SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of April 2004
PETROCHINA COMPANY LIMITED
16 ANDELU, DONGCHENG DISTRICT
BEIJING, THE PEOPLE'S REPUBLIC OF CHINA, 100011
(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.)
Form 20-F __X__ Form 40-F
(Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes __ No __X__
(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-_____)
PetroChina Company Limited (the "Registrant") is furnishing under the cover
of Form 6-K, the Registrant's Annual Report for the year ended December 31,
2003, prepared in accordance with the requirements of The Stock Exchange of Hong
Kong Limited.
This Annual Report contains "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements
are, by their nature, subject to significant risks and uncertainties. These
forward-looking statements include, without limitation, statements relating to:
o various expected plans and measures to be taken and the intended or
anticipated effects or benefits of such plans and measures as
discussed under "Chairman's Letter - Standardised Operations and
Business Prospects";
o the Registrant's plan to focus its exploration efforts for oil and
natural gas on the Erdos, Junggar, Tarim, Songliao and Bohai Bay
basins;
o the Registrant's anticipated capital expenditures for each of its
segments for the year ending December 31, 2004 and non
segment-specific capital expenditures for the same period;
o the Registrant's plan for segment operations, including:
- continuing to enhance exploration and production to ensure
continuous increase in oil and natural gas output;
- continuing to improve marketing network and increase market
shares;
- continuing to adjust and optimize the refining and chemicals
business to improve the profitability of the Registrant's
refining and marketing segment and chemicals and marketing
segment; and
- continuing to carefully organize the construction of key natural
gas pipeline projects to achieve various construction targets;
o the Registrant's plan to actively promote overseas oil and natural gas
exploration and development business, and to selectively develop
overseas refining and chemicals processing business and marketing
networks;
o various expected plans and measures to be taken with respect to each
of the Registrant's business segments and the intended or anticipated
effects and impact of such plans and measures as discussed under
"Business Operating Review";
o the Registrant's plan to carry out various training programs for its
staff and maintain strict control over the size of its workforce;
o the Registrant's plan to further streamline its production facilities
for the next several years and the anticipated impact of such plan on
the results of operations and financial position of the Registrant;
o the Registrant's plans to adopt various measures to enhance its value
and maximize shareholders' value; and
o the Registrant's other future plans and prospects.
These forward-looking statements reflect our current views with respect to
future events and are not a guarantee of future performance. Actual results may
differ materially from information contained in these forward-looking statements
as a result of a number of factors, including, without limitation:
o fluctuations in crude oil and natural gas prices;
o failure to achieve continued exploration success;
o failure or delay in achieving production from development projects;
o change in demand for competing fuels in the target market;
o continued availability of capital and financing;
o general economic, market and business conditions;
o changes in policies, laws or regulations of the PRC and other
jurisdictions in which the Registrant and its subsidiaries conduct
business; and
o other factors beyond the Registrant's control.
We do not intend to update or otherwise revise the forward-looking
statements in this announcement, whether as a result of new information, future
events or otherwise. Because of these risks, uncertainties and assumptions, the
forward-looking events and circumstances discussed in this announcement might
not occur in the way we expect, or at all.
You should not place undue reliance on any of these forward-looking
statements.
Output of crude oil for 2003: 774.9 million barrels, representing an increase of
0.66% from 2002
Output of marketable natural gas for 2003: 691.3 billion cubic feet,
representing an increase of 14.26% from 2002
Total output of oil and gas for 2003: 890.1 million barrels of oil equivalent,
representing an increase of 2.24% from 2002
Consolidated turnover for 2003: RMB303,779 million, representing an increase of
24.28% from 2002
Consolidated net profit for 2003: RMB69,614 million, representing an increase of
48.40% from 2002
Basic and diluted earnings per share for 2003: RMB0.40, representing an increase
of RMB0.13 from 2002
The Board of Directors recommends a distribution of a final dividend for 2003 of
RMB0.079324 per share
CONTENTS
COMPANY PROFILE
CHAIRMAN'S LETTER
FINANCIAL HIGHLIGHTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CORPORATE GOVERNANCE STRUCTURE
REPORT OF DIRECTORS
REPORT OF THE SUPERVISORY COMMITTEE
BUSINESS OPERATING REVIEW
CRUDE OIL AND NATURAL GAS RESERVES INFORMATION
REPORT OF INTERNATIONAL AUDITORS
FINANCIAL STATEMENTS
SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND
PRODUCTION ACTIVITIES (UNAUDITED)
SIGNIFICANT DIFFERENCES BETWEEN IFRS AND US GAAP
CORPORATE INFORMATION
NOTICE OF ANNUAL GENERAL MEETING
MAJOR EVENTS IN 2003
COMPANY PROFILE
PetroChina Company Limited (the "COMPANY") was established as a joint
stock company with limited liability under the Company Law of the People's
Republic of China (the "PRC") on November 5, 1999 as part of the restructuring
of China National Petroleum Corporation ("CNPC"). In the restructuring, CNPC
injected into the Company most of the assets and liabilities of CNPC relating to
its exploration and production, refining and marketing, chemicals and natural
gas businesses.
The Company, one of the largest companies in the PRC in terms of sales, is
engaged in a broad range of petroleum and natural gas-related activities,
including:
- the exploration, development, production and sale of crude oil and
natural gas;
- the refining, transportation, storage and marketing of crude oil and
petroleum products;
- the production and sale of basic petrochemical products, derivative
petrochemical products and other chemical products; and
- the transmission of natural gas, crude oil and refined products, and
the sale of natural gas.
The American Depositary Shares ("ADSs") and H shares of the Company were listed
on The New York Stock Exchange, Inc. and The Stock Exchange of Hong Kong Limited
on April 6, 2000 and April 7, 2000, respectively.
Company's Registered Chinese Name: [CHINESE CHARACTER]
Company's English Name: PetroChina Company Limited
Company's Legal Representative: Ma Fucai
Secretary to the Board: Li Huaiqi
Company's Legal Address: World Tower 16 Andelu
Dongcheng District Beijing
The People's Republic of China
Postal Code: 100011
Telephone: (8610) 8488 6270
Facsimile: (8610) 8488 6260
Places of Listing:
H Shares: The Stock Exchange of Hong Kong Limited Code: 857
ADSs: The New York Stock Exchange, Inc. Symbol: PTR
2
CHAIRMAN'S LETTER
Dear Shareholders,
I am pleased to submit to you the annual report of the Company for the
year ended December 31, 2003.
REVIEW OF RESULTS AND OPERATIONS
The Company is the largest oil and gas producer and seller that assumes
a leading position in the oil and gas industry in the PRC. The Company is
engaged in a broad range of petroleum-related activities.
In 2003, the Company calmly responded to the outbreak of severe acute
respiratory syndrome (SARS) and overcome the adverse effects of the situation
through efficient organisation. By enhancing management efforts and taking other
measures, the Company managed to achieve satisfactory operating results, with
its overall development trend remarkably better than anticipated. In 2003, the
Company's profit before taxation was RMB98.322 billion, representing an increase
of 42.00% compared to the previous year. Net profit was RMB69.614 billion,
representing an increase of 48.40% over the previous year. The exploration and
production segment remained a principal source of profit for the Company.
The basic and diluted earnings per share of the Company was RMB0.40.
The Board of Directors of the Company recommends a final dividend of
RMB0.079324 per share for 2003 (together with the interim dividend of RMB
0.098841 per share, the annual dividend for 2003 is RMB0.178165 per share),
subject to the approval of the shareholders in the annual general meeting to be
held on May 18, 2004.
BOARD OF DIRECTORS AND SUPERVISORY COMMITTEE
The 2002 annual general meeting of the Company was held in Beijing, the
PRC on May 28, 2003. Article 89 of the Company's Articles of Association
provides that "Directors shall be elected by the shareholders' meeting for a
term of three years and may serve consecutive terms if re-elected upon expiry of
their term of office". As the term of office of three of the Company's Directors
had expired, a resolution for the election of three Directors of the Company was
considered and approved at the meeting. It was resolved that Mr Wang Fucheng and
Mr Zheng Hu be elected as Directors and Mr Franco Bernabe as an independent
Director of the Company. Please refer to the section "Brief Biography of
Directors, Secretary, Supervisors and Senior Management" in the "Report of
Directors" for their respective brief biography.
The Board of Directors currently consists of twelve Directors,
including three independent non-executive Directors. In 2003, the Board of
Directors held three regular and three extraordinary meetings, at which sixteen
resolutions were approved.
Mr Wu Yaowen, Vice Chairman of the Company, has applied for resignation
from the posts of Director and Vice Chairman by reason of his age. Mr Wu has
already resigned from the post of Vice President of CNPC.
3
In accordance with the Company's Articles of Association, the Board of
Directors shall consist of thirteen Directors. Mr Wu's resignation will result
in two vacancies. To ensure the normal operation of the Board of Directors, Mr
Zhou Jipin and Mr Duan Wende have been nominated as candidates for Directors in
accordance with the procedures stipulated in the Company's Articles of
Association. Their official appointment is subject to approval by the
shareholders.
Mr Zhou Jipin, aged 52, holds a Master's degree in marine geologic
structure from the Nanhai Marine Research Institute of the China Academy of
Sciences. Mr Zhou worked as Vice-Director of the International Exploration and
Development Cooperation Bureau of China National Petroleum Company, Deputy
General Manager of China National Oil & Gas Exploration and Exploitation
Corporation and concurrently as President of the Greater Nile Petroleum
Operating Company (Sudan) from November 1996. He has been General Manager of
China National Oil & Gas Exploration and Exploitation Corporation and
concurrently Deputy Director of the International Exploration and Development
Cooperation Bureau of China National Petroleum Company since December 1997,
Assistant to the General Manager of CNPC and concurrently General Manager of
China National Oil & Gas Exploration and Exploitation Corporation since August
2001 and Deputy General Manager of CNPC since December 2003.
Please refer to the section "Brief Biography of Directors, Secretary,
Supervisors and Senior Management" in the "Report of Directors" for the brief
biography of Mr Duan Wende.
As Mr Chen Geng's term of office as Director is due to expire, he will
serve consecutive terms if he is re-elected at shareholders' meeting.
The Supervisory Committee consists of seven Supervisors. Having both
reached retirement age, Mr Chen Weizhong and Mr Bai Xinhe have requested to
resign from their posts as Supervisors.
In order to fill the two vacancies and ensure the normal operation of
the Supervisory Committee, Mr Sun Xianfeng and Mr Xu Fengli have been nominated
as candidates for Supervisors. Their official appointment is subject to approval
by the shareholders.
Mr Sun Xianfeng, aged 51, graduated from the Exploration Discipline of
Huadong Petroleum Institute. Mr Sun worked as Deputy Director of the Supervisory
Bureau of China National Petroleum Company from November 1996, transferred to
the Eighth Office of the State Council Compliance Inspectors' General Office
(Supervisory Committee of Central Enterprises Working Commission) as its
temporary director in June 1998. He has been Deputy Director of the Audit
Department of CNPC since October 2000, and has worked concurrently as Director
of the Audit Services Centre of CNPC since December 2000.
Mr Xu Fengli, aged 56, graduated from the Financial Management
Discipline of Xi'an Petroleum Institute for Cadres in Charge of Financial
Affairs. Mr Xu has been Chief Accountant of Fushun Petrochemical Corporation
since November 1995, Deputy Director of Finance and Assets Department of CNPC
since November 1998, Deputy General Manager of the Finance Department of the
Company since December 1999 and Director of
4
the Administrative Office of the Supervisory Committee of the Company since
October 2003.
I would like to take this opportunity to express my gratitude to Mr Wu
Yaowen, Vice Chairman and Director, and Mr Chen Weizhong and Mr Bai Xinhe,
Supervisors, for their contributions to the Company during their respective
terms of office, and to congratulate Mr Wang Fucheng, Mr Zheng Hu and Mr Franco
Bernabe for being re-elected as Directors of the Company. I would also like to
take this opportunity to express my sincere thanks for the support of our
shareholders, the close cooperation of our Board of Directors and Supervisory
Committee and the hard work of all our employees.
STANDARDISED OPERATIONS AND BUSINESS PROSPECTS
The Company strictly follows the regulatory laws and regulations of its
places of listing and operates according to relevant laws and standards. In
2003, a number of positive and effective measures were taken according to
regulatory requirements. The Company's H share price rose steadily in 2003 to a
closing price of HK$4.45 per share at the end of the year, representing an
increase of almost 200% over the price at the end of 2002, or an increase of
almost 250% over the issue price of the H shares.
In 2003, the Company continued to enhance exploration and exploitation
of oil and gas reserves, advance geological survey and integrate exploration and
exploitation, making a series of important achievements. The target of a steady
increase in crude oil production was attained through strategic adjustments of
crude oil production in the east on the one hand and speeding up of production
in the west on the other hand. Natural gas business continued its rapid growth,
recording substantial increases in both output and the sales volume. Overseas
project in Indonesia was running well in terms of production and operations.
The Company continued to emphasise on the improvement of resources
allocation and restructuring of the refining and chemicals business. While
speeding up the construction of 10-million-ton-class refining and chemicals
production bases, the Company improved the allocation of resources, carefully
organised production and operations, accelerated the construction of key
refining and chemicals projects and technology upgrading, stepped up the
construction of sales networks for end products in the oil refining business,
and unified the sales of chemical products, thus leading to a remarkable
increase in scale-related strengths and profitability, an increase in the
profits from oil refining business and the turning of the overall loss of the
chemicals business into profits.
By accelerating the construction of key projects such as the West-East
Pipeline project, the Company increased its efforts to achieve continued
developments. The eastern section of the West-East Pipeline project was
completed and began to supply gas to downstream users from October 16, 2003.
Major work of the western section was completed. The controlling work for the
Zhongxian-Wuhan pipeline was half-completed. The preliminary design of the
second Shaanxi-Beijing gas pipeline was completed and the controlling work has
already started.
The Company continued to promote e-commerce by making use of the
website "Energyahead" (www.energyahead.com), which was maintained as an
e-commerce platform.
5
Procurement cost was lowered through the unification of procurement activities
and the promotion of centralised procurement of goods in large quantities.
In the course of its production and operation, the Company persistently
adhered to the principle of "safety first and focus on prevention", carried out
management work in a way that is orientated towards the people, and provided
in-depth skills training for each post and work safety education centred around
the post responsibility system, tightened the administration of safety
production on contract basis and fully promoted the establishment of the Health,
Safety and Environment (HSE) management system. The Company achieved clean
production by treating pollution at its sources and controlling the discharge of
pollutants.
Looking forward, the Company intends to continue to improve oil and gas
exploration and exploitation, adjust and optimise its refining and chemicals
business, speed up the construction of key projects, stress on marketing efforts
and develop its overseas business, so as to achieve better operating results.
For the exploration and production business, the Company will continue
to give top priority to exploration, greatly improve pre-exploration work and
strive to increase reserves of good quality and high efficiency. Emphasis will
be put on the tapping of resource potentials of existing oilfields and the
continuous increase of recovery rate. The expansion of the production capacity
of new blocks will be sped up, so as to ensure a steady increase in the output
of crude oil, a significant growth in the output of natural gas and an overall
improvement in exploration and exploitation standards and economic benefits, and
maintain the Company's leading position in China's oil and gas industry.
For the refining and chemicals business, the Company will continue to
optimise resources and restructure its business, use its best endeavours to
organise operations and the construction of key projects, and strive to achieve
a continuous and steady increase in profits.
For the marketing business, the Company will continue to improve its
marketing structure, push ahead the construction of marketing networks and use
its best endeavours to open up new markets, so as to achieve a continued
increase in its market shares and marketing benefits.
For the natural gas and pipeline business, the Company intends to
monitor pipeline construction work with the West-East Pipeline project as the
focus, and achieve targets in terms of the control of construction timetable,
quality and investments. The Company intends to continue to plan the development
of the national pipeline network and facilities, so as to establish a solid
foundation for the gradual formation of a trunk pipeline network connecting the
source of natural gas and covering major markets in China.
For the overseas business, the Company will accelerate the
implementation of its overseas business development strategy and expand its
international operation. It will actively promote its overseas oil and gas
exploration and development business, selectively develop overseas refining and
chemicals processing business and marketing networks,
6
speed up the development of its international trade and continue to open up new
areas for international business operations.
The Company's management will persist in enhancing the Company's value
and strive to maximise benefits and value for its shareholders. The Company will
make substantial efforts in technological innovation and management innovation,
establish a sound internal control system and mechanism which comply with
regulatory requirements and, by way of prudent operations, promote the
continuous, effective and speedy development of the Company.
MA FUCAI
Chairman of the Board
Beijing, the PRC
March 24, 2004
7
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31
1999 2000 2001 2002 2003
RMB (MILLION)
------- ------- ------- ------- -------
TURNOVER 181,671 245,279 241,320 244,424 303,779
------- ------- ------- ------- -------
OPERATING EXPENSES
Purchases, services
and other (65,868) (64,251) (78,529) (71,690) (90,850)
Employee compensation
costs (11,598) (15,129) (14,608) (16,248) (19,542)
Exploration expenses,
including exploratory
dry holes (7,344) (8,680) (7,344) (8,095) (10,577)
Depreciation, depletion
and amortisation (23,706) (34,209) (33,615) (36,782) (40,531)
Selling, general and
administrative expenses (13,447) (17,621) (21,735) (22,474) (23,930)
Employee separation costs
and shut down of
manufacturing assets - (6,579) (487) (2,121) (2,355)
Impairment loss on assets
retained by CNPC Group (2,007) - - - -
Taxes other than
income taxes (10,293) (13,258) (13,951) (14,613) (15,879)
Revaluation of property, plant
and machinery equipment (1,122) - - - (391)
Other income/(expense) net 201 (119) 88 (60) (538)
------- ------- ------- ------- -------
TOTAL OPERATING EXPENSE (135,184) (159,846) (170,181) (172,083) (204,593)
------- ------- ------- ------- -------
PROFIT FROM OPERATIONS 46,487 85,433 71,139 72,341 99,186
------- ------- ------- ------- -------
FINANCE COSTS
Exchange gain 129 1,406 390 133 53
Exchange loss (2,362) (234) (140) (449) (233)
Interest income 638 591 809 463 677
Interest expense (9,056) (6,286) (4,408) (3,516) (2,346)
------- ------- ------- ------- -------
TOTAL FINANCE COSTS (10,651) (4,523) (3,349) (3,369) (1,849)
------- ------- ------- ------- -------
SHARE OF PROFIT OF
ASSOCIATED COMPANIES 128 584 341 268 985
------- ------- ------- ------- -------
PROFIT BEFORE TAXATION 35,964 81,494 68,131 69,240 98,322
------- ------- ------- ------- -------
8
YEAR ENDED DECEMBER 31
1999 2000 2001 2002 2003
RMB (MILLION)
-------------------------------------------------------------------------
TAXATION (9,414) (27,014) (23,066) (22,231) (28,072)
------- ------- ------- ------- -------
PROFIT BEFORE
MINORITY INTERESTS 26,550 54,480 45,065 47,009 70,250
MINORITY INTERESTS (127) 165 404 (99) (636)
------- ------- ------- ------- -------
NET PROFIT 26,423 54,645 45,469 46,910 69,614
======= ======= ======= ======= =======
Basic and diluted earnings
per share (in RMB)(2) 0.17 0.32 0.26 0.27 0.40
======= ======= ======= ======= =======
NON-CURRENT ASSETS
Property, plant and
machinery equipment 327,348 343,319 366,970 397,798 433,419
Long-term investments 3,845 4,948 5,530 5,680 7,410
Intangible and
other assets 2,017 2,681 4,148 4,507 4,732
------- ------- ------- ------- -------
333,210 350,948 376,648 407,985 445,561
------- ------- ------- ------- -------
CURRENT ASSETS
Inventories 18,396 32,499 28,313 28,441 28,872
Accounts receivable 14,943 12,786 7,392 6,079 3,263
Prepaid expenses and
other current assets 29,118 11,913 24,427 18,269 15,944
Receivables under
resale agreement 1,489 5,815 11,505 9,786 24,224
Time deposits with
maturities over
three months - - 3,253 2,612 2,640
Cash and cash
equivalents 18,090 18,085 11,127 9,977 11,231
------- ------- ------- ------- -------
TOTAL CURRENT ASSETS 82,036 81,098 86,017 75,164 86,174
------- ------- ------- ------- -------
CURRENT LIABILITIES
Accounts payable and
accrued liabilities 47,707 39,550 53,210 57,793 64,180
Taxes payable 4,747 16,570 14,434 10,927 20,959
Short-term borrowings 62,057 41,514 25,323 20,633 28,890
------- ------- ------- ------- -------
114,511 97,634 92,967 89,353 114,029
------- ------- ------- ------- -------
NET CURRENT
LIABILITIES (32,475) (16,536) (6,950) (14,189) (27,855)
------- ------- ------- ------- -------
TOTAL ASSETS LESS
CURRENT LIABILITIES 300,735 334,412 369,698 393,796 417,706
======= ======= ======= ======= =======
FINANCED BY:
Share capital 160,000 175,824 175,824 175,824 175,824
Retained earnings 134 29,279 35,607 59,004 89,577
9
YEAR ENDED DECEMBER 31
1999 2000 2001 2002 2003
RMB (MILLION)
Reserves 49,552 66,543 79,175 81,848 91,212
------- ------- ------- -------- -------
Shareholders' equity 209,686 271,646 290,606 316,676 356,613
------- ------- ------- -------- -------
Minority interests 4,200 4,989 5,136 4,854 5,608
------- ------- ------- -------- -------
NON-CURRENT LIABILITIES
Long-term borrowings 84,512 53,412 65,546 60,655 41,959
Deferred credits and
other long-term obligations 1,155 1,196 1,380 1,684 2,000
Deferred taxation 1,182 3,169 7,030 9,927 11,526
------- ------- ------- -------- -------
86,849 57,777 73,956 72,266 55,485
------- ------- ------- -------- -------
300,735 334,412 369,698 393,796 417,706
======= ======= ======= ======== =======
Other Financial Data
Capital expenditure(3) (43,310) (60,130) (61,549) (73,726) (84,299)
Net cash provided by
operating activities 53,658 103,309 84,439 98,341 138,820
Net cash used for
investing activities(4) (40,622) (60,126) (61,491) (71,662) (97,797)
Net cash provided by
(used for) financing
activities(5) (10,359) (43,188) (29,906) (27,829) (39,769)
Fixed assets, net of
accumulated depreciation 327,348 343,319 366,970 397,798 433,419
Total assets 415,246 432,046 462,665 483,149 531,735
209,686 271,646 290,606 316,676 356,613
NOTES:
(1) The Company acquired from CNPC the assets, liabilities and interests related
to CNPC's refined products marketing enterprises in 2002, and has accounted for
the acquisition in a manner similar to a uniting of interests. The consolidated
financial statements have been reinstated to give effect to the acquisition with
all periods presented. Details of the basis of preparation are set out in note 2
to the financial statements contained in this annual report.
(2) Basic and diluted earnings per share for the year ended December 31, 1999
have been computed by dividing net profit by the 160 billion State-owned shares
issued and outstanding upon the establishment of the Company on November 5, 1999
as if such shares had been outstanding for all the accounting periods. Basic and
diluted earnings per share for the year ended December 31, 2000 have been
computed by dividing net profit by the weighted average number of 171.63 billion
shares issued and outstanding for the year. Basic and diluted earnings per share
for the year ended December 31, 2001, 2002 and 2003 have been computed by
dividing net profit by the number of 175.82 billion shares issued and
outstanding for the year.
(3) Excludes capital expenditures for assets to be retained by CNPC of
RMB111million, nil, nil, nil and nil in each year and period presented,
respectively.
(4) Includes capital expenditures for assets to be retained by CNPC of
RMB111million, nil, nil, nil and nil in each year and period presented,
respectively.
(5) Includes contributions from CNPC for assets to be retained by CNPC of RMB111
million, nil, nil, nil and nil in each year and period presented, respectively.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
In reviewing the following discussion, please also refer to the
consolidated financial statements of the Company and its subsidiaries (the
"GROUP") and their notes contained in this annual report.
OVERVIEW
For the twelve months ended December 31, 2003, profit before taxation
of the Group was RMB98,322 million, representing an increase of 42.00% compared
with the corresponding period in the previous year. Net profit was RMB69,614
million, representing an increase of 48.40% compared with the corresponding
period in the previous year. For the first time profit was recorded in all four
business segments. The increase in profit was due primarily to the Group's
ability to take full advantage of the opportunities presented by high oil
prices, to actively adjust its crude oil production in the east as well as to
speed up production in the west, thereby achieving a stable increase in domestic
crude oil production. In terms of natural gas business, production was sped up
mainly in the top four gas production areas and substantial efforts were made to
expand the market, leading to persistent and fast growth in both production and
sales volume. With regard to refining and chemicals business, equal emphasis was
put on structural adjustments and enhancement of management, the highest ever
crude oil processing load factor was attained while substantial efforts were
made to increase the production of products with high added value and meeting
the needs of the market. The marketing business responded proactively to market
changes and made timely adjustments to marketing strategies, resulting in
significant growth both in the total sales volume and the retail volume.
Basic and diluted earnings per share of the Company for the twelve
months ended December 31, 2003 was RMB0.40.
TWELVE MONTHS ENDED DECEMBER 31, 2003 COMPARED WITH TWELVE MONTHS ENDED DECEMBER
31, 2002
CONSOLIDATED OPERATING RESULTS
- Turnover
Turnover increased 24.28% from RMB244,424 million for the twelve months
ended December 31, 2002 to RMB303,779 million for the twelve months ended
December 31, 2003. This was due primarily to the increase in the price of crude
oil and the increase in the sales volume and prices of refined products and
chemical products.
- Operating Expenses
Operating expenses increased 18.89% from RMB172,083 million for the
twelve months ended December 31, 2002 to RMB204,593 million for the twelve
months ended December 31, 2003. This was due primarily to the increased expenses
in purchasing crude oil and refined products from external suppliers.
11
- Purchases, Services and Other Expenses
Purchases, services and other expenses increased 26.73% from RMB71,690
million for the twelve months ended December 31, 2002 to RMB90,850 million for
the twelve months ended December 31, 2003. This mainly reflects: (i) the
increase in the procurement cost for crude oil corresponding to the increase in
the refining volume of the refineries; and (ii) the increase in the price of
refined products resulting in the increased expenses in purchasing refined
products from external suppliers.
- Employee Compensation Costs
Employee compensation costs increased 20.27% from RMB16,248 million for
the twelve months ended December 31, 2002 to RMB19,542 million for the twelve
months ended December 31, 2003. This was due primarily to an increase in
employees' salaries and welfare expenses corresponding to better operating
results of the Company this year and an increase in labour expenses as a result
of the development of the retail distribution network.
- Depreciation, Depletion and Amortisation
Depreciation, depletion and amortisation increased 10.19% from
RMB36,782 million for the twelve months ended December 31, 2002 to RMB40,531
million for the twelve months ended December 31, 2003. This was due primarily to
an increase in depreciation expenses resulting from the addition of new assets.
- Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 6.48% from
RMB22,474 million for the twelve months ended December 31, 2002 to RMB23,930
million for the twelve months ended December 31, 2003. This increase was due
primarily to the higher impairment of receivables. The Company was able to keep
such expenses under effective control while continuing to increase its scale and
achieving a fairly significant increase in its sales volume.
- Shut Down of Manufacturing Assets
The costs for shutting down manufacturing assets increased by 11.03%
from RMB2,121 million for the twelve months ended December 31, 2002 to RMB2,355
million for the twelve months ended December 31, 2003, including RMB1,596
million for shutting down refining assets with low efficiency in the refining
and marketing segment, and RMB759 in the chemicals and marketing segment.
- Taxes Other than Income Taxes
Taxes other than income taxes increased 8.66% from RMB14,613 million
for the twelve months ended December 31, 2002 to RMB15,879 million for the
twelve months ended December 31, 2003. This was due primarily to: (i) increases
in the production of gasoline and diesel products resulting in higher
consumption tax and surcharges; and (ii) an increase in revenue resulting in an
increase in resources compensation fees.
12
- Profit From Operations
Profit from operations increased 37.11% from RMB72,341 million for the
twelve months ended December 31, 2002 to RMB99,186 million for the twelve months
ended December 31, 2003.
- Net Exchange Gain (Loss)
Net exchange loss decreased 43.04% from RMB316 million for the twelve
months ended December 31, 2002 to RMB180 million for the twelve months ended
December 31, 2003. This was due primarily to a decrease in the average
proportion of foreign exchange borrowings and an adjustment in the currency mix
of foreign exchange borrowings by repaying some of the foreign debts denominated
in foreign currencies with relatively high exchange rate risk, such as Euro and
British Sterling.
- Net Interest Expense
Net interest expense decreased 45.33% from RMB3,053 million for the
twelve months ended December 31, 2002 to RMB1,669 million for the twelve months
ended December 31, 2003. This decrease was due primarily to sufficient cash flow
generated by operating activities, a decrease in average proportion of
interest-bearing debts, and decreases in the average interest rates.
- Profit Before Taxation
Profit before taxation increased 42.00% from RMB69,240 million for the
twelve months ended December 31, 2002 to RMB98,322 million for the twelve months
ended December 31, 2003.
- Taxation
Taxation increased 26.27% from RMB22,231 million for the twelve months
ended December 31, 2002 to RMB 28,072 million for the twelve months ended
December 31, 2003 due primarily to an increase in profit before taxation.
- Net Profit
Net profit increased 48.40% from RMB46,910 million for the twelve
months ended December 31, 2002 to RMB69,614 million for the twelve months ended
December 31, 2003.
SEGMENT INFORMATION
The Group is engaged in a broad range of petroleum and related
activities through its four major business segments: Exploration and Production,
Refining and Marketing, Chemicals and Marketing and Natural Gas and Pipeline.
EXPLORATION AND PRODUCTION
The Exploration and Production segment is engaged in the exploration,
development, production and sale of crude oil and natural gas.
13
- Turnover
Turnover increased 20.34% from RMB147,308 million for the twelve months
ended December 31, 2002 to RMB 177,271 million for the twelve months ended
December 31, 2003. This was due primarily to an increase in the price of crude
oil and the increased sales volume of natural gas. The average realised price of
crude oil of the Company in 2003 was US$27.20 per barrel, increased by 21.00% as
compared with 2002.
Intersegment sales increased 21.36% from RMB106,266 million for the
twelve months ended December 31, 2002 to RMB128,963 million for the twelve
months ended December 31, 2003. This was due primarily to an increase in the
price of crude oil and the increased sales volume of natural gas.
- Operating Expenses
Operating expenses increased 12.95% from RMB75,169 million for the
twelve months ended December 31, 2002 to RMB84,901 million for the twelve months
ended December 31, 2003 due primarily to an increase in exploration expenses,
depletion of oil and gas property, human resources expenses and higher
impairment of receivables.
- Profit From Operations
Profit from operations increased 28.04% from RMB72,139 million for the
twelve months ended December 31, 2002 to RMB92,370 million for the twelve months
ended December 31, 2003.
REFINING AND MARKETING
The Refining and Marketing segment is engaged in the refining,
transportation, storage and marketing of crude oil and petroleum products.
- Turnover
Turnover increased 28.04% from RMB174,621 million for the twelve months
ended December 31, 2002 to RMB223,584 million for the twelve months ended
December 31, 2003 due to increases in the sales volume and prices of major
refined products.
Sales revenue from gasoline increased 23.02% from RMB48,834 million for
the twelve months ended December 31, 2002 to RMB60,073 million for the twelve
months ended December 31, 2003 due primarily to an increase in the selling price
and sales volume. The average realised selling price of gasoline increased
17.62% from RMB2,570 per ton for the twelve months ended December 31, 2002 to
RMB3,023 per ton for the twelve months ended December 31, 2003. The sales volume
of gasoline increased 4.59% from 19 million tons for the twelve months ended
December 31, 2002 to 19.87 million tons for the twelve months ended December 31,
2003.
14
Sales revenue from diesel increased 26.88% from RMB79,081 million for
the twelve months ended December 31, 2002 to RMB100,336 million for the twelve
months ended December 31, 2003 due primarily to an increase in the selling price
and sales volume. The average realised selling price of diesel increased 14.72%
from RMB2,384 per ton for the twelve months ended December 31, 2002 to RMB2,735
per ton for the twelve months ended December 31, 2003. The sales volume of
diesel increased 10.59% from 33.17 million tons for the twelve months ended
December 31, 2002 to 36.68 million tons for the twelve months ended December 31,
2003.
Sales revenue from kerosene increased 6.76% from RMB3,864 million for
the twelve months ended December 31, 2002 to RMB4,125 million for the twelve
months ended December 31, 2003 due primarily to an increase in the selling
price.
Intersegment sales revenue increased 68.87% from RMB9,988 million for
the twelve months ended December 31, 2002 to RMB16,867 million for the twelve
months ended December 31, 2003 due primarily to increases in the price and sales
volume of refined products.
- Operating Expenses
Operating expenses increased 27.21% from RMB171,803 million for the
twelve months ended December 31, 2002 to RMB218,549 million for the twelve
months ended December 31, 2003 due primarily to the increased expenses in
purchasing of crude oil and refined products from external suppliers.
- Profit From Operations
Profit from operations increased 78.67% from RMB2,818 million for the
twelve months ended December 31, 2002 to RMB5,035 million for the twelve months
ended December 31, 2003.
CHEMICALS AND MARKETING
The Chemicals and Marketing segment is engaged in the production and
sale of petrochemical products, derivative petrochemical products and other
chemical products.
- Turnover
Turnover increased 32.20% from RMB29,661 million for the twelve months
ended December 31, 2002 to RMB39,211 million for the twelve months ended
December 31, 2003. This significant improvement in the results of this segment
was due primarily to increases in the sales volume and prices of chemical
products.
- Operating Expenses
Operating expenses increased 16.29% from RMB32,823 million for the
twelve months ended December 31, 2002 to RMB38,170 million for the twelve months
ended December 31, 2003 due primarily to an increase in the purchase expenses
for direct materials.
15
- Profit From Operations
The chemicals and marketing segment made a profit from operations of
RMB1,041 million for the twelve months ended December 31, 2003, compared with a
loss of RMB3,162 million for the twelve months ended December 31, 2002.
NATURAL GAS AND PIPELINE
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.
- Turnover
Turnover increased 18.33% from RMB12,733 million for the twelve months
ended December 31, 2002 to RMB15,067 million for the twelve months ended
December 31, 2003 due primarily to increases in the sales volume of natural gas,
the average pipeline transmission price for crude oil and natural gas and the
income from pipeline transmission for refined products.
- Operating Expenses
Operating expenses increased 17.57% from RMB11,181 million for the
twelve months ended December 31, 2002 to RMB13,145 million for the twelve months
ended December 31, 2003. This was due primarily to an increase in the purchase
expenses for natural gas and depreciation expenses.
- Profit From Operations
Profit from operations increased 23.84% from RMB1,552 million for the
twelve months ended December 31, 2002 to RMB1,922 million for the twelve months
ended December 31, 2003.
LIQUIDITY AND CAPITAL RESOURCES
For the twelve months ended December 31, 2003, the Group's primary
sources of funding were cash generated from operating activities, short-term and
long-term borrowings, cash and cash equivalents. The Group's funds were
primarily used in operating activities, for capital expenditures, repayment of
short-term and long-term borrowings, and distributions of dividends to
shareholders.
As at December 31, 2003, short-term borrowings made up approximately
6.67% of the capital employed compared with approximately 5.12% as at December
31, 2002. The ability to obtain financing may be affected by the financial
position and the results of operations of the Company, and by the conditions of
international and domestic capital markets. In addition, prior to accessing
international capital markets, the Company must obtain approvals from relevant
PRC government authorities. In general, the Company must obtain PRC government
approvals for any project involving significant capital investment in the
refining and marketing segment, chemicals and marketing segment and the natural
gas and pipeline segment.
16
The Company plans to fund the capital and related investments
principally through the cash flow generated from operating activities,
short-term and long-term borrowings, cash and cash equivalents. A net cash flow
of RMB138,820 million was generated from operating activities for the twelve
months ended December 31, 2003. As at December 31, 2003, the Group had RMB11,231
million in cash and cash equivalents. Cash and cash equivalents were primarily
Renminbi (with Renminbi accounting for approximately 91.68% and United States
Dollar accounting for approximately 8.32%).
The table below sets forth the cash flow of the Group for each of the
twelve months ended December 31, 2002 and 2003 and the cash equivalents at the
end of each period:
Year ended December 31,
2003 2002
---- ----
RMB (million) RMB (million)
------------- -------------
Net cash flow generated from operating activities 138,820 98,341
Net cash flow used for investing activities (97,797) (71,662)
Net cash flow used for financing activities (39,769) (27,829)
Cash and cash equivalents at the end of each period 11,231 9,977
CASH FLOW GENERATED FROM OPERATING ACTIVITIES
The net cash flow of the Group generated from operating activities
increased from RMB98,341 million for the twelve months ended December 31, 2002
to RMB138,820 million for the twelve months ended December 31, 2003. This was
due primarily to an increase in sales revenue, the timely collection of payment
for goods, and increased efforts in clearing old receivables.
As at December 31, 2003, the Group had a working capital deficit of
RMB27,855 million, compared with a working capital deficit of RMB14,189 million
as at December 31, 2002. This increase in working capital deficit was due to an
increased amount of long-term borrowings due within a year.
17
CASH USED FOR FINANCING ACTIVITIES
The net borrowings of the Group as at December 31, 2002 and December
31, 2003 were as follows:
Year ended December 31
2003 2002
---- ----
RMB (million) RMB (million)
------------- -------------
Short-term borrowings (including liquid
portion of long-term borrowings) 28,890 20,633
Long-term borrowings 41,959 60,655
------ ------
Total borrowings 70,849 81,288
====== ======
Less:
Cash and cash equivalents 11,231 9,977
Time deposits with maturities over three months 2,640 2,612
Receivables under resale agreements 24,224 9,786
------ ------
Net borrowings 32,754 58,913
====== ======
The maturity profile of long-term borrowings of the Group is as
follows:
Principal as at December 31, 2003
---------------------------------
RMB (million)
-------------
To be repaid within one year 19,711
To be repaid within one to two years 18,183
To be repaid within two to five years 17,108
To be repaid after five years 6,668
------
61,670
======
Of the total borrowings of the Group as at December 31, 2003,
approximately 24.03% were fixed-rate loans and 75.97% were floating-rate loans.
Of the borrowings as at December 31, 2003, approximately 81.95% were denominated
in Renminbi, approximately 16.05% in United States Dollar, approximately 0.64%
in British Sterling, approximately 0.82% in Japanese Yen and approximately 0.54%
in Euro.
As at December 31, 2002 and December 31, 2003, the amount of short-term
borrowings owed to related parties was RMB570 million and RMB610 million,
respectively. As at December 31, 2002 and December 31, 2003, the amount of
long-term borrowings owed to related parties was RMB24,132 million and RMB24,578
million, respectively.
As at December 31, 2003, the amount of short-term and long-term
borrowings owed to China Petroleum Finance Company Limited was RMB610 million
and RMB24,578 million, respectively.
18
The net cash flow used for financing activities for the twelve months
ended December 31, 2003 increased 42.90% compared with the twelve months ended
December 31, 2002. This increase was primarily due to increased dividend
payment.
As at December 31, 2003, RMB170 million worth of loans made to the
Group (RMB398 million in 2002) were secured loans (finance lease and bank
loans), of which RMB114 million worth of bank loans (RMB276 million in 2002)
were secured by plant and equipment of the Group that worth RMB152 million
(RMB426 million in 2002). Given that title to the leased property will be
transferred to the lessor in the event of default, debts incurred by way of
finance lease are in fact secured debts. As at December 31, 2003, the debts
incurred by the Group by way of finance lease amounted to RMB56 million (RMB122
million in 2002). The net book value of the property, plant and equipment under
finance lease was RMB240 million (RMB399 million in 2002).
The debt to capitalisation ratio as at December 31, 2003 was 16.57%
(20.43% as at December 31, 2002).
CAPITAL EXPENDITURES
The table below sets forth capital expenditures of the Group by
business segment for each of the twelve months ended December 31, 2003 and the
twelve months ended December 31, 2002. Capital expenditures increased 14.34%
from RMB73,726 million as at December 31, 2002 to RMB84,299 million as at
December 31, 2003. This was due primarily to increased investments in
exploration, the speeding up of production in the west and greater efforts in
the construction of the sales network.
YEAR ENDED DECEMBER 31,
2003 2002 2004(estimated value)
------------------- ----------------------- ---------------------
RMB RMB RMB
(million) % (million) % (million) %
------------------- ----------------------- ---------------------
Exploration and
Production 52,813* 62.65 46,078* 62.50 52,070* 60.78
Refining and
marketing 13,915 16.51 11,327 15.36 10,100 11.79
Chemicals and
marketing 3,903 4.63 3,175 4.31 5,500 6.42
Natural gas
and pipeline 13,530 16.05 13,013 17.65 17,400 20.31
Other 138 0.16 133 0.18 600 0.70
------ ------ ------ ------ ------ ------
Total 84,299 100.00 73,726 100.00 85,670 100.00
====== ====== ====== ====== ====== ======
Note*: If the investments relating to geological and geophysical exploration
costs are included, the capital expenditures and investments for the exploration
and production segment for 2002, 2003 and the estimated value for the year of
2004 will be RMB50,646 million, RMB58,699 million and RMB56,900 million,
respectively.
19
EXPLORATION AND PRODUCTION
The majority of the Group's capital expenditures relate to the
exploration and production segment. Capital expenditures of the exploration and
production segment for the twelve months ended December 31, 2003 were RMB52,813
million, of which RMB9,250 million was used for exploration activities and
RMB39,587 million for development activities. The capital expenditures of this
segment for the twelve months ended December 31, 2002 totalled RMB46,078
million, including RMB6,136 million for exploration activities and RMB35,558
million for development activities. The increase in the capital expenditures was
due primarily to increased investments in exploration, the strategic adjustments
in the east and the speeding up of production in the west.
The Group anticipates that capital expenditures for the exploration and
production segment for the twelve months ending December 31, 2004 will amount to
RMB52,070 million. Approximately RMB9,870 million will be used for oil and gas
exploration activities and approximately RMB42,200 million for oil and gas
development activities. The exploration efforts will be focused on the Erdos,
Junggar, Tarim, Songliao and Bohai Bay basins.
REFINING AND MARKETING
Capital expenditures for the Group's refining and marketing segment for
the twelve months ended December 31, 2003 were RMB13,915 million, of which
RMB8,573 million was spent on the expansion of the retail marketing network for
refined products and basic storage facilities, and RMB5,342 million was spent on
the renovation of the refining facilities. The total capital expenditures of
this segment for the twelve months ended December 31, 2002 were RMB11,327
million. The increase in capital expenditures was due primarily to greater
efforts in the construction of the sales network.
The Group anticipates that capital expenditures for the refining and
marketing segment for the twelve months ending December 31, 2004 will amount to
RMB10,100 million, which include:
- approximately RMB4,600 million for the construction and expansion of
refining facilities;
- approximately RMB5,500 million for investments in the refined product
sales network in order to increase the number of service stations and storage
facilities.
CHEMICALS AND MARKETING
Capital expenditures for the chemicals and marketing segment increased
22.93% from RMB3,175 million for the twelve months ended December 31, 2002 to
RMB3,903 million for the twelve months ended December 31, 2003. The increase in
capital expenditures was due primarily to increased investments in the ethylene
project of Daqing Petrochemical Company, and the launching of a number of new
construction projects, such as the upgrading of facilities for organosilicon
polymer and butanol/octanol in Jilin Petrochemical Company.
20
The Group anticipates that capital expenditures for the chemicals and
marketing segment for the twelve months ending December 31, 2004 will amount to
RMB5,500 million, which is expected to be used primarily for the upgrading of
the three big ethylene projects at Daqing, Jilin and Lanzhou, and for the
launching of three chemical fertilizer production capacity expansion projects at
Daqing, Ningxia and Urumqi petrochemical companies, and the PTA project at
Liaoyang Petrochemical Company.
NATURAL GAS AND PIPELINE
Capital expenditures in the natural gas and pipeline segment for the
twelve months ended December 31, 2003 were RMB13,530 million. The Group spent
RMB13,276 million of these capital expenditures on the construction of long
distance pipelines, of which RMB10,667 million was spent on the West-East gas
pipeline project. Capital expenditures in this segment for the twelve months
ended December 31, 2002 totalled RMB13,013 million. The increase in the capital
expenditures was due primarily to increased investments in the West-East gas
pipeline project, the Zhongxian-Wuhan and the second Shaanxi-Beijing pipelines.
The Group anticipates that capital expenditures for the natural gas and
pipeline segment for the twelve months ending December 31, 2004 will amount to
RMB17,400 million. Approximately RMB13,400 million is expected to be invested in
the West-East gas pipeline project, the Zhongxian-Wuhan pipeline and the second
Shaanxi-Beijing pipeline projects, approximately RMB4,000 million is expected to
be invested in the construction of natural gas storage facilities and other
natural gas, crude oil and refined products pipelines.
OTHER
Non-segment-specific capital expenditures for the twelve months ended
December 31, 2002 and the twelve months ended December 31, 2003 were RMB133
million and RMB138 million, respectively. The capital expenditures related
primarily to 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, 2004 will amount to
RMB600 million, which is expected to be primarily used for the construction of
water and electricity supply systems, roads and telecommunications systems for
the benefits of various segments.
MATERIAL INVESTMENT
The Group did not hold any material investment for the year ended
December 31, 2003.
21
MATERIAL ACQUISITION OR DISPOSAL
The Group had no material acquisition or disposal of subsidiaries and
associated companies in the year ended December 31, 2003.
FOREIGN EXCHANGE RATE RISK
Renminbi is not a freely convertible currency. Future exchange rates of
Renminbi could vary significantly from the current or historical exchange rates
as a result of controls that could be imposed by the PRC government. The
exchange rates of Renminbi are affected by changes in PRC government policies.
The exchange rates of Renminbi are also affected by economic developments and
political changes domestically and internationally, and supply and demand for
Renminbi. The official exchange rate for the conversion of Renminbi to United
States Dollar has generally been stable recently. As Renminbi is the measurement
currency of the Company and most of its consolidated entities, the fluctuation
of exchange rates of Renminbi may have positive or negative impacts on the
results of operations of the Group. Because prices for the Group's crude oil and
refined products are set generally with reference to United States
Dollar-denominated international prices, a devaluation of Renminbi against
United States Dollar may not have a negative impact on the Group's revenue, but
may increase the cost incurred by the Group to acquire imported materials and
equipment as well as the foreign currency-denominated obligations of the Group.
On the other hand, an appreciation of Renminbi against United States Dollar may
decrease the Group's revenue, but the cost for acquiring imported materials and
equipment may be reduced. The results of operations and the financial position
of the Group may also be affected by fluctuations in exchange rates against
Renminbi of a number of other foreign currencies other than United States
Dollar.
COMMODITY PRICE RISK
The Group is engaged in a broad range of petroleum related activities.
The hydrocarbon commodity markets are influenced by global as well as regional
supply and demand conditions. The PRC government currently publishes prices for
onshore crude oil, gasoline and diesel according to international benchmark
prices. A decline in prices of crude oil and refined products could adversely
affect its financial performance. The Group historically has not used commodity
derivative instruments to hedge the potential price fluctuations of crude oil
and other refined products. Therefore, during 2003 and 2002, the Group was
exposed to the general price fluctuations of broadly traded oil and gas
commodities.
INDUSTRY RISK
Like other crude oil and natural gas companies in China, the Company's
business activities are subject to regulation and control by the PRC government
in many aspects. This regulation and control, such as by way of grant of
exploration and production licenses, the imposition of industry-specific taxes
and levies and the implementation of environmental and safety standards, is
expected to have an effect on the Company's business operations. As a result,
the Company may be subject to fairly significant restrictions when implementing
its business strategy, developing and expanding its business or maximising its
profitability. Any future changes in PRC governmental policies on the crude oil
and natural gas industry may also affect the Company's business operations.
22
EMPLOYEES
- Number of Employees
As at December 31, 2002 and December 31, 2003, the Group had 419,598
and 417,229 employees, respectively. The table below sets forth the number of
the employees by business segment as at December 31, 2003:
Number of Employees % of total
------------------- ----------
Exploration and production 234,733 56.00
Refining and marketing 111,655 27.00
Chemicals and marketing 57,722 14.00
Natural gas and pipeline 10,342 2.00
Other* 2,777 1.00
------- ------
Total 417,229 100.00
======= ======
Note*: Including PetroChina Exploration & Development Research Institute,
PetroChina Planning & Engineering Institute, headquarters and business segments.
- Employee Compensation
The total employee compensation payable by the Group for the twelve
months ended December 31, 2003 was RMB12,893 million, being the total salaries
of the employees during the reporting period. Compensation of the employees is
determined according to industry practice and the actual conditions of the
Group, and is based on the principles of attracting and retaining the
high-calibre personnel, and motivating all staff for the realisation of the best
results.
The Company's senior management remuneration system links senior
management members' financial interests (including those of executive directors
and supervisors) with the Company's operating results and the market performance
of its shares. The senior management members have entered into performance
contracts with the Company. Under this system, the senior management members'
compensation has three components, namely, fixed salaries, performance bonuses
and stock appreciation rights. The variable components in their compensation
account for approximately 70% to 75% of senior management officers' total
potential compensation, including approximately 0% to 25% forming the
performance bonus component and approximately 50% to 70% forming the stock
appreciation rights component. Variable compensation rewards are linked to the
attainment of specific performance targets, such as net profit, return on
capital and cost reduction targets. The chart below sets forth the components of
the total potential compensation for key officers.
23
STOCK APPRECIATION PERFORMANCE
BASIC SALARY(%) RIGHTS(%) BONUS(%)
--------------- ------------------ -----------
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, 2003 and December 31, 2002 are as follows:
YEAR ENDED DECEMBER 31
2003 2002
---- ----
RMB('000) RMB('000)
Fee for directors and supervisors 83 128
Salaries, allowances and other benefits 1,377 1,042
Contribution to retirement benefit scheme 34 25
----- -----
1,494 1,195
===== =====
The numbers of directors and supervisors whose emoluments fall within
the following band (including directors and supervisors whose term expired
during the year):
2003 2002
---- ----
NUMBER NUMBER
------ ------
Nil - RMB1,000,000 19 23
Upon exercise of their share options, members of the senior management
will not receive any shares in the Company, but will, by way of stock
appreciation rights, receive a monetary sum which is calculated on the basis of
the share price of the H shares listed on the HKSE.
- Workforce Reduction Plan
During the period from 1999 to 2002, a total of 58,300 people were laid
off, which has met the target of laying off 50,000 employees committed
originally by the Company.
The Company has no plan for any substantial reduction of its workforce
in the next few years, but will continue to keep a strict control on the total
number of employees. Workforce required for new projects or expanded production
capacity will first be obtained by way of tapping existing resources and making
use of any spare capacity, with the aim of keeping the workforce at its present
size. The target is to maintain zero growth in head count while striving to
reduce head count.
24
- Training Programmes
In order to develop the Company into a first-class international oil
company, the Company will endeavour to carry out its training programmes this
year with a special emphasis on learning. It will focus on the training of core
employees, actively train all its employees and strive to build up an operating
and management team, a technology renovation team and an skillful operators'
team, so as to achieve an overall improvement in the quality of its staff and
ensure the supply of talents required for the continuous, steady and rapid
development of the Company.
- Medical Insurance
Since October 1, 2002, the Company's headquarters and its regional
branches based in Beijing have participated in the basic medical insurance
scheme organised by the Beijing Municipality, making contributions at 9% of the
total basic salaries of the employees. Other regional branches of the Company
have also participated in the respective local basic medical insurance scheme.
As basic medical insurance is organised by the local government, the
implementation dates vary and there are certain differences between the rate of
contribution and reimbursement methods adopted by various cities. The rate of
contribution is usually set at 6% to 10% of the total basic salaries of the
employees of the respective companies.
In accordance with relevant regulations of the State, the Company has
given permission to regional branches which have already participated in the
local basic medical insurance scheme to establish supplemental medical insurance
scheme beginning from 2002. Contributions to such supplemental scheme must not
exceed 4% of the total salaries and will be booked as cost.
CONTINGENT LIABILITIES
Information on the Group's contingent liabilities as of December 31,
2003 is as follows:
- Bank and other guarantees
At December 31, 2003, the Group had contingent liabilities in respect
of bank and other guarantees and other matters arising in the ordinary course of
business from which it is anticipated that no material liabilities will arise.
DECEMBER 31, 2003 DECEMBER 31, 2002
RMB (MILLION) RMB (MILLION)
----------------- -----------------
Guarantees in respect of borrowings
of associated companies 448 962
25
- Environmental liabilities
China has adopted extensive environmental laws and regulations that
affect the operation of the oil and gas industry. The outcome of environmental
liabilities under proposed or future environmental legislation cannot reasonably
be estimated at present, and could be material. Under the existing legislation,
however, the management of the Group 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 outcomes of such contingencies, lawsuits or other
proceedings cannot be determined at present, the management believes that any
resulting 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 incorporation of the Company, CNPC has
undertaken to the Company the following:
CNPC will use its best endeavours to obtain formal land use right
certificates to replace the entitlement certificates in relation to the 28,649
parcels of land which were leased or transferred to the Company from CNPC,
within one year from August, September and October 1999 when the relevant
entitlement certificates were issued; CNPC will complete, within one year from
November 5, 1999, the necessary governmental procedures for the requisition of
the collectively-owned land on which 116 service stations owned by the Company
are located; and CNPC will obtain individual building ownership certificates in
the name of the Company for all of the 57,482 buildings transferred to the
Company by CNPC, before November 5, 2000.
As at December 31, 2003, CNPC had obtained formal land use right
certificates in relation to 24,046 out of the above-mentioned 28,649 parcels of
land and some building ownership certificates for the above-mentioned buildings,
but had not yet completed the necessary governmental procedures for the
above-mentioned service stations located on collectively-owned land. The
directors of the Company are of the opinion that the use of and the conduct of
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 by CNPC 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.
26
- 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
damage or business interruption insurance since such insurance coverage is not
customary in China. While the effect of under-insurance on future incidents
cannot be reasonably assessed at present, the management of the Group believes
that it may have a material impact on the operating results, but will not have a
material adverse effect on the financial position of the Group.
- Re-allocation of production facilities
The Group may further streamline its production facilities within the
next several years to further improve the competitiveness and operating
efficiency of the Group. The management has not approved all significant actions
to be taken to complete such plans. The management believes such plans will not
have a material adverse impact on the Group's financial position, but they may
have a material adverse effect on the Group's results of operations.
27
CORPORATE GOVERNANCE STRUCTURE
The Company has always and conscientiously complied with the
requirements of the China Securities Regulatory Commission, The Stock Exchange
of Hong Kong Limited (the "HKSE"), The New York Stock Exchange, Inc. and the
United States Securities and Exchange Commission as well as other regulatory
requirements, continued to regulate and improve its corporate governance
structure and formed shareholders' meetings, a Board of Directors and
corresponding special committees, a Supervisory Committee and a management team
headed by the President. These bodies coordinate to check and balance the powers
of each other as well as to discharge their functions in a regulated manner. The
Company has been regulating its internal management and operations in a strict
manner in accordance with its Articles of Association, Work Manual of the Board
of Directors, Organisation and Rules of Procedure of the Supervisory Committee,
as well as the Principles for Control and Procedures of Disclosure by the
Company. The Company has also provided all the market participants and
regulatory authorities with timely, accurate, complete and reliable information
of the Company, striving to enhance the corporate value.
An outline of these rules is as follows:
IN RELATION TO SHAREHOLDERS AND SHAREHOLDERS' MEETINGS: In order to
ensure that all shareholders of the Company enjoy equal status and are able to
exercise their rights effectively, the Company holds shareholders' meetings
every year in strict compliance with the requirements of the Standard Opinion
regarding Shareholders' Meetings promulgated by the China Securities Regulatory
Commission. At the annual general meeting for 2002 held on May 28, 2003, ten
resolutions were adopted, among others, the issuance of the PetroChina Corporate
Bonds. In order to ensure the connected transactions are fair and reasonable, in
passing resolutions concerning connected transactions in shareholders' meetings,
CNPC, being a connected person of the Company, will abstain from voting.
Independent non-executive Directors of the Company ensure full disclosure of the
details and performance of the connected transactions every year.
IN RELATION TO DIRECTORS AND BOARD OF DIRECTORS: The Directors and the
Board of Directors of the Company have discharged their duties in respect of
corporate governance in a conscientious and responsible manner and are
accountable to the shareholders of the Company. The Company has elected its
Directors in strict compliance with the directors election procedures set out in
its Articles of Association. All Directors have attended board meetings and
discharged their duties in a conscientious and responsible manner, diligently
made decisions on major issues for the Company, in appointing, dismissing and
supervising the executives of the Company and in communicating with the
shareholders. The Company has adopted the independent directors system whereby
three independent non-executive Directors have been appointed to the Board of
Directors. The primary duties of the independent non-executive Directors are to
protect the interest of the minority shareholders independently and objectively,
and balancing the power of the Board of Directors in making decisions.
28
Four special committees have been set up under the Board of Directors
to assist the Board of Directors in making decisions. The special committees
are:
- AUDIT COMMITTEE, the duties of which include: to monitor critical
accounting policies of the Company, financial reporting
logistics, major rules and systems and the legality and
effectiveness of major business activities; to review audit plan
and reports prepared by the internal audit department and execute
audit work specified by the Board of Directors; to inspect and
supervise the independent auditors' work; and to monitor
compliance in relation to connected transactions.
- INVESTMENT AND DEVELOPMENT COMMITTEE, the duties of which
include: to study strategic plans proposed by the President and
submit to the Board of Directors its recommendation in respect of
investment and development; to study the annual investment plan
proposed by the President and submit to the Board of Directors
its opinion; and to review the feasibility study in relation to
any material investment project to be decided by the Board of
Directors and submit its proposal to the Board of Directors.
- EXAMINATION AND REMUNERATION COMMITTEE, the duties of which
include: to organise the assessment of the President and submit
report to the Board of Directors; to supervise the assessments
led by the President in relation to the performance of the Senior
Vice President, Vice Presidents, Chief Financial Officer and
other members of the senior management of the Company; and to
study the Company's incentive scheme, remuneration system and
share option scheme, monitor and evaluate the effects of the
implementation of these schemes and to provide its opinions for
further improvement or perfection.
- HEALTH, SAFETY AND ENVIRONMENTAL PROTECTION COMMITTEE, the duties
of which include: to monitor the effective implementation of the
Company's HSE scheme; to make proposal to the Board of Directors
or the President in relation to any major decision on health,
safety and environment; and to make inquiry in relation to the
occurrence of and responsibility for any material accident, and
to inspect and supervise the handling of any material accident.
In 2003, the Company held three regular board meetings, three
extraordinary board meetings and five special committee meetings, in which
sixteen board resolutions and five committee recommendations were passed.
IN RELATION TO THE SUPERVISORS AND SUPERVISORY COMMITTEE: The
Supervisory Committee is accountable to the shareholders' meetings, and the
members of which include one Supervisor elected by the employees'
representatives and two independent non-executive Supervisors. The Supervisors
have discharged their duties conscientiously, procured that the Supervisory
Committee meetings were convened in accordance with the relevant laws,
regulation and the Articles of Association of the Company, attended all board
meetings and persistently reported their work and submitted the Supervisory
Committee's reports and related proposals to the shareholders' meetings. In line
with the spirit of accountability to all the shareholders, the Supervisory
Committee has supervised the legality and legitimacy of the
29
Company's financial affairs and the performance of the Company's Directors,
managers and other members of the senior management, and has participated
actively in the Company's material affairs such as production, operation and
investment projects and has raised many constructive proposals.
IN RELATION TO THE MECHANISM FOR ASSESSMENT OF PERFORMANCE AND FOR
INCENTIVE AND RESTRICTIONS: The appointment and dismissal of members of the
senior management of the Company have been conducted in an open and transparent
manner and in compliance with the relevant laws, regulations and the Articles of
Association of the Company. The Company has formulated and implemented incentive
schemes such as Standards for Senior Management Share Option Scheme and
Remuneration Standards for Senior Management. The selection and appointment of
regional deputy managers of the Company has been conducted either on the basis
of competition among candidates who outnumber the positions or on the basis of
company-wide competition. The policy of appointing the best candidate through
competition has been implemented in the headquarters of the Company, which has
improved the transparency of human resources and formed an open, just and fair
mechanism for selection and appointment.
DISCLOSURE OF INFORMATION AND TRANSPARENCY: The Secretary to the Board
of Directors of the Company and the Secretariat under his/her leadership are
responsible for the disclosure of information and receiving visits by and
inquiries from investors. In accordance with the provisions of the Company's
Articles of Association and the regulations of the places of listing, the
Secretariat has disclosed information of the Company in compliance with the law.
In this respect the Company has formed an information disclosure committee and
its working group in 2003, and selected a disclosure supervisor from the working
group, who is responsible for supervising the affairs relating to disclosure
controls and procedures. In line with the spirit of accountability to all the
shareholders, the Company continue to enhance communications with its investors
by various means, respond to issues raised by investors in a timely manner,
further strengthen and develop relationships with its investors, focus on the
establishment and development of its relationships with the financial media, and
enhance coordination with the regulatory bodies and trading organisations. In
addition, the Company has established a wide information collection network to
strictly monitor market information and development and to report to the
management of the Company in a timely manner any material or sensitive issues,
the latest development of the capital markets and feedback from the investors in
relation to the Company. The Company has also provided investors with
information disclosed to the public and documents for inspection, and has
actively advertised through the media. The Company has also publicised its
latest material development in a timely manner through news release and its
website where there is a specific section called "Investors", through which the
investors may view information such as corporate information, various reports
and announcements and information relating to road-show and business promotion.
IN RELATION TO THE RELATIONSHIP BETWEEN CNPC AND THE COMPANY: CNPC, the
controlling shareholder of the Company, has exercised its rights and interests
as shareholder at shareholders' meetings in accordance with the law. CNPC has
not directly interfered with the Company's decision-making, production or
operation, nor has it prejudiced against the lawful interests of the Company and
other shareholders. CNPC is independent from the Company in all aspects,
including personnel deployment, assets, finance, organisation and business
operations. At the time of listing of the Company, the Company and CNPC had
entered into a
30
Non-competition Agreement which ensures that CNPC will not engage either
directly or indirectly in any business that is or may be in competition with any
core business of the Company. The Board of Directors, the Supervisory Committee
and the management team headed by the President of the Company also work
independently.
DISCHARGE OF DUTIES BY INDEPENDENT NON-EXECUTIVE DIRECTORS: There are
three independent non-executive Directors on the Board of Directors of the
Company who are nominated by the Board of Directors and elected by the
shareholders' meetings. The three independent non-executive Directors are
totally independent from the Company and its substantial shareholders, and do
not hold any executive position in the Company, and hence in full compliance
with the requirements of the Rules Governing the Listing of Securities on The
Stock Exchange of Hong Kong Limited (the "HKSE LISTING RULES") relating to
independent non-executive directors. The independent non-executive Directors
have conscientiously discharged their duties in accordance with the Articles of
Association of the Company and the relevant laws and regulations. They have
actively attended meetings of the Board of Directors and participated in
discussions leading to decisions on material issues. They have commented on the
standardised functioning and operations of the Company based on their plenteous
professional knowledge and experience, as well as the compliance of the
connected transactions waiver requirements of the regulators in the places of
listing, so as to ensure that the connected transactions are fair and
reasonable. They have reviewed and formed independent opinion on asset
restructuring and connected transactions. Independent non-executive Directors
have also participated in the work of the audit committee and the examination
and remuneration committee. The independent non-executive Directors have made
important contributions to the protection of the Company's interest and the
lawful rights and interests of all the shareholders, as well as to the promotion
of the healthy development of the Company.
31
REPORT OF DIRECTORS
The Board of Directors of PetroChina Company Limited is pleased to
present its report together with the audited financial statements of the Group
for the year ended December 31, 2003.
GROUP ACTIVITIES
The Group is engaged in a broad range of petroleum-related activities,
including:
- the exploration, development, production and sale of crude oil and
natural gas;
- the refining, transportation, storage and marketing of crude oil
and petroleum products;
- the production and sale of basic petrochemical products, derivative
petrochemical products and other chemical products; and
- the transmission of natural gas, crude oil and refined products,
and sale of natural gas.
The operating segment information on these areas is set out in note 38
to the financial statements prepared in accordance with International Financial
Reporting Standards ("IFRS").
The principal subsidiaries in which the Company had material interests
and which could significantly affect the results or assets of the Group are set
out in note 17 to the financial statements prepared in accordance with IFRS.
SHARE CAPITAL STRUCTURE
The Company issued 15,824,176,200 H shares (including H shares
underlying ADSs) in April 2000. At the same time, CNPC offered 1,758,241,800
shares held by it in the Company to the public. After the issue and offer,
17,582,418,000 shares in the Company were held by the public, representing 10%
of the total share capital of the Company immediately after the issue. The net
proceeds from the share issue amounting to RMB20,337 million were intended to
fund the Company's capital expenditures and investments, to provide additional
funds for general corporate purposes, and to repay short-term borrowings from
third party financial institutions. The Company's ADSs and H shares were listed
on The New York Stock Exchange, Inc. and the HKSE on April 6, 2000 and April 7,
2000 respectively.
32
The share capital of the Company in issue as fully paid or credited as
fully paid as at December 31, 2002 was 175,824,176,000 shares, with a par value
of RMB1.00 each. As at December 31, 2003, the share capital structure of the
Company was as follows:
SHARES PERCENTAGE OF THE TOTAL
NUMBER OF SHARES NUMBER OF SHARES IN ISSUE
AS AT DECEMBER 31, 2003 AS AT DECEMBER 31,2003(%)
----------------------- -------------------------
State-owned
shares 158,241,758,000 90
Foreign-invested
shares (H shares
and ADSs) 17,582,418,000 10
Total 175,824,176,000 100
SHAREHOLDING OF SUBSTANTIAL SHAREHOLDERS
As at December 31, 2003, the register of interests and short positions
kept by the Company under section 336 of the Securities and Futures Ordinance
(Cap 571 of the Laws of Hong Kong) (the "SFO") showed that the persons in the
following table and notes held interests or short positions in the Company's
shares:
PERCENTAGE OF
THE TOTAL NUMBER PERCENTAGE OF
NUMBER OF OF THAT CLASS THE TOTAL SHARE
SHAREHOLDER SHARES SHARES IN ISSUE (%) CAPITAL (%)
----------- ------ --------- ---------------- ---------------
CNPC State-
owned
shares 158,241,758,000 100.00 90.00
BP Amoco plc(1) H shares 3,516,484,000 20.00 2.00
Warren E. Buffett(2) H shares 2,347,761,000 13.35 1.335
Notes:
(1) BP Global Investments Limited is deemed to be interested in the
3,516,484,000 H shares held by BP Investments China Limited by virtue of its
100% interest in BP Investments China Limited. BP Amoco plc is deemed to be
interested in the 3,516,484,000 H shares held by BP Investments China Limited by
virtue of its 100% interest in BP Global Investments Limited.
(2) By virtue of Warren E. Buffett's 35.4% interest in Berkshire Hathaway Inc.,
Berkshire Hathaway Inc.'s 100% interest in OBH Inc., OBH Inc.'s 100% interest in
National Indemnity Co. and 100% interest in GEICO Corporation, and GEICO
Corporation's 100% interest in Government Employees Inc. Company, each of Warren
E. Buffett, Berkshire Hathaway Inc. and OBH Inc. is deemed to be interested in
the 2,279,151,000 H shares held by National Indemnity Co. and the 68,610,000 H
shares held by Government Employees Inc. Company, totalling 2,347,761,000 H
shares.
33
As at December 31, 2003, save as disclosed above, no person (other than
the Directors, senior management or the Supervisors of the Company) had recorded
an interest in the register of interests in shares and short positions kept
pursuant to section 336 of the SFO.
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, 2003.
DIVIDENDS
The Board of Directors recommends to pay a final dividend of
RMB0.079324 per share (inclusive of applicable tax) from the balance of 45% of
the net profit for the twelve months ended December 31, 2003, less the interim
dividend for 2003 paid on October 8, 2003. The proposed final dividend is
subject to shareholders' approval at the annual general meeting held on May 18,
2004. The final dividend shall be paid to shareholders whose names appear on the
register of members of the Company at the close of business on May 18, 2004. The
register of members will be closed from April 18, 2004 to May 18, 2004, 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 4:00 p.m. on April 16, 2004.
According to Article 149 of the Articles of Association of the Company,
dividends payable to the Company's shareholders shall be declared in Renminbi.
Dividends payable to holders of State-owned shares shall be paid in Renminbi
while dividends payable to holders of H shares shall be paid in Hong Kong
Dollars. The exchange rate of Hong Kong Dollars shall be based on the average of
the closing exchange rates for Renminbi to Hong Kong Dollars, as announced by
the People's Bank of China for the week prior to the announcement of the
dividend at the shareholders' meeting to be held on May 18, 2004.
Final dividend will be paid on or about June 2, 2004.
BRIEF BIOGRAPHY OF DIRECTORS, SECRETARY, SUPERVISORS AND SENIOR MANAGEMENT
- Directors
- Chairman
MA FUCAI, aged 57, is Chairman of the Board. Mr Ma is also President of
CNPC. Mr Ma is a senior engineer and graduated from Beijing Petroleum Institute.
He has over 30 years' experience in the oil and gas industry of the PRC. From
February 1990 to December 1996, Mr Ma worked as a Deputy Director, Standing
Deputy Director, and Director of Shengli Petroleum Administration Bureau, a
subsidiary of China National Petroleum Company. He worked as an Assistant
President of China National Petroleum Company from November 1996 to December
1996, as Vice President of China National Petroleum Company from December 1996
to April 1998, and concurrently as the Director of Daqing Petroleum
Administration Bureau from July 1997 to November 1998. Mr Ma has been President
of CNPC since April 1998. Mr Ma has been the Chairman of the Company's Board of
Directors from November 5, 1999.
34
- Vice Chairmen
WU YAOWEN, aged 60, is a Vice Chairman of the Company. Mr Wu is a
senior engineer and graduated from Beijing Petroleum Institute. He has over 30
years' experience in the oil and gas industry of the PRC. From 1983 to 1986, Mr
Wu worked as the Deputy General Manager of the Nanhuanghai Oil Company under the
Ministry of Petroleum Industry. From 1986 to 1988, Mr Wu was the Director of
Qinghai Petroleum Administration Bureau. From 1988 to 1994, Mr Wu worked as
chief petroleum engineer of the Ministry of Energy, Head of the Energy Industry
Department and Vice Director of the Preparatory Committee of the Communications
and Energy Department under the State Planning Commission. He was appointed
Director of International Cooperation Office of China National Petroleum Company
in May 1994, an Assistant President in March 1996 and a Vice President of China
National Petroleum Company in December 1996. He has been a Vice President of
CNPC since April 1998. In December 2003, Mr Wu retired from his position as Vice
President of CNPC because of his age. Mr Wu has been a Director of the Company
since November 5, 1999, and a Vice Chairman since December 3, 2002.
REN CHUANJUN, aged 59, is a Vice Chairman of the Company. Mr Ren is
also a Vice President of CNPC. Mr Ren is a senior economist and graduated from
Hefei University of Industries. He has over 30 years' experience in the oil and
gas and chemical fibres industries of the PRC. Mr Ren worked as the Deputy
General Manager and General Manager of China Yizheng Fibre Industrial United
Corporation from 1983. From 1994, he worked as the Vice President of China
National Textile Council as well as the Vice Chairman of the board of Yizheng
Fibre Industrial United Corporation and Yizheng Fibre Company Limited. Mr Ren
has been a Vice President of CNPC since April 1998. He was appointed as a
Director and Senior Vice President of the Company in November 5, 1999. He has
been a Vice Chairman of the Company since December 3, 2002.
- Executive Directors
CHEN GENG, aged 57, is a Director and President of the Company. Mr Chen
is a senior economist, graduated from the Beijing Economics Institute (now
renamed as the Capital University of Economics and Trade) and has over 30 years'
work experience in the oil and gas industry of the PRC. From 1983 to 2001, Mr
Chen was Deputy Director of Changqing Petroleum Exploration Bureau, Deputy
Director of the Labour Department under the Ministry of Petroleum Industry,
Director of Labour Bureau of China National Petroleum Company, Assistant
President of China National Petroleum Company, Vice President of China National
Petroleum Company, Deputy Director of the State Petroleum and Chemical Industry
Bureau and Vice President of CNPC. He has been a Director of the Company since
June 8, 2001 and the President since December 3, 2002.
35
SU SHULIN, aged 41, is a Director and Senior Vice President of the
Company. Mr Su has a Master's degree and is a senior engineer, graduated from
Daqing Petroleum Institute and Harbin University of Engineering. He has many
years of experience in the oil and gas industry of the PRC. Since 1996, Mr Su
has worked as Director Assistant of Daqing Petroleum Administration Bureau and
the Department Head, Standing Deputy Director and Director of the First Oil and
Natural Gas Development Department. He was appointed as a Vice President of the
Company on November 5, 1999, and was concurrently the Chairman and General
Manager of the Company's subsidiary Daqing Oil Field Company Limited until
December 2003. Mr Su has been appointed as a Director of the Company since
November 2002, and Senior Vice President since December 3, 2002.
WANG FUCHENG, aged 53, is a Director and a Vice President of the
Company. Mr Wang is a senior economist, graduated from the Shandong Teacher's
University and has over 30 years' working experience in the oil and gas industry
of the PRC. Mr Wang has worked in the Shengli Oil Field, Zhongyuan Oil Field and
Liaohe Oil Field. From 1986 to 1999, Mr Wang worked as Senior Executive of the
Shengli Oil Field, Senior Executive of the Liaohe Oil Exploration Bureau,
Director of the Liaohe Oil Exploration Bureau and General Manager of the Branch
Office of Liaohe Oil Field. Mr Wang has been a Director of the Company since
June 2000 and Vice President of the Company since July 2000.
- Non-executive Directors
ZHENG HU, aged 57, is a Director of the Company and a Vice President of
CNPC. Mr Zheng is a senior engineer and graduated from Beijing Petroleum
Institute. He has over 30 years' work experience in the oil and gas industry of
the PRC. From 1990 to 1992, Mr Zheng was the Vice Chancellor of Beijing
Petroleum Managers Training Institute. From 1992 to 1999, Mr Zheng worked as
Deputy General Manager and General Manager of China Petroleum Technology
Development Corporation, China Petroleum Materials and Equipment (Group)
Corporation, and as Director of Personnel and Labour Department of CNPC. Mr
Zheng is currently Vice President of CNPC. He has been a Director of the Company
since June 30 2000.
GONG HUAZHANG, aged 57, is a Director of the Company. Mr Gong is also
General Accountant of CNPC. Mr Gong is a senior accountant, graduated from
Yangzhou Business School. He has over 30 years' work experience in the oil and
gas industry of the PRC. Mr Gong worked as Chief Accountant, Deputy Director and
Director of the Finance Bureau of China National Petroleum Company from 1991. He
has been Director of Finance and Assets Department of CNPC since October 1998
and has been General Accountant of CNPC since February 1999. Mr Gong has been a
Director of the Company since November 5, 1999.
36
ZOU HAIFENG, aged 57, is a Director of the Company. Mr Zou is also a
Deputy Manager of Jilin Chemical Industrial Corporation and Chairman of the
Supervisory Committee of Jilin Chemical Industrial Company Limited. Mr Zou is a
senior engineer, graduated from Northeastern Industry Institute. He has almost
30 years' work experience in the petrochemical industry. Since 1994, Mr Zou has
been a Deputy Manager of Jilin Chemical Group Corporation, and Director and
Deputy Manager of Jilin Chemical Industrial Company Limited. He has been the
Deputy Manager of Jilin Chemical Industrial Corporation, a subsidiary of the
Company. Since July 1999, Mr Zou has been a Director of the Company since
November 5, 1999.
- Independent Non-executive Directors
CHEE-CHEN TUNG, aged 61, is an independent non-executive Director of
the Company. Mr Tung is the Chairman and Chief Executive Officer of Orient
Overseas (International) Limited and was educated at the University of
Liverpool, England, where he received his Bachelor of Science degree. He later
acquired a Master's degree in Mechanical Engineering at the Massachusetts
Institute of Technology in the United States. He served as Chairman of the Hong
Kong Shipowners' Association between 1993 and 1995. From 1999 to 2001, he was
the Chairman of the Hong Kong General Chamber of Commerce, an independent
non-executive Director of Hu Hangyong Expressway Company Ltd., Che Kiang First
Bank, Bank of China (Hong Kong) Co. Ltd., Global China Group Holdings Ltd. and
Wing Hang Bank, independent non-managing Director of Cathay Pacific Airways,
member of the Hong Kong Port Development Board. Mr Tung is also the Chairman of
the Institute for Shipboard Education Foundation, the Chairman of the Advisory
Council and member of the Board of Directors of the Hong Kong Polytechnic
University, the Director of the International Academic Centre of the University
of Pittsburgh and is a member of the Board of Visitors of the School of Foreign
Service, Georgetown University. Mr Tung has been appointed as an independent
non-executive Director of the Company since November 5, 1999.
LIU HONGRU, aged 73, is an independent non-executive Director of the
Company. Mr Liu graduated from the Faculty of Economics Department of University
of Moscow in 1959 with an associate Doctorate's degree. He has worked as a Vice
Governor of the Agricultural Bank of China, a Vice Governor of the People's Bank
of China, as a Deputy Director of the State Economic Restructuring Committee,
and the Chairman of the China Securities Regulatory Commission. Mr Liu is
currently a Deputy Director of the Economics Committee under the Chinese
People's Political Consultative Conference, and concurrently serves as a Vice
President of China Finance and Banking Society, a Vice President of China
National Debt Association and President of the Shanghai Institute of Financial
and Legal Studies. Mr Liu is also a professor at the Beijing University, the
Postgraduate School of the People's Bank of China and the City University of
Hong Kong. Mr Liu was appointed as an independent Supervisor of the Company in
December 1999. Upon resignation from the post of Supervisor, he was appointed as
an independent non-executive Director of the Company on November 19, 2002.
37
FRANCO BERNABE, aged 55, is an independent non-executive Director of
the Company. Mr Bernabe is the Chairman of the Franco Bernabe Group and Vice
Chairman of H3G, a mobile telephone company which owns a third generation mobile
licence in Italy. He is also Chairman of Kelyan, an internet professional
services company of the Franco Bernabe Group. Mr Bernabe is at present a member
of the board of Fiat and the TNT Post Group. He serves in the Executive
Committee of the Italian Confederation of Industry, in the Board of the Peres
Centre for Peace and in the International Board of the World Economic Forum. He
has also served as a special representative of the Italian government for the
reconstruction of the Balkan region. Mr Bernabe joined ENI in 1983 to become an
assistant to the chairman; in 1986 he became director for development, planning
and control; and between 1992 and 1998 was the Chief Executive Officer of ENI.
Mr Bernabe led the restructuring program of the ENI Group, making it one of the
world's most profitable oil companies. Between 1998 and 1999, Mr Bernabe was the
Chief Executive Officer of Telecom Italia. Prior to his joining ENI, Mr Bernabe
was the head of economic studies at FIAT. He was also a senior economist at the
OECD Department of Economics and Statistics in Paris. Earlier he was a professor
of economic politics at the School of Industrial Administration, Turin
University. Mr Bernabe has been appointed as an independent non-executive
Director of the Company since June 30, 2000.
- Secretary to the Board of Directors
LI HUAIQI, aged 54, is the Secretary to the Board of Directors of the
Company and is a senior economist. He has over 30 years' work experience in the
oil and gas industry of the PRC. Mr Li has worked in Daqing, Liaohe, Huabei and
Nanhai. From 1992 to 1996, Mr Li worked as the Deputy Director of Foreign
Affairs Bureau and Chairman of the Foreign Service Company of China National
Petroleum Company, and as the Director of Foreign Affairs Bureau of China
National Petroleum Company. In 1999 Mr Li was appointed as Director of the
International Co-operation Department (Foreign Affairs Bureau) of CNPC. Mr Li
has been the Secretary to the Board of Directors of the Company since August 29,
2001.
- Supervisors
LI KECHENG, aged 60, is Chairman of the Company's Supervisory
Committee. Mr Li is a senior engineer and graduated from Beijing University of
Science and Technology. He has over 30 years' experience in the oil and gas
industry of the PRC. From 1986 to 1992, Mr Li was the head of the Petroleum
Pipeline Bureau and a senior executive of Northeastern Oil Transmission
Administration. From November 1992, Mr Li held senior positions in China
National Petroleum Company and CNPC. He has been the Chairman of the Company's
Supervisory Committee since November 5, 1999.
38
CHEN WEIZHONG, aged 59, is a Supervisor of the Company. Mr Chen is a
senior auditor and graduated from Anhui Finance and Trade Institute. He has over
30 years' work experience in the oil and gas industry of the PRC. He was a
Deputy Director of the Auditing Office of China National Petroleum Company from
1993 to 1998, and a Deputy Director of the Auditing Bureau of China National
Petroleum Company. Mr Chen had been a Deputy Director and Director of the
Auditing Department of CNPC from October 1998. He has been a Supervisor of the
Company since November 5,1999.
WEN QINGSHAN, aged 45, is a Supervisor of the Company. Mr Wen is a
senior accountant, graduated from Jilin Yanbian University. He was the Deputy
Chief Accountant of the Finance and Assets Department of CNPC from November
1998, Deputy Director of the Finance and Assets Department of CNPC from May 1999
and Director of the Finance and Assets Department of CNPC from May 2002. He has
been a Supervisor of the Company since November 2002.
BAI XINHE, aged 60, is a Supervisor of the Company. Mr Bai is a senior
auditor and graduated from the Central Finance Institute. He has over 30 years'
work experience in the oil and gas industry of the PRC. Mr Bai was Chief Auditor
of the Auditing Department of China National Petroleum Company from August 1988
to April 1998. He was the Chief Auditor of the Auditing Department of CNPC since
April 1998. Mr Bai had been the Deputy General Manager and General Manager of
the Auditing Department of the Company from November 1999 to September 2001,
during which period he was also the head of the office of the Supervisory
Committee of the Company. Mr Bai was the head of the office of the Supervisory
Committee of the Company from September 2001 to October 2003. He has been a
Supervisor of the Company since November 5, 1999.
SUN CHONGREN, aged 53, is a Supervisor of the Company and an employee
representative of the Company's Supervisory Committee. Mr Sun graduated from
Huadong Petroleum Institute and has 30 years' experience in the oil and gas
industry of the PRC. Mr Sun has worked at the Liaohe Petroleum Administration
for 30 years. He has been a senior executive of Liaohe Petroleum Administration
since 1996 and was the chairman of its labour union. Mr Sun has been a
Supervisor of the Company since November 5,1999.
ZHANG YOUCAI, aged 62, is an independent Supervisor of the Company. Mr
Zhang is a professor, graduated from Nanjing University of Industries. He has
over 30 years' work experience in corporate and finance. Mr Zhang was the
manager of Nantong Chemical Fertilizer Factory, Deputy Director of Nantong
Industrial Bureau and Deputy Head of Nantong Commission for Economic Planning as
well as Deputy Mayor of Nantong. He has been the Mayor of Nantong from April
1984, Deputy Minister of the Ministry of Finance of the PRC between December
1989 and July 2002, and was also the Director of the State-owned Assets
Administration of the PRC between May 1994 and July 1998. He has been an
independent Supervisor of the Company since November 2002.
39
WU ZHIPAN, aged 47, is an independent Supervisor of the Company. Mr Wu
acquired a Doctor of Laws degree from the School of Law, Beijing University in
1988, and was a visiting scholar at Harvard Law School from 1991 to 1992. Mr Wu
is currently the Vice-chancellor of the Beijing University. He is also an expert
consultant of the Supreme People's Court of the PRC, an arbitrator of the
Arbitration Panel of China International Economic and Trade Arbitration
Commission and President of the China Economic Law Research Institute Society.
Mr Wu is the author of a large number of legal publications and has extensive
work experience in the legal field. Mr Wu has been an independent Supervisor of
the Company since December 1999.
- Other Senior Management
DUAN WENDE, aged 52, is a Vice President of the Company and also a Vice
President of CNPC. Mr Duan is a senior engineer and a postgraduate, graduated
from the Postgraduate School of the Chinese Academy of Social Sciences in
investment economics. He has over 30 years' work experience in the petrochemical
industry of the PRC. From 1975 to August 2001, he was the Deputy Factory Manager
of Fushun Factory No. 628 and a chemical fibres factory, Commander of Command
Division of Fushun ethylene project, Deputy Factory Manager of an ethylene
factory, the Factory Manager of an acrylic fibres factory and a detergent
factory, Deputy Manager and Manager of Fushun Petrochemical Corporation, and
General Manager of Fushun Petrochemical Branch Company. He has been an Assistant
President of CNPC since August 2001. He has been appointed a Vice President of
the Company since March 2002, and a Vice President of CNPC since December 2003.
WANG GUOLIANG, aged 51, is Chief Financial Officer of the Company. Mr
Wang holds a Master's degree and is a senior accountant. He graduated from the
Heilongjiang Business College and Hebei University. He has over 20 years' work
experience in the oil and gas industry of the PRC. Mr Wang worked as a Vice
President of China National Petroleum Company Finance Co. Ltd. from 1995 to 1997
and as a Deputy General Manager and General Accountant of China National Oil &
Gas Exploration and Exploitation Corporation from 1998 to 1999. He was the Chief
Financial Officer of the Company since November 5, 1999 (and also the General
Manager of the Company's Finance Department from November 1999 to March 2002).
LIU BAOHE, aged 57, is a Vice President of the Company. Mr Liu is a
senior engineer and graduated from Beijing Petroleum Institute. He has over 30
years' work experience in the oil and gas industry of the PRC. Mr Liu was Deputy
Director and Director of the Office of Production and Exploitation of China
National Petroleum Company from 1994 to 1997. Mr Liu was Director of the
Department of Oil and Gas Exploitation of CNPC from 1998 to 1999. From 1999 to
August 2001, Mr Liu worked as the Deputy General Manager of the exploration and
production branch of the Company. He has been a Vice President of the Company
since September 2001 and General Manager of the exploration and production
branch of the Company from September 2001 to December 2002.
40
JIA CHENGZAO, aged 55, is the Chief Geologist of the Company. Mr Jia is
a Doctorate's degree holder and a senior engineer. He graduated from Nanjing
University and has over 25 years' work experience in the oil and geological
industry of the PRC. From 1994, Mr Jia has worked as a Deputy Chief Geologist,
Chief Geologist and Deputy Commander of Tarim Oil Exploration and Exploitation
Headquarters. Since 1998 he has also been a Vice Director of the Oil Exploration
and Exploitation Scientific Research Institute of CNPC. From 1999, Mr Jia worked
as a Deputy General Manager of China Petroleum Tarim Oil Field and a Vice
President of the China Oil Exploration and Exploitation Research Institute. He
had been the Chief Geologist of the Company from July 2000. Mr Jia served as the
President of the China Oil Exploration and Exploitation Research Institute since
December 16, 2002.
INTERESTS OF DIRECTORS AND SUPERVISORS IN THE SHARE CAPITAL OF THE COMPANY
As at December 31, 2003, other than Zou Haifeng, a Director of the
Company, who holds 3,550 A shares in Jilin Chemical Industrial Company Limited,
a subsidiary of the Company, none of the Directors or Supervisors had any
interests and short positions in any shares, underlying shares or debentures of
the Company or any associated corporation (within the meaning of Part XV of the
SFO) required to be recorded in the register mentioned under section 352 of the
SFO or as otherwise notifiable to the Company and the HKSE by the Directors and
Supervisors pursuant to the Model Code for Securities Transactions by Directors
of Listed Companies.
As at December 31, 2003, the Company has not granted its Directors,
Supervisors or their respective spouses or children below 18 any rights to
subscribe for its equity securities or debt securities.
SERVICE CONTRACTS OF DIRECTORS AND SUPERVISORS
No service contract existed or has been proposed between the Company or
any of its subsidiaries with any of the above Directors or Supervisors. No
Director or Supervisor has entered into any service contract with the Company
which is not determinable by the Company within one year without payment of
compensation other than statutory compensation.
INTERESTS OF DIRECTORS AND SUPERVISORS IN CONTRACTS
None of the Directors or Supervisors have had a material personal
interest, either directly or indirectly, in any contract of significance to
which the Company or any of its subsidiaries was a party to during the year.
REMUNERATION OF DIRECTORS AND SUPERVISORS
Details of remuneration of Directors and Supervisors are set out in
note 9 to the financial statements prepared in accordance with IFRS in this
annual report.
BANK LOANS AND OTHER BORROWINGS
Details of bank loans and other borrowings of the Company and the Group
as at December 31, 2003 are set out in note 26 to the financial statements
prepared in accordance with IFRS in this annual report.
41
INTEREST CAPITALISATION
Interest capitalisation for the Group for the year ended December 31,
2003 was RMB1,320 million.
FIXED ASSETS
Movements of fixed assets of the Company and the Group during the year
are summarised in note 14 to the financial statements prepared in accordance
with IFRS in this annual report.
LAND VALUE APPRECIATION TAX
No land value appreciation tax was payable by the Group during the
year.
RESERVES
Details of movements in reserves of the Company and the Group for the
year ended December 31, 2003 are set out in note 28 to the financial statements
prepared in accordance with IFRS in this annual report.
STATUTORY COMMON WELFARE FUND
Details of the statutory common welfare fund, such as the nature,
application and movements of the fund and the basis of its calculation,
including the percentage and profit figure used for calculating the amounts, are
set out in note 28 to the financial statements prepared in accordance with IFRS
in this annual report.
EMPLOYEES' RETIREMENT SCHEME
Details of the Company's employees' retirement scheme are set out in
note 31 to the financial statements prepared in accordance with IFRS in this
annual report.
MAJOR SUPPLIERS AND CUSTOMERS
CNPC is the Group's largest supplier of goods and services and the
aggregate purchase attributable to CNPC was 33% of the total purchase of the
Group for 2003. The aggregate purchase attributable to the five largest
suppliers of the Group was 42% of the Group's total purchase.
The aggregate revenue derived from the major customers is set out in
note 36 to the financial statements prepared in accordance with IFRS in this
annual report. The aggregate revenue derived from the five largest customers was
less than 30% of the Group's total sales.
None of the Directors, Supervisors and their associates or any
shareholder (who to the knowledge of the Board of Directors were holding 5% or
more of the Company's share capital) had any interest in any of the
above-mentioned suppliers and customers.
ANNUAL GENERAL MEETING
At the 2002 annual general meeting of the Company held on May 28, 2003,
the following resolutions were passed:
(a) the report of the Board of Directors for the year 2002 was
approved;
(b) the report of the Supervisory Committee for the year 2002 was
approved;
42
(c) the financial and accounting statements of the Company for the year
2002 was approved;
(d) the proposal for the distribution of profits for the year 2002 was
approved;
(e) the proposal for the authorisation of the Board of Directors to pay
the interim dividend for the year 2003 was approved;
(f) the proposal for the appointment of domestic and international
accounting firms as accountants of the Company for 2003 was
approved;
(g) the proposal for the issue of the PetroChina Corporate Bonds was
approved;
(h) the election of Mr Wang Fucheng as a Director of the Company was
approved;
(i) the election of Mr Zheng Hu as a Director of the Company was
approved; and
(j) the election of Mr Franco Bernabe as an independent Director of the
Company was approved.
CONNECTED TRANSACTIONS
As CNPC directly owns an aggregate of approximately 90% of the shares
of the Company, transactions between the Group and CNPC constitute connected
transactions between the Group and CNPC under the HKSE Listing Rules. The waiver
in respect of such connected transactions granted by the HKSE at the time of the
listing of the Company in Hong Kong expired on December 31, 2002. Since the
connected transactions are ongoing transactions, the Company has further applied
and obtained a new connected transactions waiver granted by the HKSE for the
period from January 1, 2003 to December 31, 2005.
The Group and CNPC will continue the connected transactions referred to
in the following agreements:
1 Comprehensive Products and Services Agreement
The Group and CNPC continue to implement the Comprehensive Products and
Services Agreement entered into on March 10, 2000 for the provision (1) by the
Group to CNPC and (2) by CNPC to the Group, of a range of products and services
which may be required and requested from time to time by either party.
(A) Products and Services to be provided by the Group to CNPC
Under the Comprehensive Products and Services Agreement, products and
services to be provided by the Group to CNPC include such products as crude oil,
natural gas, refined oil products, chemical products, and such services as
relating to the supply of water, electricity, gas and heating, quantifying and
measuring and quality inspection.
(B) Products and Services to be provided by CNPC to the Group
The products and services to be provided by CNPC to the Group are more
numerous, both in terms of quantity and variety, than those to be provided by
the Group to CNPC. Products and services to be provided by CNPC to the Group
have been grouped together and categorised according to the following types of
products and services:
43
(a) Construction and technical services;
(b) Production services;
(c) Supply of materials services;
(d) Social services;
(e) Ancillary services; and
(f) Financial services.
2 Product and Service Implementation Agreements
According to the current arrangements, from time to time and as
required, individual product and service implementation agreements may be
entered into between the relevant service companies and affiliates of CNPC or
the Group, as appropriate, providing the relevant products or services and the
relevant members of the Group or CNPC, as appropriate, requiring such products
or services.
As the product and service implementation agreements are simply further
elaborations on the provision of products and services as contemplated by the
Comprehensive Products and Services Agreement, as such, they do not constitute
new categories of connected transactions.
3 Land Use Rights Leasing Contract
The Company and CNPC continue to implement the Land Use Rights Leasing
Contract entered into on March 10, 2000 under which CNPC has leased a total of
42,476 parcels of land in connection with all aspects of the operations and
business of the Company covering an aggregate area of approximately 1,145
million square meters, located throughout the PRC, to the Company for a term of
50 years at an annual fee of RMB2 billion. The total fee payable for the lease
of all such property may, after the expiration of 10 years from the effective
date of the Land Use Rights Leasing Contract, be adjusted (to reflect market
conditions prevalent at such time of adjustment, including the then prevailing
market prices, inflation or deflation and such other factors considered as
important by both parties in negotiating and agreeing to any such adjustment) by
agreement between the Company and CNPC. In addition, any governmental, legal or
other administrative taxes and fees required to be paid in connection with the
leased properties will be borne by CNPC. However, any additional amount of such
taxes payable as a result of changes in the PRC government policies after the
effective date of the contract shall be shared proportionately on a reasonable
basis between CNPC and the Company.
4 Buildings Leasing Contract
The Company and CNPC continue to implement the Buildings Leasing
Contract entered into on March 10, 2000 pursuant to which CNPC has leased to the
Company a total of 191 buildings covering an aggregate area of 269,770 square
meters.
The 191 buildings were leased at a price of RMB145 per square metre per
year, that is, at an aggregate annual fee of RMB39,116,650, for a term of 20
years. The Company is responsible for the payment of any governmental, legal or
other administrative taxes and maintenance charges required to be paid in
connection with these 191 buildings.
44
5 Intellectual Property Licensing Contracts
The Company and CNPC continue to implement the three intellectual
property licensing contracts entered into on March 10, 2000, being the Trademark
Licensing Contract, the Patent and Know-how Licensing Contract and the Computer
Software Licensing Contract. Pursuant to these licensing contracts, CNPC has
granted the Company the exclusive right to use certain trademarks, patents,
know-how and computer software of CNPC at no cost. These intellectual property
rights relate to the assets and businesses of CNPC, which were transferred to
the Company pursuant to the restructuring.
6 Contract for the Transfer of Rights under Production Sharing
Contracts
The Company and CNPC continue to implement the Contract for the
Transfer of Rights under Production Sharing Contracts dated March 10, 2000. As
part of the restructuring, CNPC transferred to the Company relevant rights and
obligations under the 23 Production Sharing Contracts entered into with a number
of international oil and natural gas companies, except for the rights and
obligations relating to CNPC's supervisory functions.
7 Guarantee of Debts Contract
The Company and CNPC continue to implement the Guarantee of Debts
Contract entered into on March 10, 2000, pursuant to which all of the debts of
CNPC relating to the assets transferred to the Company in the restructuring were
also transferred to, and assumed by, the Company.
In the Guarantee of Debts Contract, CNPC has agreed to guarantee
certain of the debts of the Company at no cost. As of the end of 2003, the total
amount guaranteed was RMB853 million.
In relation to the connected transactions undertaken by the Group in
2003, the independent non-executive Directors of the Company confirm that:
(i) the connected transactions mentioned above have been entered into
in the ordinary and usual course of the business of the Company;
(ii) the connected transactions mentioned above have been entered into
on terms that are fair and reasonable so far as the shareholders of
the Company are concerned;
(iii) the connected transactions mentioned above have been entered into
on normal commercial terms either (1) in accordance with the terms
of the agreements governing such transactions, or (2) (where there
is no such agreement) on terms no less favourable than terms
available to independent third parties; and
(iv) where applicable, the connected transactions have been entered
into within the annual limit for years 2003 to 2005. The annual
limit for years 2003 to 2005 are as set out in the table below.
The auditors of the Company have reviewed the connected transactions
mentioned above and have provided the Board of Directors with a letter stating
that:
(i) all the connected transactions have received the approval of the
Board of Directors;
(ii) all the connected transactions have been conducted in accordance
with the terms of the agreements; and
(iii) all the connected transactions have been conducted within the
limit set by the HKSE.
45
The Company's annual limit for years 2003 to 2005 in respect of the
connected transactions waiver are set out in the table below.
ANNUAL LIMIT FOR YEARS 2003
CATEGORY OF PRODUCTS AND SERVICES TO 2005
--------------------------------- ---------------------------
(A) Products and services to be
provided by the Group to CNPC 10% of the sales revenue of the
Group
(B) Products and services to be
provided by CNPC to the Group
Construction and technical services 20% of the total operating
Expenses and capital expenditure
of the Group
Production services 10% of the total operating
expenses and capital expenditure
of the Group
Supply of materials services 2% of the total operating expenses
and capital expenditure of the
Group
Social and ancillary services RMB5 billion
Financial Services
(a) Aggregate of the average daily RMB52.5 billion
outstanding principal of loans and the
total amount of interest paid
in respect of these loans
(b) Aggregate of the average daily RMB4.5 billion
amount of deposits and
the total amount of interest receipts
in respect of these deposits
The Company has added a Supplemental Buildings Leasing Agreement in the
new connected transaction waiver
Further to the Buildings Leasing Contract mentioned above, the Company
entered into a Supplemental Buildings Leasing Agreement (the "SUPPLEMENTAL
BUILDINGS AGREEMENT") with CNPC on September 26, 2002 under which CNPC agreed to
lease to the Company another 404 buildings in connection with the operation and
business of the Company, covering an aggregate of 442,730 square meters.
Compared to the Buildings Leasing Contract, the increase in the units being
leased in the Supplemental Buildings Agreement is mainly attributable to the
expansion of the Company's operations mainly in the areas such as oil and
natural gas exploration, the West-East Gas Pipeline Project and the construction
of the northeast refineries and chemical operation base. The total rent payable
under the Supplemental Buildings Agreement amounts to RMB157,439,540 per annum.
The Company and CNPC will, based on any change in their production and
operations and changes in the market price, adjust the sizes and quantities of
buildings under the Buildings Leasing Contract as well as the Supplemental
Buildings Agreement once every three years. The Supplemental Buildings Agreement
became effective on January 1, 2003 and will expire at the same time as the
Buildings Leasing Contract. The terms and conditions of the
46
Buildings Leasing Contract will, to the extent not contradictory to the
Supplemental Buildings Agreement, continue to apply.
CONNECTED TRANSACTIONS WITH CNPC (HK)
As part of the restructuring of CNPC and in preparation for the listing
of the Company on HKSE, and as disclosed in the Company's prospectus dated March
27, 2000, CNPC and the Company entered into the Contract for the Transfer of
Rights under Production Sharing Contracts whereby the relevant rights and
obligations (other than the supervisory functions related to CNPC's role as
representative of the PRC government) of CNPC under certain contracts, including
the Xinjiang Oil Field Production Sharing Contract dated July 1, 1996, entered
into between CNPC and Hafnium Limited ("XINJIANG CONTRACT") and the Leng Jiapu
Area Petroleum Contract dated December 30, 1997, entered into between CNPC and
Beckbury International Limited ("LIAOHE CONTRACT"), were novated to the Company.
CNPC (Hong Kong) Limited ("CNPC (HK)") is a 57.5% owned subsidiary of
CNPC. CNPC is also the Company's controlling shareholder which holds
approximately 90% of the issued share capital of the Company. Upon the effective
novation by CNPC to the Company of the above interest in the PRC Oil Production
Sharing Contracts, (the "XINJIANG CONTRACT AND THE LIAOHE CONTRACT") certain
transactions pursuant to the PRC Oil Production Sharing Contracts constitute
connected transactions between the Company and CNPC (HK).
Summary of the major terms and conditions of these connected
transactions under the Xinjiang Contract and the Liaohe Contract are as follows:
(1) Production and development cost sharing between the Company and
CNPC (HK): The Company and CNPC (HK) shall share the oil and natural gas
produced from the Karamay Oilfield, as to 46% by the Company and 54% by CNPC
(HK) and from the Leng Jiapu Oilfield, as to 30% by the Company and 70% by CNPC
(HK). CNPC (HK) shall be responsible for 100% of the development costs in
respect of the Karamay Oilfield. The Company is responsible for 30% and CNPC
(HK) is responsible for 70% of the development costs in respect of the Leng
Jiapu Oilfield.
(2) Provision of assistance by the Company to CNPC (HK): The Company
shall provide assistance to CNPC (HK), for inter alia: (i) leasing warehouses,
terminal facilities, barges, pipeline and land, etc.; (ii) obtaining approvals
necessary for the conduct of the petroleum operations; and (iii) obtaining
office space, office supplies, transportation and communication facilities. For
such assistance, CNPC (HK) will pay an annual assistance fee of US$50,000
(approximately HK$389,000) for each of the Karamay Oilfield and the Leng Jiapu
Oilfield. The amount of such fee was determined after negotiations, and taking
into account the actual circumstances and conditions, including the scope of the
projects and the level of demand for such assistance. This fee shall be
accounted for as operating costs and shared by the Company and CNPC (HK) in
accordance with procedures described in the Xinjiang Contract and the Liaohe
Contract.
(3) Payment of training fees: In the course of development and
operations of each oilfield, CNPC (HK) shall pay the Company an amount of
US$50,000 (approximately HK$389,000) annually for training of the personnel of
the Company for each of the Karamay Oilfield and the Leng Jiapu Oilfield. The
amount of such fee was determined after
47
negotiations, and taking into account the actual circumstances and conditions,
including the scope of the projects and the level of demand for training.
(4) Sale of crude oil by CNPC (HK) to the Company: CNPC (HK) has the
right to deliver its share of oil production from each of the Karamay Oilfield
and the Leng Jiapu Oilfield to a destination of its choice, except for
destinations which infringe on the political interests of the PRC. However,
given the transportation costs and the prevailing oil prices, the purchaser of
the oil production attributable to CNPC (HK) from each of the Karamay Oilfield
and the Leng Jiapu Oilfield is likely to be CNPC or its affiliates, including
the Company, which will accept delivery of oil produced in the Karamay Oilfield
and the Leng Jiapu Oilfield at the market price. Since the entry of the PRC Oil
Production Sharing Contracts, CNPC (HK) has sold all of its share of the oil
production to CNPC or its affiliates, including the Company. As far as the Board
of Directors is aware, CNPC (HK) intends to continue with this arrangement.
There is no contractual obligation upon the Company to purchase oil production
from the Karamay Oilfield and the Leng Jiapu Oilfield although, from a
commercial perspective, the Company intends to continue to accept part of the
deliveries. The price of various grades of crude oil sold shall be set either
with reference to the price approved by the relevant PRC authorities or
determined with reference to the prevailing price in arm's length transactions
of crude oil of a similar quality in the main world markets, adjusted to take
into account the terms of transportation, payment and other terms.
In the opinion of the independent non-executive Directors of the
Company, the connected transactions have been:
(i) conducted on normal commercial terms and entered into in the
ordinary and usual course of business of the Company; and
(j) entered into: (a) in accordance with the terms of the PRC Oil
Production Sharing Contracts; or (b) on terms no less favourable than the terms
available to or from independent third parties.
The waiver in respect of the connected transactions between the Company
and CNPC (HK) granted by the HKSE expired on December 31, 2003. Since the
connected transactions are ongoing transactions, the Company applied on November
25, 2003, and obtained a new connected transactions waiver granted by the HKSE
on January 2, 2004, for the period from January 1, 2004 to December 31, 2006.
TRUST DEPOSITS AND IRRECOVERABLE OVERDUE TIME DEPOSITS
As at December 31, 2003, the Company did not have any trust deposits or
irrecoverable overdue time deposits.
COMPLIANCE WITH CODE OF BEST PRACTICE
Following its listing of H Shares on the HKSE, the Company has complied
with the Code of Best Practice contained in Appendix 14 to the HKSE Listing
Rules.
PRE-EMPTIVE RIGHTS
There is no provision regarding pre-emptive rights under the Articles
of Association of the Company or the PRC laws.
48
MATERIAL LITIGATION
The Group was not involved in any material litigation or disputes in
2003.
AUDITORS
PricewaterhouseCoopers (certified public accountants in Hong Kong) and
PricewaterhouseCoopers Zhong Tian CPAs Limited Company (certified public
accountants in the PRC) were the Company's international and domestic auditors
respectively in 2003. The Company has retained the above two firms of
accountants since the date of its listing. A resolution to continue the
appointment of the international and domestic auditors for 2004 will be proposed
at the annual general meeting of the Company which will be held on May 18, 2004.
By Order of the Board
MA FUCAI
Chairman
Beijing, the PRC
March 24, 2004
49
REPORT OF THE SUPERVISORY COMMITTEE
Dear Shareholders,
During the year 2003, the Supervisory Committee has carried out their
duties conscientiously and strictly in accordance with the relevant provisions
of the Company Law of the PRC, the Articles of Association of the Company, and
the Organisation and Rules of Procedure of the Supervisory Committee. During the
year, the Supervisory Committee held meetings, considered and passed six
resolutions, completed the review of the 2002 annual report and the 2003 interim
report; attended the annual general meeting for the year 2002 with the
submission of two resolutions to the meeting, and attended three meetings of the
Board of Directors of the Company with the submission of four written opinions
of the Supervisory Committee in respect of its review of the final accounts,
profit distribution plan (draft) and the assessment of the performance of the
members of the office of the President. The Supervisory Committee received
fourteen reports submitted respectively by the Finance Department, Audit
Department, Supervisory Department Human Resources Department and
PricewaterhouseCoopers and reviewed and issued its opinion on the Company's
finance, profit distribution, connected transactions and the assessment of the
performance of the members office of the President. The Supervisory Committee
carried out two random auditing investigations into the finance of the Company,
sampled eight departments to conduct auditing investigation and prepared ten
auditing investigation reports and consolidated reports, put forward 37
recommendations. The Supervisory Committee conducted one supervisor inspection
tour, prepared one inspection tour report, and raised two recommendations.
Through the above activities, the Supervisory Committee has reinforced its
supervision on the finance of the Company and on the senior management in the
performance of their duties. It has enhanced the effect of supervision and
protected the interests of the shareholders as well as the interests of the
Company.
The Supervisory Committee is of the opinion that in 2003, all members
of the Board of Directors and the senior management of the Company have worked
diligently towards fulfilling their duties. In light of the guiding thought to
maintain a sustained effective and fast development, they have grasped every
favourable market opportunity, intensified oil and gas exploration, strived to
enhance reserves and increased production. They have pushed forward the resousce
rationalisation and structural adjustment of the oil refining and chemicals
segment, enhanced market competitiveness and sales performance, expanded the
natural gas business and international business, added new contributors for
economic growth, promoted technology advancement and management innovation, and
realised a sound and stable development for the Company. The production trend of
the Company is better than originally anticipated and the operating results are
50
profoundly outstanding with the Company's profits reached a record high and a
significant appreciation of the value of the Company. While performing their
management responsibilities, they did not breach any applicable laws and
regulations of the PRC and the Company's places of listing and the Articles of
Association of the Company.
The Company's connected transactions are further perfected and
regulated and all such transactions are conducted within the limits as approved
by the HKSE.
The Supervisory Committee is satisfied with the results achieved by the
Company in 2003 and is fully confident in the prospects of the Company.
The Supervisory Committee has reviewed the unqualified financial
statements prepared by Pricewaterhouse Coopers on the basis of IFRS and is of
the opinion that the report gives an objective and true view of the Company's
operating results and financial position.
The Supervisory Committee hopes that the Company will continue in its
adherence to the guiding policy of maintaining a sustained effective and fast
development in a way to strive for an increase in the production volume of oil
and gas, continuously implement a rationalisation of its product structure,
further strengthen its efforts for market development, proactively develop new
contributions for economic growth, and enhance the management proficiency and
profitability of the Company in all aspects.
In 2004, the Supervisory Committee will continue to fulfill its duties
to protect the interests of the shareholders and to endeavour in carrying out
its duties satisfactorily and in strict compliance with the Articles of
Association of the Company and the relevant laws and regulations.
By Order of the Supervisory Committee
LI KECHENG
Chairman of the Supervisory Committee
Beijing, the PRC
March 24, 2004
51
BUSINESS OPERATING REVIEW
The Company was established as a joint stock limited company with
limited liability under the laws of the PRC on November 5, 1999 as part of the
restructuring of CNPC. In the restructuring, CNPC, the parent company of the
Company, injected into the Company most of the assets, liabilities and interests
of CNPC relating to its domestic exploration and production, refining and
marketing, chemical products and natural gas businesses. The ADSs and H shares
of the Company were listed on the New York Stock Exchange, Inc. and the HKSE on
April 6, 2000 and April 7, 2000 respectively.
The Company is engaged in a broad range of petroleum-related
activities, including:
- the exploration, development, production and sale of crude oil and
natural gas;
- the refining, transportation, storage and marketing of crude oil and
petroleum products;
- the production and sale of basic petrochemical products, derivative
petrochemical products and other chemical products; and
- the transmission of natural gas, crude oil and refined products and
sale of natural gas.
The Company is the largest producer of crude oil and natural gas in the
PRC and one of the largest companies in the PRC in terms of sales.
MARKET REVIEW
- Crude Oil Market Review
International crude oil prices remained high for the most of 2003 due
to international military, political, economic and other factors. The annual
average price remained at a fairly high level for the most of 2003. The annual
average price for WTI, Brent and Minas crude oil was US$31.05 per barrel,
US$28.84 per barrel and US$29.50 per barrel respectively, representing a
respective increase of US$4.86 per barrel, US$3.76 per barrel and US$3.78 per
barrel over the annual average price in 2002. Corresponding to the rise in
international oil prices, domestic crude oil prices had increased. The average
realised price for domestic crude oil in 2003 was higher than the 2002 level.
Net crude oil imports continued to increase in 2003, rising by 33.43%
over the previous year to a net total of 82.99 million tons. The domestic output
of crude oil and refined products reached 169 million tons and 243 million tons
respectively.
- Refined Products Market Review
In general, the domestic market for refined products fared well in
2003, with nominal consumption increasing by 8.1% to 131.91 million tons. Save
in the second quarter, when the consumption of refined products decreased due to
the outbreak of severe acute respiratory syndrome (SARS), the demand for refined
products was strong in the other three quarters as a result of the persistent
growth in the domestic economy. Net import of refined products for the whole
country climbed to 14.41 million tons, increasing 49.30% over the previous year.
As compared with the beginning of 2003, the national inventory of refined
products declined by approximately 1.4 million tons at the end of 2003.
52
Owing to the adjustment and control of the domestic prices for refined products
by the central government in 2003 and affected by the prices in the
international markets, the annual average reference medium guidance prices for
both gasoline and diesel were higher than the 2002 level.
- Chemical Products Market Review
In 2003, despite the impacts of the war in Iraq and the outbreak of
SARS, the shortage of basic energy became more acute as the global economy began
to recover and grew at an increasing speed. Accordingly, the prices for all
chemical products had a fairly substantial increase compared with 2002.
At the beginning of 2003, the overall inventory in China was at a
relatively low level. The fast development of the global economy led to a rapid
development of China's real estate, automobile and other industries. The
increase in demand for chemical products outpaced the increase in gross domestic
product(GDP), and there was a relatively large increase in the exports of
plastic and textile products. As a result, despite the increase in imports
compared with the previous year, the limited growth in domestic production
capacity failed to satisfy the increased demand, thus leading to a shortage of
resources for the chemical products market.
With the incoming of labour-intensive enterprises to the PRC and
increased investments in industries in 2003, there was a corresponding increase
in the demand for chemical products. Until the large-scale ethylene production
projects in the Middle East commence production, there will be a shortage of
chemical products in China, leading to a fluctuated but rising trend for the
prices of such products.
COMPANY BUSINESS REVIEW
- Exploration and Production
For the twelve months ended December 31, 2003, the Company's total
annual output of oil and gas amounted to 890.1 million barrels of oil
equivalent, including 774.9 million barrels of crude oil and 691.3 billion cubic
feet of marketable natural gas, representing an average production of 2.12
million barrels of crude oil and 1.894 billion cubic feet of marketable natural
gas per day. A total of 726 million barrels of crude oil and 651 billion cubic
feet of natural gas were sold. Approximately 73% of the crude oil sold by the
Company was purchased by its refineries. In 2003, the Company's lifting cost
(inclusive of overseas business) was US$4.39 per barrel (US$4.36 per barrel if
exclusive of overseas business; for the same period in 2002, the lifting cost
was US$4.34 per barrel if inclusive of overseas business, and US$4.32 per barrel
if exclusive of overseas business), representing an increase of 1.15% compared
with the year 2002.
53
- Refining and Marketing
For the twelve months ended December 31, 2003, the Company's refineries
processed 621 million barrels of crude oil, or an average of 1.70 million
barrels per day. Approximately 86% of the crude oil processed in the Company's
refineries was supplied by the exploration and production segment. The Company
produced approximately 52.79 million tons of gasoline, diesel and kerosene and
sold approximately 58.34 million tons of these products. The Company actively
expanded its sales and distribution networks, in particular the retail
distribution network, by capitalising fully on the complementary value-added
effect of the integration of refining and marketing. As at December 31, 2003,
there were 15,231 service stations either owned, controlled or franchised by the
Company or owned by CNPC but to which the Company provides supervisory support.
The Company's cash processing costs declined steadily from RMB136 per ton to
RMB132 per ton.
- Chemicals and Marketing
For the twelve months ended December 31, 2003, the Company produced
1.818 million tons of ethylene, 2.369 million tons of synthetic resin, 0.212
million tons of synthetic fibres, 0.246 million tons of rubber, and 3.58 million
tons of urea.
- Natural Gas and Pipeline
The natural gas and pipeline segment is the Company's core business
segment for development. For the twelve months ended December 31, 2003, the
Company sold 543.4 billion cubic feet of marketable natural gas through the
natural gas and pipeline segment. The Company currently owns and operates 15,144
kilometres of regional natural gas pipeline networks, of which 14,017 kilometres
are operated by the natural gas and pipeline segment. As at December 31, 2003,
the Company owned and operated a crude oil pipeline network of 9,141 kilometres
and a refined products pipeline of 2,276 kilometres.
54
CRUDE OIL AND NATURAL GAS RESERVES INFORMATION
The following table sets forth the Company's estimated proved reserves
and proved developed reserves as at December 31, 2001, 2002 and 2003. This table
is formulated on the basis of a report prepared by DeGolyer and MacNaughton, an
independent engineering consultancy company.
CRUDE OIL NATURAL GAS COMBINED
(MILLIONS OF (BILLION (MILLIONS OF BARRELS
BARRELS) CUBIC FEET) OF OIL EQUIVALENT)
------------ ----------- ---------------------
Proved Developed and
Undeveloped Reserves
Reserves as of
December 31, 2001 10,959.1 36,102.6 16,976.2
Revisions of previous
estimates 348.6 -224.2 311.3
Extensions and
discoveries 329.7 3,539.5 919.6
Improved recovery 30.6 0 30.6
Purchased reserves 38.7 192.6 70.8
Production for the year -769.8 -793.8 -902.1
Reserves as of December 31, 2002 10,937.0 38,816.8 17,406.4
Revisions of previous
estimates 199.2 277.6 245.4
Extensions and
discoveries 475.7 2,853.3 951.3
Improved recovery 81.2 0 81.2
Purchased reserves (1) 0 0 0
Production for the year (2) -773.7 -878.5 -920.1
Reserves as of
December 31, 2003 10,919.3 41,069.2 17,764.2
Proved Developed
Reserves
As of December 31, 2001 9,308.8 12,945.6 11,466.4
As of December 31, 2002 9,198.1 11,921.2 11,185.0
As of December 31, 2003 (3) 8,884.8 13,373.7 11,113.7
Note: In April 2003, the Company acquired 50% interests in Amerada Hess
Indonesia Holdings Co., which holds 30% interest in the Jabung block.
(1) Excludes the Company's resulting share of the reserves of 16.8 million
barrels of crude oil and 76.6 billion cubic feet of natual gas in the Jabung
block, totalling 29.6 million barrels of oil equivalent.
55
(2) Excludes the Company's resulting share of the output of 1.21 million barrels
of crude oil and the output of 1.01 billion cubic feet of natural gas in the
Jabung block for the year, totalling 1.38 million barrels of oil equivalent.
(3) Excludes the Company's resulting share of the proved developed reserves of
4.1 million barrels of crude oil and 21.3 billion cubic feet of natural gas in
the Jabung block, totalling 7.7 million barrels of oil equivalent.
56
[PRICEWATERHOUSECOOPERS LOGO]
[CHINESE CHARACTER]
PRICEWATERHOUSECOOPERS
22nd Floor, Prince's Building
Central, Hong Kong
Telephone (852) 2289 8888
Facsimile (852) 2810 9888
REPORT OF INTERNATIONAL AUDITORS
TO THE SHAREHOLDERS OF
PETROCHINA COMPANY LIMITED
(ESTABLISHED IN THE PEOPLE'S REPUBLIC OF CHINA WITH LIMITED LIABILITY)
We have audited the accompanying balance sheets of PetroChina Company
Limited (the "Company") and its subsidiaries (the "Group") as of December 31,
2003 and the consolidated profit and loss account and cash flow statement of the
Group for the year then ended. These financial statements set out on pages 67 to
124 are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit. This report
is made solely to you, as a body, and for no other purpose. We do not assume
responsibility towards or accept liability to any other person for the contents
of this report.
We conducted our audit in accordance with International Standards on
Auditing. Those Standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion the financial statements present fairly, in all material
respects, the financial position of the Company and the Group as of December 31,
2003 and of the results of operations and cash flows of the Group for the year
then ended in accordance with International Financial Reporting Standards and
have been properly prepared in accordance with the disclosure requirements of
the Hong Kong Companies Ordinance.
PricewaterhouseCoopers
Certified Public Accountants
Hong Kong, March 24, 2004
57
PETROCHINA COMPANY LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the Year Ended December 31, 2003
(Amounts in millions except for per share data)
2003 2002
-------- --------
NOTE RMB RMB
---- -------- --------
TURNOVER 4 303,779 244,424
-------- --------
OPERATING EXPENSES
Purchases, services and other (90,850) (71,690)
Employee compensation costs 6 (19,542) (16,248)
Exploration expenses, including exploratory dry
holes (10,577) (8,095)
Depreciation, depletion and amortisation (40,531) (36,782)
Selling, general and administrative expenses (23,930) (22,474)
Shut down of manufacturing assets 7 (2,355) (2,121)
Taxes other than income taxes (15,879) (14,613)
Revaluation loss of property, plant and equipment 14 (391) -
Other expense, net (538) (60)
-------- --------
TOTAL OPERATING EXPENSES (204,593) (172,083)
-------- --------
PROFIT FROM OPERATIONS 99,186 72,341
-------- --------
FINANCE COSTS
Exchange gain 53 133
Exchange loss (233) (449)
Interest income 677 463
Interest expense 8 (2,346) (3,516)
-------- --------
TOTAL FINANCE COSTS (1,849) (3,369)
-------- --------
SHARE OF PROFIT OF ASSOCIATED COMPANIES 15 985 268
-------- --------
PROFIT BEFORE TAXATION 5 98,322 69,240
TAXATION 10 (28,072) (22,231)
-------- --------
PROFIT BEFORE MINORITY INTERESTS 70,250 47,009
MINORITY INTERESTS (636) (99)
-------- --------
NET PROFIT 69,614 46,910
======== ========
BASIC AND DILUTED EARNINGS PER SHARE 12 0.40 0.27
======== ========
The accompanying notes are an integral part of these financial statements.
58
PETROCHINA COMPANY LIMITED
CONSOLIDATED BALANCE SHEET
As of December 31, 2003
(Amounts in millions)
2003 2002
------- -------
NOTE RMB RMB
---- ------- -------
NON CURRENT ASSETS
Property, plant and equipment 14 433,419 397,798
Investments in associates 15 5,571 4,145
Available-for-sale investments 16 1,839 1,535
Intangible and other assets 18 4,732 4,507
------- -------
445,561 407,985
------- -------
CURRENT ASSETS
Inventories 19 28,872 28,441
Accounts receivable 20 3,263 6,079
Prepaid expenses and other current assets 21 13,528 15,729
Notes receivable 22 2,416 2,540
Receivables under resale agreements 23 24,224 9,786
Time deposits with maturities over three months 2,640 2,612
Cash and cash equivalents 24 11,231 9,977
------- -------
TOTAL CURRENT ASSETS 86,174 75,164
------- -------
CURRENT LIABILITIES
Accounts payable and accrued liabilities 25 64,180 57,793
Income tax payable 12,043 5,412
Other taxes payable 8,916 5,515
Short-term borrowings 26 28,890 20,633
------- -------
114,029 89,353
------- -------
NET CURRENT LIABILITIES (27,855) (14,189)
------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES 417,706 393,796
======= =======
FINANCED BY
Share capital 27 175,824 175,824
Retained earnings 89,577 59,004
Reserves 28 91,212 81,848
------- -------
Shareholders' equity 356,613 316,676
------- -------
Minority interests 5,608 4,854
------- -------
NON CURRENT LIABILITIES
Long-term borrowings 26 41,959 60,655
Deferred credits and other long-term obligations 2,000 1,684
Deferred taxation 29 11,526 9,927
------- -------
55,485 72,266
------- -------
417,706 393,796
======= =======
The accompanying notes are an integral part of these financial statements.
____________________ _______________________
Chairman President
Ma Fucai Chen Geng
59
PETROCHINA COMPANY LIMITED
BALANCE SHEET
As of December 31, 2003
(Amounts in millions)
2003 2002
------- -------
NOTE RMB RMB
---- ------- -------
NON CURRENT ASSETS
Property, plant and equipment 14 314,751 285,562
Investments in associates 15 4,520 3,565
Available-for-sale investments 16 1,462 1,250
Subsidiaries 17 116,698 106,663
Intangible and other assets 18 3,159 3,111
------- -------
440,590 400,151
------- -------
CURRENT ASSETS
Inventories 19 24,186 24,076
Accounts receivable 20 1,761 4,868
Prepaid expenses and other current assets 21 18,893 22,042
Notes receivable 22 2,158 2,370
Receivables under resale agreements 23 24,087 9,681
Time deposits with maturities over three months 2,640 2,612
Cash and cash equivalents 24 8,022 7,457
------- -------
TOTAL CURRENT ASSETS 81,747 73,106
------- -------
CURRENT LIABILITIES
Accounts payable and accrued liabilities 25 78,010 68,355
Income tax payable 11,572 5,359
Other taxes payable 4,929 2,216
Short-term borrowings 26 26,667 18,217
------- -------
121,178 94,147
------- -------
NET CURRENT LIABILITIES (39,431) (21,041)
------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES 401,159 379,110
======= =======
FINANCED BY
Share capital 27 175,824 175,824
Retained earnings 100,677 70,104
Reserves 28 80,112 70,748
------- -------
Shareholders' equity 356,613 316,676
------- -------
NON CURRENT LIABILITIES
Long-term borrowings 26 36,222 54,695
Deferred credits and other long-term obligations 1,936 1,649
Deferred taxation 29 6,388 6,090
------- -------
44,546 62,434
------- -------
401,159 379,110
======= =======
The accompanying notes are an integral part of these financial statements.
__________________ ___________________
Chairman President
Ma Fucai Chen Geng
60
PETROCHINA COMPANY LIMITED
CONSOLIDATED CASH FLOW STATEMENT
For the Year Ended December 31, 2003
(Amounts in millions)
2003 2002
-------- --------
NOTE RMB RMB
---- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES 30 138,820 98,341
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (81,109) (70,699)
Acquisition of subsidiaries - (2,150)
Acquisition of associated companies (1,044) (1,119)
Repayment of capital by associated companies 336 301
Acquisition of available-for-sale investments (722) (231)
(Acquisition)/Disposal of receivables under resale agreements (14,438) 1,719
Acquisition of intangible assets (473) (666)
Acquisition of other non-current assets (783) (386)
Proceeds from disposal of property, plant and equipment 202 497
Proceeds from disposal of associated companies 23 243
Proceeds from disposal of available-for-sale investments 87 97
Dividends received 152 91
(Increase)/Decrease in time deposits with maturities over three
months (28) 641
------- -------
NET CASH USED FOR INVESTING ACTIVITIES (97,797) (71,662)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term borrowings 25,128 28,728
Repayments of short-term borrowings (30,373) (34,550)
Increase in long-term borrowings 2,823 9,885
Repayments of long-term borrowings (7,951) (13,944)
Principal payment on finance lease obligations (66) (104)
Dividends paid to minority interests (85) (135)
Contribution from CNPC to marketing enterprises - 10
Capital contribution from minority interests 287 57
Dividends paid 13 (29,678) (17,650)
Change in deferred credits and other long-term obligations 316 304
Cash payment for acquisition of CNPC marketing enterprises 2 (170) (430)
------- -------
NET CASH USED FOR FINANCING ACTIVITIES (39,769) (27,829)
------- -------
Increase/(Decrease) in cash and cash equivalents 1,254 (1,150)
Cash and cash equivalents at beginning of year 24 9,977 11,127
------- -------
Cash and cash equivalents at end of year 24 11,231 9,977
======= =======
The accompanying notes are an integral part of these financial statements.
61
PETROCHINA COMPANY LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY
For the Year Ended December 31, 2003
(Amounts in millions)
SHARE
CAPITAL RETAINED RESERVES
(NOTE 27) EARNINGS (NOTE 28) TOTAL
--------- -------- --------- -------
RMB RMB RMB RMB
--------- -------- --------- -------
Balance at January 1, 2002 175,824 35,607 79,175 290,606
Net profit for the year ended December 31, 2002 - 46,910 - 46,910
Transfer to reserves - (5,863) 5,863 -
Final dividend for 2001 (Note 13) - (8,839) - (8,839)
Interim dividend for 2002 (Note 13) - (8,811) - (8,811)
Contribution from CNPC to marketing enterprises
(Note 2) - - 10 10
Payment to CNPC for acquisition of marketing
enterprises (Note 2) - - (3,200) (3,200)
------- ------ ------ -------
Balance at December 31, 2002 175,824 59,004 81,848 316,676
Net profit for the year ended December 31, 2003 - 69,614 - 69,614
Revaluation surplus of property, plant and
equipment, net of tax - - 527 527
Revaluation loss offset against previous
revaluation surplus of property, plant and
equipment, net of tax - - (526) (526)
Transfer to reserves - (9,363) 9,363 -
Final dividend for 2002 (Note 13) - (12,299) - (12,299)
Interim dividend for 2003 (Note 13) - (17,379) - (17,379)
------- ------ ------ -------
Balance at December 31, 2003 175,824 89,577 91,212 356,613
======= ====== ====== =======
The accompanying notes are an integral part of these financial statements.
62
1 ORGANISATION AND PRINCIPAL ACTIVITIES
PetroChina Company Limited (the "Company") was established in the
People's Republic of China (the "PRC" or "China") on November 5, 1999 as a joint
stock company with limited liability as a result of a group restructuring (the
"Restructuring") of China National Petroleum Corporation ("CNPC") in preparation
for the listing of the Company's shares on the New York Stock Exchange and The
Stock Exchange of Hong Kong Limited. The Company and its subsidiaries are
collectively referred to as the "Group".
China National Petroleum Company (the predecessor of CNPC) was
established in 1988 to take over the onshore oil and gas exploration and
production entities formerly under the administration of the Ministry of
Petroleum Industry and in 1998 the State Council approved a comprehensive
restructuring plan for China's oil and gas industry to form CNPC.
In accordance with the restructuring agreement between CNPC and the
Company effective as of November 5, 1999, the Company issued 160 billion shares
in exchange for the assets and liabilities transferred to the Company by CNPC.
The 160 billion shares were the initial registered capital of the Company with a
par value of RMB 1.00 per share.
CNPC transferred to the Company certain assets, liabilities and
interests in China related to (i) the exploration, development and production of
crude oil and natural gas, (ii) the refining, transportation, storage and
marketing of crude oil and petroleum products, (iii) the production and sale of
chemicals, and (iv) the transmission, marketing and sale of natural gas. CNPC
retained certain chemical production facilities and certain other assets,
liabilities and interests relating to its remaining business and operations, as
well as certain domestic and all foreign subsidiaries and joint ventures.
2 BASIS OF PREPARATION
The consolidated financial statements have been prepared in accordance
with International Financial Reporting Standards ("IFRS") issued by the
International Accounting Standard 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 generally
accepted accounting principles requires the use of estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Although these estimates are based on management's best knowledge of current
events and actions, actual results ultimately may differ from those estimates.
In September 2002, the Company acquired from CNPC the assets,
liabilities and interests related to CNPC's refined products marketing
enterprises comprising primarily of service stations and related facilities for
RMB 3,200. The Company has accounted for the acquisition in a manner similar to
a uniting of interests, whereby the assets and liabilities of the marketing
enterprises acquired were accounted for at historical cost to CNPC, and the
63
consolidated financial statements were restated in the prior year to give effect
to the acquisition with all periods presented as if the operations of the
Company and these marketing enterprises had always been combined. The difference
between the RMB 3,200 acquisition price and the net liabilities transferred from
CNPC was adjusted against equity.
3 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
(a) BASIS OF CONSOLIDATION
The consolidated financial statements include the financial statements
of the Company and its subsidiaries. Subsidiaries are those entities in which
the Group has an interest of more than one half of the voting rights or
otherwise has power to govern the financial and operating policies.
Subsidiaries are consolidated from the date on which control is
transferred to the Group and are no longer consolidated from the date that
control ceases. The purchase method of accounting is used to account for the
acquisition of subsidiaries. The cost of an acquisition is measured as the fair
value of the assets given up, shares issued or liabilities undertaken at the
date of acquisition plus costs directly attributable to the acquisition. The
excess of the cost of acquisition over the fair value of the net assets of the
subsidiary acquired is recorded as goodwill. Intercompany transactions, balances
and unrealised gains on transactions between group companies are eliminated;
unrealised losses are also eliminated unless cost cannot be recovered. Where
necessary, accounting policies of subsidiaries have been changed to ensure
consistency with the policies adopted by the Group.
For purpose of presentation of the Company's balance sheet, investments
in subsidiaries are accounted for by the equity method as described in Note 3
(b).
A listing of the Group's principal subsidiaries is set out in Note 17.
(b) INVESTMENTS IN ASSOCIATED COMPANIES
Investments in associates are accounted for by the equity method. Under
this method the Group's share of the post-acquisition profits or losses of
associates is recognised in the income statement and its share of
post-acquisition movements in reserves is recognised in reserves. The cumulative
post-acquisition movements are adjusted against the cost of the investment.
Associates are entities in which the Group generally has between 20% and 50% of
the voting rights, or over which the Group has significant influence, but which
it does not control. Unrealised gains on transactions between the Group and its
associates are eliminated to the extent of the Group's interest in the
associates; unrealised losses are also eliminated unless the transaction
provides evidence of an impairment of the asset transferred. The Group's
investment in associates includes goodwill (net of accumulated amortisation) on
acquisition. When the Group's share of losses in an associate equals or exceeds
its interest in the associate, the Group does not recognise further losses,
unless the Group has incurred obligations or made payments on behalf of the
associate.
64
A listing of the Group's principal associated companies is shown in
Note 15.
(c) FOREIGN CURRENCIES
Items included in the financial statements of each entity in the Group
are measured using the currency that best reflects the economic substance of the
underlying events and circumstances relevant to that entity. Substantially all
assets and operations of the Group are located in the PRC, and the measurement
currency is RMB. The Group also owns certain crude oil and natural gas
exploration and production operations in Indonesia and the measurement currency
for these operations is US dollars. The consolidated financial statements are
presented in RMB, which is the measurement currency of the parent and most of
the consolidated entities.
Foreign currency transactions of the Group are accounted for at the
exchange rates prevailing at the date of the transactions; gains and losses
resulting from the settlement of such transactions and from the translation of
monetary assets and liabilities denominated in foreign currencies are recognised
in the consolidated profit and loss account. Monetary assets and liabilities are
translated at balance sheet date exchange rates.
Income statement and cash flows of foreign entities are translated into
the Group's reporting currency at average exchange rates for the year and their
balance sheets are translated at the exchange rates at year end. Currency
translation differences are recognised in shareholders' equity.
The Group did not enter into any hedge contracts during any of the
periods presented. No foreign currency exchange gains or losses were capitalised
for any periods presented.
(d) FINANCIAL INSTRUMENTS
Financial instruments carried at the balance sheet date include cash
and bank balances, investments, receivables, payables, leases and borrowings.
Where necessary the particular recognition methods adopted are disclosed in the
individual policy statements associated with each item.
The Group did not hold and derivative financial instruments in any of
the years presented.
(e) INVESTMENTS
The Group classified its investments into the following categories:
trading, held-to-maturity and available-for-sale. Investments that are acquired
principally for the purpose of generating a profit from short-term fluctuations
in price are classified as trading investments and included in current assets;
during the year the Group did not hold any investments in this category.
Investments with fixed maturity that the management has the intent and ability
to hold to maturity are classified as held-to-maturity and are included in
current assets if their respective maturity dates are twelve months or less from
balance sheet date, or in non-
65
current assets if their respective maturity dates are more than twelve months
from balance sheet date; during the year the Group did not hold any investments
in this category. Investments intended to be held for an indefinite period of
time, which may be sold in response to needs for liquidity or changes in
interest rates, are classified as available-for-sale; these are included in
non-current assets unless management has the express intention of holding the
investment for less than twelve months from the balance sheet date or unless
they will need to be sold to raise operating capital, in which case they are
included in current assets. Management determines the appropriate classification
of its investments at the time of the purchase and re-evaluates such designation
on a regular basis.
All purchases and sales of investments are recognised on the effective
acquisition or sale date. Cost of purchase includes transaction costs.
Available-for-sale investments are not subsequently fair-valued because they do
not have quoted market prices in active markets and whose fair values cannot be
reliably measured. These investments are carried at cost, and are subject to
review for impairment.
(f) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including oil and gas properties (Note 3
(g)), are initially recorded at cost less accumulated depreciation, depletion
and amortisation. Cost represents the purchase price of the asset and other
costs incurred to bring the asset into existing use. Subsequent to their initial
recognition, property, plant and equipment are carried at a revalued amount.
Revaluations are performed by independent qualified valuers on a regular basis.
As disclosed in Note 14, property, plant and equipment excluding oil and gas
reserves were revalued in full as of June 30, 1999 prior to the restructuring
referred in Note 1.
In the intervening years between independent revaluations, the
directors review the carrying values of the property, plant and equipment and
adjustment is made where these are materially different from fair value. As at
September 30, 2003, an exercise was undertaken by independent qualified valuers,
resulting in minor adjustments to the carrying values, as described in Note 14.
Increases in the carrying amount arising on revaluation are credited to the
revaluation reserve. Decreases in valuation of property, plant and equipment are
first offset against increases from earlier valuations in respect of the same
asset and are thereafter charged to the income statement. All other decreases in
valuation are charged to the income statement. Any subsequent increases are
credited to the income statement up to the amount previously charged.
Revaluation surpluses pertaining to revalued assets depreciated or
disposed of are retained in the revaluation reserve and will not be available
for offsetting against possible future revaluation losses.
Depreciation, depletion and amortisation to write off the cost or
valuation of each asset, other than oil and gas properties, to their residual
values over their estimated useful lives is calculated using the straight-line
method.
66
The Group uses the following useful lives for depreciation, depletion
and amortisation purposes:
Buildings 25-40 years
Plant and machinery 10-15 years
Equipment and motor vehicles 3-16 years
No depreciation is provided for construction in progress until they are
completed and ready for use.
Property, plant and equipment are reviewed for possible impairment by
evaluating whether the carrying amount of a cash generating unit exceeds the
higher of its net selling price and its value in use, which is the estimated net
present value of future cash flows to be derived from the continuing use of the
assets in the cash generating unit and from their ultimate disposal.
Gains and losses on disposal of property, plant and equipment are
determined by reference to their carrying amount and are taken into account in
determining net profit.
Interest and other costs on borrowings to finance the construction of
property, plant and equipment are capitalised during the period of time that is
required to complete and prepare the property for its intended use. Costs for
planned major maintenance activities, primarily related to refinery turnarounds,
are expensed as incurred except for costs of components that result in
improvements and betterments which are capitalised as part of property, plant
and equipment and depreciated over their useful lives.
(g) OIL AND GAS PROPERTIES
The successful efforts method of accounting is used for oil and gas
exploration and production activities. Under this method, all costs for
development wells, support equipment and facilities, and proved mineral
interests in oil and gas properties are capitalised. Costs of exploratory wells
are capitalised as construction in progress pending determination of whether the
wells find proved reserves. Proved oil and gas reserves are the estimated
quantities of crude oil, natural gas and natural gas liquids which geological
and engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions, i.e., prices and costs as of the date the estimate is made. Prices
include consideration of changes in existing prices provided only by contractual
arrangements, but not on escalations based upon future conditions. Costs of
wells with proved reserves remain capitalised. All other exploratory wells and
geological and geophysical costs are expensed. The Group has no costs of
unproved properties capitalised in oil and gas properties.
The Ministry of Land and Resources in China issues production licenses
to applicants on the basis of the reserve reports approved by relevant
authorities. Administrative rules issued by the State Council provide that the
maximum term of a production license is 30 years. However, in accordance with a
special approval from the State Council, the Ministry
67
of Land and Resources has issued production licenses effective March 2000 to the
Group for all of its crude oil and natural gas reservoirs with terms coextensive
with the projected production life of those reservoirs, ranging up to 55 years.
Production licenses to be issued to the Group in the future will be subject to
the 30-year maximum unless additional special approvals can be obtained from the
State Council. Each of the Group's production licenses is renewable upon
application by the Group 30 days prior to expiration. Future oil and gas price
increases may extend the productive lives of crude oil and natural gas
reservoirs beyond the current terms of the relevant production licenses.
Payments on such licenses are made annually and are expensed as incurred. The
cost of oil and gas properties is amortised at the field level on the unit of
production method. Unit of production rates are based on oil and gas reserves
estimated to be recoverable from existing facilities based on the current terms
of the Group's production licenses. The Group's reserve estimates include only
crude oil and natural gas which management believes can be reasonably produced
within the current terms of these production licenses. The Group did not incur
and does not anticipate to incur any material dismantlement, restoration or
abandonment costs given the nature of its onshore producing activities and
current PRC regulations governing such activities.
(h) INTANGIBLE ASSETS
Expenditure on acquired patents, trademarks, technical know-how and
licenses is capitalised and amortised using the straight-line method over their
useful lives, generally over 14 to 20 years. Intangible assets are not revalued.
The Group does not capitalise internally generated intangible assets. The
carrying amount of each intangible asset is reviewed annually and adjusted for
impairment where it is considered necessary. An impairment loss is recognised
whenever the carrying amount of an asset exceeds its recoverable amount. The
impairment loss is recognised in the consolidated profit and loss account. The
recoverable amount is measured as the higher of net selling price and value in
use which is the present value of estimated future cash flows to be derived from
continuing use of the asset and from its ultimate disposal.
(i) LEASES
Leases of property, plant and equipment where the Group assumes
substantially all the benefits and risks of ownership are classified as finance
leases. Finance leases are capitalised at the inception of the lease at the
lower of the fair value of the leased property and the estimated present value
of the underlying lease payments. Each lease payment is allocated between the
liability and finance charges so as to achieve a constant rate on the finance
balance outstanding. Property, plant and equipment acquired under finance leases
are generally depreciated over the useful life of the asset as the Group usually
obtains ownership of such leased assets by the end of the leased term.
Leases of assets under which all of the risks and benefits of ownership
are effectively retained by the lessor are classified as operating leases.
Payments made under operating leases are expensed on a straight-line basis over
the lease term.
68
(j) RELATED PARTIES
Related parties are corporations in which CNPC is a major shareholder
and is able to control or exercise significant influence.
(k) INVENTORIES
Inventories are oil products, chemical products, and materials and
supplies which are stated at the lower of cost and net realisable value. Cost is
determined by the weighted average cost method. The cost of finished goods
comprises raw materials, direct labour, other direct costs and related
production overheads, but excludes interest expense. Net realisable value is the
estimate of the selling price in the ordinary course of business, less the cost
of completion and selling expenses.
(l) TRADE RECEIVABLES
Trade receivables are carried at original invoice amount less provision
made for impairment of these receivables. Such provision for impairment of trade
receivables is established if there is objective evidence that the Group will
not be able to collect all amounts due according to the original terms of the
receivables. The amount of the provision is the difference between the carrying
amount and the recoverable amount, being the present value of expected cash
flows, discounted at the market rate of interest for similar borrowers.
(m) CASH AND CASH EQUIVALENTS
Cash and cash equivalents are carried in the balance sheet at cost and
comprise cash in hand and investments with maturities of three months or less
from the time of purchase.
(n) BORROWINGS
Borrowings are recognised initially at the proceeds received, net of
transaction costs incurred. In subsequent periods, borrowings are stated at
amortised cost using the effective yield method. Any difference between proceeds
(net of transaction costs) and the redemption value is recognised in the income
statement over the period of the borrowings, except for the portion eligible for
capitalisation.
(o) TAXATION
Approval was obtained from the State Administration for Taxation to
report taxable income on a consolidated basis commencing from the formation of
the Company.
69
Deferred tax is provided, using the liability method, for temporary
differences arising between the tax bases of assets and liabilities and their
carrying values for financial reporting purposes. Currently enacted tax rates
are used to determine deferred tax.
The principal temporary differences arise from depreciation on oil and
gas properties and equipment and provision for impairment of receivables,
inventories, investments and property, plant and equipment. Deferred tax assets
relating to the carryforward of unused tax losses are recognised to the extent
that it is probable that future taxable income will be available against which
the unused tax losses can be utilised.
The Group also incurs various other taxes that are not income taxes.
"Taxes other than income taxes", which form part of the operating expenses,
primarily comprise consumption tax, resource tax, urban construction tax,
education surcharges and business tax.
(p) REVENUE RECOGNITION
Sales are recognised upon delivery of products and customer acceptance,
if any, or performance of services, net of sales taxes and discounts. Revenues
are recognised only when the Group has transferred to the buyer the significant
risks and rewards of ownership of the goods, and when the amount of revenue and
the costs incurred or to be incurred in respect of the transaction can be
measured reliably.
(q) PROVISIONS
Provisions are recognised when the Group has a present legal or
constructive obligation as a result of past events, it is probable that an
outflow of resources will be required to settle the obligation, and a reliable
estimate of the amount can be made.
(r) RESEARCH AND DEVELOPMENT
Research expenditure incurred is recognised as an expense. Cost
incurred on development projects are recognised as intangible assets to the
extent that such expenditure is expected to generate future economic benefits.
70
(s) RETIREMENT BENEFIT PLANS
The Group contributes to various employee retirement benefit plans
organised by municipal and provincial governments under which it is required to
make monthly contributions to these plans at rates prescribed by the related
municipal and provincial governments. The municipal and provincial governments
undertake to assume the retirement benefit obligations of existing and future
retired employees of the Group. Contributions to these plans are charged to
expense as incurred.
(t) SHARE APPRECIATION RIGHTS
Compensation under the share appreciation rights is measured as the
amount by which the quoted market price of the Company's H Shares exceeds the
grant price. Compensation is accrued as a charge to compensation expense over
the vesting service period. The compensation accrued during a vesting service
period is adjusted in subsequent periods for changes, either upward or downward
to the grant price, in the quoted market price of the Company's shares. The
amount of compensation and the effect of subsequent changes are included in the
employee compensation cost of the profit and loss account; the related liability
is included in the salaries and welfare payable.
(u) NEW ACCOUNTING DEVELOPMENTS
In December 2003, the IASB issued amendments to thirteen existing IFRS
standards under its "Improvements Project". The amendments will become effective
on January 1, 2005. The Group has not adopted these revised standards and does
not expect the adoption of these revised standards would have a material effect
on the results of operation and the financial position of the Group.
4 TURNOVER
Turnover represents revenues from the sale of crude oil, natural gas,
refined products and petrochemical products and from the transportation of crude
oil and natural gas. Analysis of turnover by segment is shown in Note 38.
71
5 PROFIT BEFORE TAXATION
2003 2002
------- -------
RMB RMB
------- -------
Profit before taxation is arrived at after crediting and charging of the
following items:
Crediting
Dividend income from available-for-sale investments 69 60
Reversal of impairment of receivables 551 344
Reversal of impairment of available-for-sale investments 21 -
Reversal of write down in inventories 23 264
Charging
Amortisation on intangible and other assets 888 676
Auditors' remuneration 44 75
Cost of inventories (approximates cost of goods sold) recognised as
expense 134,935 112,986
Depreciation on property, plant and equipment, including impairment
provision
- owned assets 39,622 36,079
- assets under finance leases 21 27
Impairment of available-for-sale investments 179 4
Impairment of receivables 1,985 628
Interest expense (Note 8) 2,346 3,516
Loss on disposal of property, plant and equipment 1,048 647
Operating lease rentals on land and buildings and equipment 2,991 2,942
Repair and maintenance 4,721 5,060
Research and development expenditure 2,411 1,806
Transportation expenses 8,780 8,328
Write down in inventories 159 142
72
6 EMPLOYEE COMPENSATION COSTS
2003 2002
------ ------
RMB RMB
------ ------
Wages and salaries 12,893 10,631
Social security costs (i) 6,649 5,617
------ ------
19,542 16,248
====== ======
(i) Social security costs represent contributions to funds for
staff welfare organised by the municipal and provincial
governments including contribution to the retirement benefit
plans (Note 31).
7 SHUT DOWN OF MANUFACTURING ASSETS
During the years ended December 31, 2003 and 2002, the Group provided
RMB 2,355 and RMB 2,121 respectively for the shut down of certain less efficient
operating facilities in the refining and chemical manufacturing plants. The
charges represented the net book value of the facilities.
2003 2002
----- -----
RMB RMB
----- -----
Refining facilities 1,596 1,179
Chemical facilities 759 942
----- -----
2,355 2,121
===== =====
There were no employee termination or relocation costs relating to the
shut down of these manufacturing equipment. Estimated salvage values are
expected to approximate the estimated cost of dismantlement.
8 INTEREST EXPENSE
2003 2002
------- ------
RMB RMB
------- ------
Interest on
Bank loans
- wholly repayable within five years 1,773 2,062
- not wholly repayable within five years 697 1,119
Other loans
- wholly repayable within five years 1,046 1,091
- not wholly repayable within five years 146 130
Finance leases 4 10
Less: amounts capitalised (1,320) (896)
------ -----
2,346 3,516
====== =====
73
Amounts capitalised are borrowing costs related to funds borrowed
specifically for the purpose of acquiring qualifying assets. Interest rate on
such capitalised borrowings was 5.02% (2002: 5.02% to 5.43%) per annum.
9 EMOLUMENTS OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
Details of the directors' and supervisors' emoluments are as follows:
2003 2002
------- -------
RMB'000 RMB'000
------- -------
Fee for directors and supervisors 83 128
Salaries, allowances and other benefits 1,377 1,042
Contribution to retirement benefit scheme 34 25
----- -----
1,494 1,195
===== =====
The emoluments of the directors and supervisors fall within the
following bands (including directors and supervisors whose term expired during
the year):
2003 2002
------ ------
NUMBER NUMBER
------ ------
Nil - RMB 1 19 23
== ==
Fee for directors and supervisors disclosed above included RMB 62
thousand (2002: RMB 66 thousand) paid to independent non-executive directors.
None of the directors and supervisors has waived their remuneration
during the year ended December 31, 2003 (2002: nil).
The five highest paid individuals in the Group for each of the two
years ended December 31, 2002 and 2003 were also directors or supervisors and
their emoluments are reflected in the analysis presented above.
The Company has adopted a share option scheme which is a share
appreciation right arrangement payable in cash to the recipients upon exercise
of the rights which became effective on the initial public offering of the H
shares of the Company on April 7, 2000. The directors, supervisors and senior
executives of the Company are eligible for the scheme. 87,000,000 units of share
appreciation rights were granted to senior executives. 35,000,000 units were
granted to the directors and supervisors; of these 35,000,000 units, 33,130,000
units are outstanding, net of subsequent forfeiture of 1,870,000 units by a
former independent director.
The rights can be exercised on or after April 8, 2003, the third
anniversary of the grant, up to April 7, 2008. The exercise price is the price
as at the initial public offering being HK
74
$1.28 per share or approximately RMB 1.36 per share.
As at December 31, 2003, none of the holders of the stock appreciation
rights has exercised the rights. The liability for the units awarded under the
scheme has been calculated based on the difference between the exercise price
and the market price of the shares and amounted to approximately RMB 406 (2002:
RMB 34) at December 31, 2003.
10 TAXATION
2003 2002
------ ------
RMB RMB
------ ------
Income tax 26,347 19,289
Deferred tax (Note 29) 1,594 2,897
Share of tax of associated companies 131 45
------ ------
28,072 22,231
====== ======
In accordance with the relevant PRC income tax rules and regulations,
the enacted PRC income tax rate applicable to the Group is principally 33%
(2002: 33%). The Group in the last quarter of year 2002 obtained approvals from
several provincial and local tax authorities whereby a portion of the taxable
income of the Group's qualifying operations in these locales through 2010 are
assessed income tax at a reduced rate of 15% instead of the statutory rate of
33%.
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 :
2003 2002
------- -------
RMB RMB
------- -------
Profit before taxation 98,322 69,240
------ ------
Tax calculated at a tax rate of 33% 32,446 22,849
Prior year tax return adjustment 419 618
Effect of preferential tax rate (5,190) (2,377)
Income not subject to tax (566) (93)
Expenses not deductible for tax purposes 963 1,234
------ ------
Tax charge 28,072 22,231
====== ======
11 PROFIT ATTRIBUTABLE TO SHAREHOLDERS
The profit attributable to shareholders is dealt with in the financial
statements of the Company to the extent of RMB 69,614 (2002: RMB 46,910) for the
year ended December 31, 2003.
75
12 BASIC AND DILUTED EARNINGS PER SHARE
Basic and diluted earnings per share for the years ended December 31,
2003 and 2002 have been computed by dividing net profit by the number of 175.82
billion shares issued and outstanding for each of the years.
There are no dilutive potential ordinary shares.
13 DIVIDENDS
2003 2002
------ ------
RMB RMB
------ ------
Final dividend for 2001 (Note (i)) - 8,839
Interim dividend for 2002 (Note (ii)) - 8,811
Final dividend for 2002 (Note (iii)) 12,299 -
Interim dividend for 2003 (Note (iv)) 17,379 -
------ ------
29,678 17,650
====== ======
(i) A final dividend in respect of 2001 of RMB 0.050272 per share
amounting to a total of RMB 8,839 was paid on June 21, 2002,
and was accounted for in shareholders' equity as an
appropriation of retained earnings in the year ended December
31, 2002.
(ii) Aninterim dividend in respect of 2002 of RMB 0.050113 per
share amounting to a total of RMB 8,811 was paid on October 8,
2002, and was accounted for in shareholders' equity as an
appropriation of retained earnings in the year ended December
31, 2002.
(iii) A final dividend in respect of 2002 of RMB 0.069951 per share
amounting to a total of RMB12,299 was paid on June 12, 2003,
and was accounted for in shareholders' equity as an
appropriation of retained earnings in the year ended December
31, 2003.
(iv) Asauthorised by shareholders in the Annual General Meeting on
May 28, 2003, the Board of Directors, in a meeting held on
August 27, 2003, resolved to distribute an interim dividend in
respect of 2003 of RMB 0.098841 per share amounting to a total
of RMB17,379. The interim dividend was paid on October 8,
2003, and was accounted for in shareholders' equity as an
appropriation of retained earnings in the year ended December
31, 2003.
(v) At the meeting on March 24, 2004, the Board of Directors
proposed a final dividend in respect of 2003 of RMB 0.079324
per share amounting to a total of RMB 13,947. These financial
statements do not reflect this dividend payable, which will be
accounted for in shareholders' equity as an appropriation of
retained earnings in the year ended December 31, 2004.
76
14 PROPERTY, PLANT AND EQUIPMENT
GROUP
OIL PLANT
AND GAS AND MOTOR CONSTRUCTION
YEAR ENDED BUILDINGS PROPERTY EQUIPMENT VEHICLES OTHER IN PROGRESS TOTAL
DECEMBER 31, --------- --------- --------- -------- ------- ------------ ---------
2002 RMB RMB RMB RMB RMB RMB RMB
------------ --------- --------- --------- -------- ------- ------------ ---------
COST OR VALUATION
At beginning of
the year 49,732 305,099 193,190 6,877 5,113 26,593 586,604
Additions 1,514 401 654 123 165 67,739 70,596
Acquisitions 240 1,709 1,891 92 71 - 4,003
Transfers 5,381 39,332 18,106 690 229 (63,738) -
Disposals or write (1,533) (8,543) (7,920) (398) (306) - (18,700)
------- -------- ------- ------ ------ ------- --------
At end of the year 55,334 337,998 205,921 7,384 5,272 30,594 642,503
------- -------- ------- ------ ------ ------- --------
ACCUMULATED DEPRECIATION
At beginning of the year (9,949) (124,612) (80,388) (3,264) (1,421) - (219,634)
Charge for the year (1,684) (18,302) (14,864) (685) (571) - (36,106)
Acquisitions (55) - (748) (33) (37) - (873)
Disposals or write 530 5,261 5,538 333 246 - 11,908
------- -------- ------- ------ ------ ------- --------
At end of the year (11,158) (137,653) (90,462) (3,649) (1,783) - (244,705)
------- -------- ------- ------ ------ ------- --------
NET BOOK VALUE
At end of the year 44,176 200,345 115,459 3,735 3,489 30,594 397,798
======= ======== ======= ====== ====== ======= ========
ANALYSIS OF COST OR
VALUATION
At valuation (i) 27,150 225,358 160,544 3,676 1,644 - 418,372
At cost (ii) 28,184 112,640 45,377 3,708 3,628 30,594 224,131
------- -------- ------- ------ ------ ------- --------
55,334 337,998 205,921 7,384 5,272 30,594 642,503
======= ======== ======= ====== ====== ======= ========
Carrying value of the
property, plant and
equipment had they
been stated at cost
less accumulated
depreciation 39,065 179,713 92,383 3,102 2,738 30,594 347,595
======= ======== ======= ====== ====== ======= ========
77
GROUP (CONTINUED)
OIL PLANT
AND GAS AND MOTOR CONSTRUCTION
YEAR ENDED BUILDINGS PROPERTY EQUIPMENT VEHICLES OTHER IN PROGRESS TOTAL
DECEMBER 31, --------- --------- --------- -------- ------- ------------ ---------
2003 RMB RMB RMB RMB RMB RMB RMB
------------ --------- --------- --------- -------- ------- ------------ ---------
COST OR VALUATION
At beginning of the year 55,334 337,998 205,921 7,384 5,272 30,594 642,503
Additions 1,133 289 952 142 73 81,710 84,299
Revaluation surplus - - (1,568) - - - (1,568)
Revaluation loss - - (2,133) - - - (2,133)
Transfers 6,743 43,308 27,834 804 354 (79,043) -
Disposals or write off (1,738) (12,785) (8,285) (537) (249) - (23,594)
------- -------- ------- ------ ----- ------- --------
At end of the year 61,472 368,810 222,721 7,793 5,450 33,261 699,507
------- -------- ------- ------ ----- ------- --------
ACCUMULATED
DEPRECIATION
At beginning of the year (11,158) (137,653) (90,462) (3,649) (1,783) - (244,705)
Charge for the year (2,146) (21,060) (15,120) (731) (586) - (39,643)
Revaluation surplus - - 2,440 - - - 2,440
Revaluation loss - - 876 - - - 876
Disposals or write off 1,474 7,871 5,007 416 176 - 14,944
------- -------- ------- ------ ----- ------- --------
At end of the year (11,830) (150,842) (97,259) (3,964) (2,193) - (266,088)
------- -------- ------- ------ ----- ------- --------
NET BOOK VALUE
At end of the year 49,642 217,968 125,462 3,829 3,257 33,261 433,419
======= ======== ======= ====== ===== ======= ========
ANALYSIS OF COST OR
VALUATION
At valuation (i) 25,412 212,573 162,954 3,139 1,395 - 405,473
At cost (ii) 36,060 156,237 59,767 4,654 4,055 33,261 294,034
------- -------- ------- ------ ----- ------- --------
61,472 368,810 222,721 7,793 5,450 33,261 699,507
======= ======== ======= ====== ===== ======= ========
Carrying value of the
property, plant and
equipment had they
been stated at cost
less accumulated
depreciation 44,773 203,025 104,976 3,304 2,622 33,261 391,961
======= ======== ======= ====== ===== ======= ========
78
COMPANY
OIL PLANT
AND GAS AND MOTOR CONSTRUCTION
YEAR ENDED BUILDINGS PROPERTY EQUIPMENT VEHICLES OTHER IN PROGRESS TOTAL
DECEMBER 31, --------- --------- --------- -------- ------- ------------ ---------
2002 RMB RMB RMB RMB RMB RMB RMB
------------ --------- --------- --------- -------- ------- ------------ ---------
COST OR VALUATION
At beginning of the year 33,975 198,235 158,757 4,795 4,707 19,281 419,750
Additions 1,206 369 592 68 153 52,001 54,389
Transfers 4,111 28,203 12,514 344 161 (45,333) -
Disposals or write off (1,036) (5,736) (6,916) (323) (255) - (14,266)
------ ------- ------- ------ ------ ------- --------
At end of the year 38,256 221,071 164,947 4,884 4,766 25,949 459,873
------ ------- ------- ------ ------ ------- --------
ACCUMULATED
DEPRECIATION
At beginning of the year (7,782) (78,379) (66,338) (2,412) (1,182) - (156,093)
Charge for the year (1,586) (13,545) (12,155) (453) (307) - (28,046)
Disposals or write off 514 3,758 5,086 286 184 - 9,828
------ ------- ------- ------ ------ ------- --------
At end of the year (8,854) (88,166) (73,407) (2,579) (1,305) - (174,311)
------ ------- ------- ------ ------ ------- --------
NET BOOK VALUE
At end of the year 29,402 132,905 91,540 2,305 3,461 25,949 285,562
====== ======= ======= ====== ====== ======= ========
ANALYSIS OF COST OR
VALUATION
At valuation (i) 18,724 130,127 134,234 2,713 1,610 - 287,408
At cost (ii) 19,532 90,944 30,713 2,171 3,156 25,949 172,465
------ ------- ------- ------ ------ ------- --------
38,256 221,071 164,947 4,884 4,766 25,949 459,873
====== ======= ======= ====== ====== ======= ========
Carrying value of the
property, plant and
equipment had they
been stated at cost
less accumulated
depreciation 27,451 119,221 70,252 1,916 2,688 25,949 247,477
====== ======= ======= ====== ====== ======= ========
79
COMPANY (CONTINUED)
OIL PLANT
AND GAS AND MOTOR CONSTRUCTION
YEAR ENDED BUILDINGS PROPERTY EQUIPMENT VEHICLES OTHER IN PROGRESS TOTAL
DECEMBER 31, --------- --------- --------- -------- ------- ------------ ---------
2002 RMB RMB RMB RMB RMB RMB RMB
------------ --------- --------- --------- -------- ------- ------------ ---------
COST OR VALUATION
At beginning of the year 38,256 221,071 164,947 4,884 4,766 25,949 459,873
Additions 241 114 422 111 53 66,309 67,250
Revaluation surplus - - (1,497) - - - (1,497)
Revaluation loss - - (2,026) - - - (2,026)
Transfers 5,263 31,773 25,199 374 196 (62,805) -
Disposals or write off (1,419) (7,411) (8,103) (491) (174) - (17,598)
------ ------- ------- ------ ------ ------- --------
At end of the year 42,341 245,547 178,942 4,878 4,841 29,453 506,002
------ ------- ------- ------ ------ ------- --------
ACCUMULATED
DEPRECIATION
At beginning of the year (8,854) (88,166) (73,407) (2,579) (1,305) - (174,311)
Charge for the year (1,764) (14,789) (12,542) (517) (398) - (30,010)
Revaluation surplus - - 2,366 - - - 2,366
Revaluation loss - - 795 - - - 795
Disposals or write off 1,201 3,272 4,923 406 107 - 9,909
------ ------- ------- ------ ------ ------- --------
At end of the year (9,417) (99,683) (77,865) (2,690) (1,596) - (191,251)
------ ------- ------- ------ ------ ------- --------
NET BOOK VALUE
At end of the year 32,924 145,864 101,077 2,188 3,245 29,453 314,751
====== ======= ======= ====== ====== ======= ========
ANALYSIS OF COST OR
VALUATION
At valuation (i) 17,305 122,716 133,302 2,222 1,376 - 276,921
At cost (ii) 25,036 122,831 45,640 2,656 3,465 29,453 229,081
------ ------- ------- ------ ------ ------- --------
42,341 245,547 178,942 4,878 4,841 29,453 506,002
====== ======= ======= ====== ====== ======= ========
Carrying value of the
property, plant and
equipment had they
been stated at cost
less accumulated
depreciation 31,159 135,071 82,158 1,873 2,586 29,453 282,300
====== ======= ======= ====== ====== ======= ========
(i) Amount for which revaluations have been undertaken by
independent valuers.
(ii) Cost of property, plant and equipment acquired or constructed
since the applicable revaluation.
The depreciation charge of the Group and the Company for the year ended
December 31, 2003 included RMB 1,487 (2002: RMB 1,753) relating to impairment
provision for
80
plant and equipment held for use. Of this amount, RMB 863 (2002: RMB 1,384) was
related to the Chemicals and Marketing segment and RMB 624 (2002: RMB 369) was
for the Refining and Marketing segment.
The Group's interests in buildings at their net book values are
analysed as follows:
GROUP COMPANY
---------------------- -----------------------
2003 2002 2003 2002
------ ------ ------ ------
RMB RMB RMB RMB
------ ------ ------ ------
Short-term lease (less than 10 years) 1,192 376 779 332
Medium-term lease (10 to 50 years) 40,289 35,142 24,992 21,739
Long-term lease (over 50 years) 8,161 8,658 7,153 7,331
------ ------ ------ ------
49,642 44,176 32,924 29,402
====== ====== ====== ======
All the buildings of the Group are located in the PRC.
Property, plant and equipment under finance leases at the end of year
are as follows:
GROUP COMPANY
-------------------- ----------------------
2003 2002 2003 2002
---- ----- ---- ------
RMB RMB RMB RMB
---- ----- ---- ------
Refining and Marketing 94 88 94 88
Chemicals and Marketing 221 431 221 431
Accumulated depreciation (75) (120) (75) (120)
--- ---- --- ----
240 399 240 399
=== ==== === ====
All finance leases are related to plant and equipment and generally
contain purchase options at the end of the lease terms.
A valuation of the Group's property, plant and equipment, excluding oil
and gas reserves, was carried out during 1999 by independent valuers. The
valuation was based on depreciated replacement costs.
81
As at September 30, 2003, a revaluation of the Group's refining and
chemical production equipment was undertaken by a firm of independent valuers,
China United Assets Appraiser Co., Ltd, in the PRC on a depreciated replacement
cost basis.
The June 1999 revaluation resulted in RMB 80,549 in excess of the prior
carrying value and a revaluation loss of RMB 1,122 on certain property, plant
and equipment.
The September 2003 revaluation resulted in a RMB 872 in excess of the
carrying value of certain property, plant and equipment immediately prior to the
revaluation and a revaluation loss of RMB 1,257.
With respect to the RMB 872 revaluation gain resulting from the 2003
revaluation, RMB 98 were related to property, plant and equipment that in 1999
experienced revaluation loss, and were credited to the profit and loss account.
The remaining RMB 774 was credited to the revaluation reserve in the
shareholders' equity.
With respect to the RMB 1,257 revaluation loss resulting from the 2003
revaluation, RMB 768 were related to property, plant and equipment that in 1999
experienced revaluation gain. The remaining RMB 489 were charged to the profit
and loss account.
Bank borrowings are secured on property, plant and equipment at net
book value of RMB 152 (2002: RMB 426) at December 31, 2003.
15 INVESTMENTS IN ASSOCIATES
Principal associated companies accounted for under the equity method
are:
ATTRIBUTABLE
COUNTRY OF PAID-UP / EQUITY
INCORPORATION REGISTERED INTEREST PRINCIPAL
COMPANY NAME AND OPERATIONS CAPITAL HELD (%) ACTIVITIES
------------ -------------- ---------- ------------ ----------
Production and
sale of refined
Dalian West Pacific Petrochemical and petrochemical
Co., Ltd. PRC USD 258 28.4 products
82
Share of profit of associated companies included in the profit and loss
account of the Group was RMB 985 (2002: RMB 268) in 2003.
Share of net profit/(loss) of associated companies included in retained
earnings of the Group was RMB 584 (2002: RMB (136)) at December 31, 2003.
Dividends received and receivable from associated companies were RMB 134 (2002:
RMB 99) in 2003.
16 AVAILABLE-FOR-SALE INVESTMENTS
GROUP COMPANY
--------------------- ----------------------
2003 2002 2003 2002
----- ----- ----- -----
RMB RMB RMB RMB
----- ----- ----- -----
Unlisted available-for-sale investments 2,652 2,195 2,264 1,883
Less: Impairment provision (813) (660) (802) (633)
----- ----- ----- -----
Total 1,839 1,535 1,462 1,250
===== ===== ===== =====
Available-for-sale investments, comprising principally unlisted equity
securities, are classified as non-current assets, unless they are expected to be
realised within twelve months of the balance sheet date or unless they will need
to be sold to raise operating capital.
Dividend income from available-for-sale investments was RMB 69 (2002:
RMB 60) in 2003.
83
17 SUBSIDIARIES
Principal subsidiaries are:
ATTRIBUTABLE
COUNTRY OF PAID-UP TYPE OF EQUITY
INCORPORATION AND CAPITAL LEGAL INTEREST
COMPANY NAME OPERATIONS RMB ENTITY % PRINCIPAL ACTIVITIES
------------ ---------- --- ------ -------- --------------------
*Daqing Oilfield PRC 47,500 (PHI) 100.00 Exploration, production
Company Limited and the sale of crude
oil and natural gas;
production and sale of
refined products
*Jinzhou Petrochemical PRC 788 (PSI) 80.95 Production and sale of
Company Limited oil and chemical products
*Jilin Chemical PRC 3,561 (PSI) 67.29 Production and sale of
Industrial Company chemical products
Limited
Daqing Yu Shu Lin PRC 1,272 (PHI) 88.16 Exploration and
Oilfield Company production of crude oil
Limited and natural gas
*Liaohe Jinma Oilfield PRC 1,100 (PSI) 81.82 Exploration, production,
Company Limited transportation and sale
of crude oil and natural
gas
*PetroChina British Virgin USD 0.9 (PHI) 100.00 Exploration and
International Limited Islands production of crude oil
and natural gas outside
of PRC
PetroChina Bahamas USD 0.005 (PHI) 100.00 Exploration and
International production of crude oil
Indonesia Limited and natural gas in
Indonesia
(PHI) -- Limited liability company.
(PSI) -- Joint stock company with limited liability.
* -- Subsidiaries directly held by the Company as of December 31, 2003.
84
18 INTANGIBLE AND OTHER ASSETS
GROUP
2003 2002
------------------------------------ -------------------------------------
ACCUMULATED ACCUMULATED
COST AMORTISATION NET COST AMORTISATION NET
----- ------------ ----- ----- ------------ -----
RMB RMB RMB RMB RMB RMB
----- ------------ ----- ----- ------------ -----
Patents 2,845 (1,293) 1,552 2,591 (1,006) 1,585
Technical know-how 649 (213) 436 637 (232) 405
----- ------ ----- ----- ------ -----
Intangible assets 3,494 (1,506) 1,988 3,228 (1,238) 1,990
===== ====== ===== ===== ====== =====
Other assets 2,744 2,517
----- -----
4,732 4,507
===== =====
COMPANY
2003 2002
------------------------------------ -------------------------------------
ACCUMULATED ACCUMULATED
COST AMORTISATION NET COST AMORTISATION NET
----- ------------ ----- ----- ------------ -----
RMB RMB RMB RMB RMB RMB
----- ------------ ----- ----- ------------ -----
Patents 2,195 (1,144) 1,051 1,955 (964) 991
Technical know-how 310 (83) 227 276 (54) 222
----- ------ ----- ----- ------ -----
Intangible assets 2,505 (1,227) 1,278 2,231 (1,018) 1,213
===== ====== ===== ===== ====== =====
Other assets 1,881 1,898
----- -----
3,159 3,111
===== =====
Patents principally represent expenditure incurred in acquiring
processes and techniques that are generally protected by relevant government
authorities. Technical know-how amounts are attributable to operational
technology acquired in connection with purchase of equipment. The technical
know-how costs are included as part of the purchase price by contracts and are
distinguishable.
Other assets primarily consist of long-term prepaid expenses to service
providers.
85
19 INVENTORIES
GROUP COMPANY
------------------------- -------------------------
2003 2002 2003 2002
------ ------ ------ ------
RMB RMB RMB RMB
------ ------ ------ ------
Crude oil and other raw materials 9,553 8,987 6,989 6,772
Work in progress 3,652 3,787 3,242 3,532
Finished goods 16,367 16,253 14,424 14,168
Spare parts and consumables 66 67 55 58
------ ------ ------ ------
29,638 29,094 24,710 24,530
Less: Write down in inventories (766) (653) (524) (454)
------ ------ ------ ------
28,872 28,441 24,186 24,076
====== ====== ====== ======
Inventories of the Group carried at net realisable value amounted to
RMB 2,249 (2002: RMB 2,780) at December 31, 2003.
20 ACCOUNTS RECEIVABLE
GROUP COMPANY
------------------------- -------------------------
2003 2002 2003 2002
------ ------ ------ ------
RMB RMB RMB RMB
------ ------ ------ ------
Accounts receivable due from third parties 8,263 11,504 5,827 9,647
Less: Impairment provision (5,872) (6,356) (4,759) (5,361)
------ ------ ------ ------
2,391 5,148 1,068 4,286
Accounts receivable due from related
parties
- Fellow CNPC subsidiaries 592 789 415 443
- Associated companies 280 142 278 139
------ ------ ------ ------
3,263 6,079 1,761 4,868
====== ====== ====== ======
Amounts due from related parties are interest free, unsecured and
repayable in accordance with normal commercial terms.
86
The aging analysis of accounts receivable at December 31, 2003 is as
follows:
GROUP COMPANY
------------------------ ------------------------
2003 2002 2003 2002
----- ------ ----- ------
RMB RMB RMB RMB
----- ------ ----- ------
Within 1 year 2,594 4,647 1,369 4,220
Between 1 to 2 years 136 743 127 325
Between 2 to 3 years 423 697 293 588
Over 3 years 5,982 6,348 4,731 5,096
----- ------ ----- ------
9,135 12,435 6,520 10,229
===== ====== ===== ======
The Group offers its customers the credit terms of no more than 180
days, except for certain selected customers.
21 PREPAID EXPENSES AND OTHER CURRENT ASSETS
GROUP COMPANY
------------------------- -------------------------
2003 2002 2003 2002
------ ------ ------ ------
RMB RMB RMB RMB
------ ------ ------ ------
Other receivables 10,173 9,626 7,490 8,096
Less: Impairment provision (6,283) (5,313) (3,690) (3,264)
------ ------ ------ ------
3,890 4,313 3,800 4,832
Amounts due from CNPC 2,038 2,135 2,038 2,135
Amounts due from fellow CNPC subsidiaries 2,705 5,419 2,002 3,865
Amounts due from subsidiaries - - 7,287 8,870
Advances to suppliers 4,105 3,209 2,977 1,740
Prepaid expenses 103 123 68 100
Other current assets 687 530 721 500
------ ------ ------ ------
13,528 15,729 18,893 22,042
====== ====== ====== ======
Other receivables consist primarily of taxes other than income taxes
refund receivables, subsidies receivable, and receivables for the sale of
materials and scrap.
Amounts due from CNPC and fellow CNPC subsidiaries are interest free,
unsecured and repayable in accordance with normal commercial terms.
87
22 NOTES RECEIVABLE
Notes receivable represent mainly the bills of acceptance issued by
banks for sale of goods and products. All notes receivable are due within one
year.
23 RECEIVABLES UNDER RESALE AGREEMENTS
Securities purchased under agreements to resell ("resale agreements")
are recorded as receivables under resale agreements. The difference between
purchase and resell prices is treated as interest income and accrued over the
life of resale agreements using the effective yield method.
Resale agreements are accounted for as collateralized financing
transactions and are recorded at their contractual amounts plus interest
accrued. The underlying collaterals are principally the PRC government bonds.
24 CASH AND CASH EQUIVALENTS
GROUP COMPANY
------------------------- -------------------------
2003 2002 2003 2002
------ ----- ----- -----
RMB RMB RMB RMB
------ ----- ----- -----
Cash at bank and in hand 11,231 9,977 8,022 7,457
====== ===== ===== =====
The weighted average effective interest rate on bank deposits was 1.30%
(2002: 1.22%) for the year ended December 31, 2003.
88
25 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
GROUP COMPANY
------------------------- -------------------------
2003 2002 2003 2002
------ ------ ------ ------
RMB RMB RMB RMB
------ ------ ------ ------
Trade payables 10,150 8,153 6,448 5,057
Advances from customers 6,861 4,690 5,835 4,131
Salaries and welfare payable 5,413 3,915 4,394 3,032
Accrued expenses 5 8 5 8
Dividends payable by subsidiaries to
minority shareholders 118 34 - -
Interest payable 130 233 127 162
Construction fee and equipment cost
payables 13,760 12,521 10,411 8,602
Payable to Sinopec 610 539 585 512
Advances from Sinopec 233 80 233 74
One-time employee housing remedial payment
payable 2,270 2,470 2,270 2,470
Other payables 10,628 10,588 7,395 10,185
Amounts due to related parties
- CNPC 1,531 1,702 1,484 1,656
- Fellow CNPC subsidiaries 11,880 11,581 9,746 7,590
- Subsidiaries - - 28,536 23,664
- Associated companies 591 1,279 541 1,212
------ ------ ------ ------
64,180 57,793 78,010 68,355
====== ====== ====== ======
Other payables consist primarily of customer deposits.
Amounts due to related parties are interest-free, unsecured and
repayable in accordance with normal commercial terms.
89
The aging analysis of trade payables at December 31, 2003 is as
follows:
GROUP COMPANY
------------------------- ------------------------
2003 2002 2003 2002
------ ----- ----- -----
RMB RMB RMB RMB
------ ----- ----- -----
Within 1 year 9,108 7,110 5,763 4,237
Between 1 to 2 years 402 369 211 246
Between 2 to 3 years 127 109 89 80
Over 3 years 513 565 385 494
------ ----- ----- -----
10,150 8,153 6,448 5,057
====== ===== ===== =====
26 BORROWINGS
(a) SHORT-TERM BORROWINGS
GROUP COMPANY
------------------------- -------------------------
2003 2002 2003 2002
------ ------ ------ ------
RMB RMB RMB RMB
------ ------ ------ ------
Bank loans
- secured 114 274 7 92
- unsecured 8,450 13,576 7,592 13,073
Loans from fellow CNPC
subsidiaries 610 570 - -
Other 5 4 4 4
------ ------ ------ ------
9,179 14,424 7,603 13,169
Current portion of long-term borrowings 19,711 6,209 19,064 5,048
------ ------ ------ ------
28,890 20,633 26,667 18,217
====== ====== ====== ======
90
(b) LONG-TERM BORROWINGS
GROUP COMPANY
---------------------- ----------------------
2003 2002 2003 2002
INTEREST RATE AND FINAL ------ ------ ------ ------
MATURITY RMB RMB RMB RMB
----------------------- ------ ------ ------ ------
RENMINBI - DENOMINATED
BORROWINGS:
Bank loans for the Majority variable interest rates 20,327 23,580 19,631 22,826
development of oil fields ranging from interest free to
and construction of 6.03% per annum as of December
refining plants 31, 2003, with maturities through
2010
Bank loans for working Majority variable interest rates 6,073 6,189 6,033 6,092
capital ranging from interest free to
5.94% per annum as of December
31, 2003, with maturities through
2005
Loans from related parties Floating interest rates ranging 15,620 15,956 15,620 15,756
for the development of oil from 4.61% to 5.18% per annum as
fields and construction of of December 31, 2003, with
refining plants maturities through 2032
Working capital loans from Floating interest rate at 5.02% 4,000 4,000 4,000 4,000
related parties per annum as of December 31,
2003, with maturities through 2004
Working capital loans Fixed interest rates at 6.32% per 10 11 8 9
annum with no fixed repayment term
Corporate debenture for the Fixed interest rate at 4.50% per 1,350 1,350 1,350 1,350
development of oil fields annum with maturities through 2007
and construction of
refining plants
Corporate debenture for the Fixed interest rate at 9.00% per - 300 - 300
construction of refining annum with maturities through 2003
plants
Corporate debenture issued Fixed interest rate at 4.11% per 1,500 - 1,500 -
in October, 2003, for the annum with maturities through 2013
development of oil and gas
properties
91
GROUP COMPANY
---------------------- ----------------------
2003 2002 2003 2002
INTEREST RATE AND FINAL ------ ------ ------ ------
MATURITY RMB RMB RMB RMB
----------------------- ------ ------ ------ ------
US DOLLAR - DENOMINATED
BORROWINGS:
Bank loans for the Fixed interest rates ranging from 2,881 4,801 1,070 1,991
development of oil fields interest free to 8.66% per annum
and construction of with maturities through 2038
refining plants
Bank loans for the Floating interest rates ranging 1,403 1,763 853 1,081
development of oil fields from 1.47 % to 6.61% per annum as
and construction of of December 31, 2003, with
refining plants maturities through 2015
Bank loans for acquisition Floating interest rate at LIBOR 1,493 1,490 - -
of overseas oil and gas plus 0.60% per annum as of
properties December 31, 2003, with
maturities through 2005
Loans from related parties Floating interest rate at LIBOR 3,633 3,633 3,633 3,633
for the development of oil minus 0.25% per annum as of
fields and construction of December 31, 2003, with
refining plants maturities through 2005
Loans from related parties Floating interest rate at LIBOR 608 - - -
for acquisition of overseas plus 0.40% per annum as of
oil and gas properties December 31, 2003, with
maturities through 2005
Loans from related parties Floating interest rate at LIBOR 717 543 - -
for working capital plus 0.40% per annum as of
December 31, 2003, with
maturities through 2005
Loans for the development Fixed interest rate at 1.55% per 586 618 586 618
of oil fields and annum with maturities through 2022
construction of refining
plants
92
GROUP COMPANY
-------------------- ---------------------
2003 2002 2003 2002
------- ------ ------- ------
INTEREST RATE AND FINAL RMB RMB RMB RMB
---------------------------- ------- ------ ------- ------
JAPANESE YEN - DENOMINATED
BORROWINGS:
Bank loans for the Fixed interest rates ranging 578 723 371 461
development of oil fields from 2.70% to 5.30% per
and construction of annum with maturities
refining plants through 2010
EURO - DENOMINATED
BORROWINGS:
Bank loans for the Fixed interest rates ranging 381 463 121 182
development of oil fields from 2.00% to 8.50% per
and construction of annum with maturities
refining plants through 2023
BRITISH POUND - DENOMINATED
BORROWINGS:
Bank loans for the Fixed interest rate at 2.85% 454 538 454 538
development of oil fields per annum with maturities
and construction of through 2007
refining plants
Loans for the development Fixed interest rate at - 784 - 784
of oil fields and 5.17% per annum
construction of refining
plants
------- ------ ------- ------
61,614 66,742 55,230 59,621
Finance lease
obligations 56 122 56 122
------- ------ ------- ------
Total long-term
borrowings 61,670 66,864 55,286 59,743
Less: Current portion of
long-term borrowings (19,711) (6,209) (19,064) (5,048)
------- ------ ------- ------
41,959 60,655 36,222 54,695
======= ====== ======= ======
93
For loans denominated in RMB with floating rates, the rates are re-set
annually on the respective anniversary dates based on rates announced by the
People's Bank of China. For loans denominated in currencies other than RMB with
floating rates, the rates are re-set quarterly or semi-annually as stipulated in
the respective agreements. Other loans represent loans from independent third
parties other than banks with interest rates ranging from 1.55% to 6.32% per
annum. Interest free loans amounted to RMB 215 (2002: RMB 353) at December 31,
2003. Interest free loans were treated as government assistance and no
imputation of interest expense on such loans was recognised in the Group's
consolidated financial statements.
Borrowings of RMB 853 (2002: RMB 939) were guaranteed by CNPC and its
subsidiaries at December 31, 2003.
The Group's borrowings include secured liabilities (leases and bank
borrowings) totalling RMB 170 (2002: RMB 398) at December 31, 2003. Bank
borrowings are secured over certain of the Group's property, plant and equipment
(Note 14). Lease liabilities are effectively secured as the rights to the leased
assets revert to the lessor in the event of default.
GROUP COMPANY
-------------------- --------------------
2003 2002 2003 2002
------ ------ ------ ------
RMB RMB RMB RMB
Total borrowings:
- at fixed rates 17,024 24,056 13,122 19,378
- at variable rates 53,825 57,232 49,767 53,534
------ ------ ------ ------
70,849 81,288 62,889 72,912
------ ------ ------ ------
Weighted average effective interest rates:
- bank loans 4.77% 4.92% 4.92% 5.01%
- loans from related parties 4.23% 4.33% 4.37% 4.38%
- loans from third parties 1.64% 3.58% 1.64% 3.60%
- corporate debentures 4.30% 5.32% 4.30% 5.32%
- finance lease obligations 3.22% 3.38% 3.22% 3.38%
94
The carrying amounts and fair values of long-term borrowings (excluding
finance lease obligations) are as follows:
GROUP COMPANY
-------------------- --------------------
CARRYING AMOUNTS
------------------------------------------------
2003 2002 2003 2002
------ ------ ------ ------
RMB RMB RMB RMB
------ ------ ------ ------
Bank loans 33,590 39,547 28,533 33,171
Loans from related parties 24,578 24,132 23,253 23,389
Corporate debentures 2,850 1,650 2,850 1,650
Other 596 1,413 594 1,411
------ ------ ------ ------
61,614 66,742 55,230 59,621
====== ====== ====== ======
GROUP COMPANY
-------------------- --------------------
FAIR VALUES
------------------------------------------------
2003 2002 2003 2002
------ ------ ------ ------
RMB RMB RMB RMB
------ ------ ------ ------
Bank loans 33,514 39,413 28,565 33,208
Loans from related parties 24,578 24,133 23,253 23,388
Corporate debentures 2,640 1,646 2,640 1,646
Other 422 1,203 421 1,202
------ ------ ------ ------
61,154 66,395 54,879 59,444
------ ------ ------ ------
The fair values are based on discounted cash flows using applicable
discount rates based upon the prevailing market rates of interest available to
the Group for financial instruments with substantially the same terms and
characteristics at the balance sheet dates. Such discount rates ranged from
0.43% to 6.66% per annum as of December 31, 2003 depending on the type of the
borrowings. The carrying amounts of short-term borrowings and finance lease
obligations approximate their fair value.
95
Maturities of long-term borrowings (excluding finance lease
obligations) at the dates indicated below are as follows:
GROUP COMPANY
-------------------- --------------------
2003 2002 2003 2002
------ ------ ------ ------
BANK LOANS RMB RMB RMB RMB
---------- ------ ------ ------ ------
Within one year 11,291 5,384 10,644 4,424
Between one to two years 9,963 11,072 7,812 10,193
Between two to five years 10,397 18,518 9,336 15,360
After five years 1,939 4,573 741 3,194
------ ------ ------ ------
33,590 39,547 28,533 33,171
====== ====== ====== ======
GROUP COMPANY
-------------------- --------------------
2003 2002 2003 2002
------ ------ ------ ------
OTHER LOANS RMB RMB RMB RMB
----------- ------ ------ ------ ------
Within one year 8,381 759 8,381 558
Between one to two years 8,203 8,469 6,878 8,465
Between two to five years 6,711 13,439 6,711 12,901
After five years 4,729 4,528 4,727 4,526
------ ------ ------ ------
28,024 27,195 26,697 26,450
====== ====== ====== ======
Future minimum payments on finance lease obligations at the dates
indicated below are as follows:
GROUP COMPANY
-------------------- --------------------
2003 2002 2003 2002
------ ------ ------ ------
RMB RMB RMB RMB
------ ------ ------ ------
Within one year 41 70 41 70
Between one to two years 17 41 17 41
Between two to five years - 17 - 17
------ ------ ------ ------
58 128 58 128
Future finance charges on finance lease
obligations (2) (6) (2) (6)
------ ------ ------ ------
Present value of finance lease obligations 56 122 56 122
====== ====== ====== ======
The present value of finance lease
obligations
can be analysed as follows:
- Within one year 39 66 39 66
- Between one to two years 17 39 17 39
- Between two to five years - 17 - 17
------ ------ ------ ------
56 122 56 122
====== ====== ====== ======
96
27 SHARE CAPITAL
GROUP COMPANY
---------------------- ----------------------
2003 2002 2003 2002
------- ------- ------- -------
RMB RMB RMB RMB
Registered, issued and fully paid:
State-owned shares 158,242 158,242 158,242 158,242
H shares 17,582 17,582 17,582 17,582
------- ------- ------- -------
175,824 175,824 175,824 175,824
======= ======= ======= =======
As at December 31, 1999, the registered capital of the Company was RMB
160,000 consisting of 160 billion state-owned shares of RMB 1.00 each. Such
shares were issued to CNPC, credited as fully paid in consideration for the
transfer of the relevant assets and liabilities by CNPC in 1999.
On April 7, 2000, the Company completed a global initial public
offering ("Global Offering") pursuant to which 17,582,418,000 shares of RMB 1.00
each, representing 13,447,897,000 H shares and 41,345,210 American Depositary
Shares ("ADSs", each representing 100 H shares), were issued at prices of HK$
1.28 per H share and US$ 16.44 per ADS, respectively, for which the net proceeds
to the Company were approximately RMB 20 billion. The shares issued pursuant to
the Global Offering rank equally with existing shares. The H shares and ADSs are
listed on The Stock Exchange of Hong Kong Limited and the New York Stock
Exchange respectively.
The 17,582,418,000 H shares issued by the Company comprise
15,824,176,000 shares offered by the Company, and 1,758,242,000 shares offered
by CNPC pursuant to an approval from China Securities Regulatory Commission to
convert the state-owned shares owned by CNPC.
Shareholders' rights are governed by the PRC Company Law that requires
an increase in registered capital to be approved by the shareholders in general
meeting and the relevant PRC Government and regulatory authorities.
97
28 RESERVES
GROUP COMPANY
---------------------- ----------------------
2003 2002 2003 2002
------- ------- ------- -------
RMB RMB RMB RMB
REVALUATION RESERVE
Beginning balance 79,945 79,945 79,945 79,945
Revaluation surplus of property, plant and
equipment (Note e)
-gross 774 - 774 -
-tax (247) - (247) -
Revaluation loss offset against previous
revaluation surplus of property, plant
and equipment
-gross (768) - (768) -
-tax 242 - 242 -
------- ------- ------- -------
ENDING BALANCE 79,946 79,945 79,946 79,945
CAPITAL RESERVE
Beginning balance (28,557) (28,567) (28,557) (28,567)
Contribution from CNPC to marketing
enterprises - 10 - 10
------- ------- ------- -------
ENDING BALANCE (28,557) (28,557) (28,557) (28,557)
STATUTORY COMMON RESERVE FUND (Note a)
Beginning balance 20,128 16,219 12,693 8,784
Transfer from retained earnings 6,242 3,909 6,242 3,909
------- ------- ------- -------
ENDING BALANCE 26,370 20,128 18,935 12,693
STATUTORY COMMON WELFARE FUND (Note b)
Beginning balance 13,532 11,578 9,867 7,913
Transfer from retained earnings 3,121 1,954 3,121 1,954
------- ------- ------- -------
ENDING BALANCE 16,653 13,532 12,988 9,867
OTHER RESERVES
Beginning balance (3,200) - (3,200) -
Payment to CNPC for acquisition of
marketing enterprises (Note 2) - (3,200) - (3,200)
------- ------- ------- -------
ENDING BALANCE (3,200) (3,200) (3,200) (3,200)
------- ------- ------- -------
91,212 81,848 80,112 70,748
======= ======= ======= =======
(a) Pursuant to PRC regulations and the Company's Articles of
Association, the Company is required to transfer 10% of its net profit, as
determined under the PRC accounting regulations, to statutory common reserve
fund until the fund aggregates to 50% of the Company's registered capital. The
transfer to this reserve must be made before
98
distribution of dividends to shareholders.
The statutory common reserve fund shall only be used to make good
previous years' losses, to expand the Company's production operations, or to
increase the capital of the Company. Upon approval by a resolution of
shareholders' general meeting, the Company may convert its statutory common
reserve fund into share capital and issue bonus shares to existing shareholders
in proportion to their original shareholdings or to increase the nominal value
of each share currently held by them, provided that the balance of the reserve
fund after such issue is not less than 25% of the registered capital.
(b) Pursuant to the PRC regulations and the Company's Articles of
Association, the Company is required to transfer 5% to 10% of its net profit, as
determined under the PRC accounting regulations, to the statutory common welfare
fund. This fund can only be used to provide common facilities, of which the
Group retains the titles, and other collective benefits to the Company's
employees. This fund is non-distributable other than in liquidation. The
directors have proposed to transfer 5% (2002: 5%) of the net profit, as
determined under the PRC accounting regulations, for the year ended December 31,
2003 to the statutory common welfare fund.
(c) The Company's distributable reserve is the retained earnings
computed under the PRC accounting regulations, which amounted to RMB 59,104
(2002: RMB 37,374) as of December 31, 2003. The distributable reserve computed
under the PRC accounting regulations at December 31, 2003 has been arrived at
after the accrual for the proposed final dividend in respect of year 2003 of RMB
13,947 (Note 13 (v)).
(d) As of December 31, 2003, revaluation surplus relating to
depreciation and disposals amounted to approximately RMB 38,064 (2002: RMB
29,560).
(e) The revaluation surplus recognised during the restructuring was
partially utilised to offset against the revaluation loss on the same assets
arising in 2003 (Note 14). Additional valuation surplus arising in 2003 was
credited to the revaluation reserve.
29 DEFERRED TAXATION
Deferred taxation is calculated on temporary differences under the
liability method using a principal tax rate of 33%.
99
The movements in the deferred taxation account are as follows:
GROUP COMPANY
------------------- ------------------
2003 2002 2003 2002
------ ----- ----- -----
RMB RMB RMB RMB
------ ----- ----- -----
At beginning of year 9,927 7,030 6,090 4,835
Transfer to profit and loss account (Note 10) 1,594 2,897 293 1,255
Charged to equity
-net surplus on revaluation 5 - 5 -
------ ----- ----- -----
At end of year 11,526 9,927 6,388 6,090
====== ===== ===== =====
Deferred tax balances are attributable to the following items:
GROUP COMPANY
------------------- -------------------
2003 2002 2003 2002
------ ------ ------ -----
RMB RMB RMB RMB
------ ------ ------ -----
Deferred tax assets:
Current:
Provisions, primarily for receivables
and inventories 4,015 3,568 3,278 2,831
Tax losses of subsidiaries 39 111 - -
Non current:
Shut down of manufacturing assets and
impairment of long-term assets 1,039 613 949 524
Other 579 182 529 147
------ ------ ------ -----
Total deferred tax assets 5,672 4,474 4,756 3,502
------ ------ ------ -----
Deferred tax liabilities:
Current:
Sales (Note (i)) 4,401 4,401 4,401 4,401
Non current:
Accelerated tax depreciation 12,519 10,000 6,465 5,191
Other 278 - 278 -
------ ------ ------ -----
Total deferred tax liabilities 17,198 14,401 11,144 9,592
------ ------ ------ -----
Net deferred tax liabilities 11,526 9,927 6,388 6,090
------ ------ ------ -----
(i) Prior to the formation of the Company in November 1999, certain
crude oil sales were exempted from income tax. Upon formation of the Company,
such exemption ceased to be available. A portion of the previously exempted
items may become taxable at a later date in certain circumstances at the
discretion of the tax authorities.
100
(ii) The Group has unrecognised tax losses of RMB 1,789 (2002: RMB
1,748) arising from subsidiaries which file separate tax returns and the Group
has not recognised a deferred tax asset for these tax losses subject to further
improvement of their operations. In accordance with PRC tax law, tax losses may
be carried forward by the subsidiaries against future taxable income for a
period of five years, accordingly the tax losses will expire between 2005 and
2007. Deferred tax assets have been recognised for other deductible temporary
differences.
30 CASH FLOWS FROM OPERATING ACTIVITIES
2003 2002
NOTE RMB RMB
---- ---- ----
Net profit 69,614 46,910
Adjustments for:
Minority interests 636 99
Taxation 10 28,072 22,231
Depreciation, depletion and amortisation 40,531 36,782
Provision for shut down of manufacturing assets 7 2,355 2,121
Dry hole costs 4,691 3,527
Share of profit of associated companies 15 (985) (268)
Impairment of receivables 5 1,434 284
Write down in inventories, net 5 136 (122)
Impairment of available-for-sale investments 5 158 4
Loss on disposal of property, plant and equipment 5 1,048 647
Loss on disposal of available-for-sale investments 21 21
Loss on disposal of intangible and other assets 143 17
Revaluation loss of property, plant and equipment 14 391 -
Dividend income 16 (69) (60)
Interest income (677) (463)
Interest expense 8 2,346 3,516
Changes in working capital:
Accounts receivable and prepaid expenses and other current assets 3,612 4,554
Inventories (567) 157
Accounts payable and accrued liabilities 8,738 2,047
------- -------
CASH GENERATED FROM OPERATIONS 161,628 122,004
Interest received 677 463
Interest paid (3,769) (4,564)
Income taxes paid (19,716) (19,562)
------- ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 138,820 98,341
======= ======
101
31 PENSIONS
The Group participates in various retirement benefit plans organised by
municipal and provincial governments under which it is required to make monthly
contributions to these plans at rates ranging from 16% to 22% of the employees'
basic salary for the relevant periods. The Group currently has no additional
obligations for the payment of retirement and other post-retirement benefits of
employees other than the monthly contributions described above. Expenses
incurred by the Group in connection with the retirement benefit plans were RMB
2,193 (2002: RMB 2,109) for the year ended December 31, 2003.
32 FINANCIAL INSTRUMENTS
The Group holds or issues various financial instruments which expose it
to credit, interest rate, foreign exchange rate and fair value risks. In
addition, the Group's operations are affected by certain commodity price
movements. The Group historically has not used derivative instruments for
hedging or trading purposes. Such activities are subject to policies approved by
the Group's senior management. Substantially all of the financial instruments
the Group holds is for purposes other than trading. The Group regards an
effective market risk system as an important element of the Group's treasury
function and is continuously enhancing its systems. A primary objective is to
implement certain methodologies to better measure and monitor risk exposures.
(a) CREDIT RISK
The carrying amounts of accounts receivable included in the balance
sheet represent the Group's maximum exposure to credit risk in relation to its
financial assets. No other financial assets carry a significant exposure to
credit risk.
The Group has no significant concentration of credit risk. Cash is
placed with state-owned banks and financial institutions.
(b)INTEREST RATE RISK
The Group is exposed to the risk arising from changing interest rates.
A detailed analysis of the Group's borrowings, together with their respective
interest rates and maturity dates, are included in Note 26.
(c) FOREIGN EXCHANGE RATE RISK
Renminbi is not a freely convertible currency. Future exchange rates of
Renminbi could vary significantly from the current or historical exchange rates
as a result of controls that could be imposed by the PRC government. The
exchange rates of Renminbi are affected by changes in PRC government policies.
The exchange rates of Renminbi are also affected by economic developments and
political changes domestically and internationally, and supply and demand for
Renminbi. The official exchange rate for the conversion of Renminbi to US
Dollars has generally been stable recently. As Renminbi is the measurement
currency of the Company and most of its consolidated entities, the fluctuation
of exchange rates of
102
Renminbi may have positive or negative impacts on the results of operations of
the Group. Because prices for the Group's crude oil and refined products are set
generally with reference to US Dollar-denominated international prices, a
devaluation of Renminbi against US Dollar may not have a negative impact on the
Group's revenue, but may increase the cost incurred by the Group to acquire
imported materials and equipment as well as the foreign currency-denominated
obligations of the Group. On the other hand, an appreciation of Renminbi against
US Dollar may decrease the Group's revenue, but the cost for acquiring imported
materials and equipment may be reduced. The results of operations and the
financial condition of the Group also may be affected by fluctuations in
exchange rates against Renminbi of a number of other foreign currencies other
than US Dollar.
(d) COMMODITY PRICE RISK
The Group is engaged in a broad range of petroleum related activities.
The hydrocarbon commodity markets are influenced by global as well as regional
supply and demand conditions. The PRC government currently publishes prices for
onshore crude oil, gasoline and diesel according to international benchmark
prices. A decline in prices of crude oil and refined products could adversely
affect its financial performance. The Group historically has not used commodity
derivative instruments to hedge the potential price fluctuations of crude oil
and other refined products. Therefore, during 2003 and 2002, the Group was
exposed to the general price fluctuations of broadly traded oil and gas
commodities.
(e) FAIR VALUES
The carrying amounts of the following financial assets and financial
liabilities approximate their fair value: cash, short-term investments, trade
receivables and payables, other receivables and payables, lease obligations,
short-term borrowings and floating rate long-term borrowings. The fair value of
the fixed rate long-term borrowings is likely to be different from their
carrying amounts. As the majority of the borrowings are at variable rates, the
difference between fair value and carrying amounts is likely to be immaterial.
103
33 CONTINGENT LIABILITIES
(a) BANK AND OTHER GUARANTEES
At December 31, 2003, the Group had contingent liabilities in respect of
bank and other guarantees and other matters arising in the ordinary course of
business from which it is anticipated that no material liabilities will arise.
2003 2002
---- ----
RMB RMB
---- ----
Guarantee of borrowings of associated companies 448 962
=== ===
(b) ENVIRONMENTAL LIABILITIES
CNPC and the Group have operated in China for many years and certain
environmental problems have developed. China has adopted extensive environmental
laws and regulations that affect the operation of the oil and gas industry. The
outcome of environmental liabilities under proposed or future environmental
legislation cannot reasonably be estimated at present, and could be material.
Under existing legislation, however, management believes that there are no
probable liabilities, except for the amounts which have already been reflected
in the financial statements, that will have a material adverse effect on the
financial position of the Group.
(c) LEGAL CONTINGENCIES
The Group is the named defendant in certain insignificant lawsuits as
well as the named party in other proceedings arising in the ordinary course of
business. While the outcomes of such contingencies, lawsuits or other
proceedings cannot be determined at present, management believes that any
resulting liabilities will not have a material adverse effect on the financial
position of the Group.
(d) LEASING OF ROADS, LAND AND BUILDINGS
According to the Restructuring Agreement entered into between the
Company and CNPC in 1999 upon the formation of the Company, CNPC has undertaken
to the Company the following:
- CNPC will use its best endeavours to obtain formal land use right
certificates to replace the entitlement certificates in relation to the 28,649
parcels of land which were leased or transferred to the Company from CNPC,
within one year from August, September and October 1999 when the relevant
entitlement certificates were issued;
- CNPC will complete, within one year from November 5, 1999, the
necessary governmental procedures for the requisition of the collectively-owned
land on which 116 service stations owned by the Company are located; and
104
- 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, 2003, CNPC has obtained formal land use right
certificates in relation to 24,046 out of the above-mentioned 28,649 parcels of
land, some building ownership certificates for the above-mentioned buildings,
but has completed none of the necessary governmental procedures for the
above-mentioned service stations located on collectively-owned land. The
Directors of the Company confirm that the use of and the conduct of relevant
activities at the above-mentioned parcels of land, service stations and
buildings are not affected by the fact that the relevant land use right
certificates or individual building ownership certificates have not been
obtained or the fact that the relevant governmental procedures have not been
completed. In management's opinion, the outcome of the above events will not
have a material adverse effect on the results of operations or the financial
position of the Group.
(e) GROUP INSURANCE
Except for limited insurance coverage for vehicles and certain assets
subject to significant operating risks, the Group does not carry any other
insurance for property, facilities or equipment with respect to its business
operations. In addition, the Group does not carry any third-party liability
insurance against claims relating to personal injury, property and environmental
damages or business interruption insurance since such insurance coverage is not
customary in China. While the effect of under-insurance on future incidents
cannot be reasonably assessed at present, management believes that it may have a
material impact on the operating results but will not have a material adverse
effect on the financial position of the Group.
(f) COST REDUCTION MEASURES
The Group may further streamline its production facilities within the
next several years to further improve the operating efficiency and
competitiveness of the Group. Management has not approved all significant
actions to be taken to complete such plans. Management does not believe such
plans will have a material adverse impact on the Group's financial position, but
may have a material adverse effect on the Group's results of operations.
105
34 COMMITMENTS
(a) OPERATING LEASE COMMITMENTS
Operating lease commitments of the Group are mainly for leasing of land
and buildings and equipment. Leases range from one to fifty years and usually do
not contain renewal options. Future minimum lease payments as of December 31,
2003 and 2002 under non-cancellable operating leases are as follows:
2003 2002
---- ----
RMB RMB
--- ---
First year 2,552 2,403
Second year 2,433 2,265
Third year 2,409 2,255
Fourth year 2,391 2,246
Fifth year 2,380 2,248
Thereafter 84,776 86,682
------ ------
96,941 98,099
====== ======
Operating lease expenses for land and buildings and equipment were RMB
2,991 (2002: RMB 2,942) for the year ended December 31, 2003.
(b) CAPITAL COMMITMENTS
2003 2002
---- ----
RMB RMB
--- ---
Contracted but not provided for
Oil and gas properties 896 180
Plant and equipment 10,055 2,898
Other 194 198
------ -----
11,145 3,276
====== ======
(c) EXPLORATION AND PRODUCTION LICENSES
The Company is obligated to make annual payments with respect to its
exploration and production licenses to the Ministry of Land and Resources.
Payments incurred were approximately RMB 296 (2002: RMB 202) for the year ended
December 31, 2003.
106
Estimated annual payments in the future are as follows:
RMB
---
2004 515
2005 618
2006 681
2007 712
2008 and thereafter 712
(d) DIVIDENDS
Dividends received from the Company are likely to be one of the
principal sources of funding for CNPC. Subject to the relevant provisions of the
PRC Company law and the Articles of Association of the Company, CNPC, as major
shareholder of the Company, may seek to influence the determination of the
amount of dividends paid by the Company with a view to satisfying its cash flow
requirements including those relating to its obligations to provide
supplementary social services to its employees and a limited number of third
parties. The Ministry of Finance has committed to provide subsidies to enable
CNPC to fund a portion of future operating shortfalls arising out of CNPC's
obligation to provide social services. The directors believe that these
subsidies will substantially reduce CNPC's reliance on dividends from the
Company.
35 ACQUISITION
On April 22, 2002 the Group acquired all of the share capital of
PetroChina International Indonesia Limited (formerly Devon Energy Indonesia
Ltd.) ( "Devon") for RMB 2,068. This company is engaged in the exploration and
production of crude oil and natural gas in Indonesia. The acquired business
contributed turnover of RMB 632 and operating profit of RMB 132 to the Group for
the year ended December 31, 2002.
In addition, the Group increased its equity interests in PetroChina
Tarim Oil (Gas) Transportation Limited ("Tashu") and Jilian (Jilin)
Petrochemicals Limited ("Jilian") respectively by 53.1% in November and 35% in
December 2002 for a total consideration of RMB 472, and the two entities became
the subsidiaries of the Company at the respective dates of acquisitions. The
acquired businesses did not contribute significant turnover and operating profit
to the Group for the year ended December 31, 2002.
Other than for land and buildings, the fair value of the net assets
approximated the book value of the net assets acquired, and no plant closure
provisions or other restructuring provisions were required.
107
The assets and liabilities arising from the acquisitions at the
respective dates of acquisitions were as follows:
DEVON JILIAN TASHU TOTAL
----- ------ ----- -----
RMB RMB RMB RMB
--- --- --- ---
Assets 2,145 1,050 897 4,092
Liabilities (77) (664) (262) (1,003)
----- ------ ----- -----
2,068 386 635 3,089
Equity interest acquired 100.0% 35.0% 53.1%
Fair value of net assets acquired 2,068 135 337 2,540
Less: Cash and cash equivalents acquired (64) (8) (264) (336)
Consideration not yet settled - (54) - (54)
----- ------ ----- -----
Cash outflow on acquisition 2,004 73 73 2,150
===== ====== ===== =====
36 MAJOR CUSTOMERS
The Group's major customers are as follows:
2003 2002
------------------- ------------------
% TO % TO
TOTAL TOTAL
REVENUE REVENUE REVENUE REVENUE
------- ------- ------- -------
RMB % RMB %
------- ------- ------- -------
Sinopec 35,932 12 26,497 11
CNPC 9,323 3 7,772 3
------- ------- ------- -------
45,255 15 34,269 14
======= ======= ======= =======
37 RELATED PARTY TRANSACTIONS
The Group is part of a larger group of companies under CNPC and has
extensive transactions and relationships with members of the CNPC group. Because
of these relationships, it is possible that the terms of these transactions are
not the same as those that would result from transactions among wholly unrelated
parties. Related parties refer to corporations in which CNPC is a major
shareholder and is able to control or exercise significant influence.
CNPC itself is a state-owned enterprise. In accordance with a specific
exemption in IAS 24, "Related Party Disclosure", the Group does not accumulate
or disclose transactions with other state-owned enterprises as related party
transactions, other than those with other CNPC group companies and significant
customers as described in Note 36.
108
The majority of the Group's business activities are conducted with
state-owned enterprises. Sale of certain products to these state-owned
enterprises are at state-prescribed prices. The Group considers that these sales
are activities in the ordinary course of business and has not accumulated or
disclosed such related party transactions.
As a result of the Restructuring (Note 1), the Company and CNPC entered
into a Comprehensive Products and Services Agreement for a range of products and
services which may be required and requested by either party; a Land Use Rights
Leasing Contract (Note 33(d)) under which CNPC leases 42,476 parcels of land
located throughout the PRC to the Company; and a Buildings Leasing Contract
under which CNPC leases 191 buildings located throughout the PRC to the Company.
The term of the Comprehensive Products and Services Agreement is 10
years commencing from November 5, 1999. The products and services to be provided
by the CNPC group to the Company under the Comprehensive Products and Services
Agreement include construction and technical services, production services,
supply of material services, social services, ancillary services and financial
services. The products and services are provided in accordance with (1)
state-prescribed prices; or (2) where there is no state-prescribed price,
relevant market prices; or (3) where neither (1) nor (2) is applicable, actual
cost incurred; or the agreed contractual price, being the actual cost plus a
margin of no more than 15% for certain construction and technical services, and
3% for all other types of services.
The Land Use Rights Contract provides for the lease of an aggregate
area of approximately 1,145 million square meters of land located throughout the
PRC to business units of the Group for a term of 50 years at an annual fee of
RMB 2,000. The total fee payable for the lease of all such property may, after
the expiration of 10 years, be adjusted by agreement between the Company and
CNPC.
Under the Buildings Leasing Contract, 191 buildings covering an
aggregate area of 269,770 square meters located throughout the PRC are leased at
an aggregate annual fee of RMB 39 for a term of 20 years.
The Company also entered into a Supplemental Buildings Leasing
Agreement with CNPC in September 2002 to lease an additional 404 buildings
covering approximately 442,730 square meters at an annual rental of RMB 157. The
Supplemental Buildings Leasing Agreement will expire at the same time as the
Building Leasing Agreement.
109
In addition to the related party information shown elsewhere in the
financial statements, the following is a summary of significant related party
transactions entered into in the ordinary course of business between the Group
and entities controlled by CNPC during the periods indicated below:
NOTE 2003 2002
---- ---- ----
RMB RMB
---- ------ ------
Sale of goods (a) 9,323 7,772
Fees paid for construction and technical services (b)
-Exploration and development services (c) 25,180 21,781
-Other construction and technical services (d) 15,688 16,324
Fees for production services (e) 16,042 15,743
Social services charge (f) 1,326 1,243
Ancillary service charges (g) 1,683 1,713
Interest income (h) 30 25
Interest expense (i) 1,052 1,086
Rental expense (j) 2,001 1,916
Commission expense and other charges (k) 971 936
Notes:
(a) Represents sale of crude oil, refined and chemical products
conducted principally at market prices.
(b) Under the Comprehensive Products and Services Agreement
entered into between CNPC and the Company, certain
construction and technical services provided by CNPC are
charged at cost plus an additional margin of no more than 15%,
including exploration and development services and oilfield
construction services.
(c) Direct costs for exploration and development services comprise
geophysical survey, drilling, well cementing, logging and well
testing.
(d) The fees paid for other construction and technical services
comprise fees for construction of refineries and chemical
plants and technical services in connection with oil and gas
exploration and production activities such as oilfield
construction, technology research, engineering and design,
etc.
110
(e) The fees paid for production services comprise fees for the
repair of machinery, supply of water, electricity and gas,
provision of services such as communications, transportation,
fire fighting, asset leasing, environmental protection and
sanitation, maintenance of roads, manufacture of replacement
parts and machinery.
(f) These represent expenditures for social welfare and support
services which are charged at cost.
(g) Ancillary service charges represent mainly fees for property
management, the provision of training centres, guesthouses,
canteens, public shower rooms, etc.
(h) The Group had deposits placed with China Petroleum Finance
Company Limited ("CP Finance"), a subsidiary of CNPC and a
non-bank financial institution approved by the People's Bank
of China, amounting to RMB 2,331 (2002: RMB 2,861) as of
December 31, 2003. The deposits yield interest at prevailing
saving deposit rates.
(i) The Group had unsecured short-term and long-term loans from CP
Finance amounting to RMB 25,188 (2002: RMB 24,702) as of
December 31, 2003 included under loans from related parties.
The loans were interest bearing at market rates.
(j) Rental expenses are calculated in accordance with the lease
agreements entered into between the Company and CNPC.
(k) CNPC purchases materials on behalf of the Company and charges
commission thereon. The commission is calculated at rates
ranging from 1% to 5% of the goods purchased.
(l) The Group had a 7.5% equity interest in CP Finance at a book
value of RMB 299 as of December 31, 2003 and a 4.73% equity
interest in CP Finance at a book value of RMB 94 as of
December 31, 2002.
111
38 SEGMENT INFORMATION
The Group is engaged in a broad range of petroleum related activities
through its four major business segments: Exploration and Production, Refining
and Marketing, Chemicals and Marketing and Natural Gas and Pipeline.
The Exploration and Production segment is engaged in the exploration,
development, production and sales of crude oil and natural gas.
The Refining and Marketing segment is engaged in the refining,
transportation, storage and marketing of crude oil and petroleum products.
The Chemicals and Marketing segment is engaged in the production and
sale of basic petrochemical products, derivative petrochemical products, and
other chemical products.
The Natural Gas and Pipeline segment is engaged in the transmission of
natural gas, crude oil and refined products, and the sale of natural gas.
In addition to these four major business segments, the Other segment
includes the assets, income and expenses relating to cash management, financing
activities, the corporate center, research and development, and other business
services to the operating business segments of the Group.
Substantially all assets and operations of the Group are located in the
PRC, which is considered as one geographic location in an economic environment
with similar risks and returns. In addition to its operations in the PRC in
April 2002 the Group acquired all the share capital of Devon Energy Indonesia
Ltd., a company engaging in the exploration and production of crude oil and
natural gas in Indonesia. In April 2003, the Group acquired for RMB 679 a 50%
interest in Amerada Hess Indonesia Holdings Co., which has a 30% interest in one
of the oil and gas concessions that the Group acquired in 2002.
The accounting policies of the operating segments are the same as those
described in Note 3 - "Summary of Principal Accounting Policies".
Operating segment information for the years ended December 31, 2002 and
2003 is presented below:
112
PRIMARY REPORTING FORMAT -BUSINESS SEGMENTS
YEAR ENDED EXPLORATION REFINING CHEMICALS NATURAL
DECEMBER 31, AND AND AND GAS AND
2002 PRODUCTION MARKETING MARKETING PIPELINE OTHER TOTAL
------------ ----------- --------- --------- -------- ----- -----
RMB RMB RMB RMB RMB RMB
--- --- --- --- --- ---
Turnover (including intersegment) 147,308 174,621 29,661 12,733 - 364,323
Less:
Intersegment sales (106,266) (9,988) (1,093) (2,552) - (119,899)
----------- --------- --------- -------- ------- --------
Turnover from external customers 41,042 164,633 28,568 10,181 - 244,424
----------- --------- --------- -------- ------- --------
Depreciation, depletion
and amortisation (21,972) (7,144) (6,336) (1,213) (117) (36,782)
Segment result 76,943 17,815 (1,217) 1,796 (462) 94,875
Other costs (4,804) (14,997) (1,945) (244) (544) (22,534
----------- --------- --------- -------- ------- --------)
Profit/(loss) from operations 72,139 2,818 (3,162) 1,552 (1,006) 72,341
----------- --------- --------- -------- -------
Finance costs (3,369)
Share of profit/(loss)
of associated companies (38) 12 (8) 71 231 268
--------
Profit before taxation 69,240
Taxation (22,231)
Minority interests (99)
--------
Net profit 46,910
--------
Interest income(including
intersegment) 1,942 1,061 1,136 109 4,499 8,747
Less:
Intersegment interest income (8,284)
--------
Interest income from
external entities 463
--------
Interest expense (including
intersegment) (2,979) (2,516) (1,810) (263) (4,232) (11,800)
113
Less:
Intersegment interest expense 8,284
--------
Interest expense to
external entities (3,516)
--------
Segment assets 289,277 113,751 64,169 33,740 427,709 928,646
Elimination of intersegment
balances (449,642)
Investments in
associated companies 1,422 1,774 178 6 765 4,145
--------
Total assets 483,149
--------
Segment capital expenditure
- for property, plant and
equipment 46,078 11,327 3,175 13,013 133 73,726
Segment liabilities 89,663 68,701 44,318 22,488 113,236 338,406
Other liabilities 20,927
Elimination of
intersegment balances (197,714)
--------
Total liabilities 161,619
========
114
PRIMARY REPORTING FORMAT -BUSINESS SEGMENTS (CONTINUED)
YEAR ENDED EXPLORATION REFINING CHEMICALS NATURAL
DECEMBER 31, AND AND AND GAS AND
2002 PRODUCTION MARKETING MARKETING PIPELINE OTHER TOTAL
------------ ----------- --------- --------- -------- ----- -----
RMB RMB RMB RMB RMB RMB
--- --- --- --- --- ---
Turnover (including intersegment) 177,271 223,584 39,211 15,067 - 455,133
Less:
Intersegment sales (128,963) (16,867) (2,263) (3,261) - (151,354)
----------- --------- --------- -------- ------ ---------
Turnover from external customers 48,308 206,717 36,948 11,806 - 303,779
----------- --------- --------- -------- ------ ---------
Depreciation, depletion and amortisation (25,486) (7,601) (5,795) (1,543) (106) (40,531)
Segment result 98,819 20,679 2,621 2,248 (713) 123,654
Other costs (6,449) (15,644) (1,580) (326) (469) (24,468)
----------- --------- --------- -------- ------ ---------
Profit/(loss) from operations 92,370 5,035 1,041 1,922 (1,182) 99,186
----------- --------- --------- -------- ------
Finance costs (1,849)
Share of profit/(loss) of
associated companies (33) 104 42 13 859 985
---------
Profit before taxation 98,322
Taxation (28,072)
Minority interests (636)
---------
Net profit 69,614
Interest income (including intersegment) 2,222 552 446 117 4,403 7,740
Less:
Intersegment interest income (7,063)
---------
Interest income from 677
---------
external entities
Interest expense (including intersegment) (2,537) (1,686) (843) (356) (3,987) (9,409)
115
Less:
Intersegment interest expense 7,063
--------
Interest expense to external entities (2,346)
--------
Segment assets 310,431 117,652 55,595 46,450 451,949 982,077
Elimination of intersegment balances (455,913)
Investments in associated companies 1,184 1,889 232 41 2,225 5,571
--------
Total assets 531,735
--------
Segment capital expenditure
- for property, plant and equipment 52,813 13,915 3,903 13,530 138 84,299
Segment liabilities 86,050 58,372 17,634 33,535 104,326 299,917
Other liabilities 32,548
Elimination of intersegment balances (162,951)
--------
Total liabilities 169,514
========
Note (a)- Intersegment sales are conducted principally at market price.
Note (b)- Segment result is profit from operations before other costs.
Other costs include selling, general and administrative
expenses and other net expense.
Note (c)- Segment results for the years ended December 31, 2002 and
2003 included impairment provision for property, plant and
equipment (Note 14) and shut down of manufacturing assets
(Note 7).
Note (d)- Other liabilities mainly include income tax payable, other
taxes payable and deferred taxation.
Note (e)- Elimination of intersegment balances represents elimination
of intersegment current accounts and investments.
116
SECONDARY REPORTING FORMAT - GEOGRAPHICAL SEGMENTS
TURNOVER TOTAL ASSETS CAPITAL EXPENDITURE
------------------ ------------------ -------------------
YEAR ENDED DECEMBER 31, 2003 2002 2003 2002 2003 2002
----------------------- ---- ---- ---- ---- ---- ----
RMB RMB RMB RMB RMB RMB
--- --- --- --- --- ---
PRC 302,854 243,792 529,209 480,873 83,645 71,774
OTHER (EXPLORATION AND PRODUCTION) 925 632 2,526 2,276 654 1,952
------- ------- ------- ------- ------ ------
303,779 244,424 531,735 483,149 84,299 73,726
======= ======= ======= ======= ====== ======
39 ULTIMATE HOLDING COMPANY
The directors regard CNPC, a state-owned enterprise established in the
PRC, as being the ultimate holding company.
40 APPROVAL OF FINANCIAL STATEMENTS
The financial statements were approved by the board of directors on
March 24, 2004 and will be submitted to the shareholders for approval at the
annual general meeting to be held on May 18, 2004.
117
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
----------------------------
2003 2002
---- ----
RMB RMB
--- ---
Sales and other operating revenues
sales to third parties 48,308 41,042
intersegment sales 128,963 106,266
------- -------
177,271 147,308
Production costs excluding taxes (30,691) (29,913)
Exploration expenses (10,577) (8,095)
Depreciation, depletion and amortisation (21,060) (18,302)
Taxes other than income taxes (5,524) (5,299)
------- -------
Profit before taxation 109,419 85,699
Taxation (32,376) (25,958)
------- -------
Results of operations from producing activities 77,043 59,741
------- -------
Profit from associated companies' results of
operations from producing activities 324 132
------- -------
CAPITALISED COSTS
YEAR ENDED DECEMBER 31,
-----------------------------
2003 2002
---- ----
RMB RMB
--- ---
Property costs - -
Producing assets 262,638 236,856
Support facilities 106,172 101,142
Construction-in-progress 10,485 7,895
-------- --------
Total capitalised costs 379,295 345,893
Accumulated depreciation, depletion
and amortisation (150,842) (137,653)
-------- --------
Net capitalised costs 228,453 208,240
-------- --------
Share of associated companies' net
capitalised costs 1,604 815
-------- --------
118
COSTS INCURRED IN PROPERTY ACQUISITIONS, EXPLORATION AND DEVELOPMENT ACTIVITIES
YEAR ENDED DECEMBER 31,
-----------------------
2003 2002
---- ----
RMB RMB
--- ---
Property acquisition costs - -
Exploration costs 15,137 10,704
Development costs 39,587 35,558
------ ------
Total 54,724 46,262
------ ------
Share of associated companies' costs of property
acquisition, exploration, and development 592 228
------ ------
PROVED RESERVE ESTIMATES
Oil and gas proved reserves cannot be measured exactly. Reserve
estimates are based on many factors related to reservoir performance that
require evaluation by the engineers interpreting the available data, as well as
price and other economic factors. The reliability of these estimates at any
point in time depends on both the quality and quantity of the technical and
economic data, and the production performance of the reservoirs as well as
engineering judgment. Consequently, reserve estimates are subject to revision as
additional data become available during the producing life of a reservoir. When
a commercial reservoir is discovered, proved reserves are initially determined
based on limited data from the first well or wells. Subsequent data may better
define the extent of the reservoir and additional production performance, well
tests and engineering studies will likely improve the reliability of the reserve
estimate. The evolution of technology may also result in the application of
improved recovery techniques such as supplemental or enhanced recovery projects,
or both, which have the potential to increase reserves beyond those envisioned
during the early years of a reservoir's producing life.
Proved oil and gas reserves are the estimated quantities of crude oil,
natural gas and natural gas liquids which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions, i.e., prices
and costs as of the date the estimate is made. Prices include consideration of
changes in existing prices provided only by contractual arrangements, but not on
escalations based upon future conditions. Proved developed reserves are those
reserves, which can be expected to be recovered through existing wells with
existing equipment and operating methods. Proved undeveloped reserves are those
reserves which are expected to be recovered from new wells on undrilled acreage
or from existing wells where relatively major expenditure is required.
The Ministry of Land and Resources in China issues production licenses
to applicants on the basis of the reserve reports approved by relevant
authorities. Administrative rules issued by the State Council provide that the
maximum term of a production license is 30 years. However, in accordance with a
special approval from the State Council, the Ministry of Land and Resources has
issued production licenses effective March 2000 to the Group for all of its
crude oil and natural gas reservoirs with terms coextensive with the projected
119
productive life of those reservoirs, ranging up to 55 years. Production licenses
to be issued to the Group in the future will be subject to the 30-year maximum
unless additional special approvals can be obtained from the State Council. Each
of the Group's production licenses is renewable upon application by the Group 30
days prior to expiration. Oil and gas price increases may extend the productive
lives of crude oil and natural gas reservoirs beyond the current terms of the
relevant production licenses.
Proved reserve estimates as of December 31, 2002 and 2003 were based on
a report prepared by DeGolyer and MacNaughton, independent engineering
consultants. These reserve estimates were prepared for each oil and gas region
(as opposed to individual fields within a region) and adjusted for the estimated
effects of using prices and costs prevailing at the end of the period. The
Company's reserve estimates include only crude oil and natural gas, which the
Company believes can be reasonably produced within the current terms of
production licenses.
Estimated quantities of net proved oil and condensate and natural gas
reserves and of changes in net quantities of proved developed and undeveloped
reserves for each of the period indicated are as follows:
CRUDE OIL
AND CONDENSATE NATURAL GAS
-------------- -----------
(MILLIONS OF BARRELS) (BILLIONS OF CUBIC FEET)
--------------------- ------------------------
Proved developed and undeveloped
Reserves at January 1, 2002 10,959 36,103
Changes resulting from:
Revisions of previous estimates 349 (225)
Improved recovery 31 -
Extensions and discoveries 330 3,540
Purchases of minerals in place 38 193
Production (770) (794)
------ ------
Reserves at December 31, 2002 10,937 38,817
Changes resulting from:
Revisions of previous estimates 199 278
Improved recovery 81 -
Extensions and discoveries 476 2,853
Purchases of minerals in place - -
Production (774) (879)
------ ------
Reserves at December 31, 2003 10,919 41,069
------ ------
Proved developed reserves at:
December 31, 2002 9,198 11,921
December 31, 2003 8,885 13,374
Proportional interest in proved reserves
of associated companies
December 31, 2002 62 2
December 31, 2003 78 78
120
At December 31, 2003, 10,886 million barrels of crude oil and
condensate and 40,877 billion cubic feet of natural gas proved developed and
undeveloped reserves are located within China, and 33 million barrels of crude
oil and condensate and 193 billion cubic feet of natural gas proved developed
and undeveloped reserves are located in Indonesia.
STANDARDISED MEASURE
The following disclosures concerning the standardised measure of future
cash flows from proved oil and gas reserves are presented in accordance with the
US Statement of Financial Accounting Standards No. 69. The amounts shown are
based on prices and costs at the end of each period, currently enacted tax rates
and a 10 percent annual discount factor. Since prices and costs do not remain
static, and no price or cost changes have been considered, the results are not
necessarily indicative of the fair market value of estimated proved reserves,
but they do provide a common benchmark which may enhance the users' ability to
project future cash flows.
The standardised measure of discounted future net cash flows related to
proved oil and gas reserves at the end of each of the two years in the period
ended December 31, 2002 and 2003 is as follows (in millions of RMB):
At December 31, 2002
Future cash inflows 2,710,152
Future production costs (745,866)
Future development costs (73,344)
Future income tax expense (562,289)
---------
Future net cash flows 1,328,653
Discount at 10% for estimated timing of cash flows (713,267)
---------
Standardised measure of discounted future net cash flows 615,386
---------
At December 31, 2003
Future cash inflows 2,991,193
Future production costs (765,111)
Future development costs (88,556)
Future income tax expense (635,169)
---------
Future net cash flows 1,502,357
Discount at 10% for estimated timing of cash flows (807,037)
---------
Standardised measure of discounted future net cash flows 695,320
---------
Share of associated companies' standardised measure of discounted future net
cash flows
At December 31, 2002 2,612
At December 31, 2003 3,744
121
Future net cash flows were estimated using period-end prices and costs,
and currently enacted tax rates.
Changes in the standardised measure of discounted net cash flows for
the Group for each of the two years ended December 31, 2002 and 2003 are as
follows:
YEAR ENDED DECEMBER 31,
-------------------------
2003 2002
---- ----
RMB RMB
--- ---
CHANGES IN STANDARDISED MEASURE OF
DISCOUNTED FUTURE CASH FLOWS
Beginning of year 615,386 405,999
Sales and transfers of oil and gas produced, net of production costs (146,580) (116,977)
Net changes in prices and production costs and other 90,150 259,016
Extensions, discoveries and improved recovery 65,150 53,024
Development costs incurred 1,730 (1,983)
Revisions of previous quantity estimates 15,520 17,364
Accretion of discount 87,580 60,095
Purchases of minerals in place - 2,351
Net change in income taxes (33,616) (63,503)
-------- --------
End of year 695,320 615,386
-------- --------
122
SIGNIFICANT DIFFERENCES BETWEEN IFRS AND US GAAP
The consolidated financial statements of the group appearing on pages
67 to 124 have been prepared in accordance with International Financial
Reporting Standards (IFRS), which may differ in certain material respects from
the accounting principles generally accepted in the United States of America (US
GAAP). Such differences involve methods for measuring the amounts shown in the
financial statements, as well as additional disclosures required by US GAAP.
Effect on net income of significant differences between IFRS and US
GAAP is as follows:
YEAR ENDED DECEMBER 31,
-----------------------
2003 2002
---- ----
RMB RMB
--- ---
Net income under IFRS 69,614 46,910
US GAAP adjustments:
Reversal of revaluation loss of property, plant and equipment 391 -
Depreciation charges on property, plant and equipment revaluation gain 8,053 8,157
Depreciation charges on property, plant and equipment revaluation loss (144) (112)
Loss on disposal of property, plant and equipment 451 224
Income tax effect (2,886) (2,729)
Minority interests (60) (60)
One-time remedial payments for staff housing - (2,553)
------ ------
Net income under US GAAP 75,419 49,837
------ ------
Basic and diluted net income per share under US GAAP (RMB) 0.43 0.28
------ ------
123
Effect on shareholders' equity of significant differences between IFRS
and US GAAP is as follows:
YEAR ENDED DECEMBER 31,
-----------------------
2003 2002
---- ----
RMB RMB
--- ---
Shareholders' equity under IFRS 356,613 316,676
US GAAP adjustments:
Reversal of property, plant and equipment revaluation gain (80,555) (80,549)
Depreciation charges on property, plant and equipment revaluation gain 37,273 29,220
Reversal of property, plant and equipment revaluation loss 1,513 1,122
Depreciation charges on property, plant and equipment revaluation loss (480) (336)
Loss on disposal of property, plant and equipment 791 340
Deferred tax assets on revaluation 13,686 16,567
Minority interests 364 424
Effect on the retained earnings from the one-time remedial payments for
staff housing borne by the state shareholder of the Company (2,553) (2,553)
Effect on the other reserves of the shareholders' equity from the
one-time remedial payments for staff housing borne by the state
shareholder of the Company 2,553 2,553
------- -------
Shareholders' equity under US GAAP 329,205 283,464
------- -------
Changes in shareholders' equity under US GAAP for each of the years ended
December 31, 2003 and 2002 are as follows:
YEAR ENDED DECEMBER 31,
-----------------------
2003 2002
---- ----
RMB RMB
--- ---
Balance at beginning of year 283,464 251,914
Net profit for the year 75,419 49,837
Final dividend for year 2001 - (8,839)
Interim dividend for year 2002 - (8,811)
Final dividend for year 2002 (12,299) -
Interim dividend for year 2003 (17,379) -
Contribution from CNPC to marketing enterprises - 10
Payment to CNPC for acquisition of marketing enterprises - (3,200)
Contribution from CNPC for one-time remedial staff housing - 2,553
------- -------
Balance at end of year 329,205 283,464
======= =======
124
In preparing the summary of differences between IFRS and US GAAP,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities, and the estimates of revenues and expenses. Accounting
estimates have been employed in these financial statements to determine reported
amounts, including realisability, useful lives of tangible and intangible
assets, income taxes and other areas. Actual results could differ from those
estimates.
A summary of the principal differences and additional disclosures
applicable to the Group is set out below:
(a) REVALUATION OF PROPERTY, PLANT AND EQUIPMENT
As described in Note 14 to the consolidated financial statements on
pages 87 to 92, the property, plant and equipment, excluding oil and gas
reserves, transferred to the Company by CNPC were appraised as of June 30, 1999,
as required by the relevant PRC regulations, by a firm of independent valuers
registered in the PRC, China Enterprise Appraisal. As at September 30, 2003, a
revaluation of the Group's refining and chemical production equipment was
undertaken by a firm of independent valuers registered in the PRC, China United
Assets Appraiser Co., Ltd, on a depreciated replacement cost basis.
The June 1999 revaluation resulted in RMB 80,549 in excess of the prior
carrying value and a revaluation loss of RMB 1,122 on certain property, plant
and equipment.
The September 2003 revaluation resulted in a RMB 872 in excess of the
carrying value of certain property, plant and equipment immediately prior to the
revaluation and a revaluation loss of RMB 1,257.
With respect to the RMB 872 revaluation gain resulting from the 2003
revaluation, RMB 98 were related to property, plant and equipment that in 1999
experienced revaluation loss, and were credited to the profit and loss account.
The remaining RMB 774 was credited to the revaluation reserve in the
shareholders' equity.
With respect to the RMB 1,257 revaluation loss resulting from the 2003
revaluation, RMB 768 were related to property, plant and equipment that in 1999
experienced revaluation gain. The remaining RMB 489 were charged to the profit
and loss account.
The depreciation charge, which includes impairment charge, on the
revaluation surplus from January 1, 2003 to December 31, 2003 was RMB 8,053, and
from January 1, 2002 to December 31, 2002 was RMB 8,157.
The depreciation charge on the revaluation loss from January 1, 2003 to
December 31, 2003 was RMB 144, and from January 1, 2002 to December 31, 2002 was
RMB 112.
The loss on disposal of property, plant and equipment, which includes
shut down of manufacturing assets, from January 1, 2003 to December 31, 2003 was
RMB 451, and from January 1, 2002 to December 31, 2002 was RMB 224.
125
For purposes of reconciling to the US GAAP financial data, the effect
of the revaluation, the related depreciation charges and loss on disposal is
reversed. A deferred tax asset relating to the reversal of the effect of
revaluation in 1999 is established, together with a corresponding increase in
the shareholders' equity. Under a special approval granted by the Ministry of
Finance, the effect of the revaluation in 1999 is available as additional
depreciation base for purposes of determining taxable income.
(b) RELATED PARTY TRANSACTIONS
The Group has disclosed in Note 36 to the consolidated financial
statements on page 117, transactions with significant customers and in Notes 20,
21, 25, 26 and 37 transactions and balances with its immediate parent, CNPC, and
related companies. CNPC is owned by the PRC government, which also owns a
significant portion of the productive assets in the PRC. IFRS exempts state
controlled enterprises from disclosing transactions with other state controlled
enterprises. IFRS also excludes from related parties government departments and
agencies to the extent that such dealings are in the normal course of business.
US GAAP contains no similar exemptions but requires disclosure of material
related party transactions. The Group believes that it has provided meaningful
disclosures of related party transactions through the major customer disclosures
in Note 36 and the transactions with the CNPC Group disclosed in Note 37.
Although the majority of the Group's activities are conducted with the PRC
government and its affiliates and other state controlled enterprises, none
individually constitutes a major customer or supplier other than those
disclosed.
(c) ONE-TIME REMEDIAL PAYMENTS FOR STAFF HOUSING
The Ministry of Finance of the PRC issued several public notices and
regulations during the year ended December 31, 2000 and in January 2001 with
respect to the one-time remedial payments for staff housing payable to certain
employees who joined the workforce prior to December 31, 1998 and have housing
conditions below local standards as determined in accordance with government
regulations and guidelines. These Ministry of Finance notices and regulations
also provided that the portion of remedial payments attributable to the periods
prior to a restructuring of the employer enterprise from a wholly state-owned
status to a less than wholly state-owned status is to be borne by the state
shareholder of the enterprise.
The restructuring that resulted in the formation of the Group took
place in November 1999. As such, the one-time remedial housing payments payable
to the eligible employees of the Group are to be borne by the state shareholder
of the Group.
Under IFRS, such direct payments to employees or reimbursements will
not be recorded through the consolidated profit and loss account of the Group.
US GAAP contains no such exemption but requires this principal shareholder's
action on behalf of the Company to be recorded in the consolidated profit and
loss account. In the last quarter of year 2002, the Group and CNPC completed the
process of estimating the amount that are payable to
126
qualified employees of the Group. This amount, RMB 2,553, was reflected in
determining net income of the Group for the year ended December 31, 2002, under
US GAAP. Since this amount is borne by CNPC, a corresponding amount has been
included as an addition to the other reserves in the shareholders' equity of the
Group.
(d) RECENT US ACCOUNTING PRONOUNCEMENTS
Issued in January 2003 and revised in December 2003, FIN 46-R,
"Consolidation of Variable Interest Entities", provides guidance on the
identification of and financial reporting for entities over which control is
achieved through means other than voting rights. This Interpretation requires
existing unconsolidated variable interest entities to be consolidated by their
primary beneficiaries if the entities do not effectively disperse risks among
parties involved. The Interpretation applies immediately to variable interest
entities created after January 31, 2003, and to variable interest entities in
which an enterprise obtains an interest after that date. It is effective no
later than the end of the first reporting period ending after March 15, 2004 for
variable interest entities in which an enterprise holds a variable interest that
it acquired before February 1, 2003. The adoption of the provisions of FIN 46-R
is not expected to have a material effect on the consolidated financial
statements of the Group.
127
CORPORATE INFORMATION
BOARD OF DIRECTORS
Chairman: Ma Fucai
Vice Chairman: Wu Yaowen Ren Chuanjun
Executive Directors: Chen Geng Su Shulin Wang Fucheng
Non-executive Directors: Zheng Hu Gong Huazhang Zou Haifeng
Independent Non-executive Directors: Chee-Chen Tung Liu Hongru
Franco Bernabe
Company Secretary: Li Huaiqi
SUPERVISORY COMMITTEE
Chairman: Li Kecheng
Supervisors: Chen Weizhong Wen Qingshan
Bai Xinhe Sun Chongren
Zhang Youcai Wu Zhipan
SENIOR MANAGEMENT
Duan Wende Wang Guoliang Liu Baohe
Jia Chengzao
AUTHORISED REPRESENTATIVES
Wang Fucheng
Li Huaiqi
COMPANY'S WEBSITE
www.petrochina.com.cn
AUDITORS
International Auditors
PricewaterhouseCoopers
Certified Public Accountants, Hong Kong
22nd Floor
Prince's Building
Central
Hong Kong
128
Domestic Auditors
PriceWaterhouseCoopers Zhong Tian CPAs Limited Company
Certified Public Accountants, PRC
12th Floor Shanghai ShuiOn Plaza
333 Huai Hai Zhong Road
Shanghai 200021
PRC
LEGAL ADVISERS TO THE COMPANY
as to Hong Kong law: as to United States law:
Linklaters Shearman & Sterling
10th Floor, 12th Floor,Gloucester Tower
Alexandra House The Landmark
Chater Road 11 Pedder Street
Central Central
Hong Kong Hong Kong
as to PRC law:
King and Wood
Level 30, North Office Tower
Beijing Kerry Centre
1 Guang Hua Lu
Chaoyang District
Beijing 100020
PRC
LEGAL ADDRESS
World Tower, 16 Andelu
Dongcheng District
Beijing 100011
PRC
PLACE OF BUSINESS IN HONG KONG
Unit 3606
Tower Two, Lippo Centre
89 Queensway
Hong Kong
129
HONG KONG SHARE REGISTRAR AND TRANSFER OFFICE
Hong Kong Registrars Limited
Rooms 1901-5
19/F Hopewell Centre
183 Queen's Road East
Hong Kong
PRINCIPAL BANKERS
Industrial and Commercial Bank of China Bank of China
55 Fuxingmennei Avenue (Head Office) 1 Fuxingmennei Avenue
Xicheng District Xicheng District
Beijing, PRC Beijing, PRC
China Construction Bank China Development Bank
25 Finance Street 29 Fuchengmenwai Street
Xicheng District Xicheng District
Beijing, PRC Beijing, PRC
Bank of Communications CITIC Industrial Bank
Tongtai Mansion, 33 Finance Street A27 Finance Street
Xicheng District Xicheng District
Beijing, PRC Beijing, PRC
DEPOSITORY
The Bank of New York
P.O. Box 11258
Church Street Station
New York NY 10286-1258
USA
PLACES OF LISTING
H Shares The Stock Exchange of Hong Kong Limited
Code: 857
ADSs The New York Stock Exchange, Inc.
Symbol: PTR
PUBLICATIONS
As required by the United States securities laws, the Company will file
an annual report on Form 20-F with the United States Securities and Exchange
Commission on or before June 30, 2004. The annual report on Form 20-F contains a
more detailed discussion of the Company's business, operation results and
financial conditions. Copies of the annual report as well as the Form 20-F, once
filed with the United States Securities and Exchange Commission, will be
available at:
PRC PetroChina Company Limited
16 Andelu
Dongcheng District
Beijing 100011
130
PRC
Tel: (8610) 8488 6270
Fax: (8610) 8488 6260
Hong Kong PetroChina Company Limited
Unit 3606
Tower Two, Lippo Centre
89 Queensway
Hong Kong
Tel: (852) 2899 2010
Fax: (852) 2899 2390
USA The Bank of New York
P.O. Box 11258
Church Street Station
New York, NY 10286 - 1258
USA
Calling from within the US (toll-free): 1-888-BNY-ADRs
Calling from outside the US: 610-312-5315
Email: shareowner-svcs@bankofny.com
Websites: http://www.adrbny.com
http://www.stockbny.com
Shareholders can obtain a copy of this annual report as well as the
Form 20-F, once filed with the United States Securities and Exchange Commission,
through the internet address below:
www.petrochina.com.cn
INVESTMENT INFORMATION FOR REFERENCE
Please contact our Hong Kong Representative Office for other
information of the Company.
DOCUMENTS AVAILABLE FOR INSPECTION
The following documents are available for inspection at the Headquarters of
the Company in Beijing:
1 The original of the annual report for 2003 signed by the Chairman of the
Board;
2 The Financial Statements under the hand and seal of the Legal Representatives,
the Chief Accountant and the Person in charge of the Accounting Department of
the Company;
3 The original of the Financial Report under the seal of the Auditors and under
the hand and seal of the Certified Public Accountants; and
4 Copies of all the English and Chinese announcements of the Company which have
been published in Hong Kong newspapers during the period of the annual report.
131
NOTICE OF ANNUAL GENERAL MEETING
NOTICE IS HEREBY GIVEN that an Annual General Meeting of PetroChina
Company Limited (the "COMPANY") for the year 2003 will be held at 9:00 a.m. on
Tuesday, May 18, 2004 at Kempinski Hotel, 50 Liangmaqiao Lu, Chaoyang District,
Beijing, the People's Republic of China (Postal Code 100016) to consider and
authorise the following matters:
1 to consider and approve the Report of the Board of Directors of the
Company for the year 2003;
2 to consider and approve the Report of the Supervisory Committee of
the Company for the year 2003;
3 to consider and approve the Audited Financial Statements of the
Company for the year 2003;
4 to consider and approve the declaration and payment of a final
dividend for the year ended December 31, 2003 in the amount and in the manner
recommended by the Board of Directors;
5 to consider and approve the authorisation of the Board of Directors
to determine the distribution of interim dividend for the year 2004;
6 to consider and approve the continuation of appointment of
PricewaterhouseCoopers, Certified Public Accountants, as the international
auditors of the Company and PricewaterhouseCoopers Zhong Tian CPAs Limited
Company, Certified Public Accountants, as the domestic auditors of the Company,
for the year 2004 and to authorise the Board of Directors to fix their
remuneration;
7 to consider the election of directors of the Company;
8 to consider the election of supervisors of the Company;
9 to consider and, if thought fit, to pass the following as special
resolution:
"THAT:
(a) the Board of Directors be and is hereby authorised to make such
amendments to the Articles of Association of the Company as it thinks fit so as
to increase the registered share capital of the Company and reflect the new
capital structure of the Company upon the allotment and issuance of shares of
the Company as contemplated in subparagraph (b) of this Resolution;
(b) the Board of Directors be and is hereby granted, during the
Relevant Period, an unconditional general mandate to separately or concurrently
issue, allot and deal with additional domestic shares and overseas listed
foreign shares of the Company, and to make or grant offers, agreements and
options in respect thereof, subject to the following conditions:
132
(i) such mandate shall not extend beyond the Relevant Period save that
the Board of Directors may during the Relevant Period make or grant
offers, agreements or options which might require the exercise of such
powers after the end of the Relevant Period;
(ii) the aggregate nominal amount of the domestic shares and overseas
listed foreign shares issued and allotted or agreed conditionally or
unconditionally to be issued and allotted (whether pursuant to an
option or otherwise) by the Board of Directors otherwise than pursuant
to (x) a Rights Issue, or (y) any option scheme or similar arrangement
adopted by the Company from time to time for the grant or issue to
officers and/or employees of the Company and/or any of its subsidiaries
of shares or rights to acquire shares of the Company, shall not exceed
20% of each of the aggregate nominal amount of the domestic shares and
overseas listed foreign shares of the Company in issue as at the date
of this Resolution; and
(iii) the Board of Directors will only exercise its power under such
mandate in accordance with the Company Law of the PRC and the Rules
Governing the Listing of Securities on The Stock Exchange of Hong Kong
Limited (as amended from time to time) and only if all necessary
approvals from the China Securities Regulatory Commission and/or other
relevant PRC government authorities are obtained;
(c) for the purposes of this Resolution:
"Relevant Period" means the period from the passing of this Resolution
until the earliest of:
- the conclusion of the next annual general meeting of the Company
following the passing of this Resolution; or
- the expiration of the 12-month period following the passing of this
Resolution; or
- the date on which the authority set out in this Resolution is revoked
or varied by a special resolution of the shareholders of the Company in a
general meeting; and
" Rights Issue" means the allotment or issue of shares in the Company
or other securities which would or might require shares to be allotted and
issued pursuant to an offer made to all the shareholders of the Company
(excluding for such purpose any shareholder who is resident in a place where
such offer is not permitted under the law of that place) and, where appropriate,
the holder of other equity securities of the Company entitled to such offer, pro
rata (apart from fractional entitlements) to their existing holdings of shares
or such other equity securities; and
(d) contingent on the Board of Directors resolving to issue shares
pursuant to subparagraph (b) of this Resolution, the Board of Directors be and
is hereby authorised to approve, execute and do or procure to be executed and
done, all such documents, deeds and things as it may consider necessary in
connection with the issue of such new shares (including, without limitation,
determining the time and place of issue, making all necessary applications to
the relevant authorities, entering into an underwriting agreement (or any other
agreements), determining the use of proceeds and making all necessary filings
and
133
registrations with the relevant PRC, Hong Kong and other authorities, including
but not limited to registering the increased registered capital of the Company
with the relevant authorities in the PRC in accordance with the actual increase
of capital as a result of the issuance of shares pursuant to subparagraph (b) of
this Resolution)";
10 to consider and approve other matters, if any.
By Order of the Board
LI HUAIQI
Secretary to the Board
March 24, 2004
NOTES:
1. The annual report for the year 2003 will include the Report of the
Directors for the year 2003, the Report of the Supervisory Committee for the
year 2003 and the Audited Financial Statements of the Company for the year 2003
for review by the shareholders. The annual report for the year 2003 is expected
to be despatched to shareholders at the addresses as shown in the register of
members of the Company on or before April 30, 2004.
2. The register of members of the Company will be closed from Sunday,
April 18, 2004 to Tuesday, May 18, 2004 (both days inclusive), during which time
no share transfers will be effected. Holders of the Company's H shares and
State-owned shares whose names appear on the register of members of the Company
at 4:00 p.m. on Friday, April 16, 2004 are entitled to attend the annual general
meeting.
The address of the share registrar of the Company's H shares is:
Hong Kong Registrars Limited
Rooms 1901-1905,
19/F Hopewell Centre,
183 Queen's Road East,
Hong Kong
3. Each shareholder entitled to attend and vote at the annual general
meeting may appoint one or more proxies to attend and vote on his behalf at this
annual general meeting. A proxy need not be a shareholder of the Company. Each
shareholder who wishes to appoint a proxy should first review the annual report
for the year 2003, which is expected to be despatched to shareholders on or
before April 30, 2004.
4. A proxy of a shareholder who has appointed more than one proxy may
only vote on a poll.
134
5. The instrument appointing a proxy must be in writing under the hand
of the appointor or his attorney duly authorised in writing, or if the appointor
is a legal person, either under seal or under the hand of a director or a duly
authorised attorney. If that instrument is signed by an attorney of the
appointor, the power of attorney authorising that attorney to sign or other
document of authorisation must be notarised. To be valid, for holders of
State-owned shares, the form of proxy and the notarised power of attorney or
other document of authorisation (if any) must be delivered to the Secretariat of
the Board of Directors of the Company not less than 24 hours before the time
appointed for the annual general meeting. In order to be valid, for holders of H
shares, the above documents must be delivered to Hong Kong Registrars Limited
within the same period.
6. Shareholders who intend to attend the annual general meeting in
person or by proxy should return the reply slip accompanying each notice of
annual general meeting to the Secretariat of the Board of Directors on or before
Tuesday, April 27, 2004 personally or by mail or fax.
7. The annual general meeting is expected to last for half a day.
Shareholders (in person or by proxy) attending the annual general meeting are
responsible for their own transportation and accommodation expenses.
8. The address of the Secretariat of the Board of Directors is as
follows:
World Tower
16 Andelu, Dongcheng District,
Beijing, PRC
Postal code: 100011
Contact person: Li Huaiqi
Tel: (8610) 8488 6270
Fax: (8610) 8488 6260
135
MAJOR EVENTS IN 2003
March
- The Company entered into the Cooperative Framework Agreement with
China Ocean Shipping (Group) Company ("COSCO") for cooperation in
developing the ship fuel oil market. It is preliminarily agreed that
both parties will restructure China Marine Bunker Supply Company
("CMBSC"), a subsidiary of COSCO, into a company with limited liability
by jointly injecting capital into CMBSC.
- The Company held an inception ceremony in Jiayuguan City, Gansu
Province for the commencement of construction of the Gansu section of
the West-East Pipeline project. The Gansu section of the West-East
Pipeline starts from Anxi County, Gansu Province and ends at Jingtai
County, Gansu Province, stretching along the Lanzhou-Xinjiang Railway
to the Hexi Corridor and crossing 12 cities and counties including
Liuyuan, Yumen, Jiayuguan, Jiuquan, Zhangye and Wuwei. With a total
length of 976 kilometres, it is the longest section of the West-East
Pipeline project among all provinces, regions and cities.
- The Company held the second meeting of the second Board of Directors
in Beijing and adopted resolutions on the following matters: the
Company's Financial Statements for the year 2002, the Company's annual
report for the year 2002 (for publication in Hong Kong), President Work
Report for the year 2002, Report on Performance Assessment and
Formulation of Performance Contract Relating to Management Members
Headed by President for the year 2003, issue of corporate bonds by the
Company, establishment of the capital operation department,
authorisation for the Board of Directors to determine the Company's
distribution of interim dividend, and convening of 2002 annual general
meeting.
- The Company received a number of awards in the survey of "Asia's Best
Companies 2003 - China" held by FinanceAsia, the most influential
publication in the Asian Pacific capital markets.
April
- The Company announced that it completed the acquisition of 50% of the
interests of Amerada Hess Indonesia Holdings Co. ("AHIH"), a subsidiary
of an American company Amerada Hess, at a consideration of
approximately US$82 million in cash, including operating capital.
PETRONAS acquired the remaining 50% of interests of AHIH on the same
terms. AHIH, the Company and PETRONAS held 30% of interests each in the
Jabung Block PSC, with PERTAMINA holding the other 10%. The Company was
the operator of the PSC.
The acquisition of AHIH also included Amerada Hess' 20% interests in an
associated downstream project, which was for the construction of
facilities for the processing and sales of LPG and light naphtha. Part
of the acquisition prices for the project would be made payable to
Amerada Hess only when certain milestones were reached on this project.
136
The Jabung PSC is located onshore Sumatra and includes the North
Geragai, Makmur, Gemah, Northeast Betara and North Betara oil and gas
fields. The Company's other upstream interests in Indonesia include
Tuban Block, South Jambi B Block, Bangko Block, Salawati Basin and
Salawati Island Blocks.
May
- The 2002 annual general meeting of the Company was held in Beijing,
at which resolutions on the following matters were adopted: approval of
the Report of Board of Directors for the year 2002, approval of the
Report of the Supervisory Committee for the year 2002, approval of the
financial statements of the Company for the year 2002, approval of the
Company's profit distribution plan for the year 2002, approval of the
authorisation of the Board of Directors to determine on the
distribution of interim dividend for the year 2003, approval of the
proposal of appointment of domestic and foreign accounting firms for
the Company for the year 2003, approval of the issue of the corporate
bonds of the Company, approval of election of Mr Wang Fucheng to be
director of the Company, approval of election of Mr Zheng Fu to be
director of the Company, and approval of election of Mr Franco Bernabe
to be independent director of the Company.
June
- The Company and the Industrial and Commercial Bank of China held an
inaugural ceremony in Beijing to launch the trial operation of the
Peony Transportation Card gas service application system. The Company's
service stations in Beijing began to accept Peony Transportation Card.
The trial operation of this system established the first milestone of
the project. It enabled payments and settlements at PetroChina's
service stations in Beijing to be effected by both the Peony
Transportation Card and the PetroChina Gas Card, thus providing
convenient multi-purpose card services to three million holders of the
Peony Transportation Card. It also helped to provide experience for the
"All in One Card" style management and services planned to be used in
the 2008 Olympics in Beijing.
July
- Business Week, a highly influential magazine in the international
business world, published its Global 1000 and Emerging Market 200
rankings (based on stock market value). On the Emerging Market 200
ranking, the Company leaped from 83rd in 2002 to 3rd in 2003 with a
market value of US$43.512 billion, ranking the 2nd among elected
Chinese companies.
August
- The Company and its cooperative partner Apache (NYSE: APA) announced
that they achieved first production at the Zhaodong Block in Dagang,
Baohai Bay, China with an output of 6,000 barrels of oil per day. It is
expected that the output would reach the highest level of 22,000
barrels of oil per day in the first quarter of 2004. As an independent
oil and gas company, Apache conducts operations in the United States,
Canada, North Sea in Britain, Egypt, West Australia, China and
Argentina. The Zhaodong Project was initially launched in 1993. Oil was
first discovered in the block with an area of 197 square kilometers in
1994. With some other discoveries, including
137
the new discovery of a high-yield well in 1997, the block proved to
have potential for future development.
- The Company held the third meeting of the second Board of Directors
in Beijing. During the meeting, resolutions on the following matters
were adopted: the Company's interim financial statements for the year
2003, the Company's provision for interim dividend for the year 2003
and the adjustment of the Company's 2003 investment plan.
- The commissioning ceremony for the construction of the
Zhongxian-Wuhan Gas Pipeline Project was held in Yichang, Hubei
Province. The Zhongxian-Wuhan Gas Pipeline Project comprises the trunk
pipeline from Zhongxian County, Chongqing to Wuhan, Hubei Province as
well as the three branch pipelines from Jingzhou to Xiangfan, from
Qianjiang to Xiangtan and from Wuhan to Huangshi. With a total length
of 1347.3 kilometers, the Zhongxian-Wuhan Pipeline represents an artery
of energy resources connecting the Chuanyu Gas Block as well as Hubei
and Hunan Provinces. The commissioning of this project marked the
full-scale implementation of another long-distance natural gas
transmission pipeline project invested and constructed by the Company
subsequent to the West-East Pipeline project. The natural gas of the
Zhongxian-Wuhan Pipeline originates from the Sichuan Basin in which the
total volume of natural gas resources exceeds 7,000 billion cubic
meters and the proved geological reserves amount to more than 680
billion cubic meters. Currently, the downstream users in Hunan and
Hubei Provinces have entered into gas supply and utilisation contracts
with 27 users. The natural gas will be mainly used in projects relating
to petrochemistry, power generation, construction materials,
metallurgy, urban gas, etc.
- In the 2003 Report on Asian Securities Investment published by the
Research Institute of Institutional Investors, the Company was named
the Best Investor Relations Company (China) (Buyer--Funds Manager).
September
- The Company was rated Best Investor Relations and Best Corporate
Governance (under the category of energy resources industry) by
Asiamoney, a very influential publication in capital markets in the
Asia-Pacific Region.
October
- The Jingbian-Shanghai section of the West-East Pipeline project was
officially put into production and operated on a trial basis, thereby
establishing a strong and solid foundation for the formal supply of gas
to the commercial sector in Shanghai. With a total length of 1,485
kilometers, the eastern section of the West-East Pipeline project
stretches from Jingbian, Shaanxi Province to Baihe Town, Shanghai,
crossing the six provinces of Shaanxi, Shanxi, Henan, Anhui, Jiangsu
and Zhejiang and the city of Shanghai. Recently, the Company has made
further substantial achievements in opening up markets. The Company has
initialled gas supply and utilisation agreements with 19 downstream
users, including Shanghai Natural Gas Network Co. Ltd. and Yangtse-BASF
Co, Ltd. , in such provinces and cities as Hehan, Anhui, Jiangsu and
Shanghai.
138
November
- The welding work of the whole trunk pipeline with a length of 2,330 km
in the western section (Lunnan-Jingbian) of the West-East Pipeline
project was completed. This established a strong and solid foundation for
the full completion of the whole pipeline of the West-East Pipeline
project at the end of 2004 and the transmission of natural gas in Tarim,
Xinjiang Province to Shanghai in early 2005. The West-East Pipeline
project stretches from the western section in the Tarim Gas Field in
Xinjiang Province to the eastern section in Jingbian, Shaanxi Province,
crossing the four provincial blocks of Xinjiang, Gansu, Ningxia and
Shaanxi. The welding work of the whole trunk pipeline in the western
section was completed.
- The Company held the fourth meeting of the second Board of Directors in
Beijing. During the meeting, resolutions on the following matters were
adopted: the Company's Budget Report for the year 2004 and the reporting
of the Company's Budget Report for the year 2004.
- The Company was rated by Standard & Poor's, a world renowned rating
institution, as one of "China's Top 50 Companies".
December
- The winter emergency additional transmission project of the Shaan-Jing
transmission pipeline system - the main natural gas supply pipeline in
Beijing - was completed ahead of schedule with high quality and operated
in an efficient manner. Thereupon, the winter daily peaking gas supply
capacity of the pipeline increased from 16.1 million cubic meters to 26.3
million cubic meters. This project was tantamount to the construction of
a new Shaan-Jing pipeline in terms of an increase in the daily peaking
capacity by 10.2 million cubic meters. The completion of this project
ensured that the supply of natural gas would meet the significant
increase in the demand for natural gas in Beijing during the winter
season this year.
- A gas blowout occurred at the Company's Luojia No. 16H gas well in
Kaixian, Chongqing. The gas well was contracted for drilling by the No.
12 Drilling Team of Chuandong Drilling Company under the Sichuan Oil
Administration Bureau, a subsidiary of CNPC. This was a serious accident
which resulted in the poisoning, injury and death of many people living
in the surrounding areas. The accident has not resulted in a material
adverse effect on the Company's results of operations and financial
position, but it has already prompted the Company to pay serious
attention to production safety.
139
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PetroChina Company Limited
Dated: April 16, 2004 By: /s/ Li Huaiqi
-----------------------
Name: Li Huaiqi
Title: Company Secretary