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 2008
PETROCHINA COMPANY LIMITED
16 ANDELU, DONGCHENG DISTRICT
BEIJING, THE PEOPLE'S REPUBLIC OF CHINA, 100011
(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.)
Form 20-F X Form 40-F
--- ---
(Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes No X
--- ---
(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-_____)
PetroChina Company Limited (the "Registrant") is furnishing under the cover
of Form 6-K the Registrant's 2007 Annual Report in accordance with the Hong Kong
Exchange Listing Rules.
This 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 place top priority on resources
exploration and development and further consolidate its leading
position of the upstream business in China;
- the Registrant's plan to speed up modification of the strategic
structure of its refinery and petrochemical business and to develop
such business in an orderly and efficient manner;
- the Registrant's plan to enhance the construction of strategic
pipelines and the domestic pipeline network; and
- the Registrant's other future plans and prospects.
These forward-looking statements reflect our current views with respect to
future events and are not a guarantee of future performance. Actual results may
differ materially from information contained in these forward-looking statements
as a result of a number of factors, including, without limitation:
- fluctuations in crude oil and natural gas prices;
- failure to achieve continued exploration success;
- failure or delay in achieving production from development projects;
- failure to complete the proposed acquisition of certain overseas
assets as planned;
- change in demand for competing fuels in the target market;
- continued availability of capital and financing;
- general economic, market and business conditions;
- changes in policies, laws or regulations of the PRC and other
jurisdictions in which the Registrant and its subsidiaries conduct
business; and
- other factors beyond the Registrant's control.
We do not intend to update or otherwise revise the forward-looking
statements in this 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 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.
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 18, 2008 By: /s/ Li Huaiqi
------------------------------------
Name: Li Huaiqi
Title: Company Secretary
PETROCHINA COMPANY LIMITED
2007 ANNUAL REPORT
MARCH 2008
CONTENTS
Important Notice ......................................................... 1
Corporate Profile ........................................................ 2
Summary Of Accounting Data And Financial Indicators ...................... 5
Changes In Share Capital And Information On Shareholders ................. 8
Chairman's Report ........................................................ 14
Business Operating Review ................................................ 18
Management's Discussion And Analysis Of Financial Position And Results Of
Operations ............................................................ 23
Significant Events ....................................................... 35
Connected Transactions ................................................... 39
Corporate Governance ..................................................... 52
Shareholders' Meetings ................................................... 61
Directors' Report ........................................................ 62
Report Of The Supervisory Committee ...................................... 75
Directors, Supervisors, Senior Management And Employees .................. 78
Information On Crude Oil And Natual Gas Reserves ......................... 93
Financial Statements ..................................................... 94
Corporate Information .................................................... 234
Documents Available For Inspection ....................................... 238
Confirmation From The Directors And Senior Management .................... 239
IMPORTANT NOTICE
The Board of Directors of PetroChina Company Limited (the "Company"), the
Supervisory Committee and the Directors, Supervisors and Senior Management of
the Company warrant that there are no material omissions from, or
misrepresentation or misleading statements contained in this annual report, and
jointly and severally accept full responsibility for the truthfulness, accuracy
and completeness of the information contained in this annual report. Mr Duan
Wende, Director of the Company, was absent from the tenth meeting of the Third
Session of the Board. Mr Duan Wende authorized Mr Zhou Jiping in writing to
attend this meeting by proxy and to exercise his voting rights on his behalf. Mr
Jiang Jiemin, Chairman of the Board and President of the Company, and Mr Zhou
Mingchun, Chief Financial Officer and Head of the Finance Department of the
Company, warrant the truthfulness and completeness of the financial statements
in this annual report.
-1-
CORPORATE PROFILE
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").
The Company and its subsidiaries (the "Group") are the largest oil and gas
producer and seller occupying a leading position in the oil and gas industry in
the PRC and one of the largest companies in the PRC in terms of revenue and one
of the largest oil companies in the world. The Group engages in a broad range of
petroleum and 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"), H shares and A shares of the
Company were listed on the New York Stock Exchange, Inc., The Stock Exchange of
Hong Kong Limited ("HKSE" or "Hong Kong Stock Exchange") and Shanghai Stock
Exchange on April 6, 2000, April 7, 2000 and November 5, 2007 respectively.
Registered Chinese Name of the Company: (Chinese Characters)
English Name of the Company: PetroChina Company Limited
Legal Representative of the Company: Jiang Jiemin
Secretary to the Board: Li Huaiqi
Address: World Tower
16 Andelu
Dongcheng District
Beijing, PRC
Telephone: 86(10) 8488 6270
Facsimile: 86(10) 8488 6260
Email Address: xwzou@petrochina.com.cn
Representative on Securities Matters Liang Gang
Address: World Tower
16 Andelu
Dongcheng District
Beijing, PRC
Telephone: 86(10) 8488 6959
Facsimile: 86(10) 8488 6260
Email address: liangg@petrochina.com.cn
-2-
Representative of the Hong Kong Mao Zefeng
Representative Office:
Address: Suite 3606, Tower 2, Lippo Centre
89 Queensway, Hong Kong
Telephone: (852) 2899 2010
Facsimile: (852) 2899 2390
Email Address: hko@petrochina.com.hk
Legal Address of the Company: World Tower
16 Andelu Dongcheng District, Beijing
The People's Republic of China
Postal Code: 100011
Internet Website: http://www.petrochina.com.cn
Company's Email: xwzou@petrochina.com.cn
NEWSPAPERS FOR INFORMATION DISCLOSURE:
A shares: China Securities Journal, Shanghai Securities News and Securities
Times
INTERNET WEBSITE PUBLISHING THIS ANNUAL REPORT DESIGNATED BY THE CHINA
SECURITIES REGULATORY COMMISSION:
http://www.sse.com.cn
COPIES OF THIS ANNUAL REPORT IS AVAILABLE AT:
World Tower 16, Andelu Dongcheng District, Beijing
PLACES OF LISTING:
A shares: Shanghai Stock Exchange
Stock Name: PetroChina
Stock Code: 601857
H shares: The Stock Exchange of Hong Kong
Limited
Stock Code: 857
ADS: The New York Stock Exchange, Inc.
Symbol: PTR
OTHER RELEVANT INFORMATION
First Registration Date of the Company: November 5, 1999
-3-
First Registration Place of the State Administration for Industry &
Company: Commerce
Enterprise Legal Business Licence
Registration No.: 1000001003252(2-2)
Taxation Registration No. : 110102710925462
Organization No.: 71092546-2
NAMES AND ADDRESSES OF AUDITORS OF THE COMPANY:
Domestic Auditors:
Name: PricewaterhouseCoopers Zhong Tian CPAs Company Limited
Address: 11th Floor PricewaterhouseCoopers Centre, 202 Hu Bin Road, Shanghai,
PRC
Overseas Auditors:
Name: PricewaterhouseCoopers
Address: 22nd Floor, Prince's Building, Central, Hong Kong
-4-
SUMMARY OF ACCOUNTING DATA AND FINANCIAL INDICATORS
1. KEY ACCOUNTING DATA AND FINANCIAL INDICATORS PREPARED UNDER
INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRS")
Unit: RMB Million
AS AT OR FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
2007 2006 2005 2004 2003
--------- -------- -------- -------- --------
Turnover 835,037 688,978 552,229 397,354 310,431
Profit from operations 199,855 197,976 192,171 151,138 101,712
Profit before taxation 204,381 199,173 193,822 151,244 100,693
Taxation (49,152) (49,776) (54,180) (43,598) (28,796)
Profit for the year 155,229 149,397 139,642 107,646 71,897
Attributable to:
Equity holders of the Company 145,625 142,224 133,362 103,843 69,835
Minority interest 9,604 7,173 6,280 3,803 2,062
155,229 149,397 139,642 107,646 71,897
Basic and diluted earnings per share
for profit attributable to equity
holders of the Company during the
year (RMB)(2) 0.81 0.79 0.75 0.59 0.40
Total non-current assets 828,956 709,941 602,172 516,194 465,514
Total current assets 231,175 162,222 175,895 122,253 91,509
Total current liabilities 198,095 179,879 153,838 130,525 122,347
Total non-current liabilities 85,689 74,693 80,562 64,950 67,782
Equity
Attributable to:
Equity holders of the Company 733,405 586,677 515,389 427,773 357,928
Minority interest 42,942 30,914 28,278 15,199 8,966
Total equity 776,347 617,591 543,667 442,972 366,894
Other financial data
Capital expenditures (181,583) (148,746) (124,801) (98,946) (86,373)
Net cash from operating activities 203,748 198,102 203,885 141,691 139,570
Net cash used for investing activities (184,205) (158,451) (91,576) (102,276) (102,549)
Net cash used for financing activities
(provided by financing activities) (2,648) (71,739) (42,634) (39,586) (35,593)
Fixed assets, net of accumulated
depreciation 762,882 645,337 563,890 485,612 442,311
Total assets 1,060,131 872,163 778,067 638,447 557,023
Cash flows from operating activities
per share (RMB) (3) 1.13 1.11 1.15 0.81 0.79
Net assets per share (RMB) (4) 4.01 3.28 2.88 2.43 2.04
Notes:
(1) The Company acquired the refining and petrochemical business of CNPC in
2005, and acquired 50% equity interests in CNPC Exploration and Development
Company Limited in 2005. The financial statements of the Group in the
relevant period has been restated in a manner identical to a pooling of
interests to reflect the acquisition.
(2) As at December 31, 2003 and 2004 respectively, basic and diluted earnings
per share were calculated by dividing the net profit with the number of
shares issued for each of these financial years of 175.82 billion. As at
December 31, 2005, basic and diluted earnings per share were calculated by
dividing the net profit with the weighted average number of shares issued
for this financial year of 176.77 billion. As at December 31, 2006, basic
and diluted earnings per share were calculated by dividing the net profit
with the number of shares issued for this financial year of 179.02 billion.
As at December 31, 2007, basic and diluted earnings per share were
calculated by dividing the net profit with the weighted average number of
shares issued for this financial year of 179.7 billion.
(3) As at December 31, 2003 and 2004 respectively, cash flows from operating
activities per share were calculated by dividing the cash flows from
operating activities with the number of shares issued for each of these
financial years of 175.82 billion. As at December 31, 2005, cash flows from
operating activities per share were calculated by dividing the cash flows
from operating activities with the weighted average number of shares issued
for this financial year of 176.77 billion. As at December 31, 2006, cash
flows from operating activities per share were calculated by dividing the
cash flows from operating activities with the number of shares issued for
this
-5-
financial year of 179.02 billion. As at December 31, 2007, cash flows from
operating activities per share were calculated by dividing the cash flows
from operating activities with the weighted average number of shares issued
for this financial year of 179.7 billion.
(4) As at December 31, 2003 and 2004 respectively, net asset per share were
calculated by dividing the shareholders' equity with the number of shares
issued for each of these financial years of 175.82 billion. As at December
31, 2005 and 2006 respectively, net asset per share were calculated by
dividing the shareholders' equity with the number of shares issued for this
financial year of 179.02 billion. As at December 31, 2007, net asset per
share were calculated by dividing the shareholders' equity with the number
of shares issued for this financial year of 183.02 billion.
2. KEY ACCOUNTING DATA AND FINANCIAL INDICATORS PREPARED UNDER CAS
(1) Key accounting data
Unit: RMB Million
YEAR ENDED YEAR ENDED YEAR-ON-YEAR YEAR ENDED
DECEMBER 31, DECEMBER 31, CHANGE DECEMBER 31,
ITEMS 2007 2006 (%) 2005
----- ------------ ------------ ------------ ------------
Operating income 835,037 688,978 21.2 552,229
Operating profit 193,958 192,325 0.8 189,369
Profit before taxation 192,825 189,790 1.6 185,029
Net profit attributable to equity
holders of the Company 134,574 136,229 (1.2) 127,867
Net profit after deducting
non-recurring profit/loss items
attributable to equity holders of
the Company 136,025 138,277 (1.6) 127,660
Net cash flows from operating
activities 210,819 205,442 2.6 209,548
AS AT AS AT YEAR-ON-YEAR AS AT
DECEMBER 31, DECEMBER 31, CHANGE DECEMBER 31,
ITEMS 2007 2006 (%) 2005
----- ------------ ------------ ------------ ------------
Total assets 994,092 815,144 22.0 725,414
Equity attributable to equity
holders of the Company 677,367 541,467 25.1 476,238
(2) Key financial indicators
Unit: RMB
YEAR ENDED YEAR ENDED YEAR-ON-YEAR YEAR ENDED
DECEMBER 31, DECEMBER 31, CHANGE DECEMBER 31,
ITEMS 2007 2006 (%) 2005
----- ------------ ------------ ---------------- ------------
Basic earnings per share 0.75 0.76 (1.3) 0.72
Diluted earnings per share 0.75 0.76 (1.3) 0.72
Basic earnings per share after deducting
non-recurring profit/loss items 0.76 0.77 (1.3) 0.72
(5.3
Fully diluted return on net assets (%) 19.9 25.2 percentage point) 26.8
(3.5
Weighted average return on net assets (%) 22.8 26.3 percentage point) 28.9
Fully diluted return on net assets after
deducting non-recurring (5.4
profit/loss items (%) 20.1 25.5 percentage point) 26.8
Weighted average return on net assets
after deducting non-recurring (3.7
profit/loss items (%) 23.0 26.7 percentage point) 28.8
Net cash flows per share from operating
activities 1.17 1.15 1.7 1.19
AS AT AS AT YEAR-ON-YEAR AS AT
DECEMBER 31, DECEMBER 31, CHANGE DECEMBER 31,
ITEM 2007 2006 (%) 2005
---- ------------ ------------ ------------ ------------
Net assets per share attributable to
equity holders of the Company 3.70 3.02 22.5 2.66
-6-
(3) Non-recurring profit/loss items
Unit: RMB Million
YEAR ENDED
DECEMBER 31,
2007 (PROFIT)
NON-RECURRING PROFIT/LOSS ITEMS /LOSS
------------------------------- -------------
Loss on disposal of non-current assets* 753
Other non-operating net income and expenses 1,371
Government grants (388)
Tax effect of non-recurring profit/loss items (443)
Total 1,293
* Excluding exploratory dry holes
3. DIFFERENCES BETWEEN CAS AND IFRS
Unit: RMB Million
CAS IFRS
--------------- ----------------
Net profit (including minority
interest) for the year ended
December 31, 2007 143,494 155,229
Equity (including minority
interest) as at December 31, 2007 715,071 776,347
Analysis of differences Please refer to the supplemental
information by the management set out
after the financial statements of the
Group prepared under CAS in
this 2007 Annual Report for details
-7-
CHANGES IN SHARE CAPITAL AND INFORMATION ON SHAREHOLDERS
1. CHANGES IN SHAREHOLDINGS
Unit: Shares
INCREASE/DECREASE (+/-)
PRE-MOVEMENT ---------------------------------------------------------
---------------------------- CONVERSION
PERCENTAGE BONUS FROM
NUMBER OF SHARES (%) NEW ISSUE ISSUE RESERVES OTHERS SUB-TOTAL
---------------- ---------- -------------- ----- ---------- ------ --------------
I Shares with selling
restrictions 157,922,077,818 88.21 +1,000,000,000 -- -- -- +1,000,000,000
1. State-owned shares 157,922,077,818 88.21 -- -- -- -- --
2. Shares held by
state-owned
companies -- -- -- -- -- -- --
3. Shares held by
other domestic
investors -- -- +1,000,000,000 -- -- -- +1,000,000,000
of which:
Shares held by
companies other
than state-owned
companies -- -- +1,000,000,000 -- -- -- +1,000,000,000
Shares held by
domestic natural
persons -- -- -- -- -- -- --
4. Shares held by
foreign investors -- -- -- -- -- -- --
II Shares without
selling
restrictions 21,098,900,000 11.79 +3,000,000,000 -- -- -- +3,000,000,000
1. RMB-denominated
ordinary shares -- -- +3,000,000,000 -- -- -- +3,000,000,000
2. Shares traded in
non-RMB
currencies
and listed
domestically -- -- -- -- -- -- --
3. Shares listed
overseas 21,098,900,000 11.79 -- -- -- -- --
4. Others -- -- -- -- -- -- --
III Total Shares 179,020,977,818 100.00 +4,000,000,000 -- -- -- +4,000,000,000
POST-MOVEMENT
----------------------------
PERCENTAGE
NUMBER OF SHARES (%)
---------------- ----------
I Shares with selling
restrictions 158,922,077,818 86.83
1. State-owned shares 157,922,077,818 86.29
2. Shares held by
state-owned
companies -- --
3. Shares held by
other domestic
investors 1,000,000,000 0.54
of which:
Shares held by
companies other
than state-owned
companies 1,000,000,000 0.54
Shares held by
domestic natural
persons -- --
4. Shares held by
foreign investors -- --
II Shares without
selling
restrictions 24,098,900,000 13.17
1. RMB-denominated
ordinary shares 3,000,000,000 1.64
2. Shares traded in
non-RMB
currencies
and listed
domestically -- --
3. Shares listed
overseas 21,098,900,000 11.53
4. Others -- --
III Total Shares 183,020,977,818 100.00
-8-
2. CHANGES IN SHARES WITH SELLING RESTRICTIONS
Unit: Shares
NUMBER OF
NUMBER OF SHARES NUMBER OF
SHARES WITH WITH ADDITIONAL NUMBER OF
SELLING SELLING SHARES WITH SHARES WITH
RESTRICTIONS AT RESTRICTION SELLING SELLING EXPIRY DATE OF
NAME OF THE BEGINNING EXPIRED RESTRICTIONS RESTRICTIONS AT SELLING
SHAREHOLDERS OF 2007 IN 2007 IN 2007 THE END OF 2007 REASONS FOR SELLING RESTRICTIONS RESTRICTIONS
------------ --------------- ----------- ------------- --------------- -------------------------------- ----------------
CNPC 157,922,077,818 0 0 157,922,077,818 In October 2007, the Company November 5, 2010
offered its RMB-denominated
ordinary shares (A shares) to
the public for the first time.
At that time, CNPC undertook
that "for a period of 36 months
commencing from the date of
listing of the A shares of the
Company on the Shanghai Stock
Exchange, it will not transfer
or entrust others for the
management of the A shares which
it holds, or allow such shares
to be repurchased by the
Company. However, certain shares
held by CNPC, which may be
subsequently listed on overseas
stock exchanges after obtaining
necessary approvals in the PRC,
are not subject to the
restriction of the 36-month
lock-up period."
Shares
placed 0 0 1,000,000,000 1,000,000,000 In October 2007, the Company February 5, 2008
off-line offered its RMB-denominated
ordinary shares (A shares) to
the public for the first time.
Shares that have been placed
with target placees off-line are
subject to a lock-up period of
three months from the date of
listing of the shares on the
Shanghai Stock Exchange.
--------------- --- ------------- ---------------
Total 157,922,077,818 0 1,000,000,000 158,922,077,818 -- --
=============== === ============= ===============
3. ISSUE AND LISTING OF SECURITIES:
(1) Issue of shares in the past three years
In September 2005, the Company issued 3,196,801,818 new H shares at the
price of HK$6.00 per share. Concurrently, CNPC sold 319,680,182 state-owned
shares. An aggregate of 3,516,482,000 shares were issued and sold. Upon
completion of the issue, the total share capital of the Company amounted to
179,020,977,818 shares, of which 157,922,077,818 shares were held by CNPC,
representing approximately 88.21% of the total share capital of the Company, and
21,098,900,000 shares were held by holders of H shares, representing
approximately 11.79% of the total share capital of the Company.
In October 2007, the Company issued 4 billion A shares at an issue price of
RMB16.7 per share. The shares were listed on the Shanghai Stock Exchange on
November 5, 2007. Upon completion of the issue, the total share capital of the
Company amounted to 183,020,977,818 shares, of which 157,922,077,818 shares were
held by CNPC, representing approximately 86.29% of the total share capital of
the Company, and 25,098,900,000 shares were held by public investors,
representing approximately 13.71% of the total share capital of the Company. Of
the shares held by public investors, 4,000,000,000 shares were held by holders
of A shares, representing approximately 2.18% of the total share capital of the
Company, and 21,098,900,000 shares were held by holders of H shares,
representing approximately 11.53% of the total share capital of the Company..
-9-
(2) Changes in the Total Number of Shares and the Shareholding Structure of
the Company
During the reporting period, the Company issued 4 billion A shares. Upon
completion of the issue and listing of the A shares, the total share capital of
the Company increased from 179,020,977,818 shares to 183,020,977,818 shares..
(3) Shares held by Employees
During the reporting period, no shares for employees of the Company were in
issue.
4. NUMBER OF SHARES HELD BY THE TOP TEN SHAREHOLDERS OF SHARES WITH SELLING
RESTRICTIONS AND THE SELLING RESTRICTIONS
Unit: Shares
NUMBER OF
ADDITIONAL
NUMBER OF SHARES SHARES THAT
NAME OF SHAREHOLDERS OF SHARES WITH SELLING DATE OF LISTING CAN BE LISTED LOCK-UP
NUMBER WITH SELLING RESTRICTIONS RESTRICTIONS HELD AND TRADING AND TRADED PERIOD
------ ------------------------------ ----------------- ---------------- ------------- ---------
1 CNPC(1) 157,922,077,818 November 5, 2010 0 36 months
2 China Life Insurance Company
Limited- Dividends- Group
Dividends-005L-FH001 Shanghai 25,069,000 February 5, 2008 0 3 months
3 China Life Insurance Company
Limited- Dividends- Personal
Dividends-005L-FH002 Shanghai 25,069,000 February 5, 2008 0 3 months
4 China Life Insurance Company
Limited-Traditional-Ordinary
Insurance Product-005L-CT001
Shanghai 25,069,000 February 5, 2008 0 3 months
5 China Life Insurance (Group)
Company- Traditional-Ordinary
Insurance Product 25,069,000 February 5, 2008 0 3 months
6 Ping An Life Insurance Company
of China, Ltd.-Proprietary
Funds 25,069,000 February 5, 2008 0 3 months
7 New China Life Insurance
Company
Limited-Dividends-Group
Dividends-018LFH001 Shanghai 25,069,000 February 5, 2008 0 3 months
8 Ping An Life Insurance Company
of China,
Ltd.-Dividends-Personal
Insurance Dividends 25,069,000 February 5, 2008 0 3 months
9 Ping An Life Insurance Company
of China,
Ltd.-Traditional-Ordinary
Insurance Products 25,069,000 February 5, 2008 0 3 months
10 Ping An Life Insurance Company
of China, Ltd.-Universal-Personal
Universal 25,018,864 February 5, 2008 0 3 months
Note 1: Shares held by CNPC, which may be listed on overseas stock exchanges
after obtaining necessary approvals in the PRC, are not subject to the
36-month lock-up period. .
5. NUMBER OF SHAREHOLDERS AND THEIR SHAREHOLDINGS
The number of shareholders of the Company as at December 31, 2007 was
1,883,990, including 1,879,207 holders of A shares and 4,783 holders of H shares
(including holders of the American Depositary Shares). The public float of the
Company satisfied the requirements
-10-
of the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange
(the "Listing Rules").
(1) Shareholdings of the top ten shareholders
Unit: Shares
NUMBER OF
PERCENTAGE SHARES
OF NUMBER OF SHARES PLEDGED OR
NATURE OF SHAREHOLDING NUMBER OF SHARES WITH SELLING SUBJECT TO
NAME OF SHAREHOLDERS SHARES (%) HELD RESTRICTIONS LOCK-UPS
-------------------- ----------- ------------ ---------------- ---------------- ----------
CNPC(1) State-owned 86.29 157,922,077,818 157,922,077,818 0
shares
HKSCC Nominees Limited(2) H shares 11.44 20,937,754,152 0 0
China Life Insurance (Group)
Company-Traditional- Ordinary
Insurance Product(3) A shares 0.031 56,797,000 25,069,000 0
China Life Insurance Company
Limited - Dividends - Personal
Dividends - 005L -FH002
Shanghai(3) A shares 0.016 30,238,570 25,069,000 0
China Life Insurance Company
Limited - Traditional -
Ordinary Insurance Product -
005L - CT001 Shanghai(3) A shares 0.014 25,069,000 25,069,000 0
China Life Insurance Company
Limited - Dividends - Group
Dividends - 005L -FH001
Shanghai(3) A shares 0.014 25,069,000 25,069,000 0
Ping An Life Insurance Company
of China, Ltd. - Traditional -
Ordinary Insurance Products(3) A shares 0.014 25,069,000 25,069,000 0
New China Life Insurance
Company
Limited-Dividends-Group
Dividends-018L FH001
Shanghai(3) A shares 0.014 25,069,000 25,069,000 0
Ping An Life Insurance Company
of China, Ltd. - Proprietary
Funds(3) A shares 0.014 25,069,000 25,069,000 0
Ping An Life Insurance Company
of China,
Ltd.-Dividends-Personal
Insurance Dividends(3) A shares 0.014 25,069,000 25,069,000 0
Notes:
1. CNPC is a substantial shareholder within the meaning of the Securities and
Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (the "Securities and
Futures Ordinance") whose interest is recorded in the register of interests
in shares and short positions kept by the Company pursuant to Section 336
of the Securities and Futures Ordinance.
2. HKSCC Nominees Limited is a subsidiary of the Hong Kong Stock Exchange and
its principal business is to act as nominee on behalf of shareholders.
-11-
3. Placees placed with A shares of the Company off-line who became one of the
top ten shareholders of the Company shall not trade or transfer the shares
held by them within three months commencing from November 5, 2007.
(2) Shareholdings of top ten shareholders of shares without selling
restrictions
Unit: Shares
NUMBER NAME OF SHAREHOLDERS NUMBER OF SHARES HELD TYPES OF SHARES
------ -------------------- --------------------- ---------------
1 HKSCC Nominees Limited 20,937,754,152 H shares
2 China Life Insurance (Group) Company - Traditional
- Ordinary Insurance Products 31,728,000 A shares
3 Bank of China -Shanghai and Shenzhen 300 Index
Jiashi Securities Investment Fund 14,035,426 A shares
4 China Construction Bank - Boshi Yufu Securities
Investment Fund 12,626,642 A shares
5 China Pacific Insurance (Group) Co., Ltd. -Group
Level-Proprietary Funds -012G-ZY001 Shanghai 7,387,982 A shares
6 Ling Foo Sang and Wong Ngar Kum 6,912,000 H shares
7 Tongde Securities Investment Fund 6,906,951 A shares
8 Baosteel Co., Ltd. 6,440,000 A shares
9 Sinochem Corporation 5,819,000 A shares
China Life Insurance Company Limited
10 -Dividends-Personal Dividends-005L-FH002 Shanghai 5,169,570 A shares
Statement on the connection or activities acting in concert among the
above-mentioned shareholders:
Except for China Life Insurance (Group) Company - Traditional - Ordinary
Insurance Products, China Life Insurance Company Limited - Dividends - Personal
Dividends -005L-FH002 Shanghai, China Life Insurance Company
Limited-Traditional-Ordinary Insurance Product-005L-CT001 Shanghai and China
Life Insurance Company Limited-Group Dividends-005L-FH001 Shanghai, all of which
are under the management of China Life Insurance Asset Management Co., Ltd and
Ping An Life Insurance Company of China, Ltd.-Traditional-Ordinary Insurance
Products, Ping An Life Insurance Company of China, Ltd.-Proprietary Funds and
Ping An Life Insurance Company of China, Ltd.-Dividends-Personal Insurance
Dividends, all of which are under the management of Ping An Life Insurance Asset
Management Co. Ltd., the Company is not aware of any connection among or between
the top ten shareholders and top ten shareholders of shares without selling
restrictions or that they are persons acting in concert as provided for in the
Measures for the Administration of Acquisitions by Listed Companies.
(3) Shareholdings of Substantial Shareholders of H Shares
As at December 31, 2007, according to the register of interests in shares
and short positions kept by the Company pursuant to Section 336 of the
Securities and Futures Ordinance, the person in the following table and note has
an interest or short position in the H shares of the Company:
-12-
PERCENTAGE OF SUCH
SHARES IN THE SAME PERCENTAGE OF
NAME OF CLASS OF THE ISSUED TOTAL SHARE
SHAREHOLDER NUMBER OF SHARES SHARE CAPITAL (%) CAPITAL (%)
------------- ---------------- ------------------- -------------
UBS AG (Note) 1,089,453,631(L) 5.16(L) 0.60
414,468,390(S) 1.96(S) 0.23
Note: UBS AG, through various wholly-owned subsidiaries, has an interest in
1,089,453,631 H shares of the Company.
As at December 31, 2007, save as disclosed above, no person (other than a
Director, Supervisor or senior management of the Company) has an interest or
short position in the H shares of the Company according to the register of
interests in shares and short positions kept by the Company pursuant to Section
336 of the Securities and Futures Ordinance.
6. INFORMATION ON CONTROLLING SHAREHOLDER AND THE ULTIMATE CONTROLLER
There was no change in the controlling shareholder or the ultimate
controller during the reporting period.
(1) Controlling shareholder
The controlling shareholder of the Company is CNPC which was established in
July 1998. CNPC is a petroleum and petrochemical conglomerate that was formed in
the wake of the restructuring launched by the State Council to restructure the
predecessor of CNPC, China National Petroleum Company (Chinese Character). CNPC
is also a state-authorised investment corporation and state-owned enterprise and
its registered capital is RMB240,440.02 million. Its legal representative is Mr
Jiang Jiemin. CNPC is an integrated energy corporation with businesses covering
oil and gas exploration and development, refining and petrochemical, oil product
marketing, oil and gas storage and transportation, oil trading, engineering and
technical services and petroleum equipment manufacturing.
(2) Except for HKSCC Nominees Limited and CNPC, no other legal person holds
10% or more of the shares in the Company.
(3) Ultimate controller
CNPC is the ultimate controller of the Company.
(4) The equity interest structure and controlling relationship between the
Company and the ultimate controller
------------------------------
| CNPC |
------------------------------
|
|
| 86.29%
|
|
V
------------------------------
| PetroChina Company Limited |
------------------------------
-13-
CHAIRMAN'S REPORT
Dear Shareholders,
I am pleased to submit to you the annual report of the Company for the year
ended December 31, 2007.
REVIEW OF RESULTS OF OPERATIONS
In 2007, faced with new changes and new trends in the macro environment
both domestically and globally, the Company upheld the guiding principle of
scientific development and implemented firmly the three main strategies in the
areas of resources, marketing and internationalisation of operations. The
Company optimised production arrangements and strengthened operations and
management. The main performance indicators of the Group have achieved record
high again and the overall business strengths of the Group were enhanced
markedly. In accordance with CAS, for the twelve months ended December 31, 2007,
profit before taxation of the Group was RMB192,825 million, representing an
increase of 1.6% compared with the previous year. Net profit attributable to
equity holders of the Company was RMB134,574 million, representing a decrease of
1.2% compared with the previous year. Basic earnings per share for profit
attributable to equity holders of the Company during the year amounts to
RMB0.75. In accordance with IFRS, for the twelve months ended December 31, 2007,
profit before taxation of the Group was RMB204,381 million, representing an
increase of 2.6% compared with the previous year. Net profit attributable to
equity holders of the Company was RMB145,625 million, representing an increase
of 2.4% compared with the previous year. For the twelve months ended December
31, 2007, the basic and diluted earnings per share attributable to equity
holders of the Company were RMB0.81.
The Board of Directors has recommended to pay final dividends of
RMB0.156859 per share (together with the interim dividend of RMB0.205690 per
share, the annual dividend for 2007 will be RMB0.362549 per share), subject to
shareholders' review and approval at the forthcoming annual general meeting to
be held on May 15, 2008.
BOARD OF DIRECTORS AND SUPERVISORY COMMITTEE
The annual general meeting of the Company for 2006 was held in Beijing on
May 16, 2007. Articles 89 and 109 of the Articles of Association of the Company
(the "Articles of Association") provide that "directors shall be elected at the
shareholders' meeting for a term of three (3) years and may serve consecutive
terms if re-elected upon the expiry of their term of office" and "the
supervisory committee shall compose of seven (7) supervisors and one of the
members of the supervisory committee shall act as the chairman. Each supervisor
shall serve for a term of three (3) years, which is renewable upon re-election
and re-appointment", respectively. The term of office of four Directors and two
Supervisors expired on May 17,
-14-
2007. Mr Chen Geng notified the Board that he would retire from his office and
would not seek for re-election. Mr Xu Fengli notified the Company that he would
retire from his office and would not seek for re-election. Pursuant to the
provisions of Articles 51 (3) and (13) of the Company's Articles of Association
regarding the "election and re-election of supervisors nominated by the
shareholders" shall be subject to the approval at the shareholders' meetings and
"review of proposals presented by shareholders representing 5% or more of the
voting shares of the Company" at the shareholders' meetings, resolutions for the
re-election of three Directors and two Supervisors were considered and approved
at the annual general meeting. It was resolved that each of Mr Jiang Jiemin, Mr
Zhou Jiping and Mr Duan Wende be re-elected as Directors and Mr Sun Xianfeng and
Mr Zhang Jinzhu be re-elected and elected as Supervisors respectively.
Given that Mr Chen Geng retired from his office as Director and Chairman of
the Company, in accordance with Articles 88 and 89 of the Articles of
Association of the Company which provide that "the board shall have one
chairman" and "the chairman shall be elected and removed by more than one-half
of all the members of the board of directors", an extraordinary meeting of the
Board of Directors was convened on May 20, 2007 to consider and pass the
resolution to elect Mr Jiang Jiemin as the chairman of the Board of Directors
which was approved by way of written resolution.
In addition, the Articles of Association of the Company provides that the
Board of Directors shall consist of thirteen Directors. The Board of Directors
currently consists of eleven Directors. To ensure the normal operation of the
Board of Directors, the Company will arrange for election of two Directors in
accordance with the procedures set out in the Articles of Association of the
Company.
On June 19, 2007, at the seventh meeting of the Third Session of the Board
of Directors, the Company appointed each of Mr Sun Longde, Mr Shen Diancheng and
Mr Liu Hongbin as Vice President, Mr Zhou Mingchun as the Chief Financial
Officer and Mr Lin Aiguo as the Chief Engineer of the Company. On November 20,
2007, at the ninth meeting of the Third Session of the Board of Directors, the
Company appointed Mr Li Hualin as Vice President of the Company.
I would like to take this opportunity to express my gratitude to Mr Chen
Geng and Mr Xu Fengli for their contribution to the Company during their term of
office. I would also like to express 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.
BUSINESS PROSPECTS
Looking forward in 2008, the global economy will hopefully maintain steady
growth, and the Chinese economy will maintain its rapid growth momentum. These
will continue to fuel the demand for oil and natural gas and petrochemical
products. Government regulations will become more stringent. The public will be
more concerned with changes in crude oil prices and stability in oil and gas
supply. Confronted with complicated and ever changing external environments,
-15-
and ever increasing market competition, the Group will seek new growth engines
positively in order to achieve good and rapid business developments, and
continue to implement the three main strategies in the areas of resources,
marketing and internationalisation of operations. The Group will continue to
place top priority on resources exploration and development and further
consolidate its leading position of the upstream business in China. The Group
will speed up modification of the strategic structure of its refinery and
petrochemical business and to develop such business in an orderly and efficient
manner. Sales of refined products and petrochemical products could be improved
to ensure market supply. Construction of strategic pipelines and the domestic
pipeline network will be enhanced with a view to building up a diversified oil
and gas supply system. The Group will continue to enhance international energy
co-operation opportunities in order to be mutually benefited, and endeavour to
achieve efficient and sustainable development of its overseas businesses.
In respect of exploration and production, the Group will continue to place
top priority on resources exploration and development and further consolidate
the leading position of its upstream business in China. The Group will stress
the parallel development of oil and gas exploration, carry out exploration at
the key basins and focus on key preliminary exploration projects. Exploration of
mature oilfields will be enhanced, and venture into the exploration of new
oilfields will be pushed forward actively. The Group will endeavour to unearth
sizeable and high quality reserves with a view to meet the annual reserves
target. In oilfield exploration, emphasis will be placed on the overall
development of new oilfields. The Group has extensively initiated works to
achieve a steady oil and gas production in mature oilfields through the
deployment of various comprehensive measures including conducting secondary
recovery of mature oilfields, strengthening the descriptive analysis of reserves
and unearthing potential resources. In natural gas exploration, emphasis will be
placed on construction in key gas regions, overall planning and development and
production planning. Production capacity will be enhanced at a quicker pace so
that rapid growth of natural gas production can be sustained.
In respect of refining and petrochemicals, the Group will speed up
modification of the strategic structure of its refinery and petrochemical
business to expedite and facilitate the construction of large-scale refinery and
petrochemical bases and to develop such business in an orderly and efficient
manner. The Group will strive to meet market requirements for refined products
and petrochemical products necessitated by rapid growth in the economic and
social developments by improving production organisation and management,
arranging for resources processing in a scientific manner, and ensuring full
load operation of refinery facilities and high load, safe and steady operation
of petrochemical facilities. The Group will continue to improve different
economic and technological indicators, optimise product mix, and improve market
competitiveness.
In respect of the sale of refined products, the Group will further improve
the refined products sales and distribution network and sales information
system. Efforts will be made to explore profitable markets. Regulated management
of service stations and regulated sales of refinery products will be
strengthened with a view to increase the retail sales and daily sales of
individual serviced stations. The Group will endeavour to improve the marketing
quality and
-16-
operating efficiency of the sale of high quality lubricants business. Increasing
efforts will be made to achieve overall balance of better resources allocation,
optimisation and utilisation of resources in various markets in order to ensure
supply of refined products in the domestic market.
In respect of natural gas and pipeline construction, the Group will
continue to pursue actively key construction projects. Construction of the four
major strategic oil and gas pipelines in the northwestern, northeastern and
southwestern China as well as in the sea and the domestic trunk pipeline network
will be sped up. Storage and transportation facilities and resources despatch
capabilities will be improved. A nationwide pipeline network and supply system
characterised by diversification of resources, flexible despatch priority and
stable supply will be established. Overall balance of the allocation of natural
gas resources will be enhanced. Linkage of production, transportation and
marketing will be enhanced. Utilisation of gas will be optimised, and marketing
efficacy could be boosted. Further studies on extended natural gas business will
be conducted with a view to achieving secondary value-added benefits to the
application of natural gas.
In respect of international operations, the Group will continue to enhance
international energy co-operation opportunities in order to obtain mutual
benefits, and endeavour to achieve efficient and sustainable development of the
scale of its overseas businesses. The Group will focus on oil and gas
exploration, continue to expand the scale of reserves and speed up the pace of
overseas businesses development. Subject to proper risk management, the Group
will develop its current businesses steadily in the global market, continue to
utilise various business forms, and gradually improving the allocation of
resources of the Group to an international level.
In respect of safety and environmental protection, the Group will continue
to adhere firmly to the principle of "prioritising of safety, environmental
protection and people-orientation" and minimise potential risks in full force.
The Group will promote the effective operation of the Health, Safety and
Environment (HSE) management system. The Group will put its emphasis on energy
saving, water saving and land saving and reducing emission of pollutants, and
continue to improve efficiency in utilisation of resources.
In its future development, the Group will continue to emphasize two guiding
principles, namely, scientific development and social harmony. The Group will
continue to conduct its business in a prudent and steady manner, thereby
increasingly enhancing its corporate value and actively fulfilling its economic,
environmental and social responsibilities to maximise returns to its equity
holders, the society and its staff.
/s/ Jiang Jiemin
----------------------------------------
Jiang Jiemin
Chairman
Beijing, the PRC
March 19, 2008
-17-
BUSINESS OPERATING REVIEW
1. MARKET REVIEW
(1) Crude Oil Market Review
In 2007, on the whole, international crude oil prices continued to soar. In
particular, since September 2007, oil prices broke the US$80 per barrel and
US$90 per barrel marks, reaching nearly US$100 per barrel by the end of the
year. In general, market considered the surge in the crude oil prices was
primarily due to factors including strong growth in demand, a decline in crude
oil inventories, speculative activities, geopolitical instabilities in certain
oil producing countries and continued weakening of the US dollars. The annual
average prices for WTI, Brent and Minas crude oil were US$72.16, US$72.38 and
US$73.40 per barrel, respectively, representing an increase of US$6.12, US$7.32
and US$8.16 per barrel, respectively, over the annual average prices in 2006.
Corresponding to the rise in international crude oil prices, the average price
for domestic crude oil in 2007 was higher than that of 2006.
According to the relevant statistics, domestic crude oil imports continued
to increase in 2007 by 14.4% to a net total of 159 million tons compared with
the previous year. Domestic crude oil output and the amount of crude oil
processed reached 186 million tons and 306 million tons, respectively.
(2) Refined Products Market Review
In 2007, domestic refined product prices were still under the macro
economic controls of the PRC Government, resulting in such prices were lower
than the prices in the international market. Annual average ex-factory prices of
domestic gasoline and diesel were RMB5,071 per ton and RMB4,653 per ton
respectively, being RMB1,225 and RMB1,513 lower than the CIF per ton prices
quoted in the Singapore market, respectively, while the maximum price difference
reaching over RMB2,000 per ton in 2007. During the second half of 2007,
international crude oil prices rocketed and as a result, domestic refineries
incurred heavy losses in processing. Production ceased in certain local
refineries. Supply in the refined products market was once very tight. On
November 1, 2007, the PRC Government raised the ex-factory prices of gasoline,
diesel and aviation fuel by RMB500 per ton. Balance of demand and supply was
basically restored after such price increase.
According to the relevant information, nominal consumption of domestic
refined products increased by 6.9% to 186 million tons in 2007.
(3) Chemical Products Market Review
The PRC economy maintained steady and rapid growth in 2007 with an increase
in the GDP of 11.4%. The rapid growth of the PRC economy has created a steady
increase in the
-18-
domestic demand for petrochemical products, including a 10.6% growth in the
nominal consumption of plastic materials. Notwithstanding an increase in the
production of petrochemical products in 2007 as a result of the commencement of
production by certain newly installed facilities, amongst which the production
capacity of polyethylene and polypropylene was increased by 15% and 18%
respectively as compared with those of the previous year, the overall increase
in the supply of petrochemical products was moderate and limited and the supply
remained relatively tight in the chemical products market as a result of the
declining volume of import in chemical products. The prices of petrochemical
products rocketed and the overall prices of petrochemical products were
increased by 3.3% when compared with that of the previous year.
(4) Natural Gas Market Review
In 2007, the domestic natural gas market developed rapidly with strong
growth in demand for natural gas. The external sales of natural gas reached 43.6
billion cubic metres, representing an increase of 22% as compared to that of the
previous year. On August 30, 2007, the PRC Government promulgated the Policies
on Natural Gas Utilisation in order to ease the supply-and-demand tension of
natural gas, optimise the utilisation structure of natural gas and promote the
idea of reducing energy consumption and emissions. In addition, with a view to
guide the market towards a more rationalised consumption of natural gas and to
narrow the difference between domestic natural gas prices and alternative energy
prices, the PRC Government raised the basic ex-factory price of natural gas for
industrial use by RMB400 per thousand cubic metre on November 10, 2007.
2. BUSINESS REVIEW
(1) Exploration and Production
In 2007, the Group stepped up oil and gas exploration in the PRC. Major
breakthroughs of strategic significance were achieved through further geological
research and emphasis on the application of new technologies, and concerted
efforts on oil and gas exploration activities. In particular, the Company
discovered the Jidong Nanpu Oilfield which is with relatively high crude oil
reserves. Moreover, significant progress was achieved during the oil and gas
exploration in the Sichuan Basin, the Erdos Basin, the Songliao Basin and the
Tarim Basin. With a better composition of orderly managed reserves, the Company
has entered into the peak in the growth of reserves. In respect of overseas oil
and gas exploration, new progress was made with discovery of relatively high
reserves in regions including Chad and Kazakhstan. In 2007, the Group achieved
crude oil reserve replacement ratio of 1.104 and natural gas reserve replacement
ratio of 3.238.
In the development of domestic oilfields, the policy of "steady development
in the east, and rapid development in the west" was upheld. New ways in the
exploration of oilfield and natural gas fields were actively adopted. The
Company has extensively initiated works for the
-19-
secondary recovery of mature oilfields so as to maintaining a steady oil and gas
production through the deployment of various comprehensive measures including
deepening fine reservoir characterisation, stabilising oil production by
water-cut control, tertiary oil recovery and so forth, as well as actively
promoting sophisticated technologies such as horizontal application and
under-balanced drilling. The foundation for oil stabilization in the mature
oilfields has been consolidated. The Company has also conducted overall
assessment, planning and development building up the production capacity in the
new fields. In respect of regions outside China, various measures were adopted
to slow down the reduction in the productivity of mature oilfields, strengthen
the organisational operation and management of drilling and maintenance of wells
and enhance the productivity of newly discovered wells. Through the above
measures, in 2007, the total crude oil and natural gas output of the Group was
1,110.0 million barrels of oil equivalent, including 838.8 million barrels of
crude oil and 1,627.0 billion cubic feet of marketable natural gas. In 2007, the
lifting cost for the oil and gas operations of the Group was US$7.75 per barrel,
representing an increase of 15.0% from US$6.74 per barrel in 2006.
SUMMARY OF OPERATIONS OF THE EXPLORATION AND PRODUCTION SEGMENT
YEAR-ON-YEAR
UNIT 2007 2006 CHANGE (%)
------------------ ------- ------- ------------
Crude oil output Million barrels 838.8 830.7 1.0
Marketable natural gas output Billion cubic feet 1,627.0 1,371.9 18.6
Oil and natural gas equivalent output Million barrels 1,110.0 1,059.4 4.8
Proved reserves of crude oil Million barrels 11,706 11,618 0.8
Proved reserves of natural gas Billion cubic feet 57,111 53,469 6.8
Proved developed reserves of crude oil Million barrels 9,047 9,185 (1.5)
Proved developed reserves of natural
gas Billion cubic feet 26,047 22,564 15.4
(2) Refining and Marketing
In 2007, faced with the growing demand in the market, the Group organised
refining processing meticulously, scientifically modified refining arrangements,
and optimised allocation of resources actively. Safe, steady, long-term,
full-load and optimised production was achieved resulting from improvement of
the production control management system. Crude oil processing and production of
key refined products reached a historically high level. In order to react to
changes in the sales market proactively, resources were organised through
various means. Production, transportation and distribution arrangements were
enhanced and better co-ordinated. Allocation of resources was optimised. The
scale of sales to end-users was expanded. The level of retail sales management
and the quality of services were enhanced continuously. All these have paved the
way to form a strongly focused and highly efficient nationwide distribution
network throughout the PRC, thereby ensuring a gradual stable market supply. The
Group's refineries processed 823.6 million barrels of crude oil, approximately
80% of which was supplied by the Exploration and Production segment. The Group
produced approximately 71.38 million tons of gasoline, diesel and kerosene and
sold approximately
-20-
85.74 million tons of these products. The cash processing cost of the Group's
refineries decreased from RMB169 per ton in 2006 to RMB155 per ton in 2007.
SUMMARY OF OPERATIONS OF THE REFINING AND MARKETING SEGMENT
YEAR-ON-YEAR CHANGE
UNIT 2007 2006 (%)
--------------- ------ ------ --------------------
Processed crude oil Million barrels 823.6 785.0 4.9
Gasoline, kerosene and diesel
output '000 ton 71,381 68,318 4.5
of which: Gasoline '000 ton 22,019 22,027 (0.04)
Kerosene '000 ton 2,017 2,064 (2.3)
Diesel '000 ton 47,345 44,227 7.0
Crude oil processing load % 97.7 95.9 1.8 percentage point
Light products yield % 73.99 73.48 0.5 percentage point
Refining yield % 93.01 92.17 0.8 percentage point
Market share in retail % 37.0 34.7 2.3 percentage point
Number of service stations Unit 18,648 18,207 2.4
of which: owned service stations Unit 17,070 16,624 2.7
Sales volume per service station Ton/day 8.4 7.8 7.7
(3) Chemicals and Marketing
In 2007, the Group achieved economies of scale and steady operations in the
Chemical and Marketing segment. Key technological and economic indicators
improved continuously. Allocation of resources and production mix were further
optimised. The production of chemical products and ethylene reached 15.55
million tons and 2.58 million tons, respectively.
SUMMARY OF OPERATIONS OF THE CHEMICALS AND MARKETING SEGMENT
YEAR-ON-YEAR
OUTPUT OF KEY CHEMICAL PRODUCTS UNIT 2007 2006 CHANGE (%)
----------------------------------------- -------- ----- ----- ------------
Ethylene '000 ton 2,581 2,068 24.8
Synthetic resin '000 ton 3,962 3,061 29.4
Synthetic fibre raw materials and polymer '000 ton 1,459 1,232 18.4
Synthetic rubber '000 ton 311 312 (0.3)
Urea '000 ton 3,634 3,576 1.6
(4) Natural Gas and Pipeline
The Group proceeded with the construction of oil and gas pipelines on
schedule and in an orderly manner. A number of long-distance main pipelines,
among them the Lanzhou-Yinchuan Gas Transmission Pipeline of the West-East Gas
Pipeline, the Daqing-Harbin Gas Transmission Pipeline and the Dagang-Zaozhuang
Refined Oil Pipeline, were completed during 2007. A nationwide gas pipeline
network is being formed connecting the four gas zones of the Company. Despatch
priority of natural gas was centralised which could ensure
-21-
safety in the gas transmission. Natural gas sales business has leveraged the
advantage of the nationwide gas pipeline network and achieved an overall
balanced development in the production, transportation and marketing, thereby
ensuring a safe and steady supply of natural gas in key cities and key
customers.
SUMMARY OF OPERATIONS OF THE NATURAL GAS AND PIPELINE SEGMENT
YEAR-ON-YEAR
UNIT 2007 2006 CHANGE (%)
---------- ------ ------ ------------
Crude oil pipeline Kilometres 10,559 9,620 9.8
Refined oil pipeline Kilometres 2,669 2,413 10.6
Natural gas pipeline Kilometres 22,043 20,590 7.1
-22-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF
OPERATIONS
The following discussion and analysis should be read in conjunction with
the audited financial statements of the Group and the notes thereto set out in
this annual report.
1. THE FINANCIAL DATA SETS OUT BELOW IS EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS OF THE GROUP PREPARED UNDER IFRS
(1) Consolidated Operating Results
For the twelve months ended December 31, 2007, profit before taxation of
the Group was RMB204,381 million, representing an increase of 2.6% compared with
the previous year. Net profit attributable to equity holders of the Company
("Net profit") was RMB145,625 million, representing an increase of 2.4% compared
with the previous year. The main performance indicators of the Group have
achieved record high again and the overall business strengths of the Group
improved markedly. Major discoveries were made through the Group's oil and gas
exploration. The oil and gas output reached another historical high in 2007.
Production and marketing of refined products were steady, and the Group was able
to effectively meet market demands. There was rapid progress in the development
of natural gas pipelines, and construction of key projects was smooth.
Development of the international operations of the Group has continued, paving
the way for gradual expansion in the scale of the business of the Group's
international operations.
For the twelve months ended December 31, 2007, the basic and diluted
earnings per share attributable to equity holders of the Company were
RMB0.81(2006: RMB0.79).
Turnover Turnover increased 21.2% from RMB688,978 million for the twelve
months ended December 31, 2006 to RMB835,037 million for the twelve months ended
December 31, 2007. This was primarily due to the increases in the selling prices
and changes in the sales volume of major products including crude oil, natural
gas and refined products, and the efforts made by the Group in expanding
resources and developing markets by making use of the opportunities presented by
persistently high prices in crude oil and petrochemical products in the
international market. In addition, the increase of the sales of oil and gas
products during the year also increased the turnover of the Group. The table
below sets out the external sales volume and average realised prices for major
products sold by the Group for 2006 and 2007 and percentages of change in the
sales volume and average realised prices during these two years.
-23-
SALES VOLUME ('000 TON) AVERAGE REALISED PRICE (RMB/TON)
------------------------------- --------------------------------
PERCENTAGE OF PERCENTAGE OF
2007 2006 CHANGE (%) 2007 2006 CHANGE (%)
------ ------ ------------- ------ ------ -------------
Crude oil* 18,730 20,066 (6.7) 3,594 3,487 3.1
Natural gas (million
cubic metre, RMB/'000
cubic metre) 43,570 35,715 22.0 693 678 2.2
Gasoline 27,003 23,899 13.0 5,168 5,035 2.6
Diesel 54,377 48,516 12.1 4,668 4,411 5.8
Kerosene 3,782 2,054 84.1 4,684 4,502 4.0
Heavy oil 8,772 8,009 9.5 2,519 2,482 1.5
Polyethylene 2,102 1,590 32.2 10,497 10,299 1.9
Lubricant 2,378 2,059 15.5 6,420 6,433 (0.2)
* The external sales volume of crude oil listed above is crude oil produced
by the Company.
Operating Expenses Operating expenses increased 29.4% from RMB491,002
million for the twelve months ended December 31, 2006 to RMB635,182 million for
the twelve months ended December 31, 2007, of which:
Purchases, Services and Other Expenses Purchases, services and other
expenses increased 36.7% from RMB271,123 million for the twelve months ended
December 31, 2006 to RMB370,740 million for the twelve months ended December 31,
2007. This was primarily due to (1) an increase in the purchase prices and
purchase volume of crude oil, feedstock oil and refined products from external
suppliers that resulted in the increase in the purchase costs; and (2) an
increase in the lifting costs of oil and gas operations and the processing cost
of the Group's refineries that resulted from the increase in prices of raw
materials, fuel, energy and other production materials in the PRC as well as an
expansion of the production scale of the Group. In addition, the increase in the
purchase expenses also resulted from an increase in the refined product supply
operations in 2007.
Employee Compensation Costs The remuneration paid by the Group in cash rose
15.3% or increased RMB3,752 million from RMB24,538 million to RMB28,290 million
for 2007. Other employees' costs increased RMB7,703 million from RMB14,623
million to RMB22,326 million for 2007. As a result of the above increment,
employees' compensation costs and benefits increased RMB11,455 million. This was
primarily due to (1) an increase in the level of salaries and performance
bonuses as a result of growth in the performance of the Group and the increase
in the commodity price; (2) an increase in the employees' compensation costs
that resulted from the expansion of the scale of operations and the retail
network of the Group; and (3) a sequential increase in the welfare expenses as a
result of an increase in the salaries.
Exploration Expenses Exploration expenses increased 9.7% from RMB18,822
million for the twelve months ended December 31, 2006 to RMB20,648 million for
the twelve months ended December 31, 2007. To further boost crude oil and
natural gas resources, the Group undertook more exploration activities for crude
oil and natural gas.
Depreciation, Depletion and Amortisation Depreciation, depletion and
amortisation increased 8.5% from RMB61,388 million for the twelve months ended
December 31, 2006 to RMB66,625 million for the twelve months ended December 31,
2007. This was primarily due to an increase in depreciation, depletion and
amortisation that resulted from an increase in the
-24-
average amount of property, plant and equipment and the average net value of oil
and gas properties during 2007.
Selling, General and Administrative Expenses Selling, general and
administrative expenses increased 19.3% from RMB43,235 million for the twelve
months ended December 31, 2006 to RMB51,576 million for the twelve months ended
December 31, 2007. This was primarily due to an increase in transportation,
leasing, maintenance and other related costs that resulted from expansion in the
production scale and business development.
Taxes other than Income Taxes Taxes other than income taxes increased 30.1%
from RMB56,666 million for the twelve months ended December 31, 2006 to
RMB73,712 million for the twelve months ended December 31, 2007. The increase
was primarily due to a sharp increase in the payment of the special levy on the
sale of domestic crude oil by the Group as international crude oil prices
remained high throughout 2007.
Profit from Operations As a result of the factors discussed above, profit
from operations increased 0.9% from RMB197,976 million for the twelve months
ended December 31, 2006 to RMB199,855 million for the twelve months ended
December 31, 2007.
Net Exchange Loss For the twelve months ended December 31, 2007, a net
exchange loss of RMB866 million was recorded. For the twelve months ended
December 31, 2006, there was net exchange gain of RMB74 million. The increase in
the net exchange loss was primarily due to a combination of the effects of the
appreciation of Renminbi against the United States Dollar and other currencies.
Net Interest Expenses Net interest expenses increased 39.1% from RMB1,154
million for the twelve months ended December 31, 2006 to RMB1,605 million for
the twelve months ended December 31, 2007. The increase in net interest expenses
was primarily due to an increase in interest expenses recognised as a result of
the accretion expense in relation to asset retirement obligations.
Profit Before Taxation Profit before taxation rose by 2.6% from RMB199,173
million for the twelve months ended December 31, 2006 to RMB204,381 million for
the twelve months ended December 31, 2007.
Taxation Taxation decreased 1.3% from RMB49,776 million for the twelve
months ended December 31, 2006 to RMB49,152 million for the twelve months ended
December 31, 2007. The decrease was primarily due to a reduction in the income
tax of the Group for the twelve months ended December 31, 2007 as the Group
reassessed its deferred taxes based on the enacted corporate income tax rate
under the Corporate Income Tax Law of the PRC which came into effect on January
1, 2008.
Net Profit As a result of the factors discussed above, net profit increased
2.4% from RMB142,224 million for the twelve months ended December 31, 2006 to
RMB145,625 million for the twelve months ended December 31, 2007.
(2) Segment Information
-25-
EXPLORATION AND PRODUCTION
Turnover
Turnover increased 11.1% from RMB421,340 million for the twelve months
ended December 31, 2006 to RMB468,175 million for the twelve months ended
December 31, 2007. The increase was primarily due to an increase in the prices
and sales volume of crude oil and natural gas. The average realised crude oil
price of the Group in 2007 was US$65.27 per barrel, representing an increase of
9.1% from US$59.81 per barrel compared with the previous year.
Operating Expenses
Operating expenses increased 29.8% from RMB201,480 million for the twelve
months ended December 31, 2006 to RMB261,588 million for the twelve months ended
December 31, 2007. The increase was primarily due to a sharp increase in the
payment of the special levy on the sale of domestic crude oil by the Group as
international crude oil prices remained high throughout 2007.
Profit from Operations
Profit from operations decreased 6.0% from RMB219,860 million for the
twelve months ended December 31, 2006 to RMB206,587 million for the twelve
months ended December 31, 2007. The Exploration and Production segment remains
the main source of profit of the Group.
REFINING AND MARKETING
Turnover
Turnover rose 23.5% from RMB543,299 million for the twelve months ended
December 31, 2006 to RMB670,844 million for the twelve months ended December 31,
2007. The increase was due to an increase in the realised selling prices of, and
changes in the sales volume of, key refined products. The Refining and Marketing
segment is the main source of external sales revenue of the Group.
Operating Expenses
Operating expenses increased 20.8% from RMB572,463 million for the twelve
months ended December 31, 2006 to RMB691,524 million for the twelve months ended
December 31, 2007. The increase was primarily due to an increase in the purchase
costs of crude oil, feedstock oil and refined products from external suppliers,
and an increase in the selling, general and administrative expenses. In
addition, the increase in the operating expenses also resulted from an increase
in the level of refined product supply operations in 2007.
Loss from Operations
Loss from operations amounted to RMB20,680 million for the twelve months
ended December 31, 2007, representing a reduction of RMB8,484 million for the
twelve months ended December 31, 2006. The loss from the Refining and Marketing
segment was primarily due to the control of the domestic prices of refined
products by the PRC Government, as a result of which despite persistently high
crude oil prices, prices of refined products were lower than that of the
international market.
-26-
CHEMICALS AND MARKETING
Turnover
Turnover rose 24.1% from RMB82,791 million for the twelve months ended
December 31, 2006 to RMB102,718 million for the twelve months ended December 31,
2007. The growth in turnover was primarily due to an increase in the selling
prices and sales volume of certain chemical products.
Operating Expenses
Operating expenses increased 22.1% from RMB77,733 million for the twelve
months ended December 31, 2006 to RMB94,887 million for the twelve months ended
December 31, 2007. The increase was primarily due to an increase in the purchase
costs for direct materials and selling, general and administrative expenses.
Profit from Operations
Profit from operations increased 54.8% from RMB5,058 million for the twelve
months ended December 31, 2006 to RMB7,831 million for the twelve months ended
December 31, 2007. Benefiting from the advantages created by the integration of
production and marketing of chemical products, the volumes of production of high
value-added and special products were increased to a great extent, and operating
efficiency and profitability continued to improve in the Chemicals and Marketing
segment.
NATURAL GAS AND PIPELINE
Turnover
Turnover increased 28.6% from RMB38,917 million for the twelve months ended
December 31, 2006 to RMB50,066 million for the twelve months ended December 31,
2007. The increase was primarily due to an increase in the sales volume and
selling prices of natural gas, and an increase in the volume of natural gas from
pipeline transmission and the average price for pipeline transmission of natural
gas.
Operating Expenses
Operating expenses increased 25.5% from RMB29,931 million for the twelve
months ended December 31, 2006 to RMB37,571 million for the twelve months ended
December 31, 2007. The increase was primarily due to an increase in the purchase
costs of natural gas and an increase in depreciation charges.
Profit from Operations
Profit from operations increased 39.0% from RMB8,986 million for the twelve
months ended December 31, 2006 to RMB12,495 million for the twelve months ended
December 31, 2007. The natural gas and pipeline business grew rapidly and has
become a new profit growth engine of the Group.
-27-
(3) Assets, Liabilities and Equity
The following table sets out the key items in the consolidated balance
sheet of the Group:
AS AT AS AT PERCENTAGE
DECEMBER DECEMBER OF
31, 2007 31, 2006 CHANGE
----------- ----------- ----------
RMB MILLION RMB MILLION %
Total assets 1,060,131 872,163 21.6
Current assets 231,175 162,222 42.5
Non-current assets 828,956 709,941 16.8
Total liabilities 283,784 254,572 11.5
Current liabilities 198,095 179,879 10.1
Non-current liabilities 85,689 74,693 14.7
Equity attributable to equity holders of
the Company 733,405 586,677 25.0
Share capital 183,021 179,021 2.2
Reserves 217,952 143,564 51.8
Retained earnings 332,432 264,092 25.9
Total equity 776,347 617,591 25.7
Total assets amounted to RMB1,060,131 million, representing an increase of
21.6% from that at the end of 2006, of which:
Current assets amounted to RMB231,175 million, representing an increase of
42.5% from the current assets as at the end of 2006. The increase in the current
assets was primarily due to: an increase in cash, cash equivalents and time
deposits with maturities over three months but within one year in the aggregate
amount of RMB31,965 million resulting from a combination effect of the issuance
of A shares by the Company and an increase in the investment activities
expenditures of the Company; an increase in inventories of an amount of
RMB12,429 million as a result of rising prices and volume of inventories; an
increase in accounts receivable in the amount of RMB9,931 million as a result of
the development of the principal operations and the increase in income from the
principal operations of the Group and an increase in advances in the amount of
RMB12,737 million as a result of an increase in investment expenditures.
Non-current assets amounted to RMB828,956 million, representing an increase
of 16.8% from the non-current assets as at the end of 2006. The increase in
non-current assets was primarily due to an increase in capital expenditures,
resulting in an increase in property, plants and equipment (including fixed
assets, oil and gas properties etc.) in the amount of RMB117,545 million.
Total liabilities amounted to RMB283,784 million, representing an increase
of 11.5% from the total liabilities as at the end of 2006, of which:
Current liabilities amounted to RMB198,095 million, representing an
increase of 10.1% from the current liabilities as at the end of 2006. The
increase in current liabilities was primarily due to an increase in procurement
expenditure that resulted in an increase in accounts payable and accrued
liabilities of RMB24,171 million.
Non-current liabilities amounted to RMB85,689 million, representing an
increase of 14.7% from the non-current liabilities as at the end of 2006. The
increase in non-current
-28-
liabilities was primarily due to an increase in estimated liabilities of
RMB6,280 million in relation to assets retirement obligations, and an increase
in long-term borrowings of RMB4,054 million.
Equity attributable to the equity holders of the Company amounted to
RMB733,405 million, representing an increase of 25.0% from the equity
attributable to equity holders of the Company as at the end of 2006. The
increase in equity attributable to the Company's equity holders was primarily
due to an increase in the amount of the retained earnings and the issuance of A
shares resulting in an increase in the share capital and reserves.
(4) Cash Flows
The primary sources of funds of the Group are cash generated from operating
activities and short-term and long-term borrowings. The funds of the Group are
mainly used for operating activities, capital expenditures, repayment of
short-term and long-term borrowings and distribution of dividends to equity
holders of the Company.
The table below sets forth the cash flows of the Group for the year ended
December 31, 2007 and December 31, 2006 respectively and the amount of cash and
cash equivalents as at the end of each year:
YEAR ENDED DECEMBER 31,
-------------------------
2007 2006
----------- -----------
RMB MILLION RMB MILLION
Net cash flows generated from operating activities 203,748 198,102
Net cash flows used for investing activities (184,205) (158,451)
Net cash flows used for financing activities (2,648) (71,739)
Currency translation differences 40 (258)
Cash and cash equivalents as at the end of year 65,494 48,559
NET CASH FLOWS GENERATED FROM OPERATING ACTIVITIES
The net cash flows of the Group generated from operating activities for the
twelve months ended December 31, 2007 was RMB203,748 million, representing an
increase of 2.9% compared with RMB198,102 million generated for the twelve
months ended December 31, 2006. As at December 31, 2007, the Group had cash and
cash equivalents of RMB65,494 million. The cash and cash equivalents were mainly
denominated in Renminbi (approximately 88.9% were denominated in Renminbi, and
approximately 11.1% were denominated in United States Dollars).
NET CASH FLOWS USED FOR INVESTING ACTIVITIES
The net cash flows of the Group used for investing activities for the
twelve months ended December 31, 2007 was RMB184,205 million, representing an
increase of 16.3% compared with RMB158,451 million used for the twelve months
ended December 31, 2006. The net increase in cash flows used for investing
activities was primarily due to an increase in capital expenditures paid in cash
during the year.
-29-
NET CASH FLOWS USED FOR FINANCING ACTIVITIES
The net cash flows of the Group used for financing activities for the
twelve months ended December 31, 2007 was RMB2,648 million, representing a
decrease of RMB69,091 million compared with RMB71,739 million used for the
twelve months ended December 31, 2006. The net decrease was primarily due to an
increase in the amount of cash flows generated from financing activities of the
Group as a result of the issuance of A shares by the Company during the year.
The net borrowings of the Group as at December 31, 2007 and December 31,
2006, respectively, are as follows:
AS AT AS AT
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
RMB MILLION RMB MILLION
Short-term borrowings (including current
portion of long-term borrowings) 30,934 35,763
Long-term borrowings 39,688 35,634
------- -------
Total borrowings 70,622 71,397
------- -------
Less: Cash and cash equivalents (65,494) (48,559)
------- -------
Net borrowings 5,128 22,838
======= =======
Maturities of long-term borrowings of the Group are as follows:
PRINCIPAL AS AT PRINCIPAL AS AT
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
RMB MILLION RMB MILLION
To be repaid within one year 12,200 20,607
To be repaid within one to two years 5,754 11,797
To be repaid within two to five years 19,898 10,449
To be repaid after five years 14,036 13,388
------ ------
51,888 56,241
====== ======
Of the total borrowings of the Group as at December 31, 2007, approximately
17.0% were fixed-rate loans and approximately 83.0% were floating-rate loans. Of
the borrowings as at December 31, 2007, approximately 67.4% were denominated in
Renminbi, approximately 28.8% were denominated in United States Dollars,
approximately 2.8% were denominated in Hong Kong Dollars, approximately 0.6%
were denominated in Singapore Dollars, approximately 0.3% were denominated in
Euro and approximately 0.1% were denominated in Japanese Yen.
As at December 31, 2007, the gearing ratio of the Group (gearing ratio =
interest-bearing debts/(interest-bearing debts + total equity)) was 8.3% (10.4%
as at December 31, 2006).
(5) Capital Expenditures
-30-
For the twelve months ended December 31, 2007, capital expenditures of the
Group increased 22.1% to RMB181,583 million from RMB148,746 million for the
twelve months ended December 31, 2006. The increase in capital expenditures was
primarily due to an increase in expenditures relating to crude oil and natural
gas exploration and development, and construction of major petrochemical
projects in 2007 as well as increases in the prices of steel, fuel oil, water,
electricity and other production materials.
FOR THE TWELVE MONTHS ENDED
DECEMBER 31,
--------------------------------- ESTIMATES
2007 2006 FOR 2008
--------------- --------------- ---------------
RMB RMB RMB
MILLION % MILLION % MILLION %
------- ----- ------- ----- ------- -----
Exploration and Production 134,256* 73.94 105,192* 70.72 132,300* 63.64
Refining and Marketing 26,546 14.62 19,206 12.91 23,000 11.06
Chemicals and Marketing 8,165 4.50 10,681 7.18 13,200 6.35
Natural Gas and Pipeline 11,003 6.06 11,309 7.60 37,700 18.13
Other 1,613 0.88 2,358 1.59 1,700 0.82
------- ----- ------- ----- ------- -----
Total 181,583 100 148,746 100 207,900 100
======= ===== ======= ===== ======= =====
* If investments related to geological and geophysical exploration costs were
included, the capital expenditures and investments for the Exploration and
Production segment for 2006 and 2007, and the estimates for the same in
2008 would be RMB114,520 million, RMB145,743 million and RMB143,200
million, respectively.
Exploration and Production
The majority of the Group's capital expenditures were related to the
Exploration and Production segment. For the twelve months ended December 31,
2007, capital expenditures in relation to the Exploration and Production segment
amounted to RMB134,256 million, including RMB23,914 million for oil and gas
exploration activities and RMB91,463 million for oil and gas development
activities. The increase in capital expenditures was primarily due to an
increase in expenditures relating to oil and gas exploration and development of
new proven oilfields and gas fields which reflects the Group's goal to boost
reserves and achieve steady growth of oil and gas output.
The Group anticipates that capital expenditures for the Exploration and
Production segment for 2008 will amount to RMB132,300 million. Approximately
RMB24,200 million will be used for oil and gas exploration, and RMB90,500
million will be used for oil and gas development. Exploration and development
activities will mainly emphasise the overall control of Jidong Nanpu region and
other regions. Construction of new proven oilfields and gas fields will be
carried out, while secondary recovery of and steady production of mature
oilfields will also be emphasised.
Refining and Marketing
Capital expenditures for the Group's Refining and Marketing segment for the
twelve months ended December 31, 2007 amounted to RMB26,546 million, including
RMB6,580 million was used in the expansion of the highly efficient retail sales
network of refined
-31-
products and storage infrastructure facilities for oil products, and RMB15,266
million was used in the reconstruction of refining facilities. The increase in
these capital expenditures was primarily due to the construction and expansion
of refining facilities.
The Group anticipates that capital expenditures for the Refining and
Marketing segment for 2008 will amount to RMB23,000 million, of which
approximately RMB16,100 million for construction and expansion of refining
facilities, which mainly include the construction of large scale refining
projects such as Dalian Petrochemical, Dushanzi Petrochemical, Guangxi
Petrochemical and Fushun Petrochemical, and approximately RMB6,900 million for
investments in the expansion of the sales network for refined products and
construction of storage infrastructure facilities for oil products.
Chemicals and Marketing
Capital expenditures for the Chemicals and Marketing segment for the twelve
months ended December 31, 2007 amounted to RMB8,165 million, which were used
mainly for the construction and expansion of petrochemical facilities.
The Group anticipates that capital expenditures for the Chemicals and
Marketing segment for 2008 will amount to RMB13,200 million, which are expected
to be used primarily for the construction and expansion of petrochemical
facilities including large scale ethylene projects such as Dushanzi
Petrochemical, Daqing Petrochemical, Fushun Petrochemical and Sichuan
Petrochemical.
Natural Gas and Pipeline
Capital expenditures in the Natural Gas and Pipeline segment for the twelve
months ended December 31, 2007 amounted to RMB11,003 million. The Group incurred
RMB8,980 million of these expenditures on the construction of long distance
pipelines.
The Group anticipates that capital expenditures for the Natural Gas and
Pipeline segment for 2008 will amount to RMB37,700 million, which are expected
to be used primarily for main oil and gas transmission projects such as the
Lanzhou-Zhengzhou-Changsha refined oil pipeline project, the Second West-East
Gas Pipeline project and associated gas storage facilities and LNG projects.
Others
Capital expenditures for Other segment (including research and development
activities) for the twelve months ended December 31, 2007 were RMB1,613 million.
The Group anticipates that capital expenditures for Other segment for 2008
will amount to approximately RMB1,700 million, which are expected to be used
primarily for research and development activities and for implementation of ERP
and other information systems.
-32-
2. THE FINANCIAL DATA SET OUT BELOW IS EXTRACTED FROM THE AUDITED FINANCIAL
STATEMENTS OF THE GROUP PREPARED UNDER CAS
(1) Income from principal operations, cost of principal operations and
profit from principal operations by segments under CAS are set out below:
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------
2007 2006
----------- -----------
RMB MILLION RMB MILLION
INCOME FROM PRINCIPAL OPERATIONS
Exploration and production 455,244 410,357
Refining and marketing 662,322 534,985
Chemicals and marketing 99,864 79,153
Natural gas and pipeline 49,299 38,642
Other 871 1,015
Inter-segment elimination (458,484) (398,449)
Consolidated income from principal operations 809,116 665,703
COST OF PRINCIPAL OPERATIONS
Exploration and production 179,380 138,221
Refining and marketing 620,758 505,275
Chemicals and marketing 83,699 64,580
Natural gas and pipeline 35,524 27,995
Other 211 1,028
Inter-segment elimination (457,551) (397,729)
Consolidated cost of principal operations 462,021 339,370
PROFIT FROM PRINCIPAL OPERATIONS
Exploration and production 223,876 235,353
Refining and marketing 25,562 15,285
Chemicals and marketing 15,821 14,309
Natural gas and pipeline 13,077 10,102
Other 654 (33)
Consolidated profit from principal operations 278,990 275,016
NET PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY 134,574 136,229
(2) Financial data prepared under CAS
AS AT AS AT PERCENTAGE
DECEMBER 31, 2007 DECEMBER 31, 2006 OF CHANGE
----------------- ----------------- ----------
RMB MILLION RMB MILLION %
Total assets 994,092 815,144 22.0
Current assets 236,228 164,717 43.4
Non-current assets 757,864 650,427 16.5
Total liabilities 279,021 247,549 12.7
Current liabilities 201,654 180,465 11.7
Non-current liabilities 77,367 67,084 15.3
Equity to equity holders of the Company 677,367 541,467 25.1
Total equity 715,071 567,595 26.0
-33-
For reasons for changes, please refer to the section headed "Management's,
Discussion and Analysis of Financial Position and Results of Operations" in this
annual report.
(3) Operations by segment and by product under CAS
INCOME
FROM COST OF
PRINCIPAL PRINCIPAL YEAR-ON-YEAR YEAR-ON-YEAR
OPERATIONS OPERATIONS CHANGE IN CHANGE IN
FOR THE FOR THE INCOME FROM COST OF INCREASE OR
YEAR YEAR PRINCIPAL PRINCIPAL DECREASE IN
BY SEGMENT ENDED 2007 ENDED 2007 MARGIN* OPERATIONS OPERATIONS MARGIN
-------------------------- ----------- ----------- ------- ------------ ------------ -----------
PERCENTAGE
RMB MILLION RMB MILLION % % % POINT
Exploration and production 455,244 179,380 49.2 10.9 29.8 (8.2)
Refining and marketing 662,322 620,758 3.9 23.8 22.9 1.0
Chemicals and marketing 99,864 83,699 15.8 26.2 29.6 (2.2)
Natural gas and pipeline 49,299 35,524 26.5 27.6 26.9 0.4
Other 871 211 -- -- -- --
Inter-segment elimination (458,484) (457,551) -- -- -- --
Total 809,116 462,021 34.5 21.5 36.1 (6.8)
* Margin=Profit from principal operations/Income from principal operations
(4) Principal operations by regions under CAS
REVENUE FROM EXTERNAL CUSTOMERS 2007 2006 YEAR-ON-YEAR CHANGE
------------------------------- ----------- ----------- -------------------
RMB MILLION RMB MILLION %
PRC 807,706 665,267 21.4
Other 27,331 23,711 15.3
Total 835,037 688,978 21.2
TOTAL ASSETS
PRC 924,931 765,373 20.8
Other 69,161 49,771 39.0
Total 994,092 815,144 22.0
(5) Principal subsidiaries and associates of the Group
AMOUNT OF AMOUNT OF
REGISTERED TOTAL TOTAL
NAME OF COMPANY CAPITAL SHAREHOLDING ASSETS LIABILITIES NET PROFIT
--------------- -------------- ------------ ----------- ----------- -----------
RMB MILLION % RMB MILLION RMB MILLION RMB MILLION
Daqing Oilfield Company Limited 47,500 100.00 142,211 28,228 61,888
CNPC Exploration and Development
Company Limited 100 50.00 69,161 24,698 12,396
Dalian West Pacific Petrochemical
Co., Ltd. USD258 million 28.44 14,223 10,890 610
China Marine Bunker (PetroChina)
Co., Ltd. 1,000 50.00 6,254 4,012 274
-34-
SIGNIFICANT EVENTS
1. MATERIAL LITIGATION AND ARBITRATION EVENTS
The Company was not involved in any material litigation or arbitration
during the reporting period.
2. SHAREHOLDING IN OTHER COMPANIES
(1) Shareholding interests of the Company in other listed companies
There are no matters which the Company is required to disclose for the
reporting period.
(2) Status of shareholding in commercial banks, securities companies,
insurance companies, trust companies and futures companies
There are no matters which the Company is required to disclose for the
reporting period.
3. ACQUISITIONS, DISPOSALS, MERGERS DURING THE REPORTING PERIOD
In 2007, the Company has through its wholly-owned subsidiary completed the
acquisition of the entire interest by way of merger in Jinzhou Petrochemical
Company Limited ("Jinzhou Petrochemical"), Liaohe Jinma Oilfield Company Limited
("Liaohe Jinma") and Jilin Chemical Industrial Company Limited ("Jilin
Chemical") which has resolved the issue of competition within the Group,
regulated connected transactions and improved operation efficiency. The above
transactions did not have any impact on the continuity of operation and
management stability of the Company. Each of Jinzhou Petrochemical, Liaohe Jinma
and Jilin Chemical completed the cancellation of their business registration in
2007.
The Company acquired the assets engaged in the risk management services
business of CNPC which constituted an one-off connected transaction of the
Company. Please refer to the paragraph headed "one-off connected transactions"
in the section headed "Connected Transactions" in this annual report. The
consideration for the acquisition was based on valuation. As at the end of the
reporting period, ownership of the relevant assets has been fully transferred
and the contractual rights and obligations thereunder have also been fully
transferred. The above transaction did not have any impact on the continuity of
operation and management stability of the Group and is advantageous to the
future financial position and operating results of the Group.
The Company disposed of 70% equity interests in China National United Oil
Corporation to CNPC. Please refer to the paragraph headed "one-off connected
transactions" in the section headed "Connected Transactions" in this annual
report. The consideration for the disposal was based on valuation. As at the end
of the reporting period, ownership of the relevant assets has been fully
transferred and the contractual rights and obligations thereunder have also been
fully transferred. Net profit contributed to the Group since the beginning of
the year to the date of the disposal was RMB115 million and profit from the
disposal was RMB292 million. The above transaction did not have any impact on
the continuity of operation and management stability of the Group.
-35-
4. IMPLEMENTATION OF STOCK OPTION PLANS DURING THE REPORTING PERIOD
Since the initial public offering of H shares on April 7, 2000, the Company
has implemented a stock option plan, and as of the end of the reporting period,
none of the options thereunder have been exercised. For details of the
implementation of the stock option plan, please refer to note 13 to the
financial statements prepared in accordance with CAS in this annual report.
5. SIGNIFICANT CONNECTED TRANSACTIONS DURING THE REPORTING PERIOD
Please refer to the section "Connected Transactions" in this annual report.
6. MATERIAL CONTRACTS AND THE PERFORMANCE THEREOF
(1) During the reporting period, there were no trusteeship, sub-contracting
and leasing of properties of other companies by the Company which would
contribute profit to the Company of 10% or more of its total profits for the
year.
(2) Material Guarantee
At December 31, 2007, the Group had contingent liabilities in respect of
guarantees made to China Petroleum Finance Company Limited ("CP Finance", a
subsidiary of CNPC).
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
RMB MILLION RMB MILLION
Guarantee of borrowings of associates provided by CP Finance 77 162
Guarantee of borrowings of third parties provided by a
State-controlled bank -- 41
--- ---
77 203
=== ===
During the reporting period, the Company did not provide any guarantee to
its shareholders, ultimate controller and their respective associates nor
provided any guarantee, directly or indirectly, to companies with liabilities to
assets ratio exceeding 70%. During the reporting period, the aggregate amount of
the guarantees provided by the Company was not in excess of 50% of the net
assets of the Company.
(3) The Company did not entrust any other person to carry out money
management during the reporting period nor were there any such entrustment that
was extended from prior period to the reporting period.
(4) Other material contracts
Save as disclosed in this annual report, during the reporting period, the
Company did not enter into any material contract which requires disclosure.
-36-
7. PERFORMANCE OF COMMITMENTS
Specific undertakings made by CNPC, the controlling shareholder of the
Company, and performance of the undertakings as at December 31, 2007:
NAME OF
SHAREHOLDER UNDERTAKING PERFORMANCE OF UNDERTAKING
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CNPC According to the Restructuring As at December 31, 2007, CNPC had obtained formal land use
Agreement entered into between CNPC right certificates in relation to 27,554 out of 28,649 parcels
and the Company on March 10, 2000, of land and some building ownership certificates for the
CNPC has undertaken to indemnify buildings pursuant to the undertaking in the Restructuring
the Company against any claims or Agreement, but has completed none of the necessary governmental
damages arising or resulting from procedures for the service stations located on
certain matters in the collectively-owned land. The use of and the conduct of relevant
Restructuring Agreement. 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.
The outcome of the above events will not have material adverse
effect on the operating results and the financial position of
the Group.
According to the Non-Competition At present, CNPC operated the following businesses which are
Agreement entered into between CNPC identical or similar to the core businesses of the Group:
and the Company on March 10, 2000,
CNPC has undertaken to the Company 1. Overseas operations which are identical or similar to the
that CNPC will not, and will core businesses of the Group.
procure its subsidiaries not to,
develop, operate, assist in CNPC has overseas operations in relation to exploration and
operating nor participate in any production of crude oil and natural gas as well as production,
businesses by itself or jointly storage and transportation of petroleum, chemical and related
with another company within or petroleum products. CNPC has oil and gas exploration and
outside the PRC that will compete development operations in many overseas countries and regions.
with or lead to competition with
the core businesses of the Group. As the laws of the countries where ADS are listed prohibit
According to the Agreement, CNPC their citizens from directly or indirectly financing or
has also granted to the Company investing in the oil and gas projects in certain countries,
pre-emptive rights to transaction CNPC did not inject the overseas oil and gas projects in
with regards to part of its assets. certain countries to the Company.
2. The existing projects of CNPC (Hong Kong) Limited
Prior to the Company's listing on the Hong Kong Stock Exchange,
CNPC (Hong Kong) Limited had three projects as follows: (1)
blocks 9-1 to 9-5 of the Karamay Oilfield of Xinjiang; (2) Leng
Jiapu Oilfield in Liaohe; (3) Sukothai Oilfield in Thailand
with production right concession. After the establishment of
the Company, CNPC (Hong Kong) Limited engaged in additional
overseas projects.
Upon establishment of the Company, CNPC's interests in CNPC
(Hong Kong) Limited were not injected to the Company because
CNPC (Hong Kong) Limited had businesses both in China and
overseas. Without prior consent of the independent shareholders
of CNPC (Hong Kong) Limited, the overseas businesses of CNPC
(Hong Kong) Limited may not be restructured as part of the
restructuring of the Company.
To date, compared to the Company, the total asset and revenue
of CNPC (Hong Kong) Limited is relatively small. The core
businesses of each of CNPC (Hong Kong) Limited and the Group
will not constitute substantive competition with the Company.
3. Five sets of chemical production facilities
Five sets of chemical production facilities, namely, an
advanced alcohol facility, an acrylonitrile facility, a
polybutadiene rubber facility, an acrylic fibre chemical
facility and a facility comprising of four styrene units have
been wholly owned by CNPC since the Company's establishment.
Other than the advanced alcohol facility which has ceased
production, the rest of the five sets of facilities are under
normal operation.
Given the five sets of chemical production facilities are
relatively small in scale, low in productivity and
profitability as compared with similar facilities of the Group,
they will not constitute substantive competition with the
principal businesses of the Group.
4. Service stations wholly owned by CNPC or jointly owned by
CNPC and third parties CNPC also owns a number of service
stations (those service stations were not injected into the
Company due to ambiguity in the ownership). Given the sales of
refined oil products of these service stations are relatively
small as compared with that of the Company, they will not
constitute substantive competition with the Company.
CNPC undertook that "for a period CNPC has not violated the relevant undertaking.
of 36 months commencing from the
date of listing of the A shares of
the Company on the Shanghai Stock
Exchange, it will not transfer or
entrust others for the management
of the A shares which it holds, or
allow such shares to be repurchased
by the Company. However, certain
shares held by CNPC, which may be
subsequently listed on overseas
stock exchanges after obtaining
necessary approvals in the PRC, are
not subject to the restriction of
the 36-month lock-up period."
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8. ENGAGEMENT AND DISENGAGEMENT OF FIRM OF ACCOUNTANTS
The Company has not changed its firm of accountants during the reporting
period.
During the reporting period, the Company has continued engaging
PricewaterhouseCoopers Zhong Tian CPAs Company Limited as the domestic auditors
and has continued engaging PricewaterhouseCoopers as the overseas auditors.
Remunerations in respect of the audit work amounts to RMB119 million, mainly for
the purpose of providing auditing services for the Company's domestic and
international needs.
Up to the end of the reporting period, PricewaterhouseCoopers Zhong Tian
CPAs Company Limited and PricewaterhouseCoopers have served the Company for a
consecutive 9 years on auditing.
9. PENALTIES ON THE COMPANY AND ITS DIRECTORS, SUPERVISORS, SENIOR
MANAGEMENT, CONTROLLING SHAREHOLDERS AND DE FACTO CONTROLLER AND REMEDIES
THERETO
During the reporting period, none of the Directors, Supervisors, senior
management, controlling shareholders or de facto controllers were subject to any
investigation by the China Securities Regulatory Commission, nor was there any
administrative penalty, denial of participation in the securities market or
deemed unsuitable to act as directors thereby.
10. OTHER SIGNIFICANT EVENTS
During the reporting period, the 98 PetroChina Corporate Bond ("98 Oil
Bond") was due on September 8, 2007 and the principal and interests of the bond
were paid as scheduled. The total issue amount of the 98 Oil Bond was RMB1.35
billion for a term of 8 years. The par interest rate was in the form of fixed
interest rate at 4.5% per annum.
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CONNECTED TRANSACTIONS
As at December 31, 2007, CNPC directly owns an aggregate of approximately
86.29% 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 and the listing rules of the Shanghai Stock Exchange ("SSE Listing
Rules"). As at December 31, 2007, CNPC (Hong Kong) Limited (stock code: 135)
("CNPC (HK)") is a 51.89% owned subsidiary of CNPC. Therefore, transactions
between the Group and CNPC (HK) constitute connected transactions of the Group
under the Listing Rules and SSE Listing Rules. As Beijing Gas Group Co., Ltd.
("Beijing Gas") and China Railway Materials and Suppliers Corporation ("CRMSC")
are respectively a substantial shareholder (as defined under the Listing Rules)
of Beijing Huayou Gas Corporation Limited and PetroChina & 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 constitute
connected transactions of the Group. China National Oil and Gas Exploration and
Development Corporation ("CNODC"), a state-owned enterprise the entire interest
of which is owned by CNPC, is interested in 50% interest in CNPC Exploration and
Development Company Limited ("CNPC E&D"). The Company is interested in the
remaining 50% interest in CNPC E&D. Pursuant to the Listing Rules, CNPC E&D is a
connected person of the Company and any transaction between the Group and CNPC
E&D constitutes connected transaction of the Group. On December 28, 2006, the
Group became interested in 67% equity interest in PetroKazakhstan Inc. ("PKZ")
through CNPC E&D. Pursuant to the Listing Rules, any subsidiaries of CNPC E&D
being a connected person will also be treated as connected person(s) of the
Group. Therefore, transactions between the Group and PKZ constitute connected
transactions of the Group.
- ONE-OFF CONNECTED TRANSACTIONS
1. DISPOSAL OF EQUITY INTERESTS IN CHINA NATIONAL UNITED OIL CORPORATION
On March 18, 2007, the Company entered into an equity transfer agreement
with CNPC, pursuant to which the Company has agreed to dispose 70% of the equity
interests in China National United Oil Corporation to CNPC for a consideration
of approximately RMB1.01 billion. As CNPC is the controlling shareholder of the
Company, CNPC is a connected person of the Company under the Listing Rules and
therefore such equity transfer constitutes a connected transaction of the
Company. Details of the transaction were announced by the Company on March 18,
2007 and in the circular to the shareholders dated March 30, 2007. The
transaction was approved by the independent shareholders of the Company at the
annual general meeting held on May 16, 2007.
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2. ACQUISITION OF ASSETS OF THE RISK OPERATION SERVICE BUSINESS FROM CNPC
On August 23, 2007, the Company entered into an acquisition agreement with
CNPC, pursuant to which the Company has agreed to acquire the assets of the risk
operation service business from CNPC. Pursuant to the acquisition agreement, the
Company has paid CNPC a consideration in the sum of RMB1,652,279,200
(approximately HK$1,700,225,600), representing the value of the net assets of
the risk operation service business as at December 31, 2006. The parties shall
adjust the consideration by reference to the net assets generated by the risk
operation service business for the period from January 1, 2007 to August 31,
2007 as shown in the management accounts for that period. As CNPC is the
controlling shareholder of the Company, CNPC is a connected person of the
Company under the Listing Rules and therefore such asset acquisition constitutes
a connected transaction of the Company. Details of the transaction were
announced by the Company on the website of the Hong Kong Stock Exchange on
August 23, 2007.
3. CAPITAL INJECTION CONCERNING CNPC EXPLORATION AND DEVELOPMENT COMPANY
LIMITED
On December 27, 2007, the Company entered a "Capital Injection Agreement
Concerning CNPC Exploration and Development Company Limited" with CNODC and CNPC
E&D. Pursuant to the agreement, the Company and CNODC, as shareholders of CNPC
E&D, shall inject capital in the aggregate amount of RMB16,000 million
(approximately HK$16,944 million) into CNPC E&D. The Company and CNODC shall
each make a capital injection of RMB8,000 million (approximately HK$8,472
million) in cash, payable in one lump sum. Upon completion of the capital
injection, the Company and CNODC will continue to hold 50% of the shares of CNPC
E&D respectively.
As CNODC is a wholly-owned subsidiary of CNPC, the controlling shareholder
of the Company, CNODC is a connected person of the Company pursuant to the SSE
Listing Rules and the Listing Rules. As CNODC holds 50% of the shares of CNPC
E&D and CNPC E&D is a non-wholly owned subsidiary of the Company, CNPC E&D is
also a connected person of the Company under the Listing Rules. Therefore, the
capital injection by the Company and CNODC into CNPC E&D also constitutes a
connected transaction of the Company under the SSE Listing Rules and the Listing
Rules. Details of the transaction were announced by the Company on the websites
of the Hong Kong Stock Exchange and the Shanghai Stock Exchange on December 27,
2007.
- CONTINUING CONNECTED TRANSACTIONS
(I) CONTINUING CONNECTED TRANSACTIONS WITH CNPC
The Group and CNPC continue to carry out certain existing continuing
connected transactions. The Company sought independent shareholders' approval at
the general meeting held on November 8, 2005 for a renewal of the existing
continuing connected transactions and the new continuing connected transactions
and proposed the new caps for existing continuing
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connected transactions and the new continuing connected transactions for January
1, 2006 to December 31, 2008. The Company further sought independent
shareholders' approval at the general meeting held on November 1, 2006 for a
renewal of the caps for the existing continuing connected transactions for
January 1, 2006 to December 31, 2008 which were previously approved by
shareholders at the general meeting held on November 8, 2005.
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 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
Under the Comprehensive Agreement, products and services to be provided by
the Group to CNPC 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 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;
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- 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 Centre s 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.
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 took 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
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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;
- 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 or the Group
providing the relevant products or services, as appropriate, and the relevant
members of the Group or CNPC, requiring such products or services, as
appropriate.
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 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
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the lease of all such property may, after the expiration of 10 years from the
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 (as applicable) 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 approximately 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. The details of the
buildings leased to the Company by CPC are set out in the Buildings Leasing
Contract.
Further to the Buildings Leasing Contract mentioned above, the Company
entered into a Supplemental Buildings Leasing Agreement (the "Supplemental
Buildings Agreement") with CNPC on September 26, 2002 under which CNPC agreed to
lease to the Company another 404 buildings in connection with the operation and
business of the Company, covering an aggregate of 442,730 square meters.
Compared to the Buildings Leasing Contract, the increase in the units being
leased in the Supplemental Buildings Agreement is mainly attributable to the
expansion of the Company's operations mainly in the areas such as oil and
natural gas exploration, the West-East Gas Pipeline Project and the construction
of the northeast refineries and chemical operation base. The total rent payable
under the Supplemental Buildings Agreement amounts to RMB157,439,540 per annum.
The Company and CNPC will, based on any changes in their production and
operations, and changes in the market price, adjust the sizes and quantities of
buildings leased under the Buildings Leasing Contract as well as the
Supplemental Buildings Agreement every three years. The Supplemental Buildings
Agreement became effective on January 1, 2003 and will expire at the same time
as the Buildings Leasing Contract. The terms and conditions of the Buildings
Leasing Contract will, to the extent not contradictory to the Supplemental
Buildings Agreement, continue to apply.
5. INTELLECTUAL PROPERTY LICENSING CONTRACTS
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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 December 23, 1999. 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.
During the period between the establishment the Company and December 31,
2007, CNPC further entered into ten additional production sharing contracts
which are currently effective. All the rights and obligations under these
production sharing contracts have been assigned to the Company, which have also
been approved by the Ministry of Commerce of the PRC. According to the Contract
for the Transfer of Rights for the Exploration and Oil Production in the Daqing
Zhaozhou Oilfield Blocks 13 (3-6) and the Contract for the Transfer of Rights
under Production Sharing Contracts entered into in May 2002 and April 2007,
respectively, between the Company and CNPC, CNPC has agreed to assign to the
Company all of its rights and obligations under seven out of these ten
additional production sharing contracts executed on or prior to June 30, 2007 at
nil consideration and subject to applicable PRC laws and regulations, 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 at December 31, 2007, the total amount
guaranteed was RMB498 million.
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
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transactions had been entered into in the normal and ordinary course of business
for the benefits of the Company, and are in the interests of the shareholders as
a whole.
(II) CONTINUING CONNECTED TRANSACTIONS WITH CNPC E&D
The following continuing connected transactions arose as a result of the
completion of the acquisition of the 67% equity interest in PKZ, which was
announced by the Company on August 23, 2006, on December 28, 2006:
- the provision of production services by CNPC to the Group;
- the provision of construction and technical services by CNPC to the Group;
- the provision of material supply services by CNPC to the Group.
Upon completion of the acquisition of the 67% equity interest in PKZ, 2006,
PKZ became a subsidiary (as defined under the Listing Rules) of CNPC E&D. As
CNPC is the controlling shareholder of the Company and as each of CNPC and the
Company is interested in 50% interest in CNPC E&D respectively, therefore, CNPC
and CNPC E&D are connected persons of the Company under the Listing Rules. The
caps for these continuing connected transactions have already been included in
that for continuing connected transactions between the Group and CNPC.
(III) 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 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 (HK) is a company listed on the HKSE and a 51.89% owned subsidiary of
CNPC. 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 continuing connected transactions between the
Company and CNPC (HK) pursuant to the Listing Rules and the SSE Listing Rules.
Summary of the major terms and conditions of these continuing 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 development costs as well as the
oil and natural gas produced from blocks 9-1 to 9-5 of the Karamay Oilfield, as
to 46% by the Company and
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54% by CNPC (HK), and from the Leng Jiapu Block of Liaohe Oilfield ("Leng Jiapu
Oilfield"), as to 30% by the Company and 70% by CNPC (HK).
(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.
(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.
The waiver in respect of the above continuing connected transactions
between the Company and CNPC (HK) granted by the HKSE expired on December 31,
2006. As each of the applicable percentage ratio(s) (other than the profits
ratio) in respect of the above continuing connected transactions between the
Company and CNPC (HK) is more than 0.1% but less than 2.5%, these transactions
are exempted from the independent shareholders'
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approval requirements and are only subject to the reporting and announcement
requirements under Rule 14A.34 of the Listing Rules. An announcement was made by
the Company on August 23, 2006 in respect of the reporting and announcement
obligations for these continuing connected transaction for the period from
January 1, 2007 to December 31, 2008.
(IV) CONTINUING CONNECTED TRANSACTIONS WITH CRMSC AND BEIJING GAS
The Group has entered 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 were first
approved by shareholders at the extraordinary general meeting held on November
8, 2005 and subsequently approved by shareholders at the extraordinary general
meeting held on November 1, 2006 with the revised caps.
(a) Beijing Gas Products and Services Agreement
The Company entered into a Products and Services Agreement with Beijing Gas
on September 1, 2005. Pursuant to the agreement, the Group shall 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 with a term of 3 years.
(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 based on the annual volumes of the relevant transactions 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 and also include
the new continuing connected transactions arising as a result of the acquisition
of interest in PKZ, (b) Buildings Leasing
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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:
PROPOSED ANNUAL CAPS
---------------------------
CATEGORY OF PRODUCTS AND SERVICES 2006 2007 2008
--------------------------------- ------- ------- -------
RMB MILLION
(i) Products and services to be provided by the Group to the CNPC Group
(Note 1) 36,670 44,970 50,129
(ii) Products and services to be provided by CNPC to the Group
(a) Construction and technical services (Note 1) 114,681 115,039 105,661
(b) Production services (Note 1) 63,983 96,437 98,518
(c) Supply of materials services (Note 1) 5,356 5,459 5,574
(d) Social and ancillary services (Note 3) 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
(Note 3) 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 (Note 3) 9,081 9,102 9,126
(iii) Financial services to be provided by the Group to the Jointly-owned
Companies (Note 3) 21,235 32,840 44,465
(iv) Fee for land leases paid by the Group to CNPC (Note 3) 2,260 2,260 2,260
(v) Rental for buildings paid by the Group to CNPC (Note 3) 140 140 140
(vi) Provision of services by the Group to CNPC (HK) (Note 4) 1.6 1.6 1.6
(vii) Provision of products by CNPC (HK) to the Group (Note 4) 23,192 4,370 4,241
(viii) Products and services provided by the Group to CRMSC (Note 2) 11,048 12,025 13,152
(ix) Products and services provided by the Group to Beijing Gas (Note 5) 4,939 5,983 7,097
Notes:
1. The Company obtained independent shareholders' approval at the general
meeting held on November 8, 2005. The Company further obtained independent
shareholders' approval at the general meeting held on November 1, 2006 for
a revision of these annual caps which were previously approved by
shareholders at the general meeting held on November 8, 2005.
2. The Company obtained shareholders' approval at the general meeting held on
November 8, 2005. The Company further obtained shareholders' approval at
the general meeting held on November 1, 2006 for a revision of these annual
caps which were previously approved by shareholders at the general meeting
held on November 8, 2005.
3. The Company obtained shareholders' approval at the general meeting held on
November 8, 2005.
4. The Board of Directors approved the annual caps for these continuing
connected transactions from January 1, 2007 to December 31, 2008 at the
board meeting held on August 23, 2006. Details of such transactions were
announced on the same day.
5. The annual caps of this continuing connected transaction are only subject
to announcement requirement. Details of such transaction were announced on
September 1, 2005.
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(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.
INDEPENDENT NON-EXECUTIVE DIRECTORS CONFIRMATION
In relation to the connected transactions undertaken by the Group in 2007,
the independent non-executive Directors of the Company confirm that:
(i) the connected transactions mentioned above have been entered into in
the ordinary and usual course of business of the Company;
(ii) the connected transactions mentioned above have been entered into on
terms that are fair and reasonable to the shareholders of the Company;
(iii) the connected transactions mentioned above have been entered into on
normal commercial terms either (1) in accordance with the terms of the
agreements governing such transactions, or (2) (where there is no such
agreement) on terms no less favourable than terms available to
independent third parties; and
(iv) where applicable, the connected transactions have been entered into
within the annual caps 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 annual caps for the years mentioned above.
The information set out in the tables below is principally extracted from the
financial statements of the Group prepared in accordance with CAS:
CONNECTED SALES AND PURCHASES
SALES OF GOODS AND PROVISION OF PURCHASE OF GOODS AND SERVICES
SERVICES TO CONNECTED PARTY FROM CONNECTED PARTY
--------------------------------- ---------------------------------
PERCENTAGE OF THE PERCENTAGE OF THE
TRANSACTION TOTAL AMOUNT OF THE TRANSACTION TOTAL AMOUNT OF THE
CONNECTED PARTY AMOUNT TYPE OF TRANSACTION AMOUNT TYPE OF TRANSACTION
------------------------- ----------- ------------------- ----------- -------------------
RMB MILLION % RMB MILLION %
CNPC and its subsidiaries 31,325 3.75 146,381 20.26
Other connected parties 21,755 2.61 29,375 4.07
Total 53,080 6.36 175,756 24.33
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CONNECTED OBLIGATORY RIGHTS AND DEBTS
FUNDS PROVIDED TO FUNDS PROVIDED TO THE
CONNECTED PARTY GROUP BY CONNECTED PARTY
------------------------- -------------------------
OCCURRENCE OCCURRENCE
CONNECTED PARTIES AMOUNT BALANCE AMOUNT BALANCE
------------------------- ----------- ----------- ----------- -----------
RMB MILLION RMB MILLION RMB MILLION RMB MILLION
CNPC and its subsidiaries -- -- (2,680) 24,482
Other connected parties 45 1,814 -- --
Total 45 1,814 (2,680) 24,482
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CORPORATE GOVERNANCE
1. IMPROVEMENT OF CORPORATE GOVERNANCE
The Company has always duly complied with the regulatory provisions of the
domestic and overseas jurisdiction in which its shares are listed, standardized
its operations and promoted the continuous improvement of the level of corporate
governance. The A shares of the Company were listed on November 5, 2007. As a
listed company in Hong Kong, New York and the PRC, the Company has been able to
comply with the legal, regulatory and procedural requirements as required by the
respective jurisdictions of listing. The Company has further improved the work
systems and processes laid down by the directions under the Articles of
Association of the Company. Checks and balances were achieved through the
coordination among the shareholders at the shareholder's meeting, the Board of
Directors and its related special Board committees, the Supervisory Committee
and the management headed by the President. Together with the effective internal
control and management systems, the Company's internal management and operations
was further standardized and the corporate governance of the Company is further
enhanced.
2. IMPROVEMENT OF INTERNAL CONTROL SYSTEM
The Company places great emphasis on internal control and risk management.
The Company's management is mainly responsible for the design, implementation
and improvement of the internal control system, including financial reporting,
operations and compliance and risk management control functions. The Board of
Directors and the Audit Committee are responsible for supervising the activities
of the management and monitoring the effectiveness of the existing internal
control system.
Since 2003, the Company has commenced the establishment of an internal
control system. In 2005, pursuant to the relevant requirements of laws and
regulations, the Company focused on the processes and key controls related to
the preparation of financial statements and disclosure of financial information
based on the Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organisations of the Treadway Commission and compiled an "Internal
Control Management Handbook" which has been enhanced every year. In 2007, work
on the internal controls has been focused on ensuring continuous and effective
operation of the internal control system and which has facilitated the further
enhancement of the internal control system and its effectiveness and the level
of supervision. As such, improvement on the internal control system was
strengthened and effective implementation was facilitated.
The Company has established a decision making body in charge of internal
control and risk management - Internal Control System Establishment Committee,
which is headed by the President and the Chief Financial Officer. The Internal
Control System Establishment Committee established an internal control
department at the headquarters of the Company and serves as an operation organ
for the daily management department and committees in charge
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of the internal control of the Company to organise and coordinate the practice
in relation to the implementation and improvement of the internal control
system. The internal control department and the audit department shall exercise
supervision functions to assess and monitor the operations of the systems. All
subsidiaries and branch companies have established relevant departments to
manage their own internal control on a day-to-day basis.
The Board of Directors is satisfied with the effectiveness of the internal
control system of the Company and expects the Company to continue the
strengthening of the implementation of internal control management and continues
to emphasise risk management control, establish and improve a comprehensive risk
management system which is "simple, easy and efficient" so as to ensure that the
internal control is practical and efficient and management efficacy could be
enhanced. The Company's internal control systems includes financial, operations
and compliance and risk management controls. The Company has formulated a series
of management procedures for various production, operation and management
activities, including but not limited to procedures and systems which the
management considers reasonable to ensure the reliability of the financial
reports and preparation of financial statements. The Company has also formulated
improved systems for information disclosure and the collection, consolidation
and procedures for disclosure.
In 2007, with the implementation of the single-tier accounting system, the
Company completed the design of key controls for business processes and improved
the structure of internal controls.
The management of the Company has assessed the control environment of the
Company at the Company level and at the process/transaction level and performed
risk assessment of the businesses and processes. The Company has designed and
adopted key controls against identified significant risks with a view to
minimizing such risks.
In 2007, the management of the Company assessed the design and
effectiveness of the implementation of internal control in connection with
financial statement preparation and financial reporting of the Company and its
subsidiaries and branch companies and considered that the internal control of
the Company was effective as at December 31, 2007.
The Audit Committee is responsible for assessing the findings and opinions
of the management of the Company on the effectiveness of the internal control of
the Company and presents its assessment to the Board of Directors each year. The
Audit Committee considers that the Company has effectively implemented an
effective internal control system which has enhanced the governance of the
Company. As at December 31, 2007, the Board of Directors considered that the
internal control system of the Company in respect of the preparation of
financial statements and compliance with the relevant regulatory requirements on
internal control as required in Hong Kong and Shanghai were effective and
adequate.
Looking ahead 2008, the Company shall focus on the effectiveness of the
structure of the internal control system and strengthening the control and
monitoring measures in all respects and further enhancement of the internal
control system in accordance with actual circumstances and regulatory
requirements.
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3. PERFORMANCE OF INDEPENDENT DIRECTORS' DUTIES
In 2007, the independent Directors of the Company were committed to
implementing the system of independent directors and earnestly and diligently
performing their duties and fiduciary duties in accordance with the relevant
laws and regulations and the Articles of Association of the Company. They
reviewed the documents presented by the Company and actively participated in the
meetings of the Board of Directors and special committees of the Board (please
refer to the section on "Directors' Report" in this annual report for detailed
information on the attendance of the meetings). They discharged their duties
objectively and independently protecting the interests of the minority
shareholders and played a part in the checks and balances of the decision making
process of the Board of Directors.
During the reporting period, the independent Directors of the Company did
not object to the motions, resolutions and other matters discussed at the
meetings of the Board of Directors.
4. INDEPENDENCE OF THE COMPANY FROM THE CONTROLLING SHAREHOLDER
The Company is independent from its controlling shareholder, CNPC, in
respect of business, personnel, asset, organizational structure and finance. The
Company has independent and comprehensive business operations and management
capabilities.
5. SENIOR MANAGEMENT EVALUATION AND INCENTIVE SCHEME
In accordance with the "Measures of Evaluation of Annual Performance of the
President's Team", the Company evaluated the completion of the performance
targets of 2006 by the President's Team with reference to the achievement of the
performance targets in 2006 and the business development plan of 2007,
formulated the "2007 Performance Contracts of President's Team" and prepared a
"Report on the Examination of the Completion of Performance Targets by the
President's Team in 2006 and the Formulation of Performance Contracts in 2007",
which were reviewed and approved at the sixth meeting of the Third Session of
the Board of Directors.
In accordance with the "Measures of Evaluation of Performance of the Senior
Management" and the relevant provisions and performance targets of the year, the
Company conducted appraisal on 561 members of the senior management from the
specialized companies, local companies and the science and research planning
departments on their achievement of the performance targets in 2006, and
formulated the performance contracts 2007. The Company organized a signing
ceremony of the performance contracts for 2007 for specialized companies and
local companies attended by key political and party personnel. The Company
conducted quarterly review on the completion of performance targets, drafted and
presented seven performance reports on major performance targets to the
President's office and others. The Company completed evaluation of the
performance targets of the year in all aspects.
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6. CORPORATE GOVERNANCE REPORT
(1) Compliance with Code on Corporate Governance Practices
The Company is dedicated to enhancing the level of its corporate
governance. During the year, the Company has been in strict compliance with the
code provisions set out in the Code on Corporate Governance Practices (the "Code
on Corporate Governance Practices") in Appendix 14 of the Listing Rules.
However, since May 20, 2007, the roles of Chairman and President have been
performed by the same person. Following the retirement of Mr Chen Geng, Mr Jiang
Jiemin, who was the President and Vice Chairman of the Company, has since May
20, 2007 been appointed as the Chairman of the Board of Directors concurrently
with his role as the President of the Company. With his extensive experience in
China's oil and gas industry and substantial knowledge of the operations and
management of the Company, the Board of Directors believes that Mr Jiang will
continue to provide strong leadership to the Board and facilitate the Company to
implement its plans and strategies smoothly and effectively. The Board of
Directors believes that such change in the management structure will not affect
the operations and business development and corporate governance of the Company.
In view of the importance of the role as the president, should there be a
candidate with the suitable credentials, the Board of Directors will consider
appointing a new president to comply with the relevant requirement under the
Code on Corporate Governance Practices.
(2) Securities Transactions by Directors and Supervisors
The Company has adopted the provisions of the Model Code for Securities
Transactions by Directors of Listed Issuers (the "Model Code") set out in
Appendix 10 of the Listing Rules in respect of the dealing of the Company's
shares by its Directors. Upon making special enquiries to all the Directors and
the Supervisors of the Company, they have confirmed that, during the reporting
period, they have complied with the standards as required under the Model Code.
(3) Board of Directors
Pursuant to the "Work Manual of the Board of Directors", the Board of
Directors convened 4 regular meetings and 3 extraordinary meetings of Board of
Directors and 9 meetings of special Board Committees and passed 24 resolutions
of the Board of Directors and 11 opinions of Board Committees during the
reporting period.
For details of the composition of the Board of Directors and attendance
rate of Directors at regular Board meetings during the year, please refer to the
section "Members of the Board of Directors and the attendance rate of Directors"
in the "Directors' Report" of this annual report.
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 President of the Company.
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(4) Operations of the Board of Directors
The Company's Board of Directors is elected by the shareholders' general
meeting of the Company 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, 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 reorganisation of the Company. The Directors and the
Board of Directors 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 thereby strengthen the function of the Board of
Directors.
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
independent non-executive Directors are completely independent of the Company,
its major 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, has appropriate accounting and
financial experience as required under Rule 3.10 of the Listing Rules. Please
see the section headed the Brief Biography of the Directors under the 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 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 these special board committees
focus on particular issues according to their areas of expertise and make
recommendations for the improvement of the corporate governance level of the
Company.
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(5) The Chairman and President
Mr Jiang Jiemin is the Chairman of the Board of Directors 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,
inspecting the implementation of Board resolutions, signing share certificates
issued by the Company, and other duties and power authorised 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, organising the implementation of Board resolutions,
organising 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 Chief Financial Officer 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 authorised by the Articles of Association of the Company and the Board
of Directors.
(6) Term of Office of Directors
Pursuant to the Company's Articles of Association, the Directors (including
non-executive Directors) shall be elected at 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.
(7) Remuneration of Directors
The Examination and Remuneration Committee of the Company comprises three
Directors, including two independent non-executive Directors with 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 of
Corporate Governance Practices. 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 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 organising appraisal of the President and submitting a report
therefor to the Board of Directors, supervising the appraisals of Senior Vice
Presidents, Vice Presidents, the Chief Financial Officer and other senior
officers under the leadership of the President, reviewing the incentive scheme,
remuneration system and stock option plan of the Company, monitor and assess the
effectiveness of their implementation, and put forward opinions on reform and
improvement in relation thereto.
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The Examination and Remuneration Committee held one meeting in the
reporting period which was the sixth meeting of the Third Session of the Board
of Directors.
A summary of the work of the Examination and Remuneration Committee of the
Company in 2007 is as follows:
The meeting of the Examination and Remuneration Committee held at the sixth
meeting of the Third Session of the Board of Directors reviewed the "Report on
the Examination of the Completion of Performance Targets by the President's Team
in 2006 and the Formulation of Performance Contracts in 2007".
(8) 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 authorise the Chairman to consolidate a list of the director
candidates nominated by the shareholders who are entitled to make a proposal. As
authorised 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 candidates for directorship. The candidates for
directorship 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 give 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 candidates for directorship must be set out
in the circular to shareholders to facilitate 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.
As at the end of the reporting period, the Company has not established a
nomination committee.
(9) Audit Committee
The Audit Committee of the Company comprises one non-executive Director and
three independent non-executive Directors. Under the Organisational 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.
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
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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 relevant laws, regulations and the
listing rules of the stock exchanges where the shares of the Company is listed
(as amended from time to time).
During the reporting period, the Audit Committee held five regular
meetings. One of the meetings of the Audit Committee was held by way of written
resolution.
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 attendance rate at meetings are as follows:
POSITION NAME ATTENDANCE RATE (%)
-------- -------------- -------------------
Chairman Franco Bernabe 100
Member Chee-Chen Tung 75
Member Liu Hongru 100
Member Gong Huazhang 75
The followings 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 control system and the performance
of the other responsibilities set out in the Code on Corporate Governance
Practices during the reporting period:
- the Audit Opinion of the Audit Committee of the Board of Directors on
the Financial Report for 2006;
- the Audit Opinion of the Audit Committee of the Board of Directors on
the draft Profit Distribution Plan for 2006;
- the Audit Opinion of the Audit Committee of the Board of Directors on
the Interim Report for 2007 and Other Matters;
- the Audit Opinion of the Audit Committee of the Board of Directors on
the Interim Profit Distribution Plan for 2007; and
- the Audit Opinion of the Audit Committee of the Board of Directors on
the Internal Control Work Report and other Reports of the Company.
(10) Shareholders and Shareholders' General Meetings
For details of shareholders and shareholder's general meetings, please
refer to the section entitled "Shareholders' Meetings" in this annual report.
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(11) 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.
(12) Directors' Responsibility In Preparing Financial Statements
The Directors are charged with the responsibility to audit the financial
statements in each financial year with supports from the accounting departments,
and to ensure that the relevant accounting practices and policies are observed
and IFRS and CAS are complied with in the compilation of such financial
statements in order to report the financial position of the Company in a factual
and unbiased manner.
(13) Going Concern
The Directors, having made appropriate enquiries, consider that the Company
has adequate resources to continue in operational existence for the foreseeable
future and that, for this reason, it is appropriate to adopt the going concern
basis in preparing the financial statements.
(14) Others
Information on corporate governance, mechanisms for assessment of
performance and performance 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 on corporate governance
structure pursuant to the requirements under section 303A.11 of the New York
Stock Exchange Listed Company Manual can be found on the Company's website
(www.petrochina.com.cn). 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.
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SHAREHOLDERS' 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.
1. ANNUAL GENERAL MEETING
The annual general meeting for 2006 was held on May 16, 2007 at Crowne
Plaza Park View Wuzhou Beijing Hotel. Twelve ordinary resolutions and one
special resolution granting the general mandate of the Board of Directors to
issue the Company's shares and apply for the listing of such shares were passed
and approved at the meeting.
Pursuant to the relevant provisions of the Listing Rules, CNPC, as the
controlling shareholder and therefore a connected person of the Company,
abstained from voting on the 13th resolution proposed at the annual general
meeting involving the connected transaction between the Company and CNPC. Such
resolution was passed by more than half of the voting rights represented by the
independent shareholders present at the meeting in person or by proxy. The
independent non-executive Directors of the Company have conducted annual review
on these connected transactions to ensure sufficient disclosures have been made
in respect of the details, approval procedures and performance of the connected
transactions. For details of the connected transactions, please refer to section
of headed Connected Transactions in this annual report.
Details of the resolutions passed at the general meeting have been set out
in the announcement published in the "Hong Kong Economic Times" and "South China
Morning Post" on May 16, 2007.
2. EXTRAORDINARY GENERAL MEETING
An extraordinary general meeting for 2007 was held on August 10, 2007 at
the Oriental Bay International Hotel, Beijing. A special resolution in respect
of the issue and listing of A shares of the Company was passed and approved at
such meeting.
Details of the resolution passed at the extraordinary general meeting have
been set out in the announcement published on the website of the HKSE on August
10, 2007.
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DIRECTORS' REPORT
The Board of Directors of the Company is pleased to present its directors'
report for perusal.
1. REVIEW OF RESULTS OF OPERATIONS AND THE BUSINESS PROSPECT OF THE COMPANY
DURING THE REPORTING PERIOD
Please refer to the sections headed "Business Operating Review",
"Management's Discussion and Analysis of Financial Position and Results of
Operations" and "Chairman's Report" in this annual report.
2. RISK FACTORS
During the course of its production and operations, the Group actively took
various measures to avoid and mitigate all types of risks. However, in practice,
it may not be possible to prevent all risks and uncertainties completely.
(1) Industry Regulations and Tax Policies Risk
Like other oil and gas companies in China, the Group's operating activities
are subject to extensive regulations and controls by the PRC Government. These
regulations and controls, such as by way of issue of exploration and production
licences, the imposition of industry-specific taxes and levies and the
implementation of environmental policies and safety standards etc., are expected
to have impact on the Group's operating activities. Any future changes in the
PRC governmental policies in respect of oil and gas industry may also affect the
Group's business operations.
Taxes and levies are one of the major external factors affecting the
operations of the Group. The PRC Government is actively progressing taxation
reform which may lead to changes in the taxes and levies relating to the
operations of the Group, thereby affecting the operating results of the Company.
(2) Price Fluctuations of Crude Oil and Refined Products Risk
The Group is engaged in a wide range of petroleum-related activities. The
prices of crude oil and refined products in the international market are
affected by various factors such as changes in global and regional politics and
economy, the supply and demand conditions of crude oil and refined products and
unexpected political events and disputes with international repercussions. The
domestic crude oil price is determined with reference to international price of
crude oil, and in 2006, the PRC established new refined products pricing
mechanism based on macro economic controls. However, as affected by the macro
economic controls in the PRC, the prices of domestic refined products were not
adjusted in line with the prices in the international market. The Group has not
adopted any commodity derivative instruments to hedge against potential price
fluctuations of crude oil and refined products. Therefore, the
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Group is exposed to general price fluctuations of oil and gas commodities in
2008 and thereafter.
(3) Foreign Exchange Rate Risk
The Group conducts its business primarily in Renminbi. Currently, the PRC
Government is implementing 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 Renmibi. Future exchange rates of Renminbi
against other currencies could vary significantly from the current exchange
rates, hence affecting the operating results and financial position of the
Group.
(4) Market Competition Risk
The Group has distinctive advantages in resources, and is occupying a
leading position in the oil and gas industry in the PRC. At present, major
competitors of the Group are other large domestic oil and petrochemical
producers and sellers. With the gradual opening up of the domestic oil and
petrochemical industry, certain large foreign oil and petrochemical companies
have become competitors of the Group in certain regions and segments. The
exploration and production business and natural gas and pipeline business of the
Group have been in a leading position in China, but the refining and marketing
business and the chemicals and marketing business of the Company are facing
relatively keen competition.
(5) Uncertainty of the Oil and Gas Reserves
According to industry characteristics and international customs, the crude
oil and natural gas reserves data disclosed by the Group are estimates only. The
Group has already engaged evaluation companies who are internationally
recognised to evaluate the crude oil and natural gas reserves of the Group on a
periodic basis. However, the reliability of reserve estimate depends on a number
of factors, assumptions and variables, such as the quality and quantity of
technical and economic data, the prevailing oil and gas prices applicable to the
production of the Group etc., many of which are beyond the control of the Group
and may be adjusted over time. Results of drilling, testing and exploration
results after the date of the estimates may also result in revision to the
reserves data of the Group.
(6) Hidden Hazards Risks and Force Majeure Risk
Oil and gas exploration, exploitation, storage and transportation and the
production, storage and transportation of refined products and petrochemical
products are faced with certain risks, which may cause unexpected or dangerous
events, such as personal injuries or death, property damage, environmental
damage and interruption of operations etc. With the expansion of operations
scale and regions, the safety risks faced by the Group also increase
accordingly. Meanwhile, new regulations adopted in recent years set out higher
standard for safety production. The Group has implemented a strict HSE
management system and used its best endeavours to prevent the occurrence of
various accidents. However, the Group cannot
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completely avoid potential financial losses caused by such contingent incidents.
In addition, natural disasters such as earthquake, typhoon, tsunami and
emergency public health events may cause losses to the properties and personnel
of the Group, and may affect the normal operations of the Group.
3. CONTINGENT LIABILITIES
(1) Bank and other guarantees
Please refer to the paragraph headed "Material Contracts and the
performance thereof" under the section headed "Significant Events" in this
annual report for details.
(2) 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 of the Group
believes that there are no probable liabilities, except for the amounts which
have already been reflected in the consolidated financial statements, that will
have a material adverse effect on the financial position of the Group.
(3) Legal contingencies
The Group is the named defendant in certain insignificant lawsuits as well
as the named party in other proceedings arising in the ordinary course of
business. While the outcome of such contingencies, lawsuits or other proceedings
cannot be determined at present, the management of the Group believes that any
resulting liabilities will not have a material adverse effect on the financial
position of the Group.
(4) Leasing of roads, land and buildings
According to the Restructuring Agreement entered into between the Company
and CNPC on March 10, 2000, CNPC has undertaken as follows:
- 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.
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As at December 31, 2007, CNPC had obtained formal land use right
certificates in relation to 27,554 out of the above-mentioned 28,649 parcels of
land and 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
management 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 the opinion of the management of the Company, the outcome of the
above events will not have material adverse effect on the operating results or
the financial position of the Group.
(5) Group insurance
Except for limited insurance coverage for vehicles and certain assets
subject to significant operating risks, the Group does not carry any other
insurance for property, facilities or equipment with respect to its business
operations. In addition, the Group does not carry any third-party liability
insurance against claims relating to personal injury, property and environmental
damages or business interruption insurance since such insurance coverage is not
customary in China. While the effect of under-insurance on future incidents
cannot be reasonably assessed at present, the management of the Group believes
that any resulting liabilities may not have material adverse effect on the
financial position of the Group.
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4. USE OF PROCEEDS FROM FUND RAISING
Unit: RMB million
TOTAL AMOUNT OF In October 2007, the TOTAL AMOUNT Out of the proceeds raised for the
PROCEEDS Company issued 4 billion A OF PROCEEDS following five projects in the amount of
shares. The total proceeds USED THIS RMB37,770 million, RMB13,943 million were
and net proceeds from such YEAR used. Balance of the net proceeds would be
issuance were RMB66,800 used as additional working capital and for
million and RMB66,243 general commercial purpose.
million respectively.
ACCUMULATED Same as above.
AMOUNT OF
PROCEEDS USED
MODIFICATION PROPOSED ACTUAL PROGRESS ESTIMATED
COMMITTED PROJECT OF THE PROJECT INVESTMENT INVESTMENT AS PLANNED RETURN PROJECT RETURN
--------------------- -------------- ---------- ---------- ---------- ------------ ---------------
Project to increase No 6,840 2,718 Yes Internal To be
the crude oil rate of confirmed only
production capacity return above upon
of Changqing Oilfield 12% commissioning
Project to increase Internal To be
the crude oil No 5,930 1,772 Yes rate of confirmed only
production capacity return above upon
of Daqing Oilfield 12% commissioning
Project to increase Internal To be
the crude oil No 1,500 495 Yes rate of confirmed only
production capacity return above upon
of Jidong Oilfield 12% commissioning
Dushanzi
Petrochemical's
projects - processing Internal To be
and refining rate of confirmed only
sulphur-bearing crude No 17,500 8,867 Yes return above upon
oil imported from 12% commissioning
Kazakhstan and
ethylene technology
development projects
Daqing Petrochemical Internal To be
1.2 million tons/year rate of confirmed only
ethylene No 6,000 91 Yes return above upon
redevelopment and 12% commissioning
expansion project
Total 37,770 13,943 -- --
Projects not --
progressing as
planned and not
achieving estimated
return
Projects modified and
modification --
procedures
Application and The unutilised portion of the net proceeds of RMB37,770 million from the A share issuance
status of unused has been deposited into the designated bank accounts maintained by the Company.
proceeds
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PROJECTS NOT FUNDED BY PROCEEDS FROM FUND RAISING
Unit: RMB million
TOTAL PROJECT
NAME OF PROJECT AMOUNT PROGRESS OF PROJECT PROJECT RETURN
--------------- ------------- ------------------- --------------
Dalian Petrochemical 10,789 Construction of part of the To be confirmed
technological development production facilities has been only upon
project - processing 20 completed and production has commissioning
million tons of imported commenced.
sulphur-bearing crude oil
per year
Guangxi Petrochemical project 15,166 Installation of preliminary To be confirmed
refining 10 million tons of parts has been completed and only upon
crude oil per year construction has commenced. commissioning
Sichuan Petrochemical project 21,019 Preliminary work of the project To be confirmed
with an ethylene output of has been completed and ordering only upon
0.8 million tons per year of equipment has commenced. commissioning
Fushun Petrochemical one 12,524 Preliminary work of the project To be confirmed
million tons per year has been completed and ordering only upon
ethylene technology of equipment has commenced. commissioning
development project
Lanzhou-Zhengzhou-Changsha 11,429 Installation of preliminary To be confirmed
Refined Oil Pipeline parts has been completed and only upon
construction has commenced. commissioning
Total 70,927 --
5. OPERATIONS OF THE BOARD OF DIRECTORS
(1) The convening of Board meetings and the issues resolved
During the reporting period, the Board of Directors convened 4 regular
Board meetings, 3 extraordinary Board meetings and passed 24 resolutions.
a. On March 18, 2007, the Company held the sixth meeting of the third term
of its Board of Directors, during which 12 resolutions were passed as follows:
- The resolution on the Company's Financial Statements for year
2006 (including the announcement of the annual results for the
year ended December 31, 2006)
- The resolution on the Company's draft profit distribution plan
for 2006
- The resolution on the Company's 2006 annual report and 2006
social responsibility report
- The resolution on the Company's 2006 President Work Report
- The resolution on the assessment of the completion of performance
targets by the President's Work Team for 2006 and the formulation
of performance contract for 2007
- The resolution on the proposal to request the Company's general
meeting to authorise the Board of Directors to determine the
distribution of the Company's interim profits for 2007
- The resolution on the proposal to request the Company's general
meeting to authorise the Board of Directors to arrange for the
issue of new shares by the Company and for their listing
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- The resolution on the formation of a special committee of the
Board of Directors regarding the application for issue of new
shares by the Company and their listing and the authorization of
such committee to deal with related matters
- The resolution on the disposal of equity interest in China
National United Oil Corporation
- The resolution on the formation of an independent committee of
the Board of Directors and the appointment of an independent
financial advisers regarding the equity interest transfer of
China National United Oil Corporation
- The resolution on the authorization of short-term investment
quota for 2007
- The resolution on convening of the Annual General Meeting for
2006
b. On June 19, 2007, the Company held the seventh meeting of the third term
of its Board of Directors, during which 3 resolutions were passed as follows:
- The resolution on the appointment of Vice President, Chief
Financial Officer and Chief Engineer as recommended by the
President
- The resolution on the public offering of shares domestically
- The resolution on convening of Extraordinary General Meeting for
2007
c. On August 22, 2007, the Company held the eighth meeting of the third
term of its Board of Directors, during which 3 resolutions were passed as
follows:
- The resolution on the interim financial statement of 2007
(including the announcement of the interim results for six months
ended June 30, 2007)
- The resolution on the Company's interim profit distribution plan
for 2007
- The resolution on the acquisition of the assets engaged in risk
management service assets of Xinjiang Petroleum Administration
Bureau and the Command Department of Tuha Petroleum Exploration
and Exploitation
d. On November 20, 2007, the Company held the ninth meeting of the third
term of its Board of Directors, during which 3 resolutions were passed as
follows:
- The resolution on the Company's budget for 2008
- The resolution on the Company's investment plan for 2008
- The resolution on the appointment of Vice President recommended
by the President
Reference can be made to the announcement regarding the resolution on
the appointment of Vice President recommended by the President
published on the websites of the Shanghai Stock Exchange and the Hong
Kong Stock Exchange on November 23, 2007.
e. The first Extraordinary Meeting of the Board of Directors was held on
April 24, 2007 by way of circulation of written resolution, and the resolution
on the approval and authorization of the Secretary of the Board of Directors to
sign the 20-F form for 2006 was passed during the meeting.
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f. The second Extraordinary Meeting of the Board of Directors was held on
May 16, 2007 by way of circulation of written resolution, and the resolution on
the election of Chairman was passed during the meeting.
g. The third Extraordinary Meeting of the Board of Directors was held on
December 27, 2007 by way of circulation of written resolution, and the
resolution on matters related with the capital injection in CNPC Exploration and
Development Company Limited was passed at the meeting.
Reference can be made to the announcement of the resolution published on
the websites of the Shanghai Stock Exchange and the Hong Kong Stock Exchange on
December 27, 2007 and in China Securities Journal, Shanghai Securities Journal
and Securities Times on December 28, 2007.
(2) Members of the Board of Directors and attendance rate of Directors
POSITION NAME ATTENDANCE RATE (%)
-------- ---- -------------------
Chairman Jiang Jiemin 100
Executive Director Duan Wende 100 (100 of which by proxy)
Non-executive Directors Zheng Hu 100 (25 of which by proxy)
Zhou Jiping 100
Wang Yilin 100
Zeng Yukang 100 (50 of which by proxy)
Gong Huazhang 100 (25 of which by proxy)
Jiang Fan 100
Independent Non-executive Directors Chee-Chen Tung 100
Liu Hongru 100
Franco Bernabe 100 (25 of which by proxy)
Note:
Mr Chen Geng retired from his office as Director with effect on May 16,
2007. During the reporting period, Mr Chen Geng attended one meeting of the
Board of Directors and attained a 100% attendance rate.
(3) The implementation of AGM resolutions by the Board of Directors
All members of the Board of Directors have conscientiously and tirelessly
performed their duties, implemented the resolutions passed at the AGM and
accomplished all tasks as authorized by the AGM according to the relevant laws,
regulations and rules of the respective jurisdictions where Company shares are
listed and the provisions as set out in the Company's Articles of Association.
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(4) Work of the special committees of the Board of Directors
a. Audit Committee
During the reporting period, the Audit Committee held five regular meetings
of which one of the meetings were held by way of written resolution.
On March 17, 2007, for the sixth meeting of the third term of the Board of
Directors, the Audit Committee reviewed the Company's Financial Statements for
2006 (including the announcement of the annual results for the year ended
December 31, 2006), the Company's Draft Profit Distribution Plan for 2006,
Report on the Company's Continuing Connected Transactions in 2006, Assessment
Report on Internal Control Test, the Company's Audit Work Report, Resolution on
the Appointment of International and Domestic Accounting Firm for 2007,
Resolution on the Transfer of shareholding of China United Oil Corporation
Limited, PricewaterhouseCoopers' Report to the Audit Committee of the Board of
Directors and prepared the Audit Opinion of the Audit Committee of the Board of
Directors on the Financial Statements for 2006 and the Audit Opinion of the
Audit Committee of the Board of Directors on the draft Profit Distribution Plan
for 2006.
On June 18, 2007, for the seventh meeting of the third term of the Board of
Directors, the Audit Committee reviewed the Report on Internal Control System
Operation, The Company's Internal Audit Work Report, Proposal on the Audit Fee
of PricewaterhouseCoopers for 2007, PricewaterhouseCoopers' Report to the Audit
Committee of the Company's Board of Directors and prepared the Audit Opinion of
the Audit Committee of the Board of Directors.
On August 21, 2007, for the eighth meeting of the third term of the Board
of Directors, the Audit Committee reviewed the Company's Interim Financial
Statements for 2007 (including the publication of annual results for the six
months ended June 30, 2007), the Company's Draft Interim Profit Distribution
Plan for 2007, Report on Internal Control System Operation, The Company's
Internal Audit Work Report, PricewaterhouseCoopers' Report to the Audit
Committee of the Company's Board of Directors and prepared the Audit Opinion of
the Audit Committee of the Board of Directors on the Interim Financial
Statements for 2007 and the Audit Opinion of the Audit Committee of the Board of
Directors on the Draft Interim Profit Distribution Plan for 2007.
On November 19, 2007, for the ninth meeting of the third term of the Board
of Directors, the Audit Committee reviewed the Report on Internal Control System
Operation, the Company's Internal Audit Work Report, PricewaterhouseCoopers'
Report to the Audit Committee of the Company's Board of Directors and prepared
the Audit Opinion of the Audit Committee of the Board of Directors.
On April 30, 2007, for the Extraordinary Meeting of the Board of Directors,
the Audit Committee reviewed and passed the Report on the U. S. Exchange Visit
for the Audit Personnel on Sarbanes-Oxley Act and Anti-Abusive Practice by way
of written resolution.
b. Investment and Development Committee
On March 15, 2007, for the sixth meeting of the third term of the Board of
Directors, the Investment and Development Committee reviewed the Resolution on
the Authorization of
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Short-term Investment Quota for 2007 and prepared the Opinion of the Investment
and Development Committee of the Board of Directors on the Authorization of
Short-term Investment Quota for 2007.
On November 19, 2007, for the ninth meeting of the third term of the Board
of Directors, the Investment and Development Committee reviewed the Resolution
on the Company's Investment Plan for 2008 and prepared the Opinion of the
Investment and Development Committee of the Board of Directors on the Company's
Investment Plan for 2008.
c. Examination and Remuneration Committee
On March 15, 2007, for the sixth meeting of the third term of the Board of
Directors, the Examination and Remuneration Committee reviewed the Report on
Assessment of the Completion of Performance Targets by the President's Work Team
for Year 2006 and the Formulation of Performance Contract for Year 2007 and
prepared the Opinion of the Examination and Remuneration Committee of the Board
of Directors on the Report on Assessment of the Completion of Performance
Targets by the President's Work Team for Year 2006 and the Formulation of
Performance Contract for Year 2007.
d. Health, Safety and Environment Committee
On March 17, 2007, for the sixth meeting of the third term of the Board of
Directors, the Health, Safety and Environment Committee reviewed the Company's
Health, Safety and Environment Work Report for 2006 and prepared the Opinion of
the Health, Safety and Environment Committee of the Board of Directors on the
Company's Health, Safety and Environment Work Report for 2006.
During the reporting period, for the attendance of the Audit Committee
meetings, reference can be made to the "Audit Committee" section under the
Corporate Governance Structure of this Annual Report. All members of the
Investment and Development Committee, Examination and Remuneration Committee and
Health, Safety and Environment Committee attended all meetings as convened by
these special committees.
6. RESULTS
The results of the Group for the year ended December 31, 2007 prepared in
accordance with IFRS are set out in the Consolidated Profit and Loss Account on
page 174.
The financial condition of the Group as at December 31, 2007 are set out in
the Consolidated Balance Sheet prepared in accordance with IFRS on page 175.
The Consolidated Cash Flows Statement of the Group for the year prepared in
accordance with IFRS is set out in the statement on page 177.
7. PROFIT DISTRIBUTION PLAN FROM THE BOARD OF DIRECTORS
The Board recommends to pay final dividends of RMB0.156859 per share
(inclusive of applicable tax) based on 45% of the net profit of the Group for
the twelve months ended December 31, 2007 under IFRS less the interim dividends
for 2007 paid on September 28, 2007. The proposed final dividends are subject to
equity holders' review and approval at the
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forthcoming annual general meeting to be held on May 15, 2008. The final
dividends will be paid to equity holders whose names appear on the register of
members of the Company at the close of business on May 28, 2008. The register of
members of H shares will be closed from May 22, 2008 to May 28, 2008 (both days
inclusive) during which period no transfer of H shares will be registered. In
order to qualify for the final dividends, holders of H shares must lodge all
transfer documents together with the relevant share certificates at Hong Kong
Registrars Limited no later than 4:00 p.m. on May 21, 2008. Equity holders of A
shares whose names appear on the register of members of the Company maintained
at China Securities Depository and Clearing Corporation Limited Shanghai Branch
Company at the close of trading on the Shanghai Stock Exchange in the afternoon
of May 28, 2008 are eligible for the final dividends.
In accordance with the relevant provisions of the Company's Articles of
Association, dividends payable to the Company's equity holders shall be declared
in Renminbi. Dividends payable to the holders of A shares shall be paid in
Renminbi while dividends payable to the holders of H shares shall be paid in
Hong Kong Dollars. The amount of Hong Kong Dollars payable shall be calculated
on the basis of the average of the closing exchange rate for Renminbi to Hong
Kong Dollar as announced by the People's Bank of China for the week prior to the
declaration of the dividends.
8. 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 page 5.
9. BANK LOANS AND OTHER BORROWINGS
Details of bank loans and other borrowings of the Company and the Group as
at December 31, 2007 are set out in note 28 to the financial statements prepared
in accordance with IFRS in this annual report.
10. INTEREST CAPITALISATION
Interest capitalisation for the Group for the year ended December 31, 2007
was RMB1,734 million.
11. FIXED ASSETS
Changes to the fixed assets of the Company and the Group during the year
are summarised in note 16 to the financial statements prepared in accordance
with IFRS in this annual report.
12. LAND VALUE APPRECIATION TAX
No land value appreciation tax was payable by the Group during the year.
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13. RESERVES
Details of changes to the reserves of the Company and the Group for the
year ended December 31, 2007 are set out in note 30 to the financial statements
prepared in accordance with IFRS in this annual report.
14. DISTRIBUTABLE RESERVES
As at December 31, 2007, the reserves of the Company that can be
distributed as dividend were RMB228,016 million.
15. 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.
16. 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.
17. MAJOR SUPPLIERS AND CUSTOMERS
CNPC is the Group's largest supplier of goods and services and the
aggregate purchase attributable to CNPC was 39% of the total purchase of the
Group for 2007. The aggregate purchase attributable to the five largest
suppliers of the Group was 47% of the Group's total purchase.
The aggregate revenue derived from the major customers is set out in note
37 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.
Save as disclosed above, 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.
18. REPURCHASE, SALE OR REDEMPTION OF SECURITIES
The Company or any of its subsidiaries did not sell any securities of the
Company, nor did it repurchase or redeem any of the securities of the Company
during the twelve months ended December 31, 2007.
19. TRUST DEPOSITS AND IRRECOVERABLE OVERDUE TIME DEPOSITS
As at December 31, 2007, the Company did not have any trust deposits or
irrecoverable overdue time deposits.
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20. PRE-EMPTIVE RIGHTS
There is no provision regarding pre-emptive rights under the Articles of
Association of the Company or the PRC laws.
21. SUFFICIENCY OF PUBLIC FLOAT
Based on the information that is publicly available to the Company and
within the knowledge of the Directors, the Directors confirm that the Company
has maintained the amount of public float as required under the Listing Rules
during the reporting period.
22. QUALIFIED ACCOUNTANT
In an announcement dated October 18, 2004, the Company announced that it
had not been able to find a suitable accountant with professional accounting
qualifications recognised to assume the position of qualified accountant as
required under Rule 3.24 of the Listing Rules by September 30, 2004. The Company
is still in the process of identifying suitable candidates with professional
accounting qualifications to assist the Chief Financial Officer to oversee the
compliance by the Company of the financial reporting and other related
accounting matters. However, despite numerous attempts to find such a candidate,
given the importance of the role and the function of the qualified accountant,
the Company has still not been able to find a suitable candidate that meets all
the requirements in Rule 3.24 of the Listing Rules. The Company is trying its
best to identify a candidate with the appropriate qualifications, experience and
understanding of the oil and gas industry to act as the joint qualified
accountant to assist the Chief Financial Officer of the Company to carry out his
duties. The Company will make an application for a 3-year waiver to the HKSE
when it has identified the joint qualified accountant.
By Order of the Board
Jiang Jiemin
Chairman
Beijing, the PRC
March 19, 2008
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REPORT OF THE SUPERVISORY COMMITTEE
Dear Shareholders,
During the year 2007, the Supervisory Committee has carried out their duties
conscientiously and in accordance with the relevant provisions of the Company
Law of the PRC and the Articles of Association of the Company.
During the reporting period, the Supervisory Committee held two meetings.
On March 16, 2007, the fifth meeting of the third term of the Supervisory
Committee was convened in Beijing. The meeting was chaired by Mr Wang Fucheng,
Chairman of the Supervisory Committee. The meeting considered and approved the
Financial Report of the Company for 2006, the Draft Profit Distribution Plan for
2006, the Report on Assessment of the Completion of Performance Targets by the
President's Work Team for 2006 and Formulation of Performance Contracts for
2007, the Resolution on the Appointment of International and Domestic Accounting
Firm for 2007, and the Supervisory Committee's Report for 2006.
On August 21, 2007, the sixth meeting of the third term of the Supervisory
Committee was convened in Beijing. The meeting was chaired by Mr Wang Fucheng,
Chairman of the Supervisory Committee. The meeting considered and approved the
2007 interim report and the draft 2007 interim profit distribution plan.
Further, during the reporting period the Supervisory Committee attended the
annual general meeting for the year 2006 and an extraordinary general meeting in
2007; attended four meetings of the Board of Directors and submitted five
written opinions to the Board of Directors in respect of, inter alia, its review
of the financial reports of the Company, the draft profit distribution plan and
assessment of the performance of the President's Work Team. The Supervisory
Committee conducted two supervisory hearings, received fourteen reports
submitted by, inter alia, the Finance Department, Audit Department, Human
Resources Department, Supervisory Department and PricewaterhouseCoopers Zhong
Tian CPAs Company Limited, and reviewed and issued relevant opinions on, inter
alia, the Company's financial affairs, profit distribution, connected
transactions and assessment of the performance of the President's Work Team. The
Supervisory Committee completed two random financial auditing investigations,
performed random auditing on eight departments, prepared a total of ten
investigation reports and general reports and put forward 37 recommendations.
The Supervisory Committee also made one supervisory inspection tour, prepared
one report and put forward five 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.
-75-
The Supervisory Committee is of the opinion that in 2007, facing changes in the
domestic and international macro operating environments, the Company has adopted
various effective measures, implemented the strategies of resources, marketing
and internationalisation of operation in the best manner, persisted in carrying
out further corporate reforms, and achieved progress in key tasks. The principal
business of the Company continued to develop. There were breakthroughs in oil
and gas exploration. Oil production remained steady, while production of natural
gas remained at a high growth. The refining and petrochemical business mix was
optimized. Major projects were completed and production commenced. A refined
products sales and marketing network covering the whole of China was primarily
established. International businesses maintained a good momentum of development.
The Company became more competitive in the market. The overall business
strengths of the Company were enhanced markedly.
1. OPINION OF THE SUPERVISORY COMMITTEE ON THE LAWFUL OPERATION OF THE
COMPANY
In year 2007, the Company's internal control system improved gradually. The
Company's overall financial position was further improved. Quality of the fixed
assets of the Company improved steadily. Both the debt to asset ratio and the
gearing ratio continued to drop. The Company's repayment capability improved,
and the Company's financing capability was strengthened. Returns for the
shareholders of the Company increased steadily.
The Company managed to comply with laws and standards in its
decision-making process and operations. The Directors of the Company have
complied with the 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, and has conscientiously implemented resolutions at the
shareholders' general meetings. The President's Work Team complied with laws and
standards in its decision-making process and operations, and have met appraisal
standards in all aspects.
2. OPINION OF THE SUPERVISORY COMMITTEE ON INSPECTION OF THE FINANCIAL
STATUS OF THE COMPANY
The financial reports of the Company have been prepared in accordance with
CAS and IFRS. The financial reports audited by PricewaterhouseCoopers Zhong Tian
CPAs Company Limited and PricewaterhouseCoopers give a true and fair view on the
financial position, operating results and cash flows of the Company. The
unqualified opinions issued are objective and fair.
3. OPINION OF THE SUPERVISORY COMMITTEE ON THE USE OF PROCEEDS FROM THE
LATEST FUND RAISING EXERCISE
During the reporting period, proceeds from issue of A shares were applied
in the manner as undertaken.
4. OPINION OF THE SUPERVISORY COMMITTEE ON THE ACQUISITION AND DISPOSAL OF
ASSETS BY THE COMPANY
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During the reporting period, acquisition and disposal of assets of the
Company were carried out at reasonable considerations, and no insider dealing
was discovered. No prejudice to shareholders' rights, dissipation of the
Company's assets or prejudice to the Company was discovered.
5. OPINION OF THE SUPERVISORY COMMITTEE ON CONNECTED TRANSACTIONS OF THE
COMPANY
During the year, continuing connected transactions of the Company were
carried out with the approval of the Hong Kong Stock Exchange and within
the limits approved at the extraordinary general meetings of the Company.
Connected transactions were carried out at reasonable and fair
considerations, and no prejudice to the non-connected shareholders or the
Company was discovered.
The Supervisory Committee is satisfied with the results achieved by
the Company in 2007 and is confident of the prospects of the Company.
The Supervisory Committee hopes that, in 2008, the Company will fully
implement the target of developing the Company into a comprehensive
international energy company, making the best endeavours to complete tasks
in relation to resources, marketing, human resources, technology and
management, persistently enhancing its ability to make innovations,
steadily improving the core competitiveness of the Company in both the
domestic and overseas markets and to facilitate further improvement of the
overall strength of the Company.
In 2008, the Supervisory Committee will continue to fulfil its various
duties conscientiously and in compliance with the Company Law of the PRC,
the Articles of Association of the Company and other relevant regulations.
By Order of the Supervisory Committee
Wang Fucheng
Chairman of the Supervisory Committee
Beijing, the PRC
March 19, 2008
-77-
DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES
1. INFORMATION ON THE DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
(1) Directors
Information on the current Directors is set out below:
REMUNERATION NUMBER OF SHARES HELD
RECEIVED WHETHER IN THE COMPANY
FROM THE RECEIVED ---------------------
COMPANY IN REMUNERATION AS AT AS AT
2007 FROM OFFICES DECEMBER DECEMBER
NAME GENDER AGE POSITION TERM (RMB'000) HELD IN CNPC 31, 2006 31, 2007
---- ------ --- -------- ---- ------------ ------------ -------- --------
Jiang Jiemin(1) M 52 Chairman and 2007.05-2010.05 916 No 0 0
President
Duan Wende(1) M 56 Executive 2007.05-2010.05 824 No 0 0
Director and
Senior Vice
President
Zheng Hu M 61 Non-Executive 2006.05-2009.05 -- Yes 0 0
Director
Zhou Jiping M 55 Non-Executive 2007.05-2010.05 -- Yes 0 0
Director
Wang Yilin M 51 Non-Executive 2005.11-2008.11 -- Yes 0 0
Director
Zeng Yukang M 57 Non-Executive 2005.11-2008.11 -- Yes 0 0
Director
Gong Huazhang M 61 Non-Executive 2005.11-2008.11 -- Yes 0 0
Director
Jiang Fan M 44 Non-Executive 2005.11-2008.11 499 No 0 0
Director
Chee-Chen Tung M 65 Independent 2005.11-2008.11 264 No 0 0
Non-Executive
Director
Liu Hongru M 77 Independent 2005.11-2008.11 349 No 0 0
Non-Executive
Director
Franco Bernabe M 59 Independent 2006.05-2009.05 257 No 0 0
Non-Executive
Director
Note 1: Remuneration excludes the deferred payment paid by the Company to the
relevant Directors and senior management of the Company in respect of their
salaries from 2004 to 2006 in the aggregate amount of RMB3,740,000 pursuant
to the relevant provisions of the PRC Government.
BRIEF BIOGRAPHY OF DIRECTORS:
- Chairman
JIANG JIEMIN: aged 52, is the Chairman and President of the Company and the
General Manager of CNPC. Mr Jiang is a senior economist and has been awarded
with post-graduate qualification. Mr Jiang has over 30 years of working
experience in China's oil and gas industry. He was made Deputy Director of the
Shengli Petroleum Administration Bureau in
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March 1993, Senior Executive of the Qinghai Petroleum Administration Bureau in
June 1994 and Director of Qinghai Petroleum Administration Bureau in November
1994, Assistant to the General Manager and Team Leader for the Restructuring and
Listing Preparatory Team of CNPC in February 1999, and a Director and Vice
President of the Company from November 1999 to June 2000. Mr Jiang was appointed
Deputy Provincial Governor of Qinghai Province since June 2000, was made a
member of the provincial party committee of the Qinghai Province and Deputy
Provincial Governor of Qinghai Province since November 2000, and the deputy
secretary of the provincial party committee of Qinghai Province and Deputy
Provincial Governor of Qinghai Province since June 2003. Mr Jiang became the
Deputy General Manager of CNPC since April 2004 and was appointed the Vice
Chairman and President of the Company in May 2004 and the General Manager of
CNPC since November 2006. Mr Jiang became the Chairman of the Company since May
2007.
- Executive Director
DUAN WENDE: aged 56, is a Director and Senior Vice President of the
Company, and a Deputy General Manager of CNPC. He is a professor-level senior
engineer and has been awarded with post-graduate qualification. He has over 35
years of working experience in China's petrochemical industry. From April 1975
to May 1997, Mr Duan was the Deputy Factory Manager of Fushun Chemical Fibres
Factory, the Commander of the Fushun Ethylene Project Command Division, Deputy
Factory Manager of the ethylene factory, the Factory Manager of the acrylic
fibres factory and the detergent factory. Mr Duan has been the Deputy Manager of
Fushun Petrochemical Corporation since May 1997 and the Manager of Fushun
Petrochemical Corporation since May 1999. He has been appointed as the General
Manager of Fushun Petrochemical Branch Company since October 1999. He has been
the Assistant to the General Manager of CNPC since August 2001. He has been a
Vice President of the Company since March 2002. Mr Duan became the Deputy
General Manager of CNPC since December 2003. He has been appointed as a Director
and Vice President of the Company since May 2004. Mr Duan has been appointed as
a Senior Vice President of the Company since November 2005.
- Non-executive Directors
ZHENG HU: aged 61, is a Director of the Company. Mr Zheng is a
professor-level senior engineer and holds a college degree. He has nearly 40
years of working experience in China's oil and gas industry. From May 1990 to
July 1992, Mr Zheng was the Vice Chancellor of Beijing Petroleum Managers
Training Institute. From July 1992 to September 1994, Mr Zheng worked as Deputy
General Manager of China Petroleum Materials and Equipment (Group) Corporation
and China Petroleum Technology Development Corporation, and from September 1994
as General Manager of China Petroleum Materials and Equipment (Group)
Corporation and China Petroleum Technology Development Corporation. From
September 1999, he worked as director of Personnel and Labour Department of
CNPC. He was appointed as a
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Deputy General Manager of CNPC from August 2000 to February 2007. Mr Zheng has
been appointed as Counsellor of the State Council since February 2006. He has
been appointed as a Director of the Company since June 2000.
ZHOU JIPING: aged 55, is a Director of the Company and a Deputy General
Manager of CNPC. Mr Zhou is a professor-level senior engineer and holds a
master's degree. He has over 35 years of working experience in China's oil and
gas industry. In November 1996, he was the Deputy Director of the International
Exploration and Development Co-operation Bureau of China National Petroleum
Company and Deputy General Manager of China National Oil & Gas Exploration and
Development Corporation. In December 1997, he was appointed as General Manager
of China National Oil and Gas Exploration and Development Corporation and Deputy
Director of the International Exploration and Development Co-operation Bureau of
China National Petroleum Company. Since August 2001, he was the Assistant to the
General Manager of CNPC and General Manager of China National Oil & Gas
Exploration and Development Corporation. Since December 2003, Mr Zhou has been a
Deputy General Manager of CNPC. Mr Zhou has been appointed as a Director of the
Company in May 2004.
WANG YILIN: aged 51, is a Director of the Company and a Deputy General
Manager of CNPC. Mr Wang is a professor-level senior engineer and holds a
doctorate degree. He has nearly 25 years of working experience in China's oil
and gas industry. Mr Wang had been the Deputy Director and Chief Exploration
Geologist of Xinjiang Petroleum Administration Bureau since June 1996. He was
appointed as the General Manager of PetroChina Xinjiang Oilfield Company since
September 1999. He had been the Senior Executive of Xinjiang Petroleum
Administration Bureau and the General Manager of PetroChina Xinjiang Oilfield
Company since June 2001. From July 2003 onwards, he was appointed as the
Assistant to General Manager of CNPC, Senior Executive of Xinjiang Petroleum
Administration Bureau and the General Manager of PetroChina Xinjiang Oilfield
Company concurrently. In December 2003, he was appointed as the Deputy General
Manager of CNPC and Senior Executive of Xinjiang Petroleum Administration Bureau
and the General Manager of PetroChina Xinjiang Oilfield Company concurrently. In
May 2004, he ceased to be the Senior Executive of Xinjiang Petroleum
Administration Bureau and the General Manager of PetroChina Xinjiang Oilfield
Company. From July 2004 to July 2007, he also worked as the Safety Director of
CNPC. He has been appointed as a Director of the Company since November 2005.
ZENG YUKANG: aged 57, is a Director of the Company and a Deputy General
Manager of CNPC. Mr Zeng is a professor-level senior economist and holds a
college degree. He has nearly 40 years of working experience in China's oil and
gas industry. Mr Zeng had been the Senior Executive of the Exploration and
Development Institute of Daqing Petroleum Administration Bureau since December
1996. From February 2000 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
-80-
November 2002, he was the Assistant to the General Manager of CNPC. From
September 2005 onwards, he has been a Deputy General Manager of CNPC. He has
been appointed as a Director of the Company since November 2005.
GONG HUAZHANG: aged 61, is a Director of the Company. Mr Gong is a
professor-level senior accountant and has over 40 years of working experience in
China's oil and gas industry. Mr Gong worked as the Chief Accountant, deputy
director and director of the Finance Bureau of China National Petroleum Company
since 1991. He was the director of Finance and Assets Department of CNPC since
October 1998 and has been the Chief Accountant of CNPC from February 1999 to
February 2007. He has been appointed as a director of China Yangtze Power Co.,
Ltd. since September 2002 and an independent non-executive director of China
Southern Airlines Company Limited since June 2007 and China Railway Group
Limited since August 2007. Mr Gong has been appointed as a Director of the
Company since November 1999.
JIANG FAN: aged 44, is a Director of the Company and the President of
PetroChina Dalian Petrochemical Company. Mr Jiang is a professor-level senior
engineer and holder of a master's degree. He has over 20 years of working
experience in China's petrochemical industry. Mr Jiang was appointed as the
Deputy Manager of PetroChina Dalian Petrochemical Company since December 1996.
In September 1999, he was appointed as the Deputy General Manager of PetroChina
Dalian Petrochemical Company. In February 2002, he became the General Manager of
PetroChina Dalian Petrochemical Company. Mr Jiang has been appointed as a
Director of the Company since November 2005.
- Independent Non-executive Directors
CHEE-CHEN TUNG: aged 65, is an independent non-executive Director of the
Company. Mr Tung is the Chairman and Chief Executive Officer of Orient Overseas
(International) Limited and was educated at the University of Liverpool,
England, where he received his Bachelor of Science degree. He later acquired a
Master's degree in Mechanical Engineering at the Massachusetts Institute of
Technology in the United States. He served as Chairman of the Hong Kong
Shipowners' Association between 1993 and 1995. From 1999 to 2001, he was the
Chairman of the Hong Kong General Chamber of Commerce. He is an independent
non-executive director of Zhejiang Expressway Co. Ltd., BOC Hong Kong (Holdings)
Limited, Wing Hang Bank, Limited, Sing Tao News Corporation Limited, Cathay
Pacific Airways Limited and U-Ming Marine Transport Corporation, and a member of
the Hong Kong Port Development Board. Mr Tung is also the Chairman of the
Institute for Shipboard Education Foundation, the Chairman of the Advisory
Council and member of 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 1999.
-81-
LIU HONGRU: aged 77, is an independent non-executive Director of the
Company. Mr Liu is a professor and holds a doctorate degree. He 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 the Vice Chairman of the Subcommittee
for Economic Affairs of the National Committee of the Chinese People's Political
Consultative Conference, the Vice President of the China Society for Finance and
Banking, the Vice President of the National Debt Association of China and
President of the Shanghai Institute of Finance and Law. 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 a non-executive
director of OP Financial Investments Limited and as an independent non-executive
director of CITIC 21CN Company Limited and Minmetals Resources Limited, 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, Mr Liu has been
appointed as an independent non-executive Director of the Company since November
19, 2002.
FRANCO BERNABE: aged 59, is an independent non-executive Director of the
Company. Mr Bernabe holds a doctorate degree in political economics and is the
Chairman of the Franco Bernabe Group, the Vice Chairman of H3G, the Vice
Chairman of Rothschild Europe, a non-executive director of Pininfarina Spa and
an independent non-executive director of Areoportidi Bologna. He was a former
Chief Executive Officer of ENI and 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. Prior to that, he was a
professor of economic politics at the School of Industrial Administration, Turin
University. Mr Bernabe has been appointed as an independent non-executive
Director of the Company since June 2000.
-82-
(2) Supervisors
Information on the current Supervisors is set out below:
NUMBER OF SHARES HELD
WHETHER IN THE COMPANY
REMUNERATION RECEIVED -----------------------
RECEIVED FROM REMUNERATION AS AT AS AT
THE COMPANY IN FROM OFFICES DECEMBER DECEMBER
NAME GENDER AGE POSITION TERM 2007 (RMB'000) HELD IN CNPC 31, 2006 31, 2007
---- ------ --- --------------- --------------- -------------- ------------ --------- -----------
Wang Fucheng M 57 Chairman of 2005.11-2008.11 -- Yes 0 0
Supervisory
Committee
Wen Qingshan M 49 Supervisor 2005.11-2008.11 -- Yes 0 0
Sun Xianfeng M 55 Supervisor 2007.05-2010.05 -- Yes 0 0
Zhang Jinzhu M 59 Supervisor 2007.05-2010.05 333 No 0 0
Qin Gang M 54 Supervisor 2005.11-2008.11 469 No 0 0
appointed by
employees'
representatives
Li Yongwu M 63 Independent 2005.11-2008.11 315 No 0 0
Supervisor
Wu Zhipan M 51 Independent 2005.11-2008.11 319 No 0 0
Supervisor
BRIEF BIOGRAPHY OF THE SUPERVISORS:
- Chairman
WANG FUCHENG: aged 57, is the Chairman of the Supervisory Committee of the
Company and the Deputy General Manager of CNPC. Mr Wang is a professor-level
senior economist and holds a bachelor's degree. Mr Wang has over 40 years of
working experience in China's oil and gas industry. From August 1986 to December
1992, Mr Wang worked as Senior Executive of the Shengli Petroleum Administration
Bureau. Since December 1992, Mr Wang worked as Senior Executive of the Liaohe
Oil Exploration Bureau. Since November 1997, Mr Wang worked as Director of the
Liaohe Oil Exploration Bureau. Since October 1999, Mr Wang was the General
Manager of PetroChina Liaohe Oilfield Company. 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 been appointed as the Chairman of the
Supervisory Committee of the Company since November 2005. Prior to the
appointment as Supervisor of the Company, Mr Wang has resigned from his office
as Director of the Company. Mr Wang became the Deputy General Manager of CNPC
since September 2007.
- Supervisors
WEN QINGSHAN: aged 49, is a Supervisor of the Company, the Deputy Chief
Accountant of CNPC and the Director of the Finance and Assets Department of
CNPC. Mr Wen is a professor-level senior accountant and holder of a bachelor's
degree. He was the Deputy Chief Accountant of the Finance and Assets Department
of CNPC from November 1998, Deputy
-83-
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. Mr Wen has been appointed as the
Deputy Chief Accountant of CNPC since November 2007.
SUN XIANFENG: aged 55, is a Supervisor and the General Manager of the Audit
Department of the Company and the Director of the Audit Department and the Audit
Services Centre of CNPC. Mr Sun holds a college degree and is a senior
economist. 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 person-in-charge in June 1998. He has been the Deputy Director of the
Audit Department of CNPC from October 2000, and as the Director of the Audit
Services Centre since December 2000. He has been the Director of the Audit
Department of CNPC and the Director of the Audit Services Centre since April
2004. He has been a Supervisor of the Company since May 2004. Mr Sun has been
the General Manager of the Audit Department of the Company since July 2007.
ZHANG JINZHU: aged 59, is a Supervisor of the Company and the Head of the
Office of the Supervisory Committee of the Company. Mr Zhang is a senior
accountant and holder of bachelor's degree. Mr Zhang worked as the Deputy
Director-General of the Bureau of Finance and Equipment of The Supreme Court of
the PRC since May 1995, Deputy Executive of the Petroleum Economic and
Information Research Institute of CNPC since June 1999, Deputy General Manager
of the Finance Department of the Company since August 2000 and the Head of the
Office of the Supervisory Committee of the Company since November 2005. He has
been a Supervisor of the Company since May 2007.
QIN GANG: aged 54, is an employee representative of the Company's
Supervisory Committee and a Senior Executive of the PetroChina West-East Gas
Pipeline Company. Mr Qin is a senior engineer and has nearly 35 years of
experience 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 PetroChina Tarim Oilfield Company
since September 1999. From June 2000, Mr Qin worked as the Senior Executive of
Tarim Southwest Company concurrently. Since July 2002, Mr Qin has worked as an
Executive and the Chairman of Labour Union of PetroChina Tarim Oilfield Company.
Mr Qin became the Senior Executive and the Chairman of the Labour Union of
Petrochina West-East Gas Pipeline Company. Mr Qin was appointed as a Supervisor
of the Company in November 2005.
- Independent Supervisors
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LI YONGWU: aged 63, is an independent Supervisor of the Company. Mr Li is a
senior engineer and holder of a bachelor's degree. 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
Minister of the Chemical Industry Ministry 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 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. Mr Li has been an
Independent Supervisor of the Company since November 2005. In 2003, he was
elected as a standing member of the Tenth Chinese People's Consultative
Conference.
WU ZHIPAN: aged 51, is an independent Supervisor of the Company. Mr Wu is a
holder of doctorate degree. He is a professor, a LL.D. Supervisor, Standing Vice
Chairman of Peking University Council and Chief Legal Advisor of Peking
University, Dean of the Asia-Pacific Research Institute of Peking University and
Director of Financial Law Institute of 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 was
appointed as an independent non-executive director of Air China Limited, Fortune
SGAM Fund Management Co., Ltd. and China Minsheng Banking Corp., Ltd. Mr Wu has
been an independent Supervisor of the Company since December 1999.
(3) Other members of the Senior Management
Information on other current members of the Senior Management is set out
below:
NUMBER OF SHARES HELD
WHETHER IN THE COMPANY
REMUNERATION RECEIVED -----------------------
RECEIVED FROM REMUNERATION AS AT AS AT
THE COMPANY IN FROM OFFICES DECEMBER DECEMBER
NAME GENDER AGE POSITION TERM 2007 (RMB'000) HELD IN CNPC 31, 2006 31, 2007
---- ------ --- --------------- --------- -------------- ------------ --------- -----------
Liao Yongyuan(1) M 45 Vice President 2005.11- 712 No 0 0
Jia Chengzao(1) M 59 Vice President 2005.11- 667 No 0 0
Hu Wenrui(1) M 58 Vice President 2005.11- 667 No 0 0
Sun Longde M 45 Vice President 2007.06- 493 No 0 0
Shen Diancheng M 48 Vice President 2007.06- 457 No 0 0
Liu Hongbin M 44 Vice President 2007.06- 269 No 0 0
Zhou Mingchun M 40 Chief Financial 2007.06- 425 No 0 0
Officer
Li Hualin M 45 Vice President 2007.11- - No 0 0
Lin Aiguo M 49 Chief Engineer 2007.06- 422 No 0 0
Li Huaiqi(1) M 58 Secretary to 2001.08- 667 No 0 0
the Board of
Directors
-85-
Note 1: Remuneration excludes the deferred payment paid by the Company to the
relevant Directors and senior management of the Company in respect of their
salaries from 2004 to 2006 in the aggregate amount of RMB3,740,000 pursuant
to the relevant provisions of the PRC Government.
-86-
BRIEF BIOGRAPHY OF THE SENIOR MANAGEMENT
LIAO YONGYUAN: aged 45, is a Vice President of the Company and a Deputy
General Manager and Safety Director of CNPC. Mr Liao is a master's degree holder
and a professor-level senior engineer. He has 25 years of working experience in
China's oil and gas industry. He was the Deputy Director of the New Zone
Exploration and Development Department of China National Petroleum Company 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 PetroChina Tarim Oilfield 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 General Manager 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. Mr Liao was appointed as a Deputy General Manager of CNPC since
February 2007 and as the Safety Director since July 2007. He has been a Vice
President of the Company since November 2005.
JIA CHENGZAO: aged 59, is a Vice President of the Company. Mr Jia is a
professor-level senior engineer, a doctorate degree holder and a fellow of the
Chinese Academy of Sciences. He has over 25 years of working experience in
China's oil and geological industry. From August 1994, Mr Jia has worked as the
Deputy Chief Geologist of the Tarim Oil Exploration and Exploitation
Headquarters and the Chief Geologist and Deputy Commander of the Tarim Oil
Exploration and Exploitation Headquarters. From September 1999, Mr Jia worked as
the Deputy General Manager of PetroChina Tarim Oilfield Company whilst during
February 1998 to July 2000, he was also a Vice President of the China Oil
Exploration and Exploitation Scientific Research Institute of CNPC. 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 from
December 2002 to October 2006. Mr Jia has been a Vice President of the Company
since November 2005.
HU WENRUI: aged 58, is a Vice President of the Company. Mr Hu is a
professor-level senior engineer and has over 35 years of working experience in
China's oil and gas industry. From April 1984, Mr Hu was the Manager of
Changqing Oilfield No. 2 Oil Extraction Plant. He was the Deputy Director of
Changqing Petroleum Exploration Bureau since April 1989, Standing Deputy
Director since November 1996, and eventually Director of Changqing Petroleum
Exploration Bureau since April 1999. From September 1999 to December 2002, he
was the General Manager of PetroChina Changqing Oilfield Company. He has been
the President of the Company's Exploration and Production Company since December
2002. Mr Hu has been a Vice President of the Company since November 2005.
SUN LONGDE: aged 45, is a Vice President of the Company. Mr Sun is a
professor-level senior engineer and holds a doctorate's degree. He has nearly 25
years of working experience
-87-
in China's oil and geological industry. Mr Sun has been the Deputy Chief
Geologist of Xianhe Oil Extraction Plant and Deputy Manager of Dongxin Oil
Extraction Plant of Shengli Petroleum Administration Bureau from January 1994,
Chief Deputy Director-General of Exploration Business Department of Shengli
Petroleum Administration Bureau from April 1997, the Manager of Exploration &
Development Company of Shengli Petroleum Administration Bureau from September
1997, Chief Geologist of Tarim Petroleum Exploration & Development Headquarters
from November 1997, Deputy General Manager of PetroChina Tarim Oilfield Company
from September 1999 and the General Manager of PetroChina Tarim Oilfield Company
from July 2002. Mr Sun was appointed as Vice President of the Company since June
2007.
SHEN DIANCHENG: aged 48, is the Vice President of the Company and
concurrently the General Manager of Chemical & Marketing Company of the Company.
Mr Shen is a professor-level senior engineer and holds a college degree. He has
nearly 25 years of working experience in China's oil and petrochemical industry.
Mr Shen has been the Deputy Manager of the Chemical Agent Plant of Daqing
Oilfield from June 1994, the Deputy Manager, Standing Deputy Director and acting
Manager of the Chemical Headquarters Plant of Daqing Oilfield from January 1997,
the Standing Deputy General Manager of PetroChina Daqing Refining & Chemical
Company from October 2000, the General Manager of PetroChina Liaoyang
Petrochemical Company from April 2002, and the General Manager of PetroChina
Jilin Petrochemical Company from December 2005. Mr Shen was appointed as the
Vice President of the Company and General Manager of Chemical & Marketing
Company since June 2007.
LIU HONGBIN: aged 44, is the Vice President of the Company. Mr Liu is a
senior engineer and holds a college degree. He has nearly 25 years of working
experience in China's oil and gas industry. Mr Liu has been the Vice President
of Exploration & Development Research Institute of Yumen Petroleum
Administration Bureau since May 1991, the Director of the Development Division
of Tuha Petroleum Exploration & Development Headquarters from October 1994, the
Chief Engineer of Tuha Petroleum Exploration & Development Headquarters from
June 1995, the Deputy General Manager of PetroChina Tuha Oilfield Company from
July 1999, the Commander of Tuha Petroleum Exploration & Development
Headquarters from July 2000, the General Manager of the Planning Department of
the Company from March 2002 and the Director of the Planning Department of CNPC
from September 2005. Mr Liu was appointed as Vice President of the Company since
June 2007.
ZHOU MINGCHUN: aged 40, is the Chief Financial Officer of the Company. Mr
Zhou is a professor-level senior accountant and holds a master's degree. He has
nearly 20 years of working experience in China's oil and gas industry. Mr Zhou
has been concurrently the Director of the Finance Division and the
Director-General of Financial Settlement Centre of Daqing Petroleum
Administration Bureau from October 1998, the Executive of the Finance & Assets
Division of Daqing Oilfield Company from September 1999, the director and Deputy
-88-
Chief Accountant of Daqing Oilfield Company Limited from January 2000, the
director and Chief Accountant of Daqing Oilfield Company Limited from October
2000, and the General Manager of the Finance Department of the Company from
March 2002. Mr Zhou has been appointed as the Chief Financial Officer of the
Company since June 2007.
LI HUALIN: aged 45, is the Vice President of the Company. Mr Li holds a
master's degree and is a senior engineer. Mr Li has nearly 25 years of
experience in the oil and gas industry in China. Since March 1993, Mr Li became
the Deputy Director-General of the Houston Office of China National Petroleum
Company. Since May 1995, he was appointed as the director and General Manager of
China National Oil and Gas Corporation (Canada). Since December 1997, Mr Li
became the Deputy General Manager of the China National Oil and Gas Exploration
Development Corporation and the Chairman and General Manager of CNPC
International (Canada) Ltd. Since September 1999, Mr Li became the General
Manager of CNPC International (Kazakhstan) Ltd. whilst remaining as the Deputy
General Manager of the China National Oil and Gas Exploration Development
Corporation. Since January 2001, Mr Li became the Deputy General Manager of
China Petroleum Hongkong (Holding) Limited and since December 2001, he also
became the Chairman of Shenzhen Petroleum Industrial Co., Ltd. Since July 2006,
Mr Li became the Vice-Chairman and General Manager of China Petroleum Hongkong
(Holding) Limited, whilst remaining as the Chairman of Shenzhen Petroleum
Industrial Co., Ltd. Mr Li has been appointed as the Vice President of the
Company and the Vice-Chairman and General Manager of China Petroleum Hongkong
(Holding) Limited since November 2007.
LIN AIGUO: aged 49, is the Chief Engineer of the Company. Mr Lin is a
professor-level senior engineer and holds a college degree. He has over 30 years
of working experience in China's oil and petrochemical industry. Mr Lin has been
the Deputy Manager and the Standing Deputy Manager of Shengli Refinery of Qilu
Petrochemical Company from July 1993, the Deputy General Manager of Dalian West
Pacific Petrochemical Co. Ltd. from May 1996, the General Manager of Dalian West
Pacific Petrochemical Co. Ltd. from August 1998. Mr Lin became the General
Manager of Refining & Marketing Company of the Company since December 2002. Mr
Lin has been appointed as the Chief Engineer of the Company since June 2007.
LI HUAIQI: aged 58, is the Secretary to the Board of Directors. Mr Li is a
senior economist. He has over 35 years of working experience in China's oil and
gas industry. Mr Li once worked in the Daqing Oilfield, the Liaohe Oilfield and
the Huabei Oilfield and in the Nanhai Petroleum Company. From June 1992 to
October 1998, Mr Li worked as the 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
since August 2001.
-89-
2. ELECTION OR RETIREMENT OF DIRECTORS AND SUPERVISORS AND THE APPOINTMENT
AND REMOVAL OF SENIOR MANAGEMENT
The term of office of four Directors (namely, Mr Chen Geng, Mr Jiang
Jiemin, Mr Zhou Jiping and Mr Duan Wende) expired on May 17, 2007. According to
Article 89 and Article 51 (13) of the Company's Articles of Association, each of
Mr Jiang Jiemin, Mr Zhou Jiping and Mr Duan Wende were re-elected as Directors
at the annual general meeting for 2006. Mr Chen Geng notified the Board that he
would retire from his office and would not seek for re-election.
On May 20, 2007, an extraordinary meeting of the Board of Directors was
convened to consider and appoint Mr Jiang Jiemin as the chairman of the Board of
Directors.
On June 19, 2007, at the seventh meeting of the Third Session of the Board
of Directors, the Company appointed each of Mr Sun Longde, Mr Shen Diancheng and
Mr Liu Hongbin as Vice President, Mr Zhou Mingchun as the Chief Financial
Officer and Mr Lin Aiguo as the Chief Engineer of the Company. On November 20,
2007, at the ninth meeting of the Third Session of the Board of Directors, the
Company appointed Mr Li Hualin as Vice President of the Company.
The term of office of two Supervisors (namely, Mr Sun Xianfeng and Mr Xu
Fengli) expired on May 17, 2007. According to Article 51 (3) and (13) of the
Company's Articles of Association, Mr Sun Xianfeng and Mr Zhang Jinzhu were
re-elected and elected as Supervisors respectively at the annual general meeting
for 2006. Mr Xu Fengli notified the Board that he would retire from his office
and would not seek for re-election.
3. INTERESTS OF DIRECTORS AND SUPERVISORS IN THE SHARE CAPITAL OF THE
COMPANY
As at December 31, 2007, 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").
4. 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 terminable by the Company within one year without payment of compensation
other than statutory compensation.
-90-
5. 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.
6. REMUNERATION OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
Each member of the senior management of the Company (including the
executive Directors and Supervisors) has entered into a performance appraisal
agreement with the Company. The Company's senior management remuneration policy
links financial interests of the senior management with the Group's operating
results and the performance of its shares in the market. For further details on
remunerations, please refer to the tables set out in the "Directors, Supervisors
and Senior Management" section.
7. EMPLOYEES OF THE GROUP
As at December 31, 2007, the Group had 466,502 employees (excluding
temporary staff) and 48,007 retired members of staff.
The number of employees by business segment is set out below:
PERCENTAGE OF
NUMBER OF TOTAL NO.
EMPLOYEES OF EMPLOYEES (%)
--------- ----------------
Exploration and Production 261,802 56.12
Refining and Marketing 122,593 26.28
Chemicals and Marketing 61,635 13.21
Natural Gas and Pipeline 15,706 3.37
Other* 4,766 1.02
------- -----
Total 466,502 100
======= =====
* includes staff of the Company's headquarters, specialised subsidiaries,
Exploration & Development Research Institute, Planning & Engineering
Institute, Petrochemical Research Institute and other units.
The employee structure by profession as of December 31, 2007 is set out
below:
PERCENTAGE OF
NUMBER OF TOTAL NO.
EMPLOYEES OF EMPLOYEES (%)
--------- ----------------
Production 286,066 61.32
Sales 20,731 4.45
Technology 48,570 10.41
Finance 8,308 1.78
Administration 77,993 16.72
Others 24,834 5.32
Total 466,502 100.00
-91-
The education levels of employees as of December 31, 2007 is set out below:
PERCENTAGE OF
NUMBER OF TOTAL NO.
EMPLOYEES OF EMPLOYEES (%)
--------- ----------------
Master and above 7,616 1.63
University 78,667 16.86
Polytechnic college 96,737 20.74
Technical secondary school 47,132 10.10
Senior middle school, secondary
vocational school or below 236,350 50.67
Total 466,502 100.00
8. EMPLOYEE WELFARE PLANS
Details on employee welfare plans of the Company are set out in note 34 to
the financial statements prepared in accordance with IFRS in this annual report.
-92-
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, 2005, 2006 and 2007. This table is
formulated on the basis of reports prepared by DeGolyer and MacNaughton and
Gaffney, Cline & Associates, each an independent engineering consultancy
company.
COMBINED
CRUDE OIL NATURAL GAS (MILLIONS OF
(MILLION OF (BILLION BARRELS OF OIL
BARRELS) CUBIC FEET) EQUIVALENT)
----------- ----------- --------------
PROVED DEVELOPED AND UNDEVELOPED RESERVES
Reserves as of December 31, 2005 (the basis date) 11,536.2 48,123.1 19,556.7
Revisions of previous estimates 196.1 685.9 310.4
Extensions and discoveries 635.3 6,247.7 1,676.5
Improved recovery 81.1 - 81.1
Production for the year -830.7 -1,587.5 -1,095.3
Reserves as of December 31, 2006 (the basis date) 11,618.0 53,469.2 20,529.4
Revisions of previous estimates 83.7 -1,063.0 -93.5
Extensions and discoveries 763.9 6,331.4 1,819.1
Improved recovery 78.8 0 78.8
Production for the year -838.8 -1,627.0 -1,110.0
Reserves as of December 31, 2007 (the basis date) 11,705.6 57,110.6 21,223.9
PROVED DEVELOPED RESERVES
As of December 31, 2005 (the basis date) 9,194.8 19,857.8 12,504.4
As of December 31, 2006 (the basis date) 9,185.2 22,563.9 12,945.8
As of December 31, 2007 (the basis date) 9,047.1 26,047.1 13,388.3
-93-
(PRICEWATERHOUSECOOPERS LOGO)
(Chinese Characters)
PricewaterhouseCoopers Zhongtian
CPA Limited Company
11/F PricewaterhouseCoopers Centre
202 Hu Bin Road
Shanghai 200021
P.R.C
Tel:+86 (21) 6123 8888
Fax:+86 (21) 6123 8800
REPORT OF THE AUDITORS
PWC ZT SHEN ZI (2008) NO. 10001
(PAGE 1/2)
To the Shareholders of PetroChina Company Limited:
We have audited the accompanying financial statements of PetroChina Company
Limited (the "Company") and its subsidiaries (the "Group"), which comprise the
consolidated and company balance sheets as at December 31, 2007, and the
consolidated and company income statements, the consolidated and company cash
flow statements and the consolidated and company statements of changes in equity
for the year then ended and notes to these financial statements.
1. MANAGEMENT'S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS
Management is responsible for the preparation of these financial statements
in accordance with the Accounting Standards for Business Enterprises. This
responsibility includes:
(i) Designing, implementing and maintaining internal control relevant to
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error;
(ii) Selecting and applying appropriate accounting policies; and
(iii) Making accounting estimates that are reasonable in the circumstances.
2. AUDITOR'S RESPONSIBILITY
Our responsibility is to express an opinion on these financial statements
based on our audit. We conducted our audit in accordance with the Auditing
Standards for Certified Public Accountants of China. Those standards require
that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance as to whether the financial statements are free from
material misstatement.
-94-
PWC ZT SHEN ZI (2008) NO. 10001
(PAGE 2/2)
An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the financial statements. The procedures selected
depend on the auditor's judgment, including the assessment of the risks of
material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control
relevant to the entity's preparation of the financial statements in order to
design audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the entity's
internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by
the management, as well as evaluating the overall presentation of the financial
statements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
3. OPINION
In our opinion, the accompanying financial statements present fairly, in
all material respects, the financial position of the Company and of the Group as
at December 31, 2007, and their financial performance and cash flows for the
year then ended in accordance with the Accounting Standards for Business
Enterprises.
PricewaterhouseCoopers
Zhong Tian CPAs Limited Company Certified Public Accountant
----------------------------------
Heping Feng
Shanghai, the People's Republic
of China March 19, 2008 Certified Public Accountant
----------------------------------
Liwen Zhang
-95-
PETROCHINA COMPANY LIMITED
CONSOLIDATED AND COMPANY BALANCE SHEETS AS AT
DECEMBER 31, 2007
(All amounts in RMB millions unless otherwise stated)
DECEMBER DECEMBER DECEMBER 31, DECEMBER
31, 2007 31, 2006 2007 31, 2006
ASSETS NOTES THE GROUP THE GROUP THE COMPANY THE COMPANY
------ ----- --------- --------- ------------ -----------
Current assets
Cash at bank and on hand 7(1) 88,589 54,070 78,332 48,029
Notes receivable 7(2) 4,735 2,844 3,988 2,097
Accounts receivable 7(3a) 18,419 8,488 2,131 583
Advances to suppliers 7(4) 20,386 12,664 16,086 8,924
Interest receivable 109 81 109 81
Dividends receivable 18 13 85 80
Other receivables 7(3b) 15,444 10,515 24,173 12,903
Inventories 7(5) 88,467 76,038 70,284 60,269
Current portion of non-current assets 59 -- 59 --
Other current assets 2 4 2 4
------- ------- ------- -------
Total current assets 236,228 164,717 195,249 132,970
------- ------- ------- -------
Non-current assets
Available-for-sale financial assets 7(6) 2,530 1,860 1,456 793
Long-term equity investments 7(7) 22,686 30,361 104,691 115,624
Fixed assets 7(8) 247,803 231,590 199,411 179,669
Oil and gas properties 7(9) 326,328 270,496 231,921 191,866
Construction in progress 7(11) 105,634 64,652 85,597 53,471
Construction materials 7(10) 6,927 8,664 5,455 7,614
Fixed assets pending disposal 287 279 282 249
Intangible assets 7(12) 20,022 16,127 16,356 12,233
Long-term prepaid expenses 7(13) 12,028 11,194 9,924 9,210
Deferred tax assets 7(25a) 12,871 14,391 9,048 7,790
Other non-current assets 748 813 -- --
------- ------- ------- -------
Total non-current assets 757,864 650,427 664,141 578,519
------- ------- ------- -------
TOTAL ASSETS 994,092 815,144 859,390 711,489
======= ======= ======= =======
The accompanying notes form an integral part of these financial statements.
------------------------- ------------------------- ------------------------
Chairman and President Director Chief Financial Officer
Jiang Jiemin Zhou Jiping Zhou Mingchun
-96-
PETROCHINA COMPANY LIMITED
CONSOLIDATED AND COMPANY BALANCE SHEETS AS AT
31 DECEMBER 2007 (CONTINUED)
(All amounts in RMB millions unless otherwise stated)
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
LIABILITIES AND 2007 2006 2007 2006
SHAREHOLDERS' EQUITY NOTES THE GROUP THE GROUP THE COMPANY THE COMPANY
-------------------- ----- ------------ ------------ ------------ ------------
Current liabilities
Short-term borrowings 7(14) 18,734 15,156 17,898 10,612
Notes payable 7(15) 1,143 1,045 -- --
Accounts payable 7(16) 104,460 77,936 66,877 56,386
Advances from customers 7(17) 12,433 11,590 10,443 8,977
Employee compensation
payable 7(18) 11,585 11,368 10,751 9,426
Taxes payable 7(19) 22,808 24,174 13,793 19,630
Interest payable 173 200 61 67
Dividends payable 89 95 -- --
Other payables 7(20) 17,849 18,367 46,582 45,044
Provisions 7(21) 715 115 75 95
Current portion of
non-current
liabilities 7(22) 11,652 20,407 9,029 16,998
Other current
liabilities 13 12 -- --
-------- -------- ------- -------
Total current liabilities 201,654 180,465 175,509 167,235
-------- -------- ------- -------
Non-current liabilities
Deferred income 76 -- 62 --
Long-term borrowings 7(23) 35,305 30,401 29,044 24,165
Debentures payable 7(24) 4,383 4,645 3,500 3,500
Long-term payables 57 50 56 50
Grants payable 774 737 710 679
Provisions 7(21) 24,761 18,481 15,307 11,269
Deferred tax
liabilities 7(25b) 11,883 12,480 6,598 5,543
Other non-current
liabilities 128 290 123 233
-------- -------- ------- -------
Total non-current
liabilities 77,367 67,084 55,400 45,439
-------- -------- ------- -------
Total liabilities 279,021 247,549 230,909 212,674
-------- -------- ------- -------
Shareholders' equity
Share capital 7(26) 183,021 179,021 183,021 179,021
Capital surplus 7(27) 122,192 59,797 125,848 63,348
Surplus reserves 7(28) 102,696 89,928 91,596 78,828
Undistributed profits 7(29) 270,544 213,255 228,016 177,618
Currency translation
differences (1,086) (534) -- --
-------- -------- ------- -------
Equity attributable to
equity holders of the
Company 677,367 541,467 628,481 498,815
-------- -------- ------- -------
Minority interest 7(30) 37,704 26,128 -- --
-------- -------- ------- -------
Total shareholders' equity 715,071 567,595 628,481 498,815
-------- -------- ------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY 994,092 815,144 859,390 711,489
======== ======== ======= =======
The accompanying notes form an integral part of these financial statements.
------------------------- ------------------------- ------------------------
Chairman and President Director Chief Financial Officer
Jiang Jiemin Zhou Jiping Zhou Mingchun
-97-
PETROCHINA COMPANY LIMITED
CONSOLIDATED AND COMPANY INCOME STATEMENTS FOR THE
YEAR ENDED DECEMBER 31, 2007
(All amounts in RMB millions unless otherwise stated)
2007 2006 2007 2006
THE THE THE THE
ITEMS NOTES GROUP GROUP COMPANY COMPANY
----- ----- -------- -------- -------- --------
1. Operating income 7(31) 835,037 688,978 595,734 505,632
Less: Cost of sales 7(31) (487,112) (362,590) (405,180) (337,585)
Tax and levies on operations 7(32) (68,678) (51,692) (41,786) (31,437)
Selling expenses (41,345) (35,050) (33,293) (27,133)
General and administrative
expenses (49,324) (44,429) (35,044) (32,252)
Finance expenses 7(33) (2,869) (1,322) (1,331) (687)
Asset impairment losses 7(34) 1,948 (2,914) 1,529 (1,938)
Add: Investment income 7(35) 6,301 1,344 57,614 66,470
Including: Share of profit of
associates and jointly
controlled entities 6,283 1,253 673 478
-------- -------- -------- --------
2. Operating profit 193,958 192,325 138,243 141,070
-------- -------- -------- --------
Add: Non-operating income 7(36a) 3,098 1,645 2,179 1,665
Less: Non-operating expenses 7(36b) (4,231) (4,180) (3,824) (3,708)
Including: Losses on disposal of
non-current assets (1,576) (1,962) (1,358) (1,404)
-------- -------- -------- --------
3. Profit before taxation 192,825 189,790 136,598 139,027
-------- -------- -------- --------
Less: Taxation 7(37) (49,331) (47,043) (8,915) (7,328)
-------- -------- -------- --------
4. Net profit 143,494 142,747 127,683 131,699
-------- -------- -------- --------
Net profit attributable to
equity holders of the Company 134,574 136,229 127,683 131,699
Minority interest 8,920 6,518 -- --
5. Earnings per share (based on Group's
net profit attributable to equity
holders of the Company)
Basic earnings per share
(RMB yuan) 7(38) 0.75 0.76 0.71 0.74
Diluted earnings per share
(RMB yuan) 7(38) 0.75 0.76 0.71 0.74
======== ======== ======== ========
The accompanying notes form an integral part of these financial statements.
--------------------------- ----------------------- ------------------------
Chairman and President Director Chief Financial Officer
Jiang Jiemin Zhou Jiping Zhou Mingchun
-98-
PETROCHINA COMPANY LIMITED
CONSOLIDATED AND COMPANY CASH FLOW STATEMENTS FOR THE
YEAR ENDED DECEMBER 31, 2007
(All amounts in RMB millions unless otherwise stated)
2007 2006 2007 2006
THE THE THE THE
ITEMS NOTES GROUP GROUP COMPANY COMPANY
----- ----- -------- -------- -------- --------
1. CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from sales of goods
and rendering of services 965,346 820,389 695,780 602,560
Refund of taxes and levies 960 728 854 595
Cash received relating to other
operating activities 697 201 2,237 7,104
-------- -------- -------- --------
SUB-TOTAL OF CASH INFLOWS 967,003 821,318 698,871 610,259
-------- -------- -------- --------
Cash paid for goods and services (459,872) (368,323) (415,800) (354,847)
Cash paid to and on behalf of
employees (50,420) (37,670) (35,378) (26,927)
Payments of taxes and levies (188,367) (156,416) (92,248) (64,418)
Cash paid relating to other
operating activities 7(39d) (57,525) (53,467) (54,287) (46,255)
-------- -------- -------- --------
SUB-TOTAL OF CASH OUTFLOWS (756,184) (615,876) (597,713) (492,447)
-------- -------- -------- --------
NET CASH FLOWS FROM OPERATING
ACTIVITIES 7(39a) 210,819 205,442 101,158 117,812
-------- -------- -------- --------
2. CASH FLOWS FROM INVESTING ACTIVITIES
Cash received from disposal of
investments 7,927 407 1,389 296
Consolidation of PetroKazakhstan
Inc. 7(7a) 1,542 -- -- --
Deregistration of wholly owned
subsidiaries to branches 6 -- -- 32 --
Cash received from returns on
investments 3,425 4,092 67,561 68,417
Net cash received from disposal of
fixed assets, oil and gas
properties, intangible assets and
other long-term assets 1,014 348 425 193
-------- -------- -------- --------
SUB-TOTAL OF CASH INFLOWS 13,908 4,847 69,407 68,906
-------- -------- -------- --------
Cash paid to acquire fixed assets,
oil and gas properties,
intangible assets and other long
-term assets (180,692) (139,167) (137,395) (113,690)
Cash paid to acquire investments (20,262) (27,832) (19,468) (11,860)
Including: Cash paid to purchase
shares of listed subsidiaries 6 (149) (4,095) (149) (4,095)
-------- -------- -------- --------
SUB-TOTAL OF CASH OUTFLOWS (200,954) (166,999) (156,863) (125,550)
-------- -------- -------- --------
NET CASH FLOWS FROM INVESTING
ACTIVITIES (187,046) (162,152) (87,456) (56,644)
-------- -------- -------- --------
-99-
PETROCHINA COMPANY LIMITED
CONSOLIDATED AND COMPANY CASH FLOW STATEMENTS FOR THE
YEAR ENDED DECEMBER 31, 2007 (CONTINUED)
(All amounts in RMB millions unless otherwise stated)
2007 2006 2007 2006
THE THE THE THE
ITEMS NOTES GROUP GROUP COMPANY COMPANY
----- ----- -------- -------- -------- --------
3. CASH FLOWS FROM FINANCING ACTIVITIES
Cash received from capital
contributions 1,349 1,492 -- --
Including: Cash received from
minority shareholders' capital
contributions to subsidiaries 1,349 1,492 -- --
Cash received from borrowings 57,492 44,378 43,308 31,064
Cash received from issuance of A
shares 7(26) 66,243 -- 66,243 --
Cash received relating to other
financing activities 427 260 407 148
-------- -------- -------- --------
SUB-TOTAL OF CASH INFLOWS 125,511 46,130 109,958 31,212
-------- -------- -------- --------
Cash repayments of borrowings (57,098) (45,925) (38,782) (31,343)
Cash payments for interest expenses
and distribution of dividends or
profits (74,821) (75,323) (69,199) (71,761)
Including: Subsidiaries' cash
payments for distribution of
dividends or profits to
minority shareholders (6,150) (3,033) -- --
Cash payments relating to other
financing activities (470) (260) (376) (61)
-------- -------- -------- --------
SUB-TOTAL OF CASH OUTFLOWS (132,389) (121,508) (108,357) (103,165)
-------- -------- -------- --------
NET CASH FLOWS FROM FINANCING
ACTIVITIES (6,878) (75,378) 1,601 (71,953)
-------- -------- -------- --------
4. EFFECT OF FOREIGN EXCHANGE RATE
CHANGES ON CASH AND CASH
EQUIVALENTS 40 (258) -- --
-------- -------- -------- --------
5. NET INCREASE / (DECREASE) IN CASH
AND CASH EQUIVALENTS 16,935 (32,346) 15,303 (10,785)
-------- -------- -------- --------
Add: Cash and cash equivalents at
beginning of the year 7(39b) 48,559 80,905 45,029 55,814
-------- -------- -------- --------
6. CASH AND CASH EQUIVALENTS AT END OF
THE YEAR 7(39c) 65,494 48,559 60,332 45,029
======== ======== ======== ========
The accompanying notes form an integral part of these financial statements.
--------------------------- ----------------------- ------------------------
Chairman and President Director Chief Financial Officer
Jiang Jiemin Zhou Jiping Zhou Mingchun
-100-
PETROCHINA COMPANY LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR
ENDED DECEMBER 31, 2007
(All amounts in RMB millions unless otherwise stated)
SHAREHOLDERS' EQUITY ATTRIBUTABLE TO THE COMPANY
------------------------------------------------------
CURRENCY TOTAL
SHARE CAPITAL SURPLUS UNDISTRIBUTED TRANSLATION MINORITY SHAREHOLDERS'
ITEMS NOTES CAPITAL SURPLUS RESERVES PROFITS DIFFERENCES INTEREST EQUITY
----- ----- ------- ------- -------- ------------- ----------- -------- -------------
Balance at December 31, 2005 179,021 72,276 76,573 164,065 -- 25,020 516,955
------- ------- ------ ------- ---- ------ -------
First time adoption of Accounting
Standards for Business Enterprises 14 -- (10,313) -- (5,095) (289) (1,024) (16,721)
------- ------- ------ ------- ---- ------ -------
Balance at January 1, 2006 179,021 61,963 76,573 158,970 (289) 23,996 500,234
------- ------- ------ ------- ---- ------ -------
Changes in the year of 2006 -- (2,166) 13,355 54,285 (245) 2,132 67,361
------- ------- ------ ------- ---- ------ -------
Net profit -- -- -- 136,229 -- 6,518 142,747
------- ------- ------ ------- ---- ------ -------
Losses recognised directly in equity -- (2,166) -- -- (245) (2,878) (5,289)
------- ------- ------ ------- ---- ------ -------
Currency translation differences -- -- -- -- (245) (208) (453)
Purchase of minority interest
in subsidiaries 6 -- (2,166) -- -- -- (2,569) (4,735)
Other -- -- -- -- -- (101) (101)
------- ------- ------ ------- ---- ------ -------
Sub-total -- (2,166) -- 136,229 (245) 3,640 137,458
------- ------- ------ ------- ---- ------ -------
Shareholders' contribution and
withdrawal -- -- -- -- -- 1,492 1,492
------- ------- ------ ------- ---- ------ -------
Capital contribution by shareholders -- -- -- -- -- 1,492 1,492
------- ------- ------ ------- ---- ------ -------
Profit distribution -- -- 13,355 (81,944) -- (3,000) (71,589)
------- ------- ------ ------- ---- ------ -------
Appropriation to surplus reserves -- -- 13,355 (13,355) -- -- --
Distribution to shareholders -- -- -- (68,589) -- (3,000) (71,589)
------- ------- ------ ------- ---- ------ -------
Balance at December 31, 2006 179,021 59,797 89,928 213,255 (534) 26,128 567,595
======= ======= ====== ======= ==== ====== =======
Balance at January 1, 2007 179,021 59,797 89,928 213,255 (534) 26,128 567,595
------- ------- ------ ------- ---- ------ -------
Changes in the year of 2007 4,000 62,395 12,768 57,289 (552) 11,576 147,476
------- ------- ------ ------- ---- ------ -------
Net profit -- -- -- 134,574 -- 8,920 143,494
------- ------- ------ ------- ---- ------ -------
Gains or losses recognised directly in
equity -- 152 -- -- (552) (708) (1,108)
------- ------- ------ ------- ---- ------ -------
Currency translation differences -- -- -- -- (552) (620) (1,172)
Purchase of minority interest
in subsidiaries 6 -- (109) -- -- -- (69) (178)
Fair value changes of
available-for-sale financial
assets -- 261 -- -- -- -- 261
Other -- -- -- -- -- (19) (19)
------- ------- ------ ------- ---- ------ -------
Sub-total -- 152 -- 134,574 (552) 8,212 142,386
------- ------- ------ ------- ---- ------ -------
Shareholders' contribution and
withdrawal 4,000 62,243 -- -- -- 9,508 75,751
------- ------- ------ ------- ---- ------ -------
-101-
PETROCHINA COMPANY LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR
ENDED DECEMBER 31, 2007 (CONTINUED)
(All amounts in RMB millions unless otherwise stated)
SHAREHOLDERS' EQUITY ATTRIBUTABLE TO THE COMPANY
------------------------------------------------------------------
CURRENCY TOTAL
SHARE CAPITAL SURPLUS UNDISTRIBUTED TRANSLATION MINORITY SHAREHOLDERS'
ITEMS NOTES CAPITAL SURPLUS RESERVES PROFITS DIFFERENCES INTEREST EQUITY
----- ----- ------- ------- -------- ------------- ----------- -------- -------------
Capital contribution by shareholders
- issuance of A shares 7(26) 4,000 62,243 -- -- -- -- 66,243
Capital contribution by shareholders
- other -- -- -- -- -- 1,349 1,349
Consolidation of PetroKazakhstan
Inc 7(7a) -- -- -- -- -- 8,159 8,159
------- ------- ------- ------- ------ ------ -------
Profit distribution -- -- 12,768 (77,285) -- (6,144) (70,661)
------- ------- ------- ------- ------ ------ -------
Appropriation to surplus reserves -- -- 12,768 (12,768) -- -- --
Distribution to shareholders -- -- -- (64,517) -- (6,144) (70,661)
------- ------- ------- ------- ------ ------ -------
Balance at December 31, 2007 183,021 122,192 102,696 270,544 (1,086) 37,704 715,071
======= ======= ======= ======= ====== ====== =======
The accompanying notes form an integral part of these financial statements.
---------------------- ----------- -----------------------
Chairman and President Director Chief Financial Officer
Jiang Jiemin Zhou Jiping Zhou Mingchun
-102-
PETROCHINA COMPANY LIMITED
COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE
YEAR ENDED DECEMBER 31, 2007
(All amounts in RMB millions unless otherwise stated)
TOTAL
SHARE CAPITAL SURPLUS UNDISTRIBUTED SHAREHOLDERS'
ITEMS NOTES CAPITAL SURPLUS RESERVES PROFITS EQUITY
----- ----- ------- ------- -------- ------------- -------------
Balance at December 31, 2005 179,021 72,276 65,473 175,165 491,935
------- ------- ------ ------- -------
First time adoption of Accounting Standards
for Business Enterprises -- (8,928) -- (47,302) (56,230)
------- ------- ------ ------- -------
Balance at January 1, 2006 179,021 63,348 65,473 127,863 435,705
------- ------- ------ ------- -------
Changes in the year of 2006 -- -- 13,355 49,755 63,110
------- ------- ------ ------- -------
Net profit -- -- -- 131,699 131,699
------- ------- ------ ------- -------
Profit distribution -- -- 13,355 (81,944) (68,589)
------- ------- ------ ------- -------
Appropriation to surplus reserves -- -- 13,355 (13,355) --
Distribution to shareholders -- -- -- (68,589) (68,589)
------- ------- ------ ------- -------
Balance at December 31, 2006 179,021 63,348 78,828 177,618 498,815
======= ======= ====== ======= =======
Balance at January 1, 2007 179,021 63,348 78,828 177,618 498,815
------- ------- ------ ------- -------
Changes in the year of 2007 4,000 62,500 12,768 50,398 129,666
------- ------- ------ ------- -------
Net profit -- -- -- 127,683 127,683
------- ------- ------ ------- -------
Gains recognised directly in equity -- 257 -- -- 257
------- ------- ------ ------- -------
Currency translation differences related to
investment in associates and jointly
controlled entities -- (3) -- -- (3)
Fair value changes of available-for-sale
financial assets -- 260 -- -- 260
------- ------- ------ ------- -------
Sub-total -- 257 -- 127,683 127,940
------- ------- ------ ------- -------
Shareholders' contribution and withdrawal 7(26) 4,000 62,243 -- -- 66,243
------- ------- ------ ------- -------
Capital contribution by shareholders -
issuance of A shares 4,000 62,243 -- -- 66,243
------- ------- ------ ------- -------
Profit distribution -- -- 12,768 (77,285) (64,517)
------- ------- ------ ------- -------
Appropriation to surplus reserves -- -- 12,768 (12,768) --
Distribution to shareholders -- -- -- (64,517) (64,517)
------- ------- ------ ------- -------
Balance at December 31, 2007 183,021 125,848 91,596 228,016 628,481
======= ======= ====== ======= =======
The accompanying notes form an integral part of these financial statements.
---------------------- ----------- -----------------------
Chairman and President Director Chief Financial Officer
Jiang Jiemin Zhou Jiping Zhou Mingchun
-103-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
1 COMPANY BACKGROUND
PetroChina Company Limited (the "Company") was established as a joint stock
company with limited liability on November 5, 1999 by China National Petroleum
Corporation ("CNPC") as the sole proprietor in accordance with the approval Guo
Jing Mao Qi Gai [1999] No. 1024 "Reply on the approval of the establishment of
PetroChina Company Limited" from the State Economic and Trade Commission of the
People's Republic of China (the "China" or "PRC"). CNPC restructured ("the
Restructuring") and injected its core business in exploration, development,
production and sale of crude oil and natural gas, refining and marketing of
petroleum products, production and sale of chemicals and research and
development activities, and the related assets and liabilities into the Company.
CNPC is a wholly state-owned company registered in China. The Company and its
subsidiaries are collectively referred to as the "Group".
The Group is principally engaged in: the exploration, development,
production and sale of crude oil and natural gas, the refining and marketing of
the petroleum products, the production and sale of chemicals, etc.. The
principal subsidiaries of the Group are listed in Note 6.
The financial statements were approved by the Board of Directors on March
19, 2008.
2 BASIS OF PREPARATION
On January 1, 2007 the Group adopted the Basic Standard and 38 specific
standards of Accounting Standards for Business Enterprises issued by Ministry of
Finance (the "MOF") on February 15, 2006, Application Guidance of Accounting
Standard for Business Enterprises, Interpretation of Accounting Standards for
Business Enterprises and other regulations issued thereafter (hereafter referred
to as the "Accounting Standard for Business Enterprises", "China Accounting
Standards" or "CAS"). The financial statements of the Group for the year ended
December 31, 2007 are the first set of annual financial statements prepared in
accordance with CAS.
The Company is an H shares listed company which, up to December 31, 2006,
used to prepare its consolidated financial statements in accordance with both
the "Accounting System for Business Enterprises" issued on December 29, 2000 and
the Accounting Standards for Business Enterprises and other regulations
applicable that were issued before February 15, 2006 (the "old CAS") in China
and the International Financial Reporting Standards ("IFRS"). According to the
related regulations in CAS "Interpretation No.1", the comparative figures in
respect of 2006 were retrospectively adjusted and restated to reflect these
adjustments according to the differences between CAS and the old CAS, in
addition to the retrospective adjustments required by article 5 to 19 of CAS 38
"Initial Implementation of Accounting Standards for Business Enterprises".
The main retrospective adjustments include:
-104-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
- Equity investment differences arising from a business combination
under common control and other credit equity investment differences of
long-term equity investments under equity method were written off.
- Goodwill arising from a business combination under common control was
written off.
- Recognition of deferred tax assets and liabilities related to the
temporary differences between the carrying amount of assets or
liabilities and their tax bases, and the deductible loss and tax
credits that can be carried forward.
- Long-term equity investments in subsidiaries are retrospectively
adjusted in the company's separate financial statements as if the
subsidiaries have been accounted for at cost from the initial
recognition.
The reconciliation between the beginning and ending balances of the
consolidated shareholders' equity and the consolidated net profit for the year
ended December 31, 2006 under the old CAS and CAS is set out in Note 14.
3 STATEMENT OF COMPLIANCE WITH THE ACCOUNTING STANDARDS FOR BUSINESS ENTERPRISES
The consolidated and the company's financial statements for the year ended
December 31, 2007 truly and completely present the financial position of the
Group and the Company as of December 31, 2007 and their financial performance
and their cash flows for the year then ended in compliance with the Accounting
Standards for Business Enterprises.
4 PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES
(1) ACCOUNTING PERIOD
The accounting period of the Group starts on January 1 and ends on December
31.
(2) RECORDING CURRENCY
The recording currency of the Company and most of its subsidiaries is
Renminbi ("RMB"). The Group's consolidated financial statements are presented in
RMB.
(3) FOREIGN CURRENCY TRANSLATION
(a) Foreign currency transactions
Foreign currency transactions are translated into RMB at the exchange rates
prevailing at the date of the transactions.
Monetary items denominated in foreign currencies at the balance sheet date
are translated into RMB at the exchange rates prevailing at the balance sheet
date. Exchange differences arising from these translations are recognised in the
income statement. Non-monetary items denominated in foreign currencies measured
at historical cost are translated into RMB at the historical exchange rates
prevailing at the date of the transactions at the balance sheet date.
-105-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
(b) Translation of financial statements represented in foreign currency
Assets and liabilities of each balance sheet of the foreign operations are
translated into RMB at the closing rates at the balance sheet date, while the
equity items are translated into RMB at the exchange rates at the dates of the
transactions, except for the retained earnings. Income and expenses for each
income statement of the foreign operations are translated into RMB at the
average exchange rates for the year. The currency translation differences
resulted from the above-mentioned translations are recognised as a separate
component of equity. The cash flows denominated in foreign currencies and cash
flows of overseas subsidiaries are translated into RMB at the approximate
exchange rates at the date of the transactions. The impact on the cash flow
resulted from the foreign currency translation is presented in the cash flow
statement separately.
(4) CASH AND CASH EQUIVALENTS
In the cash flow statement, cash refers to all cash on hand and deposit
held at call with banks. Cash equivalents refer to short-term highly liquid
investments that are readily convertible to known amounts of cash and which are
subject to an insignificant risk of changes in value.
(5) FINANCIAL ASSETS
Financial assets are classified into the following categories at initial
recognition: financial assets at fair value through profit or loss; loans and
receivables, available-for-sale financial assets and held-to-maturity
investments. The classification depends on the Group's intention and the ability
to hold the financial assets. The Group only holds loans and receivables and
available-for-sale financial assets during the reporting period.
(a) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market, including
accounts receivable, notes receivable, other receivables and cash at bank and on
hand.
(b) Available-for-sale financial assets
Available-for-sale financial assets are non-derivative that are either
designated in this category at initial recognition or not classified in any of
the other categories. They are included in other current assets on the balance
sheet if they are intended to be sold within 12 months of the balance sheet
date.
(c) Recognition and measurement
Financial assets are recognised at fair value on the balance sheet when the
Group becomes a party to the contractual provisions of the instrument. Related
transaction costs of loans and receivables and available-for-sale financial
assets are recognised into the initial recognition costs. Financial assets are
derecognised when the rights to receive cash flows from the investments have
expired or all substantial risks and rewards of ownership have been transferred
to the transferee.
Available-for-sale financial assets are subsequently measured at fair
value. The investments in equity instruments that do not have a quoted market
price in an active market
-106-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
and whose fair value cannot be reliably measured are carried at cost. Loans and
receivables are stated at amortised costs using the effective interest method.
Changes in the fair values of available-for-sale financial assets are
recorded into equity except for impairment losses and foreign exchange gains and
losses arising from the transaction of monetary financial assets denominated in
foreign currencies. When the financial asset is derecognised, the cumulative
changes in fair value previously recognised in equity will be recognised in the
income statement. The interest of the available-for-sale debt instruments
calculated using the effective interest method is recognised as investment
income. The cash dividend from the available-for-sale equity instruments is
recognised as investment income when the dividend is declared.
(d) Impairment of financial assets
The Group assesses the carrying amount of financial assets at each balance
sheet date. If there is objective evidence that a financial asset is impaired,
an impairment provision shall be made.
If a financial asset carried at amortised cost is impaired, the amount of
the loss is measured as the difference between the asset's carrying amount and
the present value of estimated future cash flow (excluding future credit losses
that have not been incurred). If there is objective evidence that can prove the
value of such financial asset has been recovered, and that it is related to
events occurring subsequent to the recognition of impairment, the previously
recognised impairment losses shall be reversed and the amount of the reversal
will be recognised in the income statement.
When there is significant or nontemporary decline in the fair value of an
available-for-sale financial asset, the cumulative losses that have been
recognised in equity as a result of the decline in the fair value shall be
removed from equity and recognised as impairment losses in the income statement.
For an investment in debt instrument classified as available-for-sale on which
impairment losses have been recognised, if in a subsequent period the fair value
increases and the increase can be objectively related to an event occurring
after the impairment losses were recognised, the previously recognised
impairment losses shall be reversed, and recognised in income statement. For an
investment in an equity instrument classified as available-for-sale on which
impairment losses have been recognised in a subsequent period, if its fair value
increases and the increase can be objectively related to an event occurring
after the impairment losses were recognised in the income statement, the
impairment losses shall be reversed and directly recognised in equity. The
impairment losses for an investment in an equity instrument that do not have
quoted market prices in active markets and whose fair value cannot be reliably
measured shall not be reversed even if the value of such instruments have been
recovered in a subsequent period.
-107-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
(6) INVENTORIES
Inventories include crude oil and other raw materials, work in progress,
finished goods and turnover materials, and are presented at the lower of cost
and net realisable value.
Cost of inventories is determined primarily using the weighted average
method. The cost of finished goods and work in progress comprises cost of raw
materials, direct labour and production overheads allocated based on normal
operating capacity. Turnover materials include low cost consumables and
packaging materials which are expensed off in full when utilised.
Provision for decline in the value of inventories is measured as the excess
of the carrying value of the inventories over their net realisable value. Net
realisable value is the estimated selling price in the ordinary course of
business, less the estimated cost to completion and estimated selling expenses
and related taxes.
The Group adopts perpetual inventory system.
(7) LONG-TERM EQUITY INVESTMENTS
Long-term equity investments comprise the Company's equity investments in
subsidiaries, and the Group's equity investments in jointly controlled entities
and associates.
(a) Subsidiaries
Subsidiaries are those entities over which the Group is able to control,
i.e. has the power to govern the financial and operating policies so as to
obtain benefits from the operating activities of these investees. The potential
voting rights, including currently convertible company bonds and exercisable
share warrants, are considered when assessing whether the Group has controls
over the investees. Investments in subsidiaries are accounted for at cost in the
financial statements of the Company and are consolidated after being adjusted by
the equity method accounting in consolidated financial statements.
Long-term equity investments accounted for at cost are measured at the
initial investment cost. The cash dividends or profit distributions declared by
the investees are recognised as investment income in current period which are
limited to the accumulated profits of the investee arising after the investment
was made. The cash dividends or profit distributions received in excess of such
amounts are recorded as a recovery of investment.
A listing of the Group's principal subsidiaries is set out in Note 6.
(b) Jointly controlled entities and associates
Jointly controlled entities are those over which the Group is able to
exercise joint control together with other ventures. Associates are those in
which the Group has significant influence over the financial and operating
policies.
The investments in jointly controlled entities and associates are initially
recognised at cost and are subsequently accounted for using the equity method
accounting. The excess of the initial cost of the investment over the share of
the fair value of the investee's net identifiable assets is included in the
initial cost of the investment; While the excess of the share of the fair value
of the investee's net identifiable assets over the cost of the investment is
instead recognised in the income statement in the period in which the investment
is acquired and the cost of the long-term equity investment is adjusted
accordingly.
-108-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
Under the equity method accounting, the Group's share of its associates'
post-acquisition profits or losses is recognised in the income statement. When
the Group's share of losses of an investee equals or exceeds the carrying amount
of the long-term equity investment and other long-term interests which
substantively form the net investment in the investee, the Group does not
recognise further losses, unless it has obligations to bear extra losses which
meet the criteria of recognition for liabilities according to the related
standards for contingencies. Movements in the investee' owner's equity other
than profit or loss should be proportionately recognised in the Group's capital
surplus, provided that the share interest of the investee remained unchanged.
The share of the investee's profit distribution or cash dividends declared is
accounted for as a reduction of the carrying amount of the investment upon
declaration. The profits or losses arising from the intra-group transactions
between the Group and its investees are eliminated to the extent of the Group's
interests in the investees, on the basis of which the investment income or
losses are recognised. The loss on the intra-group transaction between the Group
and its investees, of which nature is asset impairment, is recognised in full
amount, and the relevant unrealised loss is not allowed to be eliminated.
A listing of the Group's principal jointly controlled entities and
associates is set out in Note 7(7a).
(c) Impairment losses of long-term equity investment
The carrying amount of long-term equity investment is written down to its
recoverable amount when the recoverable amount is lower than the carrying amount
(Note 4(14)).
(8) FIXED ASSETS
Fixed assets comprise buildings, equipment and machinery, motor vehicles
and other. Fixed assets purchased or constructed are initially recorded at cost.
The fixed assets injected by the state-owned shareholder during the
Restructuring were initially recorded at the valuated amount approved by the
relevant authorities managing state-owned assets.
Subsequent expenditures for fixed assets are included in the cost of fixed
assets only when it is probable that in future economic benefits associated with
the items will flow to the Group and the cost of the items can be measured
reliably. The carrying amount of the replaced part is derecognised. All other
subsequent expenditures are charged to the income statement during the financial
period in which they are incurred.
Fixed assets are depreciated using the straight-line method based on their
costs less estimated residual values over their estimated useful lives. For
those fixed assets being provided for impairment loss, the related depreciation
charge is determined based on the carrying amounts less impairment over their
remaining useful lives.
The estimated useful lives, estimated residual value ratios and annual
depreciation rates of the fixed assets are as follows:
ESTIMATED RESIDUAL ANNUAL DEPRECIATION
ESTIMATED USEFUL LIVES VALUE RATIO% RATES%
---------------------- ------------------ -------------------
Buildings 8 to 40 years 5 2.4 to 11.9
Equipment and Machinery 4 to 30 years 3 to 5 3.2 to 24.3
Motor Vehicles 7 to 14 years 5 6.8 to 13.6
Other 5 to 12 years 5 7.9 to 19.0
-109-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
The estimated useful lives, estimated residual values and depreciation
method of the fixed assets are reviewed, and adjusted if appropriate, at each
balance sheet date.
An asset's carrying amount is written down immediately to its recoverable
amount if the asset's carrying amount is greater than its recoverable amount
(Note 4(14)).
The carrying amounts of fixed assets are derecognised when the fixed assets
are disposed or no future economic benefits are expected from their use or
disposal. When fixed assets are sold, transferred, disposed or damaged, gains or
losses on disposal are determined by comparing the proceeds with the carrying
amounts of the assets, adjusted by related taxes and expenses, and are recorded
in the income statement in the disposal period.
(9) OIL AND GAS PROPERTIES
Oil and gas properties include the mineral interests in properties, wells
and related facilities arising from oil and gas exploration and production
activities.
The costs of obtaining the mineral interests in properties are capitalised
when they are incurred and are initially recognised at acquisition costs.
Exploration license fee, production license fee, rent and other costs for
retaining the mineral interests in properties, subsequent to the acquisition of
the mineral interests in properties, are charged to the income statement.
Oil and gas exploration costs include drilling exploration costs and the
non-drilling exploration costs. The non-drilling exploration costs are recorded
in the income statement when incurred.
Oil and gas development costs are capitalised as the respective costs of
wells and related facilities for oil and gas development based on their intended
use.
The Ministry of Land and Resources in China issues production licenses to
applicants on the basis of the reserve reports approved by relevant authorities.
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.
Oil and gas properties are depleted using the straight-line method based on
their costs less estimated residual values over their estimated useful lives
except for the mineral interests in unproved properties which are not subjected
to depletion. For those oil and gas properties being provided for impairment
loss, the related depletion charge is determined based on the carrying amounts
less impairment over their remaining useful lives. The estimated useful lives,
estimated residual value ratios and annual depletion rates are as follows:
ESTIMATED ESTIMATED RESIDUAL ANNUAL DEPLETION
USEFUL LIVES VALUE RATIO% RATES%
------------- ------------------ -----------------
Oil and gas properties 6 to 14 years -- 7.1 to 16.7
The carrying amount of oil and gas properties other than the mineral
interests in unproved properties is reduced to the recoverable amount when their
recoverable amount is lower than their carrying amount. The carrying amount of
the mineral interests in unproved properties is reduced to the fair value when
their fair value is lower than their carrying amount (Note 4(14)).
-110-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
(10) CONSTRUCTION IN PROGRESS
Construction in progress is recognised at actual cost. The actual cost
comprises construction costs, other necessary costs incurred and the borrowing
costs eligible for capitalisation to prepare the asset for its intended use.
Construction in progress is transferred to fixed assets when the assets are
ready for their intended use, and depreciation begins from the following month.
Oil and gas exploration costs include drilling exploration costs and the
non-drilling exploration costs. The successful efforts method is used for the
capitalisation of the drilling exploration costs. Drilling exploration costs
included in the oil and gas exploration costs are capitalised as wells and
related facilities when the wells are completed and economically proved reserves
are found. Drilling exploration costs related to the wells without economically
proved reserves less the net residual value are recorded in the income
statement. The related drilling exploration costs for the sections of wells with
economically proved reserves are capitalised as wells and related facilities,
and the costs of other sections are recorded in the income statement. Drilling
exploration costs are temporarily capitalised pending the determination of
whether economically proved reserves can be found within one year of the
completion of the wells. For wells that are still pending determination of
whether economically proved reserves can be found after one year of completion,
the related drilling exploration costs remain capitalised only if sufficient
reserves are found in those wells and further exploration activities are
required to determine whether they are economically proved reserves or not, and
further exploration activities are under way or firmly planned and are about to
be implemented. Otherwise the related costs are recorded in the income
statement. If proved reserves are discovered in a well, for which the drilling
exploration costs have been expensed previously, no adjustment should be made to
the drilling exploration costs that were expensed, while the subsequent drilling
exploration costs and costs for completion of the well are capitalised. The
economically proved reserves are the estimated quantities of crude oil and
natural gas which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under existing
economic and operating conditions, i.e., prices and costs as of the date the
estimate is made.
The carrying amount of construction in progress is reduced to its
recoverable amount when its recoverable amount is lower than its carrying amount
(Note 4(14)).
(11) INTANGIBLE ASSETS
Intangible assets include land use rights and patents, and are initially
recorded at actual cost. The intangible assets injected by the state-owned
shareholder during the Restructuring were initially recorded at the valued
amount approved by the relevant authorities managing the state-owned assets.
Land use rights obtained through payments of land use fee or acquired are
initially recorded at actual cost. The land use rights obtained through the
Restructuring in 1999 were initially recorded at the valued amount approved by
the relevant authorities managing the state-owned assets. Land use rights are
amortised using the straight-line method over 30 to 50 years. If it is
impracticable to allocate the amount paid for the purchase of land use rights
and
-111-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
buildings between the land use rights and the buildings on a reasonable basis,
the entire amount is accounted for as fixed assets.
Patent and other intangible assets are initially recorded at actual cost,
and amortised using the straight-line method less than 10 years generally.
The carrying amount of intangible assets is written down to its recoverable
amount when the recoverable amount is lower than the carrying amount (Note
4(14)). The estimated useful lives and amortisation method of the intangible
assets with finite useful life are reviewed, and adjusted if appropriate, at
each financial year-end.
(12) RESEARCH AND DEVELOPMENT
Research expenditure incurred is recognised as an expense. Costs incurred
on development projects are recognised as intangible assets to the extent that
such expenditure is expected to generate future economic benefits.
(13) LONG-TERM PREPAID EXPENSES
Long-term prepaid expenses include advance lease payments and other prepaid
expenses that should be borne by current and subsequent periods and should be
amortised over more than one year. Long-term prepaid expenses are amortised
using the straight-line method over the expected beneficial periods and are
presented at cost less accumulated amortisation.
(14) IMPAIRMENT OF ASSETS
Fixed assets, oil and gas properties except for mineral interests in
unproved properties, intangible assets and long-term equity investments are
tested for impairment if there is any indication that an asset may be impaired
at the balance sheet date. An impairment loss is recognised for the amount by
which the asset's carrying amount exceeds its recoverable amount if the
impairment test indicates that the recoverable amount is less than its carrying
amount. The recoverable amount is the higher of an asset's fair value less costs
to sell and the present value of the estimated future cash flow expected to be
derived from the asset. Impairment should be assessed and recognised for each
individual asset. If it is not possible to estimate the recoverable amount of an
individual asset, the recoverable amount of the group of assets to which the
asset belongs is determined. A group of assets is the smallest group of assets
that is able to generate independent cash flow.
The mineral interests in unproved properties are tested annually for
impairment. If the cost incurred to obtain a single property is significant, the
impairment test is performed and the impairment loss is determined on the basis
of the single property. If the cost incurred to obtain a single property is not
significant and the geological structure features or reserve layer conditions
are identical or similar to those of other adjacent properties, impairment tests
are performed on the basis of a group of properties that consist of several
adjacent mining areas with identical or similar geological structure features or
reserve layer conditions.
Once an impairment loss of these assets is recognised, it is not allowed to
be reversed even if the value can be recovered in subsequent period.
-112-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
(15) BORROWING COSTS
Borrowing costs incurred that are directly attributable to the acquisition
and construction of fixed assets, which require a substantial period of time for
acquisition and construction activities to get ready for their intended use, are
capitalised as part of the cost of the assets when capital expenditures and
borrowing costs have already incurred and the activities of acquisition and
construction necessary to prepare the assets to be ready for their intended use
have commenced. The capitalisation of borrowing costs ceases when the assets are
ready for their intended use. Borrowing costs incurred thereafter are expensed.
Capitalisation of borrowing costs should be suspended during periods in which
the acquisition or construction of a fixed asset is interrupted abnormally, and
the interruption lasts for more than 3 months, until the acquisition or
construction is resumed.
(16) BORROWINGS
Borrowings are recognised initially at fair value, net of transaction costs
incurred, and subsequently stated at amortised cost using the effective interest
method. The borrowings are classified as short-term borrowings if they need to
be repaid within 12 months (12 months included) of the balance sheet date, and
the others are classified as long-term borrowings.
(17) EMPLOYEE COMPENSATION
Employee compensation includes wages, bonuses, allowances and subsidies,
employee welfare, social security contributions, housing funds, labour union
funds, employee education funds and other relevant compensation incurred in
exchange for services rendered by employees.
Employee compensation is recognised as a liability during the period which
employees render services, and it will be allocated into relevant costs and
expenses to whichever the employee service is attributable.
Compensation under the share appreciation right 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 the changes in liabilities recorded in the income statement.
(18) PROVISIONS
Provisions for product guarantee, quality onerous contracts etc. are
recognised when the Group has present obligations, and it is probable that an
outflow of economic benefits will be required to settle the obligations, and the
amounts can be reliably estimated.
Provisions are measured at the best estimate of the expenditures expected
to be required to settle the present obligation. Factors surrounding the
contingencies such as the risks, uncertainties and the time value of money shall
be taken into account as a whole in reaching the best estimate of provisions.
Where the effect of the time value of money is material, the best estimate is
determined by discounting the related future cash flow. The increase in the
discounted amount of the provision arising from the passage of time is
recognised as interest expense.
-113-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
Asset retirement obligations which meet the criteria of provisions are
recognised as provisions and the amount recognised is the present value of the
estimated future expenditure determined in accordance with local conditions and
requirements, while a corresponding addition to the related oil and gas
properties of an amount equivalent to the provision is also created. This is
subsequently depleted as part of the costs of the oil and gas properties.
Interest expenses from the assets retirement obligations for each period are
recognised with the effective interest method during the useful life of the
related oil and gas properties.
If the conditions for the recognition of the provisions are not met, the
expenditures for the decommissioning, removal and site cleaning will be expensed
in the income statement when occurred.
(19) DEFERRED TAX ASSETS AND DEFERRED TAX LIABILITIES
Deferred tax assets and deferred tax liabilities are calculated and
recognised based on the differences (temporary differences) arising between the
tax bases of assets and liabilities and their carrying amounts. The deductible
losses, which can be utilised against the future taxable profit in accordance
with tax law, are regarded as temporary differences and a deferred tax asset is
recognised accordingly. The deferred tax assets and deferred tax liabilities are
not accounted for the temporary differences resulting 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
deductible loss). Deferred tax assets and deferred tax liabilities are
determined using tax rates that are expected to apply to the period when the
related deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax assets of the Group are recognised for deductible temporary
differences and deductible losses and tax credits to the extent that it is
probable that future taxable profit will be available against which the
deductible temporary differences, deductible losses and tax credits can be
utilised.
Deferred tax assets and liabilities are recognised for temporary
differences arising from investments in subsidiaries, associates and jointly
controlled entities, except where the timing of the reversal of the temporary
difference is controlled by the Group and it is probable that the temporary
difference will not reverse in the foreseeable future.
(20) REVENUE RECOGNITION
The amount of revenue is determined in accordance with the fair value of
the contractual consideration received or receivable for the sales of goods and
services in the ordinary course of the Group's activities. Revenue is shown net
of value-added tax, rebates, discounts and returns.
Revenue is recognised when specific criteria have been met for each of the
Group's activities as described below:
(a) Sales of goods
Revenue from sales of goods is recognised when the Group has transferred to
the buyer the significant risks and rewards of ownership of the goods, and
retains neither continuing managerial involvement nor effective control over the
goods sold, and it is probable that the
-114-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
economic benefits associated with the transaction will flow to the Group and
related revenue and cost can be measured reliably.
(b) Rendering of services
The Group recognises its revenue from rendering of services under the
percentage-of-completion (the "POC") method. Under the POC method, revenue is
recognised based on the costs incurred to date as a percentage of the total
estimated costs to be incurred.
(c) Transfer of the assets use rights
Interest income is recognised on a time-proportion basis using the
effective interest method.
Revenue from operating lease is recognised using the straight-line method
over the period of the lease.
(21) LEASES
Leases that transfer substantially all the risks and rewards incidental to
ownership of assets are classified as finance lease, and other leases are
classified as operating leases.
Payments made under operating leases are charged to the income statement on
a straight-line basis over the period of the lease.
(22) DIVIDEND DISTRIBUTION
Dividend distribution is recognised as a liability in the period in which it
is approved by the shareholders.
(23) BUSINESS COMBINATION
(a) Business combination under common control
The consideration paid and the net assets obtained by the acquirer are
measured at their carrying value. The difference between the carrying value of
the net assets obtained and the carrying value of the consideration is adjusted
against the capital surplus. If the capital surplus is not sufficient to be
offset, the remaining balance is adjusted against retained earnings.
Costs incurred directly attributable to the business combination are
recorded in the income statement when incurred.
(b) Business combination not under common control
The acquisition costs paid and the identifiable net assets acquired by the
acquirer are measured at their fair value at the acquisition date. Where the
cost of combination exceeds the acquirer's interest in the fair value of the
acquiree's identifiable net assets, the difference is recognised as goodwill.
Where the cost of combination is less than the acquirer's interest in the fair
value of the acquirer's identifiable net assets, the difference is recognised
directly in the income statement.
Costs which are directly attributable to the business combination are
included in the cost of the combination.
-115-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
(24) BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
The scope of consolidated financial statements includes the Company and its
subsidiaries. Subsidiaries are fully consolidated from the date on which control
is transferred to the Group. They are de-consolidated from the date that control
ceases. All material intercompany balances, transactions and unrealised gains
within the Group are eliminated upon consolidation. The portion of the
shareholders' equity of the subsidiaries that is not attributable to the parent
is treated as minority interest and presented separately within shareholders'
equity in the consolidated balance sheet.
When the accounting policies and accounting periods of subsidiaries are not
consistent with those of the Company, the Company will make necessary
adjustments to the financial statements of the subsidiaries in accordance with
the Company's accounting policies and accounting periods.
The financial statements of the subsidiaries acquired from the business
combination not under common control are adjusted on the basis of the fair value
of the identifiable net assets at the acquisition date when preparing the
consolidated financial statements. The assets, liabilities, operating result and
cash flow of the subsidiaries acquired from the business combination under
common control are included in the consolidated financial statements from the
beginning of the earliest period of the reporting period, as if the business
combination occurred at that point.
(25) SEGMENT REPORTING
A business segment is a distinguishable component of the Group that is
engaged in providing an individual product or service or a group of related
products or services and that is subject to risks and returns that are different
from those of other business segments. A geographical segment is a
distinguishable component of the Group that is engaged in providing products or
services within a particular economic environment and that is subject to risks
and returns that are different from those of components operating in other
economic environments.
The Group uses the business segment as the primary reporting format and the
geographical segment as the secondary reporting format. The prices for
inter-segment transfers or transactions are determined according to the market
prices. Expenses related to the usage of the assets that are jointly used by all
segments are allocated to segments basing on the proportion of the revenues of
each segment.
(26) CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
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 critical accounting estimates and key assumptions that have a
significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year are outlined below:
(a) Estimation of oil and natural gas reserves
-116-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
Oil and natural gas reserves are key factors in the Group's investment
decision-making process. They are also an important element in testing for
impairment. Proved reserve estimates are subject to revision, either upward or
downward, based on new information, such as from 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 natural gas reserves resulting from new
information becoming available from development and production activities have
tended to be the most significant cause of annual revisions.
(b) Estimated impairment of fixed assets and oil and gas properties
Fixed assets and 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 and judgements such as future prices
of crude oil, refined products and chemical products and production profile.
However, the impairment reviews and calculations are based on assumptions that
are consistent with the Group's business plans. These assumptions also include
those relative to the pricing regulations by the regulatory agencies in China
that the pricing regulations will not restrict the profit margins of refined
products to levels that will be insufficient to recover the carrying values of
the related production assets. Favourable changes to some assumptions may allow
the Group to avoid the need to impair any assets in these years, whereas
unfavourable changes may cause the assets to become impaired.
(c) Estimation of assets retirement obligations
Provision is recognised for the future decommissioning and restoration of
oil and gas properties. The amounts of the provision recognised are the present
values of the estimated future expenditures. The estimation of the future
expenditures is based on current local conditions and requirements, including
legal requirements, technology, price level, etc.. In addition to these factors,
the present values of these estimated future expenditures are also impacted by
the estimation of the economic lives of oil and gas properties. Changes in any
of these estimates will impact the operating results and the financial position
of the Group over the remaining economic lives of the oil and gas properties.
-117-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
5 TAXATION
The principal taxes and related tax rates of the Group are presented as
below:
TYPES OF TAXES TAX RATE TAX BASIS
-------------- ----------- ---------
Value-Added Tax 13% or 17% Based on taxable value added amount. Tax payable
(the "VAT") is calculated using the taxable sales amount multiplied
by the applicable tax rate less current period's deductible VAT input.
Resource Tax Based on From July 1, 2005, the rate for crude oil increased from RMB 8-30
quantities yuan per ton to RMB 14 -30 yuan per ton, the rate for natural gas
increased from RMB 2-15 yuan per thousand of cubic meter to RMB
7-15 yuan per thousand of cubic meter.
Business Tax 3% Based on income generated from transportation of crude oil and natural
gas.
Consumption Tax Based on RMB 0.2 yuan per litre for unleaded gasoline, RMB 0.28 yuan per
quantities litre for leaded gasoline, RMB 0.1 yuan per litre for diesel.
From April 1, 2006, this tax was imposed on naphtha, solvent oil and
lubricant at RMB 0.2 yuan per litre and fuel oil at RMB 0.1 yuan per
litre, and temporarily 30% of the tax is payable.
Corporate Income Tax 33% Based on taxable income.
Mineral Resources Compensation Fee 1% Based on the revenue from sales of crude oil and natural gas.
Crude Oil Special Levy 20% to 40% Base on the sales of domestic crude oil at prices higher than a
specific level.
City Maintenance and Construction Tax 1%,5% or 7% Based on the actual paid business tax, VAT and consumption tax.
On March 16, 2007, the National People's Congress approved the Corporate
Income Tax Law of the PRC (the "new CIT Law"), which is effective from January
1, 2008. Under the new CIT Law, the corporate income tax rate applicable to the
Group is reduced to 25% from January 1, 2008, replacing the previously
applicable tax rate of 33%.
In accordance with the regulations by the State Administration of Taxation
(the "SAT") Guo Shui Han [2007] No. 434 "Supplemental Notice of the SAT on
Reporting Taxable Income on a Consolidated Basis by PetroChina Company Limited",
Guo Shui Han [2004] No. 1072 "Notice of the SAT on Reporting Taxable Income on a
Consolidated Basis by PetroChina Company Limited" and Guo Shui Han [2001] No.
434 "Supplemental Notice of the SAT on Reporting Taxable Income on a
Consolidated Basis by PetroChina Company Limited"), the Company and its
affiliates included under this consolidated basis pay income taxes with a method
of "uniform calculation, hierarchical management, on-site prepayment and
centralized settlement".
In accordance with the SAT Guo Shui Fa [2002] No. 47 "Notice of the SAT on
the Detailed Implementation Opinions of Fulfilling the Tax Policies related to
the Great Development of the Western China". Some branches of the Company got
the approval for the preferential tax rate of 15% in 2002 and valid until 2010.
In accordance with the MOF and the SAT Cai Shui [2004] No. 153 "Notice of
the MOF and the SAT on Corporate Income Tax Preferential Policies for Reviving
the Northeast old
-118-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
Industry Base of China" and Cai Shui [2005] No. 17 "Notice of the MOF and the
SAT on Basis of Asset Depreciation and Amortisation in the Northeast Old
Industry Base of China", some branches and subsidiaries of the Company can
shorten depreciation and amortisation periods of fixed assets and intangible
assets for no more than 40% based on the remained deprecation and amortisation
periods according to current regulations.
In accordance with Cai Shui [2004] No. 156 "Notice of the MOF and the SAT
on the Issues related to the expanding the deduction scope of VAT in the
Northeast Area of China", some branches and subsidiaries of the Company deduct
the input VAT included in the purchased fixed assets, goods of taxable services
for self-manufacturing of fixed assets and transportation expenses paid for
fixed assets against the VAT incurred in current year. The unused input VAT for
the year can be carried forward to the following years if there is no VAT
incurred or the VAT incurred is not sufficient.
In accordance with Cai Shui [2002] No. 111 "Notice of the MOF and the SAT
on Tax Policy related to the West-East Project", the application tax rate for
the West-East pipeline branch of the Company is 15%. The branch was exempted
from corporate income tax in the first and second years from 2005, the first
profit-making year, and allowed a 50% reduction from the third to fifth years.
6 PRINCIPAL SUBSIDIARIES
ATTRIBUTABLE ATTRIBUTABLE
EQUITY INTEREST % VOTING RIGHTS %
COUNTRY OF REGISTERED PRINCIPAL ----------------- -----------------
COMPANY NAME INCORPORATION CAPITAL ACTIVITIES DIRECT INDIRECT DIRECT INDIRECT
------------ ------------- ---------- --------------- ------ -------- ------ --------
Daqing Oilfield PRC 47,500 Exploration, 100.00 -- 100.00 --
Company Limited production and
sale of crude
oil and natural
gas; production
and sale of
refined products
CNPC Exploration PRC 100 Exploration and 50.00 -- 57.14 --
and Development production and
Company Limited sale of crude
oil and natural
gas outside of
the PRC
Daqing Yu Shu Lin PRC 1,272 Exploration, -- 88.16 -- 88.16
Oilfield Company production and
Limited sale of crude
oil and natural
gas
PetroKazakhstan Inc. Canada US Dollar Exploration, -- 67.00 -- 67.00
("PKZ") 2,465 production and
million sale of crude
oil and natural
gas outside of
the PRC
-119-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated
Pursuant to the resolutions passed at the Board of Directors' meeting held
on October 26, 2005, the Company offered to acquire and complete the acquisition
of all of the outstanding shares from the minority shareholders of the following
entities of the Company.
PERCENTAGE
OF
PURCHASE SHAREHOLDINGS
NUMBER OF PRICE TOTAL CASH AFTER THE
OUTSTANDING PER NUMBER OF CONSIDERATION ACQUISITION
ENTITY NAME SHARES SHARE SHARES ACQUIRED PAID %
----------- ----------- -------- --------------- ------------- -------------
Jinzhou 150,000,000 RMB 150,000,000 RMB 638 as of 100.00 JCPL was delisted from
PetroChemical A shares 4.25 A shares as of December 31, the Shenzhen Stock
Company Limited yuan June 30, 2007 2007 Exchange on January 4,
("JCPL") per A 2006.
share
In November 2007, the
Liaoning Administration
for Industry and Commerce
approved JCPL's
deregistration as an
incorporated company.
Jilin Chemical 200,000,000 RMB 200,000,000 RMB 3,862 as 100.00 JCIC was delisted from
Industrial A shares 5.25 A shares as of of December the Shenzhen Stock
Company Limited yuan December 31, 31, 2007 Exchange on February
("JCIC") per A 2007 20, 2006.
share
964,778,000 Hong 964,778,000 JCIC was delisted from
H shares Kong H shares the Stock Exchange of
(including Dollar (including Hong Kong Limited and
American ("HKD") ADS) as of the New York Stock
Depositary 2.80 December 31, Exchange on January
Shares) per H 2007 23, 2006 and February
("ADS") share 15, 2006,
respectively.
In December 2007, the
Jilin Administration
for Industry and
Commerce approved
JCIC's deregistration
as an incorporated
company.
Liaohe Jinma 200,000,000 RMB 200,000,000 A RMB 1,763 as 100.00 LJOCL was delisted
Oilfield A shares 8.80 shares as of of December from the Shenzhen
Company Limited yuan June 30, 2007 31, 2007 Stock Exchange on
("LJOCL") per A January 4, 2006.
share
In May 2007, the
Liaoning
Administration for
Industry and Commerce
approved LJOCL's
deregistration as an
incorporated company.
The excess of the cost of purchase over the carrying value of the
underlying assets and liabilities of the above non-wholly owned principal
subsidiaries and other non-wholly subsidiaries acquired was recorded in equity,
and this amounted to RMB 109 for the year ended December 31, 2007 (2006: RMB
2,166).
-120-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated
7 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(1) CASH AT BANK AND ON HAND
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
Cash on hand 149 59
Cash at bank 88,344 53,987
Other cash balances 96 24
------ ------
88,589 54,070
====== ======
The Group's cash at bank and on hand include the following foreign
currencies as at December 31, 2007:
FOREIGN EXCHANGE RMB
CURRENCY RATE EQUIVALENT
-------- -------- ----------
United States Dollar ("USD") 1,678 7.3046 12,257
Other 81
------
12,338
======
The Group's cash at bank and on hand included the following foreign
currencies as at December 31, 2006:
FOREIGN EXCHANGE RMB
CURRENCY RATE EQUIVALENT
-------- -------- ----------
USD 1,164 7.8087 9,089
HKD 17 1.0047 17
Other 292
-----
9,398
=====
As at December 31, 2007, time deposit of USD 450 million (2006: USD 40
million) is pledged as collateral for its subsidiaries' long-term borrowings of
USD 450 million (2006: USD 40 million) (Note 7(23)); and time deposit of USD 240
million (2006: USD 280 million) is pledged as collateral for its associates'
borrowings.
(2) NOTES RECEIVABLE
Notes receivable represent mainly bank acceptance bill received for sales
of goods and products.
As at December 31, 2007, notes receivable of RMB 300 is impawned for the
Group's short-term borrowings of RMB 300 (2006: Nil) (Note7 (14)). All notes
receivable of the Group other than the above-mentioned notes receivable are
unsecured, and all notes receivable of the Group are due within one year.
-121-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated
(3) ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES
(a) Accounts receivable
GROUP
------------------------------------------
DECEMBER DECEMBER
31, 2006 Addition Reduction 31, 2007
-------- -------- --------- --------
Accounts receivable 11,745 21,298
Less: Specific provision for
bad debts (3,257) (49) 427 (2,879)
------ --- --- ------
8,488 18,419
====== ======
COMPANY
------------------------------------------
DECEMBER DECEMBER
31, 2006 Addition Reduction 31, 2007
-------- -------- --------- --------
Accounts receivable 3,189 4,785
Less: Specific provision for
bad debts (2,606) (433) 385 (2,654)
------ ---- --- ------
583 2,131
====== ======
The aging of accounts receivable and related provision for bad debts are
analysed as follows:
GROUP
-----------------------------------------------------------------
DECEMBER 31, 2007 DECEMBER 31, 2006
------------------------------- -------------------------------
PERCENTAGE PROVISION PERCENTAGE PROVISION
OF TOTAL FOR OF TOTAL FOR
AMOUNT BALANCE % BAD DEBTS AMOUNT BALANCE % BAD DEBTS
------ ---------- --------- ------ ---------- ---------
Within 1 year 18,260 86 (1) 8,299 71 --
1 to 2 years 39 -- -- 33 -- (3)
2 to 3 years 32 -- (1) 59 -- (36)
Over 3 years 2,967 14 (2,877) 3,354 29 (3,218)
------ --- ------ ------ --- -------
21,298 100 (2,879) 11,745 100 (3,257)
====== === ====== ====== === ======
COMPANY
-----------------------------------------------------------------
DECEMBER 31, 2007 DECEMBER 31, 2006
------------------------------- -------------------------------
PERCENTAGE PROVISION PERCENTAGE PROVISION
OF TOTAL FOR OF TOTAL FOR
AMOUNT BALANCE % BAD DEBTS AMOUNT BALANCE % BAD DEBTS
------ ---------- --------- ------ ---------- ---------
Within 1 year 2,025 42 (1) 441 14 --
1 to 2 years 22 -- -- 32 1 (17)
2 to 3 years 31 1 -- 37 1 (32)
Over 3 years 2,707 57 (2,653) 2,679 84 (2,557)
----- --- ------ ----- --- ------
4,785 100 (2,654) 3,189 100 (2,606)
===== === ====== ===== === ======
-122-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated
Accounts receivable from shareholders who hold 5% or more of the voting
rights in the Company are as follows:
GROUP
-------------------------------------
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
Receivable from CNPC and its subsidiaries 3,796 599
===== ===
COMPANY
-------------------------------------
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
Receivable from CNPC and its subsidiaries 415 468
=== ===
As of December 31, 2007, the five largest debtors of accounts receivable of
the Group amounted to RMB 7,878, representing 37% of total accounts receivable;
the five largest debtors of accounts receivable of the Company amounted to RMB
1,354, representing 28% of total accounts receivable.
During the years ended December 31, 2007 and 2006, the Group had no
significant write off of the provision for bad debts of accounts receivable.
The balances include accounts receivable denominated in the following
foreign currency:
DECEMBER 31, 2007 DECEMBER 31, 2006
-------------------------------- --------------------------------
FOREIGN EXCHANGE RMB FOREIGN EXCHANGE RMB
CURRENCY RATE EQUIVALENT CURRENCY RATE EQUIVALENT
-------- -------- ---------- -------- -------- ----------
USD 685 7.3046 5,005 201 7.8087 1,570
----- -----
5,005 1,570
===== =====
(b) Other receivables
GROUP
------------------------------------------
DECEMBER DECEMBER
31, 2006 Addition Reduction 31, 2007
-------- -------- --------- --------
Other receivables 17,021 19,495
Less: Specific provision for
bad debts (6,506) (41) 2,496 (4,051)
------ --- ----- ------
10,515 15,444
====== ======
COMPANY
------------------------------------------
DECEMBER DECEMBER
31, 2006 Addition Reduction 31, 2007
-------- -------- --------- --------
Other receivables 16,863 26,266
Less: Specific provision for
bad debts (3,960) (83) 1,950 (2,093)
------ --- ----- ------
12,903 24,173
====== ======
-123-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated
The aging analysis of other receivables and the related provision for bad
debts are analysed as follows:
GROUP
-----------------------------------------------------------------
DECEMBER 31, 2007 DECEMBER 31, 2006
------------------------------- -------------------------------
PERCENTAGE PROVISION PERCENTAGE PROVISION
OF TOTAL FOR OF TOTAL FOR
AMOUNT BALANCE % BAD DEBTS AMOUNT BALANCE % BAD DEBTS
------ ---------- --------- ------ ---------- ---------
Within 1 year 12,751 65 -- 9,068 53 (5)
1 to 2 years 2,316 12 (5) 391 2 (4)
2 to 3 years 111 1 (5) 103 1 (15)
Over 3 years 4,317 22 (4,041) 7,459 44 (6,482)
------ --- ------ ------ --- ------
19,495 100 (4,051) 17,021 100 (6,506)
====== === ====== ====== === ======
COMPANY
-----------------------------------------------------------------
DECEMBER 31, 2007 DECEMBER 31, 2006
------------------------------- -------------------------------
PERCENTAGE PROVISION PERCENTAGE PROVISION
OF TOTAL FOR OF TOTAL FOR
AMOUNT BALANCE % BAD DEBTS AMOUNT BALANCE % BAD DEBTS
------ ---------- --------- ------ ---------- ---------
Within 1 year 15,962 61 -- 11,714 69 (5)
1 to 2 years 7,939 30 (4) 258 2 (3)
2 to 3 years 46 -- (5) 49 -- (14)
Over 3 years 2,319 9 (2,084) 4,842 29 (3,938)
------ --- ------ ------ --- ------
26,266 100 (2,093) 16,863 100 (3,960)
====== === ====== ====== === ======
Other receivables from shareholders who hold 5% or more of the voting
rights in the Company are as follows:
GROUP
-------------------------------------
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
Receivable from CNPC and its subsidiaries 2,351 2,797
===== =====
COMPANY
-------------------------------------
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
Receivable from CNPC and its subsidiaries 141 2,713
=== =====
As of December 31, 2007, the five largest debtors of other receivables of
the Group amounted to RMB 5,386, representing 28% of total other receivables;
the five largest debtors of other receivables of the Company amounted to RMB
18,057, representing 69% of total other receivables.
During the years ended December 31, 2007 and 2006, the Group had no
significant write off of the provision for bad debts of other receivables.
-124-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
The balances include other receivables denominated in the following foreign
currencies:
DECEMBER 31, 2007 DECEMBER 31, 2006
-------------------------------- --------------------------------
FOREIGN EXCHANGE RMB FOREIGN EXCHANGE RMB
CURRENCY RATE EQUIVALENT CURRENCY RATE EQUIVALENT
-------- -------- ---------- -------- -------- ----------
USD 53 7.3046 386 67 7.8087 522
Tenge 16,425 0.0607 997 390 0.0615 24
----- ---
1,383 546
===== ===
(4) ADVANCES TO SUPPLIERS
DECEMBER DECEMBER
31, 2006 Addition Reduction 31, 2007
-------- -------- --------- --------
Advances to suppliers 12,664 20,414
------ ------
Less: Specific provision for bad
debts -- (30) 2 (28)
------ --- --- ------
12,664 20,386
====== ======
During the years ended December 31, 2007 and 2006, advances to suppliers of
the Group are mainly aged within one year.
Advances to suppliers from shareholders who hold 5% or more of the voting
rights in the Company are as follows:
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
Advances to suppliers from CNPC and its subsidiaries 7,984 4,619
===== =====
Advances to suppliers as of December 31, 2007, mainly comprise of advance
payments for materials and equipments in-transit, and are not settled.
The balances include advances to suppliers denominated in the following
foreign currencies:
DECEMBER 31, 2007 DECEMBER 31, 2006
-------------------------------- --------------------------------
FOREIGN EXCHANGE RMB FOREIGN EXCHANGE RMB
CURRENCY RATE EQUIVALENT CURRENCY RATE EQUIVALENT
-------- -------- ---------- -------- -------- ----------
USD 23 7.3046 171 85 7.8087 667
Tenge 13,690 0.0607 831 11,984 0.0615 737
----- -----
1,002 1,404
===== =====
-125-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
(5) INVENTORIES
DECEMBER DECEMBER
31, 2006 ADDITION REDUCTION 31, 2007
-------- -------- --------- --------
Cost
Crude oil and other raw materials 24,143 30,308
Work in progress 5,493 6,083
Finished goods 47,263 52,791
Turnover materials 41 32
------ ------
76,940 89,214
------ ------
Less: Provision for declines in
the value of inventories
Crude oil and other raw materials (578) (52) 115 (515)
Work in progress (2) (2) -- (4)
Finished goods (319) (99) 193 (225)
Turnover materials (3) -- -- (3)
------ ---- --- ------
(902) (153) 308 (747)
------ ---- --- ------
Net book value 76,038 88,467
====== ======
As at December 31, 2007, inventories of RMB 29 are impawned as collateral
for the Group's short-term borrowings of RMB 20 (Note 7(14)).
(6) AVAILABLE-FOR-SALE FINANCIAL ASSETS
DECEMBER DECEMBER
31, 2006 ADDITION REDUCTION 31, 2007
-------- -------- --------- --------
Available-for-sale debenture 63 19 (65) 17
Available-for-sale equity
instrument 2,539 871 (344) 3,066
----- --- ---- -----
2,602 890 (409) 3,083
Less: Provision for impairment (742) -- 189 (553)
----- --- ---- -----
1,860 890 (220) 2,530
===== === ==== =====
(7) LONG-TERM EQUITY INVESTMENTS
GROUP
------------------------------------------
DECEMBER DECEMBER
31, 2006 ADDITION REDUCTION 31, 2007
-------- -------- --------- --------
Associates and jointly
controlled entities (a) 30,511 21,954 (29,624) 22,841
------ ------ ------- ------
Less: Provision for impairment (b) (150) (33) 28 (155)
------ ------ ------- ------
30,361 21,921 (29,596) 22,686
------ ------ ------- ------
-126-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
COMPANY
------------------------------------------
DECEMBER DECEMBER
31, 2006 ADDITION REDUCTION 31, 2007
-------- -------- --------- --------
Subsidiaries (c) 110,136 4,981 (15,134) 99,983
Associates and jointly controlled
entities 5,636 959 (1,732) 4,863
------- ----- ------- -------
Less: Provision for impairment (148) (28) 21 (155)
------- ----- ------- -------
115,624 5,912 (16,845) 104,691
======= ===== ======= =======
As at December 31, 2007, the above-mentioned investments are not subject to
restriction on conversion into cash or remittance of investment income.
(a) Investments in principal associates and jointly controlled entities
AS OF DECEMBER FOR THE YEAR ENDED
31, 2007 DECEMBER 31, 2007
EQUITY VOTING ------------------- ------------------
COUNTRY OF REGISTERED INTEREST RIGHTS TOTAL TOTAL NET
INCORPORATION PRINCIPAL ACTIVITIES CAPITAL % % ASSETS LIABILITIES REVENUE PROFIT
------------- ------------------------- ---------- -------- ------ ------ ----------- ------- ------
Dalian West PRC Production and sale US Dollar 28.44 28.44 14,223 10,890 35,575 610
Pacific of petroleum and 258
Petrochemical petrochemical million
Co., Ltd. products
China Marine PRC Oil import and export 1,000 50.00 50.00 6,254 4,012 34,060 274
Bunker trade and transportation,
(PetroChina) Ltd. sale and storage
Co., Ltd.
PKZ (i) Canada Exploration, US Dollar 67.00 67.00 -- -- 18,450 6,902
production and sale 2,465
of crude oil and million
natural gas outside
of the PRC
Investments in associates and jointly controlled entities are listed below.
SHARE OF
PROFIT OF
INVESTEES ASSOCIATES
INITIAL UNDER CASH CURRENCY TRANSFERRED
INVESTMENT DECEMBER CONSOLIDATION EQUITY DIVIDEND TRANSLATION TO DECEMBER
COST 31, 2006 ADDITION OF PKZ REDUCTION METHOD DECLARED DIFFERENCES SUBSIDIARIES 31, 2007
---------- -------- -------- ------------- --------- --------- -------- ----------- ------------ --------
Dalian West
Pacific
Petrochemical
Co., Ltd. 566 802 -- -- -- 174 (28) -- -- 948
China marine
Bunker
(PetroChina)
Co., Ltd. 740 994 -- -- (19) 137 (50) (3) -- 1,059
PKZ(i) 21,359 21,402 -- -- (8,208) 4,624 -- (1,254) (16,564) --
Other(ii) 7,313 3,851 11,820 (1,280) 1,348 (1,279) (423) (516) 20,834
------ ------ ------ ------ ------ ------ ------ ------- ------
30,511 3,851 11,820 (9,507) 6,283 (1,357) (1,680) (17,080) 22,841
====== ====== ====== ====== ====== ====== ====== ======= ======
-127-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
(i) On December 28, 2006, the Group acquired a 67% equity interest in PKZ
from CNPC International Limited, a subsidiary of CNPC for a consideration of RMB
21,376. Pursuant to the shareholders' agreement in relation to the acquisition
of PKZ, each shareholder had a veto right relating to certain financial and
operating decisions, and the Group was therefore considered to have joint
control over PKZ. as such, in accordance with the Group's accounting policy, the
Group accounted for its investment in PKZ, using the equity method of accounting
from December 28, 2006. The revenue and profit disclosed in the table above
represents the Group's share of PKZ's revenue and profit for the period from
December 28, 2006 to December 31, 2006, and also from January 1, 2007 to
December 11, 2007.
On December 12, 2007, through a supplementary agreement between the Group
and the minority shareholder of PKZ, the Group gained control over PKZ from that
date. Therefore, as of the date it acquired control over PKZ, December 12, 2007,
the Group accounts for its investment in PKZ as a subsidiary.
The net assets of PKZ is at December 12, 2007 amounted to RMB 24,549. The
fair value (which approximated their carrying value) of assets and liabilities
of PKZ consolidated on December 12, 2007 are as follows:
Current assets 6,587
Non-current assets 20,630
Current liabilities (1,732)
Non-current liabilities (762)
-------
24,723
=======
(ii) Included in "Other - Consolidation of PKZ" are the jointly controlled
entities held by PKZ which was consolidated during the year.
(b) Provision for impairment
DECEMBER DECEMBER
31, 2006 ADDITION REDUCTION 31, 2007
-------- -------- --------- --------
Associates and jointly controlled
entities
PetroChina Shouqi Sales Company
Limited (60) -- -- (60)
PetroChina Beiqi Sales Company
Limited (49) -- -- (49)
Other (41) (33) 28 (46)
---- --- --- ----
(150) (33) 28 (155)
==== === === ====
(c) Subsidiaries
Principal subsidiaries
AS OF DECEMBER FOR THE YEAR ENDED
31, 2007 DECEMBER 31, 2007
--------------------- ------------------
TOTAL TOTAL NET
ASSETS LIABILITIES REVENUE PROFIT
------- ----------- ------- ------
Daqing Oilfield Company Limited 142,211 28,228 203,008 61,888
CNPC Exploration and Development Company
Limited 69,161 24,698 27,331 12,396
-128-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
Investment in subsidiaries:
DISPOSAL
INITIAL OR
INVESTMENT ADDITIONAL DECEMBER ADDITIONAL DEDUCTION TRANSFERRED DECEMBER
COST INVESTMENT 31, 2006 INVESTMENT OF CAPITAL TO BRANCH 31, 2007
---------- ---------- -------- ---------- ---------- ----------- --------
Daqing Oilfield
Company Limited 66,720 -- 66,720 -- -- -- 66,720
CNPC Exploration and
Development Company
Limited 13,924 -- 13,924 -- -- -- 13,924
Other 29,492 4,981 (442) (14,692) 19,339
------- ----- ---- ------- ------
Total 110,136 4,981 (442) (14,692) 99,983
======= ===== ==== ======= ======
(8) FIXED ASSETS
EQUIPMENT MOTOR
BUILDINGS AND MACHINERY VEHICLES OTHER TOTAL
--------- ------------- -------- ------ --------
COST
On December 31, 2006 81,880 308,902 12,431 7,561 410,774
Transferred from
construction in progress 8,778 25,916 -- 885 35,579
Consolidation of PKZ 184 247 170 136 737
Other addition 2,928 2,296 3,237 293 8,754
Reduction (1,480) (2,686) (493) (255) (4,914)
Currency translation
differences (50) (124) (9) (20) (203)
------- -------- ------ ------ --------
On December 31, 2007 92,240 334,551 15,336 8,600 450,727
------- -------- ------ ------ --------
ACCUMULATED DEPRECIATION
On December 31, 2006 (18,900) (140,179) (6,868) (3,668) (169,615)
Charge for the year (4,891) (19,951) (1,248) (604) (26,694)
Reduction 1,322 1,330 372 101 3,125
Currency translation
differences 8 26 6 14 54
------- -------- ------ ------ --------
On December 31, 2007 (22,461) (158,774) (7,738) (4,157) (193,130)
------- -------- ------ ------ --------
PROVISION FOR IMPAIRMENT
On December 31, 2006 (2,138) (7,422) (5) (4) (9,569)
Addition (136) (157) (3) -- (296)
Reduction 52 18 -- 1 71
------- -------- ------ ------ --------
On December 31, 2007 (2,222) (7,561) (8) (3) (9,794)
------- -------- ------ ------ --------
NET BOOK VALUE
On December 31, 2007 67,557 168,216 7,590 4,440 247,803
======= ======== ====== ====== ========
On December 31, 2006 60,842 161,301 5,558 3,889 231,590
======= ======== ====== ====== ========
-129-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
As at December 31, 2007, no fixed assets was pledged as collateral for
short-term borrowing (Note 7(14)); As at December 31,2006, fixed assets with a
net book value of approximately RMB 39 were pledged as collateral for short-term
borrowing of RMB 23 (Note 7(14)).
As at December 31, 2007, the Group had no significant fixed assets which
were temporarily idle. As at December 31, 2007, the cost of fixed assets fully
depreciated but still in use include: buildings of RMB 3,912, equipment and
machinery of RMB 47,570, motor and vehicles of RMB 2,307 and other of RMB 2,264,
and amounted to RMB 56,053 intotal.
Fixed assets under operating leases are mainly equipment and machinery as
follows:
DECEMBER DECEMBER
31, 2006 ADDITION REDUCTION 31, 2007
-------- -------- --------- --------
Fixed assets under operating leases
Cost 563 417 (797) 183
Accumulated depreciation (272) (168) 375 (65)
--- --- --- ---
Net book value 291 249 (422) 118
=== === === ===
(9) OIL AND GAS PROPERTIES
CURRENCY
DECEMBER CONSOLIDATION TRANSLATION DECEMBER
31, 2006 ADDITION OF PKZ REDUCTION DIFFERENCES 31, 2007
-------- -------- ------------- --------- ----------- --------
COST
Mineral interests in
unproved properties -- 2,469 -- -- -- 2,469
Mineral interests in
proved properties 2,801 -- -- (2,801) -- --
Wells and related
facilities 573,593 92,215 8,322 (5,807) (920) 667,403
-------- ------ ----- ----- --- -------
576,394 94,684 8,322 (8,608) (920) 669,872
-------- ------ ----- ----- --- -------
ACCUMULATED DEPLETION
Mineral interests in
proved properties (2,030) -- -- 2,030 -- --
Wells and related
facilities (300,633) (43,876) -- 3,727 449 (340,333)
-------- ------ ----- ----- --- -------
(302,663) (43,876) -- 5,757 449 (340,333)
-------- ------ ----- ----- --- -------
PROVISION FOR IMPAIRMENT
Mineral interests in
unproved properties -- -- -- -- -- --
Mineral interests in
proved properties -- -- -- -- -- --
Wells and related
facilities (3,235) -- -- 24 -- (3,211)
-------- ------ ----- ----- --- -------
(3,235) -- -- 24 -- (3,211)
-------- ------ ----- ----- --- -------
NET BOOK VALUE
Mineral interests in
unproved properties -- 2,469 -- -- -- 2,469
Mineral interests in
proved properties 771 -- -- (771) -- --
Wells and related
facilities 269,725 48,339 8,322 (2,056) (471) 323,859
-------- ------ ----- ----- --- -------
270,496 50,808 8,322 (2,827) (471) 326,328
======== ====== ===== ===== === =======
-130-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
As at December 31, 2007, the assets retirement obligations capitalized in
the cost of oil and gas properties amounted to RMB 22,499 (2006: RMB 17,410).
Depletion charge for the year ended December 31, 2007 was RMB 1,767 (2006:
1,670).
(10) CONSTRUCTION MATERIALS
The Group's construction materials mainly represent the actual cost of
materials purchased for construction projects.
(11) CONSTRUCTION IN PROGRESS
Transferred
to fixed December 31, 2007
assets or ------------------- Proportion of
December oil and Other Currency Capitalised Source construction
31, 2006 Addition gas reduction translation interest of the compared to
Project Name Budget Amount Amount properties (i) difference Amount expense fund budget %
------------ ------ -------- -------- ----------- --------- ----------- ------- ----------- ------ -------------
Self &
West-East pipeline 46,310 4,579 1,667 (3,399) -- -- 2,847 137 Loan 80
Daqing oil and gas
transportation
facilities and systems 9,708 2,273 7,003 (5,867) -- -- 3,409 -- Self 99
Dushanzi
Petrochemical 10
million tons / year Self &
of Kazakh oil 6,513 1,574 3,570 (101) -- -- 5,043 106 Loan 79
Dushanzi
Petrochemical 1
million tons / year Self &
ethylene 23,846 3,704 4,549 (18) -- -- 8,235 230 Loan 35
Dalian Petrochemical
20 million tons /
year sulphur crude
oil technology Self &
transformation 10,789 2,690 3,935 (102) -- -- 6,523 127 Loan 62
Ranliaoyou Technology Self &
reformation 6,600 -- 3,475 -- -- -- 3,475 43 Loan 53
Other 50,129 148,856 (113,263) (9,161) (174) 76,387 1,043
------ ------- -------- ------ ---- ------- -----
64,949 173,055 (122,750) (9,161) (174) 105,919 1,686
Less: Addition Reduction
----------- -----------
Provision for
impairment (297) (5) 17 (285)
------ --------- ---- -------
64,652 105,634
====== =======
-131-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
In 2007, the capitalised interest expense amounted to RMB 1,734 (2006: RMB
1,315). The annual interest rates used to determine the capitalised amount in
2007 is from 5.832% to 6.966% (2006: from 5.265% to 5.832%).
(i) Other reduction refers to expensing of drilling and exploration costs
when it fails to discover economical proved oil and gas reserve, or not sure
whether economical proved reserves are found within one year of completion and
no longer meets the conditions of capitalization.
(12) INTANGIBLE ASSETS
CURRENCY
DECEMBER TRANSLATION DECEMBER ACCUMULATED
COST 31, 2006 ADDITION REDUCTION AMORTISATION DIFFERENCES 31, 2007 AMORTISATION
------ -------- -------- --------- ------------ ----------- -------- ------------
Land use
rights 16,821 12,910 2,710 (213) (467) (3) 14,937 (1,884)
Patents 2,709 1,395 239 -- (194) -- 1,440 (1,269)
Other (i) 5,700 2,552 2,217 (2) (553) 6 4,220 (1,480)
------ ------ ----- ---- ------ --- ------ ------
25,230 16,857 5,166 (215) (1,214) 3 20,597 (4,633)
====== ====== ===== ==== ====== === ====== ======
Less:
Provision
for impairment
Land use rights (505) (27) 199 -- -- (333)
Patents (179) -- -- -- -- (179)
Other (i) (46) (17) -- -- -- (63)
------ ----- ---- ------ --- ------
16,127 5,122 (16) (1,214) 3 20,022
====== ===== ==== ====== === ======
Research and development expenditures for the year ended December 31, 2007
amounted to RMB 5,315 (2006: RMB 4,260), which have been recognised in the
income statement
(i) Other intangible assets include non-proprietary technology and
trademark use right.
(13) LONG-TERM PREPAID EXPENSES
DECEMBER DECEMBER
31, 2006 ADDITION AMORTISATION 31, 2007
-------- -------- ------------ --------
Advance lease payments (i) 8,284 2,093 (1,371) 9,006
Other 2,910 856 (744) 3,022
------ ----- ----- ------
11,194 2,949 (2,115) 12,028
====== ===== ===== ======
(i) Advance lease payments are principally for use of land sub-leased from
entities other than the PRC land authorities.
-132-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
(14) SHORT-TERM BORROWINGS
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
Secured borrowings
Guarantee - RMB 30 --
Pledge - RMB -- 23
Impawn - RMB 320 --
Unsecured borrowings
Unsecured - USD 5,318 2,482
Unsecured - RMB 11,056 12,651
Unsecured - HKD 2,010 --
------ ------
18,734 15,156
====== ======
As of December 31, 2007, the short-term guaranteed borrowings are from
China Petroleum Finance Company Limited ("CP Finance"), and are guaranteed by
the Company and other third parties (2006: Nil).
As of December 31, 2007, the Group has no pledged short-term borrowings. As
of December 31, 2006, the short-term pledged borrowings were secured by fixed
assets with a net book value of RMB 39 as collateral (Note 7(8)).
As of December 31, 2007, the short-term impawned borrowings are secured
over notes receivable of RMB 300 and inventories with a net book value of RMB
29. (2006: Nil).
As of December 31, 2007, the short-term unsecured borrowings include loans
from fellow CNPC subsidiary, CP Finance of RMB 20 (2006: RMB 320).
The weight average interest rate for short-term borrowings as of December
31, 2007 is 5.14% per annum (2006: 5.10 %).
(15) NOTES PAYABLE
As of December 31, 2007 and 2006, notes payable represented mainly trade
accepted notes. All notes are maturing within one year.
As of December 31, 2007, there are no notes payable to shareholders who
hold 5% or more of the voting rights in the Company.
(16) ACCOUNTS PAYABLE
Accounts payable includes amount payable to shareholders who hold 5% or
more of the voting rights in the Company, as follows:
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
Payable to CNPC and its subsidiaries 29,507 24,492
====== ======
As of December 31, 2007, accounts payable aged over one year amounted to
RMB 7,323 (2006: RMB 6,568), and mainly comprised of payables to several major
customers and were not settled.
-133-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
The balances include accounts payable denominated in the following foreign
currencies:
DECEMBER 31, 2007 DECEMBER 31, 2006
-------------------------------- --------------------------------
FOREIGN EXCHANGE RMB FOREIGN EXCHANGE RMB
CURRENCY RATE EQUIVALENT CURRENCY RATE EQUIVALENT
----- -------- -------- ---------- -------- -------- ----------
USD 111 7.3046 812 20 7.8087 156
Tenge 28,171 0.0607 1,710 16,065 0.0615 988
----- -----
2,522 1,144
===== =====
(17) ADVANCES FROM CUSTOMERS
Advances from customers include amount payable to shareholders who hold 5%
or more of the voting rights in the Company, as follows:
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
Advance received from CNPC and its subsidiaries 924 648
=== ===
The balances include advances from customers denominated in the following
foreign currencies:
DECEMBER 31, 2007 DECEMBER 31, 2006
-------------------------------- --------------------------------
FOREIGN EXCHANGE RMB FOREIGN EXCHANGE RMB
CURRENCY RATE EQUIVALENT CURRENCY RATE EQUIVALENT
-------- -------- ---------- -------- -------- ----------
USD 8 7.3046 60 22 7.8087 169
Tenge 3,229 0.0607 196 --
--- ---
256 169
=== ===
(18) EMPLOYEE COMPENSATION PAYABLE
DECEMBER 31, 2006 ADDITION REDUCTION DECEMBER 31, 2007
----------------- -------- --------- -----------------
Wages and salaries, bonuses,
allowances and subsidies 6,768 32,583 (31,600) 7,751
Staff Welfare 2,179 3,731 (4,111) 1,799
Social security contributions 663 8,617 (8,572) 708
Including:
Medical insurance 221 2,074 (1,922) 373
Basic pensions 285 4,764 (4,807) 242
Additional pensions 84 980 (1,046) 18
Unemployment insurance 41 446 (451) 36
Work injury insurance 19 235 (229) 25
Maternity insurance 13 118 (117) 14
Housing fund 59 2,738 (2,753) 44
Labour union funds and employee
education funds 844 1,277 (1,045) 1,076
Other 855 1,691 (2,339) 207
------ ------ ------- ------
11,368 50,637 (50,420) 11,585
====== ====== ======= ======
-134-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
As of December 31, 2007, employee benefits payable did not contain any
balance in arrears.
(19) TAXES PAYABLE
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
Corporate income tax 11,709 17,744
Prepaid VAT payable (i) (12,133) (5,994)
Business tax payable 255 214
Consumption tax payable 1,335 1,231
City maintenance and construction tax payable 795 971
Educational surcharge payable 407 440
Compensation on mineral resources 1,493 2,127
Resources tax payable 515 603
Crude oil special levy payable (ii) 17,001 5,962
Other 1,431 876
------- ------
22,808 24,174
======= ======
(i) Prepaid VAT arose mainly because of VAT deductible due to high expenditure
on bulk purchases of fixed assets, materials to build in-house fixed
assets, and transportation expenses incurred transporting fixed assets, by
subsidiaries and branches in the northeast region.
(ii) According to Guo Fa [2006] No. 13 "State Council's decision to impose a
special levy on sale of crude oil" and Cai Qi [2006] No. 72 "Implementation
of Special levy", a special levy which is payable on the portion of income
realised by petroleum exploration enterprises from the sales of
domestically-produced crude oil at prices above certain level will be
imposed from March 26, 2006.
(20) OTHER PAYABLES
Other payables include amount payable to shareholders who hold 5% or more
of the voting rights in the Company are as follows:
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
Payables to CNPC and its subsidiaries 2,625 3,206
===== =====
As of December 31, 2007, other payables that aged over one year amounted to
RMB 2,619 (2006: RMB 4,417), and mainly comprised of payable to several major
counterparts that have not been settled.
As of December 31, 2007, other payables mainly comprised of deposits and
payments made on behalf.
-135-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
The balances include other payables denominated in the following foreign
currencies:
DECEMBER 31, 2007 DECEMBER 31, 2006
-------------------------------- --------------------------------
FOREIGN EXCHANGE RMB FOREIGN EXCHANGE RMB
CURRENCY RATE EQUIVALENT CURRENCY RATE EQUIVALENT
-------- -------- ---------- -------- -------- ----------
USD 180 7.3046 1,312 126 7.8087 981
Tenge 7,562 0.0607 459 5,350 0.0615 329
----- -----
1,771 1,310
===== =====
(21) PROVISIONS
DECEMBER 31, 2006 ADDITION REDUCTION DECEMBER 31, 2007
----------------- -------- --------- -----------------
Assets retirement obligations (i) 18,481 6,405 (125) 24,761
Warranties 57 -- (35) 22
Environmental compensation
liabilities (ii) 20 7 (5) 22
Pending litigation 13 553 (1) 565
Other 25 82 (1) 106
------ ----- ---- ------
18,596 7,047 (167) 25,476
====== ===== ==== ======
(i) Assets retirement obligations are related to oil and gas properties.
(ii) Environmental compensation liabilities are recognised for the overseas
subsidiaries of the Group in accordance with relevant overseas regulations.
(22) CURRENT PORTION OF NON-CURRENT LIABILITIES
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
Long-term borrowings due within one year(a) 11,412 18,922
Debentures payable due within one year (b) 240 1,485
------ ------
11,652 20,407
====== ======
(a) Long-term borrowings due within one year
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
ORIGINAL ORIGINAL
CURRENCY RMB CURRENCY RMB
-------- ------ -------- ------
Secured borrowing
Pledge - USD -- -- 40 313
Guarantee-USD 8 62 8 62
Unsecured borrowing
Unsecured - RMB 7,552 13,802
Unsecured - USD 515 3,761 595 4,643
Unsecured - Other 314 37 569 102
------ ------
11,412 18,922
====== ======
-136-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
As of December 31, 2007, the Group has no long-term pledged borrowings due
within one year. As of December 31, 2006, the above-mentioned long-term pledged
borrowings due within one year were secured by time deposits of USD 40 as
collateral (Note 7(1)).
As of December 31, 2007, credit loan of RMB 5,520 (2006: RMB 7,407) were
from CP Finance.
The above-mentioned long-term guaranteed borrowings due within one year
were guaranteed by CNPC.
(b) Debentures payable due within one year
The above mentioned debentures payable due within one year include 7-year
debentures issued (at par) on March 16, 2001 and the portion of debentures
issued (at par) on July 14, 2004 repayable within one year.
(23) LONG-TERM BORROWINGS
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
Secured borrowings
Pledge 3,287 313
Guarantee 498 594
Unsecured borrowings 42,932 48,416
------- -------
46,717 49,323
Less: Long-term borrowings due within one year (Note 7((22a)) (11,412) (18,922)
------- -------
35,305 30,401
======= =======
As of December 31, 2007, the long-term pledged borrowings are secured by
time deposits of USD 450(Note 7((1)) (2006: USD 40) as collateral.
The above-mentioned long-term guaranteed borrowings are guaranteed by CNPC.
As of December 31, 2007, long-term unsecured borrowings of RMB 24,432
(2006: RMB 26,842) are from CP Finance.
The maturities of long-term borrowings at the dates indicated are analysed
as follows:
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
Between one to two years 5,572 11,189
Between two to five years 17,533 7,668
After five years 12,200 11,544
------ ------
35,305 30,401
====== ======
The weighted average interest rate for long-term borrowings on December 31,
2007 is 5.47% (2006: 5.24%).
-137-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
FOREIGN ANNUAL
DECEMBER CURRENCY EXCHANGE INTEREST
LENDER 31, 2007 CURRENCY AMOUNT RATE RATE % TERM OF CONTRACT TERMS
------ -------- -------- -------- -------- --------- -------------------- ---------
Industrial and 7,400 RMB -- -- 5.67-6.80 September 12, 2008 - Unsecured
Commercial Bank of May 17, 2022
China Ltd.
China Development 1,800 RMB -- -- 3.60-6.80 May 20, 2008 - Unsecured
Bank November 20, 2010
CP Finance 19,932 RMB -- -- 4.46-5.76 June 10, 2008 - Unsecured
April 22, 2032
CP Finance 4,500 USD 616 7.3046 4.85-5.20 November 20, 2008 - Unsecured
September 21, 2020
China Construction 2,500 RMB -- -- 6.16 April 15, 2008 - Unsecured
Bank Corporation May 28, 2021
China Construction 413 USD 57 7.3046 5.10-8.66 September 30, 2009 - Unsecured
Bank Corporation June 25, 2010
Bank of China 20 RMB -- -- 6.57 April 22, 2010 Unsecured
Bank of China 2,547 USD 349 7.3046 0.00-7.95 December 1, 2008 - Unsecured
June 30, 2038
Bank of China 247 EUR 23 10.6669 2.00-2.30 November 10, 2019 - Unsecured
December 31, 2023
Bank of China 37 JPY 578 0.0640 2.42-4.10 September 30, 2008 - Unsecured
November 20, 2010
Bank of 1,000 RMB -- -- 5.18 March 14, 2008 Unsecured
Communications
The World Bank 498 USD 68 7.3046 5.50 November 15, 2014 Guarantee
Other bank borrowings 30 RMB -- -- 6.89 October 17, 2012 Unsecured
Other bank borrowings 2,036 USD 279 7.3046 5.10-7.10 April 7, 2008 - Unsecured
June 28, 2010
Other bank borrowings 3,287 USD 450 7.3046 7.50 July 18, 2012 Pledge
Other foreign 5 RMB -- -- 6.32 Not determined Unsecured
government or company
borrowings
Other foreign 465 USD 64 7.3046 1.55-5.00 January 15, 2022 - Unsecured
government or company Not determined
borrowings
------
46,717
======
-138-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
The fair value of the above-mentioned borrowings amounted to RMB 46,343.
The fair value is based on discounted cash flows using an applicable discount
rate which is based on the prevailing market rates as of balance sheet date of
the Group's availability of financial instruments (terms and characteristics
similar to the borrowings).
FOREIGN ANNUAL
DECEMBER CURRENCY EXCHANGE INTEREST
LENDER 31, 2006 CURRENCY AMOUNT RATE RATE % TERM OF CONTRACT TERMS
------ -------- -------- -------- -------- ---------- -------------------- ---------
Industrial and 7,190 RMB -- -- 5.18-6.16 March 2, 2007 - Unsecured
Commercial Bank May 17, 2022
of China Ltd.
China Development 3,400 RMB -- -- 3.60-6.16 May 20, 2007 - Unsecured
Bank November 20, 2010
CP Finance 20,912 RMB -- -- 4.46-5.18 March 14, 2007 - Unsecured
April 22, 2032
CP Finance 5,930 USD 759 7.8087 5.12-6.06 November 20, 2007 - Unsecured
September 21,2020
China Construction 2,800 RMB -- -- 5.51-6.16 April 15, 2007 - Unsecured
Bank Corporation May 28, 2021
China Construction 114 USD 15 7.8087 6.70-8.66 February 8, 2007 - Unsecured
Bank Corporation September 30, 2009
Bank of China 993 USD 127 7.8087 0.00-7.86 April 15, 2007 - Unsecured
June 30, 2038
Bank of China 257 EUR 25 10.2665 2.00-2.30 November 10, 2019 - Unsecured
December 31, 2023
Bank of China 75 JPY 1,139 0.0656 2.42-5.30 April 30, 2007 - Unsecured
November 20, 2010
Bank of China 49 GBP 3 15.3232 2.85 May 15, 2007 Unsecured
Bank of 1,000 RMB -- -- 5.18 March 14, 2008 Unsecured
Communications
The World Bank 594 USD 76 7.8087 4.72 November 15, 2014 Guarantee
Other bank 5,167 USD 662 7.8087 5.87-10.37 April 7, 2008 - Unsecured
borrowings June 28, 2010
Other bank 313 USD 40 7.8087 9.00 December 27, 2007 Pledge
borrowings
Other foreign 5 RMB -- -- 6.32 Not determined Unsecured
government or
company borrowings
Other foreign 524 USD 67 7.8087 1.55 January 15, 2022 - Unsecured
government or September 1, 2022
company borrowings
------
49,323
======
The fair value of the above-mentioned borrowings amounted to RMB 49,104.
The fair value is based on discounted cash flows using an applicable discount
rate which is based on the prevailing market rates as of balance sheet date of
the Group's availability of financial instruments (terms and characteristics
similar to the borrowings).
-139-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
(24) DEBENTURES PAYABLE
ANNUAL
DATE OF TERM OF INTEREST DECEMBER DECEMBER
DEBENTURES' AME CURRENCY ISSUE DEBENTURES RATE% 31, 2006 ADDITION REDUCTION 31, 2007
--------------- -------- --------- ---------- -------- -------- -------- --------- --------
98 PetroChina
Enterprise September
debentures RMB 8,1999 8-year 4.50 1,350 -- (1,350) --
2003 PetroChina
Company Limited
Corporate October
debentures RMB 28, 2003 10-year 4.11 1,500 -- -- 1,500
2006 PetroChina
Company Limited
Corporate October
debentures RMB 23, 2006 5-year 3.76 2,000 -- -- 2,000
Other 1,280 -- (157) 1,123
------ --- ------ -----
6,130 -- (1,507) 4,623
=== ======
Less: Debentures
Payable due
within one year (1,485) (240)
------ -----
4,645 4,383
====== =====
The above mentioned debentures were issued at the par value, without
premium or discount.
The fair value of the debentures amounts to RMB 4,104 (2006: RMB 5,852).
The fair value is based on discounted cash flows using an applicable discount
rate which is based on the prevailing market rates as of the balance sheet date
of the Company's availability of financial instruments (terms and
characteristics similar to the borrowings).
(25) DEFERRED TAX ASSETS AND LIABILITIES
(a) Deferred tax assets
DECEMBER 31, 2007 DECEMBER 31, 2006
---------------------- ----------------------
DEFERRED DEDUCTIBLE DEFERRED DEDUCTIBLE
TAX TEMPORARY TAX TEMPORARY
ASSETS DIFFERENCES ASSETS DIFFERENCES
-------- ----------- -------- -----------
Provision for assets impairment 4,934 21,288 7,133 23,799
Asset retirement obligations 1,517 6,128 1,093 3,570
Wages and welfare 1,301 5,271 1,523 4,973
Loss that can be carried forward 95 343 2,175 6,591
Other 5,024 20,149 2,467 7,550
------ ------ ------ ------
12,871 53,179 14,391 46,483
====== ====== ====== ======
-140-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
(b) Deferred tax liabilities
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------------------- --------------------------
TAXABLE TAXABLE
DEFERRED TEMPORARY DEFERRED TAX TEMPORARY
TAX LIABILITIES DIFFERENCES LIABILITIES DIFFERENCES
--------------- ----------- ------------ -----------
Depreciation and depletion of
fixed assets and oil and gas
properties 11,681 45,380 12,352 37,457
Amortisation of intangible assets 109 435 103 311
Other 93 375 25 76
------ ------ ------ ------
11,883 46,190 12,480 37,844
====== ====== ====== ======
(26) SHARE CAPITAL
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
State-owned shares -- 157,922
H shares 21,099 21,099
A shares(i) 161,922 --
------- -------
183,021 179,021
======= =======
(i) Following the issuance of the A shares, all the existing state-owned shares
issued before November 5, 2007 held by CNPC have been registered with the
China Securities Depository and Clearing Corporation Limited as A shares.
The assets and liabilities injected by CNPC in 1999 had been valued by
China Enterprise Appraisal Co., and the result of the valuation had been
approved by the Ministry of Finance ("MOF") issuing Cai Ping Zi [1999] No. 490
"Letter regarding the appraisal report on the valuation of CNPC's assets
proposed to be injected into PetroChina Company Limited". In accordance with
MOF's approval Cai Guan Zi [1999] No. 335 "Reply to the query in relation to
PetroChina Company Limited's (in the progress of registration) state-owned
equity management", the above-mentioned net assets injected by CNPC had been
exchanged for 160 billion state-owned shares of the Company with a par value of
RMB 1.00 yuan per share. The excess of the value of the net assets injected over
the par value of the state-owned shares had been recorded as capital surplus.
Pursuant to the approval of China Securities Regulatory Commission ("CSRC")
Zheng Jian Fa Xing Zi [2000] No.1 "Reply regarding the approval of PetroChina
Company Limited's issuance of foreign capital stock", on April 7, 2000, the
Company issued 17,582,418,000 foreign capital stock, in which 1,758,242,000
shares were converted from the prior state-owned shares of the Company owned by
CNPC.
The above-mentioned foreign capital stock represented by 13,447,897,000 H
shares and 41,345,210 ADS (each representing 100 H shares), were listed on the
Stock Exchange of Hong Kong Limited and the New York Stock Exchange Inc. on
April 7, 2000 and April 6, 2000, respectively.
Pursuant to the approval of CSRC Zheng Jian Guo He Zi [2005] No.23 "Reply
regarding the approval of PetroChina Company Limited issuance of additional
foreign capital stock", the
-141-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
Company issued 3,196,801,818 new H shares with a par value of RMB 1.00 yuan per
share on September 15, 2005. CNPC also converted 319,680,182 state-owned shares
it held into H shares and sold them concurrently with PetroChina's issuance of
new H shares.
Pursuant to the approval of CSRC Zheng Jian Fa Xing Zi [2007] No.349 "The
Circular regarding the approval of PetroChina Company Limited's initial public
offering", the Company issued 4,000,000,000 A shares with a par value of RMB
1.00 yuan per share with the price of RMB 16.70 yuan per share on October 31,
2007, and the net proceeds to the Company amounted to approximately RMB 66,243.
The A shares were listed on the Shanghai Stock Exchange on November 5, 2007.
(27) CAPITAL SURPLUS
DECEMBER DECEMBER
31, 2006 ADDITION REDUCTION 31, 2007
-------- -------- --------- --------
Capital premium 21,008 62,243 -- 83,251
Other capital surplus
Capital surplus and the old CAS 40,955 -- -- 40,955
Fair value gain of
available-for-sale investments -- 261 -- 261
Purchase of minority interests
in subsidiaries (Note 6) (2,166) -- (109) (2,275)
------ ------ ---- -------
59,797 62,504 (109) 122,192
====== ====== ==== =======
(28) SURPLUS RESERVES
DECEMBER DECEMBER
31, 2006 ADDITION REDUCTION 31, 2007
-------- -------- --------- --------
Statutory Surplus Reserves 89,888 12,768 -- 102,656
Discretionary Surplus Reserves 40 -- -- 40
------ ------ --- -------
89,928 12,768 -- 102,696
====== ====== === =======
Pursuant to the Company Law of PRC, the Company's Articles of Association
and the resolution of Board of Director, the Company is required to transfer 10%
of its net profit to a Statutory Surplus Reserves. Appropriation to the
Statutory Surplus Reserves may be ceased when the fund aggregates to 50% of the
Company's registered capital. The Statutory Surplus Reserves may be used to make
good previous years' losses or to increase the capital of the Company upon
approval.
The Discretionary Surplus Reserves is approved by a resolution of
shareholders' general meeting after BOD's proposal. The Company may convert its
Discretionary Surplus Reserves to make good previous years' losses or to
increase the capital of the Company. The Company have not extracted
Discretionary Surplus Reserves for the year ended December 31, 2007 (2006: Nil)
-142-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
(29) UNDISTRIBUTED PROFITS
At the meeting on March 19 2008, the Board of Directors proposed final cash
dividends attributable to equity holders of the Company in respect of 2007 of
RMB 0.156859 yuan per share, amounting to a total of RMB 28,708, according to
the issued 183,021 million shares. These consolidated financial statements do
not reflect this dividend payable as the final dividends were proposed after the
balance sheet date and have not been approved by shareholders in the Annual
General Meeting.
At the meeting on August 23, 2007, the Board of Directors proposed interim
dividends attributable to equity holders of the Company in respect of 2007 of
RMB 0.205690 yuan per share amounting to a total of RMB 36,823 as authorised by
shareholders in the Annual General Meeting at May 16, 2007.
At the meeting on March 19, 2007, the Board of Directors proposed final
cash dividends attributable to equity holders of the Company in respect of 2006
of RMB 0.154699 yuan per share, amounting to a total of RMB 27,694, according to
the issued 179,021 million shares, with the approval by shareholders in the
Annual General Meeting on May 16, 2007.
At the meeting on August 23, 2007, the Board of Directors proposed interim
dividends attributable to equity holders of the Company in respect of 2006 of
RMB 0.202806 yuan per share amounting to a total of RMB 36,307, as authorised by
shareholders in the Annual General Meeting at May 26, 2006.
(30) MINORITY INTEREST
Minority interest attributable to minority shareholders of subsidiaries
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
Jilin Chemical Industrial Company Limited -- 34
Daqing Yu Shu Lin Oilfield Company Limited 336 324
Liaohe Jinma Oilfield Company Limited -- 20
CNPC Exploration and Development Company Limited 16,773 15,885
PetroKazakhstan Inc. 8,163 --
Other 12,432 9,865
------ ------
37,704 26,128
====== ======
(31) OPERATING INCOME AND COST OF SALES
GROUP
-----------------
2007 2006
------- -------
Income from principal operations (a) 809,116 665,703
Income from other operations (b) 25,921 23,275
------- -------
835,037 688,978
======= =======
-143-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
Income from principal operations from the Group's five largest customers
for the year ended December 31, 2007 was RMB 112,707, representing 13% of the
Group's total operating income.
COMPANY
-----------------
2007 2006
------- -------
Income from principal operations (a) 579,310 491,616
Income from other operations (b) 16,424 14,016
------- -------
595,734 505,632
======= =======
Income from principal operations from the Company's five largest customers
for the year ended December 31, 2007 was RMB 86,576, representing 15% of the
Company's total operating income.
(a) Income from and cost of principal operations
GROUP
-----------------------------------------
2007 2006
------------------- -------------------
INCOME COST INCOME COST
-------- -------- -------- --------
Exploration and production 455,244 179,380 410,357 138,221
Refining and marketing 662,322 620,758 534,985 505,275
Chemicals and marketing 99,864 83,699 79,153 64,580
Natural gas and pipeline 49,299 35,524 38,642 27,995
Other 871 211 1,015 1,028
Intersegment elimination (458,484) (457,551) (398,449) (397,729)
-------- -------- -------- --------
Total 809,116 462,021 665,703 339,370
======== ======== ======== ========
COMPANY
-----------------------------------------
2007 2006
------------------- -------------------
INCOME COST INCOME COST
-------- -------- -------- --------
Exploration and production 365,901 232,753 332,548 207,185
Refining and marketing 470,352 437,932 395,396 371,666
Chemicals and marketing 88,024 73,643 67,818 56,320
Natural gas and pipeline 44,284 33,044 34,859 25,876
Other 164 110 319 615
Intersegment elimination (389,415) (388,482) (339,324) (338,602)
-------- -------- -------- --------
Total 579,310 389,000 491,616 323,060
======== ======== ======== ========
-144-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
(b) Income from and cost of other operations
GROUP
---------------------------------
2007 2006
--------------- ---------------
INCOME COST INCOME COST
------ ------ ------ ------
Sale of materials 10,129 10,059 8,671 8,560
Other 15,792 15,032 14,604 14,660
------ ------ ------ ------
Total 25,921 25,091 23,275 23,220
====== ====== ====== ======
COMPANY
---------------------------------
2007 2006
--------------- ---------------
INCOME COST INCOME COST
------ ------ ------ ------
Sale of materials 5,342 5,291 3,508 3,442
Other 11,082 10,889 10,508 11,083
------ ------ ------ ------
Total 16,424 16,180 14,016 14,525
====== ====== ====== ======
(32) TAX AND LEVIES ON OPERATIONS
2007 2006
------ ------
Business tax 864 562
City maintenance and construction tax 4,665 4,546
Educational surcharge 2,265 2,170
Consumption tax 12,931 12,089
Resource tax 3,217 3,368
Crude oil special levy 44,582 28,914
Other 154 43
------ ------
68,678 51,692
====== ======
(33) FINANCE EXPENSES
2007 2006
------ ------
Interest expense 3,595 3,220
Less: Interest income (1,990) (2,066)
Exchange losses 2,559 1,756
Less: Exchange gains (1,693) (1,830)
ther 398 242
------ ------
2,869 1,322
====== ======
-145-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
(34) ASSET IMPAIRMENT LOSSES
2007 2006
------ -----
Impairment losses for bad debts provision (2,353) (316)
Impairment losses for declines in the value of inventories 55 140
Impairment losses for available-for-sale financial assets -- 36
Impairment losses for fixed assets and oil and gas properties 296 2,677
Impairment losses for intangible assets 44 176
Impairment losses for construction in progress 5 201
Impairment losses for long-term equity investments 5 --
------ -----
(1,948) 2,914
====== =====
(35) INVESTMENT INCOME
GROUP
-------------
2007 2006
----- -----
Gains on available-for-sale financial assets 388 211
Share of profit of associates and jointly controlled entities 6,283 1,253
Gains / (losses) on disposal of long-term equity investments 320 (73)
Losses on disposal of subsidiaries (479) --
Other (211) (47)
----- -----
6,301 1,344
===== =====
COMPANY
---------------
2007 2006
------ ------
Gains on available-for-sale financial assets 301 76
Share of profit of associates and jointly controlled entities 673 478
Dividends declared by subsidiaries 65,205 66,029
Gains on disposal of long-term equity investments 310 7
Losses on disposal of subsidiaries (8,870) --
Other (5) (120)
------ ------
57,614 66,470
====== ======
(36) NON-OPERATING INCOME AND EXPENSES
(a) Non-operating income
2007 2006
----- -----
Gains on disposal of fixed assets and oil and gas properties 700 240
Gains on disposal of intangible assets 4 9
Government grants 1,110 610
Other 1,284 786
----- -----
3,098 1,645
===== =====
-146-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
(b) Non-operating expenses
2007 2006
----- -----
Losses on disposal of fixed assets and oil and gas properties 1,574 1,958
Losses on disposal of intangible assets 2 4
Fines 41 146
Donation 411 338
Extraordinary losses 857 11
Other 1,346 1,723
----- -----
4,231 4,180
===== =====
(37) TAXATION
2007 2006
------ ------
Income tax 48,332 50,972
Deferred tax 999 (3,929)
------ ------
49,331 47,043
====== ======
The reconciliation from profit before taxation presented in the financial
statements to the income taxation expenses is as follow:
2007 2006
------- -------
Profit before taxation 192,825 189,790
Tax calculated at a tax rate of 33% 63,632 62,631
Prior year tax return adjustment 451 243
Effect of income taxes from international operations in
excess of taxes at the PRC statutory tax rate 561 1,512
Effect of preferential tax rate (16,490) (13,652)
Effect of the new CIT law on deferred tax recognized (135) --
Tax effect of income not subject to tax (3,037) (1,626)
Tax effect of taxable items deductible not expensed (2,365) --
Tax effect of expenses not deductible for tax purposes 3,796 2,336
Tax effect of unused tax losses which had expired 2,918 --
Tax effect of temporary differences in relation to certain
crude oil sales which no longer existed at year end -- (4,401)
------- -------
Taxation 49,331 47,043
======= =======
The management of the Group has reassessed its tax position in the year
ended December 31, 2007 by reference to the enacted new CIT Law and accordingly
a net decrease in deferred tax charge for the year ended December 31, 2007 of
RMB 135 was recorded.
-147-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
(38) EARNINGS PER SHARE
Basic and diluted earnings per share
Basic and diluted earnings per share for the year ended December 31, 2007
have been computed by dividing profit for the year attributable to equity
holders of the Company by the weighted average number of 179,700 million shares
issued and outstanding for the year.
Basic and diluted earnings per share for the year ended December 31, 2006
have been computed by dividing profit for the year attributable to equity
holders of the Company by the number of 179,021 million shares issued and
outstanding for the year.
There are no potential dilutive ordinary shares, and the diluted earnings
per share are equal to the basic earnings per share.
(39) NOTES TO CONSOLIDATED CASH FLOW STATEMENTS
(a) Reconciliation from the net profit to the cash flow operating
activities
2007 2006
------- -------
Net profit 143,494 142,747
Add: Assets impairment losses (1,948) 2,914
Depreciation and depletion of fixed assets and oil and gas
properties 70,570 64,441
Amortisation of intangible assets 1,214 939
Amortisation of long-term prepaid expenses 2,115 1,715
Losses on disposal of fixed assets, oil and gas
properties, intangible assets and other long-term
assets 10,034 11,207
Finance expenses 1,605 1,154
Investment income (6,301) (1,344)
Decrease/(increase) in deferred tax assets 1,596 (3,876)
Decrease in deferred tax liabilities (597) (53)
Increase in inventories (12,042) (13,445)
Increase in operating receivables (16,254) (3,154)
Increase in operating payables 17,333 2,197
------- -------
Net cash from operating activities 210,819 205,442
======= =======
(b) Net increase/(decrease) in cash and cash equivalents
2007 2006
------- -------
Cash at end of the year 65,494 48,559
Less: Cash at beginning of the year (48,559) (80,905)
Add: Cash equivalents at end of the year -- --
Less: Cash equivalents at beginning of the year -- --
------- -------
Net increase/(decrease) in cash and cash equivalents 16,935 (32,346)
======= =======
-148-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
(c) Cash and cash equivalents
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
Cash at bank and on hand 88,589 54,070
Less: Time deposits with maturities over 3 months (23,095) (5,511)
------- ------
Cash and cash equivalents at the end of the year 65,494 48,559
======= ======
(d) Cash paid relating to other operating activities
In the cash flow statements, cash paid relating to other operating
activities comprises:
2007 2006
------ ------
Transportation expenses 20,540 17,872
Technology development expenses 5,315 4,260
Travelling expenses 1,462 1,169
Office expenses 1,265 1,117
Other 28,943 29,049
------ ------
57,525 53,467
====== ======
-149-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
8. SEGMENT REPORTING
(1) PRINCIPAL REPORTING FORMAT - BUSINESS SEGMENTS
(a) Segment information as at and for the year ended December 31, 2007 is
as follows:
EXPLORATION REFINING CHEMICALS NATURAL GAS
AND AND AND AND
PRODUCTION MARKETING MARKETING PIPELINE OTHER TOTAL
----------- --------- --------- ----------- ------- ---------
Revenue (including Intersegment revenue) 468,175 670,844 102,718 50,066 1,718 1,293,521
Less: Intersegment revenue (376,451) (63,766) (11,009) (6,610) (648) (458,484)
-------- -------- ------- ------- ------- ---------
Revenue from external customers 91,724 607,078 91,709 43,456 1,070 835,037
======== ======== ======= ======= ======= =========
Segment expenses(i) (255,406) (327,899) (40,285) (14,574) (8,295) (646,459)
---------
Segment result 197,888 (21,568) 6,714 12,142 (6,598) 188,578
---------
Unallocated expenses 5,380
---------
Operating profit 193,958
=========
Segment assets 489,971 279,726 95,969 80,430 819,240 1,765,336
Deferred tax assets 12,871
Elimination of intersegment balances (784,115)
---------
Total assets 994,092
=========
Segment liabilities 227,508 146,265 33,639 40,072 188,774 636,258
Deferred tax liabilities 11,883
Other 22,808
Elimination of intersegment balances (391,928)
---------
Total liabilities 279,021
=========
Depreciation, depletion and amortisation 50,219 11,133 5,935 5,929 683 73,899
Assets impairment losses (1,695) 66 (326) 8 (1) (1,948)
Capital expenditure
- Tangible assets 134,256 26,546 8,165 11,003 1,613 181,583
- Intangible assets 424 3,447 298 162 248 4,579
-150-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
(b) Segment information as at and for the year ended December 31, 2006 is
as follows:
EXPLORATION REFINING CHEMICALS NATURAL
AND AND AND GAS AND
PRODUCTION MARKETING MARKETING PIPELINE OTHER TOTAL
----------- --------- --------- -------- ------- ---------
Revenue (including intersegment
revenue) 421,340 543,299 82,791 38,917 1,080 1,087,427
Less: Intersegment sales (339,619) (44,806) (7,983) (5,617) (424) (398,449)
-------- -------- ------- ------- ------- ---------
Revenue from external customers 81,721 498,493 74,808 33,300 656 688,978
======== ======== ======= ======= ======= =========
Segment expenses (i) (200,114) (240,941) (33,237) (11,818) (7,651) (493,761)
---------
Segment result 213,501 (26,789) 6,063 9,031 (6,589) 195,217
---------
Unallocated expenses (2,892)
---------
Operating profit 192,325
=========
Segment assets 438,398 252,941 81,451 75,611 638,532 1,486,933
Deferred tax assets 14,391
Elimination of intersegment
balances (686,180)
---------
Total assets 815,144
=========
Segment liabilities 201,418 99,178 27,082 43,616 166,950 538,244
Deferred tax liabilities 12,480
Other 24,174
Elimination of intersegment
balances (327,349)
---------
Total liabilities 247,549
=========
Depreciation, depletion and
amortisation 45,766 9,963 5,550 5,246 570 67,095
Assets impairment losses 41 1,915 947 -- 11 2,914
Capital expenditure
- Tangible assets 105,192 19,206 10,681 11,309 2,358 148,746
- Intangible assets 277 3,052 564 18 182 4,093
(i) Segment expenses include operating costs, tax and levies on operations, and
selling, general and administrative expenses.
(2) SECONDARY REPORTING FORMAT - GEOGRAPHICAL SEGMENTS
REVENUE FROM EXTERNAL CUSTOMERS 2007 2006
------------------------------- ------- -------
PRC 807,706 665,267
Other (Exploration and Production) 27,331 23,711
------- -------
835,037 688,978
======= =======
TOTAL ASSETS DECEMBER 31, 2007 DECEMBER 31, 2006
------------ ----------------- -----------------
PRC 924,931 765,373
Other (Exploration and Production) 69,161 49,771
------- -------
994,092 815,144
======= =======
-151-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
9. RELATED PARTIES AND RELATED PARTY TRANSACTIONS
(1) PARENT COMPANY AND SUBSIDIARIES
Details about subsidiaries and related information are disclosed in Note 6.
(a) Parent company
PLACE OF INCORPORATION PRINCIPAL ACTIVITIES
---------------------- -----------------------------------------------------
China National Petroleum PRC Exploration, development, production, transportation,
Corporation sale of petroleum products, cooperation
(b) Equity interest and voting rights of parent company
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------------------------- -----------------------------------
EQUITY INTEREST % VOTING RIGHTS % EQUITY INTEREST % VOTING RIGHTS %
----------------- --------------- ----------------- ---------------
China National Petroleum
Corporation 86.29 86.29 88.21 88.21
(2) NATURE OF RELATED PARTIES THAT ARE NOT CONTROLLED BY THE COMPANY
NAMES OF RELATED PARTIES RELATIONSHIP WITH THE COMPANY
------------------------------------------------------------------ ------------------------------
Dalian West Pacific Petrochemical Co., Ltd. Associate
China Marine Bunker (Petrochina) Co., Ltd. Jointly controlled entity
Dagang Oilfield (Company) Company Limited Fellow subsidiary of CNPC
CNPC Oriental Geophysical Exploration Company Limited Fellow subsidiary of CNPC
China Petroleum Logging Company Limited Fellow subsidiary of CNPC
Daqing Petroleum Administrative Bureau Fellow subsidiary of CNPC
Liaohe Petroleum Exploration Bureau Fellow subsidiary of CNPC
China Petroleum Pipeline Bureau Fellow subsidiary of CNPC
Daqing Petrochemical Factory Fellow subsidiary of CNPC
China Petroleum Material Equipment Company Fellow subsidiary of CNPC
China Petroleum Finance Company Limited Fellow subsidiary of CNPC
China National Oil and Gas Exploration and Development Corporation Fellow subsidiary of CNPC
China National United Oil Corporation Fellow subsidiary of CNPC
-152-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
(3) SUMMARY OF SIGNIFICANT RELATED PARTY TRANSACTIONS
Related party transactions with CNPC and its subsidiaries:
NOTE 2007 2006
---- ------ ------
Sales of goods and services rendered to CNPC and its subsidiaries (1) 31,325 27,714
Purchase of services from CNPC and its subsidiaries:
Fees paid for construction and technical services: (2)
- Exploration and development services (2a) 60,194 50,485
- Other construction and technical services (2b) 37,063 32,256
Fees for production services (3) 38,395 32,730
Social services charges (4) 2,229 2,301
Ancillary services charges (5) 2,635 2,458
Commission expenses and other charges (6) 1,178 1,241
Interest income received from related companies (7) 159 81
Interest expense paid to CP Finance (8) 1,388 1,305
Rental paid to CNPC Company (9) 2,292 2,276
Purchases of assets from CNPC and its subsidiaries (10) 2,395 1,795
Note:
(1) Sales of goods and services represent sales of crude oil, petroleum
products and chemicals at market prices.
(2) 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 not more
than 15%, including exploration and development services and oilfield
construction services.
(2a) Direct costs for exploration and development services comprise geophysical
survey, drilling, well cementing, logging and well testing.
(2b) 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..
(3) 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.
(4) These represent expenditures for social welfare and support services based
on the number of employees, total income or total assets which are charged
at cost.
(5) Ancillary service charges represent mainly fees for property management,
the provision of training centres, guesthouses, canteens, public shower
rooms, etc. at market prices.
(6) CNPC purchases raw materials on behalf of the Group and charges commission
thereon. The commission is calculated at rates ranging from 1% to 5% of the
goods purchased.
(7) The bank deposits in CP Finance as of December 31, 2007 were RMB 8,393
(2006: RMB 8,937). Interest income is calculated according to the
prevailing interest rates.
-153-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
(8) The loans from CP Finance including short-term borrowings, long-term
borrowings due within one year and long-term borrowings as of December 31,
2007 were RMB 24,482 (2006: RMB 27,162).
(9) Rental was paid for the operating lease of land and buildings at the prices
prescribed in the Building and Land Use Rights leasing contract with CNPC.
(10) Purchases of assets principally represent the purchases of manufacturing
equipment, office equipment, transportation equipment, etc. at market
prices.
(11) Besides the investment in CP Finance RMB 377 as of December 31, 2007 (2006:
RMB 377), the Group did not have any individual investment in CNPC and its
subsidiaries greater than RMB 100. The Group's equity interest in CP
Finance as of December 31, 2007 was 9.5% (2006: 9.5%). CP Finance's
operating period started in 1995, without limited date for ending.
Related party transactions with associates and jointly controlled entities:
2007 2006
------ ------
(a) Sales of goods
- Crude oil 2,374 5,023
- Refined products 18,628 19,779
- Chemical products 753 90
(b) Purchases of goods 29,239 9,868
(c) Purchases of services 136 126
(d) Purchases of assets -- 2
(4) COMMISSIONED LOANS
The Company commissioned CP Finance to provide loans to several
subsidiaries and associates, charging interest in accordance with the prevailing
interest rates. Loans to subsidiaries have been eliminated in the consolidated
financial statements. As of December 31, 2007, the eliminated commissioned loans
totalled RMB 16,833, including short-term loans of RMB 8,206, loans due within
one year of RMB 807 and long-term loans of RMB 7,820.
(5) GUARANTEES
The Group provided guarantees of loans for associates, see Note 10(1).
CNPC provided guarantees of loans for the Group, see Note 7(22) and 7(23).
(6) RECEIVABLES AND PAYABLES WITH RELATED PARTIES
(a) Accounts receivable / Other receivables / Advances to suppliers
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
CNPC AND ITS SUBSIDIARIES
Accounts receivable 3,796 599
Other receivables 2,351 2,797
Advances to suppliers 7,984 4,619
ASSOCIATES AND JOINTLY CONTROLLED ENTITIES
Accounts receivable 296 82
-154-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
Other receivables 2,300 4,063
Advance to suppliers 112 244
As of December 31, 2007, the receivables from related parties represented
28% (2006: 30%) of total receivables, and bad debt provision amounted to RMB 18
(2006: RMB 453 ).
-155-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
(b) Accounts payable / Other payables / Advances from customers
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
CNPC AND ITS SUBSIDIARIES
Accounts payables 29,507 24,492
Other payables 2,625 3,206
Advances from customers 924 648
ASSOCIATES AND JOINTLY CONTROLLED ENTITIES
Accounts payables 35 914
Other payables 3 401
Advances from customers 65 125
As of December 31, 2007, the payables to related parties represented 25%
(2006: 28%) of total payables.
(7) SUMMARY OF TRANSACTIONS WITH SUBSIDIARIES
Significant related party transactions with subsidiaries:
2007 2006
------- -------
(a) Sales of goods 5,757 5,429
(b) Purchase of goods 223,381 196,445
Receivables and payables with subsidiaries:
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
Other receivables 12,997 7,890
Other payables 33,227 30,428
(8) KEY MANAGEMENT PERSONNEL COMPENSATION
2007 2006
------- -------
RMB'000 RMB'000
Key management personnel compensation (i) 10,618 8,155
(i) Key management personnel compensation do not include deferred payments made
to directors and other key management in accordance with the relevant PRC
government regulations, in respect of 2004 to 2006 in the amount of RMB
5,143 thousand.
-156-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
10. CONTINGENT LIABILITIES
(1) BANK AND OTHER GUARANTEES
At December 31, 2007, the Group had contingent liabilities in respect of
guarantees made to CP Finance, a subsidiary of CNPC from which it is anticipated
that no material liabilities will arise.
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
Guarantee of borrowings of associates from
CP Finance 77 162
Guarantee of borrowings of third party from
a state-controlled bank -- 41
--- ---
77 203
=== ===
(2) 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 be reasonably 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 consolidated financial statements that will have a
material adverse effect on the financial position of the Group.
(3) 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, the management of the Group
believes that any resulting liabilities will not have a material adverse effect
on the financial position of the Group.
(4) LEASING OF ROADS, LAND AND BUILDINGS
According to the Restructuring Agreement entered into between the Company
and CNPC in 2000:
- CNPC will use its best endeavors 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.
-157-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
As at December 31, 2007, CNPC had obtained formal land use right
certificates in relation to 27,554 out of the above-mentioned 28,649 parcels of
land and 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
management 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 operating results and the financial
position of the Group.
(5) 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 will not
have a material adverse effect on the financial position of the Group.
-158-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
11. COMMITMENTS
(1) 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, 2007
and 2006 under non-cancellable operating leases are as follows:
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
Within one year 3,394 3,099
Between one to two years 3,077 2,749
Between two to three years 2,927 2,714
Thereafter 84,997 86,218
------ ------
94,395 94,780
====== ======
Operating lease expenses for the year ended December 31, 2007 was RMB 6,976
(2006: RMB 5,378).
(2) CAPITAL COMMITMENTS
Capital expenditure contracted for at the balance sheet date but not yet
recognised in the financial statements are as follows:
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
Oil and gas properties 26 273
Buildings, equipment and machinery 11,345 8,658
Other 250 262
------ ------
11,621 9,193
====== ======
(3) EXPLORATION AND PRODUCTION LICENSES
The Group is obligated to make annual payments with respect to its
exploration and production licenses to the Ministry of Land and Resources.
Payments incurred were RMB 660 for the year ended December 31, 2007 (2006: RMB
662).
Estimated annual payments for the next five years are as follows:
DECEMBER 31, 2007
-----------------
First year 906
Second year 906
Third year 906
Fourth year 906
Fifth year 906
-159-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
12. FINANCIAL RISK MANAGEMENT
The Group's activities expose it to a variety of financial risks, including
market risk, credit risk and liquidity risk.
(1) FOREIGN EXCHANGE RATE RISK
The Group conducts its business primarily in RMB, but maintains a portion
of its assets in other currencies to meet its needs for normal business
operations. The RMB is not a freely convertible currency and is regulated by the
PRC government. Limitation in foreign exchange transactions imposed by the PRC
government could cause future exchange rates to vary significantly from current
or historical exchange rates. Management is not in a position to anticipate
changes in the PRC foreign exchange regulations and as such is unable to
reasonably anticipate the impacts on the Group's results of operations or
financial position arising from future changes in exchange rates. The Group did
not enter into material hedge contracts during any of the years presented to
hedge against its foreign exchange rate risk.
(2) CASH FLOW AND FAIR VALUE INTEREST RATE RISK
The Group is exposed to the risk arising from changes in interest rates. A
detailed analysis of the Group's borrowings, together with their respective
interest rates and maturity dates, are included in Note 23.
(3) PRICE RISK
The Group is engaged in a wide range of petroleum-related activities.
Prices of crude oil and petroleum products are affected by a wide range of
global and domestic factors which are beyond the control of the Group. The
fluctuations in such prices may have favourable or unfavourable impacts to the
Group. The Group historically has not used commodity derivative instruments to
hedge against potential price fluctuations of crude oil or petroleum products
and therefore the Group is exposed to general price fluctuations of crude oil
and petroleum products.
(4) CREDIT RISK
Credit risk arises primarily from cash and cash equivalents, accounts
receivable, other receivables, notes receivable and time deposits. As the
majority of cash at bank and time deposits are placed with state-owned banks and
financial institutions, the corresponding credit risk is relatively low. The
Group has controls in place to assess the credit quality of its customers. The
carrying amounts of cash and cash equivalents, accounts receivable, other
receivables, notes receivable and time deposits included in the consolidated
balance sheet represent the Group's maximum exposure to credit risk. No other
financial assets carry a significant exposure to credit risk.
The Group has no significant concentration of credit risk.
-160-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
(5) FAIR VALUE ESTIMATION
The methods and assumptions applied in determining the fair value of each
class of financial assets and financial liabilities of the Group at December 31,
2007 and 2006 are disclosed in the respective accounting policies.
The carrying amounts of the following financial assets and financial
liabilities approximate their fair value as all of them are short-term in
nature: cash at bank and on hands, accounts receivable, other receivables,
accounts payable, other payables and short-term borrowings. The fair values of
fixed rate long-term borrowings are likely to be different from their respective
carrying amounts. Analysis of the fair values and carrying amounts of long-term
borrowings are presented in Note 23.
13. OTHER SIGNIFICANT MATTERS
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 management personnel comprising 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.
As at December 31, 2007, none of the key management holders of the share
appreciation rights had exercised the rights. The difference between the
liability for the units calculated using the exercise price and the market price
was included in employee compensation. The expense for the year ended December
31, 2007 amounted to RMB 233 (2006: RMB 537), and the liability as at December
31, 2007 amounted to RMB 1,400 (2006: RMB 1,167).
-161-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
14. FIRST TIME ADOPTION OF CAS
The reconciliation between the beginning and ending balances of the
consolidated shareholders' equity and the consolidated net profit for the year
then ended December 31, 2006 under the old CAS and CAS is as follows:
CONSOLIDATED CONSOLIDATED NET CONSOLIDATED
SHAREHOLDERS' PROFIT FOR THE SHAREHOLDERS'
EQUITY AS OF YEAR ENDED EQUITY AS OF
JANUARY DECEMBER DECEMBER
1, 2006 31, 2006 31, 2006
------------- ---------------- -------------
Amounts presented in accordance with the old CAS 491,935 133,555 557,197
------- ------- -------
Difference in long-term equity investments 199 30 229
Including:
Credit difference derived from other long-term equity
investments accounted for using the equity method 97 (27) 70
Debit difference derived from other long-term equity
investments accounted for using the equity method 102 57 159
Adjustment due to change in net identifiable assets of
investees 12 25 37
Excess of cost less fair value derived from business
combination under common control (6,946) 695 (6,251)
Negative goodwill derived from business combination
under common control 494 (73) 421
Revaluation derived from business combination under
common control (6,297) 156 (6,141)
Purchase of subsidiaries' minority interest (1,339) 315 (3,648)
Assets retirement obligation expense due to effective
interest rate method (326) (796) (1,122)
Depreciation of oil and gas properties related to assets
retirement obligation (367) (1,670) (2,037)
Assets retirement obligation that is settled 1 96 97
Retrospective adjustments made to business combination
under common control 1,409 -- 1,409
Adjustments made to debt forgiven and donations received -- 509 --
Reversal of reversed impairment losses on prior years'
long-term assets (230) (4) (234)
Unrecognised losses on investment -- (538) --
Deferred taxation (2,018) 3,929 1,911
Including:
Deferred tax assets 10,515 3,876 14,391
Deferred tax liabilities (12,533) 53 (12,480)
Foreign currency translation differences (289) -- (401)
Minority interest 23,996 6,518 26,128
------- ------- -------
Amounts presented in accordance with the CAS 500,234 142,747 567,595
======= ======= =======
-162-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
15. CONSOLIDATED NET PROFIT AFTER DEDUCTING NON-RECURRING ITEMS
2007 2006
------- -------
Consolidated net profit 143,494 142,747
Add: Net loss on disposal of non-current assets 753 1,783
Net non-operating expenses 1,371 1,432
Less: Government grant (388) (610)
Tax impact on non-recurring items (443) (562)
------- -------
Consolidated net profit after deducting non-recurring
items 144,787 144,790
======= =======
-163-
PETROCHINA COMPANY LIMITED MANAGEMENT SUPPLEMENTARY INIFORMATION
(All amounts in RMB millions unless otherwise stated)
SIGNIFICANT DIFFERENCES BETWEEN IFRS AND CAS
The financial statements of the Group prepared in accordance with CAS
differ in certain material aspects from those in accordance with IFRS. A
statement of reconciliation of such differences is set out below:
NOTES 2007 2006
------------- ---------------- -------------
Consolidated profit for the year under IFRS 155,229 149,397
Adjustments:
Depletion of oil and gas properties (1) (7,463) (9,173)
Amortisation of revaluation for assets other than
fixed assets and oil and gas properties in 1999 (2) (75) (81)
Disposal of revaluation for assets other than fixed
assets and oil and gas properties in 1999 (2) (382) --
Depreciation and depletion of revaluation for fixed
assets and oil and gas properties in 2003 (3) (162) (111)
Reversal of reversed impairment for non-current
assets (4) -- (4)
Disposal difference due to the reversal of reversed
impairment for non-current assets (4) 142 --
Reversal of safety funds accrued under CAS which do
not meet the liability definition under IFRS (5) (3,559) --
Other (57) (14)
Deferred taxation (6) (179) 2,733
------- -------
Consolidated profit for the year under CAS 143,494 142,747
======= =======
DECEMBER DECEMBER
NOTES 31, 2007 31, 2006
------------- ---------------- -------------
Consolidated shareholders' equity under IFRS 776,347 617,591
Adjustments:
Depletion of oil and gas properties (1) (79,662) (72,199)
Revaluation and amortisation and disposal of
revaluation for assets other than fixed assets and
oil and gas properties in 1999 (2) 409 866
Revaluation and depreciation and depletion of
revaluation for fixed assets and oil and gas
properties in 2003 (3) 337 499
Reversal of reversed impairment for non-current
assets and the disposal difference due to that (4) (92) (234)
Reversal of safety funds accrued under CAS which do
not meet the liability definition under IFRS (5) (3,559) --
Currency translation differences (390) (787)
Other 525 524
Deferred taxation (6) 21,156 21,335
------- -------
Consolidated shareholders' equity under CAS 715,071 567,595
======= =======
(1) Depletion for oil and gas properties is provided using the unit of
production method under IFRS, while the straight-line method is used under
CAS.
(2) During the Restructuring in 1999, valuation was carried out on Jun 30, 1999
for assets and liabilities CNPC invested. Valuation results from China
Enterprise Appraisals are all recognised in financial statements under CAS.
However, in the financial statements under IFRS, revaluation model is used
in subsequent measurement by the Group only for fixed assets and oil and
gas properties. Consequently, valuation results other than fixed assets and
oil and gas properties are not recognised in the financial statements under
IFRS.
-164-
PETROCHINA COMPANY LIMITED MANAGEMENT SUPPLEMENTARY INIFORMATION
(All amounts in RMB millions unless otherwise stated)
(3) As revaluation model is used in subsequent measurement for fixed assets and
oil and gas properties by the Group under IFRS, revaluation should be
carried out by independent appraisers regularly. In order to meet the
requirement of IFRS, on September 30, 2003, a revaluation of the Group's
refining and chemical production equipment was undertaken by a firm of
independent valuers, China United Assets Appraiser Co., Ltd., in the PRC on
a depreciated replacement cost basis. The result of revaluation is
recognised in the financial statements under IFRS. However, fixed assets
and oil and gas properties are measured by cost model under CAS.
Consequently, these revaluation results are not recognised in the financial
statements under CAS.
(4) Under CAS, once recognised, the impairment loss for long-term assets, such
as fixed assets, oil and gas properties, intangible assets and long-term
equity investment, can not be reversed in subsequent accounting periods.
However, under IFRS, once changes have been indicated for various factors
based on which impairment for long term assets was provided and make the
recoverable amount higher than the carrying amount, the impairment loss
recognised previously shall be reversed.
(5) In accordance with the "Temporary regulation for safety expense financial
management of high risk industry" from MOF of PRC, this safety fund has
been accrued for the Group's oil and gas exploration, refinery and chemical
production activities within PRC from Jan 1, 2007. This safety fund has
been recognised into the Group's income statement. The accrued safety fund
will be used for improving the safety conditions of production. As the
Group did not have specific utilisation plan for this accrued safety fund
as at December 31, 2007, it was reversed under IFRS.
(6) The consequences of (1)-(5) and other differences between IFRS and CAS on
deferred taxation.
-165-
(PRICEWATERHOUSECOOPERS LOGO)
(Chinese Characters) PricewaterhouseCoopers
22nd Floor, Prince's Building
Central, Hong Kong
Telephone (852) 2289 8888
Facsimile (852) 2810 9888
INDEPENDENT AUDITOR'S REPORT
TO THE SHAREHOLDERS OF PETROCHINA COMPANY LIMITED
(ESTABLISHED IN THE PEOPLE'S REPUBLIC OF CHINA WITH LIMITED LIABILITY)
We have audited the consolidated financial statements of PetroChina Company
Limited (the "Company") and its subsidiaries (the "Group") set out on pages 166
to 226, which comprise the consolidated and Company balance sheets as at
December 31, 2007, and the consolidated profit and loss account, cash flow
statement and statement of changes in equity for the year then ended, and a
summary of significant accounting policies and other explanatory notes.
DIRECTORS' RESPONSIBILITY FOR THE FINANCIAL STATEMENTS
The directors of the Company are responsible for the preparation and the
true and fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards and the disclosure
requirements of the Hong Kong Companies Ordinance. This responsibility includes
designing, implementing and maintaining internal control relevant to the
preparation and the true and fair presentation of financial statements that are
free from material misstatement, whether due to fraud or error; selecting and
applying appropriate accounting policies; and making accounting estimates that
are reasonable in the circumstances.
AUDITOR'S RESPONSIBILITY
Our responsibility is to express an opinion on these consolidated financial
statements based on our audit. We conducted our audit in accordance with
International Standards on Auditing. Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable
assurance as to whether the financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the financial statements. The procedures selected
depend on the auditor's judgement, including the assessment of the risks of
material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control
relevant to the entity's preparation and true and fair presentation of the
financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity's internal control. An audit also includes
evaluating the appropriateness of accounting
-166-
policies used and the reasonableness of accounting estimates made by the
management, as well as evaluating the overall presentation of the financial
statements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
OPINION
In our opinion, the consolidated financial statements give a true and fair
view of the financial position of the Company and of the Group as at December
31, 2007 and of the Group's financial performance and cash flows 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.
OTHER MATTERS
This report, including the opinion, has been prepared for and only for 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.
PricewaterhouseCoopers
Certified Public Accountants
Hong Kong, March 19, 2008
-167-
PETROCHINA COMPANY LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the year ended December 31, 2007
(Amounts in millions)
NOTES 2007 2006
----- -------- --------
RMB RMB
TURNOVER 6 835,037 688,978
-------- --------
OPERATING EXPENSES
Purchases, services and other (370,740) (271,123)
Employee compensation costs 8 (50,616) (39,161)
Exploration expenses, including exploratory dry holes (20,648) (18,822)
Depreciation, depletion and amortisation (66,625) (61,388)
Selling, general and administrative expenses (51,576) (43,235)
Taxes other than income taxes 9 (73,712) (56,666)
Other expense, net (1,265) (607)
-------- --------
TOTAL OPERATING EXPENSES (635,182) (491,002)
-------- --------
PROFIT FROM OPERATIONS 199,855 197,976
-------- --------
FINANCE COSTS
Exchange gain 1,693 1,830
Exchange loss (2,559) (1,756)
Interest income 1,990 2,066
Interest expense 10 (3,595) (3,220)
-------- --------
TOTAL NET FINANCE COSTS (2,471) (1,080)
-------- --------
SHARE OF PROFIT OF ASSOCIATES AND JOINTLY CONTROLLED
ENTITIES 17 6,997 2,277
-------- --------
PROFIT BEFORE TAXATION 7 204,381 199,173
TAXATION 12 (49,152) (49,776)
-------- --------
PROFIT FOR THE YEAR 155,229 149,397
======== ========
ATTRIBUTABLE TO:
Equity holders of the Company 145,625 142,224
Minority interest 9,604 7,173
-------- --------
155,229 149,397
======== ========
BASIC AND DILUTED EARNINGS PER SHARE FOR PROFIT
ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY
DURING THE YEAR (RMB YUAN) 14 0.81 0.79
======== ========
DIVIDENDS ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY 15 64,517 68,589
======== ========
The accompanying notes are an integral part of these financial statements.
-168-
PETROCHINA COMPANY LIMITED
CONSOLIDATED BALANCE SHEET
As of December 31, 2007
(Amounts in millions)
NOTES 2007 2006
----- ------- -------
RMB RMB
NON CURRENT ASSETS
Property, plant and equipment 16 762,882 645,337
Investments in associates and jointly controlled
entities 17 26,535 32,956
Available-for-sale financial assets 18 2,581 2,054
Advance operating lease payments 20 23,417 20,468
Intangible and other assets 21 8,488 6,627
Time deposits with maturities over one year 5,053 2,499
------- -------
TOTAL NON CURRENT ASSETS 828,956 709,941
------- -------
CURRENT ASSETS
Inventories 22 88,467 76,038
Accounts receivable 23 18,419 8,488
Prepaid expenses and other current assets 24 36,018 23,281
Notes receivable 25 4,735 2,844
Time deposits with maturities over three months but
within one year 18,042 3,012
Cash and cash equivalents 26 65,494 48,559
------- -------
TOTAL CURRENT ASSETS 231,175 162,222
------- -------
CURRENT LIABILITIES
Accounts payable and accrued liabilities 27 144,353 120,182
Income tax payable 11,709 17,744
Other taxes payable 11,099 6,190
Short-term borrowings 28 30,934 35,763
------- -------
TOTAL CURRENT LIABILITIES 198,095 179,879
------- -------
NET CURRENT ASSETS / (LIABILITIES) 33,080 (17,657)
------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES 862,036 692,284
======= =======
EQUITY
Equity attributable to equity holders of the Company:
Share capital 29 183,021 179,021
Retained earnings 332,432 264,092
Reserves 30 217,952 143,564
------- -------
733,405 586,677
Minority interest 42,942 30,914
------- -------
TOTAL EQUITY 776,347 617,591
------- -------
NON CURRENT LIABILITIES
Long-term borrowings 28 39,688 35,634
Asset retirement obligations 32 24,761 18,481
Deferred taxation 31 20,205 19,583
Other long-term obligations 1,035 995
------- -------
TOTAL NON CURRENT LIABILITIES 85,689 74,693
------- -------
TOTAL EQUITY AND NON CURRENT LIABILITIES 862,036 692,284
======= =======
The accompanying notes are an integral part of these financial statements.
---------------------- ----------- -----------------------
Chairman and President Director Chief Financial Officer
Jiang Jiemin Zhou Jiping Zhou Mingchun
-169-
PETROCHINA COMPANY LIMITED
BALANCE SHEET
As of December 31, 2007
(Amounts in millions)
NOTES 2007 2006
----- ------- -------
RMB RMB
NON CURRENT ASSETS
Property, plant and equipment 16 560,672 466,707
Investments in associates and jointly controlled
entities 17 3,309 3,458
Available-for-sale financial assets 18 1,506 1,011
Subsidiaries 19 106,816 111,091
Advance operating lease payments 20 18,998 15,776
Intangible and other assets 21 7,188 5,620
------- -------
TOTAL NON CURRENT ASSETS 698,489 603,663
------- -------
CURRENT ASSETS
Inventories 22 70,284 60,270
Accounts receivable 23 2,131 1,574
Prepaid expenses and other current assets 24 40,514 22,052
Notes receivable 25 3,988 2,097
Time deposits with maturities over three months but
within one year 18,000 3,000
Cash and cash equivalents 26 60,332 45,029
------- -------
TOTAL CURRENT ASSETS 195,249 134,022
------- -------
CURRENT LIABILITIES
Accounts payable and accrued liabilities 27 131,979 120,000
Income tax payable 8,542 15,568
Other taxes payable 5,251 3,296
Short-term borrowings 28 26,927 27,676
------- -------
TOTAL CURRENT LIABILITIES 172,699 166,540
------- -------
NET CURRENT ASSETS/(LIABILITIES) 22,550 (32,518)
------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES 721,039 571,145
======= =======
EQUITY
Equity attributable to equity holders of the Company:
Share capital 29 183,021 179,021
Retained earnings 265,806 205,379
Reserves 30 215,561 140,407
------- -------
TOTAL EQUITY 664,388 524,807
------- -------
NON CURRENT LIABILITIES
Long-term borrowings 28 32,544 27,665
Asset retirement obligations 32 15,307 11,269
Deferred taxation 31 7,849 6,480
Other long-term obligations 951 924
------- -------
TOTAL NON CURRENT LIABILITIES 56,651 46,338
------- -------
TOTAL EQUITY AND NON CURRENT LIABILITIES 721,039 571,145
======= =======
The accompanying notes are an integral part of these financial statements.
---------------------- ----------- -----------------------
Chairman and President Director Chief Financial Officer
Jiang Jiemin Zhou Jiping Zhou Mingchun
-170-
PETROCHINA COMPANY LIMITED
CONSOLIDATED CASH FLOW STATEMENT
For the Year Ended December 31, 2007
(Amounts in millions)
NOTES 2007 2006
----- -------- --------
RMB RMB
CASH FLOWS FROM OPERATING ACTIVITIES 33 203,748 198,102
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (172,511) (130,409)
Acquisition of investments in associates and jointly controlled
entities (1,903) (1,173)
Acquisition of available-for-sale financial assets (324) (62)
Consolidation/(acquisition) of PetroKazakhstan Inc. 17 1,542 (21,376)
Net proceeds from investments in collateralised loans with
maturities not greater than three months -- 235
Acquisition of intangible assets (2,521) (1,358)
Acquisition of other non-current assets (857) (1,706)
Purchase of minority interest in listed subsidiaries 19 (149) (4,095)
Other purchase of minority interest (29) (640)
Repayment of capital by associates and jointly controlled entities 6,618 99
Proceeds from disposal of property, plant and equipment 1,014 346
Proceeds from disposal of investments in associates and jointly
controlled entities 1,033 69
Proceeds from disposal of available-for-sale financial assets 276 4
Proceeds from disposal of intangible and other non-current assets -- 2
Dividends received 1,463 2,099
Increase in time deposits with maturities over three months (17,857) (486)
-------- --------
NET CASH USED FOR INVESTING ACTIVITIES (184,205) (158,451)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of short-term borrowings (33,027) (28,349)
Repayments of long-term borrowings (24,071) (17,587)
Dividends paid to minority interest (6,150) (3,033)
Dividends paid to equity holders of the Company 15 (64,517) (68,589)
Issuance of A shares 29 66,243 --
Increase in short-term borrowings 36,842 30,183
Increase in long-term borrowings 20,650 14,195
Capital contribution from minority interest 1,349 1,492
Change in other long-term obligations 33 (51)
-------- --------
NET CASH USED FOR FINANCING ACTIVITIES (2,648) (71,739)
-------- --------
TRANSLATION OF FOREIGN CURRENCY 40 (258)
-------- --------
Increase/(Decrease) in cash and cash equivalents 16,935 (32,346)
Cash and cash equivalents at beginning of the year 26 48,559 80,905
-------- --------
Cash and cash equivalents at end of the year 26 65,494 48,559
======== ========
The accompanying notes are an integral part of these financial statements.
-171-
PETROCHINA COMPANY LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the Year Ended December 31, 2007
(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, 2006 179,021 203,812 132,556 515,389 28,278 543,667
------- ------- ------- ------- ------ -------
Currency translation differences -- -- (191) (191) (204) (395)
------- ------- ------- ------- ------ -------
Net loss recognised directly in equity -- -- (191) (191) (204) (395)
Profit for the year ended December 31, 2006 -- 142,224 -- 142,224 7,173 149,397
------- ------- ------- ------- ------ -------
Total recognised income/(loss) for 2006 -- 142,224 (191) 142,033 6,969 149,002
------- ------- ------- ------- ------ -------
Transfer to reserves (Note 30) -- (13,355) 13,355 -- -- --
Final dividends for 2005 (Note 15) -- (32,282) -- (32,282) -- (32,282)
Interim dividends for 2006 (Note 15) -- (36,307) -- (36,307) -- (36,307)
Dividends to minority interest -- -- -- -- (3,000) (3,000)
Purchase of minority interest in subsidiaries
(Note 19) -- -- (2,156) (2,156) (2,579) (4,735)
Capital contribution from minority interest -- -- -- -- 1,492 1,492
Other -- -- -- -- (246) (246)
------- ------- ------- ------- ------ -------
Balance at December 31, 2006 179,021 264,092 143,564 586,677 30,914 617,591
======= ======= ======= ======= ====== =======
Currency translation differences -- -- (771) (771) (798) (1,569)
------- ------- ------- ------- ------ -------
Net loss recognised directly in equity -- -- (771) (771) (798) (1,569)
Profit for the year ended December 31, 2007 -- 145,625 -- 145,625 9,604 155,229
------- ------- ------- ------- ------ -------
Total recognised income/(loss) for 2007 -- 145,625 (771) 144,854 8,806 153,660
------- ------- ------- ------- ------ -------
Transfer to reserves (Note 30) -- (12,768) 12,768 -- -- --
Final dividends for 2006 (Note 15) -- (27,694) -- (27,694) -- (27,694)
Interim dividends for 2007 (Note 15) -- (36,823) -- (36,823) -- (36,823)
Dividends to minority interest -- -- -- -- (6,144) (6,144)
Purchase of minority interest in subsidiaries
(Note 19) -- -- (113) (113) (65) (178)
Issuance of A shares 4,000 -- 62,243 66,243 -- 66,243
Consolidation of PetroKazakhstan Inc. -- -- -- -- 8,101 8,101
Capital contribution from minority interest -- -- -- -- 1,349 1,349
Fair value gain from available-for-sale financial
assets -- -- 261 261 -- 261
Other -- -- -- -- (19) (19)
------- ------- ------- ------- ------ -------
Balance at December 31, 2007 183,021 332,432 217,952 733,405 42,942 776,347
======= ======= ======= ======= ====== =======
The accompanying notes are an integral part of these financial statements.
-172-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
1 ORGANISATION AND PRINCIPAL ACTIVITIES
PetroChina Company Limited (the "Company") was established in the People's
Republic of China ( "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 in 2000 (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 and sale 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 (Note 39).
2 BASIS OF PREPARATION
The consolidated financial statements (comprising the consolidated balance
sheet, the consolidated profit and loss account, cash flow statement and
statement of changes in equity and a summary of significant accounting policies
and other explanatory notes) and the balance sheet of the Company have been
prepared in accordance with the International Financial Reporting Standards
("IFRS") issued by the International Accounting Standards Board ("IASB"). The
consolidated financial statements and the balance sheet of the Company have been
prepared under the historical cost convention except as disclosed in the
accounting policies below.
The preparation of financial statements in conformity with 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
balance sheet date and the reported amounts of revenues and expenses during the
reporting period. Although these estimates are based on management's best
knowledge of current events and actions, actual results may ultimately differ
from those estimates. The areas involving a higher degree of judgement or
complexity, or areas where assumptions and estimates are significant to the
consolidated financial statements are disclosed in Note 5.
In 2007, with the exception of IFRS 7, 'Financial instruments:
Disclosures', and the complementary amendment to IAS 1, 'Presentation of
financial statements - Capital disclosures' that introduces certain new
disclosures (Note 4) relating to financial instruments, the adoption of other
relevant new standards and interpretations does not have any significant impact
on the consolidated financial statements.
3 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
(A) BASIS OF CONSOLIDATION
Subsidiaries are those entities in which the Group has an interest of more
than one half of the voting rights or otherwise has power to govern the
financial and operating policies.
A subsidiary is consolidated from the date on which control is transferred
to the Group and is no longer consolidated from the date that control ceases.
The purchase method of accounting is used to account for the acquisition of
subsidiaries except for the business
-173-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
combination under common control. The cost of an acquisition is measured as the
fair value of the assets given up, shares issued or liabilities undertaken at
the date of acquisition plus costs directly attributable to the acquisition.
Identifiable assets acquired and liabilities and contingent liabilities assumed
in a business combination are measured initially at their fair values at the
acquisition date, irrespective of the extent of any 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 identifiable net
assets of the subsidiary acquired, the difference is recognised directly in the
consolidated profit and loss account.
An acquisition of a business which is a business combination under common
control is accounted for in a manner similar to a uniting of interests whereby
the assets and liabilities acquired are accounted for at carryover predecessor
values to the other party to the business combination with all periods presented
as if the operations of the Group and the business acquired have always been
combined. The difference between the consideration paid by the Group and the net
assets or liabilities of the business acquired is adjusted against equity.
Intercompany transactions, balances and unrealised gains on transactions
between group companies are eliminated; unrealised losses are also eliminated
but considered an impairment indicator of the asset transferred. Where
necessary, accounting policies of subsidiaries have been changed to ensure
consistency with the policies adopted by the Group.
For purposes 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 19.
(B) INVESTMENTS IN ASSOCIATES
Associates are entities over which the Group has significant influence but
not control, generally accompanying a shareholding of between 20% and 50% of the
voting rights. Investments in associates are accounted for by the equity method
of accounting in the consolidated financial statements of the Group and are
initially recognised at cost. Under this method of accounting the Group's share
of the post-acquisition profits or losses of associates is recognised in the
consolidated profit 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 carrying amounts of the investments. When the Group's
share of losses in an associate equals or exceeds its interest in the associate,
including any other unsecured receivables, the Group does not recognise further
losses, unless it has incurred obligations or made payments on behalf of the
associate. Unrealised gains on transactions between the Group and its associates
are eliminated to the extent of the Group's interest in the associates;
unrealised losses are also eliminated unless the transaction provides evidence
of an impairment of the asset transferred. The Group's investment in associates
includes goodwill identified on acquisition, net of any accumulated loss and is
tested for impairment as part of the overall balance. Goodwill represents the
excess of the cost of an acquisition over the fair value of the Group's share of
the net identifiable assets of the acquired associate at the date of
acquisition.
For purpose of the presentation of the Company's balance sheet, investments
in associates are accounted for at cost.
-174-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
A listing of the Group's principal associates is shown in Note 17.
(C) INVESTMENTS IN JOINTLY CONTROLLED ENTITIES
Jointly controlled entities are those over which the Group has contractual
arrangements to jointly share control with one or more parties. The Group's
interest in jointly controlled entities is accounted for by the equity method of
accounting (Note 3(b)) in the consolidated financial statements.
For purpose of the presentation of the Company's balance sheet, investments
in jointly controlled entities are accounted for at cost.
A listing of the Group's principal jointly controlled entities is shown in
Note 17.
(D) TRANSACTIONS WITH MINORITY INTEREST
The Group applies a policy of treating transactions with minority interest
as transactions with equity participants of the Group. Gains and losses
resulting from the disposals to minority interest are recorded in equity. The
differences between any consideration paid and the relevant share of the
carrying value of net assets of the subsidiary acquired, resulting from the
purchase from minority interest, are recorded in equity.
(E) FOREIGN CURRENCIES
Items included in the financial statements of each entity in the Group are
measured using the currency of the primary economic environment in which the
entity operates ("the functional currency"). Most assets and operations of the
Group are located in the PRC (Note 39), and the functional currency of the
Company and most of the consolidated subsidiaries is the Renminbi ("RMB"). The
consolidated financial statements are presented in the presentation currency of
RMB.
Foreign currency transactions of the Group are accounted for at the
exchange rates prevailing at the respective dates of the transactions; monetary
assets and liabilities denominated in foreign currencies are translated at
exchange rates at the balance sheet date; gains and losses resulting from the
settlements of such transactions and from the translation of monetary assets and
liabilities are recognised in the consolidated profit and loss account.
For the Group's entities that have a functional currency different from the
Group's presentation currency, assets and liabilities for each balance sheet
presented are translated at the closing rate at the balance sheet date. Income
and expenses for each income statement presented are translated at average
exchange rates and the resulting exchange differences are recognised as a
separate component of equity.
The Group has no material hedge contracts during any of the years
presented. No foreign currency exchange gains or losses were capitalised in any
of the years presented.
(F) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including oil and gas properties (Note 3
(g)), are recorded at cost less accumulated depreciation, depletion and
amortisation. Cost represents the purchase price of the asset and other costs
incurred to bring the asset into existing use. Subsequent to their initial
recognition, property, plant and equipment are carried at revalued amounts.
Revaluations are performed by independent qualified valuers periodically.
-175-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
In the intervening years between independent revaluations, the directors
review the carrying values of the property, plant and equipment and adjustments
are made if the carrying values differ significantly from their respective fair
values.
Increases in the carrying values arising from revaluations are credited to
the revaluation reserve. Decreases in the carrying values arising from
revaluations are first offset against increases from earlier revaluations in
respect of the same assets and are thereafter charged to the consolidated profit
and loss account. All other decreases carrying values are charged to the
consolidated profit and loss account. Any subsequent increases are credited to
the consolidated profit and loss account up to the respective amounts previously
charged.
Revaluation surpluses realised through the depreciation or disposal of
revalued assets are retained in the revaluation reserve and will not be
available for offsetting against future revaluation losses.
Depreciation, to write off the cost or valuation of each asset, other than
oil and gas properties (Note 3(g)), to their residual values over their
estimated useful lives is calculated using the straight-line method.
The Group uses the following useful lives for depreciation purposes:
Buildings 8 - 40 years
Equipment and Machinery 4 - 30 years
Motor vehicles 7 - 14 years
Other 5 - 12 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(g)), are reviewed for possible impairment when events or changes in
circumstances indicate that the carrying amount may not be recoverable. An
impairment loss is recognised for the amount by which the carrying amount of a
cash generating unit exceeds the higher of its fair value less costs to sell and
its value in use, which is the estimated net present value of future cash flows
to be derived from the cash generating unit.
Gains and losses on disposals of property, plant and equipment are
determined by reference to their carrying amounts and are recorded in the
consolidated profit and loss account.
Interest and other costs on borrowings to finance the construction of
property, plant and equipment are capitalised during the period of time that is
required to complete and prepare the asset for its intended use. Costs for
planned major maintenance activities, primarily related to refinery turnarounds,
are expensed as incurred except for costs of components that result in
improvements or betterments which are capitalised as part of property, plant and
equipment and depreciated over their useful lives.
-176-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
(G) OIL AND GAS PROPERTIES
The successful efforts method of accounting is used for oil and gas
exploration and production activities. Under this method, all costs for
development wells, support equipment and facilities, and proved mineral
interests in oil and gas properties are capitalised. Geological and geophysical
costs are expensed when incurred. Costs of exploratory wells are capitalised as
construction in progress pending determination of whether the wells find proved
oil and gas reserves. Proved oil and gas reserves are the estimated quantities
of crude oil and natural gas which 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. 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(f)). For exploratory wells that are found
to have economically viable reserves in areas where major capital expenditure
will be required before production can commence, the related well costs remain
capitalised only if additional drilling is under way or firmly planned.
Otherwise the related well costs are expensed as dry holes. The Group does not
have any significant costs of unproved properties capitalised in oil and gas
properties.
The Ministry of Land and Resources in China issues production licenses to
applicants on the basis of the reserve reports approved by relevant authorities.
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 based 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 oil and gas
reserves estimates include only crude oil and condensate and natural gas which
management believes can be reasonably produced within the current terms of these
production licenses.
(H) INTANGIBLE ASSETS
Expenditures on acquired patents, trademarks, technical know-how and
licenses are capitalised at historical cost and amortised using the
straight-line method over their useful lives, generally less than 10 years.
Intangible assets are not revalued. The carrying amount of each intangible asset
is reviewed annually and adjusted for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An
impairment loss is recognised whenever the carrying amount of an asset exceeds
its recoverable amount and is recognised in the 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 estimated net present value of
future cash flows to be derived from the asset.
-177-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
(I) FINANCIAL ASSETS
Financial assets are classified into the following categories: financial
assets at fair value through profit or loss, held-to-maturity investments, loans
and receivables and available-for-sale financial assets. The classification
depends on the purpose for which the financial assets were acquired. Management
determines the classification of its financial assets at initial recognition.
The Group has only loans and receivables and available-for-sale financial
assets. The detailed accounting policies for loans and receivables and
available-for-sale financial assets held by the Group are set out below.
- Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. They are included
in current assets, except for maturities greater than 12 months after the
balance sheet date which are classified as non-current assets. The Group's loans
and receivables comprise accounts receivable, notes receivable, other
receivables, time deposits and cash and cash equivalents in the balance sheet.
The recognition methods for loans and receivables are disclosed in the
respective policy statements.
- Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either
designated in this category or not classified in any of the other categories;
these are included in non-current assets unless management intends to dispose of
the investment within 12 months of the balance sheet date. The Group's
available-for-sale financial assets primarily comprise unquoted equity
instruments.
Regular purchases and sales of available-for-sale financial assets are
recognised on settlement date, the date that the asset is delivered to or by the
Group (the effective acquisition or sale date). Available-for-sale financial
assets are initially recognised at fair value plus transaction costs.
Available-for-sale financial assets are derecognised when the rights to receive
cash flows from the investments have expired or have been transferred and the
Group has transferred out substantially all risks and rewards of ownership in
the investment. Available-for-sale financial assets are measured at fair value
except where there are no quoted market prices in active markets and the fair
values cannot be reliably measured using valuation techniques.
Available-for-sale financial assets that do not have quoted market prices in
active markets and whose fair value cannot be reliably measured are carried at
cost. The Group assesses at each balance sheet date whether there is objective
evidence that an available-for-sale financial asset is impaired. The amount of
the impairment loss is measured as the difference between the carrying amount of
the available-for-sale financial asset and the present value of the estimated
cash flows.
(J) LEASES
Leases of property, plant and equipment where the Group assumes
substantially all the benefits and risks of ownership are classified as finance
leases. The Group has no significant finance leases.
Leases of assets under which a significant portion of the risks and
benefits of ownership are effectively retained by the lessors are classified as
operating leases. Payments made under
-178-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
operating leases (net of any incentives received from the lessors) are expensed
on a straight-line basis over the lease terms. Payments made to the PRC's land
authorities to secure land use rights are treated as operating leases. Land use
rights are generally obtained through advance lump-sum payments and the terms of
use range up to 50 years.
(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, jointly
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 include oil products, chemical products and materials and
supplies which are stated at the lower of cost and net realisable value. Cost is
primarily determined by the weighted average cost method. The cost of finished
goods comprises raw materials, direct labour, other direct costs and related
production overheads, but excludes borrowing costs. Net realisable value is the
estimated selling price in the ordinary course of business, less the cost of
completion and selling expenses.
(M) ACCOUNTS RECEIVABLE
Accounts receivable are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method, less provision
made for impairment of these receivables. Such provision for impairment of
accounts receivable is established if there is objective evidence that the Group
will not be able to collect amounts due according to the original terms of the
receivables. The factors the Group considers when assessing whether an account
receivable is impaired include but not limited to significant financial
difficulties of the customer, probability that the debtor will enter bankruptcy
or financial reorganisation and default or delinquency in payments. The amount
of the provision is the difference between the asset's carrying amount and the
present value of estimated future cash flows, discounted at the original
effective interest rate.
(N) CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash in hand, deposits held with banks
and highly liquid investments with original maturities of three months or less
from the time of purchase.
(O) ACCOUNTS PAYABLE
Accounts payable are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method.
(P) BORROWINGS
Borrowings are recognised initially at fair value, net of transaction costs
incurred. In subsequent periods, borrowings are stated at amortised cost using
the effective yield method. Any difference between proceeds (net of transaction
costs) and the redemption value is recognised in the consolidated profit and
loss account over the period of the borrowings.
-179-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
Borrowing costs should be recognised as an expense in the period in which
they are incurred except for the portion eligible for capitalisation as part of
qualifying property, plant and equipment.
Borrowings are classified as current liabilities unless the Group has
unconditional rights to defer settlements of the liabilities for at least 12
months after the balance sheet date.
(Q) 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 in the financial statements. However, deferred tax is not
accounted for if it arises from initial recognition of an asset or liability in
a transaction other than a business combination that at the time of the
transaction affects neither accounting nor taxable profit or loss. Deferred tax
is determined using tax rates (and tax laws) that has been enacted or
substantially enacted by the balance sheet date and are expected to apply to the
period when the related deferred tax asset is realised or deferred tax liability
is settled.
The principal temporary differences arise from depreciation on oil and gas
properties and equipment and provision for impairment of receivables,
inventories, investments and property, plant and equipment. Deferred tax assets
relating to the carry forward of unused tax losses are recognised to the extent
that it is probable that future taxable income will be available against which
the unused tax losses can be utilised.
The Group also incurs various other taxes and levies that are not income
taxes. "Taxes other than income taxes", which form part of the operating
expenses, primarily comprise a special levy on domestic sales of crude oil (Note
9), consumption tax, resource tax, urban construction tax, education surcharges
and business tax.
(R) REVENUE RECOGNITION
Sales are recognised upon delivery of products and customer acceptance or
performance of services, net of sales taxes and discounts. Revenues are
recognised only when the Group has transferred to the buyer the significant
risks and rewards of ownership of the goods in the ordinary course of the
Group's activities, and when the amount of revenue and the costs incurred or to
be incurred in respect of the transaction can be measured reliably and
collectability of the related receivables is reasonably assured.
The Group markets a portion of its natural gas under take-or-pay contracts.
Customers under the take-or-pay contracts are required to take or pay for the
minimum natural gas deliveries specified in the contract clauses. Revenue
recognition for natural gas sales and transmission tariff under the take-or-pay
contracts follows the accounting policies described in this note. Payments
received from customers for natural gas not yet taken are recorded as deferred
revenues until actual deliveries take place.
(S) PROVISIONS
Provisions are recognised when the Group has present legal or constructive
obligations as a result of past events, it is probable that an outflow of
resources will be required to settle the obligations, and reliable estimates of
the amounts can be made.
-180-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
Provision for future decommissioning and restoration is recognised in full
on the installation of oil and gas properties. The amount recognised is the
present value of the estimated future expenditure determined in accordance with
local conditions and requirements. A corresponding addition to the related oil
and gas properties of an amount equivalent to the provision is also created.
This is subsequently depreciated as part of the costs of the oil and gas
properties. Any change in the present value of the estimated expenditure other
than due to passage of time which is regarded as interest expense, is reflected
as an adjustment to the provision and oil and gas properties.
(T) RESEARCH AND DEVELOPMENT
Research expenditure incurred is recognised as an expense. Costs incurred
on development projects are recognised as intangible assets to the extent that
such expenditure is expected to generate future economic benefits.
(U) RETIREMENT BENEFIT PLANS
The Group contributes to various employee retirement benefit plans
organised by PRC municipal and provincial governments under which it is required
to make monthly contributions to these plans at prescribed rates for its
employees in China. The relevant PRC municipal and provincial governments
undertake to assume the retirement benefit obligations of existing and future
retired employees of the Group in China. The Group has similar retirement
benefit plans for its employees in its overseas operations. Contributions to
these PRC and overseas plans are charged to expense as incurred.
The Group currently has no additional material obligations outstanding for
the payment of retirement and other post-retirement benefits of employees in the
PRC or overseas other than the monthly contributions described above.
(V) SHARE-BASED COMPENSATION - SHARE APPRECIATION RIGHT
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 the changes in liability recorded in employee compensation
costs in the consolidated profit and loss account; the related liability is
included in the salaries and welfare payable.
(W) NEW ACCOUNTING DEVELOPMENTS
IAS 1 (Amendment), 'Presentation of financial statements' requires all
changes in equity arising from transactions with owners in their capacity as
owners and related current and deferred tax impacts be presented separately from
non-owner changes in equity. Recognised income and expenses shall be presented
in a single statement (a statement of comprehensive income) or in two statements
(a statement of profit or loss and a statement of comprehensive income),
separately from owner changes in equity. IAS 1 (Amendment) is effective from
January 1, 2009 and the group is currently evaluating the impact of IAS 1
(Amendment) on the Group's financial statements.
IAS 23 (Amendment), 'Borrowing costs' requires an entity to capitalise
borrowing costs directly attributable to the acquisition, construction or
production of a qualifying asset (one that takes a substantial period of time to
get ready for use or sale) as part of the cost of that asset. The option of
immediately expensing those borrowing costs is removed. IAS 23
-181-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
(Amendment) is effective from January 1, 2009 and the adoption of IAS 23
(Amendment) is not expected to affect the Group's financial statements as
interest and other costs on borrowings to finance the construction of property,
plant and equipment are capitalised under the Group's current accounting policy.
IFRS 8, 'Operating segments ' replaces IAS 14. The new standard requires a
'management approach', under which segment information is presented on the same
basis as that used for internal reporting purposes. IFRS 8 is effective from
January 1, 2009 and the Group is currently evaluating the impact of IFRS 8 on
the Group's financial statements.
IFRIC 11, 'IFRS 2-Group and treasury share transactions', provides guidance
on whether share-based transactions involving treasury shares or involving group
entities (for example, options over a parent's shares) should be accounted for
as equity-settled or cash-settled share-based payment transactions in the
stand-alone accounts of the parent and group entities. IFRIC 11 is effective
from March 1, 2007 and the Group's current evaluating the impact of IFRIC 11 on
the Group's financial statements.
IFRIC 13, 'Customer loyalty programmes' clarifies that where goods or
services are sold together with a customer loyalty incentive (for example,
loyalty points or free products), the arrangement is a multiple-element
arrangement and the consideration receivable from the customer is allocated
between the components of the arrangement using fair values. IFRIC 13 is
effective from January 1, 2009 and the Group is currently evaluating the impact
of IFRIC 13 on the Group's financial statements.
IFRIC 14, 'IAS 19 - The limit on a defined benefit asset, minimum funding
requirements and their interaction' provides guidance on assessing the limit in
IAS 19 on the amount of the funding surplus that can be recognised as defined
benefit asset. It also explains how the pension asset or liability may be
affected by a statutory or contractual minimum funding requirement. IFRIC 14 is
effective from January 1, 2009 and the Group is currently evaluating the impact
of IFRIC 14 on the Group's financial statements.
4 FINANCIAL RISK MANAGEMENT
4.1 FINANCIAL RISK FACTORS
The Group's activities expose it to a variety of financial risks, including
market risk, credit risk and liquidity risk.
(A) MARKET RISK
- Foreign exchange rate risk
The Group conducts its business primarily in RMB, but maintains a portion
of its assets in other currencies to meet its needs for normal business
operations. The RMB is not a freely convertible currency and is regulated by the
PRC government. Limitation in foreign exchange transactions imposed by the PRC
government could cause future exchange rates to vary significantly from current
or historical exchange rates. Management is not in a position to anticipate
changes in the PRC foreign exchange regulations and as such is unable to
reasonably anticipate the impacts on the Group's results of operations or
financial position arising from future changes in exchange rates. The Group did
not enter into material hedge contracts during any of the years presented to
hedge against its foreign exchange rate risk.
-182-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
- Cash flow and fair value interest rate risk
The Group is exposed to the risk arising from changes in interest rates. A
detailed analysis of the Group's borrowings, together with their respective
interest rates and maturity dates, are included in Note 28.
- Price risk
The Group is engaged in a wide range of petroleum-related activities.
Prices of crude oil and petroleum products are affected by a wide range of
global and domestic factors which are beyond the control of the Group. The
fluctuations in such prices may have favourable or unfavourable impacts to the
Group. The Group historically has not used commodity derivative instruments to
hedge against potential price fluctuations of crude oil or petroleum products
and therefore the Group is exposed to general price fluctuations of crude oil
and petroleum products.
(B) CREDIT RISK
Credit risk arises primarily from cash and cash equivalents, accounts
receivable, other receivables, notes receivable and time deposits. As the
majority of cash at bank and time deposits are placed with state-owned banks and
financial institutions, the corresponding credit risk is relatively low. The
Group has controls in place to assess the credit quality of its customers. The
carrying amounts of cash and cash equivalents, accounts receivable, other
receivables, notes receivable and time deposits included in the consolidated
balance sheet represent the Group's maximum exposure to credit risk. No other
financial assets carry a significant exposure to credit risk.
The Group has no significant concentration of credit risk.
(C) LIQUIDITY RISK
The Group's liquidity risk management involves maintaining sufficient cash
and cash equivalents and availability of funding through an adequate amount of
committed credit facilities.
Analysis of the Group's financial liabilities based on the remaining period
at the balance sheet date to the contractual maturity dates are presented in
Note 28.
4.2 CAPITAL RISK MANAGEMENT
The Group's objectives when managing capital are to safeguard its ability
to continue as a going concern, so as to provide returns for equity holders and
to reduce its cost of capital.
4.3 FAIR VALUE ESTIMATION
The methods and assumptions applied in determining the fair value of each
class of financial assets and financial liabilities of the Group at December 31,
2007 and 2006 are disclosed in the respective accounting policies.
The carrying amounts of the following financial assets and financial
liabilities approximate their fair value as all of them are short-term in
nature: cash and cash equivalents, time deposits with maturities over three
months but within one year, accounts receivable, other receivables, trade
payables, other payables and short-term borrowings. The fair values of fixed
rate long-term borrowings are likely to be different from their respective
carrying amounts. Analysis of the fair values and carrying amounts of long-term
borrowings are presented in Note 28.
-183-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
5 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgements are regularly evaluated and are based on
historical experience and other factors, including expectations of future events
that are believed to be reasonable under the circumstances.
The matters described below are considered to be the most critical in
understanding the estimates and judgements that are involved in preparing the
Group's consolidated financial statements.
(A) ESTIMATION OF OIL AND NATURAL GAS RESERVES
Oil and natural gas reserves are key elements in the Group's investment
decision-making process. They are also an important element in testing for
impairment. Changes in proved oil and natural gas reserves, particularly proved
developed reserves, will affect unit-of-production depreciation, depletion and
amortisation recorded in the Group's consolidated financial statements for
property, plant and equipment related to oil and gas production activities. A
reduction in proved developed reserves will increase depreciation, depletion and
amortisation charges (assuming constant production) and reduce net profit.
Proved reserve estimates are subject to revision, either upward or downward,
based on new information, such as from 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 natural gas reserves resulting from new information becoming
available from development and production activities have tended to be the most
significant cause of annual revisions.
(B) ESTIMATION OF IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including oil and gas properties, are
reviewed for possible impairments when events or changes in circumstances
indicate that the carrying amount may not be recoverable. Determination as to
whether and how much an asset is impaired involves management estimates and
judgements such as future prices of crude oil, refined products and chemical
products and production profile. However, the impairment reviews and
calculations are based on assumptions that are consistent with the Group's
business plans. These assumptions also include those relative to the pricing
regulations by the regulatory agencies in China that the pricing regulations
will not restrict the profit margins of refined products to levels that will be
insufficient to recover the carrying values of the related production assets.
Favourable changes to some assumptions may allow the Group to avoid the need to
impair any assets in these years, whereas unfavourable changes may cause the
assets to become impaired.
(C) ESTIMATION OF ASSET RETIREMENT OBLIGATIONS
Provision is recognised for the future decommissioning and restoration of
oil and gas properties. The amounts of the provision recognised are the present
values of the estimated future expenditures. The estimation of the future
expenditures is based on current local conditions and requirements, including
legal requirements, technology, price level, etc.. In addition to these factors,
the present values of these estimated future expenditures are also impacted by
the estimation of the economic lives of oil and gas properties. Changes in any
of these estimates will impact the operating results and the financial position
of the Group over the remaining economic lives of the oil and gas properties.
-184-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
6 TURNOVER
Turnover represents revenues from the sale of crude oil, natural gas,
refined products and petrochemical products and from the transportation of crude
oil and natural gas. Analysis of turnover by segment is shown in Note 39.
7 PROFIT BEFORE TAXATION
2007 2006
------- -------
RMB RMB
Profit before taxation is arrived at after crediting and charging
of the following items:
Crediting
Dividend income from available-for-sale financial assets 111 208
Reversal of provision for impairment of receivables 2,473 460
Reversal of impairment of available-for-sale financial assets -- 4
Reversal of write down in inventories 98 180
Charging
Amortisation on intangible and other assets 1,491 1,250
Auditors' remuneration 119 140
Cost of inventories (approximates cost of goods sold)
recognised as expense 459,472 341,456
Depreciation on property, plant and equipment, including
impairment provision
- owned assets 63,349 58,669
- assets under finance leases 6 6
Impairment of available-for-sale financial assets -- 36
Provision for impairment of receivables 120 144
Interest expense (Note 10) 3,595 3,220
Loss on disposal of property, plant and equipment 1,808 1,753
Operating lease expenses 7,439 5,378
Repair and maintenance 10,691 9,233
Research and development expenses 5,315 4,260
Transportation expenses 20,540 17,872
Write down in inventories 153 320
-185-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
8 EMPLOYEE COMPENSATION COSTS
2007 2006
------ ------
RMB RMB
Wages and salaries 32,562 26,629
Social security costs 18,054 12,532
------ ------
50,616 39,161
====== ======
Social security costs mainly represent contributions to funds for staff
welfare organised by the PRC municipal and provincial governments and others
including contribution to the retirement benefit plans (Note 34).
9 TAXES OTHER THAN INCOME TAXES
Taxes other than income taxes include RMB 44,582 for the year ended
December 31, 2007 (2006: RMB 28,914) of special levy which is paid or payable on
the portion of income realised from the sales of domestically-produced crude oil
at prices above certain level. This levy was imposed by the PRC government and
became effective from March 26, 2006.
10 INTEREST EXPENSE
2007 2006
------ ------
RMB RMB
Interest on
Bank loans
- wholly repayable within five years 1,985 1,952
- not wholly repayable within five years 181 73
Other loans
- wholly repayable within five years 1,643 1,218
- not wholly repayable within five years 318 496
Accretion expense (Note 32) 1,202 796
Less: Amounts capitalised (1,734) (1,315)
------ ------
3,595 3,220
====== ======
Amounts capitalised are borrowing costs related to funds borrowed
specifically for the purpose of acquiring qualifying assets. Interest rates on
such capitalised borrowings range from 5.832% to 6.966% (2006: 5.265% to 5.832%)
per annum.
-186-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
11 EMOLUMENTS OF DIRECTORS AND SUPERVISORS
Details of the emoluments of directors and supervisors for the years ended
December 31, 2007 and 2006 are as follows:
2007 2006
---------------------------------------------------------- -------
FEE FOR SALARIES, CONTRIBUTION TO
DIRECTORS AND ALLOWANCES AND RETIREMENT
NAME SUPERVISORS OTHER BENEFITS BENEFIT SCHEME TOTAL TOTAL
---- ------------- -------------- --------------- ------- -------
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
CHAIRMAN:
Mr. Chen Geng (i), (iii) -- 586 12 598 797
Mr. Jiang Jiemin (iii) -- 886 30 916 722
----- ----- --- ----- -----
-- 1,472 42 1,514 1,519
----- ----- --- ----- -----
EXECUTIVE DIRECTORS:
Mr. Su Shulin (ii) -- -- -- -- 684
Mr. Duan Wende (iii) -- 794 30 824 684
----- ----- --- ----- -----
-- 794 30 824 1,368
----- ----- --- ----- -----
NON-EXECUTIVE DIRECTORS:
Mr. Zheng Hu -- -- -- -- --
Mr. Zhou Jiping -- -- -- -- --
Mr. Wang Yilin -- -- -- -- --
Mr. Zeng Yukang -- -- -- -- --
Mr. Gong Huazhang -- -- -- -- --
Mr. Jiang Fan -- 480 19 499 461
Mr. Chee-chen Tung 264 -- -- 264 275
Mr. Liu Hongru 349 -- -- 349 279
Mr. Franco Bernabe 257 -- -- 257 259
----- ----- --- ----- -----
870 480 19 1,369 1,274
----- ----- --- ----- -----
SUPERVISORS:
Mr. Wang Fucheng -- -- -- -- --
Mr. Wen Qingshan -- -- -- -- --
Mr. Sun Xianfeng -- -- -- -- --
Mr. Xu Fengli (i) -- 252 12 264 459
Mr. Qin Gang -- 454 15 469 295
Mr. Li Yongwu 315 -- -- 315 330
Mr. Wu Zhipan 319 -- -- 319 330
Mr. Zhang Jinzhu -- 315 18 333 --
----- ----- --- ----- -----
634 1,021 45 1,700 1,414
----- ----- --- ----- -----
1,504 3,767 136 5,407 5,575
===== ===== === ===== =====
(i) No longer a director or supervisor since May 16, 2007.
(ii) No longer a director since November 24, 2006.
(iii) Salaries, allowances and other benefits do not include deferred payments
made to directors in accordance with the relevant PRC government
regulations, in respect of 2004 to 2006 in the amount of RMB 2,402
thousand.
-187-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
The emoluments of the directors and supervisors fall within the following
bands (including directors and supervisors whose term expired during the year):
2007 2006
------ ------
NUMBER NUMBER
------ ------
RMB Nil - RMB 1 million 20 20
=== ===
Fee for directors and supervisors disclosed above included RMB 870 thousand
(2006: RMB 813 thousand) paid to independent non-executive directors.
None of the directors and supervisors has waived their remuneration during
the year ended December 31, 2007 (2006: None).
The five highest paid individuals in the Group for each of the two years
ended December 31, 2007 and 2006 were also directors or supervisors and their
emoluments are reflected in the analysis shown above.
During 2007 and 2006, the Company did not incur any severance payment to
any director for loss of office or any payment as inducement to any director to
join the Company.
The Company has adopted a share-based compensation 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 (Note 29).
As at December 31, 2007, none of the holders of the share appreciation
rights had 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 date to its fair value, and amounted to approximately RMB 1,400 (2006: RMB
1,167) at December 31, 2007.
-188-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
12 TAXATION
2007 2006
------ ------
RMB RMB
Income tax 48,332 50,972
Deferred tax (Note 31) 820 (1,196)
------ ------
49,152 49,776
====== ======
In accordance with the relevant PRC income tax rules and regulations, the
PRC corporate income tax rate applicable to the Group is principally 33% (2006:
33%). Operations of the Group in certain regions in China have qualified for
certain tax incentives in the form of reduced income tax rate to 15% through the
year 2010 and accelerated depreciation of certain property, plant and equipment.
The tax on the Group's profit before taxation differs from the theoretical
amount that would arise using the corporate income tax rate in the PRC
applicable to the Group as follows:
2007 2006
------- -------
RMB RMB
Profit before taxation 204,381 199,173
------- -------
Tax calculated at a tax rate of 33% 67,446 65,727
Prior year tax return adjustment 451 243
Effect of income taxes from international operations in
excess of taxes at the PRC statutory tax rate 644 1,512
Effect of preferential tax rate (16,930) (14,169)
Effect of changes in PRC corporate income tax rate (3,758) --
Tax effect of income not subject to tax (3,138) (1,602)
Tax effect of taxable items deductible not expensed (2,365) --
Tax effect of expenses not deductible for tax purposes 3,884 2,466
Tax effect of unused tax losses which had expired 2,918 --
Tax effect of temporary differences in relation to certain
crude oil sales which no longer existed at year end -- (4,401)
------- -------
Taxation 49,152 49,776
======= =======
On March 16, 2007, the National People's Congress approved the Corporate
Income Tax Law of the PRC (the "new CIT Law"), which is effective from January
1, 2008. Under the new CIT Law, the corporate income tax rate applicable to the
Group is reduced to 25% from January 1, 2008, replacing the previously
applicable tax rate of 33%.
The management of the Group has reassessed its tax position in the year
ended December 31, 2007 by reference to the enacted new CIT Law and accordingly
a net decrease in deferred tax charge for the year ended December 31, 2007 of
RMB 3,758 was recorded.
-189-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
13 PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY
The profit attributable to equity holders of the Company is dealt with in
the consolidated financial statements of the Group to the extent of RMB 145,625
for the year ended December 31, 2007 (2006: RMB 142,224).
14 BASIC AND DILUTED EARNINGS PER SHARE
Basic and diluted earnings per share for the year ended December 31, 2007
have been computed by dividing profit for the year attributable to equity
holders of the Company by the weighted average number of 179,700 million shares
issued and outstanding for the year.
Basic and diluted earnings per share for the year ended December 31, 2006
have been computed by dividing profit for the year attributable to equity
holders of the Company by the number of 179,021 million shares issued and
outstanding for the year.
There are no potential dilutive ordinary shares.
15 DIVIDENDS ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY
2007 2006
------ ------
RMB RMB
Final dividends attributable to equity holders of the Company for 2005 (note a) -- 32,282
Interim dividends attributable to equity holders of the Company for 2006 (note b) -- 36,307
Final dividends attributable to equity holders of the Company for 2006 (note c) 27,694 --
Interim dividends attributable to equity holders of the Company for 2007 (note d) 36,823 --
------ ------
64,517 68,589
====== ======
(a) Final dividends attributable to equity holders of the Company in respect of
2005 of RMB 0.180325 yuan per share amounting to a total of RMB 32,282 were
approved by the shareholders in the Annual General Meeting on May 26, 2006
and accounted for in equity as an appropriation of retained earnings in the
year ended December 31, 2006, and were paid on June 9, 2006.
(b) Interim dividends attributable to equity holders of the Company in respect
of 2006 of RMB 0.202806 yuan per share amounting to a total of RMB 36,307
were accounted for in equity as an appropriation of retained earnings in
the year ended December 31, 2006, and were paid on September 26, 2006.
(c) Final dividends attributable to equity holders of the Company in respect of
2006 of RMB 0.154699 yuan per share amounting to a total of RMB 27,694 were
approved by the shareholders in the Annual General Meeting on May 16, 2007
and accounted for in equity as an appropriation of retained earnings in the
year ended December 31, 2007, and were paid on June 1, 2007.
(d) Interim dividends attributable to equity holders of the Company in respect
of 2007 of RMB 0.205690 yuan per share amounting to a total of RMB 36,823
were accounted for in equity as an appropriation of retained earnings in
the year ended December 31, 2007, and were paid on September 28, 2007.
(e) At the meeting on March 19, 2008, the Board of Directors proposed final
dividends attributable to equity holders of the Company in respect of 2007
of RMB 0.156859 yuan per share amounting to a total of RMB 28,708. These
consolidated financial statements do not reflect this dividend payable as
the final dividends were proposed after the balance sheet date and will be
accounted for in equity as an appropriation of retained earnings in the
year ending December 31, 2008 when approved at the forthcoming Annual
General Meeting.
-190-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
16 PROPERTY, PLANT AND EQUIPMENT
GROUP
OIL EQUIPMENT
YEAR ENDED AND GAS AND MOTOR CONSTRUCTION
DECEMBER 31, 2006 BUILDINGS PROPERTY MACHINERY VEHICLES OTHER IN PROGRESS TOTAL
----------------- --------- -------- --------- -------- ------ ------------ ---------
RMB RMB RMB RMB RMB RMB RMB
COST OR VALUATION
At beginning of the year 73,133 497,632 277,364 10,829 7,051 55,597 921,606
Additions 516 4,080 656 1,597 20 145,361 152,230
Transfers 7,156 85,178 33,621 -- 989 (126,944) --
Disposals or write off (723) (11,420) (3,756) (297) (102) -- (16,298)
Currency translation differences 61 (149) (50) (17) 18 (122) (259)
------- -------- -------- ------ ------ -------- ---------
At end of the year 80,143 575,321 307,835 12,112 7,976 73,892 1,057,279
------- -------- -------- ------ ------ -------- ---------
ACCUMULATED DEPRECIATION AND IMPAIRMENT
At beginning of the year (16,029) (203,416) (128,932) (5,555) (3,686) (98) (357,716)
Charge for the year (3,643) (31,540) (21,431) (1,107) (755) (199) (58,675)
Disposals or write off 418 1,186 2,544 126 67 -- 4,341
Currency translation differences (19) 93 35 6 (7) -- 108
------- -------- -------- ------ ------ -------- ---------
At end of the year (19,273) (233,677) (147,784) (6,530) (4,381) (297) (411,942)
------- -------- -------- ------ ------ -------- ---------
NET BOOK VALUE
At end of the year 60,870 341,644 160,051 5,582 3,595 73,595 645,337
======= ======== ======== ====== ====== ======== =========
ANALYSIS OF COST OR VALUATION
At valuation (i) 21,851 497,971 151,591 2,328 1,159 -- 674,900
At cost (ii) 58,292 77,350 156,244 9,784 6,817 73,892 382,379
------- -------- -------- ------ ------ -------- ---------
80,143 575,321 307,835 12,112 7,976 73,892 1,057,279
======= ======== ======== ====== ====== ======== =========
Carrying value of the property, plant and
equipment had they been stated at cost
less accumulated depreciation 57,204 338,007 145,571 5,171 3,120 73,595 622,668
======= ======== ======== ====== ====== ======== =========
-191-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
GROUP (CONTINUED)
OIL EQUIPMENT
YEAR ENDED AND GAS AND MOTOR CONSTRUCTION
DECEMBER 31, 2007 BUILDINGS PROPERTY MACHINERY VEHICLES OTHER IN PROGRESS TOTAL
----------------- --------- -------- --------- -------- ------ ------------ ----------
RMB RMB RMB RMB RMB RMB RMB
COST OR VALUATION
At beginning of the year 80,143 575,321 307,835 12,112 7,976 73,892 1,057,279
Additions 2,928 7,513 2,296 3,237 293 170,031 186,298
Transfers 8,778 96,332 25,916 -- 885 (131,911) --
Consolidation of
PetroKazakhstan Inc. 184 8,119 247 170 136 1,310 10,166
Disposals or write off (1,585) (17,700) (2,443) (423) (265) -- (22,416)
Currency translation
differences (52) (878) (133) (10) (19) (189) (1,281)
------- -------- -------- ------ ------ -------- ---------
At end of the year 90,396 668,707 333,718 15,086 9,006 113,133 1,230,046
------- -------- -------- ------ ------ -------- ---------
ACCUMULATED
DEPRECIATION
AND IMPAIRMENT
At beginning of the year (19,273) (233,677) (147,784) (6,530) (4,381) (297) (411,942)
Charge for the year (5,023) (36,400) (19,939) (1,213) (775) (5) (63,355)
Disposals or write off 1,459 4,687 1,073 344 102 17 7,682
Currency translation
differences 8 398 25 6 14 -- 451
------- -------- -------- ------ ------ -------- ---------
At end of the year (22,829) (264,992) (166,625) (7,393) (5,040) (285) (467,164)
------- -------- -------- ------ ------ -------- ---------
NET BOOK VALUE
At end of the year 67,567 403,715 167,093 7,693 3,966 112,848 762,882
======= ======== ======== ====== ====== ======== =========
ANALYSIS OF COST OR
VALUATION
At valuation (i) 20,266 480,271 149,148 1,905 894 -- 652,484
At cost (ii) 70,130 188,436 184,570 13,181 8,112 113,133 577,562
------- -------- -------- ------ ------ -------- ---------
90,396 668,707 333,718 15,086 9,006 113,133 1,230,046
======= ======== ======== ====== ====== ======== =========
Carrying value of the
property, plant and
equipment had they
been stated at cost
less accumulated
depreciation 64,439 400,611 154,734 7,342 3,557 112,848 743,531
======= ======== ======== ====== ====== ======== =========
-192-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
COMPANY
OIL EQUIPMENT
YEAR ENDED AND GAS AND MOTOR CONSTRUCTION
DECEMBER 31, 2006 BUILDINGS PROPERTY MACHINERY VEHICLES OTHER IN PROGRESS TOTAL
----------------- --------- -------- --------- -------- ------ ------------ --------
RMB RMB RMB RMB RMB RMB RMB
COST OR VALUATION
At beginning of the year 51,506 323,165 220,142 6,456 5,323 44,701 651,293
Transfer from
subsidiaries 291 -- 6,341 59 58 201 6,950
Additions 311 3,582 576 1,034 8 110,273 115,784
Transfers 2,993 61,837 28,362 -- 398 (93,590) --
Disposals or write off (668) (9,081) (3,140) (243) (97) -- (13,229)
------- -------- -------- ------ ------ ------- --------
At end of the year 54,433 379,503 252,281 7,306 5,690 61,585 760,798
------- -------- -------- ------ ------ ------- --------
ACCUMULATED
DEPRECIATION AND
IMPAIRMENT
At beginning of the year (12,101) (130,293) (103,050) (3,521) (2,367) (85) (251,417)
Transfer from
subsidiaries (71) -- (3,213) (24) (43) -- (3,351)
Charge for the year (2,919) (21,859) (16,467) (658) (255) (167) (42,325)
Disposals or write off 407 87 2,330 113 65 -- 3,002
------- -------- -------- ------ ------ ------- --------
At end of the year (14,684) (152,065) (120,400) (4,090) (2,600) (252) (294,091)
------- -------- -------- ------ ------ ------- --------
NET BOOK VALUE
At end of the year 39,749 227,438 131,881 3,216 3,090 61,333 466,707
======= ======== ======== ====== ====== ======= ========
ANALYSIS OF COST OR
VALUATION
At valuation (i) 14,985 323,850 123,245 1,496 1,164 -- 464,740
At cost (ii) 39,448 55,653 129,036 5,810 4,526 61,585 296,058
------- -------- -------- ------ ------ ------- --------
54,433 379,503 252,281 7,306 5,690 61,585 760,798
======= ======== ======== ====== ====== ======= ========
Carrying value of the
property, plant and
equipment had they
been stated at cost
less accumulated
depreciation 38,532 221,804 118,135 2,972 2,584 61,333 445,360
======= ======== ======== ====== ====== ======= ========
-193-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
COMPANY (CONTINUED)
OIL EQUIPMENT
YEAR ENDED AND GAS AND MOTOR CONSTRUCTION
DECEMBER 31, 2007 BUILDINGS PROPERTY MACHINERY VEHICLES OTHER IN PROGRESS TOTAL
----------------- --------- -------- --------- -------- ------ ------------ --------
RMB RMB RMB RMB RMB RMB RMB
COST OR VALUATION
At beginning of the year 54,433 379,503 252,281 7,306 5,690 61,585 760,798
Transfer from
subsidiaries 2,246 4,395 15,228 348 1,591 165 23,973
Additions 1,993 4,654 2,236 2,497 227 129,890 141,497
Transfers 6,688 70,993 21,862 -- 512 (100,055) --
Disposals or write off (1,265) (10,272) (2,103) (234) (103) -- (13,977)
------- -------- -------- ------ ------ -------- --------
At end of the year 64,095 449,273 289,504 9,917 7,917 91,585 912,291
------- -------- -------- ------ ------ -------- --------
ACCUMULATED
DEPRECIATION AND
IMPAIRMENT
At beginning of the year (14,684) (152,065) (120,400) (4,090) (2,600) (252) (294,091)
Transfer from
subsidiaries (1,015) (2,583) (10,400) (266) (1,102) (6) (15,372)
Charge for the year (3,922) (24,651) (16,245) (730) (402) (1) (45,951)
Disposals or write off 1,148 1,632 768 212 26 9 3,795
------- -------- -------- ------ ------ -------- --------
At end of the year (18,473) (177,667) (146,277) (4,874) (4,078) (250) (351,619)
------- -------- -------- ------ ------ -------- --------
NET BOOK VALUE
At end of the year 45,622 271,606 143,227 5,043 3,839 91,335 560,672
======= ======== ======== ====== ====== ======== ========
ANALYSIS OF COST OR
VALUATION
At valuation (i) 13,720 313,578 121,142 1,262 1,061 -- 450,763
At cost (ii) 50,375 135,695 168,362 8,655 6,856 91,585 461,528
------- -------- -------- ------ ------ -------- --------
64,095 449,273 289,504 9,917 7,917 91,585 912,291
======= ======== ======== ====== ====== ======== ========
Carrying value of the
property, plant and
equipment had they
been stated at cost
less accumulated
depreciation 44,596 266,783 131,498 4,833 3,405 91,335 542,450
======= ======== ======== ====== ====== ======== ========
(i) Amount for which revaluations have been undertaken by independent valuers.
(ii) Cost of property, plant and equipment acquired or constructed since the
applicable revaluation.
The depreciation charge of the Group for the year ended December 31, 2007
included RMB 294 (2006: RMB 2,642) relating to impairment provision for
property, plant and equipment, analysed by segment as follows:
GROUP
------------
2007 2006
---- -----
RMB RMB
Refining and Marketing 201 1,734
Chemical and Marketing 93 908
--- -----
294 2,642
=== =====
-194-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
Buildings owned by the Group are on leased land. The net book values of the
buildings owned by the Group can be analysed by the following categories of
lease terms:
GROUP COMPANY
------------------- -------------------
DECEMBER DECEMBER DECEMBER DECEMBER
31, 2007 31, 2006 31, 2007 31, 2006
-------- -------- -------- --------
RMB RMB RMB RMB
Short-term lease (less than 10 years) 764 363 528 360
Medium-term lease (10 to 50 years) 66,803 60,507 45,094 39,389
------ ------ ------ ------
67,567 60,870 45,622 39,749
====== ====== ====== ======
Substantially all the buildings of the Group are located in the PRC.
The net book values of property, plant and equipment under finance leases
at the end of the years, analysed by segment as follows:
GROUP COMPANY
------------------- -------------------
DECEMBER DECEMBER DECEMBER DECEMBER
31, 2007 31, 2006 31, 2007 31, 2006
-------- -------- -------- --------
RMB RMB RMB RMB
Exploration and Production 45 45 45 45
Refining and Marketing 7 -- 6 --
Accumulated depreciation (24) (18) (24) (18)
--- --- --- ---
28 27 27 27
=== === === ===
Finance leases are principally related to plant and equipment and generally
contain purchase options at the end of the lease terms.
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, 2007 and 2006.
2007 2006
------- ------
RMB RMB
Beginning balance at January 1 8,998 8,296
Additions to capitalised exploratory well costs pending
the determination of proved reserves 22,649 19,076
Reclassified to wells, facilities, and equipment based on
the determination of proved reserves (10,534) (8,880)
Capitalised exploratory well costs charged to expense (9,161) (9,494)
------- ------
Ending balance at December 31 11,952 8,998
======= ======
Number of wells at year end 928 869
======= ======
-195-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
The following table provides an aging of capitalised exploratory well costs
based on the date the drilling was completed.
DECEMBER DECEMBER
31, 2007 31, 2006
-------- --------
RMB RMB
One year or less 10,981 8,359
Over one year 971 639
------ -----
Balance at December 31 11,952 8,998
====== =====
RMB 971 at December 31, 2007 for capitalised exploratory well costs over
one year are principally related to wells that are under further evaluation of
drilling results or pending completion of development planning to ascertain
economic viability.
A valuation of all of the Group's property, plant and equipment, excluding
oil and gas reserves, was carried out during 1999 by independent valuers on a
depreciated replacement costs basis.
The 1999 revaluation resulted in RMB 80,549 in excess of the carrying value
immediately prior to the revaluation and a revaluation loss of RMB 1,122 on
certain property, plant and equipment.
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 September 2003 revaluation resulted in RMB 872 in excess of the
carrying value immediately prior to the revaluation and a revaluation loss of
RMB 1,257 on certain property, plant and equipment.
As at March 31, 2006, a revaluation of the Group's oil and gas properties
was undertaken by independent valuers, China United Assets Appraiser Co., Ltd.
and China Enterprise Appraisals, on a depreciated replacement cost basis. The
revaluation did not result in significant difference from their carrying value.
Bank borrowings are secured on property, plant and equipment with a net
book value of RMB Nil at December 31, 2007 (2006: RMB 39).
-196-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
17 INVESTMENTS IN ASSOCIATES AND JOINTLY CONTROLLED ENTITIES
The Group's interest in its principal associates and jointly controlled
entities (all of which are unlisted), together with its share of their
respective assets, liabilities, revenues, and profit were as follows:
COUNTRY OF ASSETS LIABILITIES REVENUES PROFIT INTEREST TYPE OF
NAME INCORPORATION RMB RMB RMB RMB HELD % SHARE
---- ------------- ------ ----------- -------- ------ ----------- --------
As of or for the year
ended December 31, 2007:
Dalian West Pacific
Petrochemical Co., Ltd. PRC 4,044 3,097 10,116 174 28.44 ordinary
China Marine Bunker
(PetroChina) Co., Ltd. PRC 3,128 2,006 17,030 137 50.00 ordinary
PetroKazakhstan Inc. Canada -- -- 12,361 4,498 67.00 ordinary
Other 34,929 10,463 38,549 2,188 20.00-50.00 ordinary
------ ------ ------ -----
42,101 15,566 78,056 6,997
====== ====== ====== =====
As of or for the year
ended December 31, 2006:
Dalian West Pacific
Petrochemical Co., Ltd. PRC 3,410 2,608 10,188 6 28.44 ordinary
China Marine Bunker
(PetroChina) Co., Ltd. PRC 3,388 2,098 19,003 139 50.00 ordinary
PetroKazakhstan Inc. Canada 22,642 1,240 144 43 67.00 ordinary
Other 26,995 17,533 40,903 2,089 20.00-70.00 ordinary
------ ------ ------ -----
56,435 23,479 70,238 2,277
====== ====== ====== =====
Dividends received and receivable from associates and jointly controlled
entities were RMB 1,357 in 2007 (2006: RMB 1,730).
In 2007, investments in associates and jointly controlled entities of RMB
833 (2006: RMB 59) were disposed of for a gain of 320 (2006: RMB 10).
On December 28, 2006, the Group acquired a 67% equity interest in
PetroKazakhstan Inc. from CNPC International Limited, a subsidiary of CNPC for a
consideration of RMB 21,376. Pursuant to the shareholders' agreement in relation
to the acquisition of PetroKazakhstan Inc., each shareholder had a veto right
relating to certain financial and operating decisions, and the Group was
therefore considered to have joint control over PetroKazakhstan Inc. As such, in
accordance with the Group's accounting policy, the Group accounted for its
investment in PetroKazakhstan Inc., using the equity method of accounting from
December 28, 2006. The revenue and profit disclosed in the table above
represents the Group's share of PetroKazakhstan Inc.'s revenue and profit for
the period from December 28, 2006 to December 31, 2006, and also from January 1,
2007 to December 11, 2007.
On December 12, 2007, through a supplementary agreement between the Group
and the minority shareholder of PetroKazakhstan Inc., the Group gained control
over PetroKazakhstan Inc. from that date. Therefore, as of the date it acquired
control over PetroKazakhstan Inc., December 12, 2007, the Group accounts for its
investment in PetroKazakhstan Inc. as a subsidiary in accordance with IFRS 3,
'Business combinations'.
-197-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
The net assets of PetroKazakhstan Inc. at December 12, 2007 amounted to RMB
24,549. The fair value (which approximated their carrying value) of assets and
liabilities of PetroKazakhstan Inc. consolidated on December 12, 2007 were as
follows:
RMB
-------
Current assets 6,587
Non-current assets 20,456
Current liabilities (1,732)
Non-current liabilities (762)
18 AVAILABLE-FOR-SALE FINANCIAL ASSETS
GROUP COMPANY
------------------- -------------------
DECEMBER DECEMBER DECEMBER DECEMBER
31, 2007 31, 2006 31, 2007 31, 2006
-------- -------- -------- --------
RMB RMB RMB RMB
Available-for-sale financial assets 3,068 2,562 1,987 1,510
Less: Impairment provision (487) (508) (481) (499)
----- ----- ----- -----
2,581 2,054 1,506 1,011
===== ===== ===== =====
Available-for-sale financial assets comprise principally unlisted equity
securities.
Dividend income from available-for-sale financial assets amounted to RMB
111 in 2007 (2006: RMB 208).
In 2007, available-for-sale financial assets of RMB 145 (2006: RMB 1) were
disposed of with a gain of 142 (2006: RMB 3).
19 SUBSIDIARIES
The principal subsidiaries of the Group are:
PAID-UP ATTRIBUTABLE
COUNTRY OF CAPITAL TYPE OF EQUITY
COMPANY NAME INCORPORATION RMB LEGAL ENTITY INTEREST % PRINCIPAL ACTIVITIES
------------ ------------- ------- ------------ ------------ -----------------------
Daqing Oilfield PRC 47,500 Limited 100.00 Exploration, production
Company liability and sale of crude oil
Limited company and natural gas;
production and sale of
refined products
Daqing Yu Shu Lin PRC 1,272 Limited 88.16 Exploration, production
Oilfield Company liability and sale of crude oil
Limited company and natural gas
CNPC Exploration PRC 100 Limited 50.00 Exploration, production
and Development liability and sale of crude oil
Company Limited company and natural gas outside
of the PRC
PetroKazakhstan Canada US Joint stock 67.00 Exploration, production
Inc. (Note 17) Dollar company with and sale of crude oil
2,465 limited and natural gas outside
million liability of the PRC
-198-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
Pursuant to the resolutions passed at the Board of Directors' meeting held
on October 26, 2005, the Company offered to acquire and complete the acquisition
of all of the outstanding shares from the minority shareholders of the following
entities of the Group.
EQUITY
NUMBER OF PURCHASE NUMBER OF TOTAL CASH INTEREST HELD
OUTSTANDING PRICE PER SHARES CONSIDERATION AFTER THE
ENTITY NAME SHARES SHARE ACQUIRED PAID ACQUISITION %
----------- ----------- ----------- ----------- ------------- -------------
Jinzhou 150,000,000 RMB 4.25 150,000,000 RMB 638 as of 100.00 JCPL was delisted
PetroChemical A shares yuan per A shares as December 31, from the Shenzhen
Company A share of June 30, 2007 Stock Exchange on
Limited 2007 January 4, 2006.
("JCPL") In November 2007,
the Liaoning
Administration for
Industry and
Commerce approved
JCPL's
deregistration as an
incorporated company.
Jilin Chemical 200,000,000 RMB 5.25 200,000,000 RMB 3,862 as 100.00 JCIC was delisted
Industrial A shares yuan per A shares as of December from the Shenzhen
Company A share of December 31, 2007 Stock Exchange on
Limited 31, 2007 February 20, 2006.
("JCIC") 964,778,000 HK$ 2.80 964,778,000 JCIC was delisted
H shares per H share H shares from the Stock
(including (including Exchange of Hong
American ADS) as of Kong Limited and the
Depositary December New York Stock
Shares) 31, 2007 Exchange on January
("ADS") 23, 2006 and February
15, 2006,
respectively. In December
2007, the Jilin
Administration for
Industry and Commerce
approved JCIC's
deregistration as an
incorporated company.
Liaohe Jinma 200,000,000 RMB 8.80 200,000,000 RMB 1,763 as 100.00 LJOCL was delisted
Oilfield A shares yuan per A shares as of December from the Shenzhen
Company A share of June 30, 31, 2007 Stock Exchange on
Limited 2007 January 4, 2006.
("LJOCL") In May 2007, the
Liaoning Administration
for Industry and
Commerce approved
LJOCL's deregistration
as an incorporated
company.
The excess of the cost of purchase over the carrying value of the
underlying assets and liabilities of the above non-wholly owned principal
subsidiaries and other non-wholly subsidiaries acquired was recorded in equity,
and this amounted to RMB 113 for the year ended December 31, 2007 (2006: RMB
2,156).
-199-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
20 ADVANCE OPERATING LEASE PAYMENTS
GROUP COMPANY
------------------- -------------------
DECEMBER DECEMBER DECEMBER DECEMBER
31, 2007 31, 2006 31, 2007 31, 2006
-------- -------- -------- --------
RMB RMB RMB RMB
Land use rights 14,411 12,184 11,886 9,069
Advance lease payments 9,006 8,284 7,112 6,707
------ ------ ------ ------
23,417 20,468 18,998 15,776
====== ====== ====== ======
Land use rights have terms up to 50 years. Advance lease payments are
principally for use of land sub-leased from entities other than the PRC land
authorities. These advance operating lease payments are amortised over the
related lease terms using the straight-line method.
21 INTANGIBLE AND OTHER ASSETS
GROUP
DECEMBER 31, 2007 DECEMBER 31, 2006
---------------------------- ----------------------------
ACCUMULATED ACCUMULATED
COST AMORTISATION NET COST AMORTISATION NET
----- ------------ ----- ----- ------------ -----
RMB RMB RMB RMB RMB RMB
Patents 2,621 (1,343) 1,278 2,325 (1,109) 1,216
Technical know-how 281 (124) 157 276 (103) 173
Other 5,273 (1,242) 4,031 3,369 (1,041) 2,328
----- ------ ----- ----- ------ -----
Intangible assets 8,175 (2,709) 5,466 5,970 (2,253) 3,717
===== ====== ===== ======
Other assets 3,022 2,910
----- -----
8,488 6,627
===== =====
COMPANY
DECEMBER 31, 2007 DECEMBER 31, 2006
---------------------------- ----------------------------
ACCUMULATED ACCUMULATED
COST AMORTISATION NET COST AMORTISATION NET
----- ------------ ----- ----- ------------ -----
RMB RMB RMB RMB RMB RMB
Patents 2,132 (857) 1,275 1,793 (691) 1,102
Technical know-how 183 (50) 133 144 (29) 115
Other 4,042 (1,073) 2,969 2,747 (846) 1,901
----- ------ ----- ----- ------ -----
Intangible assets 6,357 (1,980) 4,377 4,684 (1,566) 3,118
===== ====== ===== ======
Other assets 2,811 2,502
----- -----
7,188 5,620
===== =====
Patents principally represent expenditure incurred in acquiring processes
and techniques that are generally protected by relevant government authorities.
Technical know-how are amounts attributable to operational technology acquired
in connection with purchase of equipment. The costs of technical know-how are
included as part of the purchase price and are distinguishable.
-200-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
22 INVENTORIES
GROUP COMPANY
------------------- -------------------
DECEMBER DECEMBER DECEMBER DECEMBER
31, 2007 31, 2006 31, 2007 31, 2006
-------- -------- -------- --------
RMB RMB RMB RMB
Crude oil and other raw materials 30,308 24,143 25,222 16,964
Work in progress 6,083 5,493 5,834 5,156
Finished goods 52,791 47,263 39,839 38,578
Spare parts and consumables 32 41 26 32
------ ------ ------ ------
89,214 76,940 70,921 60,730
Less: Write down in inventories (747) (902) (637) (460)
------ ------ ------ ------
88,467 76,038 70,284 60,270
====== ====== ====== ======
Inventories of the Group carried at net realisable value amounted to RMB
1,981 (2006: RMB 3,415) at December 31, 2007.
23 ACCOUNTS RECEIVABLE
GROUP COMPANY
------------------- -------------------
DECEMBER DECEMBER DECEMBER DECEMBER
31, 2007 31, 2006 31, 2007 31, 2006
-------- -------- -------- --------
RMB RMB RMB RMB
Accounts receivable due from third parties 15,296 9,498 2,989 2,333
Accounts receivable due from related parties 6,002 2,247 1,796 1,847
------ ------ ------ ------
21,298 11,745 4,785 4,180
Less: Provision for impairment of
receivables (2,879) (3,257) (2,654) (2,606)
------ ------ ------ ------
18,419 8,488 2,131 1,574
====== ====== ====== ======
Amounts due from related parties are interest free and unsecured (Note 38).
The aging analysis of accounts receivable at December 31, 2007 and December
31, 2006 is as follows:
GROUP COMPANY
------------------- -------------------
DECEMBER DECEMBER DECEMBER DECEMBER
31, 2007 31, 2006 31, 2007 31, 2006
-------- -------- -------- --------
RMB RMB RMB RMB
Within 1 year 18,260 8,299 2,025 1,432
Between 1 to 2 years 39 33 22 32
Between 2 to 3 years 32 59 31 37
Over 3 years 2,967 3,354 2,707 2,679
------ ------ ----- -----
21,298 11,745 4,785 4,180
====== ====== ===== =====
The Group offers its customers credit terms up to 180 days, except for
certain selected customers.
-201-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
Movements on the provision for impairment of receivables are as follows:
GROUP
-------------------
2007 2006
-------- --------
RMB RMB
At beginning of the year 3,257 3,998
Provision for impairment of receivables 49 99
Receivables written off during the year as
uncollectible (288) (615)
Reversal of provision for impairment of
receivables (139) (225)
----- -----
At end of the year 2,879 3,257
===== =====
24 PREPAID EXPENSES AND OTHER CURRENT ASSETS
GROUP COMPANY
------------------- -------------------
DECEMBER DECEMBER DECEMBER DECEMBER
31, 2007 31, 2006 31, 2007 31, 2006
-------- -------- -------- --------
RMB RMB RMB RMB
Other receivables 9,329 7,083 6,210 4,957
Amounts due from related parties
- Subsidiaries -- -- 12,997 7,890
- Other 19,556 15,925 14,713 9,223
Advances to suppliers 10,720 6,087 8,258 3,485
------ ------ ------ ------
39,605 29,095 42,178 25,555
Less: Provision for impairment (4,079) (6,506) (2,121) (3,960)
------ ------ ------ ------
35,526 22,589 40,057 21,595
Prepaid expenses 304 326 269 190
Other current assets 188 366 188 267
------ ------ ------ ------
36,018 23,281 40,514 22,052
====== ====== ====== ======
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 38 (g)), all other amounts due
from related parties are interest free, unsecured and with no fixed terms of
repayment.
25 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.
26 CASH AND CASH EQUIVALENTS
The weighted average effective interest rate on bank deposits was 2.00% per
annum for the year ended December 31, 2007 (2006: 1.95% per annum).
-202-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
27 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
GROUP COMPANY
------------------- -------------------
DECEMBER DECEMBER DECEMBER DECEMBER
31, 2007 31, 2006 31, 2007 31, 2006
-------- -------- -------- --------
RMB RMB RMB RMB
Trade payables 40,447 22,490 17,892 10,529
Advances from customers 9,846 9,310 8,331 6,980
Salaries and welfare payable 11,585 8,844 10,751 7,634
Accrued expenses 5 10 3 9
Dividends payable by subsidiaries to
minority shareholders 67 60 -- --
Interest payable 65 3 58 3
Construction fee and equipment cost payables 30,784 28,349 25,363 21,390
One-time employee housing remedial payment
payable 221 933 218 933
Amounts due to related parties
- Subsidiaries -- -- 33,227 30,428
- Other 40,334 35,273 28,470 30,842
Other payables 10,999 14,910 7,666 11,252
------- ------- ------- -------
144,353 120,182 131,979 120,000
======= ======= ======= =======
Other payables consist primarily of customer deposits.
Amounts due to related parties are interest-free, unsecured and with no
fixed terms of repayments (Note 38).
The aging analysis of trade payables at December 31, 2007 and 2006 is as
follows:
GROUP COMPANY
------------------- -------------------
DECEMBER DECEMBER DECEMBER DECEMBER
31, 2007 31, 2006 31, 2007 31, 2006
-------- -------- -------- --------
RMB RMB RMB RMB
Within 1 year 39,005 19,994 16,610 9,514
Between 1 to 2 years 819 1,966 733 595
Between 2 to 3 years 307 196 279 144
Over 3 years 316 334 270 276
------ ------ ------ ------
40,447 22,490 17,892 10,529
====== ====== ====== ======
-203-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
28 BORROWINGS
(A) SHORT-TERM BORROWINGS
GROUP COMPANY
------------------- -------------------
DECEMBER DECEMBER DECEMBER DECEMBER
31, 2007 31, 2006 31, 2007 31, 2006
-------- -------- -------- --------
RMB RMB RMB RMB
Bank loans
- secured 320 23 -- --
- unsecured 18,363 14,812 13,907 10,611
Loans from a fellow CNPC subsidiary 50 320 3,990 --
Other 1 1 1 1
------ ------ ------ ------
18,734 15,156 17,898 10,612
Current portion of long-term borrowings 12,200 20,607 9,029 17,064
------ ------ ------ ------
30,934 35,763 26,927 27,676
====== ====== ====== ======
(B) LONG-TERM BORROWINGS
GROUP COMPANY
---------------------- ------------------
INTEREST RATES AND FINAL DECEMBER 31, DECEMBER DECEMBER DECEMBER
MATURITIES 2007 31, 2006 31, 2007 31, 2006
----------------------------- ------------ -------- -------- --------
RMB RMB RMB RMB
RENMINBI - DENOMINATED
BORROWINGS:
Bank loans for the Majority floating interest 6,720 8,390 3,820 6,600
development of oil fields rates ranging from 6.16% to
and construction of refining 6.80% per annum as of
plants December 31, 2007, with
maturities through 2022
Bank loans for working Floating interest rates 6,030 6,000 6,000 6,000
capital ranging from 5.67% to
6.89% per annum as of
December 31, 2007, with
maturities through 2012
Loans from a fellow CNPC Floating interest rates 19,862 16,782 19,862 16,782
subsidiary for the ranging from 4.46% to 5.76%
development of oil fields per annum as of December
and construction of refining 31, 2007, with maturities
plants through 2032
Working capital loans from a Fixed interest rate at 70 4,130 70 4,130
fellow CNPC subsidiary 4.61% per annum as of
December 31, 2007, with
maturities through 2008
Working capital loans Fixed interest rate at 5 5 5 5
6.32% per annum as of
December 31, 2007, with no
fixed repayment terms
Corporate debenture for the Fixed interest rate at -- 1,365 -- 1,365
development of oil fields 4.50% per annum as of
and construction of refining December 31, 2007, with
plants maturities through 2007
Corporate debenture for the Fixed interest rates 3,500 3,523 3,500 3,523
development of oil and gas ranging from 3.76% to 4.11%
properties per annum as of December
31, 2007, with maturities
through 2013
-204-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
GROUP COMPANY
---------------------- ------------------
INTEREST RATES AND FINAL DECEMBER 31, DECEMBER DECEMBER DECEMBER
MATURITIES 2007 31, 2006 31, 2007 31, 2006
----------------------------- ------------ -------- -------- --------
RMB RMB RMB RMB
US DOLLAR -
DENOMINATED
BORROWINGS:
Bank loans for the Fixed interest rates ranging 403 969 403 444
development of oil fields from zero to 8.66% per annum
and construction of as of December 31, 2007,
refining plants with maturities through 2038
Bank loans for the Floating interest rates 4,927 3,589 498 597
development of oil fields ranging from 5.10% to 7.50%
and construction of per annum as of December 31,
refining plants 2007, with maturities
through 2014
Bank loans for working Floating interest rates 2,630 1,326 2,556 --
capital ranging from LIBOR plus
0.30% to LIBOR plus 2.50%
per annum as of December 31,
2007, with maturities
through 2010
Bank loans for acquisition Floating interest rate at 821 1,368 -- --
of overseas oil and gas LIBOR plus 0.55% per annum
properties as of December 31, 2007,
with maturities through 2009
Loans from a fellow CNPC Floating interest rates 4,171 4,481 4,171 4,481
subsidiary for the ranging from LIBOR minus
development of oil fields 0.25% to LIBOR plus 0.50% per
and construction of annum as of December 31,
refining plants 2007, with maturities through
2020
Loans from a fellow CNPC Floating interest rate at 329 1,471 -- --
subsidiary for working LIBOR plus 0.60% per annum
capital as of December 31, 2007,
with maturities through 2008
Loans for the development Fixed interest rate at 404 462 404 462
of oil fields and 1.55% per annum as of
construction of refining December 31, 2007, with
plants maturities through 2022
Loans for working capital Majority floating interest 609 650 -- --
rate at LIBOR plus 0.35% per
annum as of December 31,
2007, with maturities
through 2008
Corporate debenture for the Fixed interest rate at 3.00% 335 353 -- --
development of oil fields per annum as of December 31,
and construction of 2007, with maturities
refining plants through 2019
-205-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
GROUP COMPANY
---------------------- ------------------
INTEREST RATES AND FINAL DECEMBER 31, DECEMBER DECEMBER DECEMBER
MATURITIES 2007 31, 2006 31, 2007 31, 2006
----------------------------- ------------ -------- -------- --------
RMB RMB RMB RMB
Corporate debenture for the Fixed interest rate at 730 817 -- --
development of oil and gas 9.50% per annum as of
properties December 31, 2007,
with maturities
through 2011
Corporate debenture for the Fixed interest rate at 58 179 -- --
development of oil and gas 15.00% per annum as of
properties December 31, 2007,
with maturities
through 2008
JAPANESE YEN -DENOMINATED
BORROWINGS:
Bank loans for the Fixed interest rates 37 75 37 34
development of oil fields ranging from 2.42% to
and construction of refining 4.10% per annum as of
plants December 31, 2007,
with maturities
through 2010
EURO -
DENOMINATED BORROWINGS:
Bank loans for the Fixed interest rates 247 257 247 257
development of oil fields ranging from 2.00% to
and construction of refining 2.30% per annum as of
plants December 31, 2007,
with maturities
through 2023
BRITISH POUND - DENOMINATED
BORROWINGS:
Bank loans for the Fixed interest rate at -- 49 -- 49
development of oil fields 2.85% per annum as of
and construction of refining December 31, 2007,
plants with maturities
through 2007
-------- -------- ------- --------
Total long-term 51,888 56,241 41,573 44,729
borrowings
Less: Current
portion of long-
term borrowings (12,200) (20,607) (9,029) (17,064)
-------- -------- ------- --------
39,688 35,634 32,544 27,665
======== ======== ======= ========
For loans denominated in RMB with floating interest rates, the interest
rates are re-set annually on the respective anniversary dates based on interest
rates announced by the People's Bank of China. For loans denominated in
currencies other than RMB with floating interest rates, the interest rates are
re-set quarterly or semi-annually as stipulated in the respective agreements.
Other loans represent loans from independent third parties other than banks.
Interest free loans amounted to RMB 60 (2006: RMB 68) at December 31, 2007.
Borrowings of RMB 498 were guaranteed by CNPC and its subsidiaries at
December 31, 2007 (2006: RMB 597), and borrowings of RMB 30 were guaranteed by
the Company and third parities (2006: RMB Nil).
-206-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
The Group's borrowings include secured liabilities (bank borrowings)
totalling RMB 3,607 at December 31, 2007 (2006: RMB 359). These bank borrowings
are secured over certain of the Group's notes receivable, inventories and time
deposits with maturities over one year.
GROUP COMPANY
------------------- -------------------
DECEMBER DECEMBER DECEMBER DECEMBER
31, 2007 31, 2006 31, 2007 31, 2006
-------- -------- -------- --------
RMB RMB RMB RMB
Total borrowings:
- interest free 60 68 60 --
- at fixed rates 11,940 20,850 5,910 16,706
- at floating rates 58,622 50,479 53,501 38,635
------ ------ ------ ------
70,622 71,397 59,471 55,341
====== ====== ====== ======
Weighted average effective interest rates:
- bank loans 5.54% 5.51% 5.38% 5.25%
- loans from a fellow CNPC
subsidiary 5.17% 4.98% 4.66% 4.92%
- other loans 3.64% 3.93% 1.53% 1.53%
- corporate debentures 4.87% 5.04% 3.91% 4.08%
The carrying amounts and fair values of long-term borrowings are as
follows:
GROUP COMPANY
------------------- -------------------
CARRYING AMOUNTS
-----------------------------------------
DECEMBER DECEMBER DECEMBER DECEMBER
31, 2007 31, 2006 31, 2007 31, 2006
-------- -------- -------- --------
RMB RMB RMB RMB
Bank loans 21,815 22,023 13,561 13,981
Loans from a fellow CNPC subsidiary 24,432 26,864 24,103 25,393
Corporate debentures 4,623 6,237 3,500 4,888
Other 1,018 1,117 409 467
------ ------ ------ ------
51,888 56,241 41,573 44,729
====== ====== ====== ======
GROUP COMPANY
------------------- -------------------
FAIR VALUES
-----------------------------------------
DECEMBER DECEMBER DECEMBER DECEMBER
31, 2007 31, 2006 31, 2007 31, 2006
-------- -------- -------- --------
RMB RMB RMB RMB
Bank loans 21,580 21,858 13,342 13,839
Loans from a fellow CNPC subsidiary 24,428 26,861 24,099 25,389
Corporate debentures 4,104 5,852 2,981 4,449
Other 883 997 274 347
------ ------ ------ ------
50,995 55,568 40,696 44,024
====== ====== ====== ======
-207-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
The fair values are based on discounted cash flows using applicable
discount rates based upon the prevailing market rates of interest available to
the Group for financial instruments with substantially the same terms and
characteristics at the balance sheet dates. Such discount rates ranged from
0.81% to 7.71% per annum as of December 31, 2007 (2006: 0.53% to 6.54%)
depending on the type of the borrowings. The carrying amounts of short-term
borrowings approximate their fair value.
Maturities of long-term borrowings at the dates indicated below are as
follows:
GROUP COMPANY
------------------- -------------------
DECEMBER DECEMBER DECEMBER DECEMBER
BANK LOANS 31, 2007 31, 2006 31, 2007 31, 2006
---------- -------- -------- -------- --------
RMB RMB RMB RMB
Within one year 5,861 11,575 3,808 9,081
Between one to two years 424 6,781 242 3,765
Between two to five years 12,322 1,415 9,005 527
After five years 3,208 2,252 506 608
------ ------ ------ ------
21,815 22,023 13,561 13,981
====== ====== ====== ======
GROUP COMPANY
------------------- -------------------
DECEMBER DECEMBER DECEMBER DECEMBER
LOANS OTHER THAN BANK LOANS 31, 2007 31, 2006 31, 2007 31, 2006
--------------------------- -------- -------- -------- --------
RMB RMB RMB RMB
Within one year 6,339 9,032 5,221 7,983
Between one to two years 5,330 5,016 5,148 3,782
Between two to five years 7,576 9,034 7,149 8,253
After five years 10,828 11,136 10,494 10,730
------ ------ ------ ------
30,073 34,218 28,012 30,748
====== ====== ====== ======
29 SHARE CAPITAL
GROUP AND COMPANY
-------------------
DECEMBER DECEMBER
31, 2007 31, 2006
-------- --------
RMB RMB
Registered, issued and fully paid:
State-owned shares -- 157,922
A Shares 161,922 --
H shares 21,099 21,099
------- -------
183,021 179,021
======= =======
-208-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
NUMBER OF SHARES OF THE COMPANY (MILLIONS) 2007 2006
------------------------------------------ ------- -------
Beginning balance 179,021 179,021
Issuance of shares 4,000 --
------- -------
Ending balance 183,021 179,021
======= =======
In accordance with the Restructuring Agreement between CNPC and the Company
effective as of November 5, 1999, the Company issued 160 billion state-owned
shares in exchange for the assets and liabilities transferred to the Company by
CNPC. The 160 billion state-owned shares were the initial registered capital of
the Company with a par value of RMB1.00 yuan per share.
On April 7, 2000, the Company issued 17,582,418,000 shares, represented by
13,447,897,000 H shares and 41,345,210 ADSs (each representing 100 H shares) in
a global initial public offering ("Global Offering") and the trading of the H
shares and the ADSs on the Stock Exchange of Hong Kong Limited and the New York
Stock Exchange commenced on April 7, 2000 and April 6, 2000, respectively. The H
shares and ADSs were issued at prices of HK$ 1.28 per H share and US$ 16.44 per
ADS respectively for which the net proceeds to the Company were approximately
RMB 20 billion. The shares issued pursuant to the Global Offering rank equally
with existing shares.
Pursuant to the approval of the China Securities Regulatory Commission,
1,758,242,000 state-owned shares of the Company owned by CNPC were converted
into H shares for sale in the Global Offering.
In September 2005, the Company issued 3,196,801,818 new H shares at HK$
6.00 per share and net proceeds to the Company amounted to approximately RMB
19,692. CNPC also sold 319,680,182 state-owned shares it held concurrently with
PetroChina's sale of new H shares in September 2005.
On November 5, 2007, the Company issued 4,000,000,000 new A shares at RMB
16.70 yuan per share and net proceeds to the Company amounted to approximately
RMB 66,243 and the listing and trading of the A Shares on the Shanghai Stock
Exchange commenced on November 5, 2007.
Following the issuance of the A shares, all the existing state-owned shares
issued before November 5, 2007 held by CNPC have been registered with the China
Securities Depository and Clearing Corporation Limited as A shares.
Shareholders' rights are governed by the Company Law of the PRC that
requires an increase in registered capital to be approved by the shareholders in
shareholders' general meetings and the relevant PRC regulatory authorities.
-209-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
30 RESERVES
GROUP COMPANY
----------------- -----------------
2007 2006 2007 2006
------- ------- ------- -------
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 (8,881) (8,881) (11,508) (11,508)
Issuance of shares (Note 29) 62,243 -- 62,243 --
------- ------- ------- -------
Ending balance 53,362 (8,881) 50,735 (11,508)
STATUTORY COMMON RESERVE FUND (note a)
Beginning balance 89,928 48,736 78,828 41,301
Transfer from retained earnings 12,768 13,355 12,768 13,355
Transfer from Statutory Common Welfare Fund -- 27,837 -- 24,172
------- ------- ------- -------
Ending balance 102,696 89,928 91,596 78,828
STATUTORY COMMON WELFARE FUND (note b)
Beginning balance -- 27,837 -- 24,172
Transfer from retained earnings -- -- -- --
Transfer to Statutory Common Reserve Fund -- (27,837) -- (24,172)
------- ------- ------- -------
Ending balance -- -- -- --
CURRENCY TRANSLATION DIFFERENCES
Beginning balance (570) (379) -- --
Currency translation differences (771) (191) -- --
------- ------- ------- -------
Ending balance (1,341) (570) -- --
OTHER RESERVES
Beginning balance (16,859) (14,703) (6,859) (4,703)
Purchase of minority interest in subsidiaries
(Note 19) (113) (2,156) (117) (2,156)
Fair value gain of available-for-sale financial
assets 261 -- 260 --
------- ------- ------- -------
Ending balance (16,711) (16,859) (6,716) (6,859)
------- ------- ------- -------
217,952 143,564 215,561 140,407
======= ======= ======= =======
(a) Pursuant to the PRC regulations and the Company's Articles of
Association, the Company is required to transfer 10% of its net profit, as
determined under the PRC accounting regulations, to a Statutory Common Reserve
Fund ("Reserve Fund"). Appropriation to the Reserve Fund may be ceased when the
fund aggregates to 50% of the Company's registered capital. The transfer to this
reserve must be made before distribution of dividends to shareholders.
-210-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
The Reserve Fund shall only be used to make good previous years' losses, to
expand the Company's production operations, or to increase the capital of the
Company. Upon approval by a resolution of shareholders' general meeting, the
Company may convert its Reserve Fund into share capital and issue bonus shares
to existing shareholders in proportion to their original shareholdings or to
increase the nominal value of each share currently held by them, provided that
the balance of the Reserve Fund after such issue is not less than 25% of the
Company's registered capital.
(b) Pursuant to the Company Law of the PRC revised on October 27, 2005 and
carried out as of January 1, 2006, the Company is no longer required to allocate
its net profit to the Statutory Common Welfare Fund from January 1, 2006. In
accordance with the Circular on Accounting Treatment Following the
Implementation of Company Law issued by the Ministry of Finance of the PRC on
March 15, 2006, the Company transferred the Statutory Common Welfare Fund
balance as at December 31, 2005 to the Statutory Common Reserve Fund.
(c) According to the relevant PRC regulations, the distributable reserve is
the lower of the retained earnings computed under PRC accounting regulations and
IFRS. As of December 31, 2007, the Company's distributable reserve amounted to
RMB 228,016 which was computed under PRC accounting regulations (2006: under
IFRS RMB 205,379).
(d) As of December 31, 2007, revaluation surpluses realised through the
depreciation or disposal of revalued assets amounted to approximately RMB 61,121
(2006: RMB 57,832).
31 DEFERRED TAXATION
Deferred taxation is calculated on temporary differences under the
liability method using a principal tax rate of 25% (2006: 33%).
The movements in the deferred taxation account are as follows:
GROUP COMPANY
----------------- -----------------
2007 2006 2007 2006
------- ------- ------- -------
RMB RMB RMB RMB
At beginning of the year 19,583 20,759 6,480 9,125
Transfer to profit and loss account (Note 12) 820 (1,196) 1,200 (2,645)
Charge to equity 87 -- 87 --
Consolidation of PetroKazakhstan Inc. (174) -- -- --
Transfer from subsidiaries -- -- 82 --
Currency translation differences (111) 20 -- --
------ ------ ----- -----
At end of the year 20,205 19,583 7,849 6,480
====== ====== ===== =====
-211-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
Deferred tax balances are attributable to the following items:
GROUP COMPANY
------------------- -------------------
DECEMBER DECEMBER DECEMBER DECEMBER
31, 2007 31, 2006 31, 2007 31, 2006
-------- -------- -------- --------
RMB RMB RMB RMB
Deferred tax assets:
Current:
Provisions, primarily for
receivables and inventories 5,391 7,107 3,583 4,684
Tax losses of subsidiaries 95 2,175 -- --
Non current:
Shut down of manufacturing assets and
impairment of long-term assets 3,172 4,342 2,798 3,498
Other 1,635 457 1,455 410
------ ------ ------ ------
Total deferred tax assets 10,293 14,081 7,836 8,592
------ ------ ------ ------
Deferred tax liabilities:
Non current:
Accelerated tax depreciation 30,435 33,398 15,649 14,877
Other 63 266 36 195
------ ------ ------ ------
Total deferred tax liabilities 30,498 33,664 15,685 15,072
------ ------ ------ ------
Net deferred tax liabilities 20,205 19,583 7,849 6,480
====== ====== ====== ======
There were no material unrecognised tax losses at December 31, 2007.
32 ASSET RETIREMENT OBLIGATIONS
GROUP COMPANY
--------------- ---------------
2007 2006 2007 2006
------ ------ ------ ------
RMB RMB RMB RMB
At beginning of the year 18,481 14,187 11,269 8,068
Liabilities incurred 4,818 3,589 3,239 2,863
Consolidation of PetroKazakhstan Inc. 385 -- -- --
Transfer from subsidiaries -- -- 196 --
Liabilities settled (110) (105) (110) (99)
Accretion expense (Note 10) 1,202 796 713 437
Currency translation differences (15) 14 -- --
------ ------ ------ ------
At end of the year 24,761 18,481 15,307 11,269
====== ====== ====== ======
Asset retirement obligations are in relation to oil and gas properties
(Note 16).
The Group does not have any assets that are legally restricted for purposes
of setting asset retirement obligations.
-212-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
33 CASH FLOWS FROM OPERATING ACTIVITIES
NOTES 2007 2006
----- ------- -------
RMB RMB
PROFIT FOR THE YEAR 155,229 149,397
Adjustments for:
Taxation 12 49,152 49,776
Depreciation, depletion and amortisation 66,625 61,388
Capitalised exploratory costs charged to expense 16 9,161 9,494
Share of profit of associates and jointly controlled entities (6,997) (2,277)
Reversal of provision for impairment of receivables, net 7 (2,353) (316)
Write down in inventories, net 7 55 140
Impairment of available-for-sale financial assets, net 7 -- 32
Impairment of investments in associates and jointly controlled
entities 5 --
Loss on disposal of property, plant and equipment 7 1,808 1,753
(Gain)/Loss on disposal of intangible and other assets (2) 192
Profit on disposal of investments in associates and jointly
controlled entities 17 (320) (10)
Profit on disposal of available-for-sale financial assets 18 (142) (3)
Dividend income 18 (111) (208)
Interest income (1,990) (2,066)
Interest expense 10 3,595 3,220
Advance payments on long-term operating leases (4,803) (5,694)
Changes in working capital:
Accounts receivable and prepaid expenses and other current assets (16,498) (3,115)
Inventories (12,042) (13,445)
Accounts payable and accrued liabilities 19,935 5,346
------- -------
CASH GENERATED FROM OPERATIONS 260,307 253,604
Interest received 1,962 1,993
Interest paid (4,154) (3,700)
Income taxes paid (54,367) (53,795)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 203,748 198,102
======= =======
34 PENSIONS
The Group participates in various employee retirement benefit plans (Note
3(u)). Expenses incurred by the Group in connection with the retirement benefit
plans for the year ended December 31, 2007 amounted to RMB 5,744 (2006: RMB
4,645).
-213-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
35 CONTINGENT LIABILITIES
(A) BANK AND OTHER GUARANTEES
At December 31, 2007, the Group had contingent liabilities in respect of
guarantees made to China Petroleum Finance Company Limited ("CP Finance", a
subsidiary of CNPC) from which it is anticipated that no material liabilities
will arise.
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
RMB RMB
Guarantee of borrowings of associates provided by 77 162
CP Finance
Guarantee of borrowings of third parties provided
by a State-controlled bank -- 41
--- ---
77 203
=== ===
(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 consolidated financial statements, that may have a
material adverse effect on the financial position of the Group.
(C) LEGAL CONTINGENCIES
The Group is the named defendant in certain insignificant lawsuits as well
as the named party in other proceedings arising in the ordinary course of
business. While the outcome of such contingencies, lawsuits or other proceedings
cannot be determined at present, the management of the Group believes that any
resulting liabilities may 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 2000:
- 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.
-214-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
As at December 31, 2007, CNPC had obtained formal land use right
certificates in relation to 27,554 out of the above-mentioned 28,649 parcels of
land and 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 may not have
a material adverse effect on 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 any resulting
liabilities may not have a material adverse effect on the financial position of
the Group.
36 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 50 years and usually do not
contain renewal options. Future minimum lease payments as of December 31, 2007
and 2006 under non-cancellable operating leases are as follows:
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
RMB RMB
First year 3,394 3,099
Second year 3,077 2,749
Third year 2,927 2,714
Fourth year 3,322 3,040
Fifth year 2,650 3,102
Thereafter 79,025 80,076
------ ------
94,395 94,780
====== ======
-215-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
(B) CAPITAL COMMITMENTS
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
RMB RMB
Contracted but not provided for
Oil and gas properties 26 273
Equipment and machinery 11,345 8,658
Other 250 262
------ -----
11,621 9,193
====== =====
(C) EXPLORATION AND PRODUCTION LICENSES
The Company is obligated to make annual payments with respect to its
exploration and production licenses to the Ministry of Land and Resources.
Payments incurred were approximately RMB 660 for the year ended December 31,
2007 (2006: RMB 662).
Estimated annual payments for the next five years are as follows:
DECEMBER 31, 2007
-----------------
RMB
2008 906
2009 906
2010 906
2011 906
2012 906
37 MAJOR CUSTOMERS
The Group's major customers are as follows:
2007 2006
----------------------- -----------------------
PERCENTAGE TO PERCENTAGE TO
REVENUE TOTAL REVENUE REVENUE TOTAL REVENUE
------- ------------- ------- -------------
RMB % RMB %
China Petroleum & Chemical Corporation 50,292 6 44,028 6
CNPC and its subsidiaries 31,325 4 27,714 4
------ --- ------ ---
81,617 10 71,742 10
====== === ====== ===
38 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.
-216-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
The Group has extensive transactions with other companies 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.
The Company and CNPC entered into a Comprehensive Products and Services
Agreement on March 10, 2000 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 terms of the current Comprehensive Products and Services Agreement were
amended in 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 not 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
every 10 years, be adjusted by agreement between the Company and CNPC.
Under the Buildings Leasing Contract, 191 buildings covering an aggregate
area of 269,770 square meters located throughout the PRC are leased at an
aggregate annual fee of RMB 39 for a term of 20 years. The Company also entered
into a Supplemental Buildings Leasing Agreement with CNPC in September 2002 to
lease an additional 404 buildings covering approximately 442,730 square meters
at an annual rental of RMB 157. The Supplemental Buildings Leasing Agreement
will expire at the same time as the Buildings Leasing Agreement.
In addition to the related party information shown elsewhere in the
consolidated 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:
-217-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
(A) BANK DEPOSITS
NOTE DECEMBER 31, 2007 DECEMBER 31, 2006
---- ----------------- -----------------
RMB RMB
Bank deposits
CP Finance (i) 8,393 8,937
State-controlled banks and other financial
institutions 66,611 37,744
------ ------
75,004 46,681
====== ======
YEAR ENDED
DECEMBER 31
-------------
NOTE 2007 2006
---- ----- -----
RMB RMB
Interest income from bank deposits
CP Finance (i) 159 81
State-controlled banks and other financial
institutions 1,024 1,804
----- -----
1,183 1,885
===== =====
(i) CP Finance is a subsidiary of CNPC and a non-bank financial institution,
established with the approval from 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
-----------------
2007 2006
------- -------
RMB RMB
Sales of goods
Associates and jointly controlled entities
- Crude oil 2,374 5,023
- Refined products 18,628 19,779
- Chemical products 753 90
CNPC and its subsidiaries
- Crude oil 1,766 1,546
- Refined products 16,806 16,847
- Chemical products 7,161 5,691
- Natural gas 1,835 1,346
- Other 339 277
Other state-controlled enterprises
- Crude oil 47,597 39,632
- Refined products 58,903 68,370
- Chemical products 10,849 8,979
- Natural gas 9,882 7,713
------- -------
176,893 175,293
======= =======
-218-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
Sales of goods to related parties are conducted at market prices.
YEAR ENDED
DECEMBER 31
--------------
2007 2006
------ -----
RMB RMB
Sales of services
- CNPC and its subsidiaries 3,418 2,007
- Other state-controlled enterprises 8,497 7,761
------ -----
11,915 9,768
====== =====
Sales of services principally represent the provision of 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 2007 2006
----- ------- -------
RMB RMB
Purchases of goods (i)
Associates and jointly controlled entities 29,239 9,868
Other state-controlled enterprises 58,726 50,995
Purchases of services
Associates and jointly controlled entities 136 126
CNPC and its subsidiaries
- Fees paid for construction and technical services (ii)
- Exploration and development services (iii) 60,194 50,485
- Other construction and technical services (iv) 37,063 32,256
- Fees for production services (v) 38,395 32,730
- Social service charges (vi) 2,229 2,301
- Ancillary service charges (vii) 2,635 2,458
- Commission expense and other charges (viii) 1,178 1,241
Other state-controlled enterprises (ix) 3,546 7,703
------- -------
233,341 190,163
======= =======
-219-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
(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 not 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.
(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 service 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
-------------
2007 2006
----- -----
RMB RMB
Purchases of assets
Associates and jointly controlled entities -- 2
CNPC and its subsidiaries 2,395 1,795
Other state-controlled enterprises 5,840 6,617
----- -----
8,235 8,414
===== =====
Purchases of assets principally represent the purchases of manufacturing
equipment, office equipment and transportation equipment, etc., at market
prices.
-220-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
(E) YEAR-END BALANCES ARISING FROM SALES/PURCHASES OF GOODS/SERVICES/ASSETS
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
RMB RMB
Accounts receivable from related parties at the end of the year:
Associates and jointly controlled entities 296 82
Fellow subsidiaries (CNPC Group) 3,796 599
Other state-controlled enterprises 1,910 1,566
------ ------
6,002 2,247
Less: Provision for impairment
Associates and jointly controlled entities -- (5)
Fellow subsidiaries (CNPC Group) (189) (232)
Other state-controlled enterprises (708) (861)
------ ------
(897) (1,098)
------ ------
5,105 1,149
====== ======
Prepayments and other receivables from related parties at the end of the year:
Associates and jointly controlled entities 2,412 4,307
Parent (CNPC) -- 196
Fellow subsidiaries (CNPC Group) 10,335 7,220
Other state-controlled enterprises 6,809 4,202
------ ------
19,556 15,925
Less: Provision for impairment
Associates and jointly controlled entities (39) (212)
Fellow subsidiaries (CNPC Group) (22) (4)
Other state-controlled enterprises (79) (299)
------ ------
(140) (515)
------ ------
19,416 15,410
====== ======
Accounts payable and accrued liabilities to related parties at the end of the year:
Associates and jointly controlled entities 117 1,444
Parent (CNPC) 922 2,321
Fellow subsidiaries (CNPC Group) 32,154 26,046
Other state-controlled enterprises 7,141 5,462
------ ------
40,334 35,273
====== ======
-221-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
YEAR ENDED
DECEMBER 31
-----------
2007 2006
---- ----
RMB RMB
Net changes in provision for impairment of accounts receivable from related
parties charged/(credited) to profit and loss account:
Associates and jointly controlled entities (5) 5
Fellow subsidiaries (CNPC Group) (32) (11)
Other state-controlled enterprises -- (52)
---- ---
(37) (58)
==== ===
Net changes in provision for impairment of prepayments and other receivables
from related parties charged/(credited) to profit and loss account:
Associates and jointly controlled entities (173) (20)
Fellow subsidiaries (CNPC Group) 18 (32)
Other state-controlled enterprises (218) 12
---- ---
(373) (40)
==== ===
(F) LEASES
YEAR ENDED
DECEMBER 31
------------
NOTES 2007 2006
----- ----- ----
RMB RMB
Advance operating lease payments paid to related parties: (i)
Parent (CNPC) -- --
Other state-controlled enterprises 88 49
----- -----
88 49
===== =====
Other operating lease payments paid to related parties:
Parent (CNPC) (ii) 2,292 2,276
Other state-controlled enterprises 21 16
----- -----
2,313 2,292
===== =====
(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 Buildings Leasing Contract and
Supplemental Buildings Leasing Agreement with CNPC.
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
RMB RMB
Operating lease payable to related parties
Parent (CNPC) 16 --
Other state-controlled enterprises -- 7
--- ---
16 7
=== ===
-222-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
(G) LOANS
YEAR ENDED DECEMBER 31
----------------------
LOANS TO RELATED PARTIES 2007 2006
------------------------ ----- -----
RMB RMB
Loans to associates:
Beginning of the year 1,800 1,640
Loans advanced during year 366 1,034
Loans repayments received (322) (884)
Interest charged 129 154
Interest received (120) (144)
----- -----
End of the year 1,853 1,800
===== =====
Loans to associates are included in prepaid expenses and other current
assets (Note 24).
The loans to related parties are mainly with interest rates ranging from
5.20% to 8.60% per annum as of December 31, 2007 (2006: 9.07% to 9.36%).
YEAR ENDED DECEMBER 31
----------------------
LOANS FROM RELATED PARTIES NOTES 2007 2006
-------------------------- ----- ------- -------
RMB RMB
Loans from CP Finance: (i)
Beginning of the year 27,184 27,319
Loans received during year 7,238 7,408
Loans repayments paid (9,575) (7,350)
Interest charged 1,377 1,327
Interest paid (1,388) (1,305)
Currency translation differences (343) (215)
------- -------
End of the year 24,493 27,184
======= =======
Loans from state-controlled banks and other financial (ii)
institutions:
Beginning of the year 32,810 31,178
Loans received during year 38,320 28,457
Loans repayments paid (36,335) (26,576)
Interest charged 1,869 1,598
Interest paid (1,875) (1,626)
Currency translation differences (526) (221)
------- -------
End of the year 34,263 32,810
======= =======
Loans from other related parties: (iii)
Beginning of the year 5 62
Loans repayments paid - (57)
Interest charged - 2
Interest paid - (2)
------- -------
End of the year 5 5
======= =======
-223-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
(i) The loans from CP Finance are mainly with interest rates ranging from 4.46%
to 7.47% per annum as of December 31, 2007 (2006: 4.46% to 6.06%), with
maturities through 2032.
(ii) The loans from state-controlled banks and other financial institutions are
mainly with interest rates ranging from zero to 8.66% per annum as of
December 31, 2007 (2006: zero to 8.66%), with maturities through 2038.
(iii) The loans from other related parties are mainly with interest rate at
6.32% per annum as of December 31, 2007 (2006: 6.32%), and with no fixed
repayment terms.
The secured loans from related parties amounted to RMB Nil at December 31,
2007 (December 31, 2006: RMB 23).
The guaranteed loans amounted to RMB 528 at December 31, 2007 (December 31,
2006: RMB 597). Borrowings of RMB 498 are from non-related parties, long-term
and guaranteed by CNPC and borrowings of RMB 30 are from non-related parties,
short-term and guaranteed by the Company and third parities.
Information on loans from related parties are included in Note 28.
(H) KEY MANAGEMENT COMPENSATION
YEAR ENDED DECEMBER 31
----------------------
2007 2006
------- -------
RMB'000 RMB'000
Fee for key management personnel
- Directors and supervisors 1,504 1,473
Salaries, allowances and other benefits (i)
- Directors and supervisors 3,767 3,937
- Other key management 5,002 2,447
Contribution to retirement benefit scheme
- Directors and supervisors 136 165
- Other key management 209 133
------ -----
10,618 8,155
====== =====
(i) Salaries, allowances and other benefits do not include deferred payments
made to directors and other key management in accordance with the relevant
PRC government regulations, in respect of 2004 to 2006 in the amount of RMB
5,143 thousand.
As at December 31, 2007, none of the key management personnel had exercised
the share appreciation rights. The liability for the units awarded to key
management personnel amounted to approximately RMB 395 at December 31, 2007
(December 31, 2006: RMB 329).
(I) CONTINGENT LIABILITIES
The Group disclosed in Note 35 its 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
collaterals with certain banks for the borrowings of subsidiaries and
associates.
As at December 31, 2007, the time deposits with maturities over one year of
RMB 5,053 (December 31, 2006: RMB 2,499), were secured including for the
borrowings of subsidiaries of RMB 3,287 (December 31, 2006: RMB 312) and for the
borrowings of associates of RMB 1,757 (December 31, 2006: RMB 2,187).
-224-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
39 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 sale 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 sale of natural gas
and the transmission of natural gas, crude oil and refined products.
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, 2007 and
2006 is presented below:
-225-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
PRIMARY REPORTING FORMAT - BUSINESS SEGMENTS
EXPLORATION REFINING CHEMICALS NATURAL
YEAR ENDED AND AND AND GAS AND
DECEMBER 31, 2006 PRODUCTION MARKETING MARKETING PIPELINE OTHER TOTAL
----------------- ----------- --------- --------- -------- ------- ---------
RMB RMB RMB RMB RMB RMB
Turnover (including intersegment) 421,340 543,299 82,791 38,917 1,080 1,087,427
Less: Intersegment sales (339,619) (44,806) (7,983) (5,617) (424) (398,449)
-------- ------- ------ ------ ------- ---------
Turnover from external customers 81,721 498,493 74,808 33,300 656 688,978
======== ======= ====== ====== ======= =========
Depreciation, depletion and amortisation (37,080) (12,080) (6,417) (5,263) (548) (61,388)
Segment result 232,404 (5,206) 8,208 9,470 (3,058) 241,818
Other costs (12,544) (23,958) (3,150) (484) (3,706) (43,842)
-------- ------- ------ ------ ------- ---------
Profit/(loss) from operations 219,860 (29,164) 5,058 8,986 (6,764) 197,976
-------- ------- ------ ------ -------
Finance costs (1,080)
Share of profit of associates and
jointly controlled entities 1,889 333 38 1 16 2,277
---------
Profit before taxation 199,173
Taxation (49,776)
---------
Profit for the year 149,397
=========
Interest income (including intersegment) 4,853 1,471 634 157 7,171 14,286
Less: Intersegment interest income (12,220)
---------
Interest income from external entities 2,066
=========
Interest expense (including intersegment) (5,043) (3,790) (679) (1,614) (4,314) (15,440)
Less: Intersegment interest expense 12,220
---------
Interest expense to external entities (3,220)
=========
Segment assets 484,547 246,828 79,964 75,432 638,616 1,525,387
Elimination of intersegment balances (686,180)
Investments in associates and jointly
controlled entities 27,127 5,587 153 20 69 32,956
---------
Total assets 872,163
=========
Segment capital expenditure
- for property, plant and equipment 105,192 19,206 10,681 11,309 2,358 148,746
Segment liabilities 181,542 116,002 27,092 43,616 170,152 538,404
Other liabilities 43,517
Elimination of intersegment balances (327,349)
---------
Total liabilities 254,572
=========
-226-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
PRIMARY REPORTING FORMAT - BUSINESS SEGMENTS (CONTINUED)
EXPLORATION REFINING CHEMICALS NATURAL
YEAR ENDED AND AND AND GAS AND
DECEMBER 31, 2007 PRODUCTION MARKETING MARKETING PIPELINE OTHER TOTAL
----------------- ----------- --------- --------- -------- ------- ---------
RMB RMB RMB RMB RMB RMB
Turnover (including intersegment) 468,175 670,844 102,718 50,066 1,718 1,293,521
Less: Intersegment sales (376,451) (63,766) (11,009) (6,610) (648) (458,484)
-------- ------- ------- ------ ------- ---------
Turnover from external customers 91,724 607,078 91,709 43,456 1,070 835,037
======== ======= ======= ====== ======= =========
Depreciation, depletion and amortisation (42,945) (11,184) (5,923) (5,926) (647) (66,625)
Segment result 220,430 9,341 13,256 13,057 (3,388) 252,696
Other costs (13,843) (30,021) (5,425) (562) (2,990) (52,841)
-------- ------- ------- ------ ------- ---------
Profit/(loss) from operations 206,587 (20,680) 7,831 12,495 (6,378) 199,855
-------- ------- ------- ------ -------
Finance costs (2,471)
Share of profit of associates and jointly
controlled entities 6,460 477 41 2 17 6,997
---------
Profit before taxation 204,381
Taxation (49,152)
---------
Profit for the year 155,229
=========
Interest income (including intersegment) 7,346 2,021 804 122 8,846 19,139
Less: Intersegment interest income (17,149)
---------
Interest income from external entities 1,990
=========
Interest expense (including intersegment) (7,492) (4,695) (901) (1,720) (5,936) (20,744)
Less: Intersegment interest expense 17,149
---------
Interest expense to external entities (3,595)
=========
Segment assets 548,895 274,435 94,976 80,252 819,153 1,817,711
Elimination of intersegment balances (784,115)
Investments in associates and jointly
controlled entities 21,339 4,973 138 17 68 26,535
---------
Total assets 1,060,131
=========
Segment capital expenditure
- for property, plant and equipment 134,256 26,546 8,165 11,003 1,613 181,583
Segment liabilities 225,483 145,263 33,389 39,790 188,774 632,699
Other liabilities 43,013
Elimination of intersegment balances (391,928)
---------
Total liabilities 283,784
=========
-227-
PETROCHINA COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS
(Amounts in millions unless otherwise stated)
Note (a) - Intersegment sales are conducted principally at market prices.
Note (b) - Segment result is profit from operations before other costs. Other
costs include selling, general and administrative expenses and other
expenses, net.
Note (c) - Segment results for the years ended December 31, 2007 and December
31, 2006 include impairment for property, plant and equipment
(Note 16).
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 accounts and investments.
Secondary reporting format - geographical segments
TURNOVER TOTAL ASSETS CAPITAL EXPENDITURE
----------------- ------------------- -----------------
YEAR ENDED DECEMBER 31, 2007 2006 2007 2006 2007 2006
----------------------- ------- ------- --------- ------- ------- -------
RMB RMB RMB RMB RMB RMB
PRC 807,706 665,267 979,124 811,919 171,510 142,371
Other (Exploration and Production) 27,331 23,711 81,007 60,244 10,073 6,375
------- ------- --------- ------- ------- -------
835,037 688,978 1,060,131 872,163 181,583 148,746
======= ======= ========= ======= ======= =======
40 APPROVAL OF FINANCIAL STATEMENTS
The financial statements were approved by the Board of Directors on March
19, 2008 and will be submitted to the shareholders for approval at the annual
general meeting to be held on May 15, 2008.
-228-
SUPPLEMENTARY INFORMATION ON OIL AND GAS
EXPLORATION AND PRODUCTION ACTIVITIES (UNAUDITED)
PETROCHINA COMPANY LIMITED (Amounts in millions unless otherwise stated)
In accordance with the US Statement of Financial Accounting Standard No.
69, Disclosures about Oil and Gas Producing Activities, this section provides
supplemental information on oil and gas exploration and producing activities of
the Company and its subsidiaries (the "Group") and also the Group's investments
that are accounted for using the equity method of accounting.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31
-----------------------
2007 2006
---------- ----------
RMB RMB
Sales and other operating revenues 91,724 81,721
Sales to third parties
Intersegment sales 336,999 313,654
------- -------
428,723 395,375
Production costs excluding taxes (63,118) (54,800)
Exploration expenses (20,648) (18,822)
Depreciation, depletion and amortisation (36,400) (31,540)
Taxes other than income taxes (56,474) (41,354)
Accretion expense (1,202) (796)
------- -------
Profit before taxation 250,881 248,063
Taxation (57,386) (65,554)
------- -------
Results of operations from producing activities 193,495 182,509
======= =======
Share of profit from producing activities of associates and
jointly controlled entities 5,293 4,424
======= =======
CAPITALISED COSTS
DECEMBER 31, 2007 DECEMBER 31, 2006
----------------- -----------------
RMB RMB
Property costs -- --
Producing assets 497,117 425,172
Support facilities 171,590 150,149
Construction-in-progress 43,070 25,461
-------- --------
Total capitalised costs 711,777 600,782
Accumulated depreciation, depletion
and amortisation (264,992) (233,677)
-------- --------
Net capitalised costs 446,785 367,105
======== ========
Share of net capitalised costs of associates and
jointly controlled entities 14,252 25,136
======== ========
-229-
SUPPLEMENTARY INFORMATION ON OIL AND GAS
EXPLORATION AND PRODUCTION ACTIVITIES (UNAUDITED)
PETROCHINA COMPANY LIMITED (Amounts in millions unless otherwise stated)
Costs Incurred in Property Acquisitions, Exploration and Development
Activities
YEAR ENDED DECEMBER 31
-----------------------
2007 2006
---------- ----------
RMB RMB
Property acquisition costs -- --
Exploration costs 36,046 30,567
Development costs 96,449 79,902
------- -------
Total 132,495 110,469
======= =======
Share of costs of property acquisition, exploration, and
development of associates and jointly controlled entities 2,911 4,371
======= =======
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 and
natural gas which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under existing
economic and operating conditions, 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 issued
production licenses effective from March 2000 to the Group for all of its crude
oil and natural gas reservoirs with terms similar with the projected productive
life of those reservoirs, ranging up to 55 years. Production licenses to be
issued to the Group in the
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SUPPLEMENTARY INFORMATION ON OIL AND GAS
EXPLORATION AND PRODUCTION ACTIVITIES (UNAUDITED)
PETROCHINA COMPANY LIMITED (Amounts in millions unless otherwise stated)
future will be subject to the 30-year limit 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.
Proved reserve estimates as of December 31, 2007 and 2006 were based on
reports prepared by DeGolyer and MacNaughton and Gaffney, Cline & Associates,
independent engineering consultants. The Group's reserve estimates were prepared
for each oil and gas field within oil and gas regions and adjusted for the
estimated effects of using prices and costs prevailing at the end of the period.
The Company's reserve estimates include only crude oil and natural gas, which
the Company believes can be reasonably produced within the current terms of
production licenses.
Estimated quantities of net proved oil and condensate and natural gas
reserves and of changes in net quantities of proved developed and undeveloped
reserves for each of the period indicated are as follows:
CRUDE OIL AND
CONDENSATE NATURAL GAS
------------- ------------
(MILLIONS OF (BILLIONS OF
BARRELS) CUBIC FEET)
Proved developed and undeveloped
Reserves at January 1, 2006 11,536 48,123
Changes resulting from:
Revisions of previous estimates 197 686
Improved recovery 81 --
Extensions and discoveries 635 6,248
Production (831) (1,588)
------ ------
Reserves at December 31, 2006 11,618 53,469
Changes resulting from:
Revisions of previous estimates 84 (1,062)
Improved recovery 79 --
Extensions and discoveries 764 6,331
Production (839) (1,627)
------ ------
Reserves at December 31, 2007 11,706 57,111
====== ======
Proved developed reserves at:
December 31, 2006 9,185 22,564
December 31, 2007 9,047 26,047
Proportional interest in proved reserves of associates and jointly
controlled entities at:
December 31, 2006 543 105
December 31, 2007 141 79
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SUPPLEMENTARY INFORMATION ON OIL AND GAS
EXPLORATION AND PRODUCTION ACTIVITIES (UNAUDITED)
PETROCHINA COMPANY LIMITED (Amounts in millions unless otherwise stated)
At December 31, 2007, 11,062 million barrels of crude oil and condensate
and 56,510.0 billion cubic feet of natural gas proved developed and undeveloped
reserves are located within China, and 644 million barrels of crude oil and
condensate and 601.0 billion cubic feet of natural gas proved developed and
undeveloped reserves are located overseas.
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, Disclosures about Oil and
Gas Producing Activities. 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, 2006 and 2007 is as follows:
RMB
----------
At December 31, 2006
Future cash inflows from sales of oil and gas 5,611,306
Future production costs (1,620,761)
Future development costs (296,175)
Future income tax expense (1,202,980)
----------
Future net cash flows 2,491,390
Discount at 10% for estimated timing of cash flows (1,336,045)
----------
Standardised measure of discounted future net cash flows 1,155,345
==========
At December 31, 2007
Future cash inflows from sales of oil and gas 8,714,483
Future production costs (3,049,226)
Future development costs (437,946)
Future income tax expense (1,569,898)
----------
Future net cash flows 3,657,413
Discount at 10% for estimated timing of cash flows (1,835,343)
----------
Standardised measure of discounted future net cash flows 1,822,070
==========
Share of standardised measure of discounted future net cash flows of associates
and jointly controlled entities:
At December 31, 2006 59,825
At December 31, 2007 33,543
Future net cash flows were estimated using period-end prices and costs, and
currently enacted tax rates.
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SUPPLEMENTARY INFORMATION ON OIL AND GAS
EXPLORATION AND PRODUCTION ACTIVITIES (UNAUDITED)
PETROCHINA COMPANY LIMITED (Amounts in millions 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, 2006 and 2007 are as follows:
YEAR ENDED DECEMBER 31
----------------------
2007 2006
--------- ----------
RMB RMB
CHANGES IN STANDARDISED MEASURE OF
DISCOUNTED FUTURE CASH FLOWS
Beginning of the year 1,155,345 1,386,194
Sales and transfers of oil and gas produced, net of production
costs (309,269) (328,001)
Net changes in prices and production costs and other 804,330 (317,593)
Extensions, discoveries and improved recovery 256,476 166,249
Development costs incurred (39,031) (47,551)
Revisions of previous quantity estimates (3,567) 32,306
Accretion of discount 171,389 200,771
Net change in income taxes (213,603) 62,970
--------- ---------
End of the year 1,822,070 1,155,345
========= =========
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CORPORATE INFORMATION
BOARD OF DIRECTORS
Chairman: Jiang Jiemin
Executive Director: 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
Zhang Jinzhu Qin Gang
Independent Supervisors: Li Yongwu Wu Zhipan
OTHER SENIOR MANAGEMENT Liao Yongyuan Jia Chengzao
Hu Wenrui Sun Longde
Shen Diancheng Liu Hongbin
Zhou Mingchun Li Hualin
Lin Aiguo
AUTHORISED REPRESENTATIVE Li Huaiqi
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 Centre
202 Hu Bin Road
Shanghai 200021
PRC
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LEGAL ADVISERS TO THE COMPANY
as to Hong Kong law: as to United States law:
Clifford Chance Shearman & Sterling
28th Floor 12th Floor
Jardine House Gloucester Tower
1 Connaught Place The Landmark
Central 15 Queen's Road Central
Hong Kong Central
Hong Kong
as to PRC law:
King and Wood
40th Floor, Office Tower A, Beijing Fortune Plaza
7 Dongsanhuan Zhonglu
Chaoyang District
Beijing 100020
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, Head Office
Head Office 1 Fuxingmennei Avenue
55 Fuxingmennei Avenue Xicheng District
Xicheng District Beijing, PRC
Beijing, PRC
China Construction Bank China Development Bank
25 Finance Street 25 Finance Street
Xicheng District Xicheng District
Beijing, PRC Beijing, PRC
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Bank of Communications, Beijing Branch CITIC Industrial Bank,
Tongtai Mansion, 33 Finance Street Headquarters Branch
Xicheng District A27 Finance Street
Beijing, PRC Xicheng District
Beijing, PRC
Agricultural Bank of China, Head Office The Hongkong and Shanghai
No. 23A, Fuxing Road Banking Corporation
Haidian District Limited Hong Kong Office
Beijing, PRC 1 Queen's Road Central
Hong Kong
DEPOSITORY
The Bank of New York
P.O. Box 11258
Church Street Station
New York
NY 10286-1258
PUBLICATIONS
As required by the Securities Law of the United States, the Company will
file an annual report on Form 20-F with the U.S. Securities and Exchange
Commission ("SEC") on or before June 30, 2008. The annual report on Form 20-F
contains a detailed description of the Company's businesses, operating results
and financial conditions. Copies of the annual report and the Form 20-F
submitted to the SEC will be made available at the following addresses:
PRC PetroChina Company Limited
16 Andelu Dongcheng District
Beijing 100011
PRC
Tel: (8610) 8488 6270
Fax: (8610) 8488 6260
Hong Kong PetroChina Company Limited
Unit 3606
Tower 2 Lippo Centre
89 Queensway
Hong Kong
Tel: (852) 2899 2010
Fax: (852) 2899 2390
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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: 1-201-680-6825
E-mail: shareowners@bankofny.com
Website: http://www.stockbny.com
Shareholders may also browse or download the annual report of the Company
and the Form-20 filed with the SEC 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.
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DOCUMENTS AVAILABLE FOR INSPECTION
The following documents will be available for inspection at the registered
office of the Company upon requests by the relevant regulatory authorities and
shareholders in accordance with the Articles of Association and the laws and
regulations of the PRC:
1. The original of the annual report for 2007 signed by the Chairman of the
Board.
2. The financial statements under the hand and seal of the Legal
Representative, Chief Financial Officer, 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.
4. The original copies of the documents and announcement of the Company
published in the newspaper stipulated by the China Securities Regulatory
Commission during the reporting period.
5. Copies of all Chinese and English announcements of the Company published
in Hong Kong newspapers during the period of the annual report.
6. The Articles of Association of the Company.
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CONFIRMATION FROM THE DIRECTORS AND SENIOR MANAGEMENT
According to the relevant provisions and requirements of the Securities Law
of the People's Republic of China and Measures for Information Disclosure of
Companies Offering Shares to the Public promulgated by the China Securities
Regulatory Commission, as the Board Directors and senior management of
PetroChina Company Limited, we have carefully reviewed the annual report for
2007 and concluded that this annual report truly and objectively represents the
business performance of the Company in 2007, it contains no false
representations, misleading statements or material omissions and complies with
the requirements of the China Securities Regulatory Commission and other
relevant regulatory authorities.
Signatures of the Directors and Senior Management:
/s/ Jiang Jiemin /s/ Duan Wende /s/ Zheng Hu /s/ Zhou Jiping
Jiang Jiemin Duan Wende Zheng Hu Zhou Jiping
/s/ Wang Yilin /s/ Zeng Yukang /s/ Gong Huazhang /s/ Jiang Fan
Wang Yilin Zeng Yukang Gong Huazhang Jiang Fan
/s/ Chee-Chen Tung /s/ Liu Hongru /s/ Franco Bernabe
Chee-Chen Tung Liu Hongru Franco Bernabe
/s/ Liao Yongyuan /s/ Jia Chengzao /s/ Hu Wenrui /s/ Sun Longde
Liao Yongyuan Jia Chengzao Hu Wenrui Sun Longde
/s/ Shen Diancheng /s/ Liu Hongbin /s/ Zhou Mingchun /s/ Li Hualin
Shen Diancheng Liu Hongbin Zhou Mingchun Li Hualin
/s/ Lin Aiguo /s/ Li Huaiqi
Lin Aiguo Li Huaiqi
March 19, 2008
This annual report is published in English and Chinese.
In the event of any inconsistency between the two versions, the Chinese version
shall prevail.
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