||||||||
|
December 31, 2008
|
8,324 | 26,667 | 12,769 | |||||||||
|
December 31, 2009
|
7,871 | 30,949 | 13,029 | |||||||||
|
Proved undeveloped reserves at:
|
||||||||||||
|
December 31, 2007
|
2,659 | 31,064 | 7,836 | |||||||||
|
December 31, 2008
|
2,897 | 34,522 | 8,651 | |||||||||
|
December 31, 2009
|
3,392 | 32,295 | 8,774 | |||||||||
|
Equity method investments
|
||||||||||||
|
Share of proved developed and undeveloped reserves of associates
and jointly controlled entities
|
||||||||||||
|
December 31, 2007
|
141 | 79 | 154 | |||||||||
|
December 31, 2008
|
372 | 65 | 383 | |||||||||
|
December 31, 2009
|
310 | 50 | 319 | |||||||||
At December 31, 2009, total proved developed and
undeveloped reserves of the Group and equity method investments
is 22,122 million barrels of oil equivalent (2008: 21,803,
2007: 21,378), comprising 11,573 million
F-50
Table of Contents
PETROCHINA
COMPANY LIMITED
SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND
PRODUCTION ACTIVITIES (UNAUDITED)
(Amounts in millions unless otherwise stated)
SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND
PRODUCTION ACTIVITIES (UNAUDITED)
(Amounts in millions unless otherwise stated)
barrels of crude oil and condensate (2008: 11,593, 2007: 11,847)
and 63,294.4 billions of cubic feet of natural gas (2008:
61,254.2, 2007: 57,189.6).
At December 31, 2009, 10,516 million barrels (2008:
10,576, 2007: 11,062) of crude oil and condensate and
62,376.9 billion cubic feet (2008: 60,246.7, 2007:
56,510.0) of natural gas proved developed and undeveloped
reserves of the Group are located within Mainland China, and 747
million barrels (2008: 645, 2007: 644) of crude oil and
condensate and 866.9 billion cubic feet (2008: 942.6, 2007:
601.0) of natural gas proved developed and undeveloped reserves
of the Group are located overseas.
Capitalised
Costs
|
December 31,
|
December 31,
|
|||||||
| 2009 | 2008 | |||||||
| RMB | RMB | |||||||
|
The Group
|
||||||||
|
Property costs and producing assets
|
666,644 | 592,122 | ||||||
|
Support facilities
|
222,205 | 197,919 | ||||||
|
Construction-in-progress
|
61,581 | 59,078 | ||||||
|
Total capitalised costs
|
950,430 | 849,119 | ||||||
|
Accumulated depreciation, depletion and amortisation
|
(369,437 | ) | (317,233 | ) | ||||
|
Net capitalised costs
|
580,993 | 531,886 | ||||||
|
Equity method investments
|
||||||||
|
Share of net capitalised costs of associates and jointly
controlled entities
|
13,020 | 17,237 | ||||||
Costs
Incurred for Property Acquisitions, Exploration and Development
Activities
| Year Ended December 31, 2009 | ||||||||||||
|
Mainland
|
||||||||||||
| China | Other | Total | ||||||||||
| RMB | RMB | RMB | ||||||||||
|
The Group
|
||||||||||||
|
Property acquisition and exploration costs
|
29,786 | 2,949 | 32,735 | |||||||||
|
Development costs
|
94,130 | 5,977 | 100,107 | |||||||||
|
Total
|
123,916 | 8,926 | 132,842 | |||||||||
|
Equity method investments
|
||||||||||||
|
Share of costs of property acquisition, exploration and
development of associates and jointly controlled entities
|
— | 1,620 | 1,620 | |||||||||
F-51
Table of Contents
PETROCHINA
COMPANY LIMITED
SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND
PRODUCTION ACTIVITIES (UNAUDITED)
(Amounts in millions unless otherwise stated)
SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND
PRODUCTION ACTIVITIES (UNAUDITED)
(Amounts in millions unless otherwise stated)
| Year Ended December 31, 2008 | ||||||||||||
|
Mainland
|
||||||||||||
| China | Other | Total | ||||||||||
| RMB | RMB | RMB | ||||||||||
|
The Group
|
||||||||||||
|
Property acquisition and exploration costs
|
34,773 | 2,895 | 37,668 | |||||||||
|
Development costs
|
117,772 | 7,083 | 124,855 | |||||||||
|
Total
|
152,545 | 9,978 | 162,523 | |||||||||
|
Equity method investments
|
||||||||||||
|
Share of costs of property acquisition, exploration and
development of associates and jointly controlled entities
|
— | 4,003 | 4,003 | |||||||||
| Year Ended December 31, 2007 | ||||||||||||
|
Mainland
|
||||||||||||
| China | Other | Total | ||||||||||
| RMB | RMB | RMB | ||||||||||
|
The Group
|
||||||||||||
|
Property acquisition and exploration costs
|
35,070 | 1,350 | 36,420 | |||||||||
|
Development costs
|
90,427 | 6,022 | 96,449 | |||||||||
|
Total
|
125,497 | 7,372 | 132,869 | |||||||||
|
Equity method investments
|
||||||||||||
|
Share of costs of property acquisition, exploration and
development of associates and jointly controlled entities
|
— | 2,798 | 2,798 | |||||||||
F-52
Table of Contents
PETROCHINA
COMPANY LIMITED
SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND
PRODUCTION ACTIVITIES (UNAUDITED)
(Amounts in millions unless otherwise stated)
SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND
PRODUCTION ACTIVITIES (UNAUDITED)
(Amounts in millions unless otherwise stated)
Results
of Operations for Oil and Gas Producing Activities
| Year Ended December 31, 2009 | ||||||||||||
|
Mainland
|
||||||||||||
| China | Other | Total | ||||||||||
| RMB | RMB | RMB | ||||||||||
|
The Group
|
||||||||||||
|
Sales and other operating revenues
|
||||||||||||
|
Sales to third parties
|
62,799 | 33,878 | 96,677 | |||||||||
|
Intersegment sales
|
259,847 | 404 | 260,251 | |||||||||
| 322,646 | 34,282 | 356,928 | ||||||||||
|
Production costs excluding taxes
|
(68,236 | ) | (4,355 | ) | (72,591 | ) | ||||||
|
Exploration expenses
|
(18,426 | ) | (972 | ) | (19,398 | ) | ||||||
|
Depreciation, depletion and amortisation
|
(53,018 | ) | (4,005 | ) | (57,023 | ) | ||||||
|
Taxes other than income taxes
|
(31,210 | ) | (9,660 | ) | (40,870 | ) | ||||||
|
Accretion expense
|
(1,787 | ) | (156 | ) | (1,943 | ) | ||||||
|
Income taxes
|
(30,196 | ) | (3,783 | ) | (33,979 | ) | ||||||
|
Results of operations from producing activities
|
119,773 | 11,351 | 131,124 | |||||||||
|
Equity method investments
|
||||||||||||
|
Share of profit for producing activities of associates and
jointly controlled entities
|
— | 3,326 | 3,326 | |||||||||
|
Total of the Group and equity method investments results of
operations for producing activities
|
119,773 | 14,677 | 134,450 | |||||||||
F-53
Table of Contents
PETROCHINA
COMPANY LIMITED
SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND
PRODUCTION ACTIVITIES (UNAUDITED)
(Amounts in millions unless otherwise stated)
SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND
PRODUCTION ACTIVITIES (UNAUDITED)
(Amounts in millions unless otherwise stated)
| Year Ended December 31, 2008 | ||||||||||||
|
Mainland
|
||||||||||||
| China | Other | Total | ||||||||||
| RMB | RMB | RMB | ||||||||||
|
The Group
|
||||||||||||
|
Sales and other operating revenues
|
||||||||||||
|
Sales to third parties
|
72,218 | 52,169 | 124,387 | |||||||||
|
Intersegment sales
|
431,203 | 2,181 | 433,384 | |||||||||
| 503,421 | 54,350 | 557,771 | ||||||||||
|
Production costs excluding taxes
|
(69,469 | ) | (5,410 | ) | (74,879 | ) | ||||||
|
Exploration expenses
|
(20,868 | ) | (1,011 | ) | (21,879 | ) | ||||||
|
Depreciation, depletion and amortisation
|
(47,295 | ) | (3,532 | ) | (50,827 | ) | ||||||
|
Taxes other than income taxes
|
(99,970 | ) | (5,843 | ) | (105,813 | ) | ||||||
|
Accretion expense
|
(1,607 | ) | (139 | ) | (1,746 | ) | ||||||
|
Income taxes
|
(52,718 | ) | (9,604 | ) | (62,322 | ) | ||||||
|
Results of operations from producing activities
|
211,494 | 28,811 | 240,305 | |||||||||
|
Equity method investments
|
||||||||||||
|
Share of profit for producing activities of associates and
jointly controlled entities
|
— | 9,872 | 9,872 | |||||||||
|
Total of the Group and equity method investments results of
operations for producing activities
|
211,494 | 38,683 | 250,177 | |||||||||
| Year Ended December 31, 2007 | ||||||||||||
|
Mainland
|
||||||||||||
| China | Other | Total | ||||||||||
| RMB | RMB | RMB | ||||||||||
|
The Group
|
||||||||||||
|
Sales and other operating revenues
|
||||||||||||
|
Sales to third parties
|
65,709 | 27,331 | 93,040 | |||||||||
|
Intersegment sales
|
339,436 | — | 339,436 | |||||||||
| 405,145 | 27,331 | 432,476 | ||||||||||
|
Production costs excluding taxes
|
(60,354 | ) | (2,903 | ) | (63,257 | ) | ||||||
|
Exploration expenses
|
(19,703 | ) | (1,253 | ) | (20,956 | ) | ||||||
|
Depreciation, depletion and amortisation
|
(34,893 | ) | (2,129 | ) | (37,022 | ) | ||||||
|
Taxes other than income taxes
|
(56,081 | ) | (473 | ) | (56,554 | ) | ||||||
|
Accretion expense
|
(1,108 | ) | (94 | ) | (1,202 | ) | ||||||
|
Income taxes
|
(51,487 | ) | (6,758 | ) | (58,245 | ) | ||||||
|
Results of operations from producing activities
|
181,519 | 13,721 | 195,240 | |||||||||
|
Equity method investments
|
||||||||||||
|
Share of profit for producing activities of associates and
jointly controlled entities
|
— | 5,244 | 5,244 | |||||||||
|
Total of the Group and equity method investments results of
operations for producing activities
|
181,519 | 18,965 | 200,484 | |||||||||
F-54
Table of Contents
PETROCHINA
COMPANY LIMITED
SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND
PRODUCTION ACTIVITIES (UNAUDITED)
(Amounts in millions unless otherwise stated)
SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND
PRODUCTION ACTIVITIES (UNAUDITED)
(Amounts in millions unless otherwise stated)
Standardised
Measure of Discounted Future Net Cash Flows
The standardised measure of discounted future net cash flows
related to proved oil and gas reserves at December 31,
2009, 2008 and 2007 is as follows:
| RMB | ||||
|
The Group
|
||||
|
At December 31, 2009
|
||||
|
Future cash inflows from sales of oil and gas
|
5,045,994 | |||
|
Future production costs
|
(1,628,794 | ) | ||
|
Future development costs
|
(479,912 | ) | ||
|
Future income tax expense
|
(615,290 | ) | ||
|
Future net cash flows
|
2,321,998 | |||
|
Discount at 10% for estimated timing of cash flows
|
(1,244,183 | ) | ||
|
Standardised measure of discounted future net cash flows
|
1,077,815 | |||
| RMB | ||||
|
The Group
|
||||
|
At December 31, 2008
|
||||
|
Future cash inflows from sales of oil and gas
|
4,426,893 | |||
|
Future production costs
|
(1,521,416 | ) | ||
|
Future development costs
|
(381,498 | ) | ||
|
Future income tax expense
|
(522,158 | ) | ||
|
Future net cash flows
|
2,001,821 | |||
|
Discount at 10% for estimated timing of cash flows
|
(1,046,896 | ) | ||
|
Standardised measure of discounted future net cash flows
|
954,925 | |||
| RMB | ||||
|
The Group
|
||||
|
At December 31, 2007
|
||||
|
Future cash inflows from sales of oil and gas
|
8,714,483 | |||
|
Future production costs
|
(3,049,226 | ) | ||
|
Future development costs
|
(437,946 | ) | ||
|
Future income tax expense
|
(1,569,898 | ) | ||
|
Future net cash flows
|
3,657,413 | |||
|
Discount at 10% for estimated timing of cash flows
|
(1,835,343 | ) | ||
|
Standardised measure of discounted future net cash flows
|
1,822,070 | |||
At December 31, 2009, RMB 1,041,228 (2008: RMB 924,623,
2007: RMB 1,709,411) of standardised measure of discounted
future net cash flows related to proved oil and gas reserves
located within mainland China and RMB 36,587 (2008: RMB 30,302,
2007: RMB 112,659) of standardised measure of discounted future
net cash flows related to proved oil and gas reserves located
overseas.
F-55
Table of Contents
PETROCHINA
COMPANY LIMITED
SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND
PRODUCTION ACTIVITIES (UNAUDITED)
(Amounts in millions unless otherwise stated)
SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND
PRODUCTION ACTIVITIES (UNAUDITED)
(Amounts in millions unless otherwise stated)
Share of standardised measure of discounted future net cash
flows of associates and jointly controlled entities:
|
December 31, 2009
|
26,457 | |||
|
December 31, 2008
|
17,912 | |||
|
December 31, 2007
|
33,543 |
Future net cash flows were estimated using prices used in
estimating the Group’s proved oil and gas reserves and
year-end costs, and currently enacted tax rates related to
existing proved oil and gas reserves.
Changes
in Standardised Measure of Discounted Future Net Cash
Flows
Changes in the standardised measure of discounted net cash flows
for the Group for each of the years ended December 31,
2009, 2008 and 2007 are as follows:
| Year Ended December 31 | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| RMB | RMB | RMB | ||||||||||
|
The Group
|
||||||||||||
|
Beginning of the year
|
954,925 | 1,822,070 | 1,155,345 | |||||||||
|
Sales and transfers of oil and gas produced, net of production
costs
|
(242,363 | ) | (375,269 | ) | (309,269 | ) | ||||||
|
Net changes in prices and production costs and other
|
171,170 | (1,448,443 | ) | 804,330 | ||||||||
|
Extensions, discoveries and improved recovery
|
150,846 | 139,058 | 256,476 | |||||||||
|
Development costs incurred
|
(8,488 | ) | 67,673 | (39,031 | ) | |||||||
|
Revisions of previous quantity estimates
|
(31,516 | ) | (46,105 | ) | (3,567 | ) | ||||||
|
Accretion of discount
|
120,396 | 260,643 | 171,389 | |||||||||
|
Net change in income taxes
|
(37,155 | ) | 535,298 | (213,603 | ) | |||||||
|
End of the year
|
1,077,815 | 954,925 | 1,822,070 | |||||||||
F-56
TABLE OF CONTENTS
Part IItem 1 Identity Of Directors, Senior Management and AdvisorsItem 2 Offer Statistics and Expected TimetableItem 3 Key InformationItem 4 Information on The CompanyItem 4A Unresolved Staff CommentsItem 5 Operating and Financial Review and ProspectsItem 6 Directors, Senior Management and EmployeesItem 7 Major Shareholders and Related Party TransactionsItem 8 Financial InformationItem 9 The Offer and ListingItem 10 Additional InformationItem 11 Quantitative and Qualitative Disclosures About Market RiskItem 12 Description Of Securities Other Than Equity SecuritiesPart IIItem 13 Defaults, Dividends Arrearages and DelinquenciesItem 14 Material Modifications To The Rights To Security Holders and Use Of ProceedsItem 15 Controls and ProceduresItem 16A Audit Committee Financial ExpertItem 16B Code Of EthicsItem 16C Principal Accountant Fees and ServicesItem 16D Exemptions From Listing Standards For Audit CommitteesItem 16E Purchases Of Equity Securities By The Issuer and Affiliated PurchasersItem 16F Change in Registrant S Certifying AccountantItem 16G Corporate GovernancePart IIIItem 17 Financial StatementsItem 18 Financial StatementsItem 19 Exhibits