SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of April 2005
PETROCHINA COMPANY LIMITED
16 ANDELU, DONGCHENG DISTRICT
BEIJING, THE PEOPLE'S REPUBLIC OF CHINA, 100011
(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.)
Form 20-F X Form 40-F
-----
(Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes No X
----- -----
(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-______)
PetroChina Company Limited (the "Registrant") is furnishing under the cover
of Form 6-K, the Registrant's Annual Report for the year ended December 31,
2004, prepared in accordance with the requirements of The Stock Exchange of Hong
Kong Limited.
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 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:
o various expected plans and measures to be taken and the intended or
anticipated effects or benefits of such plans and measures as
discussed under "Chairman's Report - Standardised Operations and
Business Prospects";
o the Registrant's anticipated capital expenditures for each of its
segments for the year ending December 31, 2005 and non
segment-specific capital expenditures for the same period;
o the Registrant's plan for segment operations, including continuing to:
- enhance exploration and production to ensure continuous increase
in oil and natural gas output;
- integrate and optimize the refining and chemicals business;
- improve marketing network to maximize operating efficiency; and
- carefully organize the construction of key natural gas pipeline
projects to achieve various construction targets;
o the Registrant's plan to actively promote overseas oil and natural gas
exploration, and to expand the Registrant's overseas business by
mergers and acquisitions;
o the Registrant's plan to maintain strict control over the size of its
workforce;
o the Registrant's plans to adopt various measures to enhance its value
and maximize shareholders' value; and
o the Registrant's other future plans and prospects.
These forward-looking statements reflect our current views with respect to
future events and are not a guarantee of future performance. Actual results may
differ materially from information contained in these forward-looking statements
as a result of a number of factors, including, without limitation:
o fluctuations in crude oil and natural gas prices;
o failure to achieve continued exploration success;
o failure or delay in achieving production from development projects;
o change in demand for competing fuels in the target market;
o continued availability of capital and financing;
o general economic, market and business conditions;
o changes in policies, laws or regulations of the PRC and other
jurisdictions in which the Registrant and its subsidiaries conduct
business; and
o other factors beyond the Registrant's control.
We do not intend to update or otherwise revise the forward-looking
statements in this announcement, whether as a result of new information, future
events or otherwise. Because of these risks, uncertainties and assumptions, the
forward-looking events and circumstances discussed in this announcement might
not occur in the way we expect, or at all.
You should not place undue reliance on any of these forward-looking
statements.
FINANCIAL AND BUSINESS SUMMARY
Output of crude oil for 2004 was 778.4 million barrels, representing an increase
of 0.5% from 2003.
Output of marketable natural gas for 2004 was 841.2 billion cubic feet,
representing an increase of 21.7% from 2003.
Total output of crude oil and natural gas for 2004 was 918.6 million barrels of
oil equivalent, representing an increase of 3.2% from 2003.
Consolidated turnover for 2004 was RMB388,633 million, representing an increase
of 27.9% from 2003.
Consolidated net profit for 2004 was RMB102,927 million, representing an
increase of 47.9% from 2003.
Basic and diluted earnings per share for 2004 were RMB0.59, representing an
increase of RMB0.19 from 2003.
The Board of Directors has resolved to distribute a final dividend for 2004 of
RMB 0.147511 per share.
CONTENTS
COMPANY PROFILE
CHAIRMAN'S REPORT
FINANCIAL HIGHLIGHTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CORPORATE GOVERNANCE STRUCTURE
DIRECTORS' REPORT
REPORT OF THE SUPERVISORY COMMITTEE
BUSINESS OPERATING REVIEW
INFORMATION ON CRUDE OIL AND NATURAL GAS RESERVES
REPORT OF INTERNATIONAL AUDITORS
FINANCIAL STATEMENTS
SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND
PRODUCTION ACTIVITIES (UNAUDITED)
SIGNIFICANT DIFFERENCES BETWEEN IFRS AND US GAAP (UNAUDITED)
CORPORATE INFORMATION
MAJOR EVENTS IN 2004
1
COMPANY PROFILE
PetroChina Company Limited (the "COMPANY") was established as a joint
stock company with limited liability under the Company Law of the People's
Republic of China (the "PRC") on November 5, 1999 as part of the restructuring
of the China National Petroleum Corporation ("CNPC"). In the restructuring, CNPC
injected into the Company most of the assets and liabilities of CNPC relating to
its exploration and production, refining and marketing, chemicals and natural
gas businesses.
The Company, one of the largest companies in the PRC in terms of sales,
is engaged in a broad range of petroleum and natural gas related activities,
including:
o the exploration, development, production and sale of crude oil and
natural gas;
o the refining, transportation, storage and marketing of crude oil
and petroleum products;
o the production and sales of basic petrochemical products,
derivative petrochemical products and other chemical products;
and
o the transmission of natural gas, crude oil and refined products,
and the sales of natural gas.
The American Depositary Shares (the "ADSS") and H shares of the Company
were listed on the New York Stock Exchange, Inc. and the Stock Exchange of Hong
Kong Limited ("HKSE") on April 6, 2000 and April 7, 2000, respectively.
Registered Chinese Name of the Company: [CHINESE CHARACTERS]
English Name of the Company: PetroChina Company Limited
Legal Representative of the Company: Chen Geng
Secretary to the Board: Li Huaiqi
Legal Address of the Company: World Tower
16 Andelu Dongcheng District, Beijing
The People's Republic of China
Postal Code: 100011
Telephone: (8610) 8488 6270
Facsimile: (8610) 8488 6260
Places of Listing:
H shares: The Stock Exchange of Hong Kong Limited Code: 857
ADSs: The New York Stock Exchange, Inc. Symbol: PTR
2
CHAIRMAN'S REPORT
Dear Shareholders,
I am pleased to submit to you the annual report of PetroChina Company
Limited (the "COMPANY") for the year ended December 31, 2004.
REVIEW OF RESULTS AND OPERATIONS
The Company is the largest oil and gas producer and seller occupying a
leading position in the oil and gas industry in the PRC. The Company is engaged
in a broad range of petroleum-related activities.
In 2004, the Company achieved good production and operating results,
benefiting from persistent high oil prices and strong market demand as well as
the optimisation of production structure and enhanced production management. As
a result, the Company's value has further appreciated. In 2004, the Company's
profit before taxation was RMB 147.141 billion, representing an increase of
49.7% compared with the corresponding period in the previous year. Net profit
was RMB102.927 billion, representing an increase of 47.9% compared with the
corresponding period in the previous year. The Exploration and Production
segment
(Photo)
3
remained the backbone of profit growth for the Company. Realised profit from the
Refining and Marketing segment as well as the Chemicals and Marketing segment
reached a historical high. These segments contributed significantly to the
profit growth of the Company. Realised profit from the Natural Gas and Pipeline
segment also improved from the previous year, despite the fact that the designed
transmission capability was not fully utilised at the initial stage of the
operation of the West-East Pipeline Project.
The basic and diluted earnings per share of the Company were RMB0.59.
The Board of Directors of the Company recommends a final dividend of RMB
0.147511 per share for 2004 (together with the interim dividend of RMB0.115919
per share, the annual dividend for 2004 is RMB0.26343 per share), subject to the
approval of the shareholders in the annual general meeting to be held on May 26,
2005.
BOARD OF DIRECTORS AND SUPERVISORY COMMITTEE
The 2003 annual general meeting of the Company was held in Beijing on
May 18, 2004. Article 89 of the Company's Articles of Association provides that
"directors shall be elected at the shareholders' meeting for a term of three
years and may serve consecutive terms if re-elected upon the expiry of their
term of office". The term of office of one of the directors expired and two
other directors resigned. In addition, there was a vacant seat on the Board of
Directors. Pursuant to the provisions of Article 51 (2) and (13) of the
Company's Articles of Association on "election and replacement of directors" and
"review of proposals presented by shareholders representing 5% or more of the
voting shares of the Company", a resolution for the re-election and election of
four Directors was considered and approved at the meeting. It was resolved that
Mr Chen Geng be re-elected as Director and Mr Jiang Jiemin, Mr Zhou Jiping and
Mr Duan Wende be elected as Directors. A proposal to appoint two additional
Supervisors was also considered and approved at the meeting and it was resolved
that Mr Sun Xianfeng and Mr Xu Fengli be elected as Supervisors of the Company.
Please see the section headed "Brief Biography of Directors, Secretary,
Supervisors and Senior Management" in the "Report of Directors" for their
respective brief biography.
The Board of Directors currently consists of thirteen Directors,
including three independent non-executive Directors. The Supervisory Committee
consists of seven Supervisors, including two independent Supervisors.
In 2004, the Board of Directors held four regular meetings and one
extraordinary meeting, at which nineteen resolutions were approved.
I would like to take this opportunity to express my gratitude to Mr Ma
Fucai for his contribution to the Company as a Director and Chairman, and to Mr
Wu Yaowen for his contribution to the Company as a Director and Vice Chairman
during their terms of office. I would also like to congratulate Mr Jiang Jiemin,
Mr Zhou Jiping and Mr Duan Wende for being elected as Directors of the Company,
and Mr Sun Xianfeng and Mr Xu Fengli for being elected as Supervisors of the
Company.
STANDARDISED OPERATIONS AND BUSINESS PROSPECTS
The Company strictly follows the laws and regulations of its places of
listing and operates steadily
4
within the regulatory framework. In 2004, a number of effective corporate
governance measures were undertaken by the Company in accordance with regulatory
requirements to build up its internal control mechanism. The level of corporate
governance of the Company was improved. The average closing price of the
Company's H shares was HK$3.90 per share in 2004, representing an increase of
70% over the last year, and an increase of over 200% from the issue price.
In 2004, the Company continued to enhance its efforts in exploration and
exploitation of oil and gas reserves and achieved significant results in oil and
gas exploration, indicating a bright prospect for the development of this field.
Production of crude oil recorded steady growth while the natural gas business
developed rapidly. The pace of overseas oil and gas exploration and development
quickened and the geographical allocation and product structure of the refining
and chemicals business of the Company improved. The production and sales of both
refined and chemical products blossomed, profitability improved markedly and the
construction of key pipeline projects and refining facilities were smooth. With
the early commencement of commercial operation of the West-East Pipeline
Project, the Company has achieved the objective of the project.
Using the "Energyahead" website (www.energyahead.com) as an e-commerce
platform, the Company focused on the centralized procurement of goods in large
quantities and enhanced the integration of its resources procurement business.
The Company will continue to promote e-commerce which will effectively lower
procurement costs and improve the management of resources.
In the course of production and operation, the Company persistently
adhered to the principle of "human-oriented" management and devoted great
efforts to fundamental work on quality, safety and environmental protection.
Through the advancement of technology, the Company has improved the quality of
its products, minimized consumption of materials and energy and established its
brand image. The launching of the "Safety Management Year" campaign has helped
the Company enforce its organizational leadership in safety promotion, increase
the awareness and level of safety in production among all staff and devise a
comprehensive emergency plan in dealing with accidents, thereby minimizing and
preventing the occurrence of accidents to the greatest extent possible. The
Company also adopted clean production technologies and focused on reducing the
source of pollution by strengthening the monitoring and regulation of pollution
as well as controlling the discharge of pollutants. The Company will continue to
improve its Quality, Health, Safety and Environmental management system and
establish a long-term effective mechanism to promote quality, health, safety and
environmental protection.
Looking forward, the Company intends to continue to improve oil and gas
exploration and exploitation and speed up its reserve and production
capabilities, accelerate the adjustment and optimization of its refining and
chemicals business, further improve its competitiveness and profitability,
intensify its marketing efforts, improve operating efficiency, accelerate the
development of its overseas business and secure as much overseas resources as
possible.
For the exploration and production business, the Company will continue
to give top priority to exploration and more effort will be put into the
development of oil and gas fields. A continuous improvement in the rate of
conversion of resources, the rate of utilization of reserves and the ultimate
5
recovery rate will ensure a steady increase in the output of crude oil and a
significant growth in the output of natural gas.
For the refining and chemicals business, the Company will continue to
integrate the refining and chemicals business, optimize allocation of resources,
improve the concentration of crude oil processing and increase the standard of
light chemical materials. On the basis of safe operation of equipment, the
Company will strive to increase the production of processed crude oil, finished
oil as well as other value-added products in order to satisfy market demand and
improve economic efficiency.
For the marketing business, the Company will continue to further improve
and optimize its marketing network as a means to stabilize market supply and
maximize operating efficiency. It will also raise the level of marketing
services and management in order to build up a good reputation for PetroChina.
For the natural gas and pipeline business, the Company will accelerate
the construction of key pipelines, connected pipelines and underground gas
storage tanks according to the requirements of balanced development of upstream
and downstream operations, and will ensure the timely completion and
commencement of production. In addition, the Company will further improve the
linkage between production, transportation and marketing in order to achieve
balance of resources and ensure a safe and steady supply of gas through
operating pipelines.
For the overseas business, the Company will continue to accelerate the
implementation of its overseas business development strategy. It will expand
overseas operations and will actively seek opportunities to develop its overseas
oil and gas exploration and development business. It will also expand
international trade and grow its overseas business by way of mergers and
acquisitions or joint ventures.
The Company will have been listed in Hong Kong and New York for five
years in April 2005. During these five years, with the support and endorsement
of shareholders and the public, the business of the Company has developed
smoothly and the value of the Company has steadily increased. In the future, the
Company's management will persist in enhancing the Company's value and strive to
maximize the benefit and value for its shareholders. The Company will make
substantial efforts in technological and management innovation, further
strengthen its internal control mechanism and monitoring system which comply
with regulatory requirements in the market, and by way of careful planning and
prudent operations, which promotes the continuous, effective and relatively
speedy development of the Company.
Chen Geng
Chairman of the Board
Beijing, the PRC
March 16, 2005
6
(Photo)
7
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31
2000 2001 2002 2003 2004
RMB (MILLION)
------------------------------------------------------------------------
TURNOVER 245,279 241,320 244,424 303,779 388,633
------------ ------------ ------------ ------------ ------------
OPERATING EXPENSES
Purchases, services and other (64,251) (78,529) (71,690) (90,850) (116,353)
Employee compensation costs (15,129) (14,608) (16,248) (19,542) (22,309)
Exploration expenses, including exploratory dry holes (8,680) (7,344) (8,095) (10,577) (11,723)
Depreciation, depletion and amortisation (34,209) (33,615) (36,782) (40,531) (46,411)
Selling, general and administrative expenses (17,621) (21,735) (22,474) (23,930) (26,377)
Employee severance costs and closure of manufacturing (6,579) (487) (2,121) (2,355) (220)
facilities
Taxes other than income taxes (13,258) (13,951) (14,613) (15,879) (18,685)
Revaluation loss on property, plant and equipment - - - (391) -
Other (expense) / income net (119) 88 (60) (538) 31
------------ ------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES (159,846) (170,181) (172,083) (204,593) (242,047)
------------ ------------ ------------ ------------ ------------
PROFIT FROM OPERATIONS 85,433 71,139 72,341 99,186 146,586
------------ ------------ ------------ ------------ ------------
FINANCE COSTS
Exchange gain 1,406 390 133 53 50
Exchange loss (234) (140) (449) (233) (123)
Interest income 591 809 463 677 1,107
Interest expense (6,286) (4,408) (3,516) (2,346) (2,303)
------------ ------------ ------------ ------------ ------------
TOTAL FINANCE COSTS (4,523) (3,349) (3,369) (1,849) (1,269)
------------ ------------ ------------ ------------ ------------
SHARE OF PROFIT OF ASSOCIATES 584 341 268 985 1,824
------------ ------------ ------------ ------------ ------------
PROFIT BEFORE TAXATION 81,494 68,131 69,240 98,322 147,141
TAXATION (27,014) (23,066) (22,231) (28,072) (42,563)
------------ ------------ ------------ ------------ ------------
PROFIT BEFORE MINORITY INTERESTS 54,480 45,065 47,009 70,250 104,578
MINORITY INTERESTS 165 404 (99) (636) (1,651)
------------ ------------ ------------ ------------ ------------
NET PROFIT 54,645 45,469 46,910 69,614 102,927
============ ============ ============ ============ ============
BASIC AND DILUTED EARNINGS PER SHARE (RMB)(2) 0.32 0.26 0.27 0.40 0.59
============ ============ ============ ============ ============
NON-CURRENT ASSETS
Property, plant and equipment 341,175 363,367 393,296 427,875 468,519
Long-term investments 4,948 5,530 5,680 7,410 9,433
Advance operating lease payments 3,924 5,383 6,249 7,252 12,248
Intangible and other assets 901 2,368 2,760 3,024 2,987
------------ ------------ ------------ ------------ ------------
350,948 376,648 407,985 445,561 493,187
============ ============ ============ ============ ============
CURRENT ASSETS
Inventories 32,499 28,313 28,441 28,872 45,771
Accounts receivable 12,786 7,392 6,079 3,263 2,662
Prepaid expenses and other current assets 11,913 24,427 18,269 15,944 22,387
8
YEAR ENDED DECEMBER 31
2000 2001 2002 2003 2004
RMB (MILLION)
-----------------------------------------------------------------------------
Receivables under resale agreement 5,815 11,505 9,786 24,224 33,217
Time deposits with maturities over three months - 3,253 2,612 2,640 1,400
Cash and cash equivalents 18,085 11,127 9,977 11,231 11,304
------------ ------------- ----------- ------------ ------------
TOTAL CURRENT ASSETS 81,098 86,017 75,164 86,174 116,741
------------ ------------- ----------- ------------ ------------
CURRENT LIABILITIES
Accounts payable and accrued liabilities 39,550 53,210 57,793 64,180 70,696
Taxes payable 16,570 14,434 10,927 20,959 22,117
Short-term borrowings 41,514 25,323 20,633 28,890 27,276
------------ ------------- ----------- ------------ ------------
97,634 92,967 89,353 114,029 120,089
------------ ------------- ----------- ------------ ------------
NET CURRENT LIABILITIES (16,536) (6,950) (14,189) (27,855) (3,348)
------------ ------------- ----------- ------------ ------------
TOTAL ASSETS LESS CURRENT LIABILITIES 334,412 369,698 393,796 417,706 489,839
============ ============= =========== ============ ============
FINANCED BY:
Share capital 175,824 175,824 175,824 175,824 175,824
Retained earnings 29,279 35,607 59,004 89,577 143,624
Reserves 66,543 79,175 81,848 91,212 105,764
------------ ------------- ----------- ------------ ------------
Shareholders' equity 271,646 290,606 316,676 356,613 425,212
------------ ------------- ----------- ------------ ------------
Minority interests 4,989 5,136 4,854 5,608 9,391
------------ ------------- ----------- ------------ ------------
NON-CURRENT LIABILITIES
Long-term borrowings 53,412 65,546 60,655 41,959 38,458
Other long-term obligations 1,196 1,380 1,684 2,000 2,438
Deferred taxation 3,169 7,030 9,927 11,526 14,340
------------ ------------- ----------- ------------ ------------
57,777 73,956 72,266 55,485 55,236
------------ ------------- ----------- ------------ ------------
334,412 369,698 393,796 417,706 489,839
============ ============= =========== ============ ============
Other Financial Data
Capital expenditure (59,311) (59,964) (72,766) (82,929) (95,349)
Net cash generated by operating activities 102,490 82,854 97,290 137,236 137,299
Net cash used for investing activities (59,307) (59,906) (70,611) (96,213) (98,533)
Net cash provided by (used for) financing activities (43,188) (29,906) (27,829) (39,769) (38,693)
Fixed assets, net of accumulated depreciation 341,175 363,367 393,296 427,875 468,519
Total assets 432,046 462,665 483,149 531,735 609,928
Owner's equity 271,646 290,606 316,676 356,613 425,212
-------------
NOTES:
(1) The Company acquired from CNPC the assets, liabilities and interests
related to CNPC's refined products sales enterprises in 2002, and has
accounted for the acquisition in a manner similar to a uniting of
interests.
(2) Basic and diluted earnings per share for the year ended December 31, 2000
have been computed by dividing net profit by the weighted average number of
171.63 billion shares issued and outstanding for the accounting year. Basic
and diluted earnings per share for the years ended December 31 of 2001,
2002, 2003 and 2004 have been computed by dividing net profits by the
number of 175.82 billion shares issued and outstanding for such accounting
years.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
In reviewing the following discussion, please also refer to the
consolidated financial statements of the Company and its subsidiaries (the
"GROUP") and their notes contained in this annual report.
OVERVIEW
For the twelve months ended December 31, 2004, profit before taxation of
the Group was RMB147,141 million, representing an increase of 49.7% compared
with the corresponding period in the previous year. Net profit was RMB102,927
million, representing an increase of 47.9% compared with the corresponding
(Photo)
10
period in the previous year. For the first time net profit of the Group exceeded
RMB100,000 million. Profit in all four business segments recorded historical
highs. The increase in profit was due primarily to the Group's ability to take
full advantage of the opportunities presented by persistently high oil prices
and strong market demand to enhance exploration and development and to increase
oil and gas production, thereby achieving a steady increase in domestic crude
oil production. Production and sales of refined oil and chemicals increased and
the quantity of processed crude oil reached a record high. Production of natural
gas continued to increase; and there is also a new breakthrough in the
infrastructure of oil and gas pipelines. Management of the Company was also
strengthened and technological and management innovations are introduced on an
ongoing basis.
For the year ended December 31, 2004, the Company's basic and diluted
earnings per share were RMB0.59.
TWELVE MONTHS ENDED DECEMBER 31, 2004 COMPARED WITH TWELVE MONTHS ENDED
DECEMBER 31, 2003
CONSOLIDATED OPERATING RESULTS
o Turnover
Turnover increased 27.9% from RMB303,779 million for the twelve months
ended December 31, 2003 to RMB388,633 million for the twelve months ended
December 31, 2004. This was due primarily to the increase in the price of crude
oil and the increase in the prices and sales volume of natural gas, refined
products and chemicals.
o Operating Expenses
Operating expenses increased 18.3% from RMB204,593 million for the
twelve months ended December 31, 2003 to RMB242,047 million for the twelve
months ended December 31, 2004. This was mainly attributable to an increase in
the purchase cost of crude oil and refined products from external suppliers and
increased depreciation and depletion caused by an increase in the amount of
property, plant and equipment.
o Purchases, Services and Other Expenses
Purchases, services and other expenses increased 28.1% from RMB90,850
million for the twelve months ended December 31, 2003 to RMB116,353 million for
the twelve months ended December 31, 2004. This was due primarily to (1) the
increase in the purchase cost of crude oil from external suppliers resulted from
the increase of crude oil price and the increase in the purchase volume of crude
oil by the Company's refineries; and (2) the increase in the prices of refined
oil and chemical products, which increased the purchase cost of refined oil and
chemical products from external suppliers.
11
o Employee Compensation Costs
Employee compensation costs rose 14.2% from RMB19,542 million for the
twelve months ended December 31, 2003 to RMB22,309 million for the twelve months
ended December 31, 2004. This was due primarily to the increase in employees'
salaries and welfare expenses as a result of strong operating results achieved
by the Company, and the increase in labour costs as a result of further
development of the Company's retail network.
o Depreciation, Depletion and Amortization
Depreciation, depletion and amortization increased 14.5% from RMB40,531
million for the twelve months ended December 31, 2003 to RMB46,411 million for
the twelve months ended December 31, 2004. This was mainly attributable to an
increase in impairment of assets and an increase in depreciation, depletion and
amortization caused by an increase in the amount of property, plant and
equipment.
o Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 10.2% from
RMB23,930 million for the twelve months ended December 31, 2003 to RMB26,377
million for the twelve months ended December 31, 2004. This was due primarily to
an increase in transportation, repair and other related costs caused by an
increase in the sales volume of refined oil and petrochemical products.
o Shutdown of Manufacturing Assets
The costs for shutting down manufacturing assets decreased by 90.7% from
RMB2,355 million for the twelve months ended December 31, 2003 to RMB220 million
for the twelve months ended December 31, 2004, including RMB192 million for
shutting down inefficient facilities in the Refining and Marketing segment, and
RMB28 million for shutting down inefficient facilities in the Chemicals and
Marketing segment.
o Taxes other than Income Tax
Taxes other than income tax increased 17.7% from RMB15,879 million for
the twelve months ended December 31, 2003 to RMB18,685 million for the twelve
months ended December 31, 2004. The increase was due primarily to: (i) an
increase in consumption tax and surcharges as a result of an increase in the
sales volume of gasoline and diesel oil by the Company's refineries; and (ii) an
increase in compensation fees for mineral resources due to an increase in crude
oil revenue.
o Profit from Operations
As a result of the factors discussed above, profit from operations
increased 47.8% from RMB99,186 million for the twelve months ended December 31,
2003 to RMB146,586 million for the twelve months ended December 31, 2004.
o Net Exchange Gain (Loss)
Net exchange loss decreased 59.4% from RMB180 million for the twelve
months ended December 31, 2003 to RMB73 million for the twelve months ended
December 31, 2004. The decrease in net exchange loss was mainly due to a
decrease in the average proportion of foreign exchange borrowings and a
12
dramatic slowdown in the appreciation of foreign currencies against Renminbi.
o Net Interest Expenses
Net interest expenses decreased 28.3% from RMB1,669 million for the
twelve months ended December 31, 2003 to RMB1,196 million for the twelve months
ended December 31, 2004. The decrease in net interest expenses was due primarily
to sufficient cash flow generated from operating activities and a decrease in
the average proportion of interest-bearing debts.
o Profit Before Taxation
Profit before taxation rose 49.7% from RMB98,322 million for the twelve
months ended December 31, 2003 to RMB147,141 million for the twelve months ended
December 31, 2004.
o Taxation
Taxation increased 51.6% from RMB28,072 million for the twelve months
ended December 31, 2003 to RMB42,563 million for the twelve months ended
December 31, 2004. The increase was mainly due to an increase in taxable
profits.
o Net Profit
As a result of the factors discussed above, net profit increased 47.9%
from RMB69,614 million for the twelve months ended December 31, 2003 to
RMB102,927 million for the twelve months ended December 31, 2004.
INFORMATION ON BUSINESS SEGMENTS
The Group operates a wide range of petroleum and related activities
through four primary business segments: Exploration and Production segment,
Refining and Marketing segment, Chemical and Marketing segment, and Natural Gas
and Pipeline segment.
(Photo)
13
EXPLORATION AND PRODUCTION
THE BUSINESS OF THE EXPLORATION AND PRODUCTION SEGMENT INCLUDES THE
EXPLORATION, DEVELOPMENT, PRODUCTION AND MARKETING OF PETROLEUM AND NATURAL
GASES.
o Turnover
Turnover increased 25.4% from RMB177,271 million for the twelve months
ended December 31, 2003 to RMB222,305 million for the twelve months ended
December 31, 2004. The increase was mainly attributable to an increase in the
price of crude oil and an increase in the sales volume of natural gas. The
average realized crude oil price of the Company in 2004 was US$33.88 per barrel,
representing an increase of US$6.68 per barrel and 24.6% from US$27.20 per
barrel compared with the corresponding period in the previous year.
Intersegment sales increased 36.8% from RMB128,963 million for the
twelve months ended December 31, 2003 to RMB176,458 million for the twelve
months ended December 31, 2004. The increase was mainly due to an increase in
the price of crude oil and an increase in the sales volume of natural gas.
o Operating Expenses
Operating expenses increased 13.9% from RMB84,901 million for the twelve
months ended December 31, 2003 to RMB96,734 million for the twelve months ended
December 31, 2004. The increase was mainly due to the increase in crude oil
import from Russia, the increase in exploration expenses, depreciation and
depletion of fixed assets and the increase in staff costs.
o Profit from Operations
Profit from operations increased 35.9% from RMB92,370 million for the
twelve months ended December 31, 2003 to RMB125,571 million for the twelve
months ended December 31, 2004.
REFINING AND MARKETING
THE BUSINESS OF THE REFINING AND MARKETING SEGMENT INCLUDES REFINING,
STORAGE AND MARKETING OF CRUDE OIL AND PETROLEUM PRODUCTS.
o Turnover
Turnover rose 32.2% from RMB223,584 million for the twelve months ended
December 31, 2003 to RMB295,598 million for the twelve months ended December 31,
2004. The increase was caused by an increase in the prices and sales volume of
key refined products, of which:
Sales revenue from gasoline increased 28.0% from RMB60,073 million for
the twelve months ended December 31, 2003 to RMB76,919 million for the twelve
months ended December 31, 2004. The average realized selling price of gasoline
surged 17.2% from RMB3,023 per ton for the twelve months ended December 31, 2003
to RMB3,542 per ton for the twelve months ended December 31, 2004, resulting in
an increase in revenue by RMB11,267 million. The sales volume of gasoline
increased 9.3% from 19.87 million tons for the twelve months ended December 31,
2003 to 21.71 million tons for the twelve months
14
ended December 31, 2004, resulting in an increase in revenue by RMB5,579
million.
Sales revenue from diesel increased 36.2% from RMB100,336 million for
the twelve months ended December 31, 2003 to RMB136,649 million for the twelve
months ended December 31, 2004. The average realized selling price of diesel
increased 15.7% from RMB2,735 per ton for the twelve months ended December 31,
2003 to RMB3,165 per ton for the twelve months ended December 31, 2004,
resulting in an increase in revenue by RMB18,567 million. The sales volume of
diesel increased 17.7% from 36.68 million tons for the twelve months ended
December 31, 2003 to 43.18 million tons for the twelve months ended December 31,
2004, resulting in an increase in revenue by RMB17,746 million.
Sales revenue from kerosene increased 42.6% from RMB4,125 million for
the twelve months ended December 31, 2003 to RMB5,881 million for the twelve
months ended December 31, 2004.
Intersegment sales revenue increased 29.6% from RMB16,867 million for
the twelve months ended December 31, 2003 to RMB21,862 million for the twelve
months ended December 31, 2004. The increase was mainly due to an increase in
selling prices and intersegment sales volume.
o Operating Expenses
Operating expenses increased 29.8% from RMB218,549 million for the
twelve months ended December 31, 2003 to RMB283,617 million for the twelve
months ended December 31, 2004. The increase was mainly attributable to the
increase in the purchase cost of crude oil and refined oil from external
suppliers, and an increase in staff cost, selling and administrative expenses.
o Profit from Operations
Profit from operations increased 137.9% from RMB5,035 million for the
twelve months ended December 31, 2003 to RMB11,981 million for the twelve months
ended December 31, 2004.
(Photo)
15
CHEMICALS AND MARKETING
THE BUSINESS OF THE CHEMICALS AND MARKETING SEGMENT CONSISTS OF THE
PRODUCTION AND SALES OF BASIC PETROCHEMICAL PRODUCTS, DERIVATIVE PETROCHEMICAL
PRODUCTS AND OTHER CHEMICAL PRODUCTS.
o Turnover
Turnover rose 45.8% from RMB39,211 million for the twelve months ended
December 31, 2003 to RMB57,179 million for the twelve months ended December 31,
2004. The growth in turnover of this segment was mainly due to an increase in
the sales volume and selling prices of the chemical products.
o Operating Expenses
Operating expenses increased 29.7% from RMB38,170 million for the twelve
months ended December 31, 2003 to RMB49,524 million for the twelve months ended
December 31, 2004. The increase was mainly due to an increase in the expenses
for the purchase of raw materials and an increase in selling and administrative
expenses.
(Photo)
16
o Profit from Operations
Profit from operations increased 635.4% from RMB1,041 million for the
twelve months ended December 31, 2003 to RMB7,655 million for the twelve months
ended December 31, 2004.
NATURAL GAS AND PIPELINE
THE BUSINESS OF THE NATURAL GAS AND PIPELINE SEGMENT CONSISTS OF THE
DELIVERY OF NATURAL GAS, CRUDE OIL AND REFINED OIL, AND THE SALES OF NATURAL
GAS.
o Turnover
Turnover increased 21.2% from RMB15,067 million for the twelve months
ended December 31, 2003 to RMB18,255 million for the twelve months ended
December 31, 2004. The increase was mainly due to an increase in the sales
volume, and volume of natural gas from pipeline transmission.
o Operating Expenses
Operating expenses increased 19.6% from RMB13,145 million for the twelve
months ended December 31, 2003 to RMB15,720 million for the twelve months ended
December 31, 2004. The increase was mainly due to an increase in expenses for
the purchase of gas and an increase in depreciation charges caused by the
commencement of operation of the West-East Gas Pipeline.
o Profit from Operations
Profit from operations increased 31.9% from RMB1,922 million for the
twelve months ended December 31, 2003 to RMB2,535 million for the twelve months
ended December 31, 2004.
LIQUIDITY AND CAPITAL RESOURCES
For the twelve months ended December 31, 2004, the Group's primary
sources of funds were cash generated from operating activities, short-term and
long-term borrowings, cash and cash equivalents. The
(Photo)
17
Group's funds were used for operating activities, capital expenditures,
repayment of short-term and long-term borrowings and distribution of dividends
to shareholders.
As at December 31, 2004, short-term borrowings made up approximately
5.5% of the Group's capital employed as compared with approximately 6.7% as at
December 31, 2003. The Group's ability to obtain adequate financing may be
affected by the financial condition and operating results and the conditions of
the domestic and foreign capital markets. The Group must seek approvals from the
relevant PRC government authorities before raising funds in the domestic and
foreign capital markets. In general, the Group must obtain PRC government
approvals for any project involving significant capital investments in the
Refining and Marketing segment, the Chemicals and Marketing segment and the
Natural Gas and Pipeline segment.
The Group plans to fund its capital and related investments principally
from the cash generated from operating activities, short-term and long-term
borrowings, cash and cash equivalents. For the twelve months ended December 31,
2004, net cash generated from operating activities was RMB137,299 million. As at
December 31, 2004, the Group had RMB11,304 million in cash and cash equivalents.
Cash and cash equivalents were primarily Renminbi (with Renminbi accounting for
approximately 71.1% and United States Dollar accounting for approximately
28.9%).
The table below sets forth the cash flow of the Group for each of the
twelve months ended December 31, 2004 and 2003 and the cash and cash equivalents
at the end of each period.
AS AT YEAR ENDED DECEMBER 31
----------------------------------
2004 2003
----------- -----------
RMB MILLION RMB MILLION
----------- -----------
Net cash flow generated from operating activities 137,299 137,236
Net cash flow employed for investment activities (98,533) (96,213)
Net cash flow employed for financing activities (38,693) (39,769)
Cash and cash equivalents at the end of each period 11,304 11,231
CASH FLOW GENERATED FROM OPERATING ACTIVITIES
The net cash flow of the Group generated from operating activities for
the twelve months ended December 31, 2004 was RMB137,299 million which is
basically the same as the RMB137,236 million generated for the twelve months
ended December 2003. This was due to an increase in sales revenue as well as an
increase in the amount of expenditure and the amount of income tax payable. In
addition, the level of inventories also increased resulting from an increase in
the scale of its sales.
As at December 31, 2004, the Group had a working capital deficit of
RMB3,348 million compared with a working capital deficit of RMB27,855 million as
at December 31, 2003. The decrease in working capital deficit was mainly due to
an increase in inventories resulting from an increase in the scale of its sales
and an increase in receivables under resale agreements.
18
CASH USED FOR FINANCING ACTIVITIES
The net borrowings of the Group as at December 31, 2004 and December 31,
2003 are as follows:
AS AT YEAR ENDED DECEMBER 31
----------------------------
2004 2003
----------- -----------
RMB MILLION RMB MILLION
----------- -----------
Short-term borrowings (including liquid portion of long-term 27,276 28,890
borrowings)
Long-term borrowings 38,458 41,959
------ ------
Total borrowings 65,734 70,849
====== ======
Less:
Cash and cash equivalents 11,304 11,231
Time deposits with maturities over three months 1,400 2,640
Receivables under resale agreements 33,217 24,224
------ ------
Net borrowings 19,813 32,754
====== ======
The maturity profile of the long-term borrowings of the Group is as
follows:
PRINCIPAL AS AT PRINCIPAL AS AT
DECEMBER 31, DECEMBER 31,
2004 2003
----------- -----------
RMB MILLION RMB MILLION
----------- -----------
To be repaid within one year 16,008 19,711
To be repaid within one to two years 8,130 18,183
To be repaid within two to five years 22,961 17,108
To be repaid after five years 7,367 6,668
------ ------
54,466 61,670
====== ======
Of the total borrowings of the Group as at December 31, 2004,
approximately 27.1% were fixed-rate loans and approximately 72.9% were
floating-rate loans. Of the borrowings as at December 31, 2004, approximately
85.1% were denominated in Renminbi, approximately 13.2% were denominated in US
Dollars, approximately 0.5% were denominated in British Pound Sterling ,
approximately 0.7% were denominated in Japanese Yen, and approximately 0.5% were
denominated in Euro.
As at December 31, 2004 and December 31, 2003, the amount of short-term
borrowings owed to related parties was RMB600 million and RMB610 million,
respectively. As at December 31, 2004 and December 31, 2003, the amount of
long-term borrowings owed to related parties was RMB22,568 million and RMB24,578
million, respectively.
19
As at December 31, 2004, the amount of short-term and long-term
borrowings owed to China Petroleum Finance Company Limited was RMB600 million
and RMB22,568 million, respectively.
The net cash used for financing activities for the twelve months ended
December 31, 2004 decreased 2.7% compared with the twelve months ended December
31, 2003. The decrease was mainly due to lower net repayment compared with the
corresponding period of last year.
As at December 31, 2004, loans of the Group consisted of RMB50 million
(RMB170 million as at December 31, 2003) secured loans (finance lease and bank
loans), of which RMB29 million worth of bank loans (RMB114 million as at
December 31, 2003) were secured by plant and equipment of the Group valued at
RMB218 million (RMB152 million as at December 31, 2003). Given that title to the
leased property will be transferred to the lessor in the event of default, debts
incurred by way of finance lease are in fact secured debts. As at December 31,
2004, the debts incurred by the Group by way of finance lease amounted to RMB21
million (RMB56 million as at December 31, 2003). The net book value of property,
plant and equipment under finance lease was RMB175 million (RMB240 million as at
December 31, 2003).
As at December 31, 2004, the debt to capitalization ratio (debt to
capitalization ratio = interest-bearing debts / (interest-bearing debts +
shareholder's equity)) was 13.4% (16.6% as at December 31, 2003).
CAPITAL EXPENDITURES
The table below sets out our capital expenditures by the business
segments for each of the twelve months ended December 31, 2004 and the twelve
months ended December 31, 2003. As at December 31, 2004, capital expenditures
increased 15.0% to RMB95,349 million from RMB82,929 million as at December 31,
2003. The increase was mainly due to an increase in expenditures relating to oil
and gas exploration and development and continuation in putting in greater
efforts in the construction of the sales network.
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
2005
2004 2003 (ESTIMATED VALUE)
----------------- ----------------- ------------------
RMB RMB RMB
MILLION % MILLION % MILLION %
------- ----- ------- ----- ------- -----
Exploration and Production 59,488* 62.4 52.713 63.6 61,160* 62.7
Refining and Marketing 17,467 18.3 12,650 15.2 14,590 15.0
Chemicals and Marketing 4,319 4.5 3,898 4.7 8,350 8.6
Natural Gas and Pipeline 13,901 14.6 13,530 16.3 12,400 12.7
Other 174 0.2 138 0.2 1,000 1.0
------ ----- ------ ----- ------ -----
Total 95,349 100 82,929 100 97,500 100
====== ===== ====== ===== ====== =====
Note: *If geological and geophysical exploration costs were included, the
capital expenditures and investments for the Exploration and
Production segment for 2003 and 2004, and the estimate of the same
for the entire 2005 would be RMB58,599 million, RMB66,493 million and
RMB66,660 million, respectively.
20
o Exploration and Production
The majority of the Group's capital expenditures is related to the
Exploration and Production segment. For the twelve months ended December 31,
2004, capital expenditures in relation to exploration and production amounted to
RMB59,488 million, including RMB11,308 million for exploration activities and
RMB43,217 million for development activities. For the twelve months ended
December 31, 2003, capital expenditures in relation to this segment totalled
RMB52,713 million, including RMB9,250 million for exploration activities and
RMB39,587 million for development activities. The increase in capital
expenditures was mainly due to an increase in expenditures relating to oil and
gas exploration and development as well as strategic adjustments in the east and
the speeding up of production in the west, and an increase in expenditures
relating to exploration and development of gas fields in the Tarim, Sichuan and
Erdos basins.
The Group anticipates that capital expenditures for the Exploration and
Production segment for the twelve months ending December 31, 2005 will amount to
RMB61,160 million. Approximately RMB10,960 million will be used for oil and gas
exploration, and approximately RMB50,200 million will be used for oil and gas
development. Exploration and development will be mainly carried out in the
Erdos, Junggar, Tarim, Songliao, Sichuan and Bohai Bay basins.
(Photo)
21
o Refining and Marketing
Capital expenditures for the Group's Refining and Marketing segment for
the twelve months ended December 31, 2004 amounted to RMB17,467 million, of
which RMB11,729 million was spent on the expansion of the retail sales network
of refined products and storage infrastructure facilities, and RMB5,738 million
was spent on renovation of refining facilities. The total capital expenditures
of this segment for the twelve months ended December 31, 2003 were RMB12,650
million. The increase in capital expenditures was mainly due to the continual
increase in the efforts in the construction of the sales network.
The Group anticipates that capital expenditures for the Refining and
Marketing segment for the twelve months ending December 31, 2005 will amount to
RMB14,590 million, which include:
o approximately RMB7,250 million for construction and expansion of
refining facilities;
o approximately RMB7,340 million for investments in the development
of the refined product sales network.
o Chemicals and Marketing
Capital expenditures for the Chemicals and Marketing segment for the
twelve months ended December 31, 2004 and 2003 amounted to RMB4,319 million and
RMB3,898 million respectively. The increase was mainly due to an increase in
investments in the ethylene projects in Daqing, Jilin and Lanzhou.
The Group anticipates that capital expenditures for the chemicals and
marketing segment for the twelve months ended December 31, 2005 will amount to
RMB8,350 million, which is expected to be used primarily for upgrading ethylene
facilities in Daqing, Jilin, Lanzhou and Dushanzi and the PTA project at
Liaoyang Petrochemical Company.
o Natural Gas and Pipeline
Capital expenditures in the Natural Gas and Pipeline segment for the
twelve months ended December 31, 2004 amounted to RMB13,901 million. The Group
spent RMB13,462 million of these expenditures on the construction of long
distance pipelines, of which RMB3,425 million was spent on the West-East Gas
Pipeline project. For the twelve months ended December 31, 2003, capital
expenditures in the segment totalled RMB13,530 million. The increase in capital
expenditures was mainly due to an increase in investments in the Zhongxian-Wuhan
and the second Shaanxi-Beijing pipelines projects.
The Group anticipates that capital expenditures for the Natural Gas and
Pipeline segment for the twelve months ending December 31, 2005 will amount to
RMB12,400 million. Approximately RMB7,000 million is expected to be invested in
the West-East Gas Pipeline project, the Zhongxian-Wuhan pipeline and the second
Shaanxi-Beijing pipeline projects and approximately RMB5,400 million is expected
to be invested in the construction of natural gas storage facilities and other
natural gas, crude oil and refined products pipelines.
22
o Other
Non-segment-specific capital expenditures for the twelve months ended
December 31, 2004 and for the twelve months ended December 31, 2003 were RMB174
million and RMB138 million respectively. These capital expenditures were mainly
used for non- segment-specific equipment purchases and research and development
activities.
The Group anticipates that its non-segment-specific capital expenditures
for the twelve months ending December 31, 2005 will amount to RMB1 billion,
which is expected to be used primarily for technology research, information
system, construction of water and electricity supply systems, roads and
telecommunications system for the mutual benefit of various segments.
MATERIAL INVESTMENT
The Group did not hold any material investment for the year ended
December 31, 2004.
MATERIAL ACQUISITION OR DISPOSAL
The Group had not made any material acquisition or disposal of
subsidiaries and associated companies for the year ended December 31, 2004.
FOREIGN EXCHANGE RATE RISK
Renminbi is not a freely convertible currency. Future exchange rates of
Renminbi could vary significantly from the current or historical exchange rates
as a result of controls that could be imposed by the PRC government. The
exchange rates of Renminbi are affected by changes in PRC government policies.
The exchange rates of Renminbi are also affected by economic developments and
political changes domestically and internationally, and the supply and demand
for Renminbi. The official exchange rate for the conversion of Renminbi to
United States Dollar has generally been stable recently. As Renminbi is the
measurement currency of the Company and most of its consolidated entities, the
fluctuation of exchange rates of Renminbi may have positive or negative impacts
on the results of operations of the Group. Because prices for the Group's crude
oil and refined products are set generally with reference to United States
Dollar-denominated international prices, a devaluation of Renminbi against
United States Dollar may not have a negative impact on the Group's turnover but
may increase the cost incurred by the Group to acquire imported materials and
equipment as well as the foreign currency-denominated obligations of the Group.
On the other hand, an appreciation of Renminbi against United States Dollar may
decrease the Group's turnover, but the cost for acquiring imported materials and
equipment may be reduced. The results of operations and the financial condition
of the Group may also be affected by fluctuations in exchange rates against
Renminbi of a number of other foreign currencies other than United States
Dollar.
23
COMMODITY PRICE RISK
The Group is engaged in a wide range of petroleum related activities. The
global oil and gas market is affected by international political, economic and
military developments and global demand for and supply of oil and gas. As the
prices of Chinese crude oil and refined products are determined by reference to
international benchmark prices, fluctuations of prices of crude oil and refined
products in the international market will, directly or indirectly, affect prices
of Chinese crude oil and refined products. A decrease in the prices of crude oil
and refined products could adversely affect the Group's financial position. The
Group has not used derivative instruments to hedge against potential price
fluctuations of crude oil and refined products. Therefore, during 2004 and 2003,
the Group was exposed to general price fluctuations of widely traded oil and gas
commodities.
INDUSTRY RISK
Like other oil and natural gas companies in China, the Company's business
activities are subject to regulation and control by the PRC government in many
aspects. This regulation and control, such as by way of grant of exploration and
production licences, the imposition of industry-specific taxes and levies and
the implementation of environmental and safety standards, is expected to have an
impact on the Company's business operations. As a result, the Company may be
subject to fairly significant restrictions when implementing its business
strategy, developing and expanding its business or maximising its profitability.
Any future changes in PRC governmental policies on the crude oil and natural gas
industry may also affect the Company's business operations.
EMPLOYEES
o Number of employees
As at December 31, 2003 and December 31, 2004, the Group had 417,229 and
424,175 employees respectively. The table below sets out the number of employees
by business segment as at December 31, 2004:
NUMBER OF EMPLOYEES PERCENTAGE OF TOTAL (%)
------------------- -----------------------
Exploration and Production 236,591 55.8
Refining and Marketing 116,813 27.5
Chemicals and Marketing 57,765 13.6
Natural Gas and Pipeline 10,191 2.4
Other(*) 2,815 0.7
------- ------
Total 424,175 100.00
======= ======
Note*: Including management staff of PetroChina Exploration & Development
Research Institute, PetroChina Planning & Engineering Institute, Oil
Refining and Petrochemical Technological Research Centres, Company
headquarters and business segment head offices
24
o Employee Compensation
The total employee compensation payable by the Group for the twelve
months ended December 31, 2004 was RMB14,926 million, being the total salaries
of employees during the reporting period. Compensation of employees is
determined according to industry practice and the actual conditions of the
Group, and is based on the principles of attracting and retaining high-calibre
personnel, and motivating all staff in attaining best results.
The Company's senior management remuneration system links senior
management financial interests (including those of executive directors and
supervisors) with the Company's operating results and the market performance of
its shares. Members of the senior management have entered into performance
contracts with the Company. Under this system, the senior management members'
compensation has three components, namely, fixed salaries, performance bonuses
and stock appreciation rights. The variable components in their compensation
account for approximately 70% to 75% of the senior management officers' total
potential compensation, including approximately 0% to 25% forming the
performance bonus component and approximately 50% to 70% forming the stock
appreciation rights component. Variable compensation rewards are linked to the
attainment of specific performance targets, such as net profit, return on
capital and cost reduction targets. The chart below sets forth the components of
the total potential compensation for key officers.
STOCK
BASIC SALARY APPRECIATION PERFORMANCE
(%) RIGHTS (%) BONUS (%)
------------ ------------ -----------
Chairman 30 70 0
President 25 60 15
Vice President 25 60 15
Department General Manager 25 50 25
(Photo)
25
Details of the directors' and supervisors' emoluments as at December 31,
2004 and December 31, 2003 are as follows:
2004 2003
------- --------
RMB'000 RMB '000
------- --------
Fees for directors and supervisors 120 83
Salaries, allowances and other benefits 2,012 1,377
Contribution to retirement benefit scheme 43 34
----- -----
2,175 1,494
===== =====
The number of directors and supervisors whose emoluments fall within the
following band (including directors and supervisors whose term expired during
the year):
2004 2003
------ ------
NUMBER NUMBER
------ ------
Nil-RMB1,000,000 24 19
===== =====
Upon exercise of their share options, members of the senior management
will not receive any shares in the Company, but will, by way of stock
appreciation rights, receive a monetary sum which is calculated on the basis of
the share price of the H shares listed on the HKSE.
o Workforce Reduction Plan
During the period from 1999 to 2002, a total of 58,300 people were laid
off, which has met the target of laying off 50,000 employees originally
committed by the Company.
The Company has no plan for any substantial reduction of its workforce in
the next few years, but will continue to keep a strict control on the total
number of employees. Workforce required for new projects or expanded production
capacity will first be obtained by way of tapping existing resources and making
use of any spare capacity.
o Training Programs
In order to develop the Company into an internationally competitive oil
company, the Company has targeted high-calibre and skilful staff in its training
program for 2004 with a focus on the training of core personnel and
implementation of a "strong corporate and high talent" strategy, actively
promoted the training of all of its employees and strived to build a proficient
operating and management team, a technology innovation team and a skilful
operators' team so as to achieve an overall improvement in the quality of its
staff and to ensure the supply of talents required for the continuous, steady
and relatively speedy development of the Company.
26
o Medical Insurance
Since October 1, 2002, the Company's headquarters and its regional
branches based in Beijing are members of the basic medical insurance scheme
organized by the Beijing Municipality, making contributions at 9% of the total
basic salaries of the employees. Other regional branches of the Company have
also participated in their respective local basic medical insurance schemes.
As basic medical insurance is organized by local authorities, the dates
of implementation, rates of contribution and reimbursement methods vary with
localities. The rate of contribution is generally set at 6% to 10% of the total
basic salaries of the employees of various companies.
In accordance with relevant regulations of the PRC government, the
Company has given permission to regional companies that have participated in
local basic insurance schemes to establish a supplemental medical insurance
scheme from 2002. Contributions to the schemes are set at not more than 4% of
the total salaries and will be booked as cost.
CONTINGENT LIABILITIES
Information on the Group's contingent liabilities as of December 31, 2004
is as follows:
o Bank and other guarantees
As at December 31, 2004, the Group had contingent liabilities in respect
of bank and other guarantees and other matters arising in the ordinary course of
business from which it is anticipated that no material liabilities will arise.
2004 2003
RMB MILLION RMB MILLION
----------- -----------
Guarantees of borrowings of associates 203 448
===== =====
o Environmental liabilities
China has adopted extensive environmental laws and regulations that
affect the operation of the oil and gas industry. The impact of environmental
liabilities under proposed or future environmental legislation cannot reasonably
be estimated at present, and could be material. Under existing legislation,
however, the management believes that there are no probable liabilities, except
for the amounts which have already been reflected in the financial statements,
which will have a material adverse effect on the financial position of the
Group.
27
o Legal contingencies
The Group is the named defendant in certain insignificant lawsuits as
well as the named party in other proceedings arising in the ordinary course of
business. While the outcome of such contingencies, lawsuits or other proceedings
cannot be determined at present, the management believes that any resulting
legal liabilities will not have a material adverse effect on the financial
position of the Group.
o Leasing of land, roads and buildings
According to the Restructuring Agreement entered into between the Company
and CNPC in 1999 upon the formation of the Company, CNPC has undertaken to the
Company as follows:
o in CNPC will use its best endeavours to obtain formal land use right
certificates to replace the entitlement certificates in relation to
the 28,649 parcels of land which were leased or transferred to the
Company from CNPC, within one year from August, September and
October 1999 when the relevant entitlement certificates were issued;
o in CNPC will complete, within one year from November 5, 1999, the
necessary governmental procedures for the requisition of
collectively-owned land on which 116 service stations owned by the
Company are located; and
o in CNPC will obtain individual building ownership certificates in
the name of the Company for all of the 57,482 buildings transferred
to the Company by CNPC, before November 5, 2000.
As at December 31, 2004, CNPC had obtained formal land use right
certificates in relation to 26,549 out of the above-mentioned 28,649 parcels of
land, and some building ownership certificates for the above-mentioned
buildings, but had not yet completed the necessary governmental procedures for
the above-mentioned service stations located on collectively-owned land. The
Directors of the Company are of the opinion that the use of and the conduct of
the 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 individual building ownership certificates have not been
obtained or the fact that the relevant governmental procedures have not been
completed and therefore will not have a material adverse effect on the results
of operations or the financial position of the Group.
o Group insurance
Except for limited insurance coverage for vehicles and certain assets
subject to significant operating risks, the Group does not carry any other
insurance for property, facilities or equipment with respect to its business
operations. In addition, the Group does not carry any third-party liability
insurance against claims relating to personal injury, property and environmental
damages or business interruption insurance since such insurance coverage is not
customary in China. While the effect of under-insurance on future incidents
cannot be reasonably assessed at present, the management believes that it may
have a material impact on the operating results but will not have a material
adverse effect on the financial position of the Group.
28
o Re-allocation of production and operation facilities
The Group may further streamline its production and operation facilities
within the next several years to further improve the operating efficiency and
competitiveness of the Group. The management has not approved all significant
actions to be taken to complete such plans. The management does not believe such
plans will have a material adverse impact on the Group's financial position, but
they may have a material adverse effect on the Group's results of operations.
o Other
In December 2003, a gas blow-out incident occurred at one of the gas
wells of the Group. The blow-out caused the leakage of a large quantity of
sulfurated hydrogen, causing injuries and deaths to many residents living in the
surrounding area. As a result of an investigation conducted by the PRC
government, CNPC, which provided drilling services for the well, was held liable
for this blow-out. The incident has not had, and the Company does not believe it
will have, a material adverse effect on the results of operations and financial
position of the Group.
29
CORPORATE GOVERNANCE STRUCTURE
The Company has always conscientiously complied with the regulatory
requirements of the China Securities Regulatory Commission, the HKSE, The New
York Stock Exchange Inc. and the United States Securities and Exchange
Commission, as well as other regulatory requirements; the Company continued to
regulate and improve its corporate governance structure and has set up
shareholders' meetings, the Board of Directors and other corresponding special
committees, the Supervisory Committee and a management team headed by the
President. These bodies co-ordinate to effectively check and balance the powers
of each other and discharge their functions in a regulated manner. The Company
has been regulating its internal management and operations in strict compliance
with its Articles of Association, Work Manual of the Board of Directors,
Organisation and Rules of Procedures of the Supervisory Committee, and the
Principles for Disclosure Control and Disclosure Procedures by the Company. The
Company has
(Photo)
30
also provided all market participants and regulatory authorities with timely,
accurate, complete and reliable information about the Company, and strived to
enhance the Company's corporate value.
An outline of these rules is as follows:
IN RELATION TO SHAREHOLDERS AND SHAREHOLDERS' MEETINGS: In order to
ensure that all shareholders of the Company enjoy equal status and are able to
exercise their rights effectively, the Company holds shareholders' meetings
every year in strict compliance with the requirements of the Standard Opinion
regarding Shareholders' Meetings promulgated by the China Securities Regulatory
Commission. At the annual general meeting for 2003 held on May 18, 2004, nine
resolutions were adopted, including adopting the resolutions on the Report of
Directors for 2003, the profit distribution plan for 2003 and authorising the
Board of Directors to issue shares. In order to ensure that connected
transactions are fair and reasonable, in the shareholders' meetings, CNPC, being
a connected person of the Company, abstained from voting in respect of such
resolutions. Each year the independent non-executive Directors of the Company
will also ensure that details of connected transactions, including examination
and approval procedures and compliance status of connected transactions have
been disclosed.
IN RELATION TO DIRECTORS AND THE BOARD OF DIRECTORS: The Directors and
the Board of Directors of the Company have carried out actions in relation to
corporate governance matters in a conscientious and responsible manner and are
held accountable to the Company and its shareholders. The Company has elected
its Directors in strict compliance with the procedures for election of directors
as set out in its Articles of Association. All Directors have attended Board
meetings in a conscientious and responsible manner, performed their duties as
Directors conscientiously and diligently, made decisions on major matters
affecting the Company, appointed, dismissed and supervised the executives of the
Company, and communicated with Shareholders. The Company has established a
system of independent Directors whereby three independent non-executive
Directors have been appointed to the Board of Directors to protect the interests
of minority shareholders independently and objectively. They act as a force to
check and balance the power of the Board of Directors in the decision-making
process.
The Board of Directors has established four special committees. They are
the Audit Committee, the Investment and Development Committee, the Examination
and Remuneration Committee, and the Health, Safety and Environmental Protection
Committee. The Audit Committee is made up of two independent non-executive
Directors and one non-executive Director. The Chairman of the Audit Committee is
an independent non-executive Director. This is in full compliance with
requirements of the Listing Rules of the Stock Exchange of Hong Kong Limited
(the "LISTING RULES"). The Examination and Remuneration Committee is made up of
one independent non-executive Director and two non-executive Directors. The main
duty of the four special committees is to assist the decision-making process of
the Board of Directors.
31
Directors participating in the special committees fully utilise their expertise
in their respective specialised areas and focus on particular issues so as to
make recommendations in perfecting and improving the level of corporate
governance of the Company.
In 2004, the Company held four regular Board meetings, one extraordinary
Board meeting and seven special committee meetings, in which nineteen Board
resolutions and seven committee recommendations were passed.
IN RELATION TO THE SUPERVISORS AND THE SUPERVISORY COMMITTEE: The
Supervisory Committee is accountable to the shareholders' meetings, and its
members are made up of a Supervisor elected by the employees' representatives
and two independent non-executive Supervisors. The Supervisors have discharged
their duties conscientiously in accordance with the laws, regulations and the
Articles of Association of the Company, held Supervisory Committee meetings in
accordance with the prescribed procedures, sat in all Board meetings, persisted
in reporting their work and presented Supervisory Committee reports and related
resolutions to the shareholders' meetings. In line with the spirit of
accountability to all Shareholders, the Supervisory Committee also monitored the
Company's financial affairs and the performance of the Company's Directors, the
President and other senior management staff to ensure they are in compliance
with all legal and regulatory requirements The Supervisory Committee has
participated actively in the Company's business such as production, operation
and investment projects, and has raised many constructive proposals.
IN RELATION TO THE MECHANISM FOR ASSESSMENT OF PERFORMANCE AND FOR
INCENTIVE AND RESTRICTIONS: The appointment and dismissal of the members of the
senior management of the Company have been conducted in an open and transparent
manner and in compliance with the relevant provisions of laws and regulations
and the Articles of Association of the Company. The Company has adopted
incentive schemes such as the Standards for Senior Management Share Option
Scheme and the Remuneration Standards for Senior Management. Regional deputy
managers of the Company have been recruited in the form of open competition or
company-wide competition. The headquarters of the Company has adopted the policy
of appointment through competition, thereby increasing the transparency of human
resources work and forming an open, just and fair system of selection and
appointment.
DISCLOSURE OF INFORMATION AND TRANSPARENCY: The Secretary to the Board of
Directors of the Company and the Secretariat under his/her leadership are
responsible for information disclosure and receiving visits by and enquiries
from investors. The Secretariat of the Board of Directors has disclosed
information in accordance with the law, pursuant to the Articles of Association
of the Company and the regulatory requirements of the places of its listing. The
Company formed an information disclosure committee and its working group in
2003, and selected a disclosure supervisor within the group, who is responsible
for supervising matters relating to disclosure controls and procedures. In line
with the spirit of accountability to all Shareholders, the Company has continued
to enhance communication with its investors through various means, respond to
various issues raised by investors in a timely manner, further
32
strengthen and develop relationships with its investors, focus on the
establishment and development of its relationships with the media in the
financial sector, and improve co-ordination with regulatory bodies and trading
institutions. In addition, the Company has established a wide information
collection network to closely monitor market information and development and to
report to the management of the Company in a timely manner any material or
sensitive issues, the latest development of the capital markets and feedback
from investors in relation to the Company. The Company has also provided
investors with information disclosed to the public and documents for inspection
and has actively advertised through the media. The Company has also published
various information concerning its recent material developments in a timely
manner in its website and through news releases. The "Investors" section on the
Company's website contains information on the corporate governance structure,
company information, reports and announcements, roadshows and other information
for investors' reference.
IN RELATION TO THE RELATIONSHIP BETWEEN CNPC AND THE COMPANY: CNPC, the
controlling shareholder of the Company, has exercised its rights at
shareholders' meeting in accordance with the law. CNPC has not directly
interfered with the decision-making, production or operation of the Company, nor
has it prejudiced the legitimate interests of the Company and of its
Shareholders. CNPC is independent from the Company in all aspects, including
personnel deployment, assets, financing, organisation and business operations.
At the time of listing of the Company, it entered into a Non-competition
Agreement with CNPC to ensure that CNPC will not engage either directly or
indirectly in any business that is or may be in competition with any core
business of the Company. The Board of Directors, the Supervisory Committee and
the management team headed by the President of the Company also work
independently of each other.
DISCHARGE OF DUTIES BY INDEPENDENT NON-EXECUTIVE DIRECTORS: There are
three independent non-executive Directors on the Board of Directors of the
Company who are nominated by the Board of Directors and elected by the
shareholders' meetings, in compliance with the requirements of the Listing Rules
relating to the minimum number of independent non-executive directors. The
Company has received confirmation letters issued by the three independent
non-executive Directors pursuant to Rule 3.13 of the Listing Rules confirming
their independence, and is satisfied that the three independent non-executive
Directors are totally independent from the Company and its substantial
shareholders and associates, and hence in full compliance with the requirements
of the Listing Rules relating to independent non-executive directors. The three
independent non-executive Directors do not hold any other positions in the
Company. The independent non-executive Directors have conscientiously discharged
their duties in accordance with the Articles of Association of the Company and
the relevant laws and regulations. They have actively attended meetings of the
Board of Directors and participated in discussions leading to decisions on
material issues. They have commented on the orderly functioning and operations
of the Company based on their plenteous professional knowledge and experience,
as well as the compliance of the connected transactions waiver requirements of
the regulators in the places of listing, so as to ensure that the connected
transactions are fair and reasonable. They have reviewed and formed independent
33
opinion on asset restructuring and connected transactions. Independent
non-executive Directors have also participated in the work of the audit
committee and the examination and remuneration committee. The independent
non-executive Directors have made important contributions to the protection of
the Company's interest and the lawful rights and interests of all the
shareholders, as well as to the promotion of the healthy development of the
Company.
Disclosure of significant differences in corporate governance structure
pursuant to the requirements under section 303A.11 of the New York Stock
Exchange Listed Company Manual: The Company has disclosed a summary of the
significant differences in corporate governance practices for purposes of
Section 303A.11 of the New York Stock Exchange Listed Company Manual on its
website, www.petrochina.com.cn. You may access such information from the
Company's website by taking the following steps:
(1) From our main web page, first click "Investor Relations"
(2) Next, click "Corporate Governance Structure"
(3) Finally, click "Significant Differences in Corporate Governance
Practices for purposes of Section 303A.11 of the New York Stock
Exchange Listed Company Manual".
34
DIRECTORS' REPORT
The Board of Directors of PetroChina Company Limited is pleased to
present its report together with the audited financial statements of the Group
for the year ended December 31, 2004.
KEY ACTIVITIES OF THE GROUP AND GEOGRAPHICAL ANALYSIS
The Group is engaged in a broad range of petroleum-related activities,
including:
o the exploration, development, production and sale of crude oil and
natural gas;
o the refining, transportation, storage and marketing of crude oil
and petroleum products;
o the production and sale of basic petrochemical products,
derivative petrochemical products and other chemical products; and
o the transmission of natural gas, crude oil and refined products,
and sale of natural gas.
The operating segment information on the above areas is set out in note
38 to the financial statements prepared in accordance with International
Financial Reporting Standards ("IFRS").
The businesses of the principal subsidiaries in which the Company had
material interest and which could significantly affect the results or assets of
the Group are set out in note 17 to the financial statements prepared in
accordance with IFRS.
SHARE CAPITAL STRUCTURE
The Company issued 15,824,176,200 H shares (including H shares underlying
ADSs) in April 2000. At the same time, CNPC offered 1,758,241,800 shares held by
it in the Company to the public. After the issue and offer, the public held
17,582,418,000 shares in the Company, representing 10% of the total share
capital of the Company immediately after the issue. The net proceeds from the
share issue amounting to RMB20,337 million were intended to fund the Company's
capital expenditures and investments, to provide additional funds for general
corporate purposes, and to repay short-term loans borrowed from third party
financial institutions. The Company's ADSs and H shares were listed on The New
York Stock Exchange, Inc. and the HKSE on April 6, 2000 and April 7, 2000
respectively.
The share capital of the Company in issue as fully paid or credited as
fully paid as at December 31, 2004 was 175,824,176,000 shares, with a par value
of RMB1.00 each. As at December 31, 2004, the share capital structure of the
Company was as follows:
35
PERCENTAGE OF THE TOTAL
NUMBER OF SHARES AS AT NUMBER OF SHARES IN ISSUE AS
SHARES DECEMBER 31, 2004 AT DECEMBER 31, 2004 (%)
------ ---------------------- ----------------------------
State-owned shares 158,241,758,000 90
Foreign-invested shares (H shares and
ADSs) 17,582,418,000 10
Total 175,824,176,000 100
Changes in the share capital of the Company are set out in note 28 to the
financial statements.
RESULTS AND DISTRIBUTION
The results for the year are set out in the Consolidated Profit and Loss
Account on page 70.
The financial condition of the Group as at December 31, 2004 are set out
in the Consolidated Balance Sheet on page 71.
The consolidated cashflow of the Group for the year is set out in the
statements on page 73.
DIVIDENDS
The Board of Directors recommends to pay a final dividend of RMB0.147511
per share (inclusive of applicable tax) from the balance of 45% of the net
profit for the twelve months ended December 31, 2004 less the interim dividend
for 2004 paid on October 8, 2004. The proposed final dividend is subject to
shareholders' approval at the annual general meeting to be held on May 26, 2005.
The final dividend will be paid to shareholders whose names appear on the
register of members of the Company at the close of business on May 26, 2005. The
register of members will be closed from April 26, 2005 to May 26, 2005 (both
days inclusive) during which period no transfer of shares will be registered. In
order to qualify for the final dividend, all transfer documents must be lodged,
together with the relevant share certificates, at Hong Kong Registrars Limited
no later than 4 p.m. on April 25, 2005.
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36
In accordance with Article 149 of its Articles of Association, dividends
payable to the Company's shareholders shall be declared in Renminbi. Dividends
payable to the holders of State-owned shares shall be paid in Renminbi while
dividends payable to the holders of H shares shall be paid in Hong Kong Dollars.
The amount of Hong Kong Dollars payable shall be calculated on the basis of the
average of the closing exchange rates for Renminbi to Hong Kong Dollar as
published by the People's Bank of China for the week prior to the declaration of
the dividend at the shareholders' meeting to be held on May 26, 2005.
Final dividend will be paid on or around June 10, 2005.
BANK LOANS AND OTHER BORROWINGS
Details of bank loans and other borrowings of the Company and the Group
as at December 31, 2004 are set out in note 27 to the financial statements
prepared in accordance with IFRS in this annual report.
INTEREST CAPITALISATION
Interest capitalisation for the Group for the year ended December 31,
2004 was RMB1,005 million.
FIXED ASSETS
Changes to the fixed assets of the Company and the Group during the year
are summarised in note 14 to the financial statements prepared in accordance
with IFRS in this annual report.
LAND VALUE APPRECIATION TAX
No land value appreciation tax was payable by the Group during the year.
RESERVES
Details of changes to the reserves of the Company and the Group for the
year ended December 31, 2004 are set out in note 29 to the financial statements
prepared in accordance with IFRS in this annual report.
DISTRIBUTABLE RESERVES
As at December 31, 2004, the reserves of the Company that can be
distributed as dividend were RMB121,184 million (2003: RMB73,051 million).
STATUTORY COMMON WELFARE FUND
Details of the statutory welfare fund, such as the nature, application
and movements in the fund and the basis of its calculation, including the
percentage and profit figure used for calculating the amounts, are set out in
note 29 to the financial statements prepared in accordance with IFRS in this
annual report.
37
MANAGEMENT CONTRACT
During the year, the Company did not enter into any management contracts
concerning the management or administration of its overall business or any of
its material business, nor did any such management contract exist.
EMPLOYEES' RETIREMENT SCHEME
Details of the Company's employees' retirement scheme are set out in note
32 to the financial statements prepared in accordance with IFRS in this annual
report.
MAJOR SUPPLIERS AND CUSTOMERS
CNPC is the Group's largest supplier of goods and services and the
aggregate purchase attributable to CNPC was 33% of the total purchase of the
Group for 2004. The aggregate purchase attributable to the five largest
suppliers of the Group was 43% of the Group's total purchase.
The aggregate revenue derived from the major customers is set out in note
36 to the financial statements prepared in accordance with IFRS in this annual
report. The aggregate revenue derived from the five largest customers was less
than 30% of the Group's total sales.
None of the Directors, Supervisors and their associates or any
shareholder (who to the knowledge of the Directors were holding 5% or more of
the Company's share capital) had any interest in any of the above-mentioned
suppliers and customers.
REPURCHASE, SALE OR REDEMPTION OF SECURITIES
The Company or any of its subsidiaries did not sell any other types of
securities of the Company, nor did it repurchase or redeem any of the securities
of the Company during the twelve months ended December 31, 2004.
TRUST DEPOSITS AND IRRECOVERABLE OVERDUE TIME DEPOSITS
As at December 31, 2004, the Company did not have any trust deposits or
irrecoverable overdue time deposits.
PRE-EMPTIVE RIGHTS
There is no provision regarding pre-emptive rights under the Articles of
Association of the Company or the PRC laws.
MATERIAL LITIGATION
The Group was not involved in any material litigation or dispute in 2004.
38
LAUNCH OF NEW TRADEMARK
The Company started to use a uniform new logo on December 26, 2004. The
Company and CNPC jointly owned the new logo.
The new logo inherits the existing registered trademarks of PetroChina
and CNPC. While reflecting the corporations' characteristics, it aims to enhance
the awareness among consumers and the general public, and unifies the logos of
PetroChina and CNPC. The new logo also functionally serves as a service logo and
a product logo.
The new logo will better reflect the combined market value of PetroChina
and CNPC, and will establish "PetroChina" as a brand name. PetroChina can take
full advantage of the advantages enjoyed by CNPC in various business areas in
China and abroad, broaden its social and international influence, enhance and
upgrade its image, and create better value for society at large and for its
investors.
ANNUAL GENERAL MEETING
At the 2003 annual general meeting held on May 18, 2004, the following
resolutions were passed:
(a) the report of the Board of Directors for the year 2003 was
approved;
(b) the report of the Supervisory Committee for the year 2003 was
approved;
(c) the financial and accounting statements of the Company for the
year 2003 was approved;
(d) the proposal for the distribution of profit for 2003 was approved;
(e) the proposal for the authorisation of the Board of Directors to
pay interim dividend for 2004 was approved;
(f) the proposal for the appointment of domestic and international
accounting firms as accountants of the Company for 2004 was
approved;
(g) the re-election of Mr Chen Geng as a Director of the Company was
approved;
(h) the addition of Mr Jiang Jiemin as a Director of the Company was
approved;
(i) the addition of Mr Zhou Jiping as a Director of the Company was
approved;
(j) the addition of Mr Duan Wende as a Director of the Company was
approved;
(k) the addition of Mr Sun Xianfeng as a Supervisor of the Company was
approved;
(l) the addition of Mr Xu Fengli as a Supervisor of the Company was
approved; and
(m) the proposal for the authorisation of the Board of Directors to
issue shares of the Company was approved.
39
DIRECTORS
During the year and as at the date of this annual report, the Directors
of the Company are as follows:
o Chairman
Mr Chen Geng
o Vice Chairman
Mr Jiang Jiemin
Mr Ren Chuanjun
o Executive Directors
Mr Su Shulin
Mr Duan Wende
Mr Wang Fucheng
o Non-executive Directors
Mr Zheng Hu
Mr Zhou Jiping
Mr Gong Huazhang
Mr Zou Haifeng
o Independent Non-executive Directors
Mr Chee-Chen Tung
Mr Liu Hongru
Mr Franco Bernabe
(Photo)
40
BRIEF BIOGRAPHY OF DIRECTORS, SECRETARY TO THE BOARD OF DIRECTORS, SUPERVISORS
AND SENIOR MANAGEMENT
o Directors
o Chairman
CHEN GENG, aged 58, is Chairman of the Board of the Company and the
General Manager of CNPC. Mr Chen is a senior economist. He graduated from the
Beijing Economics Institute (now renamed as the Capital University of Economics
and Trade), majoring in labour economics. He has over 30 years of work
experience in the Chinese oil and gas industry. Mr Chen was appointed Deputy
Director of Changqing Petroleum Exploration Bureau in October 1983, Deputy
Director of the Labour Department under the Ministry of Petroleum Industry in
April 1985, Director of the Labour Bureau of China National Petroleum Company
from August 1988, Assistant to the President of China National Petroleum Company
in December 1993, Vice President of China National Petroleum Company in
September 1997, Deputy Director of the State Petroleum and Chemical Industry
Bureau in March 1998, and Vice President of CNPC in February 2001. Mr Chen was
appointed as a Director of the Company in June 2001. He was the President of the
Company from December 2002 to May 2004. Mr Chen became President of CNPC in
April 2004. He became the Chairman of the Company in May 2004.
o Vice Chairman
JIANG JIEMIN, aged 49, is the Vice Chairman and President of the Company.
Mr Jiang is a senior economist. He graduated from the Shandong University in
1982, majoring in Industrial and Economics Management. He graduated from the
Central Party School in 2001, pursuing distance learning Economics Management
courses for leading cadres. Mr Jiang has over 30 years of work experience in the
Chinese oil and gas industry. He was made Deputy Director of the Shengli
Petroleum Administration Bureau in March 1993, Director of the Qinghai Petroleum
Administration Bureau in November 1994, and Assistant to the President and Team
Leader for the Restructuring and Listing Preparatory Team of CNPC in February
1999. Mr Jiang was a Director and Vice President of the Company from November
1999 to June 2000. Mr Jiang was appointed Deputy Provincial Governor of the
Qinghai Province since 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. He has
been the Vice President of CNPC since April 2004. Mr Jiang became the Vice
Chairman and President of the Company in May 2004.
41
REN CHUANJUN, aged 60, is the Vice Chairman of the Company and the Vice
President of CNPC. Mr Ren is a senior economist. He graduated from Hefei
Industrial University. He has over 30 years of work experience in the Chinese
oil and gas industry and the chemical fibre industry. Mr Ren acted as Deputy
General Manager and then General Manager of Yizheng Fibre Industrial United
Corporation since 1983. In 1994, he became the Vice President of the China
National Textile Council and the Vice Chairman of both Yizheng Fibre Industrial
United Corporation and Yizheng Fibre Company Limited. Mr Ren became the Vice
President of CNPC in April 1998. He was appointed as a Director and Senior Vice
President of the Company on November 5, 1999. Mr Ren became Vice Chairman of the
Company on December 3, 2002.
o Executive Directors
SU SHULIN, aged 42, is a Director and Senior Vice President of the
Company. Mr Su has a Master's degree and is a senior engineer. He graduated from
Daqing Petroleum Institute and Harbin University of Engineering. He has many
years of experience in the Chinese oil and gas industry. Since 1996, Mr Su has
worked as Director Assistant of Daqing Petroleum Administration Bureau, and the
Department Head, Standing Deputy Director and Director of the First Oil and
Natural Gas Development Department. He was appointed Vice President of the
Company on November 5, 1999, and was concurrently the Chairman and General
Manager of the Company's subsidiary Daqing Oilfield Company Limited. Mr Su
ceased to act as the Chairman and the General Manager of Daqing Oilfield Company
Limited in December 2003. Mr Su has been a Director of the Company since
November 2002, and has been Senior Vice President since December 3, 2002.
DUAN WENDE, aged 53, is a Director and Vice President of the Company. He
is a senior engineer and he graduated from the Nankai University and studied
Economics Management in its Faculty of Economics Management. He also attended
the distance learning programme of the Central Party School and majored in
economics. He also pursued courses in the Postgraduate School of the Chinese
Academy of Social Sciences in Investment Economics. He has over 30 years of work
experience in the Chinese oil and gas industry. From April 1975 to June 1999, Mr
Duan was the Deputy Factory Manager of Fushun No. 628 Factory and of the
chemical fibres factory, the Commander of the Fushun Ethylene Project Command
Division, Deputy Factory Manager of the ethylene factory, the Factory Manager of
the acrylic fibres factory and the detergent factory, and eventually Deputy
Manager of Fushun Petrochemical Corporation. He has been the Manager of Fushun
Petrochemical Corporation since May 1999; he has been appointed as the General
Manager of Fushun Petrochemical Branch Company since October 1999. He has been
an Assistant to the President of CNPC since August 2001. He has been a Vice
President of the Company since March 2002, and a Vice President of CNPC since
December 2003. He was appointed as a Director of the Company in May 2004.
42
WANG FUCHENG, aged 54, is a Director and Vice President of the Company.
Mr Wang is a senior economist. He graduated from the Shandong Normal University.
He has over 30 years of working experience in the Chinese oil and gas industry.
Mr Wang has worked in the Shengli Oilfield, Zhongyuan Oilfield and Liaohe
Oilfield. From 1986 to 1999, Mr Wang worked as Senior Executive of the Shengli
Oilfield, Senior Executive of the Liaohe Oil Exploration Bureau, Director of the
Liaohe Oil Exploration Bureau and General Manager of the Branch Office of Liaohe
Oilfield. Mr Wang has been a Director of the Company since June 2000 and Vice
President of the Company since July 2000.
o Non-executive Directors
ZHENG HU, aged 58, is a Director of the Company and a Vice President of
CNPC. Mr Zheng is a senior engineer and graduated from Beijing Petroleum
Institute. He has over 30 years of work experience in the oil and gas industry
of the PRC. From 1990 to 1992, Mr Zheng was the Vice Chancellor of Beijing
Petroleum Managers Training Institute. From 1992 to 1999, Mr Zheng worked as
Deputy General Manager and General Manager of China Petroleum Technology
Development Corporation, China Petroleum Materials and Equipment (Group)
Corporation, and as Director of Personnel and Labour Department of CNPC. Since
August 2000, Mr Zheng has been a Vice President of CNPC. He has been a Director
of the Company since June 30, 2000.
ZHOU JIPING, aged 52, is a Director of the Company and a Vice President of
CNPC. Mr Zhou is a senior engineer and a Masters student in marine geologic
structure from Nanhai Marine Research Institute of the Chinese Academy of
Sciences. He has over 30 years working experience in the Chinese oil and gas
industry. Mr Zhou was the Exploration Manager of the Exploration and Development
Department of China National Offshore Oil Corporation, Manager of the Overseas
Department of the International Co-operation Bureau of China National Petroleum
Company, President of China National Oil & Gas Exploration and Development
Corporation in Vanuatu and President of China National Oil & Gas Exploration and
Development Corporation in Papua New Guinea. Since November 1996, he was Deputy
Director of the International Exploration and Development Co-operation Bureau of
China National Petroleum Company, Deputy General Manager of China National Oil &
Gas Exploration and Development Corporation and concurrently as President of the
Greater Nile Petroleum Operating Company (Sudan). In December 1997, he was
appointed President of China National Oil & Gas Exploration and Development
Corporation and Deputy Director of the International Exploration and Development
Co-operation Bureau of China National Petroleum Company. He became President of
China Oil & Gas Exploration and Development Corporation in October 1998. Since
August 2001, he was Assistant to the President of the CNPC Group and President
of China National Oil & Gas Exploration and Development Corporation. Since
December 2003, Mr Zhou has been Vice President of CNPC. Mr Zhou was appointed a
Director of the Company in May 2004.
43
GONG HUAZHANG, aged 58, is a Director of the Company. Mr Gong is also the
General Accountant of CNPC. Mr Gong is a senior accountant and a graduate of
Yangzhou Business School. He has over 30 years of working experience in the
Chinese oil and gas industry. Mr Gong worked as Chief Accountant, Deputy
Director and Director of the Finance Bureau of China National Petroleum Company
from 1991. He was the Director of Finance and Assets Department of CNPC in
October 1998 and has been the General Accountant of CNPC since February 1999. Mr
Gong has been a Director of the Company since November 5, 1999.
ZOU HAIFENG, aged 58, is a Director of the Company. Mr Zou is also the
Deputy Manager of Jilin Chemical Industrial Corporation and Chairman of the
Supervisory Committee of Jilin Chemical Industrial Company Limited. Mr Zou is a
senior engineer and a graduate of the Northeastern Industry Institute. He has
almost 30 years of working experience in the petrochemical industry. In 1994, Mr
Zou has been a Deputy Manager of Jilin Chemical Group Corporation, and a
Director and Deputy Manager of Jilin Chemical Industrial Company Limited. He has
been the Deputy Manager of Jilin Chemical Industrial Branch Corporation, a
subsidiary of the Company since July 1999. Mr Zou has been a Director of the
Company since November 5, 1999.
o Independent Non-executive Directors
CHEE-CHEN TUNG, aged 62, is an independent non-executive Director of the
Company. Mr Tung is the Chairman and Chief Executive Officer of Orient Overseas
(International) Limited and 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 Hu Hangyong Expressway Company Ltd., Chekiang First
Bank, Bank of China (Hong Kong) Co Ltd., Global China Group Holdings Ltd. and
Wing Hang Bank, an independent non-managing director of Cathay Pacific Airways,
and a member 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 member of the Board of Directors of the Hong Kong
Polytechnic University, the Director of the International Academic Centre of the
University of Pittsburgh and is a member of the Board of Visitors of the School
of Foreign Service, Georgetown University. Mr Tung has been appointed as an
independent non-executive Director of the Company since November 5, 1999.
LIU HONGRU, aged 74, is an independent non-executive Director of the
Company. Mr Liu graduated from the Faculty of Economics of the University of
Moscow in 1959 with an associate Doctorate's degree.
44
He 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 currently a Deputy Director of the Economics Committee under the Chinese
People's Political Consultative Conference and concurrently serves as Vice
President of China Finance and Banking Society, Vice President of the China
National Debt Association and President of the Shanghai Institute of Financial
and Legal Studies. 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 serves as an independent non-executive director or
non-executive director in four listed companies in Hong Kong, and possesses the
accounting or financial management qualification required under the Listing
Rules. Mr Liu was appointed as an independent Supervisor of the Company in
December 1999. Upon his resignation from this post, he was appointed as an
independent non-executive Director of the Company on 19 November 2002.
FRANCO BERNABE, aged 56, is an independent non-executive Director of the
Company. Mr Bernabe is the Chairman of the Franco Bernabe Group and Vice
Chairman of H3G. He is also a vice chairman of Rothschild Europe. He is a former
CEO of ENI and of Telecom Italia. He has also served as a special representative
of the Italian government for the reconstruction of the Balkan region. Mr
Bernabe 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
was the Chief Executive Officer of ENI. Mr Bernabe led the restructuring program
of the ENI Group, making it one of the world's most profitable oil companies.
Between 1998 and 1999, Mr Bernabe was the Chief Executive Officer of Telecom
Italia. Prior to his joining ENI, Mr Bernabe was the head of economic studies at
FIAT. Mr Bernabe 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. Mr Bernabe has been
appointed as an independent non-executive Director of the Company since June 30,
2000.
o Secretary to the Board of Directors
LI HUAIQI, aged 55, is the Secretary to the Board of Directors of the
Company. Mr Li is a senior economist. He has over 30 years of working experience
in the Chinese oil and gas industry. Mr Li has worked in Daqing, Liaohe, Huabei
and Nanhai. From 1992 to 1996, Mr Li worked as Deputy Director of the Foreign
Affairs Bureau and Chairman of the Foreign Service Company of China National
Petroleum Company, and as the Director of Foreign Affairs Bureau of China
National Petroleum Company. In 1999, Mr Li was appointed as Director of the
International Co-operation Department (Foreign Affairs Bureau) of CNPC. Mr Li
has been the Secretary to the Board of Directors of the Company since August 29,
2001.
45
o Supervisors
o Chairman
LI KECHENG, aged 61, is the Chairman of the Company's Supervisory
Committee. Mr Li is a senior engineer and a graduate of the Beijing University
of Science and Technology. He has over 30 years of experience in the Chinese oil
and gas industry. From 1986 to 1992, Mr Li was the head of the Petroleum
Pipeline Bureau and a senior executive of Northeastern Oil Transmission
Administration. From November 1992, Mr Li held senior positions in China
National Petroleum Company and CNPC. He has been the Chairman of the Company's
Supervisory Committee since November 5, 1999.
o Supervisors
WEN QINGSHAN, aged 46, is a Supervisor of the Company. Mr Wen is a senior
accountant and a graduate of the Jilin Yanbian University. He was the Deputy
Chief Accountant of the Finance and Assets Department of CNPC from November
1998, 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 the Company since November 2002.
SUN XIANFENG, aged 52, is a Supervisor of the Company. Mr Sun graduated
from the Huadong Petroleum Institute in September 1977. Mr Sun worked as Deputy
Director of the Supervisory Bureau of China National Petroleum Company from
November 1996, before being 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 has been
the Deputy Director of the Audit Department of the CNPC Group from October 2000,
and as the Director of the Audit Services Centre of the CNPC Group in December
2000. He has been a Supervisor of the Company since May 2004.
XU FENGLI, aged 57, is a Supervisor of the Company. Mr Xu is a senior
accountant. He graduated from the Xi'an Petroleum Institute in July 1985. Mr Xu
has been the Chief Accountant of Fushun Petrochemical Corporation in November
1995, Deputy Director of the Finance and Assets Department of the CNPC Group in
November 1998, Deputy General Manager of the Finance Department of the Company
since December 1999, and Director of the Administrative Office of the
Supervisory Committee of the Company since October 2003. He has been a
Supervisor of the Company since May 2004.
SUN CHONGREN, aged 54, is a Supervisor of the Company and an employee
representative in the Company's Supervisory Committee. Mr Sun graduated from the
Huadong Petroleum Institute and has 30 years of experience in the Chinese oil
and gas industry. Mr Sun has worked at the Liaohe
46
Petroleum Administration Bureau for 30 years. He has been a senior executive of
the Liaohe Petroleum Administration Bureau since 1996 and was the chairman of
its labour union. Mr Sun has been a Supervisor of the Company since November 5,
1999.
o Independent Supervisors
ZHANG YOUCAI, aged 63, is an independent Supervisor of the Company. Mr
Zhang is a professor who graduated from Nanjing University of Technology. He has
over 30 years of work experience in corporate and finance work. Mr Zhang was the
manager of the Nantong Chemical Fertiliser Factory, Deputy Director of the
Nantong Industrial Bureau and Deputy Head of the Nantong Commission for Economic
Planning as well as the Deputy Mayor of Nantong. He was appointed the Mayor of
Nantong in April 1984, Deputy Minister of the Ministry of Finance of the PRC
between December 1989 and July 2002, and was also the Director of the
State-owned Assets Administration of the PRC between May 1994 and July 1998. He
has been an independent Supervisor of the Company since November 2002.
WU ZHIPAN, aged 48, is an independent Supervisor of the Company. Mr Wu
obtained a Doctor of Laws degree from of the School of Law, Peking University in
1988, and was a visiting scholar at Harvard Law School from 1991 to 1992. Mr Wu
is currently the Vice-chancellor of the Peking University. He is also an expert
consultant of the Supreme People's Court of the PRC, an arbitrator of the
Arbitration Panel of China International Economic and Trade Arbitration
Commission and President of the China Economic Law Research Societies. Mr Wu is
the author of a large number of legal publications and has extensive work
experience in the legal field. Mr Wu has been an independent Supervisor of the
Company since December 1999.
o Other Senior Management
WANG GUOLIANG, aged 52, is Chief Financial Officer of the Company. Mr
Wang holds a Master's degree and is a senior accountant. He graduated from the
Heilongjiang Business College and the Hebei University. He has over 20 years of
experience in the Chinese oil and gas industry. Mr Wang worked as the Vice
President of China National Petroleum Company Finance Co. Ltd. from 1995 to
1997. From 1998 to 1999, he was the Deputy General Manager and General
Accountant of China National Oil & Gas Exploration and Exploitation Corporation.
Mr Wang was appointed as the Chief Financial Officer of the Company since
November 5, 1999. From November 1999 to March 2002, he was also the General
Manager of the Company's Finance Department.
47
LIU BAOHE, aged 58, is the Vice President of the Company. Mr Liu is senior
engineer and graduated from the Beijing Petroleum Institute. He has over 30
years of experience in the oil and gas industry of the PRC. Mr Liu was the
Deputy Director and then the Director of the Office of Production and
Exploitation of China National Petroleum Company from 1994 to 1997. Mr Liu was
the Director of the Department of Oil and Gas Exploitation of CNPC from 1998 to
1999. From 1999 to August 2001, Mr Liu worked as the Deputy General Manager of
the exploration and production branch of the Company. He has been the Vice
President of the Company since September 2001 and also the General Manager of
the exploration and production branch of the Company from September 2001 to
December 2002.
JIA CHENGZAO, aged 56, is the Chief Geologist of the Company. Mr. Jia is
a Doctorate degree holder, a senior engineer and an academic in the Chinese
Academy of Sciences. He graduated from the Nanjing University and has over 25
years of work experience in the oil and geological industry of the PRC. From
1994, Mr. Jia has worked as the Deputy Chief Geologist and then the Chief
Geologist and Deputy Commander of the Tarim Oil Exploration and Exploitation
Headquarters. Since 1998 he has also been a Vice Director of the Oil Exploration
and Exploitation Scientific Research Institute of CNPC. From 1999, Mr. Jia
worked as the Deputy General Manager of the China Petroleum Tarim Oil Field and
the Vice President of the China Oil Exploration and Exploitation Research
Institute. He has been the Chief Geologist of the Company from July 2000. Mr.
Jia also served as the President of the China Oil Exploration and Exploitation
Research Institute since December 16, 2002.
o Qualified Accountant
In an announcement dated October 18, 2004, the Company announced that it
had not been able to find a suitable accountant with professional accounting
qualifications recognised to assume the position of qualified accountant as
required under Rule 3.24 of the Listing Rules by September 30, 2004. The Company
is still in the process of identifying suitable candidates with professional
accounting qualifications to assist the Chief Financial Officer to oversee the
compliance by the Company of the financial reporting and other related
accounting matters. However, despite numerous attempts to find such a candidate,
given the importance of the role and the function of the qualified accountant,
the Company has still not been able to find a suitable candidate that meets all
the requirements in Rule 3.24 of the Listing Rules. The Company is trying its
best to identify a candidate with the appropriate qualifications, experience and
understanding of the oil and gas industry to act as the joint qualified
accountant to assist the Chief Financial Officer of the Company to carry out his
duties. The Company will make an application for a 3-year waiver to the HKSE
when it has identified the joint qualified accountant.
48
SHAREHOLDINGS OF MAJORITY SHAREHOLDERS
As at December 31, 2004, the register of interests and short positions
kept by the Company under section 336 of the Securities and Futures Ordinance
(Cap. 571 of the Laws of Hong Kong) (the "SFO") showed that the persons in the
following table and notes held interests or short positions in the Company's
shares:
PERCENTAGE (%)OF THE TOTAL
NAME OF TYPE OF NUMBER OF THAT CLASS IN PERCENTAGE (%) OF THE
SHAREHOLDER SHARES NO. OF SHARES ISSUE TOTAL SHARE CAPITAL
------------------------ -------------- ------------------------- ---------------------------- -------------------------
CNPC State-owned 158,241,758,000 100.00 90.00
shares
Warren E. Buffett(1) H shares 2,347,761,000 13.35 1.335
Credit Suisse Group(2) H shares 2,774,536,979 (3) 15.78 1.578
(1) By virtue of Warren E. Buffett's 35.4% interest in Berkshire Hathaway
Inc., Berkshire Hathaway's 100% interest in OBH Inc., OBH Inc.'s 100%
interest in National Indemnity Co. and 100% interest in GEICO
Corporation, and GEICO Corporation's 100% interest in Government
Employees Inc. Company, each of Warren E. Buffett, Berkshire Hathaway
Inc. and OBH Inc. is deemed to be interested in 2,279,151,000 H shares
held by National Indemnity Co. and 68,610,000 H shares held by Government
Employees Inc. Company, totalling 2,347,761,000 H shares.
(2)(i) By virtue of Credit Suisse Group's 100% interest in Credit Suisse
First Boston, Credit Suisse First Boston's 100% interest in Credit Suisse
First Boston (International) Holdings AG, Credit Suisse First Boston
(International) Holdings AG's 100% interest in Credit Suisse First Boston
International (Guernsey) Limited and 70.2% interest in Credit Suisse
First Boston (Hong Kong) Limited; and Credit Suisse First Boston
International (Guernsey) Limited also owns 29.8% interest in Credit
Suisse First Boston (Hong Kong) Limited, each of Credit Suisse Group,
Credit Suisse First Boston and Credit Suisse First Boston (International)
Holdings AG is deemed to be interested in 2,415,515,347 H shares in the
Company directly held by Credit Suisse First Boston (Hong Kong) Limited.
(ii) By virtue of Credit Suisse Group's 100% interest in Credit Suisse First
Boston, Credit Suisse First Boston's 57% interest in Credit Suisse First
Boston, Inc, Credit Suisse First Boston, Inc's 100% interest in Credit
Suisse First Boston (USA), Inc, and Credit Suisse First Boston (USA),
Inc's 100% interest in Credit Suisse First Boston LLC, each of Credit
Suisse Group, Credit Suisse First Boston, Credit Suisse First Boston, Inc
and Credit Suisse First Boston (USA) is deemed to be interested in
1,876,400 H shares in the Company directly held by Credit Suisse First
Boston LLC.
(iii) By virtue of Credit Suisse Group's 100% interest in Credit Suisse First
Boston, Credit Suisse Boston's 100% interest in Credit Suisse First
Boston (International) Holdings AG and 56% interest in Credit Suisse
First Boston International, and Credit Suisse Group's 20% interest in
Credit Suisse First Boston International, and Credit Suisse First Boston
(International) Holdings AG's 24% interest in
49
Credit Suisse First Boston International, each of Credit Suisse Group,
Credit Suisse First Boston and Credit Suisse First
50
Boston (International) Holdings AG is deemed to be interested in
323,586,626 H shares in the Company directly held by Credit Suisse First
Boston International.
(iv) By virtue of Credit Suisse Group's 100% interest in Credit Suisse, Credit
Suisse Group is deemed to be interested in 18,817,000 H shares in the
Company held directly by Credit Suisse.
(v) By virtue of Credit Suisse Group's 100% interest in Credit Suisse First
Boston, Credit Suisse First Boston's 100% interest in Credit Suisse First
Boston New York Branch, each of Credit Suisse Group and Credit Suisse
First Boston is deemed to be interested in 7,370,803 H shares directly
held by Credit Suisse First Boston New York Branch.
(3) Comprising 7,370,803 shares in the lending pool as described in the
Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong). The term
"lending pool" is defined as (i) shares that the approved lending agent
holds as agent for a third party which he is authorized to lend and other
shares that can be lent according to the requirements of the Securities
Borrowing and Lending Rules; and (ii) shares that have been lent by the
approved lending agent, and only if the right of the approved lending
agent to require the return of the shares has not yet been extinguished.
(Photo)
51
As at December 31, 2004, save as disclosed above, no person (other than
the Directors, senior management or the Supervisors of the Company) had recorded
an interest in the register of shares and short positions kept pursuant to
section 336 of the SFO.
INTERESTS OF DIRECTORS AND SUPERVISORS IN THE SHARE CAPITAL OF THE COMPANY
As at December 31, 2004, other than Zou Haifeng, a non-executive Director
of the Company, who holds 3,550 A shares in Jilin Chemical Industrial Company
Limited, a subsidiary of the Company, none of the Directors or Supervisors had
any interest and short positions in any shares, underlying shares or debentures
of the Company or any associated corporation within the meaning of Part XV of
the SFO required to be recorded in the register mentioned under Section 352 of
the SFO or as otherwise notifiable to the Company and the HKSE by the Directors
and Supervisors pursuant to the Model Code for Securities Transactions by
Directors of Listed Issuers (the "MODEL CODE").
As at December 31, 2004, the Company has not granted its Directors,
Supervisors or their respective spouses or children below 18 any rights to
subscribe for its equity securities or debt securities.
SERVICE CONTRACTS OF DIRECTORS AND SUPERVISORS
No service contract existed or has been proposed between the Company or
any of its subsidiaries with any of the above Directors or Supervisors. No
Director or Supervisor has entered into any service contract with the Company
which is not determinable by the Company within one year without payment of
compensation other than statutory compensation.
INTERESTS OF DIRECTORS AND SUPERVISORS IN CONTRACTS
None of the Directors or Supervisors had any material personal interest,
either directly or indirectly, in any contract of significance to which the
Company or any of its subsidiaries was a party to during the year.
REMUNERATION OF DIRECTORS AND SUPERVISORS
Details of remuneration of Directors and Supervisors are set out in note
9 to the financial statements prepared in accordance with IFRS in this annual
report.
CONNECTED TRANSACTIONS
As CNPC directly owns an aggregate of approximately 90% of the shares of
the Company, transactions between the Group and CNPC constitute connected
transactions between the Group and CNPC under the Listing Rules. The waiver in
respect of such connected transactions granted by the HKSE became valid on
January 1, 2003 and will expire on December 31, 2005.
52
The Group and CNPC will continue to carry out the connected transactions
referred to in the following agreements:
1. Comprehensive Products and Services Agreement
The Group and CNPC continue to implement the Comprehensive Products and
Services Agreement entered into on March 10, 2000 for the provision (1) by the
Group to CNPC and (2) by CNPC to the Group, of a range of products and services
which may be required and requested from time to time by either party.
(A) Products and Services to be provided by the Group to CNPC
Under the Comprehensive Products and Services Agreement, products and
services to be provided by the Group to CNPC include such products as crude oil,
natural gas, refined oil products, chemical products, and such services as
relating to the supply of water, electricity, gas and heating, quantifying and
measuring and quality inspection.
(B) Products and Services to be provided by CNPC to the Group
The products and services to be provided by CNPC to the Group are more
numerous, both in terms of quantity and variety, than those to be provided by
the Group to CNPC. Products and services to be provided by CNPC to the Group
have been grouped together and categorised according to the following types of
products and services:
(a) Construction and technical services;
(b) Production services;
(c) Material supply services;
(d) Social services;
(e) Ancillary services; and
(f) Financial services.
2. Product and Service Implementation Agreements
According to the current arrangements, from time to time and as required,
individual product and service implementation agreements may be entered into
between the relevant service companies and affiliates of CNPC or the Group
providing the relevant products or services (as appropriate), and the relevant
members of the Group or CNPC, requiring such products or services (as
appropriate).
As the product or service implementation agreements are simply further
elaborations on the provision of products and services as contemplated by the
Comprehensive Products and Services Agreement, they do not as such constitute
new categories of connected transactions.
53
3. Land Use Rights Leasing Contract
The Company and CNPC continue to implement the Land Use Rights Leasing
Contract entered into on March 10, 2000 under which CNPC has leased a total of
42,476 parcels of land in connection with all aspects of the operations and
business of the Company covering an aggregate area of approximately 1,145
million square metres, located throughout the PRC, to the Company for a term of
50 years at an annual fee of RMB2 billion. The total fee payable for the lease
of all such property may, after the expiration of 10 years from the effective
date of the Land Use Rights Leasing Contract, be adjusted (to reflect market
conditions prevalent at such time of adjustment, including the then prevailing
marketing prices, inflation or deflation and such other factors considered as
important by both parties in negotiating and agreeing to any such adjustment) by
agreement between the Company and CNPC. In addition, any governmental, legal or
other administrative taxes and fees required to be paid in connection with the
leased properties will be borne by CNPC. However, any additional amount of such
taxes payable as a result of changes in the PRC government policies after the
effective date of the contract shall be shared proportionately on a reasonable
basis between CNPC and the Company.
4. Buildings Leasing Contract and Buildings Supplementary Leasing
Agreement
The Company and CNPC continue to implement the Buildings Leasing Contract
entered into on March 10, 2000 pursuant to which CNPC has leased to the Company
a total of 191 buildings covering an aggregate of area of 269,770 square metres.
The 191 buildings were leased at a price of RMB145 per square metre per year,
that is, an aggregate annual fee of RMB39,116,650 for a term of 20 years. The
Company is responsible for the payment of any governmental, legal or other
administrative taxes and maintenance charges required to be paid in connection
with these 191 buildings.
Further to the Buildings Leasing Contract mentioned above, the Company
entered into a Supplemental Buildings Leasing Agreement (the "SUPPLEMENTAL
BUILDINGS AGREEMENT") with CNPC on September 26, 2002 under which CNPC agreed to
lease to the Company another 404 buildings in connection with the operation and
business of the Company, covering an aggregate of 442,730 square meters.
Compared to the Buildings Leasing Contract, the increase in the units being
leased in the Supplemental Buildings Agreement is mainly attributable to the
expansion of the Company's operations mainly in the areas such as oil and
natural gas exploration, the West-East Gas Pipeline Project and the construction
of the northeast refineries and chemical operation base. The total rent payable
under the Supplemental Buildings Agreement amounts to RMB157,439,540 per annum.
The Company and CNPC will, based on any changes in their production and
operations, and changes in the market price, adjust the sizes and quantities of
buildings leased under the Buildings Leasing Contract as well as the
Supplemental Buildings Agreement every three years. The Supplemental Buildings
Agreement became effective on January 1, 2003 and will expire at the same time
as the Buildings Leasing Contract. The terms and conditions of the Buildings
54
Leasing Contract will, to the extent not contradictory to the Supplemental
Buildings Agreement, continue to apply.
5. Intellectual Property Licensing Contracts
The Company and CNPC continue to implement the three intellectual
property licensing contracts entered into on March 10, 2000, being the Trademark
Licensing Contract, the Patent and Know-how Licensing Contract and the Computer
Software Licensing Contract. Pursuant to these licensing contracts, CNPC has
granted the Company the exclusive right to use certain trademarks, patents,
know-how and computer software of CNPC at no cost. These intellectual property
rights relate to the assets and businesses of CNPC which were transferred to the
Company pursuant to the restructuring.
6. Contract for the Transfer of Rights under Production Sharing Contracts
The Company and CNPC continue to implement the Contract for the Transfer
of Rights under Production Sharing Contracts dated March 10, 2000. As part of
the restructuring, CNPC transferred to the Company relevant rights and
obligations under 23 Production Sharing Contracts entered into with a number of
international oil and natural gas companies, except for the rights and
obligations relating to CNPC's supervisory functions.
7. Guarantee of Debts Contract
The Company and CNPC continue to implement the Guarantee of Debts
Contract entered into on March 10, 2000, pursuant to which all of the debts of
CNPC relating to the assets transferred to the Company in the restructuring were
also transferred to, and assumed by, the Company.
In the Guarantee of Debts Contract, CNPC has agreed to guarantee certain
of the debts of the Company at no cost. As of the end of 2004, the total amount
guaranteed was RMB756 million.
In relation to the connected transactions undertaken by the Group in
2004, the independent non-executive Directors of the Company confirm that:
(i) the connected transactions mentioned above have been entered into
in the ordinary and usual course of business of the Company;
(ii) the connected transactions mentioned above have been entered into
on terms that are fair and reasonable to the shareholders of the
Company;
(iii) the connected transactions mentioned above have been entered into
on normal commercial terms either (1) in accordance with the terms
of the agreements governing such transactions, or (2) (where there
is no such agreement) on terms no less favourable than terms
available to independent third parties; and
(iv) where applicable, the connected transactions have been entered
into within the annual limit for the years mentioned below. The
annual limit for such transactions is set out in the table below.
55
The auditors of the Company have reviewed the connected transactions
mentioned above and have provided the Board of Directors with a letter stating
that:
(i) all the connected transactions have received the approval of the
Board of Directors;
(ii) all the connected transactions have been conducted in accordance
with the terms of the agreements; and
(iii) all the connected transactions have not exceeded the limit set by
the HKSE.
The Company's annual limit for the years 2003 to 2005 in respect of the
connected transactions waiver are set out in the table below.
CATEGORY OF PRODUCTS AND SERVICES ANNUAL LIMIT FOR YEARS 2003 TO 2005
------------------------------------------------------------ ---------------------------------------------------------
(A) Products and services to be provided by the Group 10% of the sales revenue of the Group
to CNPC
(B) Products and services to be provided by CNPC to the
Group
Construction and technical services 20% of the total operating expenses and capital
expenditure of the Group
Production services 10% of the total operating expenses and capital
expenditure of the Group
Material supply services 2% of the total operating expenses and capital
expenditure of the Group
Social and ancillary services RMB5 billion
Financial Services
(a) Aggregate of the average daily outstanding RMB52.5 billion
principal of loans and the total amount of
interest paid in respect of these loans
(b) Aggregate of the average daily amount of RMB4.5 billion
deposits and the total amount of interest
receipts in respect of these deposits
56
CONNECTED TRANSACTIONS WITH CNPC (HK)
As part of the restructuring of CNPC and in preparation for the listing
of the Company on HKSE, and as disclosed in the Company's prospectus dated March
27, 2000, CNPC and the Company entered into the Contract for the Transfer of
Rights under Production Sharing Contracts whereby the relevant rights and
obligations (other than the supervisory functions related to CNPC's role as
representative of the PRC government) of CNPC under certain contracts, including
the Blocks 9-1 to 9-5 of the Xinjiang Karamay Oilfield Petroleum Contract dated
July 1, 1996, entered into between CNPC and Hafnium Limited ("XINJIANG
CONTRACT") and the Leng Jiapu Area Petroleum Contract dated December 30, 1997,
entered into between CNPC and Beckbury International Limited ("LIAOHE
CONTRACT"), were novated to the Company.
CNPC (Hong Kong) Limited ("CNPC (HK)") is a 57.5% owned subsidiary of
CNPC. CNPC is also the Company's controlling shareholder which holds
approximately 90% of the issued share capital of the Company. Upon the effective
novation by CNPC to the Company of the above interest in the PRC Oil Production
Sharing Contracts (the Xinjiang Contract and the Liaohe Contract), certain
transactions pursuant to the PRC Oil Production Sharing Contracts constitute
connected transactions between the Company and CNPC (HK).
Summary of the major terms and conditions of these connected transactions
under the Xinjiang Contract and the Liaohe Contract are as follows:
(1) Production and development cost sharing between the Company and CNPC
(HK): The Company and CNPC (HK) shall share the oil and natural gas produced
from blocks 9-1 to 9-5 of the Karamay Oilfield, as to 46% by the Company and 54%
by CNPC (HK), and from the Leng Jiapu Oilfield, as to 30% by the Company and 70%
by CNPC (HK). CNPC (HK) shall be responsible for 100% of the development costs
in respect of blocks 9-1 to 9-5 of the Karamay Oilfield. The Company is
responsible for 30% and CNPC (HK) is responsible for 70% of the development
costs in respect of the Leng Jiapu Oilfield.
(Photo)
57
(2) Provision of assistance by the Company to CNPC (HK): The Company
shall provide assistance to CNPC (HK), including: (i) leasing warehouses,
terminal facilities, barges, pipeline and land, etc.; (ii) obtaining approvals
necessary for the conduct of the petroleum operations; and (iii) obtaining
office space, office supplies, transportation and communication facilities. For
such assistance, CNPC (HK) will pay an annual assistance fee of US$50,000
(approximately HK$389,000) for each of blocks 9-1 to 9-5 of the Karamay Oilfield
and the Leng Jiapu Oilfield. The amount of such fee was determined after
negotiations, and has taken into account the actual circumstances and
conditions, including the scope of the projects and the level of demand for such
assistance. This fee shall be accounted for as operating costs and shared by the
Company and CNPC (HK) in accordance with the procedures described in the
Xinjiang Contract and the Liaohe Contract.
(3) Payment of training fees: In the course of development and operations
of each oilfield, CNPC (HK) shall pay the Company an amount of US$50,000
(approximately HK$389,000) annually for the training of personnel carried out by
the Company for each of blocks 9-1 to 9-5 of the Karamay Oilfield and the Leng
Jiapu Oilfield. The amount of such fee was determined after negotiations, and
has taken into account the actual circumstances and conditions, including the
scope of the projects and the level of demand for training.
(4) Sale of crude oil by CNPC (HK) to the Company: CNPC (HK) has the
right to deliver its share of oil production from each of blocks 9-1 to 9-5 of
the Karamay Oilfield and the Leng Jiapu Oilfield to a destination of its choice,
except for destinations which infringe on the political interests of the PRC.
However, given the transportation costs and the prevailing oil prices, the only
likely purchaser of the oil production attributable to CNPC (HK) from each of
blocks 9-1 to 9-5 of the Karamay Oilfield and the Leng Jiapu Oilfield is CNPC or
its affiliates, including the Company, which will accept delivery of oil
produced in blocks 9-1 to 9-5 of the Karamay Oilfield and the Leng Jiapu
Oilfield at the market price. Since the signing
(Photo)
58
of the PRC Oil Production Sharing Contracts, CNPC (HK) has sold all of its share
of the oil production to CNPC or its affiliates, including the Company. As far
as the Board of Directors is aware of CNPC (HK) intends to continue with this
arrangement. There is no contractual obligation upon the Company to purchase oil
produced from blocks 9-1 to 9-5 of the Karamay Oilfield and the Leng Jiapu
Oilfield, although, from a commercial perspective, the Company intends to
continue to accept part of the deliveries. The price of various grades of crude
oil sold shall be set either with reference to the price approved by the
relevant PRC authorities, or as determined with reference to the prevailing fair
market price for transactions of crude oil of a similar quality in the major oil
markets. This will be adjusted to take into account the terms of transportation,
payment and other terms.
In the opinion of the independent non-executive Directors of the Company,
the connected transactions have been:
(i) conducted on normal commercial terms and entered into in the
ordinary and usual course of business of the Company; and
(ii) entered into: (a) in accordance with the terms of the PRC Oil
Production Sharing Contracts; or (b) on terms no less favourable
than the terms available to or from independent third parties.
The waiver in respect of the connected transactions between the Company
and CNPC (HK) granted by the HKSE will be valid between January 1, 2004 to
December 31, 2006.
THE MODEL CODE
Having made specific enquiries with all the Directors of the Company, the
Directors have in the year covered by this Report complied with the Model Code
as set out in Appendix 10 of the Listing Rules. The Company has not adopted a
code of conduct less stringent than the Model Code regarding securities
transactions of the Directors.
COMPLIANCE WITH THE CODE OF BEST PRACTICE
Following its listing of H shares on the HKSE, the Company has complied
with the Code of Best Practice contained in the Listing Rules which is
applicable to the reporting period.
ACCOUNTING PRINCIPLE
For the year 2004, the Company did not adopt any new accounting
principles.
59
AUDITORS
PricewaterhouseCoopers (certified public accountants in Hong Kong) and
PricewaterhouseCoopers Zhong Tian CPAs Limited Company (certified public
accountants in the PRC) were the Company's international and domestic auditors
respectively in 2004. The Company has retained the above two firms of
accountants since the date of its listing. A resolution to continue the
appointment of the international and domestic auditors for 2005 will be proposed
at the annual general meeting of the Company which will be held on May 26, 2005.
By Order of the Board
Chen Geng
Chairman
Beijing, the PRC
March 16, 2005
60
REPORT OF THE SUPERVISORY COMMITTEE
Dear Shareholders,
During the year 2004, the Supervisory Committee has carried out their
duties conscientiously and strictly in accordance with the relevant provisions
of the Company Law of the PRC, the Articles of Association of the Company and
the Organisation and Rules of Procedure of the Supervisory Committee. During the
year, the Supervisory Committee held two meetings, considered and passed seven
resolutions, completed the review of the 2003 annual report and the 2004 interim
report; attended the annual general meeting for the year 2003 with the
submission of two resolutions to the meeting, and attended four meetings of the
Board of Directors of the Company with the submission of five written opinions
of the
(Photo)
61
Supervisory Committee in respect of its review of the final accounts, profit
distribution plan (draft) and the assessment of the performance of the members
of the President's office. The Supervisory Committee conducted two supervisory
hearings, received fourteen reports submitted by the Finance Department, Audit
Department, Human Resources Department, Supervisory Department and
PricewaterhouseCoopers Zhong Tian CPAs Co Ltd, and reviewed and issued its
opinion on the Company's finance, profit distribution, connected transactions
and the assessment of the performance of the members of the President's office.
The Supervisory Committee carried out two random financial auditing
investigations, sampling eight departments and prepared ten auditing
investigation reports and consolidated reports, and put forward 36
recommendations. The Supervisory Committee conducted four supervisory inspection
tours, prepared four inspection tour reports and put forward twelve
recommendations. Through the above activities, the Supervisory Committee has
reinforced its supervision on the financial matters of the Company and on the
senior management in the performance of their duties. It has enhanced the effect
of supervision and protected the rights of the shareholders as well as the
interests of the Company.
The Supervisory Committee is of the opinion that in 2004, all members of
the Board of Directors and the senior management of the Company have worked
diligently towards fulfilling their duties. They have grasped the favourable
market opportunity created by strong market demand and surging oil prices,
unified in their efforts at breaking new grounds, promoted technology
advancement and management innovation, optimised production, operation and
management, and achieved continuous, effective, rapid and co-ordinated
development for the Company. The business results and the value of the Company
improved remarkably. There was breakthrough in the exploration of oil and
natural gas. The oil equivalent production, processed volume of crude oil and
sales of refined products reached historical highs. International operations
also improved substantially. Commercial transmission of gas through the
West-East Pipeline project commenced. As far as the Supervisory Committee is
aware, none of the senior management of the Company was in breach of any
applicable laws and regulations of the PRC and the Company's places of listing
and the Articles of Association of the Company while performing their management
responsibilities.
In 2004, financial management of the Company continued to regularize and
innovate. This had led to further improvement in the financial position of the
Company. Financial indices reached historical high. Ratios including revenue
ratio and net profit ratio from sales improved significantly; asset structure
and asset quality also improved, and the utilisation of capital increased
further.
The Company's connected transactions position continue to improve and
are more regulated and all such transactions are conducted within the limits as
approved by the HKSE.
62
The Supervisory Committee is satisfied with the results achieved by the
Company in 2004 and is fully confident in the prospects of the Company.
The Supervisory Committee is of the opinion that the unqualified
financial report prepared by PricewaterhouseCoopers pursuant to IFRS gives a
true and fair view of the Company's financial position, operating results and
cash flow. The Supervisory Committee approves the financial report.
The Supervisory Committee hopes that the Company will continue in its
adherence to the guiding policy of maintaining a sustained, effective, fast and
co-ordinated development, further enhance its efforts in technical development
and management innovations, strengthen exploration and development of oil and
gas, strive for an increase in the storage and production volume; speed up the
optimisation and restructuring of its refining and chemicals business and
enhance its competitiveness and profitability; further strengthen its efforts
for market development, improve sales and marketing, and proactively develop new
prospects for business growth; enhance the development of international
business, improve its competitiveness in the international market and
risk-taking capability; and persist in perfecting its internal control mechanism
and management, so as to maximize the long term value of the Company.
In 2005, the Supervisory Committee will continue to fulfil its duties to
verify the truthfulness of the financial information, ensure legal compliance of
the Company's connected transactions, supervise the discharge of the duties by
senior management of the Company, and complete other duties in strict compliance
with the Articles of Association of the Company and the relevant laws and
regulations.
By Order of the Supervisory Committee
Li Kecheng
Chairman of the Supervisory Committee
Beijing, the PRC
March 16, 2005
63
BUSINESS OPERATING REVIEW
The Company was established as a joint stock company with limited
liability under the laws of the People's Republic of China on November 5, 1999
as part of the restructuring of the CNPC. In the restructuring, CNPC, the parent
company of the Company, injected into the Company most of the assets,
liabilities and interests of CNPC relating to its domestic exploration and
production, refining and marketing, chemicals and natural gas businesses. The
American Depositary Shares (the "ADSs") and H shares of the Company were listed
on the New York Stock Exchange, Inc. and the HKSE on April 6, 2000 and April 7,
2000, respectively.
The Company is engaged in a broad range of petroleum related activities,
including:
o the exploration, development, production and sales of crude oil
and natural gas;
o the refining, transportation, storage and marketing of crude oil
and petroleum products;
(Photo)
64
o the production and sales of basic petrochemical products,
derivative petrochemical products and other chemical products; and
o the transmission of natural gas, crude oil and refined products,
and the sale of natural gas.
The Company is the largest producer of crude oil and natural gas in the
PRC and one of the largest companies in the PRC in terms of sales.
MARKET REVIEW
o Crude Oil Market Review
International crude oil prices remained high for most of 2004 and the
annual average oil price soared due to global economic recovery, surging oil
demand and the international political climate. The annual average price for
WTI, Brent and Minas crude oil was US$41.52, US$38.25 and US$36.97 per barrel
respectively, representing an increase of US$10.47, US$9.41 and US$7.47 per
barrel respectively over the annual average price in 2003. Corresponding to the
rise in international oil prices, domestic crude oil prices also increased. The
average realized price for domestic crude oil in 2004 was higher than that of
2003.
Net crude oil imports of China continued to increase in 2004, increased
by 41.3% to a net total of 117 million tons compared with the corresponding
period in the previous year. The domestic output of crude oil and refined
products reached 176 million tons and 259 million tons respectively.
o Refined Products Market Review
In general, the domestic market for refined products performed well in
2004, with nominal consumption increasing by 19.1% to 157.05 million tons. Net
import of refined products for the whole country climbed to 26.41 million tons,
representing an increase of 83.3% over the previous year. As compared with the
beginning of 2004, the national inventory level of refined products also
increased by approximately 100,000 tons by the end of 2004.
Owing to the adjustment and control of the domestic prices for refined
products by the central government in 2004 and the impact of international oil
prices, the annual average benchmark prices for both gasoline and diesel were
higher than the 2003 level.
o Chemical Products Market Review
The rapid global economic development in 2004 brought about a sharp rise
in the demand for basic energy resources and chemical materials, which in turn
led to a tightened supply of energy, transportation
65
and chemical material, and thus a shortage of petrochemical products. On the
other hand, international crude oil prices continuously reached new heights,
forcing up prices of downstream chemical products. Compared with 2003, the
prices of petrochemical products increased by a huge margin and the prices of a
majority of chemical products were at a 10-year high.
The Chinese economy grew steadily and rapidly in 2004 under the state's
macroeconomic regulation and control. A favourable economic environment helped
boost the development of the petrochemical market, especially the demand for
plastic and textile products. On the other hand, there was an insufficient
domestic petrochemical output as well as a shortage of chemical resources. As a
result of the changes in cost and demand, both the price and production of
petrochemical products in the domestic petrochemical market increased in 2004.
COMPANY BUSINESS REVIEW
o Exploration and Production
For the twelve months ended December 31, 2004, total oil and gas output
of the Company was 918.6 million barrels of oil equivalent, including 778.4
million barrels of crude oil and 841.2 billion cubic feet of marketable natural
gas, representing an average production of 2.13 million barrels of crude oil and
2,305 million cubic feet of natural gas per day. A total of 730.2 million
barrels of crude oil and 781.4 billion cubic feet of natural gas were sold.
Approximately 82% of the crude oil sold by the Company was purchased by its
refineries. In 2004, the listing cost for the oil and gas operations of the
Company was US$4.61 per barrel, representing an increase of 5.0% from US$4.39
per barrel in 2003.
o Refining and Marketing
For the twelve months ended December 31, 2004, the Company's refineries
processed 698 million barrels of crude oil, or an average of 1.91 million
barrels per day. Approximately 84% of the crude oil processed in the Company's
refineries was supplied by the Exploration and Production segment. The Company
produced approximately 64.30 million tons of gasoline, diesel and kerosene and
sold approximately 67.01 million tons of these products. The Company actively
expanded its sales and distribution networks, in particular the retail sales
network, by capitalizing fully on the complementary value-added effect of the
integration of refining and marketing. As at December 31, 2004, there were
17,403 service stations which were either owned, controlled or franchised by the
Company or owned by CNPC but to which the Company provided supervisory support.
The cash processing cost of the Company's refineries also decreased from RMB132
per ton to RMB131 per ton.
66
o Chemicals and Marketing
For the twelve months ended December 31, 2004, the Company produced 1.846
million tons of ethylene, 2.527 million tons of synthetic resin, 1.263 million
tons of synthetic fibre raw materials and polymer, 0.286 million tons of
synthetic rubber, and 3.652 million tons of urea.
o Natural Gas and Pipeline
The Natural Gas and Pipeline segment is the Company's core business
segment for development. For the twelve months ended December 31, 2004, the
Company sold 657.3 billion cubic feet of marketable natural gas through the
Natural Gas and Pipeline segment. The Company currently owns and operates 18,995
kilometres of regional natural gas pipeline networks, of which 17,868 kilometres
are operated by the Natural Gas and Pipeline segment. As at December 31, 2004,
the Company owned and operated 9,167 kilometres of crude oil pipeline and 2,460
kilometres of refined product pipeline.
(Photo)
67
INFORMATION ON CRUDE OIL AND NATURAL GAS RESERVES
The following table sets forth the Company's estimated proved reserves
and proved developed reserves as at December 31, 2002, 2003 and 2004. This table
is formulated on the basis of a report prepared by DeGolyer and MacNaughton, an
independent engineering consultancy company.
CRUDE OIL NATURAL GAS COMBINED
(MILLION OF (BILLION CUBIC (MILLIONS OF BARRELS
BARRELS) FEET) OF OIL EQUIVALENT)
----------- -------------- ---------------------
Proved Developed and Undeveloped Reserves
Reserves as of December 31, 2002 (the basis 10,937.0 38,816.8 17,406.4
date)
Revisions of previous estimates 199.2 277.6 245.4
Extensions and discoveries 475.7 2853.3 951.3
Improved recovery 81.2 0 81.2
Purchased reserves (1) 0 0 0
Production for the year (2) -773.7 -878.5 -920.1
Reserves as of December 31, 2003 (the basis 10,919.3 41,069.2 17,764.2
date)
Revisions of previous estimates 147.3 55.7 156.6
Extensions and discoveries (4) 542.2 4,405.3 1,276.4
Improved recovery 109.0 43.0 116.2
Production for the year (5) -777.4 -1,019.6 -947.3
Reserves as of December 31, 2004 (the basis 10,940.5 44,553.6 18,366.1
date)
Proved Developed Reserves
As of December 31, 2002 9,198.1 11,921.2 11,185.0
As of December 31, 2003 (3) 8,884.8 13,373.7 11,113.7
As of December 31, 2004 (6) 8,748.1 16,787.1 11,546.0
Note:
In April 2003, the Company acquired 50% interests in Amerada Hess Indonesia
Holdings Co., which holds 30% interest in the Jabung block.
(1) Excludes the Company's resulting share of the reserves of 16.8 million
barrels of crude oil and 76.6 billion cubic feet of natural gas in the
Jabung block, totalling 29.6 million barrels of oil equivalent.
(2) Excludes the Company's resulting share of the output of 1.21 million
barrels of crude oil and the output of 1.01 billion cubic feet of natural
gas in the Jabung block for the year, totalling 1.38 million barrels of
oil equivalent.
(3) Excludes the Company's resulting share of the proved developed reserves
of 4.1 million barrels of crude oil and 21.3 billion cubic feet of
natural gas in the Jabung block, totalling 7.7 million barrels of oil
equivalent.
(4) Excludes the Company's resulting share of the reserves of 0.69 million
barrels of crude oil and 4.60 billion cubic feet of natural gas in the
Jabung block, totalling 1.45 million barrels of oil equivalent.
(5) Excludes the Company's resulting share of the reserves of 1.07 million
barrels of crude oil and 3.67 billion cubic feet of natural gas in the
Jabung block, totalling 1.68 million barrels of oil equivalent.
(6) Excludes the Company's resulting share of the proved developed reserves
of 2.9 million barrels of crude oil and 19.2 billion cubic feet of
natural gas in the Jabung block, totalling 6.1 million barrels of oil
equivalent.
68
(Photo)
69
[PRICEWATERHOUSECOOPERS LETTERHEAD]
--------------------------------------------------------------------------------
PricewaterhouseCoopers
22nd Floor, Prince's Building
Central, Hong Kong
Telephone (852)2289 8888
Facsimile (852)2810 9888
REPORT OF INTERNATIONAL AUDITORS
TO THE SHAREHOLDERS OF
PETROCHINA COMPANY LIMITED
(ESTABLISHED IN THE PEOPLE'S REPUBLIC OF CHINA WITH LIMITED LIABILITY)
We have audited the accompanying balance sheets of PetroChina Company
Limited (the "Company") and its subsidiaries (the "Group") as of December 31,
2004 and the consolidated profit and loss account and cash flow statement of the
Group for the year then ended. These financial statements set out on pages 70 to
120 are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit. This report
is made solely to you, as a body, and for no other purpose. We do not assume
responsibility towards or accept liability to any other person for the contents
of this report.
We conducted our audit in accordance with International Standards on
Auditing. Those Standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion the financial statements present fairly, in all material
respects, the financial position of the Company and the Group as of December 31,
2004 and of the results of operations and cash flows of the Group for the year
then ended in accordance with International Financial Reporting Standards and
have been properly prepared in accordance with the disclosure requirements of
the Hong Kong Companies Ordinance.
PricewaterhouseCoopers
Certified Public Accountants
Hong Kong, March 16, 2005
70
PETROCHINA COMPANY LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED DECEMBER 31, 2004
(AMOUNTS IN MILLIONS EXCEPT FOR PER SHARE DATA)
NOTE 2004 2003
-------------- ----------------- ---------------------
RMB RMB
TURNOVER 4 388,633 303,779
----------------- ---------------------
OPERATING EXPENSES
Purchases, services and other (116,353) (90,850)
Employee compensation costs 6 (22,309) (19,542)
Exploration expenses, including exploratory dry holes (11,723) (10,577)
Depreciation, depletion and amortisation (46,411) (40,531)
Selling, general and administrative expenses (26,377) (23,930)
Shut down of manufacturing assets 7 (220) (2,355)
Taxes other than income taxes (18,685) (15,879)
Revaluation loss of property, plant and equipment 14 - (391)
Other income/(expense), net 31 (538)
----------------- ---------------------
TOTAL OPERATING EXPENSES (242,047) (204,593)
----------------- ---------------------
PROFIT FROM OPERATIONS 146,586 99,186
----------------- ---------------------
FINANCE COSTS
Exchange gain 50 53
Exchange loss (123) (233)
Interest income 1,107 677
Interest expense 8 (2,303) (2,346)
----------------- ---------------------
TOTAL FINANCE COSTS (1,269) (1,849)
----------------- ---------------------
SHARE OF PROFIT OF ASSOCIATES 15 1,824 985
----------------- ---------------------
PROFIT BEFORE TAXATION 5 147,141 98,322
TAXATION 10 (42,563) (28,072)
----------------- ---------------------
PROFIT BEFORE MINORITY INTERESTS 104,578 70,250
MINORITY INTERESTS (1,651) (636)
----------------- ---------------------
NET PROFIT 102,927 69,614
================= =====================
BASIC AND DILUTED EARNINGS PER SHARE 12 0.59 0.40
================= =====================
DIVIDENDS ATTRIBUTABLE TO:
Interim dividend declared during the year 13 20,381 17,379
Final dividend proposed after the balance sheet date 13 25,936 13,947
----------------- ---------------------
46,317 31,326
================= =====================
The accompanying notes are an integral part of these financial statements.
71
PETROCHINA COMPANY LIMITED
CONSOLIDATED BALANCE SHEET
As of December 31, 2004
(Amounts in millions)
NOTE 2004 2003
----------------- ----------------- -----------------
RMB RMB
NON CURRENT ASSETS
Property, plant and equipment 14 468,519 427,875
Investments in associates 15 7,923 5,571
Available-for-sale investments 16 1,510 1,839
Advance operating lease payments 18 12,248 7,252
Intangible and other assets 19 2,987 3,024
----------------- -----------------
493,187 445,561
----------------- -----------------
CURRENT ASSETS
Inventories 20 45,771 28,872
Accounts receivable 21 2,662 3,263
Prepaid expenses and other current assets 22 17,563 13,528
Notes receivable 23 4,824 2,416
Receivables under resale agreements 24 33,217 24,224
Time deposits with maturities over three months 1,400 2,640
Cash and cash equivalents 25 11,304 11,231
----------------- -----------------
TOTAL CURRENT ASSETS 116,741 86,174
----------------- -----------------
CURRENT LIABILITIES
Accounts payable and accrued liabilities 26 70,696 64,180
Income tax payable 17,484 12,043
Other taxes payable 4,633 8,916
Short-term borrowings 27 27,276 28,890
----------------- -----------------
120,089 114,029
----------------- -----------------
NET CURRENT LIABILITIES (3,348) (27,855)
----------------- -----------------
TOTAL ASSETS LESS CURRENT LIABILITIES 489,839 417,706
================= =================
FINANCED BY
Share capital 28 175,824 175,824
Retained earnings 143,624 89,577
Reserves 29 105,764 91,212
----------------- -----------------
Shareholders' equity 425,212 356,613
----------------- -----------------
Minority interests 9,391 5,608
----------------- -----------------
NON CURRENT LIABILITIES
Long-term borrowings 27 38,458 41,959
Other long-term obligations 2,438 2,000
Deferred taxation 30 14,340 11,526
----------------- -----------------
55,236 55,485
----------------- -----------------
489,839 417,706
================= =================
The accompanying notes are an integral part of these financial statements.
------------------------ ------------------------
Chairman President
Chen Geng Jiang Jiemin
72
PETROCHINA COMPANY LIMITED
BALANCE SHEET
As of December 31, 2004
(Amounts in millions)
NOTE 2004 2003
---------------- ----------------- -----------------
RMB RMB
NON CURRENT ASSETS
Property, plant and equipment 14 335,338 311,105
Investments in associates 15 5,774 4,520
Available-for-sale investments 16 1,364 1,462
Subsidiaries 17 130,242 116,698
Advance operating lease payments 18 8,831 5,002
Intangible and other assets 19 2,153 1,803
----------------- -----------------
483,702 440,590
----------------- -----------------
CURRENT ASSETS
Inventories 20 37,278 24,186
Accounts receivable 21 1,902 1,761
Prepaid expenses and other current assets 22 30,409 18,893
Notes receivable 23 4,491 2,158
Receivables under resale agreements 24 33,106 24,087
Time deposits with maturities over three months - 2,640
Cash and cash equivalents 25 8,391 8,022
----------------- -----------------
TOTAL CURRENT ASSETS 115,577 81,747
----------------- -----------------
CURRENT LIABILITIES
Accounts payable and accrued liabilities 26 84,662 78,010
Income tax payable 16,811 11,572
Other taxes payable 3,932 4,929
Short-term borrowings 27 24,738 26,667
----------------- -----------------
130,143 121,178
----------------- -----------------
NET CURRENT LIABILITIES (14,566) (39,431)
----------------- -----------------
TOTAL ASSETS LESS CURRENT LIABILITIES 469,136 401,159
================= =================
FINANCED BY
Share capital 28 175,824 175,824
Retained earnings 154,724 100,677
Reserves 29 94,664 80,112
----------------- -----------------
Shareholders' equity 425,212 356,613
----------------- -----------------
NON CURRENT LIABILITIES
Long-term borrowings 27 34,072 36,222
Other long-term obligations 2,363 1,936
Deferred taxation 30 7,489 6,388
----------------- -----------------
43,924 44,546
----------------- -----------------
469,136 401,159
================= =================
The accompanying notes are an integral part of these financial statements.
------------------------ ------------------------
Chairman President
Chen Geng Jiang Jiemin
73
PETROCHINA COMPANY LIMITED
CONSOLIDATED CASH FLOW STATEMENT
For the Year Ended December 31, 2004
(Amounts in millions)
NOTE 2004 2003
-------------- --------------- ---------------
RMB RMB
CASH FLOWS FROM OPERATING ACTIVITIES 31 137,299 137,236
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (90,448) (79,739)
Acquisition of associates (485) (1,044)
Acquisition of available-for-sale investments (476) (722)
Net acquisition of receivables under resale agreements with maturities not
greater than three months (8,049) (10,182)
Acquisition of receivables under resale agreements with maturities over (8,301) (4,676)
three months
Acquisition of intangible assets (531) (473)
Acquisition of other non-current assets (280) (569)
Proceeds from receivables under resale agreements with maturities over
three months 7,357 420
Repayment of capital by associates 206 336
Proceeds from disposal of property, plant and equipment 778 202
Proceeds from disposal of associates 27 23
Proceeds from disposal of available-for-sale investments 83 87
Proceeds from disposal of intangible and other non-current assets 37 -
Dividends received 309 152
Decrease/(Increase) in time deposits with maturities over three months
1,240 (28)
--------------- ---------------
NET CASH USED FOR INVESTING ACTIVITIES (98,533) (96,213)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of short-term borrowings (21,700) (30,373)
Repayments of long-term borrowings (22,783) (7,951)
Principal payment on finance lease obligations (35) (66)
Dividends paid to minority interests (357) (85)
Cash payment for acquisition of CNPC marketing enterprises
(1,476) (170)
Dividends paid 13 (34,328) (29,678)
Increase in short-term borrowings 23,789 25,128
Increase in long-term borrowings 15,614 2,823
Capital contribution from minority interests 2,145 287
Change in other long-term obligations 438 316
--------------- ---------------
NET CASH USED FOR FINANCING ACTIVITIES (38,693) (39,769)
--------------- ---------------
Increase in cash and cash equivalents 73 1,254
Cash and cash equivalents at beginning of year 25 11,231 9,977
--------------- ---------------
Cash and cash equivalents at end of year 25 11,304 11,231
=============== ===============
The accompanying notes are an integral part of these financial statements.
74
PETROCHINA COMPANY LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY
For the Year Ended December 31, 2004
(Amounts in millions)
--------------------------------------------------------------------------------
SHARE
CAPITAL RETAINED RESERVES
(NOTE 28) EARNINGS (NOTE 29) TOTAL
-------- -------- -------- --------
RMB RMB RMB RMB
Balance at January 1, 2003 175,824 59,004 81,848 316,676
Net profit for the year ended December 31, 2003 -- 69,614 -- 69,614
Revaluation surplus of property, plant and
equipment, net of tax -- -- 527 527
Revaluation loss offset against previous revaluation
surplus of property, plant and equipment, net of
tax -- -- (526) (526)
Transfer to reserves -- (9,363) 9,363 --
Final dividend for 2002 (Note 13) -- (12,299) -- (12,299)
Interim dividend for 2003 (Note 13) -- (17,379) -- (17,379)
-------- -------- -------- --------
Balance at December 31, 2003 175,824 89,577 91,212 356,613
Net profit for the year ended December 31, 2004 -- 102,927 -- 102,927
Transfer to reserves -- (14,552) 14,552 --
Final dividend for 2003 (Note 13) -- (13,947) -- (13,947)
Interim dividend for 2004 (Note 13) -- (20,381) -- (20,381)
-------- -------- -------- --------
Balance at December 31, 2004 175,824 143,624 105,764 425,212
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
75
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
1 ORGANISATION AND PRINCIPAL ACTIVITIES
PetroChina Company Limited (the "Company") was established in the
People's Republic of China (the "PRC" or "China") on November 5, 1999 as a joint
stock company with limited liability as a result of a group restructuring (the
"Restructuring") of China National Petroleum Corporation ("CNPC") in preparation
for the listing of the Company's shares in Hong Kong and in the United States of
America. (See Note 28.) The Company and its subsidiaries are collectively
referred to as the "Group".
The Group is principally engaged in (i) the exploration, development and
production of crude oil and natural gas, (ii) the refining, transportation,
storage and marketing of crude oil and petroleum products, (iii) the production
and sale of chemicals, and (iv) the transmission, marketing and sale of natural
gas. (See Note 38.)
2 BASIS OF PREPARATION
The consolidated financial statements have been prepared in accordance
with International Financial Reporting Standards ("IFRS") issued by the
International Accounting Standards Board ("IASB"). The consolidated financial
statements have been prepared under the historical cost convention except as
disclosed in the accounting policies below.
The preparation of financial statements in conformity with IFRS 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 financial statements 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 ultimately may
differ from those estimates.
3 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
(a) BASIS OF CONSOLIDATION
The consolidated financial statements include the financial statements of
the Company and its subsidiaries. Subsidiaries are those entities in which the
Group has an interest of more than one half of the voting rights or otherwise
has power to govern the financial and operating policies.
Subsidiaries are consolidated from the date on which control is
transferred to the Group and are no longer consolidated from the date that
control ceases. The purchase method of accounting is used to account for the
acquisition of subsidiaries. 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 minority interest. The
excess of the cost of acquisition over the fair value of the Group's share of
the net assets of the subsidiary acquired is recorded as goodwill. Intercompany
transactions, balances and unrealised gains on transactions between group
companies are eliminated; unrealised losses are also eliminated unless cost
cannot be recovered. Where necessary, accounting policies of subsidiaries have
been changed to ensure consistency with the policies adopted by the Group.
For purpose of presentation of the Company's balance sheet, investments
in subsidiaries are accounted for by the equity method as described in Note
3(b).
A listing of the Group's principal subsidiaries is set out in Note 17.
76
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
(b) INVESTMENTS IN ASSOCIATES
Investments in associates are accounted for by the equity method. Under
this method the Group's share of the post-acquisition profits or losses of
associates is recognised in the profit and loss account and its share of
post-acquisition movements in reserves is recognised in reserves. The cumulative
post-acquisition movements are adjusted against the cost of the investment.
Associates are entities in which the Group generally has between 20% and 50% of
the voting rights, or over which the Group has significant influence, but which
it does not control. 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 (net of accumulated amortisation) on
acquisition. When the Group's share of losses in an associate equals or exceeds
its interest in the associate, the Group does not recognise further losses,
unless the Group has incurred obligations or made payments on behalf of the
associate.
A listing of the Group's principal associates is shown in Note 15.
(c) FOREIGN CURRENCIES
Items included in the financial statements of each entity in the Group
are measured using the currency that best reflects the economic substance of the
underlying events and circumstances relevant to that entity. Substantially all
assets and operations of the Group are located in the PRC, and the measurement
currency is RMB. The Group also owns certain crude oil and natural gas
exploration and production operations in Indonesia and the measurement currency
for these operations is US dollars. The consolidated financial statements are
presented in RMB, which is the measurement currency of the parent and most of
the consolidated entities.
Foreign currency transactions of the Group are accounted for at the
exchange rates prevailing at the date of the transactions; gains and losses
resulting from the settlement of such transactions and from the translation of
monetary assets and liabilities denominated in foreign currencies are recognised
in the consolidated profit and loss account. Monetary assets and liabilities are
translated at balance sheet date exchange rates.
Profit and loss account and cash flows of foreign entities are translated
into the Group's reporting currency at average exchange rates for the year and
their balance sheets are translated at the exchange rates at year-end. Currency
translation differences are recognised in shareholders' equity.
The Group did not enter into any hedge contracts during any of the years
presented. No foreign currency exchange gains or losses were capitalised for any
years presented.
(d) FINANCIAL INSTRUMENTS
Financial instruments carried at the balance sheet date include cash and
bank balances, investments, receivables, payables, leases and borrowings. Where
necessary the particular recognition methods adopted are disclosed in the
individual policy statements associated with each item.
Derivatives are recognised at fair value with changes in the fair value
recognised in the profit and loss account. The Group did not hold any derivative
financial instruments for hedging or risk management purpose in any of the years
presented.
77
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
(e) INVESTMENTS
The Group classifies its investments into the following categories:
trading, held-to-maturity and available-for-sale. Investments that are acquired
principally for the purpose of generating a profit from short-term fluctuations
in price are classified as trading investments and included in current assets.
The Group did not hold any investment in this category during the years
presented. Investments with fixed maturity that the management has the intent
and ability to hold to maturity are classified as held-to-maturity and are
included in current assets if their respective maturity dates are twelve months
or less from balance sheet date, or in non-current assets if their respective
maturity dates are more than twelve months from balance sheet date; during the
year the Group did not hold any investment in this category. Investments
intended to be held for an indefinite period of time, which may be sold in
response to needs for liquidity or changes in interest rates, are classified as
available-for-sale; these are included in non-current assets unless management
has the express intention of holding the investment for less than twelve months
from the balance sheet date or unless they will need to be sold to raise
operating capital, in which case they are included in current assets. Management
determines the appropriate classification of its investments at the time of the
purchase and re-evaluates such designation on a regular basis.
All purchases and sales of investments are recognised on the effective
acquisition or sale date. Cost of purchase includes transaction costs.
Available-for-sale investments are measured at fair value except there are no
quoted market prices in active markets and whose fair values cannot be reliably
measured using valuation techniques. Available-for-sale investments carried at
cost are subject to review for impairment.
(f) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including oil and gas properties (Note 3
(g)), are initially 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 a revalued amount.
Revaluations are performed by independent qualified valuers on a regular basis.
In the intervening years between independent revaluations, the directors
review the carrying values of the property, plant and equipment and adjustment
is made where the carrying value differs from fair value. As at September 30,
2003, an exercise was undertaken by independent qualified valuers, resulting in
minor adjustments to the carrying values, as described in Note 14. Increases in
the carrying amount arising on revaluation are credited to the revaluation
reserve. Decreases in valuation of property, plant and equipment are first
offset against increases from earlier valuations in respect of the same asset
and are thereafter charged to the profit and loss account. All other decreases
in valuation are charged to the profit and loss account. Any subsequent
increases are credited to the profit and loss account up to the amount
previously charged.
Revaluation surpluses pertaining to revalued assets depreciated or
disposed of are retained in the revaluation reserve and will not be available
for offsetting against possible future revaluation losses.
Depreciation, depletion and amortisation to write off the cost or
valuation of each asset, other than oil and gas properties, to their residual
values over their estimated useful lives is calculated using the straight-line
method.
78
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
The Group uses the following useful lives for depreciation, depletion and
amortisation purposes:
Buildings 25-40 years
Plant and machinery 10-15 years
Equipment and motor vehicles 3-16 years
No depreciation is provided for construction in progress until they are
completed and ready for use.
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 higher of its net selling price 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 assets in the cash generating unit and
from their ultimate disposal.
Gains and losses on disposal of property, plant and equipment are
determined by reference to their carrying amount and are taken into account in
determining net profit.
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 property for its intended use. Costs for
planned major maintenance activities, primarily related to refinery turnarounds,
are expensed as incurred except for costs of components that result in
improvements and 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. Costs of exploratory wells
are capitalised as construction in progress pending determination of whether the
wells find proved reserves. Proved oil and gas reserves are the estimated
quantities of crude oil, natural gas and natural gas liquids which geological
and engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and 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 on escalations based upon future conditions. Geological
and geophysical costs are expensed when incurred. Costs of exploratory wells are
capitalized pending a determination of whether sufficient quantities of
potentially economic oil and gas reserves have been discovered. 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. 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. The
Group has no costs of unproved properties capitalised in oil and gas properties.
79
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
The Ministry of Land and Resources in China issues production licenses to
applicants on the basis of the reserve reports approved by relevant authorities.
Administrative rules issued by the State Council provide that the maximum term
of a production license is 30 years. However, in accordance with a special
approval from the State Council, the Ministry of Land and Resources has issued
production licenses effective March 2000 to the Group for all of its crude oil
and natural gas reservoirs with terms coextensive with the projected production
life of those reservoirs, ranging up to 55 years. Production licenses to be
issued to the Group in the future will be subject to the 30-year maximum unless
additional special approvals can be obtained from the State Council. Each of the
Group's production licenses is renewable upon application by the Group 30 days
prior to expiration. Future oil and gas price increases may extend the
productive lives of crude oil and natural gas reservoirs beyond the current
terms of the relevant production licenses. Payments on such licenses are made
annually and are expensed as incurred. The cost of oil and gas properties is
amortised at the field level on the unit of production method. Unit 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. The Group's reserve estimates include only crude oil and natural gas
which management believes can be reasonably produced within the current terms of
these production licenses. The Group did not incur and does not anticipate to
incur any material dismantlement, restoration or abandonment costs given the
nature of its onshore producing activities and current PRC regulations governing
such activities.
(h) INTANGIBLE ASSETS
Expenditure on acquired patents, trademarks, technical know-how and
licenses is capitalised and amortised using the straight-line method over their
useful lives, generally over 10 years. Intangible assets are not revalued. The
Group does not have capitalised internally generated intangible assets. 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. The
impairment loss is recognised in the consolidated profit and loss account. The
recoverable amount is measured as the higher of net selling price and value in
use which is the present value of estimated future cash flows to be derived from
continuing use of the asset and from its ultimate disposal.
(i) LEASES
Leases of property, plant and equipment where the Group assumes
substantially all the benefits and risks of ownership are classified as finance
leases. Finance leases are capitalised at the inception of the lease at the
lower of the fair value of the leased property and the estimated present value
of the underlying lease payments. Each lease payment is allocated between the
liability and finance charges so as to achieve a constant rate on the finance
balance outstanding. Property, plant and equipment acquired under finance leases
are generally depreciated over the useful life of the asset as the Group usually
obtains ownership of such leased assets by the end of the leased term.
Leases of assets under which substantially all of the risks and benefits
of ownership are effectively retained by the lessor are classified as operating
leases. Payments made under operating leases are expensed on a straight-line
basis over the lease term. 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 for use range up to 50
years.
80
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
(j) RELATED PARTIES
Related parties are corporations in which CNPC is a major shareholder and
is able to control or exercise significant influence.
(k) INVENTORIES
Inventories are oil products, chemical products, and materials and
supplies which are stated at the lower of cost and net realisable value. Cost is
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 interest expense. Net realisable value is the
estimate of the selling price in the ordinary course of business, less the cost
of completion and selling expenses.
(l) TRADE RECEIVABLES
Trade receivables are carried at original invoice amount less provision
made for impairment of these receivables. Such provision for impairment of trade
receivables is established if there is objective evidence that the Group will
not be able to collect all amounts due according to the original terms of the
receivables. The amount of the provision is the difference between the carrying
amount and the recoverable amount, being the present value of expected cash
flows, discounted at the market rate of interest for similar borrowers.
(m) CASH AND CASH EQUIVALENTS
Cash and cash equivalents are carried in the balance sheet at cost and
comprise cash in hand and investments with maturities of three months or less
from the time of purchase.
(n) BORROWINGS
Borrowings are recognised initially at the proceeds received, 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 profit
and loss account over the period of the borrowings, except for the portion
eligible for capitalisation.
(o) TAXATION
The Company has obtained approval from the State Administration for
Taxation to report taxable income on a consolidated basis.
Deferred tax is provided, using the liability method, for temporary
differences arising between the tax bases of assets and liabilities and their
carrying values for financial reporting purposes. Currently enacted tax rates
are used to determine deferred tax.
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 carryforward 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 the operating
expenses, primarily comprise consumption tax, resource tax, urban construction
tax, education surcharges and business tax.
81
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
(p) REVENUE RECOGNITION
Sales are recognised upon delivery of products and customer acceptance,
if any, 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, and when the amount of revenue and
the costs incurred or to be incurred in respect of the transaction can be
measured reliably.
The Group markets a portion of its natural gas production 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.
(q) PROVISIONS
Provisions are recognised when the Group has a present legal or
constructive obligation as a result of past events, it is probable that an
outflow of resources will be required to settle the obligation, and a reliable
estimate of the amount can be made.
(r) RESEARCH AND DEVELOPMENT
Research expenditure incurred is recognised as an expense. Cost incurred
on development projects are recognised as intangible assets to the extent that
such expenditure is expected to generate future economic benefits.
(s) RETIREMENT BENEFIT PLANS
The Group contributes to various employee retirement benefit plans
organised by municipal and provincial governments under which it is required to
make monthly contributions to these plans at rates prescribed by the related
municipal and provincial governments. The municipal and provincial governments
undertake to assume the retirement benefit obligations of existing and future
retired employees of the Group. Contributions to these plans are charged to
expense as incurred.
(t) SHARE APPRECIATION RIGHTS
Compensation under the share appreciation rights is measured as the
amount by which the quoted market price of the Company's H Shares exceeds the
grant price. Compensation is accrued as a charge to compensation expense over
the vesting service period. The compensation accrued during a vesting service
period is adjusted in subsequent periods for changes, either upward or downward
to the grant price, in the quoted market price of the Company's shares. The
amount of compensation and the effect of subsequent changes are included in the
employee compensation cost of the profit and loss account; the related liability
is included in the salaries and welfare payable.
(u) RECLASSIFICATION
Certain balances of the prior year have been reclassified to conform with
current year presentation, including separate presentation of advance operating
lease payments in Note 18.
(v) NEW ACCOUNTING DEVELOPMENTS
In December 2003, the IASB issued amendments to thirteen existing IFRS
standards under its "Improvements Project". The amendments will become effective
on January 1, 2005. The Group has not adopted these revised standards and does
not expect the adoption of these revised standards would have a material effect
on the results of operation and the financial position of the Group.
82
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
In December 2004, the IASB issued IFRS 6 "Exploration for and Evaluation
of Mineral Resources". Adoption of IFRS 6 is required for annual periods
beginning on or after January 1, 2006. IFRS 6 permits an entity to develop an
accounting policy for exploration and evaluation assets without specifically
considering the requirements of paragraph 11 and 12 of IAS 8 and allows an
entity to use the accounting policies applied immediately before adopting IFRS
6. IFRS 6 requires entities recognising exploration and evaluation assets to
perform an impairment test on these assets. However, IFRS 6 allows variation in
recognition of impairment from that specified in IAS 36 but measures the
impairment as set forth in IAS 36 once impairment is identified. The Group's
accounting policies with respect to exploration and evaluation asset are
described in Note 3 (g) and 3 (f). The Group is evaluating the manner and effect
of adoption of IFRS 6.
The following standards of IASB also will be effective January 1, 2005 -
IFRS 2, "Share-based Payment", IFRS 3, "Business Combination", IFRS 4,
"Insurance Contracts", and IFRS 5, "Non Current Assets Held for Sale and
Discontinued Operations". The Group is evaluating the manner of adoption of
these IFRS and does not expect the adoption of these new standards will have a
material effect on the financial condition or results of operations of the
Group.
4 TURNOVER
Turnover represents revenues from the sale of crude oil, natural gas,
refined products and petrochemical products and from the transportation of crude
oil and natural gas. Analysis of turnover by segment is shown in Note 38.
5 PROFIT BEFORE TAXATION
2004 2003
------- -------
RMB RMB
------- -------
Profit before taxation is arrived at after crediting and charging of the following
items:
Crediting
Dividend income from available-for-sale investments 90 69
Reversal of impairment of receivables 1,346 551
Reversal of impairment of available-for-sale investments 155 21
Reversal of write down in inventories 229 23
Charging
Amortisation on intangible and other assets 754 635
Auditors' remuneration 43 44
Cost of inventories (approximates cost of goods sold) recognised as expense 165,025 134,935
Depreciation on property, plant and equipment, including impairment provision
- owned assets 45,040 39,293
- assets under finance leases 23 21
Impairment of available-for-sale investments 181 179
Impairment of receivables 1,826 1,985
Interest expense (Note 8) 2,303 2,346
Loss on disposal of property, plant and equipment 2,806 1,048
Operating lease expenses 3,873 3,573
Repair and maintenance 6,205 4,721
Research and development expenditure 2,936 2,411
Transportation expenses 10,029 8,780
Write down in inventories 375 159
83
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
6 EMPLOYEE COMPENSATION COSTS
2004 2003
------ ------
RMB RMB
------ ------
Wages and salaries 14,926 12,893
Social security costs (i) 7,383 6,649
------ ------
22,309 19,542
====== ======
(i) Social security costs represent contributions to funds for staff
welfare organised by the municipal and provincial governments
including contribution to the retirement benefit plans (Note 32).
7 SHUT DOWN OF MANUFACTURING ASSETS
During the years ended December 31, 2004 and 2003, the Group provided RMB
220 and RMB 2,355 respectively for the shut down of certain less efficient
operating facilities in the refining and chemical manufacturing plants. The
charges represented the net book value of the facilities.
2004 2003
----- -----
RMB RMB
----- -----
Refining facilities 192 1,596
Chemical facilities 28 759
----- -----
220 2,355
===== =====
There were no employee termination or relocation costs relating to the
shut down of these manufacturing equipment.
8 INTEREST EXPENSE
2004 2003
------ ------
RMB RMB
------ ------
Interest on
Bank loans
- wholly repayable within five years 1,564 1,773
- not wholly repayable within five years 475 697
Other loans
- wholly repayable within five years 1,068 1,046
- not wholly repayable within five years 199 146
Finance leases 2 4
Less: amounts capitalised (1,005) (1,320)
------ ------
2,303 2,346
====== ======
Amounts capitalised are borrowing costs related to funds borrowed
specifically for the purpose of acquiring qualifying assets. Interest rate on
such capitalised borrowings was 5.02 % (2003: 5.02%) per annum.
84
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
9 EMOLUMENTS OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
Details of the directors' and supervisors' emoluments are as follows:
2004 2003
------- -------
RMB'000 RMB'000
Fee for directors and supervisors 120 83
Salaries, allowances and other benefits 2,012 1,377
Contribution to retirement benefit scheme 43 34
----- -----
2,175 1,494
===== =====
The emoluments of the directors and supervisors fall within the following
bands (including directors and supervisors whose term expired during the year):
2004 2003
------ ------
NUMBER NUMBER
Nil - RMB 1 24 19
===== =====
Fee for directors and supervisors disclosed above included RMB 95 thousand
(2003: RMB 62 thousand) paid to independent non-executive directors.
None of the directors and supervisors has waived their remuneration during
the year ended December 31, 2004 (2003: nil).
The five highest paid individuals in the Group for each of the two years
ended December 31, 2003 and 2004 were also directors or supervisors and their
emoluments are reflected in the analysis shown above.
During 2003 and 2004, the Company did not incur any payment to any director
for loss of office or as inducement to any director to join the Company.
The Company has adopted a share option scheme which is a share appreciation
right arrangement payable in cash to the recipients upon exercise of the rights
which became effective on the initial public offering of the H shares of the
Company on April 7, 2000. The directors, supervisors and senior executives of
the Company are eligible for the scheme. 87,000,000 units of share appreciation
rights were granted to senior executives. 35,000,000 units were granted to the
directors and supervisors; of these 35,000,000 units, 33,130,000 units are
outstanding, net of subsequent forfeiture of 1,870,000 units by a former
independent director.
The rights can be exercised on or after April 8, 2003, the third
anniversary of the grant, up to April 7, 2008. The exercise price is the price
as at the initial public offering being HK $1.28 per share or approximately RMB
1.36 per share.
As at December 31, 2004, none of the holders of the stock appreciation
rights has exercised the rights. The liability for the units awarded under the
scheme has been calculated based on the difference between the exercise price
and the market price of the shares and amounted to approximately RMB 367 (2003:
RMB 406) at December 31, 2004.
85
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
10 TAXATION
2004 2003
------ ------
RMB RMB
Income tax 39,404 26,347
Deferred tax (Note 30) 2,814 1,594
Share of tax of associates 345 131
------ ------
42,563 28,072
====== ======
In accordance with the relevant PRC income tax rules and regulations, the
PRC income tax rate applicable to the Group is principally 33% (2003: 33%).
Operations of the Group in certain regions in China have qualified for certain
tax incentives in the form of reduced income tax rate to 15% through the year
2010 or accelerated depreciation of certain plant and equipment.
The tax on the Group's profit before taxation differs from the theoretical
amount that would arise using the basic tax rate in the PRC applicable to the
Group as follows :
2004 2003
-------- --------
RMB RMB
Profit before taxation 147,141 98,322
-------- --------
Tax calculated at a tax rate of 33% 48,556 32,446
Prior year tax return adjustment 27 419
Effect of preferential tax rate (6,886) (5,190)
Utilisation of previously unrecognised
tax loss of subsidiaries (832) --
Income not subject to tax (605) (566)
Expenses not deductible for tax purposes 2,303 963
-------- --------
Tax charge 42,563 28,072
======== ========
11 PROFIT ATTRIBUTABLE TO SHAREHOLDERS
The profit attributable to shareholders is dealt with in the financial
statements of the Company to the extent of RMB 102,927 (2003: RMB 69,614) for
the year ended December 31, 2004.
12 BASIC AND DILUTED EARNINGS PER SHARE
Basic and diluted earnings per share for the years ended December 31, 2004
and 2003 have been computed by dividing net profit by the number of 175.82
billion shares issued and outstanding for each of the years.
There are no dilutive potential ordinary shares.
86
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
13 DIVIDENDS
2004 2003
------ ------
RMB RMB
Final dividend for 2002 (Note (i)) -- 12,299
Interim dividend for 2003 (Note (ii)) -- 17,379
Final dividend for 2003 (Note (iii)) 13,947 --
Interim dividend for 2004 (Note (iv)) 20,381 --
------ ------
34,328 29,678
====== ======
(i) A final dividend in respect of 2002 of RMB 0.069951 per share amounting to
a total of RMB 12,299 was paid on June 12, 2003, and was accounted for in
shareholders' equity as an appropriation of retained earnings in the year
ended December 31, 2003.
(ii) An interim dividend in respect of 2003 of RMB 0.098841 per share amounting
to a total of RMB 17,379 was paid on October 8, 2003, and was accounted
for in shareholders' equity as an appropriation of retained earnings in
the year ended December 31, 2003.
(iii) A final dividend in respect of 2003 of RMB 0.079324 per share amounting to
a total of RMB 13,947 was paid on June 2, 2004, and was accounted for in
shareholders' equity as an appropriation of retained earnings in the year
ended December 31, 2004.
(iv) As authorised by shareholders in the Annual General Meeting on May 18,
2004, the Board of Directors, in a meeting held on August 26, 2004,
resolved to distribute an interim dividend in respect of 2004 of RMB
0.115919 per share amounting to a total of RMB 20,381. The interim
dividend was paid on October 8, 2004, and was accounted for in
shareholders' equity as an appropriation of retained earnings in the year
ended December 31, 2004.
(v) At the meeting on March 16, 2005, the Board of Directors proposed a final
dividend in respect of 2004 of RMB 0.147511 per share amounting to a total
of RMB 25,936. These financial statements do not reflect this dividend
payable, which will be accounted for in shareholders' equity as an
appropriation of retained earnings in the year ended December 31, 2005.
87
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
14 PROPERTY, PLANT AND EQUIPMENT
GROUP
OIL PLANT CONSTRUCTION
YEAR ENDED AND GAS AND MOTOR IN
DECEMBER 31, 2003 BUILDINGS PROPERTY EQUIPMENT VEHICLES OTHER PROGRESS TOTAL
----------------------- --------- -------- --------- -------- -------- ------------ --------
RMB RMB RMB RMB RMB RMB RMB
COST OR VALUATION
At beginning of the year 50,539 337,998 205,921 7,384 5,272 30,594 637,708
Additions 243 289 952 946 73 80,426 82,929
Revaluation surplus -- -- (1,568) -- -- -- (1,568)
Revaluation loss -- -- (2,133) -- -- -- (2,133)
Transfers 6,263 43,308 27,834 -- 354 (77,759) --
Disposals or write off (1,738) (12,785) (8,285) (537) (249) -- (23,594)
-------- -------- -------- -------- -------- -------- --------
At end of the year 55,307 368,810 222,721 7,793 5,450 33,261 693,342
-------- -------- -------- -------- -------- -------- --------
ACCUMULATED DEPRECIATION
AND IMPAIRMENT
At beginning of the year (10,866) (137,653) (90,462) (3,649) (1,783) -- (244,413)
Charge for the year (1,817) (21,060) (15,120) (731) (586) -- (39,314)
Revaluation surplus -- -- 2,440 -- -- -- 2,440
Revaluation loss -- -- 876 -- -- -- 876
Disposals or write off 1,474 7,871 5,007 416 176 -- 14,944
-------- -------- -------- -------- -------- -------- --------
At end of the year (11,209) (150,842) (97,259) (3,964) (2,193) -- (265,467)
-------- -------- -------- -------- -------- -------- --------
NET BOOK VALUE
At end of the year 44,098 217,968 125,462 3,829 3,257 33,261 427,875
======== ======== ======== ======== ======== ======== ========
ANALYSIS OF COST OR
VALUATION
At valuation (i) 25,412 212,573 162,954 3,139 1,395 -- 405,473
At cost (ii) 29,895 156,237 59,767 4,654 4,055 33,261 287,869
-------- -------- -------- -------- -------- -------- --------
55,307 368,810 222,721 7,793 5,450 33,261 693,342
======== ======== ======== ======== ======== ======== ========
Carrying value of the
property, plant and
equipment had they been
stated at cost less
accumulated depreciation 39,229 203,025 104,976 3,304 2,622 33,261 386,417
======== ======== ======== ======== ======== ======== ========
88
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
GROUP (CONTINUED)
OIL AND PLANT CONSTRUCTION
YEAR ENDED GAS AND MOTOR IN
DECEMBER 31, 2004 BUILDINGS PROPERTY EQUIPMENT VEHICLES OTHER PROGRESS TOTAL
------------------------ --------- -------- --------- -------- -------- ------------ --------
RMB RMB RMB RMB RMB RMB RMB
COST OR VALUATION
At beginning of the year 55,307 368,810 222,721 7,793 5,450 33,261 693,342
Additions 940 203 2,130 1,227 76 90,773 95,349
Transfers 9,327 48,240 28,865 -- 370 (86,802) --
Disposals or write off (2,142) (8,703) (5,508) (241) (61) -- (16,655)
-------- -------- -------- -------- -------- -------- --------
At end of the year 63,432 408,550 248,208 8,779 5,835 37,232 772,036
-------- -------- -------- -------- -------- -------- --------
Accumulated depreciation
and impairment
At beginning of the year (11,209) (150,842) (97,259) (3,964) (2,193) -- (265,467)
Charge for the year (2,049) (24,839) (16,569) (794) (610) (202) (45,063)
Disposals or write off 843 2,985 2,931 208 46 -- 7,013
-------- -------- -------- -------- -------- -------- --------
At end of the year (12,415) (172,696) (110,897) (4,550) (2,757) (202) (303,517)
-------- -------- -------- -------- -------- -------- --------
NET BOOK VALUE
At end of the year 51,017 235,854 137,311 4,229 3,078 37,030 468,519
======== ======== ======== ======== ======== ======== ========
ANALYSIS OF COST OR
VALUATION
At valuation (i) 23,270 203,870 157,446 2,898 1,334 -- 388,818
At cost (ii) 40,162 204,680 90,762 5,881 4,501 37,232 383,218
-------- -------- -------- -------- -------- -------- --------
63,432 408,550 248,208 8,779 5,835 37,232 772,036
======== ======== ======== ======== ======== ======== ========
Carrying value of the
property, plant and
equipment had they been
stated at cost less
accumulated depreciation 46,520 226,567 118,590 3,711 2,506 37,030 434,924
======== ======== ======== ======== ======== ======== ========
89
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
COMPANY
OIL PLANT CONSTRUCTION
YEAR ENDED AND GAS AND MOTOR IN
DECEMBER 31, 2003 BUILDINGS PROPERTY EQUIPMENT VEHICLES OTHER PROGRESS TOTAL
----------------------- --------- -------- --------- -------- -------- ------------ --------
RMB RMB RMB RMB RMB RMB RMB
COST OR VALUATION
At beginning of the year 34,730 221,071 164,947 4,884 4,766 25,949 456,347
Additions 200 114 422 485 53 65,495 66,769
Revaluation surplus -- -- (1,497) -- -- -- (1,497)
Revaluation loss -- -- (2,026) -- -- -- (2,026)
Transfers 4,823 31,773 25,199 -- 196 (61,991) --
Disposals or write off (1,419) (7,411) (8,103) (491) (174) -- (17,598)
-------- -------- -------- -------- -------- -------- --------
At end of the year 38,334 245,547 178,942 4,878 4,841 29,453 501,995
-------- -------- -------- -------- -------- -------- --------
ACCUMULATED DEPRECIATION
AND IMPAIRMENT
At beginning of the year (8,783) (88,166) (73,407) (2,579) (1,305) -- (174,240)
Charge for the year (1,474) (14,789) (12,542) (517) (398) -- (29,720)
Revaluation surplus -- -- 2,366 -- -- -- 2,366
Revaluation loss -- -- 795 -- -- -- 795
Disposals or write off 1,201 3,272 4,923 406 107 -- 9,909
-------- -------- -------- -------- -------- -------- --------
At end of the year (9,056) (99,683) (77,865) (2,690) (1,596) -- (190,890)
-------- -------- -------- -------- -------- -------- --------
NET BOOK VALUE
At end of the year 29,278 145,864 101,077 2,188 3,245 29,453 311,105
======== ======== ======== ======== ======== ======== ========
ANALYSIS OF COST OR
VALUATION
At valuation (i) 17,305 122,716 133,302 2,222 1,376 -- 276,921
At cost (ii) 21,029 122,831 45,640 2,656 3,465 29,453 225,074
-------- -------- -------- -------- -------- -------- --------
38,334 245,547 178,942 4,878 4,841 29,453 501,995
======== ======== ======== ======== ======== ======== ========
Carrying value of the
property, plant and
equipment had they been
stated at cost less
accumulated depreciation 27,513 135,071 82,158 1,873 2,586 29,453 278,654
======== ======== ======== ======== ======== ======== ========
90
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
COMPANY (CONTINUED)
OIL PLANT CONSTRUCTION
YEAR ENDED AND GAS AND MOTOR IN
DECEMBER 31, 2004 BUILDINGS PROPERTY EQUIPMENT VEHICLES OTHER PROGRESS TOTAL
----------------------- --------- -------- --------- -------- -------- ------------ --------
RMB RMB RMB RMB RMB RMB RMB
COST OR VALUATION
At beginning of the year 38,334 245,547 178,942 4,878 4,841 29,453 501,995
Additions 235 135 2,728 805 16 62,410 66,329
Transfers 6,720 36,247 23,179 -- 243 (66,389) --
Disposals or write off (1,167) (7,187) (5,160) (211) (55) -- (13,780)
-------- -------- -------- -------- -------- -------- --------
At end of the year 44,122 274,742 199,689 5,472 5,045 25,474 554,544
-------- -------- -------- -------- -------- -------- --------
ACCUMULATED DEPRECIATION
AND IMPAIRMENT
At beginning of the year (9,056) (99,683) (77,865) (2,690) (1,596) -- (190,890)
Charge for the year (1,704) (17,973) (13,459) (580) (428) (189) (34,333)
Disposals or write off 795 2,395 2,601 184 42 -- 6,017
-------- -------- -------- -------- -------- -------- --------
At end of the year (9,965) (115,261) (88,723) (3,086) (1,982) (189) (219,206)
-------- -------- -------- -------- -------- -------- --------
NET BOOK VALUE
At end of the year 34,157 159,481 110,966 2,386 3,063 25,285 335,338
======== ======== ======== ======== ======== ======== ========
ANALYSIS OF COST OR
VALUATION
At valuation (i) 16,138 115,529 128,142 2,011 1,321 -- 263,141
At cost (ii) 27,984 159,213 71,547 3,461 3,724 25,474 291,403
-------- -------- -------- -------- -------- -------- --------
44,122 274,742 199,689 5,472 5,045 25,474 554,544
======== ======== ======== ======== ======== ======== ========
Carrying value of the
property, plant and
equipment had they been
stated at cost less
accumulated depreciation 32,588 150,773 93,417 2,084 2,461 25,285 306,608
======== ======== ======== ======== ======== ======== ========
(i) Amount for which revaluations have been undertaken by independent valuers.
(ii) Cost of property, plant and equipment acquired or constructed since the
applicable revaluation.
The depreciation charge of the Group for the year ended December 31, 2004
included RMB 3,789 (2003: RMB 1,487) relating to impairment provision for
property, plant and equipment held for use. Of this amount, RMB 798 (2003: RMB
863) was related to the Chemicals and Marketing segment, RMB 1,398 (2003: RMB
624) was for the Refining and Marketing segment and RMB 1,593 (2003: RMB Nil)
was for the Exploration and Production segment.
91
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
The following table indicates the changes to the Group's exploratory well
costs for the years ended December 31, 2004 and 2003.
2004 2003
------- -------
RMB RMB
Beginning balance at January 1 4,255 3,764
Additions to capitalized exploratory well
costs pending the determination of proved
reserves 10,908 9,232
Reclassified to wells, facilities, and
equipment based on the determination of
proved reserves (4,756) (4,050)
Capitalized exploratory well costs charged
to expense (4,718) (4,691)
------- -------
Ending balance at December 31 5,689 4,255
======= =======
Number of wells at year end 782 636
======= =======
The following table provides an aging of capitalized exploratory well costs
based on the date the drilling was completed.
2004 2003
----- -----
RMB RMB
One year or less 5,278 3,988
Over one year 411 267
----- -----
Balance at December 31 5,689 4,255
===== =====
The RMB 411 at December 31, 2004 for capitalized 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.
Buildings owned by the Group are on leased land. The net book values of the
buildings owned by the Group analysed by the following categories of lease
terms:
GROUP COMPANY
--------------- ---------------
2004 2003 2004 2003
------ ------ ------ ------
RMB RMB RMB RMB
Short-term lease (less than 10 years) 335 1,125 331 719
Medium-term lease (10 to 50 years) 50,682 42,973 33,826 28,559
------ ------ ------ ------
51,017 44,098 34,157 29,278
====== ====== ====== ======
Substantially all the buildings of the Group are located in the PRC.
92
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
Property, plant and equipment under finance leases at the end of year are
as follows:
GROUP COMPANY
--------------- ---------------
2004 2003 2004 2003
---- ---- ---- ----
RMB RMB RMB RMB
Exploration and Production 45 -- 45 --
Refining and Marketing 94 94 94 94
Chemicals and Marketing 110 221 110 221
Accumulated depreciation (74) (75) (74) (75)
---- ---- ---- ----
175 240 175 240
==== ==== ==== ====
Finance leases are principally related to plant and equipment and generally
contain purchase options at the end of the lease terms.
A valuation of the Group's property, plant and equipment, excluding oil and
gas reserves, was carried out during 1999 by independent valuers. The valuation
was based on depreciated replacement costs.
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 June 1999 revaluation resulted in RMB 80,549 in excess of the prior
carrying value and a revaluation loss of RMB 1,122 on certain property, plant
and equipment.
The September 2003 revaluation resulted in RMB 872 in excess of the
carrying value of certain property, plant and equipment immediately prior to the
revaluation and a revaluation loss of RMB 1,257.
With respect to the RMB 872 revaluation gain resulting from the 2003
revaluation, RMB 98 were related to property, plant and equipment that in 1999
experienced revaluation loss, and were credited to the profit and loss account.
The remaining RMB 774 was credited to the revaluation reserve in the
shareholders' equity.
With respect to the RMB 1,257 revaluation loss resulting from the 2003
revaluation, RMB 768 were related to property, plant and equipment that in 1999
experienced revaluation gain. The remaining RMB 489 were charged to the profit
and loss account.
Bank borrowings are secured on property, plant and equipment at net book
value of RMB 218 (2003: RMB 152) at December 31, 2004.
93
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
15 INVESTMENTS IN ASSOCIATES
Principal associates accounted for under the equity method are:
COUNTRY OF ATTRIBUTABLE
INCORPORATION PAID-UP/ EQUITY
AND REGISTERED INTEREST
COMPANY NAME OPERATIONS CAPITAL HELD (%) PRINCIPAL ACTIVITIES
---------------------- ------------- ---------- ------------ ----------------------------
Dalian West Pacific PRC USD 258 28.4 Production and sale of
Petrochemical refined and petrochemical
Co., Ltd. products
China Marine Bunker PRC RMB1,000 50 Supplying bunker oils,
(PetroChina) Co., Ltd. marine lubricant and fresh
water to foreign trading
vessels and coastal vessels,
transportation, storage,
import and export of oil
products
Share of profit of associates included in the profit and loss account of
the Group was RMB 1,824 (2003: RMB 985) in 2004.
Share of net profit of associates included in retained earnings of the
Group was RMB 1,860 (2003: RMB 584) at December 31, 2004. Dividends received and
receivable from associates were RMB 203 (2003: RMB 134) in 2004.
16 AVAILABLE-FOR-SALE INVESTMENTS
GROUP COMPANY
---------------- ----------------
2004 2003 2004 2003
------ ------ ------ ------
RMB RMB RMB RMB
Unlisted available-for-sale investments 2,265 2,652 2,109 2,264
Less: Impairment provision (755) (813) (745) (802)
------ ------ ------ ------
1,510 1,839 1,364 1,462
====== ====== ====== ======
Available-for-sale investments, comprising principally unlisted equity
securities, are classified as non-current assets, unless they are expected to be
realised within twelve months of the balance sheet date or unless they will need
to be sold to raise operating capital.
Dividend income from available-for-sale investments was RMB 90 (2003: RMB
69) in 2004.
94
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
17 SUBSIDIARIES
Principal subsidiaries are:
COUNTRY OF
INCORPORATION PAID-UP TYPE OF ATTRIBUTABLE
AND CAPITAL LEGAL QUITY
COMPANY NAME OPERATIONS RMB ENTITY INTEREST % PRINCIPAL ACTIVITIES
-------------------------- -------------- --------- ------- ------------ -----------------------------------
*Daqing Oilfield Company PRC 47,500 + 100.00 Exploration, production and the
Limited sale of crude oil and natural gas;
production and sale of refined
products
*Jinzhou Petrochemical PRC 788 # 80.95 Production and sale of oil and
Company Limited chemical products
*Jilin Chemical PRC 3,561 # 67.29 Production and sale of chemical
Industrial Company Limited products
Daqing Yu Shu Lin PRC 1,272 + 88.16 Exploration and production of
Oilfield Company Limited crude oil and natural gas
*Liaohe Jinma Oilfield PRC 1,100 # 81.82 Exploration, production,
Company Limited transportation and sale of crude
oil and natural gas
*PetroChina International British Virgin USD 0.9 + 100.00 Exploration and production of
Limited Islands crude oil and natural gas outside
of PRC
PetroChina International Bahamas USD 0.005 + 100.00 Exploration and production of crude
Indonesia Limited oil and natural gas in Indonesia
------------
+ - Limited liability company.
# - Joint stock company with limited liability.
* - Subsidiaries directly held by the Company as of December 31, 2004.
95
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
18 ADVANCE OPERATING LEASE PAYMENTS
GROUP COMPANY
------------------ ------------------
2004 2003 2004 2003
------ ------ ------ ------
RMB RMB RMB RMB
Land use rights 7,952 5,544 5,683 3,646
Advance lease payments 4,296 1,708 3,148 1,356
------ ------ ------ ------
12,248 7,252 8,831 5,002
====== ====== ====== ======
Land use rights have terms up to 50 years. Advance lease payments are
principally for use of land sub-leased from entities other than PRC land
authorities. These advance operating lease payments are amortised over the
related lease periods using the straight line method.
19 INTANGIBLE AND OTHER ASSETS
GROUP
2004 2003
------------------------------ ------------------------------
ACCUMULATED ACCUMULATED
COST AMORTISATION NET COST AMORTISATION NET
------ ------------ ------ ------ ------------ ------
RMB RMB RMB RMB RMB RMB
Patents 1,873 (958) 915 1,721 (769) 952
Technical know-how 248 (181) 67 239 (155) 84
Other 1,421 (395) 1,026 1,300 (348) 952
------ ------ ------ ------ ------ ------
Intangible assets 3,542 (1,534) 2,008 3,260 (1,272) 1,988
====== ====== ====== ====== ====== ======
Other assets 979 1,036
------ ------
2,987 3,024
====== ======
COMPANY
2004 2003
------------------------------ ------------------------------
ACCUMULATED ACCUMULATED
COST AMORTISATION NET COST AMORTISATION NET
------ ------------ ------ ------ ------------ ------
RMB RMB RMB RMB RMB RMB
Patents 1,213 (694) 519 1,070 (569) 501
Technical know-how 28 (9) 19 19 (5) 14
Other 1,078 (297) 781 1,039 (276) 763
------ ------ ------ ------ ------ ------
Intangible assets 2,319 (1,000) 1,319 2,128 (850) 1,278
====== ====== ====== ====== ====== ======
Other assets 834 525
------ ------
2,153 1,803
====== ======
96
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
Patents principally represent expenditure incurred in acquiring processes
and techniques that are generally protected by relevant government authorities.
Technical know-how amounts are attributable to operational technology acquired
in connection with purchase of equipment. The technical know-how costs are
included as part of the purchase price by contracts and are distinguishable.
Other assets primarily consist of long-term prepaid expenses to service
providers.
20 INVENTORIES
GROUP COMPANY
------------------ ------------------
2004 2003 2004 2003
------- ------- ------- -------
RMB RMB RMB RMB
Crude oil and other raw materials 13,895 9,553 9,550 6,989
Work in progress 5,320 3,652 4,461 3,242
Finished goods 27,394 16,367 23,781 14,424
Spare parts and consumables 59 66 47 55
------- ------- ------- -------
46,668 29,638 37,839 24,710
Less: Write down in inventories (897) (766) (561) (524)
------- ------- ------- -------
45,771 28,872 37,278 24,186
======= ======= ======= =======
Inventories of the Group carried at net realisable value amounted to RMB
3,282 (2003: RMB 2,249) at December 31, 2004.
21 ACCOUNTS RECEIVABLE
GROUP COMPANY
----------------- -----------------
2004 2003 2004 2003
------ ------ ------ ------
RMB RMB RMB RMB
Accounts receivable due from
third parties 6,905 8,263 5,408 5,827
Less: Impairment provision (4,740) (5,872) (3,825) (4,759)
------ ------ ------ ------
2,165 2,391 1,583 1,068
Accounts receivable due from
related parties
-- Fellow CNPC subsidiaries 482 592 306 415
-- Associates 15 280 13 278
------ ------ ------ ------
2,662 3,263 1,902 1,761
====== ====== ====== ======
Amounts due from related parties are interest free, unsecured and repayable
in accordance with normal commercial terms.
97
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
The aging analysis of accounts receivable at December 31, 2004 is as
follows:
GROUP COMPANY
----------------- -----------------
2004 2003 2004 2003
----- ----- ----- -----
RMB RMB RMB RMB
Within 1 year 2,332 2,594 1,709 1,369
Between 1 to 2 years 63 136 49 127
Between 2 to 3 years 119 423 112 293
Over 3 years 4,888 5,982 3,857 4,731
----- ----- ----- -----
7,402 9,135 5,727 6,520
===== ===== ===== =====
The Group offers its customers the credit terms of no more than 180 days,
except for certain selected customers.
22 PREPAID EXPENSES AND OTHER CURRENT ASSETS
GROUP COMPANY
------------------ ------------------
2004 2003 2004 2003
------- ------- ------- -------
RMB RMB RMB RMB
Other receivables 8,948 10,173 6,328 7,490
Less: Impairment provision (7,046) (6,283) (4,469) (3,690)
------- ------- ------- -------
1,902 3,890 1,859 3,800
Amounts due from CNPC 3,385 2,038 3,385 2,038
Amounts due from fellow CNPC subsidiaries 4,397 2,705 3,679 2,002
Amounts due from subsidiaries -- -- 14,945 7,287
Advances to suppliers 7,539 4,105 6,234 2,977
Prepaid expenses 230 103 175 68
Other current assets 110 687 132 721
------- ------- ------- -------
17,563 13,528 30,409 18,893
======= ======= ======= =======
Other receivables consist primarily of taxes other than income taxes refund
receivables, subsidies receivable, and receivables for the sale of materials and
scrap.
Amounts due from CNPC and fellow CNPC subsidiaries are interest free,
unsecured and repayable in accordance with normal commercial terms.
23 NOTES RECEIVABLE
Notes receivable represent mainly the bills of acceptance issued by banks
for sale of goods and products. All notes receivable are due within one year.
98
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
24 RECEIVABLES UNDER RESALE AGREEMENTS
Securities purchased under agreements to resell ("resale agreements") are
recorded as receivables under resale agreements. The difference between purchase
and resell prices is treated as interest income and accrued over the life of
resale agreements using the effective yield method.
Resale agreements are accounted for as collateralized financing
transactions and are recorded at their contractual amounts plus interest
accrued. The underlying collaterals are principally the PRC government bonds.
25 CASH AND CASH EQUIVALENTS
GROUP COMPANY
------------------ ------------------
2004 2003 2004 2003
------ ------ ------ ------
RMB RMB RMB RMB
Cash at bank and in hand 11,304 11,231 8,391 8,022
====== ====== ====== ======
The weighted average effective interest rate on bank deposits was 1.23%
(2003: 1.30%) for the year ended December 31, 2004.
26 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
GROUP COMPANY
--------------- ---------------
2004 2003 2004 2003
------ ------ ------ ------
RMB RMB RMB RMB
Trade payables 11,802 10,150 8,645 6,448
Advances from customers 6,950 6,861 5,677 5,835
Salaries and welfare payable 5,869 5,413 4,888 4,394
Accrued expenses 7 5 7 5
Dividends payable by subsidiaries to minority
shareholders 38 118 -- --
Interest payable 33 130 32 127
Construction fee and equipment cost payables 17,113 13,760 11,971 10,411
Payable to Sinopec 663 610 640 585
Advances from Sinopec 42 233 38 233
One-time employee housing remedial payment
payable 1,740 2,270 1,740 2,270
Other payables 10,986 10,628 7,299 7,395
Amounts due to related parties
-- CNPC 2,681 1,531 2,681 1,484
-- Fellow CNPC subsidiaries 12,202 11,880 9,865 9,746
-- Subsidiaries -- -- 30,652 28,536
-- Associates 570 591 527 541
------ ------ ------ ------
70,696 64,180 84,662 78,010
====== ====== ====== ======
Other payables consist primarily of customer deposits.
99
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
Amounts due to related parties are interest-free, unsecured and repayable
in accordance with normal commercial terms.
The aging analysis of trade payables at December 31, 2004 is as follows:
GROUP COMPANY
----------------------------------- ------------------------------------
2004 2003 2004 2003
----------------- ----------------- ----------------- -----------------
RMB RMB RMB RMB
----------------- ----------------- ----------------- -----------------
Within 1 year 11,094 9,108 8,077 5,763
Between 1 to 2 years 182 402 129 211
Between 2 to 3 years 86 127 69 89
Over 3 years 440 513 370 385
----------------- ----------------- ----------------- -----------------
11,802 10,150 8,645 6,448
================= ================= ================= =================
27 BORROWINGS
(a) SHORT-TERM BORROWINGS
GROUP COMPANY
------------------------------------ -----------------------------------
2004 2003 2004 2003
----------------- ----------------- ----------------- -----------------
RMB RMB RMB RMB
----------------- ----------------- ----------------- -----------------
Bank loans
-secured 29 114 7 7
-unsecured 10,631 8,450 10,174 7,592
Loans from fellow CNPC subsidiaries 600 610 - -
Other 8 5 3 4
----------------- ----------------- ----------------- -----------------
11,268 9,179 10,184 7,603
Current portion of long-term borrowings 16,008 19,711 14,554 19,064
----------------- ----------------- ----------------- -----------------
27,276 28,890 24,738 26,667
================= ================= ================= =================
100
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
(b) LONG-TERM BORROWINGS
GROUP COMPANY
-------------------------- --------------------------
INTEREST RATE AND
FINAL MATURITY 2004 2003 2004 2003
--------------------------------------- ------------ ------------ ------------ -------------
RMB RMB RMB RMB
RENMINBI-
DENOMINATED
BORROWINGS:
Bank loans for the Majority variable interest rates 16,195 20,327 15,749 19,631
development of oil fields ranging from 4.94% to 5.85% per
and construction of annum as of December 31, 2004, with
refining plants maturities through 2010
Bank loans for working capital Majority variable interest rate at 6,016 6,073 6,001 6,033
4.94% per annum as of December 31,
2004, with maturities through 2007
Loans from related parties Floating interest rates ranging from 15,610 15,620 15,610 15,620
for the development of oil 4.46% to 5.18% per annum as of
fields and construction of December 31, 2004, with maturities
refining plants through 2032
Working capital loans from Floating interest rate at 4.39% per 4,000 4,000 4,000 4,000
related parties annum as of December 31, 2004, with
maturities through 2007
Working capital loans Fixed interest rates at 6.32% per 8 10 8 8
annum with no fixed repayment term
Corporate debenture for the Fixed interest rate at 4.50% per 1,350 1,350 1,350 1,350
development of oil fields annum with maturities through 2007
and construction of
refining plants
Corporate debenture for the Fixed interest rate at 4.11% per 1,500 1,500 1,500 1,500
development of oil and gas annum with maturities through 2013
properties
101
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
GROUP COMPANY
--------------------------- --------------------------
INTEREST RATE AND FINAL
MATURITY 2004 2003 2004 2003
----------------------------------------- ------------- --------- ------------ -----------
RMB RMB RMB RMB
US Dollar-denominated borrowings:
Bank loans for the development Fixed interest rates ranging from free 1,535 2,881 721 1,070
of oil fields and construction to 8.66% per annum with maturities
of refining plants through 2038
Bank loans for the development Floating interest rates ranging from 1,609 1,403 755 853
of oil fields and construction 1.65% to 3.43% per annum as of
of refining plants December 31, 2004, with maturities
through 2014
Bank loans for working capital Floating interest rate at LIBOR plus 492 - - -
0.60% per annum as of December 31,
2004 with maturities through 2006
Bank loans for acquisition of Floating interest rates ranging from 1,490 1,493 - -
overseas oil and gas LIBOR plus 0.55% to LIBOR plus 0.60%
properties per annum as of December 31, 2004,
with maturities through 2009
Loans from related parties for Floating interest rate at LIBOR minus 1,633 3,633 1,633 3,633
the development of oil fields 0.25% per annum as of December 31,
and construction of refining 2004, with maturities through 2005
plants
Loans from related parties for Floating interest rate at LIBOR plus 608 608 - -
acquisition of overseas oil 0.40% per annum as of December 31,
and gas properties 2004, with maturities through 2006
Loans from related parties for Floating interest rate at LIBOR plus 717 717 - -
working capital 0.40% per annum as of December 31,
2004, with maturities through 2006
Loans for the development of oil Fixed interest rate at 1.55% per annum 554 586 554 586
fields and construction of with maturities through 2022
refining plants
102
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
GROUP COMPANY
--------------------------- -------------------------
INTEREST RATE AND FINAL
MATURITY 2004 2003 2004 2003
----------------------- ------------- ------------ ------------ ---------
RMB RMB RMB RMB
Japanese Yen-denominated
borrowings:
Bank loans for the development Fixed interest rates ranging from 430 578 269 371
of oil fields and construction 4.10% to 5.30% per annum with
of refining plants maturities through 2010
Euro -
denominated borrowings:
Bank loans for the development Fixed interest rates ranging from 360 381 117 121
of oil fields and construction 2.00% to 8.30% per annum with
of refining plants maturities through 2023
British Pound-denominated
borrowings:
Bank loans for the development Fixed interest rate at 2.85% per 338 454 338 454
of oil fields and construction annum with maturities through 2007
of refining plants
------------- ------------ ------------ --------
54,445 61,614 48,605 55,230
Finance lease
obligations 21 56 21 56
------------- ------------ ------------ --------
Total long-term
borrowings 54,466 61,670 48,626 55,286
Less: Current
portion of long-
term borrowings (16,008) (19,711) (14,554) (19,064)
------------- ------------ ------------ --------
38,458 41,959 34,072 36,222
============= ============ ============ =========
For loans denominated in RMB with floating rates, the rates are re-set
annually on the respective anniversary dates based on rates announced by the
People's Bank of China. For loans denominated in currencies other than RMB with
floating rates, the 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 with interest rates ranging from 1.55% to 6.32% per
annum. Interest free loans amounted to RMB 87 (2003: RMB 215) at December 31,
2004. Interest free loans were treated as government assistance and no
imputation of interest expense on such loans was recognised in the Group's
consolidated financial statements.
103
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
Borrowings of RMB 756 (2003: RMB 853) were guaranteed by CNPC and its
subsidiaries at December 31, 2004.
The Group's borrowings include secured liabilities (leases and bank
borrowings) totalling RMB 50 (2003: RMB 170) at December 31, 2004. Bank
borrowings are secured over certain of the Group's property, plant and equipment
(Note 14). Lease liabilities are effectively secured as the rights to the leased
assets revert to the lessor in the event of default.
GROUP COMPANY
------------------------------------ -----------------------------------
2004 2003 2004 2003
----------------- ----------------- ----------------- -----------------
RMB RMB RMB RMB
----------------- ----------------- ----------------- -----------------
Total borrowings:
-at fixed rates 17,790 17,024 15,066 13,122
-at variable rates 47,944 53,825 43,744 49,767
----------------- ----------------- ----------------- -----------------
65,734 70,849 58,810 62,889
================= ================= ================= =================
Weighted average effective interest rates:
-bank loans 4.73% 4.77% 4.86% 4.92%
-loans from related parties 4.55% 4.23% 4.63% 4.37%
-loans from third parties 1.68% 1.64% 1.63% 1.64%
-corporate debentures 4.30% 4.30% 4.30% 4.30%
-finance lease obligations 4.78% 3.22% 4.78% 3.22%
The carrying amounts and fair values of long-term borrowings (excluding
finance lease obligations) are as follows:
GROUP COMPANY
------------------------------------ -----------------------------------
CARRYING AMOUNTS
-------------------------------------------------------------------------
2004 2003 2004 2003
----------------- ----------------- ----------------- -----------------
RMB RMB RMB RMB
----------------- ----------------- ----------------- -----------------
Bank loans 28,465 33,590 23,950 28,533
Loans from related parties 22,568 24,578 21,243 23,253
Corporate debentures 2,850 2,850 2,850 2,850
Other 562 596 562 594
----------------- ----------------- ----------------- -----------------
54,445 61,614 48,605 55,230
================= ================= ================= =================
GROUP COMPANY
------------------------------------ -----------------------------------
FAIR VALUES
-------------------------------------------------------------------------
2004 2003 2004 2003
----------------- ------------------ ---------------- -----------------
RMB RMB RMB RMB
Bank loans 28,346 33,514 23,969 28,565
Loans from related parties 22,568 24,578 21,243 23,253
Corporate debentures 2,632 2,640 2,632 2,640
Other 404 422 404 421
----------------- ------------------ ---------------- -----------------
53,950 61,154 48,248 54,879
================= ================== ================ =================
104
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
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 balance sheet dates. Such discount rates ranged from
0.86% to 6.38% per annum as of December 31, 2004 depending on the type of the
borrowings. The carrying amounts of short-term borrowings and finance lease
obligations approximate their fair value.
Maturities of long-term borrowings (excluding finance lease obligations)
at the dates indicated below are as follows:
GROUP COMPANY
------------------------------------ -----------------------------------
BANK LOANS 2004 2003 2004 2003
----------------- ----------------- ----------------- -----------------
RMB RMB RMB RMB
----------------- ----------------- ----------------- -----------------
Within one year 8,747 11,291 7,836 10,644
Between one to two years 3,894 9,963 3,512 7,812
Between two to five years 14,751 10,397 11,985 9,336
After five years 1,073 1,939 617 741
----------------- ----------------- ----------------- -----------------
28,465 33,590 23,950 28,533
================= ================= ================= =================
GROUP COMPANY
------------------------------------ -----------------------------------
OTHER LOANS 2004 2003 2004 2003
----------------- ----------------- ----------------- -----------------
RMB RMB RMB RMB
----------------- ----------------- ----------------- -----------------
Within one year 7,240 8,381 6,697 8,381
Between one to two years 4,236 8,203 3,454 6,878
Between two to five years 8,210 6,711 8,210 6,711
After five years 6,294 4,729 6,294 4,727
----------------- ----------------- ----------------- -----------------
25,980 28,024 24,655 26,697
================= ================= ================= =================
Future minimum payments on finance lease obligations at the dates
indicated below are as follows:
GROUP COMPANY
------------------------------------ -----------------------------------
2004 2003 2004 2003
----------------- ----------------- ----------------- -----------------
RMB RMB RMB RMB
Within one year 22 41 22 41
Between one to two years - 17 - 17
----------------- ----------------- ----------------- -----------------
22 58 22 58
Future finance charges on finance lease
obligations (1) (2) (1) (2)
----------------- ----------------- ----------------- -----------------
Present value of finance lease obligations
21 56 21 56
================= ================= ================= =================
The present value of finance
lease obligations can be analysed as follows:
- Within one year 21 39 21 39
- Between one to two years - 17 - 17
----------------- ----------------- ----------------- -----------------
21 56 21 56
================= ================= ================= =================
105
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
28 SHARE CAPITAL
GROUP COMPANY
-------------------------------- ---------------------------------
2004 2003 2004 2003
--------------- --------------- ---------------- ---------------
RMB RMB RMB RMB
--------------- --------------- ---------------- ---------------
Registered, issued and fully paid:
State-owned shares 158,242 158,242 158,242 158,242
H shares 17,582 17,582 17,582 17,582
--------------- --------------- ---------------- ---------------
175,824 175,824 175,824 175,824
=============== =============== ================ ===============
At its formation in November, 1999, the registered capital of the Company
was RMB 160,000 consisting of 160 billion state-owned shares of RMB 1.00 each
issued to CNPC in accordance with the restructuring agreement between the
Company and CNPC in exchange for certain assets and liabilities.
On April 7, 2000, the Company completed a global initial public offering
("Global Offering") pursuant to which 17,582,418,000 shares of RMB 1.00 each,
representing 13,447,897,000 H shares and 41,345,210 American Depositary Shares
("ADSs", each representing 100 H shares), 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. The H shares and ADSs are
listed on the Stock Exchange of Hong Kong Limited and the New York Stock
Exchange respectively.
The 17,582,418,000 H shares issued by the Company comprise 15,824,176,000
shares offered by the Company, and 1,758,242,000 shares offered by CNPC pursuant
to an approval from China Securities Regulatory Commission to convert the
state-owned shares owned by CNPC.
Shareholders' rights are governed by the PRC Company Law that requires an
increase in registered capital to be approved by the shareholders in general
meeting and the relevant PRC Government and regulatory authorities.
106
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
29 RESERVES
GROUP COMPANY
----------------------- -----------------------
2004 2003 2004 2003
-------- -------- -------- --------
RMB RMB RMB RMB
REVALUATION RESERVE
Beginning balance 79,946 79,945 79,946 79,945
Revaluation surplus of property, plant and
equipment (Note e)
- gross - 774 - 774
- tax - (247) - (247)
Revaluation loss offset against previous
revaluation surplus of property, plant
and equipment
- gross - (768) - (768)
- tax - 242 - 242
-------- -------- -------- --------
ENDING BALANCE 79,946 79,946 79,946 79,946
CAPITAL RESERVE
Beginning balance (28,557) (28,557) (28,557) (28,557)
-------- -------- -------- --------
ENDING BALANCE (28,557) (28,557) (28,557) (28,557)
STATUTORY COMMON RESERVE FUND (Note a)
Beginning balance 26,370 20,128 18,935 12,693
Transfer from retained earnings 9,701 6,242 9,701 6,242
-------- -------- -------- --------
ENDING BALANCE 36,071 26,370 28,636 18,935
STATUTORY COMMON WELFARE FUND (Note b)
Beginning balance 16,653 13,532 12,988 9,867
Transfer from retained earnings 4,851 3,121 4,851 3,121
-------- -------- -------- --------
ENDING BALANCE 21,504 16,653 17,839 12,988
OTHER RESERVES
Beginning balance (3,200) (3,200) (3,200) (3,200)
-------- -------- -------- --------
ENDING BALANCE (3,200) (3,200) (3,200) (3,200)
-------- -------- -------- --------
105,764 91,212 94,664 80,112
======== ======== ======== ========
(a) Pursuant to 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 statutory common reserve
fund until 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.
107
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
The statutory common 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 by a resolution of
shareholders' general meeting, the Company may convert its statutory common
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 issue is not less than 25% of the registered capital.
(b) Pursuant to the PRC regulations and the Company's Articles of
Association, the Company is required to transfer 5% to 10% of its net profit, as
determined under the PRC accounting regulations, to the statutory common welfare
fund. This fund can only be used to provide common facilities, of which the
Group retains the titles, and other collective benefits to the Company's
employees. This fund is non-distributable other than in liquidation. The
directors have proposed to transfer 5% (2003: 5%) of the net profit, as
determined under the PRC accounting regulations, for the year ended December 31,
2004 to the statutory common welfare fund.
(c) The Company's distributable reserve is the retained earnings computed
under the PRC accounting regulations, which amounted to RMB 95,248 (2003: RMB
59,104) as of December 31, 2004. The distributable reserve computed under the
PRC accounting regulations at December 31, 2004 has been arrived at after the
accrual for the proposed final dividend in respect of year 2004 of RMB 25,936
(Note 13 (v)).
(d) As of December 31, 2004, revaluation surplus relating to depreciation
and disposals amounted to approximately RMB 46,757 (2003: RMB 38,064).
(e) The revaluation surplus recognised during the formation of the Group
in 1999 was partially utilised to offset against the revaluation loss on the
same assets arising in 2003 (Note 14). Additional valuation surplus arising in
2003 was credited to the revaluation reserve.
30 DEFERRED TAXATION
Deferred taxation is calculated on temporary differences under the
liability method using a principal tax rate of 33%.
The movements in the deferred taxation account are as follows:
GROUP COMPANY
------------------ ------------------
2004 2003 2004 2003
------ ------ ------ ------
RMB RMB RMB RMB
At beginning of year 11,526 9,927 6,388 6,090
Transfer to profit and loss account (Note
10) 2,814 1,594 1,101 293
Charged to equity
- net surplus on revaluation - 5 - 5
------ ------ ------ ------
At end of year 14,340 11,526 7,489 6,388
====== ====== ====== ======
108
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
Deferred tax balances are attributable to the following items:
GROUP COMPANY
------------------ ------------------
2004 2003 2004 2003
------ ------ ------ ------
RMB RMB RMB RMB
Deferred tax assets:
Current:
Provisions, primarily for receivables and
inventories 4,549 4,015 3,482 3,278
Tax losses of subsidiaries - 39 - -
Non current:
Shut down of manufacturing assets and
impairment of long-term assets 2,454 1,039 2,190 949
Other 538 579 489 529
------ ------ ------ ------
Total deferred tax assets 7,541 5,672 6,161 4,756
------ ------ ------ ------
Deferred tax liabilities:
Current:
Sales (Note (i)) 4,401 4,401 4,401 4,401
Non current:
Accelerated tax depreciation 17,230 12,519 8,999 6,465
Other 250 278 250 278
------ ------ ------ ------
Total deferred tax liabilities 21,881 17,198 13,650 11,144
------ ------ ------ ------
Net deferred tax liabilities 14,340 11,526 7,489 6,388
====== ====== ====== ======
(i) Prior to the formation of the Company in November 1999, certain crude
oil sales were exempted from income tax. Upon formation of the Company,
such exemption ceased to be available. A portion of the previously
exempted items may become taxable at a later date in certain
circumstances at the discretion of the tax authorities.
(ii) There were no material unrecognised tax losses at December 31, 2004.
109
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
31 CASH FLOWS FROM OPERATING ACTIVITIES
NOTE 2004 2003
---- ------- -------
RMB RMB
Net profit 102,927 69,614
Adjustments for:
Minority interests 1,651 636
Taxation 10 42,563 28,072
Depreciation, depletion and amortisation 46,411 40,531
Provision for shut down of manufacturing assets 7 220 2,355
Dry hole costs 14 4,718 4,691
Share of profit of associates 15 (1,824) (985)
Impairment of receivables, net 5 480 1,434
Write down in inventories, net 5 146 136
Impairment of available-for-sale investments, net 5 26 158
Loss on disposal of property, plant and equipment 5 2,806 1,048
Loss on disposal of associates 33 -
Loss on disposal of available-for-sale investments 6 21
Loss on disposal of intangible and other assets 50 143
Revaluation loss of property, plant and equipment 14 - 391
Dividend income 16 (90) (69)
Interest income (1,107) (677)
Interest expense 8 2,303 2,346
Advance payments on long-term operating leases (5,598) (1,584)
Changes in working capital:
Accounts receivable and prepaid expenses and other
current assets (5,649) 3,612
Inventories (17,045) (567)
Accounts payable and accrued liabilities 533 8,738
------- -------
CASH GENERATED FROM OPERATIONS 173,560 160,044
Interest received 1,107 677
Interest paid (3,405) (3,769)
Income taxes paid (33,963) (19,716)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 137,299 137,236
======= =======
110
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
32 PENSIONS
The Group participates in various retirement benefit plans organised by
municipal and provincial governments under which it is required to make monthly
contributions to these plans at rates ranging from 16% to 22% of the employees'
basic salary for the relevant periods. The Group currently has no additional
obligations for the payment of retirement and other post-retirement benefits of
employees other than the monthly contributions described above. Expenses
incurred by the Group in connection with the retirement benefit plans were RMB
2,476 (2003: RMB 2,193) for the year ended December 31, 2004.
33 FINANCIAL INSTRUMENTS
The Group holds or issues various financial instruments which expose it
to credit, interest rate, foreign exchange rate and fair value risks. In
addition, the Group's operations are affected by certain commodity price
movements. The Group historically has not used derivative instruments for
hedging or trading purposes. Such activities are subject to policies approved by
the Group's senior management. Substantially all of the financial instruments
the Group holds is for purposes other than trading. The Group regards an
effective market risk system as an important element of the Group's treasury
function and is continuously enhancing its systems. A primary objective is to
implement certain methodologies to better measure and monitor risk exposures.
(A) CREDIT RISK
The carrying amounts of accounts receivable included in the balance sheet
represent the Group's maximum exposure to credit risk in relation to its
financial assets. No other financial assets carry a significant exposure to
credit risk.
The Group has no significant concentration of credit risk. Cash is placed
with state-owned banks and financial institutions.
(B) INTEREST RATE RISK
The Group is exposed to the risk arising from changing interest rates. A
detailed analysis of the Group's borrowings, together with their respective
interest rates and maturity dates, are included in Note 27.
(C) FOREIGN EXCHANGE RATE RISK
Renminbi is not a freely convertible currency. Future exchange rates of
Renminbi could vary significantly from the current or historical exchange rates
as a result of controls that could be imposed by the PRC government. The
exchange rates of Renminbi are affected by changes in PRC government policies.
The exchange rates of Renminbi are also affected by economic developments and
political changes domestically and internationally, and supply and demand for
Renminbi. The official exchange rate for the conversion of Renminbi to US
Dollars has generally been stable recently. As Renminbi is the measurement
currency of the Company and most of its consolidated entities, the fluctuation
of exchange rates of Renminbi may have positive or negative impacts on the
results of operations of the Group. Because prices for the Group's crude oil and
refined products are set generally with reference to US Dollar-denominated
international prices, a devaluation of Renminbi against US Dollar may not have a
negative impact on the Group's revenue, but may increase the cost incurred by
the Group to acquire imported materials and equipment as well as the foreign
currency-denominated obligations of the Group. On the other hand, an
appreciation of Renminbi against US Dollar may decrease the Group's revenue, but
the cost for acquiring imported materials and equipment may be reduced. The
results of operations and the financial condition of the Group also may be
affected by fluctuations in exchange rates against Renminbi of a number of other
foreign currencies other than US Dollar.
111
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
(D) COMMODITY PRICE RISK
The Group is engaged in a broad range of petroleum related activities.
The hydrocarbon commodity markets are influenced by global as well as regional
supply and demand conditions. The PRC government currently publishes prices for
onshore crude oil, gasoline and diesel according to international benchmark
prices. A decline in prices of crude oil and refined products could adversely
affect its financial performance. The Group historically has not used commodity
derivative instruments to hedge the potential price fluctuations of crude oil
and other refined products. Therefore, during 2004 and 2003, the Group was
exposed to the general price fluctuations of broadly traded oil and gas
commodities.
(E) FAIR VALUES
The carrying amounts of the following financial assets and financial
liabilities approximate their fair value: cash, short-term investments, trade
receivables and payables, other receivables and payables, lease obligations,
short-term borrowings and floating rate long-term borrowings. The fair value of
the fixed rate long-term borrowings is likely to be different from their
carrying amounts. As the majority of the borrowings are at variable rates, the
difference between fair value and carrying amounts is likely to be immaterial.
Analysis of the fair value and carrying amounts of long-term borrowings are
presented in Note 27.
34 CONTINGENT LIABILITIES
(A) BANK AND OTHER GUARANTEES
At December 31, 2004, the Group had contingent liabilities in respect of
bank and other guarantees and other matters arising in the ordinary course of
business from which it is anticipated that no material liabilities will arise.
2004 2003
----- -----
RMB RMB
Guarantee of borrowings of associates 203 448
===== =====
(B) ENVIRONMENTAL LIABILITIES
CNPC and the Group have operated in China for many years. China has
adopted extensive environmental laws and regulations that affect the operation
of the oil and gas industry. The outcome of environmental liabilities under
proposed or future environmental legislation cannot reasonably be estimated at
present, and could be material. Under existing legislation, however, management
believes that there are no probable liabilities, except for the amounts which
have already been reflected in the financial statements, that will have a
material adverse effect on the financial position of the Group.
(C) LEGAL CONTINGENCIES
The Group is the named defendant in certain insignificant lawsuits as
well as the named party in other proceedings arising in the ordinary course of
business. While the outcomes of such contingencies, lawsuits or other
proceedings cannot be determined at present, management believes that any
resulting liabilities will not have a material adverse effect on the financial
position of the Group.
112
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
(D) LEASING OF ROADS, LAND AND BUILDINGS
According to the Restructuring Agreement entered into between the Company
and CNPC in 1999 upon the formation of the Company, CNPC has undertaken to the
Company the following:
o CNPC will use its best endeavours to obtain formal land use right
certificates to replace the entitlement certificates in relation to the 28,649
parcels of land which were leased or transferred to the Company from CNPC,
within one year from August, September and October 1999 when the relevant
entitlement certificates were issued;
o CNPC will 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 the Company are located; and
o CNPC will obtain individual building ownership certificates in the
name of the Company for all of the 57,482 buildings transferred to the Company
by CNPC, before November 5, 2000.
As at December 31, 2004, CNPC has obtained formal land use right
certificates in relation to 26,549 out of the above-mentioned 28,649 parcels of
land, some building ownership certificates for the above-mentioned buildings,
but has completed none of the necessary governmental procedures for the
above-mentioned service stations located on collectively-owned land. The
Directors of the Company confirm 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 individual building ownership certificates have not been
obtained 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 results of operations or the financial
position of the Group.
(E) GROUP INSURANCE
Except for limited insurance coverage for vehicles and certain assets
subject to significant operating risks, the Group does not carry any other
insurance for property, facilities or equipment with respect to its business
operations. In addition, the Group does not carry any third-party liability
insurance against claims relating to personal injury, property and environmental
damages or business interruption insurance since such insurance coverage is not
customary in China. While the effect of under-insurance on future incidents
cannot be reasonably assessed at present, management believes that it may have a
material impact on the operating results but will not have a material adverse
effect on the financial position of the Group.
(F) COST REDUCTION MEASURES
The Group may further streamline its production facilities within the
next several years to further improve the operating efficiency and
competitiveness of the Group. Management has not approved all significant
actions to be taken to complete such plans. Management does not believe such
plans will have a material adverse impact on the Group's financial position, but
may have a material adverse effect on the Group's results of operations.
(G) OTHER
In December 2003, a gas blow-out incident occurred at one of the gas
wells of the Group. The blow-out caused the leakage of a large quantity of
sulfurated hydrogen, causing injuries and death to many residents living in the
surrounding area. As a result of an investigation conducted by the PRC
government, CNPC, which provided drilling services for the well, was held liable
for this blow-out. The incident has not had, and the Company does not believe it
will have, a material adverse effect on the results of operations and financial
position of the Group.
113
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
35 COMMITMENTS
(A) OPERATING LEASE COMMITMENTS
Operating lease commitments of the Group are mainly for leasing of land
and buildings and equipment. Leases range from one to fifty years and usually do
not contain renewal options. Future minimum lease payments as of December 31,
2004 and 2003 under non-cancellable operating leases are as follows:
2004 2003
------ ------
RMB RMB
First year 2,701 2,552
Second year 2,473 2,433
Third year 2,452 2,409
Fourth year 2,434 2,391
Fifth year 2,356 2,380
Thereafter 83,035 84,776
------ ------
95,451 96,941
====== ======
Operating lease expenses for land and buildings and equipment were RMB
3,873 (2003: RMB 3,573) for the year ended December 31, 2004.
(B) CAPITAL COMMITMENTS
2004 2003
------ ------
RMB RMB
Contracted but not provided for
Oil and gas properties 645 896
Plant and equipment 4,614 10,055
Other 111 194
------ ------
5,370 11,145
====== ======
(C) LONG-TERM NATURAL GAS SUPPLY COMMITMENTS
The Group markets a portion of its natural gas production under long-term
take-or-pay contracts. Under these contracts, the customers are required to take
or pay, and the Group is obligated to deliver, minimum quantities of natural gas
annually. The prices for the natural gas are based on those approved by the PRC
State Development and Reform Commission at the time of deliveries.
114
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
At December 31, 2004, future minimum delivery commitments under the
contracts are as follows:
QUANTITIES (BILLION OF CUBIC FEET)
----------------------------------
2005 229
2006 443
2007 581
2008 637
2009 701
2010 and thereafter 6,111
-----
8,702
=====
(D) 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 444 (2003: RMB 296) for the year ended
December 31, 2004.
Estimated annual payments for the next five years are as follows:
RMB
---
2005 618
2006 681
2007 712
2008 712
2009 712
(E) DIVIDENDS
Dividends received from the Company are likely to be one of the principal
sources of funding for CNPC. Subject to the relevant provisions of the PRC
Company law and the Articles of Association of the Company, CNPC, as the major
shareholder of the Company, may seek to influence the determination of the
amount of dividends paid by the Company with a view to satisfying its cash flow
requirements including those relating to its obligations to provide
supplementary social services to its employees and a limited number of third
parties. The Ministry of Finance has committed to provide subsidies to enable
CNPC to fund a portion of future operating shortfalls arising out of CNPC's
obligation to provide social services. The directors believe that these
subsidies will substantially reduce CNPC's reliance on dividends from the
Company.
115
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
36 MAJOR CUSTOMERS
The Group's major customers are as follows:
2004 2003
-------------------- -------------------
% TO % TO
TOTAL TOTAL
REVENUE REVENUE REVENUE REVENUE
------- ------- ------- -------
RMB % RMB %
Sinopec 36,977 9 35,932 12
CNPC 14,516 4 9,323 3
------ -- ------ --
51,493 13 45,255 15
====== == ====== ==
37 RELATED PARTY TRANSACTIONS
The Group is part of a larger group of companies under CNPC and has
extensive transactions and relationships with members of the CNPC group. Because
of these relationships, it is possible that the terms of these transactions are
not the same as those that would result from transactions among wholly unrelated
parties. Related parties refer to corporations in which CNPC is a major
shareholder and is able to control or exercise significant influence.
CNPC itself is a state-owned enterprise. In accordance with a specific
exemption in IAS 24, "Related Party Disclosure", the Group does not accumulate
or disclose transactions with other state-owned enterprises as related party
transactions, other than those with other CNPC group companies and significant
customers as described in Note 36.
The majority of the Group's business activities are conducted with
state-owned enterprises. Sale of certain products to these state-owned
enterprises are at state-prescribed prices which are similar to prices to other
customers. The Group considers that these sales are activities in the ordinary
course of business and has not accumulated or disclosed such related party
transactions.
As a result of the restructuring of CNPC to form the Company in 1999, the
Company and CNPC entered into a Comprehensive Products and Services Agreement
for a range of products and services which may be required and requested by
either party; a Land Use Rights Leasing Contract (Note 34(d)) under which CNPC
leases 42,476 parcels of land located throughout the PRC to the Company; and a
Buildings Leasing Contract under which CNPC leases 191 buildings located
throughout the PRC to the Company.
The term of the Comprehensive Products and Services Agreement is 10 years
commencing from November 5, 1999. The products and services to be provided by
the CNPC group to the Company under the Comprehensive Products and Services
Agreement include construction and 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)
state-prescribed prices; or (2) where there is no state-prescribed price,
relevant market prices; or (3) where neither (1) nor (2) is applicable, actual
cost incurred; or the agreed contractual price, being the actual cost plus a
margin of no more than 15% for certain construction and technical services, and
3% for all other types of services.
116
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
The Land Use Rights Contract provides for the lease of an aggregate area
of approximately 1,145 million square meters of land located throughout the PRC
to business units of the Group 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 the
expiration of 10 years, be adjusted by agreement between the Company and CNPC.
Under the Buildings Leasing Contract, 191 buildings covering an aggregate
area of 269,770 square meters located throughout the PRC are 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 in September 2002 to lease an additional 404 buildings covering
approximately 442,730 square meters at an annual rental of RMB 157. The
Supplemental Buildings Leasing Agreement will expire at the same time as the
Buildings Leasing Agreement.
In addition to the related party information shown elsewhere in the
financial statements, the following is a summary of significant related party
transactions entered into in the ordinary course of business between the Group
and entities controlled by CNPC during the years indicated below:
NOTE 2004 2003
---- ------ ------
RMB RMB
Sale of goods (a) 14,516 9,323
Fees paid for construction and technical services (b)
- Exploration and development services (c) 29,030 25,180
- Other construction and technical services (d) 18,469 15,688
Fees for production services (e) 16,313 16,042
Social services charge (f) 1,289 1,326
Ancillary service charges (g) 1,717 1,683
Interest income (h) 25 30
Interest expense (i) 1,097 1,052
Rental expense (j) 2,106 2,001
Commission expense and other charges (k) 884 971
Notes:
(a) Represents sale of crude oil, refined and chemical products
conducted principally at market prices.
(b) Under the Comprehensive Products and Services Agreement entered into
between CNPC and the Company, certain construction and technical
services provided by CNPC are charged at cost plus an additional
margin of no more than 15%, including exploration and development
services and oilfield construction services.
(c) Direct costs for exploration and development services comprise
geophysical survey, drilling, well cementing, logging and well
testing.
(d) The fees paid for other construction and technical services comprise
fees for construction of refineries and chemical plants and
technical services in connection with oil and gas exploration and
production activities such as oilfield construction, technology
research, engineering and design, etc.
(e) The fees paid for production services comprise fees for the repair
of machinery, supply of water, electricity and gas, provision of
services such as communications, transportation, fire fighting,
asset leasing, environmental protection and sanitation, maintenance
of roads, manufacture of replacement parts and machinery.
117
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
(f) These represent expenditures for social welfare and support services
which are charged at cost.
(g) Ancillary service charges represent mainly fees for property
management, the provision of training centres, guesthouses,
canteens, public shower rooms, etc.
(h) The Group had deposits placed with China Petroleum Finance Company
Limited ("CP Finance"), a subsidiary of CNPC and a non-bank
financial institution approved by the People's Bank of China,
amounting to RMB 1,782 (2003: RMB 2,331) as of December 31, 2004.
The deposits yield interest at prevailing saving deposit rates.
(i) The Group had unsecured short-term and long-term loans from CP
Finance amounting to RMB 23,168 (2003: RMB 25,188) as of December
31, 2004 included under loans from related parties. The loans were
interest bearing at market rates.
(j) Rental expenses are calculated in accordance with the lease
agreements entered into between the Company and CNPC.
(k) CNPC purchases materials on behalf of the Company and charges
commission thereon. The commission is calculated at rates ranging
from 1% to 5% of the goods purchased.
(l) The Group had a 7.5% equity interest in CP Finance at a book value
of RMB 299 as of December 31, 2004 and as of December 31, 2003.
38 SEGMENT INFORMATION
The Group is engaged in a broad range of petroleum related activities
through its four major business segments: Exploration and Production, Refining
and Marketing, Chemicals and Marketing and Natural Gas and Pipeline.
The Exploration and Production segment is engaged in the exploration,
development, production and sales of crude oil and natural gas.
The Refining and Marketing segment is engaged in the refining,
transportation, storage and marketing of crude oil and petroleum products.
The Chemicals and Marketing segment is engaged in the production and sale
of basic petrochemical products, derivative petrochemical products, and other
chemical 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.
In addition to these four major business segments, the Other segment
includes the assets, income and expenses relating to cash management, financing
activities, the corporate centre, research and development, and other business
services to the operating business segments of the Group.
Substantially all assets and operations of the Group are located in the
PRC, which is considered as one geographic location in an economic environment
with similar risks and returns. In addition to its operations in the PRC in
April 2002 the Group acquired all the share capital of Devon Energy Indonesia
Ltd., a company engaging in the exploration and production of crude oil and
natural gas in Indonesia. In April 2003, the Group acquired for RMB 679 a 50%
interest in Amerada Hess Indonesia Holdings Co., which has a 30% interest in one
of the oil and gas concessions that the Group acquired in 2002.
The accounting policies of the operating segments are the same as those
described in Note 3 - "Summary of Principal Accounting Policies".
Operating segment information for the years ended December 31, 2003 and
2004 is presented below:
118
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
Primary reporting format -business segments
EXPLORATION REFINING CHEMICALS NATURAL
Year Ended AND AND AND GAS AND
December 31, 2003 PRODUCTION MARKETING MARKETING PIPELINE OTHER TOTAL
----------- -------- --------- -------- -------- --------
RMB RMB RMB RMB RMB RMB
Turnover (including intersegment) 177,271 223,584 39,211 15,067 -- 455,133
Less: Intersegment sales (128,963) (16,867) (2,263) (3,261) -- (151,354)
-------- -------- -------- -------- -------- --------
Turnover from external customers 48,308 206,717 36,948 11,806 -- 303,779
======== ======== ======== ======== ======== ========
Depreciation, depletion and amortisation (25,486) (7,601) (5,795) (1,543) (106) (40,531)
Segment result 98,819 20,679 2,621 2,248 (713) 123,654
Other costs (6,449) (15,644) (1,580) (326) (469) (24,468)
-------- -------- -------- -------- -------- --------
Profit/(loss) from operations 92,370 5,035 1,041 1,922 (1,182) 99,186
-------- -------- -------- -------- --------
Finance costs (1,849)
Share of (loss)/profit of associates (33) 104 42 13 859 985
--------
Profit before taxation 98,322
Taxation (28,072)
Minority interests (636)
--------
Net profit 69,614
========
Interest income (including
intersegment) 2,222 552 446 117 4,403 7,740
Less: Intersegment interest income (7,063)
--------
Interest income from external entities 677
========
Interest expense (including
intersegment) (2,537) (1,686) (843) (356) (3,987) (9,409)
Less: Intersegment interest expense 7,063
--------
Interest expense to external entities (2,346)
========
Segment assets 310,431 117,652 55,595 46,450 451,949 982,077
Elimination of intersegment balances (455,913)
Investments in associates 1,184 1,889 232 41 2,225 5,571
--------
Total assets 531,735
========
Segment capital expenditure
- for property, plant and equipment 52,713 12,650 3,898 13,530 138 82,929
Segment liabilities 86,050 58,372 17,634 33,535 104,326 299,917
Other liabilities 32,548
Elimination of intersegment balances (162,951)
--------
Total liabilities 169,514
========
119
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
Primary reporting format -business segments (continued)
EXPLORATION REFINING CHEMICALS NATURAL
Year Ended AND AND AND GAS AND
December 31, 2004 PRODUCTION MARKETING MARKETING PIPELINE OTHER TOTAL
----------- ---------- ---------- ---------- ---------- ----------
RMB RMB RMB RMB RMB RMB
Turnover (including intersegment) 222,305 295,598 57,179 18,255 -- 593,337
Less: Intersegment sales (176,458) (21,862) (2,679) (3,705) -- (204,704)
---------- ---------- ---------- ---------- ---------- ----------
Turnover from external customers 45,847 273,736 54,500 14,550 -- 388,633
========== ========== ========== ========== ========== ==========
Depreciation, depletion and amortisation (29,092) (8,829) (5,741) (2,645) (104) (46,411)
Segment result 131,448 28,502 11,025 2,475 (518) 172,932
Other costs (5,877) (16,521) (3,370) 60 (638) (26,346)
---------- ---------- ---------- ---------- ---------- ----------
Profit/(loss) from operations 125,571 11,981 7,655 2,535 (1,156) 146,586
---------- ---------- ---------- ---------- ----------
Finance costs (1,269)
Share of profit/(loss) of associates 99 108 214 24 1,379 1,824
----------
Profit before taxation 147,141
Taxation (42,563)
Minority interests (1,651)
----------
Net profit 102,927
==========
Interest income (including
intersegment) 2,336 891 205 27 4,723 8,182
Less: Intersegment interest income (7,075)
----------
Interest income from external entities 1,107
==========
Interest expense (including intersegment) (2,559) (1,721) (502) (693) (3,903) (9,378)
Less: Intersegment interest expense 7,075
----------
Interest expense to external entities (2,303)
==========
Segment assets 339,322 140,405 55,568 61,631 507,164 1,104,090
Elimination of intersegment balances (502,085)
Investments in associates 1,407 2,832 280 192 3,212 7,923
----------
Total assets 609,928
==========
Segment capital expenditure
- for property, plant and equipment 59,488 17,467 4,319 13,901 174 95,349
Segment liabilities 93,871 73,529 18,484 35,385 99,711 320,980
Other liabilities 36,470
Elimination of intersegment balances (182,125)
----------
Total liabilities 175,325
==========
120
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
Note (a) - Intersegment sales are conducted principally at market price.
Note (b) - Segment result is profit from operations before other costs. Other
costs include selling, general and administrative expenses and other
net income/(expense).
Note (c) - Segment results for the years ended December 31, 2003 and 2004
included impairment provision for property, plant and equipment
(Note 14) and shut down of manufacturing assets (Note 7).
Note (d) - Other liabilities mainly include income tax payable, other taxes
payable and deferred taxation.
Note (e) - Elimination of intersegment balances represents elimination of
intersegment current accounts and investments.
SECONDARY REPORTING FORMAT - GEOGRAPHICAL SEGMENTS
TURNOVER TOTAL ASSETS CAPITAL EXPENDITURE
----------------------------- ---------------------------- ---------------------------
Year Ended December 31, 2004 2003 2004 2003 2004 2003
------------- -------------- ------------- ------------- ------------- ------------
RMB RMB RMB RMB RMB RMB
PRC 387,639 302,854 606,147 529,209 94,235 82,275
Other (Exploration and Production) 994 925 3,781 2,526 1,114 654
------------- -------------- ------------- ------------- ------------- ------------
388,633 303,779 609,928 531,735 95,349 82,929
============= ============== ============= ============= ============= ============
39 ULTIMATE HOLDING COMPANY
The directors regard CNPC, a state-owned enterprise established in the
PRC, as being the ultimate holding company.
40 APPROVAL OF FINANCIAL STATEMENTS
The financial statements were approved by the board of directors on March
16, 2005 and will be submitted to the shareholders for approval at the annual
general meeting to be held on May 26, 2005.
121
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
-----------------------
2004 2003
-------- --------
RMB RMB
Sales and other operating revenues
Sales to third parties 45,847 48,308
Intersegment sales 173,223 128,963
-------- --------
219,070 177,271
Production costs excluding taxes (32,863) (30,691)
Exploration expenses (11,723) (10,577)
Depreciation, depletion and amortisation (24,839) (21,060)
Taxes other than income taxes (6,729) (5,524)
-------- --------
Profit before taxation 142,916 109,419
Taxation (40,014) (32,376)
-------- --------
Results of operations from producing activities 102,902 77,043
======== ========
Profit from associates' results of operations from producing activities 471 324
======== ========
CAPITALISED COSTS
AS OF DECEMBER 31,
----------------------
2004 2003
-------- --------
RMB RMB
Property costs -- --
Producing assets 291,910 262,638
Support facilities 116,640 106,172
Construction-in-progress 14,114 10,485
-------- --------
Total capitalised costs 422,664 379,295
Accumulated depreciation, depletion and amortisation (172,696) (150,842)
-------- --------
Net capitalised costs 249,968 228,453
======== ========
Share of associates' net capitalised costs 777 1,604
======== ========
122
PETROCHINA COMPANY LIMITED
SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND
PRODUCTION ACTIVITIES (UNAUDITED)
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
COSTS INCURRED IN PROPERTY ACQUISITIONS, EXPLORATION AND DEVELOPMENT ACTIVITIES
YEAR ENDED DECEMBER 31,
-----------------------
2004 2003
------ ------
RMB RMB
------ ------
Property acquisition costs -- --
Exploration costs 18,160 15,137
Development costs 43,712 39,587
------ ------
Total 61,872 54,724
====== ======
Share of associates' costs of property acquisition, exploration, and
development 274 592
====== ======
PROVED RESERVE ESTIMATES
Oil and gas proved 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 beyond those envisioned
during the early years of a reservoir's producing life.
Proved oil and gas reserves are the estimated quantities of crude oil,
natural gas and natural gas liquids which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and 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 on
escalations based upon future conditions. Proved developed reserves are those
reserves, which can be expected to be recovered through existing wells with
existing equipment and operating methods. Proved undeveloped reserves are those
reserves which are expected to be recovered from new wells on undrilled acreage
or from existing wells where relatively major expenditure is required.
The Ministry of Land and Resources in China issues production licenses to
applicants on the basis of the reserve reports approved by relevant authorities.
Administrative rules issued by the State Council provide that the maximum term
of a production license is 30 years. However, in accordance with a special
approval from the State Council, the Ministry of Land and Resources has issued
production licenses effective March 2000 to the Group for all of its crude oil
and natural gas reservoirs with terms coextensive with the projected productive
life of those reservoirs, ranging up to 55 years. Production licenses to be
issued to the Group in the future will be subject to the 30-year maximum unless
additional special approvals can be obtained from the State Council. Each of the
Group's production licenses is renewable upon application by the Group 30 days
prior to expiration. Oil and gas price increases may extend the productive lives
of crude oil and natural gas reservoirs beyond the current terms of the relevant
production licenses.
123
PETROCHINA COMPANY LIMITED
SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND
PRODUCTION ACTIVITIES (UNAUDITED)
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
Proved reserve estimates as of December 31, 2003 and 2004 were based on a
report prepared by DeGolyer and MacNaughton, independent engineering
consultants. These reserve estimates were prepared for each oil and gas region
(as opposed to individual fields within a region) and adjusted for the estimated
effects of using prices and costs prevailing at the end of the period. The
Company's reserve estimates include only crude oil and natural gas, which the
Company believes can be reasonably produced within the current terms of
production licenses.
Estimated quantities of net proved oil and condensate and natural gas
reserves and of changes in net quantities of proved developed and undeveloped
reserves for each of the period indicated are as follows:
CRUDE OIL AND
CONDENSATE NATURAL GAS
------------ -----------
(MILLIONS OF (BILLIONS OF
BARRELS) CUBIC FEET)
Proved developed and undeveloped
Reserves at January 1, 2003 10,937 38,817
Changes resulting from:
Revisions of previous estimates 199 278
Improved recovery 81 --
Extensions and discoveries 476 2,853
Production (774) (879)
------- -------
Reserves at December 31, 2003 10,919 41,069
Changes resulting from:
Revisions of previous estimates 148 56
Improved recovery 109 43
Extensions and discoveries 542 4,405
Production (777) (1,019)
------- -------
Reserves at December 31, 2004 10,941 44,554
======= =======
Proved developed reserves at:
December 31, 2003 8,885 13,374
December 31, 2004 8,748 16,787
Proportional interest in proved reserves of associates
December 31, 2003 78 78
December 31, 2004 78 91
At December 31, 2004, 10,910 million barrels of crude oil and condensate
and 44,362 billion cubic feet of natural gas proved developed and undeveloped
reserves are located within China, and 31 million barrels of crude oil and
condensate and 192 billion cubic feet of natural gas proved developed and
undeveloped reserves are located in Indonesia.
124
PETROCHINA COMPANY LIMITED
SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND
PRODUCTION ACTIVITIES (UNAUDITED)
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
STANDARDISED MEASURE
The following disclosures concerning the standardised measure of future
cash flows from proved oil and gas reserves are presented in accordance with the
US Statement of Financial Accounting Standards No. 69. The amounts shown are
based on prices and costs at the end of each period, currently enacted tax rates
and a 10 percent annual discount factor. Since prices and costs do not remain
static, and no price or cost changes have been considered, the results are not
necessarily indicative of the fair market value of estimated proved reserves,
but they do provide a common benchmark which may enhance the users' ability to
project future cash flows.
The standardised measure of discounted future net cash flows related to
proved oil and gas reserves at the end of each of the two years in the period
ended December 31, 2003 and 2004 is as follows (in millions of RMB):
At December 31, 2003
Future cash inflows 2,991,193
Future production costs (765,111)
Future development costs (88,556)
Future income tax expense (635,169)
----------
Future net cash flows 1,502,357
Discount at 10% for estimated timing of cash flows (807,037)
----------
Standardised measure of discounted future net cash flows 695,320
==========
At December 31, 2004
Future cash inflows 3,894,766
Future production costs (865,257)
Future development costs (90,938)
Future income tax expense (906,035)
----------
Future net cash flows 2,032,536
Discount at 10% for estimated timing of cash flows (1,061,260)
1,260)
----------
Standardised measure of discounted future net cash flows 971,276
==========
Share of associates' standardised measure of discounted future net cash flows
At December 31, 2003 3,744
At December 31, 2004 5,371
Future net cash flows were estimated using period-end prices and costs,
and currently enacted tax rates.
125
PETROCHINA COMPANY LIMITED
SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND
PRODUCTION ACTIVITIES (UNAUDITED)
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
Changes in the standardised measure of discounted net cash flows for the
Group for each of the two years ended December 31, 2003 and 2004 are as follows:
YEAR ENDED DECEMBER 31,
--------------------------
2004 2003
-------- --------
RMB RMB
-------- --------
CHANGES IN STANDARDISED MEASURE OF DISCOUNTED FUTURE CASH FLOWS
Beginning of year 695,320 615,386
Sales and transfers of oil and gas produced, net of production costs (179,478) (146,580)
Net changes in prices and production costs and other 355,109 90,150
Extensions, discoveries and improved recovery 117,560 65,150
Development costs incurred 9,693 1,730
Revisions of previous quantity estimates 13,236 15,520
Accretion of discount 98,935 87,580
Net change in income taxes (139,099) (33,616)
-------- --------
End of year 971,276 695,320
======== ========
126
PETROCHINA COMPANY LIMITED
SIGNIFICANT DIFFERENCES BETWEEN IFRS AND US GAAP (UNAUDITED)
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
SIGNIFICANT DIFFERENCES BETWEEN IFRS AND US GAAP
The consolidated financial statements of the Group appearing on pages 70
to 120 have been prepared in accordance with International Financial Reporting
Standards (IFRS), which differ in certain material respects from the accounting
principles generally accepted in the United States of America (US GAAP). Such
differences involve methods for measuring the amounts shown in the financial
statements, as well as additional disclosures required by US GAAP.
Effect on net income of significant differences between IFRS and US GAAP
is as follows:
YEAR ENDED DECEMBER 31,
--------------------------
2004 2003
-------- --------
RMB RMB
-------- --------
Net income under IFRS 102,927 69,614
US GAAP adjustments:
Reversal of revaluation loss of property, plant and equipment -- 391
Depreciation charges on property, plant and equipment revaluation gain 8,170 8,053
Depreciation charges on property, plant and equipment revaluation loss (830) (144)
Loss on disposal of revalued property, plant and equipment 523 451
Income tax effect (2,595) (2,886)
Minority interests (60) (60)
-------- --------
Net income under US GAAP 108,135 75,419
======== ========
Basic and diluted net income per share under US GAAP (RMB) 0.62 0.43
======== ========
Effect on shareholders' equity of significant differences between IFRS
and US GAAP is as follows:
AS OF DECEMBER 31,
--------------------------
2004 2003
-------- --------
RMB RMB
-------- --------
Shareholders' equity under IFRS 425,212 356,613
US GAAP adjustments:
Reversal of property, plant and equipment revaluation gain (80,555) (80,555)
Depreciation charges on property, plant and equipment revaluation gain 45,443 37,273
Reversal of property, plant and equipment revaluation loss 1,513 1,513
Depreciation charges on property, plant and equipment revaluation loss (1,310) (480)
Loss on disposal of revalued property, plant and equipment 1,314 791
Deferred tax assets on revaluation 11,091 13,686
Minority interests 304 364
Effect on the retained earnings from the one-time remedial payments for staff
housing borne by the state shareholder of the Company (2,553) (2,553)
Effect on the other reserves of the shareholders' equity from the one-time
remedial payments for staff housing borne by the state shareholder of the
Company 2,553 2,553
-------- --------
Shareholders' equity under US GAAP 403,012 329,205
======== ========
127
PETROCHINA COMPANY LIMITED
SIGNIFICANT DIFFERENCES BETWEEN IFRS AND US GAAP (UNAUDITED)
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
Changes in shareholders' equity under US GAAP for each of the years ended
December 31, 2004 and 2003 are as follows:
YEAR ENDED DECEMBER 31,
--------------------------
2004 2003
-------- --------
RMB RMB
Balance at beginning of year 329,205 283 464
Net profit for the year 108,135 75,419
Final dividend for year 2002 -- (12,299)
Interim dividend for year 2003 -- (17,379)
Final dividend for year 2003 (13,947) --
Interim dividend for year 2004 (20,381) --
-------- --------
Balance at end of year 403,012 329,205
======== ========
In preparing the summary of differences between IFRS and US GAAP,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities, and the estimates of revenues and expenses. Accounting
estimates have been employed in these financial statements to determine reported
amounts, including realisability, useful lives of tangible and intangible
assets, income taxes and other areas. Actual results may differ from those
estimates.
A summary of the principal differences and additional disclosures
applicable to the Group is set out below:
(a) REVALUATION OF PROPERTY, PLANT AND EQUIPMENT
As described in Note 14 to the consolidated financial statements on pages
87 to 92, the property, plant and equipment, excluding oil and gas reserves,
transferred to the Company by CNPC were appraised as of June 30, 1999, as
required by the relevant PRC regulations, by a firm of independent valuers
registered in the PRC, China Enterprise Appraisal. As at September 30, 2003, a
revaluation of the Group's refining and chemical production equipment was
undertaken by a firm of independent valuers registered in the PRC, China United
Assets Appraiser Co., Ltd, on a depreciated replacement cost basis.
The June 1999 revaluation resulted in RMB 80,549 in excess of the prior
carrying value and a revaluation loss of RMB 1,122 on certain property, plant
and equipment.
The September 2003 revaluation resulted in RMB 872 in excess of the
carrying value of certain property, plant and equipment immediately prior to the
revaluation and a revaluation loss of RMB 1,257.
With respect to the RMB 872 revaluation gain resulting from the 2003
revaluation, RMB 98 were related to property, plant and equipment that in 1999
experienced revaluation loss, and were credited to the profit and loss account.
The remaining RMB 774 was credited to the revaluation reserve in the
shareholders' equity.
With respect to the RMB 1,257 revaluation loss resulting from the 2003
revaluation, RMB 768 were related to property, plant and equipment that in 1999
experienced revaluation gain. The remaining RMB 489 were charged to the profit
and loss account.
The depreciation charge, which includes impairment charge, on the
revaluation surplus from January 1, 2004 to December 31, 2004 was RMB 8,170, and
from January 1, 2003 to December 31, 2003 was RMB 8,053.
128
PETROCHINA COMPANY LIMITED
SIGNIFICANT DIFFERENCES BETWEEN IFRS AND US GAAP (UNAUDITED)
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
The depreciation charge, which includes impairment charge, on the
revaluation loss from January 1, 2004 to December 31, 2004 was RMB 830, and from
January 1, 2003 to December 31, 2003 was RMB 144.
The loss on disposal of revalued property, plant and equipment, which
includes shut down of manufacturing assets, from January 1, 2004 to December 31,
2004 was RMB 523, and from January 1, 2003 to December 31, 2003 was RMB 451.
For purposes of reconciling to the US GAAP financial data, the effect of
the revaluation, the related depreciation charges and loss on disposal is
reversed. A deferred tax asset relating to the reversal of the effect of
revaluation in 1999 is established, together with a corresponding increase in
the shareholders' equity. Under a special approval granted by the Ministry of
Finance, the effect of the revaluation in 1999 is available as additional
depreciation base for purposes of determining taxable income.
(b) RELATED PARTY TRANSACTIONS
The Group has disclosed in Note 36 to the consolidated financial
statements on page 115, transactions with significant customers and in Notes 21,
22, 26, 27 and 37 transactions and balances with its immediate parent, CNPC, and
related companies. CNPC is owned by the PRC government, which also owns a
significant portion of the productive assets in the PRC. IFRS exempts state
controlled enterprises from disclosing transactions with other state controlled
enterprises. IFRS also excludes from related parties government departments and
agencies to the extent that such dealings are in the normal course of business.
US GAAP contains no similar exemptions but requires disclosure of material
related party transactions. The Group believes that it has provided meaningful
disclosures of related party transactions through the major customer disclosures
in Note 36 and the transactions with the CNPC Group disclosed in Note 37.
Although the majority of the Group's activities are conducted with the PRC
government and its affiliates and other state controlled enterprises, none
individually constitutes a major customer or supplier other than those
disclosed.
(c) ONE-TIME REMEDIAL PAYMENTS FOR STAFF HOUSING
The Ministry of Finance of the PRC issued several public notices and
regulations during the year ended December 31, 2000 and 2001 with respect to the
one-time remedial payments for staff housing payable to certain employees who
joined the workforce prior to December 31, 1998 and have housing conditions
below local standards as determined in accordance with government regulations
and guidelines. These Ministry of Finance notices and regulations also provided
that the portion of remedial payments attributable to the periods prior to a
restructuring of the employer enterprise from a wholly state-owned status to a
less than wholly state-owned status is to be borne by the state shareholder of
the enterprise.
The restructuring that resulted in the formation of the Group took place
in November 1999. As such, the one-time remedial housing payments payable to the
eligible employees of the Group are to be borne by the state shareholder of the
Group.
Under IFRS, such direct payments to employees or reimbursements will not
be recorded through the consolidated profit and loss account of the Group. US
GAAP contains no such exemption but requires this principal shareholder's action
on behalf of the Company to be recorded in the consolidated profit and loss
account. In the last quarter of year 2002, the Group and CNPC completed the
process of estimating the amount payable to qualified employees of the Group.
This amount, RMB 2,553, was reflected in determining net income of the Group for
the year ended December 31, 2002, under US GAAP. Since this amount is borne by
CNPC, a corresponding amount has been included as an addition to the other
reserves in the shareholders' equity of the Group. There were no significant
changes in this estimate during 2003 and 2004.
129
PETROCHINA COMPANY LIMITED
SIGNIFICANT DIFFERENCES BETWEEN IFRS AND US GAAP (UNAUDITED)
(Amounts in millions except for per share data or unless otherwise stated)
--------------------------------------------------------------------------------
(d) RECENT US ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB revised FAS No. 123 (FAS 123 (R)). FAS 123
(R), "Share-based Payment", requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the financial
statements based on their fair values. Pro forma disclosure is no longer an
alternative to financial statement recognition. FAS 123 (R) is effective for
interim periods beginning after June 15, 2005. The Group is evaluating the
transition provisions allowed by FAS 123 (R). The Group does not expect the
adoption of FAS 123(R) to have a material impact on the Group's financial
position or operational results.
On November 24, 2004, the FASB issued Statement No. 151, "Inventory
Costs", an amendment of ARB No. 43, Chapter 4 (FAS 151). FAS 151 requires that
abnormal amounts of idle capacity and spoilage costs be excluded from the cost
of inventory and expensed when incurred. The provisions of FAS 151 are
applicable to inventory costs incurred during fiscal years beginning after June
15, 2005. The Group does not expect the adoption of FAS 151 to have a material
impact on the Group's financial position or results of operation.
On December 15, 2004, the FASB issued Statement No. 153, "Exchanges of
Nonmonetary Assets", an amendment of APB Opinion No. 29 (FAS 153). FAS 153
requires exchanges of productive assets to be accounted for at fair value,
rather than at carryover basis, unless (1) neither the asset received nor the
asset surrendered has a fair value that is determinable within reasonable limits
or (2) the transactions lack commercial substance. FAS 153 is effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after June 15,
2005. The Group does not expect the adoption of FAS 153 to have a material
impact on the Group's financial position or results of operation.
130
CORPORATE INFORMATION
BOARD OF DIRECTORS
Chairman: Chen Geng
Vice Chairman: Jiang Jiemin Ren Chuanjun
Executive Directors: Su Shulin Duan Wende
Wang Fucheng
Non-executive Directors: Zheng Hu Zhou Jiping
Gong Huazhang Zou Haifeng
Independent Non-executive Directors: Chee-Chen Tung Liu Hongru
Franco Bernabe
Secretary to the Board of Directors: Li Huaiqi
SUPERVISORY COMMITTEE
Chairman: Li Kecheng
Supervisors: Wen Qingshan Sun Xianfeng
Xu Fengli Sun Chongren
Independent Supervisors: Zhang Youcai Wu Zhipan
SENIOR MANAGEMENT Wang Guoliang Liu Baohe
Jia Chengzao
AUTHORISED REPRESENTATIVES Wang Fucheng Li Huaiqi
COMPANY'S WEBSITE www.petrochina.com.cn
131
AUDITORS
International Auditors
PricewaterhouseCoopers
Certified Public Accountants, Hong Kong
22nd Floor
Prince's Building
Central
Hong Kong
Domestic Auditors
PricewaterhouseCoopers Zhong Tian CPAs Company Limited
Certified Public Accountants, PRC
11th Floor PricewaterhouseCoopers Center
202 Hu Bin Road
Shanghai 200021
PRC
LEGAL ADVISERS TO THE COMPANY
as to Hong Kong law: as to United States law:
Clifford Chance Shearman & Sterling
29th Floor 12th Floor Gloucester Tower
Jardine House The Landmark
1 Connaught Place 11 Pedder Street
Central Central
Hong Kong Hong Kong
as to PRC law:
King and Wood
Level 31 Block A Jianwai Soho
39 Dong San Huan Zhong Lu
Beijing 100022
132
LEGAL ADDRESS
World Tower 16 Andelu
Dongcheng District
Beijing 100011
PRC
HONG KONG REPRESENTATIVE OFFICE
Unit 3606
Tower 2 Lippo Centre
89 Queensway
Hong Kong
HONG KONG SHARE REGISTRAR AND TRANSFER OFFICE
Hong Kong Registrars Limited
46/F Hopewell Centre
183 Queen's Road East
Hong Kong
PRINCIPAL BANKERS
Industrial and Commercial Bank of China Bank of China
55 Fuxingmennei Avenue (Head Office) 1 Fuxingmennei Avenue
Xicheng District Xicheng District
Beijing, PRC Beijing, PRC
China Construction Bank China Development Bank
25 Finance Street 29 Fuchengmenwai Avenue
Xicheng District Xicheng District
Beijing, PRC Beijing, PRC
Bank of Communications CITIC Industrial Bank
Tongtai Mansion, 33 Finance Street A27 Finance Street
Xicheng District Xicheng District
Beijing, PRC Beijing, PRC
133
DEPOSITORY
The Bank of New York
P.O. Box 11258
Church Street Station
New York
NY 10286-1258
PLACES OF LISTING
H shares: The Stock Exchange of Hong Kong Limited Code: 857
ADS: The New York Stock Exchange, Inc. Symbol: PTR
PUBLICATIONS
As required by the United States Securities Law, the Company will file an
annual report on Form 20-F with the United States Securities and Exchange
Commission on or before June 30, 2005. The annual report on Form 20-F contains a
detailed description of the Company's businesses, operation results and
financial conditions. Copies of the annual report and the Form 20-F submitted to
the United States Securities and Exchange Commission will be made available at
the following addresses:
PRC PetroChina Company Limited
16 Andelu
Dongcheng District
Beijing 100011
PRC
Tel: (8610) 8488 6270
Fax: (8610) 8488 6260
HONG KONG PetroChina Company Limited
Unit 3606
Tower 2 Lippo Centre
89 Queensway
Hong Kong
Tel: (852) 2899 2010
Fax: (852) 2899 2390
134
USA The Bank of New York
P.O. Box 11258
Church Street Station
New York, NY 10286 - 1258
USA
Calling from within the US (toll-free):
1-888-BNY-ADRs
International call: 610-382-7836
E-mail: shareowners@bankofny.com
Website: http://www.stockbny.com
Shareholders may also browse or download the annual report of the Company
and the Form-20 filed with the United States Securities and Exchange Commission
from the official website of the Company at www.petrochina.com.cn.
INVESTMENT INFORMATION FOR REFERENCE
Please contact our Hong Kong Representative Office for other information
about the Company.
DOCUMENTS AVAILABLE FOR INSPECTION
The following documents are made available for inspection at the
headquarters of the Company in Beijing:
1. The original of the annual report for 2004 signed by the Chairman of
the Board;
2. The Financial statements under the hand and seal of the Legal
Representative, the Chief Accountant and the Person in Charge of the
Accounting Department of the Company;
3. The original of the Financial Report of the Company under the seal
of the Auditors and under the hand of Certified Public Accountants;
and
4. Copies of all Chinese and English announcements of the Company
published in Hong Kong newspapers during the period of the annual
report.
5. The amended Articles of Association of the Company.
135
MAJOR EVENTS IN 2004
MARCH
o On March 12, the Company and Tianjin Gas Group entered into the
"take or pay" Natural Gas Purchase and Delivery Agreement in
connection with the second Shaanxi-Beijing Pipeline (the "SECOND
SHAANXI-BEIJING PIPELINE") in Beijing. The preliminary feasibility
study report for the Second Shaanxi-Beijing Pipeline has been
examined by the State Development and Reform Commission and approved
by the State Council. It is scheduled to be completed and put into
operation in September 2005. The designed transmission capacity is
12 billion cubic metres per year, identical to the designed capacity
of the West-East Pipeline. The Pipeline runs through five provinces
and cities (Beijing, Tianjin, Shanxi, Hebei and Shandong). Upon its
completion, the five provinces and cities can receive natural gas as
a clean source of energy pursuant to the supply agreements. The
Pipeline will become another major channel of transmission of clean
energy to northern and eastern China.
o On March 23, the Company held the fifth meeting of the second Board
of Directors in Beijing. The following resolutions were passed in
the meeting: resolution on the financial statements for the year
2003 (including the publication of annual results for the year ended
December 31, 2003); resolution on the draft profit distribution plan
for the year 2003; resolution on the Company's annual report for the
year 2003 (for publication in Hong Kong); resolution on the
President's Work Report for the year 2003; resolution on the
amendment of the Interim Measures for Assessment of Performance of
the Members of the President's Work Team, the Assessment of
Performance of the Members of the President's Work Team for the year
2003, and the formulation of performance contract for the year 2004;
resolution on authorising the Board of Directors to determine the
distribution of the Company's interim dividend for the year 2004;
resolution on the code of conduct for senior management of the
Company; resolution on requesting the shareholders' general meeting
to authorise the Board of Directors to issue shares of the Company;
resolution on the establishment of branches selling refined products
in southern and central China; and resolution on the convening of
the annual general meeting for the year 2003.
APRIL
o Forbes published its latest ranking of the "Forbes 2000 The World's
Leading Companies". The Company ranked first amongst companies in
China and ranked 55 worldwide.
o The Company won a series of awards in the competition organised by
FinanceAsia, an influential magazine in Asia Pacific capital
markets. The Company won the following awards:
Best Dividend Payout Policy 1st
Best Corporate Governance 5th
Best Investor Relations 5th
136
MAY
o On May 18, the Company held its annual general meeting for 2003 in
Beijing, at which resolutions on the following matters were adopted:
approval of the Report of the Board of Directors for the year 2003,
approval of the Report of the Supervisory Committee for the year
2003, approval of the Financial Statements for the year 2003,
approval of the profit distribution plan for the year 2003, approval
of the authorisation of the Board of Directors to declare interim
dividends for the year 2004, approval of the appointment of
PricewaterhouseCoopers, Certified Public Accountants, as the
international auditors of the Company and PricewaterhouseCoopers
Zhong Tian CPAs Limited Company, Certified Public Accountants, as
the domestic auditors of the Company for the year 2004, approval of
the re-election of Mr Chen Geng as a Director of the Company,
approval of the election of Mr Jiang Jiemin as a Director of the
Company, approval of the election of Mr Zhou Jiping as a Director of
the Company, approval of the election of Mr Duan Wende as a Director
of the Company, approval of the election of Mr Sun Xianfeng as a
Supervisor of the Company, approval of Mr Xu Fengli as a Supervisor
of the Company, approval of the resolution to authorise the Board of
Directors to issue shares of the Company.
o On May 19, the Company held the sixth meeting of the second Board of
Directors, at which resolutions on the following matters were
adopted: election of the Chairman and the Vice Chairman, and
appointment of the President nominated by the Chairman. Mr Chen Geng
was appointed the Chairman of the Company. Mr Jiang Jiemin was
appointed Vice Chairman and President of the Company.
AUGUST
o On August 25, the Company held the seventh meeting of the second
Board of Directors, at which resolutions on the following matters
were adopted: the Company's Interim Financial Statements for the
year 2004 (including the interim results for the six months ended
June 30, 2004), interim profit distribution plan for the year 2004,
adjustment of the investment plan of the Company for the year 2004.
o The Company was listed for the first time as one of the top 1,000
global firms by Business Week of the United States. The Company
ranked No. 656. Among the Chinese firms on the list, PetroChina
ranked No. 4.
NOVEMBER
o On November 26, the Company held the eighth meeting of the second
Board of Directors in Beijing, at which resolutions on the following
matters were adopted: the Company's investment plan for
137
the year 2005, the Company's Budget Report for the year 2005,
Measures for Assessment of Performance of the President's Work Team
and the formulation of Performance Contract for the President's Work
Team for the year 2004.
DECEMBER
o On December 26, the Company commenced using the new logo. The logo
is jointly owned by the Company and CNPC. The new logo is a petal
graphic equally divided by ten in red and yellow colours. The
Company will use the two forms of combination of the new logo in
different occasions to accommodate different needs.
o At 2 pm on December 29, the State Steering Committee for the
Construction of the West-East Pipeline held the seventh working
meeting in the Taiwan Hall of the People's City Hall in Beijing. In
the meeting, the Company signed natural gas sales agreements with 12
users. As of that point the Company has signed natural gas sales
agreements with 40 downstream clients, and all gas transmission
contracts covering the designed 12-billion cubic metres annual
transmission capacity of the West-East Pipeline have been signed.
o On December 30, commercial operation of the entire West-East
Pipeline commenced, one full year ahead of the scheduled time. This
marks the realisation of the Company's solemn promise to build a
top-class natural gas transmission pipeline on Chinese soil
characterised by high quality, high speed, high efficiency and high
level. The West-East Pipeline is the longest gas pipeline in the
country to date, with the largest pipe diameter, the best quality
pipe materials, the highest level of designed pressure, the greatest
transmission capacity, and the highest level of automated control.
The West-East Pipeline Project is viewed as a landmark project in
China's history of pipeline construction, as well as the largest
project the Company has invested and constructed since its listing.
The completion and operation of the West-East Pipeline Project
signifies the initial completion of the Company's trunk line network
in China, and that its natural gas business has entered a new era of
rapid development.
o In AsiaMoney's 2004 "Annual Best-Managed Large Companies Poll", the
Company was awarded the "Overall Best-Managed Large Cap Company" and
"Overall Most Improved Company for Best-Management Practices"
Awards.
138
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PetroChina Company Limited
Dated: April 6, 2005 By: /s/ Li Huaiqi
---------------------------------
Name: Li Huaiqi
Title: Company Secretary