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 August 2005
PETROCHINA COMPANY LIMITED
16 ANDELU, DONGCHENG DISTRICT
BEIJING, THE PEOPLE'S REPUBLIC OF CHINA, 100011
(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.)
Form 20-F X Form 40-F
--- ---
(Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes No X
--- ---
(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82- )
--------------
PetroChina Company Limited (the "Registrant") is furnishing under the cover
of Form 6-K, the Registrant's announcement with respect to its interim earnings
results for the six months ended June 30th, 2005.
This announcement contains "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements
are, by their nature, subject to significant risks and uncertainties. These
forward-looking statements include, without limitation, statements relating to:
o the anticipated effects of a proposed acquisition of certain overseas
assets from one of its affiliates;
o the Registrant's plan to improve production and operational efficiency
and profitability
o the Registrant's other future plans and prospects.
These forward-looking statements reflect our current views with respect to
future events and are not a guarantee of future performance. Actual results may
differ materially from information contained in these forward-looking statements
as a result of a number of factors, including, without limitation:
o fluctuations in crude oil and natural gas prices;
o failure to achieve continued exploration success;
o failure or delay in achieving production from development projects;
o failure to complete the proposed acquisition of certain overseas
assets as planned;
o change in demand for competing fuels in the target market;
o continued availability of capital and financing;
o general economic, market and business conditions;
o changes in policies, laws or regulations of the PRC and other
jurisdictions in which the Registrant and its subsidiaries conduct
business; and
o other factors beyond the Registrant's control.
We do not intend to update or otherwise revise the forward-looking
statements in this announcement, whether as a result of new information, future
events or otherwise. Because of these risks, uncertainties and assumptions, the
forward-looking events and circumstances discussed in this announcement might
not occur in the way we expect, or at all.
You should not place undue reliance on any of these forward-looking
statements.
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: August 25, 2005 By: /s/ Li Huaiqi
-------------------------------
Name: Li Huaiqi
Title: Company Secretary
(PETROCHINA LOGO)
PETROCHINA COMPANY LIMITED
(a joint stock limited company incorporated in
the People's Republic of China with limited liability)
(STOCK CODE: 857)
ANNOUNCEMENT OF THE INTERIM RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2005
FINANCIAL AND BUSINESS SUMMARY
--------------------------------------------------------------------------------
Output of crude oil for the first half of 2005 was 396.6 million barrels,
representing an increase of 2.1% from the first half of 2004.
Output of marketable natural gas for the first half of 2005 was 506.4 billion
cubic feet, representing an increase of 23.4% from the first half of 2004.
Total output of crude oil and natural gas for the first half of 2005 was 481.0
million barrels of oil equivalent, representing an increase of 5.3% from the
first half of 2004.
Consolidated turnover for the first half of 2005 was RMB252,489 million,
representing an increase of 41.5% from the first half of 2004.
Consolidated net profit* for the first half of 2005 was RMB61,624 million,
representing an increase of 36.1% from the first half of 2004.
Basic and diluted earnings per share for the first half of 2005 were RMB0.35,
representing an increase of RMB0.09 per share from the first half of 2004.
THE BOARD OF DIRECTORS HAS RESOLVED TO DISTRIBUTE AN INTERIM DIVIDEND FOR 2005
OF RMB0.157719 PER SHARE.
* Profit attributable to the Company's shareholders
--------------------------------------------------------------------------------
1
The Board of Directors (the "BOARD") of PetroChina Company Limited (the
"COMPANY") is pleased to announce the unaudited consolidated interim results of
the Company and its subsidiaries (the "GROUP") for the six months ended June 30,
2005 and its financial position as of June 30, 2005:
CONSOLIDATED PROFIT AND LOSS ACCOUNT
SIX MONTHS ENDED JUNE 30
-----------------------------
2005 2004
---- ----
(UNAUDITED) (UNAUDITED)
----------- -----------
(NOTE 1)
--------
NOTES (RMB (RMB
MILLION) MILLION)
-------- --------
TURNOVER 3 252,489 178,404
-------- --------
OPERATING EXPENSES
Purchases, services and other (96,362) (51,272)
Employee compensation costs (12,800) (10,540)
Exploration expenses, including exploratory dry holes (8,528) (5,630)
Depreciation, depletion and amortization (25,791) (24,746)
Selling, general and administrative expenses (13,797) (12,794)
Taxes other than income taxes (10,660) (9,417)
Other income, net 986 251
-------- --------
TOTAL OPERATING EXPENSES (166,952) (114,148)
-------- --------
PROFIT FROM OPERATIONS 85,537 64,256
-------- --------
FINANCE COSTS
Exchange gain 96 35
Exchange loss (16) (25)
Interest income 537 453
Interest expense (1,185) (1,413)
-------- --------
TOTAL FINANCE COSTS (568) (950)
-------- --------
SHARE OF PROFIT OF ASSOCIATES 498 603
-------- --------
PROFIT BEFORE TAXATION 4 85,467 63,909
TAXATION 5 (23,246) (17,899)
-------- --------
PROFIT FOR THE PERIOD 62,221 46,010
======== ========
ATTRIBUTABLE TO:
Equity holders of the Company 61,624 45,276
Minority interests 597 734
-------- --------
62,221 46,010
======== ========
BASIC AND DILUTED EARNINGS PER SHARE FOR PROFIT ATTRIBUTABLE TO
EQUITY HOLDERS OF THE COMPANY DURING THE PERIOD (RMB) 6 0.35 0.26
======== ========
DIVIDENDS ATTRIBUTABLE TO:
Interim dividend proposed after the balance sheet date 8 27,731 20,381
======== ========
CONSOLIDATED BALANCE SHEET
2
JUNE 30, 2005 DECEMBER 31, 2004
------------- -----------------
(UNAUDITED) (AUDITED)
----------- ---------
(NOTE 1)
--------
(RMB MILLION) (RMB MILLION)
------------- -------------
NON CURRENT ASSETS
Property, plant and equipment 471,457 469,705
Investments in associates 7,085 7,953
Available-for-sale investments 2,056 1,510
Advance operating lease payments 12,918 12,283
Intangible and other assets 2,893 3,020
------- -------
496,409 494,471
------- -------
CURRENT ASSETS
Inventories 52,208 46,214
Accounts receivable 4,888 2,733
Prepaid expenses and other current assets 26,573 17,089
Notes receivable 3,831 4,838
Investments in collateralized loans 443 5,620
Time deposits with maturities over three months 1,500 1,400
Cash and cash equivalents 69,857 38,982
------- -------
159,300 116,876
------- -------
CURRENT LIABILITIES
Accounts payable and accrued liabilities 86,226 71,016
Income tax payable 12,357 17,484
Other taxes payable 7,140 4,806
Short-term borrowings 28,303 28,093
------- -------
134,026 121,399
------- -------
NET CURRENT ASSETS/(LIABILITIES) 25,274 (4,523)
------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES 521,683 489,948
======= =======
EQUITY
3
Equity attributable to equity holders of the Company
Share capital
-- State-owned shares of RMB1.00 each 158,242 158,242
-- H shares of RMB1.00 each 17,582 17,582
-------- --------
175,824 175,824
Retained earnings 178,544 142,856
Reserves 106,309 106,318
-------- --------
460,677 424,998
Minority interests 8,979 9,393
-------- --------
Total equity 469,656 434,391
-------- --------
NON CURRENT LIABILITIES
Long-term borrowings 35,357 38,769
Other long-term obligations 705 2,448
Deferred taxation 15,965 14,340
-------- --------
52,027 55,557
-------- --------
521,683 489,948
======== ========
NOTES:
1. ACCOUNTING POLICIES
The consolidated interim condensed financial statements have been prepared
in accordance with International Accounting Standards ("IAS") 34 "Interim
Financial Reporting". The accounting policies and methods of computation
used in the preparation of the consolidated interim condensed financial
statements are consistent with those used in the preparation of the
financial statements for the year ended December 31, 2004 except for the
ones modified by the Company as a result of the adoption of the new revised
International Financial Reporting Standards ("IFRS").
In 2005, the Group adopted the new revised IFRS below, which are relevant
to its operations. The 2004 comparative numbers have been amended as
required, in accordance with the relevant requirements. The adoption of the
IFRS did not result in substantial changes to the Group's accounting
policies. In summary:
-- IAS 1 and 27 (both revised in 2003) has affected the presentation of
minority interests. IAS 1 (revised in 2003) also has affected the
presentation of share of profit of associates and requires the
disclosure of critical accounting estimates.
-- IAS 2, 8, 10, 16, 17, 21, 28, 32, 33 (all revised in 2003) and 39
(revised in 2004) and IFRS 2 had no material effect on the Group's
policies.
-- IAS 24 (revised in 2003) has affected the identification of related
parties and some other related-party disclosures. (See the revised
accounting policy below)
4
-- IFRS 5 has resulted in a change in the accounting policy relating to
the recognition of assets held for sale or discontinued operation,
which did not have any material impact on the results and financial
positions of the Group as the Group did not hold material assets in
this category during the periods presented.
-- The Group has early adopted IFRS 6, which did not require a change in
the accounting policies for exploration and evaluation activities.
Related parties include China National Petroleum Corporation ("CNPC") and
its subsidiaries, other state-controlled enterprises and their subsidiaries
directly or indirectly controlled by the PRC government, corporations in
which the Company is able to control or exercise significant influence, key
management personnel of the Company and CNPC and their close family
members.
The consolidated interim condensed financial statement presented herein
should be read in conjunction with the consolidated financial statements
and notes thereto included in the annual report of the Group for the year
ended December 31, 2004. The consolidated interim condensed financial
statements as of June 30, 2005 and for the six-month periods ended June 30,
2005 and June 30, 2004 included herein are unaudited but reflect, in the
opinion of the Board of Directors, all adjustments (which include only
normal recurring adjustments) necessary to properly prepare the
consolidated interim condensed financial statements, in all material
respects, in accordance with IAS 34. The results of operations for the six
months ended June 30, 2005 are not necessarily indicative of the results of
operations expected for the year ending December 31, 2005.
Costs that were incurred unevenly during the financial year are anticipated
or deferred in these consolidated interim condensed financial statements
only if it would be also appropriate to anticipate or defer such costs at
the end of the financial year.
Income tax expense is recognized based on the best estimate of the weighted
average annual income tax rate expected for the full financial year. The
estimated average annual tax rate used for the six months ended June 30,
2005 is principally 25% (six months ended June 30, 2004: 27%).
In accordance with the acquisition agreement between the Company and CNPC
dated March 28, 2005, the Company has acquired the petroleum and natural
gas-related refinery and petrochemical businesses respectively owned by
CNPC's wholly-owned subsidiaries, Ningxia Dayuan Refinery and Petrochemical
Company Limited ("Dayuan") and Qingyang Refinery and Petrochemical Company
Limited ("Qingyang"), from CNPC for which the Company paid a cash
consideration of RMB9.14 million. The RMB9.14 million purchase price was
included as payable to CNPC at June 30, 2005.
The acquisition is a combination of businesses under common control since
the Company and the CNPC's refinery and petrochemical businesses owned by
Dayuan and Qingyang are under the common control of CNPC. As a result, the
Company has accounted for the acquisition in a manner similar to a uniting
of interests, whereby the assets and liabilities acquired are accounted for
at historical cost to CNPC (net liabilities of RMB183 million at the
effective date). The consolidated financial statements have been restated
to give effect to the acquisition with all period presented as if the
operations of the Company and these refinery and petrochemical businesses
have always been combined. The difference between RMB9.14 million paid and
the net liabilities transferred from CNPC has been adjusted against equity.
5
The summarized results of operations for the refinery and petrochemical
businesses and on a consolidation basis for the six months ended June 30,
2004 are set out below:
REFINERY AND
PETROCHEMICAL
PETROCHINA BUSINESSES CONSOLIDATED
---------- ------------- ------------
(RMB MILLION) (RMB MILLION) (RMB MILLION)
------------- ------------- -------------
Results of operations:
Turnover 179,552 1,975 178,404
Profit/(Loss) for the period 46,026 (16) 46,010
Basic and diluted earnings per share for profit
attributable to the equity holders of the
Company (RMB) 0.26 0.00 0.26
FINANCIAL POSITION:
Total Assets 567,172 1,909 569,010
Total Liabilities 173,023 2,000 174,952
Net Assets/(Liabilities) 394,149 (91) 394,058
2. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
Estimates and judgments are continually evaluated and are based on
historical experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
The matters described below are considered to be the most critical in
understanding the judgments that are involved in preparing the Group's
financial statements:
(a) ESTIMATION OF OIL AND NATURAL GAS RESERVE
Oil and gas reserves are key elements in the Group's investment
decision-making process. They are also an important element in testing
for impairment. Changes in proved oil and natural gas reserves,
particularly proved developed reserves, will affect unit-of-production
depreciation charges to income. Proved reserve estimates are subject
to revision, either upward or downward, based on new information, such
as from development drilling and production activities or from changes
in economic factors, including product prices, contract terms or
development plans. In general, changes in the technical maturity of
oil and gas reserves resulting from new information becoming available
from development and production activities have tended to be the most
significant cause of annual revisions. Changes to the Group's
estimates of proved reserves, particularly proved developed reserves,
may affect the amount of depreciation, depletion and amortization
recorded in the Group's financial statements for property, plant and
equipment related to oil and gas production activities. A reduction in
proved developed reserves will increase depreciation, depletion and
amortization charges (assuming constant production) and reduce net
income.
(b) ESTIMATED IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including oil and gas properties are
reviewed for possible impairment when events or changes in
circumstances indicate that the carrying amount may not be
recoverable. Determination as to whether and how much an asset is
impaired involves management estimates on highly uncertain matters,
such as future prices of crude oil, refined products and chemical
products, production profile, etc. However, the impairment reviews and
calculations are based on assumptions that are consistent with the
Group's business plan. These assumptions also include those relative
to the pricing regulations by the regulatory agencies in China that
the policies will not restrict the profit margins of refined products
to levels that will be insufficient to recover the carrying cost of
the related production assets. Favourable changes to some assumptions
might have avoided
6
the need to impair any assets in these periods, whereas unfavourable
changes might have caused an additional unknown number of other assets
to become impaired.
3. 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
9.
4. PROFIT BEFORE TAXATION
SIX MONTHS ENDED JUNE 30
------------------------
2005 2004
-------- --------
(RMB MILLION) (RMB MILLION)
------------- -------------
Profit before taxation is arrived at after crediting and charging of the
following items:
Crediting
Dividend income from available-for-sale investments 78 62
Reversal of impairment of receivables 169 274
Reversal of impairment of available-for-sale investments 1 4
Reversal of write down in inventories 87 122
Charging
Amortization on intangible and other assets 319 384
Cost of inventories (approximate cost of goods sold) recognized as
expense 124,200 79,056
Depreciation on property, plant and equipment (including impairment
provision)
-- owned assets 24,543 24,063
-- assets under finance leases 7 8
Impairment of available-for-sale investments -- 28
Impairment of receivables 2 1,027
Interest expense (Note (a)) 1,185 1,413
Loss on disposal of property, plant and equipment 41 99
Operating lease expenses 2,525 1,855
Repair and maintenance 2,493 2,504
7
Research and development expenditure 1,043 906
Write down in inventories 16 126
======== ========
Note (a) INTEREST EXPENSE
Interest expense 1,586 1,760
Less: Amounts capitalized (401) (347)
-------- --------
1,185 1,413
======== ========
5. TAXATION
SIX MONTHS ENDED JUNE 30
------------------------
2005 2004
------- -------
(RMB MILLION) (RMB MILLION)
------------- -------------
Income tax 21,621 18,010
Deferred tax 1,625 (111)
------- -------
23,246 17,899
======= =======
In accordance with the relevant PRC income tax rules and regulations, the
PRC income tax rate applicable to the Group is principally 33% (2004: 33%).
Operations of the Group in certain regions in China have qualified for
certain tax incentives in the form of reduced income tax rate to 15%
through the year 2010 or accelerated depreciation of certain plant and
equipment.
The tax on the Group's profit before taxation differs from the theoretical
amount that would arise using the basic tax rate in the PRC applicable to
the Group as follows:
SIX MONTHS ENDED JUNE 30
------------------------
2005 2004
------- -------
(RMB MILLION) (RMB MILLION)
------------- -------------
Profit before taxation 85,467 63,909
------- -------
Tax calculated at a tax rate of 33% 28,204 21,090
Prior year tax return adjustment 364 2
Effect of preferential tax rate (4,946) (2,668)
Income not subject to tax (406) (592)
Expenses not deductible for tax purposes 30 67
------- -------
Tax charge 23,246 17,899
======= =======
8
6. BASIC AND DILUTED EARNINGS PER SHARE
Basic and diluted earnings per share for the six months ended June 30, 2005
and 2004 have been computed by dividing the profit attributable to equity
holders of the Company by the number of 175,824 million shares issued and
outstanding for each of the periods.
There are no dilutive potential ordinary shares.
7. CHANGES IN EQUITY
ATTRIBUTABLE TO EQUITY HOLDERS
OF THE COMPANY
-----------------------------------------
SHARE RETAINED MINORITY TOTAL
CAPITAL EARNINGS RESERVES INTERESTS EQUITY
-------- -------- -------- --------- --------
(RMB (RMB (RMB (RMB (RMB
MILLION) MILLION) MILLION) MILLION) MILLION)
-------- -------- -------- -------- --------
Balance at January 1, 2004 as previously
presented 175,824 89,577 91,212 -- 356,613
Representation as a result of the
adoption of the revised IAS1 and IAS27 -- -- -- 5,608 5,608
(Note 1)
Adjustment for the acquisition of the
refinery and petrochemical business -- (633) 554 5 (74)
(Note 1) -------- -------- -------- -------- --------
Balance at January 1, 2004 175,824 88,944 91,766 5,613 362,147
Profit from January 1 to June 30, 2004 -- 45,276 -- 734 46,010
Final dividend attributable to equity
holders of the Company for 2003 (Note 8) -- (13,947) -- -- (13,947)
Dividend to minority interests -- -- -- (143) (143)
Other movement -- -- -- (9) (9)
-------- --------
Balance at June 30, 2004 175,824 120,273 91,766 6,195 394,058
======== ======== ======== ======== ========
Balance at January 1, 2005 as previously
presented 175,824 143,624 105,764 -- 425,212
Representation as a result of the
adoption of the revised IAS1 and IAS 27 -- -- -- 9,391 9,391
(Note 1)
Adjustment for the acquisition of the
refinery and petrochemical business -- (768) 554 2 (212)
(Note 1) -------- -------- -------- -------- --------
Balance at January 1, 2005 175,824 142,856 106,318 9,393 434,391
9
Profit from January 1 to June 30, 2005 -- 61,624 -- 597 62,221
Final dividend attributable to equity
holders of the Company for 2004 (Note 8) -- (25,936) -- -- (25,936)
Payment to CNPC for acquisition of
refinery and petrochemical business -- -- (9) -- (9)
(Note 1)
Dividends to minority interests -- -- -- (214) (214)
Return capital to minority interests due
to liquidation of subsidiaries -- -- -- (848) (848)
Other movement -- -- -- 51 51
------- ------- ------- ----- -------
Balance at June 30, 2005 175,824 178,544 106,309 8,979 469,656
======= ======= ======= ===== =======
8. DIVIDENDS ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY
SIX MONTHS ENDED JUNE 30
------------------------
2005 2004
------ ------
(RMB (RMB
MILLION) MILLION)
-------- --------
Final dividend attributable to equity holders of the Company for 2003
(Note (i)) -- 13,947
Final dividend attributable to equity holders of the Company for 2004
(Note (ii)) 25,936 --
------ ------
25,936 13,947
====== ======
(i) A final dividend attributable to equity holders of the Company in
respect of 2003 of RMB0.079324 per share amounting to a total of
RMB13,947 million was paid on June 2, 2004, and was accounted for in
equity as an appropriation of retained earnings in the six months
ended June 30, 2004.
(ii) A final dividend attributable to equity holders of the Company in
respect of 2004 of RMB0.147511 per share amounting to a total of
RMB25,936 million was paid on June 10, 2005, and was accounted for
in equity as an appropriation of retained earnings in the six months
ended June 30, 2005.
(iii) As authorized by shareholders in the Annual General Meeting on May
26, 2005, the Board of Directors, in a meeting held on August 24,
2005, resolved to distribute an interim dividend attributable to
equity holders of the Company in respect of 2005 of RMB0.157719 per
share amounting to a total of RMB27,731 million. These financial
statements do not reflect this dividend payable, as it was not
authorized until after the balance sheet date.
9. 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.
10
The Exploration and Production segment is engaged in the exploration,
development, production and sales of crude oil and natural gas.
The Refining and Marketing segment is engaged in the refining,
transportation, storage and marketing of crude oil and petroleum products.
The Chemicals and Marketing segment is engaged in the production and sales
of basic petrochemical products, derivative petrochemical products and
other chemical products.
The Natural Gas and Pipeline segment is engaged in the transmission of
natural gas, crude oil and refined products, and the sale of natural gas.
In addition to these four major business segments, the Other segment
includes the assets, income and expenses relating to cash management,
financing activities, the corporate center, research and development, and
other business services to the operating business segments of the Group.
Substantially all assets and operations of the Group are located in the
PRC, which is considered as one geographic location in an economic
environment with similar risks and returns. In addition to its operations
in the PRC, the Group conducts exploration and production of crude oil and
natural gas in Indonesia.
The accounting policies of the operating segments are the same as those
described in Note 1 -- "Accounting Policies".
Operating segment information for the six months ended June 30, 2005 and
2004 is presented below:
PRIMARY REPORTING FORMAT -- BUSINESS SEGMENTS
EXPLORATION REFINING CHEMICALS NATURAL
SIX MONTHS ENDED AND AND AND GAS AND
JUNE 30, 2005 PRODUCTION MARKETING MARKETING PIPELINE OTHER TOTAL
---------------- ----------- --------- --------- -------- ----- -----
(RMB (RMB (RMB (RMB (RMB (RMB
MILLION) MILLION) MILLION) MILLION) MILLION) MILLION)
-------- -------- -------- -------- -------- --------
Turnover (including
intersegment) 143,895 200,883 37,035 11,874 -- 393,687
Less: Intersegment
sales (121,484) (15,098) (2,125) (2,491) -- (141,198)
-------- ------- ------ ------ --------
Turnover from
external customers 22,411 185,785 34,910 9,383 -- 252,489
======== ======= ====== ====== ===== ========
Depreciation,
depletion and (16,073) (5,135) (2,452) (2,083) (48) (25,791)
amortization
Segment result 87,205 2,959 6,736 1,666 (218) 98,348
Other costs (2,512) (8,908) (980) (188) (223) (12,811)
-------- ------- ------ ------ ----- --------
Profit/(loss) from
operations 84,693 (5,949) 5,756 1,478 (441) 85,537
======== ======= ====== ====== ===== ========
11
EXPLORATION REFINING CHEMICALS NATURAL
Six months ended AND AND AND GAS AND
June 30, 2004 PRODUCTION MARKETING MARKETING PIPELINE OTHER TOTAL
----------- --------- --------- -------- ----- -----
(RMB (RMB (RMB (RMB (RMB (RMB
MILLION) MILLION) MILLION) MILLION) MILLION) MILLION)
-------- -------- -------- -------- -------- --------
Turnover (including
intersegment) 99,526 137,491 25,434 8,917 -- 271,368
Less: Intersegment
sales (80,270) (9,504) (1,332) (1,858) -- (92,964)
-------- -------- -------- -------- -------- --------
Turnover from
external customers 19,256 127,987 24,102 7,059 -- 178,404
======== ======== ======== ======== ======== ========
Depreciation,
depletion and (14,511) (4,909) (4,002) (1,274) (50) (24,746)
amortization
Segment result 55,607 17,087 3,190 1,321 (406) 76,799
Other costs (2,906) (8,103) (1,237) (88) (209) (12,543)
-------- -------- -------- -------- -------- --------
Profit/(loss) from
operations 52,701 8,984 1,953 1,233 (615) 64,256
======== ======== ======== ======== ======== ========
SECONDARY REPORTING FORMAT -- GEOGRAPHICAL SEGMENTS
TURNOVER TOTAL ASSETS CAPITAL EXPENDITURE
-------- ------------ -------------------
SIX MONTHS ENDED JUNE 30 2005 2004 2005 2004 2005 2004
------------------------ ------- ------- ------- ------- ------ ------
(RMB (RMB (RMB (RMB (RMB (RMB
MILLION) MILLION) MILLION) MILLION) MILLION) MILLION)
-------- -------- -------- -------- -------- --------
PRC 251,853 177,896 651,945 565,359 31,285 28,291
Other 636 508 3,764 3,651 307 400
------- ------- ------- ------- ------ ------
252,489 178,404 655,709 569,010 31,592 28,691
======= ======= ======= ======= ====== ======
10. SIGNIFICANT DIFFERENCES BETWEEN IFRS AND US GAAP
The consolidated interim condensed financial statements have been prepared
in accordance with IFRS, which differ in certain material respects from the
accounting principles generally accepted in the United States of America
("US GAAP"). Such differences involve methods for measuring the amounts
shown in the financial statements, as well as additional disclosures
required by US GAAP.
Effect on income of significant differences between IFRS and US GAAP is as
follows:
12
SIX MONTHS ENDED
JUNE 30
---------------------
2005 2004
------ ------
(RMB (RMB
MILLION) MILLION)
-------- --------
Profit for the period under IFRS 62,221 46,010
US GAAP adjustments:
Depreciation charges on property, plant and equipment revaluation gain 3,436 4,391
Depreciation charges on property, plant and equipment revaluation loss (127) (465)
Loss on disposal of revalued property, plant and equipment 2 47
Income tax effect (1,092) (1,311)
Minority interests (627) (764)
------ ------
Net income under US GAAP 63,813 47,908
====== ======
Basic and diluted net income per share under US GAAP (RMB) 0.36 0.27
====== ======
Effect on equity of significant differences between IFRS and US GAAP is as
follows:
JUNE 30, DECEMBER 31,
2005 2004
------- ------------
(RMB (RMB
MILLION) MILLION)
-------- --------
Equity under IFRS 469,656 434,391
US GAAP adjustments:
Reversal of property, plant and equipment revaluation gain (80,555) (80,555)
Depreciation charges on property, plant and equipment revaluation gain 48,879 45,443
Reversal of property, plant and equipment revaluation loss 1,513 1,513
Depreciation charges on property, plant and equipment revaluation loss (1,437) (1,310)
Loss on disposal of revalued property, plant and equipment 1,316 1,314
Deferred tax assets on revaluation 9,999 11,091
Minority interests (8,705) (9,089)
Effect on the retained earnings from the one-time remedial payments for
staff housing borne by the state shareholder of the Company (2,553) (2,553)
Effect on the other reserves of the shareholders' equity from the one-time
remedial payments for staff housing borne by the state shareholder of the 2,553 2,553
------- -------
Company
Shareholders' equity under US GAAP 440,666 402,798
======= =======
Changes in shareholders' equity under US GAAP for each of the periods ended
June 30, 2005 and June 30, 2004 are as follows:
13
SIX MONTHS ENDED
JUNE 30
-----------------------
2005 2004
---- ----
(RMB (RMB
---- ----
MILLION) MILLION)
-------- --------
Beginning of the period 402,798 329,126
Net profit for the period 63,813 47,908
Final dividend for year 2003 -- (13,947)
Final dividend for year 2004 (25,936) --
Payment to CNPC for acquisition of refinery and petrochemical business
(Note 1) (9) --
------- -------
End of the period 440,666 363,087
======= =======
In preparing the summary of differences between IFRS and US GAAP,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities, and the estimates of revenues and expenses.
Accounting estimates have been employed in these financial statements to
determine reported amounts, including realizability, useful lives of
tangible and intangible assets, income taxes and other areas. Actual
results could differ from those estimates.
A summary of the principal differences and additional disclosures
applicable to the Group is set out below:
(a) REVALUATION OF PROPERTY, PLANT AND EQUIPMENT
The property, plant and equipment, excluding oil and gas reserves,
transferred to the Company by CNPC were appraised as of June 30, 1999,
as required by the relevant PRC regulations, by a firm of independent
valuers registered in the PRC, China Enterprise Appraisal. As at
September 30, 2003, a revaluation of the Group's refining and chemical
production equipment was undertaken by a firm of independent valuers
registered in the PRC, China United Assets Appraiser Co., Ltd, on a
depreciated replacement cost basis.
The June 1999 revaluation resulted in RMB80,549 million in excess of
the prior carrying value and a revaluation loss of RMB1,122 million on
certain property, plant and equipment.
The September 2003 revaluation resulted in RMB872 million in excess of
the carrying value of certain property, plant and equipment
immediately prior to the revaluation and a revaluation loss of
RMB1,257 million.
The depreciation charge, which includes impairment charge, on the
revaluation surplus from January 1, 2005 to June 30, 2005 was RMB3,436
million, and from January 1, 2004 to June 30, 2004 was RMB4,391
million.
The depreciation charge, which includes impairment charge, on the
revaluation loss from January 1, 2005 to June 30, 2005 was RMB127
million, and from January 1, 2004 to June 30, 2004 was RMB465 million.
The loss on disposal of revalued property, plant and equipment from
January 1, 2005 to June 30, 2005 was RMB2 million, and from January 1,
2004 to June 30, 2004 was RMB47 million.
14
For purposes of reconciling to the US GAAP financial data, the effect
of the revaluation, the related depreciation charges and loss on
disposal is reversed. A deferred tax asset relating to the reversal of
the effect of revaluation in 1999 is established, together with a
corresponding increase in the shareholders' equity. Under a special
approval granted by the Ministry of Finance, the effect of the
revaluation in 1999 is available as additional depreciation base for
purposes of determining taxable income.
(b) ONE-TIME REMEDIAL PAYMENTS FOR STAFF HOUSING
The Ministry of Finance of the PRC issued several public notices and
regulations during the year ended December 31, 2000 and 2001 with
respect to the one-time remedial payments for staff housing payable to
certain employees who joined the workforce prior to December 31, 1998
and have housing conditions below local standards as determined in
accordance with government regulations and guidelines. These Ministry
of Finance notices and regulations also provided that the portion of
remedial payments attributable to the periods prior to a restructuring
of the employer enterprise from a wholly state-owned status to a less
than wholly state-owned status is to be borne by the state shareholder
of the enterprise.
The restructuring that resulted in the formation of the Group took
place in November 1999. As such, the one-time remedial housing
payments payable to the eligible employees of the Group are to be
borne by the state shareholder of the Group.
Under IFRS, such direct payments to employees or reimbursements will
not be recorded through the consolidated profit and loss account of
the Group. US GAAP contains no such exemption but requires this
principal shareholder's action on behalf of the Company to be recorded
in the consolidated profit and loss account. In the last quarter of
year 2002, the Group and CNPC completed the process of estimating the
amount payable to qualified employees of the Group. This amount,
RMB2,553 million, was reflected in determining net income of the Group
for the year ended December 31, 2002, under US GAAP. Since this amount
is borne by CNPC, a corresponding amount has been included as an
addition to the other reserves in the shareholders' equity of the
Group. There were no significant changes in this estimate during 2004
and the first half of 2005.
(c) MINORITY INTERESTS
In accordance with the revised IAS 1 and IAS 27, minority interests
becomes part of the profit for the period and total equity of the
Group, whereas under US GAAP, it is respectively excluded from the net
income and shareholders' equity of the Group. In addition, this
reconciling item also includes the impact of minority interest's share
of the revaluation gain and loss, on the property, plant and equipment
of non-wholly owned subsidiaries, to net income and shareholders'
equity under US GAAP.
(d) RECENT US ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Statements Board ("FASB")
revised the Statement of Financial Accounting Standards No. 123 --
"Share-Based Payment" ("FAS 123(R)"). FAS 123(R) requires all
share-based payments to employees, including grants of employee stock
options, to be recognized in the financial statements based on their
fair values. Pro forma disclosure is no longer an alternative to
financial statement recognition. FAS 123(R) is effective as of the
beginning of the company's first fiscal year that begins after June
15, 2005. The Group is evaluating the transition provisions allowed by
FAS 123(R). The Group does not expect the adoption of FAS 123(R) to
have a material impact on the Group's financial position or
operational results.
On November 24, 2004, the FASB issued Statement No. 151, "Inventory
Costs", an amendment of ARB No. 43, Chapter 4 (FAS 151). FAS 151
requires that abnormal amounts of idle capacity and spoilage costs be
excluded from the cost of inventory and expensed when incurred. The
provisions of FAS 151 are applicable to inventory costs incurred
during fiscal years beginning after June 15, 2005. The Group does not
expect the
15
adoption of FAS 151 to have a material impact on the Group's financial
position or results of operation.
On December 15, 2004, the FASB issued Statement No. 153, "Exchanges of
Non-monetary Assets", an amendment of APB Opinion No. 29 (FAS 153).
FAS 153 requires exchanges of productive assets to be accounted for at
fair value, rather than at carryover basis, unless (1) neither the
asset received nor the asset surrendered has a fair value that is
determinable within reasonable limits or (2) the transactions lack
commercial substance. FAS 153 is effective for non-monetary asset
exchanges occurring in fiscal periods beginning after June 15, 2005.
The Group does not expect the adoption of FAS 153 to have a material
impact on the Group's financial position or results of operation.
In May 2005, the FASB issued FAS No. 154, "Accounting changes and
Error Corrections" (FAS 154) which replaces APB Opinion No. 20
"Accounting Changes" and FAS No. 3, "Reporting Accounting Changes in
Interim Financial Statements-An Amendment of APB Opinion No. 28". FAS
154 provides guidance on the accounting for and reporting of
accounting changes and error corrections. It establishes retrospective
application or the earliest date practicable as the required method
for reporting a change in accounting principle and the reporting of a
correction of an error. FAS 154 is effective for accounting changes
and corrections of errors made in fiscal years beginning after
December 15, 2005. The Group is currently evaluating the effect that
the adoption of FAS 154 will have on its consolidated results of
operations and financial condition but does not expect it to have a
material impact.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the consolidated
interim condensed financial statements for the Group and the notes thereto
contained in the information required under paragraphs 46(1) to 46(9) of
Appendix 16 to the Rules Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited (the "LISTING RULES") which will be submitted to
the Hong Kong Stock Exchange ("HKSE") for publication on the website of the
HKSE.
OVERVIEW
For the six months ended June 30, 2005, the profit before taxation of the Group
was RMB85,467 million, representing an increase of 33.7% from the corresponding
period of last year. Net profit was RMB61,624 million, representing an increase
of 36.1% from the corresponding period of last year. The continued rapid
improvement of the Company's operating results was primarily attributable to the
optimal use of its competitive edge in upstream activities, streamlining of its
downstream structures, speeding up of the construction of pipelines and
enhancement of operation management during a period of sustained high oil
prices.
For the six months ended June 30, 2005, the Company's basic and diluted earnings
per share was RMB0.35.
COMPARISON BETWEEN THE SIX-MONTH PERIOD ENDED JUNE 30, 2005 AND THE SIX-MONTH
PERIOD ENDED JUNE 30, 2004
CONSOLIDATED OPERATING RESULTS
Turnover Turnover increased 41.5% from RMB178,404 million for the six months
ended June 30, 2004 to RMB252,489 million for the six months ended June 30,
2005. The growth was mainly attributable to the increases in the prices and
sales volume of crude oil, refined oil and petrochemical products, and the
increase in the sales volume of natural gas.
Operating Expenses Operating expenses increased 46.3% from RMB114,148 million
for the six months ended June 30, 2004 to RMB166,952 million for the six months
ended June 30, 2005. The
16
change was mainly attributable to an increase in the purchase costs of raw and
auxiliary materials such as crude oil and refined products from external
suppliers and an increase in exploration expenses due to increased exploration
activities.
Purchases, Services and Other Expenses Purchases, services and other expenses
increased 87.9% from RMB51,272 million for the six months ended June 30, 2004 to
RMB96,362 million for the six months ended June 30, 2005. This was primarily due
to the increase in the purchase costs of crude oil and refined products resulted
from the rise in prices of raw and auxiliary materials for such crude oil and
refined products, as well as from our increased consumption of raw materials to
meet the rise in output of refinery and petrochemical products. In addition, the
increase in trading volume during the period led to a corresponding increase in
purchase expenses.
Employee Compensation Costs Employee compensation costs rose 21.4% from
RMB10,540 million for the six months ended June 30, 2004 to RMB12,800 million
for the six months ended June 30, 2005. This was primarily due to the
improvement in the Company's operating results which led to the increase in the
wages and welfare expenses of staff and workers; as well as the further
development of the Company's retail network which led to the increase in labour
service costs.
Exploration Expenses Exploration expenses increased 51.5% from RMB5,630
million for the six months ended June 30, 2004 to RMB8,528 million for the six
months ended June 30, 2005. This was mainly due to the Company appropriately
increasing its input relating to oil and gas exploration when oil prices were
high.
Depreciation, Depletion and Amortization Depreciation, depletion and
amortization increased 4.2% from RMB24,746 million for the six months ended June
30, 2004 to RMB25,791 million for the six months ended June 30, 2005. This was
mainly attributable to an increase in the amount of property, plant and
equipment which led to a corresponding increase in depreciation and depletion.
Selling, General and Administrative Expenses Selling, general and
administrative expenses increased 7.8% from RMB12,794 million for the six months
ended June 30, 2004 to RMB13,797 million for the six months ended June 30, 2005.
This was primarily due to an increase in transportation expenses caused by an
increase in the sales volume of refined products.
Taxes other than Income Tax Taxes other than income tax increased 13.2% from
RMB9,417 million for the six months ended June 30, 2004 to RMB10,660 million for
the six months ended June 30, 2005. The increase was primarily due to an
increase in consumption tax and surcharges as a result of an increase in the
sales volume of gasoline and diesel oil by the Group's refineries and also an
increase in compensation fees for mineral resources due to an increase in crude
oil and natural gas revenues.
Profit from Operations As a result of the factors discussed above, profit from
operations increased 33.1% from RMB64,256 million for the six months ended June
30, 2004 to RMB85,537 million for the six months ended June 30, 2005.
Net Exchange Gain The net exchange gain increased from RMB10 million for the
six months ended June 30, 2004 to RMB80 million for the six months ended
June 30, 2005. This was primarily due to a depreciation of the value of the
Japanese Yen and the Euro against Renminbi during the first half of this year.
Net Interest Expenses Net interest expenses decreased 32.5% from RMB960
million for the six months ended June 30, 2004 to RMB648 million for the six
months ended June 30, 2005. The decrease in net interest expenses was primarily
due to a decrease in the average proportion of interest-bearing debts which led
to the decrease in interest expenses and sufficient cash flow generated from
operating activities which led to the increase in interest income.
Profit Before Taxation Profit before taxation rose 33.7% from RMB63,909
million for the six months ended June 30, 2004 to RMB85,467 million for the six
months ended June 30, 2005.
17
Taxation Taxation increased 29.9% from RMB17,899 million for the six months
ended June 30, 2004 to RMB23,246 million for the six months ended June 30, 2005.
The increase was mainly due to an increase in taxable profits.
Net Profit As a result of the factors discussed above, net profit increased
36.1% from RMB45,276 million for the six months ended June 30, 2004 to RMB61,624
million for the six months ended June 30, 2005.
SEGMENT INFORMATION
EXPLORATION AND PRODUCTION
Turnover Turnover increased 44.6% from RMB99,526 million for the six months
ended June 30, 2004 to RMB143,895 million for the six months ended June 30,
2005. The increase was mainly attributable to the increases in prices and sales
volume of crude oil and the increase in sales volume of natural gas. During the
first half of 2005, our average realized crude oil price was US$43.42 per
barrel, representing an increase of 45.9% from US$29.76 per barrel for the
corresponding period in the first half of 2004.
Intersegment sales increased 51.3% from RMB80,270 million for the six months
ended June 30, 2004 to RMB121,484 million for the six months ended June 30,
2005. The increase was mainly due to the increase in prices and sales volume of
crude oil and the increase in sales volume of natural gas.
Operating Expenses Operating expenses increased 26.4% from RMB46,825 million
for the six months ended June 30, 2004 to RMB59,202 million for the six months
ended June 30, 2005. The increase was principally due to the increase in costs
of purchase, employee compensation, depreciation and depletion of fixed assets
and exploration expenses.
Profit from Operations As a result of the factors discussed above, profit from
operations increased 60.7% from RMB52,701 million for the six months ended June
30, 2004 to RMB84,693 million for the six months ended June 30, 2005.
REFINING AND MARKETING
Turnover Turnover rose 46.1% from RMB137,491 million for the six months ended
June 30, 2004 to RMB200,883 million for the six months ended June 30, 2005. The
increase was caused by increases in sales volume and prices of key refined
products as well as the increase of international trading volume and trading
revenue.
Revenue from sales of gasoline grew 45.1% from RMB37,621 million for the six
months ended June 30, 2004 to RMB54,570 million for the six months ended June
30, 2005. The increase was mainly due to increased prices and sales volume of
gasoline. The average realized selling price of gasoline surged 17.3% from
RMB3,362 per ton for the six months ended June 30, 2004 to RMB3,943 per ton for
the six months ended June 30, 2005. The sales volume of gasoline increased 23.7%
from 11.19 million tons for the six months ended June 30, 2004 to 13.84 million
tons for the six months ended June 30, 2005.
Revenue from sales of diesel grew 31.0% from RMB62,491 million for the six
months ended June 30, 2004 to RMB81,888 million for the six months ended June
30, 2005. The increase was mainly due to increased sales prices and volume of
diesel. The average realized selling price of diesel increased 16.2% from
RMB2,980 per ton for the six months ended June 30, 2004 to RMB3,463 per ton for
the six months ended June 30, 2005. The sales volume of diesel increased 12.7%
from 20.97 million tons for the six months ended June 30, 2004 to 23.64 million
tons for the six months ended June 30, 2005.
Revenue from sales of kerosene grew 16.2% from RMB2,632 million for the six
months ended June 30, 2004 to RMB3,059 million for the six months ended June 30,
2005. The increase was mainly due to increased sales prices of kerosene.
18
Intersegment sales revenue increased 58.9% from RMB9,504 million for the six
months ended June 30, 2004 to RMB15,098 million for the six months ended June
30, 2005. The increase was mainly due to increases in sales volume and sales
prices of the key refined products.
Operating Expenses Operating expenses increased 60.9% from RMB128,507 million
for the six months ended June 30, 2004 to RMB206,832 million for the six months
ended June 30, 2005. The increase was mainly attributable to the increase of the
purchase cost of crude oil, other feedstock and refined products from external
suppliers, as well as an increase in the trading volume of petrochemical
products which led to a corresponding increase in purchase costs.
Profit from Operations Profit from operations for the six months ended June
30, 2005 was a loss of RMB5,949 million. Profit from operations for the six
months ended June 30, 2004 was RMB8,984 million. The decrease was mainly due to
the level of increase in refined oil prices is way lower than that of the
increase in crude oil prices in China in the first half of the year.
CHEMICALS AND MARKETING
Turnover Turnover rose 45.6% from RMB25,434 million for the six months ended
June 30, 2004 to RMB37,035 million for the six months ended June 30, 2005. The
growth in turnover of this segment was principally due to increases in the sales
volume and selling prices of key chemical products.
Operating Expenses Operating expenses increased 33.2% from RMB23,481 million
for the six months ended June 30, 2004 to RMB31,279 million for the six months
ended June 30, 2005. The increase was mainly due to increased expenses in the
purchase of raw materials.
Profit from Operations As a result of the factors discussed above, profit from
operations increased 194.7% from RMB1,953 million for the six months ended June
30, 2004 to RMB5,756 million for the six months ended June 30, 2005.
NATURAL GAS AND PIPELINE
Turnover Turnover increased 33.2% from RMB8,917 million for the six months
ended June 30, 2004 to RMB11,874 million for the six months ended June 30, 2005.
The increase was primarily due to an increase in the sales volume of natural gas
and an increase in the price and volume of natural gas from pipeline
transmission.
Operating Expenses Operating expenses increased 35.3% from RMB7,684 million
for the six months ended June 30, 2004 to RMB10,396 million for the six months
ended June 30, 2005. This was mainly due to increased expenses in the purchase
of gas and an increase in depreciation charges caused by the commencement of
operation of the western section of the West-East Gas Pipeline.
Profit from Operations As a result of the factors discussed above, profit from
operations increased 19.9% from RMB1,233 million for the six months ended June
30, 2004 to RMB1,478 million for the six months ended June 30, 2005.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 2005, the Group's primary sources of funds
were cash generated from operating activities, short-term and long-term
borrowings. The Group's funds were used for operating activities, capital
expenditures, repaying short-term and long-term borrowings and distribution of
dividends to shareholders of the Company.
For the six months ended June 30, 2005, short-term debts represented
approximately 5.3% of the Group's capital employed as compared with
approximately 6.2% for the six months ended June 30, 2004. Our ability to obtain
adequate financing may be affected by our financial condition and operating
results and the conditions of the domestic and foreign capital markets. We must
seek approvals from the relevant PRC government authorities before raising funds
in the domestic and foreign capital
19
markets. In general, we must obtain PRC government approvals for any project
involving significant capital investments in our Refining and Marketing segment,
Chemicals and Marketing segment and the Natural Gas and Pipeline segment.
We plan to fund our capital and related investments principally from the cash
generated from operating activities and short-term and long-term borrowings. For
the six months ended June 30, 2005, net cash generated from operating activities
was RMB92,099 million. As at June 30, 2005, we had cash and cash equivalents of
RMB69,857 million. Cash and cash equivalents were mainly denominated in Renminbi
(Renminbi accounting for approximately 99.3% and United States Dollar accounting
for approximately 0.7%).
The table below sets forth our cash flows for the six months ended June 30, 2005
and the six months ended June 30, 2004 and our cash equivalents at the end of
each period.
SIX MONTHS ENDED JUNE 30
---------------------------
2005 2004
---- ----
(RMB (RMB
MILLION) MILLION)
-------- --------
Net cash generated from operating activities 92,099 65,870
Net cash used for investment activities (30,075) (26,509)
Net cash used for financing activities (31,149) (17,541)
Cash and cash equivalents at the end of each period 69,857 52,726
CASH GENERATED FROM OPERATING ACTIVITIES
Our net cash generated from operating activities during the first half of this
year increased 39.8% from RMB65,870 million for the six months ended June 30,
2004 to RMB92,099 million for the six months ended June 30, 2005. This
substantial increase was mainly attributable to the considerable increase in
profits and payables during the period.
As at June 30, 2005, our working capital was RMB25,274 million. As at December
31, 2004, our working capital deficit was RMB4,523 million. The increase in
working capital was primarily due to an increase in receivables and prepayments,
inventories and cash and cash equivalents.
CASH USED FOR FINANCING ACTIVITIES
Compared with the six months ended June 30, 2004, our net cash used for
financing activities increased 77.6% for the six months ended June 30, 2005.
This was mainly due to a higher cash dividend paid in respect of the ordinary
shares for the first half of this year than that of the corresponding period of
last year.
20
The table below sets out our net borrowings as at June 30, 2005 and December 31,
2004:
JUNE 30, DECEMBER 31,
2005 2004
-------- ------------
(RMB (RMB
MILLION) MILLION)
-------- --------
Short-term borrowings (including current portion of long-term
borrowings) 28,303 28,093
Long-term borrowings 35,357 38,769
------ ------
Total borrowings 63,660 66,862
====== ======
Less: Cash and cash equivalents 69,857 38,982
------ ------
Net borrowings (6,197) 27,880
====== ======
The maturity profile of the long-term borrowings of the Group is as follows:
PRINCIPAL AS PRINCIPAL AS
AT AT
JUNE 30, 2005 DECEMBER 31, 2004
------------- -----------------
(RMB MILLION) (RMB MILLION)
------------- -------------
To be repaid within one year 15,658 16,769
To be repaid within one to two years 15,771 8,367
To be repaid within two to five years 12,376 23,035
To be repaid after five years 7,210 7,367
------ ------
51,015 55,538
====== ======
Of the total borrowings of the Group as at June 30, 2005, approximately 30.9%
were fixed-rate loans and approximately 69.1% were floating-rate loans. Of the
borrowings as at June 30, 2005, approximately 85.03% were denominated in
Renminbi, approximately 13.6% were denominated in US Dollars, approximately
0.39% were denominated in Pound Sterling, approximately 0.51% were denominated
in Japanese Yen, and approximately 0.47% were denominated in Euro.
As at June 30, 2005, borrowings owed to China Petroleum Finance Company Limited
amounted to RMB24,069 million. Borrowings owed to state-owned banks and other
state-owned financial institutions (excluding banks) amounted to RMB32,872
million and borrowings owed to other related parties amounted to RMB15 million.
As at June 30, 2005, short-term borrowings and long-term borrowings owed to
China Petroleum Finance Company Limited amounted to RMB490 million and RMB23,579
million respectively.
As at June 30, 2005, loans of the Group consisted of RMB70 million secured loans
(finance lease and bank loans) (RMB60 million as at December 31, 2004), of which
RMB64 million (RMB39 million as at December 31, 2004) were secured by plant and
equipment of the Group valued at RMB72 million (RMB246 million as at December
31, 2004). As ownership of leased assets will be transferred to the lessor in
case of default, lease obligations are in fact secured obligations. As at June
30, 2005, finance lease obligations of the Group amounted to RMB6 million (RMB21
million as at December 31, 2004), and were secured with properties, plant and
equipment held under finance lease with a book value of RMB113 million (RMB175
million as at December 31, 2004).
As at June 30, 2005, the debt to capitalization ratio (debt to capitalization
ratio = total debts/(total debts + total equity)) was 11.9% (13.3% as at
December 31, 2004).
CAPITAL EXPENDITURES
21
The table below sets out our capital expenditures by business segments for each
of the six months ended June 30, 2005 and the six months ended June 30, 2004.
During the first half of 2005, capital expenditures increased 10.1% from
RMB28,691 million for the six months ended June 30, 2004 to RMB31,592 million
for the six months ended June 30, 2005. The increase in capital expenditure was
primarily due to the appropriate increase in expenditure relating to oil and gas
exploration and development when oil prices were high. Further, the price of
production raw materials, such as steel, fuel, water and electricity, increased
which led to an increase in investment.
ESTIMATE FOR THE
FIRST HALF OF 2005 FIRST HALF OF 2004 YEAR OF 2005
------------------ ------------------ -----------------
(RMB MILLION) % (RMB MILLION) % (RMB MILLION) %
------------- - ------------- - ------------- -
Exploration and Production 20,630* 65.3 19,146* 66.7 61,160* 62.7
Refining and Marketing 4,614 14.6 4,526 15.8 14,590 15.0
Chemicals and Marketing 2,633 8.3 1,062 3.7 8,350 8.6
Natural Gas and Pipeline 3,651 11.6 3,905 13.6 12,400 12.7
Others 64 0.2 52 0.2 1,000 1.0
------ ------ ------ ------ ------ ------
Total 31,592 100.0 28,691 100.0 97,500 100.0
====== ====== ====== ====== ====== ======
* If geological and geophysical exploration costs were included, the capital
expenditures and investments for the Exploration and Production segment for the
first half of 2004 and the first half of 2005, and the estimate of the same for
the entire 2005 would be RMB21,646 million, RMB24,028 million and RMB66,660
million, respectively.
EXPLORATION AND PRODUCTION
The majority of the Group's capital expenditures is related to the Exploration
and Production segment. For the six months ended June 30, 2005, capital
expenditures in relation to exploration and production amounted to RMB20,630
million, including RMB3,727 million for exploration activities and RMB15,953
million for development activities. For the six months ended June 30, 2004,
capital expenditures in relation to this segment totalled RMB19,146 million,
including RMB3,665 million for exploration activities and RMB14,481 million for
development activities. The increase in capital expenditures was mainly due to
the increased expenditures relating to oil and gas exploration and development.
It is estimated that for the twelve months ending December 31, 2005, capital
expenditures of the Group in the Exploration and Production segment will amount
to RMB61,160 million. Approximately RMB10,960 million is expected to be used for
oil and gas exploration, and approximately RMB50,200 million will be used for
oil and gas development. Exploration and development is expected to be mainly
carried out in the Erdos, Junggar, Tarim, Songliao, Sichuan and Bohai Bay
basins.
REFINING AND MARKETING
For the six months ended June 30, 2005, capital expenditures of the Group in the
Refining and Marketing segment amounted to RMB4,614 million, of which RMB2,487
million was spent on the expansion of the retail marketing network of our
refined products and storage infrastructure facilities, and RMB1,181 million was
spent on upgrading our refining facilities. For the six months ended June 30,
2004, capital expenditures for this segment totalled RMB4,526 million. The
capital expenditures during this period were basically the same as that during
the same period last year.
22
It is estimated that capital expenditures of the Group for the Refining and
Marketing segment for the twelve months ending December 31, 2005 will amount to
RMB14,590 million, including approximately RMB7,250 million to be spent on
construction and expansion of refining facilities; and approximately RMB7,340
million to be spent on investments in our refined product retail marketing
network.
CHEMICALS AND MARKETING
For the six months ended June 30, 2005, capital expenditures in the Chemicals
and Marketing segment were RMB2,633 million, compared with RMB1,062 million for
the six months ended June 30, 2004. The increase in capital expenditures was
mainly because the ethylene upgrading and expansion project of Lanzhou
Petrochemical Company, the propylene projects of Daqing Refinery and
Petrochemical Company and Dalian Petrochemical Company and the PTA project of
Liaoyang Petrochemical Company, amongst other projects, were in their peak
construction period.
It is estimated that for the twelve months ending December 31, 2005, capital
expenditures of the Group in the Chemicals and Marketing segment will amount to
RMB8,350 million. The capital expenditures are expected to mainly be used for
upgrading ethylene facilities in Daqing, Jilin, Lanzhou and Dushanzi, and the
PTA project of Liaoyang Petrochemical Company.
NATURAL GAS AND PIPELINE
For the six months ended June 30, 2005, capital expenditures in the Natural Gas
and Pipeline segment amounted to RMB3,651 million. RMB3,375 million of these
expenditures was spent on construction of long distance pipelines and RMB2,327
million of such amount was spent on the West-East Gas Pipeline project. For the
six months ended June 30, 2004, capital expenditures in the segment totalled
RMB3,905 million. The decrease in capital expenditures was mainly due to a
dramatic decrease in expenditures relating to the second Shaanxi-Beijing
Pipeline Project.
It is estimated that for the twelve months ending December 31, 2005, capital
expenditures of the Group in the Natural Gas and Pipeline segment will amount to
RMB12,400 million, of which approximately RMB7,000 million will be invested in
the West-East Gas Pipeline project, the Zhongxian-Wuhan pipeline, and the second
Shaanxi-Beijing pipeline and approximately RMB5,400 million is expected to be
invested in natural gas storage infrastructure facilities and other natural gas,
crude oil and refined product transmission pipelines.
OTHERS
The Group's non segment-specific capital expenditures for the six months ended
June 30, 2004 and for the six months ended June 30, 2005 were RMB52 million and
RMB64 million respectively. These capital expenditures were mainly used for non
segment-specific equipment purchases and research and development activities.
It is estimated that the Group's non segment-specific capital expenditures for
the twelve months ending December 31, 2005 will amount to RMB1,000 million.
These capital expenditures are expected to be used for the construction of water
and power supply systems, roads and telecommunications system for the benefit of
various segments.
MATERIAL INVESTMENT
For the six months ended June 30, 2005, the Group did not hold any material
investment.
MATERIAL ACQUISITION OR DISPOSAL
Under an acquisition agreement between the Company and CNPC dated March 28,
2005, the Company has acquired the petroleum and natural gas-related refinery
and petrochemical businesses respectively
23
owned by CNPC's wholly-owned subsidiaries, Ningxia Dayuan Refinery and
Petrochemical Company Limited and Qingyang Refinery and Petrochemical Company
Limited. The Company has paid RMB9.14 million in cash as consideration for the
acquisition. Pursuant to the Listing Rules, the acquisition constitutes a
connected transaction of the Company, and the details of the transaction were
announced on March 30, 2005.
POST-BALANCE SHEET EVENTS
The Company signed an acquisition agreement ("ACQUISITION AGREEMENT") and an
equity transfer agreement ("TRANSFER AGREEMENT") with wholly owned subsidiaries
of CNPC on June 9, 2005. Under the Acquisition Agreement, the Company agreed to
acquire a 50% equity interest in ("CHINESE CHARACTERS") (Zhong You Kan Tan Kai
Fa Company Limited) ("NEWCO"), which is currently 100% held by two wholly owned
subsidiaries of CNPC, at a total consideration of approximately RMB20,741
million. The Company also agreed to enter into the Transfer Agreement at the
same time with the Acquisition Agreement pursuant to which the Company has
agreed to transfer the equity interest in PetroChina International Ltd, a wholly
owned subsidiary of the Company, to Newco for the price of RMB579 million.
As the acquisition and equity transfer constitute connected transactions of the
Company, approval of the relevant regulatory authorities and the independent
shareholders of the Company were required. The two agreements were approved by
the independent shareholders of the Company in a general meeting held on August
16, 2005.
When the Acquisition Agreement and the Transfer Agreement are completed, the
Company and China National Oil and Gas Exploration and Development Corporation
("CNODC") will each hold 50% equity interests in Newco. CNODC intends to
transfer its 50% equity interests in Newco to CNPC at nil consideration. The
Company will be entitled to appoint four out of the seven directors of Newco and
will therefore have actual control over Newco. As the Company's investment in
Newco and the transfer of equity interests in PetroChina International Ltd to
Newco are considered transactions under CNPC's common control, the pooling of
interests method is adopted for the necessary accounting treatments. The
consolidated financial statements of the Company will be re-presented on the
basis that the Company and Newco had already been consolidated.
FOREIGN EXCHANGE RATE RISK
From July 21, 2005, the PRC government has reformed the Renminbi exchange rate
regime and implemented a regulated floating exchange rate regime based on market
supply and demand with reference to a basket of currencies. However, Renminbi is
still regulated in capital projects. The exchange rates of Renminbi are affected
by domestic and international economic developments and political changes, and
supply and demand for Renminbi. Future exchange rates of Renminbi against other
currencies could vary significantly from the current exchange rates. As Renminbi
is the base currency of the Company and most of its consolidated entities, the
fluctuation of the exchange rate of Renminbi may have positive or negative
impacts on the results of operations of the Group. An appreciation of Renminbi
against United States Dollar may decrease the Group's turnover, but the cost for
acquiring imported materials and equipment may be reduced. A devaluation of
Renminbi against United States Dollar may not have a negative impact on the
Group's turnover but may increase the cost for acquiring imported materials and
equipment as well as the debt obligations denominated in foreign currencies of
the Group. The results of operations and the financial position of the Group may
also be affected by fluctuations in exchange rates of a number of other foreign
currencies against Renminbi.
COMMODITY PRICE RISK
The Group is engaged in a wide range of petroleum-related activities. The global
oil and gas market is affected by international political, economic and military
developments and global demand for and supply of oil and gas. As the prices of
Chinese crude oil and refined products are determined by reference to
international benchmark prices, fluctuations of prices of crude oil and refined
products in the international market will directly or indirectly, affect prices
of Chinese crude oil and refined products. A decrease in the prices of crude oil
and refined products could adversely affect the Group's
24
financial position. The Group has not used derivative instruments to hedge
against potential price fluctuations of crude oil and refined products.
Accordingly, the Group is exposed to general price fluctuations of oil and gas
commodities in 2005 and will remain to be so exposed thereafter.
INDUSTRY RISK
Like other oil and natural gas companies in China, the Company's operating
activities are subject to regulation and control by the PRC government in many
aspects. Regulation and control, such as by way of grant of exploration and
production licences, the imposition of industry-specific taxes and levies and
the implementation of environmental and safety standards, is expected to have an
impact on the Company's business operations. As a result, the Company may be
subject to relatively significant restrictions when implementing its business
strategy, developing and expanding its business or maximizing its profitability.
Any future changes in PRC governmental policies on the crude oil and natural gas
industry may also affect the Company's business operations.
EMPLOYEES
Number of Employees
As at June 30, 2004 and June 30, 2005, the Group had 422,288 and 423,200
employees respectively. The table below sets out the number of employees of
business segments as at June 30, 2005:
NUMBER OF EMPLOYEES % OF TOTAL
------------------- ----------
Exploration and Production 235,794 55.7
Refining and Marketing 115,535 27.3
Chemicals and Marketing 58,916 13.9
Natural Gas and Pipeline 10,150 2.4
Others* 2,805 0.7
------- -----
Total 423,200 100.0
======= =====
* Including staff of Company headquarters, business segment head offices,
PetroChina Exploration & Development Research Institute, PetroChina Planning &
Engineering Institute and Oil Refining and Petrochemical Technological Research
Centres.
Employee Compensation
For the six months ended June 30, 2005, the total employee compensation payable
by the Group was RMB8,048 million, being the total salaries of employees during
the reporting period. Compensation of employees is determined according to
industry practice and the actual conditions of the Group, and is based on the
principles of attracting and retaining high calibre personnel, and motivating
all staff for the realization of the best results.
The Company's senior management remuneration system links senior management
members' financial interests (including those of executive directors and
supervisors) with the Company's operating results and the market performance of
its shares. The senior management members have entered into performance
contracts with the Company. Under this system, the senior management members'
compensation has three components, namely, fixed salaries, performance bonuses
and stock appreciation rights. The variable components account for approximately
70% to 75% of the senior management officers' total potential compensation,
including approximately 0% to 25% forming the performance bonus component and
approximately 50% to 70% forming the stock appreciation rights
25
component. Variable compensation rewards are linked to the attainment of
specific performance targets, such as net profit, return on capital and cost
reduction targets. The chart below sets forth the components of the total
potential compensation for key officers.
STOCK APPRECIATION
FIXED SALARY RIGHTS PERFORMANCE BONUS
------------ ------------------ -----------------
(%) (%) (%)
--- --- ---
Chairman 30 70 0
President 25 60 15
Vice-President 25 60 15
Departmental General Manager 25 50 25
Details of the emoluments of directors and supervisors as at June 30, 2005 and
June 30, 2004 are as follows:
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2005 JUNE 30, 2004
---------------- -----------------
(RMB'000) (RMB'000)
--------- ---------
Directors and supervisors emoluments 62 58
Salaries, allowances and other benefits 927 647
Contribution to retirement benefit scheme 28 17
----- ---
1,017 722
===== ===
The number of directors and supervisors whose emoluments fall within the
following band (including directors and supervisors whose term expired during
the current period):
AS AT JUNE 30, 2005 AS AT JUNE 30, 2004
------------------- -------------------
NUMBER NUMBER
------ ------
Nil -- RMB1,000,000 20 24
== ==
Upon exercise of their share options, senior management staff will not receive
any shares in the Company. Instead, they will receive, by way of stock
appreciation rights, a monetary sum which is calculated on the basis of the
share price of the H shares listed on the HKSE.
Workforce Reduction Plan
During the period from 1999 to 2002, a total of 58,300 people were laid off,
which has met the target of laying off 50,000 employees originally committed by
the Company.
The Company does not have any plan for any substantial reduction of its
workforce in the next few years, but will continue to keep a strict control on
the total number of employees. Workforce required for new projects or expanded
production capacity will first be obtained by way of tapping existing resources
and making use of any spare capacity.
26
Training Programmes
In order to satisfy the needs for developing the Company into a major and
internationally competitive oil company, this year the Company focuses on
training high-level, high-skilled and international talents in its training
programme. The Company will focus on the training of core employees, actively
implement the strategy of a strongly manpowered enterprise, continue to build up
the operating and management team, the technology renovation team and the
skillful operators' team so as to achieve an overall improvement in the quality
of its staff and ensure the supply of talents required for the continuous,
steady, rapid and co-ordinated development of the Company.
CONTINGENT LIABILITIES
Information on the Group's contingent liabilities as of June 30, 2005 is as
follows:
BANK AND OTHER GUARANTEES
As at June 30, 2005, the Group had contingent liabilities in respect of bank and
other guarantees and other matters arising in the ordinary course of business
from which it is anticipated that no material liabilities will arise.
JUNE 30, 2005 DECEMBER 31, 2004
------------- -----------------
(RMB MILLION) (RMB MILLION)
------------- -------------
Guarantees in respect of borrowings of associated companies 211 203
=== ===
ENVIRONMENTAL LIABILITIES
CNPC and the Group have operated in China for many years. China has adopted
extensive environmental laws and regulations that affect the operation of the
oil and gas industry. Future environmental legislation cannot reasonably be
estimated at present, but such legislation could have a significant impact.
However, under existing legislation, except for the amounts which have already
been included in the financial statements, the management believes that there is
no liabilities for environment obligations that may have a material adverse
effect on the financial position of the Group.
LEGAL CONTINGENCIES
The Group is the named defendant in certain insignificant lawsuits as well as
the named party in other proceedings arising in the ordinary course of business.
While the outcome of such contingencies, lawsuits or other proceedings cannot be
determined at present, the management believes that any potential liabilities
which may arise will not have a material adverse effect on the financial
position of the Group.
LEASING OF LAND, ROADS AND BUILDINGS
According to the restructuring agreement entered into between the Company and
CNPC in 1999 upon the formation of the Company, CNPC has undertaken to the
Company as follows:
o 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;
27
o CNPC will complete, within one year from November 5, 1999, the
necessary governmental procedures for the requisition of the
collectively-owned land on which 116 service stations owned by the
Company are located; and
o CNPC will obtain individual building ownership certificates in the
name of the Company for all of the 57,482 buildings transferred to the
Company by CNPC, before November 5, 2000.
As at June 30, 2005, CNPC obtained formal land use right certificates in
relation to 26,549 out of the above-mentioned 28,649 parcels of land, and some
building ownership certificates for the above-mentioned buildings, but did not
complete 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 yet been completed. In the management's
opinion, the outcome of the above events will not have a material adverse effect
on the results of operations or the financial position of the Group.
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
its property, facilities or equipment for 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 coverages are not customary in
China. While the effect of under-insurance on future incidents cannot be
reasonably assessed at present, the management believes that it may have a
material impact on the operating results but will not have a material adverse
effect on the financial position of the Group.
OTHERS
In December 2003, a gas blow-out incident occurred at one of the gas wells of
the Group. The blow-out caused the leakage of a large quantity of sulfurated
hydrogen, causing injuries and deaths to many residents living in the
surrounding area. As a result of an investigation conducted by the PRC
government, CNPC, which provided the Company with drilling services for the
well, was held liable for this blow-out. The incident has not had, and the
Company does not believe it will have, a material adverse effect on the results
of operations and financial position of the Group.
MARKET REVIEW
Crude Oil Market Review
During the first half of 2005, international crude oil prices continued to rise
due to high demand and tight supply. Despite various controls and influences,
the oil market and prices were subject to significant fluctuations. The
international oil prices hit the record high repeatedly. WTI, Brent and Minas
crude oil in the first half of the year averaged US$51.49, US$49.65 and US$50.87
per barrel respectively, representing an increase of US$14.68, US$15.99 and
US$17.73 per barrel respectively from the first half of 2004. Domestic crude oil
prices rose accordingly under the impact of international oil prices. The
average realized price was higher than that of the first half of 2004.
Domestic import of crude oil continued to grow during the first half of 2005.
Domestic net crude oil import surged 3.2% to 59.81 million tons compared with
the corresponding period of last year. Domestic crude oil output and the amount
of crude oil processed reached 90.46 million tons and 134 million tons
respectively.
28
Refined Products Market Review
During the first half of 2005, although the PRC government strengthened control
on the domestic macro-economy, demand for refined products still remained
relatively high. In general, resources were tight and market prices continued to
rise and hit new historical highs repeatedly. From January to June, nominal
consumption increased 5.56% to 79.88 million tons compared with the same period
of last year. By the end of June 2005, the refined products inventory held by
the Company and Sinopec dropped to 7.34 million tons, a reduction of 0.8 million
tons compared with the corresponding period of last year.
The PRC government has made appropriate adjustments to the prices of domestic
refined products during the first half of 2005. However, under the impact of
international oil prices, the average benchmark prices of gasoline and diesel
were still higher than the level during the corresponding period of last year.
Chemical Products Market Review
During the first half of 2005, as international oil prices remained high and
there was a slow-down in the growth of the domestic economy, the operating
results for the petrochemical industry were increasingly divergent. On the one
hand, the upstream raw materials industry maintained a high level of profits due
to few new production start-ups; on the other hand, the downstream processing
industry recorded a significant slowdown in operating results due to high costs.
In general, the petrochemical industry during the first half of 2005 featured a
period from an increase in growth to a slight slowdown in growth.
It is estimated that in the second half of the year, with the restructuring of
the macro-economy and the implementation of measures relating to restrictions of
investment, the growth of the economy will be slowed down. However, a growth
rate of approximately 9% will be maintained and the growth in demand for
petrochemical products will be greater than the growth of gross domestic
product. The fourth quarter of 2005 will be a low season and demand will be
lower than that during the first half of 2005. With some new petrochemical
facilities in China commencing production, supplies will increase significantly.
As a result, it is estimated that petrochemical products will gradually be
oversupplied for the second half of 2005. It is inevitable that prices of
petrochemical products will be unstable and lower and the overall prices will be
lower than those in the first half of 2005.
BUSINESS REVIEW
For the six months ended June 30, 2005, total oil and gas output of the Company
was 481 million barrels of oil equivalent, including 396.6 million barrels of
crude oil and 506.4 billion cubic feet of marketable natural gas, representing
an average daily crude oil output of 2.19 million barrels and an average daily
marketable natural gas output of 2,798 million cubic feet. A total of 386
million barrels of crude oil and 480.9 billion cubic feet of natural gas were
sold during the six months ended June 30, 2005. The Company sold approximately
83.7% of its crude oil to its refineries. During the first half of 2005, lifting
cost of the Company was US$5.10 per barrel. For the same period of 2004, lifting
cost was US$4.45 per barrel.
For the six months ended June 30, 2005, the Company's refineries processed 379
million barrels of crude oil, representing an average daily processed output of
2.09 million barrels. The Exploration and Production segment provided
approximately 84% of the crude oil processed by the Company's refineries. The
Company produced approximately 33.32 million tons of gasoline, diesel and
kerosene and sold approximately 38.38 million tons of these products. The
Company is actively expanding its sales network, and its retail network in
particular, in order to maximize the effectiveness from the synergy created by
the integration of refining and marketing segment. As at June 30, 2005, there
were 17,215 service stations either owned, controlled or franchised by the
Company or owned by CNPC but to which the Company provided supervisory support.
The cash processing cost of the Company's refineries is decreasing constantly,
from RMB129 per ton during the first half of 2004 to RMB126 per ton for the same
period of 2005.
29
During the six months ended June 30, 2005, the Company produced 0.941 million
tons of ethylene, 1.311 million tons of synthetic resin, 0.629 million tons of
synthetic fibre raw materials and polymer, 0.142 million tons of synthetic
rubber, and 1.957 million tons of urea.
The Natural Gas and Pipeline segment is the Company's core business segment for
development. For the six months ended June 30, 2005, the Company sold 407.4
billion cubic feet of marketable natural gas through its Natural Gas and
Pipeline segment. As at June 30, 2005, the Company owned and operated 18,995
kilometres of regional natural gas pipeline network, of which 17,868 kilometres
of the pipeline network were operated by the Natural Gas and Pipeline segment.
The Company owned and operated 9,167 kilometres of crude oil pipeline and owned
2,460 kilometres of refined product pipeline.
THE SECOND HALF OF 2005 AND BEYOND
During the first half of 2005, the Company had captured the opportunity in
actively developing its business which resulted in the increase in the overall
production targets and achieved a notable increase in its results of operations.
The price of the Company's H shares repeatedly hit new record highs and the
Company has become the largest companies in Asia in terms of market
capitalization. The following exemplifies the excellent operating results: oil
and gas exploration continued to make new breakthroughs and showed good
development prospects; crude oil output increased steadily, natural gas output
continued to grow rapidly; processed crude oil increased steadily and key
technological and economic indicators improved continuously; petrochemical
production availed itself closely of the market opportunity, and both output and
profitability of major petrochemical products were higher than their previous
levels for the corresponding period; operational efficiency for sales increased
continuously and the ability to secure market share increased steadily; smooth
progress of key project construction and a number of projects completed earlier
than scheduled and commenced production; international operations developed
steadily and profitability increased continuously.
At present, international oil prices remain high but unstable. A strengthened
and improved macro-economic control results in a steady and rapid growth of the
national economy in China. The Company is developing under favourable internal
and external circumstances. During the second half of 2005, the Company will
keep a close eye on the macro-economic environments and market changes, promptly
adjust production and operation strategies and strengthen measures for
protection of key and major sectors. The Company will continue to accelerate its
steps for increase of crude oil and natural gas reserves and outputs, to improve
its ability to secure resources, to steadily organize production of refined oil
and petrochemical products, to increase the operational efficiency of sales
business, to improve the operations of overseas projects, to develop new
businesses, to achieve better operational results, to speed up technological
developments, to increase production and construction efficiency and
profitability, to further construct the HSE systems in order to create a
favourable environment for development.
For the Exploration and Production segment, the Company will continue to give
top priority to oil and gas explorations and risk exploration. The Company will
seek to achieve large scale development and aim at exploring reserves through
its economies of scale by giving priority to key sectors, careful planning,
relying on technologies, strengthening management and increasing profitability.
In respect of the development of oil and gas fields, the Company will
meticulously plan and co-ordinate each step in its production and operation. The
Company will implement various measures for output growth for the attainment of
the crude oil output target for the year and to ensure a significant increase of
natural gas output.
For the Refining and Marketing segment, the Company will continue to optimize
the allocation of resources, control the import of crude oil at reasonable
levels, lower the crude oil reserves, optimize production, operation and
management, effectively control the cost for purchase of crude oil and the cash
processing cost of the Company's refineries, balance the refinery throughput and
the profitability, and improve various technological and economic indicators.
The Company will strengthen the establishment of refined oil marketing network,
optimize marketing strategies, build up marketing management, and endeavour to
reduce cash marketing cost and costs for wholesales and retails in order to
increase sales revenues and profitability.
30
For the Chemicals and Marketing segment, the Company will avail itself of the
market opportunities, organize and optimize operations in a scientific manner
and maintain a stable improvement of the operating results. The Company will
also make full use of favourable opportunities including the current thriving
market demand and the launch of new facilities in the second half of 2005, make
best use of its resources, organize a balance allocation of raw materials,
increase variety and output of quality products and increase revenue and
profitability. The Company will continue to improve marketing network, promote
specialized sales effectively, optimize transportation network, increase sales
and presales of new products, and increase direct sales of product and maximize
sales and profitability.
For the Natural Gas and Pipeline segment, the Company will supply gas through
its key gas pipelines, expedite construction of key energy generation projects
and form a new energy generation capability. The Company will further
co-ordinate natural gas production, transmission and sales and ensure safe
operation of pipelines.
In terms of overseas operations, the Company will continue to use its best
efforts for exploration in major regions, to actively further risk explorations,
to strengthen its capability for securing overseas resources and to enhance the
value of the Company. At present, the global oil and gas sector continues to
integrate and the size of acquisitions is also increasing. In order to maintain
the growth momentum of our business, we will continue to actively seek
opportunities that enhance the medium to long-term growth of our overseas oil
and gas production based strictly on our mergers and acquisitions evaluation
criteria. Also, we will maintain a strong liquidity position and will actively
assess the means of financing in capital markets in order to secure the
implementation of the internationalization strategy of the Group.
In future, the Company will continue to expedite exploration and development of
oil and gas, to further improve its ability to secure resources, to make
strategically significant discoveries and breakthroughs, to set reserves to a
new high and to keep the oil reserves replacement ratio greater than 1. In
respect of oil field development, the Company will continuously increase its
reserves utilization rate, capacity utilization rate and recovery rate, increase
the overall development level and ensure a stable and increased crude oil
output. In respect of the natural gas sector, the Company will adhere to the
policies of "control resources, improve pipeline and network, plan the overall
production and sales and ensure safety", maintain a rapid development of natural
gas in China and make it the fastest growing sector of the Company. In respect
of refining and chemicals sectors, the Company will follow the policies of "make
the refining an excellent and quality sector and make the chemicals a powerful
and specialized sector", implement an intensive operation and professional
management and realize an integrated and harmonious development of production,
sales and research. In respect of the overseas operations, the Company will
avail itself of the favourable opportunities, adopt various forms of operation,
promote a rapid development of the overseas operations and increase its share in
the oil and gas resources in the international market.
The Company will continue to pursue the aim of maximizing its benefits and the
value for its shareholders and strive to enhance the value of the Company. The
Company will further improve its internal control system and supervisory
mechanism consistent with the market supervision requirements, invest
substantial efforts in system innovations and standardized management and
promote a continuous, effective and speedy development of the Company.
INTERIM DIVIDEND AND CLOSURE OF REGISTER OF MEMBERS
The Board was authorized by the shareholders to approve the distribution of an
interim dividend for 2005 at the shareholders' meeting held on May 26, 2005. The
Board has resolved to pay an interim dividend of RMB0.157719 (inclusive of
applicable tax) for the six months ended June 30, 2005 on the basis of 45% of
the net profit for the period. The interim dividend will be paid to shareholders
whose names appear on the register of members of the Company at the close of
business on September 14, 2005. The Company will close its share register and
suspend registration of transfer of shares from September 9, 2005 to September
14, 2005 (both days inclusive). In order to qualify for the interim dividend,
all transfer documents must be lodged with the relevant share certificates at
the Computershare Hong Kong Investor Services Limited not later than 4 p.m. on
September 8, 2005.
31
In accordance with Article 149 of its Articles of Association, the Company shall
declare dividends payable to shareholders in Renminbi. Dividends payable in
respect of State-owned shares shall be paid in Renminbi. Dividends payable in
respect of H shares shall be paid in Hong Kong Dollar. The amount of Hong Kong
Dollar payable shall be calculated on the basis of the average closing exchange
rate between Renminbi and Hong Kong Dollar published by the People's Bank of
China during the week before the Board declares the dividend on August 24, 2005,
which is RMB1.0422 = HK$1.00. Accordingly, the amount of dividend payable per H
share will be HK$0.151333.
The interim dividend will be paid on or around September 30, 2005.
REPURCHASE, SALE OR REDEMPTION OF SECURITIES
For the six months ended June 30, 2005, none of the Company or its subsidiaries
has sold any other type of securities of the Company nor has any of them
repurchased or redeemed any of the securities of the Company.
DISCLOSURE OF OTHER INFORMATION
Save as mentioned above, there have been no material changes in respect of
matters required to be disclosed under paragraph 46(3) of Appendix 16 to the
Listing Rules since the publication of the annual report of the Group for the
year ended December 31, 2004.
COMPLIANCE WITH THE MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS
The Company has adopted the Model Code for Securities Transactions by Directors
of Listed Issuers (the "MODEL CODE") set out in Appendix 10 of the Listing
Rules. Upon enquiry by the Company, all Directors of the Company have confirmed
that they have complied with the required standards set out in the Model Code.
COMPLIANCE WITH THE CODE ON CORPORATE GOVERNANCE PRACTICES
The Company has complied with the Code on Corporate Governance Practices (the
"CODE") contained in Appendix 14 to the Listing Rules throughout the six months
ended June 30, 2005. However, the composition of the Examination and
Remuneration committee of the Company does not have a majority of independent
non-executive directors which deviates from B.1.1 of the Code. To comply with
the Code provision, the Company proposes to make appropriate adjustments to the
composition of the Examination and Remuneration committee after the election and
re-election of directors in the shareholders meeting to be held in early
November this year.
AUDIT COMMITTEE
The audit committee of the Company, formed pursuant to Appendix 14 to the
Listing Rules, comprises Mr. Franco Bernabe, Mr. Chee-Chen Tung, Mr. Liu Hongru
and Mr. Gong Huazhang. The main function of the audit committee is to review and
supervise the financial reporting procedures and the internal supervision
procedures of the Group, and to provide opinion to the Board. The audit
committee of the Company has reviewed and confirmed the unaudited interim
results announcement / the interim report for the six months ended June 30,
2005.
PUBLICATION OF RESULTS ON THE WEBSITE OF THE HKSE AND OF THE COMPANY
The Company will submit to the HKSE and publish on the website of the HKSE
(website: http://www.hkex.com.hk) all the information on the results for the six
months ended June 30, 2005. This information will also be published on the
website of the Company (website: http://www.petrochina.com.cn).
32
DIRECTORS OF THE COMPANY
As at the date of this announcement, the Board of Directors comprises Mr. Chen
Geng as the Chairman, Mr. Jiang Jiemin and Mr. Ren Chuanjun as Vice Chairmen,
Mr. Su Shulin, Mr. Duan Wende and Mr. Wang Fucheng as executive directors, Mr.
Zheng Hu, Mr. Zhou Jiping, Mr. Gong Huazhang and Mr. Zou Haifeng as
non-executive directors and Mr. Chee-Chen Tung, Mr. Liu Hongru and Mr. Franco
Bernabe as independent non-executive directors.
By Order of the Board
PETROCHINA COMPANY LIMITED
CHEN GENG
Chairman
Beijing, PRC
August 24, 2005