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 2006
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 2005 annual report.
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:
- the Registrant's plan to continue to strengthen its exploration and
development business in China and further consolidate its resources
foundation;
- the Registrant's plan to continue to promote the construction of key
refining facilities to improve the competitiveness and profitability
of the refining segment;
- the Registrant's plan to continue to speed up construction of
infrastructure for oil and gas storage and transportation
- the Registrant's plan to continue to expand its international
businesses and enlarge the scale of its overseas oil and gas
production;
- the Registrant's plan to continue to ensure safety and protect the
environment and to realize notable improvements in these areas; and
- the Registrant's other future plans and prospects.
These forward-looking statements reflect our current views with respect to
future events and are not a guarantee of future performance. Actual results may
differ materially from information contained in these forward-looking statements
as a result of a number of factors, including, without limitation:
- fluctuations in crude oil and natural gas prices;
- failure to achieve continued exploration success;
- failure or delay in achieving production from development projects;
- failure to complete the proposed acquisition of certain overseas
assets as planned;
- change in demand for competing fuels in the target market;
- continued availability of capital and financing;
- general economic, market and business conditions;
- changes in policies, laws or regulations of the PRC and other
jurisdictions in which the Registrant and its subsidiaries conduct
business; and
- other factors beyond the Registrant's control.
We do not intend to update or otherwise revise the forward-looking
statements in this annual report, 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 annual report might
not occur in the way we expect, or at all.
You should not place undue reliance on any of these forward-looking
statements.
2005 ANNUAL REPORT
FINANCIAL AND OPERATING SUMMARY
Output of crude oil for 2005 was 822.9 million barrels, representing an increase
of 1.1% from 2004. Output of marketable natural gas for 2005 was 1,119.5 billion
cubic feet, representing an increase of 27.8% from 2004. Total output of crude
oil and natural gas for 2005 was 1,009.5 million barrels of oil equivalent,
representing an increase of 5.1% from 2004.
Consolidated turnover for 2005 was RMB552,229 million, representing an increase
of 39.0% from 2004.
Consolidated net profit* for 2005 was RMB133,362 million, representing an
increase of 28.4% from 2004.
Basic and diluted earnings per share attributable to equity holders of the
Company for 2005 were RMB0.75, representing an increase of RMB 0.16 from 2004.
The Board of Directors has proposed a final dividend attributable to equity
holders of the Company for 2005 of RMB0.180325 per share.
----------
* Consolidated net profit is profit attributable to the equity holders of the
Company.
0
CONTENTS
COMPANY PROFILE
CHAIRMAN'S REPORT
FINANCIAL HIGHLIGHTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CORPORATE GOVERNANCE REPORT
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 2005
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" or "CHINA") 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:
- the exploration, development, production and sales of crude oil and
natural gas;
- the refining, transportation, storage and marketing of crude oil and
petroleum products;
- the production and sales of basic petrochemical products, derivative
chemical products and other chemical products; and
- 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
ADS: 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, 2005.
REVIEW OF RESULTS OF 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 2005, faced with a rapid growth of demand for oil and gas in the PRC,
the Company made its best endeavours to organize its resources with a view to
achieve a stronger balance of production, transportation and sales, maximize the
supply of oil and chemical products to the market, and ensure safe and steady
gas supply. The Company's
(photo)
3
results of operation improved significantly. The overall strength of the Company
has improved notably. In 2005, profit before taxation of the Company was
RMB193.822 billion, representing an increase of 28.2% from the corresponding
period of the preceding year. Net profit was RMB133.362 billion, representing an
increase of 28.4% from the corresponding period of the preceding year. The
Exploration and Production segment continued to be an important pillar for the
increase in the Company's profits. The Refining and Marketing segment, however,
recorded losses because the increase in prices of refined products was much
lower than that of crude oil in China. The realised profits of the Chemicals and
Marketing segment decreased as compared with those for the preceding year as a
result of an increase in prices of raw materials. Profits of the Natural Gas and
Pipeline segment continued to grow as a result of a dramatic increase in the
production and sales volume of natural gas.
The basic and diluted earnings per share of the Company were RMB0.75.
The Board of Directors of the Company recommends a final dividend of
RMB0.180325 per share for 2005 (together with the interim dividend of
RMB0.157719 per share, the annual dividend for 2005 will be RMB0.338044),
subject to the approval of the shareholders in the annual general meeting to be
held on May 26, 2006.
BOARD OF DIRECTORS AND SUPERVISORY COMMITTEE
The second extraordinary general meeting of the Company was held in Beijing
on November 8, 2005. Article 89 of the Articles of Association of the Company
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 six directors expired on
November 18, 2005. One director resigned for reason of work adjustment. Pursuant
to the provisions of Articles 51(2) and (13) of the Company's Articles of
Association regarding "election and replacement of directors" and "review of
proposals presented by shareholders representing 5% or more of the voting shares
of the Company" at shareholders' meetings, a resolution for the re-election and
election of seven more Directors was considered and approved at the meeting. It
was resolved that Mr Su Shulin, Mr Gong Huazhang, Mr Chee-Chen Tung and Mr Liu
Hongru be re-elected as Directors and Mr Wang Yilin, Mr Zeng Yukang and Mr Jiang
Fan be elected as Directors. A resolution for the re-election and election of
four more Supervisors was considered and approved at the meeting. It was
resolved that Mr Wen Qingshan and Mr Wu Zhipan be re-elected as Supervisors of
the Company and Mr Wang Fucheng and Mr Li Yongwu be elected as Supervisors of
the Company. In addition, Mr Qin Gang was elected as the Staff Representative
Supervisor
4
through the procedures for the election of staff representative of the Company.
Please see the section headed "Brief Biography of Directors, Secretary,
Supervisors and Senior Management" in the "Report of Directors" for the brief
biography of each of the directors and supervisors.
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.
On November 28, 2005, the first meeting of the Third Term of the Board of
Directors of the Company was held in Beijing. The re-appointment of Mr Su Shulin
and the appointment of Mr Duan Wende as Senior Vice Presidents of the Company
were approved. Mr Wang Guoliang was re-appointed as Financial Controller. Mr
Liao Yongyuan, Mr Jia Chengzao and Mr Hu Wenrui were appointed as Vice
Presidents. In the first meeting of the Third Term of the Supervisory Committee
held on November 8, 2005, Mr Wang Fucheng was elected as Chairman of the
Supervisory Committee.
I would like to take this opportunity to express my gratitude to Mr Ren
Chuanjun, Mr Wang Fucheng, Mr Zou Haifeng, Mr Li Kecheng, Mr Zhang Youcai, Mr
Sun Chongren and Mr Liu Baohe for their contribution to the Company during their
terms of office. I would also like to congratulate Mr Wang Yilin, Mr Zeng Yukang
and Mr Jiang Fan for being elected as Directors of the Company, Mr Wang Fucheng,
Mr Li Yongwu and Mr Qin Gang for being elected as Supervisors of the Company, Mr
Duan Wende for being elected as Senior Vice President of the Company, and Mr
Liao Yongyuan, Mr Jia Chengzao and Mr Hu Wenrui for being elected as Vice
Presidents of the Company. I would also like to give my heartfelt thanks to all
shareholders for their support and members of the Board of Directors and the
Supervisory Committee and all staff of the Company for their close co-operation
and hard work.
STANDARDIZED OPERATIONS AND BUSINESS PROSPECTS
The Company strictly follows the laws and regulations of its places of
listing and operates steadily and manages in a scientific manner within the
regulatory framework. The value of the Company in the international capital
market appreciates continuously. The price of the Company's shares hit new
highs. In 2005, the total market capitalization of the Company's H shares
surpassed HK$1,000 billion. The average price of the Company's H shares was
HK$5.5 per share, representing an increase of 41% from that of the previous
year.
5
The Company has continued to place top priority in oil and gas exploration.
In 2005, 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. The business foundation of steady development in eastern China
and rapid development in western China is further consolidated. Crude oil
production has been increasing steadily for four consecutive years. The natural
gas output increased rapidly. In 2005, marketable natural gas output was 1,119.5
billion cubic feet, doubling that for 2000.
There was rapid development in refinery and petrochemical businesses as
well as in marketing business. The Company has become ever more competitive in
the market and its operating efficiency has achieved new improvements. In the
production of refined oil, the production units made efforts to overcome the
adversities caused by the gap between the prices of refined products from the
prices of crude oil by coordinating the allocation of resources and optimizing
the production process. Business scale and layout and product mix have become
more rationalized. Products have become more diversified. Quality of oil
products and the percentage of high value-added products have increased sharply.
In the marketing of refined oil, integrated management of production and
marketing was carried out and a nationwide sales network was built up, with a
view to adapting to market changes proactively and stabilizing market supply. In
the marketing of chemicals, the Company has managed to grasp the market
opportunity to take advantage of its competitive edge in centralized marketing
by promoting sales at favourable prices. The Company achieved breakthrough in
its efforts at soliciting institutional and big clients. Optimization of
logistics and reform of the marketing mechanism were carried out in an orderly
manner. Marketing management was strengthened and became more standardized. Key
technological upgrading and construction of refining and petrochemical bases in
the refinery and petrochemical arena were smoothly completed and there was new
progress in the adjustment of the structure of the refinery and petrochemical
businesses.
Key natural gas and pipeline construction was carried out in an orderly
manner. Construction period and quality were effectively guaranteed. Natural gas
transmission via the second Shaanxi-Beijing Pipeline commenced ahead of
schedule. Six compressor stations for the West-East Gas Pipeline Project were
completed and put into operation. The Xiangtan branch line of the
Zhongxian-Wuhan Pipeline was completed and went into operation successfully. The
trunk line of the Jining line connecting the West-East Gas Pipeline and the
second Shaanxi-Beijing Pipeline was completed. Natural gas production capacity
was enhanced. As a result, production and sales of natural gas were enhanced
dramatically. Safe and steady supply of natural gas was ensured. Integration of
resources, market and efficiency was achieved.
Capital markets operation and asset restructuring were carried out and
control of financial risks was enhanced. The Company grasped the favourable
market window and issued new H shares for the first
6
time. The proceeds from the H shares issue will be used for business development
of the Company. The Company made a general offer to acquire for cash all the
outstanding shares in Jilin Chemical, Jinzhou Petrochemical and Liaohe Jinma,
the three listed subsidiaries of the Company, and withdrew the listing status
for their respective A Shares, H Shares and ADSs. The offer has resolved the
issue of competition within the Group and has regularized connected
transactions. In 2005, the Company and CNPC jointly provided capital (each
provided 50%) to set up (Chinese Characters) (Zhong You Kan Tan Kai Fa Company
Limited) ("NEWCO") to integrate overseas oil exploration and development
businesses. This is conducive to enhancing the overall advantages and promoting
the implementation of the going international strategy. At the same time, the
internal control mechanism was strengthened and standardized management was
further advocated. The Company's capability to prevent risks was further
enhanced.
The Company always emphasizes the "human-oriented" concept in its
operations and management. The Company has taken initiatives in achieving safety
and environmental protection. It has also endeavoured to build itself up as an
enterprise of harmony. Through the active promotion of events relating to the
"Year of Safety in Production", the Company has established and perfected its
HSE management system. The Company has strengthened supervision and management
and technological training in respect of safety and environmental protection.
The Company has made more capital contributions and focused on rectifying and
eliminating hidden environmental risks. The Company has intensified its basic
work at the grassroots units and improved the quality of safety regulatory
institutions at the grassroots level. The Company has devised contingency plans
for the handling of material incidents. The Company has improved its capability
for ensuring safety in production. The Company has propagated hygienic
production, enhanced on-the-spot management and environmental protection
efforts, and promoted harmony between energy production and the environment.
Looking forward in 2006, China may be able to maintain high economic growth
and low inflation, and a growth of approximately 8% in the GDP in 2006. The
rapid development of the national economy will increase the market demand for
oil and petrochemicals and provide ample room for development for the oil and
petrochemical industry. However, the implementation of macroeconomic control
measures and the Chinese government's general policy to establish a frugal
society in an attempt to achieve scientific development for China will lower the
demand for energy effectively and slow down the growth of demand for oil and
gas. China will adopt more stringent land and environmental protection policies
and enhance law enforcement and regulation. China will also carry out reforms in
the oil and gas pricing mechanism, energy tax and the exchange rate mechanism at
a proper time. Looking forward, the Company will operate
7
in complicated and ever changing circumstances and face more fierce competition.
As such, the Company needs to react in a positive manner, carry out steady
operation, emphasize the implementation of the strategies of resources, market
orientation and internationalization and gain initiatives in development
efforts.
The Company will continue to strengthen its exploration and development
businesses in China and further consolidate its resources foundation. The
Company will focus on realizing stable development in eastern China and rapid
development in western China. The Company will insist on placing equal emphasis
on oil and gas businesses. It will continue to give priority to oil and gas
exploration and perfect its oilfield development efforts in order to ensure
steady and increased crude oil production, rapid increase in natural gas
production, and accelerate the establishment of a larger scale, enhanced supply
and safer natural gas production base.
The Company will continue to promote the construction of key refining
facilities to improve the competitiveness and profitability of the refining
segment. The refining business structure will be optimized and the efficiency of
the marketing network will be improved in order to accelerate the pursuit of
economies of scale for leading products. In the chemicals business, the Company
will insist on making optimized arrangements, enhancing development of leading
new products, developing high quality and high value-added products, and
improving the competitiveness of leading products.
The Company will continue to speed up construction of infrastructure for
oil and gas storage and transportation, perfect gas transmission pipelines and
networks, construct interconnection lines linking up main gas transmission lines
such as the West-East Gas Pipeline Project and the second Shaanxi-Beijing
Pipeline, construct a gas transmission network in eastern and western China,
speed up the construction of compressor stations and underground storage in
order to ensure safe and steady supply in the market.
The Company will continue to expand its international businesses and
enlarge the scale of its overseas oil and gas production. Building on its
existing oil and gas projects, the Company will lay stress on key areas and
regions, enhance oil and gas exploration and exploitation, and strongly advocate
the rapid development of its overseas businesses.
In international trade, the Company has to proactively diversify the
sources of import of resources, make arrangements to facilitate the import of
crude oil from foreign countries such as Russia and Kazakhstan, develop sour and
heavy crude oil sources and make preparations for the planned introduction of
natural gas, LNG and other resources into China.
8
The Company will continue to ensure safety and protect the environment and
to realize notable improvements in these areas. The Company will firmly assure
safety in production, improve the code and rules of operation, provide more
education and training, make further capital contributions to the course of
rectifying hidden environmental risks, emphasize and ensure safety in production
in key and strategic production process and facilities, intensify its efforts in
eliminating sources of pollution and reducing hidden environmental risks,
promote the efficient operation of the HSE management system, and build itself
up as an enterprise of harmony.
In future, the Company will persist in enhancing the Company's value and
strive to maximize the benefit and value for its shareholders. The Company will
lay stress on its principal businesses, strive to enhance its creative
capability, promote economic growth, establish a long-term effective mechanism
for safety and environmental protection, and achieve a sustainable, effective,
steady and well-coordinated development of the Company.
Chen Geng
Chairman of the Board
Beijing, the PRC
March 20, 2006
9
FINANCIAL HIGHLIGHTS
AS AT OR YEAR ENDED DECEMBER 31,
----------------------------------------------------
2001 2002 2003 2004 2005
-------- -------- -------- -------- --------
RMB MILLION
TURNOVER 245,536 249,386 310,431 397,354 552,229
-------- -------- -------- -------- --------
OPERATING EXPENSES
Purchases, services and other (78,737) (71,383) (89,741) (114,249) (200,321)
Employee compensation costs (14,833) (16,665) (20,044) (22,934) (29,675)
Exploration expenses, including
exploratory dry holes (7,361) (8,203) (10,624) (12,090) (15,566)
Depreciation, depletion and amortisation (34,139) (37,680) (41,952) (48,362) (51,305)
Selling, general and administrative expenses (22,765) (23,930) (25,982) (28,302) (36,538)
Employees redundancy costs and shut down
of manufacturing facilities (487) (2,121) (2,355) (220) --
Taxes other than income taxes (14,401) (15,366) (16,821) (19,943) (23,616)
Property, plant and equipment revaluation
loss -- -- (602) -- --
Other expense, net (32) (59) (598) (116) (3,037)
-------- -------- -------- -------- --------
TOTAL OPERATING EXPENSES (172,755) (175,407) (208,719) (246,216) (360,058)
-------- -------- -------- -------- --------
PROFIT FROM OPERATIONS 72,781 73,979 101,712 151,138 192,171
-------- -------- -------- -------- --------
FINANCE COSTS
Exchange gain 393 179 224 225 942
Exchange loss (160) (609) (260) (217) (854)
Interest income 873 663 973 1,373 1,924
Interest expense (5,104) (4,068) (2,889) (2,896) (2,762)
-------- -------- -------- -------- --------
TOTAL FINANCE COSTS (3,998) (3,835) (1,952) (1,515) (750)
-------- -------- -------- -------- --------
SHARE OF PROFIT OF ASSOCIATES 247 169 933 1,621 2,401
-------- -------- -------- -------- --------
PROFIT BEFORE TAXATION 69,030 70,313 100,693 151,244 193,822
TAXATION (23,617) (22,939) (28,796) (43,598) (54,180)
-------- -------- -------- -------- --------
PROFIT FOR THE YEAR 45,413 47,374 71,897 107,646 139,642
======== ======== ======== ======== ========
ATTRIBUTABLE TO:
Equity holders of the Company 45,431 46,766 69,835 103,843 133,362
Minority interests (18) 608 2,062 3,803 6,280
-------- -------- -------- -------- --------
45,413 47,374 71,897 107,646 139,642
======== ======== ======== ======== ========
BASIC AND DILUTED EARNINGS PER SHARE
FOR PROFIT ATTRIBUTABLE TO EQUITY
HOLDERS OF THE COMPANY DURING THE
YEAR (RMB)(2) 0.26 0.27 0.40 0.59 0.75
======== ======== ======== ======== ========
NON CURRENT ASSETS
Property, plant and equipment 372,369 404,135 442,311 485,612 563,890
Long term investments 5,872 6,055 9,405 11,504 13,608
Advance operating lease payments 5,404 6,267 7,286 12,307 16,235
Intangible and other assets 2,379 2,769 3,027 3,020 5,011
Time deposits with maturities over one year 2,980 3,498 3,485 3,751 3,428
-------- -------- -------- -------- --------
389,004 422,724 465,514 516,194 602,172
-------- -------- -------- -------- --------
CURRENT ASSETS
Inventories 29,117 29,352 30,064 47,377 62,733
Accounts receivable 8,265 6,544 4,115 3,842 4,630
Prepaid expenses and other current assets 25,030 19,618 18,845 24,704 25,701
Investments in collateralized loans 2,636 420 24,224 33,217 235
Time deposits with maturities over three
months but within one year 3,262 2,621 2,648 1,425 1,691
10
AS AT OR YEAR ENDED DECEMBER 31,
----------------------------------------------------
2001 2002 2003 2004 2005
-------- -------- -------- -------- --------
RMB MILLION
Cash and cash equivalents 20,252 19,532 11,613 11,688 80,905
-------- -------- -------- -------- --------
TOTAL CURRENT ASSETS 88,562 78,087 91,509 122,253 175,895
-------- -------- -------- -------- --------
CURRENT LIABILITIES
Accounts payable and accrued liabilities 54,888 59,950 66,700 73,072 99,758
Taxes payable 14,571 11,348 21,320 22,516 25,391
Short-term borrowings 28,011 23,185 34,328 34,937 28,689
-------- -------- -------- -------- --------
97,470 94,483 122,348 130,525 153,838
-------- -------- -------- -------- --------
NET CURRENT ASSETS/ (LIABILITIES) (8,908) (16,396) (30,839) (8,272) 22,057
-------- -------- -------- -------- --------
TOTAL ASSETS LESS CURRENT LIABILITIES 380,096 406,328 434,675 507,922 624,229
======== ======== ======== ======== ========
EQUITY
Equity attributable to equity holders of the
Company
Share capital 175,824 175,824 175,824 175,824 179,021
Retained earnings 34,105 57,358 88,152 143,115 203,812
Reserves 81,835 84,456 93,952 108,834 132,556
-------- -------- -------- -------- --------
291,764 317,638 357,928 427,773 515,389
Minority interests 6,646 6,672 8,966 15,199 28,278
-------- -------- -------- -------- --------
TOTAL EQUITY 298,410 324,310 366,894 442,972 543,667
-------- -------- -------- -------- --------
NON CURRENT LIABILITIES
Long-term borrowings 72,042 68,894 51,601 44,648 44,570
Other long-term obligations 1,402 1,707 2,010 2,481 1,046
Asset retirement obligations 544 585 735 919 14,187
Deferred taxation 7,698 10,832 13,435 16,902 20,759
-------- -------- -------- -------- --------
81,686 82,018 67,781 64,950 80,562
-------- -------- -------- -------- --------
380,096 406,328 434,675 507,922 624,229
======== ======== ======== ======== ========
Other financial data
Capital expenditures (62,092) (75,496) (86,373) (98,946) (124,801)
Net cash generated by operating activities 83,864 98,989 139,570 141,691 203,885
Net cash used for investing activities (62,027) (73,732) (102,549) (102,276) (91,576)
Net cash used for financing activities
(provided by financing activities) (28,817) (26,488) (35,593) (39,586) (42,634)
Fixed assets, net of accumulated
depreciation 372,369 404,135 442,311 485,612 563,890
Total assets 477,566 500,811 557,023 638,447 778,067
Equity attributable to equity holders of the
Company 291,764 317,638 357,928 427,773 515,389
NOTE:
(1) The Company acquired the assets, liabilities and equities of the refined
products sales enterprises and refining and chemical businesses of CNPC in
2002 and 2005 respectively, and acquired 50% equity interests in Newco in
2005. The accounting statements for the Group in all relevant periods have
been restated in a manner similar to a uniting of interests to reflect the
acquisitions.
(2) As at December 31, 2001, 2002, 2003 and 2004 respectively, basic and
diluted earnings per share was calculated by dividing the net profit with
the number of shares issued for this financial year of 175.82 billion. As
at December 31, 2005, basic and diluted earnings per share was calculated
by dividing net profit with the weighted average number of shares issued
for this financial year of 176.77 billion.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements of the Company and its subsidiaries ("GROUP")
and the notes thereto.
OVERVIEW
For the twelve months ended December 31, 2005, profit before taxation of
the Group was RMB193,822 million, representing an increase of 28.2% compared
with the corresponding period in the previous year. Net profit was RMB133,362
million, representing an increase of 28.4% compared with the corresponding
period in the previous year. The performance results and the comprehensive
strengths of the Group have increased dramatically. The increase in profit was
primarily due to the Group's ability to take full advantage of the opportunities
presented by persistently high oil prices and strong market demand by
strengthening its efforts in exploration and development resulting in a
continuous growth of crude oil and natural gas production; stable market
supplies resulting from earnest efforts in refining and marketing and an
increase in operating efficiency; continuously accelerating the pace of natural
gas production; an orderly construction of the infrastructure of crude oil and
natural gas pipelines; the strengthening of the management of the operations of
the Group and the continuous efforts in technological and managerial
innovations.
(photo)
12
For the twelve months ended December 31, 2005, the Group's basic and
diluted earnings per share were RMB0.75.
TWELVE MONTHS ENDED DECEMBER 31, 2005 COMPARED WITH TWELVE MONTHS ENDED
DECEMBER 31, 2004 CONSOLIDATED OPERATING RESULTS
- Turnover
Turnover increased 39.0% from RMB397,354 million for the twelve months
ended December 31, 2004 to RMB552,229 million for the twelve months ended
December 31, 2005. This was primarily due to the increases in the selling prices
and sales volume of crude oil, gasoline, diesel and other main products as well
as the increase in the sales volume of natural gas.
- Operating Expenses
Operating expenses increased 46.2% from RMB246,216 million for the twelve
months ended December 31, 2004 to RMB360,058 million for the twelve months ended
December 31, 2005. This was primarily due to an increase in the purchase cost of
crude oil, refined products and other raw materials and ancillary materials from
external suppliers and an increase in the employee compensation costs.
- Purchases, Services and Other Expenses
Purchases, services and other expenses increased 75.3% from RMB114,249
million for the twelve months ended December 31, 2004 to RMB200,321 million for
the twelve months ended December 31, 2005. This was primarily due to (1) an
increase in the purchase expenses of crude oil from external suppliers resulted
from an increase in crude oil prices and an increase in the purchase volume of
crude oil by the Group's refineries; and (2) an increase in the oil and gas
production costs resulted from an increase in the rate of water and tariff of
electricity and the prices of other production materials in the PRC as well as
an expansion of the production scale of the Group. In addition, the increase in
the purchase expenses was also resulted from an increase in the refined product
supply operation in the year.
- Employee Compensation Costs
Employee compensation costs rose 29.4% from RMB22,934 million for the
twelve months ended December 31, 2004 to RMB29,675 million for the twelve months
ended December 31, 2005. This was
13
primarily due to an increase in employees' salaries and welfare expenses as a
result of strong results of operations achieved by the Group, and an increase in
labour costs resulted from further development of the Group's retail network.
- Exploration Expenses
Exploration expenses increased 28.8% from RMB12,090 million for the twelve
months ended December 31, 2004 to RMB15,566 million for the twelve months ended
December 31, 2005. This was primarily due to an appropriate increase in
investments in exploration of crude oil and natural gas by the Group in a high
oil price environment.
- Depreciation, Depletion and Amortization
Depreciation, depletion and amortization increased 6.1% from RMB48,362
million for the twelve months ended December 31, 2004 to RMB51,305 million for
the twelve months ended December 31, 2005. This was primarily due to an increase
in the provision for depreciation and depletion resulted from an increase in the
average amount of property, plant and equipment.
- Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 29.1% from RMB28,302
million for the twelve months ended December 31, 2004 to RMB36,538 million for
the twelve months ended December 31, 2005. This was primarily due to an increase
in transportation and other related costs resulted from an increase in freights
for railway transportation in 2005 and an increase in the sales volume of
refined and petrochemical products.
- Taxes other than Income Tax
Taxes other than income tax increased 18.4% from RMB19,943 million for the
twelve months ended December 31, 2004 to RMB23,616 million for the twelve months
ended December 31, 2005. The increase was primarily due to an increase in
consumption tax and surcharges as a result of an increase in the sales volume of
gasoline and diesel by the Group's refineries, an increase in compensation fees
for mineral resources due to an increase in crude oil and natural gas revenue,
and an increase in natural resource tax due to an increase in natural resource
tax rates by the PRC government in 2005.
14
- Profit from Operations
As a result of the factors discussed above, profit from operations
increased 27.1% from RMB151,138 million for the twelve months ended December 31,
2004 to RMB192,171 million for the twelve months ended December 31, 2005.
- Net Exchange Gain
Net exchange gain increased ten times from RMB8 million for the twelve
months ended December 31, 2004 to RMB88 million for the twelve months ended
December 31, 2005. The increase in net exchange gain was primarily due to the
appreciation of Renminbi in 2005.
- Net Interest Expenses
Net interest expenses decreased 45.0% from RMB1,523 million for the twelve
months ended December 31, 2004 to RMB838 million for the twelve months ended
December 31, 2005. This decrease was primarily due to a decrease in interest
expenses resulted from the decrease in the average outstanding borrowings and an
increase in interest income resulted from sufficient cash flow generated from
operating activities.
- Profit Before Taxation
Profit before taxation rose 28.2% from RMB151,244 million for the twelve
months ended December 31, 2004 to RMB193,822 million for the twelve months ended
December 31, 2005.
- Taxation
Taxation increased 24.3% from RMB43,598 million for the twelve months ended
December 31, 2004 to RMB54,180 million for the twelve months ended December 31,
2005. The increase was primarily due to an increase in taxable profits.
- Net Profit
As a result of the factors discussed above, net profit increased 28.4% from
RMB103,843 million for the twelve months ended December 31, 2004 to RMB133,362
million for the twelve months ended December 31, 2005.
15
(photo)
16
SEGMENT INFORMATION
The Group operates a wide range of petroleum and related activities through
four primary business segments: Exploration and Production Segment, Refining and
Marketing Segment, Chemicals and Marketing Segment, and Natural Gas and Pipeline
Segment.
EXPLORATION AND PRODUCTION
THE BUSINESS OF THE EXPLORATION AND PRODUCTION SEGMENT INCLUDES THE
EXPLORATION, DEVELOPMENT, PRODUCTION AND MARKETING OF PETROLEUM AND NATURAL GAS.
- Turnover
Turnover increased 44.1% from RMB233,948 million for the twelve months
ended December 31, 2004 to RMB337,208 million for the twelve months ended
December 31, 2005. The increase was primarily due to an increase in the prices
and sales volume of crude oil and an increase in the sales volume of natural
gas. The average realized crude oil price of the Group in 2005 was US$48.37 per
barrel, representing an increase of US$14.65 per barrel or 43.4% from US$33.72
per barrel compared with the corresponding period in the previous year.
Intersegment sales increased 50.4% from RMB180,129 million for the twelve
months ended December 31, 2004 to RMB270,943 million for the twelve months ended
December 31, 2005. The increase was primarily due to an increase in the prices
of crude oil and an increase in the intersegment sales volume of crude oil and
natural gas.
- Operating Expenses
Operating expenses increased 24.5% from RMB103,735 million for the twelve
months ended December 31, 2004 to RMB129,128 million for the twelve months ended
December 31, 2005. The increase was primarily due to increases in purchase
expenses, exploration expenses and staff costs.
- Profit from Operations
Profit from operations increased 59.8% from RMB130,213 million for the
twelve months ended December 31, 2004 to RMB208,080 million for the twelve
months ended December 31, 2005.
17
REFINING AND MARKETING
The business of the Refining and Marketing Segment includes refining,
transportation, storage and marketing of crude oil and petroleum products.
- Turnover
Turnover rose 44.6% from RMB296,427 million for the twelve months ended
December 31, 2004 to RMB428,494 million for the twelve months ended December 31,
2005. The increase was due to an increase in the prices and sales volume of key
products, of which:
Sales revenue from gasoline increased 43.6% from RMB76,919 million for the
twelve months ended December 31, 2004 to RMB110,438 million for the twelve
months ended December 31, 2005. The average realized selling price of gasoline
surged 19.2% from RMB3,542 per ton for the twelve months ended December 31, 2004
to RMB4,221 per ton for the twelve months ended December 31, 2005, resulting in
an increase in revenue by RMB17,763 million. The sales volume of gasoline
increased 20.5% from 21.71 million tons for the twelve months ended December 31,
2004 to 26.16 million tons for the twelve months ended December 31, 2005,
resulting in an increase in revenue by RMB15,756 million.
Sales revenue from diesel increased 29.5% from RMB136,649 million for the
twelve months ended December 31, 2004 to RMB176,999 million for the twelve
months ended December 31, 2005. The average realized selling price of diesel
increased 17.0% from RMB3,165 per ton for the twelve months ended December 31,
2004 to RMB3,702 per ton for the twelve months ended December 31, 2005,
resulting in an increase in revenue by RMB25,674 million. The sales volume of
diesel increased 10.7% from 43.18 million tons for the twelve months ended
December 31, 2004 to 47.81 million tons for the twelve months ended December 31,
2005, resulting in an increase in revenue by RMB14,676 million.
Sales revenue from kerosene increased 27.2% from RMB5,881 million for the
twelve months ended December 31, 2004 to RMB7,480 million for the twelve months
ended December 31, 2005.
Intersegment sales revenue increased 51.0% from RMB21,862 million for the
twelve months ended December 31, 2004 to RMB33,019 million for the twelve months
ended December 31, 2005. The increase was primarily due to an increase in
selling prices and intersegment sales volume of key products.
- Operating Expenses
Operating expenses increased 57.6% from RMB284,536 million for the twelve
months ended December 31, 2004 to RMB448,304 million for the twelve months ended
December 31, 2005. The
18
(photo)
19
(photo)
20
increase was primarily due to an increase in the purchase expenses of crude oil
and refined products from external suppliers, and an increase in selling and
administrative expenses. In addition, the increase in the purchase expenses was
also resulted from an increase in the refined product supply operation in the
year.
- Profit/(loss) from Operations
Loss from operations amounted to RMB19,810 million for the twelve months
ended December 31, 2005, while profit from operations amounted to RMB11,891
million for the twelve months ended December 31, 2004. This decrease was
primarily due to the increase in the domestic price of refined products being
much lower than the increase in the price of crude oil in 2005.
CHEMICALS AND MARKETING
The business of the Chemicals and Marketing Segment consists of the
production and sale of basic petrochemical products, derivative petrochemical
products and other chemical products.
- Turnover
Turnover rose 29.4% from RMB57,179 million for the twelve months ended
December 31, 2004 to RMB73,978 million for the twelve months ended December 31,
2005. The growth in turnover was primarily due to an increase in the sales
volume and selling prices of key chemical products.
- Operating Expenses
Operating expenses increased 42.8% from RMB49,524 million for the twelve
months ended December 31, 2004 to RMB70,702 million for the twelve months ended
December 31, 2005. The increase was primarily due to an increase in the purchase
expenses for direct materials and an increase in selling and administrative
expenses.
- Profit from Operations
Profit from operations decreased 57.2% from RMB7,655 million for the twelve
months ended December 31, 2004 to RMB3,276 million for the twelve months ended
December 31, 2005. The decrease was primarily due to an increase in the prices
of raw materials in 2005.
21
(photo)
22
NATURAL GAS AND PIPELINE
The business of the Natural Gas and Pipeline Segment consists of the
delivery of natural gas, crude oil and refined products, and the sale of natural
gas.
- Turnover
Turnover increased 43.6% from RMB18,255 million for the twelve months ended
December 31, 2004 to RMB26,214 million for the twelve months ended December 31,
2005. The increase was primarily due to an increase in the sales volume and
selling prices of natural gas, and an increase in the volume of natural gas from
pipeline transmission and the prices for pipeline transmission.
- Operating Expenses
Operating expenses increased 46.5% from RMB15,720 million for the twelve
months ended December 31, 2004 to RMB23,031 million for the twelve months ended
December 31, 2005. The increase was primarily due to an increase in expenses for
the purchase of natural gas and an increase in depreciation charges.
- Profit from Operations
Profit from operations increased 25.6% from RMB2,535 million for the twelve
months ended December 31, 2004 to RMB3,183 million for the twelve months ended
December 31, 2005.
23
LIQUIDITY AND CAPITAL RESOURCES
For the twelve months ended December 31, 2005, the Group's primary sources
of capital were cash generated from operating activities, short-term and
long-term borrowings, cash and cash equivalents. The Group's capital was
primarily used for operating activities, capital expenditures, repayment of
short-term and long-term borrowings and distribution of dividends to
shareholders.
As at December 31, 2005, short-term borrowings made up approximately 4.7%
of the Group's capital employed as compared with approximately 6.7% as at
December 31, 2004. The Group's ability to obtain adequate financing may be
affected by the financial position, the results of operations and the conditions
of the domestic and foreign capital markets. The Group must seek approvals from
the relevant PRC government authorities before raising capital in the domestic
and foreign capital markets. In general, the Group must obtain the PRC
government's 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 expenditures and related investments
principally from cash generated from operating activities, short-term and
long-term borrowings, cash and cash equivalents. For the twelve months ended
December 31, 2005, net cash generated from operating activities was RMB203,885
million. As at December 31, 2005, the Group had RMB80,905 million in cash and
cash equivalents. Cash and cash equivalents were primarily Renminbi (with
Renminbi accounting for approximately 79.6%, United States Dollar accounting for
approximately 12.3% and Hong Kong Dollar accounting for approximately 8.1%).
The table below sets forth the cash flow of the Group for the twelve months
ended December 31, 2005 and 2004, respectively and the cash and cash equivalents
as at the end of each period.
YEARS ENDED DECEMBER 31,
-------------------------
2005 2004
----------- -----------
RMB MILLION RMB MILLION
Net cash from operating activities 203,885 141,691
Net cash used for investing activities (91,576) (102,276)
Net cash used for financing activities (42,634) (39,586)
Currency translation differences (458) 246
Cash and cash equivalents as at the end of year 80,905 11,688
24
CASH FLOWS FROM OPERATING ACTIVITIES
The net cash flow of the Group generated from operating activities for the
twelve months ended December 31, 2005 was RMB203,885 million, which represents
an increase of 43.9% compared with the RMB141,691 million generated for the
twelve months ended December 31, 2004. This increase was primarily due to a
dramatic increase in profits for the period as well as an increase in the
account payables for the period.
For the twelve months ended December 31, 2005, the Group had a working
capital of RMB22,057 million compared with a working capital deficit of RMB8,272
million for the twelve months ended December 31, 2004. The increase in working
capital was primarily due to an increase in cash and cash equivalents resulted
from a dramatic increase in sales revenues for the period, and an increase in
inventories resulted from an expansion of the scale of sales and an increase in
selling prices.
CASH USED FOR FINANCING ACTIVITIES
The net borrowings of the Group as at December 31, 2005 and December 31,
2004 are as follows:
YEARS ENDED DECEMBER 31,
-------------------------
2005 2004
----------- -----------
RMB MILLION RMB MILLION
Short-term borrowings (including current
portion of long-term borrowings) 28,689 34,937
Long-term borrowings 44,570 44,648
------- ------
Total borrowings 73,259 79,585
------- ------
Less:
Cash and cash equivalents 80,905 11,688
------- ------
Net borrowings (7,646) 67,897
======= ======
The maturity profile of the long-term borrowings of the Group is as
follows:
PRINCIPAL AS AT PRINCIPAL AS AT
DECEMBER 31, 2005 DECEMBER 31, 2004
----------------- -----------------
RMB MILLION RMB MILLION
To be repaid within one year 15,325 18,962
To be repaid within one to two years 18,373 10,145
To be repaid within two to five years 14,942 27,072
To be repaid after five years 11,255 7,431
------ ------
59,895 63,610
====== ======
25
Of the total borrowings of the Group as at December 31, 2005, approximately
27.0% were fixed-rate borrowings and approximately 73.0% were floating-rate
borrowings. Of the borrowings as at December 31, 2005, approximately 72.1% were
denominated in Renminbi, approximately 27.1% were denominated in United States
Dollar, approximately 0.2% were denominated in British Pound Sterling,
approximately 0.3% were denominated in Japanese Yen, and approximately 0.3% were
denominated in Euro.
As at December 31, 2005, the amount of borrowings owed to China Petroleum
Finance Company Limited ("CNPC FINANCE") was RMB27,319 million, the amount of
borrowings owed to state-owned banks and other state-owned non-banking financial
institutions was RMB31,178 million and the amount of borrowings owed to other
related parties was RMB62 million.
As at December 31, 2005, the amount of short-term and long-term borrowings
owed to CNPC Finance was RMB520 million and RMB26,799 million, respectively.
The net cash used for financing activities of the Group for the twelve
months ended December 31, 2005 increased 7.7% compared with the twelve months
ended December 31, 2004. The increase was primarily due to an increase in
payments of dividends to shareholders of the Company as compared with the
corresponding period of last year.
As at December 31, 2005, borrowings of the Group consisted of RMB1,108
million (RMB2,269 million as at December 31, 2004) secured loans (finance leases
and bank borrowings), most of which were secured over certain of the Group's
property and time deposits with maturities over one year.
As at December 31, 2005, the debt to capitalization ratio (debt to
capitalization ratio = interest-bearing debts/(interest-bearing debts + total
equity)) was 11.9% (15.2% as at December 31, 2004).
26
CAPITAL EXPENDITURES
The table below sets out our capital expenditures by the business segments
of the Group for the twelve months ended December 31, 2005, the twelve months
ended December 31, 2004 and the estimated value for 2006 respectively. For the
twelve months ended December 31, 2005, capital expenditures of the Group
increased 26.1% to RMB124,801 million from RMB98,946 million for the twelve
months ended December 31, 2004. The increase in capital expenditures was
primarily due to an increase in expenditures relating to crude oil and natural
gas exploration and development and petrochemical projects in 2005 as well as an
increase in prices of steel products, fuel oil, water, electricity and other
production materials.
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
2005 2004 2006 (ESTIMATED VALUE)
-------------------- -------------------- ----------------------
SEGMENT RMB MILLION % RMB MILLION % RMB MILLION %
------- ----------- ------ ----------- ------ ----------- ------
Exploration and Production 83,214* 66.68 62,868* 63.54 93,500* 62.75
Refining and Marketing 16,454 13.18 17,684 17.87 23,700 15.91
Chemicals and Marketing 13,569 10.87 4,319 4.37 15,300 10.27
Natural Gas and Pipeline 11,137 8.92 13,901 14.05 15,300 10.27
Others 427 0.35 174 0.17 1,200 0.80
------- ------ ------ ------ ------- ------
Total 124,801 100.00 98,946 100.00 149,000 100.00
======= ====== ====== ====== ======= ======
Note: * If the investments portion related to geological and geophysical
exploration costs were included, the capital expenditures and investments
for the Exploration and Production segment for 2004 and 2005, and the
estimate of the same for the entire 2006 would be RMB70,217 million,
RMB92,233 million and RMB104,500 million, respectively.
27
- Exploration and Production
A majority of the Group's capital expenditures is related to the
Exploration and Production segment. For the twelve months ended December 31,
2005, capital expenditures in relation to the Exploration and Production segment
amounted to RMB83,214 million, including RMB16,499 million for exploration
activities and RMB59,113 million for development activities. For the twelve
months ended December 31, 2004, capital expenditures in relation to this segment
totalled RMB62,868 million, including RMB11,744 million for exploration
activities and RMB45,832 million for development activities. The increase in
capital expenditures was primarily due to an increase in expenditures relating
to oil and gas exploration and development which reflects the targets of the
Group in stabilizing the production of crude oil in eastern China, rapidly
developing the business in western China and accelerating the development of
natural gas business.
The Group anticipates that capital expenditures for the Exploration and
Production segment for the twelve months ending December 31, 2006 will amount to
RMB93,500 million. Approximately RMB20,000 million will be used for oil and gas
exploration, and RMB73,500 million will be used for oil and gas development.
Exploration and development will be mainly carried out in seven basins including
the Erdos, Junggar, Tarim, Songliao, Sichuan, Bohai Bay and Chaidamu basins.
- Refining and Marketing
Capital expenditures for the Group's Refining and Marketing segment for the
twelve months ended December 31, 2005 amounted to RMB16,454 million, of which
RMB9,565 million was spent on the expansion of the retail sales network of
refined products and storage infrastructure facilities for oil products, and
RMB6,889 million was spent on renovation of refining facilities. The total
capital expenditures of this segment for the twelve months ended December 31,
2004 were RMB17,684 million. The decrease in capital expenditures was primarily
due to a decrease in investments in the building up of sales network as compared
with that of the corresponding period of last year.
The Group anticipates that capital expenditures for the Refining and
Marketing segment for the twelve months ending December 31, 2006 will amount to
RMB23,700 million, which include approximately RMB15,200 million for
construction and expansion of refining facilities; and approximately RMB8,500
million for investments in the building up of the sales network for refined
products.
28
- Chemicals and Marketing
Capital expenditures for the Chemicals and Marketing segment for the twelve
months ended December 31, 2005 and 2004 amounted to RMB13,569 million and
RMB4,319 million, respectively. The increase was primarily due to an increase in
investments in the ethylene projects in Jilin Petrochemical, Lanzhou
Petrochemical and Dushanzi Petrochemical and in the PTA projects in Liaoyang
Petrochemical.
The Group anticipates that capital expenditures for the Chemicals and
Marketing segment for the twelve months ending December 31, 2006 will amount to
RMB15,300 million, which is expected to be used primarily for upgrading the
ethylene facilities in Jilin Petrochemical, Lanzhou Petrochemical and Dushanzi
Petrochemical and the construction of the PTA project in Liaoyang Petrochemical.
- Natural Gas and Pipeline
Capital expenditures in the Natural Gas and Pipeline segment for the twelve
months ended December 31, 2005 amounted to RMB11,137 million. The Group spent
RMB10,413 million of these expenditures on the construction of long distance
pipelines, of which RMB6,083 million were spent on the West-East Gas Pipeline
project. For the twelve months ended December 31, 2004, capital expenditures in
the segment totalled RMB13,901 million. The decrease in capital expenditures was
primarily due to a decrease in investments in the second Shaanxi-Beijing
Pipeline project.
The Group anticipates that capital expenditures for the Natural Gas and
Pipeline segment for the twelve months ending December 31, 2006 will amount to
RMB15,300 million, which are expected to be used primarily for increasing
transmission capacity by the West-East Gas Pipeline project and for construction
of underground natural gas storage facilities and pipelines for crude oil and
refined products.
- Others
Non-segment-specific capital expenditures for the twelve months ended
December 31, 2005 and for the twelve months ended December 31, 2004 were RMB427
million and RMB174 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, 2006 will amount to approximately
RMB1.2 billion, which is expected to be used primarily for scientific research
activities and for construction of ERP and other information system.
29
MATERIAL INVESTMENT
The Group did not hold any material external investment for the year ended
December 31, 2005.
MATERIAL ACQUISITIONS OR DISPOSALS
In accordance with the acquisition agreement between the Company and CNPC
dated March 28, 2005, the Company acquired the refinery and petrochemical
businesses owned by CNPC's wholly-owned subsidiaries, Dayuan and Qingyang, at a
consideration of RMB9 million. Under the Listing Rules, the above transaction
constitutes a connected transaction of the Company. The details of the
transaction were announced on March 30, 2005.
In August 2005, the shareholders of the Company approved the acquisition
and transfer agreements relating to the Company's acquisition of a 50% ownership
interest in Newco. Newco was formed in 2005 and was wholly owned by CNODC and
one of its subsidiaries. Under the terms of the related agreements, CNODC
transferred certain oil and gas exploration operations into Newco and the
Company contributed to Newco its wholly-owned subsidiary, PetroChina
International Limited ("PTRI"), and cash amounting to approximately RMB20,162
million, which is the difference between the cash contribution of RMB20,741
million payable by the Company according to the acquisition agreement and cash
consideration of RMB579 million for PTRI receivable by the Company.
The Board resolution dated October 26, 2005 approved the Company's
acquisition of 150 million outstanding A shares from minority interests of
Jinzhou Petrochemical at a price of RMB4.25 per share through tender offers. As
at December 31, 2005, the Company acquired 117,486,753 A shares (representing
approximately 14.92% of the total share capital of Jinzhou Petrochemical) at a
total cash consideration of approximately RMB500 million. After the acquisition,
the Company owns 95.87% of the total share capital of Jinzhou Petrochemical. The
difference between the acquisition consideration and the book value of the
acquired assets and liabilities will be included in the equity interests.
Jinzhou Petrochemical was delisted on January 4, 2006 upon approval of the China
Securities Regulatory Commission.
The Board resolution dated October 26, 2005 approved the Company's
acquisition of 200 million outstanding A shares and 964.778 million H shares
(including ADSs) respectively from minority interests of Jilin Chemical
Industrial Company Limited ("JILIN Chemical") at prices of RMB5.25 per A share
and HK$2.80 per H share, respectively, through tender offers. The tender offers
were completed in February 2006 and the impacts of the acquisitions will be
reflected in the annual consolidated financial statements of the Group as at
December 31, 2006.
30
The Board resolution dated October 26, 2005 also approved the Company's
acquisition of 200 million outstanding A shares from minority interests of
Liaohe Jinma at a price of RMB8.80 per share through tender offers. As at
December 31, 2005, the Company acquired 172,315,428 A shares (representing
approximately 15.67% of the total share capital of Liaohe Jinma) at a total cash
consideration of approximately RMB1,519 million. Upon completion of the
acquisition, the Company owns 97.48% of the total share capital of Liaohe Jinma.
The difference between the acquisition consideration and the book value of the
acquired assets and liabilities will be recorded in equity interests. Liaohe
Jinma was delisted on January 4, 2006 upon approval of the China Securities
Regulatory Commission.
The Company has entered into two acquisition agreements with two wholly
owned subsidiaries of CNPC, Liaohe Petroleum Exploration Bureau and China
Petroleum Pipeline Bureau, on December 6, 2005 for the acquisition of shares
representing 15.56% and 20.17%, respectively, from them in Petrochina Fuel Oil
Company Limited ("FUEL OIL COMPANY"), a 55.43% subsidiary of the Company, for an
aggregate cash consideration of RMB559 million. The Fuel Oil Company is
principally engaged in the business of investment and development of fuel oil in
the upstream and downstream areas in the PRC. Upon completion of the above
acquisitions, the Company's interest in the Fuel Oil Company will be increased
and it is expected that the management of the Fuel Oil Company will be
strengthened.
EVENTS AFTER THE BALANCE SHEET DATE
As discussed above, the Company acquired, by tender offers, all the
outstanding A shares and H shares (including ADSs) from minority interests of
Jilin Chemical. In February 2006 when the relevant offer periods expired, the
Company acquired 908,113,053 H shares (including ADSs) and 157,700,200 A shares
of Jilin Chemical (representing 29.93% of the total share capital of Jilin
Chemical in aggregate) at an aggregate consideration of approximately RMB3,372
million. Jilin Chemical was delisted from the HKSE, the New York Stock Exchange
and Shenzhen Stock Exchange on January 23, 2006, February 15, 2006 and February
20, 2006, respectively.
FOREIGN EXCHANGE RATE RISK
The PRC government reformed the Renminbi exchange rate regime on July 21,
2005. A managed floating exchange rate regime under which the exchange rate for
Renminbi is adjusted with reference to a basket of currencies and based on the
demand and supply for Renminbi is implemented. However, the exchange rate for
Renminbi in the capital account is yet to be liberalized. The exchange rates of
Renminbi are affected by the domestic and international economic and political
environment, and the supply and demand for Renminbi. In future, the exchange
rate of Renminbi against other currencies may
31
differ from the current ones significantly. As Renminbi is the base currency of
the Company and most of its consolidated entities, the fluctuation of exchange
rates of Renminbi may have positive or negative impact on the results of
operations of the Group. An appreciation of Renminbi against United States
Dollar will decrease the turnover of the Group but may lower the cost incurred
by the Group in acquiring imported raw materials and equipment. 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 in acquiring
imported materials and equipment as well as the foreign currency-denominated
obligations of the Group. The results of operations and the financial position
of the Group may also be affected by fluctuations in exchange rates against
Renminbi of a number of other foreign currencies.
COMMODITY PRICE RISK
The Group is engaged in a broad range of petroleum related activities. The
hydrocarbon commodity markets are influenced by the global as well as regional
supply and demand conditions. The prices of onshore crude oil are determined
with reference to international prices of crude oil. A decline in the prices of
crude oil and refined products could adversely affect the Group's financial
performance. The Group historically has not used commodity derivative
instruments to hedge against potential price fluctuations of crude oil and
refined products. Therefore, during 2004 and 2005, the Group was exposed to the
general price fluctuations of broadly traded oil and gas commodities.
INDUSTRY RISK
Like other oil and gas companies in China, the Group's operating 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 etc, is expected to
have an impact on the Group's operating activities. As a result, the Group may
be subject to fairly significant restrictions when implementing its business
strategy, developing and expanding its business or maximizing its profitability.
Any future changes in the PRC governmental policies on the oil and gas industry
may also affect the Group's business operations.
EMPLOYEES AND EMPLOYEE COMPENSATION
- Number of employees
As at December 31, 2005 and December 31, 2004, the Group had 439,220 and
424,175 employees, respectively. The table below sets out the number of
employees by business segment as at December 31, 2005:
32
NUMBER OF PERCENTAGE OF
SEGMENT EMPLOYEES TOTAL (%)
------- --------- -------------
Exploration and Production 247,258 56.3
Refining and Marketing 117,260 26.7
Chemicals and Marketing 60,272 13.7
Natural Gas and Pipeline 10,760 2.5
Other * 3,670 0.8
------- ------
Total 439,220 100.00
======= ======
Notes: * "Other" includes staff of the Company's headquarters, specialized
subsidiaries, Exploration & Development Research Institute, Planning &
Engineering Institute, Oil Refining and Petrochemical Technological
Research Centres and other units.
- Employee Compensation
The total employee compensation payable by the Group for the twelve months
ended December 31, 2005 was RMB19,351 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 for the realization of best results.
The Company's senior management remuneration system links senior management
financial interests (including those of executive directors and supervisors)
with the Group's results of operations and the market performance of its shares.
All 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.
BASIC STOCK APPRECIATION PERFORMANCE
SALARY (%) RIGHTS (%) BONUS (%)
---------- ------------------ -----------
Chairman 30 70 0
President 25 60 15
Vice President 25 60 15
Department General Manager 25 50 25
33
Details of the directors' and supervisors' emoluments as at December 31,
2005 and December 31, 2004 were as follows (for remuneration for each of the
directors and supervisors on a named basis, please see note 10 to the
consolidated financial statements of the Group in this annual report):
2005 2004
------- -------
RMB'000 RMB'000
Fee for directors and supervisors 897 120
Salaries, allowances and other benefits 4,031 2,012
Contribution to retirement benefit scheme 57 43
----- -----
4,985 2,175
===== =====
The number of directors and supervisors whose emoluments fall within the
following band (including directors and supervisors whose term expired during
the year):
2005 2004
Number Number
------ ------
Nil-RMB1,000,000 25 24
=== ===
Upon exercise of their stock 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.
- Training Programs
The training program of the Company for 2005 has been geared towards
achieving the development strategy and operating objectives of the Company. In
line with the strategic requirement for "a strong corporation with highly
talented personnel", the Company has targeted high-calibre, skilful and
international staff in its training program with a focus on the training of the
"core" and "backbone" personnel and strived to build a proficient operating and
management team, a technology innovation team and a skilful operators' team to
ensure the supply of talents required for the continuous and stable development
of the Company.
- Medical Insurance
Since October 1, 2002, the Company's headquarters and its regional branches
based in Beijing have joined the basic medical insurance scheme organized by the
Beijing Municipality, making contributions at 9% of the total basic salaries of
the employees. Other local subsidiaries and branches of the Group have also
participated in their respective local basic medical insurance schemes.
34
As basic medical insurance is organized by local authorities, the dates of
implementation, rates of contribution and reimbursement methods vary with the
localities. The rate of contribution is generally set at 6% to 10% of the total
basic salaries of the employees.
In accordance with the relevant regulations of the PRC government, the
Group has given permission to local subsidiaries and branches which have
participated in local basic insurance schemes to establish a supplemental
medical insurance scheme from 2002. Contributions to the schemes are set at no
more than 4% of the total salaries and will be booked as cost.
CONTINGENT LIABILITIES
Information on the Group's contingent liabilities as at December 31, 2005
is as follows:
- Bank and other guarantees
As at December 31, 2005, the Group had contingent liabilities in respect of
guarantees made to CNPC Finance, a subsidiary of CNPC, from which it is
anticipated that no material liabilities will arise.
2005 2004
----------- -----------
RMB MILLION RMB MILLION
Guarantees of borrowings of associates 187 203
=== ===
- Environmental liabilities
CNPC and the Group have operated in China for many years. China has adopted
extensive environmental laws and regulations that affect the operations 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 environmental 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.
- 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, management believes that any resulting legal
liabilities will not have a material adverse effect on the financial position of
the Group.
35
- 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 the following:
- 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;
- 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
- 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, 2005, CNPC had obtained formal land use right
certificates in relation to 27,400 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 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. In the 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.
(photo)
36
- 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 the PRC. 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 results of operations but will not have a material
adverse effect on the financial position of the Group.
- Others
On November 13, 2005, explosions occurred at the dianil plant of a branch
of the Company located in the Jilin Province. The impact of the accident is
undergoing government investigation. The incident shows that the Company needs
further strengthening of its operational safety and environmental protection.
The Company has realized the seriousness of the issue and has stepped up its
efforts in securing operational safety and environmental protection. The Company
will bear resultant liabilities caused by the explosions based on the results of
the investigation.
(photo)
37
CORPORATE GOVERNANCE REPORT
The Company has always duly complied with the regulatory provisions of the
jurisdictions in which its shares are listed, standardized its operations and
promoted the continuous improvement of the level of corporate governance. In
2005, the Company commenced a series of work with outstanding results in respect
of the Rules Governing the Listing of Securities on The Stock Exchange of Hong
Kong Limited (the "Listing Rules") in Hong Kong and the Sarbanes-Oxley Act in
the United States. The Company amended its Articles of Association and the Work
Manual of the Board of Directors. The Company also formulated the Organizational
and Work Rules of the Audit Committee. As a result, the information disclosure
system and related work processes have been further improved. Under the guidance
of the above regulatory documentation, efficient checks and balances mechanism
was achieved within the Company through coordination among the shareholders'
general meeting, the Board of Directors and its related special board
committees, the Supervisory Committee and the management headed by the
President. The internal management and operation of the Company were further
standardized. The Company's management is stable and pragmatic and abides by its
undertakings. The Company provides updated, accurate, complete and reliable
information with respect to the Company to all market participants and
regulatory authorities and by so doing enhances the value of the Company
continuously.
The Company's website (www.petrochina.com.cn) contains information on
corporate governance and mechanism for assessment of performance and for
incentives and restrictions of the Company, information disclosure and
transparency, the relationship between CNPC and the Company, performance of duty
by independent non-executive directors, professional and ethical code for senior
management personnel, code of conduct for staff and workers, and significant
differences in corporate governance structure pursuant to the requirements under
section 303A.11 of the New York Stock Exchange Listed Company Manual. You may
access such information by following these steps:
(1) From our main web page, click "Investor Relations"
(2) Next, click "Corporate Governance Structure"
(3) Finally, click on the information you are looking for.
COMPLIANCE WITH CODE OF CORPORATE GOVERNANCE PRACTICES
The interim report of the Company dated August 24, 2005 discloses that the
composition of the Examination and Remuneration Committee is not in compliance
with B.1.1 of the Code of Corporate Governance Practices (the "CODE") set out in
Appendix 14 of the Listing Rules. The Company has already
38
appointed an additional independent non-executive director in the Examination
and Remuneration Committee in November 2005 and such committee is now composed
of a majority of independent non-executive directors in compliance with the
provisions of the Code. Save as described above, since the listing of the H
shares of the Company on the HKSE, the Company has complied with the Code
applicable to the relevant reporting period.
SECURITIES TRANSACTIONS BY DIRECTORS
The Company has adopted the provisions of the Model Code for Securities
Transactions by Directors of Listed Issuers (the "Model Code") in the Listing
Rules in respect of the dealings of the Company's shares by its directors. The
Directors and the Supervisors have confirmed that they have complied with the
requirements under the Model Code.
BOARD OF DIRECTORS
Pursuant to the Work Manual of the Board of Directors, the Board of
Directors convened 4 ordinary meetings, 4 extraordinary meetings and 11 meetings
of special committees and passed 37 Board resolutions and 10 opinions of
committees were submitted during the reporting period.
The members of the Company's Board of Directors and the rate of attendance
of Directors at ordinary Board meetings are as follows (Note 2):
POSITION NAME ATTENDANCE RATE (%)
-------- ---- -------------------
Chairman Chen Geng 100 (50 of which by proxy)
Vice Chairman Jiang Jiemin 100
Executive Directors Su Shulin 100 (25 of which by proxy)
Duan Wende 100 (75 of which by proxy)
Non-executive Directors Zheng Hu 100
Zhou Jiping 100 (25 of which by proxy)
Wang Yilin (Note 1) 100
Zeng Yukang (Note 1) 100
Gong Huazhang 100 (25 of which by proxy)
Jiang Fan (Note 1) 100
Independent Non-executive Directors Chee-Chen Tung 100 (25 of which by proxy)
Liu Hongru 100 (50 of which by proxy)
Franco Bernabe 100 (25 of which by proxy)
39
Notes:
Note 1. Wang Yilin, Zeng Yukang and Jiang Fan only became Directors on
November 8, 2005. They only attended the first meeting of the Third
Term of the Board of Directors.
Note 2. Ren Chuanjun, Wang Fucheng and Zou Haifeng resigned on November 8,
2005. Their attendance rates of ordinary Board meetings during the
year were 67%, 100% and 100% respectively.
There is no relationship (including financial, business, family or other
material/relevant relationship(s)) among members of the Board of Directors and
between the Chairman and the chief executive officer.
OPERATIONS OF THE BOARD OF DIRECTORS
The Company's Board of Directors is elected by the Company's shareholders'
general meeting through voting and is held accountable to the shareholders'
general meeting. The Board of Directors is the highest decision-making authority
during the adjournment of the shareholders' general meeting. The primary
responsibilities of the Board of Directors are to provide strategic guidance to
the Company, exercise effective supervision over the management staff, ensure
that the Company's interests are protected and are accountable to the
shareholders. The Board of Directors makes decisions on certain important
matters, including strategic proposals and long and medium-term planning; annual
business plans and investment plans; annual financial budgets; annual criteria
for assessment of the performance of members of working units of the Company and
annual remuneration plans; interim and annual financial reports; preliminary
distribution plans in respect of interim profit and full year profit; and
material issues involving development, acquisition or corporate reorganization
of the Company. The Directors and the Board of Directors of the Company carry
out corporate governance duties in respect of the Company in a serious and
responsible manner. The Directors are elected following the procedures for
election and appointment of Directors provided for in the Articles of
Association of the Company. The Directors attend Board meetings in a serious and
responsible manner, perform their duties as Directors earnestly and diligently,
make important decisions concerning the Company, appoint, dismiss and supervise
the members of the operation units of the Company, communicate with
shareholders, and strengthen and consolidate itself.
The Company has established a system of independent directors. There are
three independent non-executive Directors in the Board of Directors, in
compliance with the minimum number of independent non-executive Directors
required under the Listing Rules. The Company has received a confirmation of
independence from each of the three independent non-executive Directors pursuant
to Rule 3.13 of the Listing Rules. The Company considers that the three
non-executive Directors are completely independent of the Company, its majority
shareholders and its affiliates and comply fully with the requirements
concerning independent non-executive Directors under the Listing Rules. Mr Liu
Hongru, an independent non-executive director of the Company, has appropriate
accounting and financial expertise as required
40
under Rule 3.10 of the Listing Rules. Please see the Brief Biography of the
Directors, a section under the Board of Directors' Report for biographical
details of Mr Liu Hongru. The three independent non-executive Directors do not
hold other positions in the Company. They perform their duties seriously,
protect the rights and interests of minority shareholders independently and
objectively, and provide checks and balances in the decision-making of the Board
of Directors according to the Articles of Association of the Company and the
relevant requirements under the applicable laws and regulations.
The Board of Directors has established the Audit Committee, the Investment
and Development Committee, the Examination and Remuneration Committee and the
Health, Safety and Environmental Protection Committee. The main responsibility
of these committees is to provide support to the Board of Directors in
decision-making. The Directors participating in the special committees focus
their studies on particular issues according to their areas of expertise and
make recommendations for the improvement of the corporate governance level of
the Company.
THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Mr Chen Geng is the Chairman of the Board of Directors of the Company. Mr
Jiang Jiemin is the Vice Chairman and President of the Company. Pursuant to the
Articles of Association of the Company, the primary duties and responsibilities
of the Chairman are chairing the shareholders' general meetings and convening
and holding meetings of the Board of Directors, checking the implementation of
Board resolutions, signing share certificates issued by the Company, and other
duties and power authorized under the Articles of Association and by the Board
of Directors. The key duties and responsibilities of the President are taking
care of production, operation and management matters, organizing the
implementation of Board resolutions, organizing the implementation of annual
business plans and investment plans of the Company, formulating plans for the
establishment of internal management institutions of the Company, devising the
basic management system of the Company, formulating specific rules and
regulations of the Company, advising the Board of Directors to appoint or
dismiss Senior Vice Presidents, Vice Presidents, the Financial Controller and
other senior management personnel, appointing or dismissing management staff
other than those that should be appointed or dismissed by the Board of
Directors, and performing other duties and power authorized by the Articles of
Association and the Board of Directors.
TERM OF OFFICE OF NON-EXECUTIVE DIRECTORS
Pursuant to the Company's Articles of Association, the Directors shall be
elected by the shareholders' general meeting and serve a term of three years.
Upon the expiry of their term of office, the Directors may be re-elected for
another term.
41
REMUNERATION OF DIRECTORS
The Examination and Remuneration Committee of the Company comprises two
independent non-executive Directors, Mr Liu Hongru as chief committee member and
Mr Chee-Chen Tung as member, and a non-executive Director, Mr Zheng Hu. This is
in compliance with the provisions of the Code. Since the listing of the Company
in 2000, there have been three changes to the composition of the Examination and
Remuneration Committee. The Work Manual of the Board of Directors of the Company
specifies the duties and responsibilities and work system of the Examination and
Remuneration Committee. The terms of reference of the Examination and
Remuneration Committee are included in the Work Manual of the Board of Directors
and set out in the Company's website (www.petrochina.com.cn).
The main duties and responsibilities of the Examination and Remuneration
Committee are organizing appraisal of the President and submitting a report to
the Board of Directors, supervising the appraisals of Senior Vice Presidents,
Vice Presidents, the Financial Controller and other senior officers under the
leadership of the President, studying the incentive scheme, remuneration system
and stock option plan of the Company, monitor and assess the effects of their
implementation, and put forward opinions on reform and improvement.
The Examination and Remuneration Committee held two meetings in 2005. All
of the three members (Liu Hongru, Zheng Hu and Zou Haifeng) attended the 9th
meeting of the Examination and Remuneration Committee of the Second Term of the
Board of Directors. The 1st meeting of the Examination and Remuneration
Committee of the Third Term of the Board of Directors was held by way of
circulation.
A summary of the work of the Examination and Remuneration Committee of the
Company in 2005 is as follows:
The 9th meeting of the Examination and Remuneration Committee of the Second
Term of the Board of Directors reviewed the "Report on the Examination of the
Completion of Performance Targets by the President's Team in 2004 and the
Formulation of Performance Contracts in 2005". The 1st meeting of the
Examination and Remuneration Committee of the Third Term of the Board of
Directors reviewed the "Resolution on the Modification of the Standard Basic
Remuneration and Annual Performance Remuneration of the President's Work Team".
42
NOMINATION OF DIRECTORS
Pursuant to the Company's Articles of Association, election and replacement
of Directors shall be proposed to the shareholders' general meeting for
approval. Shareholders whose shareholding represents 5% or more of the voting
shares of the Company are entitled to make such proposal and request the Board
of Directors to authorize the Chairman to consolidate a list of the director
candidates nominated by the shareholders who are entitled to make a proposal. As
authorized by the Board of Directors, the Chairman shall consolidate a list of
the director candidates and order the Secretariat of the Board of Directors
together with the relevant departments to prepare the relevant procedural
documents, including but not limited to invitations to serve as Director,
confirmation letters, resume of candidates and letters of resignations. The
Secretariat of the Board of Directors is responsible for requesting the Chairman
and/or the shareholders entitled to make a proposal to issue invitations to
serve as Director to the director candidates. The director candidates will sign
the confirmation letters. At the same time, resigning Directors are required to
sign resignation letters. Pursuant to the Company's Articles of Association, the
Company is required to issue a notice of the shareholders' meeting to
shareholders in writing 45 days in advance and send a circular to shareholders.
Pursuant to Rule 13.51(2) of the Listing Rules, the list, resume and emoluments
of the director candidates must be set out in the circular to shareholders to
facilitate the making of discretionary voting by shareholders. The new Directors
must be approved by more than half of the total voting shares held by the
shareholders or the independent shareholders present in person or by proxy in
the shareholders' general meeting.
The Company has not established a Nomination Committee.
AUDITORS' REMUNERATION
The external auditors of the Company are PricewaterhouseCoopers (Certified
Public Accountants, Hong Kong). It provides auditing services to the Company.
During the reporting period, the Company paid an aggregate of RMB50 million to
its auditors as fees for their professional audit services.
In the annual general meeting of shareholders for 2004 held on May 26,
2005, the renewal of the appointment of PricewaterhouseCoopers Zhong Tian CPAs
Company Limited and PricewaterhouseCoopers as domestic and international
auditors respectively for the Company in 2005 was approved, and the Board of
Directors was authorized to determine the remuneration for the auditors in 2005.
43
AUDIT COMMITTEE
The Audit Committee of the Company comprises one non-executive director and
three independent non-executive directors. Under the Organizational and Work
Rules of the Audit Committee, the chairman of the Committee must be an
independent non-executive director and all resolutions of the Committee must be
approved by the independent non-executive directors.
In the Organizational and Work Rules of the Audit Committee discussed and
adopted in the 10th meeting of the Second Term of the Board of Directors held on
June 8, 2005, the terms of reference of the Audit Committee are clarified and
reinforced in accordance with the requirements under the Listing Rules. The
responsibilities of the Audit Committee of the Company are set out in the
Company's website (www.petrochina.com.cn).
The major responsibilities of the Audit Committee of the Company are
supervising the completeness and the process of the financial reporting of the
Company to ensure true, fair and transparent disclosure of financial
information; evaluating the effectiveness of the internal control and risk
management framework; inspecting and monitoring the internal audit functions;
reviewing and monitoring the appointment and work of external auditors,
including the conduct of annual reviews on the performance of external auditors,
and, in conjunction with the Supervisory Committee, submitting proposals for the
appointment, renewal of appointment and dismissal of external auditors and the
fees for audit services to the shareholders' general meeting; receiving, keeping
and dealing with complaints regarding accounting, internal control or audit
matters that the Company is aware of; receiving and dealing with employees'
complaints or anonymous reports regarding accounting or audit matters and
ensuring the confidentiality of such complaints or reports; and performing other
responsibilities as may be required under the Listing Rules from time to time.
During the reporting period, the Audit Committee held three regular
meetings. The opinions of the Audit Committee will be presented to the Board of
Directors and acted upon (where appropriate). The members of the Audit Committee
and their rate of attendance of meetings are as follows:
POSITION NAME ATTENDANCE RATE (%)
-------- ---- -------------------
Chairman Franco Bernabe 100
Member Chee-Chen Tung 67
Member Liu Hongru 100
Member Gong Huazhang 100
44
The following are the work reports prepared by the Audit Committee in
respect of the performance of its responsibilities relating to the interim and
annual results and the review of the internal supervision and control system and
the performance of the other responsibilities set out in the Code during the
reporting period:
the Audit Opinion of the Audit Committee of the Board of Directors on the
Financial Report for 2004
the Audit Opinion of the Audit Committee of the Board of Directors on the
draft Profit Distribution Plan for 2004
the Audit Opinion of the Audit Committee of the Board of Directors on the
Interim Financial Report for 2005 and Other Matters
the Audit Opinion of the Audit Committee of the Board of Directors on the
Interim Profit Distribution Plan for 2005
SHAREHOLDERS AND SHAREHOLDERS' GENERAL MEETINGS
To ensure that all shareholders of the Company enjoy equal rights and
exercise their rights effectively, the Company convenes the shareholders'
general meeting every year pursuant to its Articles of Association. In the
shareholders' general meeting for 2004 held on May 26, 2005, 6 ordinary
resolutions and 2 special resolutions authorizing the amendment of the Company's
Articles of Association and the granting of the general mandate to the Board of
Directors to issue the Company's shares were passed and approved. In the first
extraordinary shareholders' meeting held on August 16, 2005, 4 ordinary
resolutions including 1 resolution on the acquisition of additional interest in
Newco were passed and approved. In the second extraordinary shareholders'
meeting held on November 8, 2005, 16 resolutions were passed and approved
relating to the election of Directors of the Company, the election of the
Supervisors of the Company, and the application by the Company to the HKSE for
the renewal of ongoing connected transactions and related caps between 2006 and
2008. Pursuant to the relevant provisions of the Listing Rules, as the
controlling shareholder and a connected person of the Company, CNPC has waived
its right to vote for or against the 4 resolutions passed in the first
extraordinary shareholders' meeting and certain part of the third resolution
passed in the second extraordinary shareholders' meeting. Such resolutions were
passed by more than half of the voting shares represented by the independent
shareholders present in the meetings in person or by proxy. The independent
non-executive Directors of the Company have conducted annual review to ensure
sufficient disclosures have been made of the details, examination and approval
procedures, and performance of the connected transactions.
45
SUPERVISORS AND THE SUPERVISORY COMMITTEE
The Supervisory Committee of the Company is accountable to the
shareholders' general meeting. Its members comprise a supervisor elected by the
employees' representatives and two independent non-executive Supervisors. The
Supervisors have discharged their duties conscientiously in accordance with the
provisions of the Company's Articles of Association, attended all Board meetings
and persistently reported their work to the shareholders' general meeting, and
submitted the Supervisory Committee Report and related resolutions. In line with
the spirit of accountability to all shareholders, the Supervisory Committee
monitored the financial affairs of the Company and the performance of duties and
responsibilities by the Directors, managers and other senior management
personnel of the Company to ensure that they have performed their duties in
compliance with applicable laws and regulations. The Supervisory Committee has
participated actively in major matters of the Company including production,
operation and investment projects and made constructive recommendations.
46
DIRECTORS' REPORT
The Board of Directors of the Company is pleased to present its directors'
report together with the audited financial statements of the Group for the year
ended December 31, 2005.
KEY ACTIVITIES OF THE GROUP AND GEOGRAPHICAL ANALYSIS
The Group is engaged in a broad range of petroleum-related activities,
including:
- the exploration, development, production and sales of crude oil and
natural gas;
- the refining, transportation, storage and marketing of crude oil and
petroleum products;
- the production and sales of basic petrochemical products, derivative
petrochemical products and other chemical products; and
- the transmission of natural gas, crude oil and refined products, and
sales of natural gas.
The operating segment information on the above areas is set out in note 40
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 18 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 Company issued 3,196,801,818 new H shares at a price of HK$6.00 per
share in September 2005. The net proceeds from the issue of new H shares were
approximately RMB19,692 million. CNPC also sold 319,680,182 state-owned shares
it held concurrently with the Company's issue of new H shares in September 2005.
47
The share capital of the Company in issue as fully paid or credited as
fully paid as at December 31, 2005 was 179,020,977,818 shares, with a par value
of RMB1.00 each. As at December 31, 2005, the share capital structure of the
Company was as follows:
PERCENTAGE OF THE TOTAL NUMBER OF
NUMBER OF SHARES AS AT SHARES IN ISSUE AS AT DECEMBER 31,
SHARES DECEMBER 31, 2005 2005 (%)
------ ---------------------- ----------------------------------
State-owned shares 157,922,077,818 88.21
Foreign-invested shares (H shares and ADSs) 21,098,900,000 11.79
--------------- -----
Total 179,020,977,818 100
=============== =====
Changes in the share capital of the Company are set out in note 29 to the
financial statements in this annual report prepared in accordance with IFRS.
RESULTS AND DISTRIBUTION
The results for the year are set out in the Consolidated Profit and Loss
Account on page 87.
The financial condition of the Group as at December 31, 2005 are set out in
the Consolidated Balance Sheet on page 88.
The consolidated cashflow of the Group for the year is set out in the
statement on page 90.
DIVIDENDS
The Board of Directors recommends to pay a final dividend of RMB0.180325
per share (inclusive of applicable tax) from the balance of 45% of the net
profit for the twelve months ended December 31, 2005 less the interim dividend
for 2005 paid on September 30, 2005. The proposed final dividend is subject to
shareholders' approval at the annual general meeting to be held on May 26, 2006.
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, 2006. The
register of members will be closed from April 26, 2006 to May 26, 2006 (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, 2006.
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
48
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, 2006.
Final dividend will be paid on or around June 9, 2006.
FIVE-YEARS FINANCIAL SUMMARY
A summary of the results and of the assets and liabilities of the Group for
the last five financial years is set out on pages 10 and 11.
BANK LOANS AND OTHER BORROWINGS
Details of bank loans and other borrowings of the Company and the Group as
at December 31, 2005 are set out in note 28 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, 2005
was RMB1,065 million.
FIXED ASSETS
Changes to the fixed assets of the Company and the Group during the year
are summarised in note 15 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, 2005 are set out in note 30 to the financial statements
prepared in accordance with IFRS in this annual report.
DISTRIBUTABLE RESERVES
As at December 31, 2005, the reserves of the Company that can be
distributed as dividend were RMB175,165 million (2004: RMB121,184 million).
49
STATUTORY COMMON WELFARE FUND
Details of the statutory welfare fund, such as the nature, application and
movements and the basis of calculation (including the percentage and profit
figure used for calculating the amounts) are set out in note 30 to the financial
statements prepared in accordance with IFRS in this annual report.
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
34 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 35% of the total purchase of the
Group for 2005. The aggregate purchase attributable to the five largest
suppliers of the Group was 45% of the Group's total purchase.
The aggregate revenue derived from the major customers is set out in note
38 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, 2005.
50
TRUST DEPOSITS AND IRRECOVERABLE OVERDUE TIME DEPOSITS
As at December 31, 2005, 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 2005.
SUFFICIENCY OF PUBLIC FLOAT
Based on the information that is publicly available to the company and
within the knowledge of its directors, the Directors confirm that the Company
has maintained the amount of public float as required under the Listing Rules
during the financial period.
ANNUAL GENERAL MEETING
At the 2004 annual general meeting held on May 26, 2005, the following
resolutions were passed:
(a) the Report of the Board of Directors for the year 2004 was approved;
(b) the Report of the Supervisory Committee for the year 2004 was
approved;
(c) the Audited Financial Statements of the Company for the year 2004 was
approved;
(d) the proposal for the declaration and payment of a final dividend for
the year ended December 31, 2004 was approved;
(e) the proposal for the authorisation of the Board of Directors to
determine the distribution of the interim dividend for the year 2005
was approved;
(f) the proposal for the appointment of domestic and international
accounting firms as accountants of the Company and to authorise the
Board of Directors to determine their remuneration for the year 2005
was approved;
(g) the proposal for the amendments of the Company's Articles of
Association was approved; and
(h) the proposal for the authorisation of the Board of Directors to issue
shares of the Company was approved.
51
DIRECTORS
As at the date of this annual report, the Directors of the Company are as
follows:
- Chairman Mr Chen Geng
- Vice Chairman Mr Jiang Jiemin
- Executive Directors Mr Su Shulin Mr Duan Wende
- Non-executive Directors Mr Zheng Hu Mr Zhou Jiping
- Mr Wang Yilin Mr Zeng Yukang
- Mr Gong Huazhang Mr Jiang Fan
- Independent Non-executive Directors Mr Chee-Chen Tung Mr Liu Hongru
Mr Franco Bernabe
CHANGES IN BOARD OF DIRECTORS AND SUPERVISORY COMMITTEE DURING THE REPORTING
PERIOD
Changes in Board of Directors and Supervisory Committee during the
reporting period can be found in the section headed "Board of Directors and
Supervisory Committee" in the Chairman's Report.
BRIEF BIOGRAPHY OF DIRECTORS, SECRETARY TO THE BOARD OF DIRECTORS, SUPERVISORS
AND SENIOR MANAGEMENT
- Directors
- Chairman
CHEN GENG, aged 59, is Chairman of the Board of Directors 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) in 1968, majoring in labour economics. He has over 30 years
of working experience in China's 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.
52
- Vice Chairman
JIANG JIEMIN, aged 50, is the Vice Chairman and President of the Company.
Mr Jiang is a senior economist and is a degree holder. Mr Jiang has nearly 30
years of working experience in China's oil and gas industry. He was made Deputy
Director of the Shengli Petroleum Administration Bureau in March 1993, the main
person in charge of the Qinghai Petroleum Administration Bureau in June 1994,
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, and a Director and Vice President of
the Company from November 1999 to June 2000. Mr Jiang was appointed as 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 since November 2000, and the deputy secretary of the
provincial party committee of Qinghai Province and Deputy Provincial Governor of
Qinghai since June 2003. Mr Jiang has been the Vice Chairman and President of
the Company since May 2004.
- Executive Directors
SU SHULIN, aged 43, 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 in 1983 majoring in oil geology (Bachelor's degree) and
Harbin University of Engineering in March 1999 in Project Management (Master's
degree). He has over 20 years of working experience in China's oil and gas
industry. Since 1996, Mr Su has worked as Director Assistant of Daqing Petroleum
Administration Bureau and concurrently the Department Head of the First Oil and
Natural Gas Development Department, and then Executive Deputy Director and later
Director of Daqing Petroleum Administration Bureau. 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 of the Company since December
3, 2002.
DUAN WENDE, aged 54, is a Director and Senior Vice President of the
Company. Mr Duan is a senior engineer and a degree holder. He graduated from the
Postgraduate School of the Chinese Academy of Social Sciences in Investment
Economics. He has over 30 years of working experience in China'spetrochemical
industry. From April 1975 to May 1999, Mr Duan was the Deputy Factory Manager of
Fushun No. 628 Factory and of the chemical fibers factory, the Commander of the
Fushun Ethylene Project Command Division, Deputy Factory Manager of the ethylene
factory, the Factory Manager of the acrylic fibers factory and the detergent
factory and Deputy Manager of Fushun Petrochemical Corporation. He has been the
Manager of Fushun Petrochemical Corporation since May 1999; he has been
appointed as
53
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. He has been appointed as a
Director of the Company since May 2004. He has been appointed as Senior Vice
President of the Company since November 28, 2005.
- Non-executive Directors
ZHENG HU, aged 59, 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 working experience in China's oil and gas
industry. 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 53, 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 of working experience in China's 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. 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 CNPC 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.
WANG YILIN, aged 49, is a Director of the Company and a Vice President and
Safety Director of CNPC. Mr Wang is a senior engineer who graduated from Huadong
Petroleum Institute in 1982, majoring in
54
Petroleum Geological Exploration. In 2002, he completed his Doctorate course in
the specialized study of mineral survey and exploration and obtained his
Doctor's degree in Engineering at the Petroleum University. He has over 20 years
of working experience in China's oil and gas industry. Mr Wang has been the
Deputy Director and Chief Exploration Geologist of Xinjiang Petroleum
Administration Bureau since June 1996. He was appointed as the General Manager
of the Xinjiang Oilfield Branch of the Company since September 1999. He was
appointed as the Senior Executive of Xinjiang Petroleum Administration Bureau
and the General Manager of the Xinjiang Oilfield Branch of the Company since
June 2001. From July 2003 onwards, he was appointed as the Assistant to the
President of CNPC and the Senior Executive of Xinjiang Petroleum Administration
Bureau and the General Manager of the Xinjiang Oilfield Branch of the Company
concurrently. Since December 2003, he was appointed as the Vice President of
CNPC, the Senior Executive of Xinjiang Petroleum Administration Bureau and the
General Manager of the Xinjiang Oilfield Branch of the Company. From May 2004,
he ceased to work as the Senior Executive of Xinjiang Petroleum Administration
Bureau and the General Manager of the Xinjiang Oilfield Branch of the Company.
From July 2004 onwards, he has also worked as the Safety Director of CNPC. He
has been appointed a Director of the Company since November 8, 2005.
ZENG YUKANG, aged 55, is a Director of the Company and a Vice President of
CNPC. Mr Zeng graduated from Hubei Geological Institute in 1974, majoring in
petroleum geology. He has over 30 years of working experience in China's oil and
gas industry. Mr Zeng has been the Senior Executive of the Exploration and
Development Institute of Daqing Petroleum Administration Bureau since June 1996.
From February 2000 onwards, he was appointed as the Standing Deputy Director of
Daqing Petroleum Administration Bureau. Since March 2001, he was appointed as
the Director of Daqing Petroleum Administration Bureau. Since November 2002, he
held the positions of Assistant to the President of CNPC and Director of Daqing
Petroleum Administration Bureau concurrently. From February 2005 onwards, he has
been the Assistant to the President of CNPC and the Senior Executive of Daqing
Petroleum Administration Bureau. From September 2005 onwards, he has been the
Vice President of CNPC. He was appointed as a Director of the Company since
November 8, 2005.
GONG HUAZHANG, aged 59, 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 China's
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.
55
JIANG FAN, aged 42, is a Director of the Company and the General Manager of
Dalian Petrochemical Company. Mr Jiang graduated from Dalian Technical Institute
in 1985, majoring in chemical engineering. In June 2003, he completed his
Master's degree in administration science and engineering at the Petroleum
University and obtained his Master's degree in management study. He has over 20
years of working experience in China's petrochemical industry. Mr Jiang was
appointed as the Deputy Manager of Dalian Petrochemical Company since December
1996. In September 1999, he was appointed as the Deputy General Manager of
Dalian Petrochemical Company. In February 2002, he became the General Manager of
Dalian Petrochemical Company. Mr Jiang has been a Director of the Company since
November 8, 2005.
- Independent Non-executive Directors
CHEE-CHEN TUNG, aged 63, 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 obtained 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., Bank of China
(Hong Kong) Co Ltd., Sing Tao News Corporation Limited, Wing Hang Bank and
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 of the Hong Kong Polytechnic University and
is a member of the Board of Trustees of the International Academic Centre of the
University of Pittsburgh and the School of Foreign Service of Georgetown
University. Mr Tung has been appointed as an independent non-executive Director
of the Company since November 5, 1999.
LIU HONGRU, aged 75, 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 degree. Mr Liu worked as Vice
Governor of the Agricultural Bank of China, Vice Governor of the People's Bank
of China, Deputy Director of the State Economic Restructuring Committee, and the
Chairman of the China Securities Regulatory Commission. Mr Liu is 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
56
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 has been appointed as an independent non-executive Director of the Company
since November 19, 2002.
FRANCO BERNABE, aged 57, 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 political economy 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.
- Secretary to the Board of Directors
LI HUAIQI, aged 56, 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 China's oil and gas industry. Mr Li has worked in the Daqing Oil Field, the
Liaohe Oil Field and the Huabei Oil Field and in the Nanhai Petroleum Company.
From June 1992 to October 1998, Mr Li worked as Deputy Director and Director of
the Foreign Affairs Bureau of China National Petroleum Company. From October
1998, 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.
- Supervisors
- Chairman
Wang Fucheng, aged 55, is the Chairman of the Supervisory Committee. Mr
Wang is a senior economist. He graduated from the Shandong Normal University and
has over 30 years of working experience in China's oil and gas industry. Mr Wang
worked in the Shengli Oil Field, Zhongyuan Oil Field and Liaohe Oil Field. From
1986 to June 2000, Mr Wang worked as the Senior Executive of the Shengli Oil
57
Field, Senior Executive of the Liaohe Oil Exploration Bureau, Director of the
Liaohe Oil Exploration Bureau and General Manager of the Branch Office of Liaohe
Oil Field. Mr Wang was appointed as a Director of the Company in June 2000 and
was appointed as the Vice President of the Company in July 2000. Mr Wang has
resigned as a Director of the Company before becoming a Supervisor of the
Company. Mr Wang has been appointed as the Chairman of the Supervisory Committee
of the Company since November 8, 2005.
- Supervisors
WEN QINGSHAN, aged 47, is a Supervisor of the Company and the Director of
the Finance and Assets Department of CNPC. Mr Wen is a senior accountant and a
graduate of the Renmin University of China. 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 53, is a Supervisor of the Company and the Director of
the Audit Department and the Audit Services Centre of CNPC. 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 CNPC from October 2000, and also
the Director of the Audit Services Centre of CNPC since December 2000. He has
been the Director of the Auditing Department of CNPC and the Director of the
Auditing Services Centre since April 2004. He has been a Supervisor of the
Company since May 2004.
XU FENGLI, aged 58, is a Supervisor and General Manager of the Audit
Department of the Company. Mr Xu is a senior accountant. He graduated from the
Xi'an Petroleum Institute in July 1985. He has over 30 years of working
experience in China's petrochemical industry. Mr Xu has been the Chief
Accountant of Fushun Petrochemical Corporation in November 1995, Deputy Director
of the Finance and Assets Department of CNPC 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 and the General Manager of the Audit Department of the Company since
November 2005.
QIN GANG, aged 52, is a Supervisor and an employee representative of the
Supervisory Committee of the Company. Mr Qin is a senior engineer. He graduated
with an associate degree from Metallurgy School of Tianjin University, majoring
in Enterprises Management. Mr Qin has over 30 years of working experience
58
in China's oil and gas industry. Mr Qin has acted as a Deputy Commander of Tarim
Petroleum Exploration and Development Headquarters since November 1997 and a
Deputy General Manager of Tarim Oilfield Company since September 1999. From June
2000, Mr Qin worked as Senior Executive of Tarim Southwest Company concurrently.
Since July 2002, Mr Qin has worked as an officer and the Chairman of Labour
Union of Tarim Oilfield Company. Mr Qin has been a Supervisor of the Company
since November, 2005.
- Independent Supervisors
Li Yongwu, aged 61, is an independent Supervisor of the Company. Mr Li is a
senior engineer and has graduated from Tsinghua University in 1968, majoring in
polymer studies. Since June 1991, Mr Li was appointed as the Director of Tianjin
Chemicals Bureau. Since July 1993, he was appointed as the Director of Tianjin
Economic Committee. He became the Deputy Director of the Chemical Industry
Department since April 1995. He became Director of the State's Petroleum and
Chemical Industry Bureau since March 1998. Since April 2001, he was appointed as
a Deputy Director of the Liaison Office of the Central People's Government at
the Special Administrative Region of Macau. Since December 2004, he was
appointed as the Vice President of China Petroleum and Petrochemical Industry
Association. Since May 2005, he became the President of China Petroleum and
Petrochemical Industry Association. In 2003, he was elected as a standing member
of the Tenth Chinese People's Consultative Conference. Mr Li has been an
independent Supervisor of the Company since November 8, 2005.
Wu Zhipan, aged 49, is an independent Supervisor of the Company. Mr Wu
obtained a Doctor of Laws degree from 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.
- Other Senior Management
WANG GUOLIANG, aged 53, 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 Hebei University. He has over 20 years of
working experience in China's 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
59
Exploration and Exploitation Corporation. Mr Wang has been the Chief Financial
Officer of the Company since November 1999. From November 1999 to March 2002, he
was also the General Manager of the Company's Finance Department.
LIAO YONGYUAN, aged 43, is the Vice President of the Company. Mr Liao is a
Master's degree holder and a senior engineer. He graduated from the Well
Drilling Engineering Faculty of Jianghan Oil Institute as an undergraduate in
1982 and from the Management Sciences and Engineering Faculty of the University
of Petroleum (East China) with a Master's degree in 2001 and has more than 20
years of working experience in China's oil and gas industry. He was a Deputy
General Engineer for Shengli Oilfield and a Manager of No. 1 Well Drilling
Company and Deputy General Engineer and concurrently a core leader of
Tarim-Shengli Well Drilling Company from 1993 to 1995. He was Deputy Director of
the New Zone Exploration and Development Department of China National Petroleum
and Gas Corporation from June to November 1996, the Standing Deputy Commander
and then Commander of Tarim Petroleum Exploration and Development Headquarters
from November 1996 to September 1999. He was the General Manager of Tarim
Oilfield Branch Company from September 1999 to October 2001, and also Deputy
Director of Gansu Provincial Economic and Trade Committee from October 2001 to
January 2004. He has worked as the Assistant to the President of CNPC since
January 2004. He has been concurrently the Head of Coordination Team for Oil
Enterprises in Sichuan and Chongqing and Director of the Sichuan Petroleum
Administration since April 2004. He has been a Vice President of the Company
since November 28, 2005.
JIA CHENGZAO, aged 57, is a Vice President of the Company and the President
of the China Oil Exploration and Exploitation Research Institute. Mr Jia is a
Doctorate degree holder, a senior engineer and a fellow of the Chinese Academy
of Sciences. He graduated from Nanjing University and has over 25 years of
working experience in China's oil and geological industry. 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. From 1998,
he has also been a Vice President of the China 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 Deputy Director
of China Oil Exploration and Exploitation Research Institute. He has been the
Chief Geologist of the Company from July 2000. Mr Jia has also served as the
President of the China Oil Exploration and Exploitation Research Institute since
December 16, 2002. Mr Jia has been a Vice President of the Company since
November 28, 2005.
HU WENRUI, aged 56, is a Vice President of the Company. Mr Hu is a senior
engineer, and has over 30 years of working experience in China's oil and gas
industry. From 1984 to 1989, Mr Hu was the Manager of Changqing Oilfield No. 2
Oil Extraction Plant, and since April 1989, he was the Deputy Director, Standing
Deputy Director and eventually Director of Changqing Petroleum Exploration
Bureau. From September 1999 to December 2002, he was the General Manager of
Changqing Oilfield Branch Company. He has been the General Manager of the
Company's Exploration and Production Branch since December 2002.
60
Mr Hu has been a Vice President of the Company since November 28, 2005.
- 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, given the importance of the role and the function
of the qualified accountant, the Company has made many serious attempts but 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 at the appropriate time.
SHAREHOLDINGS OF MAJORITY SHAREHOLDERS
As at December 31, 2005, the register of interests in shares 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 PERCENTAGE (%) OF
THE TOTAL NUMBER OF THE TOTAL SHARE
NAME OF SHAREHOLDER TYPE OF SHARES NO. OF SHARES THAT CLASS IN ISSUE CAPITAL
------------------- ------------------ --------------- ------------------- -----------------
CNPC State-owned shares 157,922,077,818 100.00 88.21
Warren E. Buffett(1) H shares 2,347,761,000 11.13 1.311
J.P. Morgan Chase & Co.(2) H shares 1,056,732,597(L) 5.01(L) 0.590
641,726,602(P)(3) 3.04(P) 0.358
(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.
61
(2) J.P. Morgan Chase & Co. through its various controlled corporations is
interested in an aggregate of 1,056,732,597 H shares of the Company.
Of these 1,056,732,597 H shares, 657,654,602 H Shares are directly held by
JP Morgan Chase Bank, N.A, J.P. Morgan Chase & Co. is deemed to be
interested in these 657,654,602 H shares by virtue of its 100% interest in
JP Morgan Chase Bank, N.A; 11,035,463 H shares are directly held by J.P.
Morgan Securities Ltd., by virtue of J.P. Morgan Chase International
Holdings Limited's 90% interest in J.P. Morgan Securities Ltd., J.P. Morgan
Chase (UK) Holdings Limited's 100% interest in J.P. Morgan Chase
International Holdings Limited, J.P. Morgan Capital Holdings Limited's 100%
interest in J.P. Morgan Chase (UK) Holdings Limited and J.P. Morgan
International Finance Limited's 72.72% interest in J.P. Morgan Capital
Holdings Limited, J.P. Morgan Chase International Holdings Limited, J.P.
Morgan Chase (UK) Holdings Limited, J.P. Morgan Capital Holdings Limited
and J.P. Morgan International Finance Limited are deemed to be interested
in these 11,035,463 H shares; 92,896,830 H shares are directly held by J.P.
Morgan Whitefriars Inc., J.P. Morgan Overseas Capital Corporation is deemed
to be interested in these 92,896,830 H shares by virtue of its 100%
interest in J.P. Morgan Whitefriars Inc.; 22,597,702 H shares are directly
held by J.P. Morgan Investment Management Inc., JP Morgan Asset Management
Holdings Inc is deemed to be interested in these 22,597,702 H shares by
virtue of its 100% interest in J.P. Morgan Investment Management Inc.;
6,186,000 H shares are directly held by JF International Management Inc.,
JP Morgan Asset Management (Asia) Inc. is deemed to be interested in these
6,186,000 H shares by virtue of its 100% interest in JF International
Management Inc.; 245,344,000 H shares are directly held by JF Asset
Management Limited, JP Morgan Asset Management (Asia) Inc. is deemed to be
interested in these 245,344,000 H shares by virtue of its 100% interest in
JF Asset Management Limited; 6,336,000 H shares are directly held by J.P.
Morgan International Bank Limited, J.P. Morgan Overseas Capital Corporation
is deemed to be interested in these 6,336,000 H shares by virtue of its
100% interest in J.P. Morgan International Bank Limited; 4,772,000 H shares
are directly held by J.P. Morgan Asset Management (UK) Limited, by virtue
of J.P. Morgan Asset Management Holdings (UK) Limited's 100% interest in
J.P. Morgan Asset Management (UK) Limited, J.P. Morgan Asset Management
International Limited's 100% interest in J.P. Morgan Asset Management
Holdings (UK) Limited and J.P. Morgan Asset Management Holdings Inc.'s 100%
interest in J.P. Morgan Asset Management International Limited, J.P. Morgan
Asset Management Holdings Inc., J.P. Morgan Asset Management International
Limited, J.P. Morgan Asset Management Holdings (UK) Limited are deemed to
be interested in these 4,772,000 H shares; 8,150,000 H shares are directly
held by JF Asset Management (Singapore) Limited-Co Reg #:197601586K, JP
Morgan Asset Management (Asia) Inc. is deemed to be interested in these
8,150,000 H shares by virtue of its 100% interest in JF Asset Management
(Singapore) Limited; 400,000 H shares are directly held by J.P. Morgan GT
Corporation, J.P. Morgan Chase & Co. is deemed to be interested in these
400,000 H shares by virtue of its 100% interest in J.P. Morgan GT
Corporation; and 1,360,000 H shares are directly held by Highbridge Capital
Management, LLC, JP Morgan Asset Management Holdings Inc. is deemed to be
interested in these 1,360,000 H shares by virtue of its 55% interest in
Highbridge Capital Management, LLC.
Of these 1,056,732,597 H shares, 110,268,293 H Shares are indirectly held
by J.P. Morgan International Finance Limited, by virtue of Bank One
International Holdings Corporation's 100% interest in J.P. Morgan International
Finance Limited, J. P. Morgan International Inc.'s 100% interest in Bank One
International Holdings Corporation, JP Morgan Chase Bank, N.A.'s 100% interest
in J. P. Morgan International Inc, J.P. Morgan Chase & Co.'s 100% interest in JP
Morgan Chase Bank, N.A, Bank One International Holdings Corporation, J. P.
Morgan International Inc., JP Morgan Chase Bank, N.A.. and J.P. Morgan Chase &
Co. are also deemed to be interested in these 110,268,293 H shares; 99,232,830 H
shares are also indirectly held by J. P. Morgan Overseas Capital Corporation, J.
P. Morgan International Finance Limited is also deemed to
62
be interested in these shares by virtue of its 100% interest in J. P. Morgan
Overseas Capital Corporation; 288,409,702 H shares are also indirectly held by
JP Morgan Asset Management Holdings Inc., J.P. Morgan Chase & Co. is also deemed
to be interested in these shares by virtue of its 100% interest in JP Morgan
Asset Management Holdings Inc; 259,680,000 H shares are also indirectly held by
JP Morgan Asset Management (Asia) Inc., JP Morgan Asset Management Holdings Inc.
is also deemed to be interested in these shares by virtue of its 100% interest
in JP Morgan Asset Management (Asia) Inc..
(3) Comprising 641,726,602 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.
As at December 31, 2005, 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 interests in 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, 2005, 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, 2005, 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.
63
REMUNERATION OF DIRECTORS AND SUPERVISORS
Details of remuneration of Directors and Supervisors and the remuneration
policy are set out in note 10 to the financial statements prepared in accordance
with IFRS in this annual report.
CONNECTED TRANSACTIONS
As at December 31, 2005, CNPC directly owns an aggregate of approximately
88.21% of the shares of the Company and therefore transactions between the Group
and CNPC constitute connected transactions between the Group and CNPC under the
Listing Rules. As Beijing Gas Group Co., Ltd. ("BEIJING GAS") and China Railway
Materials and Suppliers Corporation ("CRMSC") are respectively a substantial
shareholder of Beijing Huayou Gas Corporation Limited and PetroChina and CRMSC
Oil Marketing Company Limited, the Group's subsidiaries, pursuant to the Listing
Rules, the transactions between the Group and Beijing Gas and CRMSC respectively
constituted connected transactions of the Group.
- One-off Connected Transactions
1. Acquisition of Ningxia Dayuan Refinery and Petrochemical Company Limited
and Qingyang Refinery and Petrochemical Company Limited
Under an acquisition agreement between the Company and CNPC dated March 28,
2005, the Company has acquired the petroleum and natural gas-related refinery
and petrochemical businesses respectively owned by CNPC's wholly owned
subsidiaries, Ningxia Dayuan Refinery and Petrochemical Company Limited and
Qingyang Refinery and Petrochemical Company Limited for a cash consideration of
RMB9.14 million. As CNPC is a controlling shareholder of the Company, it is a
connected person of the Company and the Acquisitions constitute connected
transactions for the Company under the Listing Rules. Details of the transaction
were announced by the Company on March 30, 2005.
2. Acquisition of Newco from CNODC ("NEWCO ACQUISITION")
The Company has entered into a purchase agreement with China National Oil
and Gas Exploration and Development Corporation ("CNODC", wholly-owned by CNPC)
on June 8, 2005 whereby the Company agreed to acquire a 50% ownership interest
in Newco for a consideration of approximately RMB20,741 million. Newco is wholly
owned by CNODC and one of its subsidiaries before the Newco Acquisition. The
Company also entered into a transfer agreement to sell its wholly-owned
subsidiary, PetroChina International, to Newco for a consideration of
approximately RMB579 million on the same date.
64
The purchase agreement and the transfer agreement have been approved by the
shareholders of the Company at the extraordinary general meeting held on August
16, 2005. These agreements have been approved by relevant regulatory
authorities.
Upon completion of the purchase agreement and the transfer agreement, each
of CNODC and the Company will own a 50% interest in Newco. The Company will have
the right to appoint 4 of the 7 directors of Newco, which will enable the
Company to maintain effective control over Newco. Its investment in Newco and
the transfer of PetroChina International Limited to Newco will be accounted for
in a manner similar to a uniting of interests since these transactions are among
entities under common control by CNPC. The consolidated financial statements of
the Company will be restated as if the operations of the Company and Newco had
always been combined. Details of the transaction can be found in the Company's
announcement and circular dated June 10, 2005 and June 30, 2005, respectively.
3. Acquisition of the Fuel Oil Company
The Company has entered into two acquisition agreements with two wholly
owned subsidiaries of CNPC, Liaohe Petroleum Exploration Bureau and China Oil
Natural Gas Pipeline Bureau, on December 6, 2005 for the acquisition of shares
representing 15.56% and 20.17%, respectively from them in Petrochina Fuel Oil
Company Limited ("FUEL OIL COMPANY"), a 55.43% subsidiary of the Company, for an
aggregate cash consideration of RMB558.76 million (the "Acquisitions"). The Fuel
Oil Company is principally engaged in the investment and development of fuel oil
in the upstream and downstream areas in the PRC. The Acquisitions constitute
connected transactions for the Company under the Listing Rules. The Acquisitions
increase the Company's interests in the Fuel Oil Company and is expected to
strengthen the management of the Fuel Oil Company. Details of the transaction
were announced by the Company on December 6, 2005.
- Continuing Connected Transactions
I. Continuing Connected Transactions with CNPC
The Group and CNPC continue to carry out certain existing continuing
connected transactions and have entered into new continuing connected
transactions throughout the reporting period. The waiver in respect of the
existing continuing connected transactions has expired on December 31, 2005. The
Company has sought independent shareholders approval at the general meeting held
on November 8,
65
2005 for a renewal of the existing continuing connected transactions and the new
continuing connected transactions and proposed the new caps for existing
continuing connected transactions and the new continuing connected transactions
for January 1, 2006 to December 31, 2008.
The Group and CNPC will continue to carry out the existing continuing
connected transactions referred to in the following agreements:
1. Comprehensive Products and Services Agreement, First Supplemental
Comprehensive Agreement and Second Supplemental Comprehensive Agreement
(1) The Group and CNPC continue to implement the Comprehensive Products and
Services Agreement ("COMPREHENSIVE AGREEMENT") entered into on March 10, 2000
for the provision (i) by the Group to CNPC and (ii) by CNPC Group to the Group,
of a range of products and services which may be required and requested from
time to time by either party and/or its subsidiary companies and affiliates. The
Comprehensive Agreement has been amended by the First Supplemental Comprehensive
Agreement and the Second Supplemental Comprehensive Agreement.
The term of the Comprehensive Agreement was initially 10 years starting
from the date when the Company's business license was issued. This term has been
amended by the Second Supplemental Comprehensive Agreement to 3 years commencing
from January 1, 2006.
During the term of the Comprehensive Agreement, termination of the product
and service implementation agreements described below may be effected from time
to time by the parties to the product and service implementation agreements
providing at least 6 months' written notice of termination in relation to any
one or more categories of products or services. Further, in respect of any
products or services already contracted to be provided, termination may not take
place until after such products and services have been provided.
(A) Products and Services to be provided by the Group to CNPC Group
Under the Comprehensive Products and Services Agreement, products and
services to be provided by the Group to CNPC Group include such products as
refined products, chemical products, natural gas, crude oil and such services as
relating to the supply of water, electricity, gas and heating, quantifying and
66
measuring and quality inspection and other products and services as may be
requested by the CNPC Group for its own consumption, use or sale from time to
time.
(B) Products and Services to be provided by CNPC to the Group
More products and services are to be provided by CNPC to the Group, 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:
- Construction and technical services, including but not limited to
exploration technology service, downhole operation service, oilfield
construction service, oil refinery construction service and
engineering and design service;
- Production services, including but not limited to water supply,
electricity generation and supply, gas supply and communications;
- Supply of materials services, including but not limited to purchase of
materials, quality control, storage of materials and delivery of
materials;
- Social services, including but not limited to security services,
education and hospitals;
- Ancillary services, including but not limited to property management,
training centers and guesthouses; and
- Financial services, including but not limited to loans and deposits
services.
The Comprehensive Agreement details specific pricing principles for the
products and services to be provided pursuant to the Comprehensive Agreement.
If, for any reason, the specific pricing principle for a particular product or
service ceases to be applicable, whether due to a change in circumstances or
otherwise, such product or service must then be provided in accordance with the
following general pricing principles as defined in the Comprehensive Agreement:
(a) state-prescribed prices; or
(b) where there is no state-prescribed price, then according to the
relevant market prices; or
(c) where neither (a) nor (b) is applicable, then according to:
(i) the actual cost incurred; or
(ii) the agreed contractual price.
67
In particular, the Comprehensive Agreement stipulates, among other things,
that:
(i) the loans and deposits shall be provided at prices determined in
accordance with the relevant interest rate and standard for fees as
promulgated by the People's Bank of China. Such prices must also be
more favourable than those provided by independent third parties; and
(ii) the guarantees shall be provided at prices not higher than the fees
charged by the state policy banks in relation to the provision of
guarantees. References must also be made to the relevant
state-prescribed price and market price.
(2) First Supplemental Comprehensive Agreement
The First Supplemental Comprehensive Agreement dated June 9, 2005 was
entered principally to amend the definitions of "state-prescribed price" and
"market price" in the Comprehensive Agreement in view of the characteristics of
overseas business and to amend the term of the Comprehensive Agreement to three
years. The First Supplemental Comprehensive Agreement has taken effect on
December 19, 2005.
(3) Second Supplemental Comprehensive Agreement
The Second Supplemental Comprehensive Agreement entered into by CNPC and
the Company on September 1, 2005 provides for certain new continuing connected
transactions between the Company and certain companies in which both the Company
and CNPC are shareholders, and where CNPC and/or its subsidiaries and/or
affiliates (individually or together) is/are entitled to exercise, or control
the exercise of, 10% or more of the voting power at any general meeting of such
company ("JOINTLY-OWNED COMPANIES"). In the Second Supplemental Comprehensive
Agreement, CNPC and the Company agreed to amend certain terms of the
Comprehensive Agreement, including, among other things, that:
- both CNPC and the Company shall provide and shall procure their
respective entities including their subsidiaries, branches and other
relevant units to provide products and services in accordance with the
terms and principles of the Comprehensive Agreement;
- the CNPC Group will provide certain risk operation services as part of
the construction and technical services to the Group, and these
include the provision of exploration, production and other relevant
services within certain and specific reserves of the Company with
exploration and exploitation difficulties;
68
- the Group will provide certain financial assistance to the
Jointly-owned Companies including entrustment loans and guarantees;
- the Jointly-owned Companies will provide certain financial assistance
to the Group including entrustment loans and guarantees; and
Under the Second Supplemental Comprehensive Agreement, the products and
services shall be provided at prices determined according to the pricing
principles for the corresponding products or services under the Comprehensive
Agreement (as amended).
The Second Supplemental Comprehensive Agreement has taken effect on January
1, 2006.
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 Group or the Group
providing the relevant products or services, as appropriate, and the relevant
members of the Group or CNPC Group, requiring such products or services, as
appropriate.
Each product and service implementation agreement will set out the specific
products and services requested by the relevant party and any detailed technical
and other specifications which may be relevant to those products or services.
The product and service implementation agreements may only contain provisions
which are in all material respects consistent with the binding principles and
guidelines and terms and conditions in accordance with which such products and
services are required to be provided as contained in the Comprehensive
Agreement.
As the product and service implementation agreements are simply further
elaborations on the provision of products and services as contemplated by the
Comprehensive Agreement, they do not as such constitute new categories of
connected transactions.
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
69
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,
located throughout the PRC for the use by the Company for its business operation
including the exploration, development and production of crude oil, the refining
of crude oil and petroleum products, the production and sale of chemicals, etc..
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
70
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 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 2005, the total amount
guaranteed was RMB674 million.
71
As each of the applicable percentage ratio(s) (other than the profits
ratio) in respect of the Trademark Licensing Contract, the Patent and Know-how
Licensing Contract, the Computer Software Licensing Contract, the Contract for
the Transfer of Rights under Production Sharing Contracts and the Guarantee of
Debts Contract is less than 0.1%, these transactions are exempted from the
reporting, announcement and independent Shareholders' approval requirements
under Chapter 14A of the Listing Rules. The Directors believe that these
transactions had been entered into in the ordinary course of business for the
benefits of the Company, and are in the interests of the Shareholders as a
whole.
II. New Continuing Connected Transactions with Newco
The following new continuing connected transactions arose as a result of
the completion of the Newco Acquisition:
(i) the sale of products by Newco Group to the CNPC Group;
(ii) the provisions of construction and technical services such as
exploration technology services by CNPC Group to Newco Group;
(iii) the provision of social services and ancillary services by CNPC Group
to Newco Group; and
(iv) the provision of financial services by CNPC Group to Newco Group.
As CNPC has become a substantial shareholder of Newco after the Newco
Acquisition, Newco is a connected person of the Company under the Listing Rules.
The caps for these connected transactions have already been included in that for
connected transactions between the Group and CNPC.
III. Continuing Connected Transactions with CRMSC and Beijing Gas
The Group will enter into continuing connected transactions with Beijing
Gas and CRMSC pursuant to the following agreements. For the transactions with
Beijing Gas, the Group has complied with the procedures for reporting and
announcements obligations to the HKSE. The transactions with CRMSC and the caps
for these transactions have been approved by HKSE and the same have been
approved in the extraordinary general meeting held on November 8, 2005.
(a) Beijing Gas Products and Services Agreement
The Company entered into a Products and Services Agreement with Beijing Gas
on September 1,
72
2005. Pursuant to the agreement, the Group will continuously provide products
and services to Beijing Gas, including the provision of natural gas and natural
gas related transmission services. The agreement was effective from January 1,
2006.
(b) CRMSC Products and Services Agreement
On September 1, 2005, the Company entered into the CRMSC Products and
Services Agreement with CRMSC. Under the CRMSC Products and Services Agreement,
products and services to be continuously provided by the Company to CRMSC
include, among other things, refined products (such as gasoline, diesel and
other petroleum products). The term of the CRMSC Products and Services Agreement
is 3 years commencing from January 1, 2006.
During the term of the CRMSC Products and Services Agreement, the product
and service implementation agreements may be terminated from time to time by the
contracting parties providing at least 6 months' written notice of termination
in relation to any one or more categories of products or services. Further, in
respect of any products or services already contracted to be provided,
termination may not take place until after such products and services have been
provided.
CAPS FOR THE CONTINUING CONNECTED TRANSACTIONS
The following caps in respect of the Continuing Connected Transactions are
set for the annual volumes of the relevant transactions above for the period
from January 1, 2006 to December 31, 2008:
(A) In relation to the products and services contemplated under (a) the
Comprehensive Agreement as amended by the First Supplemental Comprehensive
Agreement and the Second Supplemental Comprehensive Agreement, (b) Buildings
Leasing Contract and Supplemental Buildings Agreement, and (c) the CRMSC
Products and Services Agreement, the total annual revenue or expenditure in
respect of each category of products and services will not exceed the proposed
maximum annual aggregate values set out in the following table:
73
PROPOSED ANNUAL CAPS
------------------------
CATEGORY OF PRODUCTS AND SERVICES EXISTING ANNUAL LIMIT FOR 2005 2006 2007 2008
--------------------------------- ------------------------------ ------ ------ ------
RMB (IN MILLIONS)
(i) Products and services to be provided by the RMB39,003 million 19,134 23,472 26,910
Group to CNPC Group
(ii) Products and services to be provided by
CNPC Group to the Group
(a) Construction and technical services RMB76,413 million 91,614 88,280 79,636
(b) Production services RMB33,740 million 27,513 28,923 32,647
(c) Supply of materials services RMB6,748 million 4,471 4,331 4,500
(d) Social and ancillary services RMB5,009 million 5,000 5,000 5,000
(e) Financial Services
Aggregate of the average daily outstanding
principal of loans; the total amount of interest
paid in respect of these loans; and other
relevant charges RMB59,413 million 43,312 50,132 56,547
Aggregate of the average daily amount of
deposits; and the total amount of interest
received in respect of these deposits RMB5,657 million 9,081 9,102 9,126
(iii) Financial services to be provided by the
Group to the Jointly-owned Companies -- 21,235 32,840 44,465
(iv) Fee for land leases paid by the Group to
CNPC RMB2,000 million 2,260 2,260 2,260
(v) Rental for buildings paid by the Group to
CNPC RMB200 million 140 140 140
(vi) Products and services to be provided by the
Group to CRMSC -- 10,326 11,359 12,495
(B) In relation to the Trademark Licensing Contract, the Patent and
Know-how Licensing Contract and the Computer Software Licensing Contract, CNPC
has granted the Company the right to use certain trademarks, patents, know-how
and computer software of CNPC at no cost.
74
INDEPENDENT NON-EXECUTIVE DIRECTORS CONFIRMATION
In relation to the connected transactions undertaken by the Group in 2005,
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 cap for the years mentioned above.
AUDITOR'S CONFIRMATION
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 governing such transactions; and
(iii) where applicable, the connected transactions have been entered into
within the cap for the years mentioned above.
IV. Continuing 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
75
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
88.21% 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.
(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 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.
76
(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
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 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, 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.
77
ACCOUNTING PRINCIPLE
For the year 2005, the Company adopted certain new accounting principles
and they are contained in Note 2 to the Company's financial report prepared in
accordance with the IFRS.
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 2005. 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 2006 will be proposed
at the annual general meeting of the Company which will be held on May 26, 2006.
By Order of the Board
Chen Geng
Chairman
Beijing, the PRC
March 20, 2006
78
REPORT OF THE SUPERVISORY COMMITTEE
Dear Shareholders,
During the year 2005, the Supervisory Committee has carried out their
duties conscientiously and in accordance with the relevant provisions of the
Companies Law of the PRC, the Articles of Association of the Company and the
Organization and Rules of Procedure of the Supervisory Committee. During the
year, the Supervisory Committee held four meetings, considered and passed 10
resolutions, completed the review of the Company's 2004 annual report and 2005
interim report and the change of the members of the Supervisory Committee;
attended the annual general meeting for the year 2004 and the first and second
extraordinary general meetings for the year 2005 and submitted 3 resolutions to
these extraordinary general meetings; attended 4 meetings of the Board of
Directors of the Company and submitted five written opinions of the Supervisory
Committee in respect of its review of the financial reports of the Company, the
profit distribution plan (draft) and the assessment of the performance of the
President's Work Team. The Supervisory Committee conducted 2 supervisory
hearings, received 14 reports submitted by the Financial Controller, the Finance
Department, Audit Department, Human Resources Department, Supervisory Department
and PricewaterhouseCoopers Zhong Tian CPAs Co Ltd etc., and reviewed and issued
relevant opinions on the Company's financial reports, profit distribution,
connected transactions and the assessment of the performance of the President's
Work Team. The Supervisory Committee completed 2 random financial auditing
investigations, sampling 8 departments, prepared 10 reports and put forward 37
recommendations. The Supervisory Committee conducted 1 supervisory inspection
tour and 1 investigation and analysis on a specific topic, prepared 2 reports
and put forward 9 recommendations. Through the above activities, the Supervisory
Committee has reinforced its supervision on the financial affairs of the Company
and the performance of duties by the senior management. It has enhanced the
effect of supervision and protected the rights of the shareholders as well as
the interests of the Company.
(photo)
79
The Supervisory Committee is of the opinion that in 2005, the Company has,
with a view to achieving scientific development, organized steady production,
operated positively and soundly, and strengthened micro management. Results of
the Company in these areas were prominent. There was continuous growth in the
exploration and production of oil and gas. The operating efficiency of the
refining, chemicals and marketing businesses was further improved. The scale of
the natural gas and pipeline segment and the international business of the
Company have been enlarged steadily. The construction of key projects proceeded
smoothly. There was a breakthrough in capital operation. Businesses were further
integrated and optimized. There was significant improvement in the overall
strength and value of the Company. None of the senior management of the Company
was found by the Supervisory Committee to be in breach of any applicable laws
and regulations of the PRC and the Company's places of listing and the Company's
Articles of Association in the performance of their duties.
The Company's overall financial position was sound. The quality of the
current assets of the Company was enhanced notably. The results of receivables
management were remarkable and its inventories were controlled within a
reasonable level. The quality and the profit-generating potential of the
Company's fixed assets were improved. The amount of the Company's
interest-bearing debts and interest expenses lowered from previous years. The
Company's asset-debt ratio and the capital-debt ratio dropped continuously.
Shareholders' equity increased steadily. All these were well reflected in the
capital markets.
The Company's connected transactions continue to improve and are more
regulated and all such transactions are carried out within the limits approved
by the HKSE.
The Supervisory Committee is satisfied with the results achieved by the
Company and is confident of the prospects of the Company.
The Supervisory Committee is of the opinion that the financial reports
prepared by PricewaterhouseCoopers pursuant to the IFRS gives a true view of the
Company's financial position, operating results and cash flow. The Supervisory
Committee considers that the unqualified audit report issued by
PricewaterhouseCoopers is objective and fair. The Supervisory Committee approves
this report.
The Supervisory Committee hopes that the Company will fully implement the
concept of scientific development and carry out various tasks soundly and
effectively by applying the strategy of "resources, market orientation and
internationalization". The Supervisory Committee also hopes that the Company
80
will change the form of its economic growth, improve its innovative capability,
accentuate its primary businesses, strengthen its capability for growth, improve
the quality and efficiency of its operations and sales, stabilise its market
supply, strengthen its management of safety and environment protection and
establish a long-term effective mechanism for safety and environmental
protection. It is also hoped that the Company will cultivate a corporate culture
of harmony and advancement to enable the Company to achieve a sustainable,
effective, relatively speedy and well-coordinated development.
In 2006, the Supervisory Committee will continue to fulfil its duties
including the supervision and assessment of the truthfulness of the Company's
financial information, the legal compliance of the Company's connected
transactions, and the performance of duties by senior management personnel of
the Company conscientiously and in compliance with the Companies Law and the
Articles of Association of the Company.
By Order of the Supervisory Committee
Wang Fucheng
Chairman of the Supervisory Committee
Beijing, the PRC
March 20, 2006
81
BUSINESS OPERATING REVIEW
MARKET REVIEW
- Crude Oil Market Review
In 2005, there was a huge oil demand and rather tight oil supply in the
international market. As a result, international crude oil prices continued to
soar and fluctuate and broke new record highs several times. The annual average
prices for WTI, Brent and Minas crude oil were US$56.59, US$54.53 and US$54.19
per barrel, respectively, representing an increase of US$15.07, US$16.28 and
US$17.22 per barrel, respectively, over the annual average prices in 2004.
Corresponding to the rise in international oil prices, domestic crude oil prices
also increased. The average realized price for domestic crude oil in 2005 was
higher than that of 2004.
Net crude oil imports of China continued to increase in 2005 by 1.7% to a
net total of 119 million tons compared with the corresponding period in the
previous year. The domestic crude oil output and refinery crude oil input
reached 182 million tons and 273 million tons, respectively.
- Refined Oil Products Market Review
International oil product prices stayed at a high level throughout 2005.
Domestic prices for refined products, however, have failed to completely keep
track of the international prices. Refineries incurred heavy losses in
processing. In 2005, transportation of refined products was affected by tight
transportation capacity. Overall, there was a tight supply of refined products
in 2005, and there was a strong pressure for steady supply in the market.
Nominal consumption increased by 4.7% to 164.44 million tons. The Group supplied
71.85 million tons of refined products to the domestic market, representing an
increase of 11.74% over the previous year, and making its due contribution to
the security, stability and continuous development of the Chinese economy.
- Chemical Products Market Review
The Chinese economy grew steadily and rapidly in 2005 under the
government's macroeconomic regulation and control. The domestic demand for
chemical products remains buoyant. In 2005, prices of domestic petrochemical
products remained high and in fact rose under surging oil prices. However, the
overall level of increase was moderate due to demand and supply factors. The
persistent fluctuation
82
and surging of crude oil prices throughout the year has increased the cost of
production of petrochemical products remarkably. As a result, profit margin in
the petrochemical industry for 2005 was lowered significantly compared to that
for 2004 and profit for petrochemical products was squeezed to a certain extent.
BUSINESS REVIEW
For the twelve months ended December 31, 2005, total crude oil and natural
gas output of the Group was 1,009.5 million barrels of oil equivalent, including
822.9 million barrels of crude oil and 1,119.5 billion cubic feet of marketable
natural gas, representing an average production of 2.25 million barrels of crude
oil and 3,070 million cubic feet of natural gas per day. A total of 788.8
million barrels of crude oil and 1,052.2 billion cubic feet of natural gas were
sold. Approximately 83% of the crude oil sold by the Group was purchased by its
refineries. In 2005, the lifting cost for the oil and gas operations of the
Group was US$5.28 per barrel, representing an increase of 14.8% from US$4.60 per
barrel in 2004.
For the twelve months ended December 31, 2005, the Group's refineries
processed 752 million barrels of crude oil, or an average of 2.06 million
barrels per day. Approximately 89% of the crude oil processed in the Group's
refineries was supplied by the Exploration and Production segment. The Group
produced approximately 66.39 million tons of gasoline, diesel and kerosene and
sold approximately 75.98 million tons of these products. The Group 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, 2005, there were
18,164 service stations which were either owned, controlled or franchised by the
Group or owned by CNPC but to which the Group provided supervisory support. The
cash processing cost of the Group's refineries increased from RMB131 per ton to
RMB145 per ton.
For the twelve months ended December 31, 2005, the Group produced 1.888
million tons of ethylene, 2.757 million tons of synthetic resin, 1.283 million
tons of synthetic fiber raw materials and polymer, 0.281 million tons of
synthetic rubber, and 3.578 million tons of urea.
For the twelve months ended December 31, 2005, the Group sold 888.8 billion
cubic feet of marketable natural gas through the Natural Gas and Pipeline
segment. The Group currently owns and operates 20,340 kilometers of regional
natural gas pipeline networks, of which 19,212 kilometers are operated by the
Natural Gas and Pipeline segment. For the twelve months ended December 31, 2005,
the Group owned and operated 9,391 kilometers of crude oil pipeline and 2,462
kilometers of pipeline for refined products.
83
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, 2003, 2004 and 2005. This table is
formulated on the basis of reports prepared by DeGolyer and MacNaughton and
Gaffney, Cline & Associates, each an independent engineering consultancy
company.
NATURAL GAS COMBINED(MILLIONS
CRUDE OIL(MILLION (BILLION CUBIC OF BARRELS OF OIL
OF BARRELS) FEET) EQUIVALENT)
----------------- -------------- ------------------
Proved Developed and Undeveloped Reserves
Reserves as of December 31, 2003 (the basis date) 11,494.9 41,786.5 18,459.3
Revisions of previous estimates 141.6 82.8 155.4
Extensions and discoveries 573.1 4,405.3 1,307.3
Improved recovery 109.0 43.0 116.2
Production for the year -817.4 -1,068.7 -995.5
Reserves as of December 31, 2004 (the basis date) 11,501.2 45,248.9 19,042.7
Revisions of previous estimates 156.8 212.9 192.3
Extensions and discoveries 605.5 4,004.8 1,273.0
Improved recovery 101.4 -- 101.4
Production for the year -828.7 -1,343.5 -1,052.7
Reserves as of December 31, 2005 (the basis date) 11,536.2 48,123.1 19,556.7
Proved Developed Reserves
As of December 31, 2003 (the basis date) 9,188.1 13,878.7 11,501.2
As of December 31, 2004 (the basis date) 9,067.9 17,254.5 11,943.6
As of December 31, 2005 (the basis date) 9,194.8 19,857.8 12,504.4
84
(photo)
85
(PRICEWATERHOUSECOOPERS LOGO)
(Chinese Characters) 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,
2005 and the consolidated profit and loss account, cash flow statement and
statement of changes in equity of the Group for the year then ended. These
financial statements set out on pages 87 to 152 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,
2005 and 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 20, 2006
86
PETROCHINA COMPANY LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the Year Ended December 31, 2005
(Amounts in millions except for per share data)
2004
NOTES 2005 (NOTE 2)
----- -------- --------
RMB RMB
TURNOVER 5 552,229 397,354
-------- --------
OPERATING EXPENSES
Purchases, services and other (200,321) (114,249)
Employee compensation costs 7 (29,675) (22,934)
Exploration expenses, including exploratory dry holes (15,566) (12,090)
Depreciation, depletion and amortisation (51,305) (48,362)
Selling, general and administrative expenses (36,538) (28,302)
Shut down of manufacturing assets 8 -- (220)
Taxes other than income taxes (23,616) (19,943)
Other expense, net (3,037) (116)
-------- --------
TOTAL OPERATING EXPENSES (360,058) (246,216)
-------- --------
PROFIT FROM OPERATIONS 192,171 151,138
-------- --------
FINANCE COSTS
Exchange gain 942 225
Exchange loss (854) (217)
Interest income 1,924 1,373
Interest expense 9 (2,762) (2,896)
-------- --------
TOTAL FINANCE COSTS (750) (1,515)
-------- --------
SHARE OF PROFIT OF ASSOCIATES 16 2,401 1,621
-------- --------
PROFIT BEFORE TAXATION 6 193,822 151,244
TAXATION 11 (54,180) (43,598)
-------- --------
PROFIT FOR THE YEAR 139,642 107,646
======== ========
ATTRIBUTABLE TO:
Equity holders of the Company 133,362 103,843
Minority interests 6,280 3,803
-------- --------
139,642 107,646
======== ========
BASIC AND DILUTED EARNINGS PER SHARE FOR
PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF
THE COMPANY DURING THE YEAR 13 0.75 0.59
======== ========
DIVIDENDS ATTRIBUTABLE TO EQUITY HOLDERS
OF THE COMPANY:
Interim dividend declared during the year 14 27,731 20,381
Final dividend proposed after the balance sheet date 14 32,282 25,936
-------- --------
60,013 46,317
======== ========
The accompanying notes are an integral part of these financial statements.
87
PETROCHINA COMPANY LIMITED
CONSOLIDATED BALANCE SHEET
As of December 31, 2005
(Amounts in millions)
2004
NOTES 2005 (NOTE 2)
----- ------- --------
RMB RMB
NON CURRENT ASSETS
Property, plant and equipment 15 563,890 485,612
Investments in associates 16 12,378 9,898
Available-for-sale investments 17 1,230 1,606
Advance operating lease payments 19 16,235 12,307
Intangible and other assets 20 5,011 3,020
Time deposits with maturities over one year 3,428 3,751
------- -------
602,172 516,194
------- -------
CURRENT ASSETS
Inventories 21 62,733 47,377
Accounts receivable 22 4,630 3,842
Prepaid expenses and other current assets 23 22,673 19,866
Notes receivable 24 3,028 4,838
Investments in collateralized loans 25 235 33,217
Time deposits with maturities over three months but
within one year 1,691 1,425
Cash and cash equivalents 26 80,905 11,688
------- -------
TOTAL CURRENT ASSETS 175,895 122,253
------- -------
CURRENT LIABILITIES
Accounts payable and accrued liabilities 27 99,758 73,072
Income tax payable 20,567 17,484
Other taxes payable 4,824 5,032
Short-term borrowings 28 28,689 34,937
------- -------
153,838 130,525
------- -------
NET CURRENT ASSETS/(LIABILITIES) 22,057 (8,272)
------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES 624,229 507,922
======= =======
EQUITY
Equity attributable to equity holders of the Company
Share capital 29 179,021 175,824
Retained earnings 203,812 143,115
Reserves 30 132,556 108,834
------- -------
515,389 427,773
Minority interests 28,278 15,199
------- -------
TOTAL EQUITY 543,667 442,972
------- -------
NON CURRENT LIABILITIES
Long-term borrowings 28 44,570 44,648
Other long-term obligations 1,046 2,481
Asset retirement obligations 32 14,187 919
Deferred taxation 31 20,759 16,902
------- -------
80,562 64,950
------- -------
624,229 507,922
======= =======
The accompanying notes are an integral part of these financial statements.
------------------------------------- ----------------------------------------
Chairman President
Chen Geng Jiang Jiemin
88
PETROCHINA COMPANY LIMITED
BALANCE SHEET
As of December 31, 2005
(Amounts in millions)
2004
NOTES 2005 (NOTE 2)
----- ------- --------
RMB RMB
NON CURRENT ASSETS
Property, plant and equipment 15 399,876 336,438
Investments in associates 16 4,246 3,904
Available-for-sale investments 17 973 1,364
Subsidiaries 18 105,321 83,984
Advance operating lease payments 19 11,933 8,866
Intangible and other assets 20 3,983 2,153
------- -------
526,332 436,709
------- -------
CURRENT ASSETS
Inventories 21 51,538 37,674
Accounts receivable 22 1,471 1,979
Prepaid expenses and other current assets 23 29,259 29,927
Notes receivable 24 2,381 4,505
Investments in collateralized loans 25 117 33,106
Cash and cash equivalents 26 55,814 8,458
------- -------
TOTAL CURRENT ASSETS 140,580 115,649
------- -------
CURRENT LIABILITIES
Accounts payable and accrued liabilities 27 113,233 84,912
Income tax payable 18,898 16,811
Other taxes payable 1,726 4,096
Short-term borrowings 28 22,336 25,539
------- -------
156,193 131,358
------- -------
NET CURRENT LIABILITIES (15,613) (15,709)
------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES 510,719 421,000
======= =======
EQUITY
Equity attributable to equity holders of the Company
Share capital 29 179,021 175,824
Retained earnings 151,682 105,793
Reserves 30 129,208 95,162
------- -------
TOTAL EQUITY 459,911 376,779
------- -------
NON CURRENT LIABILITIES
Long-term borrowings 28 32,777 34,368
Other long-term obligations 838 2,364
Asset retirement obligations 32 8,068 --
Deferred taxation 31 9,125 7,489
------- -------
50,808 44,221
------- -------
510,719 421,000
======= =======
The accompanying notes are an integral part of these financial statements.
------------------------------------- ----------------------------------------
Chairman President
Chen Geng Jiang Jiemin
89
PETROCHINA COMPANY LIMITED
CONSOLIDATED CASH FLOW STATEMENT
For the Year Ended December 31, 2005
(Amounts in millions)
2004
NOTES 2005 (NOTE2)
----- -------- --------
RMB RMB
CASH FLOWS FROM OPERATING ACTIVITIES 33 203,885 141,691
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (119,227) (94,045)
Acquisition of associates (2,334) (1,000)
Acquisition of available-for-sale investments (782) (476)
Net proceeds / (acquisition) of investments in
collateralized loans with maturities not greater than
three months 26,896 (8,049)
Acquisition of investments in collateralized loans with
maturities over three months (443) (8,301)
Acquisition of intangible assets (1,600) (531)
Acquisition of other non-current assets (1,133) (280)
Return capital to minority interests due to liquidation of
subsidiaries (935) --
Purchase from minority interests of listed subsidiaries 18 (2,019) --
Other purchase from minority interest (376) --
Proceeds from investments in collateralized loans with
maturities over three months 6,529 7,357
Repayment of capital by associates 115 272
Proceeds from disposal of property, plant and equipment 898 873
Proceeds from disposal of associates 1,102 27
Proceeds from disposal of available-for-sale investments 976 83
Proceeds from disposal of intangible and other non-current
assets 22 37
Dividends received 678 800
Decrease in time deposits with maturities over three months 57 957
-------- --------
NET CASH USED FOR INVESTING ACTIVITIES (91,576) (102,276)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of short-term borrowings (34,529) (23,862)
Repayments of long-term borrowings (19,175) (28,331)
Principal payment on finance lease obligations (21) (35)
Dividends paid to minority interests (1,486) (736)
Cash payment for acquisition of CNPC marketing enterprises -- (1,476)
Dividends paid to equity holders of the Company 14 (53,667) (34,328)
Issuance of H share 29 19,692 --
Increase in short-term borrowings 32,019 28,113
Increase in long-term borrowings 15,514 18,453
Capital contribution from minority interests 454 2,145
Change in other long-term obligations (1,435) 471
-------- --------
NET CASH USED FOR FINANCING ACTIVITIES (42,634) (39,586)
-------- --------
TRANSLATION OF FOREIGN CURRENCY (458) 246
-------- --------
Increase in cash and cash equivalents 69,217 75
Cash and cash equivalents at beginning of year 26 11,688 11,613
-------- --------
Cash and cash equivalents at end of year 26 80,905 11,688
======== ========
The accompanying notes are an integral part of these financial statements.
90
PETROCHINA COMPANY LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the Year Ended December 31, 2005
(Amounts in millions)
ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY
---------------------------------------------
SHARE RETAINED MINORITY TOTAL
CAPITAL EARNINGS RESERVES SUBTOTAL INTEREST EQUITY
------- -------- -------- -------- -------- -------
RMB RMB RMB RMB RMB RMB
Balance at January 1, 2004 as previously
reported before adjusting for the
acquisition of the refinery and
petrochemical businesses and investment in
Zhong You Kan Tan Kai Fa Company Limited
and reclassification of minority interest
resulting from adoption of IAS 1 and IAS 27
(Note 2) 175,824 89,577 91,212 356,613 -- 356,613
Reclassification as a result of the adoption
of revised IAS 1 and IAS 27 (Note 2) -- -- -- -- 5,608 5,608
Adjustment for the acquisition of the
refinery and petrochemical businesses and
investment in Zhong You Kan Tan Kai Fa
Company Limited (Note 2) -- (1,425) 2,740 1,315 3,358 4,673
------- ------- ------- ------- ------ -------
Balance at January 1, 2004 adjusted for the
acquisition of the refinery and
petrochemical businesses and investment in
Zhong You Kan Tan Kai Fa Company Limited
and reclassification of minority interest
resulting from adoption of IAS 1 and IAS 27
(Note 2) 175,824 88,152 93,952 357,928 8,966 366,894
======= ======= ======= ======= ====== =======
Currency translation differences -- -- 330 330 677 1,007
------- ------- ------- ------- ------ -------
Net income recognised directly in equity -- -- 330 330 677 1,007
Profit for the year ended December 31, 2004 -- 103,843 -- 103,843 3,803 107,646
------- ------- ------- ------- ------ -------
Total recognised income for 2004 -- 103,843 330 104,173 4,480 108,653
------- ------- ------- ------- ------ -------
Transfer to reserves (Note 30) -- (14,552) 14,552 -- -- --
Final dividend for 2003 (Note 14) -- (13,947) -- (13,947) -- (13,947)
Interim dividend for 2004 (Note 14) -- (20,381) -- (20,381) -- (20,381)
Dividends to minority interests -- -- -- -- (656) (656)
Other movements of minority interest -- -- -- -- 2,409 2,409
------- ------- ------- ------- ------ -------
Balance at December 31, 2004 175,824 143,115 108,834 427,773 15,199 442,972
======= ======= ======= ======= ====== =======
Currency translation differences -- -- (268) (268) (465) (733)
------- ------- ------- ------- ------ -------
Net loss recognised directly in equity -- -- (268) (268) (465) (733)
Profit for the year ended December 31, 2005 -- 133,362 -- 133,362 6,280 139,642
------- ------- ------- ------- ------ -------
Total recognised income / (loss) for 2005 -- 133,362 (268) 133,094 5,815 138,909
------- ------- ------- ------- ------ -------
Issue of shares (Note 29 and 30) 3,197 -- 16,495 19,692 -- 19,692
Transfer to reserves (Note 30) -- (18,998) 18,998 -- -- --
Final dividend for 2004 (Note 14) -- (25,936) -- (25,936) -- (25,936)
Interim dividend for 2005 (Note 14) -- (27,731) -- (27,731) -- (27,731)
Payment to CNPC for the acquisition of the
refinery and petrochemical businesses
(Note 2) -- -- (9) (9) -- (9)
Dividends to minority interests -- -- -- -- (1,568) (1,568)
Return capital to minority interests due to
liquidation of subsidiaries -- -- -- -- (935) (935)
Purchase from minority interests of listed
subsidiaries (Note 18) -- -- (1,438) (1,438) (581) (2,019)
Other movement of minority interest -- -- -- -- 242 242
Capital contribution to Zhong You Kan Tan
Kai Fa Company Limited (Note 2) -- -- (10,056) (10,056) 10,106 50
------- ------- ------- ------- ------ -------
Balance at December 31, 2005 179,021 203,812 132,556 515,389 28,278 543,667
======= ======= ======= ======= ====== =======
The accompanying notes are an integral part of these financial statements.
91
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 29.) 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 40.)
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 balance sheet 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.
In 2005, the Group adopted the newly revised IFRS below, which are relevant
to its operations. The 2004 comparative numbers have been amended as required,
in accordance with the relevant requirements. The adoption of these IFRS
revisions did not result in substantial changes to the Group's accounting
policies. In summary:
--IAS 1 and 27 (both revised in 2003) affected the presentation of minority
interest. IAS 1 (revised in 2003) also has affected the presentation of
associates profit sharing and requires the disclosure of critical accounting
estimates.
--IAS 2, 8, 10, 16, 17, 21, 32, 33 (all revised in 2003) and 39 (revised in
2004) and IFRS 2 had no material effect on the Group's accounting policies.
--IAS 24 (revised in 2003) affected the definition of related parties and
related-party disclosures. (See Note 3(k) and 39)
--IAS 27 and 28 (both revised in 2003) affected the accounting for
investments in subsidiaries and associates in the separate financial statement
of the Company. These investments are accounted for at cost rather than using
equity method, which was used in prior years. As a result, the balance sheet of
the Company as of December 31, 2004 and the related notes that are included in
the financial statements have been restated. Compared with the previously
reported numbers, Investment in associates, Subsidiaries, Reserves and Retained
earnings as of December 31, 2004 have been reduced by RMB 1,897, RMB 46,302, RMB
56 and RMB 48,143 respectively to reflect this restatement.
92
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
--IFRS 5 has resulted in a change in the accounting policy relating to the
recognition of assets held for sale or discontinued operation, which did not
have any material impact on the results and financial positions of the Group as
the Group did not hold material assets in this category during the years
presented.
--The Group early adopted IFRS 6, which did not require a change in the
accounting policy for exploration and evaluation activities.
In accordance with the acquisition agreement between the Company and CNPC
dated March 28, 2005, the Company acquired the refining and petrochemical
businesses owned by CNPC's wholly-owned subsidiaries, Ningxia Dayuan Refinery
and Petrochemical Company Limited ("Dayuan") and Qingyang Refinery and
Petrochemical Company Limited ("Qingyang") with a total consideration of RMB 9.
The acquisition is a combination of businesses under common control since
the Company and the CNPC's refinery and petrochemical businesses owned by Dayuan
and Qingyang are under the common control of CNPC. As a result, the Company
accounted for the acquisition in a manner similar to a uniting of interests,
whereby the assets and liabilities acquired are accounted for at historical cost
to CNPC (net liabilities of RMB 183 at the effective date). The consolidated
financial statements have been restated to give effect to the acquisition with
all periods presented as if the operations of the Group and these refinery and
petrochemical businesses have always been combined. The difference between RMB 9
payable and the net liabilities transferred from CNPC has been adjusted against
equity.
In August 2005 the shareholders of the Company approved the acquisition and
transfer agreements relating to the Company's acquisition of a 50% ownership
interest in Zhong You Kan Tan Kai Fa Company Limited. Zhong You Kan Tan Kai Fa
Company Limited was formed in 2005 and was wholly owned by China National Oil
and Gas Exploration and Development Corporation ("CNODC", wholly owned by CNPC)
and one of its subsidiaries. Under the terms of the related agreements, CNODC
transferred certain oil and gas exploration operations into Zhong You Kan Tan
Kai Fa Company Limited and the Company contributed to Zhong You Kan Tan Kai Fa
Company Limited its wholly-owned subsidiary, PetroChina International Limited
("PTRI"), and cash amounting to approximately RMB 20,162, which is the
difference between the cash contribution of RMB 20,741 payable by the Company
according to the acquisition agreement and cash consideration of RMB 579 for
PTRI receivable by the Company.
The terms of the agreements grant the Company the right to appoint four of
the seven directors of Zhong You Kan Tan Kai Fa Company Limited and enable the
Company to maintain effective control over Zhong You Kan Tan Kai Fa Company
Limited.
Similar to the acquisition of the refinery and petrochemical businesses
from CNPC described above, the investment in Zhong You Kan Tan Kai Fa Company
Limited and related transactions have been accounted for in a manner similar to
uniting of interests as all entities involved are under common control by CNPC.
The consolidated financial statements of the Company have been restated as if
the operations of the Company and Zhong You Kan Tan Kai Fa Company Limited have
always been combined. The payment was made directly to Zhong You Kan Tan Kai Fa
Company Limited, therefore the difference between RMB 20,162 paid and the net
assets of RMB 35,551 at the effective date acquired (including RMB 20,162
contributed by the Company and RMB 50 for the contributed paid-in capital by
CNODC and its subsidiary) has been adjusted against equity.
93
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
The summarised results of operations and the financial position for the
separate entities and on a consolidation basis for the year ended December 31,
2004 are set out below:
PETROCHINA (AS REFINERY AND ZHONG YOU KAN
PREVIOUSLY PETROCHEMICAL TAN KAI FA
REPORTED) BUSINESS COMPANY LIMITED CONSOLIDATED
-------------- ------------- --------------- ------------
RMB RMB RMB RMB
Results of operations:
Turnover 388,633 4,583 11,643 397,354
Profit / (loss) for the year 104,578 (137) 3,205 107,646
Basic and diluted earnings per share
for profit attributable to the
equity holders of the Company (RMB) 0.59 0.00 0.00 0.59
Equity items:
Currency translation differences -- -- 1,007 1,007
Dividends to minority interests (277) -- (379) (656)
Financial position:
Total Assets 609,928 2,106 27,100 638,447
Total Liabilities 175,325 2,318 18,519 195,475
Net Assets / (liabilities) 434,603 (212) 8,581 442,972
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.
Other than the business combination under common control for which the
accounting policy is disclosed in Note 2, 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 identifiable net assets of the subsidiary
acquired is recorded as goodwill. If the cost of acquisition is less than the
fair value of the net assets of subsidiary acquired, the difference is
recognised directly in the income statement. 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 the presentation of the Company's balance sheets,
investments in subsidiaries are accounted for at cost.
A listing of the Group's principal subsidiaries is set out in Note 18.
94
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 in the
consolidated financial statements of the Company. 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 over
which the Group has significant influence but not control, generally
accompanying a shareholding of between 20% and 50% of the voting rights.
Significant influence is the main factor for associates. 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 any
accumulated impairment loss) on acquisition. When the Group's share of losses in
an associate equals or exceeds its interest in the associate, including any
other unsecured receivables, the Group does not recognise further losses, unless
the Group has incurred obligations or made payments on behalf of the associate.
For purpose of the presentation of the Company's balance sheet, investments
in associates are accounted for at cost.
A listing of the Group's principal associates is shown in Note 16.
(C) TRANSACTIONS WITH MINORITY INTERESTS
The Group applies a policy of treating transactions with minority interests
as transactions with equity participants of the Group. Gains and losses resulted
from the disposals to minority interests are recorded in equity. The differences
between any consideration paid and the relevant share of the carrying value of
net assets of the subsidiary acquired, resulted from the purchase from minority
interests, are recorded in equity.
(D) FOREIGN CURRENCIES
Items included in the financial statements of each entity in the Group are
measured using the currency of the primary economic environment in which the
entity operates ("the functional currency"). Most assets and operations of the
Group are located in the PRC, and the functional currency is RMB. For the
majority of the overseas oil and gas exploration and production operations,
United States Dollar has been used as the functional currency . The consolidated
financial statements are presented in RMB, which is the functional and
presentation currency of the Company and most of the consolidated subsidiaries.
Foreign currency transactions of the Group are accounted for at the
exchange rates prevailing at the date of the transactions; monetary assets and
liabilities denominated in foreign currencies are translated at balance sheet
date exchange rates; gains and losses resulting from the settlement of such
transactions and from the translation of monetary assets and liabilities are
recognised in the consolidated profit and loss account. Profit and loss account
and cash flows of the Group entities that have a functional currency different
from the Group's presentation currency are translated into the Group's
presentation 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 material hedge contracts during any of the
years presented. No foreign currency exchange gains or losses were capitalised
for any years presented.
95
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
(E) 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.
(F) INVESTMENTS
The Group classifies its investments into the following categories: at fair
value through profit or loss, held-to-maturity, loans and receivables 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
investments at fair value through profit or loss 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; the Group
did not hold any investment in this category during the year presented. Loans
and receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. They are included in current
assets, except for maturities greater than 12 months after the balance sheet
date. These are classified as non-current assets. Loans and receivables are
classified as investment in collateralised loans, which are initially recorded
at fair value and subsequently amortised cost. 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 expressed the
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.
Regular purchases and sales of available-for-sale investments are
recognised on settlement date, the date that the asset is delivered to or by the
Group (the effective acquisition or sale date). Available-for-sale investments
are initially recognised at fair value plus transaction costs.
Available-for-sale investments are derecognised when the rights to receive cash
flows from the investments have expired or have been transferred and the Group
has transferred substantially all risks and rewards of ownership.
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.
(G) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including oil and gas properties (Note 3
(h)), 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.
96
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
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 15. 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.
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.
The assets' residual values and useful lives are reviewed, and adjusted if
appropriate, at each balance sheet date.
Property, plant and equipment, including oil and gas properties (Note 3
(h)), 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 fair value less costs to sell and
its value in use, which is the estimated net present value of future cash flows
to be derived from the 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.
97
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
(H) 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. Otherwise, the related well costs are reclassified to oil and
gas properties and subject to impairment review (Note 3(g)). 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.
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.
(I) 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 fair value less costs to sell
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.
98
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
(J) LEASES
Leases of property, plant and equipment where the Group assumes
substantially all the benefits and risks of ownership are classified as finance
leases. 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 a significant portion 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.
(K) RELATED PARTIES
Related parties include CNPC and its subsidiaries, other state-controlled
enterprises and their subsidiaries directly or indirectly controlled by the PRC
government, corporations in which the Company is able to control or exercise
significant influence, key management personnel of the Company and CNPC and
their close family members.
Transactions with related parties do not include those done in the ordinary
course of business with terms consistently applied to all public and private
entities and where there is no choice of supplier such as electricity,
telecommunications, postal service and local government retirement funds.
(L) 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 borrowing cost. Net realisable value is the
estimate of the selling price in the ordinary course of business, less the cost
of completion and selling expenses.
(M) TRADE RECEIVABLES
Trade receivables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method, less provision
made for impairment of these receivables. Such provision for impairment 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.
(N) CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash in hand, deposits held at all with
banks and highly liquid investments with original maturities of three months or
less from the time of purchase.
99
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
(O) BORROWINGS
Borrowings are recognised initially at fair value, net of transaction costs
incurred. In subsequent periods, borrowings are stated at amortised cost using
the effective yield method. Any difference between proceeds (net of transaction
costs) and the redemption value is recognised in the profit and loss account
over the period of the borrowings, except for the portion eligible for
capitalisation.
Borrowings are classified as current liabilities unless the Group has an
unconditional right to defer settlement of the liability for at least 12 months
after the balance sheet date.
(P) TAXATION
The Company has obtained approval from the State Administration for
Taxation to report taxable income on a consolidated basis.
Deferred tax is provided in full, using the liability method, for temporary
differences arising between the tax bases of assets and liabilities and their
carrying values for financial reporting purposes. However, the deferred income
tax is not accounted for if it arises from initial recognition of an asset or
liability in a transaction other than a business combination that at the time of
the transaction affects neither accounting nor taxable profit or loss. 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.
(Q) 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 in the ordinary course of the
Group's activities, and when the amount of revenue and the costs incurred or to
be incurred in respect of the transaction can be measured reliably and
collectability of the related receivables is reasonably assured.
The Group markets a portion of its natural gas 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.
100
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
(R) 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.
Provision for decommissioning and restoration is recognized in full on the
installation of oil and gas properties. The amount recognized is the present
value of the estimated future expenditure determined in accordance with local
conditions and requirements. A corresponding addition to the related oil and gas
properties of an amount equivalent to the provision is also created. This is
subsequently depreciated as part of the capital costs of the oil and gas
properties. Any change in the present value of the estimated expenditure other
than the one due to passage of time which is regarded as interest cost, is
reflected as an adjustment to the provision and oil and gas properties.
(S) RESEARCH AND DEVELOPMENT
Research expenditure incurred is recognised as an expense. Cost incurred on
development projects are recognised as intangible assets to the extent that such
expenditure is expected to generate future economic benefits.
(T) RETIREMENT BENEFIT PLANS
The Group contributes to various employee retirement benefit plans
organised by Chinese 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 Chinese municipal and
provincial governments undertake to assume the retirement benefit obligations of
existing and future retired Chinese employees of the Group. Contributions to
these plans are charged to expense as incurred. The Group currently has no
additional material obligations outstanding for the payment of retirement and
other post-retirement benefits of employees in China or overseas other than the
monthly contributions described above.
(U) SHARE APPRECIATION RIGHTS
Compensation under the share appreciation rights is measured based on the
fair value of the liability incurred and is expensed over the vesting period.
The liability is remeasured at each balance sheet date to its fair value until
settlement with all changes included in employee compensation cost in the profit
and loss account; the related liability is included in the salaries and welfare
payable.
(V) NEW ACCOUNTING DEVELOPMENTS
IFRS 7, Financial Instruments: Disclosures, and a complementary amendment
to IAS 1, Presentation of Financial Statements-Capital Disclosures (effective
from January 1, 2007). IFRS 7 introduces new disclosures to improve the
information about financial instruments. It replaces IAS 30, Disclosures in the
Financial Statements of Banks and Similar Financial Institutions, and disclosure
requirements in IAS 32, Financial Instruments: Disclosure and Presentation. The
amendment to IAS 1 introduces disclosures about the level of an entity's capital
and how it manages capital. The Group assessed the impact of IFRS 7 and the
amendment to IAS 1 and concluded that the main additional disclosures will be
the sensitivity analysis to market risk and the capital disclosures required by
the amendment of IAS 1. The Group will apply IFRS 7 and the amendment to IAS 1
from annual periods beginning January 1, 2007.
101
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
IFRIC 4, Determining whether an Arrangement contains a Lease (effective
from January 1, 2006). IFRIC 4 requires the determination of whether an
arrangement is or contains a lease to be based on the substance of the
arrangement. It requires an assessment of whether: (a) fulfilment of the
arrangement is dependent on the use of a specific asset or assets (the asset);
and (b) the arrangement conveys a right to use the asset. Management is
currently assessing the impact of IFRIC 4 on the Group's operations.
IFRIC 8, Scope of IFRS 2 (effective from May 1, 2006). IFRIC 8 clarifies
that the accounting standards IFRS 2 Share-based Payment applies to arrangements
where an entity makes share-based payments for apparently nil or inadequate
consideration. Management is currently assessing the impact of IFRIC 8 on the
Group's operations.
IAS 39 and IFRS 4 (Amendments), Financial Guarantee Contracts (effective
from January 1, 2006). These amendments require that issuers of financial
guarantee contracts to include the resulting liabilities in their balance sheet.
Management is currently assessing the impact of these amendments.
The following new interpretations and amendment to existing standards are
not relevant to the Group's operations.
--IFRIC 5, Rights to Interests arising from Decommissioning, Restoration
and Environmental Rehabilitation Fund (effective from January 1, 2006).
--IFRIC 6, Liabilities arising from Participating in a Specific Market -
Waste Electrical and Electronic Equipment (effective from December 1, 2005).
--IFRIC 7, Applying the Restatement Approach under IAS 29 Financial
Reporting in Hyperinflationary Economies (effective from March 1, 2006).
--IFRIC 9, Reassesment of Embedded Derivatives (effective from June 1,
2006).
--IAS 19 (Amendment), Employee Benefits: Actuarial Gains and Losses, Group
Plans and Disclosures (effective from January 1, 2006).
--IAS 39 (Amendment), Cash Flow Hedge Accounting of Forecast Intragroup
Transaction and The Fair Value Option (effective form January 1, 2006).
--IAS 21 (Amendment), Net Investment in a Foreign Operation (effective from
January 1, 2006).
102
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgements are continually evaluated and are based on
historical experience and other factors, including expectations of future events
that are believed to be reasonable under the circumstances.
The matters described below are considered to be the most critical in
understanding the judgements that are involved in preparing the Group's
financial statements.
(A) ESTIMATION OF OIL AND NATURAL GAS RESERVES
Oil and gas reserves are key elements in the Group's investment
decision-making process. They are also an important element in testing for
impairment. Changes in proved oil and natural gas reserves, particularly proved
developed reserves, will affect unit-of-production depreciation charges to
income. Proved reserve estimates are subject to revision, either upward or
downward, based on new information, such as from the development drilling and
production activities or from changes in economic factors, including product
prices, contract terms or development plans. In general, changes in the
technical maturity of oil and gas reserves resulting from new information
becoming available from development and production activities have tended to be
the most significant cause of annual revisions. Changes to the Group's estimates
of proved reserves, particularly proved developed reserves, affect the amount of
depreciation, depletion and amortisation recorded in the Group's financial
statements for property, plant and equipment related to oil and gas production
activities. A reduction in proved developed reserves will increase depreciation,
depletion and amortisation charges (assuming constant production) and reduce net
income.
(B) ESTIMATED IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including oil and gas properties, are
reviewed for possible impairment when events or changes in circumstances
indicate that the carrying amount may not be recoverable. Determination as to
whether and how much an asset is impaired involves management estimates on
highly uncertain matters, such as future prices of crude oil, refined products
and chemical products, production profile. However, the impairment reviews and
calculations are based on assumptions that are consistent with the Group's
business plan. These assumptions also include those relative to the pricing
regulations by the regulatory agencies in China that the polices will not
restrict the profit margins of refined products to levels that will be
insufficient to recover the carrying cost of the related production assets.
Favourable changes to some assumptions might have avoided the need to impair any
assets in these periods, whereas unfavourable changes might have caused an
additional unknown number of other assets to become impaired.
(C) ESTIMATION OF ASSET RETIREMENT OBLIGATIONS
Provisions are recognized for the future decommissioning and restoration of
oil and gas properties. The amounts of the provisions recognized are the present
values of the estimated future expenditures. The estimation of the future
expenditures is based on current local conditions and requirements, including
legal requirements, technology, price level, etc.. In addition to these factors,
the present values of these estimated future expenditures are also impacted by
the estimation of the economic life of oil and gas properties. Changes in any of
these estimates will impact the net income and the financial position of the
Group over the remaining economic life of oil and gas properties.
5 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 40.
103
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
6 PROFIT BEFORE TAXATION
2005 2004
------- -------
RMB RMB
Profit before taxation is arrived at after crediting and
charging of the following items:
Crediting
Dividend income from available-for-sale investments 109 113
Reversal of impairment of receivables 538 1,373
Reversal of impairment of available-for-sale investments 54 155
Reversal of write down in inventories 293 234
Charging
Amortisation on intangible and other assets 888 755
Auditors' remuneration 50 66
Cost of inventories (approximates cost of goods sold)
recognised as expense 257,957 174,169
Depreciation on property, plant and equipment, including
impairment provision
- owned assets 49,198 46,988
- assets under finance leases 13 23
Impairment of available-for-sale investments 31 181
Impairment of receivables 83 2,049
Interest expense (Note 9) 2,762 2,896
Loss on disposal of property, plant and equipment 2,026 2,818
Operating lease expenses 4,850 3,873
Repair and maintenance 7,880 6,314
Research and development expenditure 3,195 2,977
Transportation expenses 13,707 10,042
Write down in inventories 154 381
7 EMPLOYEE COMPENSATION COSTS
2005 2004
RMB RMB
------- -------
Wages and salaries 19,351 15,449
Social security costs (i) 10,324 7,485
------ -------
29,675 22,934
====== =======
(i) Social security costs mainly represent contributions to funds for staff
welfare organised by the municipal and provincial governments including
contribution to the retirement benefit plans (Note 34).
104
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
8 SHUT DOWN OF MANUFACTURING ASSETS
During the years ended December 31, 2005 and 2004, the Group provided RMB
Nil and RMB 220 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.
2005 2004
---- ----
RMB RMB
Refining facilities -- 192
Chemical facilities -- 28
--- ---
-- 220
=== ===
There were no employee termination or relocation costs relating to the shut
down of these manufacturing equipments.
9 INTEREST EXPENSE
2005 2004
------ ------
RMB RMB
Interest on
Bank loans
- wholly repayable within five years 2,306 2,041
- not wholly repayable within five years 46 475
Other loans
- wholly repayable within five years 1,165 1,185
- not wholly repayable within five years 309 199
Finance leases 1 2
Less: amounts capitalised (1,065) (1,006)
------ ------
2,762 2,896
====== ======
Amounts capitalised are borrowing costs related to funds borrowed
specifically for the purpose of acquiring qualifying assets. Interest rate on
such capitalised borrowings was 5.265% (2004: 5.020%) per annum.
105
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
10 EMOLUMENTS OF DIRECTORS AND SUPERVISORS
Details of the emoluments of directors and supervisors for the years ended
December 31, 2005 and 2004 are as follows:
2005 2004
-------------------------------------------------------------- -------
SALARIES, CONTRIBUTION TO
FEE FOR DIRECTORS ALLOWANCES AND RETIREMENT
NAME AND SUPERVISORS OTHER BENEFITS BENEFIT SCHEME TOTAL TOTAL
---- ----------------- -------------- --------------- ------- -------
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
CHAIRMAN:
Mr. Chen Geng -- 781 9 790 389
VICE CHAIRMAN:
Mr. Jiang Jiemin -- 616 9 625 130
EXECUTIVE DIRECTORS:
Mr. Su Shulin -- 677 9 686 352
Mr. Duan Wende -- 677 9 686 222
Mr. Wang Fucheng (ii) -- -- -- -- 300
--- ----- --- ----- -----
-- 1,354 18 1,372 874
=== ----- --- ----- -----
NON-EXECUTIVE DIRECTORS:
Mr. Zheng Hu -- -- -- -- --
Mr. Zhou Jiping -- -- -- -- --
Mr. Wang Yilin -- -- -- -- --
Mr. Zeng Yukang -- -- -- -- --
Mr. Gong Huazhang -- -- -- -- --
Mr. Jiang Fan -- 32 1 33 --
Mr. Chee-chen Tung 275 -- -- 275 29
Mr. Liu Hongru 274 -- -- 274 33
Mr. Franco Bernabe 279 -- -- 279 33
Mr. Ren Chuanjun (ii) -- -- -- -- --
Mr. Zou Haifeng (ii) -- 281 2 283 238
Mr. Ma Fucai (i) -- -- -- -- --
Mr. Wu Yaowen (i) -- -- -- -- --
--- ----- --- ----- -----
828 313 3 1,144 333
=== ----- --- ----- -----
SUPERVISORS:
Mr. Wang Fucheng -- 522 8 530 --
Mr. Wen Qingshan -- -- -- -- --
Mr. Sun Xianfeng -- -- -- -- --
Mr. Xu Fengli -- 365 9 374 153
Mr. Qin Gang -- -- -- -- --
Mr. Li Yongwu 12 -- -- 12 --
Mr. Wu Zhipan 57 -- -- 57 12
Mr. Li Kecheng (ii) -- -- -- -- --
Mr. Sun Chongren (ii) -- 80 1 81 272
Mr. Zhang Youcai (ii) -- -- -- -- 12
Mr. Bai Xinhe (i) -- -- -- -- --
Mr. Chen Weizhong (i) -- -- -- -- --
--- ----- --- ----- -----
69 967 18 1,054 449
--- ----- --- ----- -----
897 4,031 57 4,985 2,175
=== ===== === ===== =====
106
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
(i) No longer a director or supervisor since May 18, 2004.
(ii) No longer a director or supervisor since November 8, 2005.
The emoluments of the directors and supervisors fall within the following
bands (including directors and supervisors whose term expired during the year):
2005 2004
NUMBER NUMBER
------ ------
Nil - RMB 1 25 24
=== ===
Fee for directors and supervisors disclosed above included RMB 828 thousand
(2004: RMB 95 thousand) paid to independent non-executive directors.
None of the directors and supervisors has waived their remuneration during
the year ended December 31, 2005 (2004: nil).
The five highest paid individuals in the Group for each of the two years
ended December 31, 2005 and 2004 were also directors or supervisors and their
emoluments are reflected in the analysis shown above.
During 2004 and 2005, 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, 2005, 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 fair value of the liability incurred and
is expensed over the vesting period. The liability is remeasured at each balance
sheet to its fair value and amounted to approximately RMB 630 (2004: RMB 367) at
December 31, 2005.
107
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
11 TAXATION
2005 2004
------ ------
RMB RMB
Income tax 50,221 40,331
Deferred tax (Note 31) 3,959 3,267
------ ------
54,180 43,598
====== ======
In accordance with the relevant PRC income tax rules and regulations, the
PRC income tax rate applicable to the Group is principally 33% (2004: 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 :
2005 2004
------- -------
RMB RMB
Profit before taxation 193,822 151,244
------- -------
Tax calculated at a tax rate of 33% 63,961 49,911
Prior year tax return adjustment 364 27
Effect of preferential tax rate (10,744) (6,886)
Utilisation of previously unrecognised tax
loss of subsidiaries -- (969)
Income not subject to tax (427) (913)
Expenses not deductible for tax purposes 1,026 2,428
------- -------
Tax charge 54,180 43,598
======= =======
12 PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY
The profit attributable to equity holders of the Company is dealt with in
the financial statements of the Company to the extent of RMB 133,362 (2004: RMB
103,843) for the year ended December 31, 2005.
108
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
13 BASIC AND DILUTED EARNINGS PER SHARE
Basic and diluted earnings per share for the year ended December 31, 2005
have been computed by dividing profit for the year attributable to equity
holders of the Company by the weighed average number of 176.77 billion shares
issued and outstanding for the year.
Basic and diluted earnings per share for the year ended December 31, 2004
have been computed by dividing profit for the year attributable to equity
holders of the Company by the number of 175.82 billion shares issued and
outstanding for the year.
There are no dilutive potential ordinary shares.
14 DIVIDENDS ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY
2005 2004
------ ------
RMB RMB
Final dividend attributable to equity holders of the Company for 2003 (Note (i)) -- 13,947
Interim dividend attributable to equity holders of the Company for 2004 (Note (ii)) -- 20,381
Final dividend attributable to equity holders of the Company for 2004 (Note (iii)) 25,936 --
Interim dividend attributable to equity holders of the Company for 2005 (Note (iv)) 27,731 --
------ ------
53,667 34,328
====== ======
(i) A final dividend attributable to equity holders of the Company 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 equity as an appropriation
of retained earnings in the year ended December 31, 2004.
(ii) An interim dividend attributable to equity holders of the Company in
respect of 2004 of RMB 0.115919 per share amounting to a total of RMB
20,381 was paid on October 8, 2004, and was accounted for in equity as an
appropriation of retained earnings in the year ended December 31, 2004.
(iii)A final dividend attributable to equity holders of the Company in respect
of 2004 of RMB 0.147511 per share amounting to a total of RMB 25,936 was
paid on June 10, 2005, and was accounted for in equity as an appropriation
of retained earnings in the year ended December 31, 2005.
(iv)As authorized by shareholders in the Annual General Meeting on May 26, 2005,
the Board of Directors, in a meeting held on August 24, 2005, resolved to
distribute an interim dividend attributable to equity holders of the
Company in respect of 2005 of RMB 0.157719 per share amounting to a total
of RMB 27,731. The interim dividend was paid on September 30, 2005, and was
accounted for in equity as an appropriation of retained earnings in the
year ended December 31, 2005.
(v) At the meeting on March 20, 2006, the Board of Directors proposed a final
dividend attributable to equity holders of the Company in respect of 2005
of RMB 0.180325 per share amounting to a total of RMB 32,282. These
financial statements do not reflect this dividend payable, which will be
accounted for in equity as an appropriation of retained earnings in the
year ended December 31, 2006.
109
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
15 PROPERTY, PLANT AND EQUIPMENT
GROUP
OIL
YEAR ENDED DECEMBER AND GAS PLANT AND MOTOR CONSTRUCTION
31, 2004 BUILDINGS PROPERTY EQUIPMENT VEHICLES OTHER IN PROGRESS TOTAL
------------------- --------- -------- --------- -------- ------ ------------ --------
RMB RMB RMB RMB RMB RMB RMB
COST OR VALUATION
At beginning of the year 56,385 385,693 225,124 8,366 6,135 34,119 715,822
Additions 974 473 2,143 1,263 196 93,945 98,994
Transfers 9,586 50,039 29,021 -- 376 (89,022) --
Disposals or write off (2,181) (9,045) (5,565) (280) (85) -- (17,156)
Exchange difference 60 1,417 117 48 83 95 1,820
------- -------- -------- ------ ------ ------- --------
At end of the year 64,824 428,577 250,840 9,397 6,705 39,137 799,480
------- -------- -------- ------ ------ ------- --------
ACCUMULATED DEPRECIATION
AND IMPAIRMENT
At beginning of the year (11,625) (157,267) (98,139) (4,164) (2,316) -- (273,511)
Charge for the year (2,121) (26,287) (16,793) (867) (741) (202) (47,011)
Disposals or write off 856 3,214 2,971 235 53 -- 7,329
Exchange difference (15) (586) (39) (14) (21) -- (675)
------- -------- -------- ------ ------ ------- --------
At end of the year (12,905) (180,926) (112,000) (4,810) (3,025) (202) (313,868)
------- -------- -------- ------ ------ ------- --------
NET BOOK VALUE
At end of the year 51,919 247,651 138,840 4,587 3,680 38,935 485,612
======= ======== ======== ====== ====== ======= ========
ANALYSIS OF COST OR
VALUATION
At valuation (i) 23,270 203,870 157,446 2,898 1,334 -- 388,818
At cost (ii) 41,554 224,707 93,394 6,499 5,371 39,137 410,662
------- -------- -------- ------ ------ ------- --------
64,824 428,577 250,840 9,397 6,705 39,137 799,480
======= ======== ======== ====== ====== ======= ========
Carrying value of the
property, plant and
equipment had they been
stated at cost less
accumulated depreciation 47,422 238,364 120,119 4,069 3,108 38,935 452,017
======= ======== ======== ====== ====== ======= ========
110
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
GAS PLANT AND MOTOR CONSTRUCTION
YEAR ENDED DECEMBER 31, 2005 BUILDINGS PROPERTY EQUIPMENT VEHICLES OTHER IN PROGRESS TOTAL
---------------------------- --------- -------- --------- -------- ------ ------------ --------
RMB RMB RMB RMB RMB RMB RMB
COST OR VALUATION
At beginning of the year 64,824 428,577 250,840 9,397 6,705 39,137 799,480
Additions 1,394 14,308 1,292 1,744 122 119,199 138,059
Transfers 7,661 67,223 27,451 -- 362 (102,697) --
Disposals or write off (714) (11,817) (2,152) (286) (95) -- (15,064)
Exchange difference (32) (659) (67) (26) (43) (42) (869)
------- -------- -------- ------ ------ -------- --------
At end of the year 73,133 497,632 277,364 10,829 7,051 55,597 921,606
------- -------- -------- ------ ------ -------- --------
ACCUMULATED DEPRECIATION
AND IMPAIRMENT
At beginning of the year (12,905) (180,926) (112,000) (4,810) (3,025) (202) (313,868)
Charge for the year (3,454) (25,819) (18,234) (955) (749) -- (49,211)
Disposals or write off 329 3,054 1,279 200 76 104 5,042
Exchange difference 1 275 23 10 12 -- 321
------- -------- -------- ------ ------ -------- --------
At end of the year (16,029) (203,416) (128,932) (5,555) (3,686) (98) (357,716)
------- -------- -------- ------ ------ -------- --------
NET BOOK VALUE
At end of the year 57,104 294,216 148,432 5,274 3,365 55,499 563,890
======= ======== ======== ====== ====== ======== ========
ANALYSIS OF COST OR
VALUATION
At valuation (i) 22,574 192,643 155,347 2,625 1,261 -- 374,450
At cost (ii) 50,559 304,989 122,017 8,204 5,790 55,597 547,156
------- -------- -------- ------ ------ -------- --------
73,133 497,632 277,364 10,829 7,051 55,597 921,606
======= ======== ======== ====== ====== ======== ========
Carrying value of the
property, plant and
equipment had they been
stated at cost less
accumulated depreciation 52,779 289,820 131,411 4,787 2,810 55,499 537,106
======= ======== ======== ====== ====== ======== ========
111
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
COMPANY
OIL AND
GAS PLANT AND MOTOR CONSTRUCTION
YEAR ENDED DECEMBER 31, 2004 BUILDINGS PROPERTY EQUIPMENT VEHICLES OTHER IN PROGRESS TOTAL
---------------------------- --------- -------- --------- -------- ------ ------------ --------
RMB RMB RMB RMB RMB RMB RMB
COST OR VALUATION
At beginning of the year 38,833 245,547 180,332 4,935 4,861 29,468 503,976
Additions 258 135 2,737 808 19 62,569 66,526
Transfers 6,729 36,247 23,239 -- 243 (66,458) --
Disposals or write off (1,205) (7,187) (5,189) (226) (68) -- (13,875)
------- -------- ------- ------ ------ ------- --------
At end of the year 44,615 274,742 201,119 5,517 5,055 25,579 556,627
------- -------- ------- ------ ------ ------- --------
ACCUMULATED DEPRECIATION
AND IMPAIRMENT
At beginning of the year (9,274) (99,683) (78,509) (2,723) (1,602) -- (191,791)
Charge for the year (1,718) (17,973) (13,564) (583) (429) (189) (34,456)
Disposals or write off 808 2,395 2,619 192 44 -- 6,058
------- -------- ------- ------ ------ ------- --------
At end of the year (10,184) (115,261) (89,454) (3,114) (1,987) (189) (220,189)
------- -------- ------- ------ ------ ------- --------
NET BOOK VALUE
At end of the year 34,431 159,481 111,665 2,403 3,068 25,390 336,438
======= ======== ======= ====== ====== ======= ========
ANALYSIS OF COST OR
VALUATION
At valuation (i) 16,138 115,529 128,142 2,011 1,321 -- 263,141
At cost (ii) 28,477 159,213 72,977 3,506 3,734 25,579 293,486
------- -------- ------- ------ ------ ------- --------
44,615 274,742 201,119 5,517 5,055 25,579 556,627
======= ======== ======= ====== ====== ======= ========
Carrying value of the
property, plant and
equipment had they been
stated at cost less
accumulated depreciation 32,862 150,773 94,116 2,101 2,466 25,390 307,708
======= ======== ======= ====== ====== ======= ========
112
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
COMPANY (CONTINUED)
OIL AND
GAS PLANT AND MOTOR CONSTRUCTION
YEAR ENDED DECEMBER 31, 2005 BUILDINGS PROPERTY EQUIPMENT VEHICLES OTHER IN PROGRESS TOTAL
---------------------------- --------- -------- --------- -------- ------ ------------ --------
RMB RMB RMB RMB RMB RMB RMB
COST OR VALUATION
At beginning of the year 44,615 274,742 201,119 5,517 5,055 25,579 556,627
Additions 1,381 8,641 4,121 1,211 36 91,904 107,294
Transfers 5,995 49,836 16,659 -- 292 (72,782) --
Disposals or write off (485) (10,054) (1,757) (272) (60) -- (12,628)
------- -------- -------- ------ ------ ------- --------
At end of the year 51,506 323,165 220,142 6,456 5,323 44,701 651,293
------- -------- -------- ------ ------ ------- --------
ACCUMULATED DEPRECIATION
AND IMPAIRMENT
At beginning of the year (10,184) (115,261) (89,454) (3,114) (1,987) (189) (220,189)
Charge for the year (2,042) (17,686) (14,718) (596) (428) -- (35,470)
Disposals or write off 125 2,654 1,122 189 48 104 4,242
------- -------- -------- ------ ------ ------- --------
At end of the year (12,101) (130,293) (103,050) (3,521) (2,367) (85) (251,417)
------- -------- -------- ------ ------ ------- --------
NET BOOK VALUE
At end of the year 39,405 192,872 117,092 2,935 2,956 44,616 399,876
======= ======== ======== ====== ====== ======= ========
ANALYSIS OF COST OR
VALUATION
At valuation (i) 15,653 105,475 126,385 1,739 1,261 -- 250,513
At cost (ii) 35,853 217,690 93,757 4,717 4,062 44,701 400,780
------- -------- -------- ------ ------ ------- --------
51,506 323,165 220,142 6,456 5,323 44,701 651,293
======= ======== ======== ====== ====== ======= ========
Carrying value of the
property, plant and
equipment had they been
stated at cost less
accumulated depreciation 37,962 186,148 100,937 2,648 2,365 44,616 374,676
======= ======== ======== ====== ====== ======= ========
(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.
113
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
The additions of the oil and gas properties of the Group for the year ended
December 31, 2005 included RMB 13,258 (2004: RMB 48) relating to the asset
retirement obligations recognised during the year (see Note 32).
The depreciation charge of the Group for the year ended December 31, 2005
included RMB 3,019 (2004: RMB 4,020) relating to impairment provision for
property, plant and equipment held for use. Of this amount, RMB1,955 (2004: RMB
798) was related to the Chemicals and Marketing segment, RMB 372 (2004: RMB
1,423) was for the Refining and Marketing segment and RMB 692 (2004: RMB 1,799)
was for the Exploration and Production segment.
The Refinery and Marketing segment incurred a loss of RMB 19,810 million
during the year ended December 31, 2005, principally as a result of increases in
input crude prices and insufficient corresponding increases in refined product
prices. Management believes that the allowed pricing mechanism of the refined
products will be amended and result in a cost-plus method with a margin not less
than 5%. In the event the anticipated change in the refined product pricing
mechanism does not materialize prior to June 30, 2006, impairment of the
carrying value of the refining related fixed assets will become necessary.
The following table indicates the changes to the Group's exploratory well
costs, which are included in construction in progress, for the years ended
December 31, 2005 and 2004.
2005 2004
------ ------
RMB RMB
Beginning balance at January 1 5,751 4,335
Additions to capitalized exploratory well costs
pending the determination of proved reserves 16,181 10,913
Reclassified to wells, facilities, and equipment based
on the determination of proved reserves (7,089) (4,756)
Capitalized exploratory well costs charged to expense (6,547) (4,741)
------ ------
Ending balance at December 31 8,296 5,751
====== ======
Number of wells at year end 993 783
====== ======
The following table provides an aging of capitalized exploratory well costs
based on the date the drilling was completed.
2005 2004
------ -----
RMB RMB
One year or less 8,023 5,283
Over one year 273 468
----- -----
Balance at December 31 8,296 5,751
===== =====
The RMB 273 at December 31, 2005 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.
In 2005, cash payment of RMB 25,099 (2004:RMB 17,716) have been incurred in
connection with exploration activities, including RMB 9,019 (2004:RMB 7,349)
related to operating activities and RMB 16,080 (2004:RMB 10,367) related to
investing activities.
114
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
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
--------------- ---------------
2005 2004 2005 2004
------ ------ ------ ------
RMB RMB RMB RMB
Short-term lease (less than 10 years) 336 335 333 331
Medium-term lease (10 to 50 years) 56,768 51,584 39,072 34,100
------ ------ ------ ------
57,104 51,919 39,405 34,431
====== ====== ====== ======
Substantially all the buildings of the Group are located in the PRC.
Property, plant and equipment under finance leases at the end of year are
as follows:
GROUP COMPANY
--------------- ---------------
2005 2004 2005 2004
------ ------ ------ ------
RMB RMB RMB RMB
Exploration and Production 45 45 45 45
Refining and Marketing -- 94 -- 94
Chemicals and Marketing -- 110 -- 110
Accumulated depreciation (12) (74) (12) (74)
--- --- --- ---
33 175 33 175
=== === === ===
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.
Bank borrowings are secured on property, plant and equipment at net book
value of RMB 75 (2004: RMB 246) at December 31, 2005.
115
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
16 INVESTMENTS IN ASSOCIATES
The Group's interests in its principal associates, all of which are
unlisted, were as follows:
COUNTRY OF INTEREST TYPE OF
NAME INCORPORATION ASSETS LIABILITIES REVENUES PROFIT HELD % SHARE
---- ------------- ------ ----------- -------- ------ --------- --------
2005
DaLian West Pacific PRC 10,964 7,861 30,153 477 28.4 ordinary
Petrochemical Co., Ltd.
China Marine Bunker PRC 6,419 4,196 28,042 254 50.0 ordinary
(PetroChina) Co., Ltd.
Other 41,528 27,757 62,559 4,465 20.0-50.0 ordinary
------ ------ ------- ----- --------- --------
58,911 39,814 120,754 5,196
====== ====== ======= =====
2004
Dalian West Pacific PRC 10,182 6,704 21,115 1,314 28.4 ordinary
Petrochemical Co., Ltd.
China Marine Bunker PRC 4,095 2,146 18,356 132 50.0 ordinary
(PetroChina) Co., Ltd.
Other 22,626 15,898 74,872 2,397 20.0-50.0 ordinary
------ ------ ------- -----
36,903 24,748 114,343 3,843
====== ====== ======= =====
Share of profit of associates included in the profit and loss account of
the Group was RMB 2,401 (2004: RMB 1,621) in 2005.
Share of net profit of associates included in retained earnings of the
Group was RMB 3,597 (2004: RMB 1,943) at December 31, 2005. Dividends received
and receivable from associates were RMB 634 (2004: RMB 671) in 2005.
In 2005, investments in associates of RMB 1,104 (2004:RMB 60) were disposed
of with a loss of RMB 2 (2004: RMB 33) incurred.
17 AVAILABLE-FOR-SALE INVESTMENTS
GROUP COMPANY
------------- -------------
2005 2004 2005 2004
----- ----- ----- -----
RMB RMB RMB RMB
Unlisted available-for-sale investments 1,907 2,361 1,638 2,109
Less: Impairment provision (677) (755) (665) (745)
----- ----- ----- -----
1,230 1,606 973 1,364
===== ===== ===== =====
116
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
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 109 (2004: RMB
113) in 2005.
In 2005, available-for-sale investments of RMB 1,003 (2004: RMB 89) were
disposed of with a loss of RMB 27 (2004: RMB 6) incurred.
18 SUBSIDIARIES
Principal subsidiaries are:
TYPE OF ATTRIBUTABLE
COUNTRY OF PAID-UP LEGAL EQUITY
COMPANY NAME INCORPORATION CAPITAL RMB ENTITY INTEREST% PRINCIPAL ACTIVITIES
------------ -------------- ----------- ------- ------------ -------------------------
*Daqing Oilfield Company PRC 47,500 309 100.00 Exploration, production
Limited
and the sale of crude
oil and natural gas;
production and sale
of refined products
*Jinzhou Petrochemical PRC 788 375 95.87 Production and sale of
Company Limited (i) oil and chemical
products
*Jilin Chemical PRC 3,561 375 67.29 Production and sale of
Industrial Company chemical products
Limited (ii)
Daqing Yu Shu Lin PRC 1,272 309 88.16 Exploration and
Oilfield Company Limited production of crude
oil and natural gas
*Liaohe Jinma Oilfield PRC 1,100 375 97.48 Exploration, production,
Company Limited (iii) transportation and
sale of crude oil and
natural gas
PetroChina International British Virgin USD 0.9 309 100.00 Exploration and
Limited Islands production of crude
oil and natural gas
outside of PRC
PetroChina International Bahamas USD 0.005 309 100.00 Exploration and
Indonesia Limited production of crude
oil and natural gas
in Indonesia
*Zhong You Kan Tan Kai PRC 100 309 50.00 Exploration and
Fa Company Limited production of crude
oil and natural gas
outside of PRC
309 -- Limited liability company.
375 -- Joint stock company with limited liability.
* -- Subsidiaries directly held by the Company as of December 31, 2005.
117
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
(i) Pursuant to the resolution passed at the Board of Directors' meeting
held on October 26, 2005, the Company offered to acquire all of the
150,000,000 outstanding A shares of Jinzhou Petrochemical Company
Limited ("JPCL") from minority shareholders at RMB 4.25 per share. As
at December 31, 2005, the Company had paid total cash consideration of
RMB 500 and acquired 117,486,753 A shares, representing approximately
14.92% of the total issued shares of JPCL. After this acquisition, the
Company owns 95.87% of the outstanding share of JPCL. The excess of
the cost of purchase over the carrying value of the underlying assets
and liabilities acquired was recorded in equity. As approved by China
Securities Regulatory Commission, JPCL ceased to be a publicly traded
company on January 4, 2006.
(ii) Pursuant to the resolution passed by the Board of Directors' meeting
held on October 26, 2005, the Company offered to acquire all the
outstanding 200,000,000 A shares and 964,778,000 H shares (including
ADS) of JiLin Chemical Industrial Company Limited ("JCIC") from the
minority shareholders at RMB 5.25 per A share and HK$2.80 per H share
respectively. This offer period ended in February, 2006 and the effect
of this acquisition will be reflected in the consolidated financial
statements of the Group for the year ending December 31, 2006.
(iii) Pursuant to the resolution passed by the Board of Directors' meeting
held on October 26, 2005, the Company offered to acquire all of the
200,000,000 outstanding A shares of Liaohe Jinma Oilfield Company
Limited ("LJOCL") from minority shareholders at RMB 8.80 per share. As
at December 31, 2005, the Company had paid total cash consideration of
RMB 1,519 and acquired 172,315,428 A shares, representing
approximately 15.67% of the total issued share of LJOCL. After this
acquisition, the Company owns 97.48% of the outstanding share of
LJOCL. The excess of the cost of purchase over the carrying value of
the underlying assets and liabilities acquired was recorded in equity.
As approved by China Securities Regulatory Commission, LJOCL ceased to
be a publicly traded company on January 4, 2006.
19 ADVANCE OPERATING LEASE PAYMENTS
GROUP COMPANY
--------------- --------------
2005 2004 2005 2004
------ ------ ------ -----
RMB RMB RMB RMB
Land use rights 9,786 8,011 7,000 5,718
Advance lease payments 6,449 4,296 4,933 3,148
------ ------ ------ -----
16,235 12,307 11,933 8,866
====== ====== ====== =====
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.
118
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
20 INTANGIBLE AND OTHER ASSETS
GROUP
2005 2004
---------------------------- ----------------------------
ACCUMULATED ACCUMULATED
COST AMORTISATION NET COST AMORTISATION NET
----- ------------ ----- ----- ------------ -----
RMB RMB RMB RMB RMB RMB
Patents 2,166 (1,140) 1,026 1,873 (958) 915
Technical know-how 325 (209) 116 248 (181) 67
Other 2,664 (684) 1,980 1,454 (396) 1,058
----- ------ ----- ----- ------ -----
Intangible assets 5,155 (2,033) 3,122 3,575 (1,535) 2,040
===== ====== ===== ===== ====== =====
Other assets 1,889 980
----- -----
5,011 3,020
===== =====
COMPANY
2005 2004
---------------------------- ----------------------------
ACCUMULATED ACCUMULATED
COST AMORTISATION NET COST AMORTISATION NET
----- ------------ ----- ----- ------------ -----
RMB RMB RMB RMB RMB RMB
Patents 1,505 (810) 695 1,213 (694) 519
Technical know-how 101 (15) 86 28 (9) 19
Other 2,109 (502) 1,607 1,078 (297) 781
----- ------ ----- ----- ------ -----
Intangible assets 3,715 (1,327) 2,388 2,319 (1,000) 1,319
===== ====== ===== ===== ====== =====
Other assets 1,595 834
----- -----
3,983 2,153
===== =====
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.
119
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
21 INVENTORIES
GROUP COMPANY
--------------- ---------------
2005 2004 2005 2004
------ ------ ------ ------
RMB RMB RMB RMB
Crude oil and other raw materials 22,396 14,903 17,888 9,725
Work in progress 5,933 5,417 5,157 4,527
Finished goods 35,131 27,913 28,880 23,944
Spare parts and consumables 43 70 32 47
------ ------ ------ ------
63,503 48,303 51,957 38,243
Less: Write down in inventories (770) (926) (419) (569)
------ ------ ------ ------
62,733 47,377 51,538 37,674
====== ====== ====== ======
Inventories of the Group carried at net realisable value amounted to RMB
2,236 (2004: RMB 3,282) at December 31, 2005.
22 ACCOUNTS RECEIVABLE
GROUP COMPANY
--------------- ---------------
2005 2004 2005 2004
------ ------ ------ ------
RMB RMB RMB RMB
Accounts receivable due from third
parties 6,483 4,605 3,209 3,929
Accounts receivable due from related
parties 2,145 4,085 1,465 1,883
Less: Impairment provision (3,998) (4,848) (3,203) (3,833)
------ ------ ------ ------
4,630 3,842 1,471 1,979
====== ====== ====== ======
Amounts due from related parties are interest free and unsecured.
The aging analysis of accounts receivable at December 31, 2005 is as
follows:
GROUP COMPANY
--------------- ---------------
2005 2004 2005 2004
------ ------ ------ ------
RMB RMB RMB RMB
Within 1 year 4,280 3,506 1,276 1,770
Between 1 to 2 years 70 89 41 49
Between 2 to 3 years 46 173 36 135
Over 3 years 4,232 4,922 3,321 3,858
----- ----- ----- -----
8,628 8,690 4,674 5,812
===== ===== ===== =====
The Group offers its customers the credit terms of no more than 180 days,
except for certain selected customers.
120
PETROCHINA COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except per share data or unless otherwise stated)
23 PREPAID EXPENSES AND OTHER CURRENT ASSETS
GROUP COMPANY
--------------- ---------------
2005 2004 2005 2004
------ ------ ------ ------
RMB RMB RMB RMB
Other receivables 9,404 9,777 5,420 5,079
Amounts due from related parties
-Subsidiaries -- -- 14,689 15,026
-Other 13,524 11,461 8,270 9,575
Less: Impairment provision (6,814) (7,255) (4,197) (4,473)
------ ------ ------ ------
16,114 13,983 24,182 25,207
Advances to suppliers 5,819 5,448 4,492 4,413
Prepaid expenses 279 248 195 175
Other current assets 461 187 390 132
------ ------ ------ ------
22,673 19,866 29,259 29,927
====== ====== ====== ======
Other receivables consist primarily of taxes other than income taxes refund
receivables, subsidies receivable, and receivables for the sale of materials and
scrap.
Except for loans to related parties (Note 39 (g)), amounts due from related
parties are interest free, unsecured and with no fixed terms of repayment.
24 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.
25 INVESTMENTS IN COLLATERALIZED LOANS
Securities, in the form of loans collateralized by principally PRC
government bonds, purchased by the Group are recorded as investments in
collateralized loans. These securities have terms ranging from 3 days to 182
days. The difference between the purchase price and the amount that the Company
can receive upon the maturity of these securities is treated as interest income
and accrued over the life of these securities using the effective yield method.
Investments in collateralized loans are accounted for as collateralized
financing transactions and are recorded at their contractual amounts plus
interest accrued.
The weighted average effective interest rate on investments in
collateralized loans was 2.23% (2004: 2.36%) for the year ended December 31,
2005.
121
PETROCHINA COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except per share data or unless otherwise stated)
26 CASH AND CASH EQUIVALENTS
GROUP COMPANY
--------------- --------------
2005 2004 2005 2004
------ ------ ------ -----
RMB RMB RMB RMB
Cash at bank and in hand 80,905 11,688 55,814 8,458
====== ====== ====== =====
The weighted average effective interest rate on bank deposits was 1.97%
(2004: 1.25%) for the year ended December 31, 2005.
27 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
GROUP COMPANY
--------------- ----------------
2005 2004 2005 2004
------ ------ ------- ------
RMB RMB RMB RMB
Trade payables 13,749 7,953 8,462 5,407
Advances from customers 7,698 6,002 6,347 4,716
Salaries and welfare payable 7,353 5,926 6,020 4,912
Accrued expenses 4 7 -- 7
Dividends payable by subsidiaries to
minority shareholders 93 11 -- --
Interest payable 27 6 26 4
Construction fee and equipment cost
payables 16,420 9,366 13,119 8,863
One-time employee housing remedial
payment payable 1,174 1,740 1,174 1,740
Other payables 12,158 8,170 11,250 6,769
Amounts due to related parties
-Subsidiaries -- -- 39,590 30,652
-Other 41,082 33,891 27,245 21,842
------ ------ ------- ------
99,758 73,072 113,233 84,912
====== ====== ======= ======
Other payables consist primarily of customer deposits.
Amounts due to related parties are interest-free, unsecured and with no
fixed terms of repayment.
The aging analysis of trade payables at December 31, 2005 is as follows:
GROUP COMPANY
-------------- -------------
2005 2004 2005 2004
------ ----- ----- -----
RMB RMB RMB RMB
Within 1 year 12,876 7,430 7,914 5,037
Between 1 to 2 years 434 154 244 109
Between 2 to 3 years 85 57 51 53
Over 3 years 354 312 253 208
------ ----- ----- -----
13,749 7,953 8,462 5,407
====== ===== ===== =====
122
PETROCHINA COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except per share data or unless otherwise stated)
28 BORROWINGS
(A) SHORT-TERM BORROWINGS
GROUP COMPANY
--------------- ---------------
2005 2004 2005 2004
------ ------ ------ ------
RMB RMB RMB RMB
Bank loans
- secured 34 495 6 7
- unsecured 12,753 11,100 10,870 10,174
Loans from fellow CNPC subsidiary 520 4,351 120 40
Other 57 8 53 3
------ ------ ------ ------
13,364 15,954 11,049 10,224
Current portion of long-term borrowings 15,325 18,983 11,287 15,315
------ ------ ------ ------
28,689 34,937 22,336 25,539
====== ====== ====== ======
123
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 2005 2004 2005 2004
---------------------------- ------ ------ ------ ------
RMB RMB RMB RMB
RENMINBI - DENOMINATED
BORROWINGS:
Bank loans for the Majority variable interest
development of oil rates ranging from 5.18%
fields and construction to 6.12% per annum as of
of refining plants December 31, 2005, with
maturities through 2010 9,778 16,195 9,571 15,749
Bank loans for working Majority variable interest
capital rates ranging from 5.18%
to 5.27% per annum as of
December 31, 2005, with
maturities through 2008 6,030 6,044 6,000 6,014
Loans from fellow CNPC Floating interest rates
subsidiary for the ranging from 4.46% to
development of oil 5.18% per annum as of
fields and construction December 31, 2005, with
of refining plants maturities through 2032 16,462 15,610 16,462 15,610
Working capital loans Majority variable interest
from fellow CNPC rates ranging from 4.61%
subsidiary to 4.67% per annum as of
December 31, 2005, with
maturities through 2007 4,335 5,043 4,330 5,043
Working capital loans Fixed interest rates at
6.32% per annum with no
fixed repayment term 5 9 5 9
Corporate debenture for Fixed interest rate at
the development of oil 4.50% per annum with
fields and construction maturities through 2007 1,350 1,350 1,350 1,350
of refining plants
Corporate debenture for Fixed interest rate at
the development of oil 4.11% per annum with
and gas properties maturities through 2013 1,500 1,500 1,500 1,500
124
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 2005 2004 2005 2004
---------------------------- ------ ------ ------ ------
RMB RMB RMB RMB
US DOLLAR - DENOMINATED
BORROWINGS:
Bank loans for the Fixed interest rates
development of oil fields ranging from free to
and construction of 9.00% per annum with
refining plants maturities through 2038 1,404 1,883 424 721
Bank loans for the Floating interest rates
development of oil fields ranging from 2.69% to
and construction of 9.70% per annum as of
refining plants December 31, 2005, with
maturities through 2014 6,751 7,320 674 755
Bank loans for working Floating interest rates
capital ranging from LIBOR plus
0.40% to LIBOR plus 3.00%
per annum as of December
31, 2005, with maturities
through 2006 1,362 492 -- --
Bank loans for acquisition Floating interest rate at
of overseas oil and gas LIBOR plus 0.55% per
properties annum as of December 31,
2005, with maturities
through 2009 1,614 1,490 -- --
Loans from fellow CNPC Floating interest rates
subsidiary for the ranging from LIBOR
development of oil fields minus 0.25% to LIBOR
and construction of plus 0.50% per annum as
refining plants of December 31, 2005,
with maturities through
2020 2,852 1,633 2,852 1,633
Loans from fellow CNPC Floating interest rate at
subsidiary for acquisition LIBOR plus 0.40% per
of overseas oil and gas annum as of December 31,
properties 2005, with maturities
through 2006 593 608 -- --
Loans from fellow CNPC Floating interest rates
subsidiary for working from LIBOR plus 0.40% to
capital LIBOR plus 1.00% per
annum as of December 31,
2005, with maturities
through 2008 2,557 2,687 -- --
125
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 2005 2004 2005 2004
--------------------------- ------- ------- ------- -------
RMB RMB RMB RMB
Loans for the development of Fixed interest rate at
oil fields and construction 1.55% per annum with
of refining plants maturities through 2022 509 554 509 554
Loans for working capital Floating interest rate at
LIBOR plus 0.35% per
annum as of December 31,
2005 with maturities
through 2008. 668 64 -- --
Corporate debenture for the Fixed interest rate at
development of oil fields 3.00% per annum with
and construction of refining maturities through 2019 347 -- -- --
plants
Corporate debenture for the Fixed interest rate at
development of oil and gas 9.50% per annum with
properties maturities through 2011 844 -- -- --
Corporate debenture for the Fixed interest rate at
development of oil and gas 15.00% per annum with
properties maturities through 2008 292 -- -- --
JAPANESE YEN -DENOMINATED
BORROWINGS:
Bank loans for the Fixed interest rates
development of oil fields ranging from 4.10% to
and construction of refining 5.30% per annum with
plants maturities through 2010 226 430 134 269
EURO - DENOMINATED
BORROWINGS:
Bank loans for the Fixed interest rates
development of oil fields ranging from 2.00% to
and construction of refining 2.30% per annum with
plants maturities through 2023 256 360 93 117
BRITISH POUND - DENOMINATED
BORROWINGS:
Bank loans for the Fixed interest rate at
development of oil fields 2.85% per annum with
and construction of refining maturities through 2007
plants 160 338 160 338
------- ------- ------- -------
59,895 63,610 44,064 49,662
Finance lease
obligations -- 21 -- 21
------- ------- ------- -------
Total long-term
borrowings 59,895 63,631 44,064 49,683
Less: Current
portion of long- term
borrowings (15,325) (18,983) (11,287) (15,315)
------- ------- ------- -------
44,570 44,648 32,777 34,368
======= ======= ======= =======
126
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
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. Interest free loans amounted to RMB 110 (2004: RMB 88)
at December 31, 2005.
Borrowings of RMB 674 (2004: RMB 756) were guaranteed by CNPC and its
subsidiaries at December 31, 2005.
The Group's borrowings include secured liabilities (lease and bank
borrowings) totalling RMB 1,108 (2004: RMB 2,269) at December 31, 2005. Bank
borrowings are secured mostly over certain of the Group's property and time
deposits with maturities over one year.
GROUP COMPANY
--------------------- ---------------------
2005 2004 2005 2004
--------- --------- --------- ---------
RMB RMB RMB RMB
Total borrowings:
- at fixed rates 19,750 19,885 14,948 16,163
- at variable rates 53,509 59,700 40,165 43,744
--------- --------- --------- ---------
73,259 79,585 55,113 59,907
========= ========= ========= =========
Weighted average effective interest rates:
- bank loans 5.26% 4.69% 5.03% 4.86%
- loans from fellow CNPC subsidiary 4.90% 4.47% 4.85% 4.62%
- other loans 3.38% 2.01% 1.58% 1.63%
- corporate debentures 5.86% 4.30% 4.30% 4.30%
- finance lease obligations -- 4.78% -- 4.78%
The carrying amounts and fair values of long-term borrowings (excluding
finance lease obligations) are as follows:
GROUP COMPANY
--------------- ---------------
CARRYING AMOUNTS
---------------------------------
2005 2004 2005 2004
------ ------ ------ ------
RMB RMB RMB RMB
Bank loans 27,581 34,552 17,056 23,963
Loans from fellow CNPC subsidiary 26,799 25,581 23,644 22,286
Corporate debentures 4,333 2,850 2,850 2,850
Other 1,182 627 514 563
------ ------ ------ ------
59,895 63,610 44,064 49,662
====== ====== ====== ======
127
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
GROUP COMPANY
--------------- ---------------
FAIR VALUES
---------------------------------
2005 2004 2005 2004
------ ------ ------ ------
RMB RMB RMB RMB
Bank loans 27,397 34,394 17,060 23,982
Loans from fellow CNPC subsidiary 26,795 25,581 23,640 22,286
Corporate debentures 4,173 2,632 2,664 2,632
Other 1,049 469 381 405
------ ------ ------ ------
59,414 63,076 43,745 49,305
====== ====== ====== ======
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
0.13% to 7.45% per annum as of December 31, 2005 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 2005 2004 2005 2004
------ ------ ------ ------
RMB RMB RMB RMB
Within one year 5,378 10,233 3,512 7,836
Between one to two years 11,009 5,295 9,042 3,512
Between two to five years 10,417 17,951 4,111 11,998
After five years 777 1,073 391 617
------ ------ ------ ------
27,581 34,552 17,056 23,963
====== ====== ====== ======
128
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
GROUP COMPANY
--------------- ---------------
LOANS OTHER THAN BANK LOANS 2005 2004 2005 2004
------ ------ ------ ------
RMB RMB RMB RMB
Within one year 9,947 8,729 7,775 7,458
Between one to two years 7,364 4,850 6,381 3,676
Between two to five years 4,525 9,121 3,739 8,271
After five years 10,478 6,358 9,113 6,294
------ ------ ------ ------
32,314 29,058 27,008 25,699
====== ====== ====== ======
Future minimum payments on finance lease obligations at the dates indicated
below are as follows:
GROUP COMPANY
----------- -----------
2005 2004 2005 2004
---- ---- ---- ----
RMB RMB RMB RMB
Within one year -- 22 -- 22
Between one to two years -- -- -- --
--- --- --- ---
22 -- 22
Future finance charges on finance lease
obligations -- (1) -- (1)
--- --- --- ---
Present value of finance lease
obligations -- 21 -- 21
=== === === ===
The present value of finance lease
obligations can be analysed as follows:
- Within one year -- 21 -- 21
- Between one to two years -- -- -- --
--- --- --- ---
-- 21 -- 21
=== === === ===
129
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
29 SHARE CAPITAL
GROUP COMPANY
----------------- -----------------
2005 2004 2005 2004
------- ------- ------- -------
RMB RMB RMB RMB
Registered, issued and fully paid:
State-owned shares 157,922 158,242 157,922 158,242
H shares 21,099 17,582 21,099 17,582
------- ------- ------- -------
179,021 175,824 179,021 175,824
======= ======= ======= =======
NUMBER OF SHARES OF THE COMPANY (MILLION) 2005 2004
----------------------------------------- ------- -------
Beginning balance 175,824 175,824
Issue of Share 3,197 --
------- -------
Ending balance 179,021 175,824
======= =======
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.
In September 2005, the Company issued 3,196,801,818 new H shares at HK$
6.00 per share and net proceed to the Company was approximately RMB 19,692. CNPC
also sold 319, 680,182 state-owned shares it held concurrently with PetroChina's
sale of new H shares in September 2005.
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.
130
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
30 RESERVES
GROUP COMPANY
----------------- -----------------
2005 2004 2005 2004
------- ------- ------- -------
RMB RMB RMB RMB
REVALUATION RESERVE
Beginning balance 79,946 79,946 79,946 79,946
------- ------- ------- -------
ENDING BALANCE 79,946 79,946 79,946 79,946
CAPITAL RESERVE
Beginning balance (25,376) (25,376) (28,003) (28,003)
Issue of shares (Note 29) 16,495 -- 16,495 --
------- ------- ------- -------
ENDING BALANCE (8,881) (25,376) (11,508) (28,003)
STATUTORY COMMON RESERVE FUND (Note a)
Beginning balance 36,071 26,370 28,636 18,935
Transfer from retained earnings 12,665 9,701 12,665 9,701
------- ------- ------- -------
ENDING BALANCE 48,736 36,071 41,301 28,636
STATUTORY COMMON WELFARE FUND (Note b)
Beginning balance 21,504 16,653 17,839 12,988
Transfer from retained earnings 6,333 4,851 6,333 4,851
------- ------- ------- -------
ENDING BALANCE 27,837 21,504 24,172 17,839
CURRENCY TRANSLATION DIFFERENCES
Beginning balance (111) (441) -- --
Currency translation adjustments (268) 330 -- --
------- ------- ------- -------
ENDING BALANCE (379) (111) -- --
OTHER RESERVES
Beginning balance (3,200) (3,200) (3,256) (3,256)
Payment to CNPC for the acquisition of the
refinery and petrochemical business (9) -- (9) --
Purchase from minority interests of listed
subsidiaries (Note 18) (1,438) -- (1,438) --
Paid-in capital to Zhong You Kan Tan Kai Fa
Company Limited (10,056) -- -- --
------- ------- ------- -------
ENDING BALANCE (14,703) (3,200) (4,703) (3,256)
------- ------- ------- -------
132,556 108,834 129,208 95,162
======= ======= ======= =======
131
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
(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.
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% (2004: 5%) of the net profit, as
determined under the PRC accounting regulations, for the year ended December 31,
2005 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 142,883 (2004: RMB
95,248) as of December 31, 2005. The distributable reserve computed under the
PRC accounting regulations at December 31, 2005 has been arrived at after the
accrual for the proposed final dividend in respect of year 2005 of RMB 32,282
(Note 14 (v)).
(d) As of December 31, 2005, revaluation surplus relating to depreciation
and disposals amounted to approximately RMB 53,717 (2004: RMB 46,757).
31 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
--------------- -------------
2005 2004 2005 2004
------ ------ ----- -----
RMB RMB RMB RMB
At beginning of year 16,902 13,436 7,489 6,388
Transfer to profit and loss account
(Note 11) 3,959 3,267 1,636 1,101
Exchange difference (102) 199 -- --
------ ------ ----- -----
At end of year 20,759 16,902 9,125 7,489
====== ====== ===== =====
132
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
--------------- ---------------
2005 2004 2005 2004
------ ------ ------ ------
RMB RMB RMB RMB
Deferred tax assets:
Current:
Provisions, primarily for receivables
and inventories 4,767 4,558 3,641 3,482
Tax losses of subsidiaries 1,014 9 -- --
Non current:
Shut down of manufacturing assets and
impairment of long-term assets 4,022 2,454 3,524 2,190
Other 796 802 449 489
------ ------ ------ ------
Total deferred tax assets 10,599 7,823 7,614 6,161
------ ------ ------ ------
Deferred tax liabilities:
Current:
Sales (Note (i)) 4,401 4,401 4,401 4,401
Non current:
Accelerated tax depreciation 26,615 20,070 12,116 8,999
Other 342 254 222 250
------ ------ ------ ------
Total deferred tax liabilities 31,358 24,725 16,739 13,650
------ ------ ------ ------
Net deferred tax liabilities 20,759 16,902 9,125 7,489
====== ====== ====== ======
(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, 2005.
32 ASSET RETIREMENT OBLIGATIONS
GROUP COMPANY
------------- ------------
2005 2004 2005 2004
------ ---- ----- ----
RMB RMB RMB RMB
At beginning of year 919 735 -- --
Liabilities incurred 13,258 48 8,068 --
Liabilities settled (1) -- -- --
Accretion expense 60 54 -- --
Currency translation differences (49) 82 -- --
------ --- ----- ---
At end of year 14,187 919 8,068 --
====== === ===== ===
133
PETROCHINA COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
Asset retirement obligations are related to oil and gas properties (see
Note 15). The ending balance of 2004 represented the obligation recognised by
Zhong You Kan Tan Kai Fa Company Limited (see Note 2). The increase in 2005
arose principally from the new legal requirements enacted in China after
December 31, 2004, that set forth specific abandonment and disposal processes
for energy production operation including oil and gas exploration and production
activities. See Note 4(c) for a description of the factors that may affect the
estimation of asset retirement obligations.
33 CASH FLOWS FROM OPERATING ACTIVITIES
NOTES 2005 2004
----- ------- -------
RMB RMB
Profit for the year 139,642 107,646
Adjustments for:
Taxation 11 54,180 43,598
Depreciation, depletion and amortisation 51,305 48,362
Provision for shutting down manufacturing asset 8 -- 220
Dry hole costs 15 6,547 4,741
Share of profit of associates 16 (2,401) (1,621)
Impairment of receivables, net 6 (455) 676
Write down in inventories, net 6 (139) 147
Impairment of available-for-sale investments, net 6 (23) 26
Loss on disposal of property, plant and equipment 6 2,026 2,818
Loss on disposal of associates 2 33
Loss on disposal of available-for-sale investment 27 6
Loss on disposal of intangible and other asset 106 50
Dividend income 17 (109) (113)
Interest income (1,924) (1,373)
Interest expense 9 2,762 2,896
Advance payments on long-term operating leases (5,170) (5,624)
Changes in working capital:
Accounts receivable and prepaid expenses and other
current assets 165 (6,195)
Inventories (15,896) (17,460)
Accounts payable and accrued liabilities 22,089 398
------- -------
CASH GENERATED FROM OPERATIONS 252,734 179,231
Interest received 1,917 1,373
Interest paid (3,628) (3,998)
Income taxes paid (47,138) (34,915)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 203,885 141,691
======= =======
134
PETROCHINA COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
34 PENSIONS
The Group participates in various retirement benefit plans organised by
Chinese 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 material obligations for the payment of retirement and other
post-retirement benefits of employees in China or overseas other than the
monthly contributions described above. Expenses incurred by the Group in
connection with the retirement benefit plans were RMB 3,104 (2004: RMB 2,476)
for the year ended December 31, 2005.
35 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 are
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. Majority of 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 28.
(C) FOREIGN EXCHANGE RATE RISK
From July 21, 2005, the PRC government has reformed the Renminbi exchange
rate regime and implemented a regulated floating exchange rate regime based on
market supply and demand with reference to a basket of currencies. However,
Renminbi is still regulated in capital projects. The exchange rates of Renminbi
are affected by domestic and international economic developments and political
changes, and supply and demand for Renminbi. Future exchange rates of Renminbi
against other currencies could vary significantly from the current exchange
rates. As Renminbi is the base currency of the Company and most of its
consolidated entities, the fluctuation of the exchange rate of Renminbi may have
positive or negative impacts on the results of operations of the Group. An
appreciation of Renminbi against United States Dollar may decrease the Group's
turnover, but the cost of acquiring imported materials and equipment may be
reduced. A devaluation of Renminbi against United States Dollar may not have a
negative impact on the Group's turnover but may increase the cost for acquiring
imported materials and equipment as well as the debt obligations denominated in
foreign currencies of the Group. The results of operations and financial
position of the Group may also be affected by fluctuations in exchange rates of
a number of other foreign currencies against Renminbi.
135
PETROCHINA COMPANY LIMITED
NOTES TO 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 prices of onshore crude oil are determined
with reference to international benchmark crude oil 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 2005 and 2004, 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 as all of them are in short-term
nature: 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 28.
36 CONTINGENT LIABILITIES
(A) BANK AND OTHER GUARANTEES
At December 31, 2005, the Group had contingent liabilities in respect of
guarantees made to China Petroleum Finance Company Limited ("CP Finance"), a
subsidiary of CNPC, from which it is anticipated that no material liabilities
will arise.
2005 2004
---- ----
RMB RMB
Guarantee of borrowings of associates 187 203
=== ===
(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.
On November 13, 2005, explosions occurred at a manufacturing facility of a
branch of the Company located in the Jilin Province. The impact of the accident
is undergoing government investigation. The Company is presumed to bear related
liability according to the investigation results.
136
PETROCHINA COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
(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.
(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:
- 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;
- 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
- 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, 2005, CNPC has obtained formal land use right
certificates in relation to 27,400 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.
137
PETROCHINA COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
37 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, 2005
and 2004 under non-cancellable operating leases are as follows:
2005 2004
------ ------
RMB RMB
First year 3,208 2,701
Second year 2,595 2,473
Third year 2,558 2,452
Fourth year 2,437 2,434
Fifth year 2,926 2,356
Thereafter 81,266 83,035
------ ------
94,990 95,451
====== ======
Operating lease expenses for land and buildings and equipment were RMB
4,850 (2004: RMB 3,873) for the year ended December 31, 2005.
(B) CAPITAL COMMITMENTS
2005 2004
------ ------
RMB RMB
Contracted but not provided for
Oil and gas properties 847 728
Plant and equipment 12,496 4,650
Other 22 169
------ ------
13,365 5,547
====== ======
(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.
138
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
At December 31, 2005, future minimum delivery commitments under the
contracts are as follows:
DECEMBER 31, 2005
QUANTITIES (BILLION
OF CUBIC FEET)
-------------------
2006 451
2007 583
2008 639
2009 704
2010 583
2011 and thereafter 5,528
-----
8,488
=====
(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 534 (2004: RMB 444) for the year ended
December 31, 2005.
Estimated annual payments for the next five years are as follows:
RMB
---
2006 681
2007 712
2008 712
2009 712
2010 850
38 MAJOR CUSTOMERS
The Group's major customers are as follows:
2005 2004
-------------------- --------------------
% TO TOTAL % TO TOTAL
REVENUE REVENUE REVENUE REVENUE
------- ---------- ------- ----------
RMB % RMB %
Sinopec 35,848 6% 36,977 9%
CNPC 19,823 4% 10,720 3%
------ -- ------ --
55,671 10% 47,697 12%
====== == ====== ==
139
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
39 RELATED PARTY TRANSACTIONS
CNPC, the immediate parent of the Company, is a state-controlled enterprise
directly controlled by the PRC government. The PRC government is the Company's
ultimate controlling party. State-controlled enterprises and their subsidiaries,
in addition to CNPC group companies, directly or indirectly controlled by the
PRC government are also related parties of the Group. Neither CNPC nor the PRC
government publishes financial statements available for public use.
The Group has extensive transactions with other members of the CNPC group.
Because of the relationship, it is possible that the terms of the transactions
between the Group and other members of the CNPC group are not the same as those
that would result from transactions with other related parties or wholly
unrelated parties.
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 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 current Comprehensive Products and Services Agreement were
amended during 2005 and the agreement is effective through December 31, 2008.
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.
The Land Use Rights Leasing 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 Building 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 its related parties during the years and balances arising from related party
transactions at the end of the years indicated below:
140
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
(A) BANK DEPOSITS
DECEMBER DECEMBER
NOTE 31, 2005 31, 2004
---- -------- --------
RMB RMB
Bank deposits balance at the end of the year
CP Finance (i) 24,356 1,827
State-controlled banks and other financial institutions 55,139 10,614
------ ------
79,495 12,441
====== ======
YEAR ENDED DECEMBER 31
---- -------- --------
NOTE 2005 2004
---- -------- --------
RMB RMB
Interest income from bank deposits
CP Finance (i) 33 29
State-controlled banks and other financial institutions 1,582 132
----- ---
1,615 161
===== ===
(i) CP Finance is a subsidiary of CNPC and a non-bank financial institution
approved by the People's Bank of China. The deposits yield interest at
prevailing saving deposit rates.
(B) SALES OF GOODS AND SERVICES
YEAR ENDED DECEMBER 31
----------------------
2005 2004
------- -------
RMB RMB
Sales of goods
Associates
- Crude Oil 883 2,597
- Refined Products 9,766 6,397
- Chemical Products 308 153
Fellow subsidiaries (CNPC Group)
- Crude Oil 155 100
- Refined Products 12,364 5,720
- Chemical Products 4,805 2,927
- Natural Gas 820 737
- Other 650 320
Other state-controlled enterprises
- Crude Oil 37,168 34,212
- Refined Products 86,505 61,138
- Chemical Products 18,275 14,155
- Natural Gas 8,127 5,093
------- -------
179,826 133,549
======= =======
Sales of goods to related parties are conducted at market prices.
141
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
YEAR ENDED DECEMBER 31
----------------------
2005 2004
----- -----
RMB RMB
Sales of services
Fellow subsidiaries (CNPC Group) 1,029 916
Other state-controlled enterprises 3,592 3,047
----- -----
4,621 3,963
===== =====
Sales of services principally represent the provision of the services in
connection with the transportation of crude oil and natural gas at market
prices.
(C) PURCHASES OF GOODS AND SERVICES
YEAR ENDED DECEMBER 31
-------------------------
NOTES 2005 2004
----- ------- -------
RMB RMB
Purchases of goods (i)
Associates 4,220 2,185
Other state-controlled enterprises 59,719 36,048
Purchases of services
Associates 43 29
Fellow subsidiaries (CNPC Group)
- Fees paid for construction and technical services (ii)
- exploration and development services (iii) 39,653 30,058
- other construction and technical services (iv) 25,010 18,673
- Fees for production services (v) 23,344 16,313
- Social services charges (vi) 2,153 1,289
- Ancillary services charges (vii) 2,345 1,717
- Commission expense and other charges (viii) 1,612 884
Other state-controlled enterprises (ix) 6,390 4,752
------- -------
164,489 111,948
======= =======
(i) Purchases of goods principally represent the purchases of raw
materials, spare parts and low cost consumables at market prices.
(ii) 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.
(iii)Direct costs for exploration and development services comprise
geophysical survey, drilling, well cementing, logging and well
testing.
142
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
(iv) 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..
(v) The fees paid for production services comprise fees for the repair of
machinery, supply of water, electricity and gas at the
state-prescribed prices, provision of services such as communications,
transportation, fire fighting, asset leasing, environmental protection
and sanitation, maintenance of roads, manufacture of replacement parts
and machinery at cost or market prices.
(vi) These represent expenditures for social welfare and support services
which are charged at cost.
(vii)Ancillary services charges represent mainly fees for property
management, the provision of training centers, guesthouses, canteens,
public shower rooms, etc.. at market prices.
(viii)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.
(ix) Purchases of services from other state-controlled enterprises
principally represent the purchases of the construction and technical
services at market prices.
(D) PURCHASES OF ASSETS
YEAR ENDED DECEMBER 31
----------------------
2005 2004
------ -----
RMB RMB
Purchases of assets
Associates 11 9
Fellow subsidiaries (CNPC Group) 5,870 4,018
Other state-controlled enterprises 6,813 3,480
------ -----
12,694 7,507
====== =====
Purchases of assets principally represent the purchases of manufacturing
equipments, office equipments, transportation equipments, etc. at market prices.
143
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
(E) YEAR-END BALANCES ARISING FROM SALES/PURCHASES OF
GOODS/SERVICES/ASSETS
DECEMBER 31, DECEMBER 31,
2005 2004
------------ ------------
RMB RMB
Accounts receivable from related parties at the
end of the year
Associates 12 138
Fellow subsidiaries (CNPC Group) 337 477
Other state-controlled enterprises 1,796 3,470
------ ------
2,145 4,085
Less: Impairment provision
Associates -- --
Fellow subsidiaries (CNPC Group) (246) (399)
Other state-controlled enterprises (924) (1,451)
------ ------
(1,170) (1,850)
------ ------
975 2,235
====== ======
Prepayment and other receivables from related parties
at the end of the year
Associates 3,634 1,332
Parent (CNPC) 103 3,385
Fellow subsidiaries (CNPC Group) 7,430 3,573
Other state-controlled enterprises 2,357 3,171
------ ------
13,524 11,461
Less: Impairment provision
Associates (240) (295)
Fellow subsidiaries (CNPC Group) (70) (20)
Other state-controlled enterprises (330) (365)
------ ------
(640) (680)
------ ------
12,884 10,781
====== ======
Accounts payable and accrued liabilities to related
parties at the end of the year
Associates 3,118 572
Parent (CNPC) 2,516 2,681
Fellow subsidiaries (CNPC Group) 20,285 13,083
Other state-controlled enterprises 15,163 17,555
------ ------
41,082 33,891
====== ======
144
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
YEAR ENDED DECEMBER 31
----------------------
2005 2004
---- ----
RMB RMB
Impairment provision of accounts receivable from related
parties charged to the profit and loss account
Associates -- --
Fellow subsidiaries (CNPC Group) 24 42
Other state-controlled enterprises (62) (36)
--- ---
(38) 6
=== ===
Impairment provision of prepayment and other receivables
from related parties charged to the profit and loss account
Associates (55) 49
Fellow subsidiaries (CNPC Group) 55 47
Other state-controlled enterprises (35) 82
--- ---
(35) 178
=== ===
(F) LEASES
YEAR ENDED DECEMBER 31
----------------------
NOTES 2005 2004
----- ----- -----
RMB RMB
Advance operating lease payments paid to related parties (i)
Parent (CNPC) 232 186
Other state-controlled enterprises 33 15
----- -----
265 201
===== =====
Other operating lease payments paid to related parties
Parent (CNPC) (ii) 2,192 2,106
Other state-controlled enterprises 5 5
----- -----
2,197 2,111
===== =====
(i) Advance operating lease payments principally represent the advance payment
paid for the long-term operating lease of land and gas stations at prices
prescribed by local governments or market prices.
(ii) Other operating lease payments to CNPC principally represent the rental
paid for the operating lease of land and buildings at the prices prescribed
in the Land Use Rights Leasing Contract, the Building Leasing Contract and
Supplemental Buildings Leasing Agreement with CNPC.
145
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
DECEMBER 31, 2005 DECEMBER 31, 2004
----------------- -----------------
RMB RMB
Operating lease payable to related parties
Parent (CNPC) 2 52
Other state-controlled enterprises 1 33
--- ---
3 85
=== ===
(G) LOANS
YEAR ENDED DECEMBER 31
----------------------
LOANS TO RELATED PARTIES 2005 2004
------------------------ ----- ------
RMB RMB
Loans to associates:
Beginning of the year 569 1,718
Loans advanced during year 1,392 235
Loans repayments received (321) (1,384)
Interest charged 29 41
Interest received (29) (41)
----- ---
End of the year 1,640 569
===== ===
Loans to associates are included in prepaid expenses and other current
assets (see Note 23).
The loans to related parties are mainly with interest rates ranging from
5.26% to 8.54% per annum as of December 31, 2005.
146
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
YEAR ENDED DECEMBER 31
----------------------
LOANS FROM RELATED PARTIES NOTES 2005 2004
-------------------------- ----- ------- -------
RMB RMB
Loans from CP Finance: (i)
Beginning of the year 29,932 29,575
Loan received during year 10,187 12,003
Loan repayments paid (12,803) (11,646)
Interest charged 1,297 1,234
Interest paid (1,294) (1,234)
------- -------
End of the year 27,319 29,932
======= =======
Loans from state-controlled banks and other financial (ii)
institutions:
Beginning of the year 36,562 38,341
Loan received during year 24,715 24,990
Loan repayments paid (30,105) (26,739)
Interest charged 1,670 1,847
Interest paid (1,664) (1,877)
------- -------
End of the year 31,178 36,562
======= =======
Loans from other related parties: (iii)
Beginning of the year 16 13
Loan received during year 51 5
Loan repayments paid (5) (2)
Interest charged 1 --
Interest paid (1) --
------- -------
End of the year 62 16
======= =======
(i) The loans from CP Finance are mainly with interest rates ranging from 4.45%
to 5.70% per annum as of December 31, 2005, with maturities through 2032;
(ii) The loans from state-controlled banks and other financial institutions are
mainly with interest rates ranging from free to 8.66% per annum as of
December 31, 2005, with maturities through 2038;
(iii)The loans from other related parties are mainly with interest rates ranging
from free to 6.32% per annum as of December 31, 2005, with no fixed
repayment term.
The secured loans from related parties amounts RMB 54 at December 31, 2005
(December 31, 2004: RMB 39).
The guaranteed loans amounts RMB 674 at December 31, 2005 (December 31,
2004: RMB 756). All these guaranteed loans are from non-related parties,
long-term and guaranteed by CNPC.
147
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
(H) KEY MANAGEMENT COMPENSATION
YEAR ENDED DECEMBER 31
----------------------
2005 2004
------- -------
RMB'000 RMB'000
Fee for key management personnel
- Directors and supervisors 897 120
Salaries, allowances and other benefits
- Directors and supervisors 4,031 2,012
- Other key management 2,207 1,330
Pension costs-defined contribution plans
- Directors and supervisors 57 43
- Other key management 37 31
------- -------
7,229 3,536
======= =======
As at December 31, 2005, none of the key management personnel has exercised
the stock appreciation rights. The liability for the units awarded to key
management personnel amounted to approximately RMB 177 (December 31, 2004: RMB
103) at December 31, 2005.
(I) CONTINGENT LIABILITIES
The Group has disclosed in Note 36 in respect of the contingent liabilities
arising from the guarantees made for related parties.
(J) COLLATERAL FOR BORROWINGS
The Group pledged time deposits with maturities over one year as collateral
with Citibank, N.A, Singapore Branch for the borrowings of subsidiaries and
associates. As at December 31, 2005, the balance of these time deposits amounted
to RMB 3,428 (December 31, 2004: RMB 3,744), including RMB 968 (December 31,
2004: RMB 1,738) for the borrowings of subsidiaries and RMB 2,460 (December 31,
2004: RMB 2,006) for the borrowings of associates.
148
PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
40 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 center, research and development, and other business
services to the operating business segments of the Group.
Most 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, the Group also has
overseas operations through subsidiaries engaging in the exploration and
production of crude oil and natural gas.
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, 2004 and
2005 is presented below:
149
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, 2004 PRODUCTION MARKETING MARKETING PIPELINE OTHER TOTAL
----------------- ----------- --------- --------- -------- ------- ---------
RMB RMB RMB RMB RMB RMB
Turnover (including
intersegment) 233,948 296,427 57,179 18,255 -- 605,809
Less: Intersegment sales (180,129) (21,862) (2,679) (3,785) -- (208,455)
-------- ------- ------ ------ ------- ---------
Turnover from external
customers 53,819 274,565 54,500 14,470 -- 397,354
======== ======= ====== ====== ======= =========
Depreciation, depletion and
amortisation (30,915) (8,957) (5,741) (2,645) (104) (48,362)
Segment result 138,129 28,445 11,025 2,475 (518) 179,556
Other costs (7,916) (16,554) (3,370) 60 (638) (28,418)
-------- ------- ------ ------ ------- ---------
Profit/(loss) from operations 130,213 11,891 7,655 2,535 (1,156) 151,138
-------- ------- ------ ------ ------- ---------
Finance costs (1,515)
Share of profit of
associates 225 75 211 16 1,094 1,621
---------
Profit before taxation 151,244
Taxation (43,598)
---------
Profit for the year 107,646
=========
Interest income (including
intersegment) 2,598 895 205 27 4,723 8,448
Less: Intersegment
interest income (7,075)
---------
Interest income from
external entities 1,373
=========
Interest expense (including
intersegment) (3,096) (1,777) (502) (693) (3,903) (9,971)
Less: Intersegment
interest expense 7,075
---------
Interest expense to external
entities (2,896)
=========
Segment assets 364,477 142,480 55,568 61,631 507,164 1,131,320
Elimination of intersegment
balances (502,771)
Investments in associates 3,352 2,862 280 192 3,212 9,898
---------
Total assets 638,447
=========
Segment capital
expenditure - for
property, plant and
equipment 62,868 17,684 4,319 13,901 174 98,946
Segment liabilities 109,602 75,664 18,484 35,385 99,711 338,846
Other liabilities 39,440
Elimination of
intersegment balances (182,811)
---------
Total liabilities 195,475
=========
150
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, 2005 PRODUCTION MARKETING MARKETING PIPELINE OTHER TOTAL
----------------- ----------- --------- --------- -------- ------- ---------
RMB RMB RMB RMB RMB RMB
Turnover (including intersegment) 337,208 428,494 73,978 26,214 -- 865,894
Less: Intersegment sales (270,943) (33,019) (4,754) (4,949) -- (313,665)
-------- ------- ------ ------ ------- ---------
Turnover from external customers 66,265 395,475 69,224 21,265 -- 552,229
======== ======= ====== ====== ======= =========
Depreciation, depletion and
amortisation (30,896) (8,964) (6,869) (4,478) (98) (51,305)
Segment result 220,452 2,116 6,896 3,639 (1,357) 231,746
Other costs (12,372) (21,926) (3,620) (456) (1,201) (39,575)
-------- ------- ------ ------ ------- ---------
Profit/(loss) from operations 208,080 (19,810) 3,276 3,183 (2,558) 192,171
-------- ------- ------ ------ ------- ---------
Finance costs (750)
Share of profit of associates 1,851 165 15 -- 370 2,401
---------
Profit before taxation 193,822
---------
Taxation (54,180)
---------
Profit for the year 139,642
=========
Interest income (including
intersegment) 3,912 998 387 100 5,763 11,160
Less: Intersegment interest
income (9,236)
---------
Interest income from external
entities 1,924
=========
Interest expense (including
intersegment) (3,631) (2,659) (636) (1,105) (3,967) (11,998)
Less: Intersegment interest
expense 9,236
---------
Interest expense to external
entities (2,762)
=========
Segment assets 460,814 207,724 76,439 69,232 631,696 1,445,905
Elimination of intersegment
balances (680,216)
Investments in associates 5,470 4,531 250 -- 2,127 12,378
---------
Total assets 778,067
=========
Segment capital expenditure -
for property, plant and equipment 83,214 16,454 13,569 11,137 427 124,801
Segment liabilities 146,616 97,918 30,559 40,847 161,753 477,693
Other liabilities 47,731
Elimination of intersegment
balances (291,024)
---------
Total liabilities 234,400
=========
151
PETROCHINA COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except 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
expense.
Note (c) - Segment results for the years ended December 31, 2004 and 2005
included impairment provision for property, plant and equipment (Note 15) and
shut down of manufacturing assets (Note 8).
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
CAPITAL
TURNOVER TOTAL ASSETS EXPENDITURE
----------------- ----------------- ----------------
YEAR ENDED DECEMBER 31 2005 2004 2005 2004 2005 2004
---------------------- ------- ------- ------- ------- ------- ------
RMB RMB RMB RMB RMB RMB
PRC 531,520 384,717 717,934 607,566 119,505 94,452
Other (Exploration and Production) 20,709 12,637 60,133 30,881 5,296 4,494
------- ------- ------- ------- ------- ------
552,229 397,354 778,067 638,447 124,801 98,946
======= ======= ======= ======= ======= ======
41 SUBSEQUENT EVENT
As described in Note 18, the Company offered to acquire all the outstanding
A shares and H shares (including ADS) of JCIC. Subsequent to the end of the
respective offering periods in February 2006, the Company paid total cash
consideration of RMB 3,372 and acquired from tendering minority shareholders
908,113,053 H shares (including ADS) and 157,700,200 A shares of JCIC,
representing totally 29.93% of the total issued share capital. As approved by
the related authorities, JCIC ceased its listing on The Stock Exchange of
Hong Kong Limited, New York Stock Exchange and Shenzhen Stock Exchange on
January 23, 2006, February 15, 2006 and February 20, 2006 respectively.
42 APPROVAL OF FINANCIAL STATEMENTS
The financial statements were approved by the board of directors on March
20, 2006 and will be submitted to the shareholders for approval at the annual
general meeting to be held on May 26, 2006.
152
PETROCHINA COMPANY LIMITED
SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION
ACTIVITIES (UNANDITED)
(Amounts in millions except for per share data or unless otherwise stated)
RESULTS OF OPERATIONS
YEAR ENDED
DECEMBER 31
-------------------
2005 2004
-------- --------
RMB RMB
Sales and other operating revenues
Sales to third parties 66,265 53,819
Intersegment sales 261,558 176,894
-------- --------
327,823 230,713
Production costs excluding taxes (41,713) (34,821)
Exploration expenses (15,566) (12,090)
Depreciation, depletion and amortisation (25,819) (26,287)
Taxes other than income taxes (10,239) (7,712)
-------- --------
Accretion expense (60) (54)
-------- --------
Profit before taxation 234,426 149,749
Taxation (64,816) (42,089)
-------- --------
Results of operations from producing activities 169,610 107,660
======== ========
Profit from associates' results of operations from producing activities 1,878 767
======== ========
CAPITALISED COSTS
DECEMBER 31, 2005 DECEMBER 31, 2004
----------------- -----------------
RMB RMB
Property costs -- --
Producing assets 359,539 303,784
Support facilities 138,093 124,793
Construction-in-progress 19,394 15,856
-------- --------
Total capitalised costs 517,026 444,433
Accumulated depreciation, depletion and amortisation (203,416) (180,926)
-------- --------
Net capitalised costs 313,610 263,507
======== ========
Share of associates' net capitalised costs 1,996 1,632
======== ========
153
PETROCHINA COMPANY LIMITED
SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION
ACTIVITIES (UNAUDITED)
(Amounts in millions except per share data or unless otherwise stated)
COSTS INCURRED IN PROPERTY ACQUISITIONS, EXPLORATION AND DEVELOPMENT
ACTIVITIES
YEAR ENDED
DECEMBER 31
---------------
2005 2004
------ ------
RMB RMB
Property acquisition costs -- --
Exploration costs 25,335 18,338
Development costs 72,551 47,508
------ ------
Total 97,886 65,846
====== ======
Share of associates' costs of property
acquisition, exploration, and development 2,394 1,143
====== ======
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
judgement. 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.
154
PETROCHINA COMPANY LIMITED
SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION
ACTIVITIES (UNAUDITED)
(Amounts in millions except per share data or unless otherwise stated)
Proved reserve estimates as of December 31, 2004 and 2005 were based on
reports prepared by DeGolyer and MacNaughton and Gaffney, Cline & Associates,
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 BARRELS) (BILLIONS OF CUBIC FEET)
Proved developed and undeveloped
Reserves at January 1, 2004 11,495 41,787
Changes resulting from:
Revisions of previous estimates 141 83
Improved recovery 109 43
Extensions and discoveries 573 4,405
Production (817) (1,069)
------ ------
Reserves at December 31, 2004 11,501 45,249
Changes resulting from:
Revisions of previous estimates 157 213
Improved recovery 101 --
Extensions and discoveries 606 4,005
Production (829) (1,344)
------ ------
Reserves at December 31, 2005 11,536 48,123
====== ======
Proved developed reserves at:
December 31, 2004 9,068 17,255
December 31, 2005 9,195 19,858
Proportional interest in proved reserves
of associates
December 31, 2004 439 100
December 31, 2005 426 102
At December 31, 2005, 10,935 million barrels of crude oil and condensate
and 47,323.3 billion cubic feet of natural gas proved developed and undeveloped
reserves are located within China, and 601 million barrels of crude oil and
condensate and 799.8 billion cubic feet of natural gas proved developed and
undeveloped reserves are located overseas.
155
PETROCHINA COMPANY LIMITED
SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION
ACTIVITIES (UNAUDITED)
(Amounts in millions except 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, 2004 and 2005 is as follows (in millions of RMB):
At December 31, 2004
Future cash inflows 4,046,151
Future production costs (912,881)
Future development costs (106,332)
Future income tax expense (934,068)
----------
Future net cash flows 2,092,870
Discount at 10% for estimated timing of cash flows (1,092,412)
----------
Standardised measure of discounted future net cash flows 1,000,458
==========
At December 31, 2005
Future cash inflows 5,337,329
Future production costs (1,043,358)
Future development costs (156,575)
Future income tax expense (1,279,133)
----------
Future net cash flows 2,858,263
Discount at 10% for estimated timing of cash flows (1,472,069)
----------
Standardised measure of discounted future net cash flows 1,386,194
==========
Share of associates' standardised measure of discounted
future net cash flows
At December 31, 2004 10,851
At December 31, 2005 15,288
Future net cash flows were estimated using period-end prices and costs, and
currently enacted tax rates.
156
PETROCHINA COMPANY LIMITED
SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION
ACTIVITIES (UNAUDITED)
(Amounts in millions except 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, 2004 and 2005 are as follows:
YEAR ENDED DECEMBER 31
----------------------
2005 2004
--------- ---------
RMB RMB
CHANGES IN STANDARDISED MEASURE OF DISCOUNTED FUTURE CASH FLOWS
Beginning of year 1,000,458 715,114
Sales and transfers of oil and gas produced, net of production costs (274,921) (187,020)
Net changes in prices and production costs and other 523,089 366,417
Extensions, discoveries and improved recovery 157,343 119,790
Development costs incurred (11,282) 14,829
Revisions of previous quantity estimates 21,678 13,420
Accretion of discount 144,709 101,787
Net change in income taxes (174,880) (143,879)
--------- ---------
End of year 1,386,194 1,000,458
========= =========
157
PETROCHINA COMPANY LIMITED
SIGNIFICANTDIFFERENCESBETWEENIFRSANDUSGAAP (UNANDITED)
(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 87 to
152 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 income of significant differences between IFRS and US GAAP is as
follows:
YEAR ENDED DECEMBER 31
----------------------
2005 2004
------- -------
RMB RMB
Profit for the year under IFRS 139,642 107,646
US GAAP adjustments:
Depreciation charges on property, plant and equipment revaluation gain 6,528 8,170
Depreciation charges on property, plant and equipment revaluation loss (149) (830)
Loss on disposal of revalued property, plant and equipment 432 523
Income tax effect (2,248) (2,595)
Minority interests (6,340) (3,863)
------- -------
Net income under US GAAP 137,865 109,051
======= =======
Basic and diluted net income per share under US GAAP (RMB) 0.78 0.62
======= =======
Effect on equity of significant differences between IFRS and US GAAP is as
follows:
DECEMBER 31, 2005 DECEMBER 31, 2004
----------------- -----------------
RMB RMB
Equity under IFRS 543,667 442,972
US GAAP adjustments:
Reversal of property, plant and equipment revaluation gain (80,555) (80,555)
Depreciation charges on property, plant and equipment
revaluation gain 51,971 45,443
Reversal of property, plant and equipment revaluation loss 1,513 1,513
Depreciation charges on property, plant and equipment
revaluation loss (1,459) (1,310)
Loss on disposal of revalued property, plant and equipment 1,746 1,314
Deferred tax assets on revaluation 8,843 11,091
Minority interests (28,034) (14,895)
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
======= =======
Purchase from minority interests of listed subsidiaries (Note
18 to the consolidated financial statements) 1,438 --
------- -------
Shareholders' equity under US GAAP 499,130 405,573
======= =======
158
PETROCHINA COMPANY LIMITED
SIGNIFICANTDIFFERENCESBETWEENIFRSANDUSGAAP (UNANDITED)
(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, 2005 and 2004 are as follows:
YEAR ENDED DECEMBER 31
----------------------
2005 2004
------- -------
RMB RMB
Balance at beginning of year 405,573 330,520
Net income for the year 137,865 109,051
Final dividend for year 2003 -- (13,947)
Interim dividend for year 2004 -- (20,381)
Final dividend for year 2004 (25,936) --
Interim dividend for year 2005 (27,731) --
Payment to CNPC for acquisition of refinery and petrochemical businesses
(Note 2 to the consolidated financial statements) (9) --
Issue of shares (Note 29 and 30 to the consolidated financial statements) 19,692 --
Capital contribution to Zhong You Kan Tan Kai Fa Company Limited (Note 2
to the consolidated financial statements) (10,056) --
Currency translation differences (268) 330
------- -------
Balance at end of year 499,130 405,573
======= =======
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 factors. 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 15 to the consolidated financial statements on pages
110 to 115, 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.
The depreciation charge, which includes impairment charge, on the
revaluation surplus from January 1, 2005 to December 31, 2005 was RMB 6,528, and
from January 1, 2004 to December 31, 2004 was RMB 8,170.
159
PETROCHINA COMPANY LIMITED
SIGNIFICANTDIFFERENCESBETWEENIFRSANDUSGAAP(UNANDITED)
(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, 2005 to December 31, 2005 was RMB 149, and from
January 1, 2004 to December 31, 2004 was RMB 830.
The loss on disposal of revalued property, plant and equipment, which
includes shut down of manufacturing assets, from January 1, 2005 to December 31,
2005 was RMB 432, and from January 1, 2004 to December 31, 2004 was RMB 523.
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) ONE-TIME REMEDIAL PAYMENTS FOR STAFF HOUSING
The Ministry of Finance of the PRC issued several public notices and
regulations during the years 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 2004 and 2005.
160
PETROCHINA COMPANY LIMITED
SIGNIFICANTDIFFERENCESBETWEENIFRSANDUSGAAP(UNANDITED)
(Amounts in millions except for per share data or unless otherwise stated)
(C) MINORITY INTEREST
In accordance with the revised IAS 1 and IAS 27, minority interest becomes
part of the profit for the year and total equity of the Group, whereas under US
GAAP, it is respectively excluded from the net income and shareholders' equity
of the Group. In addition, the reconciling item also includes the impact of
minority interest's share of the revaluation gain and loss, on the property,
plant and equipment of non-wholly owned subsidiaries, to net income and
shareholders' equity under US GAAP.
(D) PURCHASE FROM MINORITY INTERESTS OF LISTED SUBSIDIARIES
As described in note 18 to the consolidated financial statements on pages
117 to 118, the Company acquired certain outstanding A shares from the minority
interests of Jinzhou Petrochemical Company Limited ("JPCL") and Liaohe Jinma
Oilfield Company Limited ("LJOCL"). Under IFRS, the Company applies a policy of
treating transactions with minority interests as transactions with equity
participants of the Group. Therefore, the assets and liabilities of JPCL and
LJOCL additionally acquired by the company from minority interests were recorded
by the Company at cost. The difference between the company's purchase cost and
the book value of the interests in JPCL and LJOCL acquired by the Company from
minority interests was recorded in equity. Under US GAAP, the acquisition of
additional minority interest is accounted for under purchase method. Assets and
liabilities additionally acquired were restated to fair value and the difference
of purchase cost over fair value of the minority interests acquired and
identified intangible assets was recorded as goodwill.
(E) RECENT US ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB revised FAS No. 123 (FAS 123R). FAS 123R,
"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 123R is effective for interim periods
beginning after June 15, 2005. The Group is evaluating the transition provisions
allowed by FAS 123R. The Group does not expect the adoption of FAS 123R 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.
161
PETROCHINA COMPANY LIMITED
SIGNIFICANTDIFFERENCESBETWEENIFRSANDUSGAAP(UNANDITED)
(Amounts in millions except for per share data or unless otherwise stated)
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.
In March 2005, the FASB issued Interpretation No. 47, "Accounting for
Conditional Asset Retirement" (FIN 47), an Interpretation of FASB Statement
No.143. This Interpretation clarifies that the term conditional asset retirement
obligation as used in FASB Statement No. 143, "Accounting for Asset Retirement
Obligations", refers to a legal obligation to perform an asset retirement
activity in which the timing and (or) method of settlement are conditional on a
future event that may or may not be within the control of the entity. The
obligation to perform the asset retirement activity is unconditional even though
uncertainty exists about the timing and (or) method of settlement. Accordingly,
an entity is required to recognize a liability for the fair value of a
conditional asset retirement obligation if the fair value of the liability can
be reasonably estimated when incurred. This Interpretation also clarifies when
an entity would have sufficient information to reasonably estimate the fair
value of an asset retirement obligation. FIN 47 is effective no later than the
end of fiscal years ending after December 15, 2005. The adoption of FIN 47 did
not have a material impact on the Group's financial position or operational
results.
On March 29, 2005, the U.S. Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 107, "Share-Based Payment" (SAB 107). This
bulletin provides guidance related to share-based payment transactions with
nonemployees, the transition from nonpublic to public entity status, valuation
methods (including assumptions such as expected volatility and expected term),
the accounting for certain redeemable financial instruments issued under
share-based payment arrangements, the classification of compensation expense,
non-GAAP financial measures, first-time adoption of FAS 123R in an interim
period, capitalization of compensation cost related to share-based payment
arrangements, the accounting for income tax effects of share-based payment
arrangements upon adoption of FAS 123R, the modification of employee share
options prior to adoption of FAS 123R and disclosures in Management's Discussion
and Analysis ("MD&A") subsequent to adoption of FAS 123R. SAB 107 will be
effective when a registrant adopts FAS 123R. The Group does not expect the
adoption of SAB 107 to have a material impact on the Group's financial position
or operational results.
162
PETROCHINA COMPANY LIMITED
SIGNIFICANTDIFFERENCESBETWEENIFRSANDUSGAAP(UNANDITED)
(Amounts in millions except for per share data or unless otherwise stated)
In April 2005, the FASB issued Staff Position No. FAS 19-1, "Accounting for
Suspended Well Costs". The FASB staff believes that exploratory well costs
should continue to be capitalized when the well has found a sufficient quantity
of reserves to justify its completion as a producing well and the enterprise is
making sufficient progress assessing the reserves and the economic and operating
viability of the project. The Board replaces paragraphs 31 to 34 of Statement 19
and requires certain disclosures in the notes to the annual financial statements
to provide information for users of financial statements about management's
application of judgment in its evaluation of a project's capitalized exploratory
well costs. The disclosure required by this FSP should be made in reporting
periods beginning after April 4, 2005. The Group has made disclosures which meet
the disclosure requirement of this FSP in its consolidated financial statements.
In May 2005, the FASB issued Statement No.154, "Accounting changes and
Error Corrections" (FAS 154), which replaces APB Opinions No. 20, "Accounting
Changes", and FASB Statement No.3, "Reporting Accounting changes in Interim
Financial Statements", and changes the requirements for the accounting for and
reporting of a change in accounting principle. This Statement establishes,
unless impracticable, retrospective application as the required method for
reporting a change in accounting principle in the absence of explicit transition
requirements specific to the newly adopted accounting principle. The reporting
of a correction of an error by restating previously issued financial statements
is also addressed by this Statement. FAS154 is effective for accounting changes
and corrections of errors made in fiscal years beginning after December 15,
2005. The Group does not expect the adoption of FAS 154 to have a material
impact on the Group's financial position or operational results.
163
CORPORATE INFORMATION
BOARD OF DIRECTORS
Chairman: Chen Geng
Vice Chairman: Jiang Jiemin
Executive Directors: Su Shulin Duan Wende
Non-executive Directors: Zheng Hu Zhou Jiping
Wang Yilin Zeng Yukang
Gong Huazhang Jiang Fan
Independent Non-executive Directors: Chee-Chen Tung Liu Hongru
Franco Bernabe
Secretary to the Board of Directors: Li Huaiqi
SUPERVISORY COMMITTEE
Chairman: Wang Fucheng
Supervisors: Wen Qingshan Sun Xianfeng
Xu Fengli Qin Gang
Independent Supervisors: Li Yongwu Wu Zhipan
SENIOR MANAGEMENT
Wang Guoliang Liao Yongyuan
Jia Chengzao Hu Wenrui
AUTHORISED REPRESENTATIVES
Su Shulin Li Huaiqi
COMPANY'S WEBSITE
www.petrochina.com.cn
164
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
165
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
166
Agricultural Bank of China, Head Office
No.23A, Fuxing Road
Haidian District
Beijing, PRC
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, 2006. 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
167
Hong Kong PetroChina Company Limited
Unit 3606
Tower 2 Lippo Centre
89 Queensway
Hong Kong
Tel: (852) 2899 2010
Fax: (852) 2899 2390
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: 212-815-3700
E-mail: shareowners@bankofny.com
Website: http://www.stoc kbny.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 2005 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 Articles of Association of the Company.
168
MAJOR EVENTS IN 2005
FEBRUARY
- On February 17, in Asiamoney's Best Managed Companies and Corporate
Governance Poll, the Company was awarded the "Overall Best-Managed
Large Cap Company in 2004" and "Overall Most Improved Company for Best
Management Practices in 2004" in the PRC. Li Huaiqi, the Secretary of
the Company's Board of Directors, accepted the awards from Asiamoney
on behalf of the Company.
MARCH
- On March 16, the Company held the ninth meeting of the Second Term of
the Board of Directors in Beijing, during which the following
resolutions were passed: resolution on the Company's Financial
Statements for the year 2004 (including the publication of annual
results for the year ended December 31, 2004); resolution on the draft
profit distribution plan for the year 2004; resolution on the
Company's annual report for the year 2004 (for publication in Hong
Kong); resolution on the President's Work Report for the year 2004;
resolution on the report on the Assessment of the Completion of
Performance Targets by the President's Work Team and the formulation
of performance contract for the year 2005; resolution on the proposal
on requesting the shareholders' general meeting to authorize the Board
of Directors to determine the distribution of the Company's interim
dividend for 2005; resolution on the proposal on requesting the
shareholders' general meeting to approve the amendment of the
Company's Articles of Association; resolution on the amendment of the
Work Manual for the Board of Directors; resolution on the projects for
the acquisition of the refinery and petrochemical business and
reorganization of Daiyuan and Qingyang; resolution on the proposal on
requesting the shareholders' general meeting to authorize the Board of
Directors to issue new shares of the Company; and resolution on the
convening of the annual general meeting for the year 2004.
- On March 28, the Company entered into an Acquisition Agreement with
CNPC pursuant to which the Company acquired the refinery and
petrochemical businesses of Dayuan and Qingyang, both of which are
wholly-owned subsidiaries of CNPC for a cash consideration of RMB9
million.
APRIL
- On April 15, Finance Asia published its fifth poll results on the
"Annual Best Asian Companies". In the Asian industries category, the
Company was awarded the "Best Company in the Asian Oil
169
Industry". In the competition by region and country, the Company was
awarded the first place of the "Best Managed Companies in China" and
the "Best Company in Guaranteeing Dividend Payments".
- On April 18, Forbes published its latest ranking of the "Forbes 2000
World's Leading Companies". 88 companies in China ranked among these
2000 leading companies. The Company ranked first amongst the companies
in China and ranked 57 worldwide. Sinopec ranked 94 worldwide. These
are the only two companies in China which were amongst the top 100
companies worldwide.
MAY
- On May 26, the Company held its annual general meeting for the year
2004 in Beijing. The following resolutions were passed in the meeting:
approval of the Report of the Board of Directors for the year 2004;
approval of the Report of the Supervisory Committee for the year 2004;
approval of the Financial Statements for the year 2004; approval of
the profit distribution plan for the year 2004; approval of the
proposal to authorize the Board of Directors to determine the
distribution of the Company's interim dividend for 2005; approval of
the appointment of PricewaterhouseCoopers Zhong Tian CPAs Company
Limited and PricewaterhouseCoopers as domestic auditors and
international auditors of the Company respectively and authorizing the
Board of Directors to determine the remuneration for the auditors;
approval of the proposal to amend the Company's Articles of
Association; and approval of the proposal to authorize the Board of
Directors to issue shares of the Company.
JUNE
- On June 8, the Company held the tenth meeting of the Second Term of
the Board of Directors in Beijing. The following resolutions were
passed in the meeting: resolution on the acquisition of additional
interest in Newco; resolution on the transfer of shares in PTRI by the
Company to Newco; resolution on the establishment of an independent
directors' committee and the appointment of an independent financial
adviser by the Company in connection with the acquisition of
additional interest in Newco by the Company and the selling of assets
in Indonesia to Newco by the Company; resolution on the new continuing
connected transactions under the Supplemental Agreement to the
Comprehensive Products and Services Agreement and the caps for
continuing connected transactions in 2005; resolution on requesting
the shareholders' general meeting to authorise the Board of Directors
to handle matters pertaining to the acquisition of additional interest
170
in Newco and the transfer of interest in PTRI to Newco; resolution on
the convening of the first extraordinary general meeting of the
shareholders; resolution on the preparation of explanation on the
Organization and Working Rules for the Audit Committee; resolution on
the establishment of an independent directors' committee and the
appointment of an independent financial adviser in connection with the
approval of cap in respect of continuing connected transactions for
2006 to 2008.
- On June 10, the Company announced that it will acquire the relevant
overseas assets of CNPC, its parent company, for a consideration of
RMB20,741 million for the purposes of achieving a speedy establishment
of sizeable overseas businesses, expanding the room for growth of
overseas oil and gas resources, creating a potential for the
continuous growth of overseas oil and gas resources for the Company
and improving the value of the Company. Pursuant to the Acquisition
Agreement, the Company will inject capital into Newco by way of cash
which would result in the acquisition of 50% of the latter's interest.
Upon completion of the acquisition, the Company will correspondingly
own oil and gas assets of Newco in ten countries, including
Kazakhstan, Venezuela, Algeria, Peru, Aman, Azabaijan, Canada,
Ecuador, Niger and Chad. At the same time, in order to consolidate the
existing overseas businesses of the Company and to achieve synergy
with the overseas assets to be acquired by the Company, the Company
will transfer PTRI, a wholly-owned subsidiary of the Company, to
Newco. PTRI mainly engages in the exploration and production of oil
and gas in Indonesia. Newco will pay RMB579 million to the Company as
consideration for the purchase of all the issued share capital of
PTRI. Upon the transfer, PTRI will become a wholly-owned subsidiary of
Newco.
- On June 21, the Company convened the first extraordinary Board
meeting. The resolution on the approval and authorisation of the
Secretary of the Board of Directors to sign the 20-F Annual Report for
the year 2004 was passed by circulation.
JULY
- On July 18, the Company convened the second extraordinary Board
meeting. The resolution on the integration of the polymer businesses
of Petrochina Daqing Refinery and Petrochemical Branch and Daqing
Petroleum Administration Bureau was passed by circulation.
171
AUGUST
- On August 1, approximately 1,000 petrol stations of the Company in
Beijing, Tianjin, Shanghai, Shenyang, Changchun, Jinan, Guangzhou,
Chengdu, Xian, Urumqi, Chongqing and Suzhou began to accept payment by
credit cards. At the same time, the Peony-Petrochina Card, launched by
the Company in co-operation with the Industrial and Commercial Bank of
China, was formally issued in these cities.
- On August 16, the Company convened the first extraordinary general
meeting of shareholders in Beijing. The following resolutions were
passed in the meeting: approval of the acquisition of additional
interest in Newco by the Company; approval of the transfer of shares
in PTRI by the Company to Newco; approval of the new continuing
connected transaction under the Supplement Agreement to the
Comprehensive Products and Services Agreement and the caps for the
continuing connected transactions in 2005; approval of the proposal to
request the general meeting of shareholders to authorise the Board of
Directors to handle the matters pertaining to the acquisition of
additional interest in Newco and the transfer of shares in PTRI to
Newco and the revised caps for continuing connected transactions.
- On August 21, the Company convened the third extraordinary Board
meeting. The resolution on the Company's application for issue and
listing of additional shares outside China for investment by foreign
investors and authorizing the special committees of the Board of
Directors to handle related matters was passed by circulation.
- On August 24, the Company convened the eleventh meeting of the Second
Term of the Board of Directors. The following resolutions were passed
in the meeting: resolution on the Interim Financial Statements for the
year 2005 (including the interim results for the six months ended June
30, 2005); resolution on the plan for distribution of interim
dividends of the Company for the year 2005; resolution on the
adjustment of the investment plan of the Company for the year 2005;
resolution on the making of an application to the HKSE for new
continuing connected transactions and new caps; and resolution on the
convening of the second extraordinary general meeting of shareholders.
SEPTEMBER
- On September 15, the Company placed 3,516,482,000 H shares of RMB1.00
each in the share capital of the Company, of which 287,712,182 shares
were placed to the Social Security Fund, and 31,968,000 H shares were
sold by the Social Security Fund pursuant to the exercise in full of
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the option by the Manager. The placement price of the H shares was
HK$6.00 per share. The net proceeds of the placement of the new H
shares amounted to approximately HK$19,692 million. The net proceeds
will be used for development of the Company's business, including
acquisition within and outside of China. Upon the completion of the
placement of shares, the total number of issued shares of the Company
increased from 175,824,176,000 shares to 179,020,977,818 shares. The
number of H shares held by the public increased from 17,582,418,000
shares to 21,098,900,000 shares, representing 11.79% of the total
share capital.
- On September 28, Forbes published the "50 Biggest Listed Companies in
the Asia Pacific Region". Among the 50 companies, Toyota of Japan has
the largest market capitalization (US$146.2 billion), followed by the
Company (US$143.9 billion), BHP-Billiton (US$93.3 billion), China
Mobile (US$85.3 billion) and Samsung Electronic (US$77.0 billion).
OCTOBER
- On October 24, six companies in China and three companies in Hong
Kong, China were chosen as "Asia's Best Performing Public Listed
Companies" organised by Business Week. The Company ranked second on
the list.
- On October 26, the Company convened the fourth extraordinary Board
meeting. The resolution on the Company's application for the
integration of its listed subsidiaries by way of general offer and
authorizing the special committees of the Board of Directors to handle
related matters was passed by circulation.
- On October 31, the Company made an announcement for the tender offers
for all outstanding shares in Jinzhou Petrochemical, Liaohe Jinma and
Jilin Chemical in order to withdraw the listing of such shares. The
general offer will further increase the transparency of the Company,
resolve the issue of internal competition within the Group, regulate
connected transactions and improve the Company's efficiency. The offer
price for the A shares in Jinzhou Petrochemical was RMB4.25 per share.
The offer price for the A shares in Liaohe Jinma was RMB8.80 per
share. The offer prices for the A shares, H shares and ADSs of Jilin
Chemical were RMB5.25 per share, HK$2.80 per share and HK$280.00 per
ADSs respectively.
The general offer was completed successfully. On January 4, 2006, the
A shares in Jinzhou Petrochemical and the A shares in Liaohe Jinma
ceased to be listed on the Shenzhen Stock Exchange. On January 23,
2006, the H shares of Jilin Chemical ceased to be listed on the HKSE.
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On February 15, 2006, ADSs of Jilin Chemical ceased to be listed on
the New York Stock Exchange and on February 20, 2006, the A shares of
Jilin Chemical ceased to be listed on the Shenzhen Stock Exchange.
NOVEMBER
- On November 1, the Company won the "Best Investor Relations Award" for
Chinese companies listed in Hong Kong, China regarding the investors'
relations of the Hong Kong and Taiwan companies organised by the
Investors' Relations Magazine.
- On November 8, the Company convened the second extraordinary general
meeting of shareholders. The following resolutions were passed in the
meeting: approval of the election of the Company's Directors; approval
of the election of the Company's Supervisors; and approval of the
Company's application to the HKSE for new continuing connected
transactions and new caps for 2006 to 2008.
- On November 10, the Company entered into a US$10 million Directors and
Officer's Liability insurance contract with AIU Insurance Company,
Guangzhou Branch. The insurance contract became effective immediately
upon signing. This is an important protective measure for the purpose
of eliminating effectively any personal financial risk and legal risk
that may be assumed by the Directors and senior management staff of
the Company in the performance of their duties.
- On November 13, an explosion broke out in Jilin Petrochina Benzene
Production Plant. The incident caused serious personal injuries and
deaths, loss of property and water pollution of the Song Huajiang. The
Company dispatched an operation team and a specialist team to the site
immediately after the incident. The Company also activated the
contingency plan to minimize the loss and the number of injuries and
deaths. At the same time with the handling of the incident, the
Company quickly organized a large-scale inspection of safety standards
in production, focusing on "anti-breach of rules, inspection of hidden
risks and procurement of rectification", and put into effect various
measures for safety in production in winter. The Company has learned a
lesson from the incident and has strengthened its efforts at ensuring
safety in production and environmental protection.
- On November 28, the Company convened the first meeting of the Third
Term of the Board of Directors in Beijing. The following resolutions
were passed in the meeting: resolution on the Company's budget for the
year 2006; resolution on the production and operation and the
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investment plan of the Company for the year 2006; resolution on the
appointment of the Senior Vice Presidents, the Financial Controller
and the Vice Presidents nominated by the President; resolution on the
establishment of the Information Management Division and the Internal
Control Division of the Company; resolution on the modification of the
standards of basic remuneration and annual performance remuneration
for the President's Work Team; and resolution on the Company's
proposed application for the acquisition of the shares in the Fuel Oil
Company held by Liaohe Petroleum Exploration Bureau and China Oil
Natural Gas Pipeline Bureau and related matters.
DECEMBER
- On December 6, the Company entered into two acquisition agreements
with two wholly owned subsidiaries of CNPC, Liaohe Petroleum
Exploration Bureau and China Petroleum Pipeline Bureau, for the
acquisition of shares representing 15.56% and 20.17% respectively from
them in the Fuel Oil Company, a 55.43% subsidiary of the Company, for
an aggregate cash consideration of RMB559 million. The Fuel Oil
Company is principally engaged in the investment and development of
fuel oil in the upstream and downstream areas in China. Upon
completion of the acquisitions, the Company's interest in the Fuel Oil
Company will be increased and it is expected that the Company's
management in the Fuel Oil Company will be strengthened.
- On December 7, the world famous energy information company Platts
published the "Top 250 Global Energy Companies for 2005". The Company
and Sinopec ranked 7th and 12th respectively among those companies.
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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 10, 2006 By: /s/ Li Huaiqi
------------------------------------
Name: Li Huaiqi
Title: Company Secretary