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 March 2006
PETROCHINA COMPANY LIMITED
16 ANDELU, DONGCHENG DISTRICT
BEIJING, THE PEOPLE'S REPUBLIC OF CHINA, 100011
(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.)
Form 20-F X Form 40-F
--- ---
(Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes No X
--- ---
(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82- )
-------
PetroChina Company Limited (the "Registrant") is furnishing under the cover
of Form 6-K the Registrant's announcement of the results for the year ended
December 31, 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 Registrant's plan to continue to strengthen its exploration and
development business in China and further consolidate its resources
foundation;
o the Registrant's plan to continue to promote the construction of key
refining facilities to improve the competitiveness and profitability
of the refining segment;
o the Registrant's plan to continue to speed up construction of
infrastructure for oil and gas storage and transportation;
o the Registrant's plan to continue to expand its international
businesses and enlarge the scale of its overseas oil and gas
production;
o the Registrant's plan to continue to ensure safety and protect the
environment and to realize notable improvements in these areas; and
o the Registrant's other future plans and prospects.
These forward-looking statements reflect our current views with respect to
future events and are not a guarantee of future performance. Actual results may
differ materially from information contained in these forward-looking statements
as a result of a number of factors, including, without limitation:
o fluctuations in crude oil and natural gas prices;
o failure to achieve continued exploration success;
o failure or delay in achieving production from development projects;
o 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.
[PETROCHINA LOGO]
[Chiness Charactor]
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 RESULTS FOR THE YEAR ENDED DECEMBER 31, 2005
- FINANCIAL AND OPERATING SUMMARY -
Output of crude oil for 2005 was 822.9 million barrels, representing an increase
of 1.1% from 2004.
Output of marketable natural gas for 2005 was 1,119.5 billion cubic feet,
representing an increase of 27.8% from 2004.
Total output of crude oil and natural gas for 2005 was 1,009.5 million barrels
of oil equivalent, representing an increase of 5.1% from 2004.
Consolidated turnover for 2005 was RMB552,229 million, representing an increase
of 39.0% from 2004.
Consolidated net profit* for 2005 was RMB133,362 million, representing an
increase of 28.4% from 2004.
Basic and diluted earnings per share attributable to equity holders of the
Company for 2005 were RMB0.75, representing an increase of RMB0.16 from 2004.
THE BOARD OF DIRECTORS HAS PROPOSED A FINAL DIVIDEND ATTRIBUTABLE TO EQUITY
HOLDERS OF THE COMPANY FOR 2005 OF RMB0.180325 PER SHARE.
* Consolidated net profit is profit attributable to equity holders of the
Company.
The Board of Directors (the "BOARD") of PetroChina Company Limited (the
"COMPANY") is pleased to announce that the audited consolidated results of the
Company and its subsidiaries (the "Group") for the year ended December 31, 2005
prepared in accordance with International Financial Reporting Standards ("IFRS")
and its financial position as of December 31, 2005, together with the results
and financial position of 2004 for comparison, are as follows:
CONSOLIDATED PROFIT AND LOSS ACCOUNT
NOTES 2004
2005 (Note 1)
-------- --------
RMB RMB
MILLION million
-------- --------
TURNOVER 3 552,229 397,354
-------- --------
OPERATING EXPENSES
Purchases, services and other (200,321) (114,249)
Employee compensation costs (29,675) (22,934)
Exploration expenses, including exploratory dry holes (15,566) (12,090)
Depreciation, depletion and amortization (51,305) (48,362)
Selling, general and administrative expenses (36,538) (28,302)
Shut down of manufacturing assets - (220)
Taxes other than income taxes (23,616) (19,943)
Other expense, net (3,037) (116)
-------- --------
TOTAL OPERATING EXPENSES (360,058) (246,216)
-------- --------
PROFIT FROM OPERATIONS 192,171 151,138
-------- --------
FINANCE COSTS
Exchange gain 942 225
Exchange loss (854) (217)
Interest income 1,924 1,373
Interest expense (2,762) (2,896)
-------- --------
TOTAL FINANCE COSTS (750) (1,515)
-------- --------
SHARE OF PROFIT OF ASSOCIATES 2,401 1,621
-------- --------
PROFIT BEFORE TAXATION 4 193,822 151,244
TAXATION 5 (54,180) (43,598)
-------- --------
PROFIT FOR THE YEAR 139,642 107,646
======== ========
ATTRIBUTABLE TO:
Equity holders of the Company 133,362 103,843
Minority interests 6,280 3,803
-------- --------
139,642 107,646
======== ========
- 2 -
BASIC AND DILUTED EARNINGS PER SHARE FOR
PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF
THE COMPANY DURING THE YEAR (RMB) 6 0.75 0.59
======== ========
DIVIDENDS ATTRIBUTABLE TO EQUITY HOLDERS
OF THE COMPANY:
Interim dividend declared during the year 8 27,731 20,381
Final dividend proposed after the balance sheet date 8 32,282 25,936
-------- --------
60,013 46,317
======== ========
CONSOLIDATED BALANCE SHEET
2005 2004
(Note 1)
-------- -------
RMB RMB
MILLION million
-------- -------
NON CURRENT ASSETS
Property, plant and equipment 563,890 485,612
Investments in associates 12,378 9,898
Available-for-sale investments 1,230 1,606
Advance operating lease payments 16,235 12,307
Intangible and other assets 5,011 3,020
Time deposits with maturities over one year 3,428 3,751
-------- -------
602,172 516,194
-------- -------
CURRENT ASSETS
Inventories 62,733 47,377
Accounts receivable 4,630 3,842
Prepaid expenses and other current assets 22,673 19,866
Notes receivable 3,028 4,838
Investments in collateralized loans 235 33,217
Time deposits with maturities over three months
but within one year 1,691 1,425
Cash and cash equivalents 80,905 11,688
-------- -------
TOTAL CURRENT ASSETS 175,895 122,253
-------- -------
CURRENT LIABILITIES
Accounts payable and accrued liabilities 99,758 73,072
Income tax payable 20,567 17,484
Other taxes payable 4,824 5,032
Short-term borrowings 28,689 34,937
-------- -------
153,838 130,525
-------- -------
NET CURRENT ASSETS/( LIABILITIES) 22,057 (8,272)
-------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES 624,229 507,922
======== =======
EQUITY
Equity attributable to equity holders of the Company
Share capital 179,021 175,824
Retained earnings 203,812 143,115
Reserves 132,556 108,834
-------- -------
515,389 427,773
Minority interests 28,278 15,199
-------- -------
TOTAL EQUITY 543,667 442,972
-------- -------
NON CURRENT LIABILITIES
Long-term borrowings 44,570 44,648
Other long-term obligations 1,046 2,481
Asset retirement obligations 14,187 919
Deferred taxation 20,759 16,902
-------- -------
80,562 64,950
-------- -------
624,229 507,922
======== =======
- 3 -
NOTES
1. BASIS OF PREPARATION
The consolidated financial statements have been prepared in accordance
with IFRS issued by the International Accounting Standards Board ("IASB"). The
consolidated financial statements have been prepared under the historical cost
convention except as disclosed in the accounting policies below.
The preparation of financial statements in conformity with IFRS requires
the use of estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
balance sheet date and the reported amounts of revenues and expenses during the
reporting period. Although these estimates are based on management's best
knowledge of current events and actions, actual results may ultimately differ
from those estimates.
In 2005, the Group adopted the newly revised IFRS below, which are
relevant to its operations. The 2004 comparative numbers have been amended as
required in accordance with the relevant requirements. The adoption of these
IFRS revisions did not result in substantial changes to the Group's accounting
policies. In summary:
--IAS 1 and 27 (both revised in 2003) affected the presentation of
minority 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, 32, 33 (all revised in 2003) and 39 (revised
in 2004) and IFRS 2 had no material effect on the Group's accounting policies.
--IAS 24 (revised in 2003) affected the definition of related parties and
related-party disclosures.
--IAS 27 and 28 (both revised in 2003) affected the accounting for
investments in subsidiaries and associates in the separate financial statements
of the Company. These investments are accounted for at cost rather than using
the equity method, which was used in prior years. As a result, the balance sheet
of the Company as of December 31, 2004 and the related notes that are included
in the financial statements, proposed to be submitted by the Company to The
Stock Exchange of Hong Kong Limited ("HKSE") and published on the website of the
HKSE on or before April 30, 2006, have been restated. Compared with the
previously reported numbers, Investment in associates, Subsidiaries, Reserves
and Retained earnings as of December 31, 2004 have been reduced by RMB1,897
million, RMB46,302 million, RMB56 million and RMB48,143 million, respectively,
to reflect this restatement.
--IFRS 5 has resulted in a change in the accounting policy relating to the
recognition of assets held for sale or discontinued operations, which did not
have any
- 4 -
material impact on the results of operations and financial positions of the
Group as the Group did not hold any material assets in this category during the
years presented.
--The Group early adopted IFRS 6, which did not require any change in the
accounting policy 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 government of the People's Republic of
China ("PRC" or "CHINA"), corporations in which the Company is able to control
or exercise significant influence, key management personnel of the Company and
CNPC and their close family members. Transactions with related parties do not
include those done in the ordinary course of business with terms consistently
applied to all public and non-public entities and where there is no choice of
supplier such as electricity, telecommunications, postal service and local
government retirement funds.
In accordance with the acquisition agreement between the Company and CNPC
dated March 28, 2005, the Company acquired the refinery and petrochemical
businesses owned by CNPC's wholly-owned subsidiaries, Ningxia Dayuan Refinery
and Petrochemical Company Limited ("DAYUAN") and Qingyang Refinery and
Petrochemical Company Limited ("QINGYANG") with a total consideration of RMB9
million.
The acquisition is a combination of businesses under common control since
the Company and the CNPC's refinery and petrochemical businesses owned by Dayuan
and Qingyang are under the common control of CNPC. As a result, the Company
accounted for the acquisition in a manner similar to a uniting of interests,
whereby the assets and liabilities acquired are accounted for at historical cost
to CNPC (net liabilities of RMB183 million at the effective date of the
acquisition). The consolidated financial statements have been restated to give
effect to the acquisition with all periods presented as if the operations of the
Group and these refinery and petrochemical businesses have always been combined.
The difference between the RMB9 million payable and the net liabilities
transferred from CNPC has been adjusted against equity.
In August 2005, the shareholders of the Company approved the acquisition
and transfer agreements relating to the Company's acquisition of a 50% ownership
interest in [Chiness Charactor] (Zhong You Kan Tan Kai Fa Company Limited)
("NEWCO"). Newco was formed in 2005 and was wholly owned by China National Oil
and Gas Exploration and Development Corporation ("CNODC", wholly owned by
- 5 -
CNPC) and one of its subsidiaries. Under the terms of the related agreements,
CNODC transferred certain oil and gas exploration operations to Newco and the
Company contributed to Newco its wholly-owned subsidiary, PetroChina
International Limited ("PTRI"), and cash amounting to approximately RMB20,162
million, which is the difference between the cash contribution of RMB20,741
million payable by the Company according to the acquisition agreement and the
cash consideration of RMB579 million for PTRI receivable by the Company. The
terms of the agreements granted the Company the right to appoint four of the
seven directors of Newco and enable the Company to maintain effective control
over Newco.
Similar to the acquisition of the refinery and petrochemical businesses
from CNPC described above, the investment in Newco and related transactions have
been accounted for in a manner similar to a uniting of interests as all entities
involved are under the common control of CNPC. The consolidated financial
statements of the Company have been restated as if the operations of the Company
and Newco have always been combined. The payment was made directly to Newco,
therefore the difference between the amount of RMB20,162 million paid and the
net assets of RMB35,551 million at the effective date of the acquisition
(including RMB20,162 million contributed by the Company and RMB50 million
paid-in capital by CNODC and its subsidiary) has been adjusted against equity.
The summarized results of operations and the financial positions for the
separate entities and on a consolidation basis for the year ended December 31,
2004 are set out below:
PETROCHINA REFINERY AND
(AS PREVIOUSLY PETROCHEMICAL
REPORTED) BUSINESSES NEWCO CONSOLIDATED
-------------- -------------- ------- ------------
RMB RMB RMB RMB
MILLION MILLION MILLION MILLION
-------------- -------------- ------- ------------
RESULTS OF OPERATIONS:
Turnover 388,633 4,583 11,643 397,354
Profit/(loss) for the year 104,578 (137) 3,205 107,646
Basic and diluted earnings per share for profit
attributable to the equity holders of the 0.59 0.00 0.00 0.59
Company(RMB)
EQUITY ITEMS:
Currency translation differences - - 1,007 1,007
Dividends to minority interests (277) - (379) (656)
FINANCIAL POSITIONS:
Total Assets 609,928 2,106 27,100 638,447
Total Liabilities 175,325 2,318 18,519 195,475
Net Assets/(liabilities) 434,603 (212) 8,581 442,972
- 6 -
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 current 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 CRUDE OIL AND NATURAL GAS RESERVES
Crude oil and natural gas reserves are key elements in the Group's
investment decision-making process. They are also an important element in
testing for impairment. Changes in proved oil and natural gas reserves,
particularly proved developed reserves, will affect unit-of-production
depreciation 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 the changes in economic
factors, including product prices, contract terms or development plans. In
general, changes in the technical maturity of crude oil and natural gas reserves
resulting from new information becoming available from development and
production activities have tended to be the most significant causes of annual
revisions. Changes to the Group's estimates of proved reserves, particularly
proved developed reserves, affect the amount of depreciation, depletion and
amortization recorded in the Group's financial statements for property, plant
and equipment related to crude oil and natural 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 and production profile. However, the impairment reviews
and calculations are based on assumptions that are consistent with the Group's
business plan. These assumptions also include those relative to the pricing
regulations by the regulatory agencies in the PRC, 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 the need to impair any
assets in these periods, whereas
- 7 -
unfavourable changes might have caused an additional unknown number of other
assets to become impaired.
(c) ESTIMATION OF ASSET RETIREMENT OBLIGATIONS
Provisions are recognized for future decommissioning and restoration of
oil and gas properties. The amounts of the provisions recognized are the present
values of the estimated future expenditures. The estimation of the future
expenditures is based on current local conditions and requirements, including
legal requirements, technology, price level, etc. In addition to these factors,
the present values of these estimated future expenditures are also impacted by
the estimation of the economic life of oil and gas properties. Changes in any of
these estimates will impact the net income and the financial position of the
Group over the remaining economic life of oil and gas properties.
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
2005 2004
------- -------
RMB RMB
MILLION million
------- -------
Profit before taxation is arrived at after crediting and charging of the
following items:
CREDITING:
Dividend income from available-for-sale investments 109 113
Reversal of impairment of receivables 538 1,373
Reversal of impairment of available-for-sale investments 54 155
Reversal of write-down in inventories 293 234
CHARGING:
Amortization on intangible and other assets 888 755
Auditors' remuneration 50 66
Cost of inventories (approximates cost of goods sold) recognized as
expense 257,957 174,169
Depreciation on property, plant and equipment, including
impairment provision
- owned assets 49,198 46,988
- assets under finance leases 13 23
Impairment of available-for-sale investments 31 181
Impairment of receivables 83 2,049
Interest expense (Note (a)) 2,762 2,896
Loss on disposal of property, plant and equipment 2,026 2,818
Operating lease expenses 4,850 3,873
Repair and maintenance 7,880 6,314
Research and development expenditure 3,195 2,977
- 8 -
Transportation expenses 13,707 10,042
Write-down in inventories 154 381
======= =======
Note (a): Interest expense
Interest expense 3,827 3,902
Less: Capitalization of interest (1,065) (1,006)
------- -------
2,762 2,896
======= =======
5. TAXATION
2005 2004
------- -------
RMB RMB
MILLION million
------- -------
Income tax 50,221 40,331
Deferred tax 3,959 3,267
------- -------
54,180 43,598
======= =======
In accordance with the relevant PRC income tax rules and regulations, the
PRC income tax rate applicable to the Group is principally 33% (2004: 33%).
Operations of the Group in certain regions in the PRC have qualified for certain
tax incentives in the form of accelerated depreciation of certain plant and
equipment or reduced income tax rate to 15% through the year 2010.
The tax on the Group's profit before taxation differs from the theoretical
amount that would arise using the basic tax rate in the PRC applicable to the
Group, as follows:
2005 2004
------- -------
RMB RMB
MILLION million
------- -------
Profit before taxation 193,822 151,244
------- -------
Tax calculated at the tax rate of 33% 63,961 49,911
Prior year tax return adjustment 364 27
Effect of preferential tax rate (10,744) (6,886)
Utilization of previously unrecognized tax loss of subsidiaries - (969)
Income not subject to tax (427) (913)
Expenses not deductible for tax purposes 1,026 2,428
------- -------
Tax charge 54,180 43,598
======= =======
6. BASIC AND DILUTED EARNINGS PER SHARE
Basic and diluted earnings per share for the year ended December 31, 2005
have been computed by dividing profit for the year attributable to equity
holders of the Company by the weighted average number of 176.77 billion shares
issued and outstanding for the year.
Basic and diluted earnings per share for the year ended December 31, 2004
have been computed by dividing profit for the year attributable to equity
holders of the Company by the number of 175.82 billion shares issued and
outstanding for the year.
- 9 -
There are no dilutive potential ordinary shares.
7. CHANGES IN EQUITY
MINORITY TOTAL
ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY INTERESTS EQUITY
-------------------------------------------- -------- --------
SHARE RETAINED
CAPITAL EARNINGS RESERVES SUBTOTAL
-------- -------- -------- --------
RMB RMB RMB RMB RMB RMB
MILLION MILLION MILLION MILLION MILLION MILLION
-------- -------- -------- ------- -------- --------
Balance at January 1, 2004 as previously
reported before adjusting for the
acquisition of the refinery and
petrochemical businesses and investment
in Newco and reclassification of minority
interests resulting from adoption of IAS
1 and IAS 27 (Note 1) 175,824 89,577 91,212 356,613 - 356,613
Reclassification as a result of
the adoption of the revised IAS
1 and IAS 27 (Note 1) - - - - 5,608 5,608
Adjustment for the acquisition
of the refinery and
petrochemical businesses and
investment in Newco (Note 1) - (1,425) 2,740 1,315 3,358 4,673
-------- -------- -------- ------- -------- --------
Balance at January 1, 2004 adjusted for
the acquisition of the refinery and
petrochemical businesses and investment
in Newco and reclassification of
minority interests resulting from
adoption of IAS 1 and IAS 27 (Note 1) 175,824 88,152 93,952 357,928 8,966 366,894
======== ======== ======== ======= ======== ========
Currency translation differences - - 330 330 677 1,007
-------- -------- -------- ------- -------- --------
Net income recognized directly in equity - - 330 330 677 1,007
Profit for the year ended
December 31, 2004 - 103,843 - 103,843 3,803 107,646
-------- -------- -------- ------- -------- --------
Total recognized income for 2004 - 103,843 330 104,173 4,480 108,653
-------- -------- -------- ------- -------- --------
Transfer to reserves - (14,552) 14,552 - - -
Final dividend for 2003 (Note 8) - (13,947) - (13,947) - (13,947)
Interim dividend for 2004 (Note 8) - (20,381) - (20,381) - (20,381)
Dividends to minority interests - - - - (656) (656)
Other movements of minority interests - - - - 2,409 2,409
-------- -------- -------- ------- -------- --------
Balance at December 31, 2004 175,824 143,115 108,834 427,773 15,199 442,972
======== ======== ======== ======= ======== ========
Currency translation differences - - (268) (268) (465) (733)
-------- -------- -------- ------- -------- --------
Net loss recognized directly in equity - - (268) (268) (465) (733)
Profit for the year ended
December 31, 2005 - 133,362 - 133,362 6,280 139,642
-------- -------- -------- ------- -------- --------
Total recognized income/(loss) for 2005 - 133,362 (268) 133,094 5,815 138,909
-------- -------- -------- ------- -------- --------
Issue of new shares* 3,197 - 16,495 19,692 - 19,692
Transfer to reserves - (18,998) 18,998 - - -
Final dividend for 2004 (Note 8) - (25,936) - (25,936) - (25,936)
Interim dividend for 2005 (Note 8) - (27,731) - (27,731) - (27,731)
- 10 -
Payment to CNPC for the acquisition of the
refinery and petrochemical businesses (Note
1) - - (9) (9) - (9)
Dividends to minority interests - - - - (1,568) (1,568)
Return capital to minority interests due to
liquidation of subsidiaries - - - - (935) (935)
Purchase from minority interests of listed
subsidiaries - - (1,438) (1,438) (581) (2,019)
Other movement of minority interests - - - - 242 242
Capital contribution to Newco (Note 1) - - (10,056) (10,056) 10,106 50
-------- -------- -------- ------- -------- --------
Balance at December 31, 2005 179,021 203,812 132,556 515,389 28,278 543,667
======== ======== ======== ======= ======== ========
* Note: In September 2005, the Company issued 3,196,801,818 new H shares at
HK$6.00 per share and the net proceeds from the issue of new H shares were
approximately RMB19,692 million. CNPC also sold 319,680,182 state-owned shares
it held concurrently with the Company's issue of new H shares in September 2005.
8. DIVIDENDS ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY
2005 2004
------ --------
RMB RMB
MILLION million
------ --------
Final dividend attributable to equity holders of the Company for 2003 (Note(i)) - 13,947
Interim dividend attributable to equity holders of the Company for 2004 (Note(ii)) - 20,381
Final dividend attributable to equity holders of the Company for 2004 (Note(iii)) 25,936 -
Interim dividend attributable to equity holders of the Company for 2005 (Note(iv)) 27,731 -
------ --------
53,667 34,328
====== ========
(i) A final dividend attributable to equity holders of the Company in respect
of 2003 of 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 year ended December 31, 2004.
(ii) An interim dividend attributable to equity holders of the Company in
respect of 2004 of RMB0.115919 per share amounting to a total of RMB20,381
million was paid on October 8, 2004, and was accounted for in equity as an
appropriation of retained earnings in the year ended December 31, 2004.
(iii) A final dividend attributable to equity holders of the Company in respect
of 2004 of RMB0.147511 per share amounting to a total of RMB25,936 million
was paid
- 11 -
on June 10, 2005, and was accounted for in equity as an appropriation of
retained earnings in the year ended December 31, 2005.
(iv) As authorized by shareholders in the Annual General Meeting on May 26,
2005, the Board of Directors, in a meeting held on August 24, 2005,
resolved to distribute an interim dividend attributable to equity holders
of the Company in respect of 2005 of RMB0.157719 per share amounting to a
total of RMB27,731 million. The interim dividend was paid on September 30,
2005, and was accounted for in equity as an appropriation of retained
earnings in the year ended December 31, 2005.
(v) At the meeting on March 20, 2006, the Board of Directors proposed a final
dividend attributable to equity holders of the Company in respect of 2005
of RMB0.180325 per share amounting to a total of RMB32,282 million. These
financial statements do not reflect this dividend payable, which will be
accounted for in equity as an appropriation of retained earnings in the
year ending December 31, 2006.
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.
The Exploration and Production segment is engaged in the exploration,
development, production and sales of crude oil and natural gas.
The Refining and Marketing segment is engaged in the refining,
transportation, storage and marketing of crude oil and petroleum products.
The Chemicals and Marketing segment is engaged in the production and sale
of basic petrochemical products, derivative petrochemical products and other
chemical products.
The Natural Gas and Pipeline segment is engaged in the transmission of
natural gas, crude oil and refined products and the sale of natural gas.
In addition to these four major business segments, the Other segment
includes the assets, income and expenses relating to cash management, financing
activities, the corporate center, research and development, and other business
services to the operating business segments of the Group.
- 12 -
Most assets and operations of the Group are located in the PRC, which is
considered as one geographic location in an economic environment with similar
risks and returns. In addition to its operations in the PRC, the Group also has
overseas operations through subsidiaries engaging in the exploration and
production of crude oil and natural gas.
The accounting policies of the operating segments are the same as those
described in Note 1 - "Basis of Preparation".
Operating segment information for the years ended December 31, 2005 and
2004 is presented below:
Primary reporting format - Business Segments
EXPLORATION REFINING CHEMICALS NATURAL
YEAR ENDED AND AND AND GAS AND
DECEMBER 31, 2005 PRODUCTION MARKETING MARKETING PIPELINE OTHER TOTAL
------------ --------- --------- ------- -------- --------
RMB RMB RMB RMB RMB RMB
MILLION MILLION MILLION MILLION MILLION MILLION
------------ --------- --------- ------- -------- --------
Turnover (including
intersegment) 337,208 428,494 73,978 26,214 - 865,894
Less: Intersegment sales (270,943) (33,019) (4,754) (4,949) - (313,665)
------------ --------- --------- ------- -------- --------
Turnover from external
customers 66,265 395,475 69,224 21,265 - 552,229
============ ========= ========= ======= ======== ========
Depreciation, depletion
and amortization (30,896) (8,964) (6,869) (4,478) (98) (51,305)
Segment result 220,452 2,116 6,896 3,639 (1,357) 231,746
Other costs (12,372) (21,926) (3,620) (456) (1,201) (39,575)
------------ --------- --------- ------- -------- --------
Profit/(loss) from
operations 208,080 (19,810) 3,276 3,183 (2,558) 192,171
============ ========= ========= ======= ======== ========
EXPLORATION REFINING CHEMICALS NATURAL
YEAR ENDED AND AND AND GAS AND
DECEMBER 31, 2004 PRODUCTION MARKETING MARKETING PIPELINE OTHER TOTAL
------------ --------- --------- ------- -------- --------
RMB RMB RMB RMB RMB RMB
MILLION MILLION MILLION MILLION MILLION MILLION
------------ --------- --------- ------- -------- --------
Turnover (including
intersegment) 233,948 296,427 57,179 18,255 - 605,809
Less: Intersegment sales (180,129) (21,862) (2,679) (3,785) - (208,455)
------------ --------- --------- ------- -------- --------
Turnover from external
customers 53,819 274,565 54,500 14,470 - 397,354
============ ========= ========= ======= ======== ========
Depreciation, depletion
and amortization (30,915) (8,957) (5,741) (2,645) (104) (48,362)
Segment result 138,129 28,445 11,025 2,475 (518) 179,556
Other costs (7,916) (16,554) (3,370) 60 (638) (28,418)
------------ --------- --------- ------- -------- --------
Profit/(loss) from
operations 130,213 11,891 7,655 2,535 (1,156) 151,138
============ ========= ========= ======= ======== ========
- 13 -
Secondary Reporting Format - Geographical Segments
TURNOVER TOTAL ASSETS CAPITAL EXPENDITURE
----------------- ---------------- -------------------
2005 2004 2005 2004 2005 2004
RMB RMB RMB RMB RMB RMB
YEARS ENDED DECEMBER 31, MILLION million MILLION million MILLION million
------- ------- ------- ------- ------- -------
PRC 531,520 384,717 717,934 607,566 119,505 94,452
Other (Exploration and
Production) 20,709 12,637 60,133 30,881 5,296 4,494
------- ------- ------- ------- ------- ------
552,229 397,354 778,067 638,447 124,801 98,946
======= ======= ======= ======= ======= ======
10. SIGNIFICANT DIFFERENCES BETWEEN IFRS AND US GAAP (UNAUDITED)
The consolidated financial statements of the Group appearing in this
Results Announcement have been prepared in accordance with IFRS, which differs
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:
YEARS ENDED DECEMBER 31,
------------------------
2005 2004
RMB RMB
MILLION million
------- -------
Profit for the year under IFRS 139,642 107,646
US GAAP adjustments:
Depreciation charges on property, plant and equipment revaluation 6,528 8,170
gain
Depreciation charges on property, plant and equipment revaluation (149) (830)
loss
Loss on disposal of revalued property, plant and equipment 432 523
Income tax effect (2,248) (2,595)
Minority interests (6,340) (3,863)
------- -------
Net income under US GAAP 137,865 109,051
======= =======
Basic and diluted net income per share under US GAAP (RMB) 0.78 0.62
======= =======
Effect on equity of significant differences between IFRS and
US GAAP is as follows:
DECEMBER 31, December 31,
2005 2004
RMB RMB
MILLION million
--------- -- -------
Equity under IFRS 543,667 442,972
US GAAP adjustments:
Reversal of property, plant and equipment revaluation gain (80,555) (80,555)
- 14 -
Depreciation charges on property, plant and equipment revaluation
gain 51,971 45,443
Reversal of property, plant and equipment revaluation loss 1,513 1,513
Depreciation charges on property, plant and equipment revaluation
loss (1,459) (1,310)
Loss on disposal of revalued property, plant and equipment 1,746 1,314
Deferred tax assets on revaluation 8,843 11,091
Minority interests (28,034) (14,895)
Effect on the retained earnings from the one-time remedial payments
for staff housing borne by the state shareholder of the Company (2,553) (2,553)
Effect on the other reserves of the shareholders' equity from the
one-time remedial payments for staff housing borne by the state
shareholder of the Company 2,553 2,553
Purchase from minority interests of listed subsidiaries 1,438 -
------- -------
Shareholders' equity under US GAAP 499,130 405,573
======= =======
Changes in shareholders' equity under US GAAP for each of the years ended
December 31, 2005 and 2004 are as follows:
YEARS ENDED DECEMBER 31,
------------------------
2005 2004
RMB RMB
MILLION MILLION
------- -------
Balance at beginning of year 405,573 330,520
Net income for the year 137,865 109,051
Final dividend for year 2003 - (13,947)
Interim dividend for year 2004 - (20,381)
Final dividend for year 2004 (25,936) -
Interim dividend for year 2005 (27,731) -
Payment to CNPC for acquisition of refinery and petrochemical
businesses (Note 1) (9) -
Issue of new shares (Note 7) 19,692 -
Capital contribution to Newco (Note 1) (10,056) -
Currency translation differences (268) 330
------- -------
Balance at end of year 499,130 405,573
======= =======
In preparing the summary of differences between IFRS and US GAAP,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities, and the estimates of revenues and expenses. Accounting
estimates have been employed in these financial statements to determine the
reported amounts, including realisability, useful lives of tangible and
intangible assets, income taxes and other factors. Actual results may differ
from those estimates.
A summary of the principal differences and additional disclosures
applicable to the Group is set out below:
(a) REVALUATION OF PROPERTY, PLANT AND EQUIPMENT
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
- 15 -
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 December 31, 2005 was RMB6,528
million and from January 1, 2004 to December 31, 2004 was RMB8,170 million.
The depreciation charge, which includes impairment charge, on the
revaluation loss from January 1, 2005 to December 31, 2005 was RMB149 million,
and from January 1, 2004 to December 31, 2004 was RMB830 million.
The loss on disposal of revalued property, plant and equipment, which
includes shut down of manufacturing assets from January 1, 2005 to December 31,
2005 was RMB432 million and from January 1, 2004 to December 31, 2004 was RMB523
million.
For purposes of reconciling to the US GAAP financial data, the effect of
the revaluation, the related depreciation charges and loss on disposal are
reversed. A deferred tax asset relating to the reversal of the effect of
revaluation in 1999 is established, together with a corresponding increase in
shareholders' equity. Under a special approval granted by the Ministry of
Finance of the PRC, the effect of the revaluation in 1999 is available as an
additional depreciation base for purposes of determining taxable income.
(b) ONE-TIME REMEDIAL PAYMENTS FOR STAFF HOUSING
The Ministry of Finance of the PRC issued several public notices and
regulations during the years ended December 31, 2000 and 2001 with respect to
the one-time remedial payments for staff housing payable to certain employees
who joined the workforce prior to December 31, 1998 and have housing conditions
below local
- 16 -
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
non-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
Company.
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 of RMB2,553 million, was reflected in determining the net income of
the Group for the year ended December 31, 2002 under US GAAP. Since this amount
is borne by CNPC, a corresponding amount has been included as an addition to the
other reserves in the shareholders' equity of the Group. There were no
significant changes in this estimate during 2004 and 2005.
(c) MINORITY INTERESTS
In accordance with the revised IAS 1 and IAS 27, minority interests become
part of the profit for the year and total equity of the Group, whereas under US
GAAP, it is respectively excluded from the net income and shareholders' equity
of the Group. In addition, the reconciling item also includes the impact of
minority interest's share of the revaluation gain and loss on the property,
plant and equipment of non-wholly owned subsidiaries to net income and
shareholders' equity under US GAAP.
(d) PURCHASE FROM MINORITY INTERESTS OF LISTED SUBSIDIARIES
As described in the section entitled "Material Acquisitions and
Disposals", the Company acquired certain outstanding A shares from minority
interests of Jinzhou Petrochemical Company Limited ("JINZHOU PETROCHEMICAL") and
Liaohe Jinma Oilfield Company Limited ("LIAOHE JINMA"). Under IFRS, the Company
applies a policy of treating transactions with minority interests as
transactions with equity participants of the Group. Therefore, the assets and
liabilities of Jinzhou
- 17 -
Petrochemical and Liaohe Jinma additionally acquired by the Company from
minority interests were recorded by the Company at cost. The difference between
the Company's purchase cost and the book value of the interests in Jinzhou
Petrochemical and Liaohe Jinma acquired by the Company from minority interests
was recorded in equity. Under US GAAP, the acquisition of additional minority
interests is accounted for under the purchase method. The assets and liabilities
additionally acquired were restated to fair value and the difference in the
purchase cost over fair value of the minority interests acquired and
identifiable intangible assets was recorded as goodwill.
(e) RECENT US ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB revised FAS No. 123 (FAS 123R), "Share-Based
Payment", requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the financial statements based on
their fair values. Pro forma disclosure is no longer an alternative to financial
statement recognition. FAS 123R is effective for interim periods beginning after
June 15, 2005. The Group is evaluating the transition provisions allowed by FAS
123R. The Group does not expect the adoption of FAS 123R to have a material
impact on the Group's financial position or results of operations.
On November 24, 2004, the FASB issued Statement No. 151, "Inventory
Costs", an amendment of ARB No. 43, Chapter 4 (FAS 151). FAS 151 requires that
abnormal amounts of idle capacity and spoilage costs be excluded from the cost
of inventory and expensed when incurred. The provisions of FAS 151 are
applicable to inventory costs incurred during fiscal years beginning after June
15, 2005. The Group does not expect the adoption of FAS 151 to have a material
impact on the Group's financial position or results of operations.
On December 15, 2004, the FASB issued Statement No. 153, "Exchanges of
Nonmonetary Assets", an amendment of APB Opinion No. 29 (FAS 153). FAS 153
requires exchanges of productive assets to be accounted for at fair value,
rather than at carryover basis, unless (1) neither the asset received nor the
asset surrendered has a fair value that is determinable within reasonable limits
or (2) the transactions lack commercial substance. FAS 153 is effective for
nonmonetary asset exchanges occurring in fiscal years 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 operations.
In March 2005, the FASB issued Interpretation No. 47, "Accounting for
Conditional Asset Retirement" (FIN 47), an interpretation of FASB Statement No.
143.
- 18 -
This Interpretation clarifies that the term conditional asset retirement
obligation as used in FASB Statement No. 143, "Accounting for Asset Retirement
Obligations", refers to a legal obligation to perform an asset retirement
activity in which the timing and(or) method of settlement are conditional on a
future event that may or may not be within the control of the entity. The
obligation to perform the asset retirement activity is unconditional even though
uncertainty exists about the timing and(or) method of settlement. Accordingly,
an entity is required to recognize a liability for the fair value of a
conditional asset retirement obligation if the fair value of the liability can
be reasonably estimated when incurred. This Interpretation also clarifies when
an entity would have sufficient information to reasonably estimate the fair
value of an asset retirement obligation. FIN 47 is effective no later than the
end of fiscal years ending after December 15, 2005. The adoption of FIN 47 did
not have a material impact on the Group's financial position or results of
operations.
On March 29, 2005, the U.S. Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin No. 107, "Share-Based Payment" (SAB 107). This
bulletin provides guidance related to share-based payment transactions with
non-employees, the transition from non-public to public entity status, valuation
methods (including assumptions such as expected volatility and expected term),
the accounting for certain redeemable financial instruments issued under
share-based payment arrangements, the classification of compensation expenses,
non-GAAP financial measures, first-time adoption of FAS 123R in an interim
period, capitalization of compensation cost related to share-based payment
arrangements, the accounting for income tax effects of share-based payment
arrangements upon the adoption of FAS 123R, the modification of employee share
options prior to the adoption of FAS 123R, and disclosures in Management's
Discussion and Analysis subsequent to the adoption of FAS 123R. SAB 107 will be
effective when a registrant adopts FAS 123R. The Group does not expect the
adoption of SAB 107 to have any material impact on its financial position or
results of operations.
In April 2005, the FASB issued Staff Position No. FAS 19-1, "Accounting
for Suspended Well Costs". The FASB staff believes that exploratory well costs
should continue to be capitalized when the well has found a sufficient quantity
of reserves to justify its completion as a producing well and the enterprise is
making sufficient progress assessing the reserves and the economic and operating
viability of the project. The FASB replaces paragraphs 31 to 34 of Statement 19
and requires certain disclosures in the notes to the annual financial statements
to provide information for users of financial statements about management's
application of judgment in its evaluation of a
- 19 -
project's capitalized exploratory well costs. The disclosure required by this
FSP should be made in reporting periods beginning after April 4, 2005. The Group
has made disclosures which meet the disclosure requirements of this FSP in its
consolidated financial statements.
In May 2005, the FASB issued Statement No. 154 "Accounting Changes and
Error Corrections" (FAS 154) which replaces APB Opinion No. 20 "Accounting
Changes" and FASB Statement No. 3 "Reporting Accounting Changes in Interim
Financial Statements", and changes the requirements for the accounting for and
reporting of a change in accounting principle. This statement establishes,
unless impracticable, retrospective application, as the required method for
reporting a change in accounting principle in the absence of explicit transition
requirements specific to the newly adopted accounting principle. The reporting
of a correction of an error by restating previously issued financial statements
is also addressed by this Statement. FAS 154 is effective for accounting changes
and corrections of errors made in fiscal years beginning after December 15,
2005. The Group does not expect the adoption of FAS 154 to have a material
impact on the Group's financial position or results of operations.
- 20 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements of the Group and the notes thereto, proposed
to be submitted by the Company to the HKSE and published on the website of the
HKSE on or before April 30, 2006, which contains information required under the
Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong
Limited (the "LISTING RULES") applicable to this reporting period.
OVERVIEW
For the twelve months ended December 31, 2005, profit before taxation of
the Group was RMB193,822 million, representing an increase of 28.2% compared
with the corresponding period in the previous year. Net profit was RMB133,362
million, representing an increase of 28.4% compared with the corresponding
period in the previous year. The performance results and the comprehensive
strengths of the Group have increased dramatically. The increase in profit was
primarily due to the Group's ability to take full advantage of the opportunities
presented by persistently high oil prices and strong market demand by
strengthening its efforts in exploration and development resulting in a
continuous growth of crude oil and natural gas production; stable market
supplies resulting from earnest efforts in refining and marketing and an
increase in operating efficiency; continuously accelerating the pace of natural
gas production; an orderly construction of the infrastructure of crude oil and
natural gas pipelines; the strengthening of the management of the operations of
the Group and the continuous efforts in technological and managerial
innovations.
For the twelve months ended December 31, 2005, the Group's basic and
diluted earnings per share were RMB0.75.
TWELVE MONTHS ENDED DECEMBER 31, 2005 COMPARED WITH TWELVE MONTHS ENDED DECEMBER
31, 2004
CONSOLIDATED OPERATING RESULTS
Turnover Turnover increased 39.0% from RMB397,354 million for the twelve
months ended December 31, 2004 to RMB552,229 million for the twelve months ended
December 31, 2005. This was primarily due to the increases in the selling prices
and sales volume of crude oil, gasoline, diesel and other main products as well
as the increase in the sales volume of natural gas.
- 21 -
Operating Expenses Operating expenses increased 46.2% from RMB246,216
million for the twelve months ended December 31, 2004 to RMB360,058 million for
the twelve months ended December 31, 2005. This was primarily due to an increase
in the purchase cost of crude oil, refined products and other raw materials and
ancillary materials from external suppliers and an increase in the employee
compensation costs.
Purchases, Services and Other Expenses Purchases, services and other
expenses increased 75.3% from RMB114,249 million for the twelve months ended
December 31, 2004 to RMB200,321 million for the twelve months ended December 31,
2005. This was primarily due to (1) an increase in the purchase expenses of
crude oil from external suppliers resulted from an increase in crude oil prices
and an increase in the purchase volume of crude oil by the Group's refineries;
and (2) an increase in the oil and gas production costs resulted from an
increase in the rate of water and tariff of electricity and the prices of other
production materials in the PRC as well as an expansion of the production scale
of the Group. In addition, the increase in the purchase expenses was also
resulted from an increase in the refined product supply operation in the year.
Employee Compensation Costs Employee compensation costs rose 29.4% from
RMB22,934 million for the twelve months ended December 31, 2004 to RMB29,675
million for the twelve months ended December 31, 2005. This was primarily due to
an increase in employees' salaries and welfare expenses as a result of strong
results of operations achieved by the Group, and an increase in labour costs
resulted from further development of the Group's retail network.
Exploration Expenses Exploration expenses increased 28.8% from RMB12,090
million for the twelve months ended December 31, 2004 to RMB15,566 million for
the twelve months ended December 31, 2005. This was primarily due to an
appropriate increase in investments in exploration of crude oil and natural gas
by the Group in a high oil price environment.
Depreciation, Depletion and Amortization Depreciation, depletion and
amortization increased 6.1% from RMB48,362 million for the twelve months ended
December 31, 2004 to RMB51,305 million for the twelve months ended December 31,
2005. This was primarily due to an increase in the provision for depreciation
and depletion resulted from an increase in the average amount of property, plant
and equipment.
- 22 -
Selling, General and Administrative Expenses Selling, general and
administrative expenses increased 29.1% from RMB28,302 million for the twelve
months ended December 31, 2004 to RMB36,538 million for the twelve months ended
December 31, 2005. This was primarily due to an increase in transportation and
other related costs resulted from an increase in freights for railway
transportation in 2005 and an increase in the sales volume of refined and
petrochemical products.
Taxes other than Income Tax Taxes other than income tax increased 18.4%
from RMB19,943 million for the twelve months ended December 31, 2004 to
RMB23,616 million for the twelve months ended December 31, 2005. The increase
was primarily due to an increase in consumption tax and surcharges as a result
of an increase in the sales volume of gasoline and diesel by the Group's
refineries, an increase in compensation fees for mineral resources due to an
increase in crude oil and natural gas revenue, and an increase in natural
resource tax due to an increase in natural resource tax rates by the PRC
government in 2005.
Profit from Operations As a result of the factors discussed above, profit
from operations increased 27.1% from RMB151,138 million for the twelve months
ended December 31, 2004 to RMB192,171 million for the twelve months ended
December 31, 2005.
Net Exchange Gain Net exchange gain increased ten times from RMB8 million
for the twelve months ended December 31, 2004 to RMB88 million for the twelve
months ended December 31, 2005. The increase in net exchange gain was primarily
due to the appreciation of Renminbi in 2005.
Net Interest Expenses Net interest expenses decreased 45.0% from RMB1,523
million for the twelve months ended December 31, 2004 to RMB838 million for the
twelve months ended December 31, 2005. This decrease was primarily due to a
decrease in interest expenses resulted from the decrease in the average
outstanding borrowings and an increase in interest income resulted from
sufficient cash flow generated from operating activities.
Profit Before Taxation Profit before taxation rose 28.2% from RMB151,244
million for the twelve months ended December 31, 2004 to RMB193,822 million for
the twelve months ended December 31, 2005.
Taxation Taxation increased 24.3% from RMB43,598 million for the twelve
months ended December 31, 2004 to RMB54,180 million for the twelve months ended
December 31, 2005. The increase was primarily due to an increase in taxable
profits.
- 23 -
Net Profit As a result of the factors discussed above, net profit
increased 28.4% from RMB103,843 million for the twelve months ended December 31,
2004 to RMB133,362 million for the twelve months ended December 31, 2005.
SEGMENT INFORMATION
EXPLORATION AND PRODUCTION
Turnover Turnover increased 44.1% from RMB233,948 million for the twelve
months ended December 31, 2004 to RMB337,208 million for the twelve months ended
December 31, 2005. The increase was primarily due to an increase in the prices
and sales volume of crude oil and an increase in the sales volume of natural
gas. The average realized crude oil price of the Group in 2005 was US$48.37 per
barrel, representing an increase of US$14.65 per barrel or 43.4% from US$33.72
per barrel compared with the corresponding period in the previous year.
Intersegment sales increased 50.4% from RMB180,129 million for the twelve
months ended December 31, 2004 to RMB270,943 million for the twelve months ended
December 31, 2005. The increase was primarily due to an increase in the prices
of crude oil and an increase in the intersegment sales volume of crude oil and
natural gas.
Operating Expenses Operating expenses increased 24.5% from RMB103,735
million for the twelve months ended December 31, 2004 to RMB129,128 million for
the twelve months ended December 31, 2005. The increase was primarily due to
increases in purchase expenses, exploration expenses and staff costs.
Profit from Operations Profit from operations increased 59.8% from
RMB130,213 million for the twelve months ended December 31, 2004 to RMB208,080
million for the twelve months ended December 31, 2005.
REFINING AND MARKETING
Turnover Turnover rose 44.6% from RMB296,427 million for the twelve months
ended December 31, 2004 to RMB428,494 million for the twelve months ended
December 31, 2005. The increase was due to an increase in the prices and sales
volume of key products, of which:
Sales revenue from gasoline increased 43.6% from RMB76,919 million for the
twelve months ended December 31, 2004 to RMB110,438 million for the twelve
months ended December 31, 2005. The average realized selling price of gasoline
surged 19.2% from RMB3,542 per ton for the twelve months ended December 31, 2004
- 24 -
to RMB4,221 per ton for the twelve months ended December 31, 2005, resulting in
an increase in revenue by RMB17,763 million. The sales volume of gasoline
increased 20.5% from 21.71 million tons for the twelve months ended December 31,
2004 to 26.16 million tons for the twelve months ended December 31, 2005,
resulting in an increase in revenue by RMB15,756 million.
Sales revenue from diesel increased 29.5% from RMB136,649 million for the
twelve months ended December 31, 2004 to RMB176,999 million for the twelve
months ended December 31, 2005. The average realized selling price of diesel
increased 17.0% from RMB3,165 per ton for the twelve months ended December 31,
2004 to RMB3,702 per ton for the twelve months ended December 31, 2005,
resulting in an increase in revenue by RMB25,674 million. The sales volume of
diesel increased 10.7% from 43.18 million tons for the twelve months ended
December 31, 2004 to 47.81 million tons for the twelve months ended December 31,
2005, resulting in an increase in revenue by RMB14,676 million.
Sales revenue from kerosene increased 27.2% from RMB5,881 million for the
twelve months ended December 31, 2004 to RMB7,480 million for the twelve months
ended December 31, 2005.
Intersegment sales revenue increased 51.0% from RMB21,862 million for the
twelve months ended December 31, 2004 to RMB33,019 million for the twelve months
ended December 31, 2005. The increase was primarily due to an increase in
selling prices and intersegment sales volume of key products.
Operating Expenses Operating expenses increased 57.6% from RMB284,536
million for the twelve months ended December 31, 2004 to RMB448,304 million for
the twelve months ended December 31, 2005. The increase was primarily due to an
increase in the purchase expenses of crude oil and refined products from
external suppliers, and an increase in selling and administrative expenses. In
addition, the increase in the purchase expenses was also resulted from an
increase in the refined product supply operation in the year.
Profit/(loss) from Operations Loss from operations amounted to RMB19,810
million for the twelve months ended December 31, 2005, while profit from
operations amounted to RMB11,891 million for the twelve months ended December
31, 2004. This decrease was primarily due to the increase in the domestic price
of refined products being much lower than the increase in the price of crude oil
in 2005.
- 25 -
CHEMICALS AND MARKETING
Turnover Turnover rose 29.4% from RMB57,179 million for the twelve months
ended December 31, 2004 to RMB73,978 million for the twelve months ended
December 31, 2005. The growth in turnover was primarily due to an increase in
the sales volume and selling prices of key chemical products.
Operating Expenses Operating expenses increased 42.8% from RMB49,524
million for the twelve months ended December 31, 2004 to RMB70,702 million for
the twelve months ended December 31, 2005. The increase was primarily due to an
increase in the purchase expenses for direct materials and an increase in
selling and administrative expenses.
Profit from Operations Profit from operations decreased 57.2% from
RMB7,655 million for the twelve months ended December 31, 2004 to RMB3,276
million for the twelve months ended December 31, 2005. The decrease was
primarily due to an increase in the prices of raw materials in 2005.
NATURAL GAS AND PIPELINE
Turnover Turnover increased 43.6% from RMB18,255 million for the twelve
months ended December 31, 2004 to RMB26,214 million for the twelve months ended
December 31, 2005. The increase was primarily due to an increase in the sales
volume and selling prices of natural gas, and an increase in the volume of
natural gas from pipeline transmission and the prices for pipeline transmission.
Operating Expenses Operating expenses increased 46.5% from RMB15,720
million for the twelve months ended December 31, 2004 to RMB23,031 million for
the twelve months ended December 31, 2005. The increase was primarily due to an
increase in expenses for the purchase of natural gas and an increase in
depreciation charges.
Profit from Operations Profit from operations increased 25.6% from
RMB2,535 million for the twelve months ended December 31, 2004 to RMB3,183
million for the twelve months ended December 31, 2005.
- 26 -
LIQUIDITY AND CAPITAL RESOURCES
For the twelve months ended December 31, 2005, the Group's primary sources
of capital were cash generated from operating activities, short-term and
long-term borrowings, cash and cash equivalents. The Group's capital was
primarily used for operating activities, capital expenditures, repayment of
short-term and long-term borrowings and distribution of dividends to
shareholders.
As at December 31, 2005, short-term borrowings made up approximately 4.7%
of the Group's capital employed as compared with approximately 6.7% as at
December 31, 2004. The Group's ability to obtain adequate financing may be
affected by the financial position, the results of operations and the conditions
of the domestic and foreign capital markets. The Group must seek approvals from
the relevant PRC government authorities before raising capital in the domestic
and foreign capital markets. In general, the Group must obtain the PRC
government's approvals for any project involving significant capital investments
in the Refining and Marketing segment, the Chemicals and Marketing segment and
the Natural Gas and Pipeline segment.
The Group plans to fund its capital expenditures and related investments
principally from cash generated from operating activities, short-term and
long-term borrowings, cash and cash equivalents. For the twelve months ended
December 31, 2005, net cash generated from operating activities was RMB203,885
million. As at December 31, 2005, the Group had RMB80,905 million in cash and
cash equivalents. Cash and cash equivalents were primarily Renminbi (with
Renminbi accounting for approximately 79.6%, United States Dollar accounting for
approximately 12.3% and Hong Kong Dollar accounting for approximately 8.1%).
The table below sets forth the cash flow of the Group for the twelve
months ended December 31, 2005 and 2004, respectively and the cash and cash
equivalents as at the end of each period.
YEARS ENDED DECEMBER 31,
------------------------
2005 2004
--------- ----------
RMB RMB
MILLION million
--------- ----------
Net cash from operating activities 203,885 141,691
Net cash used for investing activities (91,576) (102,276)
Net cash used for financing activities (42,634) (39,586)
Currency translation differences (458) 246
Cash and cash equivalents as at the end of year 80,905 11,688
- 27 -
CASH FLOWS FROM OPERATING ACTIVITIES
The net cash flow of the Group generated from operating activities for the
twelve months ended December 31, 2005 was RMB203,885 million, which represents
an increase of 43.9% compared with the RMB141,691 million generated for the
twelve months ended December 31, 2004. This increase was primarily due to a
dramatic increase in profits for the period as well as an increase in the
account payables for the period.
For the twelve months ended December 31, 2005, the Group had a working
capital of RMB22,057 million compared with a working capital deficit of RMB8,272
million for the twelve months ended December 31, 2004. The increase in working
capital was primarily due to an increase in cash and cash equivalents resulted
from a dramatic increase in sales revenues for the period, and an increase in
inventories resulted from an expansion of the scale of sales and an increase in
selling prices.
CASH USED FOR FINANCING ACTIVITIES
The net borrowings of the Group as at December 31, 2005 and December 31,
2004 are as follows:
YEARS ENDED DECEMBER 31,
------------------------
2005 2004
RMB RMB
MILLION million
---------- ----------
Short-term borrowings (including current portion
of long-term borrowings) 28,689 34,937
Long-term borrowings 44,570 44,648
Total borrowings 73,259 79,585
-------- --------
Less:
Cash and cash equivalents 80,905 11,688
-------- --------
Net borrowings (7,646) 67,897
======== ========
- 28 -
The maturity profile of the long-term borrowings of the Group is as
follows:
PRINCIPAL AS AT Principal as at
DECEMBER 31, 2005 December 31, 2004
----------------- -----------------
RMB RMB
MILLION million
----------------- -----------------
To be repaid within one year 15,325 18,962
To be repaid within one to two years 18,373 10,145
To be repaid within two to five years 14,942 27,072
To be repaid after five years 11,255 7,431
------ ------
59,895 63,610
====== ======
Of the total borrowings of the Group as at December 31, 2005,
approximately 27.0% were fixed-rate borrowings and approximately 73.0% were
floating-rate borrowings. Of the borrowings as at December 31, 2005,
approximately 72.1% were denominated in Renminbi, approximately 27.1% were
denominated in United States Dollar, approximately 0.2% were denominated in
British Pound Sterling, approximately 0.3% were denominated in Japanese Yen, and
approximately 0.3% were denominated in Euro.
As at December 31, 2005, the amount of borrowings owed to China Petroleum
Finance Company Limited ("CNPC FINANCE") was RMB27,319 million, the amount of
borrowings owed to state-owned banks and other state-owned non-banking financial
institutions was RMB31,178 million and the amount of borrowings owed to other
related parties was RMB62 million.
As at December 31, 2005, the amount of short-term and long-term borrowings
owed to CNPC Finance was RMB520 million and RMB26,799 million, respectively.
The net cash used for financing activities of the Group for the twelve
months ended December 31, 2005 increased 7.7% compared with the twelve months
ended December 31, 2004. The increase was primarily due to an increase in
payments of dividends to shareholders of the Company as compared with the
corresponding period of last year.
As at December 31, 2005, borrowings of the Group consisted of RMB1,108
million (RMB2,269 million as at December 31, 2004) secured loans (finance leases
and bank borrowings), most of which were secured over certain of the Group's
property and time deposits with maturities over one year.
- 29 -
As at December 31, 2005, the debt to capitalization ratio (debt to
capitalization ratio = interest-bearing debts/(interest-bearing debts + total
equity)) was 11.9% (15.2% as at December 31, 2004).
CAPITAL EXPENDITURES
The table below sets out our capital expenditures by the business segments
of the Group for the twelve months ended December 31, 2005, the twelve months
ended December 31, 2004 and the estimated value for 2006 respectively. For the
twelve months ended December 31, 2005, capital expenditures of the Group
increased 26.1% to RMB124,801 million from RMB98,946 million for the twelve
months ended December 31, 2004. The increase in capital expenditures was
primarily due to an increase in expenditures relating to crude oil and natural
gas exploration and development and petrochemical projects in 2005 as well as an
increase in prices of steel products, fuel oil, water, electricity and other
production materials.
YEARS ENDED DECEMBER 31,
-------------------------------------------
2005 2004 2006 (ESTIMATED VALUE)
-------------------- -------------------- ----------------------
RMB RMB RMB
Segment MILLION % million % MILLION %
--------- -------- ---------- ------- ---------- ---------
Exploration and 83,214* 66.68 62,868* 63.54 93,500* 62.75
Production
Refining and 16,454 13.18 17,684 17.87 23,700 15.91
Marketing
Chemicals and 13,569 10.87 4,319 4.37 15,300 10.27
Marketing
Natural Gas and 11,137 8.92 13,901 14.05 15,300 10.27
Pipeline
Others 427 0.35 174 0.17 1,200 0.80
------- ------ ------ ------ ------- ------
Total 124,801 100.00 98,946 100.00 149,000 100.00
======= ====== ====== ====== ======= ======
Note: *If the investments portion related to geological and geophysical
exploration costs were included, the capital expenditures and investments for
the Exploration and Production segment for 2004 and 2005, and the estimate of
the same for the entire 2006 would be RMB70,217 million, RMB92,233 million and
RMB104,500 million, respectively.
Exploration and Production
A majority of the Group's capital expenditures is related to the
Exploration and Production segment. For the twelve months ended December 31,
2005, capital expenditures in relation to the Exploration and Production segment
amounted to RMB83,214 million, including RMB16,499 million for exploration
activities and
- 30 -
RMB59,113 million for development activities. For the twelve months ended
December 31, 2004, capital expenditures in relation to this segment totalled
RMB62,868 million, including RMB11,744 million for exploration activities and
RMB45,832 million for development activities. The increase in capital
expenditures was primarily due to an increase in expenditures relating to oil
and gas exploration and development which reflects the targets of the Group in
stabilizing the production of crude oil in eastern China, rapidly developing the
business in western China and accelerating the development of natural gas
business.
The Group anticipates that capital expenditures for the Exploration and
Production segment for the twelve months ending December 31, 2006 will amount to
RMB93,500 million. Approximately RMB20,000 million will be used for oil and gas
exploration, and RMB73,500 million will be used for oil and gas development.
Exploration and development will be mainly carried out in seven basins including
the Erdos, Junggar, Tarim, Songliao, Sichuan, Bohai Bay and Chaidamu basins.
Refining and Marketing
Capital expenditures for the Group's Refining and Marketing segment for
the twelve months ended December 31, 2005 amounted to RMB16,454 million, of
which RMB9,565 million was spent on the expansion of the retail sales network of
refined products and storage infrastructure facilities for oil products, and
RMB6,889 million was spent on renovation of refining facilities. The total
capital expenditures of this segment for the twelve months ended December 31,
2004 were RMB17,684 million. The decrease in capital expenditures was primarily
due to a decrease in investments in the building up of sales network as compared
with that of the corresponding period of last year.
The Group anticipates that capital expenditures for the Refining and
Marketing segment for the twelve months ending December 31, 2006 will amount to
RMB23,700 million, which include approximately RMB15,200 million for
construction and expansion of refining facilities; and approximately RMB8,500
million for investments in the building up of the sales network for refined
products.
Chemicals and Marketing
Capital expenditures for the Chemicals and Marketing segment for the
twelve months ended December 31, 2005 and 2004 amounted to RMB13,569 million and
RMB4,319 million, respectively. The increase was primarily due to an increase in
- 31 -
investments in the ethylene projects in Jilin Petrochemical, Lanzhou
Petrochemical and Dushanzi Petrochemical and in the PTA projects in Liaoyang
Petrochemical.
The Group anticipates that capital expenditures for the Chemicals and
Marketing segment for the twelve months ending December 31, 2006 will amount to
RMB15,300 million, which is expected to be used primarily for upgrading the
ethylene facilities in Jilin Petrochemical, Lanzhou Petrochemical and Dushanzi
Petrochemical and the construction of the PTA project in Liaoyang Petrochemical.
Natural Gas and Pipeline
Capital expenditures in the Natural Gas and Pipeline segment for the
twelve months ended December 31, 2005 amounted to RMB11,137 million. The Group
spent RMB10,413 million of these expenditures on the construction of long
distance pipelines, of which RMB6,083 million were spent on the West-East Gas
Pipeline project. For the twelve months ended December 31, 2004, capital
expenditures in the segment totalled RMB13,901 million. The decrease in capital
expenditures was primarily due to a decrease in investments in the second
Shaanxi-Beijing Pipeline project.
The Group anticipates that capital expenditures for the Natural Gas and
Pipeline segment for the twelve months ending December 31, 2006 will amount to
RMB15,300 million, which are expected to be used primarily for increasing
transmission capacity by the West-East Gas Pipeline project and for construction
of underground natural gas storage facilities and pipelines for crude oil and
refined products.
Others
Non-segment-specific capital expenditures for the twelve months ended
December 31, 2005 and for the twelve months ended December 31, 2004 were RMB427
million and RMB174 million, respectively. These capital expenditures were mainly
used for non-segment-specific equipment purchases and research and development
activities.
The Group anticipates that its non-segment-specific capital expenditures
for the twelve months ending December 31, 2006 will amount to approximately
RMB1.2 billion, which is expected to be used primarily for scientific research
activities and for construction of ERP and other information system.
- 32 -
MATERIAL INVESTMENT
The Group did not hold any material external investment for the year ended
December 31, 2005.
MATERIAL ACQUISITIONS OR DISPOSALS
In accordance with the acquisition agreement between the Company and CNPC
dated March 28, 2005, the Company acquired the refinery and petrochemical
businesses owned by CNPC's wholly-owned subsidiaries, Dayuan and Qingyang, at a
consideration of RMB9 million. Under the Listing Rules, the above transaction
constitutes a connected transaction of the Company. The details of the
transaction were announced on March 30, 2005.
In August 2005, the shareholders of the Company approved the acquisition
and transfer agreements relating to the Company's acquisition of a 50% ownership
interest in Newco. Newco was formed in 2005 and was wholly owned by CNODC and
one of its subsidiaries. Under the terms of the related agreements, CNODC
transferred certain oil and gas exploration operations into Newco and the
Company contributed to Newco its wholly-owned subsidiary, PTRI, and cash
amounting to approximately RMB20,162 million, which is the difference between
the cash contribution of RMB20,741 million payable by the Company according to
the acquisition agreement and cash consideration of RMB579 million for PTRI
receivable by the Company.
The Board resolution dated October 26, 2005 approved the Company's
acquisition of 150 million outstanding A shares from minority interests of
Jinzhou Petrochemical at a price of RMB4.25 per share through tender offers. As
at December 31, 2005, the Company acquired 117,486,753 A shares (representing
approximately 14.92% of the total share capital of Jinzhou Petrochemical) at a
total cash consideration of approximately RMB500 million. After the acquisition,
the Company owns 95.87% of the total share capital of Jinzhou Petrochemical. The
difference between the acquisition consideration and the book value of the
acquired assets and liabilities will be included in the equity interests.
Jinzhou Petrochemical was delisted on January 4, 2006 upon approval of the China
Securities Regulatory Commission.
The Board resolution dated October 26, 2005 approved the Company's
acquisition of 200 million outstanding A shares and 964.778 million H shares
(including ADSs) respectively from minority interests of Jilin Chemical
Industrial Company Limited ("JILIN CHEMICAL") at prices of RMB5.25 per A share
and HK$ 2.80 per H share, respectively, through tender offers. The tender offers
were completed in
- 33 -
February 2006 and the impact of the acquisitions will be reflected in the annual
consolidated financial statements of the Group as at December 31, 2006.
The Board resolution dated October 26, 2005 also approved the Company's
acquisition of 200 million outstanding A shares from minority interests of
Liaohe Jinma at a price of RMB8.80 per share through tender offers. As at
December 31, 2005, the Company acquired 172,315,428 A shares (representing
approximately 15.67% of the total share capital of Liaohe Jinma) at a total cash
consideration of approximately RMB1,519 million. Upon completion of the
acquisition, the Company owns 97.48% of the total share capital of Liaohe Jinma.
The difference between the acquisition consideration and the book value of the
acquired assets and liabilities will be recorded in equity interests. Liaohe
Jinma was delisted on January 4, 2006 upon approval of the China Securities
Regulatory Commission.
The Company has entered into two acquisition agreements with two wholly
owned subsidiaries of CNPC, Liaohe Petroleum Exploration Bureau and China
Petroleum Pipeline Bureau, on December 6, 2005 for the acquisition of shares
representing 15.56% and 20.17%, respectively, from them in Petrochina Fuel Oil
Company Limited ("FUEL OIL COMPANY"), a 55.43% subsidiary of the Company, for an
aggregate cash consideration of RMB559 million. The Fuel Oil Company is
principally engaged in the business of investment and development of fuel oil in
the upstream and downstream areas in the PRC. Upon completion of the above
acquisitions, the Company's interest in the Fuel Oil Company will be increased
and it is expected that the management of the Fuel Oil Company will be
strengthened.
EVENTS AFTER THE BALANCE SHEET DATE
As discussed above, the Company acquired, by tender offers, all the
outstanding A shares and H shares (including ADSs) from minority interests of
Jilin Chemical. In February 2006 when the relevant offer periods expired, the
Company acquired 908,113,053 H shares (including ADSs) and 157,700,200 A shares
of Jilin Chemical (representing 29.93% of the total share capital of Jilin
Chemical in aggregate) at an aggregate consideration of approximately RMB3,372
million. Jilin Chemical was delisted from the HKSE, the New York Stock Exchange
and Shenzhen Stock Exchange on January 23, 2006, February 15, 2006 and February
20, 2006, respectively.
FOREIGN EXCHANGE RATE RISK
The PRC government reformed the Renminbi exchange rate regime on July 21,
2005. A managed floating exchange rate regime under which the exchange rate for
- 34 -
Renminbi is adjusted with reference to a basket of currencies and based on the
demand and supply for Renminbi is implemented. However, the exchange rate for
Renminbi in the capital account is yet to be liberalized. The exchange rates of
Renminbi are affected by the domestic and international economic and political
environment, and the supply and demand for Renminbi. In future, the exchange
rate of Renminbi against other currencies may differ from the current ones
significantly. As Renminbi is the base currency of the Company and most of its
consolidated entities, the fluctuation of exchange rates of Renminbi may have
positive or negative impact on the results of operations of the Group. An
appreciation of Renminbi against United States Dollar will decrease the turnover
of the Group but may lower the cost incurred by the Group in acquiring imported
raw materials and equipment. A devaluation of Renminbi against United States
Dollar may not have a negative impact on the Group's turnover but may increase
the cost incurred by the Group in acquiring imported materials and equipment as
well as the foreign currency-denominated obligations of the Group. The results
of operations and the financial position of the Group may also be affected by
fluctuations in exchange rates against Renminbi of a number of other foreign
currencies.
COMMODITY PRICE RISK
The Group is engaged in a broad range of petroleum related activities. The
hydrocarbon commodity markets are influenced by the global as well as regional
supply and demand conditions. The prices of onshore crude oil are determined
with reference to international prices of crude oil. A decline in the prices of
crude oil and refined products could adversely affect the Group's financial
performance. The Group historically has not used commodity derivative
instruments to hedge against potential price fluctuations of crude oil and
refined products. Therefore, during 2004 and 2005, the Group was exposed to the
general price fluctuations of broadly traded oil and gas commodities.
INDUSTRY RISK
Like other oil and gas companies in China, the Group's operating
activities are subject to regulation and control by the PRC government in many
aspects. This regulation and control, such as by way of grant of exploration and
production licences, the imposition of industry-specific taxes and levies and
the implementation of environmental and safety standards etc, is expected to
have an impact on the Group's operating activities. As a result, the Group may
be subject to fairly significant restrictions when implementing its business
strategy, developing and expanding its
- 35 -
business or maximizing its profitability. Any future changes in the PRC
governmental policies on the oil and gas industry may also affect the Group's
business operations.
EMPLOYEES AND EMPLOYEE COMPENSATION
Number of employees
As at December 31, 2005 and December 31, 2004, the Group had 439,220 and
424,175 employees, respectively. The table below sets out the number of
employees by business segment as at December 31, 2005:
Segment NUMBER OF EMPLOYEES PERCENTAGE OF TOTAL
(%)
------------------- -------------------
Exploration and Production 247,258 56.3
Refining and Marketing 117,260 26.7
Chemicals and Marketing 60,272 13.7
Natural Gas and Pipeline 10,760 2.5
Other* 3,670 0.8
------- ------
Total 439,220 100.00
======= ======
Note:* "Other" includes staff of the Company's headquarters, specialized
subsidiaries, Exploration & Development Research Institute, Planning &
Engineering Institute, Oil Refining and Petrochemical Technological
Research Centres and other units.
Employee Compensation
The total employee compensation payable by the Group for the twelve months
ended December 31, 2005 was RMB19,351 million, being the total salaries of
employees during the reporting period. Compensation of employees is determined
according to industry practice and the actual conditions of the Group, and is
based on the principles of attracting and retaining high-calibre personnel, and
motivating all staff for the realization of best results.
The Company's senior management remuneration system links senior
management financial interests (including those of executive directors and
supervisors) with the Group's results of operations and the market performance
of its shares. All members of the senior management have entered into
performance contracts with the Company. Under this system, the senior management
members' compensation has three components, namely, fixed salaries, performance
bonuses and stock appreciation rights. The variable components in their
compensation account for approximately 70% to 75% of the senior management
officers' total potential compensation, including approximately 0% to 25%
forming the performance bonus component and approximately 50% to 70% forming the
stock appreciation rights component. Variable
- 36 -
compensation rewards are linked to the attainment of specific performance
targets, such as net profit, return on capital and cost reduction targets. The
chart below sets forth the components of the total potential compensation for
key officers.
BASIC SALARY (%) STOCK APPRECIATION PERFORMANCE BONUS
RIGHTS (%) (%)
---------------- ------------------ -----------------
Chairman 30 70 0
President 25 60 15
Vice President 25 60 15
Department General
Manager 25 50 25
Details of the directors' and supervisors' emoluments as at December 31,
2005 and December 31, 2004 were as follows (for remuneration for each of the
directors and supervisors on a named basis, please see the consolidated
financial statements of the Group and notes proposed to be submitted to the HKSE
and published on the website of the HKSE on or before April 30, 2006):
2005 2004
-------- -------
RMB'000 RMB'000
-------- -------
Fee for directors and supervisors 897 120
Salaries, allowances and other
benefits 4,031 2,012
Contribution to retirement benefit
scheme 57 43
----- -----
4,985 2,175
===== =====
The number of directors and supervisors whose emoluments fall within the
following band (including directors and supervisors whose term expired during
the year):
2005 2004
------ ------
NUMBER Number
------ ------
Nil-RMB1,000,000 25 24
== ==
Upon exercise of their stock options, members of the senior management
will not receive any shares in the Company, but will, by way of stock
appreciation rights, receive a monetary sum which is calculated on the basis of
the share price of the H shares listed on the HKSE.
- 37 -
Training Programs
The training program of the Company for 2005 has been geared towards
achieving the development strategy and operating objectives of the Company. In
line with the strategic requirement for "a strong corporation with highly
talented personnel", the Company has targeted high-calibre, skilful and
international staff in its training program with a focus on the training of the
"core" and "backbone" personnel and strived to build a proficient operating and
management team, a technology innovation team and a skilful operators' team to
ensure the supply of talents required for the continuous and stable development
of the Company.
Medical Insurance
Since October 1, 2002, the Company's headquarters and its regional
branches based in Beijing have joined the basic medical insurance scheme
organized by the Beijing Municipality, making contributions at 9% of the total
basic salaries of the employees. Other local subsidiaries and branches of the
Group have also participated in their respective local basic medical insurance
schemes.
As basic medical insurance is organized by local authorities, the dates of
implementation, rates of contribution and reimbursement methods vary with the
localities. The rate of contribution is generally set at 6% to 10% of the total
basic salaries of the employees.
In accordance with the relevant regulations of the PRC government, the
Group has given permission to local subsidiaries and branches which have
participated in local basic insurance schemes to establish a supplemental
medical insurance scheme from 2002. Contributions to the schemes are set at no
more than 4% of the total salaries and will be booked as cost.
CONTINGENT LIABILITIES
Information on the Group's contingent liabilities as at December 31, 2005
is as follows:
BANK AND OTHER GUARANTEES
As at December 31, 2005, the Group had contingent liabilities in respect
of guarantees made to CNPC Finance, a subsidiary of CNPC, from which it is
anticipated that no material liabilities will arise.
- 38 -
2005 2004
------- -------
RMB RMB
MILLION million
------- -------
Guarantee of borrowings of associates 187 203
=== ===
ENVIRONMENTAL LIABILITIES
CNPC and the Group have operated in China for many years. China has
adopted extensive environmental laws and regulations that affect the operations
of the oil and gas industry. The outcome of environmental liabilities under
proposed or future environmental legislation cannot reasonably be estimated at
present, and could be material. Under existing legislation, however, management
believes that there are no probable environmental liabilities, except for the
amounts which have already been reflected in the financial statements, that will
have a material adverse effect on the financial position of the Group.
LEGAL CONTINGENCIES
The Group is the named defendant in certain insignificant lawsuits as well
as the named party in other proceedings arising in the ordinary course of
business. While the outcome of such contingencies, lawsuits or other proceedings
cannot be determined at present, management believes that any resulting legal
liabilities will not have a material adverse effect on the financial position of
the Group.
LEASING OF LAND, ROADS AND BUILDINGS
According to the Restructuring Agreement entered into between the Company
and CNPC in 1999 upon the formation of the Company, CNPC has undertaken to the
Company the following:
- CNPC will use its best endeavours to obtain formal land use right
certificates to replace the entitlement certificates in relation to the 28,649
parcels of land which were leased or transferred to the Company from CNPC,
within one year from August, September and October 1999 when the relevant
entitlement certificates were issued;
- CNPC will complete, within one year from November 5, 1999, the necessary
governmental procedures for the requisition of collectively-owned land on which
116 service stations owned by the Company are located; and
- 39 -
- CNPC will obtain individual building ownership certificates in the name
of the Company for all of the 57,482 buildings transferred to the Company by
CNPC, before November 5, 2000.
As at December 31, 2005, CNPC had obtained formal land use right
certificates in relation to 27,400 out of the above-mentioned 28,649 parcels of
land, some building ownership certificates for the above-mentioned buildings,
but has completed none of the necessary governmental procedures for the
above-mentioned service stations located on collectively owned land. The
Directors of the Company confirm that the use of, and the conduct of the
relevant activities at the above-mentioned parcels of land, service stations and
buildings are not affected by the fact that the relevant land use right
certificates or individual building ownership certificates have not been
obtained, or the fact that the relevant governmental procedures have not been
completed. In the management's opinion, the outcome of the above events will not
have a material adverse effect on the results of operations or the financial
position of the Group.
GROUP INSURANCE
Except for limited insurance coverage for vehicles and certain assets
subject to significant operating risks, the Group does not carry any other
insurance for property, facilities or equipment with respect to its business
operations. In addition, the Group does not carry any third-party liability
insurance against claims relating to personal injury, property and environmental
damages or business interruption insurance since such insurance coverage is not
customary in the PRC. While the effect of under-insurance on future incidents
cannot be reasonably assessed at present, management believes that it may have a
material impact on the results of operations but will not have a material
adverse effect on the financial position of the Group.
OTHERS
On November 13, 2005, explosions occurred at the dianil plant of a branch
of the Company located in the Jilin Province. The impact of the accident is
undergoing government investigation. The incident shows that the Company needs
further strengthening of its operational safety and environmental protection.
The Company has realized the seriousness of the issue and has stepped up its
efforts in securing operational safety and environmental protection. The Company
will bear resultant liabilities caused by the explosions based on the results of
the investigation.
- 40 -
MARKET REVIEW
CRUDE OIL MARKET REVIEW
In 2005, there was a huge oil demand and rather tight oil supply in the
international market. As a result, international crude oil prices continued to
soar and fluctuate and broke new record highs several times. The annual average
prices for WTI, Brent and Minas crude oil were US$56.59, US$54.53 and US$54.19
per barrel, respectively, representing an increase of US$15.07, US$16.28 and
US$17.22 per barrel, respectively, over the annual average prices in 2004.
Corresponding to the rise in international oil prices, domestic crude oil prices
also increased. The average realized price for domestic crude oil in 2005 was
higher than that of 2004.
Net crude oil imports of China continued to increase in 2005 by 1.7% to a
net total of 119 million tons compared with the corresponding period in the
previous year. The domestic crude oil output and refinery crude oil input
reached 182 million tons and 273 million tons, respectively.
REFINED PRODUCTS MARKET REVIEW
International oil product prices stayed at a high level throughout 2005.
Domestic refined product prices, however, have failed to completely keep track
of the international prices. Refineries incurred heavy losses in processing. In
2005, transportation of refined products was affected by tight transportation
capacity. Overall, there was a tight supply of refined products in 2005, and
there was a strong pressure for steady supply in the market. Nominal consumption
increased by 4.7% to 164.44 million tons. The Group supplied 71.85 million tons
of refined products to the domestic market, representing an increase of 11.74%
over the previous year, and making its due contribution to the security,
stability and continuous development of the Chinese economy.
CHEMICAL PRODUCTS MARKET REVIEW
The Chinese economy grew steadily and rapidly in 2005 under the
government's macroeconomic regulation and control. The domestic demand for
chemical products remains buoyant. In 2005, prices of domestic petrochemical
products remained high and in fact rose under surging oil prices. However, the
overall level of increase was moderate due to demand and supply factors. The
persistent fluctuation and surging of crude oil prices throughout the year has
increased the cost of production of petrochemical products remarkably. As a
result, profit margin in the petrochemical
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industry for 2005 was lowered significantly compared to that for 2004 and profit
for petrochemical products was squeezed to a certain extent.
BUSINESS REVIEW
For the twelve months ended December 31, 2005, total crude oil and natural
gas output of the Group was 1,009.5 million barrels of oil equivalent, including
822.9 million barrels of crude oil and 1,119.5 billion cubic feet of marketable
natural gas, representing an average production of 2.25 million barrels of crude
oil and 3,070 million cubic feet of natural gas per day. A total of 788.8
million barrels of crude oil and 1,052.2 billion cubic feet of natural gas were
sold. Approximately 83% of the crude oil sold by the Group was purchased by its
refineries. In 2005, the lifting cost for the oil and gas operations of the
Group was US$5.28 per barrel, representing an increase of 14.8% from US$4.60 per
barrel in 2004.
For the twelve months ended December 31, 2005, the Group's refineries
processed 752 million barrels of crude oil, or an average of 2.06 million
barrels per day. Approximately 89% of the crude oil processed in the Group's
refineries was supplied by the Exploration and Production segment. The Group
produced approximately 66.39 million tons of gasoline, diesel and kerosene and
sold approximately 75.98 million tons of these products. The Group actively
expanded its sales and distribution networks, in particular the retail sales
network, by capitalizing fully on the complementary value-added effect of the
integration of refining and marketing. As at December 31, 2005, there were
18,164 service stations which were either owned, controlled or franchised by the
Group or owned by CNPC but to which the Group provided supervisory support. The
cash processing cost of the Group's refineries increased from RMB131 per ton to
RMB145 per ton.
For the twelve months ended December 31, 2005, the Group produced 1.888
million tons of ethylene, 2.757 million tons of synthetic resin, 1.283 million
tons of synthetic fiber raw materials and polymer, 0.281 million tons of
synthetic rubber, and 3.578 million tons of urea.
For the twelve months ended December 31, 2005, the Group sold 888.8
billion cubic feet of marketable natural gas through the Natural Gas and
Pipeline segment. The Group currently owns and operates 20,340 kilometers of
regional natural gas pipeline networks, of which 19,212 kilometers are operated
by the Natural Gas and Pipeline segment. For the twelve months ended December
31, 2005, the Group owned and operated 9,391 kilometers of crude oil pipeline
and 2,462 kilometers of pipeline for refined products.
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STANDARDIZED OPERATIONS AND BUSINESS PROSPECTS
The Company strictly follows the laws and regulations of its places of
listing and operates steadily and manages in a scientific manner within the
regulatory framework. The value of the Company in the international capital
markets appreciates continuously. The price of the Company's shares hit new
highs. In 2005, the total market capitalization of the Company's H shares
surpassed HK$1,000 billion. The average price of the Company's H shares was
HK$5.5 per share, representing an increase of 41% from that of the previous
year.
The Company has continued to place top priority to oil and gas
exploration. In 2005, the Company continued to enhance its efforts in
exploration and exploitation of oil and gas reserves and achieved significant
results in oil and gas exploration. The business foundation of steady
development in eastern China and rapid development in western China is further
consolidated.
There was rapid development in refinery and petrochemical businesses as
well as in marketing business. The Company has become ever more competitive in
the market and its operating efficiency has achieved new improvements. In the
production of refined oil, the production units made efforts to overcome the
adversities caused by the gap between the prices of refined products and the
prices of crude oil by coordinating the allocation of resources and optimizing
the production process. In the marketing of refined oil, integrated management
of production and marketing was carried out and a nationwide sales network was
built up, with a view to adapting to market changes proactively and stabilizing
market supply. In the marketing of chemicals, the Company has managed to grasp
the market opportunity to take advantage of its competitive edge in centralized
marketing by promoting sales at favorable prices. The Company achieved
breakthrough in its efforts at soliciting institutional and big clients.
Marketing management was strengthened and became more standardized. Key
technological upgrading and construction of refining and petrochemical bases in
the refinery and petrochemical arena were smoothly completed and there was new
progress in the adjustment of the structure of the refinery and petrochemical
businesses.
Key natural gas and pipeline construction was carried out in an orderly
manner. Construction period and quality were effectively guaranteed. Natural gas
transmission via the second Shaanxi-Beijing Pipeline commenced ahead of
schedule. Six compressor stations for the West-East Gas Pipeline Project were
completed and put into operation. The Xiangtan branch line of the
Zhongxian-Wuhan Pipeline was completed and went into operation successfully. The
trunk line of the Jining line connecting the
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West-East Gas Pipeline and the second Shaanxi-Beijing Pipeline was completed.
Natural gas production capacity was enhanced. As a result, production and sales
of natural gas were enhanced dramatically. Safe and steady supply of natural gas
was ensured. Integration of resources, market and efficiency was achieved.
Capital markets operation and asset restructuring were carried out and
control of financial risks was enhanced. The Company grasped the favourable
market window and successfully issued new H shares for the first time. The
proceeds from the H shares issue will be used for business development of the
Company. The Company made a general offer to acquire for cash all the
outstanding shares in Jilin Chemical, Jinzhou Petrochemical and Liaohe Jinma,
the three listed subsidiaries of the Company, and withdrew the listing status
for their respective A Shares, H Shares and ADSs. The offer has resolved the
issue of competition within the Group and has regularized connected
transactions. In 2005, the Company and CNPC jointly provided capital (each
provided 50%) to set up Newco to integrate overseas oil exploration and
development businesses. This is conducive to enhancing the overall advantages
and promoting the implementation of the going international strategy. At the
same time, the internal control mechanism was strengthened and standardized
management was further advocated. The Company's capability to prevent risks was
further enhanced.
The Company always emphasizes the "human-oriented" concept in its
operations and management. The Company has taken initiatives in achieving safety
and environmental protection. It has also endeavoured to build itself up as an
enterprise of harmony. Through the active promotion of events relating to the
"Year of Safety in Production", the Company has established and perfected its
HSE management system.
Looking forward in 2006, China may be able to maintain high economic
growth and low inflation, and a growth of approximately 8% in the GDP in 2006.
The rapid development of the national economy will increase the market demand
for oil and petrochemicals and provide ample room for development for the oil
and petrochemicals industry.
The Company will continue to strengthen its exploration and development
business in China and further consolidate its resources foundation. The Company
will focus on realizing stable development in eastern China and rapid
development in western China. The Company will insist on paying equal emphasis
on oil and gas businesses. It will continue to give priority to oil and gas
exploration and perfect its oilfield development efforts in order to ensure
steady and increased crude oil production,
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rapid increase in natural gas production, and accelerate the establishment of a
larger scale, enhanced supply and safer natural gas production base.
The Company will continue to promote the construction of key refining
facilities to improve the competitiveness and profitability of the refining
segment. The refining business structure will be optimized and the efficiency of
the marketing network will be improved in order to accelerate the pursuit of
economies of scale for leading products. In the chemicals business, the Company
will insist on making optimized arrangements, enhancing development of leading
new products, developing high quality and high value-added products, and
improving the competitiveness of leading products.
The Company will continue to speed up construction of infrastructure for
oil and gas storage and transportation, perfect gas transmission pipelines and
networks, construct interconnection lines linking up main gas transmission lines
such as the West-East Gas Pipeline Project and the second Shaanxi-Beijing
Pipeline, construct a gas transmission network in eastern and western China,
speed up the construction of compressor stations and underground storage in
order to ensure safe and steady supply in the market.
The Company will continue to expand its international businesses and
enlarge the scale of its overseas oil and gas production. Building on its
existing oil and gas projects, the Company will lay stress on key areas and
regions, enhance oil and gas exploration and exploitation, and strongly advocate
the rapid development of its overseas businesses.
In international trade, the Company has to proactively diversify the
sources of import of resources, make arrangements to facilitate the import of
crude oil from foreign countries such as Russia and Kazakhstan, develop sour and
heavy crude oil sources and make preparations for the planned introduction of
natural gas, LNG and other resources into China.
The Company will continue to ensure safety and protect the environment and
to realize notable improvements in these areas. The Company will firmly assure
safety in production, intensify its efforts in eliminating sources of pollution
and reducing hidden environmental risks, promote the efficient operation of the
HSE management system, and build itself up as an enterprise of harmony.
In future, the Company will persist in enhancing the Company's value and
strive to maximize the benefit and value for its shareholders. The Company will
lay stress on its principal businesses, strive to enhance its creative
capability, promote economic
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growth, establish a long-term effective mechanism for safety and environmental
protection, and achieve a sustainable, effective, steady and well-coordinated
development of the Company.
FINAL DIVIDEND AND TEMPORARY CLOSURES OF REGISTER OF MEMBERS
The Board of Directors recommends to pay a final dividend of RMB0.180325
per share (inclusive of applicable tax) from the balance of 45% of the net
profit for the twelve months ended December 31, 2005 less the interim dividend
for 2005 paid on September 30, 2005. The proposed final dividend is subject to
shareholders' approval at the annual general meeting to be held on May 26, 2006.
The final dividend will be paid to shareholders whose names appear on the
register of members of the Company at the close of business on May 26, 2006. The
register of members will be closed from April 26, 2006 to May 26, 2006 (both
days inclusive) during which period no transfer of shares will be registered. In
order to qualify for the final dividend, all transfer documents must be lodged,
together with the relevant share certificates, at the Hong Kong Registrars
Limited no later than 4 p.m. on April 25, 2006.
In accordance with Article 149 of its Articles of Association, dividends
payable to the Company's shareholders shall be declared in Renminbi. Dividends
payable to the holders of state-owned shares shall be paid in Renminbi while
dividends payable to the holders of H shares shall be paid in Hong Kong Dollars.
The amount of Hong Kong Dollars payable shall be calculated on the basis of the
average of the closing exchange rates for Renminbi to Hong Kong Dollar as
announced by the People's Bank of China for the week prior to the declaration of
the dividend at the shareholders' meeting to be held on May 26, 2006.
Final dividend will be paid on or around June 9, 2006.
REPURCHASE, SALE OR REDEMPTION OF SECURITIES
The Company or any of its subsidiaries did not sell any other types of
securities of the Company, nor did it repurchase or redeem any of the securities
of the Company during the twelve months ended December 31, 2005.
DISCLOSURE OF OTHER INFORMATION
Save as otherwise disclosed above, as regards the other matters required
to be disclosed pursuant to the Listing Rules, there has been no significant
changes compared with the information disclosed in the annual report for the
year ended December 31,
- 46 -
2004 nor other matters having a significant impact on the businesses of the
Group. Therefore, no supplementary information is disclosed in this
announcement.
COMPLIANCE WITH THE MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS OF
LISTED ISSUERS
The Company has adopted the Model Code for Securities Transactions for
Directors of Listed Issuers contained in Appendix 10 of the Listing Rules (the
"MODEL CODE"). The Company has made an inquiry with all its Directors and
Supervisors. Each Director and Supervisor has complied with the requirements set
out in the Model Code.
COMPLIANCE WITH THE CODE OF CORPORATE GOVERNANCE PRACTICES
The interim results announcement of the Company dated August 24, 2005
discloses that the composition of the Examination and Remuneration Committee is
not in compliance with B.1.1 of the Code of Corporate Governance Practices. The
Company has already appointed an additional independent non-executive director
in the Examination and Remuneration Committee in November 2005 and such
committee is now composed of a majority of independent non-executive directors
in compliance with the provisions of the Code of Corporate Governance Practices.
Save as described above, since the listing of the H shares of the Company on the
HKSE, the Company has complied with the Code of Corporate Governance Practices
under the Listing Rules applicable to the relevant reporting period.
AUDIT COMMITTEE
The members of the audit committee of the Company formed pursuant to
Appendix 14 of the Listing Rules include Mr Franco Bernabe, Mr Tung Chee-Chen,
Mr Liu Hongru and Mr Gong Huazhang. The main responsibilities of the audit
committee are the review and monitoring of the form of financial submissions and
the internal control mechanism of the Group and giving advice to the Board of
Directors. The audit committee of the Company has reviewed and confirmed the
final results announcement and the annual report for the twelve months ended
December 31, 2005.
The figures in respect of the preliminary announcement of the Group's
results for the year ended December 31, 2005 have been agreed by the Group's
auditors, PricewaterhouseCoopers, to the amounts set out in the Group's audited
consolidated financial statements for the year. The work performed by
PricewaterhouseCoopers in
- 47 -
this respect did not constitute an assurance engagement performed in accordance
with International Standards on Auditing, International Standards on Review
Engagements or International Standards on Assurance Engagements, consequently no
assurance has been expressed by PricewaterhouseCoopers on this preliminary
announcement.
PUBLICATION OF RESULTS ON THE WEBSITE OF THE HKSE AND OF THE COMPANY
In accordance with the requirements under the Listing Rules which are
applicable to the reporting period, all information about the Company contained
in this Announcement of Final Results for the Year Ended December 31, 2005 will
be published on the website of the HKSE (website: http://www.hkex.com.hk) on or
before April 30, 2006. This information will also be published on the website of
the Company (website: http://www.petrochina.com.cn).
By Order of the Board of Directors
PETROCHINA COMPANY LIMITED
CHEN GENG
Chairman
Beijing, the PRC
March 20, 2006
As at the date of this announcement, the Board comprises Mr. Chen Geng as the
Chairman; Mr. Jiang Jiemin as Vice Chairman; Mr. Su Shulin and Mr. Duan Wende as
executive directors; Mr. Zheng Hu, Mr. Zhou Jiping, Mr Wang Yilin, Mr. Zeng
Yukang, Mr. Gong Huazhang and Mr. Jiang Fan as non-executive directors; and Mr.
Chee-Chen Tung, Mr. Liu Hongru and Mr. Franco Bernabe as independent
non-executive directors.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PetroChina Company Limited
Dated: March 21, 2006 By: /s/ Li Huaiqi
-----------------------
Name: Li Huaiqi
Title: Company Secretary