Edgar Filing: CHINA PETROLEUM & CHEMICAL CORP

form6-k.htm

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 6-K

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 of

The Securities Exchange Act of 1934

For the month of August, 2012

CHINA PETROLEUM & CHEMICAL CORPORATION

22 Chaoyangmen North Street,

Chaoyang District, Beijing, 100728

People's Republic of China

Tel: (8610) 59960114

(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 ü 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 ü

(If "Yes" is marked, indicate below the file number assigned to registrant in connection with Rule 12g3-2(b): 82-__________. )

N/A

This Form 6-K consists of:

A copy of 2012 interim report of China Petroleum & Chemical Corporation (the “Registrant”), made by the Registrant on August 24, 2012.

CONTENTS

2	Company Profile

4	Principal Financial Data and Indicators

6	Changes in Share Capital and Shareholdings of
	Principal Shareholders

8	Business Review and Prospects

12	Management’s Discussion and Analysis

23	Significant Events

31	Directors, Supervisors and Senior Management

32	Financial Statements

145	Documents for Inspection

146	Written Confirmation from the Directors and
	Senior Management

This interim report contains forward-looking statements. All statements, other than statements of historical facts, that address business activities, events or developments that the Company expects or anticipates will or may occur in the future (including, but not limited to projections, targets, reserves and other estimates and business plans) are forward-looking statements. The actual results or developments of the Company may differ materially from those indicated by these forward-looking statements as a result of various factors and uncertainties. The Company makes the forward-looking statements referred to herein as at 24 August 2012 and, unless otherwise required by the relevant regulatory authorities, undertakes no obligation to update these statements.

COMPANY PROFILE

IMPORTANT NOTICE: THE BOARD OF DIRECTORS AND THE BOARD OF SUPERVISORS OF CHINA PETROLEUM & CHEMICAL CORPORATION (“SINOPEC CORP.”) AND ITS DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT WARRANT THAT THERE ARE NO FALSE REPRESENTATIONS, MISLEADING STATEMENTS OR MATERIAL OMISSIONS CONTAINED IN THIS INTERIM REPORT, AND SEVERALLY AND JOINTLY ACCEPT FULL RESPONSIBILITY FOR THE AUTHENTICITY, ACCURACY AND COMPLETENESS OF THE INFORMATION CONTAINED IN THIS INTERIM REPORT. THERE IS NO OCCUPANCY OF NON-OPERATING FUNDS BY THE SUBSTANTIAL SHAREHOLDERS OF SINOPEC CORP. MR. ZHANG JIANHUA, DIRECTOR OF SINOPEC CORP., DID NOT ATTEND THE SECOND MEETING OF THE FIFTH SESSION OF THE BOARD. FOR REASONS OF OFFICIAL DUTIES. MR. ZHANG JIANHUA AUTHORISED MR. WANG ZHIGANG TO VOTE ON HIS BEHALF IN RESPECT OF THE RESOLUTIONS PUT FORWARD IN THE MEETING OF THE BOARD. MR. FU CHENGYU, CHAIRMAN OF THE BOARD, MR. WANG TIANPU, VICE CHAIRMAN AND PRESIDENT AND MR. WANG XINHUA, CHIEF FINANCIAL OFFICER AND HEAD OF THE CORPORATE FINANCE DEPARTMENT WARRANT THE AUTHENTICITY AND COMPLETENESS OF THE INTERIM FINANCIAL STATEMENTS CONTAINED IN THIS INTERIM REPORT.

THE INTERIM FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2012 OF SINOPEC CORP. AND ITS SUBSIDIARIES (“THE COMPANY”), PREPARED IN ACCORDANCE WITH THE ACCOUNTING STANDARDS FOR BUSINESS ENTERPRISES (“ASBE”) OF THE PRC, AND INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”), HAVE BEEN AUDITED BY KPMG HUAZHEN (SPECIAL GENERAL PARTNERSHIP) AND KPMG CERTIFIED PUBLIC ACCOUNTANTS (“KPMG”) RESPECTIVELY, AND BOTH FIRMS HAVE ISSUED STANDARD UNQUALIFIED OPINIONS ON THE INTERIM FINANCIAL STATEMENTS CONTAINED IN THIS INTERIM REPORT.

COMPANY PROFILE

Sinopec Corp. is one of the largest integrated energy and chemical companies in China, with upstream, midstream and downstream operations. The principal operations of the Company include: the exploration and production, pipeline transportation and sales of petroleum and natural gas; petroleum refining; production; storage and transportation of petroleum products, petrochemical products, synthetic fiber, fertilizer and other chemical products; import & export, as well as import and export agency business of oil, natural gas, petroleum products, petrochemical and chemical products, and other commodities and technologies; and research, development and application of technologies and information.

Sinopec Corp. holds true to its mission of “Developing the Company, Contributing to the Country, Creating Shareholder Value, Promoting Social Responsibility and Employee Well-being”. It operates to the highest standards of integrity and business ethics, achieves mutual success with partners through collaboration. Through our dedication to building Sinopec into an environment-friendly and resource-efficient national flagship, together with our professionalism, innovation and passion to deliver results, we will strive to realize the group’s vision of becoming a “first-class global energy and chemical corporation”.

BASIC INFORMATION

LEGAL NAME

中国石油化工股份有限公司

CHINESE ABBREVIATION

中国石化

ENGLISH NAME

China Petroleum & Chemical Corporation

ENGLISH ABBREVIATION

Sinopec Corp.

LEGAL REPRESENTATIVE

Mr. Fu Chengyu

AUTHORISED REPRESENTATIVE

Mr. Wang Tianpu

Mr. Huang Wensheng

SECRETARY TO THE BOARD OF DIRECTORS

Mr. Huang Wensheng

REPRESENTATIVE ON SECURITIES MATTERS

Mr. Sang Jinghua

REGISTERED ADDRESS, PLACE OF BUSINESS AND CORRESPONDENCE ADDRESS

22 Chaoyangmen North Street,

Chaoyang District, Beijing, China

Postcode: 100728

Tel: 86-10-59960028

Fax: 86-10-59960386

Website: http://www.sinopec.com

E-mail: ir@sinopec.com

media@sinopec.com

PLACE OF BUSINESS IN HONG KONG

20th Floor, Office Tower,

Convention Plaza,

1 Harbour Road,

Wanchai, Hong Kong

NEWSPAPERS FOR INFORMATION DISCLOSURE IN MAINLAND CHINA

China Securities Journal

Shanghai Securities News

Securities Times

WEBSITES PUBLISHING THIS INTERIM REPORT

Designated by the China Securities Regulatory Commission:

http://www.sse.com.cn

The Stock Exchange of Hong Kong Limited (“Hong Kong Stock Exchange”):

http://www.hkex.com.hk

The Company’s Website:

http://www.sinopec.com

PLACES WHERE THE INTERIM REPORT IS AVAILABLE FOR INSPECTION

China: Board Secretariat

Sinopec Corp.

22 Chaoyangmen North Street,

Chaoyang District, Beijing, China

USA: Citibank N.A.

388 Greenwich St., 14th Floor

New York, NY 10013 USA

UK: Citibank N. A.

Citigroup Centre

Canada Square

Canary Wharf

London E14 5LB UK

PLACES OF LISTING OF SHARES, STOCK NAMES AND STOCK CODES

AShares: Shanghai Stock Exchange

Stock name: 中国石化

Stock code: 600028

HShares: Hong Kong Stock Exchange

Stock code: 0386

ADR: New York Stock Exchange

Stock code: SNP

London Stock Exchange

Stock code: SNP

FIRST REGISTRATION DATE OF

SINOPEC CORP.

25 February 2000

FIRST REGISTRATION PLACE OF

SINOPEC CORP.

6A Huixindong Street,

Chaoyang District,

Beijing, PRC

ENTERPRISE LEGAL BUSINESSES LICENSE REGISTRATION NO.

100000000032985 (10-10)

TAXATION REGISTRATION NO.

Jing Guo Shui Chao Zi 110105710926094

ORGANIZATION CODE

71092609-4

NAMES AND ADDRESSES OF AUDITORS OF SINOPEC CORP.

Domestic Auditors: KPMG Huazhen (Special General Partnership)

Address: 8/F, Office Tower E2

Oriental Plaza

1 East Chang’an Avenue

Dongcheng District

Beijing 100738, PRC

Overseas Auditors: KPMG Certified Public

Accountants

Address: 8th Floor

Prince’s Building

Central, Hong Kong

PRINCIPAL FINANCIAL DATA AND INDICATORS

1	FINANCIAL DATA AND INDICATORS PREPARED IN ACCORDANCE WITH CHINA ACCOUNTING STANDARDS FOR BUSINESS ENTERPRISES (“ASBE”)

					Changes
	At 30 June		At 31 December		from the end
	2012		2011		of last year
Items	RMB millions		RMB millions		(%)

Total assets		1,168,178		1,130,053		3.4
Total equity attributable to shareholders of the Company		482,730		474,399		1.8
Net assets per share attributable to shareholders of the Company (RMB)		5.560		5.472		1.6

					Changes
					over the same
	Six-month period ended 30 June				period of the
	2012		2011		preceding year
Items	RMB millions		RMB millions		(%)

Operating profit		33,508		56,237		(40.4	)
Profit before taxation		34,283		56,755		(39.6	)
Net profit attributable to shareholders of the Company		23,697		40,239		(41.1	)
Net profit attributable to shareholders of the Company before extraordinary gain and loss		23,259		39,824		(41.6	)
Weighted average return on net assets (%)		4.89		9.10		(4.21	)
					percentage points
Basic earnings per share (RMB)		0.273		0.464		(41.2	)
Diluted earnings per share (RMB)		0.263		0.452		(41.8	)
Basic earnings per share (before extraordinary gain and loss) (RMB)		0.268		0.459		(41.6	)
Net cash flow from operating activities		20,554		30,863		(33.4	)
Net cash flow from operating activities per share (RMB)		0.237		0.356		(33.4	)

Extraordinary items and corresponding amounts:

Six-month period ended 30 June 2012
	(Income)/expense
Items	RMB millions

Gain on disposal of non-current assets		(459	)
Donations		42
Gain on holding and disposal of various investments		115
Other extraordinary income and expenses, net		(348	)
Subtotal		(650	)
Tax effect		163
Total		(487	)
Attributable to:
Equity shareholders of the Company		(438	)
Minority interests		(49	)

2	FINANCIAL DATA AND INDICATORS PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”)

					Changes
					over the same
	Six-month periods ended 30th June				period of the
	2012		2011		preceding year
Items	RMB millions		RMB millions		(%)

Operating profit		40,083		58,439		(31.4	)
Profit attributable to equity shareholders of the Company		24,503		41,174		(40.5	)
Return on capital employed (%)		3.65		6.58		(2.93	)
					percentage points
Basic earnings per share (RMB)		0.282		0.475		(40.6	)
Diluted earnings per share (RMB)		0.272		0.462		(41.1	)
Net cash generated from operating activities		20,322		30,570		(33.5	)
Net cash generated from operating activities per share (RMB)		0.234		0.353		(33.7	)

					Changes
	At 30 June		At 31 December		from the end
		2012		2011	of last year
Items	RMB millions		RMB millions		(%)

Total assets		1,181,287		1,144,528		3.2
Total equity attributable to equity shareholders of the Company		480,398		472,328		1.7
Net assets per share (RMB)		5.533		5.448		1.6

CHANGES IN SHARE CAPITAL AND SHAREHOLDINGS OF PRINCIPAL SHAREHOLDERS

1	CHANGES IN THE SHARE CAPITAL OF SINOPEC CORP.

Unit: 1,000 shares

	Before Change					Increase/Decreasenote								After Change
		Percentage		New share		Bonus		Conversion								Percentage
	Number	(%)		issued		issued		from reserve		Others		Sub-total		Number		(%)

RMB ordinary shares	69,922,074		80.65		—		—		—		117,715		117,715		70,039,789		80.67
Foreign shares listed domestically	—		—		—		—		—		—		—		—		—
Foreign shares listed overseas	16,780,488		19.35		—		—		—		—		—		16,780,488		19.33
Others	—		—		—		—		—		—		—		—		—
Total Shares	86,702,562		100		—		—		—		117,715		117,715		86,820,277		100

Note:

From 1 January 2012 to 30 June 2012, Sinopec A share increased by 117,715,000 shares as a result of the exercise of conversion by some convertible bonds holders.

2	NUMBER OF SHAREHOLDERS AND SHAREHOLDINGS OF PRINCIPAL SHAREHOLDERS
	As at 30 June 2012, there were a total of 779,143 shareholders of Sinopec Corp., of which 772,536 were holders of A share and 6,607 were holders of H shares. The public float of Sinopec Corp. satisfied the minimum requirements under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Hong Kong Listing Rules”).

(1) Top ten shareholders

Unit: 1,000 shares

		As a		Total
		percentage		shares held		Number		Number
		of total shares		at the end		of shares		of shares
	Nature of	at the end of the		of reporting		with selling		pledged or
Name of Shareholders	shareholders	reporting period %		period		restrictions		lock-ups

China Petrochemical Corporation	A share		75.79		65,797,128		0		0
HKSCC (Nominees) Limited	H share		19.20		16,676,361		0	Unknow
Guotai Junan Securities Co., Ltd	A share		0.22		188,634		0		0
China Life-Dividend-Individual Dividend 005L-FH002 Shanghai	A share		0.15		133,430		0		0
PICC Life-Dividend-Individual Insurance Dividend	A share		0.11		98,428		0		0
China Southern Select Fund	A share		0.07		58,300		0		0
Taikang Life Insurance Co., Ltd, Dividend Individual Dividend-019	A share		0.06		52,683		0		0
Huaan Hongli Securities Inv. Fund	A share		0.06		50,800		0		0
Harvest Theme New Dynamic Equity Securities Investment Fund	A share		0.05		47,430		0		0
SSE 50 ETF Open Index Securities Inv. Fund	A share		0.04		37,610		0		0

	Note:	Sinopec Century Bright Capital Investment Limited, a wholly-owned overseas subsidiary of China Petrochemical Corporation, holds 425,500,000 H shares, which are included in the total number of shares held by HKSCC Nominees Limited.

	Statement on the connected relationship or activity in concert among the aforementioned shareholders:

	We are not aware of any connection or activities in concert among or between the top ten shareholders.

(2)

Information disclosed by the shareholders of H Shares according to the Securities and Futures Ordinance as at 30 June 2012

		Number of		As a percentage
		shares with		of total interests
		interests held		(H share) of
		or regarded as		Sinopec Corp.
Name of shareholders	Status of shareholders	being held (share)		(%)

JPMorgan Chase & Co.	Beneficial owner		196,976,157(L)		1.17(L)
			34,598,330(S)		0.21(S)
	Investment manager		420,609,627(L)		2.51(L)
	Custodian corporation/Approved lending agent		908,622,581(L)		5.41(L)
Blackrock, Inc.	Interests of corporation controlled		1,103,504,474(L)		6.58(L)
	by the substantial shareholder		186,800,976(S)		1.11(S)
Templeton Asset Management Ltd.	Investment manager		1,006,669,203(L)		6.00(L)

Note:

(L): Long position, (S): Short position.

3	CHANGES IN THE CONTROLLING SHAREHOLDERS AND THE EFFECTIVE CONTROLLER
	There was no change in the controlling shareholder or the effective controller in the reporting period.

BUSINESS REVIEW AND PROSPECTS

BUSINESS REVIEW

The first half of 2012 witnessed an economic slow-down in the United States, the debt crisis and consequent recession in Europe, and slower growth in China and other emerging markets. The Chinese government focused on progress in stability, and took a series of measures to maintain stable growth. China’s GDP grew by 7.8% over the same period last year, with 8.1% growth in the first quarter and 7.6% in the second quarter. Given the geo-political uncertainty and the weakening demand due to the global economic slow-down, the international price of crude oil rose and then dropped in the first half of 2012. Brent spot price soared to US$128 per barrel in the first quarter and dropped to US$100 per barrel in the second quarter, averaging at US$113.34 per barrel in the first half, a year-on-year increase of 1.96%. The domestic market for refined oil products was well supplied, and the government made four adjustments in product prices in line with international crude price development, keeping tight price regulation. The chemicals market saw intense competition, leading to a drastic drop in product prices. According to the Company’s statistics for the first half of the year, domestic apparent consumption of oil products (including gasoline, diesel and kerosene) increased by 3.0%, and consumption of ethylene equivalents increased by 4.0%.

1	PRODUCTION AND OPERATION

	(1)	Exploration and Production Segment
		In oil exploration, we made discoveries in a number of territories, including the Tahe oil field in the Tarim Basin, the southern Ordos Basin, the western and northern rims of the Junngar Basin, and the Jiyang depression of the Shengli oil field. In gas exploration, we made new discoveries in the middle and shallow strata of the western Sichuan Basin, the deep strata of the Yuanba area in northeastern Sichuan, and the northern Ordos Basin. In oil field development and production, we achieved sustained oil production growth as a result of the advances in tapping mature oil fields’ potentials, ramping up in key tight oil reservoirs and improving oil recovery rate. In gas field development, our key projects were well under way. We put into operation the Dawan block of the Puguang Gas Field, achieved good progress in the Yuanba Gas Field, and progressed smoothly in middle and shallow strata of the western Sichuan Basin and the Ordos Basin, as momentum continued well on track. The Company produced 163.09 million barrels of crude oil in the first half of 2012, a year-on-year increase of 4.3%. Domestic oil production increased by 1.2% year-on-year and overseas production increased significantly compared with the same period last year due to the overhaul of offshore production facilities in 2011. Natural gas output grew to 289.78 billion cubic feet, representing an increase of 14.1%.

Exploration and Production: Summary of Operations

	Six-month periods ended 30 June				Changes
	2012		2011		%

Oil and gas production (mmboe)		211.42		198.63		6.4
Crude oil production (mmbbls) Note 1		163.09		156.32		4.3
China		151.96		150.22		1.2
Overseas		11.13		6.10		82.5
Natural gas production (bcf)Note 2		289.78		253.88		14.1

	Note 1:	For domestic production of crude oil, 1 tonne = 7.1 barrels; for production of crude oil in Africa, 1 tonne = 7.27 barrels.
	Note 2:	For production of natural gas, 1cubic meter=35.31 cubic feet.

	(2)	Refining Segment
		In spite of the tight price regulation on domestic refined oil products and the misalignment with the international crude price in the first half of 2012, we optimized the procurement, transportation and allocation of crude oil to reduce costs, and maintained steady and safe operations of refining facilities. We adjusted the refining throughput and utilization rate in accordance with market changes. We optimized product slate and increased the output of high-spec gasoline. We implemented plans to revamp and expand our refineries in an effort to upgrade the quality of oil products and supply cleaner products. Refinery throughput was 110 million tonnes in the first half of the year, representing a year-on-year increase of 1.1%. Light yield increased by 0.94 percentage point compared with the same period of 2011.

		Refining: Summary of Operations

	Six-month periods ended 30 June				Changes
	2012		2011		(%)

Refinery throughput (million tonnes)		109.76		108.53		1.1
Gasoline, diesel and kerosene production (million tonnes)		65.95		63.40		4.0
Gasoline (million tonnes)		19.61		18.18		7.8
Diesel (million tonnes)		39.10		38.44		1.7
Kerosene (million tonnes)		7.25		6.77		7.1
Light chemical feedstock production (million tonnes)		18.53		18.57		(0.2	)
Light yield (%)		77.20		76.26		0.94
					Percentage points
Refining yield (%)		95.41		95.30		0.11
					Percentage points

	Note:	1.	Refinery throughput is converted at 1 tonne = 7.35 barrels
		2.	100% production of joint ventures was included.

	(3)	Marketing and Distribution
		In the first half of 2012, Sinopec Corp. adjusted operation strategies to actively respond to the changes in the market demand. In the first quarter, the Company increased the proportion of retail volume to achieve higher profitability. In the second quarter, in spite of continued drop in international oil price and weakening market demand, the Company intensified marketing activities and controlled the inventory level effectively. The Company strengthened quality management for outsourced oil products. We provided value-added services including e-commerce and promoted non-fuel businesses. In the first half, the total sales volume of oil products increased to 82.67 million tonnes, up by 2.8% year-on-year.

		Marketing and Distribution: Summary of Operations

	Six-month periods ended 30th June				Changes
	2012		2011		%

Total sales volume of oil products (million tonnes)		82.67		80.42		2.8
Total domestic sales volume of oil products (million tonnes)		77.03		75.10		2.6
Retail (million tonnes)		53.15		50.20		5.9
Direct sales (million tonnes)		15.68		15.89		(1.3	)
Wholesales (million tonnes)		8.2		9.01		(9.0	)
Annualised average throughput per station (tonne/station)		3,489		3,341		4.4

	On 30th June 2012		On 31st December 2011		Changes from the end of last year
	(%)

Total numbers of domestic service stations		30,484		30,121		1.2
Company-operated		30,471		30,106		1.2

(4)	Chemicals
	In the first half of 2012, the Company lowered the plant loads for ethylene and synthetic resin according to supply and demand. We took advantage of production synergies and optimised supply-chain management, leveraging lighter hydrocarbon feedstock and increasing resource efficiency. We produced marketable and high value-added products, accelerated research and development on new products and performance compounds for synthetic resin. As a result, synthetic resin new products and performance compounds reached 52.0%, differentiated fiber reached 67.5% of total produced. We developed a strong customer base by improving service quality. Production of ethylene was 4.81 million tonnes in the first half of 2012, down by 4.1% year on year, and the total sales of chemical products were 26.15 million tonnes, up by 4.2% year on year.

	Summary of Production of Major Chemical Products	Unit: 1,000 tonnes

	Six-month periods ended 30th June				Changes
	2012		2011		(%)

Ethylene		4,810		5,015		(4.1	)
Synthetic resin		6,701		6,834		(2.0	)
Synthetic fibre monomer and polymer		4,580		4,744		(3.5	)
Synthetic fibre		674		705		(4.4	)
Synthetic rubber		475		526		(9.5	)

Note:

100% production of joint ventures was included.

2	COST CUTTING
	To deliver the total cost management target, the Company vigorously reduced non-productive expenditure and kept costs and expenses within our budget in the first half of 2012. The Company strengthened its process management in crude sourcing and logistics, and achieved a better control of crude cost. On finance management, the Company reduced financing cost by strengthening fund operations and broadening fund-raising channels. The Company reduced procurement cost through centralised procurement and storage management.

3	HSE, ENERGY CONSERVATION AND EMISSION REDUCTION
	The Company implemented the accountability system and strengthened assessment and supervision on HSE management to ensure safe and stable operation of the facilities in the first half of 2012. The Company has taken green and low-carbon initiatives, advanced technology innovation and energy performance contracts, and focused on energy-saving and environmental protection in the course of energy development, processing and utilization. To well implement corporate social responsibility, the Board of Directors set up the CSR Management Committee to monitor the Company’s CSR performance in HSE, green and low-carbon development. In the first half of 2012, the Company’s energy intensity dropped by 2.0%, COD in waste water discharge shrank by 4.1% and sulfur dioxide discharge fell by 3.3%.

4	CAPITAL EXPENDITURE
	The Company’s capital expenditures in the first half reached RMB 51.504 billion, of which RMB 21.839 billion were used in the Exploration and Production segment, mainly for the Shengli shallow water oilfield, the Tahe oil field in the northwest, the Ordos oil and gas fields, the Sichuan Basin and the Shandong LNG project. RMB 10.427 billion were used in the Refining segment, mainly for upgrading the quality of diesel products and revamping and expansion of refining projects in Shanghai Petrochemical and Jinling. RMB 6.341 billion were used in the Chemicals segment for the construction of such projects as the Wuhan 800 thousand tpa ethylene project, the Yanshan butyl rubber project and the Yizheng BDO project. RMB 12.39 billion were used in the Marketing and Distribution segment, mainly for construction and acquisition of service stations, oil depots and oil product pipelines in highways, major cities and urban development areas, and non-fuel business, IC card value-added service with 704 new service stations added. RMB 507 million were used for the Corporate and Others, mainly for R&D facilities and IT projects construction.

BUSINESS PROSPECTS

Looking into the second half of the year, the Chinese government is expected to implement a number of fiscal and monetary policies in pursuit of steady economic growth, driving infrastructure investment and domestic consumer spending. Given these macro-control policies to be in place in the second half of 2012, we expect the domestic demand for refined oil products and chemicals will steadily increase, which provides favorable conditions for the Company to scale up business operations.

In line with the macro economic forecast in the second half of 2012, we will step up market development effort, vigorously optimise operations, and strengthen HSE, so as to deliver sustained growth.

In exploration, the Company will focus on reserve and volume growth, advancing exploration in key areas, tracking the evaluation on risk well drilling, ramping up production in key areas and significant natural gas projects, strengthening the development, management and enhanced oil recovery in mature oil fields. The Company will step up efforts in exploration and development of unconventional resources, building production capacity in Fuling continental shale gas project, preparing for the coal-bed-methane production in the southern part of Yanchuan through various pilot well development programs. In the second half of 2012, the Company plans to produce 163.75 million barrels of crude oil (including 154.61 million barrels of domestic production and 9.14 million barrels of overseas production), and 293.07 billion cubic feet of natural gas.

In refining, we will optimise crude sourcing and allocation, increase resource efficiency, and rationalise refinery utilisation. The Company will take into consideration a balanced production and sales of light chemical feedstock, the regional oil products consumption and profitability, and optimise product slate to produce high-spec gasoline. The oil products inventory will be controlled at a rational level to reduce operating cost. The Company will leverage the synergy of centralised sales of lubricant, asphalt and petroleum coke to maximise profitability. For the second half of 2012, the Company plans to process 112 million tonnes of crude oil.

In marketing and distribution, we will leverage the advantage of the distribution network and the value of our brand awareness, making appropriate adjustments to the marketing strategies, expanding marketing activities, extending the sales network, and sharpening competitiveness. In the meantime, the Company will continuously develop non-fuel business, expanding a CNG market and developing e-commerce business to tap new sources of growth. In the second half 2012, the Company plans to sell 80 million tonnes of oil products.

In chemicals, we will respond rapidly to home and overseas market dynamics and adjust the utilisation rate of chemical facilities. The Company will strengthen plant-site management to continuously increase its techno-economic index, optimising feedstock and product mix, maximising the output of marketable and high value-added products. Sinopec will balance marketing with production in line with the market volatility, taking product inventory under control to sell all that is produced. The Company will improve service mechanism for better customer satisfaction. In the second half 2012, the Company expects to produce 4.63 million tonnes of ethylene.

The Company will stick to the objective of building a world-class energy and chemical company and continue to implement the resource strategy, market strategy, integration strategy, international strategy, differentiation strategy and green and low-carbon growth strategy, optimising marketing strategies according to the economic situation at home and abroad, focusing on work safety and cost efficiency to meet all of its targets.

MANAGEMENT’S DISCUSSION AND ANALYSIS

THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE COMPANY’S AUDITED INTERIM FINANCIAL STATEMENTS AND THE ACCOMPANYING NOTES. PARTS OF THE FOLLOWING CONCERNED FINANCIAL DATA, UNLESS OTHERWISE STATED, WERE ABSTRACTED FROM THE COMPANY’S AUDITED INTERIM FINANCIAL STATEMENTS THAT HAVE BEEN PREPARED ACCORDING TO THE INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”).

1	CONSOLIDATED RESULTS OF OPERATIONS
	In the first half of 2012, the Company’s turnover and other operating revenues were RMB 1,348.1 billion, representing a year-on-year increase of 9.3%, and the operating profit was RMB 40.1 billion, representing a year-on-year decrease of 31.4%.

	The following table sets forth major revenue and expense items in the consolidated income statement of the Company for the indicated periods:

	Six-month periods ended 30th June
	2012			2011			Change
	RMB millions			RMB millions			(%)

Turnover and other operating revenues		1,348,072			1,233,272			9.3
Of which: Turnover		1,327,466			1,216,941			9.1
Other operating revenues		20,606			16,331			26.2
Operating expenses		(1,307,989	)		(1,174,833	)		11.3
Of which: Purchased crude oil, products, and operating supplies and expenses		(1,119,324	)		(998,942	)		12.1
Selling, general and administrative expenses		(28,641	)		(26,281	)		9.0
Depreciation, depletion and amortisation		(34,534	)		(30,510	)		13.2
Exploration expenses (including dry holes)		(6,882	)		(5,652	)		21.8
Personnel expenses		(24,020	)		(20,583	)		16.7
Taxes other than income tax		(95,267	)		(93,285	)		2.1
Other operating income (net)		679			420			61.7
Operating profit		40,083			58,439			(31.4	)
Net finance costs		(5,027	)		(3,296	)		52.5
Investment income and share of profit less losses from associates and jointly controlled entities		386			2,906			(86.7	)
Profit before taxation		35,442			58,049			(38.9	)
Tax expense		(9,643	)		(13,857	)		(30.4	)
Profit for the period		25,799			44,192			(41.6	)
Attributable to:
Equity shareholders of the Company		24,503			41,174			(40.5	)
Non-controlling interests		1,296			3,018			(57.1	)

	(1)	Turnover and other operating revenues
		In the first half of 2012, the Company’s turnover and other operating revenues were RMB 1,348.1 billion, representing an increase of 9.3% over the first half of 2011. This was mainly because the Company expanded the sales volume amid higher prices of crude oil and refined oil products and the increase in the revenue from the Company’s trading business.

The following table sets forth the external sales volume, average realised prices and respective change rates of the Company’s major products over the first half of 2012 compared with the first half of 2011

	Sales Volume							Average realised price*
	(1,000 tonnes)							(RMB/tonne, RMB/thousand cubic meters)
	Six-month periods							Six-month periods
	ended 30th June				Change			ended 30th June				Change
	2012		2011		(%)			2012		2011		(%)

Crude oil		2,873		2,386		20.4			4,867		4,600		5.8
Natural gas (million cubic meters)		6,881		5,936		15.9			1,282		1,268		1.1
Gasoline		25,540		23,705		7.7			8,740		8,236		6.1
Diesel		47,689		48,612		(1.9	)		7,334		6,994		4.9
Kerosene		8,914		8,053		10.7			6,550		5,928		10.5
Basic chemical feedstock		11,134		9,937		12.1			6,792		6,959		(2.4	)
Monomer and polymer for synthetic fibre		3,298		3,141		5.0			8,377		10,370		(19.2	)
Synthetic resin		5,237		5,176		1.2			9,058		10,134		(10.6	)
Synthetic fibre		710		764		(7.1	)		11,102		13,995		(20.7	)
Synthetic rubber		631		631		—			19,034		22,028		(13.6	)
Chemical fertilizer		506		468		8.1			2,204		2,049		7.6
Trading		62,948		51,098		23.2			5,248		5,205		0.8
Of which: Crude oil		53,415		43,196		23.7			5,227		5,109		2.3
Refined oil products		3,902		5,033		(22.5	)		6,272		6,150		2.0

* Excluding value added tax.

Most of the crude oil and a small portion of natural gas produced by the Company were used internally for refining and chemical production with the remainder sold to external customers. In the first half of 2012, the turnover from crude oil, natural gas and other upstream products sold externally amounted to RMB 26.0 billion, increased by 19.8% year on year, accounting for 1.9% of the Company’s turnover and other operating revenues. The change was mainly due to the increase in both the sales volume and the prices of crude oil and natural gas over the same period in 2011.

Petroleum products (mainly consisting of refined oil products and other refined petroleum products) sold by the refining segment and the marketing and distribution segment achieved an external sales revenue of RMB 797.6 billion, representing an increase of 6.9% over the same period of 2011 and accounting for 59.2% of the Company’s turnover and other operating revenues. The increase was mainly due to higher prices and sales volume of refined oil products. The sales revenue of gasoline, diesel and kerosene was RMB 631.4 billion, representing an increase of 8.3% over the same period in 2011, accounting for 79.2% of the sales revenue of petroleum products. Sales revenue of other petroleum products was RMB 166.2 billion, representing an increase of 1.7% compared with the first half of 2011, accounting for 20.8% of the sales revenue of petroleum products.

The Company’s external sales revenue of chemical products was RMB 173.6 billion, representing a decrease of 5.1% over the same period of 2011, accounting for 12.9% of its turnover and other operating revenues. The decrease was mainly due to the price plunge of chemical products with the average prices of the six major categories of chemical products dropping by RMB 772 per tonne or 9.0% year on year.

Sales revenue of Corporate and Others reached RMB 330.9 billion, representing 24.5% of the Company’s total turnover and other operating income, up by 24.2% year on year. This was mainly due to the expanded crude and refined oil export and import businesses.

(2)	Operating expenses
	In the first half of 2012, the Company’s operating expenses were RMB 1,308.0 billion, representing an increase of 11.3% over the first half of 2011. The operating expenses mainly consisted of the following:

	Crude oil procurement, products and operating supplies and expenses were RMB 1,119.3 billion in the first half of 2012, representing an increase of 12.1% over the same period of 2011, accounting for 85.6% of the total operating expenses, of which:

	●	Procurement cost of crude oil was RMB 458.8 billion, representing an increase of 13.0% over the same period of 2011. Total processed volume of crude oil purchased externally in the first half of 2012 was 84.78 million tonnes (excluding the volume processed for third parties), increased by 2.8% over the first half of 2011. The average unit processing cost of crude oil purchased externally was RMB 5,412 per tonne, increased by 9.9% over the first half of 2011.

	●	Export and import expenses of crude oil, refined products and other products totaled RMB 328.5 billion, 24.1% more than that of the same period last year. In the first half of 2012, the Company’s crude trade volume rose by 23.7% year on year to reach 53.42 million tons while refined products trade volume was down by 22.5% year on year to stand at 3.9 million tons.

	●	Other procurement cost was RMB332 billion, up by 1.1% year on year, mainly due to the price and volume surge of other raw materials.

	Selling, general and administrative expenses of the Company totaled RMB 28.6 billion, representing an increase of 9.0% over the first half of 2011. This was mainly due to the increase in the sales expenses such as freight and miscellaneous costs which was related to the expanded sales volume as well as an increase in the expenses for labor and safety input.

	Depreciation, depletion and amortization expenses of the Company were RMB 34.5 billion, representing an increase of 13.2% compared with the first half of 2011. This was mainly due to newly accrued depreciation as a result of continuous investment in fixed assets in recent years.

	Exploration expenses in the first half of 2012 were RMB 6.9 billion, representing an increase of 21.8% compared with the same period in 2011. This was mainly because the Company made intensified efforts in the exploration in areas including the Ordos Basin, the Sichuan Basin and the Junggar Basin, etc. as well as in the exploration for unconventional oil and gas.

	Personnel expenses were RMB 24.0 billion, accounting for 1.8% of the total operating expenses and representing an increase of RMB 3.4 billion. Excluding the effect of adjusting salary-based insurance and payment, and more employment caused by business growth, the personnel expenses increased by 5.86% year on year. This was mainly an outcome of the pay raise for the front-line employees in the second half of 2011.

	Taxes other than income tax totaled RMB 95.3 billion, representing an increase of 2.1% compared with the first half of 2011. It was mainly due to an increase in the consumption tax as a result of expanded product sales volume and the price-based resource tax which increased compared with the same period in 2011.

(3)	Operating profit
	In the first half of 2012, the Company’s operating profit was RMB 40.1 billion, representing a decrease of 31.4% over the same period in 2011. This was mainly due to the aggravated refining loss amid the substantial growth of crude oil cost compared with the regulated prices of gasoline and diesel. In addition, the Company’s chemical segment swung to a half-year loss amid the slumping prices of chemical products.

(4)	Net finance costs
	In the first half of 2012, the Company’s net finance costs were RMB 5.0 billion, representing a year-on-year increase of 52.5%, mainly attributed to the increased net interest expenses as a result of less profit, higher debt and bigger amount of capital employed. In addition, the exchange rate changes in the first half of 2012 reduced the net exchange gains in the Company’s US dollar denominated debts.

(5)	Profit before taxation
	In the first half of 2012, the Company’s profit before taxation amounted to RMB 35.4 billion, representing a decrease of 38.9% compared with the same period of 2011.

(6)	Tax expense
	In the first half of 2012, the income tax expense of the Company totaled RMB 9.6 billion, decreasing by 30.4% over the same period of 2011, mainly due to the Company’s lower profit for the period.

(7)	Profit attributable to non-controlling interests of the Company
	In the first half of 2012, profit attributable to non-controlling shareholders was RMB 1.3 billion, representing a decrease of 57.1% over the same period of 2011.

(8)	Profit attributable to equity shareholders of the Company
	In the first half of 2012, profit attributable to equity shareholders of the Company was RMB 24.5 billion, representing a decrease of 40.5% over the same period of 2011.

2	DISCUSSION ON RESULTS OF SEGMENT OPERATION
	The Company manages its operations by four business segments, namely Exploration and Production segment, Refining segment, Marketing and Distribution segment and Chemicals segment, as well as Corporate and Others. Unless otherwise specified herein, the inter-segment transactions have not been eliminated from financial data discussed in this section. In addition, the operating revenue data of each segment include “other operating revenues”.

	The following table shows the operating revenues by each segment, the contribution of external sales and inter-segment sales as a percentage of operating revenues before elimination of inter-segment sales, and the contribution of external sales as a percentage of consolidated operating revenues (i.e. after elimination of inter-segment sales) for the periods indicated.

							As a percentage of				As a percentage of
							consolidated operating				consolidated operating
							revenues before elimination of				revenue after elimination
	Operating revenues						inter-segment sales				of inter-segment sales
	Six-month periods						Six-month periods				Six-month periods
	ended 30 June						ended 30 June				ended 30 June
	2012			2011			2012		2011		2012		2011
	RMB millions						(%)				(%)

Exploration and Production Segment
External sales		35,389			28,352			1.5		1.3		2.6		2.3
Inter-segment sales		90,728			84,281			3.9		3.9
Operating revenues		126,117			112,633			5.4		5.2
Refining Segement
External sales		98,485			99,357			4.2		4.6		7.3		8.1
Inter-segment sales		540,088			496,319			23.2		23.1
Operating revenues		638,573			595,676			27.4		27.7
Marketing and Distribution Segment
External sales		705,950			652,944			30.3		30.4		52.4		52.9
Inter-segment sales		4,003			2,058			0.2		0.1
Operating revenues		709,953			655,002			30.5		30.5
Chemicals Segment
External sales		177,312			186,123			7.6		8.7		13.2		15.1
Inter-segment sales		23,457			23,315			1.0		1.1
Operating revenues		200,769			209,438			8.6		9.8
Corporate and Others
External sales		330,936			266,496			14.2		12.5		24.5		21.6
Inter-segment sales		323,343			306,501			13.9		14.3
Operating revenues		654,279			572,997			28.1		26.8
Operating revenue before elimination of inter-segment sales		2,329,691			2,145,746							100.0		100.0
Elimination of inter-segment sales		(981,619	)		(912,474	)
Consolidated operating revenues		1,348,072			1,233,272							100.0		100.0

The following table sets forth the operating revenues, operating expenses and operating profit/(loss) by each segment before elimination of the inter-segment transactions for the periods indicated, and the changes between the first half of 2012 and the first half of 2011.

	Six-month periods ended 30 June
	2012			2011			Change
	RMB millions			RMB millions			(%)

Exploration on and Production Segment
Operating revenues		126,117			112,633			12.0
Operating expenses		85,654			77,982			9.8
Operating profit		40,463			34,651			16.8
Refining Segment
Operating revenues		638,573			595,676			7.2
Operating expenses		657,074			607,845			8.1
Operating loss		(18,501	)		(12,169	)		52.0
Marketing and Distribution Segment
Operating revenues		709,953			655,002			8.4
Operating expenses		689,701			635,404			8.5
Operating profit		20,252			19,598			3.3
Chemicals Segment
Operating revenues		200,769			209,438			(4.1	)
Operating expenses		202,020			193,094			4.6
Operating profit/(loss)		(1,251	)		16,344			—
Corperate and others
Operating revenues		654,279			572,997			14.2
Operating expenses		654,635			573,639			14.1
Operating loss		(356	)		(642	)		(44.5	)
Elimination of inter-segment profit		(524	)		657			—

(1)	Exploration and Production Segment
	Most of the crude oil and a small portion of the natural gas produced by the exploration and production segment were used for the Company’s refining and chemical operations. Most of the natural gas and a small portion of crude oil produced by the Company were sold to external customers.

	In the first half of 2012, operating revenue of the segment was RMB 126.1 billion, representing an increase of 12.0% over the first half of 2011. This was mainly attributable to the increased prices and sales volume of crude oil and natural gas.

	In the first half of 2012, the segment sold 21.52 million tonnes of crude oil, 7.19 billion cubic meters of natural gas, representing an increase of 2.5% and 13.9% respectively over the first half of 2011. The average realised selling price of crude oil and natural gas were RMB 4,747 per tonne and RMB 1,291 per thousand cubic meters, representing an increase of 6.8% and 0.9% respectively over the same period of 2011. Revenues from material sales were RMB 7.8 billion, increased by RMB 2.8 billion over the first half of 2011.

	In the first half of 2012, the operating expenses of the segment were RMB 85.6 billion, representing an increase of 9.8% over the first half of 2011. The increase was mainly due to the following:

	●	Depreciation, depletion and amortisation increased by RMB 2.9 billion on a year-on-year basis, mainly caused by growth in oil and natural gas assets resulting from investment.

	●	The Company’s increasing investment in exploration of blocks such as Ordos, Sichuan and Junggar basins, as well as unconventional oil and gas resources. The exploration cost increased by RMB 1.2 billion.

	●	Revenue from material sales increased, which led to increased sales cost of materials. Other business expenditure increased by RMB 2.8 billion on a year-on-year basis.

	In the first half of 2012, oil and gas lifting cost was RMB 710 per tonne, representing a year-on-year increase of 6.6%, mainly attributable to the increase in prices of power.

	Benefiting from capacity building in new producing areas and high crude oil price, the segment has realized RMB 40.5 billion of operating profit in the first half of 2012, up by 16.8% on a year-on-year basis.

(2)	Refining Segment
	Business activities of the refining segment include purchasing crude oil from third parties and the exploration and production segment of the Company and processing crude oil into refined petroleum products, among which, gasoline, diesel and kerosene are sold internally to the marketing and distribution segment of the Company. Part of the chemical feedstock is sold to the chemicals segment of the Company. Other refined petroleum products are sold to both domestic and overseas customers through the refining segment.

	In the first half of 2012, operating revenue of the segment was RMB 638.6 billion, representing an increase of 7.2% over the same period of 2011. This was mainly attributable to the increased sales volume and prices of its refined products.

The following table sets forth the sales volumes, average realised prices and the respective changes of the Company’s major refined oil products of the segment in the first half of 2012 and of 2011.

	Sales Volume (thousand tonnes)							Average realised price* (RMB/tonne)
	Six-month periods							Six-month periods
	ended 30 June				Change			ended 30 June				Change
	2012		2011		(%)			2012		2011		(%)

Gasoline		18,573		17,078		8.8			8,055		7,511		7.2
Diesel		37,200		36,948		0.7			6,771		6,330		7.0
Kerosene		4,958		4,426		12.0			6,512		5,601		16.3
Chemical feedstock		17,010		18,449		(7.8	)		6,204		5,856		5.9
Other refined petroleum products		22,353		22,037		1.4			4,321		4,431		(2.5	)

		* Excluding value added tax.

		In the first half of 2012, the sales revenue of gasoline was RMB 149.6 billion, representing an increase of 16.6% over the same period of 2011, accounting for 23.4% of the segment’s operating revenue.

		In the first half of 2012, the sales revenue of diesel was RMB 251.9 billion, representing an increase of 7.7% over the same period of 2011, accounting for 39.4% of the segment’s operating revenue.


		In the first half of 2012, the sales revenue of kerosene was RMB 32.3 billion, representing an increase of 30.2% over the same period of 2011, accounting for 5.1% of the segment’s operating revenue.

		In the first half of 2012, the sales revenue of chemical feedstock were RMB 105.5 billion, representing a decrease of 2.3% over the same period of 2011, accounting for 16.5% of the segment’s operating revenue.

		In the first half of 2012, the sales revenue of refined petroleum products other than gasoline, diesel, kerosene and chemical feedstock was RMB 96.6 billion, representing a decrease of 1.1% over the same period of 2011, accounting for 15.1% of the segment’s operating revenue.

		In the first half of 2012, the segment’s operating expenses were RMB 657.1 billion, representing an increase of 8.1% over the same period of 2011, mainly attributable to the increase in crude oil prices and refinery throughput.

		In the first half of 2012, the average processing cost was RMB 5,345 per tonne, representing an increase of 9.6% over the same period of 2011. Crude oil processed totaled 105.78 million tonnes (excluding volume processed for third parties), representing an increase of 1.3% over the first half of 2011. In the first half of 2012, the total cost of crude oil processed was RMB 565.3 billion, representing an increase of 11.0% over the same period of 2011, accounting for 86.0% of the segment’s operating expenses, increased by 2.2 percentage points over the first half of 2011.

		In the first half of 2012, the unit refining cash operating cost (defined as operating expenses less the processing cost of crude oil and refining feedstock, depreciation and amortisation, taxes other than income tax and other operating expenses, and divided by the throughput of crude oil and refining feedstock) was RMB 145.4 per tonne, representing an increase of 5.7% compared with that in the first half of 2011, mainly due to increased prices of outsourced auxiliary material, power and fuel as well as increased processing cost caused by oil product quality upgrading.

		In the first half of 2012, crude oil price increased significantly while domestic refined oil product prices were strictly controlled, and prices of refining products other than oil products increased slightly. The refining margin (defined as the sales revenues less the crude oil costs and refining feedstock costs and taxes other than income tax, and then divided by the throughput of crude oil and refining feedstock) of the Company was RMB 25.6 per tonne, decreasing by 65.9% over the same period of 2011.

		The segment suffered an operating loss of RMB 18.5 billion in the first half of 2012, representing an increase of RMB 6.3 billion over the same period of 2011.

	(3)	Marketing and Distribution Segment
		The business of marketing and distribution segment includes purchasing refined oil products from the refining segment and third parties, conducting wholesale and direct sales to domestic customers and retailing, distributing oil products through the segment’s retail and distribution network, as well as providing related services.

		In the first half of 2012, the operating revenue of this segment was RMB 710.0 billion, increased by 8.4% over the same period of 2011, which was mainly attributed to the improved sales mix (sales of high-spec gasoline accounted for 99.5% of the total gasoline sales, up by 1.9 percentage points) and increased sales volume of oil products through retail and direct channels, up by 4 percentage points to 89.7% of the total oil products sales volume).

		In the first half of 2012, the sales revenue of gasoline totaled RMB 223.4 billion, representing an increase of 14.3% over the same period of 2011; and the sales revenue of diesel and kerosene totaled RMB 352.9 billion and RMB 58.3 billion, increased by 3.3% and 22.2% respectively over the same period of 2011.

The following table sets forth the sales volumes, average realised prices, and respective rate changes of the four product categories in the first half of 2012 and 2011, including detailed information of different sales channels for gasoline and diesel:

	Sales Volume (thousand tonnes)							Average realised price* (RMB/tonne)
	Six-month periods							Six-month periods
	ended 30 June				Change			ended 30 June				Change
	2012		2011		(%)			2012		2011		(%)
Gasoline		25,561		23,730		7.7			8,740		8,235		6.1
Of which: Retail		22,283		19,892		12.0			8,813		8,349		5.6
Direct sales		1,081		1,024		5.6			8,132		7,574		7.4
Wholesale		2,197		2,814		(22.0	)		8,291		7,672		8.1
Diesel		48,168		48,860		(1.4	)		7,327		6,991		4.8
Of which: Retail		27,884		27,436		1.6			7,549		7,160		5.4
Direct sales		14,995		15,160		(1.1	)		7,018		6,799		3.2
Wholesale		5,289		6,264		(15.6	)		7,029		6,718		4.6
Kerosene		8,900		8,043		10.7			6,550		5,928		10.5
Fuel oil		12,974		12,468		4.1			4,767		4,436		7.5

		* Excluding value added tax.

		In the first half of 2012, the operating expense of the segment was RMB 689.7 billion, representing an increase of 8.5% compared with that in the first half of 2011. This was mainly due to the increased purchase cost of oil products.

		In the first half of 2012, the segment’s marketing cash operating cost (defined as the operating expenses less the purchase costs, taxes other than income tax, depreciation and amortisation, and then divided by the sales volume) was RMB 182.8 per tonne, representing an increase of 3.7% compared with that in the first half of 2011. This mainly due to the increased leasing expenses and service fees.

		In the first half of 2012, the segment’s operating profit was RMB 20.3 billion, representing an increase of 3.3% over the same period of 2011.

	(4)	Chemicals Segment
		The business activities of the chemicals segment include purchasing chemical feedstock from the refining segment and third parties, producing, marketing and distributing petrochemical and inorganic chemical products.

		In the first half of 2012, operating revenue of the chemicals segment was RMB 200.8 billion, representing a decrease of 4.1% over the same period of 2011, which was mainly due to the depressed chemical market and drastic fall in prices of major chemical products.

		The sales revenue generated from the segment’s six major categories of chemical products (namely basic organic chemicals, synthetic resin, synthetic rubber, synthetic fibre monomer and polymer, synthetic fibre and chemical fertilizer) totaled approximately RMB 192.0 billion, representing a decrease of 4.1% over the same period of 2011, accounting for 95.6% of the operating revenues of the segment.

		The following table sets forth the sales volume, average realised price and respective changes of each of the segment’s six categories of chemical products in the first half of 2012 and 2011.

	Sales Volume (thousand tonnes)							Average realised price* (RMB/tonne)
	Six-month periods							Six-month periods
	ended 30 June				Change			ended 30 June				Change
	2012		2011		(%)			2012		2011		(%)

Basic organic chemicals		14,236		13,169		8.1			6,733		6,795		(0.9	)
Synthetic fibre monomer and polymer		3,311		3,160		4.8			8,369		10,354		(19.2	)
Synthetic resin		5,239		5,180		1.1			9,058		10,134		(10.6	)
Synthetic fibre		710		764		(7.1	)		11,102		13,995		(20.7	)
Synthetic rubber		631		631		—			19,032		22,028		(13.6	)
Chemical fertilizer		506		470		7.7			2,204		2,051		7.5

Excluding value added tax.

		In the first half of 2012, the operating expense of the segment was RMB 202.0 billion, representing an increase of 4.6% over the first half of 2011. The cost increased by 5.3% or RMB 9.3 billion, mainly attributable to the increased feedstock cost and trade volume.

		In the first half of 2012, the segment suffered an operating loss of RMB 1.3 billion.

	(5)	Corporate and Others
		The business activities of corporate and others mainly consisted of import and export business activities of the Company’s subsidiaries, research and development activities of the Company, and managerial activities of the headquarters.

		In the first half of 2012, the operating revenue generated from Corporate and Others was RMB 654.3 billion, representing an increase of 14.2% over the first half of 2011, including RMB 652.7 billion revenue from trading of crude oil, refined oil products and other products, which increased by 14.1% over the same period last year.

		In the first half of 2012, the operating expense for Corporate and Others was RMB 654.6 billion, representing an increase of 14.1% over the same period of 2011, including RMB 651.8 billion trading expenses of crude oil, refined oil products and other products by the trading subsidiaries of the Company, which increased by 14.1% over the same period last year.

		The operating loss amounted to RMB 0.4 billion, representing a year-on-year decrease by 44.5%, among which operating profit realised by the specialised subsidiaries such as trading companies were RMB 0.9 billion, research and headquarters expenses were RMB 1.3 billion.

3	ASSETS, LIABILITIES, EQUITY AND CASH FLOWS

	(1)	Assets, liabilities and equity	Units: RMB millions

	At 30 June		At 31 December		Amount
	2012		2011		of changes

Total assets		1,181,287		1,144,528		36,759
Current assets		358,016		342,755		15,261
Non-current assets		823,271		801,773		21,498
Total liabilities		664,502		637,184		27,318
Current liabilities		452,327		444,240		8,087
Non-current liabilities		212,175		192,944		19,231
Total equity attributable to equity shareholders of the company		480,398		472,328		8,070
Share capital		86,820		86,702		118
Reserves		393,578		385,626		7,952
Interests attributable to non-controlling shareholders		36,387		35,016		1,371
Total equity		516,785		507,344		9,441

		As at 30 June 2012, the Company’s total assets were RMB 1,181.3 billion, representing an increase of RMB 36.8 billion compared with that at the end of 2011, of which:

		●	Current assets increased by RMB 15.3 billion from that at the end of 2011 to RMB 358.0 billion, mainly attributable to a net increase of RMB 25.3 billion in accounts receivable as business grew, an increase of RMB 3.8 billion in the inventory of the Company as a result of rise in prices of crude oil and other raw materials, and a decrease of RMB 12.3 billion in bills receivable due to more discount activities, as compared with those at the beginning of the year.

		●	Non-current assets increased by RMB 21.5 billion from that at the end of 2011 to RMB 823.3 billion, mainly attributable to the fact that the Company made investment in accordance with its annual investment plan, resulting in a net increase of RMB 28.6 billion in construction in progress.

		As at 30 June 2012, the Company’s total liabilities were RMB 664.5 billion, representing an increase of RMB 27.3 billion compared with that at the end of 2011, of which:

		●	Current liabilities increased by RMB 8.1 billion from that at the end of 2011 to RMB 452.3 billion, mainly attributable to an increase of RMB 51.3 billion resulted from increased use of working capital, a decrease of RMB 36.3 billion in taxes payable and advance payment, and a decrease of RMB 4.1 billion in accounts payable.

		●	Non-current liabilities increased by RMB 19.2 billion from that at the end of 2011 to RMB 212.2 billion, mainly attributable to the issuance of RMB 20.0 billion of corporate bonds.

		As at June 30, 2012, total equity attributable to equity shareholders of the Company was RMB 480.4 billion, representing an increase of RMB 8.1 billion, mainly attributable to reserve increase.

	(2)	Cash Flow
		The following table sets forth the major items on the consolidated cash flow statements for the first half of 2012 and 2011.

Units: RMB millions

	Six-month periods ended 30 June						Changes in
Major items of cash flows	2012			2011			amount

Net cash generated from operating activities		20,322			30,570			(10,248	)
Net cash used in investing activities		(79,659	)		(55,030	)		(24,629	)
Net cash generated from financing activities		47,242			16,130			31,112
Net decrease in cash and cash equivalents		(12,095	)		(8,330	)		(3,765	)

		In the first half of 2012, net cash generated from operating activities was RMB 20.3 billion, representing a decrease of RMB 10.2 billion in cash inflow year on year. This was mainly attributable to the decrease in profit and increase in inventory and accounts receivable.

		In the first half of 2012, net cash used in investing activities was RMB 79.7 billion, representing an increase of RMB 24.6 billion in cash outflow on a year-on-year basis, mainly due to increased investment as scheduled.

		In the first half of 2012, net cash generated from financing activities was RMB 47.2 billion, representing an increase of RMB 31.1 billion on a year-on-year basis. This was mainly due to the newly added low cost US Dollar borrowings and the issuance of RMB20 billion corporate bonds.

		As of 30 June 2012, the Company’s cash and cash equivalents were RMB 12.6 billion, decreased by RMB 12.1 billion as of 31 December 2011.

	(3)	Contingent Liabilities
		Please refer to “Significant guarantee” in the section headed “Significant Events” in this report.

	(4)	Capital Expenditures
		Please refer to “Capital Expenditure” in the section headed “Business Review and Prospects” in this report.

4	ANALYSIS OF FINANCIAL STATEMENTS PREPARED UNDER ASBE
	Major differences between the Company’s financial statements prepared under ASBE and those under IFRS are set out in Section C of the financial statements of the Company on page 144 in this report.

	(1)	Under ABSE, the operating income and operating profit or loss by reportable segments were as follows:

	Six-month periods ended 30 June
	2012			2011
	RMB millions			RMB millions

Operating income
Exploration and Production Segment		126,117			112,633
Refining Segment		638,573			595,676
Marketing and Distribution Segment		709,953			655,002
Chemicals Segment		200,769			209,438
Others		654,279			572,997
Elimination of inter-segment sales		(981,619	)		(912,474	)
Consolidated operating income		1,348,072			1,233,272
Operating profit(/loss)
Exploration and Production Segment		40,279			34,740
Refining Segment		(19,448	)		(13,155	)
Marketing and Distribution Segment		20,294			19,716
Chemicals Segment		(2,003	)		15,508
Others		(299	)		(870	)
Elimination of inter-segment sales		(524	)		657
Financial expenses, gain/(loss) from changes in fair value and investment income		(4,791	)		(359	)
Consolidated operating profit		33,508			56,237
Net profit attributable to equity shareholders of the Company		23,697			40,239

		Operating profit: In the first half of 2012, the operating profit of the Company was RMB 33.5 billion, representing a decrease of 40.4% over the same period of 2011. This was mainly attributable to the widening loss of the refining business as a result of large increase in crude oil price and price control of refined oil products, and loss of the chemicals segment due to price drop in chemical products.

		Net profit: In the first half of 2012, net profit attributable to the equity shareholders of the Company dropped to RMB 23.7 billion, a 41.1% decrease as compared with the first half of 2011.

(2)

Financial data prepared under ASBE:

	At 30 June		At 31 December
	2012		2011		Changes
	RMB millions		RMB millions		RMB millions

Total assets		1,168,178		1,130,053		38,125
Non-current liabilities		210,737		191,455		19,282
Shareholders’ equity		519,221		509,525		9,696

		Analysis of changes:

		Total assets: As of 30 June 2012, the Company’s total assets were RMB 1168.2 billion, representing an increase of RMB 38.1 billion compared with that at the end of 2011, mainly attributable to the increase in construction in progress and the increase in accounts receivable due to growing business scale and drastic oil prices fluctuation.

		Current liabilities: As of 30 June 2012, the Company’s non-current liabilities were RMB 210.7 billion, increased by RMB 19.3 billion from that at the end of 2011, mainly attributable to the newly issued corporate bonds of RMB 20 billion.

		Equity attributable to equity shareholders of the Company: As of 30 June 2012, equity attributable to shareholders of the Company was RMB 519.2 billion, representing an increase of RMB 9.7 billion compared with that at the end of 2011, mainly attributable to the increase in profit and capital reserves.

	(3)	The results of the principal operations by segments

										Increase			Increase		Increase/
										of Income			of cost		(decrease) of
	Income from			Cost of						from principal			of principal		gross profit
	principal			principal			Gross			operations on a			operations on a		margin on a
	operations			operations			profit margin			year-on-year			year-on-year		year-on-year
Segment	(RMB millions)			(RMB millions)			(%) Note			basis (%)			basis (%)		basis (%)

Exploration and Production		126,117			49,824			42.9			12.0			12.5		1.2
Refining		638,573			571,259			(0.7	)		7.2			8.0		(0.2	)
Marketing and Distribution		709,953			667,514			5.9			8.4			8.5		(0.0	)
Chemicals		200,769			193,820			3.3			(4.1	)		5.5		(8.6	)
Others		654,279			651,109			0.5			14.2			14.1		0.1
Elimination of inter-segment sales		(981,619	)		(981,095	)		N/A			N/A			N/A		N/A
Total		1,348,072			1,152,431			7.4			9.3			11.9		(1.5	)

Note:

Gross profit margin = (Income from principal operations – Cost of principal operations, tax and surcharges)/Income from principal operations

SIGNIFICANT EVENTS

1	CORPORATE GOVERNANCE
	(1)	During the reporting period, Sinopec Corp. complied with regulatory stipulations of the places where its shares are listed in and outside mainland China and further enforced corporate governance. At the annual general meeting of Sinopec Corp. for the year 2011, the shareholders approved the amendments to the articles of association of Sinopec Corp. (the “Articles of Association”), elected the members of the Fifth Session of the Board of Directors as well as of the members of the Fifth Session of the Board of Supervisors. The Board of Directors elected Mr. Fu Chengyu as the Chairman of the Board of Directors, and Mr. Wang Tianpu and Mr. Zhang Yaocang as Vice Chairman of the Board of Directors. The Board of Supervisors elected Mr. Xu Bin as the Chairman of the Board of Supervisors. The Board of Directors established the Fifth Session of the Strategic Committee, the Audit Committee, and the Remuneration and Appraisal Committee. In order to promote better performance of social responsibilities by the Company and to protect the stakeholders’ interests, the Board of Directors established the Social Responsibility Management Committee for the first time. The Board of Directors appointed the senior management. The directors, the supervisors and the senior management attended the training program by professional consultants arranged by the Company which provides solid basis for standardised operations. The Company improved corporate governance to comply with the new requirements of Hong Kong Stock Exchange. Furthermore, the Company further strengthened the internal control system which was enforced effectively. The information disclosure and the investor relations were well conducted and the communication with the investors was further improved which was approved by the capital market.

	(2)	During this reporting period, none of Sinopec Corp., its Board of Directors, its directors, supervisors, senior management were inspected by China Security Regulatory Commission (CSRC), or punished or criticised through circulars by CSRC, Hong Kong Securities and Futures Commission or Securities and Exchange Commission of the United State or publicly condemned by Shanghai Stock Exchange, Hong Kong Stock Exchange, New York Stock Exchange or London Stock Exchange.

	(3)	Equity interests of directors, supervisors and other senior management
		During the reporting period, other than the 10,000 A shares of Sinopec Corp. held by vice president Ling Yiqun, none of the directors, supervisors and other senior management of Sinopec Corp. has held any shares of Sinopec Corp. The directors, supervisors and other senior management of Sinopec Corp. and their associates did not hold shares, bonds or any interest or short position (including any interest or short position in shares that is regarded or treated as being held in accordance with the “Securities and Futures Ordinance” (the “Ordinance”)) in the shares of Sinopec Corp. or any associated corporation (Please refer to the Interpretation of Part XV of the Ordinance), which, according to Divisions 7 and 8 of Part XV of the Ordinance, shall be informed to Sinopec Corp. and Hong Kong Stock Exchange, or pursuant to Section 352 of the Ordinance, shall be registered on the designated register as required by the Ordinance, or the “Model Code for Securities Transactions by Directors of Listed Issuers” (the “Model Code”) contained in Appendix 14 of the Hong Kong Listing Rules, shall be informed to Sinopec Corp. or Hong Kong Stock Exchange. As required by the Hong Kong Stock Exchange, the Company formulated the Rules Governing Shares Held by Company Directors, Supervisors and Senior Management and Changes in Shares as well as the Model Code of Securities Transactions by Company Employees (the “Rules and the Code”) to stipulate the related activities when the above-mentioned persons buy or sell Sinopec Corp.’s securities. The standards of the Rules and the Code are no less exacting than those set out in the Model Code. After specific inquiry by Sinopec Corp., all the directors confirmed that they complied with all the standards of the Model Code as well as those of the Rules and the Code.

	(4)	Compliance with the Corporate Governance Code
		Based on its actual situations, Sinopec Corp. did not establish a nomination committee under the Board of Directors in accordance with the code provisions in paragraph A.5 set out in the Corporate Governance Code and Corporate Governance Report (“Corporate Governance Code”) contained in Appendix 14 of the Hong Kong Listing Rules. Sinopec Corp. is of the view that the nomination of the candidates for directorship by all the members of the Board may better serve the operation need of Sinopec Corp., as such, the duties of the nomination committee set out in the Corporate Governance Code will be performed by the Board of Directors of Sinopec Corp.

		In addition, due to other work-related duties, each of chairman and the members of the Audit Committee and the Remuneration and Appraisal Committee of Sinopec Corp. were absent from the annual general meeting of Sinopec Corp. for the year 2011 which caused non-compliance with code provision E1.2 of the Corporate Governance Code. None of the shareholders at the meeting raised enquiries to the Audit Committee or the Remuneration and Appraisal Committee.

		Save as disclosed above, during the reporting period, Sinopec Corp. had fulfilled the code provisions set out in the Corporate Governance Code.

	(5)	Review of the Interim Report
		The Audit Committee of Sinopec Corp. has carefully reviewed and confirmed the Interim report.

2	DIVIDEND

	(1)	Formulation and Implementation of Cash Dividend Policy
		Since its listing, the Company has highly emphasized to deliver reasonable shareholders’ return, protect shareholders’ legitimate interests, maintain continuous and stable cash dividends payment, and standardise decision making procedures. The second meeting of the fifth session of the Board of Directors of Sinopec Corp. has proposed to amend the profit distribution policy in the Articles of Association, specifying that the Company shall distribute cash dividends when the Company’s net profit and retained earnings, in seperate financial statement, are positive and the Company has adequate cash inflows over the requirements of cash outflows of operation and sustainable development. The cash dividends per annum shall not be less than 30 (thirty) percent of the net profit of the Company in the current year. Relevant resolution will be submitted to the first extraordinary general meeting of shareholders for 2012, which will be held on 16 October 2012, for consideration and approval. The Company has a definite and clear policy regarding the cash dividends payment criteria and ratio, and a standard decision making procedure and mechanism. The Company’s 2012 interim profit distribution proposal (draft) is in accordance with its Articles of Association and relevant regulations.

	(2)	Dividend Distribution For The Year Ended 31 December 2011 And Interim Dividend Distribution Plan For The Six-Month Period Ended 30 June 2012

		Dividend distribution for the year ended 31 December 2011

		As approved at the 2011 Annual General Meeting of Sinopec Corp., a final cash dividend of RMB 0.20 (inclusive of tax) per share for 2011 was distributed. On 7 June 2012, Sinopec Corp. distributed the final dividend for 2011 to the shareholders whose names appeared on the shareholder register of Sinopec Corp. on 25 May 2012.

		For the year of 2011, total cash dividend of RMB 0.30 (inclusive of tax) per share was distributed and the total cash dividend amounted to RMB 26.034 billion.

		Interim dividend distribution plan for the six-month period ended 30 June 2012

		According to the Articles of Association, the interim dividend distribution plan for the six-month period ended 30 June 2012 was approved at the 2nd meeting of the Fifth Session of the Board of Directors. An interim cash dividend of RMB 0.10 (inclusive of tax) per share would be distributed based on the total number of shares as of 14 September 2012 (record date).

		The interim dividend will be distributed on or before Wednesday, 26 September 2012 to the shareholders whose names appear on the shareholder register of Sinopec Corp. on Friday, 14 September 2012. To be entitled to the interim dividend, holders of H shares shall lodge their share certificate(s) and transfer documents with Hong Kong Registrars Limited at 1712-1716, 17th floor, Hopewell Centre, No. 183 Queen’s Road East, Wanchai, Hong Kong, for registration of transfer, by no later than 4:30pm on Friday, 7 September 2012. The register of members of the H shares of Sinopec Corp. will be closed from Monday, 10 September 2012, to Friday, 14 September 2012 (both dates inclusive).

		The dividend will be denominated and declared in RMB, and distributed to domestic shareholders in Renminbi and to foreign shareholders in Hong Kong Dollar. The exchange rate for dividends to be paid in Hong Kong dollars is based on the average benchmark exchange rate of RMB against Hong Kong dollar as published by the People’s Bank of China one week preceding the date of declaration of dividends, being Friday, 24 August 2012.

3	THE ISSUANCE OF RMB 23 BILLION CONVERTIBLE BONDS (“SINOPEC CB”)

	(1)	Conversion price adjustments and conversion
		On 20 June 2011 and 19 September 2011, the conversion price of Sinopec CB was adjusted to RMB 9.60 per share and consequently to RMB 9.50 per share due to dividend distribution. On 15 December 2011, Sinopec Corp. held the second extraordinary general meeting for the year 2011, during which the Resolution to Revise the Conversion Price of Sinopec CB Downwards was approved. Starting from 27 December 2011, the conversion price of Sinopec CB was adjusted from RMB 9.50 per share to RMB 7.28 per share. On 28 May 2012, the conversion price of Sinopec CB was adjusted to RMB 7.08 per share due to dividend distribution. As at 30 June 2012, 117,749,210 A Shares had been converted, and the remaining bonds value was RMB 22,142,709,000.

(2)

Top ten convertible bond holders and number of bonds held

Name of bond holders	Number of bonds held
	(RMB Millions)

Clearing Participant’s Special Account for Collateral Bond Repurchase (China Construction Bank)		2,708.6
Clearing Participant’s Special Account for Collateral Bond Repurchase (Industrial and Commercial Bank of China)		2,004.3
Clearing Participant’s Special Account for Collateral Bond Repurchase (China Agricultural Bank)		1,569.4
Guotai Junan Securities Co., Ltd.’s Special Account for Collateral Bond Repurchase		790.0
Xingquan Convertible Bond Hybrid Securities Investment Fund		787.7
Sunshine Life Insurance Company Ltd. -Dividend-paying Insurance		723.2
Clearing Participant’s Special Account for Collateral Bond Repurchase (Bank of China)		649.8
China Life Insurance Company Ltd. -Dividend-individual dividend-005L-FH002 Shanghai		635.1
UBS AG		541.7
Clearing Participant’s Special Account for Collateral Bond Repurchase (Bank of Communications)		530.0

	(3)	Information on major changes in profitability, assets and credit of the guarantor of the Company’s convertible bond
		China Petrochemical Corporation, guarantor of the Sinopec CB, maintains an unchanged domestic long-term credit rating of AAA. In May 2012, the international credit rating agencies, Moody’s and Standard & Poor’s gave China Petrochemical Corporation a rating of Aa3 and A+ respectively.

	(4)	Information on the Company’s liabilities and credit changes as well as the cash arrangement for the future annual debt repayment
		As of 30 June 2012, the Company’s debt to asset ratio is 56.25%. The debt ratio was basically kept stable and there was no significant change in the structure. The Company’s domestic credit rating remained AAA on a long-term basis. With its good financing and repayment capabilities, the Company obtained sufficient credit limit from the domestic commercial banks. Sinopec Corp. primarily uses its own fund to repay the due liabilities and pay interests on schedule. The shortfall will be obtained through the bank loans or direct financing in the capital market to ensure repaying the principle and pay interest on loans on time.

	(5)	Use of proceeds

RMB million


Total proceeds	22,889.38Note1	Total proceed used in this reporting period	4,988
		Total cumulative use of proceed	22,159

Investment

Actual

Compliance

amount

Any change

proceed

Returns

Whether

with expected

Projects promised

planned

in projects

used

accrued

on schedule

return

Wuhan 800,000 tpa ethylene project

11,289.38

11,400Note2

Yes

—

Anqing refinery revamping project

3,000

2,945

Yes

—

Shijiazhuang refinery revamping project

3,200

2,414

Yes

—

Yulin-Jinan gas pipeline project

3,300

Note3

Yes

Note3

Rizhao-Yizheng crude oil pipeline and supporting projects

2,100

Note4

Yes

Note4

Total

22,889.38

—

22,159

—

Statements on the failure to realise planned schedule and expected return

Statements on the reasons and procedures of changes

	Note 1:	After deducting the issuance cost of RMB 110.62 million (including the commissions for bookrunners and other costs for the intermediary agencies).

	Note 2:	The total promised proceeds allocated to Wuhan 800,000 tpa ethylene project were RMB 11,400 million, and in consideration of the issuance cost, the total promised proceeds allocated to this project were adjusted as RMB 11,289.38 million. As at 30 June 2012, the total cumulative use of proceeds in this project were RMB 11,400 million, which were consistent with the original total promised proceeds. The company has withdrawn RMB 110.62 million from this project and deposited into fundraising special account on 7 August 2012, consequently the actual total cumulative use of proceeds in this project were RMB 11,289.38 million, which were consistent with the adjusted total promised proceeds.

	Note 3:	The Company’s committed financial benefits are expected after-tax financial internal rate of return. The useful life of Yulin-Jinan gas pipeline project is 20 years. This committed project has been put into operation since the first half of 2012, and the operating period is too short to determine whether this committed project achieved the estimated after-tax financial internal rate of return as committed for the entire operating period of the project. The net cash flow realised during current period satisfied the estimated net cash flow in the project budget.

	Note 4:	The Company’s committed financial benefits are expected after-tax internal rate of return. The useful life of Rizhao-Yizheng crude oil pipeline and supporting project is 20 years. This committed project has been put into operation at the end of 2011, and the operating period is too short to determine whether this committed project achieved the estimated after-tax financial internal rate of return as committed for the entire operating period of the project. The net cash flow realised during current period did not satisfy the estimated net cash flow in the project budget.

4	ISSUANCE OF RMB 20 BILLION CORPORATE BOND
	On June 1, 2012, Sinopec Corp. successfully issued a 5-year term and a 10-year term domestic corporate bond which amounted to RMB 13 billion and RMB 7 billion with a fixed annual coupon rate of 4.26% and 4.90%, respectively. On 13 June 2012, the aforementioned corporate bonds were listed on the Shanghai Stock Exchange. For further details, please refer to Sinopec Corp.’s announcements published in China Securities Journal, Shanghai Securities News, and Securities Times on 30 May 2012.

5	CORPORATE BOND ISSUED AND INTEREST PAYMENT
	On 24 February 2004, Sinopec Corp. successfully issued 10-year term domestic corporate bonds which amounted to RMB 3.5 billion with a credit rating of AAA and a fixed annual coupon rate of 4.61%. On 28 September 2004, the aforementioned corporate bonds were listed on the Shanghai Stock Exchange. For further details, please refer to Sinopec Corp.’s announcement published in China Securities Journal, Shanghai Securities News, and Securities Times in Mainland China, and South China Morning Post and Hong Kong Economic Times in Hong Kong on 24 February 2004 and 28 September 2004, respectively. As of 30 June 2012, the principal balance of the corporate bonds was RMB 3.5 billion. By 24 February 2012, Sinopec Corp. had paid the full amount of annual coupon interest for the eighth interest payment year.

	Sinopec Corp. issued RMB 30 billion bonds with warrants on February 20, 2008 domestically. The Bonds with Warrants have a 6-year term and 0.8% per annum fixed coupon rate. On 4 March 2008, the aforementioned corporate bonds were listed on the Shanghai Stock Exchange. For further details, please refer to Sinopec Corp.’s announcement published in China Securities Journal, Shanghai Securities News and Securities Times in Mainland China on 18 February 2008. By 20 February 2012, Sinopec Corp. had paid the full amount of coupon interest for the fourth interest payment year.

	On 21 May 2010, Sinopec Corp. successfully issued a 5-year term and a 10-year term domestic corporate bond which amounted to RMB11 billion and RMB9 billion with a fixed coupon rate of 3.75% and 4.05%. On 9 June 2010, the aforementioned corporate bonds were listed on the Shanghai Stock Exchange. For further details, please refer to Sinopec Corp.’s announcements published in China Securities Journal, Shanghai Securities News, and Securities Times on 19 May 2010. By 21 May 2012, Sinopec Corp. had paid the full amount of coupon interest for the second interest payment year.

6	PROPOSED ISSUANCE OF RMB 30 BILLION A SHARES CONVERTIBLE BONDS
	On 12 October 2011, Sinopec Corp. held the first extraordinary general meeting of Sinopec Corp. for the year 2011. During the meeting, the “Proposals Regarding Issuance of A Share Convertible Bonds and Other Related Matters” were considered and approved. The total value of A share convertible bonds will not exceed RMB 30 billion and the proceeds will be used in the Shandong LNG project, Jinling oil products quality upgrading project, Maoming oil products quality upgrading, revamping and expansion project, Yangzi oil products quality upgrading and revamping project, Changling oil products quality upgrading and revamping project, Jiujiang oil products quality upgrading and revamping project, Anqing Branch crude oil with sulfur refinery revamping and oil products quality upgrading project and Shijiazhuang Refinery Branch oil products quality upgrading and crude oil revamping project. The issuance of A share convertible bond obtained conditional approval at the offering examination meetings from China Securities Regulatory Commission on 23 March 2012.

7	INCREASED HOLDINGS OF SINOPEC CORP. A SHARES BY CHINA PETROCHEMICAL CORPORATION
	On 9 January 2012, China Petrochemical Corporation increased holdings of Sinopec A shares by 39,083,199 shares by purchasing share in transaction system of the Shanghai Stock Exchange, after the shareholding increase, China Petrochemical Corporation directly and indirectly holds 66,222,627,692 shares of Sinopec Corp., accounting for 76.27% of total issued share capital of Sinopec Corp. issued as at 30 June 2012.

8	MAJOR PROJECTS

	(1)	Wuhan Ethylene Project
		Wuhan ethylene project mainly consists of 800,000 tpa ethylene and downstream auxiliary facilities. Construction commenced in December 2007. It’s expected to be completed and put into operation in 2013.

	(2)	Shandong LNG project
		Shandong LNG project mainly includes construction of one wharf and one terminal designated for LNG with 3 million tpa loading and unloading capacity and auxiliary transportation pipelines for natural gas. Construction commenced in September 2010. It’s expected to be completed and put into operation in 2014.

	(3)	Yuanba Gas Field 1.7billion m3 Test Production Project
		The project mainly includes construction of one purification plant and auxiliary facilities. The production capacity of newly-built plant in terms of the gas purification of natural gas is 1.7 billion m3 per annum. Construction commenced in September 2011. It’s expected to be completed in 2013.

9	RELATED TRANSACTIONS IN THE REPORTING PERIOD
	Sinopec Corp. and China Petrochemical Corporation entered into a number of agreements in respect of continuing connected transactions, including the mutual supply agreement, the cultural, educational, hygiene and community services agreement, the land use rights leasing agreement, the properties leasing agreement, the intellectual property licence agreement and safety production insurance fund document.

	The aggregate amount of related transactions actually incurred of the Company during the reporting period was RMB 271.558 billion, of which, expenses amounted to RMB 101.931 billion, (including RMB 95.62 billion of purchase of goods and services, RMB 2.063 billion of auxiliary and community services, RMB 3.685 billion of operating lease fee, RMB 563 million of interest expenses). Among the above, purchase from China Petrochemical Corporation amounted to RMB 68.677 billion (including purchase of products and services, i.e. procurement, storage, exploration and production services and production-related services, which amounted to RMB 62.368 billion, representing 4.77% of the Company’s operating expenses for the reporting period). The auxiliary and community services provided by China Petrochemical Corporation to the Company were RMB 2.063 billion, representing 0.16% of the operating expenses of the Company. The housing rental payment incurred by the Company was RMB 213 million, the land rental paid was RMB 3.384 billion, and the expenses for other lease were RMB 86 million. The interest expenses were RMB 563 million. The revenue amounted to RMB 169.627 billion (including RMB 169.491 billion of sales of products and services, RMB 58 million of interest income, RMB 78 million of agency commission receivable), of which the sales to China Petrochemical Corporation amounted to RMB 53.587 billion, including RMB 53.509 billion of sales of products and services, representing 3.97% of operating revenues, RMB 58 million of interest income, and RMB 20 million of agency commission receivable.

	In this reporting period. The Company provided RMB579 million of loans to certain jointly controlled entities of China Petrochemical Corporation.

	The aforementioned connected transactions occurred during this reporting period was implemented in accordance with the relevant connected transaction agreements.

10	NO SIGNIFICANT LITIGATION, ARBITRATION MATTERS HAPPENED TO SINOPEC CORP. DURING THE REPORTING PERIOD

11	OTHER SIGNIFICANT CONTRACT
	During the reporting period, Sinopec Corp. had disclosed all significant contracts which should be disclosed.

12	ASSETS TRANSACTIONS
	Not applicable

13	INSOLVENCY AND RESTRUCTURING
	Not applicable

14	SIGNIFICANT TRUSTEESHIP, CONTRACTING AND LEASE
	During this reporting period, Sinopec Corp. was not involved in respect of significant trusteeship, contracting or lease of any other company’s assets, nor placing its assets to or under any other companies’ trusteeship, contracting or lease which would require disclosure.

15	ENTRUSTED CASH ASSETS MANAGEMENT
	Not applicable.

16	ENTRUSTED LOAN
	To optimise the internal utilisation of available funds and lower the overall cost of capital, the 12th meeting of the board approved Sinopec Corp. of providing entrusted loan to Zhangjiang Dongxing and Hainan Refineries, two subsidiaries of Sinopec Corp., with no more than RMB 10 billion for each calendar year and loan rate no less than same-period commercial bank deposit rate. The entrusted loan constitutes continuing connected transactions under chapter 14A of the Hong Kong Listing Rules. The details of entrusted loan during this reporting period are as follows:

Loan to	Amount		Term		Interest rate
	(RMB billion)		from	to


Zhanjiang Dongxing Petrochemical Company Limited		2	28 March 2011	28 March 2012		4.20%

The above-mentioned entrusted loan was repaid by zhanjiang DongXing during this reporting period.

17	RISK ASSESSMENT ON THE FUNDS DEPOSITED WITH SINOPEC FINANCE CO., LTD. (“SINOPEC FINANCE”)
	Sinopec Corp. adhered strictly to the Rules Concerning Risk Control on Connected Transactions of China Petroleum & Chemical Corporation and Sinopec Finance Co., Ltd., which provides prevention against assets risk and ensures Sinopec Corp.’s discretion in dealing with its deposits in Sinopec Finance. In the meantime, China Petrochemical Corporation, as the parent company of Sinopec Finance, undertook that it would, in the event of emergency whereby Sinopec Finance has difficulties to make payments, according to the actual needs to resolve the payment problem, help to increase the capital of Sinopec Finance. In the first half of 2012, the aggregate month-end balance of deposits was RMB 4.47 billion, which had not exceeded the relevant cap for deposits, i.e. RMB 9.5 billion, approved by independent shareholders of the Sinopec Corp.. In routine operations, as tested and assessed, Sinopec Corp. can withdraw the total amount of the savings deposited in Sinopec Finance, hence no capital risk exists.

18	MATERIAL GUARANTEE CONTRACTS AND STATUS OF IMPLEMENTATION	Unit: RMB millions

External guarantees provided by the Company (not including guarantees provided for its controlled subsidiaries)

Name of Guarantor

Relationship with the listed company

Name of the Guarantee

Amount of Guarantee

Date of Guarantee (Date of execution of agreement)

Term

Type of Guarantee

Whether Completed or Not

Whether overdue or not

Guarantee for Overdue Amount

Counter- Guaranteed

Whether for a connected party (Yes or no) note1

Sinopec Corp.

The listed company itself.

Yueyang SINOPEC Shell Coal Gasification Corporation Ltd.

264

10 December 2003

10 December 2003 – 10 December 2017

Joint liability guarantee

Sinopec Yangzi Petrochemical Company Limited

Wholly-owned subsidiary

BP YPC Acetyls Company (Nanjing) Ltd

376

Joint liability guarantee

Sinopec Sales Co., Ltd.

Wholly-owned subsidiary

Xiamen Botan Storage Company Limited

Joint liability guarantee

SSI

Controlled subsidiaries

New Bright International Development Limited/ Sonangol E.P

6,186

Joint liability guarantee

Yes

Total amount of guarantee provided during the reporting periodNote2		79
Total amount of guarantee outstanding at the end of the reporting periodNote2		4,117
Guarantees provided by Sinopec Corp. for its controlled subsidiaries
Total amount of guarantee for the controlled subsidiaries during the reporting period		N/A
Total amount of guarantee for the controlled subsidiaries outstanding at the end of the reporting period		N/A
Total amount of guarantee by the Company (including those provided for the controlling subsidiaries)
Total amount of guarantee (A+B)		4,117
Total amount of guarantee as a percentage of the Company’s net asset%		0.85
Amount of guarantee provided for shareholders, actual controllers and connected parties (C)		N/A
Amount of debt guarantee provided directly or indirectly for the companies with liabilities to asset ratio of over 70% (D)		2,382
Amount of guarantee in excess of 50% of the total net assets (E)		N/A
Total amount of guarantee of the above three items (C+D+E)		2,382
Explanations of joint liability incurred from undue guarantees		N/A
Remarks on guarantee		N/A

	Note 1:	As defined in Article 10.1.3 of the Share Listing Rules of Shanghai Stock Exchange.

	Note 2:	Total amount of guarantee provided during the reporting period and total amount of guarantees outstanding at the end of the reporting period include the guarantees provided by the controlled subsidiaries to external parties. The amount of guarantees assumed by Sinopec Corp. is the amount of the external guarantees provided by each controlling subsidiary multiplied by Sinopec Corp.’s respective shareholding in the controlled subsidiary.

FUND PROVIDED BETWEEN CONNECTED PARTIES

Unit: RMB millions

	Fund to Connected Parties				Fund from Connected Parties
Connected Parties	Amount incurred		Balance		Amount incurred			Balance

China Petrochemical Corporation		868		3,007		(2,411	)		7,975
Other connected parties		806		1,769		—			—
Total		1,674		4,776		(2,411	)		7,975

20	PERFORMANCE OF THE UNDERTAKINGS
	(1)	Till the end of the reporting period, the major undertakings given by China Petrochemical Corporation included follows:

		i	Complying with the connected transaction agreements;

		ii	Solving the issues regarding legality of the land use rights certificates and property ownership rights certificates within a specified period of time;

		iii	Implementing the Re-organization Agreement

		iv	Granting licenses for intellectual property rights;

		v	Avoiding competition within the same industry; and

		vi	Withdrawing from the business competition and conflict of interests with Sinopec Corp.

			Details of the above undertakings were included in the prospectus for the issuance of A shares of Sinopec Corp. published in China Securities Journal, Shanghai Securities News, and Securities Times on 22 June 2001.

		vii	On 27 October 2010, Sinopec Corp. disclosed an announcement, in which China Petrochemical Corporation made commitments, as the major refining business of China Petrochemical Corporation has been injected to Sinopec Corp., it’ll dispose of its existing minor refining business to eliminate competition with Sinopec Corp within five years.

			On 15 March 2012, Sinopec Corp. disclosed an announcementChina Petrochemical Corporation undertakes that:

			Sinopec Corp. shall become the sole platform which deals with the exploration and production of oil and gas, oil refining, chemicals, sale of petroleum products after the integration of these upstream, midstream and downstream businesses in China Petrochemical Corporation.

			China Petrochemical Corporation will dispose its minor remaining chemicals business within the next five years in order to avoid the competition with Sinopec Corp. with regard to the chemicals business.

			Given that China Petrochemical Corporation engages in the same or similar businesses as Sinopec Corp. with regard to the exploration and production of overseas petroleum and natural gas, after a thorough analysis from political and economic perspectives, Sinopec Corp. proposes to acquire overseas oil and gas assets owned by China Petrochemical Corporation when appropriate (the “Proposed Acquisitions”). China Petrochemical Corporation undertakes to transfer such assets to Sinopec Corp., provided that the Proposed Acquisitions comply with the applicable laws and regulations, contractual obligations and other procedural requirements at the time of the respective Proposed Acquisitions.

			During the reporting period, Sinopec Corp. was not aware of any breach of the above-mentioned major undertakings by China Petrochemical Corporation.

	(2)	As at the end of the reporting period, Sinopec Corp. made no undertakings in respect of results, undertakings in respect of assets injection, or assets restructuring which were not fully performed, or assets or projects earnings prediction.

21	SHAREHOLDER’S RIGHTS INCENTIVE PLAN
	Not applicable.

22	ACCOUNTING FIRMS
	At the 2011 Annual General Meeting of Shareholders of the Company held on 11 May 2012, KPMG Huazhen (as stipulated in the “Notice on the ‘Sino-foreign Joint Venture Accounting Firms Localisation Conversion Programme’” (Caikuai [2012] No.8), KPMG Huazhen completed a conversion, and KPMG Huazhen’s full name has been changed to “KPMG Huazhen (Special General Partnership)” since 1 August 2012.) and KPMG were reappointed as the domestic and overseas auditors of the Company for the year of 2012 respectively. In addition, the Board of Directors was authorized to determine the remuneration for the auditors. The accrued audit fee for the first half of 2012 was RMB 31 million. The financial statements for the first half of 2012 have been audited by KPMG Huazhen (Special General Partnership) and KPMG. The signing certified public accountants of KPMG Huazhen(Special General Partnership) are Zhang Jingjing and Hu Jianfei.

23	REPURCHASE, SALE AND REDEMPTION OF SHARES
	None of Sinopec Corp. or any of its subsidiaries repurchased, sold or redeemed any listed securities of Sinopec Corp. or its subsidiaries during the reporting period.

24	OTHER IMPORTANT ITEMS AND THEIR INFLUENCES AND DESCRIPTION OF THE SOLUTION

	(1)	Status of investment in shares and securities

No.

Stock Code

Abbreviation

Number of shares held at the end of period

Amount of initial investment

Book value at the end of period

Book value at the beginning of period

Accounting

items

384 (Hong Kong)

China Gas Holdings Limited

210 million shares

RMB 136,426,500.00

Long-term equity investment

(2)

Status of shares holding of financial institutions such as commercial banks, securities companies, insurance companies, trust companies or future companies etc.

	Financial institutions	Initial investment (RMB 10,000)	Number of shares holding (RMB 10,000)	Proportion in total shares	Book value at the end of the period (RMB 10,000)	Profit/loss in the period (RMB 10,000)	Change of shareholders’ funds in the period	Accounting items	Shares origin

1	Beijing International Trust Co., Ltd	20,000	20,000	14.29%	20,000	3,000	0	Long-term equity investment	investment
2	Zhengzhou Commercial Bank Co., Ltd.	1,000	1,000	0.25%	1,000	0	0	Long-term equity investment	Debt to shares
Total	21,000	—	—	21,000	3,000	0	—	—

25	PROFIT WARNING AND DESCRIPTION FOR THE PROJECTION OF POSSIBLE NET LOSSES OR SIGNIFICANT DECREASE IN TERMS OF AGGREGATE NET PROFIT FROM THE BEGINNING OF THE YEAR TO THE NEXT REPORTING PERIOD COMPARED WITH THE CORRESPONDING PERIOD LAST YEAR.
	Not applicable

DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT

As at 30 June 2012, members of the Fifth Session of the Board of Directors, Fifth Session of the Board of Supervisors, and the other members of the senior management are as follows:

DIRECTORS

The members of the Fifth Session of the Board of Directors

Name	Gender	Age	Position in the Company	Tenure

Fu Chengyu	Male	60	Chairman	May, 2012 - May, 2015
Wang Tianpu	Male	49	Vice Chairman, President	May, 2012 - May, 2015
Zhang Yaocang	Male	58	Vice Chairman	May, 2012 - May, 2015
Zhang Jianhua	Male	47	Director, Senior Vice President	May, 2012 - May, 2015
Wang Zhigang	Male	55	Director, Senior Vice President	May, 2012 - May, 2015
Cai Xiyou	Male	50	Director, Senior Vice President	May, 2012 - May, 2015
Cao Yaofeng	Male	58	Director	May, 2012 - May, 2015
Li Chunguang	Male	56	Director	May, 2012 - May, 2015
Dai Houliang	Male	48	Director, Senior Vice President	May, 2012 - May, 2015
Liu Yun	Male	55	Director	May, 2012 - May, 2015
Chen Xiaojin	Male	67	Independent Non-executive Director	May, 2012 - May, 2015
Ma Weihua	Male	64	Independent Non-executive Director	May, 2012 - May, 2015
Jiang Xiaoming	Male	58	Independent Non-executive Director	May, 2012 - May, 2015
Andrew Y. Yan	Male	54	Independent Non-executive Director	May, 2012 - May, 2015
Bao Guoming	Female	61	Independent Non-executive Director	May, 2012 - May, 2015

2.	SUPERVISORS

The members of the Fifth Session of the Board of Supervisors

Name	Gender	Age	Position in the Company	Tenure

Xu Bin	Male	56	Chairman	May, 2012 - May, 2015
Geng Limin	Male	57	Supervisor	May, 2012 - May, 2015
Li Xinjian	Male	58	Supervisor	May, 2012 - May, 2015
Zou Huiping	Male	51	Supervisor	May, 2012 - May, 2015
Kang Mingde	Male	61	Independent Supervisor	May, 2012 - May, 2015
Zhou Shiliang	Male	54	Employee Representative Supervisor	May, 2012 - May, 2015
Chen Mingzhen	Male	54	Employee Representative Supervisor	May, 2012 - May, 2015
Jiang Zhenying	Male	47	Employee Representative Supervisor	May, 2012 - May, 2015
Yu Renming	Male	48	Employee Representative Supervisor	May, 2012 - May, 2015

3.	OTHER MEMBERS OF SENIOR MANAGEMENT

Other members of senior management

Name	Gender	Age	Position in the Company

Wang Xinhua	Male	56	Chief Financial Officer
Zhang Kehua	Male	58	Vice President
Zhang Haichao	Male	55	Vice President
Jiao Fangzheng	Male	49	Vice President
Lei Dianwu	Male	50	Vice President
Ling Yiqun	Male	49	Vice President
Huang Wensheng	Male	45	Secretary to the Board of Directors

CHANGING IN SHAREHOLDINGS OF DIRECTORS, SUPERVISORS AND OTHER SENIOR MANAGEMENT

During the reporting period, other than the 10,000 A shares of Sinopec Corp. held by vice president Ling Yiqun, none of the directors, supervisors and other senior managers of Sinopec Corp. has held any shares of Sinopec Corp.

REPORT OF THE PRC AUDITOR

All Shareholders of China Petroleum & Chemical Corporation:

We have audited the accompanying financial statements of China Petroleum & Chemical Corporation (the “Company”), which comprise the consolidated balance sheet and balance sheet as at 30 June 2012, the consolidated income statement and income statement, the consolidated cash flow statement and cash flow statement, the consolidated statement of changes in equity and statement of changes in equity for the six-month period then ended, and notes to the financial statements.

1.	MANAGEMENT’S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS

The Company’s management is responsible for the preparation and fair presentation of these financial statements. This responsibility includes: (1) preparing these financial statements in accordance with Accounting Standards for Business Enterprises issued by the Ministry of Finance of the People’s Republic of China, and fairly presenting them; (2) designing, implementing and maintaining internal control which is necessary to enable that the financial statements are free from material misstatement, whether due to fraud or error.

2.	AUDITOR’S RESPONSIBILITY

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with China Standards on Auditing for Certified Public Accountants. Those standards require that we comply with China Code of Ethics for Certified Public Accountants, and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OPINION

In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position and financial position of the Company as at 30 June 2012, and the consolidated financial performance and financial performance and the consolidated cash flows and cash flows of the Company for the six-month period then ended in accordance with the requirements of Accounting Standards for Business Enterprises issued by the Ministry of Finance of the People’s Republic of China.

KPMG Huazhen		Certified Public Accountants
(Special General Partnership)		Registered in the People’s Republic of China

		Zhang Jingjing
		Hu Jianfei

Beijing, The People’s Republic of China		24 August 2012

(A)	FINANCIAL STATEMENTS PREPARED UNDER CHINA ACCOUNTING STANDARDS FOR BUSINESS ENTERPRISES CONSOLIDATED BALANCE SHEET
	as at 30 June 2012

	Note	At 30 June			At 31 December
		2012			2011
		RMB millions			RMB millions

Assets
Current assets
Cash at bank and on hand	5		13,960			25,197
Bills receivable	6		15,658			27,961
Accounts receivable	7		84,047			58,721
Other receivables	8		15,126			7,360
Prepayments	9		6,754			4,096
Inventories	10		207,230			203,417
Other current assets			1,134			836
Total current assets			343,909			327,588
Non-current assets
Long-term equity investments	11		47,498			47,458
Fixed assets	12		547,671			565,936
Construction in progress	13		139,955			111,311
Intangible assets	14		44,459			34,842
Goodwill	15		6,536			8,212
Long-term deferred expenses	16		9,305			9,076
Deferred tax assets	17		15,167			13,398
Other non-current assets	18		13,678			12,232
Total non-current assets			824,269			802,465
Total assets			1,168,178			1,130,053
Liabilities and shareholders’ equity
Current liabilities
Short-term loans	20		86,720			36,985
Bills payable	21		4,276			5,933
Accounts payable	22		172,949			177,002
Advances from customers	23		53,494			66,686
Employee benefits payable	24		5,985			1,795
Taxes payable	25		16,722			39,622
Other payables	26		53,119			57,662
Short-term debentures payable	29		30,000			—
Non-current liabilities due within one year	27		14,955			43,388
Total current liabilities			438,220			429,073
Non-current liabilities
Long-term loans	28		51,997			54,320
Debentures payable	29		120,074			100,137
Provisions	30		19,304			18,381
Deferred tax liabilities	17		15,423			15,181
Other non-current liabilities			3,939			3,436
Total non-current liabilities			210,737			191,455
Total liabilities			648,957			620,528
Shareholders’ equity
Share capital	31		86,820			86,702
Capital reserve	32		30,337			29,583
Specific reserve	33		4,182			3,115
Surplus reserves	34		180,683			178,263
Retained earnings			182,249			178,336
Foreign currency translation differences			(1,541	)		(1,600	)
Total equity attributable to shareholders of the Company			482,730			474,399
Minority interests			36,491			35,126
Total shareholders’ equity			519,221			509,525
Total liabilities and shareholders’ equity			1,168,178			1,130,053

These financial statements have been approved by the board of directors on 24 August 2012.

Fu Chengyu		Wang Tianpu		Wang Xinhua
Chairman		Vice Chairman, President		Chief Financial Officer

(Authorised representative)

The notes on pages 41 to 96 form part of these financial statements.

BALANCE SHEET

as at 30 June 2012

	Note	At 30 June		At 31 December
		2012		2011
		RMB millions		RMB millions

Assets
Current assets
Cash at bank and on hand	5		5,792		20,953
Bills receivable	6		2,378		17,802
Accounts receivable	7		16,456		16,829
Other receivables	8		29,814		28,127
Prepayments	9		7,319		5,410
Inventories	10		135,811		144,148
Other current assets			704		502
Total current assets			198,274		233,771
Non-current assets
Long-term equity investments	11		106,396		102,101
Fixed assets	12		454,976		470,825
Construction in progress	13		123,124		101,641
Intangible assets	14		37,858		28,458
Long-term deferred expenses	16		8,175		8,018
Deferred tax assets	17		11,157		10,249
Other non-current assets	18		7,588		7,479
Total non-current assets			749,274		728,771
Total assets			947,548		962,542
Liabilities and shareholders’ equity
Current liabilities
Short-term loans	20		3,649		3,842
Bills payable	21		3,022		3,052
Accounts payable	22		102,722		128,138
Advances from customers	23		46,162		63,561
Employee benefits payable	24		5,158		1,341
Taxes payable	25		13,646		32,053
Other payables	26		87,985		74,525
Short-term debentures payable	29		30,000		—
Non-current liabilities due within one year	27		14,844		43,281
Total current liabilities			307,188		349,793
Non-current liabilities
Long-term loans	28		51,036		53,783
Debentures payable	29		120,074		100,137
Provisions	30		17,982		17,114
Deferred tax liabilities	17		7,972		7,350
Other non-current liabilities			2,033		1,759
Total non-current liabilities			199,097		180,143
Total liabilities			506,285		529,936
Shareholders’ equity
Share capital	31		86,820		86,702
Capital reserve	32		38,808		37,983
Specific reserve	33		3,452		2,571
Surplus reserves	34		180,683		178,263
Retained earnings			131,500		127,087
Total shareholders’ equity			441,263		432,606
Total liabilities and shareholders’ equity			947,548		962,542

These financial statements have been approved by the board of directors on 24 August 2012.

Fu Chengyu		Wang Tianpu		Wang Xinhua
Chairman		Vice Chairman, President		Chief Financial Officer

(Authorised representative)

The notes on pages 41 to 96 form part of these financial statements.

CONSOLIDATED INCOME STATEMENT

for the six-month period ended 30 June 2012

		Six-month periods ended 30 June
	Note	2012		2011
		RMB millions		RMB millions

Operating income	35		1,348,072		1,233,272
Less: Operating costs	35		1,152,431		1,029,875
Sales taxes and surcharges	36		95,267		93,285
Selling and distribution expenses			18,922		16,650
General and administrative expenses			29,223		28,502
Financial expenses	37		5,533		3,486
Exploration expenses, including dry holes	38		6,882		5,652
Impairment losses	39		7,048		2,712
Add: Gain from changes in fair value	40		510		305
Investment income	41		232		2,822
Operating profit			33,508		56,237
Add: Non-operating income	42		1,362		1,108
Less: Non-operating expenses	43		587		590
Profit before taxation			34,283		56,755
Less: Income tax expense	44		9,337		13,543
Net profit			24,946		43,212
Attributable to:
Equity shareholders of the Company			23,697		40,239
Minority interests			1,249		2,973
Basic earnings per share	56		0.273		0.464
Diluted earnings per share	56		0.263		0.452
Net profit			24,946		43,212
Other comprehensive income	45
Cash flow hedges			1		139
Available-for-sale financial assets			1		1
Share of other comprehensive income of associates			26		(63	)
Foreign currency translation differences			89		(234	)
Total other comprehensive income			117		(157	)
Total comprehensive income			25,063		43,055
Attributable to:
Equity shareholders of the Company			23,784		40,100
Minority interests			1,279		2,955

These financial statements have been approved by the board of directors on 24 August 2012.

Fu Chengyu		Wang Tianpu		Wang Xinhua
Chairman		Vice Chairman, President		Chief Financial Officer

(Authorised representative)

The notes on pages 41 to 96 form part of these financial statements.

INCOME STATEMENT

for the six-month period ended 30 June 2012

		Six-month periods ended 30 June
	Note	2012		2011
		RMB millions		RMB millions

Operating income	35		778,788		757,588
Less: Operating costs	35		620,503		601,876
Sales taxes and surcharges	36		76,954		74,333
Selling and distribution expenses			16,061		14,311
General and administrative expenses			24,652		23,943
Financial expenses	37		4,898		3,481
Exploration expenses, including dry holes	38		6,882		5,652
Impairment losses	39		5,967		2,197
Add: Gain from changes in fair value	40		568		245
Investment income	41		6,058		9,124
Operating profit			29,497		41,164
Add: Non-operating income	42		1,148		1,007
Less: Non-operating expenses	43		536		560
Profit before taxation			30,109		41,611
Less: Income tax expense	44		5,912		7,479
Net profit			24,197		34,132
Other comprehensive income			45
Share of other comprehensive income in associates			26		(63	)
Total other comprehensive income			26		(63	)
Total comprehensive income			24,223		34,069

These financial statements have been approved by the board of directors on 24 August 2012.

Fu Chengyu		Wang Tianpu		Wang Xinhua
Chairman		Vice Chairman, President		Chief Financial Officer

(Authorised representative)

The notes on pages 41 to 96 form part of these financial statements.

CONSOLIDATED CASH FLOW STATEMENT

for the six-month period ended 30 June 2012

		Six-month periods ended 30 June
	Note	2012			2011
		RMB millions			RMB millions

Cash flows from operating activities:
Cash received from sale of goods and rendering of services			1,543,118			1,393,347
Rentals received			246			202
Other cash received relating to operating activities			6,662			4,206
Sub-total of cash inflows			1,550,026			1,397,755
Cash paid for goods and services			(1,335,797	)		(1,183,778	)
Cash paid for operating leases			(5,989	)		(6,341	)
Cash paid to and for employees			(19,830	)		(16,789	)
Value added tax paid			(30,243	)		(36,810	)
Income tax paid			(12,130	)		(20,000	)
Taxes paid other than value added tax and income tax			(116,749	)		(94,874	)
Other cash paid relating to operating activities			(8,734	)		(8,300	)
Sub-total of cash outflows			(1,529,472	)		(1,366,892	)
Net cash flow from operating activities	47(a)		20,554			30,863
Cash flows from investing activities:
Cash received from disposal of investments			1,315			2,482
Dividends received			1,250			1,997
Net cash received from disposal of fixed assets and intangible assets			166			168
Cash received on maturity of time deposits with financial institutions			1,177			707
Cash received from derivative financial instruments			738			3,329
Other cash received relating to investing activities			563			541
Sub-total of cash inflows			5,209			9,224
Cash paid for acquisition of fixed assets and intangible assets			(77,126	)		(53,782	)
Cash paid for acquisition of investments			(4,825	)		(2,692	)
Cash paid for acquisition of time deposits with financial institutions			(2,028	)		(5,045	)
Cash paid for derivative financial instruments			(1,121	)		(3,028	)
Sub-total of cash outflows			(85,100	)		(64,547	)
Net cash flow from investing activities			(79,891	)		(55,323	)
Cash flows from financing activities:
Cash received from borrowings			388,230			277,196
Cash received from issuance of 2011 Convertible Bonds, net of issuing expenses			—			22,889
Cash received from issuance of corporate bonds			50,000			5,000
Cash received from contribution from minority shareholders of subsidiaries			936			22
Sub-total of cash inflows			439,166			305,107
Cash repayments of borrowings			(339,421	)		(272,658	)
Cash repayments of corporate bonds and redemption of 2007 Convertible Bonds			(30,000	)		(1,036	)
Cash paid for dividends, profits distribution or interest			(21,925	)		(14,848	)
Dividends paid to minority shareholders of subsidiaries			(507	)		(420	)
Cash paid for acquisition of minority interests from subsidiaries, net			(71	)		(15	)
Sub-total of cash outflows			(391,924	)		(288,977	)
Net cash flow from financing activities			47,242			16,130
Effects of changes in foreign exchange rate			7			38
Net decrease in cash and cash equivalents	47(b)		(12,088	)		(8,292	)

These financial statements have been approved by the board of directors on 24 August 2012.

Fu Chengyu		Wang Tianpu		Wang Xinhua
Chairman		Vice Chairman, President		Chief Financial Officer

(Authorised representative)

The notes on pages 41 to 96 form part of these financial statements.

CASH FLOW STATEMENT

for the six-month period ended 30 June 2012

		Six-month periods ended 30 June
	Note	2012			2011
		RMB millions			RMB millions

Cash flows from operating activities:
Cash received from sale of goods and rendering of services			902,674			863,953
Rentals received			166			202
Other cash received relating to operating activities			27,443			5,127
Sub-total of cash inflows			930,283			869,282
Cash paid for goods and services			(723,765	)		(699,362	)
Cash paid for operating leases			(4,506	)		(5,339	)
Cash paid to and for employees			(16,295	)		(13,842	)
Value added tax paid			(24,706	)		(30,117	)
Income tax paid			(6,701	)		(12,680	)
Taxes paid other than value added tax and income tax			(96,517	)		(73,800	)
Other cash paid relating to operating activities			(8,242	)		(7,947	)
Sub-total of cash outflows			(880,732	)		(843,087	)
Net cash flow from operating activities	47(a)		49,551			26,195
Cash flows from investing activities:
Cash received from disposal of investments			307			1,754
Dividends received			5,324			1,285
Net cash received from disposal of fixed assets and intangible assets			152			130
Cash received on maturity of time deposits with financial institutions			1,090			—
Other cash received relating to investing activities			394			195
Sub-total of cash inflows			7,267			3,364
Cash paid for acquisition of fixed assets and intangible assets			(63,165	)		(37,846	)
Cash paid for acquisition of investments			(5,170	)		(1,813	)
Cash paid for acquisition of time deposits with financial institutions			(1,785	)		(3,830	)
Sub-total of cash outflows			(70,120	)		(43,489	)
Net cash flow from investing activities			(62,853	)		(40,125	)
Cash flows from financing activities:
Cash received from borrowings			78,151			38,904
Cash received from issuance of 2011 Convertible Bonds, net of issuing expenses			—			22,889
Cash received from issuance of corporate bonds			50,000			5,000
Sub-total of cash inflows			128,151			66,793
Cash repayments of borrowings			(79,528	)		(46,659	)
Repayments of corporate bonds and redemption of 2007 Convertible Bonds			(30,000	)		(36	)
Cash paid for dividends, profits distribution or interest			(21,177	)		(14,093	)
Sub-total of cash outflows			(130,705	)		(60,788	)
Net cash flow from financing activities			(2,554	)		6,005
Net decrease in cash and cash equivalents	47(b)		(15,856	)		(7,925	)

These financial statements have been approved by the board of directors on 24 August 2012.

Fu Chengyu		Wang Tianpu		Wang Xinhua
Chairman		Vice Chairman, President		Chief Financial Officer

(Authorised representative)

The notes on pages 41 to 96 form part of these financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the six-month period ended 30 June 2012

	Share capital RMB millions		Capital reserve RMB millions			Specific reserve RMB millions		Surplus reserves RMB millions		Retained earnings RMB millions			Translation difference in foreign currency statements RMB millions			Total shareholders’ equity attributable to equity shareholders of the Company RMB millions			Minority interests RMB millions			Total share holders’ equity RMB millions

Balance at 1 January 2011		86,702		29,414			1,325		141,711		163,132			(1,157	)		421,127			31,555			452,682
Change for the period
1. Net profit		—		—			—		—		40,239			—			40,239			2,973			43,212
2. Other comprehensive income (Note 45)		—		77			—		—		—			(216	)		(139	)		(18	)		(157	)
Total comprehensive income		—		77			—		—		40,239			(216	)		40,100			2,955			43,055
Transactions with owners, recorded directly in shareholders’ equity:
3. Appropriations of profits:
– Appropriation for surplus reserves		—		—			—		3,413		(3,413	)		—			—			—			—
– Distributions to shareholders (Note 46)		—		—			—		—		(11,271	)		—			(11,271	)		—			(11,271	)
4. Acquisition of minority interests		—		(16	)		—		—		—			—			(16	)		(4	)		(20	)
5. Distributions to minority interests, net of contributions		—		—			—		—		—			—			—			(814	)		(814	)
6. Net increase in specific reserve for the period		—		—			1,215		—		—			—			1,215			40			1,255
7. Government grants		—		118			—		—		—			—			118			—			118
		—		102			1,215		3,413		(14,684	)		—			(9,954	)		(778	)		(10,732	)
Balance at 30 June 2011		86,702		29,593			2,540		145,124		188,687			(1,373	)		451,273			33,732			485,005
Balance at 1 January 2012		86,702		29,583			3,115		178,263		178,336			(1,600	)		474,399			35,126			509,525
Change for the period
1. Net profit		—		—			—		—		23,697			—			23,697			1,249			24,946
2. Other comprehensive income (Note 45)		—		28			—		—		—			59			87			30			117
Total comprehensive income		—		28			—		—		23,697			59			23,784			1,279			25,063
Transactions with owners, recorded directly in shareholders’ equity:
3. Appropriations of profits:
– Appropriation for surplus reserves		—		—			—		2,420		(2,420	)		—			—			—			—
– Distributions to shareholders (Note 46)		—		—			—		—		(17,364	)		—			(17,364	)		—			(17,364	)
4. Exercise of conversion of the 2011 Convertible Bonds (Note 31)		118		799			—		—		—			—			917			—			917
5. Rights issue of shares by a subsidiary (Note 32(ii))		—		(18	)		—		—		—			—			(18	)		781			763
6. Acquisition of minority interests		—		(55	)		—		—		—			—			(55	)		(16	)		(71	)
7. Distributions to minority interests, net of contributions		—		—			—		—		—			—			—			(720	)		(720	)
8. Net increase in specific reserve for the period (Note 33)		—		—			1,067		—		—			—			1,067			41			1,108
		118		726			1,067		2,420		(19,784	)		—			(15,453	)		86			(15,367	)
Balance at 30 June 2012		86,820		30,337			4,182		180,683		182,249			(1,541	)		482,730			36,491			519,221

These financial statements have been approved by the board of directors on 24 August 2012.

Fu Chengyu	Wang Tianpu	Wang Xinhua
Chairman	Vice Chairman, President	Chief Financial Officer

(Authorised representative)

The notes on pages 41 to 96 form part of these financial statements.

STATEMENT OF CHANGES IN EQUITY

for the six-month period ended 30 June 2012

	Share		Capital			Specific		Surplus		Retained			Total share
	capital		reserve			reserve		reserves		earnings			holders’ equity
	RMB millions		RMB millions			RMB millions		RMB millions		RMB millions			RMB millions

Balance at 1 January 2011		86,702		37,922			1,025		141,711		118,059			385,419
Change for the period
1. Net profit		—		—			—		—		34,132			34,132
2. Other comprehensive income (Note 45)		—		(63	)		—		—		—			(63	)
Total comprehensive income		—		(63	)		—		—		34,132			34,069
Transactions with owners, recorded directly in shareholders’ equity:
3. Appropriations of profits:
– Appropriation for surplus reserves		—		—			—		3,413		(3,413	)		—
– Distributions to shareholders (Note 46)		—		—			—		—		(11,271	)		(11,271	)
4. Net increase in specific reserve for the period		—		—			1,016		—		—			1,016
5. Government grants		—		108			—		—		—			108
		—		108			1,016		3,413		(14,684	)		(10,147	)
Balance at 30 June 2011		86,702		37,967			2,041		145,124		137,507			409,341
Balance at 1 January 2012		86,702		37,983			2,571		178,263		127,087			432,606
Change for the period
1. Net profit		—		—			—		—		24,197			24,197
2. Other comprehensive income (Note 45)		—		26			—		—		—			26
Total comprehensive income		—		26			—		—		24,197			24,223
Transactions with owners, recorded directly in shareholders’ equity:
3. Appropriations of profits:
– Appropriation for surplus reserves		—		—			—		2,420		(2,420	)		—
– Distributions to shareholders (Note 46)		—		—			—		—		(17,364	)		(17,364	)
4. Exercise of conversion of the 2011 Convertible Bonds (Note 31)		118		799			—		—		917
5. Net increase in specific reserve for the period (Note 33)		—		—			881		—		—			881
		118		799			881		2,420		(19,784	)		(15,566	)
Balance at 30 June 2012		86,820		38,808			3,452		180,683		131,500			441,263

These financial statements have been approved by the board of directors on 24 August 2012.

Fu Chengyu		Wang Tianpu		Wang Xinhua
Chairman		Vice Chairman, President		Chief Financial Officer

(Authorised representative)

The notes on pages 41 to 96 form part of these financial statements.

NOTES TO THE FINANCIAL STATEMENTS

for the six-month period ended 30 June 2012

1	STATUS OF THE COMPANY

	China Petroleum & Chemical Corporation (the “Company”) was established on 25 February 2000 as a joint stock limited company.

	According to the State Council’s approval to the “Preliminary Plan for the Reorganisation of China Petrochemical Corporation” (the “Reorganisation”), the Company was established by China Petrochemical Corporation (“Sinopec Group Company”), which transferred its core businesses together with the related assets and liabilities at 30 September 1999 to the Company. Such assets and liabilities had been valued jointly by China United Assets Appraisal Corporation, Beijing Zhong Zheng Appraisal Company, CIECC Assets Appraisal Corporation and Zhong Fa International Properties Valuation Corporation. The net asset value was determined at RMB 98,249,084,000. The valuation was reviewed and approved by the Ministry of Finance (the “MOF”) (Cai Ping Zi [2000] No. 20 “Comments on the Review of the Valuation Regarding the Formation of a Joint Stock Limited Company by China Petrochemical Corporation”).

	In addition, pursuant to the notice Cai Guan Zi [2000] No. 34 “Reply to the Issue Regarding Management of State-Owned Equity by China Petroleum and Chemical Corporation” issued by the MOF, 68.8 billion domestic state-owned shares with a par value of RMB 1.00 each were issued to Sinopec Group Company, the amount of which is equivalent to 70% of the above net asset value transferred from Sinopec Group Company to the Company in connection with the Reorganisation.

	Pursuant to the notice Guo Jing Mao Qi Gai [2000] No. 154 “Reply on the Formation of China Petroleum and Chemical Corporation”, the Company obtained the approval from the State Economic and Trade Commission on 21 February 2000 for the formation of a joint stock limited company.

	The Company took over the exploration, development and production of crude oil and natural gas, refining, chemicals and related sales and marketing business of Sinopec Group Company after the establishment of the Company.

	The Company and its subsidiaries (the “Group”) engage in the oil and gas and chemical operations and businesses, including:

	(1)	the exploration, development and production of crude oil and natural gas;

	(2)	the refining, transportation, storage and marketing of crude oil and petroleum product; and

	(3)	the production and sale of “chemicals.

2	BASIS OF PREPARATION

	(1)	Statement of compliance China Accounting Standards for Business Enterprises (“ASBE”)
		The financial statements have been prepared in accordance with the requirements of Accounting Standards for Business Enterprises – Basic Standards and 38 specific standards issued by the MOF on 15 February 2006 and the practice guide of the Accounting Standards for Business Enterprises, the explanations to the Accounting Standards for Business Enterprises and other regulations issued thereafter (collectively, ASBE). These financial statements present truly and completely the consolidated financial position and financial position, the consolidated results of operations and results of operations and the consolidated cash flows and cash flows of the Company.

		These financial statements also comply with the disclosure requirements of “Regulation on the Preparation of Information Disclosures of Companies Issuing Public Shares, No.15: General Requirements for Financial Reports” as revised by the China Securities Regulatory Commission (“CSRC”) in 2010.

	(2)	Accounting period
		The accounting year of the Group is from 1 January to 31 December.

	(3)	Measurement basis
		The financial statements of the Group have been prepared under the historical cost convention, except for the assets and liabilities set out below:

		—	Financial assets and Liabilities

		—	Available-for-sale financial assets (see Note 3(11))

		—	Convertible bonds (see Note 3(11))

		—	Derivative financial instruments (see Note 3(11))

	(4)	Functional currency and presentation currency
		The functional currency of the Company’s and most of its subsidiaries is Renminbi. The Group’s consolidated financial statements are presented in Renminbi. The Company translates the financial statements of subsidiaries from their respective functional currencies into Renminbi (see Note 3(2)) if the subsidiaries’ functional currencies are not Renminbi.

3	SIGNIFICANT ACCOUNTING POLICIES

	(1)	Accounting treatment of business combination involving entities under common control and not under common control

		(a)	Business combination involving entities under common control
			A business combination involving entities or businesses under common control is a business combination in which all of the combining entities or businesses are ultimately controlled by the same party or parties both before and after the business combination, and that control is not transitory. The assets and liabilities that the acquirer receives in the acquisition are accounted for at the acquiree’s carrying amount on the acquisition date. The difference between the carrying amount of the acquired net assets and the carrying amount of the consideration paid for the acquisition (or the total nominal value of shares issued) is recognised in the share premium of capital reserve, or the retained earnings in case of any shortfall in the share premium of capital reserve. Any costs directly attributable to the combination shall be recognised in profit or loss for the current period when occurred. The combination date is the date on which the acquirer effectively obtains control of the acquiree.

		(b)	Business combination involving entities not under common control
			A business combination involving entities or businesses not under common control is a business combination in which all of the combining entities or businesses are not ultimately controlled by the same party or parties both before and after the business combination. Difference between the consideration paid by the Group as the acquirer, comprises of the aggregate of the fair value at the acquisition date of assets given, including equity interest of the acquiree held before the acquisition date, liabilities incurred or assumed, and equity securities issued by the acquirer in exchange for control of the acquiree, and the Group’s interest in the fair value of the identifiable net assets of the acquiree, is recognised as goodwill (Note 3(9)) if it is an excess, otherwise in the profit or loss. The expense incurred for equity securities and debt securities issued as the consideration of the combination is recognised in the initial cost of the securities. Any other expense directly attributable to the business combination is recognised in the profit or loss for the period. The difference between the fair value and the book value of the assets given is recognised in profit or loss. The acquiree’s identifiable assets, liabilities and contingent liabilities, if satisfying the recognition criteria, are recognised by the Group at their fair value at the acquisition date. The acquisition date is the date on which the acquirer effectively obtains control of the acquiree.

		(c)	Method for preparation of consolidated financial statements
			The scope of consolidated financial statements is based on control and the consolidated financial statements comprise the Company and its subsidiaries. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights, such as warrants and convertible bonds, that are currently exercisable or convertible, are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

			Where the Company combines a subsidiary during the reporting period through a business combination involving entities under common control, the financial statements of the subsidiary are included in the consolidated financial statements as if the combination had occurred at the beginning of the earliest comparative year presented or, if later, at the date that common control was established. Therefore the opening balances and the comparative figures of the consolidated financial statements are restated. In the preparation of the consolidated financial statements, the subsidiary’s assets, liabilities and results of operations are included in the consolidated balance sheet and the consolidated income statement, respectively, based on their carrying amounts in the subsidiary’s financial statements, from the date that common control was established.

			Where the Company acquires a subsidiary during the reporting year through a business combination involving entities not under common control, the identifiable assets, liabilities and results of operations of the subsidiaries are consolidated into consolidated financial statements from the date that control commences, base on the fair value of those identifiable assets and liabilities at the acquisition date.

			Where the Company acquired a minority interest from a subsidiary’s minority shareholders, the difference between the investment cost and the newly acquired interest into the subsidiary’s identifiable net assets is adjusted to the capital reserve (capital surplus) in the consolidated balance sheet. Where the Company partially disposed an investment of a subsidiary that do not result in a loss of control, the difference between the proceeds and the corresponding share of the interest into the subsidiary is adjusted to the capital reserve (capital surplus) in the consolidated balance sheet. If the credit balance of capital reserve (capital surplus) is insufficient, any excess is adjusted to retained profits.

			In a business combination involving entities not under common control achieved in stages, the Group remeasures its previously held equity interest in the acquiree on the acquisition date. The difference between the fair value and the net book value is recognised as investment income for the period. If other comprehensive income was recognised regarding the equity interest previously held in the acquiree before the acquisition date, the relevant other comprehensive income is transferred to investment income in the period in which the acquisition occurs.

			Where control of a subsidiary is lost due to partial disposal of the equity investment held in a subsidiary, or any other reasons, the remaining equity investment is remeasured to fair value at the date in which control is lost. The sum of consideration received from disposal of equity investment and the fair value of the remaining equity investment, net of the fair value of the Group’s previous share of the subsidiary’s identifiable net assets recorded from the acquisition date, is recognised in investment income in the period in which control is lost. Other comprehensive income related to the previous equity investment in the subsidiary, is transferred to investment income when control is lost.

3	SIGNIFICANT ACCOUNTING POLICIES (Continued)

	(1)	Accounting treatment of business combination involving entities under common control and not under common control (Continued)

		(c)	Method for preparation of consolidated financial statements (Continued)
			Minority interest is presented separately in the consolidated balance sheet within shareholders’ equity. Net profit or loss attributable to minority shareholders is presented separately in the consolidated income statement below the net profit line item.

			The excess of the loss attributable to the minority interests during the period over the minority interests’ share of the equity at the beginning of the reporting period is deducted from minority interests.

			Where the accounting policies and accounting period adopted by the subsidiaries are different from those adopted by the Company, adjustments are made to the subsidiaries’ financial statements according to the Company’s accounting policies and accounting period. Intra-group balances and transactions, and any unrealised profit or loss arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment.

	(2)	Transactions in foreign currencies and translation of financial statements in foreign currencies
		Foreign currency transactions are, on initial recognition, translated into Renminbi at the spot exchange rates quoted by the People’s Bank of China (“PBOC rates”) at the transaction dates.

		Foreign currency monetary items are translated at the PBOC rates at the balance sheet date. Exchange differences, except for those directly related to the acquisition, construction or production of qualified assets, are recognised as income or expenses in the income statement. Non-monetary items denominated in foreign currency measured at historical cost are not translated. Non-monetary items denominated in foreign currency that are measured at fair value are translated using the exchange rates at the date when the fair value was determined. The difference between the translated amount and the original currency amount is recognised as capital reserve, if it is classified as available-for-sale financial assets; or charged to the income statement if it is measured at fair value through profit or loss.

		The assets and liabilities of foreign operation are translated to Renminbi at the spot exchange rates at the balance sheet date. The equity items, excluding “Retained earnings”, are translated to Renminbi at the spot exchange rates at the transaction dates. The income and expenses of foreign operation are translated to Renminbi at the spot exchange rates on the transaction dates. The resulting exchange differences are separately presented in the balance sheet within equity. Upon disposal of a foreign operation, the cumulative amount of the exchange differences recognised in which relate to that foreign operation is transferred to profit or loss in the year in which the disposal occurs.

	(3)	Cash and cash equivalents
		Cash and cash equivalents comprise cash on hand, demand deposits, short-term and highly liquid investments which are readily convertible into known amounts of cash and are subject to an insignificant risk of change in value.

	(4)	Inventories
		Inventories are initially measured at cost. Cost includes the cost of purchase and processing, and other expenditures incurred in bringing the inventories to their present location and condition. The cost of inventories is calculated using the weighted average method. In addition to the cost of purchase of raw material, work in progress and finished goods include direct labour and an appropriate allocation of manufacturing overhead costs.

		At the balance sheet date, inventories are stated at the lower of cost and net realisable value.

		Any excess of the cost over the net realisable value of each item of inventories is recognised as a provision for diminution in the value of inventories. Net realisable value is the estimated selling price in the normal course of business less the estimated costs of completion and the estimated costs necessary to make the sale and relevant taxes. The net realisable value of materials held for use in the production is measured based on the net realisable value of the finished goods in which they will be incorporated. The net realisable value of the quantity of inventory held to satisfy sales or service contracts is measured based on the contract price. If the quantities held by the Group are more than the quantities of inventories specified in sales contracts, the net realisable value of the excess portion of inventories is measured based on general selling prices.

		Inventories include raw materials, work in progress, semi-finished goods, finished goods and reusable materials. Reusable materials include low-value consumables, packaging materials and other materials, which can be used repeatedly but do not meet the definition of fixed assets. Reusable materials are amortised in full when received for use. The amounts of the amortisation are included in the cost of the related assets or profit or loss.

		Inventories are recorded by perpetual method.

3	SIGNIFICANT ACCOUNTING POLICIES (Continued)

	(5)	Long-term equity investments

		(a)	Investment in subsidiaries
			In the Group’s consolidated financial statements, investment in subsidiaries are accounted for in accordance with the principles described in Note 3(1)(c).

			In the Company’s separate financial statements, long-term equity investments in subsidiaries are accounted for using the cost method. Except for cash dividends or profits distributions declared but not yet distributed that have been included in the price or consideration paid in obtaining the investments, the Company recognises its share of the cash dividends or profit distributions declared by the investee as investment income irrespective of whether these represent the net profit realised by the investee before or after the investment. Investments in subsidiaries are stated at cost less impairment losses (see Note 3(12)) in the balance sheet. At initial recognition, such investments are measured as follows:

			The initial investment cost of a long-term equity investment obtained through a business combination involving entities under common control is the Company’s share of the carrying amount of the subsidiary’s equity at the combination date. The difference between the initial investment cost and the carrying amounts of the consideration given is adjusted to share premium in capital reserve. If the balance of the share premium is insufficient, any excess is adjusted to retained earnings.

			For a long-term equity investment obtained through a business combination not involving enterprises under common control, the initial investment cost comprises the aggregate of the fair values of assets transferred, liabilities incurred or assumed, and equity securities issued by the Company, in exchange for control of the acquiree. For a long-term equity investment obtained through a business combination not involving enterprises under common control, if it is achieved in stages, the initial cost comprises the carrying value of previously-held equity investment in the acquiree immediately before the acquisition date, and the additional investment cost at the acquisition date.

			An investment in a subsidiary acquired otherwise than through a business combination is initially recognised at actual purchase cost if the Group acquires the investment by cash, or at the fair value of the equity securities issued if an investment is acquired by issuing equity securities, or at the value stipulated in the investment contract or agreement if an investment is contributed by investors.

		(b)	Investment in jointly controlled entities and associates
			A jointly controlled entity is an entity which operates under joint control in accordance with a contractual agreement between the Group and other ventures. Joint control represents the contractual agreement of sharing of control over the entity’s economic activities, limited to economic activities related to significant financial and operating policies that require agreement of all ventures. The Group generally consider the following circumstances in determining whether it can exercise joint control over the investee:

			—	whether any investor alone cannot control the operating activities of the investee;

			—	whether it requires agreement of all ventures for decisions related to the fundamental operating activities of the investee;

			—	whether the management of an investor who is appointed by all investors through the contract or agreement to manage the daily operations of the investee must be confined with the agreed-upon financing and operation policies.

			An associate is an entity of which the Group has significant influence. Significant influence represents the right to participate in the financial and operating policy decisions of the investee but is not control or joint control over the establishment of these policies. The Group generally consider the following circumstances in determining whether it can exercise significant influence over the investee:

			—	whether there is representative appointed to the board of directors or equivalent governing body of the investee;

			—	whether to participate in the investee’s policy-making process;

			—	whether there are significant transactions with the investees;

			—	whether there is management personnel sent to the investee;

			—	whether to provide critical technical information to the investee.

			An investment in a jointly controlled entity or an associate is accounted for using the equity method, unless the investment is classified as held for sale (see Note 3(10)).

			The initial cost of investment in jointly controlled entities and associates is stated at the consideration paid if the investment is made in cash, or at the fair value of the non-monetary assets exchanged for the investment. The difference between the fair value of the non-monetary assets being exchanged and its carrying amount is charged to profit or loss.

3	SIGNIFICANT ACCOUNTING POLICIES (Continued)

	(5)	Long-term equity investments (Continued)

		(b)	Investment in jointly controlled entities and associates (Continued)
			The Group’s accounting treatments when adopting the equity method include:

			Where the initial investment cost of a long-term equity investment exceeds the Group’s interest in the fair value of the investee’s identifiable net assets at the date of acquisition, the investment is initially recognised at the initial investment cost. Where the initial investment cost is less than the Group’s interest in the fair value of the investee’s identifiable net assets at the time of acquisition, the investment is initially recognised at the investor’s share of the fair value of the investee’s identifiable net assets, and the difference is charged to profit or loss.

			After the acquisition of the investment, the Group recognises its share of the investee’s net profits or losses, as investment income or losses, and adjusts the carrying amount of the investment accordingly. Once the investee declares any cash dividends or profits distributions, the carrying amount of the investment is reduced by that attributable to the Group.

			The Group recognises its share of the investee’s net profits or losses after making appropriate adjustments to align the accounting policies or accounting periods with those of the Group based on the fair values of the investee’s net identifiable assets at the time of acquisition. Under the equity accounting method, unrealised profits and losses resulting from transactions between the Group and its associates or jointly controlled entities are eliminated to the extent of the Group’s interest in the associates or jointly controlled entities. Unrealised losses resulting from transactions between the Group and its associates or jointly controlled entities are fully recognised in the event that there is an evidence of impairment.

			The Group discontinues recognising its share of net losses of the investee after the carrying amount of the long-term equity investment and any long-term interest that is in substance forms part of the Group’s net investment in the associate or the jointly controlled entity is reduced to zero, except to the extent that the Group has an obligation to assume additional losses. Where net profits are subsequently made by the associate or jointly controlled entity, the Group resumes recognising its share of those profits only after its share of the profits equals the share of losses not recognised.

			The Group adjusts the carrying amount of the long-term equity investment for changes in owners’ equity of the investee other than those arising from net profits or losses, and recognises the corresponding adjustment in equity.

		(c)	Other long-term equity investments
			Other long-term equity investments refer to investments where the Group does not have control, joint control or significant influence over the investees, and for which the investments are not quoted in an active market and their fair value cannot be reliably measured.

			The initial investment cost in these entities is originally recognised in the same way as the initial investment cost and measurement principles for investment in jointly controlled entities and associates.

			Other long-term investments are subsequently accounted for under the cost method. The cash dividends or profits declared to be distributed by the investee entity are recognised as investment income irrespective of whether these represent the net profit realised by the investee before or after the investment, excluding the cash dividends or profits declared but not distributed in the considerations paid to acquire the investment.

		(d)	The impairment assessment method and provision accrual on investment
			The impairment assessment and provision accrual on investments in subsidiaries, associates and jointly controlled enterprises are stated in Note 3(12).

			At each balance sheet date, other long-term equity investments are assessed for impairment on an individual basis. For other long-term equity investments, the amount of the impairment loss is measured as the difference between the carrying amount of the investment and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss is not reversed.

			The investments in other long-term equity investments are stated in the balance sheet at cost less impairment losses.

3	SIGNIFICANT ACCOUNTING POLICIES (Continued)

	(6)	Fixed assets and construction in progress
		Fixed assets represent the tangible assets held by the Group using in the production of goods, rendering of services and for operation and administrative purposes with useful life over 1 year.

		Fixed assets are stated in the balance sheet at cost less accumulated depreciation and impairment losses (see Note 3(12)). Construction in progress is stated in the balance sheet at cost less impairment losses (see Note 3(12)).

		The cost of a purchased fixed asset comprises the purchase price, related taxes, and any directly attributable expenditure for bringing the asset to working condition for its intended use. The cost of self-constructed assets includes the cost of materials, direct labour, capitalised borrowing costs (see Note 3(19)), and any other costs directly attributable to bringing the asset to working condition for its intended use. Costs of dismantling and removing the items and restoring the site on which the related assets located are included in the initial cost.

		Construction in progress is transferred to fixed assets when the asset is ready for its intended use. No depreciation is provided against construction in progress.

		Where the individual component parts of an item of fixed asset have different useful lives or provide benefits to the Group in different patterns thus necessitating use of different depreciation rates or methods, each part is recognised as a separate fixed asset.

		The subsequent costs including the cost of replacing part of an item of fixed assets are recognised in the carrying amount of the item if the recognition criteria are satisfied, and the carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of fixed assets are recognised in profit or loss as incurred.

		The Group terminates the recognition of an item of fixed asset when it is in a state of disposal or it is estimated that it is unable to generate any economic benefits through use or disposal. Gains or losses arising from the retirement or disposal of an item of fixed asset are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised in profit or loss on the date of retirement or disposal.

		Other than oil and gas properties, the cost of fixed assets less residual value and accumulated impairment losses is depreciated using the straight-line method over their estimated useful lives, unless the fixed asset is classified as held for sale (see Note 3(10)). The estimated useful lives and the estimated rate of residual values adopted for respective classes of fixed assets are as follows:

	Estimated	Estimated rate
	useful life	of residual value

Plants and buildings	12-50 years		3%
Equipment, machinery and others	4-30 years		3%

		Useful lives, residual values and depreciation methods are reviewed at least each year end.

	(7)	Oil and gas properties
		Oil and gas properties include the mineral interests in properties, wells and related support equipment arising from oil and gas exploration and production activities.

		Costs of development wells and related support equipment are capitalised. The cost of exploratory wells is initially capitalised as construction in progress pending determination of whether the well has found proved reserves. Exploratory well costs are charged to expenses upon the determination that the well has not found proved reserves. However, in the absence of a determination of the discovery of proved reserves, exploratory well costs are not carried as an asset for more than one year following completion of drilling. If, after one year has passed, a determination of the discovery of proved reserves cannot be made, the exploratory well costs are impaired and charged to expense. All other exploration costs, including geological and geophysical costs, are charged to profit or loss in the year as incurred.

		Gains and losses on the disposal of proved oil and gas properties are not recognised unless the disposal encompasses an entire property. The proceeds on such disposals are credited to the carrying amounts of oil and gas properties.

		The Group estimates future dismantlement costs for oil and gas properties with reference to engineering estimates after taking into consideration the anticipated method of dismantlement required in accordance with the industry practices. These estimated future dismantlement costs are discounted at credit-adjusted risk-free rate and are capitalised as oil and gas properties, which are subsequently amortised as part of the costs of the oil and gas properties.

		Capitalised costs relating to proved properties are amortised on a unit-of-production method.

3	SIGNIFICANT ACCOUNTING POLICIES (Continued)

	(8)	Intangible assets
		Intangible assets, where the estimated useful life is finite, are stated in the balance sheet at cost less accumulated amortisation and provision for impairment losses (see Note 3(12)). For an intangible asset with finite useful life, its cost less estimated residual value and accumulated impairment losses is amortised on a straight-line basis over the expected useful lives, unless the intangible assets are classified as held for sale (see Note 3(10)).

		An intangible asset is regarded as having an indefinite useful life and is not amortised when there is no foreseeable limit to the year over which the asset is expected to generate economic benefits for the Group.

	(9)	Goodwill
		The initial cost of goodwill represents the excess of cost of acquisition over the acquirer’s interest in the fair value of the identifiable net assets of the acquiree under the business combination involving entities not under common control.

		Goodwill is not amortised and is stated at cost less accumulated impairment losses (see Note 3(12)). On disposal of an asset group or a set of asset groups, any attributable amount of purchased goodwill is written off and included in the calculation of the profit or loss on disposal.

	(10)	Non-current assets held for sale
		A non-current asset is accounted for as held for sale when the Group has made a decision and signed a non-cancellable agreement on the transfer of the asset with the transferee, and the transfer is expected to be completed within one year. Such non-current assets may include fixed assets, intangible assets, investment property subsequently measured using the cost model, long-term equity investment, etc., but not include financial instruments and deferred tax assets. Non-current assets held for sale are stated at the lower of carrying amount and net realisable value. Any excess of the carrying amount over the net realisable value is recognised as an impairment loss.

	(11)	Financial Instruments
		Financial instruments of the Group include cash and cash equivalents, bond investments, equity securities other than long-term equity investments, receivables, derivative financial instruments, payables, loans, bonds payable, and share capital, etc.

		(a)	Classification, recognition and measurement of financial instruments
			The Group recognises a financial asset or a financial liability on its balance sheet when the Group enters into and becomes a party to the underlining contract of the financial instrument.

			The Group classifies financial assets and liabilities into different categories at initial recognition based on the purpose of acquiring assets and assuming liabilities: financial assets and financial liabilities at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets and other financial liabilities.

			Financial assets and financial liabilities are initially recognised at fair value. For financial asset or financial liability of which the change in its fair value is recognised in profit or loss, the relevant transaction cost is recognised in profit or loss. The transaction costs for other financial assets or financial liabilities are included in the initially recognised amount. Subsequent to initial recognition financial assets and liabilities are measured as follows:

			—	Financial asset or financial liability with change at fair value recognised through profit or loss (including financial asset or financial liability held for trading)

				A financial asset or financial liability is classified as at fair value through profit or loss if it is acquired or incurred principally for the purpose of selling or repurchasing in the near term or if it is a derivative, unless the derivative is a designated and effective hedging instrument, or a financial guarantee contract, or a derivative that is linked to and must be settled by delivery of an unquoted equity instrument (without a quoted price from an active market) whose fair value cannot be reliably measured. These financial instruments are initially measured at fair value with subsequently changes in fair value recognised in profit or loss. Subsequent to initial recognition, financial assets and financial liabilities at fair value through profit or loss are measured at fair value, and changes therein are recognised in profit or loss.

			—	Receivables

				Receivables are non-derivative financial assets with fixed or determinable recoverable amount and with no quoted price in active market. After the initial recognition, receivables are measured at amortised cost using the effective interest method.

			—	Held-to-maturity investment

				Held-to-maturity investment includes non-derivative financial assets with fixed or determinable recoverable amount and fixed maturity that the Group has the positive intention and ability to hold to maturity. Subsequent to initial recognition, held-to-maturity investments are measured at amortised cost using the effective interest method.

3	SIGNIFICANT ACCOUNTING POLICIES (Continued)

	(11)	Financial Instruments (Continued)

		(a)	Classification, recognition and measurement of financial instruments (Continued)
			—	Available-for-sale financial assets

				Available-for-sale financial assets include non-derivative financial assets that are designated as available for sales and other financial assets which do not fall into any of the above categories.

				Available-for-sale financial assets whose fair value cannot be measured reliably are measured at cost subsequent to initial recognition. Other than the above equity instrument investments whose fair values cannot be measured reliably, other available-for-sale financial assets are initially stated at fair values. The gains or losses arising from changes in the fair value are directly recognised in equity, except for the impairment losses and exchange differences from monetary financial assets denominated in foreign currencies, which are recognised in profit or loss. The cumulative gains and losses previously recognised in equity are transferred to profit or loss when the available-for-sale financial assets are derecognised. Dividend income from these equity instruments is recognised in profit or loss when the investee declares the dividends. Interest on available-for-sale financial assets calculated using the effective interest method is recognised in profit or loss (see Note 3(17) (c)).

			—	Other financial liabilities

				Financial liabilities other than the financial liabilities at fair value through profit or loss are classified as other financial liabilities.

				Other financial liabilities include the liabilities arising from financial guarantee contracts. Financial guarantees are contracts that require the issuer (i.e. the guarantor) to make specified payments to reimburse the beneficiary of the guarantee (the holder) for a loss the holder incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. Where the Group issues a financial guarantee, subsequent to initial recognition, the guarantee is measured at the higher of the amount initially recognised less accumulated amortisation and the amount of a provision determined in accordance with the principles of contingencies (see Note 3(16)).

				Except for the other financial liabilities described above, subsequent to initial recognition, other financial liabilities are measured at amortised cost using the effective interest method.

		(b)	Disclosure of financial assets and financial liabilities
			In the balance sheet, financial assets and liabilities are not offset unless all the following conditions are met:

			—	the Group has a legally enforceable right to set off financial assets against financial liabilities; and

			—	the Group intend to settle the financial assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously.

		(c)	Determination of fair value
			If there is an active market for a financial asset or financial liability, the quoted price in the active market is used to establish the fair value of the financial asset or financial liability.

			If no active market exists for a financial instrument, a valuation technique is used to establish the fair value. Valuation techniques include using arm’s length market transactions between knowledge, willing parties; reference to the current fair value of other instrument that is substantially the same; discounted cash flows and option pricing model. The Group calibrates the valuation technique and tests it for validity periodically.

		(d)	Hedge accounting
			Hedge accounting is a method which recognises the offsetting effects on profit or loss of changes in the fair values of the hedging instrument and the hedged item in the same accounting period(s).

			Hedged items are the items that expose the Group to risks of changes in fair value or future cash flows and that are designated as being hedged. The Group’s hedged items include fixed-rate borrowings that expose the Group to risk of changes in fair values, floating rate borrowings that expose the Group to risk of variability in cash flows, and a forecast transaction that is settled with a fixed amount of foreign currency and expose the Group to foreign currency risk.

			A hedging instrument is a designated derivative whose changes in fair value or cash flows are expected to offset changes in the fair value or cash flows of the hedged item. For a hedge of foreign currency risk, a non-derivative financial asset or non-derivative financial liability may also be used as a hedging instrument.

			The hedge is assessed by the Group for effectiveness on an ongoing basis and determined to have been highly effective throughout the accounting periods for which the hedging relationship was designated. The Group uses a ratio analysis to assess the subsequent effectiveness of a cash flow hedge, and uses a regression analysis to assess the subsequent effectiveness of a fair value hedge.

3	SIGNIFICANT ACCOUNTING POLICIES (Continued)

	(11)	Financial Instruments (Continued)

		(d)	Hedge accounting (Continued)
			—	Cash flow hedges

				A cash flow hedge is a hedge of the exposure to variability in cash flows. The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in shareholders’ equity as a separate component. That effective portion is adjusted to the lesser of the following (in absolute amounts):

				—	the cumulative gain or loss on the hedging instrument from inception of the hedge;

				—	the cumulative change in present value of the expected future cash flows on the hedged item from inception of the hedge.

				The portion of the gain or loss on the hedging instrument that is determined to be an ineffective hedge is recognised in profit or loss.

				If a hedge of a forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability, the associated gain or loss is removed from shareholders’ equity, included in the initial cost of the non-financial asset or liability, and recognised in profit or loss in the same year during which the financial asset or financial liability affects profit or loss. However, if the Group expects that all or a portion of a net loss recognised directly in shareholders’ equity will not be recovered in future accounting periods, it reclassifies the amount that is not expected to be recovered into profit or loss.

				If a hedge of a forecast transaction subsequently results in the recognition of a financial asset or a financial liability, the associated gain or loss is removed from equity and recognised in profit or loss in the same period during which the financial asset or financial liability affects profit or loss. However, if the Group expects that all or a portion of a net loss recognised directly in shareholders’ equity will not be recovered in future accounting periods, it reclassifies the amount that is not expected to be recovered into profit or loss.

				For cash flow hedges, other than those covered by the preceding two policy statements, the associated gain or loss is removed from shareholders’ equity and recognised in profit or loss in the same period or periods during which the hedged forecast transaction affects profit or loss.

				When a hedging instrument expires or is sold, terminated or exercised, or the hedge no longer meets the criteria for hedge accounting, the Group will discontinue the hedge accounting treatments prospectively. In this case, the gain or loss on the hedging instrument that remains recognised directly in shareholders’ equity from the period when the hedge was effective shall not be reclassified into profit or loss and is recognised in accordance with the above policy when the forecast transaction occurs. If the forecast transaction is no longer expected to occur, the gain or loss on the hedging instrument that remains recognised directly in shareholders’ equity from the period when the hedge was effective shall be reclassified into profit or loss immediately.

			—	Fair value hedges

				A fair value hedge is a hedge of the exposure to changes in fair value of a recognised asset or liability or an unrecognised firm commitment, or an identified portion of such an asset, liability or unrecognised firm commitment.

				The gain or loss from re-measuring the hedging instrument at fair value is recognised in profit or loss. The gain or loss on the hedged item attributable to the hedged risk adjusts the carrying amount of the hedged item and is recognised in profit or loss.

				When a hedging instrument expires or is sold, terminated or exercised, or no longer meets the criteria for hedge accounting, the Group discontinues prospectively the hedge accounting treatments. If the hedged item is a financial instrument measured at amortised cost, any adjustment to the carrying amount of the hedged item is amortised to profit or loss from the adjustment date to the maturity date using the recalculated effective interest rate at the adjustment date.

			—	Hedge of net investment in foreign operation

				A hedge of a net investment in a foreign operation is a hedge of the exposure to foreign exchange risk associated with a net investment in a foreign operation. The portion of the gain or loss on a hedging instrument that is determined to be an effective hedge is recognised directly in equity as a separate component until the disposal of the foreign operation, at which time the cumulative gain or loss recognised directly in equity is recognised in profit or loss. The ineffective portion is recognised immediately in profit or loss.

3	SIGNIFICANT ACCOUNTING POLICIES (Continued)

	(11)	Financial Instruments (Continued)

		(e)	Convertible bonds
			—	Convertible bonds that contain an equity component

				Convertible bonds that can be converted to equity share capital at the option of the holder, where the number of shares that would be issued on conversion and the value of the consideration that would be received at that time do not vary, are accounted for as compound financial instruments which contain both a liability component and an equity component.

				At initial recognition, the liability component of the convertible bonds is measured as the present value of the future interest and principal payments, discounted at the market rate of interest applicable at the time of initial recognition to similar liabilities that do not have a conversion option. Any excess of proceeds over the amount initially recognised as the liability component is recognised as the equity component. Transaction costs that relate to the issue of the convertible bonds are allocated to the liability and equity components in proportion to the allocation of proceeds.

				Subsequent to initial recognition, the liability component of a convertible corporate bond is measured at amortised cost using the effective interest method, unless it is designated at fair value through profit or loss. The equity component of a convertible corporate bond is not re-measured subsequent to initial recognition.

				If the convertible corporate bond is converted, the liability component, together with the equity component, is transferred to share capital and capital reserve (share premium). If the convertible corporate bond is redeemed, the consideration paid for the redemption, together with the transaction costs that relate to the redemption, are allocated to the liability and equity components. The difference between the allocated and carrying amounts is charged to profit or loss if it relates to the liability component or is directly recognised in equity if it relates to the equity component.

			—	Other convertible bonds

				Convertible bonds issued with a cash settlement option and other embedded derivative features are split into liability and derivative components.

				At initial recognition, the derivative component of the convertible bonds is measured at fair value. Any excess of proceeds over the amount initially recognised as the derivative component is recognised as the liability component. Transaction costs that relate to the issue of the convertible bonds are allocated to the liability and derivative components in proportion to the allocation of proceeds. The portion of the transaction costs relating to the liability component is recognised initially as part of the liability. The portion relating to the derivative component is recognised immediately as an expense in profit or loss.

				The derivative component is subsequently remeasured at each balance sheet date and any gains or losses arising from change in the fair value are recognised in profit or loss. The liability component is subsequently carried at amortised cost using the effective interest method until extinguished on conversion or redemption. Both the liability and the related derivative components are presented together for financial statements reporting purposes.

				If the convertible bonds are converted, the carrying amounts of the derivative and liability components are transferred to share capital and share premium as consideration for the shares issued. If the convertible bonds are redeemed, any difference between the amount paid and the carrying amount of both components is recognised in profit or loss.

		(f)	Derecognition of financial assets and financial liabilities
			The Group derecognises a financial asset when the contractual right to receive cash flows from the financial asset expires, or where the Group transfers substantially all risks and rewards of ownership.

			On derecognition of a financial asset, the difference between the following amounts is recognised in profit or loss:

			—	the carrying amounts; and

			—	the sum of the consideration received and any cumulative gain or loss that had been recognised directly in equity.

			Where the obligations for financial liabilities are completely or partially discharged, the entire or parts of financial liabilities are derecognised.

3	SIGNIFICANT ACCOUNTING POLICIES (Continued)

	(12)	Impairment of financial assets and non-financial long-term assets

		(a)	Impairment of financial assets
			The carrying amount of financial assets (except those financial assets stated at fair value with changes in the fair values charged to profit or loss) are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. If any such evidence exists, impairment loss is provided.

			Objective evidences of impairment include but not limited to:

			(a)	significant financial difficulty of the debtor;

			(b)	a breach of contract, such as a default or delinquency in interest or principal payments;

			(c)	it becoming probable that the debtor will enter bankruptcy or other financial reorganisation;

			(d)	due to the significant financial difficulty of the debtor, financial assets is unable to be traded in active market;

			(e)	significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor; and

			(f)	a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.

			—	Receivables and held-to-maturity investments

				Receivables and held-to-maturity investments are assessed for impairment on an individual basis.

				Where impairment is assessed on an individual basis, an impairment loss in respect of a receivable or held-to-maturity investment is calculated as the excess of its carrying amount over the present value of the estimated future cash flows (exclusive of future credit losses that have not been incurred) discounted at the original effective interest rate. All impairment losses are recognised in profit or loss.

				Impairment loss on receivables and held-to-maturity investments is reversed in profit or loss if evidence suggests that the financial assets’ carrying amounts have increased and the reason for the increase is objectively as a result of an event occurred after the recognition of the impairment loss. The reversed carrying amount shall not exceed the amortised cost if the financial assets had no impairment recognised.

			—	Available-for-sale financial assets

				Available-for-sale financial assets are assessed for impairment on an individual basis.

				When available-for-sale financial assets are impaired, despite not derecognised, the cumulative losses resulted from the decrease in fair value which had previously been recognised directly in shareholders’ equity, are reversed and charged to profit or loss.

				Impairment loss of available-for-sale debt instrument is reversed, if the reason for the subsequent increase in fair value is objectively as a result of an event occurred after the recognition of the impairment loss. Impairment loss for available-for-sale equity instrument is not reversed through profit or loss.

		(b)	Impairment of other non-financial long-term assets
			Internal and external sources of information are reviewed at each balance sheet date for indications that the following assets, including fixed assets, construction in progress, goodwill, intangible assets and investments in subsidiaries, associates and jointly controlled entities may be impaired.

			Assets are tested for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. The recoverable amounts of goodwill and intangible assets with uncertain useful lives are estimated annually no matter there are any indications of impairment. Goodwill is tested for impairment together with related asset units or groups of asset units.

			An asset unit is the smallest identifiable group of assets that generates cash inflows largely independent of the cash inflows from other assets or groups of assets. An asset unit comprises related assets that generate associated cash inflows. In identifying an asset unit, the Group primarily considers whether the asset unit is able to generate cash inflows independently as well as the management style of production and operational activities, and the decision for the use or disposal of asset.

			The recoverable amount is the greater of the fair value less costs to sell and the present value of expected future cash flows generated by the asset (or asset unit, set of asset units).

3	SIGNIFICANT ACCOUNTING POLICIES (Continued)

	(12)	Impairment of financial assets and non-financial long-term assets (Continued)

		(b)	Impairment of other non-financial long-term assets (Continued)
			Fair value less costs to sell of an asset is based on its selling price in an arm’s length transaction less any direct costs attributable to the disposal. Present value of expected future cash flows is the estimation of future cash flows to be generated from the use of and upon disposal of the asset, discounted at an appropriate pre-tax discount rate over the asset’s remaining useful life.

			If the recoverable amount of an asset is less than its carrying amount, the carrying amount is reduced to the recoverable amount. The amount by which the carrying amount is reduced is recognised as an impairment loss in profit or loss. A provision for impairment loss of the asset is recognised accordingly. Impairment losses related to an asset unit or a set of asset units first reduce the carrying amount of any goodwill allocated to the asset unit or set of asset units, and then reduce the carrying amount of the other assets in the asset unit or set of asset units on a pro rata basis. However, the carrying amount of an impaired asset will not be reduced below the highest of its individual fair value less costs to sell (if determinable), the present value of expected future cash flows (if determinable) and zero.

			Impairment losses for assets are not reversed.

	(13)	Long-term deferred expenses
		Long-term deferred expenses are amortised on a straight-line basis over their beneficial periods.

	(14)	Employee benefits
		Employee benefits are all forms of considerations given and other related expenses incurred in exchange for services rendered by employees. When an employee has rendered service to the Group during an accounting period, the Group shall recognise the employee benefits payable (other than termination benefits) as a liability and charged to the cost of an asset or as an expense in the same time.

		(a)	Social insurance and housing fund
			Pursuant to the relevant laws and regulations of the PRC, employees of the Group participate in the social insurance system established and managed by government organisations. The Group makes social insurance contributions, including contributions to basic pension insurance, basic medical insurance, unemployment insurance, work-related injury insurance, maternity insurance and etc., as well as contributions to housing fund, at the applicable benchmarks and rates stipulated by the government for the benefit of its employees. The social insurance and housing fund contributions are recognised as part of the cost of assets or charged to profit or loss on an accrual basis.

		(b)	Termination benefits
			When the Group terminates the employment relationship with employees before the employment contracts expire, or provides compensation as an offer to encourage employees to accept voluntary redundancy, a provision for the termination benefits provided is recognised in profit or loss when both of the following conditions are satisfied:

			—	the Group has a formal plan for the termination of employment or has made an offer to employees for voluntary redundancy, which will be implemented shortly; and

			—	the Group is not allowed to withdraw from termination plan or redundancy offer unilaterally.

	(15)	Income tax
		Current tax and deferred tax are recognised in profit or loss except to the extent that they relate to business combinations and items recognised directly in equity (including other comprehensive income).

		Current tax is the expected tax payable calculated at the applicable tax rate on taxable income for the year, plus any adjustment to tax payable in respect of previous years.

		At the balance sheet date, current tax assets and liabilities are offset if the Group has a legally enforceable right to set them off and also intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

		Deferred tax assets and liabilities are recognised based on deductible temporary differences and taxable temporary differences respectively. Temporary difference is the difference between the carrying amounts of assets and liabilities and their tax bases including unused tax losses and unused tax credits able to be utilised in subsequent years. Deferred tax assets are recognised to the extent that it is probable that future taxable income will be available to offset the deductible temporary differences.

		Temporary differences arise in a transaction, which is not a business combination, and at the time of transaction, does not affect accounting profit or taxable profit (or unused tax losses), will not result in deferred tax. Temporary differences arising from the initial recognition of goodwill will not result in deferred tax.

		At the balance sheet date, the amounts of deferred tax recognised is measured based on the expected manner of recovery or settlement of the carrying amount of the assets and liabilities, using tax rates that are expected to be applied in the period when the asset is recovered or the liability is settled in accordance with tax laws.

3	SIGNIFICANT ACCOUNTING POLICIES (Continued)

	(15)	Income tax (Continued)
		The carrying amount of deferred tax assets is reviewed at each balance sheet date. If it is unlikely to obtain sufficient taxable income to offset against the benefit of deferred tax asset, the carrying amount of the deferred tax assets is written down. Any such write-down should be subsequently reversed where it becomes probable that sufficient taxable income will be available.

		At the balance sheet date, deferred tax assets and liabilities are offset if all the following conditions are met:

		—	the taxable entity has a legally enforceable right to offset current tax assets and current tax liabilities; and

		—	they relate to income taxes levied by the same tax authority on either:

			—	the same taxable entity; or

			—	different taxable entities which either to intend to settle the current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

	(16)	Provisions
		Provisions are recognised when the Group has a present obligation as a result of a contingent event, it is probable that an outflow of economic benefits will be required to settle the obligations and a reliable estimate can be made. Where the effect of time value of money is material, provisions are determined by discounting the expected future cash flows.

		Provisions for future dismantlement costs are initially recognised based on the present value of the future costs expected to be incurred in respect of the Group’s expected dismantlement and abandonment costs at the end of related oil and gas exploration and development activities. Any subsequent change in the present value of the estimated costs, other than the change due to passage of time which is regarded as interest costs, is reflected as an adjustment to the provision of oil and gas properties.

	(17)	Revenue recognition
		Revenue is the gross inflow of economic benefits arising in the course of the Group’s normal activities when the inflows result in increase in shareholder’s equity, other than increase relating to contributions from shareholders. Revenue is recognised in profit or loss when it is probable that the economic benefits will flow to the Group, the revenue and costs can be measured reliably and the following respective conditions are met.

		(a)	Revenues from sales of goods
			Revenue from the sales of goods is recognised when all of the general conditions stated above and following conditions are satisfied:

			—	the significant risks and rewards of ownership and title have been transferred to buyers; and

			—	the Group does not retain the management rights, which is normally associated with owner, on goods sold and has no control over the goods sold.

			Revenue from the sales of goods is measured at fair value of the considerations received or receivable under the sales contract or agreement.

		(b)	Revenues from rendering services
			The Group determines the revenue from the rendering of services according to the fair value of the received or to-be received price of the party that receives the services as stipulated in the contract or agreement.

			At the balance sheet date, when the outcome of a transaction involving the rendering of services can be estimated reliably, revenue from rendering of services is recognised in the income statement by reference to the stage of completion of the transaction based on the proportion of services performed to date to the total services to be performed.

			When the outcome of rendering the services cannot be estimated reliably, revenues are recognised only to the extent that the costs incurred are expected to be recoverable. If the costs of rendering of services are not expected to be recoverable, the costs are recognised in profit or loss when incurred, and revenues are not recognised.

		(c)	Interest income
			Interest income is recognised on a time proportion basis with reference to the principal outstanding and the applicable effective interest rate.

3	SIGNIFICANT ACCOUNTING POLICIES (Continued)

	(18)	Government grants
		Government grants are the gratuitous monetary assets or non-monetary assets that the Group receives from the government, excluding capital injection by the government as an investor. Special funds such as investment grants allocated by the government, if clearly defined in official documents as part of “capital reserve” are dealt with as capital contributions, and not regarded as government grants.

		Government grants are recognised when there is reasonable assurance that the grants will be received and the Group is able to comply with the conditions attaching to them. Government grants in the form of monetary assets are recorded based on the amount received or receivable, whereas non-monetary assets are measured at fair value.

		Government grants received in relation to assets are recorded as deferred income, and recognised evenly in profit or loss over the assets’ useful lives. Government grants received in relation to revenue are recorded as deferred income, and recognised as income in future periods as compensation when the associated future expenses or losses arise; or directly recognised as income in the current period as compensation for past expenses or losses.

	(19)	Borrowing costs
		Borrowing costs incurred on borrowings for the acquisition, construction or production of qualified assets are capitalised into the cost of the related assets.

		Except for the above, other borrowing costs are recognised as financial expenses in the income statement when incurred.

	(20)	Repairs and maintenance expenses
		Repairs and maintenance (including overhauling expenses) expenses are recognised in profit or loss when incurred.

	(21)	Environmental expenditures
		Environmental expenditures that relate to current ongoing operations or to conditions caused by past operations is expensed as incurred.

	(22)	Research and development costs
		Research and development costs are recognised in profit or loss when incurred.

	(23)	Operating leases
		Operating lease payments are charged as expenses on a straight-line basis over the period of the respective leases.

	(24)	Dividends
		Dividends and distributions of profits proposed in the profit appropriation plan which will be authorised and declared after the balance sheet date, are not recognised as a liability at the balance sheet date and are separately disclosed in the notes to the financial statements.

	(25)	Related parties
		If a party has the power to control, jointly control or exercise significant influence over another party, or vice versa, or where two or more parties are subject to common control, joint control from another party, they are considered to be related parties. Related parties may be individuals or enterprises. Where enterprises are subject to state control but are otherwise unrelated, they are not related parties. Related parties of the Group and the Company include, but not limited to:

		(a)	the holding company of the Company;

		(b)	the subsidiaries of the Company;

		(c)	the parties that are subject to common control with the Company;

		(d)	investors that have joint control or exercise significant influence over the Group;

		(e)	enterprises or individuals if a party has control, joint control over both the enterprises or individuals and the Group;

		(f)	jointly controlled entities of the Group, including subsidiaries of the jointly controlled entities;

		(g)	associates of the Group, including subsidiaries of the associates;

		(h)	principle individual investors of the Group and close family members of such individuals;

		(i)	key management personnel of the Group, and close family members of such individuals;

		(j)	key management personnel of the Company’s holding company;

		(k)	close family members of key management personnel of the Company’s holding company; and

		(l)	an entity which is under control, joint control of principle individual investor, key management personnel or close family members of such individuals.

3	SIGNIFICANT ACCOUNTING POLICIES (Continued)

	(26)	Segment reporting
		Reportable segments are identified based on operating segments which are determined based on the structure of the Group’s internal organisation, management requirements and internal reporting system. An operating segment is a component of the Group that meets the following respective conditions:

		—	engage in business activities from which it may earn revenues and incur expenses;

		—	whose operating results are regularly reviewed by the Group’s management to make decisions about resource to be allocated to the segment and assess its performance; and

		—	for which financial information regarding financial position, results of operations and cash flows are available.

		Inter-segment revenues are measured on the basis of actual transaction price for such transactions for segment reporting, and segment accounting policies are consistent with those for the consolidated financial statements.

4	TAXATION

	Major types of tax applicable to the Group are income tax, consumption tax, resources tax, value added tax, special oil income levy, city construction tax, education surcharge and local education surcharge.

	The Corporate Income Tax Law of the People’s Republic of China (“new tax law”) took effect on 1 January 2008. According to the new tax law, the income tax rate applicable to the Group is changed to 25% from 1 January 2008; however, certain entities previously taxed at a preferential rate are subject to a transition period during which their tax rate will gradually be increased to the unified rate of 25% over a five-year period starting from 1 January 2008.

	Based on the new tax law, the income tax rate applicable to the Group, except for certain entities of the Group, is changed from 33% to 25% from 1 January 2008. Based on a tax notice issued by the State Council on 26 December 2007, the applicable tax rates for foreign investment enterprises operating in special economic zones, which were previously taxed at the preferential rate of 15%, are 18%, 20%, 22%, 24% and 25% for the years ending 31 December 2008, 2009, 2010, 2011 and 2012, respectively.

	In accordance with “The Announcement Regarding the Implementation of Corporate Income Tax Policies for the Development of the Western China” (SAT Announcement [2012] No. 12) , prior to the issuance of “The Catalogue of Encouraged Industries in Western China” , Sinopec Northwest Oil Field Company and Puguang Branch of Sinopec Zhongyuan Oilfield Company are temporarily taxed at the preferential rate of 15% since 1 January 2011 upon the approval of the local tax bureaus.

	The consumption tax rates on gasoline, diesel, naphtha, solvent oil, lubricant oil, fuel oil and jet fuel oil changed to RMB 1,388.0 per tonne, RMB 940.8 per tonne, RMB 1,385.0 per tonne, RMB 1,282.0 per tonne, RMB 1,126.0 per tonne, RMB 812.0 per tonne and RMB 996.8 per tone, respectively.

	Effective from 1 November 2011, the resources tax rate of crude oil and natural gas is 5%.

	Value added tax rate for liquefied petroleum gas, natural gas and certain agricultural products is 13% and that for other products is 17%.

	The Ministry of Finance imposed a special oil income levy on any income derived from the sale by an oil exploration and production enterprise of locally produced crude oil exceeding a standard price. Effective from 1 November 2011, the levy starts at USD 55 per barrel instead of previous USD 40 per barrel and the imposed rate ranges from 20% to 40%.

	The entity granted with tax concession is set out below:

Name of subsidiaries	Preferential tax rate	Reasons for granting concession

Sinopec Hainan Refining and Chemical Company Limited	2-year exemption and 3-year 50% reduction	Foreign investment enterprise

5	CASH AT BANK AND ON HAND

	The Group

	At 30 June 2012						At 31 December 2011
	Original currency millions		Exchange rates		RMB millions		Original currency millions		Exchange rates		RMB millions

Cash on hand
Renminbi						249						247
Cash at bank
Renminbi						8,438						17,620
US Dollars		177		6.3249		1,117		26		6.3009		161
Hong Kong Dollars		370		0.8152		302		31		0.8107		25
Japanese Yen		138		0.0796		11		136		0.0811		11
Euro		3		7.781		21		2		8.1625		13
						10,138						18,077
Deposits at related parties
Renminbi						1,533						6,978
US Dollars		361		6.3249		2,285		21		6.3009		134
Euro		1		7.781		4		1		8.1625		8
Total cash at bank and on hand						13,960						25,197

The Company

	At 30 June 2012						At 31 December 2011
	Original currency millions		Exchange rates		RMB millions		Original currency millions		Exchange rates		RMB millions

Cash on hand
Renminbi						232						235
Cash at bank
Renminbi						4,795						14,720
US Dollars		1		6.3249		5		1		6.3009		8
						5,032						14,963
Deposits at related parties
Renminbi						759						5,986
US Dollars		—		6.3249		1		1		6.3009		4
Total cash at bank and on hand						5,792						20,953

	Deposits at related parties represent deposits placed at Sinopec Finance Company Limited and Sinopec Century Bright Capital Investment Limited. Deposits interest is calculated based on market rate.

	At 30 June 2012, time deposits with financial institutions of the Group and the Company amounted to RMB 1,401 million (2011: RMB 550 million) and RMB 796 million (2011: RMB 101 million), respectively.

6	BILLS RECEIVABLE

	Bills receivable represents mainly the bills of acceptance issued by banks for sales of goods and products.

	At 30 June 2012, the Group’s and the Company’s outstanding endorsed or discounted bills (with recourse) amounted to RMB 13,017 million (2011: RMB 10,323 million) and RMB 3,354 million (2011: RMB 9,479 million), respectively, all of which are due before 31 December 2012.

7	ACCOUNTS RECEIVABLE

	The Group				The Company
	At 30 June 2012 RMB millions		At 31 December 2011 RMB millions		At 30 June 2012 RMB millions		At 31 December 2011 RMB millions

Amounts due from subsidiaries		—		—		9,251		11,168
Amounts due from Sinopec Group Company and fellow subsidiaries		10,270		6,185		1,232		474
Amounts due from associates and jointly controlled entities		8,407		9,204		2,783		3,101
Amounts due from others		66,255		44,344		3,921		2,943
		84,932		59,733		17,187		17,686
Less: Allowance for doubtful accounts		885		1,012		731		857
Total		84,047		58,721		16,456		16,829

Ageing analysis on accounts receivable is as follows:

	The Group
	At 30 June 2012								At 31 December 2011
	Amount RMB millions		%		Allowance RMB millions		%		Amount RMB millions		%		Allowance RMB millions		%

Within one year		83,866		98.7		—		0.0		58,619		98.1		—		0.0
Between one and two years		168		0.2		14		8.3		92		0.2		26		28.3
Between two and three years		18		0.1		5		27.8		23		0.0		7		30.4
Over three years		880		1.0		866		98.4		999		1.7		979		98.0
Total		84,932		100.0		885				59,733		100.0		1,012

	The Company
	At 30 June 2012								At 31 December 2011
	Amount RMB millions		%		Allowance RMB millions		%		Amount RMB millions		%		Allowanc RMB millions		%

Within one year		16,319		94.9		—		0.0		16,770		94.8		—		0.0
Between one and two years		130		0.8		14		10.8		72		0.4		26		36.1
Between two and three years		16		0.1		5		31.3		8		0.1		3		37.5
Over three years		722		4.2		712		98.6		836		4.7		828		99.0
Total		17,187		100.0		731				17,686		100.0		857

At 30 June 2012 and 31 December 2011, the total amounts of the top five accounts receivable of the Group are set out below:

	At 30 June 2012		At 31 December 2011

Total amount (RMB millions)		21,463		20,412
Ageing	Within 1 year		Within 1 year
Percentage to the total balance of accounts receivable		25.3%		34.2%

	At 30 June 2012, the Group’s and the Company’s accounts receivable due from related parties amounted to RMB 18,677 million and RMB 13,266 million (2011: RMB 15,389 million and RMB 14,743 million), representing 22.0% and 77.2% (2011: 25.8% and 83.4%) of the total accounts receivable.

	Except for the balances disclosed in Note 48, there is no amount due from shareholders who hold 5% or more voting right of the Company included in the balance of accounts receivable.

	During the six-month periods ended 30 June 2012 and 2011, the Group and the Company had no individually significant accounts receivable been fully or substantially provided allowance for doubtful accounts.

	During the six-month periods ended 30 June 2012 and 2011, the Group and the Company had no individually significant write-off or recovery of doubtful debts which had been fully or substantially provided for in prior years.

	At 30 June 2012 and 31 December 2011, the Group and the Company had no individually significant accounts receivable that aged over three years.

8	OTHER RECEIVABLES

	The Group				The Company
	At 30 June 2012 RMB millions		At 31 December 2011 RMB millions		At 30 June 2012 RMB millions		At 31 December 2011 RMB millions

Amounts due from subsidiaries		—		—		24,304		23,635
Amounts due from Sinopec Group Company and fellow subsidiaries		778		542		676		443
Amounts due from associates and jointly controlled entities		1,804		998		1,561		987
Amounts due from others		14,373		7,701		5,221		5,061
		16,955		9,241		31,762		30,126
Less: Allowance for doubtful accounts		1,829		1,881		1,948		1,999
Total		15,126		7,360		29,814		28,127

Ageing analysis of other receivables is as follows:

	The Group
	At 30 June 2012								At 31 December 2011
	Amount RMB millions		%		Allowance RMB millions		%		Amount RMB millions		%		Allowance RMB millions		%

Within one year		14,562		85.9		159		1.1		6,669		72.1		234		3.5
Between one and two years		462		2.7		94		20.3		499		5.4		29		5.8
Between two and three years		245		1.5		16		6.5		182		2.0		38		20.9
Over three years		1,686		9.9		1,560		92.5		1,891		20.5		1,580		83.6
Total		16,955		100.0		1,829				9,241		100.0		1,881

	The Company
	At 30 June 2012								At 31 December 2011
	Amount RMB millions		%		Allowance RMB millions		%		Amount RMB millions		%		Allowance RMB millions		%

Within one year		28,992		91.3		—		0.0		27,490		91.3		—		0.0
Between one and two years		412		1.3		18		4.4		304		1.0		29		9.5
Between two and three years		182		0.6		13		7.1		124		0.4		34		27.4
Over three years		2,176		6.8		1,917		88.1		2,208		7.3		1,936		87.7
Total		31,762		100.0		1,948				30,126		100.0		1,999

At 30 June 2012 and 31 December 2011, the total amounts of the top five other receivables of the Group are set out below:

	At 30 June 2012	At 31 December 2011

Total amount (RMB millions)	2,298	1,715
Ageing	From within one year to over three years	From within one year to over three years
Percentage to the total balance of other receivables	13.6%	18.6%

	At 30 June 2012, the Group’s and the Company’s other receivables due from related parties amounted to RMB 2,582 million and RMB 26,541 million (2011: RMB 1,540 million and RMB 25,065 million), representing 15.2% and 83.6% (2011: 16.7% and 83.2%) of the total of other receivables.

	Except for the balances disclosed in Note 48, there is no amount due from shareholders who hold 5% or more voting right of the Company included in the balance of other receivables.

	During the six-month periods ended 30 June 2012 and 2011, the Group and the Company had no individually significant other receivables been fully or substantially provided allowance for doubtful accounts.

	During the six-month periods ended 30 June 2012 and 2011, the Group and the Company had no individually significant write-off or recovery of doubtful debts which had been fully or substantially provided for in prior years.

	At 30 June 2012 and 31 December 2011, the Group and the Company had no individually significant other receivables that aged over three years.

9	PREPAYMENTS
	Except for few individual prepayments, all prepayments are aged within one year.

	Except for the balances disclosed in Note 48, there is no amount due from shareholders who hold 5% or more voting right of the Company included in the balance of prepayments.

10	INVENTORIES

	The Group				The Company
	At 30 June 2012 RMB millions		At 31 December 2011 RMB millions		At 30 June 2012 RMB millions		At 31 December 2011 RMB millions

Raw materials		116,399		113,918		81,894		81,472
Work in progress		18,500		14,989		12,943		10,093
Finished goods		76,695		71,853		44,151		50,299
Spare parts and consumables		3,748		4,039		2,780		2,999
		215,342		204,799		141,768		144,863
Less: Provision for diminution in value of inventories		8,112		1,382		5,957		715
		207,230		203,417		135,811		144,148

	Provision for diminution in value of inventories is mainly against raw materials and finished goods. For the six-month period ended 30 June 2012, the provision for diminution in value of inventories of the Group and the Company was primarily due to the costs of raw materials and finished goods of the refining and chemicals segments were higher than their net realisable value.

11	LONG-TERM EQUITY INVESTMENTS

The Group

	Investments in jointly controlled entities RMB millions			Investments in associates RMB millions			Other equity investments RMB millions			Provision for impairment losses RMB millions			Total RMB millions

Balance at 1 January 2012		19,992			25,692			1,952			(178	)		47,458
Additions for the period		603			1,207			858			—			2,668
Share of profits less losses under the equity method		(1,422	)		1,320			—			—			(102	)
Change of capital reserve under the equity method		—			26			—			—			26
Dividends receivable/received		(1,087	)		(943	)		—			—			(2,030	)
Disposals for the period		—			(148	)		(374	)		—			(522	)
Balance at 30 June 2012		18,086			27,154			2,436			(178	)		47,498

The Company

	Investments in subsidiaries RMB millions		Investments in jointly controlled entities RMB millions			Investments in associates RMB millions			Other equity investments RMB millions			Provision for impairment losses RMB millions			Total RMB millions

Balance at 1 January 2012		76,630		11,523			19,290			1,056			(6,398	)		102,101
Additions for the period		2,980		158			1,078			852			—			5,068
Share of profits less losses under the equity method		—		(384	)		781			—			—			397
Change of capital reserve under the equity method		—		—			26			—			—			26
Dividends receivable/received		—		(797	)		(224	)		—			—			(1,021	)
Disposals for the period		—		—			(135	)		(40	)		—			(175	)
Balance at 30 June 2012		79,610		10,500			20,816			1,868			(6,398	)		106,396

Details of the Company’s principal subsidiaries are set out in Note 50.

11	LONG-TERM EQUITY INVESTMENTS (Continued)

	Principal jointly controlled entities and associates are as follows:

Name of investees	Register location	Legal representative	Registered capital		Percentage of equity/voting right directly or indirectly held by the Company		Total assets at the period end		Total liability at the period end		Operating revenue for the period
			RMB millions				RMB millions		RMB millions		RMB millions

1. Jointly controlled entities
Shanghai Secco Petrochemical Company Limited	Shanghai	Wang Zhiqing	USD 901			50%		14,960		7,597		13,514
BASF-YPC Company Limited	Jiangsu Province	Ma Qiulin		11,505		40%		26,824		12,340		11,189
Fujian Refining and Petrochemical Company Limited	Fujian Province	Lu Dong		12,806		50%		42,055		33,604		33,532
SINOPEC SABIC Tianjin Petrochemical Company Limited	Tianjin	Khaled A. Almana		6,120		50%		22,000		14,859		13,774
Zhong An United Coal Chemical Company Limited	Anhui	Ge Jiade		4,000		50%		1,211		211		—
2. Associates
Sinopec Finance Company Limited	Beijing	Li Chunguang		10,000		49%		117,421		102,257		1,707
China Aviation Oil Supply Company Limited	Beijing	Sun Li		3,800		29%		19,551		12,576		49,510
Zhongtian Synergetic Energy Company Limited	Inner Mongolia	Cao Zumin		5,404		38.75%		6,656		198		—
Shanghai Chemical Industry Park Development Company Limited	Shanghai	Rong Guangdao		2,372		38.26%		6,763		3,050		3
Shanghai Petroleum Company Limited	Shanghai	Xu Guobao		900		30%		3,553		607		588

	All the jointly controlled entities and associates above are limited companies.

	The Group’s effective share of interest in the jointly controlled entities’ net assets, operating income and net profit are as follows:

	At 30 June			At 31 December
	2012			2011
	RMB			RMB
	millions			millions

Net assets		18,086			19,992

	Six-month periods ended 30 June
		2012			2011
	RMB			RMB
	millions			millions

Operating income		36,002			35,005
Net (loss)/profit		(997	)		822

The Group’s effective share of interest in the above-mentioned principal associates’ net assets, operating income and net profit are as follows:

	At 30 June		At 31 December
	2012		2011
	RMB		RMB
	millions		millions

Net assets		14,260		13,512

	Six-month periods ended 30 June
		2012		2011
	RMB		RMB
	millions		millions

Operating income		15,372		12,284
Net profit		788		868

	Other equity investments represent the Group’s interests in PRC privately owned enterprises which are mainly engaged in non-oil and natural gas and chemical activities and operations. This includes non-consolidated investments which the Group has over 50% equity interest but the Group has no control on the entities.

	For the six-month period ended 30 June 2012, the Group had no individually significant long-term investments which had been provided for impairment losses.

12	FIXED ASSETS

	The Group – by segment

	Exploration						Marketing
	and						and
	production			Refining			distribution			Chemicals			Others			Total
	RMB millions			RMB millions			RMB millions			RMB millions			RMB millions			RMB millions

Cost/valuation:
Balance at 1 January 2012		556,067			231,602			136,787			214,817			14,957			1,154,230
Additions for the period		654			14			141			26			4			839
Transferred from construction in progress		14,062			2,337			3,212			1,865			227			21,703
Reclassifications		—			225			—			(225	)		—			—
Decreases for the period		(50	)		(760	)		(8,014	)		(1,721	)		(1,182	)		(11,727	)
Balance at 30 June 2012		570,733			233,418			132,126			214,762			14,006			1,165,045
Accumulated depreciation:
Balance at 1 January 2012		268,543			113,077			41,161			128,720			5,467			556,968
Depreciation charge for the period		19,282			5,982			3,589			4,264			527			33,644
Reclassifications		—			155			—			(155	)		—			—
Decreases for the period		(48	)		(629	)		(2,027	)		(1,134	)		(38	)		(3,876	)
Balance at 30 June 2012		287,777			118,585			42,723			131,695			5,956			586,736
Provision for impairment losses:
Balance at 1 January 2012		11,861			2,953			2,601			13,903			8			31,326
Decreases for the period		—			(66	)		(171	)		(449	)		(2	)		(688	)
Balance at 30 June 2012		11,861			2,887			2,430			13,454			6			30,638
Net book value:
Balance at 30 June 2012		271,095			111,946			86,973			69,613			8,044			547,671
Balance at 31 December 2011		275,663			115,572			93,025			72,194			9,482			565,936

The Company – by segment

	Exploration						Marketing
	and						and
	production			Refining			distribution			Chemicals			Others			Total
	RMB millions			RMB millions			RMB millions			RMB millions			RMB millions			RMB millions

Cost/valuation:
Balance at 1 January 2012		490,131			189,472			110,785			137,579			12,680			940,647
Additions for the period		501			3			85			1			—			590
Transferred from construction in progress		12,418			2,153			2,040			1,124			214			17,949
Reclassifications		—			200			—			(200	)		—			—
Decreases for the period		(50	)		(738	)		(7,978	)		(1,800	)		(1,180	)		(11,746	)
Balance at 30 June 2012		503,000			191,090			104,932			136,704			11,714			947,440
Accumulated depreciation:
Balance at 1 January 2012		232,362			95,299			34,892			76,883			4,354			443,790
Additions for the period		16,335			4,621			2,922			2,854			442			27,174
Reclassifications		—			135			—			(135	)		—			—
Decreases for the period		(48	)		(610	)		(2,007	)		(1,148	)		(36	)		(3,849	)
Balance at 30 June 2012		248,649			99,445			35,807			78,454			4,760			467,115
Provision for impairment losses:
Balance at 1 January 2012		9,622			2,875			2,507			11,020			8			26,032
Decreases for the period		—			(66	)		(169	)		(446	)		(2	)		(683	)
Balance at 30 June 2012		9,622			2,809			2,338			10,574			6			25,349
Net book value:
Balance at 30 June 2012		244,729			88,836			66,787			47,676			6,948			454,976
Balance at 31 December 2011		248,147			91,298			73,386			49,676			8,318			470,825

12	FIXED ASSETS (Continued)

	The Group – by asset class

				Oil			Equipment,
	Plants and			and gas			machinery
	buildings			properties			and others			Total
	RMB millions			RMB millions			RMB millions			RMB millions

Cost/valuation:
Balance at 1 January 2012		68,476			474,749			611,005			1,154,230
Additions for the period		19			641			179			839
Transferred from construction in progress		802			10,871			10,030			21,703
Reclassifications		13,987			(65,494	)		51,507			—
Decreases for the period		(1,801	)		—			(9,926	)		(11,727	)
Balance at 30 June 2012		81,483			420,767			662,795			1,165,045
Accumulated depreciation:
Balance at 1 January 2012		32,649			231,346			292,973			556,968
Additions for the period		1,349			14,889			17,406			33,644
Reclassifications		(3,292	)		(14,823	)		18,115			—
Decreases for the period		(202	)		—			(3,674	)		(3,876	)
Balance at 30 June 2012		30,504			231,412			324,820			586,736
Provision for impairment losses:
Balance at 1 January 2012		2,439			11,817			17,070			31,326
Reclassifications		3			(1,818	)		1,815			—
Decreases for the period		(7	)		—			(681	)		(688	)
Balance at 30 June 2012		2,435			9,999			18,204			30,638
Net book value:
Balance at 30 June 2012		48,544			179,356			319,771			547,671
Balance at 31 December 2011		33,388			231,586			300,962			565,936

The Company – by asset class

				Oil			Equipment,
	Plants and			and gas			machinery
	buildings			properties			and others			Total
	RMB millions			RMB millions			RMB millions			RMB millions

Cost/valuation:
Balance at 1 January 2012		50,067			415,374			475,206			940,647
Additions for the period		9			488			93			590
Transferred from construction in progress		616			9,276			8,057			17,949
Reclassifications		15,455			(65,201	)		49,746			—
Decreases for the period		(1,869	)		—			(9,877	)		(11,746	)
Balance at 30 June 2012		64,278			359,937			523,225			947,440
Accumulated depreciation:
Balance at 1 January 2012		20,956			197,292			225,542			443,790
Additions for the period		1,055			12,092			14,027			27,174
Reclassifications		1,990			(14,424	)		12,434			—
Decreases for the period		(230	)		—			(3,619	)		(3,849	)
Balance at 30 June 2012		23,771			194,960			248,384			467,115
Provision for impairment losses:
Balance at 1 January 2012		1,960			9,616			14,456			26,032
Reclassifications		(160	)		(1,211	)		1,371			—
Decreases for the period		(7	)		—			(676	)		(683	)
Balance at 30 June 2012		1,793			8,405			15,151			25,349
Net book value:
Balance at 30 June 2012		38,714			156,572			259,690			454,976
Balance at 31 December 2011		27,151			208,466			235,208			470,825

12	FIXED ASSETS (Continued)

	The additions in the exploration and production segment and oil and gas properties of the Group and the Company for six-month period ended 30 June 2012 included RMB 517 million (2011: RMB 446 million) and RMB 488 million (2011: RMB 396 million), respectively of the estimated dismantlement costs for site restoration (Note 30).

	At 30 June 2012 and 31 December 2011, the Group and the Company had no individually significant fixed assets which were pledged.

	At 30 June 2012 and 31 December 2011, the Group and the Company had no individually significant fixed assets which were temporarily idle or pending for disposal.

	At 30 June 2012 and 31 December 2011, the Group and the Company had no individually significant fully depreciated fixed assets which were still in use.

13	CONSTRUCTION IN PROGRESS

	The Group

	Exploration						Marketing
	and						and
	production			Refining			distribution			Chemicals			Others			Total
	RMB millions			RMB millions			RMB millions			RMB millions			RMB millions			RMB millions

Cost/valuation:
Balance at 1 January 2012		37,708			21,923			36,084			14,277			2,042			112,034
Additions for the period		24,870			11,588			11,567			6,594			495			55,114
Exchange adjustment		3			—			—			—			—			3
Reclassification		—			275			—			(275	)		—			—
Dry hole costs written off		(2,942	)		—			—			—			—			(2,942	)
Transferred to fixed assets		(14,062	)		(2,337	)		(3,212	)		(1,865	)		(227	)		(21,703	)
Reclassification to other assets		(2	)		(126	)		(1,637	)		(63	)		—			(1,828	)
Balance at 30 June 2012		45,575			31,323			42,802			18,668			2,310			140,678
Provision for impairment losses:
Balance at 1 January/30 June 2012		—			516			207			—			—			723
Net book value:
Balance at 30 June 2012		45,575			30,807			42,595			18,668			2,310			139,955
Balance at 31 December 2011		37,708			21,407			35,877			14,277			2,042			111,311

At 30 June 2012, major construction projects of the Group are as follows:

												Accumulated
					Net							interest
			Balance		additions		Balance					capitalised
	Budgeted		at 1 January		for the		at 30 June		Percentage of		Source of	at 30 June
Project name	amount		2012		period		2012		Completion		funding	2012
	RMB millions		RMB millions		RMB millions		RMB millions		%			RMB millions


Wuhan 800,000 tonnes per year Ethylene Construction Project		16,563		8,533		3,011		11,544		70%	Bank loans &self-financing		416
Shanghai Petrochemical Refining Renovation Project		6,628		2,688		2,074		4,762		72%	Bank loans & s elf-financing		73
Jinling Oil Quality Upgrading Project		4,989		1,980		1,045		3,025		61%	Bank loans &self-financing		27
Anqing sour Crude Oil Processing Adaptation Revamping and Oil Quality Upgrading Project		6,769		2,212		739		2,951		44%	Bank loans &self-financing		85
Maoming Oil Quality Upgrading Project		4,414		945		1,229		2,174		49%	Bank loans &self-financing		50

13	CONSTRUCTION IN PROGRESS (Continued)

	The Company

	Exploration						Marketing
	and						and
	production			Refining			distribution			Chemicals			Others			Total
	RMB millions			RMB millions			RMB millions			RMB millions			RMB millions			RMB millions

Cost/valuation:
Balance at 1 January 2012		36,675			19,206			33,228			11,229			2,026			102,364
Additions for the period		22,177			6,363			10,074			5,252			420			44,286
Transferred to a subsidiary		—			—			—			(228	)		—			(228	)
Dry hole costs written off		(2,942	)		—			—			—			—			(2,942	)
Transferred to fixed assets		(12,418	)		(2,153	)		(2,040	)		(1,124	)		(214	)		(17,949	)
Reclassification to other assets		(2	)		(118	)		(1,515	)		(49	)		—			(1,684	)
Balance at 30 June 2012		43,490			23,298			39,747			15,080			2,232			123,847
Provision for impairment losses:
Balance at 1 January/30 June 2012		—			516			207			—			—			723
Net book value:
Balance at 30 June 2012		43,490			22,782			39,540			15,080			2,232			123,124
Balance at 31 December 2011		36,675			18,690			33,021			11,229			2,026			101,641

14	INTANGIBLE ASSETS

	The Group

	Land use					Non-patent			Operation
	rights			Patents		technology			rights		Others			Total
	RMB millions			RMB millions		RMB millions			RMB millions		RMB millions			RMB millions

Cost:
Balance at 1 January 2012		29,815			3,632		2,665			6,106		1,903			44,121
Additions for the period		9,336			6		—			3,174		125			12,641
Decreases for the period		(23	)		—		(101	)		—		(4	)		(128	)
Balance at 30 June 2012		39,128			3,638		2,564			9,280		2,024			56,634
Accumulated amortisation:
Balance at 1 January 2012		3,650			2,544		983			668		973			8,818
Additions for the period		2,179			101		113			298		146			2,837
Decreases for the period		(2	)		—		(40	)		—		(2	)		(44	)
Balance at 30 June 2012		5,827			2,645		1,056			966		1,117			11,611
Provision for impairment losses:
Balance at 1 January 2012		56			304		85			—		16			461
Additions for the period		143			—		—			21		—			164
Decreases for the period		—			—		(61	)		—		—			(61	)
Balance at 30 June 2012		199			304		24			21		16			564
Net book value:
Balance at 30 June 2012		33,102			689		1,484			8,293		891			44,459
Balance at 31 December 2011		26,109			784		1,597			5,438		914			34,842

Amortisation of the intangible assets of the Group charged for the six-month period ended 30 June 2012 is RMB 945 million (2011: RMB 731 million).

14	INTANGIBLE ASSETS (Continued)

	The Company

	Land use					Non-patent			Operation
	rights			Patents		technology			rights		Others		Total
	RMB millions			RMB millions		RMB millions			RMB millions		RMB millions		RMB millions

Cost:
Balance at 1 January 2012		22,578			2,845		2,503			5,986		1,449		35,361
Additions for the period		9,187			1		—			3,001		92		12,281
Transferred to a subsidiary		(73	)		—		—			—		—		(73	)
Decreases for the period		(22	)		—		(32	)		—		—		(54	)
Balance at 30 June 2012		31,670			2,846		2,471			8,987		1,541		47,515
Accumulated amortisation:
Balance at 1 January 2012		1,940			2,202		953			663		753		6,511
Additions for the period		2,091			67		112			262		94		2,626
Transferred to a subsidiary		(3	)		—		—			—		—		(3	)
Decreases for the period		(1	)		—		(32	)		—		—		(33	)
Balance at 30 June 2012		4,027			2,269		1,033			925		847		9,101
Provision for impairment losses:
Balance at 1 January 2012		48			304		24			—		16		392
Additions for the period		143			—		—			21		—		164
Balance at 30 June 2012		191			304		24			21		16		556
Net book value:
Balance at 30 June 2012		27,452			273		1,414			8,041		678		37,858
Balance at 31 December 2011		20,590			339		1,526			5,323		680		28,458

	Amortisation of the intangible assets of the Company charged for the six-month period ended 30 June 2012 is RMB 748 million (2011: RMB 493 million).

15	GOODWILL

	Goodwill is allocated to the following Group’s cash-generating units:

	At 30 June		At 31 December
	2012		2011
	RMB millions		RMB millions

Sinopec Beijing Yanshan Branch (“Sinopec Yanshan”)		1,157		1,157
Sinopec Zhenhai Refining and Chemical Branch (“Sinopec Zhenhai”)		4,043		4,043
Hong Kong service stations		858		853
Multiple units without individual significant goodwill		478		2,159
		6,536		8,212

	Goodwill represents the excess of the cost of purchase over the fair value of the underlying assets and liabilities. The recoverable amounts of the above cash generating units are determined based on value in use calculations. These calculations for Sinopec Yanshan, Sinopec Zhenhai and Hong Kong service stations use cash flow projections based on financial budgets approved by management covering a one-year period and pre-tax discount rates primarily ranging from 11.5 % to 12.3 % (2011: 12.0% to 12.7%). Cash flows beyond the one-year period are maintained constant. Based on the estimated recoverable amount, no impairment loss was recognised. However, as key assumptions on which management has made in respect of future cash projections are subject to change, management believes that any adverse change in the assumptions would cause the carrying amount to exceed its recoverable amount.

	Key assumptions used for the value in use calculations for these entities are the gross margin and sales volume. Management determined the budgeted gross margin based on the gross margin achieved in the period immediately before the budget period and management’s expectation on the future trend of the prices of crude oil and petrochemical products. The sales volume was based on the production capacity and/or the sales volume in the period immediately before the budget period.

16	LONG-TERM DEFERRED EXPENSES

	Long-term deferred expenses primarily represent prepaid rental expenses over one year and catalysts expenditures.

17	DEFERRED TAX ASSETS AND LIABILITIES

	The Group

	Assets				Liabilities						Net balance
	At		At		At			At			At			At
	30 June		31December		30 June			31December			30 June			31December
	2012		2011		2012			2011			2012			2011
	RMB millions		RMB millions		RMB millions			RMB millions			RMB millions			RMB millions

Current
Receivables and inventories		5,556		3,105		—			—			5,556			3,105
Accruals		496		1,844		—			—			496			1,844
Cash flow hedges		7		7		—			—			7			7
Non-current
Fixed assets		6,181		6,163		(14,902	)		(14,785	)		(8,721	)		(8,622	)
Tax value of losses carried forward		1,874		1,550		—			—			1,874			1,550
Safety production fund		998		692		—			—			998			692
Embedded derivative component of the convertible bonds		—		—		(506	)		(379	)		(506	)		(379	)
Others		55		37		(15	)		(17	)		40			20
Deferred tax assets/(liabilities)		15,167		13,398		(15,423	)		(15,181	)		(256	)		(1,783	)

The Company

	Assets				Liabilities						Net balance
	At		At		At			At			At			At
	30 June		31December		30 June			31December			30 June			31December
	2012		2011		2012			2011			2012			2011
	RMB millions		RMB millions		RMB millions			RMB millions			RMB millions			RMB millions

Current
Receivables and inventories		4,703		2,706		—			—			4,703			2,706
Accruals		438		1,780		—			—			438			1,780
Non-current
Fixed assets		5,116		5,088		(7,451	)		(6,954	)		(2,335	)		(1,866	)
Safety production fund		857		642		—			—			857			642
Embedded derivative component of the convertible bonds		—		—		(506	)		(379	)		(506	)		(379	)
Others		43		33		(15	)		(17	)		28			16
Deferred tax assets/(liabilities)		11,157		10,249		(7,972	)		(7,350	)		3,185			2,899

	At 30 June 2012, certain subsidiaries of the Company did not recognise deferred tax of deductable loss carried forward of RMB 12,679 million (2011: RMB 8,082 million), of which RMB 2,151 million (2011: RMB 376 million) was incurred for the period ended 30 June 2012, because it was not probable that the related tax benefit will be realised. These deductable losses carried forward of RMB 971 million, RMB 5,507 million, RMB 745 million, RMB 369 million, RMB 2,936 million and RMB 2,151 million will expire in 2012, 2013, 2014, 2015, 2016 and 2017, respectively.

	Periodically, management performed assessment on the probability that taxable profit will be available over the period which the deferred tax assets can be realised or utilised. In assessing the probability, both positive and negative evidence was considered, including whether it is probable that the operations will have future taxable profits over the periods which the deferred tax assets are deductible or utilised and whether the tax losses result from identifiable causes which are unlikely to recur. During the six-month period ended 30 June 2012, write-down of deferred tax assets amounted to RMB 612 million (2011: RMB nil).

18	OTHER NON-CURRENT ASSETS

	The balance of other non-current assets mainly represents prepayments for construction projects and purchases of equipment.

19	DETAILS OF IMPAIRMENT LOSSES

	At 30 June 2012, impairment losses of the Group are analysed as follows:

		Balance at										Other			Balance at
		1 January		Provision for		Written back for			Written off for			(decrease)/			30 June
	Note	2012		the period		the period			the period			increase			2012
		RMB millions		RMB millions		RMB millions			RMB millions			RMB millions			RMB millions

Allowance for doubtful accounts
Included:
Accounts receivable	7		1,012		2		(119	)		(10	)		—			885
Other receivables	8		1,881		11		(61	)		(2	)		—			1,829
			2,893		13		(180	)		(12	)		—			2,714
Inventories	10		1,382		7,347		(129	)		(488	)		—			8,112
Long-term equity investments	11		178		—		—			—			—			178
Fixed assets	12		31,326		—		—			(524	)		(164	)		30,638
Construction in progress	13		723		—		—			—			—			723
Intangible assets	14		461		—		—			(61	)		164			564
Goodwill	15		7,657		—		—			—			—			7,657
Others			24		—		(3	)		—			—			21
Total			44,644		7,360		(312	)		(1,085	)		—			50,607

At 30 June 2012, impairment losses of the Company are analysed as follows:

		Balance at										Other			Balance at
		1 January		Provision for		Written back for			Written off for			(decrease)/			30 June
	Note	2012		the period		the period			the period			increase			2012
		RMB millions		RMB millions		RMB millions			RMB millions			RMB millions			RMB millions

Allowance for doubtful accounts
Included:
Accounts receivable	7		857		1		(118	)		(9	)		—			731
Other receivables	8		1,999		10		(57	)		(4	)		—			1,948
			2,856		11		(175	)		(13	)		—			2,679
Inventories	10		715		6,141		(7	)		(135	)		(757	)		5,957
Long-term equity investments	11		6,398		—		—			—			—			6,398
Fixed assets	12		26,032		—		—			(519	)		(164	)		25,349
Construction in progress	13		723		—		—			—			—			723
Intangible assets	14		392		—		—			—			164			556
Others			22		—		(3	)		—			—			19
Total			37,138		6,152		(185	)		(667	)		(757	)		41,681

	The reasons for recognising impairment losses are set out in the respective notes of respective assets.

20	SHORT-TERM LOANS

	The Group’s and the Company’s short-term loans represent:

	The Group				The Company
	At 30 June		At 31 December		At 30 June		At 31 December
	2012		2011		2012		2011
	RMB millions		RMB millions		RMB millions		RMB millions

Short-term bank loans		36,372		25,036		3,055		3,401
Loans from Sinopec Group Company and fellow subsidiaries		50,348		11,949		594		441
Total		86,720		36,985		3,649		3,842

	At 30 June 2012, the Group’s and the Company’s weighted average interest rates per annum on short-term loans were 2.3% (2011: 3.5%) and 5.6% (2011: 5.9%), respectively. The majority of the above loans are by credit.

	Except for the balances disclosed in Note 48, there is no amount due to shareholders who hold 5% or more voting right of the Company included in the balance of short-term loans.

	At 30 June 2012 and 31 December 2011, the Group and the Company had no significant overdue short-term loan.

21	BILLS PAYABLE

	Bills payable primarily represented bank accepted bills for the purchase of material, goods and products. Bills payable were due within one year.

22	ACCOUNTS PAYABLE

	Except for the balances disclosed in Note 48, there is no amount due to shareholders who hold 5% or more voting right of the Company included in the balance of accounts payable.

	At 30 June 2012 and 31 December 2011, the Group and the Company had no individually significant accounts payable aged over one year.

23	ADVANCES FROM CUSTOMERS

	Except for the balances disclosed in Note 48, there is no amount due to shareholders who hold 5% or more voting right of the Company included in the balance of advances from customers.

	At 30 June 2012 and 31 December 2011, the Group and the Company had no individually significant advances from customers aged over one year.

24	EMPLOYEE BENEFITS PAYABLE

	At 30 June 2012 and 31 December 2011, the Group’s and the Company’s employee benefits payable primarily represented wages payable and social insurance payable.

25	TAXES PAYABLE

	The Group						The Company
	At 30 June			At 31 December			At 30 June			At 31 December
	2012			2011			2012			2011
	RMB millions			RMB millions			RMB millions			RMB millions

Recoverable value-added tax		(10,768	)		(9,251	)		(9,434	)		(9,753	)
Consumption tax		11,171			18,455			7,940			14,090
Income tax		2,815			4,054			2,588			2,901
Special oil income levy		8,299			19,042			8,292			19,035
Resources tax		1,203			1,118			1,123			1,054
Other taxes		4,002			6,204			3,137			4,726
Total		16,722			39,622			13,646			32,053

26	OTHER PAYABLES

	At 30 June 2012 and 31 December 2011, the Group’s and the Company’s other payables primarily represented payables for constructions.

	Except for the balances disclosed in Note 48, there is no amount due to shareholders who hold 5% or more voting right of the Company included in the balance of other payables.

	At 30 June 2012 and 31 December 2011, the Group and the Company had no individually significant other payables aged over three years.

	As at 31 December 2011, the Group has entered into certain non-cancellable purchase contracts of crude oil for delivery in 2012. Due to the high purchase costs of crude oil of these contracts, the Group determined that the economic benefits to be derived from processing the crude oil under these purchase contracts would be lower than the unavoidable cost of meeting the Group’s obligations under these purchase contracts. Consequently, a provision for onerous contracts of RMB 5,800 million was recognised as at 31 December 2011. As at 30 June 2012, these above-mentioned non-cancellable purchase commitment contracts had been executed, and the provision has been utilised accordingly. The amount of provision for onerous contracts as at 31 December 2011 approximated the actual losses incurred from these non-cancellable purchase commitment contracts during the six-month period ended 30 June 2012. At 30 June 2012, the market prices of crude oil and finished goods had positive changes compared to the beginning of the period in the ordinary course of the Group’s business. Management expected the economic benefits to be derived from non-cancellable purchase commitment contracts entered into by the Group as at 30 June 2012 would be higher than the unavoidable cost of meeting the obligations under these contracts. Therefore, the Group did not recognise such a provision as at 30 June 2012.

27	NON-CURRENT LIABILITIES DUE WITHIN ONE YEAR

	The Group’s and the Company’s non-current liabilities due within one year represent:

	The Group				The Company
	At 30 June		At 31 December		At 30 June		At 31 December
	2012		2011		2012		2011
	RMB millions		RMB millions		RMB millions		RMB millions

Long-term bank loans
– Renminbi loans		5,823		4,248		5,818		4,248
– Japanese Yen loans		192		306		192		306
– US Dollar loans		52		55		23		25
		6,067		4,609		6,033		4,579
Long-term other loans
– Renminbi loans		68		69		—		—
– US Dollar loans		10		10		1		2
		78		79		1		2
Long-term loans from Sinopec Group Company and fellow subsidiaries
– Renminbi loans		310		200		310		200
		310		200		310		200
Long-term loans due within one year		6,455		4,888		6,344		4,781
Debentures payable due within one year		8,500		38,500		8,500		38,500
Non-current liabilities due within one year		14,955		43,388		14,844		43,281

	At 30 June 2012 and 31 December 2011, the Group and the Company had no significant overdue long-term loans.

28	LONG-TERM LOANS

	The Group’s and the Company’s long-term loans represent:

		The Group				The Company
		At 30 June		At 31 December		At 30 June		At 31 December
	Interest rate and final maturity	2012		2011		2012		2011
		RMB millions		RMB millions		RMB millions		RMB millions

Long-term bank loans
– Renminbi loans	Interest rates ranging from interest free to		19,261		19,620		18,526		19,460
	6.90% per annum at 30 June 2012
	with maturities through 2025
– Japanese Yen loans	Interest rates ranging from 2.60% to		1,006		1,179		1,006		1,179
	2.94% per annum at 30 June 2012
	with maturities through 2024
– US Dollar loans	Interest rates ranging from interest free to		390		415		242		253
	1.55% per annum at 30 June 2012
	with maturities through 2031
Less: Current portion			6,067		4,609		6,033		4,579
Long-term bank loans			14,590		16,605		13,741		16,313
Long-term other loans
– Renminbi loans	Interest free at 30 June 2012 with		208		208		140		140
	maturities through 2013
– US Dollar loans	Interest rates ranging from interest free to 4.89%		21		23		12		14
	per annum at 30 June 2012 with
	maturities through 2015
Less: Current portion			78		79		1		2
Long-term other loans			151		152		151		152
Long-term loans from Sinopec Group Company and fellow subsidiaries
– Renminbi loans	Interest rates ranging from interest free to 6.98%		37,566		37,763		37,454		37,518
	per annum at 30 June 2012 with
	maturities through 2020
Less: Current portion			310		200		310		200
Long-term loans from Sinopec Group Company and fellow subsidiaries			37,256		37,563		37,144		37,318
Total			51,997		54,320		51,036		53,783

28	LONG-TERM LOANS (Continued)

	The maturity analysis of the Group’s and the Company’s long-term loans is as follows:

	The Group				The Company
	At 30 June		At 31 December		At 30 June		At 31 December
	2012		2011		2012		2011
	RMB millions		RMB millions		RMB millions		RMB millions

Between one and two years		13,213		15,442		13,153		15,289
Between two and five years		2,324		2,340		1,424		1,973
After five years		36,460		36,538		36,459		36,521
Total long-term loans		51,997		54,320		51,036		53,783

At 30 June 2012, the top five long-term loans (including long-term loans due within one year) of the Group are set out below:

Remaining

balance at

30 June

31 December

Lenders

Borrowing dates

Maturity dates

Currency

Interest rate

2012

2011

RMB millions

Sinopec Group Company

18 October 2000

31 December 2020

RMB

Interest free

35,561

China Development Bank

20 January 2005

20 December 2013

RMB

6.35%

7,000

Agricultural Bank of China

2 March 2010

1 March 2013

RMB

5.99%

3,500

Bank of China

31 August 2010

31 August 2013

RMB

5.99%

1,998

2,000

Bank of China

19 January 2010

18 November 2013

RMB

5.99%

1,998

2,000

	Except for the balances disclosed in Note 48, there is no amount due to shareholders who hold 5% or more voting right of the Company included in the balance of long-term loans.

	Long-term loans are primarily unsecured, and carried at amortised costs.

29	DEBENTURES PAYABLE

	The Group				The Company
	At 30 June		At 31 December		At 30 June		At 31 December
	2012		2011		2012		2011
	RMB millions		RMB millions		RMB millions		RMB millions

Short-term corporate bonds (i)		30,000		—		30,000		—
Debentures payable:
– Corporate Bonds (ii)		68,500		78,500		68,500		78,500
– 2007 Convertible Bonds (iii)		10,761		10,415		10,761		10,415
– Bonds with Warrants (iv)		27,715		27,095		27,715		27,095
– 2011 Convertible Bonds (v)		21,598		22,627		21,598		22,627
Less: Current portion		8,500		38,500		8,500		38,500
		120,074		100,137		120,074		100,137

29	DEBENTURES PAYABLE (Continued)

	Note:

	(i)	The Company issued 270-day corporate bonds of face value RMB 5 billion to corporate investors in the PRC debenture market on 16 January 2012 at par value of RMB 100. The effective yield of the 270-day corporate bonds is 4.38% per annum.

		The Company issued 270-day corporate bonds of face value RMB 15 billion to corporate investors in the PRC debenture market on 16 February 2012 at par value of RMB 100. The effective yield of the 270-day corporate bonds is 4.15% per annum.

		The Company issued 180-day corporate bonds of face value RMB 10 billion to corporate investors in the PRC debenture market on 27 March 2012 at par value of RMB 100. The effective yield of the 180-day corporate bonds is 4.00% per annum.

	(ii)	These corporate bonds are guaranteed by Sinopec Group Company and carried at amortised cost.

	(iii)	On 24 April 2007, the Company issued zero coupon convertible bonds due 2014 with an aggregate principal amount of HKD 11.7 billion (the “2007 Convertible Bonds”). The 2007 Convertible Bonds are convertible into shares of the Company from 4 June 2007 onwards at a price of HKD10.76 per share, subject to adjustment for subdivision or consolidation of shares, bonus issues, rights issues, capital distribution, change of control and other events, which have a dilutive effect on the issued share capital of the Company (“the Conversion Option”). Unless previously redeemed, converted or purchased and cancelled, the 2007 Convertible Bonds will be redeemed on the maturity date at 121.069% of the principal amount. The Company has an early redemption option at any time after 24 April 2011 (subject to certain criteria) (“the Early Redemption Option”) and a cash settlement option when the holders exercise their conversion right (“the Cash Settlement Option”).

		The Company redeemed some of the 2007 Convertible Bonds in 2011 at an early redemption amount of the principal amount of HKD 39 million.

		During the six-month period ended 30 June 2012, the conversion price of the 2007 Convertible Bonds was adjusted to HKD 10.60 per share as the result of capital distribution.

		At 30 June 2012, the carrying amounts of liability and derivative components, representing the Conversion Option, the Early Redemption Option and the Cash Settlement Option, of the 2007 Convertible Bonds were RMB 10,665 million (2011: RMB 10,345 million) and RMB 96 million (2011: RMB 70 million), respectively. No conversion of the 2007 Convertible Bonds has occurred up to 30 June 2012.

		At 30 June 2012 and 31 December 2011, the fair value of the derivative component of the 2007 Convertible Bonds was calculated using the Black-Scholes Model. The following are the major inputs used in the Black-Scholes Model:

	At 30 June		At 31 December
	2012		2011

Stock price of H shares	HKD 6.88		HKD 8.17
Conversion price	HKD 10.60		HKD 10.76
Option adjusted spread	250 basis points		200 basis points
Average risk free rate		0.45%		0.72%
Average expected life	1.8 years		2.3 years

		Any changes in the major inputs into the Black-Scholes Model will result in changes in the fair value of the derivative component. The change in the fair value of the derivative component from 31 December 2011 to 30 June 2012 resulted in an unrealised loss from changes in fair value of RMB 26 million (2011: an unrealised gain of RMB 190 million), which has been recorded as “gain/(loss) from changes in fair value” in the income statement for the six-month period ended 30 June 2012.

		The initial carrying amount of the liability component is the residual amount, which is the cash proceeds from issuance of debentures after deducting the allocated issuance cost of the 2007 Convertible Bonds relating to the liability component and the fair value of the derivative component as at 24 April 2007. Interest expense is calculated using the effective interest method by applying the effective interest rate of 4.19% to the adjusted liability component. If the aforesaid derivative component has not been separated out and the entire 2007 Convertible Bonds is considered as the liability component, the effective interest rate would have been 3.03%.

	(iv)	On 26 February 2008, the Company issued convertible bonds with stock warrants due 2014 with an aggregate principal amount of RMB 30 billion in the PRC (the “Bonds with Warrants”). The Bonds with Warrants, which bear a fixed interest rate of 0.80% per annum payable annually, were issued at par value of RMB 100. The Bonds with Warrants were guaranteed by Sinopec Group Company.

		The initial recognition of the liability component of the Bond with Warrants is measured as the present value of the future interest and principal payments, discounted at the market rate of interest applicable at the time of initial recognition to similar liabilities that do not have a conversion option. Interest expense is calculated using the effective interest method by applying the effective interest rate of 5.40% to the liability component.

29	DEBENTURES PAYABLE (Continued)

	Note: (Continued)

	(v)	On 1 March 2011, the Company issued convertible bonds due 2017 with an aggregate principal amount of RMB 23 billion in the PRC (the “2011 Convertible Bonds”). The 2011 Convertible Bonds are issued at par value of RMB 100 and bear a fixed interest rate of 0.5% per annum for the first year, 0.7% for the second year, 1.0% for the third year, 1.3% for the fourth year, 1.8% for the fifth year and 2.0% for the sixth year. The holders can convert the 2011 Convertible Bonds into shares of the Company from 24 August 2011 onwards at an initial conversion price of RMB 9.73 per share, subject to adjustment for, amongst other things, cash dividends, subdivision or consolidation of shares, bonus issues, issue of new shares, rights issues, capital distribution, change of control and other events which have an effect on the issued share capital of the Company (the “Conversion Option”). Unless previously redeemed, converted or purchased and cancelled, the 2011 Convertible Bonds will be redeemed within 5 trading days after maturity at 107% of the principal amount, including interest for the sixth year. The initial carrying amounts of the liability component and the derivative component, representing the Conversion Option of the 2011 Convertible Bonds, were RMB 19,279 million and RMB 3,610 million, respectively.

		During the term of the 2011 Convertible Bonds, the conversion price may be subject to downward adjustment that if the closing prices of the Company’s A Shares in any fifteen trading days out of any thirty consecutive trading days are lower than 80% of the prevailing conversion price, the board of directors may propose downward adjustment to the conversion price subject to the shareholders’ approval. The adjusted conversion price shall be not less than (a) the average trading price of the Company’s A Shares for the twenty trading days prior to the shareholders’ approval, (b) the average trading price of the Company’s A Shares on the day immediately before the shareholders’ approval, (c) the net asset value per share based on the latest audited financial statements prepared under ASBE, and (d) the nominal value per share.

		Att 30 June 2012, the carrying amounts of the liability component and the derivative component were RMB 19,687 million (2011: RMB 20,017 million) and RMB 1,911 million (2011: RMB 2,610 million), respectively.

		During the six-month period ended 30 June 2012, the conversion price of the 2011 Convertible Bonds was adjusted to RMB 7.08 per share as a result of the final dividends declared and paid during the period.

		During the six-month period ended 30 June 2012, RMB 856,963,000 of the 2011 Convertible Bonds were converted into 117,714,548 A shares of the Company.

		At 30 June 2012 and 31 December 2011, the fair value of the derivative component of the 2011 Convertible Bonds was calculated using the Binomial Model. The following are the major inputs used in the Binomial Model:

	At 30 June	At 31 December
	2012	2011

Stock price of A shares	RMB 6.30	RMB 7.18
Conversion price	RMB 7.08	RMB 7.28
Credit spread	150 basis points	180 basis points
RMB onshore swap rate	2.78%	2.81%

		Any change in the major inputs into the Binomial Model will result in changes in the fair value of the derivative component. The changes in the fair value of the derivative component from 31 December 2011 to 30 June 2012 resulted in an unrealised gain of RMB 532 million (2011: RMB nil), which has been recorded as “gain/(loss) from changes in fair value” in the income statement for the six-month period ended 30 June 2012.

		The initial carrying amount of the liability component of the 2011 Convertible Bonds is the residual amount, which is after deducting the allocated issuance cost of the 2011 Convertible Bonds relating to the liability component and the fair value of the derivative component on 1 March 2011. Interest expense is calculated using the effective interest method by applying the effective interest rate of 5.10% to the adjusted liability component. Should the aforesaid derivative component not been separated out and the entire 2011 Convertible Bonds been considered as the liability component, the effective interest rate would have been 2.07%.

30	PROVISIONS

	Provisions primarily represent provision for future dismantlement costs of oil and gas properties. The Group has established certain standardised measures for the dismantlement of its retired oil and gas properties by making reference to the industry practices and is thereafter constructively obligated to take dismantlement measures of its retired oil and gas properties. Movement of provision of the Group’s obligations for the dismantlement of its retired oil and gas properties is as follows:

	The Group			The Company
	RMB millions			RMB millions

Balance at 1 January 2012		18,317			17,114
Provision for the period		517			488
Accretion expenses		416			388
Utilised for the period		(8	)		(8	)
Exchange adjustment		2			—
Balance at 30 June 2012		19,244			17,982

31	SHARE CAPITAL

	The Group and the Company
	At 30 June		At 31 December
	2012		2011
	RMB millions		RMB millions

Registered, issued and fully paid:
70,039,788,984 domestic listed A shares (2011: 69,922,074,436) of RMB 1.00 each		70,040		69,922
16,780,488,000 overseas listed H shares (2011:16,780,488,000) of RMB 1.00 each		16,780		16,780
		86,820		86,702

	The Company was established on 25 February 2000 with a registered capital of 68.8 billion domestic state-owned domestic shares with a par value of RMB 1.00 each, which were all held by Sinopec Group Company (Note 1).

	Pursuant to the resolutions passed at an Extraordinary General Meeting of the Company held on 25 July 2000 and the approval from relevant authorities, the Company issued 15,102,439,000 H shares with a par value of RMB 1.00 each in its initial global offering in October 2000. The shares include 12,521,864,000 H shares and 25,805,750 American Depositary Shares (“ADSs”, each representing 100 H shares) at prices of HKD 1.59 and US$ 20.645 respectively. As part of the offering, 1,678,049,000 shares were offered in placing to Hong Kong and overseas investors.

	In July 2001, the Company issued 2,800,000,000 listed A shares with a par value of RMB 1.00 each at RMB 4.22.

	On 25 September 2006, the shareholders of listed A shares accepted the proposal offered by the shareholders of state-owned A shares whereby the shareholders of state-owned A shares agreed to transfer 2.8 state-owned A shares to shareholders of listed A shares for every 10 listed A shares they held, in exchange for the approval for the listing of all state-owned A shares. 66,337,951,000 state-owned A shares have been granted trading right upon settlement of the above consideration. The 784,000,000 state-owned A shares paid to the shareholders of the listed A shares were tradable on 10 October 2006.

	On 3 March 2010, the Company issued 88,774 listed A shares with a par value of RMB 1.00 each at RMB 19.15 as a result of exercise of 188,292 warrants entitled to the Bonds with Warrants with net proceeds of RMB 1,700,022.

	KPMG Huazhen had verified the above paid-in capital and issued capital verification reports.

	During the year ended 31 December 2011, the Company issued 34,662 listed A shares with a par value of RMB 1.00 each, as a result of conversion exercised by the holders of the 2011 Convertible Bonds. During the six-month period ended 30 June 2012, the Company issued 117,714,548 listed A shares with a par value of RMB 1.00 each, as a result of conversion exercised by the holders of the 2011 Convertible Bonds.

	All A shares and H shares rank pari passu in all material aspects.

32	CAPITAL RESERVE

	The movements in capital reserve are as follows:

	The Group			The Company
	RMB millions			RMB millions

Balance at 1 January 2012		29,583			37,983
Changes in fair value of cash flow hedge, net of deferred tax (Note 45)		1			—
Changes in fair value of available-for-sale financial assets, net of deferred tax (i)		1			—
Share of other comprehensive income in associates		26			26
Exercise of conversion of the 2011 Convertible Bonds (Note 31)		799			799
Rights issue of shares by a subsidiary, net of issuance costs (ii)		(18	)		—
Acquisition of minority interests of subsidiaries (iii)		(55	)		—
Balance at 30 June 2012		30,337			38,808

Capital reserve represents mainly: (a) the difference between the total amount of the par value of shares issued and the amount of the net assets transferred from Sinopec Group Company in connection with the Reorganisation; (b) share premiums derived from issuances of H shares and A shares by the Company and excess of cash paid by investors over their proportionate shares in share capital, the proportionate shares of unexercised portion of the Bond with Warrants at the expiration date, and the amount transferred from the proportionate liability component and the derivative component of the converted portion of the 2011 Convertible Bonds; (c) difference between consideration paid for the combination of entities under common control over the carrying amount of the net assets acquired; and (d) adjustment for changes in fair value of available-for-sale financial assets.

	Note:

	(i)	The available-for-sale financial assets held by the Group and the Company are carried at fair value with any changes in fair value, net of deferred tax, recognised directly in capital reserve.

	(ii)	During the six-month period ended 30 June 2012, a subsidiary of the Group completed rights issue to its existing shareholders, and the issuance costs were adjusted to share premium.

	(iii)	During the six-month period ended 30 June 2012, the Group acquired minority interests from subsidiaries. The difference between the considerations paid over total amounts of the net assets acquired was recognised in capital reserve.

33	SPECIFIC RESERVE

	According to relevant PRC regulations, the Group is required to transfer an amount to specific reserve for the safety production fund based on the turnover of certain refining and chemicals products or based on the production volume of crude oil and natural gas. The movements of specific reserve are as follows:

	The Group			The Company
	RMB millions			RMB millions

Balance at 1 January 2012		3,115			2,571
Provision for the period		1,723			1,430
Utilisation for the period		(656	)		(549	)
Balance at 30 June 2012		4,182			3,452

34	SURPLUS RESERVES

	Movements in surplus reserves are as follows:

	The Group and the Company
	Statutory		Discretionary
	surplus		surplus
	reserve		reserve		Total
	RMB millions		RMB millions		RMB millions
Balance at 1 January 2012		61,263		117,000		178,263
Appropriation		2,420		—		2,420
Balance at 30 June 2012		63,683		117,000		180,683

The Articles of Association of the Company and the PRC Company Law have set out the following profit appropriation plans:

	(a)	10% of the net profit is transferred to the statutory surplus reserve. In the event that the reserve balance reaches 50% of the registered capital, no transfer is needed;

	(b)	After the transfer to the statutory surplus reserve, a transfer to discretionary surplus reserve can be made upon the passing of a resolution at the shareholders’ meeting.

35	OPERATING INCOME AND OPERATING COSTS

	The Group				The Company
	Six-month periods ended 30 June				Six-month periods ended 30 June
	2012		2011		2012		2011
	RMB millions		RMB millions		RMB millions		RMB millions
Income from principal operations		1,327,466		1,216,941		759,291		742,257
Income from other operations		20,606		16,331		19,497		15,331
Total		1,348,072		1,233,272		778,788		757,588
Operating cost		1,152,431		1,029,875		620,503		601,876

	The income from principal operations represents revenue from sales of crude oil, natural gas, petroleum and chemical products net of value added tax. Operating costs primarily represents the products cost related to the principal operations. The Group’s segmental information is set out in Note 53.

	For the six-month period ended 30 June 2012, revenue from sales to top five customers amounted to RMB 147,200 million (2011: RMB 101,700 million) which accounted for 11% (2011: 8%) of total operating income of the Group.

36	SALES TAXES AND SURCHARGES

	The Group				The Company
	Six-month periods ended 30 June				Six-month periods ended 30 June
	2012		2011		2012		2011
	RMB millions		RMB millions		RMB millions		RMB millions
Consumption tax		64,020		62,141		49,287		46,966
Special oil income levy		16,472		18,691		15,381		17,549
City construction tax		5,892		6,389		4,613		4,885
Education surcharge		4,536		4,582		3,615		3,527
Resources tax		3,989		1,167		3,756		1,144
Business tax		358		315		302		262
Total		95,267		93,285		76,954		74,333

The applicable tax rate of the sales taxes and surcharges are set out in Note 4.

37	FINANCIAL EXPENSES

	The Group						The Company
	Six-month periods ended 30 June						Six-month periods ended 30 June
	2012			2011			2012			2011
	RMB millions			RMB millions			RMB millions			RMB millions
Interest expenses incurred		6,169			4,614			5,370			3,864
Less: Capitalised interest expenses		639			356			532			312
Net interest expenses		5,530			4,258			4,838			3,552
Accretion expenses (Note 30)		416			329			388			306
Interest income		(563	)		(541	)		(394	)		(195	)
Net foreign exchange loss/(gain)		150			(560	)		66			(182	)
Total		5,533			3,486			4,898			3,481

	The interest rates per annum at which borrowing costs were capitalised during the six-month period ended 30 June 2012 by the Group and the Company ranged from 3.8% to 6.2 % (2011: 3.1% to 6.7%)

38	EXPLORATION EXPENSES

	Exploration expenses include geological and geophysical expenses and written-off of unsuccessful dry hole costs.

39	IMPAIRMENT LOSSES

	The Group						The Company
	Six-month periods ended 30 June						Six-month periods ended 30 June
	2012			2011			2012			2011
	RMB millions			RMB millions			RMB millions			RMB millions

Receivables		(167	)		(118	)		(164	)		(118	)
Inventories		7,218			2,667			6,134			2,184
Fixed assets		—			164			—			132
Others		(3	)		(1	)		(3	)		(1	)
Total		7,048			2,712			5,967			2,197

40	GAIN FROM CHANGES IN FAIR VALUE

	The Group					The Company
	Six-month periods ended 30 June					Six-month periods ended 30 June
	2012			2011		2012		2011
	RMB millions			RMB millions		RMB millions		RMB millions
Changes in fair value of financial assets and liabilities held for trading		9			115		62		55
Fair value gain on the embedded derivative component of the convertible bonds (Note 29(iii) and (v))		506			190		506		190
Unrealised losses from ineffective portion cash flow hedges		(5	)		—		—		—
Total		510			305		568		245

41	INVESTMENT INCOME

	The Group						The Company
	Six-month periods ended 30 June						Six-month periods ended 30 June
	2012			2011			2012		2011
	RMB millions			RMB millions			RMB millions		RMB millions
Income from investment accounted for under cost method		33			47			5,006		7,184
Income from investment accounted for under equity method		323			2,804			822		1,809
Investment loss from disposal of financial assets and liabilities held for trading		(306	)		(70	)		—		—
Realised gains from ineffective portion of cash flow hedge		155			—			—		—
Others		27			41			230		131
Total		232			2,822			6,058		9,124

42	NON-OPERATING INCOME

	The Group				The Company
	Six-month periods ended 30 June				Six-month periods ended 30 June
	2012		2011		2012		2011
	RMB millions		RMB millions		RMB millions		RMB millions
Gain on disposal of non-current assets		581		645		578		627
Government grants		554		290		387		262
Others		227		173		183		118
Total		1,362		1,108		1,148		1,007

43	NON-OPERATING EXPENSES

	The Group				The Company
	Six-month periods ended 30 June				Six-month periods ended 30 June
	2012		2011		2012		2011
	RMB millions		RMB millions		RMB millions		RMB millions
Loss on disposal of non-current assets		122		104		96		91
Fines, penalties and compensation		36		153		33		152
Donations		42		20		40		19
Others		387		313		367		298
Total		587		590		536		560

44	INCOME TAX EXPENSE

	The Group					The Company
	Six-month periods ended 30 June					Six-month periods ended 30 June
	2012			2011		2012			2011
	RMB millions			RMB millions		RMB millions			RMB millions
Provision for income tax for the period		10,418			11,922		5,946			6,792
Deferred taxation		(1,554	)		1,216		(475	)		361
Under-provision for income tax in respect of preceding year		473			405		441			326
Total		9,337			13,543		5,912			7,479

44	INCOME TAX EXPENSE (Continued)

	Reconciliation between actual income tax expense and accounting profit at applicable tax rates is as follows:

	The Group						The Company
	Six-month periods ended 30 June						Six-month periods ended 30 June
	2012			2011			2012			2011

	RMB millions			RMB millions			RMB millions			RMB millions


Profit before taxation		34,283			56,755			30,109			41,611
Expected income tax expense at a tax rate of 25%		8,571			14,189			7,527			10,403
Tax effect of non-deductible expenses		220			105			211			61
Tax effect of non-taxable income		(124	)		(928	)		(1,380	)		(2,626	)
Tax effect of preferential tax rate (Note)		(916	)		(791	)		(887	)		(685	)
Effect of income taxes from foreign operations in excess of taxes at the PRC statutory tax rate (Note)		101			796			—			—
Tax effect of utilisation of previously unrecognised tax losses and temporary differences		(152	)		(327	)		—			—
Tax effect of unrecognised temporary differences		14			—			—			—
Tax effect of tax losses not recognised		538			94			—			—
Write-down of deferred tax assets		612			—			—			—
Adjustment for under-provision for income tax in respect of preceding year		473			405			441			326
Actual income tax expense		9,337			13,543			5,912			7,479

	Note:

	The provision for PRC current income tax is based on a statutory income tax rate of 25% of the assessable income of the Group as determined in accordance with the relevant income tax rules and regulations of the PRC, except for certain entities of the Group in the PRC that are taxed at preferential rates, and the foreign operation in the Republic of Angola (“Angola”) that is taxed at 50% of the assessable income as determined in accordance with the relevant income tax rules and regulations of Angola.

45	OTHER COMPREHENSIVE INCOME

	(a)	Tax effects relating to each component of other comprehensive income

		The Group

	Six-month period ended						Six-month period ended
	30 June 2012						30 June 2011
	Before-tax		Tax		Net-of-tax		Before-tax			Tax			Net-of-tax
	amount		effect		amount		amount			effect			amount
	RMB		RMB		RMB		RMB			RMB			RMB
	millions		millions		millions		millions			millions			millions

Cash flow hedges		1		—		1		163			(24	)		139
Available-for-sale financial assets		1		—		1		1			—			1
Share of other comprehensive income in associates		26		—		26		(63	)		—			(63	)
Translation difference in foreign currency statements		89		—		89		(234	)		—			(234	)
Other comprehensive income		117		—		117		(133	)		(24	)		(157	)

The Company

Six-month period ended

30 June 2012

30 June 2011

Before-tax

Tax

Net-of-tax

Before-tax

Tax

Net-of-tax

amount

effect

amount

effect

amount

RMB

millions

Share of other comprehensive income in associates

—

(63

)

—

(63

)

Other comprehensive income

—

(63

)

—

(63

)

45	OTHER COMPREHENSIVE INCOME (Continued)

	(b)	Reclassification adjustments relating to components of other comprehensive income

	The Group						The Company
	Six-month periods ended 30 June						Six-month periods ended 30 June
	2012			2011			2012		2011
	RMB millions			RMB millions			RMB millions		RMB millions

Cash flow hedges:
Effective portion of changes in fair value of hedging instruments recognised during the period		804			(1,856	)		—		—
Amounts transferred to initial carrying amount of hedged items		(235	)		(115	)		—		—
Reclassification adjustments for amounts transferred to the operating costs for the period		(568	)		2,134			—		—
Net deferred tax expense recognised in other comprehensive income		—			(24	)		—		—
Net movement during the period recognised in other comprehensive income		1			139			—		—
Available-for-sale financial assets:
Changes in fair value recognised during the period		1			1			—		—
Net movement during the period recognised in other comprehensive income		1			1			—		—
Share of other comprehensive income in associates:
Net movement during the period recognised in other comprehensive income		26			(63	)		26		(63	)
Translation difference in foreign currency statements:
Net movement during the period recognised in other comprehensive income		89			(234	)		—		—

46	DIVIDENDS

	(a)	Dividends of ordinary shares declared after the balance sheet date
		Pursuant to the Company’s Articles of Association and a resolution passed at the Directors’ meeting on 24 August 2012, the directors authorised to declare the interim dividends for year ended 31 December 2012 of RMB 0.10 per share (2011: RMB 0.10 per share) totalling RMB 8,682 million (2011: 8,670 million).

	(b)	Dividends of ordinary shares declared during the period
		Pursuant to the shareholders’ approval at the Annual General Meeting on 11 May 2012, a final dividend of RMB 0.20 per share totalling RMB 17,364 million in respect of the year ended 31 December 2011 was declared.

		Pursuant to the shareholders’ approval at the Annual General Meeting on 13 May 2011, a final dividend of RMB 0.13 per share totalling RMB 11,271 million in respect of the year ended 31 December 2010 was declared.

47	SUPPLEMENTAL INFORMATION TO THE CASH FLOW STATEMENT

	(a)	Reconciliation of net profit to cash flows from operating activities:

	The Group						The Company
	Six-month periods ended 30 June						Six-month periods ended 30 June
	2012			2011			2012			2011
	RMB millions			RMB millions			RMB millions			RMB millions

Net profit		24,946			43,212			24,197			34,132
Add: Impairment losses on assets		7,048			2,712			5,967			2,197
Depreciation of fixed assets		33,589			29,779			27,174			24,230
Amortisation of intangible assets		945			731			748			493
Dry hole costs written off		2,942			2,342			2,942			2,342
Net gain on disposal of non-current assets		(459	)		(541	)		(482	)		(65	)
Fair value gain		(510	)		(305	)		(568	)		(245	)
Financial expenses		5,533			3,486			4,898			3,481
Investment income		(232	)		(2,822	)		(6,058	)		(9,124	)
(Increase)/decrease in deferred tax assets		(1,769	)		806			(908	)		506
Increase/(decrease) in deferred tax liabilities		215			249			433			(145	)
(Increase)/decrease in inventories		(11,031	)		(54,083	)		2,203			(36,983	)
(Increase)/decrease in operating receivables		(23,182	)		(35,150	)		12,821			(16,429	)
(Decrease)/Increase in operating payables		(17,481	)		40,447			(23,816	)		21,805
Net cash flow from operating activities		20,554			30,863			49,551			26,195

47	SUPPLEMENTAL INFORMATION TO THE CASH FLOW STATEMENT (Continued)

	(b)	Net change in cash and cash equivalents:

	The Group						The Company
	Six-month periods ended 30 June						Six-month periods ended 30 June
	2012			2011			2012			2011
	RMB millions			RMB millions			RMB millions			RMB millions

Cash balance at the end of the period		249			189			232			161
Less: Cash balance at the beginning of the period		247			130			235			110
Add: Cash equivalents at the end of the period		12,310			8,527			4,764			3,795
Less: Cash equivalents at the beginning of the period		24,400			16,878			20,617			11,771
Net decrease of cash and cash equivalents		(12,088	)		(8,292	)		(15,856	)		(7,925	)

(c)

The analysis of cash and cash equivalents held by the Group and the Company is as follows:

	The Group				The Company
	Six-month periods ended 30 June				Six-month periods ended 30 June
	2012		2011		2012		2011
	RMB millions		RMB millions		RMB millions		RMB millions

Cash at bank and on hand
– Cash on hand		249		189		232		161
– Demand deposits		12,310		8,527		4,764		3,795
Cash and cash equivalents at the end of the period		12,559		8,716		4,996		3,956

48	RELATED PARTIES AND RELATED PARTY TRANSACTIONS

	(1)	Related parties having the ability to exercise control over the Group

The name of the company	:	China Petrochemical Corporation
Organisation code	:	10169286-X
Registered address	:	No. 22, Chaoyangmen North Street, Chaoyang District, Beijing
Principal activities	:	Exploration, production, storage and transportation (including pipeline transportation), sales and utilisation of crude oil and natural gas; refining; wholesale and retail of gasoline, kerosene and diesel; production, sales, storage and transportation of petrochemical and other chemical products; industrial investment and investment management; exploration, construction, installation and maintenance of petroleum and petrochemical constructions and equipments; manufacturing electrical equipment; research, development, application and consulting services of information technology and alternative energy products; import & export of goods and technology.
Relationship with the Group	:	Ultimate holding company
Types of legal entity	:	State-owned
Authorised representative	:	Fu Chengyu
Registered capital	:	RMB 231,621 million

		Sinopec Group Company is an enterprise controlled by the PRC government. Sinopec Group Company directly or indirectly holds 76.28% shareholding of the Company.

	(2)	Related parties not having the ability to exercise control over the Group

	Related parties under common control of a parent company with the Company:
	Sinopec Finance Company Limited
	Sinopec Shengli Petroleum Administration Bureau
	Sinopec Zhongyuan Petroleum Exploration Bureau
	Sinopec Assets Management Corporation
	Sinopec Engineering Incorporation
	Sinopec Century Bright Capital Investment Limited
	Sinopec Petroleum Storage and Reserve Limited
	Sinopec International Petroleum Exploration and Production Limited

	Associates of the Group:
	Sinopec Railway Oil Marketing Company Limited
	China Aviation Oil Supply Company Limited
	Sinopec Changjiang Fuel Company Limited
	BPZR (Ningbo) LPG Company Limited
	China Shipping & Sinopec Suppliers Company Limited

	Jointly controlled entities of the Group:
	Shanghai Secco Petrochemical Company Limited
	BASF-YPC Company Limited
	Fujian Refining and Petrochemical Company Limited
	SINOPEC SABIC Tianjin Petrochemical Company Limited

48	RELATED PARTIES AND RELATED PARTY TRANSACTIONS (Continued)

	(3)	The principal related party transactions with Sinopec Group Company and fellow subsidiaries, associates and jointly controlled entities, which were carried out in the ordinary course of business, are as follows:

		The Group					The Company
		Six-month periods ended 30 June					Six-month periods ended 30 June
	Note	2012		2011			2012		2011
		RMB millions		RMB millions			RMB millions		RMB millions

Sales of goods	(i)		169,491		138,800			71,479		72,135
Purchases	(ii)		73,797		67,839			19,227		26,839
Transportation and storage	(iii)		709		640			582		530
Exploration and development services	(iv)		16,600		13,164			15,829		12,660
Production related services	(v)		4,514		4,743			3,210		3,776
Ancillary and social services	(vi)		2,063		1,927			2,049		1,888
Operating lease charges	(vii)		3,685		3,702			3,525		3,546
Agency commission income	(viii)		78		8			—		—
Interest received	(ix)		58		52			283		60
Interest paid	(x)		563		297			126		111
Net deposits withdrawn from related parties	(ix)		3,298		7,015			5,230		6,382
Net loans obtained from/(repaid to) related parties	(xi)		38,202		(414	)		89		(4,045	)
Net entrusted loans repaid by subsidiaries	(xii)		—		—			5,894		—

	The amounts set out in the table above in respect of the six-month periods ended 30 June 2012 and 2011 represent the relevant costs and income as determined by the corresponding contracts with the related parties.

	As at 30 June 2012 and 31 December 2011, there were no guarantees given to banks by the Group in respect of banking facilities to Sinopec Group Company and fellow subsidiaries, except for the disclosure set out in Note 52(b). Guarantees given to banks by the Group in respect of banking facilities to associates and jointly controlled entities are disclosed in Note 52(b).

	Note:

	(i)	Sales of goods represent the sale of crude oil, intermediate petrochemical products, petroleum products and ancillary materials.

	(ii)	Purchases represent the purchase of material and utility supplies directly related to the Group’s operations such as the procurement of raw and ancillary materials and related services, supply of water, electricity and gas.

	(iii)	Transportation and storage represents the cost for the use of railway, road and marine transportation services, pipelines, loading, unloading and storage facilities.

	(iv)	Exploration and development services comprise direct costs incurred in the exploration and development of crude oil such as geophysical, drilling, well testing and well measurement services.

	(v)	Production related services represent ancillary services rendered in relation to the Group’s operations such as equipment repair and general maintenance, insurance premium, technical research, communications, fire fighting, security, product quality testing and analysis, information technology, design and engineering, construction which includes the construction of oilfield ground facilities, refineries and chemical plants, manufacture of replacement parts and machinery, installation, project management and environmental protection.

	(vi)	Ancillary and social services represent expenditures for social welfare and support services such as educational facilities, media communication services, sanitation, accommodation, canteens, property maintenance and management services.

	(vii)	Operating lease charges represent the rental paid to Sinopec Group Company for operating leases in respect of land, buildings and equipment.

	(viii)	Agency commission income represents commission earned for acting as an agent in respect of sales of products and purchase of materials for certain entities owned by Sinopec Group Company.

	(ix)	Interest received represents interest received from deposits placed with Sinopec Finance Company Limited and Sinopec Century Bright Capital Investment Limited, finance companies controlled by Sinopec Group Company. The applicable interest rate is determined in accordance with the prevailing saving deposit rate. Interest received includes the interest from loans provided to subsidiaries (Note(xii)).

	(x)	Interest paid represents interest charges on the loans and advances obtained from Sinopec Group Company and fellow subsidiaries.

	(xi)	The Group obtained or repaid loans from or to Sinopec Group Company and fellow subsidiaries. The calculated periodic balance of average loan for the six-month period ended 30 June 2012, which is based on monthly average balances, was RMB 76,556 million (2011: RMB 55,277 million).

	(xii)	The Company provided entrusted loans to subsidiaries through bank and other financial organisation and recognised interest income in accordance with interest rates specified in the contracts.

48	RELATED PARTIES AND RELATED PARTY TRANSACTIONS (Continued)

	(3)	The principal related party transactions with Sinopec Group Company and fellow subsidiaries, associates and jointly controlled entities, which were carried out in the ordinary course of business, are as follows: (Continued)
		In connection with the Reorganisation, the Company and Sinopec Group Company entered into a number of agreements under which 1) Sinopec Group Company will provide goods and products and a range of ancillary, social and supporting services to the Group and 2) the Group will sell certain goods to Sinopec Group Company. These agreements impacted the operating results of the Group for the six-month period ended 30 June 2012. The terms of these agreements are summarised as follows:

		(a)	The Company has entered into a non-exclusive Agreement for Mutual Provision of Products and Ancillary Services (“Mutual Provision Agreement”) with Sinopec Group Company effective from 1 January 2000 in which Sinopec Group Company has agreed to provide the Group with certain ancillary production services, construction services, information advisory services, supply services and other services and products. While each of Sinopec Group Company and the Company is permitted to terminate the Mutual Provision Agreement upon at least six months’ notice, Sinopec Group Company has agreed not to terminate the agreement if the Group is unable to obtain comparable services from a third party. The pricing policy for these services and products provided by Sinopec Group Company to the Group is as follows:

			•	the government-prescribed price;
			•	where there is no government-prescribed price, the government guidance price;
			•	where there is neither a government-prescribed price nor a government guidance price, the market price; or
			•	where none of the above is applicable, the price to be agreed between the parties, which shall be based on a reasonable cost incurred in providing such services plus a profit margin not exceeding 6%.

		(b)	The Company has entered into a non-exclusive Agreement for Provision of Cultural and Educational, Health Care and Community Services with Sinopec Group Company effective from 1 January 2000 in which Sinopec Group Company has agreed to provide the Group with certain cultural, educational, health care and community services on the same pricing terms and termination conditions as agreed to in the above Mutual Provision Agreement.

		(c)	The Company has entered into a number of lease agreements with Sinopec Group Company to lease certain lands and buildings effective on 1 January 2000. The lease term is 40 or 50 years for lands and 20 years for buildings, respectively. The Company and Sinopec Group Company can renegotiate the rental amount every three years for land and the rental amount is approximately RMB 6,727 million (2011: RMB 6,727 million) per annum. The Company and Sinopec Group Company can renegotiate the rental amount for buildings every year. However such amount cannot exceed the market price as determined by an independent third party.

		(d)	The Company has entered into agreements with Sinopec Group Company effective from 1 January 2000 under which the Group has been granted the right to use certain trademarks, patents, technology and computer software developed by Sinopec Group Company.

		(e)	The Company has entered into a service station franchise agreement with Sinopec Group Company effective from 1 January 2000 under which its service stations and retail stores would exclusively sell the refined products supplied by the Group.

	(4)	Balances with Sinopec Group Company and fellow subsidiaries, associates and jointly controlled entities
		The balances with the Group’s related parties at 30 June 2012 and 31 December 2011 are as follows:

	The ultimate holding company				Other related companies
	At 30 June		At 31 December		At 30 June		At 31 December
	2012		2011		2012		2011
	RMB millions		RMB millions		RMB millions		RMB millions

Cash and cash equivalents		—		—		3,822		7,120
Accounts receivable		69		8		18,608		15,381
Prepayments and other receivables		—		—		3,248		1,805
Accounts payable		—		—		8,827		9,795
Advances from customers		—		—		1,213		1,080
Other payables		103		40		7,872		8,594
Short-term loans		—		—		50,348		11,949
Long-term loans (including current portion) (Note)		—		—		37,566		37,763

Note:

The Sinopec Group Company had lent an interest-free loan for 20 years amounted to RMB 35,561 million to the Group through Sinopec Finance Company Limited which was included in the long-term loans.

		During the period ended 30 June 2012, according to relevant agreements, the Group has provided loans of USD 318 million (2011: USD 228 million) to certain jointly controlled entities of Sinopec Group Company.

		As at and for the six-month period ended 30 June 2012, and as at and for the year ended 31 December 2011, no individually significant impairment losses for bad and doubtful debts were recorded in respect of amounts due from Sinopec Group Company and fellow subsidiaries, associates and jointly controlled entities.

48	RELATED PARTIES AND RELATED PARTY TRANSACTIONS (Continued)

	(5)	Key management personnel emoluments
		Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including directors and supervisors of the Group. The key management personnel compensations are as follows:

	Six-month periods ended 30 June
	2012		2011
	RMB thousands		RMB thousands

Short-term employee benefits		5,071		4,638
Retirement scheme contributions		228		142
		5,299		4,780

49	PRINCIPAL ACCOUNTING ESTIMATES AND JUDGEMENTS

	The Group’s financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that underlie the preparation of the financial statements. The Group bases the assumptions and estimates on historical experience and on various other assumptions that it believes to be reasonable and which form the basis for making judgements about matters that are not readily apparent from other sources. On an on-going basis, management evaluates its estimates. Actual results may differ from those estimates as facts, circumstances and conditions change.

	The selection of critical accounting policies, the judgements and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing the financial statements. The significant accounting policies are set forth in Note 3. The Group believes the following critical accounting policies involve the most significant judgements and estimates used in the preparation of the financial statements.

	(a)	Oil and gas properties and reserves
		The accounting for the exploration and production segment’s oil and gas activities is subject to accounting rules that are unique to the oil and gas industry. There are two methods to account for oil and gas business activities, the successful efforts method and the full cost method. The Group has elected to use the successful efforts method. The successful efforts method reflects the volatility that is inherent in exploring for mineral resources in that costs of unsuccessful exploratory efforts are charged to expense as they are incurred. These costs primarily include dry hole costs, seismic costs and other exploratory costs. Under the full cost method, these costs are capitalised and written-off or depreciated over time.

		Engineering estimates of the Group’s oil and gas reserves are inherently imprecise and represent only approximate amounts because of the subjective judgements involved in developing such information. There are authoritative guidelines regarding the engineering criteria that have to be met before estimated oil and gas reserves can be designated as “proved”. Proved and proved developed reserves estimates are updated at least annually and take into account recent production and technical information about each field. In addition, as prices and cost levels change from year to year, the estimate of proved and proved developed reserves also changes. This change is considered a change in estimate for accounting purposes and is reflected on a prospective basis in related depreciation rates.

		Future dismantlement costs for oil and gas properties are estimated with reference to engineering estimates after taking into consideration the anticipated method of dismantlement required in accordance with industry practices in the similar geographic area, including estimation of economic life of oil and gas properties, technology and price level. The present values of these estimated future dismantlement costs are capitalised as oil and gas properties with equivalent amounts recognised as provisions for dismantlement costs.

		Despite the inherent imprecision in these engineering estimates, these estimates are used in determining depreciation expense, impairment expense and future dismantlement costs. Depreciation rates are determined based on estimated proved developed reserve quantities (the denominator) and capitalised costs of producing properties (the numerator). Producing properties’ capitalised costs are amortised based on the unit-of-production method.

	(b)	Impairment for assets
		If circumstances indicate that the net book value of a long-lived asset may not be recoverable, the asset may be considered “impaired”, and an impairment loss may be recognised in accordance with “ASBE 8 – Impairment of Assets”. The carrying amounts of long-lived assets are reviewed periodically in order to assess whether the recoverable amounts have declined below the carrying amounts. These assets are tested for impairment whenever events or changes in circumstances indicate that their recorded carrying amounts may not be recoverable. When such a decline has occurred, the carrying amount is reduced to recoverable amount. For goodwill, the recoverable amount is estimated annually. The recoverable amount is the greater of the net selling price and the value in use. It is difficult to precisely estimate selling price because quoted market prices for the Group’s assets or cash-generating units are not readily available. In determining the value in use, expected cash flows generated by the asset or the cash-generating unit are discounted to their present value, which requires significant judgement relating to sales volume, selling price and amount of operating costs. The Group uses all readily available information in determining an amount that is a reasonable approximation of recoverable amount, including estimates based on reasonable and supportable assumptions and projections of sales volume, selling price and amount of operating costs.

49	PRINCIPAL ACCOUNTING ESTIMATES AND JUDGEMENTS (Continued)

	(c)	Depreciation
		Fixed assets are depreciated on a straight-line basis over the estimated useful lives of the assets, after taking into account the estimated residual value. Management reviews the estimated useful lives of the assets at least annually in order to determine the amount of depreciation expense to be recorded during any reporting period. The useful lives are based on the Group’s historical experience with similar assets and taking into account anticipated technological changes. The depreciation expense for future periods is adjusted if there are significant changes from previous estimates.

	(d)	Allowances for doubtful accounts
		Management estimates impairment losses for bad and doubtful debts resulting from the inability of the Group’s customers to make the required payments. Management bases the estimates on the ageing of the accounts receivable balance, customer credit-worthiness, and historical write-off experience. If the financial condition of the customers were to deteriorate, actual write-offs would be higher than estimated.

	(e)	Allowance for diminution in value of inventories
		If the costs of inventories become higher than their net realisable values, an allowance for diminution in value of inventories is recognised. Net realisable value represents the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. Management bases the estimates on all available information, including the current market prices of the finished goods and raw materials, and historical operating costs. If the actual selling prices were to be lower or the costs of completion were to be higher than estimated, the actual allowance for diminution in value of inventories would be higher than estimated.

50	PRINCIPAL SUBSIDIARIES

	The Company’s principal subsidiaries have been consolidated into the Group’s financial statements for the six-month period ended 30 June 2012. The following list contains only the particulars of subsidiaries which principally affected the results, assets and liabilities of the Group:

	Full name of enterprise	Principal activities	Registered capital/ paid-up capital		Actual investment at 30 June 2012		Percentage of equity interest /voting right held by the Group		Minority interests at 30 June 2012
			RMB millions		RMB millions		%		RMB millions

(a)	Subsidiaries acquired through group restructuring:
	China Petrochemical International Company Limited	Trading of petrochemical products		1,400		1,788		100.00		—
	Sinopec Sales Company Limited	Marketing and distribution of refined petroleum products		1,700		1,700		100.00		—
	Sinopec Yangzi Petrochemical Company Limited	Manufacturing of intermediate petrochemical products and petroleum products		13,203		13,938		100.00		—
	Fujian Petrochemical Company Limited (Note)	Manufacturing of plastics, intermediate petrochemical products and petroleum products		4,769		2,285		50.00		1,877
	Sinopec Shanghai Petrochemical Company Limited	Manufacturing of synthetic fibres, resin and plastics, intermediate petrochemical products and petroleum products		7,200		7,258		55.56		7,649
	Sinopec Kantons Holdings Limited	Trading of crude oil and petroleum products	HKD 207		HKD 2,822			72.34		1,513
	Sinopec Yizheng Chemical Fibre Company Limited (Note)	Production and sale of polyester chips and polyester fibres		4,000		3,509		42.00		5,043
	China International United Petroleum and Chemical Company Limited	Trading of crude oil and petrochemical products		3,000		4,585		100.00		—
	Sinopec (Hong Kong) Limited	Trading of crude oil and petrochemical products	HKD 5,477		HKD 5,370			100.00		—
(b)	Subsidiaries established by the Group:
	Sinopec Shell (Jiangsu) Petroleum Marketing Company Limited	Marketing and distribution of refined petroleum products		830		498		60.00		454
	BP Sinopec (Zhejiang) Petroleum Company Limited	Marketing and distribution of refined petroleum products		800		480		60.00		413
	Sinopec Qingdao Refining and Chemical Company Limited	Manufacturing of intermediate petrochemical products and petroleum products		5,000		4,250		85.00		351
	Sinopec Senmei (Fujian) Petroleum Limited	Marketing and distribution of refined petroleum products		1,840		1,012		55.00		1,751
	Sinopec Chemical Sales Company Limited	Marketing of petrochemical products		1,000		1,100		100.00		—
	Sinopec International Petroleum Exploration and Production Limited	Investment in exploration, production and sales of petroleum and natural gas		8,000		8,000		100.00		—
	Sinopec Fuel Oil Sales Company Limited	Marketing and distribution of refined petroleum products		2,200		2,749		100.00		—
(c)	Subsidiaries acquired through business combination under common control:
	Sinopec Zhongyuan Petrochemical Company Limited	Manufacturing of petrochemical products		2,400		2,244		93.51		24
	Sinopec Hainan Refining and Chemical Company Limited	Manufacturing of intermediate petrochemical products and petroleum products		3,986		2,990		75.00		1,299
	Sinopec Qingdao Petrochemical Company Limited	Manufacturing of intermediate petrochemical products and petroleum products		1,595		4,701		100.00		—

	Except for Sinopec Kantons Holdings Limited and Sinopec (Hong Kong) Limited, which are incorporated in Bermuda and Hong Kong, respectively, all of the above principal subsidiaries are incorporated in the PRC.

	Note:	The Company consolidated the financial statements of the entity because the Company controlled the board of this entity and had the power to govern its financial and operating policies.

51	COMMITMENTS

	Operating lease commitments
	The Group and the Company lease land and buildings, service stations and other equipment through non-cancellable operating leases. These operating leases do not contain provisions for contingent lease rentals. None of the rental agreements contain escalation provisions that may require higher future rental payments.

	At 30 June 2012 and 31 December 2011, the future minimum lease payments of the Group and the Company under operating leases are as follows:

	The Group				The Company
	At 30 June		At 31 December		At 30 June		At 31 December
	2012		2011		2012		2011
	RMB millions		RMB millions		RMB millions		RMB millions

Within one year		11,026		10,414		10,616		9,830
Between one and two years		10,439		9,764		10,215		9,503
Between two and three years		10,240		9,668		10,042		9,443
Between three and four years		10,213		9,585		10,020		9,319
Between four and five years		10,243		9,465		10,050		9,297
After five years		217,976		215,810		212,240		210,277
Total		270,137		264,706		263,183		257,669

	Capital commitments
	At 30 June 2012 and 31 December 2011, the capital commitments are as follows:

	The Group				The Company
	At 30 June		At 31 December		At 30 June		At 31 December
	2012		2011		2012		2011
	RMB millions		RMB millions		RMB millions		RMB millions

Authorised and contracted for		192,271		192,792		171,146		170,698
Authorised but not contracted for		59,762		32,178		54,285		24,358
Total		252,033		224,970		225,431		195,056

	These capital commitments relate to oil and gas exploration and development, refining and petrochemical production capacity expansion projects and the construction of service stations and oil depots.

	Exploration and production licenses
	Exploration licenses for exploration activities are registered with the Ministry of Land and Resources. The maximum term of the Group’s exploration licenses is 7 years, and may be renewed twice within 30 days prior to expiration of the original term with each renewal being for a two-year term. The Group is obligated to make progressive annual minimum exploration investment relating to the exploration blocks in respect of which the license is issued. The Ministry of Land and Resources also issues production licenses to the Group on the basis of the reserve reports approved by relevant authorities. The maximum term of a full production license is 30 years unless a special dispensation is given by the State Council. The maximum term of the production licenses issued to the Group is 80 years as a special dispensation was given to the Group by the State Council. The Group’s production license is renewable upon application by the Group 30 days prior to expiration.

	The Group is required to make payments of exploration license fees and production right usage fees to the Ministry of Land and Resources annually which are expensed as incurred.

	Estimated future annual payments are as follows:

	The Group and Company
	At 30 June		At 31 December
	2012		2011
	RMB millions		RMB millions

Within one year		352		335
Between one and two years		165		105
Between two and three years		26		25
Between three and four years		27		26
Between four and five years		29		28
After five years		729		730
Total		1,328		1,249

The implementation of commitments in previous year and the Group’s commitments did not have material discrepancy.

52	CONTINGENT LIABILITIES

	(a)	The Company has been advised by its PRC lawyers that, except for liabilities constituting or arising out of or relating to the business assumed by the Company in the Reorganisation, no other liabilities were assumed by the Company, and the Company is not jointly and severally liable for other debts and obligations incurred by Sinopec Group Company prior to the Reorganisation.

	(b)	At 30 June 2012 and 31 December 2011, guarantees given by the Group and the Company to banks in respect of banking facilities granted to the parties below are as follows:

	The Group				The Company
	At 30 June		At 31 December		At 30 June		At 31 December
	2012		2011		2012		2011
	RMB millions		RMB millions		RMB millions		RMB millions

Jointly controlled entities		640		703		264		283
Associates
Total		715		782		264		287

		As at 31 December 2011, a subsidiary of the Company provided guarantees on long-term loans of USD 94 million drawn down by certain jointly controlled entities of Sinopec Group Company, and the loans under such guarantees had been repaid as at 30 June 2012. As at 30 June 2012, this subsidiary also provided guarantees on long-term loans of USD 978 million (2011: USD 969 million) drawn down by certain joint venturers (other than Sinopec Group Company) of these jointly controlled entities.

		The Group monitors the conditions that are subject to the guarantees to identify whether it is probable that a loss has occurred, and recognises any such losses under guarantees when those losses are estimable. At 30 June 2012 and 31 December 2011, it is not probable that the Group will be required to make payments under the guarantees. Thus no liabilities have been accrued for a loss related to the Group’s obligation under these guarantee arrangements.

	Environmental contingencies
	Under existing legislation, management believes that there are no probable liabilities that will have a material adverse effect on the financial position or operating results of the Group. The PRC government, however, has moved, and may move further towards more rigorous enforcement of applicable laws, and towards the adoption of more stringent environmental standards. Environmental liabilities are subject to considerable uncertainties which affect the Group’s ability to estimate the ultimate cost of remediation efforts. These uncertainties include (i) the exact nature and extent of the contamination at various sites including, but not limited to refineries, oil fields, service stations, terminals and land development areas, whether operating, closed or sold, (ii) the extent of required cleanup efforts, (iii) varying costs of alternative remediation strategies, (iv) changes in environmental remediation requirements, and (v) the identification of new remediation sites. The amount of such future cost is indeterminable due to such factors as the unknown magnitude of possible contamination and the unknown timing and extent of the corrective actions that may be required. Accordingly, the outcome of environmental liabilities under proposed or future environmental legislation cannot reasonably be estimated at present, and could be material. The Group paid normal routine pollutant discharge fees of approximately RMB 3,002 million for the six-month period ended 30 June 2012 (2011: RMB 2,851 million).

	Legal contingencies
	The Group is a defendant in certain 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 or operating results of the Group.

53	SEGMENT REPORTING

	Segment information is presented in respect of the Group’s operating segments. The format is based on the Group’s management and internal reporting structure.

	In a manner consistent with the way in which information is reported internally to the Group’s chief operating decision maker for the purposes of resource allocation and performance assessment, the Group has identified the following five reportable segments. No operating segments have been aggregated to form the following reportable segments.

	(i)	Exploration and production — which explores and develops oil fields, produces crude oil and natural gas and sells such products to the refining segment of the Group and external customers.

	(ii)	Refining — which processes and purifies crude oil, which is sourced from the exploration and production segment of the Group and external suppliers, and manufactures and sells petroleum products to the chemicals and marketing and distribution segments of the Group and external customers.

	(iii)	Marketing and distribution — which owns and operates oil depots and service stations in the PRC, and distributes and sells refined petroleum products (mainly gasoline and diesel) in the PRC through wholesale and retail sales networks.

	(iv)	Chemicals — which manufactures and sells petrochemical products, derivative petrochemical products and other chemical products to external customers.

	(v)	Others — which largely comprise the trading activities of the import and export companies of the Group and research and development undertaken by other subsidiaries.

	The segments were determined primarily because the Group manages its exploration and production, refining, marketing and distribution, chemicals, and others businesses separately. The reportable segments are each managed separately because they manufacture and/or distribute distinct products with different production processes and due to their distinct operating and gross margin characteristics.

53	SEGMENT REPORTING (Continued)

	(1)	Information of reportable segmental revenues, profits or losses, assets and liabilities
		The Group’s chief operating decision maker evaluates the performance and allocates resources to its operating segments on an operating income basis, without considering the effects of finance costs or investment income. Inter-segment transfer pricing is based on the market price or cost plus an appropriate margin, as specified by the Group’s policy.

		Assets and liabilities dedicated to a particular segment’s operations are included in that segment’s total assets and liabilities. Segment assets include all tangible and intangible assets, except for cash at bank and on hand, long-term equity investments and deferred tax assets. Segment liabilities exclude short-term loans, short-term debentures payable, non-current liabilities due within one year, long-term loans, debentures payable, deferred tax liabilities and other non-current liabilities.

		Reportable information on the Group’s operating segments is as follows:

	Six-month periods ended 30 June
	2012			2011
	RMB millions			RMB millions

Income from principal operations
Exploration and production
External sales		25,956			21,667
Inter-segment sales		90,728			84,281
		116,684			105,948
Refining
External sales		95,805			96,314
Inter-segment sales		540,088			496,319
		635,893			592,633
Marketing and distribution
External sales		701,769			649,997
Inter-segment sales		4,003			2,058
		705,772			652,055
Chemicals
External sales		173,576			182,994
Inter-segment sales		23,457			23,315
		197,033			206,309
Others
External sales		330,360			265,969
Inter-segment sales		323,343			306,501
		653,703			572,470
Elimination of inter-segment sales		(981,619	)		(912,474	)
Income from principal operations		1,327,466			1,216,941
Income from other operations
Exploration and production		9,433			6,685
Refining		2,680			3,043
Marketing and distribution		4,181			2,947
Chemicals		3,736			3,129
Others		576			527
Income from other operations		20,606			16,331
Consolidated operating income		1,348,072			1,233,272

53	SEGMENT REPORTING (Continued)

	(1)	Information of reportable segmental revenues, profits or losses, assets and liabilities (Continued)

	Six-month periods ended 30 June
	2012			2011
	RMB millions			RMB millions

Operating profit/(loss)
By segment
Exploration and production		40,279			34,740
Refining		(19,448	)		(13,155	)
Marketing and distribution		20,294			19,716
Chemicals		(2,003	)		15,508
Others		(299	)		(870	)
Elimination		(524	)		657
Total segment operating profit		38,299			56,596
Investment income/(loss)
Exploration and production		123			128
Refining		(736	)		(191	)
Marketing and distribution		600			640
Chemicals		(82	)		1,885
Others		327			360
Total segment investment income		232			2,822
Financial expenses		(5,533	)		(3,486	)
Gain from changes in fair value		510			305
Operating profit		33,508			56,237
Add: Non-operating income		1,362			1,108
Less: Non-operating expenses		587			590
Profit before taxation		34,283			56,755

	At 30 June			At 31 December
		2012			2011
	RMB millions			RMB millions

Assets
Segment assets
Exploration and production		327,368			322,241
Refining		284,700			270,884
Marketing and distribution		239,569			228,546
Chemicals		134,939			142,733
Others		101,335			77,272
Total segment assets		1,087,911			1,041,676
Cash at bank and on hand		13,960			25,197
Long-term equity investments		47,498			47,458
Deferred tax assets		15,167			13,398
Other unallocated assets		3,642			2,324
Total assets		1,168,178			1,130,053
Liabilities
Segment liabilities
Exploration and production		63,095			78,811
Refining		42,455			60,130
Marketing and distribution		71,405			80,507
Chemicals		22,721			29,977
Others		121,049			111,463
Total segment liabilities		320,725			360,888
Short-term loans		86,720			36,985
Short-term debentures payable		30,000			—
Non-current liabilities due within one year		14,955			43,388
Long-term loans		51,997			54,320
Debentures payable		120,074			100,137
Deferred tax liabilities		15,423			15,181
Other non-current liabilities		3,939			3,436
Other unallocated liabilities		5,124			6,193
Total liabilities		648,957			620,528

53	SEGMENT REPORTING (Continued)

	(1)	Information of reportable segmental revenues, profits or losses, assets and liabilities (Continued)
		Segment capital expenditure is the total cost incurred during the year to acquire segment assets that are expected to be used for more than one year.

	Six-month periods ended 30 June
	2012		2011
	RMB millions		RMB millions

Capital expenditure
Exploration and production		21,839		17,406
Refining		10,427		3,656
Marketing and distribution		12,390		9,523
Chemicals		6,341		2,120
Others		507		862
		51,504		33,567
Depreciation, depletion and amortisation
Exploration and production		19,328		16,399
Refining		6,062		5,733
Marketing and distribution		4,091		3,498
Chemicals		4,450		4,286
Others		603		594
		34,534		30,510
Impairment losses on long-lived assets
Refining		—		43
Marketing and distribution		—		32
Chemicals		—		89
		—		164

	(2)	Geographical information
		The following tables set out information about the geographical information of (i) the Group’s external sales and (ii) the Group’s non-current assets, excluding financial instruments and deferred tax assets. In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers, and segment assets are based on the geographical location of the assets.

	Six-month periods ended 30 June
	2012		2011
	RMB millions		RMB millions

External sales
Mainland China		1,016,324		933,935
Others		331,748		299,337
		1,348,072		1,233,272

	At 30 June		At 31 December
		2012		2011
	RMB millions		RMB millions

Non-current assets
Mainland China		782,997		762,805
Others		23,334		24,375
		806,331		787,180

54	FINANCIAL INSTRUMENTS

	Overview
	Financial assets of the Group include cash at bank, equity investments, accounts receivable, bills receivable, prepayments, financial assets held for trading, derivative financial instruments and other receivables. Financial liabilities of the Group include short-term and long-term loans, accounts payable, bills payable, advances from customers, debentures payable, derivative financial instruments and other payables.

	The Group has exposure to the following risks from its use of financial instruments:

	•	credit risk;
	•	liquidity risk;
	•	market risk; and
	•	equity price risk.

	The Board of Directors has overall responsibility for the establishment, oversight of the Group’s risk management framework, and developing and monitoring the Group’s risk management policies.

	The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. Internal audit department undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Group’s audit committee.

	Credit risk
	Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s deposits placed with financial institutions and receivables from customers. To limit exposure to credit risk relating to deposits, the Group primarily places cash deposits only with large financial institution in the PRC with acceptable credit ratings. The majority of the Group’s accounts receivable relates to sales of petroleum and chemical products to related parties and third parties operating in the petroleum and chemical industries. The Group performs ongoing credit evaluations of its customers’ financial condition and generally does not require collateral on accounts receivable. The Group maintains an impairment loss for doubtful accounts and actual losses have been within management’s expectations. No single customer accounted for greater than 10% of total accounts receivable.

	The carrying amounts of cash at bank, time deposits with financial institutions, trade accounts and bills receivables, derivative financial instruments and other receivables, represent the Group’s maximum exposure to credit risk in relation to financial assets.

	Liquidity risk
	Liquidity risk is the risk that the Group encounters short fall of capital when meeting its obligation of financial liabilities. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed capital conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group prepares monthly cash flow budget to ensure that they will always have sufficient liquidity to meet its financial obligation as they fall due. The Group arranges and negotiates financing with financial institutions and maintains a certain level of standby credit facilities to reduce the liquidity risk.

	At 30 June 2012, the Group has standby credit facilities with several PRC financial institutions which provide the Group to borrow up to RMB 189,900 million (2011: RMB 170,500 million) on an unsecured basis, at a weighted average interest rate of 3.57% (2011: 3.63%). At 30 June 2012, the Group’s outstanding borrowings under these facilities were RMB 11,462 million (2011: RMB 13,767 million) and were included in short-term bank loans.

54	FINANCIAL INSTRUMENTS (Continued)

	Liquidity risk (Continued)
	The following table sets out the remaining contractual maturities at the balance sheet date of the Group’s and the Company’s financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on prevailing rates current at the balance sheet date) and the earliest date the Group and the Company would be required to repay:

	The Group

	At 30 June 2012
			Total
			contractual		Within 1		More than 1		More than 2
	Carrying		undiscounted		year or on		year but less		years but less		More than
	amount		cash flow		demand		than 2 years		than 5 years		5 years
	RMB millions		RMB millions		RMB millions		RMB millions		RMB millions		RMB millions

Short-term loans		86,720		87,322		87,322		—		—		—
Non-current liabilities due within one year		14,955		15,344		15,344		—		—		—
Short-term debentures payable		30,000		30,386		30,386		—		—		—
Long-term loans		51,997		53,444		717		13,686		2,526		36,515
Debentures payable		120,074		139,433		3,086		45,001		60,823		30,523
Bills payable		4,276		4,276		4,276		—		—		—
Accounts payable		172,949		172,949		172,949		—		—		—
Other payables and employee benefits payable		59,104		59,104		59,104		—		—		—
Total		540,075		562,258		373,184		58,687		63,349		67,038

	At 31 December 2011
			Total
			contractual		Within 1		More than 1		More than 2
	Carrying		undiscounted		year or on		year but less		years but less		More than
	amount		cash flow		demand		than 2 years		than 5 years		5 years
	RMB millions		RMB millions		RMB millions		RMB millions		RMB millions		RMB millions

Short-term loans		36,985		37,727		37,727		—		—		—
Non-current liabilities due within one year		43,388		44,254		44,254		—		—		—
Long-term loans		54,320		60,500		5,455		15,963		2,500		36,582
Debentures payable		100,137		109,129		2,152		2,208		57,316		47,453
Bills payable		5,933		5,933		5,933		—		—		—
Accounts payable		177,002		177,002		177,002		—		—		—
Other payables and employee benefits payable		53,655		53,655		53,655		—		—		—
Total		471,420		488,200		326,178		18,171		59,816		84,035

54	FINANCIAL INSTRUMENTS (Continued)

	Liquidity risk (Continued)

	The Company

	At 30 June 2012
			Total
			contractual		Within 1		More than 1		More than 2
	Carrying		undiscounted		year or on		year but less		years but less		More than
	amount		cash flow		demand		than 2 years		than 5 years		5 years
	RMB millions		RMB millions		RMB millions		RMB millions		RMB millions		RMB millions

Short-term loans		3,649		3,761		3,761		—		—		—
Non-current liabilities due within one year		14,844		15,232		15,232		—		—		—
Short-term debentures payable		30,000		30,386		30,386		—		—		—
Long-term loans		51,036		52,269		667		13,576		1,511		36,515
Debentures payable		120,074		139,433		3,086		45,001		60,823		30,523
Bills payable		3,022		3,022		3,022		—		—		—
Accounts payable		102,722		102,722		102,722		—		—		—
Other payables and employee benefits payable		93,143		93,143		93,143		—		—		—
Total		418,490		439,968		252,019		58,577		62,334		67,038

	At 31 December 2011
			Total
			contractual		Within 1		More than 1		More than 2
	Carrying		undiscounted		year or on		year but less		years but less		More than
	amount		cash flow		demand		than 2 years		than 5 years		5 years
	RMB millions		RMB millions		RMB millions		RMB millions		RMB millions		RMB millions

Short-term loans		3,842		3,943		3,943		—		—		—
Non-current liabilities due within one year		43,281		44,146		44,146		—		—		—
Long-term loans		53,783		59,803		5,330		15,794		2,112		36,567
Debentures payable		100,137		109,129		2,152		2,208		57,316		47,453
Bills payable		3,052		3,052		3,052		—		—		—
Accounts payable		128,138		128,138		128,138		—		—		—
Other payables and employee benefits payable		70,066		70,066		70,066		—		—		—
Total		402,299		418,277		256,827		18,002		59,428		84,020

	Market risk
	Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk.

	(a)	Currency risk
		Currency risk arises on financial instruments that are denominated in a currency other than the functional currency in which they are measured. The Group’s currency risk exposure primarily relates to short-term and long-term debts and loans from Sinopec Group Company and fellow subsidiaries denominated in US Dollars, Japanese Yen and Hong Kong Dollars, and the Group enters into foreign exchange contracts to manage currency risk exposure.

		Included in short-term and long-term loans of the Group are the following amounts denominated in a currency other than the functional currency of the entity to which they relate:

	The Group		The Company
	At 30 June	At 31 December	At 30 June	At 31 December
	2012	2011	2012	2011
	millions	millions	millions	millions

Gross exposure arising from loans and borrowings
US Dollars	USD 3,002	USD 1,794	USD 65	USD 42
Japanese Yen	JPY 12,635	JPY 14,532	JPY 12,635	JPY 14,532
Hong Kong Dollars	HKD 13,200	HKD 12,847	HKD 13,200	HKD 12,847

54	FINANCIAL INSTRUMENTS (Continued)

	Market risk (Continued)

	(a)	Currency risk (Continued)
		A 5 percent strengthening of Renminbi against the following currencies at 30 June 2012 and 31 December 2011 would have increased net profit for the year and retained earnings of the Group by the amounts shown below. This analysis has been determined assuming that the change in foreign exchange rates had occurred at the balance sheet date and had been applied to the foreign currency balances to which the Group has significant exposure as stated above, and that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2011.

	The Group
	At 30 June		At 31 December
	2012		2011
	RMB millions		RMB millions

US Dollars		712		424
Japanese Yen		38		44
Hong Kong Dollars		404		391

		Other than the amounts as disclosed above, the amounts of other financial assets and liabilities of the Group are substantially denominated in the functional currency of respective entity of the Group.

	(b)	Interest rate risk
		The Group’s interest rate risk exposure arises primarily from its short-term and long-term loans. Loans carrying interest at variable rates and at fixed rates expose the Group to cash flow interest rate risk and fair value interest rate risk respectively. The interest rates and terms of repayment of short-term and long-term loans of the Group are disclosed in Note 20 and Note 28, respectively.

		At 30 June 2012 it is estimated that a general increase/decrease of 100 basis points in variable interest rates, with all other variables held constant, would decrease/increase the Group’s net profit for the year and retained earnings by approximately RMB 682 million (2011: RMB 271 million). This sensitivity analysis has been determined assuming that the change in interest rates had occurred at the balance sheet date and the change was applied to the Group’s loans outstanding at that date with exposure to cash flow interest rate risk. The analysis is performed on the same basis for 2011.

	(c)	Commodity price risk
		The Group engages in oil and gas operations and is exposed to commodity price risk related to price volatility of crude oil and refined petroleum products. The fluctuations in prices of crude oil and refined petroleum products could have significant impact on the Group. The Group uses derivative financial instruments, including commodity futures and swaps, to manage a portion of such risk.

		At 30 June 2012, the Group had certain commodity contracts of crude oil and refined oil products designated as qualified cash flow hedges and economic hedges. At 30 June 2012, the net fair value of such derivative hedging financial instruments is derivative financial assets of RMB 3,819 million (2011: RMB 837 million) recognised in other receivables and derivative financial liabilities of RMB 5,184 million (2011: RMB 684 million) recognised in other payables.

		At 30 June 2012, it is estimated that a general increase/decrease of USD 10 per barrel in crude oil and refined petroleum products, with all other variables held constant, would decrease/increase the Group’s profit for the year and retained earnings by approximately RMB 117 million (2011: increase/decrease RMB 563 million), and decrease/increase the Group’s capital reserve by approximately RMB 144 million (2011: increase/decrease RMB 450 million). This sensitivity analysis has been determined assuming that the change in prices had occurred at the balance sheet date and the change was applied to the Group’s derivative financial instruments at that date with exposure to commodity price risk. The analysis is performed on the same basis for 2011.

	Equity price risk
	The Group is exposed to equity price risk arising from changes in the Company’s own share price to the extent that the Company’s own equity instruments underlie the fair values of derivatives of the Group. As at 30 June 2012, the Group’s exposure to equity price risk is the derivatives embedded in the 2007 Convertible Bonds and the 2011 Convertible Bonds issued by the Company as disclosed in Note 29(iii) and (v) respectively.

	As at 30 June 2012, it is estimated that an increase of 20% in the Company’s own share price would decrease the Group’s profit for the year and retained earnings by approximately RMB 1,774 million (2011: RMB 2,159 million); a decrease of 20% in the Company’s own share price would increase the Group’s profit for the year and retained earnings by approximately RMB 1,035 million (2011: RMB 1,628 million). The sensitivity analysis has been determined assuming that the changes in the Company’s own share price had occurred at the balance sheet date and that all other variables remain constant. The analysis is performed on the same basis for 2011.

54	FINANCIAL INSTRUMENTS (Continued)

	Fair values

	(i)	Financial instruments carried at fair value
		The following table presents the carrying value of financial instruments measured at fair value at the balance sheet date across the three levels of the fair value hierarchy. With the fair value of each financial instrument categorised in its entirely based on the lowest level of input that is significant to that fair value measurement. The levels are defined as follows:

		•	Level 1 (highest level): fair values measured using quoted prices (unadjusted) in active markets for identical financial instruments.

		•	Level 2: fair values measured using quoted prices in active markets for similar financial instruments, or using valuation techniques in which all significant inputs are directly or indirectly based on observable market data.

		•	Level 3 (lowest level): fair values measured using valuation techniques in which any significant input is not based on observable market data.

		At 30 June 2012

	The Group								The Company
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	RMB millions		RMB millions		RMB millions		RMB millions		RMB millions		RMB millions		RMB millions		RMB millions

Assets
Available-for-sale financial assets:
– Listed		56		—		—		56		—		—		—		—
Derivative financial instruments:
– Derivative financial assets		149		3,670		—		3,819		—		—		—		—
		205		3,670		—		3,875		—		—		—		—
Liabilities
Derivative financial instruments:
– Embedded derivative component of the Convertible Bonds		—		2,007		—		2,007		—		2,007		—		2,007
– Other derivative financial liabilities		127		5,184		—		5,311		—		127		—		127
		127		7,191		—		7,318		—		2,134		—		2,134

At 31 December 2011

	The Group								The Company
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	RMB millions		RMB millions		RMB millions		RMB millions		RMB millions		RMB millions		RMB millions		RMB millions

Assets
Available-for-sale financial assets:
– Listed		55		—		—		55		13		—		—		13
– Non-listed		—		200		—		200		—		—		—		—
Derivative financial instruments:
– Derivative financial assets		133		758		—		891		—		—		—		—
		188		958		—		1,146		13		—		—		13
Liabilities
Derivative financial instruments:
– Embedded derivative component of the convertible bonds		—		2,680		—		2,680		—		2,680		—		2,680
– Other derivative financial liabilities		79		810		—		889		—		188		—		188
		79		3,490		—		3,569		—		2,868		—		2,868

During the period, there were no transfers between instruments in Level 1 and Level 2.

54	FINANCIAL INSTRUMENTS (Continued)

	Fair values (Continued)

	(ii)	Fair values of financial instruments carried at other than fair value
		The fair values of the Group’s financial instruments carried at other than fair value (other than long-term debts and unquoted security investments) approximate their carrying amounts due to the short-term maturity of these instruments. The fair values of long-term debts are estimated by discounting future cash flows using current market interest rates offered to the Group for debt with substantially the same characteristics and maturities ranging 4.41% to 6.80% (2011: 4.95% to 7.05%). The following table presents the carrying amount and fair value of the Group’s long-term debts other than loans from Sinopec Group Company and fellow subsidiaries at 30 June 2012 and 31 December 2011:

	At 30 June		At 31 December
	2012		2011
	RMB millions		RMB millions

Carrying amount		147,453		160,082
Fair value		143,081		146,272

		The Group has not developed an internal valuation model necessary to make the estimate of the fair value of loans from Sinopec Group Company and fellow subsidiaries as it is not considered practicable to estimate their fair value because the cost of obtaining discount and borrowing rates for comparable borrowings would be excessive based on the Reorganisation of the Group, its existing capital structure and the terms of the borrowings.

		Other unquoted equity investments are individually and in the aggregate not material to the Group’s financial position or results of operations. There are no listed market prices for such interests in the PRC and, accordingly, a reasonable estimate of fair value could not be made without incurring excessive costs. The Group intends to hold these unquoted equity investments for long term purpose.

		Except for the above items, the financial assets and liabilities of the Group are carried at amounts not materially different from their fair values at 30 June 2012 and 31 December 2011.

55	EXTRAORDINARY GAINS AND LOSSES

	Pursuant to “Questions and answers in the prepayment of information disclosures of companies issuing public shares, No.1 – Extraordinary gain and loss” (2008), the extraordinary gains and losses of the Group are as follows:

	Six-month periods ended 30 June
	2012			2011
	RMB millions			RMB millions

Extraordinary (gains)/losses for the period:
Net gain on disposal of non-current assets		(459	)		(541	)
Donations		42			20
Loss/(gain) on holding and disposal of various investments		115			(62	)
Other non-operating (income)/expense, net		(348	)		6
		(650	)		(577	)
Tax effect		163			144
Total		(487	)		(433	)
Attributable to:
Equity shareholders of the Company		(438	)		(415	)
Minority interests		(49	)		(18	)

56	BASIC AND DILUTED EARNINGS PER SHARE

	(i)	Basic earnings per share
		Basic earnings per share is calculated by the net profit attributable to equity shareholders of the Company and the weighted average number of outstanding ordinary shares of the Company:

	Six-month periods ended 30 June
	2012		2011

Net profit attributable of equity shareholders of the Company (RMB millions)		23,697		40,239
Weighted average number of outstanding ordinary shares of the Company (millions)		86,800		86,702
Basic earnings per share (RMB/share)		0.273		0.464

The calculation of the weighted average number of ordinary shares is as follows:

	Six-month periods ended 30 June
	2012		2011

Weighted average number of outstanding ordinary shares of the Company at January (millions)		86,702		86,702
Conversion of the 2011 Convertible Bonds (millions)		98		—
Weighted average number of outstanding ordinary shares of the Company (millions)		86,800		86,702

56	BASIC AND DILUTED EARNINGS PER SHARE (Continued)

	(ii)	Diluted earnings per share
		Diluted earnings per share is calculated by the net profit attributable to equity shareholders of the Company (diluted) and the weighted average number of ordinary shares of the Company (diluted):

	Six-month periods ended 30 June
	2012		2011

Net profit attributable to equity shareholders of the Company (diluted) (RMB millions)		23,925		40,380
Weighted average number of outstanding ordinary shares of the Company (diluted) (millions)		90,963		89,377
Diluted earnings per share (RMB/share)		0.263		0.452

The calculation of the weighted average number of ordinary shares (diluted) is as follows:

	Six-month periods ended 30 June
	2012		2011

The weighted average number of the ordinary shares issued at 30 June (millions)		86,800		86,702
Effect of the convertible bonds (millions)		4,163		2,675
Weighted average number of the ordinary shares issued at 30 June (diluted) (millions)		90,963		89,377

57	RETURN ON NET ASSETS AND EARNINGS PER SHARE

	In accordance with “Regulation on the Preparation of Information Disclosures of Companies Issuing Public Shares No.9 – Calculation and Disclosure of the Return on Net Assets and Earnings Per Share” (2010 revised) issued by the CSRC and relevant accounting standards, the Group’s return on net assets and earnings per share are calculated as follows:

Six-month period ended 30 June 2012

Six-month period ended 30 June 2011

Weighted

Basic

Diluted

Weighted

Basic

Diluted

average return

earnings

average return

earnings

on net assets

per share

on net assets

per share

(%)

(RMB/Share)

(%)

(RMB/Share)

Net profit attributable to the Company’s ordinary equity shareholders

4.89

0.273

0.263

9.10

0.464

0.452

Net profit deducted extraordinary gain and loss attributable to the Company’s ordinary equity shareholders

4.80

0.268

0.258

9.00

0.459

0.447

58	COMPARATIVE FIGURES

	Certain comparative figures have been reclassified to conform with the presentation of current period’s financial statements.

REPORT OF THE INTERNATIONAL AUDITOR

To the Shareholders of China Petroleum & Chemical Corporation

(Established in the People’s Republic of China with limited liability)

We have audited the consolidated interim financial statements of China Petroleum & Chemical Corporation (the “Company”) and its subsidiaries (together the “Group”) set out on pages 98 to 143, which comprise the consolidated balance sheet as at 30 June 2012, and the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the six-month period then ended, and a summary of significant accounting policies and other explanatory information.

DIRECTORS’ RESPONSIBILITY FOR THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

The directors of the Company are responsible for the preparation of consolidated interim financial statements that give a true and fair view in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board and for such internal control as the directors determine is necessary to enable the preparation of consolidated interim financial statements that are free from material misstatement, whether due to fraud or error.

AUDITOR’S RESPONSIBILITY

Our responsibility is to express an opinion on these consolidated interim 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 Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated interim financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated interim financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the consolidated interim financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the consolidated interim financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the consolidated interim financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OPINION

In our opinion, the consolidated interim financial statements give a true and fair view of the state of affairs of the Group as at 30 June 2012 and of the Group’s profit and cash flows for the six-month period then ended in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board.

KPMG

Certified Public Accountants

8th Floor, Prince’s Building

10 Chater Road

Central, Hong Kong

24 August 2012

(B)	INTERIM FINANCIAL STATEMENTS PREPARED UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”)
	CONSOLIDATED INCOME STATEMENT
	for the six-month period ended 30 June 2012
	(Amounts in millions, except per share data)

		Six-month periods ended 30 June
	Note	2012			2011
		RMB			RMB

Turnover and other operating revenues
Turnover	3		1,327,466			1,216,941
Other operating revenues	4		20,606			16,331
			1,348,072			1,233,272
Operating expenses
Purchased crude oil, products and operating supplies and expenses			(1,119,324	)		(998,942	)
Selling, general and administrative expenses	5		(28,641	)		(26,281	)
Depreciation, depletion and amortisation			(34,534	)		(30,510	)
Exploration expenses, including dry holes			(6,882	)		(5,652	)
Personnel expenses	6		(24,020	)		(20,583	)
Taxes other than income tax	7		(95,267	)		(93,285	)
Other operating income, net	8		679			420
Total operating expenses			(1,307,989	)		(1,174,833	)
Operating profit			40,083			58,439
Finance costs
Interest expense	9		(5,946	)		(4,587	)
Interest income			563			541
Unrealised gain on embedded derivative component of the convertible bonds, net	25(c) and (e)		506			190
Foreign currency exchange (losses)/gains, net			(150	)		560
Net finance costs			(5,027	)		(3,296	)
Investment income			63			102
Share of profits less losses from associates and jointly controlled entities			323			2,804
Profit before taxation			35,442			58,049
Tax expense	10		(9,643	)		(13,857	)
Profit for the period			25,799			44,192
Attributable to:
Equity shareholders of the Company			24,503			41,174
Non-controlling interests			1,296			3,018
Profit for the period			25,799			44,192
Earnings per share:			13
Basic			0.282			0.475
Diluted			0.272			0.462

The notes on pages 105 to 143 form part of these interim financial statements. Details of dividends payable to equity shareholders of the Company attributable to the profit for the period are set out in Note 11.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the six-month period ended 30 June 2012

(Amounts in millions)

		Six-month periods ended 30 June
	Note	2012		2011
		RMB		RMB

Profit for the period			25,799		44,192
Other comprehensive income for the period (after tax and reclassification adjustments)	12
Cash flow hedges			1		139
Available-for-sale securities			1		1
Share of other comprehensive income of associates			26		(63	)
Foreign currency translation differences			89		(234	)
Total other comprehensive income			117		(157	)
Total comprehensive income for the period			25,916		44,035
Attributable to:
Equity shareholders of the Company			24,590		41,035
Non-controlling interests			1,326		3,000
Total comprehensive income for the period			25,916		44,035

The notes on pages 105 to 143 form part of these interim financial statements.

CONSOLIDATED BALANCE SHEET

As at 30 June 2012

(Amounts in millions)

		At 30 June			At 31 December
	Note	2012			2011
		RMB			RMB

Non-current assets
Property, plant and equipment, net	14		547,671			565,936
Construction in progress	15		139,955			111,311
Goodwill	16		6,536			8,212
Interest in associates	17		27,154			25,692
Interest in jointly controlled entities	18		18,086			19,992
Investments	19		2,362			1,829
Deferred tax assets	24		14,169			12,706
Lease prepayments			33,102			26,101
Long-term prepayments and other assets	20		34,236			29,994
Total non-current assets			823,271			801,773
Current assets
Cash and cash equivalents			12,559			24,647
Time deposits with financial institutions			1,401			550
Trade accounts receivable, net	21		84,047			58,721
Bills receivable	21		15,658			27,961
Inventories	22		207,230			203,417
Prepaid expenses and other current assets	23		37,121			27,459
Total current assets			358,016			342,755
Current liabilities
Short-term debts	25		81,017			68,224
Loans from Sinopec Group Company and fellow subsidiaries	25		50,658			12,149
Trade accounts payable	26		172,949			177,002
Bills payable	26		4,276			5,933
Accrued expenses and other payables	27		140,612			176,878
Income tax payable			2,815			4,054
Total current liabilities			452,327			444,240
Net current liabilities			(94,311	)		(101,485	)
Total assets less current liabilities			728,960			700,288
Non-current liabilities
Long-term debts	25		134,815			116,894
Loans from Sinopec Group Company and fellow subsidiaries	25		37,256			37,563
Deferred tax liabilities	24		15,423			15,181
Provisions	28		19,304			18,381
Other liabilities			5,377			4,925
Total non-current liabilities			212,175			192,944
			516,785			507,344
Equity
Share capital	29		86,820			86,702
Reserves			393,578			385,626
Total equity attributable to equity shareholders of the Company			480,398			472,328
Non-controlling interests			36,387			35,016
Total equity			516,785			507,344

Approved and authorised for issue by the board of directors on 24 August 2012.

Fu Chengyu	Wang Tianpu	Wang Xinhua
Chairman	Vice Chairman, President	Chief Financial Officer

The notes on pages 105 to 143 form part of these interim financial statements.

100

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the six-month period ended 30 June 2012

(Amounts in millions)

																		Total equity
																		attributable
																		to equity
								Statutory		Discretionary								shareholders			Non
	Share		Capital			Share		surplus		surplus		Other			Retained			of the			controlling			Total
	capital		reserve			premium		reserve		reserve		reserves			earnings			Company			interests			equity
	RMB		RMB			RMB		RMB		RMB		RMB			RMB			RMB			RMB			RMB

Balance at 1 January 2011		86,702		(33,138	)		24,953		54,711		87,000		1,635			197,741			419,604			31,432			451,036
Profit for the period		—		—			—		—		—		—			41,174			41,174			3,018			44,192
Other comprehensive income (Note 12)		—		—			—		—		—		(139	)		—			(139	)		(18	)		(157	)
Total comprehensive income for the period		—		—			—		—		—		(139	)		41,174			41,035			3,000			44,035
Transactions with owners, recorded directly in equity:
Contributions by and distributions to owners:
Final dividend for 2010 (Note 11)		—		—			—		—		—		—			(11,271	)		(11,271	)		—			(11,271	)
Appropriation (Note (a))		—		—			—		3,413		—		—			(3,413	)		—			—			—
Distributions by subsidiaries to non-controlling interests, net of contributions		—		—			—		—		—		—			—			—			(814	)		(814	)
Total contributions by and distributions to owners		—		—			—		3,413		—		—			(14,684	)		(11,271	)		(814	)		(12,085	)
Changes in ownership interests in subsidiaries that do not result in a loss of control:
Acquisitions of non-controlling interests of subsidiaries		—		(16	)		—		—		—		—			—			(16	)		(4	)		(20	)
Total transactions with owners		—		(16	)		—		3,413		—		—			(14,684	)		(11,287	)		(818	)		(12,105	)
Others (Note (g))		—		—			—		—		—		1,215			(1,215	)		—			—			—
Balance at 30 June 2011		86,702		(33,154	)		24,953		58,124		87,000		2,711			223,016			449,352			33,614			482,966

The notes on pages 105 to 143 form part of these interim financial statements.

101

																	Total equity
																	attributable
																	to equity
								Statutory		Discretionary							shareholders			Non
	Share		Capital			Share		surplus		surplus		Other		Retained			of the			controlling			Total
	capital		reserve			premium		reserve		reserve		reserves		earnings			Company			interests			equity
	RMB		RMB			RMB		RMB		RMB		RMB		RMB			RMB			RMB			RMB

Balance at 1 January 2012		86,702		(33,208	)		24,953		61,263		117,000		2,935		212,683			472,328			35,016			507,344
Profit for the period		—		—			—		—		—		—		24,503			24,503			1,296			25,799
Other comprehensive income (Note 12)		—		—			—		—		—		87		—			87			30			117
Total comprehensive income for the period		—		—			—		—		—		87		24,503			24,590			1,326			25,916
Transactions with owners, recorded directly in equity:
Contributions by and distributions to owners:
Exercise of Conversion of the 2011 Convertible Bonds (Note 29)		118		—			799		—		—		—		—			917			—			917
Final dividend for 2011 (Note 11)		—		—			—		—		—		—		(17,364	)		(17,364	)		—			(17,364	)
Appropriation (Note (a))		—		—			—		2,420		—		—		(2,420	)		—			—			—
Rights issue of shares by a subsidiary, net of issuance costs (Note (f))		—		(18	)		—		—		—		—		—			(18	)		781			763
Distributions by subsidiaries to non-controlling interests, net of contributions		—		—			—		—		—		—		—			—			(720	)		(720	)
Total contributions by and distributions to owners		118		(18	)		799		2,420		—		—		(19,784	)		(16,465	)		61			(16,404	)
Changes in ownership interests in subsidiaries that do not result in a loss of control:
Acquisitions of non-controlling interests of subsidiaries		—		(55	)		—		—		—		—		—			(55	)		(16	)		(71	)
Total transactions with owners		118		(73	)		799		2,420		—		—		(19,784	)		(16,520	)		45			(16,475	)
Others (Note (g))		—		—			—		—		—		1,067		(1,067	)		—			—			—
Balance at 30 June 2012		86,820		(33,281	)		25,752		63,683		117,000		4,089		216,335			480,398			36,387			516,785

Note:

(a)	According to the Company’s Articles of Association, the Company is required to transfer 10% of its net profit determined in accordance with the PRC accounting policies adopted by the Group to statutory surplus reserve. In the event that the reserve balance reaches 50% of the registered capital, no transfer is needed. The transfer to this reserve must be made before distribution of a dividend to shareholders. Statutory surplus reserve can be used to make good previous years’ losses, if any, and may be converted into share capital by issuing of new shares to shareholders in proportion to their existing shareholdings or by increasing the par value of the shares currently held by them, provided that the balance after such issue is not less than 25% of the registered capital.

	During the six-month period ended 30 June 2012, the Company transferred RMB 2,420 million (2011: RMB 3,413 million), being 10% of the current period’s net profit determined in accordance with the accounting policies complying with “Interpretation of Accounting Standards for Business Enterprises (“ASBE”)”, to this reserve.

(b)	The usage of the discretionary surplus reserve is similar to that of statutory surplus reserve.

(c)	According to the Company’s Articles of Association, the amount of retained earnings available for distribution to equity shareholders of the Company is the lower of the amount determined in accordance with the accounting policies complying with ASBE and the amount determined in accordance with the accounting policies complying with International Financial Reporting Standards (“IFRS”). At 30 June 2012, the amount of retained earnings available for distribution was RMB 126,307 million (2011: RMB 121,463 million), being the amount determined in accordance with the accounting policies complying with IFRS. Interim dividend for the six-month period ended 30 June 2012 of RMB 8,682 million (2011: RMB 8,670 million) proposed after the balance sheet date has not been recognised as a liability at the balance sheet date.

(d)	The capital reserve represents (i) the difference between the total amount of the par value of shares issued and the amount of the net assets transferred from Sinopec Group Company in connection with the Reorganisation; and (ii) the difference between the considerations paid over the amount of the net assets of entities and related operations acquired from Sinopec Group Company and non-controlling interests.

(e)	The application of the share premium account is governed by Sections 168 and 169 of the PRC Company Law.

(f)	During the six-month period ended 30 June 2012, a subsidiary of the Group completed rights issue to its existing shareholders. The total proceeds received by this subsidiary from its non-controlling shareholders amounted to HKD 966 million.

(g)	According to relevant PRC regulations, the Group is required to transfer an amount to other reserves for the safety production fund based on the turnover of certain refining and chemicals products or based on the production volume of crude oil and natural gas. During the six-month period ended 30 June 2012, the Group transferred RMB 1,067 million (2011: RMB 1,215 million) from retained earnings to other reserves for the safety production fund.

The notes on pages 105 to 143 form part of these interim financial statements.

102

CONSOLIDATED STATEMENT OF CASH FLOWS

for the six-month period ended 30 June 2012

(Amounts in millions)

		Six-month periods
		ended 30 June
	Note	2012			2011
		RMB			RMB

Net cash generated from operating activities	(a)		20,322			30,570
Investing activities
Capital expenditure			(72,042	)		(48,884	)
Exploratory wells expenditure			(4,852	)		(4,605	)
Purchase of investments, investments in associates and investments in jointly controlled entities			(4,825	)		(2,692	)
Proceeds from disposal of investments and investments in associates			1,315			2,482
Proceeds from disposal of property, plant and equipment			166			168
Purchase of time deposits with financial institutions			(2,028	)		(5,045	)
Proceeds from maturity of time deposits with financial institutions			1,177			707
Interest received			563			541
Investment and dividend income received			1,250			1,997
Payment for derivative financial instruments			(1,121	)		(3,028	)
Proceeds from derivative financial instruments			738			3,329
Net cash used in investing activities			(79,659	)		(55,030	)
Financing activities
Proceeds from bank and other loans			388,230			277,196
Proceeds of issuance of 2011 Convertible Bonds, net of issuing expenses			—			22,889
Proceeds of issuance of corporate bonds			50,000			5,000
Repayments of corporate bonds and redemption of 2007 Convertible Bonds			(30,000	)		(1,036	)
Repayments of bank and other loans			(339,421	)		(272,658	)
Distributions by subsidiaries to non-controlling interests			(507	)		(420	)
Contributions to subsidiaries from non-controlling interests			936			22
Dividend paid			(17,010	)		(10,998	)
Interest paid			(4,915	)		(3,850	)
Acquisitions of non-controlling interests of subsidiaries			(71	)		(15	)
Net cash generated from financing activities			47,242			16,130
Net decrease in cash and cash equivalents			(12,095	)		(8,330	)
Cash and cash equivalents at 1 January			24,647			17,008
Effect of foreign currency exchange rate changes			7			38
Cash and cash equivalents at 30 June			12,559			8,716

The notes on pages 105 to 143 form part of these interim financial statements.

103

(a)

Reconciliation of profit before taxation to net cash generated from operating activities

	Six-month periods
	ended 30 June
	2012			2011
	RMB			RMB

Operating activities
Profit before taxation		35,442			58,049
Adjustments for:
Depreciation, depletion and amortisation		34,534			30,510
Dry hole costs written off		2,942			2,342
Share of profits less losses from associates and jointly controlled entities		(323	)		(2,804	)
Investment income		(63	)		(102	)
Interest income		(563	)		(541	)
Interest expense		5,946			4,587
Unrealised loss/(gain) on foreign currency exchange rate changes and derivative financial instruments		212			(740	)
Gain on disposal of property, plant and equipment, net		(459	)		(541	)
Impairment losses on long-lived assets		—			164
Unrealised gain on embedded derivative component of the convertible bonds, net		(506	)		(190	)
		77,162			90,734
Increase in trade accounts receivable		(25,326	)		(22,321	)
Decrease/(increase) in bills receivable		12,303			(9,163	)
Increase in inventories		(3,813	)		(51,416	)
Increase in prepaid expenses and other current assets		(7,912	)		(2,184	)
Increase in lease prepayments		(7,001	)		(1,198	)
Decrease/(increase) in long-term prepayments and other assets		5,566			(68	)
(Decrease)/increase in trade accounts payable		(4,053	)		38,531
(Decrease)/increase in bills payable		(1,657	)		483
(Decrease)/increase in accrued expenses and other payables		(13,261	)		7,061
Increase in other liabilities		444			111
		32,452			50,570
Income tax paid		(12,130	)		(20,000	)
Net cash generated from operating activities		20,322			30,570

The notes on pages 105 to 143 form part of these interim financial statements.

104

NOTES TO THE INTERIM FINANCIAL STATEMENTS

for the six-month period ended 30 June 2012

1	PRINCIPAL ACTIVITIES, ORGANISATION AND BASIS OF PREPARATION

	Principal activities
	China Petroleum & Chemical Corporation (the “Company’’) is an energy and chemical company that, through its subsidiaries (hereinafter collectively referred to as the “Group’’), engages in oil and gas and chemical operations in the People’s Republic of China (the “PRC’’). Oil and gas operations consist of exploring for, developing and producing crude oil and natural gas; transporting crude oil and natural gas by pipelines; refining crude oil into finished petroleum products; and marketing crude oil, natural gas and refined petroleum products. Chemical operations include the manufacture and marketing of a wide range of chemicals for industrial uses.

	Organisation
	The Company was established in the PRC on 25 February 2000 as a joint stock limited company as part of the reorganisation (the “Reorganisation”) of China Petrochemical Corporation (‘‘Sinopec Group Company’’), the ultimate holding company of the Group and a ministry-level enterprise under the direct supervision of the State Council of the PRC. Prior to the incorporation of the Company, the oil and gas and chemical operations of the Group were carried on by oil administration bureaux, petrochemical and refining production enterprises and sales and marketing companies of Sinopec Group Company.

	As part of the Reorganisation, certain of Sinopec Group Company’s core oil and gas and chemical operations and businesses together with the related assets and liabilities were transferred to the Company. On 25 February 2000, in consideration for Sinopec Group Company transferring such oil and gas and chemical operations and businesses and the related assets and liabilities to the Company, the Company issued 68.8 billion domestic state-owned ordinary shares with a par value of RMB 1.00 each to Sinopec Group Company. The shares issued to Sinopec Group Company on 25 February 2000 represented the entire registered and issued share capital of the Company on that date. The oil and gas and chemical operations and businesses transferred to the Company were 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, and (iii) the production and sales of chemicals.

	Basis of preparation
	The accompanying interim financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”). IFRS includes International Accounting Standards (“IAS”) and related interpretations. These interim financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited. A summary of the significant accounting policies adopted by the Group are set out in Note 2.

	The IASB has issued certain new and revised IFRS that are first effective for the current accounting period of the Group. There have been no significant changes to the accounting policy applied in these interim financial statements for the periods presented as a result of these developments.

	The Group has not adopted any new standard or interpretation that is not yet effective for the current accounting period (Note 37).

	The accompanying interim financial statements are prepared on the historical cost basis except for the remeasurement of available-for-sale securities (Note 2(k)), securities held for trading (Note 2(k)), derivative financial instruments (Note 2(l) and (m)) and derivative component of the convertible bonds (Note 2(q)) to their fair values.

	The preparation of the interim financial statements in accordance with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim financial statements and the reported amounts of revenues and expenses during the period. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

	The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

	Key assumptions and estimation made by management in the application of IFRS that have significant effect on the interim financial statements and the major sources of estimation uncertainty are disclosed in Note 36.

	Certain comparative figures have been reclassified to conform with presentation adopted in the interim financial statements.

105

2	SIGNIFICANT ACCOUNTING POLICIES

	(a)	Basis of consolidation
		The consolidated interim financial statements comprise the Company and its subsidiaries, and interest in associates and jointly controlled entities.

		(i)	Subsidiaries and non-controlling interests
			Subsidiaries are those entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

			The interim financial statements of subsidiaries are included in the consolidated interim financial statements from the date that control effectively commences until the date that control effectively ceases.

			Non-controlling interests at the balance sheet date, being the portion of the net assets of subsidiaries attributable to equity interests that are not owned by the Company, whether directly or indirectly through subsidiaries, are presented in the consolidated balance sheet and consolidated statement of changes in equity within equity, separately from equity attributable to the equity shareholders of the Company. Non-controlling interests in the results of the Group are presented on the face of the consolidated income statement and the consolidated statement of comprehensive income as an allocation of the total profit or loss and total comprehensive income for the period between non-controlling interests and the equity shareholders of the Company.

			Changes in the Group’s interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions, whereby adjustments are made to the amounts of controlling and non-controlling interests within consolidated equity to reflect the change in relative interests, but no adjustments are made to goodwill and no gain or loss is recognised.

			When the Group loses control of a subsidiary, it is accounted for as a disposal of the entire interest in that subsidiary, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former subsidiary at the date when control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset (Note 2(k)) or, when appropriate, the cost on initial recognition of an investment in an associate or jointly controlled entity (Note 2(a)(ii)).

			The particulars of the Group’s principal subsidiaries are set out in Note 34.

		(ii)	Associates and jointly controlled entities
			An associate is an entity, not being a subsidiary, in which the Group exercises significant influence over its management. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

			A jointly controlled entity is an entity which operates under a contractual arrangement between the Group and other parties, where the contractual arrangement establishes that the Group and one or more of the other parties share joint control over the economic activity of the entity.

			Investments in associates and jointly controlled entities are accounted for in the consolidated interim financial statements using the equity method from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. Under the equity method, the investment is initially recorded at cost and adjusted thereafter for the post acquisition change in the Group’s share of the investee’s net assets and any impairment loss relating to the investment (Note 2(j) and (n)).

			The Group’s share of the post-acquisition, post-tax results of the investees and any impairment losses for the period are recognised in the consolidated income statement, whereas the Group’s share of the post-acquisition post-tax items of the investees’ other comprehensive income is recognised in the consolidated statement of comprehensive income.

			When the Group ceases to have significant influence over an associate or joint control over a jointly controlled entity, it is accounted for as a disposal of the entire interest in that investee, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former investee at the date when significant influence or joint control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset (see Note 2(k)) or, when appropriate, the cost on initial recognition of an investment in an associate (see Note 2(a)(ii)).

		(iii)	Transactions eliminated on consolidation
			Inter-company balances and transactions and any unrealised gains arising from inter-company transactions are eliminated on consolidation. Unrealised gains arising from transactions with associates and jointly controlled entities are eliminated to the extent of the Group’s interest in the entity. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

106

2	SIGNIFICANT ACCOUNTING POLICIES (Continued)

	(b)	Translation of foreign currencies
		The presentation currency of the Group is Renminbi. Foreign currency transactions during the period are translated into Renminbi at the applicable rates of exchange quoted by the People’s Bank of China (‘‘PBOC’’) prevailing on the transaction dates. Foreign currency monetary assets and liabilities are translated into Renminbi at the PBOC’s rates at the balance sheet date.

		Exchange differences, other than those capitalised as construction in progress, are recognised as income or expense in the “finance costs” section of the consolidated income statement.

		The results of foreign operations are translated into Renminbi at the applicable rates quoted by the PBOC prevailing on the transaction dates. Balance sheet items, including goodwill arising on consolidation of foreign operations are translated into Renminbi at the closing foreign exchange rates at the balance sheet date. The resulting exchange differences are recognised in other comprehensive income and accumulated in equity in the other reserves.

		On disposal of a foreign operation, the cumulative amount of the exchange differences relating to that foreign operation is reclassified from equity to the consolidated income statement when the profit or loss on disposal is recognised.

	(c)	Cash and cash equivalents
		Cash equivalents consist of time deposits with financial institutions with an initial term of less than three months when purchased. Cash equivalents are stated at cost, which approximates fair value.

	(d)	Trade, bills and other receivables
		Trade, bills and other receivables are initially recognised at fair value and thereafter stated at amortised cost using the effective interest method, less impairment losses for bad and doubtful debts (Note 2(n)). Trade, bills and other receivables are derecognised if the Group’s contractual rights to the cash flows from these financial assets expire or if the Group transfers these financial assets to another party without retaining control or substantially all risks and rewards of the assets.

	(e)	Inventories
		Inventories, other than spare parts and consumables, are stated at the lower of cost and net realisable value. Cost includes the cost of purchase computed using the weighted average method and, in the case of work in progress and finished goods, direct labour and an appropriate proportion of production overheads. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.

		Spare parts and consumables are stated at cost less any provision for obsolescence.

	(f)	Property, plant and equipment
		An item of property, plant and equipment is initially recorded at cost, less accumulated depreciation and impairment losses (Note 2(n)). The cost of an asset comprises its purchase price, any directly attributable costs of bringing the asset to working condition and location for its intended use. The Group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred, it is probable that the future economic benefits embodied with the item will flow to the Group and the cost of the item can be measured reliably. All other expenditure is recognised as an expense in the consolidated income statement in the year in which it is incurred.

		Gains or losses arising from the retirement or disposal of an item of property, plant and equipment, other than oil and gas properties, are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised as income or expense in the consolidated income statement on the date of retirement or disposal.

		Depreciation is provided to write off the cost amount of items of property, plant and equipment, other than oil and gas properties, over its estimated useful life on a straight-line basis, after taking into account its estimated residual value, as follows:

	Buildings		12 to 50 years
	Equipment, machinery and others		4 to 30 years

		Where parts of an item of property, plant and equipment have different useful lives, the cost of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value, if any, are reassessed annually.

	(g)	Oil and gas properties
		The Group uses the successful efforts method of accounting for its oil and gas producing activities. Under this method, costs of development wells, the related support equipment and proved mineral interests in properties are capitalised. The cost of exploratory wells is initially capitalised as construction in progress pending determination of whether the well has found proved reserves. The impairment of exploratory well costs occurs upon the determination that the well has not found proved reserves. The exploratory well costs are usually not carried as an asset for more than one year following completion of drilling, unless (i) the well has found a sufficient quantity of reserves to justify its completion as a producing well if the required capital expenditure is made; (ii) drilling of the additional exploratory wells is under way or firmly planned for the near future; or (iii) other activities are being undertaken to sufficiently progress the assessing of the reserves and the economic and operating viability of the project. All other exploration costs, including geological and geophysical costs, other dry hole costs and annual lease rentals, are expensed as incurred. Capitalised costs relating to proved properties are amortised at the field level on a unit-of-production method. The amortisation rates are determined based on oil and gas reserves estimated to be recoverable from existing facilities over the shorter of the economic lives of crude oil and natural gas reservoirs and the terms of the relevant production licenses.

107

2	SIGNIFICANT ACCOUNTING POLICIES (Continued)

	(g)	Oil and gas properties (Continued)
		Gains and losses on the disposal of proved oil and gas properties are not recognised unless the disposal encompasses an entire property. The proceeds on such disposals are credited to the carrying amounts of oil and gas properties.

		Management estimates future dismantlement costs for oil and gas properties with reference to engineering estimates after taking into consideration the anticipated method of dismantlement required in accordance with the industry practices. These estimated future dismantlement costs are discounted at credit-adjusted risk-free rate and are capitalised as oil and gas properties, which are subsequently amortised as part of the costs of the oil and gas properties.

	(h)	Lease prepayments
		Lease prepayments represent land use rights paid to the relevant government authorities. Land use rights are carried at cost less accumulated amount charged to expense and impairment losses (Note 2(n)). The cost of lease prepayments are charged to expense on a straight-line basis over the respective periods of the rights.

	(i)	Construction in progress
		Construction in progress represents buildings, oil and gas properties, various plant and equipment under construction and pending installation, and is stated at cost less impairment losses (Note 2(n)). Cost comprises direct costs of construction as well as interest charges, and foreign exchange differences on related borrowed funds to the extent that they are regarded as an adjustment to interest charges, during the periods of construction.

		Construction in progress is transferred to property, plant and equipment when the asset is substantially ready for its intended use.

		No depreciation is provided in respect of construction in progress.

	(j)	Goodwill
		Goodwill represents amounts arising on acquisition of subsidiaries, associates or jointly controlled entities. Goodwill represents the difference between the cost of acquisition and the fair value of the net identifiable assets acquired.

		Prior to 1 January 2008, the acquisition of the non-controlling interests of a consolidated subsidiary was accounted using the acquisition method whereby the difference between the cost of acquisition and the fair value of the net identifiable assets acquired (on a proportionate share) was recognised as goodwill. From 1 January 2008, any difference between the amount by which the non-controlling interest is adjusted (such as through an acquisition of the non-controlling interests) and the cash or other considerations paid is recognised in equity.

		Goodwill is stated at cost less accumulated impairment losses. Goodwill arising on a business combination is allocated to each cash-generating unit, or groups of cash generating units, that is expected to benefit the synergies of the combination and is tested annually for impairment (Note 2(n)). In respect of associates or jointly controlled entities, the carrying amount of goodwill is included in the carrying amount of the interest in the associate or jointly controlled entity and the investment as a whole is tested for impairment whenever there is objective evidence of impairment (Note 2(n)).

	(k)	Investments
		Investment in available-for-sale securities are carried at fair value with any change in fair value recognised in other comprehensive income and accumulated separately in equity in other reserve. When these investments are derecognised or impaired, the cumulative gain or loss is reclassified from equity to the consolidated income statement. Investments in equity securities, other than investments in associates and jointly controlled entities, that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are recognised in the balance sheet at cost less impairment losses (Note 2(n)).

		Investments in securities held for trading are classified as current assets. Any attributable transaction costs are recognised in the consolidated income statement as incurred. At each balance sheet date, the fair value is remeasured, with any resultant gain or loss being recognised in the consolidated income statement.

	(l)	Derivative financial instruments
		Derivative financial instruments are recognised initially at fair value. At each balance sheet date the fair value is remeasured. The gain or loss on remeasurement to fair value is recognised immediately in the consolidated income statement, except where the derivatives qualify for cash flow hedge accounting or hedge the net investment in a foreign operation, in which case recognition of any resultant gain or loss depends on the nature of the item being hedged (Note 2(m)).

	(m)	Hedging
		(i)	Cash flow hedges
			Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk of a committed future transaction, the effective portion of any gains or losses on re-measurement of the derivative financial instrument to fair value are recognised in other comprehensive income and accumulated separately in equity in other reserves. The ineffective portion of any gain or loss is recognised immediately in the consolidated income statement.

108

2	SIGNIFICANT ACCOUNTING POLICIES (Continued)

	(m)	Hedging (Continued)
		(i)	Cash flow hedges (Continued)
			If a hedge of a forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability, the associated gain or loss is reclassified from equity to be included in the initial cost or other carrying amount of the non-financial asset or liability.

			If a hedge of a forecast transaction subsequently results in the recognition of a financial asset or a financial liability, the associated gain or loss is reclassified from equity to the consolidated income statement in the same period or periods during which the asset acquired or liability assumed affects the consolidated income statement (such as when interest income or expense is recognised).

			For cash flow hedges, other than those covered by the preceding two policy statements, the associated gain or loss is reclassified from equity to the consolidated income statement in the same period or periods during which the hedged forecast transaction affects the consolidated income statement.

			When a hedging instrument expires or is sold, terminated, exercised, or the entity revokes designation of the hedge relationship but the hedged forecast transaction is still expected to occur, the cumulative gain or loss at that point remains in equity until the transaction occurs and it is recognised in accordance with the above policy. If the hedged transaction is no longer expected to take place, the cumulative unrealised gain or loss is reclassified from equity to the consolidated income statement immediately.

		(ii)	Hedge of net investments in foreign operations
			The portion of the gain or loss on re-measurement to fair value of an instrument used to hedge a net investment in a foreign operation that is determined to be an effective hedge is recognised in other comprehensive income and accumulated separately in equity in the other reserve until the disposal of the foreign operation, at which time the cumulative gain or loss is reclassified from equity to the consolidated income statement. The ineffective portion is recognised immediately in the consolidated income statement.

	(n)	Impairment of assets
		(i)	Trade accounts receivable, other receivables and investment in equity securities that do not have a quoted market price in an active market are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. If any such evidence exists, an impairment loss is determined and recognised.

			The impairment loss is measured as the difference between the asset’s carrying amount and the estimated future cash flows, discounted at the current market rate of return for a similar financial asset where the effect of discounting is material, and is recognised as an expense in the consolidated income statement. Impairment losses for trade and other receivables are reversed through the consolidated income statement if in a subsequent period the amount of the impairment losses decreases. Impairment losses for equity securities carried at cost are not reversed.

			For investments in associates and jointly controlled entities accounted under the equity method (Note 2(a)(ii)), the impairment loss is measured by comparing the recoverable amount of the investment as a whole with its carrying amount in accordance with the accounting policy set out in Note 2(n)(ii). The impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount in accordance with the accounting policy set out in Note 2(n)(ii).

		(ii)	Impairment of other long-lived assets is accounted as follows:

			The carrying amounts of other long-lived assets, including property, plant and equipment, construction in progress, lease prepayments and other assets, are reviewed at each balance sheet date to identify indicators that the assets may be impaired. These assets are tested for impairment whenever events or changes in circumstances indicate that their recorded carrying amounts may not be recoverable. When such a decline has occurred, the carrying amount is reduced to the recoverable amount. For goodwill, the recoverable amount is estimated at each balance sheet date.

			The recoverable amount is the greater of the fair value less costs to sell and the value in use. In determining the value in use, expected future cash flows generated by the asset are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).

			The amount of the reduction is recognised as an expense in the consolidated income statement. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then, to reduce the carrying amount of the other assets in the unit on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs to sell, or value in use, if determinable.

			Management assesses at each balance sheet date whether there is any indication that an impairment loss recognised for a long-lived asset, except in the case of goodwill, in prior years may no longer exist. An impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. A subsequent increase in the recoverable amount of an asset, when the circumstances and events that led to the write-down or write-off cease to exist, is recognised as an income. The reversal is reduced by the amount that would have been recognised as depreciation had the write-down or write-off not occurred. An impairment loss in respect of goodwill is not reversed.

109

2	SIGNIFICANT ACCOUNTING POLICIES (Continued)

	(o)	Trade, bills and other payables
		Trade, bills and other payables are initially recognised at fair value and thereafter stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

	(p)	Interest-bearing borrowings
		Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the consolidated income statement over the period of borrowings using the effective interest method.

	(q)	Convertible bonds
		(i)	Convertible bonds that contain an equity component
			Convertible bonds that can be converted to equity share capital at the option of the holder, where the number of shares that would be issued on conversion and the value of the consideration that would be received at that time do not vary, are accounted for as compound financial instruments that contain both a liability component and an equity component.

			At initial recognition, the liability component of the convertible bonds is measured as the present value of the future interest and principal payments, discounted at the market rate of interest applicable at the time of initial recognition to similar liabilities that do not have a conversion option. Any excess of proceeds over the amount initially recognised as the liability component is recognised as the equity component. Transaction costs that relate to the issuance of the convertible bonds are allocated to the liability and equity components in proportion to the allocation of proceeds.

			The liability component is subsequently carried at amortised cost. The interest expense on the liability component is calculated using the effective interest method. The equity component is recognised in the capital reserve until the bond is converted or redeemed.

			If the bond is converted, the capital reserve, together with the carrying amount of the liability component at the time of conversion, is transferred to share capital and share premium as consideration for the shares issued. If the bond is redeemed, the capital reserve is transferred to share premium.

		(ii)	Other convertible bonds
			Convertible bonds issued with a cash settlement option and other embedded derivative features are accounted for as compound financial instruments that contain a liability component and a derivative component.

			At initial recognition, the derivative component of the convertible bonds is measured at fair value. Any excess of proceeds over the amount initially recognised as the derivative component is recognised as the liability component. Transaction costs that relate to the issuance of the convertible bonds are allocated to the liability and derivative components in proportion to the allocation of proceeds. The portion of the transaction costs relating to the liability component is recognised initially as part of the liability. The portion relating to the derivative component is recognised immediately as an expense in the consolidated income statement.

			The derivative component is subsequently remeasured at each balance sheet date and any gains or losses arising from change in the fair value are recognised in the consolidated income statement. The liability component is subsequently carried at amortised cost until extinguished on conversion or redemption. The interest expense recognised in the consolidated income statement on the liability component is calculated using the effective interest method. Both the liability and the related derivative components are presented together for financial statements reporting purposes.

			If the convertible bonds are converted, the carrying amounts of the derivative and liability components are transferred to share capital and share premium as consideration for the shares issued. If the convertible bonds are redeemed, any difference between the amount paid and the carrying amounts of both components is recognised in the consolidated income statement.

	(r)	Provisions and contingent liability
		A provision is recognised for liability of uncertain timing or amount when the Group has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made.

		When it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

		Provisions for future dismantlement costs are initially recognised based on the present value of the future costs expected to be incurred in respect of the Group’s expected dismantlement and abandonment costs at the end of related oil and gas exploration and development activities. Any subsequent change in the present value of the estimated costs, other than the change due to passage of time which is regarded as interest cost, is reflected as an adjustment to the provision and oil and gas properties.

110

2	SIGNIFICANT ACCOUNTING POLICIES (Continued)

	(s)	Revenue recognition
		Revenues associated with the sale of crude oil, natural gas, petroleum and chemical products and ancillary materials are recorded when the customer accepts the goods and the significant risks and rewards of ownership and title have been transferred to the buyer. Revenue from the rendering of services is recognised in the consolidated income statement upon performance of the services. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due, the possible return of goods, or when the amount of revenue and the costs incurred or to be incurred in respect of the transaction cannot be measured reliably.

		Interest income is recognised on a time apportioned basis that takes into account the effective yield on the asset.

		A government grant that becomes receivable as compensation for expenses or losses already incurred with no future related costs is recognised as income in the period in which it becomes receivable.

	(t)	Borrowing costs
		Borrowing costs are expensed in the consolidated income statement in the period in which they are incurred, except to the extent that they are capitalised as being attributable to the construction of an asset which necessarily takes a period of time to get ready for its intended use.

	(u)	Repairs and maintenance expenditure
		Repairs and maintenance expenditure is expensed as incurred.

	(v)	Environmental expenditures
		Environmental expenditures that relate to current ongoing operations or to conditions caused by past operations are expensed as incurred.

		Liabilities related to future remediation costs are recorded when environmental assessments and/or cleanups are probable and the costs can be reasonably estimated. As facts concerning environmental contingencies become known to the Group, the Group reassesses its position both with respect to accrued liabilities and other potential exposures.

	(w)	Research and development expense
		Research and development expenditures are expensed in the period in which they are incurred. Research and development expense amounted to RMB 1,819 million for the six-month period ended 30 June 2012 (2011: RMB 1,678 million).

	(x)	Operating leases
		Operating lease payments are charged to the consolidated income statement on a straight-line basis over the period of the respective leases.

	(y)	Employee benefits
		The contributions payable under the Group’s retirement plans are recognised as an expense in the consolidated income statement as incurred and according to the contribution determined by the plans. Further information is set out in Note 32.

		Termination benefits, such as employee reduction expenses, are recognised when, and only when, the Group demonstrably commits itself to terminate employment or to provide benefits as a result of voluntary redundancy by having a detailed formal plan which is without realistic possibility of withdrawal.

	(z)	Income tax
		Income tax comprises current and deferred tax. Current tax is calculated on taxable income by applying the applicable tax rates. Deferred tax is provided using the balance sheet liability method on all temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes only to the extent that it is probable that future taxable income will be available against which the assets can be utilised. Deferred tax is calculated on the basis of the enacted tax rates or substantially enacted tax rates that are expected to apply in the period when the asset is realised or the liability is settled. The effect on deferred tax of any changes in tax rates is charged or credited to the consolidated income statement, except for the effect of a change in tax rate on the carrying amount of deferred tax assets and liabilities which were previously charged or credited to other comprehensive income or directly in equity.

		The tax value of losses expected to be available for utilisation against future taxable income is set off against the deferred tax liability within the same legal tax unit and jurisdiction to the extent appropriate, and is not available for set off against the taxable profit of another legal tax unit. The carrying amount of a deferred tax asset is reviewed at each balance sheet date and is reduced to the extent that it is no longer probable that the related tax benefit will be realised.

	(aa)	Dividends
		Dividends are recognised as a liability in the period in which they are declared.

	(bb)	Segment reporting
		Operating segments, and the amounts of each segment item reported in the financial statements, are identified from the financial information provided regularly to the Group’s chief operating decision maker for the purposes of allocating resources to, and assessing the performance of the Group’s various lines of business.

111

3	TURNOVER

	Turnover represents revenue from the sales of crude oil, natural gas, petroleum and chemical products, net of value-added tax.

4	OTHER OPERATING REVENUES

	Six-month periods ended 30 June
	2012		2011
	RMB millions		RMB millions

Sale of materials, service and others		20,360		16,129
Rental income		246		202
		20,606		16,331

5	SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

	The following items are included in selling, general and administrative expenses:

	Six-month periods ended 30 June
	2012		2011
	RMB millions		RMB millions

Operating lease charges		5,808		5,751
Impairment losses:
– trade accounts receivable		2		3
– other receivables		11		14

6	PERSONNEL EXPENSES

	Six-month periods ended 30 June
	2012		2011
	RMB millions		RMB millions

Salaries, wages and other benefits		20,827		17,859
Contributions to retirement schemes (Note 32)		3,193		2,724
		24,020		20,583

7	TAXES OTHER THAN INCOME TAX

	Six-month periods ended 30 June
	2012		2011
	RMB millions		RMB millions

Consumption tax (i)		64,020		62,141
Special oil income levy (ii)		16,472		18,691
City construction tax (iii)		5,892		6,389
Education surcharge		4,536		4,582
Resources tax		3,989		1,167
Business tax		358		315
		95,267		93,285

Note:

	(i)	The consumption tax rates on gasoline, diesel, naphtha, solvent oil, lubricant oil, fuel oil and jet fuel oil are RMB 1,388.0 per tonne, RMB 940.8 per tonne, RMB 1,385.0 per tonne, RMB 1,282.0 per tonne, RMB 1,126.0 per tonne, RMB 812.0 per tonne and RMB 996.8 per tonne, respectively.

	(ii)	Before 1 November 2011, special oil income levy is levied on oil exploration and production entities based on the progressive rates ranging from 20% to 40% on the portion of the monthly weighted average sales price of the crude oil produced in the PRC exceeding USD 40 per barrel. Effective from 1 November 2011, special oil income levy is levied on oil exploration and production entities based on the progressive rates ranging from 20% to 40% on the portion of the monthly weighted average sales price of the crude oil produced in the PRC exceeding USD 55 per barrel.

	(iii)	City construction tax is levied on an entity based on its total amount of value-added tax, consumption tax and business tax.

112

8	OTHER OPERATING INCOME, NET

	Six-month periods ended 30 June
	2012			2011
	RMB millions			RMB millions

Government grant		605			329
Gain on disposal of property, plant and equipment, net		459			541
Ineffective portion of change in fair value of cash flow hedges		150			(8	)
Net realised and unrealised (losses)/gains on derivative financial instruments not qualified as hedging		(297	)		38
Donations		(42	)		(20	)
Fines, penalties and compensations		(36	)		(153	)
Impairment losses on long-lived assets		—			(164	)
Others		(160	)		(143	)
		679			420

9	INTEREST EXPENSE

	Six-month periods ended 30 June
	2012			2011
	RMB millions			RMB millions

Interest expense incurred		6,169			4,614
Less: Interest expense capitalised*		(639	)		(356	)
		5,530			4,258
Accretion expenses (Note 28)		416			329
Interest expense		5,946			4,587
* Interest rates per annum at which borrowing costs were capitalised for construction in progress	3.8% to 6.2%			3.1% to 6.7%

10	TAX EXPENSE

	Tax expense in the consolidated income statement represents:

	Six-month periods ended 30 June
	2012			2011
	RMB millions			RMB millions

Current tax
– Provision for the period		10,418			11,922
– Under-provision in prior years		473			405
Deferred taxation (Note 24)		(1,248	)		1,530
		9,643			13,857

Reconciliation between actual tax expense and the expected income tax expense at applicable statutory tax rates is as follows:

	Six-month periods ended 30 June
	2012			2011
	RMB millions			RMB millions

Profit before taxation		35,442			58,049
Expected PRC income tax expense at a statutory tax rate of 25%		8,861			14,512
Tax effect of preferential tax rate (Note)		(916	)		(791	)
Effect of income taxes from foreign operations in excess of taxes at the PRC statutory tax rate (Note)		101			796
Tax effect of non-deductible expenses		220			105
Tax effect of non-taxable income		(137	)		(937	)
Tax effect of utilisation of previously unrecognised tax losses and temporary differences		(109	)		(327	)
Tax effect of tax losses not recognised		538			94
Write-down of deferred tax assets		612			—
Under-provision in prior years		473			405
Actual income tax expense		9,643			13,857

	Note:

	The provision for PRC current income tax is based on a statutory income tax rate of 25% of the assessable income of the Group as determined in accordance with the relevant income tax rules and regulations of the PRC, except for certain entities of the Group in the PRC that are taxed at preferential rates, and the foreign operation in the Republic of Angola (“Angola”) that is taxed at 50% of the assessable income as determined in accordance with the relevant income tax rules and regulations of Angola.

113

11	DIVIDENDS

	Dividends payable to equity shareholders of the Company attributable to the period represent:

	Six-month periods ended 30 June
	2012		2011
	RMB millions		RMB millions

Interim dividends declared after the balance sheet date of RMB 0.10 per share (2011: RMB 0.10 per share)		8,682		8,670

	Pursuant to the Company’s Articles of Association and a resolution passed at the Directors’ meeting on 24 August 2012, the directors authorised to declare the interim dividends for the year ending 31 December 2012 of RMB 0.10 (2011: RMB 0.10) per share totalling RMB 8,682 million (2011: RMB 8,670 million). Dividends declared after the balance sheet date are not recognised as a liability at the balance sheet date.

	Dividends payable to equity shareholders of the Company attributable to the previous financial year, approved and paid during the period represent:

	Six-month periods ended 30 June
	2012		2011
	RMB millions		RMB millions

Final dividends in respect of the previous financial year, approved and paid during the period of RMB 0.20 per share (2011: RMB 0.13 per share)		17,364		11,271

	Pursuant to the shareholders’ approval at the Annual General Meeting on 11 May 2012, a final dividend of RMB 0.20 per share totalling RMB 17,364 million in respect of the year ended 31 December 2011 was declared.

	Pursuant to the shareholders’ approval at the Annual General Meeting on 13 May 2011, a final dividend of RMB 0.13 per share totalling RMB 11,271 million in respect of the year ended 31 December 2010 was declared.

12	OTHER COMPREHENSIVE INCOME

	(a)	Tax effects relating to each component of other comprehensive income

	Six-month period ended 30 June 2012						Six-month period ended 30 June 2011
	Before-tax		Tax		Net-of-tax		Before-tax			Tax			Net-of-tax
	amount		effect		amount		amount			effect			amount
	RMB millions		RMB millions		RMB millions		RMB millions			RMB millions			RMB millions

Cash flow hedges		1		—		1		163			(24	)		139
Available-for-sale securities		1		—		1		1			—			1
Share of other comprehensive income of associates		26		—		26		(63	)		—			(63	)
Foreign currency translation differences		89		—		89		(234	)		—			(234	)
Other comprehensive income		117		—		117		(133	)		(24	)		(157	)

(b)

Reclassification adjustments relating to components of other comprehensive income

	Six-month periods ended 30 June
	2012			2011
	RMB millions			RMB millions

Cash flow hedges:
Effective portion of changes in fair value of hedging instruments recognised during the period		804			(1,856	)
Amounts transferred to initial carrying amount of hedged items		(235	)		(115	)
Reclassification adjustments for amounts transferred to the consolidated income statement		(568	)		2,134
Net deferred tax expense recognised in other comprehensive income		—			(24	)
Net movement during the period recognised in other comprehensive income		1			139
Available-for-sale securities:
Changes in fair value recognised during the period		1			1
Net movement during the period recognised in other comprehensive income		1			1
Share of other comprehensive income of associates:
Net movement during the period recognised in other comprehensive income		26			(63	)
Foreign currency translation differences:
Net movement during the period recognised in other comprehensive income		89			(234	)

114

13	BASIC AND DILUTED EARNINGS PER SHARE

	The calculation of basic earnings per share for the six-month period ended 30 June 2012 is based on the profit attributable to ordinary equity shareholders of the Company of RMB 24,503 million (2011: RMB 41,174 million) and the weighted average number of shares of 86,800,670,395 (2011: 86,702,527,774) during the period.

	The calculation of diluted earnings per share for the six-month period ended 30 June 2012 is based on the profit attributable to ordinary equity shareholders of the Company of RMB 24,731 million (2011: RMB 41,315 million) and the weighted average number of shares of 90,963,241,870 (2011: 89,377,634,787) calculated as follows:

	(i)	Profit attributable to ordinary equity shareholders of the Company (diluted)

	Six-month periods ended 30 June
	2012			2011
	RMB millions			RMB millions

Profit attributable to ordinary equity shareholders of the Company		24,503			41,174
After tax effect of interest expenses (net of exchange gain) of the 2007 Convertible Bonds and the 2011 Convertible Bonds		608			283
After tax effect of unrealised gain (net of unrealised loss) on embedded derivative components of the 2007 Convertible Bonds and the 2011 Convertible Bonds		(380	)		(142	)
Profit attributable to ordinary equity shareholders of the Company (diluted)		24,731			41,315

(ii)

Weighted average number of shares (diluted)

	Six-month periods ended 30 June
	2012		2011
	Number of		Number of
	shares		shares

Weighted average number of shares at 30 June		86,800,670,395		86,702,527,774
Effect of conversion of the 2007 Convertible Bonds		1,087,034,384		1,083,780,669
Effect of conversion of the 2011 Convertible Bonds		3,075,537,091		1,591,326,344
Weighted average number of shares (diluted) at 30 June		90,963,241,870		89,377,634,787

115

14	PROPERTY, PLANT AND EQUIPMENT

	By segment

	Exploration						Marketing						Corporate
	and						and						and
	production			Refining			distribution			Chemicals			others			Total
	RMB millions			RMB millions			RMB millions			RMB millions			RMB millions			RMB millions

Cost:
Balance at 1 January 2011		499,802			212,385			127,123			214,946			13,555			1,067,811
Additions		475			27			991			116			118			1,727
Transferred from construction in progress		11,088			3,492			4,111			582			992			20,265
Reclassification		36			2,505			141			(2,408	)		(274	)		—
Exchange adjustments		(644	)		—			(73	)		—			(8	)		(725	)
Reclassification to lease prepayments and other assets		—			(5	)		(228	)		(5	)		—			(238	)
Disposals		(140	)		(531	)		(427	)		(1,737	)		(68	)		(2,903	)
Balance at 30 June 2011		510,617			217,873			131,638			211,494			14,315			1,085,937
Balance at 1 January 2012		550,496			231,602			136,787			214,817			14,957			1,148,659
Additions		546			14			125			26			4			715
Transferred from construction in progress		14,062			2,337			3,212			1,865			227			21,703
Reclassification		—			225			—			(225	)		—			—
Exchange adjustments		108			—			16			—			—			124
Contributed to a jointly controlled entity		—			(3	)		—			(268	)		—			(271	)
Reclassification to lease prepayments and other assets		—			(14	)		(7,875	)		(4	)		(1,142	)		(9,035	)
Disposals		(50	)		(743	)		(139	)		(1,449	)		(40	)		(2,421	)
Balance at 30 June 2012		565,162			233,418			132,126			214,762			14,006			1,159,474

Accumulated depreciation:
Balance at 1 January 2011		239,032			104,511			39,444			139,332			4,792			527,111
Depreciation charge for the period		16,323			5,664			3,161			4,092			539			29,779
Impairment losses for the period		—			43			32			89			—			164
Reclassification		(3	)		2,507			29			(2,497	)		(36	)		—
Exchange adjustments		(246	)		—			(28	)		—			—			(274	)
Reclassification to lease prepayments and other assets		—			—			(17	)		—			—			(17	)
Written back on disposals		(136	)		(518	)		(382	)		(1,676	)		(67	)		(2,779	)
Balance at 30 June 2011		254,970			112,207			42,239			139,340			5,228			553,984
Balance at 1 January 2012		274,833			116,030			43,762			142,623			5,475			582,723
Depreciation charge for the period		19,233			5,982			3,583			4,264			527			33,589
Reclassification		—			155			—			(155	)		—			—
Exchange adjustments		49			—			6			—			—			55
Contributed to a jointly controlled entity		—			(1	)		—			(218	)		—			(219	)
Reclassification to lease prepayments and other assets		—			(12	)		(2,100	)		—			—			(2,112	)
Written back on disposals		(48	)		(682	)		(98	)		(1,365	)		(40	)		(2,233	)
Balance at 30 June 2012		294,067			121,472			45,153			145,149			5,962			611,803

Net book value:
Balance at 1 January 2011		260,770			107,874			87,679			75,614			8,763			540,700
Balance at 30 June 2011		255,647			105,666			89,399			72,154			9,087			531,953
Balance at 1 January 2012		275,663			115,572			93,025			72,194			9,482			565,936
Balance at 30 June 2012		271,095			111,946			86,973			69,613			8,044			547,671

116

14	PROPERTY, PLANT AND EQUIPMENT (Continued)

	By asset class

							Equipment,
				Oil and gas,			machinery
	Building			properties			and others			Total
	RMB million			RMB million			RMB million			RMB million

Cost:
Balance at 1 January 2011		66,253			421,600			579,958			1,067,811
Additions		77			446			1,204			1,727
Transferred from construction in progress		355			10,702			9,208			20,265
Reclassification		476			15			(491	)		—
Exchange adjustments		(34	)		(644	)		(47	)		(725	)
Reclassification to lease prepayments and other assets		(9	)		—			(229	)		(238	)
Disposals		(66	)		—			(2,837	)		(2,903	)
Balance at 30 June 2011		67,052			432,119			586,766			1,085,937
Balance at 1 January 2012		68,476			469,178			611,005			1,148,659
Additions		12			533			170			715
Transferred from construction in progress		802			10,871			10,030			21,703
Reclassification		13,987			(65,494	)		51,507			—
Exchange adjustments		7			108			9			124
Contributed to a jointly controlled entity		—			—			(271	)		(271	)
Reclassification to lease prepayments and other assets		(1,708	)		—			(7,327	)		(9,035	)
Disposals		(93	)		—			(2,328	)		(2,421	)
Balance at 30 June 2012		81,483			415,196			662,795			1,159,474

Accumulated depreciation:
Balance at 1 January 2011		33,044			204,555			289,512			527,111
Depreciation charge for the period		1,241			14,462			14,076			29,779
Impairment losses for the period		22			—			142			164
Reclassification		101			14			(115	)		—
Exchange adjustments		(10	)		(246	)		(18	)		(274	)
Reclassification to lease prepayments and other assets		(1	)		—			(16	)		(17	)
Written back on disposals		(57	)		—			(2,722	)		(2,779	)
Balance at 30 June 2011		34,340			218,785			300,859			553,984
Balance at 1 January 2012		35,088			237,592			310,043			582,723
Depreciation charge for the period		1,348			14,840			17,401			33,589
Reclassification		(3,289	)		(16,641	)		19,930			—
Exchange adjustments		1			49			5			55
Contributed to a jointly controlled entity		—			—			(219	)		(219	)
Reclassification to lease prepayments and other assets		(155	)		—			(1,957	)		(2,112	)
Written back on disposals		(54	)		—			(2,179	)		(2,233	)
Balance at 30 June 2012		32,939			235,840			343,024			611,803

Net book value:
Balance at 1 January 2011		33,209			217,045			290,446			540,700
Balance at 30 June 2011		32,712			213,334			285,907			531,953
Balance at 1 January 2012		33,388			231,586			300,962			565,936
Balance at 30 June 2012		48,544			179,356			319,771			547,671

The additions to the exploration and production segment and oil and gas properties for the six-month period ended 30 June 2012 included RMB 517 million (2011: RMB 446 million) of the estimated dismantlement costs for site restoration (Note 28).

117

15	CONSTRUCTION IN PROGRESS

	Exploration						Marketing						Corporate
	and						and						and
	production			Refining			distribution			Chemicals			others			Total
	RMB millions			RMB millions			RMB millions			RMB millions			RMB millions			RMB millions

Balance at 1 January 2011		30,374			20,675			27,312			8,985			2,253			89,599
Additions		19,722			3,657			8,482			3,100			857			35,818
Dry hole costs written off		(2,342	)		—			—			—			—			(2,342	)
Transferred to property, plant and equipment		(11,088	)		(3,492	)		(4,111	)		(582	)		(992	)		(20,265	)
Reclassification to lease prepayments and other assets		(20	)		(43	)		(1,417	)		(16	)		—			(1,496	)
Exchange adjustment		(15	)		—			—			—			—			(15	)
Balance at 30 June 2011		36,631			20,797			30,266			11,487			2,118			101,299
Balance at 1 January 2012		37,708			21,407			35,877			14,277			2,042			111,311
Additions		24,870			11,588			11,567			6,594			495			55,114
Reclassfication		—			275			—			(275	)		—			—
Dry hole costs written off		(2,942	)		—			—			—			—			(2,942	)
Transferred to property, plant and equipment		(14,062	)		(2,337	)		(3,212	)		(1,865	)		(227	)		(21,703	)
Reclassification to lease prepayments and other assets		(2	)		(126	)		(1,637	)		(63	)		—			(1,828	)
Exchange adjustment		3			—			—			—			—			3
Balance at 30 June 2012		45,575			30,807			42,595			18,668			2,310			139,955

	As at 30 June 2012, the amount of capitalised cost of exploratory wells included in construction in progress related to the exploration and production segment was RMB 14,461 million (2011: RMB 10,649 million). The geological and geophysical costs paid during the six-month period ended 30 June 2012 were RMB 3,251 million (2011: RMB 2,410 million).

16	GOODWILL

	At 30 June			At 31 December
	2012			2011
	RMB millions			RMB millions

Cost		14,193			15,869
Less: Accumulated impairment losses		(7,657	)		(7,657	)
		6,536			8,212

	Impairment tests for cash-generating units containing goodwill
	Goodwill is allocated to the following Group’s cash-generating units:

	At 30 June		At 31 December
	2012		2011
	RMB millions		RMB millions

Sinopec Beijing Yanshan Branch (“Sinopec Yanshan”)		1,157		1,157
Sinopec Zhenhai Refining and Chemical Branch (“Sinopec Zhenhai”)		4,043		4,043
Hong Kong service stations		858		853
Multiple units without individual significant goodwill		478		2,159
		6,536		8,212

	Goodwill represents the excess of the cost of purchase over the fair value of the underlying assets and liabilities. The recoverable amounts of Sinopec Yanshan, Sinopec Zhenhai and Hong Kong service stations are determined based on value in use calculations. These calculations use cash flow projections based on financial budgets approved by management covering a one-year period and pre-tax discount rates primarily ranging from 11.5% to 12.3% (2011: 12.0% to 12.7%). Cash flows beyond the one-year period are maintained constant. Based on the estimated recoverable amount, no impairment loss was recognised. However, as key assumptions on which management has made in respect of future cash projections are subject to change, management believes that any adverse change in the assumptions would cause the carrying amount to exceed its recoverable amount.

	Key assumptions used for the value in use calculations for these entities are the gross margin and sales volume. Management determined the budgeted gross margin based on the gross margin achieved in the period immediately before the budget period and management’s expectation on the future trend of the prices of crude oil and petrochemical products. The sales volume was based on the production capacity and/or the sales volume in the period immediately before the budget period.

118

17	INTEREST IN ASSOCIATES

	At 30 June		At 31 December
	2012		2011
	RMB millions		RMB millions

Share of net assets		27,154		25,692

	The Group’s investments in associates are with companies primarily engaged in the oil and gas, petrochemical, and marketing and distribution operations in the PRC. These investments are individually and in the aggregate not material to the Group’s financial condition or results of operations for all periods presented.

	The Group’s principal associates, all of which are incorporated in the PRC, are as follows:

Percentage

of equity

Form of

of equity

held by the

business

Particulars of issued

held by the

Company’s

Name of company

structure

and paid up capital

Company

subsidiaries

Principal activities

Sinopec Finance Company Limited

Incorporated

Registered capital

RMB 10,000,000,000

49.00

—

Provision of non-banking financial services

China Aviation Oil Supply Company Limited

Incorporated

Registered capital

RMB 3,800,000,000

—

29.00

Marketing and distribution of refined petroleum products

Zhongtian Synergetic Energy Company Limited

Incorporated

Registered capital

RMB 5,403,768,480

38.75

—

Manufacturing of coal-chemical products

Shanghai Chemical Industry Park Development Company Limited

Incorporated

Registered capital

RMB 2,372,439,000

—

38.26

Planning, development and operation of the Chemical Industry Park in Shanghai, the PRC

Shanghai Petroleum Company Limited

Incorporated

Registered capital

RMB 900,000,000

30.00

—

Exploration and production of crude oil and natural gas

Summarised financial information in respect of the Group’s principal associates is as follows:

	At 30 June			At 31 December
	2012			2011
	RMB millions			RMB millions

Total assets		153,944			171,072
Total liabilities		(118,688	)		(137,375	)
Net assets		35,256			33,697
The Group’s share of net assets of principal associates		14,260			13,512

	Six-month periods ended 30 June
	2012		2011
	RMB millions		RMB millions

Operating revenue		51,808		41,585
Net profit		2,107		2,499
The Group’s share of profits of principal associates		788		868

119

18	INTEREST IN JOINTLY CONTROLLED ENTITIES

	At 30 June		At 31 December
	2012		2011
	RMB millions		RMB millions

Share of net assets		18,086		19,992

The Group’s principal interests in jointly controlled entities are primarily engaged in the refining and chemical operations in the PRC as follows:

Percentage of

Percentage

equity held

Form of

of equity

by the

business

Particulars of issued

held by the

Company’s

Name of company

structure

and paid up capital

Company

subsidiaries

Principal activities

Shanghai Secco Petrochemical Company Limited

Incorporated

Registered capital

USD 901,440,964

30.00

20.00

Manufacturing and distribution of petrochemical products

BASF-YPC Company Limited

Incorporated

Registered capital

RMB 11,505,080,000

30.00

10.00

Manufacturing and distribution of petrochemical products

Fujian Refining and Petrochemical Company Limited

Incorporated

Registered capital

RMB 12,806,000,000

—

50.00

Manufacturing and distribution of petrochemical products

Sinopec SABIC Tianjin Petrochemical Company Limited

Incorporated

Registered capital

RMB 6,120,000,000

50.00

—

Manufacturing and distribution of petrochemical products

Zhong An United Coal Chemical Company Limited

Incorporated

Registered capital

RMB 4,000,000,000

50.00

—

Manufacturing and distribution of coal chemical products

The Group’s effective interest share of the jointly controlled entities’ results of operation, financial condition and cash flows are as follows:

	Six-month periods ended 30 June
	2012			2011
	RMB millions			RMB millions

Results of operation:
Operating revenue		36,002			35,005
Expenses		(36,999	)		(33,658	)
Net (loss)/profit		(997	)		1,347

	At 30 June			At 31 December
		2012			2011
	RMB millions			RMB millions

Financial condition:
Current assets		16,726			16,329
Non-current assets		38,477			38,122
Current liabilities		(13,354	)		(10,931	)
Non-current liabilities		(23,763	)		(23,528	)
Net assets		18,086			19,992

	Six-month periods ended 30 June
	2012			2011
	RMB millions			RMB millions

Cash flows:
Net cash used in operating activities		(67	)		(1,104	)
Net cash used in investing activities		(1,425	)		(1,333	)
Net cash generated from financing activities		1,482			2,508
Net (decrease)/increase in cash and cash equivalents		(10	)		71

120

19	INVESTMENTS

	At 30 June			At 31 December
	2012			2011
	RMB millions			RMB millions

Available-for-sale financial assets
– Equity securities, listed and at quoted market price		56			55
Investments in equity securities, unlisted and at cost		2,484			1,952
		2,540			2,007
Less: Impairment losses for investments		(178	)		(178	)
		2,362			1,829

	Unlisted investments represent the Group’s interests in PRC privately owned enterprises which are mainly engaged in non-oil and gas activities and operations.

20	LONG-TERM PREPAYMENTS AND OTHER ASSETS

	Long-term prepayments and other assets primarily represent prepaid rental expenses over one year, computer software, catalysts, operating rights of service stations and prepayments in connection with construction work and equipment purchases.

21	TRADE ACCOUNTS RECEIVABLE, NET AND BILLS RECEIVABLE

	At 30 June			At 31 December
	2012			2011
	RMB millions			RMB millions

Amounts due from third parties		66,255			44,344
Amounts due from Sinopec Group Company and fellow subsidiaries		10,270			6,185
Amounts due from associates and jointly controlled entities		8,407			9,204
		84,932			59,733
Less: Impairment losses for bad and doubtful debts		(885	)		(1,012	)
Trade accounts receivable, net		84,047			58,721
Bills receivable		15,658			27,961
		99,705			86,682

The ageing analysis of trade accounts and bills receivables (net of impairment losses for bad and doubtful debts) is as follows:

	At 30 June		At 31 December
	2012		2011
	RMB millions		RMB millions

Within one year		99,524		86,580
Between one and two years		154		66
Between two and three years		13		16
Over three years		14		20
		99,705		86,682

Impairment losses for bad and doubtful debts are analysed as follows:

	2012			2011
	RMB millions			RMB millions

Balance at 1 January		1,012			1,322
Impairment losses recognised for the period		2			3
Reversal of impairment losses		(119	)		(25	)
Written off		(10	)		(23	)
Balance at 30 June		885			1,277

	Sales are generally on a cash term. Credit is generally only available for major customers with well-established trading records. Amounts due from Sinopec Group Company and fellow subsidiaries are repayable under the same terms.

	Trade accounts and bills receivables (net of impairment losses for bad and doubtful debts) primarily represent receivables that are neither past due nor impaired. These receivables relate to a wide range of customers for whom there is no recent history of default.

121

22	INVENTORIES

	At 30 June			At 31 December
	2012			2011
	RMB millions			RMB millions

Crude oil and other raw materials		116,399			113,918
Work in progress		18,500			14,989
Finished goods		76,695			71,853
Spare parts and consumables		3,748			4,039
		215,342			204,799
Less: Allowance for diminution in value of inventories		(8,112	)		(1,382	)
		207,230			203,417

	The cost of inventories recognised as an expense in the consolidated income statement amounted to RMB 1,140,099 million for the six-month period ended 30 June 2012 (2011: RMB 1,023,633 million), which includes the write-down of inventories of RMB 7,347 million (2011: RMB 2,714 million) that primarily related to the refining and chemicals segments, and the reversal of write-down of inventories made in prior years of RMB 617 million (2011: RMB 509 million), that was mainly due to the sales of inventories. The write-down of inventories and the reversal of write-down of inventories were recorded in purchased crude oil, products and operating supplies and expenses in the consolidated income statement.

23	PREPAID EXPENSES AND OTHER CURRENT ASSETS

	At 30 June		At 31 December
	2012		2011
	RMB millions		RMB millions

Advances to third parties		1,603		869
Amounts due from Sinopec Group Company and fellow subsidiaries		1,440		821
Amounts due from associates and jointly controlled entities		1,808		984
Other receivables		1,150		963
Loans and receivables		6,001		3,637
Purchase deposits and other assets		9,899		5,273
Prepaid value-added tax and customs duty		17,402		17,458
Available-for-sale financial assets		—		200
Derivative financial instruments – hedging		3,398		837
Derivative financial instruments – non-hedging		421		54
		37,121		27,459

24	DEFERRED TAX ASSETS AND LIABILITIES

	Deferred tax assets and deferred tax liabilities are attributable to the items detailed in the table below:

	Assets				Liabilities						Net balance
	At 30		At 31		At 30			At 31			At 30			At 31
	June		December		June			December			June			December
	2012		2011		2012			2011			2012			2011
	RMB millions		RMB millions		RMB millions			RMB millions			RMB millions			RMB millions

Current
Receivables and inventories		5,556		3,105		—			—			5,556			3,105
Accruals		496		1,844		—			—			496			1,844
Cash flow hedges		7		7		—			—			7			7
Non-current
Property, plant and equipment		6,181		6,163		(14,902	)		(14,785	)		(8,721	)		(8,622	)
Tax losses carried forward		1,874		1,550		—			—			1,874			1,550
Embedded derivative component of the convertible bonds		—		—		(506	)		(379	)		(506	)		(379	)
Others		55		37		(15	)		(17	)		40			20
Deferred tax assets/(liabilities)		14,169		12,706		(15,423	)		(15,181	)		(1,254	)		(2,475	)

	As at 30 June 2012, certain subsidiaries of the Company did not recognise the tax value of losses carried forward of RMB 12,679 million (2011: RMB 8,082 million), of which RMB 2,151 million (2011: 376 million) was incurred for the six-month period ended 30 June 2012, because it was not probable that the related tax benefit will be realised. The tax value of these losses carried forward of RMB 971 million, RMB 5,507 million, RMB 745 million, RMB 369 million, RMB 2,936 million and RMB 2,151 million will expire in 2012, 2013, 2014, 2015, 2016 and 2017, respectively.

	Periodically, management performed assessment on the probability that taxable profit will be available over the period which the deferred tax assets can be realised or utilised. In assessing the probability, both positive and negative evidence was considered, including whether it is probable that the operations will have future taxable profits over the periods which the deferred tax assets are deductible or utilised and whether the tax losses result from identifiable causes which are unlikely to recur. During the six-month period ended 30 June 2012, write-down of deferred tax assets amounted to RMB 612 million (2011: RMB nil).

122

24	DEFERRED TAX ASSETS AND LIABILITIES (Continued)

	Movements in the deferred tax assets and liabilities are as follows:

				Recognised in			Recognised
	Balance at			consolidated			in other			Balance at
	1 January			income			comprehensive			30 June
	2011			statement			income			2011
	RMB millions			RMB millions			RMB millions			RMB millions

Current
Receivables and inventories		3,507			194			—			3,701
Accruals		1,588			16			—			1,604
Cash flow hedges		31			—			(24	)		7
Non-current
Property, plant and equipment		(6,975	)		(1,383	)		161			(8,197	)
Tax losses carried forward		2,116			(317	)		—			1,799
Embedded derivative component of the convertible bonds		(64	)		(48	)		—			(112	)
Others		12			8			—			20
Net deferred tax assets/(liabilities)		215			(1,530	)		137			(1,178	)

				Recognised in			Recognised
	Balance at			consolidated			in other			Balance at
	1 January			income			comprehensive			30 June
		2012		statement			income				2012
	RMB millions			RMB millions			RMB millions			RMB millions

Current
Receivables and inventories		3,105			2,451			—			5,556
Accruals		1,844			(1,348	)		—			496
Cash flow hedges		7			—			—			7
Non-current
Property, plant and equipment		(8,622	)		(72	)		(27	)		(8,721	)
Tax losses carried forward		1,550			324			—			1,874
Embedded derivative component of the convertible bonds		(379	)		(127	)		—			(506	)
Others		20			20			—			40
Net deferred tax liabilities		(2,475	)		1,248			(27	)		(1,254	)

25	SHORT-TERM AND LONG-TERM DEBTS AND LOANS FROM SINOPEC GROUP COMPANY AND FELLOW SUBSIDIARIES

	Short-term debts represent:

	At 30 June		At 31 December
	2012		2011
	RMB millions		RMB millions

Third parties’ debts
Short-term bank loans		36,372		25,036
Current portion of long-term bank loans		6,067		4,609
Current portion of long-term corporate bonds		8,500		38,500
Current portion of long-term other loans		78		79
		14,645		43,188
Corporate bonds (Note (a))		30,000		—
		81,017		68,224
Loans from Sinopec Group Company and fellow subsidiaries
Short-term loans		50,348		11,949
Current portion of long-term loans		310		200
		50,658		12,149
		131,675		80,373

The Group’s weighted average interest rate on short-term loans was 2.3% (2011: 3.5%) at 30 June 2012.

123

25	SHORT-TERM AND LONG-TERM DEBTS AND LOANS FROM SINOPEC GROUP COMPANY AND FELLOW SUBSIDIARIES (Continued)

	Long-term debts comprise:

		At 30 June			At 31 December
	Interest rate and final maturity	2012			2011
		RMB millions			RMB millions

Third parties’ debts
Long-term bank loans
Renminbi denominated	Interest rates ranging from interest free to		19,261			19,620
	6.90% per annum at 30 June 2012 with
	maturities through 2025
Japanese Yen denominated	Interest rates ranging from 2.60% to 2.94% per annum		1,006			1,179
	at 30 June 2012 with maturities through 2024
US Dollar denominated	Interest rates ranging from interest free to		390			415
	1.55% per annum at 30 June 2012 with
	maturities through 2031
			20,657			21,214
Long-term other loans
Renminbi denominated	Interest free per annum at 30 June 2012 with		208			208
	maturities through 2013
US Dollar denominated	Interest rates ranging from interest free to 4.89%		21			23
	per annum at 30 June 2012 with maturities
	through 2015
			229			231
Corporate bonds
Renminbi denominated	Fixed interest rate ranging from 3.75% to 5.68%		68,500			78,500
	per annum at 30 June 2012 with maturity in
	June 2022 (Note(b))
Convertible bonds
Hong Kong Dollar denominated	Convertible bonds with maturity in 2014 (Note(c))		10,761			10,415
Renminbi denominated	Bonds with Warrants with maturity in 2014 (Note(d))		27,715			27,095
	Convertible bonds with maturity in 2017 (Note(e))		21,598			22,627
			60,074			60,137
Total third parties’ long-term debts			149,460			160,082
Less: Current portion			(14,645	)		(43,188	)
			134,815			116,894
Long-term loans from Sinopec Group Company and fellow subsidiaries
Renminbi denominated	Interest rates ranging from interest free to		37,566			37,763
	6.98% per annum at 30 June 2012 with
	maturities through 2020
Less: Current portion			(310	)		(200	)
			37,256			37,563
			172,071			154,457

Short-term and long-term bank loans, long-term other loans and loans from Sinopec Group Company and fellow subsidiaries are primarily unsecured and carried at amortised cost.

124

25	SHORT-TERM AND LONG-TERM DEBTS AND LOANS FROM SINOPEC GROUP COMPANY AND FELLOW SUBSIDIARIES (Continued)

	Note:

	(a)	The Company issued 270-day corporate bonds of face value RMB 5 billion to corporate investors in the PRC debenture market on 16 January 2012 at par value of RMB 100. The effective yield of the 270-day corporate bonds is 4.38% per annum.

		The Company issued 270-day corporate bonds of face value RMB 15 billion to corporate investors in the PRC debenture market on 16 February 2012 at par value of RMB 100. The effective yield of the 270-day corporate bonds is 4.15% per annum.

		The Company issued 180-day corporate bonds of face value RMB 10 billion to corporate investors in the PRC debenture market on 27 March 2012 at par value of RMB 100. The effective yield of the 180-day corporate bonds is 4.00% per annum.

	(b)	These corporate bonds are guaranteed by Sinopec Group Company and carried at amotised cost.

	(c)	On 24 April 2007, the Company issued zero coupon convertible bonds due 2014 with an aggregate principal amount of HKD11.7 billion (the “2007 Convertible Bonds”). The holders can convert the 2007 Convertible Bonds into shares of the Company from 4 June 2007 onwards at a price of HKD10.76 per share, subject to adjustment for, amongst other things, subdivision or consolidation of shares, bonus issues, rights issues, capital distribution, change of control and other events, which have a dilutive effect on the issued share capital of the Company (the “Conversion Option”). Unless previously redeemed, converted or purchased and cancelled, the 2007 Convertible Bonds will be redeemed on the maturity date at 121.069% of the principal amount. The Company has an early redemption option at any time after 24 April 2011 (subject to certain criteria) (the “Early Redemption Option”) and a cash settlement option when the holders exercise their conversion right (the “Cash Settlement Option”).

		During the year ended 31 December 2011, the Company redeemed part of the 2007 Convertible Bonds upon certain holders’ request, with the principal amount of HKD 39 million.

		During the six-month period ended 30 June 2012, the conversion price of the 2007 Convertible Bonds was adjusted to HKD 10.60 per share as the result of capital distribution.

		As at 30 June 2012, the carrying amounts of the liability component and the derivative component, representing the Conversion Option, the Early Redemption Option and the Cash Settlement Option, of the 2007 Convertible Bonds were RMB 10,665 million (2011: RMB 10,345 million) and RMB 96 million (2011: RMB 70 million), respectively. No conversion of the 2007 Convertible Bonds has occurred up to 30 June 2012.

		As at 30 June 2012 and 31 December 2011, the fair value of the derivative component of the 2007 Convertible Bonds was calculated using the Black-Scholes Model. The following are the major inputs used in the Black-Scholes Model:

	At 30 June		At 31 December
	2012		2011

Stock price of H shares	HKD 6.88		HKD 8.17
Conversion price	HKD 10.60		HKD 10.76
Option adjusted spread	250 basis points		200 basis points
Average risk free rate		0.45%		0.72%
Average expected life	1.8 years		2.3 years

		Any change in the major inputs into the Black-Sholes Model will result in changes in the fair value of the derivative component. The changes in the fair value of the derivative component from 31 December 2011 to 30 June 2012 resulted in an unrealised loss of RMB 26 million (2011: an unrealised gain of RMB 190 million), which has been recorded in the “finance costs” section of the consolidated income statement for the six-month period ended 30 June 2012.

		The initial carrying amount of the liability component of the 2007 Convertible Bonds is the residual amount, which is after deducting the allocated issuance cost of the 2007 Convertible Bonds relating to the liability component and the fair value of the derivative component as at 24 April 2007. Interest expense is calculated using the effective interest method by applying the effective interest rate of 4.19% to the adjusted liability component. Should the aforesaid derivative component not been separated out and the entire 2007 Convertible Bonds been considered as the liability component, the effective interest rate would have been 3.03%.

	(d)	On 26 February 2008, the Company issued bonds with stock warrants due 2014 with an aggregate principal amount of RMB 30 billion in the PRC (the “Bonds with Warrants”). The Bonds with Warrants, which bear a fixed interest rate of 0.80% per annum payable annually, were issued at par value of RMB 100. The Bonds with Warrants are guaranteed by Sinopec Group Company.

		The initial recognition of the liability component of the Bond with Warrants is measured as the present value of the future interest and principal payments, discounted at the market rate of interest applicable at the time of initial recognition to similar liabilities that do not have a conversion option. Interest expense is calculated using the effective interest method by applying the market interest rate of 5.40% to the liability component.

125

25	SHORT-TERM AND LONG-TERM DEBTS AND LOANS FROM SINOPEC GROUP COMPANY AND FELLOW SUBSIDIARIES (Continued)

	Note: (Continued)

	(e)	On 1 March 2011, the Company issued convertible bonds due 2017 with an aggregate principal amount of RMB 23 billion in the PRC (the “2011 Convertible Bonds”). The 2011 Convertible Bonds are issued at par value of RMB 100 and bear a fixed interest rate of 0.5% per annum for the first year, 0.7% for the second year, 1.0% for the third year, 1.3% for the fourth year, 1.8% for the fifth year and 2.0% for the sixth year, payable annually. The holders can convert the 2011 Convertible Bonds into shares of the Company from 24 August 2011 onwards at an initial conversion price of RMB 9.73 per share, subject to adjustment for, amongst other things, cash dividends, subdivision or consolidation of shares, bonus issues, issue of new shares, rights issues, capital distribution, change of control and other events which have an effect on the issued share capital of the Company (the “Conversion Option”). Unless previously redeemed, converted or purchased and cancelled, the 2011 Convertible Bonds will be redeemed within 5 trading days after maturity at 107% of the principal amount, including interest for the sixth year. The initial carrying amounts of the liability component and the derivative component, representing the Conversion Option of the 2011 Convertible Bonds, were RMB 19,279 million and RMB 3,610 million, respectively.

		During the term of the 2011 Convertible Bonds, the conversion price may be subject to downward adjustment that if the closing prices of the Company’s A Shares in any fifteen trading days out of any thirty consecutive trading days are lower than 80% of the prevailing conversion price, the board of directors may propose downward adjustment to the conversion price subject to the shareholders’ approval. The adjusted conversion price shall be not less than (a) the average trading price of the Company’s A Shares for the twenty trading days prior to the shareholders’ approval, (b) the average trading price of the Company’s A Shares on the day immediately before the shareholders’ approval, (c) the net asset value per share based on the latest audited financial statements prepared under ASBE, and (d) the nominal value per share.

		As at 30 June 2012, the carrying amounts of the liability component and the derivative component were RMB 19,687 million (2011: RMB 20,017 million) and RMB 1,911 million (2011: RMB 2,610 million), respectively.

		During the six-month period ended 30 June 2012, the conversion price of the 2011 Convertible Bonds was adjusted to RMB 7.08 per share as a result of the final dividend declared and paid for the year ended 31 December 2011.

		During the six-month period ended 30 June 2012, RMB 856,963,000 of the 2011 Convertible Bonds were converted into 117,714,548 A shares of the Company.

		As at 30 June 2012 and 31 December 2011, the fair value of the derivative component of the 2011 Convertible Bonds was calculated using the Binomial Model. The followings are the major inputs used in the Binomial Model:

	At 30 June	At 31 December
	2012	2011

Stock price of A shares	RMB 6.30	RMB 7.18
Conversion price	RMB 7.08	RMB 7.28
Credit spread	150 basis points	180 basis points
RMB onshore swap rate	2.78%	2.81%

		Any change in the major inputs into the Binomial Model will result in changes in the fair value of the derivative component. The changes in the fair value of the derivative component from 31 December 2011 to 30 June 2012 resulted in an unrealised gain of RMB 532 million (2011: RMB nil), which has been recorded in the “finance costs” section of the consolidated income statement for the six-month period ended 30 June 2012.

		The initial carrying amount of the liability component of the 2011 Convertible Bonds is the residual amount, which is after deducting the allocated issuance cost of the 2011 Convertible Bonds relating to the liability component and the fair value of the derivative component as at 1 March 2011. Interest expense is calculated using the effective interest method by applying the effective interest rate of 5.10% to the adjusted liability component. Should the aforesaid derivative component not been separated out and the entire 2011 Convertible Bonds been considered as the liability component, the effective interest rate would have been 2.07%.

26	TRADE ACCOUNTS AND BILLS PAYABLES

	At 30 June		At 31 December
	2012		2011
	RMB millions		RMB millions

Amounts due to third parties		164,122		167,207
Amounts due to Sinopec Group Company and fellow subsidiaries		5,892		6,429
Amounts due to associates and jointly controlled entities		2,935		3,366
		172,949		177,002
Bills payable		4,276		5,933
Trade account and bills payables measured at amortised cost		177,225		182,935

The maturities of trade accounts and bills payables are as follows:

	At 30 June		At 31 December
	2012		2011
	RMB millions		RMB millions

Due within 1 month or on demand		151,584		150,949
Due after 1 month but within 6 months		25,489		31,820
Due after 6 months		152		166
		177,225		182,935

126

27	ACCRUED EXPENSES AND OTHER PAYABLES

	At 30 June		At 31 December
	2012		2011
	RMB millions		RMB millions

Accrued expenditures		35,281		33,849
Advances from third parties		5,120		5,989
Amounts due to Sinopec Group Company and fellow subsidiaries		9,188		9,714
Others		7,802		7,167
Financial liabilities carried at amortised costs		57,391		56,719
Taxes other than income tax		25,630		47,864
Receipts in advance		52,280		65,606
Provision for onerous contracts for purchases of crude oil (Note)		—		5,800
Derivative financial instruments – hedging		5,184		684
Derivative financial instruments – non-hedging		127		205
		140,612		176,878

	Note:

	As at 31 December 2011, the Group has entered into certain non-cancellable purchase contracts of crude oil for delivery in 2012. Due to the high purchase costs of crude oil of these contracts, the Group determined that the economic benefits to be derived from processing the crude oil under these purchase contracts would be lower than the unavoidable cost of meeting the Group’s obligations under these purchase contracts. Consequently, a provision for onerous contracts of RMB 5,800 million was recognised as at 31 December 2011. As at 30 June 2012, these above-mentioned non-cancellable purchase commitment contracts has been executed, and the provision has been utilsed accordingly. The amount of provision for onerous contracts as at 31 December 2011 approximated the actual losses incurred from these non-cancellable purchase commitment contracts during the six-month period ended 30 June 2012. At 30 June 2012, the market prices of crude oil and finished goods had positive changes compared to the beginning of the period in the ordinary course of the Group’s business. Management expected the economic benefits to be derived from non-cancellable purchase commitment contracts entered into by the Group as at 30 June 2012 would be higher than the unavoidable cost of meeting the obligation under these contracts. Therefore, the Group did not recognise such a provision as at 30 June 2012.

28	PROVISIONS

	Provisions primarily represent provision for future dismantlement costs of oil and gas properties. The Group has committed to the PRC government to established certain standardised measures for the dismantlement of its oil and gas properties by making reference to the industry practices and is thereafter constructively obligated to take dismantlement measures of its oil and gas properties.

	Movement of provision of the Group’s obligations for the dismantlement of its oil and gas properties is as follow:

	2012			2011
	RMB millions			RMB millions

Balance at 1 January		18,317			15,510
Provision for the period		517			446
Accretion expenses		416			329
Utilised		(8	)		—
Exchange adjustment		2			(6	)
Balance at 30 June		19,244			16,279

29	SHARE CAPITAL

	At 30 June		At 31 December
	2012		2011
	RMB millions		RMB millions

Registered, issued and fully paid
70,039,788,984 listed A shares (2011: 69,922,074,436) of RMB 1.00 each		70,040		69,922
16,780,488,000 listed H shares (2011: 16,780,488,000) of RMB 1.00 each		16,780		16,780
		86,820		86,702

	The Company was established on 25 February 2000 with a registered capital of 68.8 billion domestic state-owned shares with a par value of RMB 1.00 each. Such shares were issued to Sinopec Group Company in consideration for the assets and liabilities of the Predecessor Operations transferred to the Company (Note 1).

	Pursuant to the resolutions passed at an Extraordinary General Meeting held on 25 July 2000 and approvals from relevant government authorities, the Company is authorised to increase its share capital to a maximum of 88.3 billion shares with a par value of RMB 1.00 each and offer not more than 19.5 billion shares with a par value of RMB 1.00 each to investors outside the PRC. Sinopec Group Company is authorised to offer not more than 3.5 billion shares of its shareholdings in the Company to investors outside the PRC. The shares sold by Sinopec Group Company to investors outside the PRC would be converted into H shares.

	In October 2000, the Company issued 15,102,439,000 H shares with a par value of RMB 1.00 each, representing 12,521,864,000 H shares and 25,805,750 American Depositary Shares (“ADSs”, each representing 100 H shares), at prices of HKD 1.59 per H share and USD 20.645 per ADS, respectively, by way of a global initial public offering to Hong Kong and overseas investors. As part of the global initial public offering, 1,678,049,000 state-owned ordinary shares of RMB 1.00 each owned by Sinopec Group Company were converted into H shares and sold to Hong Kong and overseas investors.

127

29	SHARE CAPITAL (Continued)

	In July 2001, the Company issued 2.8 billion listed A shares with a par value of RMB 1.00 each at RMB 4.22 by way of a public offering to natural persons and institutional investors in the PRC.

	On 25 September 2006, the shareholders of listed A shares accepted the proposal offered by the shareholders of state-owned A shares whereby the shareholders of state-owned A shares agreed to transfer 2.8 state-owned A shares to shareholders of listed A shares for every 10 listed A shares they held, in exchange for the approval for the listing of all state-owned A shares. In October 2006, 67,121,951,000 state-owned A shares became listed A shares.

	On 3 March 2010, the Company issued 88,774 listed A shares with a par value of RMB 1.00 each at RMB 19.15 as a result of exercise of 188,292 warrants that were issued with the Bonds with Warrants and received a net proceeds of RMB 1,700,022.

	During the year ended 31 December 2011, the Company issued 34,662 listed A shares with a par value of RMB 1.00 each, as a result of exercise of conversion by the holders of the 2011 Convertible Bonds.

	During the six-month period ended 30 June 2012, the Company issued 117,714,548 listed A shares with a par value of RMB 1.00 each, as a result of exercise of conversion by the holders of the 2011 Convertible Bonds (Note 25(e)).

	All A shares and H shares rank pari passu in all material aspects.

	Capital management
	Management optimises the structure of the Group’s capital, which comprises of equity and loans. In order to maintain or adjust the capital structure of the Group, management may cause the Group to issue new shares, adjust the capital expenditure plan, sell assets to reduce debt, or adjust the proportion of short-term and long-term loans. Management monitors capital on the basis of the debt-to-capital ratio, which is calculated by dividing long-term loans (excluding current portion), including long-term debts and loans from Sinopec Group Company and fellow subsidiaries, by the total of equity attributable to equity shareholders of the Company and long-term loans (excluding current portion), and liability-to-asset ratio, which is calculated by dividing total liabilities by total assets. Management’s strategy is to make appropriate adjustments according to the Group’s operating and investment needs and the changes of market conditions, and to maintain the debt-to-capital ratio and the liability-to-asset ratio of the Group at a range considered reasonable. As at 30 June 2012, the debt-to-capital ratio and the liability-to-asset ratio of the Group were 26.4% (2011: 24.6%) and 56.3% (2011: 55.7%), respectively.

	The schedule of the contractual maturities of loans and commitments are disclosed in Notes 25 and 30, respectively.

	There were no changes in the management’s approach to capital management of the Group during the period. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.

30	COMMITMENTS AND CONTINGENT LIABILITIES

	Operating lease commitments
	The Group leases land and buildings, service stations and other equipment through non-cancellable operating leases. These operating leases do not contain provisions for contingent lease rentals. None of the rental agreements contain escalation provisions that may require higher future rental payments.

	At 30 June 2012 and 31 December 2011, the future minimum lease payments under operating leases are as follows:

	At 30 June		At 31 December
	2012		2011
	RMB millions		RMB millions

Within one year		11,026		10,414
Between one and two years		10,439		9,764
Between two and three years		10,240		9,668
Between three and four years		10,213		9,585
Between four and five years		10,243		9,465
Thereafter		217,976		215,810
		270,137		264,706

	Capital commitments
	At 30 June 2012 and 31 December 2011, capital commitments are as follows:

	At 30 June		At 31 December
	2012		2011
	RMB millions		RMB millions

Authorised and contracted for		192,271		192,792
Authorised but not contracted for		59,762		32,178
		252,033		224,970

These capital commitments relate to oil and gas exploration and development, refining and petrochemical production capacity expansion projects and the construction of service stations and oil depots.

128

30	COMMITMENTS AND CONTINGENT LIABILITIES (Continued)

	Exploration and production licenses
	Exploration licenses for exploration activities in the PRC are registered with the Ministry of Land and Resources. The maximum term of the Group’s exploration licenses is 7 years, and may be renewed twice within 30 days prior to expiration of the original term with each renewal being for a two-year term. The Group is obligated to make progressive annual minimum exploration investment relating to the exploration blocks in respect of which the license is issued. The Ministry of Land and Resources also issues production licenses to the Group on the basis of the reserve reports approved by relevant authorities. The maximum term of a full production license is 30 years unless a special dispensation is given by the State Council. The maximum term of production licenses issued to the Group is 80 years as a special dispensation was given to the Group by the State Council. The Group’s production license is renewable upon application by the Group 30 days prior to expiration.

	The Group is required to make payments of exploration license fees and production right usage fees to the Ministry of Land and Resources annually which are expensed as incurred.

	Estimated future annual payments are as follows:

	At 30 June		At 31 December
	2012		2011
	RMB millions		RMB millions

Within one year		352		335
Between one and two years		165		105
Between two and three years		26		25
Between three and four years		27		26
Between four and five years		29		28
Thereafter		729		730
		1,328		1,249

	Contingent liabilities
	At 30 June 2012 and 31 December 2011, guarantees given to banks in respect of banking facilities granted to the parties below were as follows:

	At 30 June		At 31 December
	2012		2011
	RMB millions		RMB millions

Jointly controlled entities		640		703
Associates		75		79
		715		782

	As at 31 December 2011, a subsidiary of the Company provided guarantees on long-term loans of USD 94 million drawn down by certain jointly controlled entities of Sinopec Group Company, and the loans under such guarantees had been repaid as at 30 June 2012. As at 30 June 2012, this subsidiary also provided guarantees on long-term loans of USD 978 million (2011: USD 969 million) drawn down by certain joint venturers (other than Sinopec Group Company) of these jointly controlled entities.

	Management monitors the conditions that are subject to the guarantees to identify whether it is probable that a loss has occurred, and recognise any such losses under guarantees when those losses are estimable. At 30 June 2012 and 31 December 2011, it is not probable that the Group will be required to make payments under the guarantees. Thus no liability has been accrued for the Group’s obligation under these guarantees arrangements.

	Environmental contingencies
	Under existing legislation, management believes that there are no probable liabilities that will have a material adverse effect on the financial position or operating results of the Group. The PRC government, however, has moved, and may move further towards more rigorous enforcement of applicable laws, and towards the adoption of more stringent environmental standards. Environmental liabilities are subject to considerable uncertainties which affect management’s ability to estimate the ultimate cost of remediation efforts. These uncertainties include (i) the exact nature and extent of the contamination at various sites including, but not limited to refineries, oil fields, service stations, terminals and land development areas, whether operating, closed or sold, (ii) the extent of required cleanup efforts, (iii) varying costs of alternative remediation strategies, (iv) changes in environmental remediation requirements, and (v) the identification of new remediation sites. The amount of such future cost is indeterminable due to such factors as the unknown magnitude of possible contamination and the unknown timing and extent of the corrective actions that may be required. Accordingly, the outcome of environmental liabilities under proposed or future environmental legislation cannot reasonably be estimated at present, and could be material. The Group paid normal routine pollutant discharge fees of approximately RMB 3,002 million for the six-month period ended 30 June 2012 (2011: RMB 2,851 million).

	Legal contingencies
	The Group is a defendant in certain lawsuits as well as the named party in other proceedings arising in the ordinary course of business. Management has assessed the likelihood of an unfavourable outcome of such contingencies, lawsuits or other proceedings and believes that any resulting liabilities will not have a material adverse effect on the financial position, operating results or cash flows of the Group.

129

31	RELATED PARTY TRANSACTIONS

	Parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to control or jointly control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the party are subject to common control. Related parties may be individuals (being members of key management personnel, significant shareholders and/or their close family members) or other entities and include entities which are under the significant influence of related parties of the Group where those parties are individuals, and post-employment benefit plans which are for the benefit of employees of the Group or of any entity that is a related party of the Group.

	(a)	Transactions with Sinopec Group Company and fellow subsidiaries, associates and jointly controlled entities
		The Group is part of a larger group of companies under Sinopec Group Company, which is controlled by the PRC government, and has significant transactions and relationships with Sinopec Group Company and fellow subsidiaries. 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.

		The principal related party transactions with Sinopec Group Company and fellow subsidiaries, associates and jointly controlled entities, which were carried out in the ordinary course of business, are as follows:

		Six-month periods ended 30 June
	Note	2012		2011
		RMB millions		RMB millions

Sales of goods	(i)		169,491		138,800
Purchases	(ii)		73,797		67,839
Transportation and storage	(iii)		709		640
Exploration and development services	(iv)		16,600		13,164
Production related services	(v)		4,514		4,743
Ancillary and social services	(vi)		2,063		1,927
Operating lease charges	(vii)		3,685		3,702
Agency commission income	(viii)		78		8
Interest received	(ix)		58		52
Interest paid	(x)		563		297
Net deposits withdrawn from related parties	(ix)		3,298		7,015
Net loans obtained from/(repaid to) related parties	(xi)		38,202		(414	)

	The amounts set out in the table above in respect of the six-month periods ended 30 June 2012 and 2011 represent the relevant costs and income as determined by the corresponding contracts with the related parties.

	At 30 June 2012 and 31 December 2011, there were no guarantees given to banks by the Group in respect of banking facilities to related parties, except for the guarantees disclosed in Note 30.

	Note:

	(i)	Sales of goods represent the sale of crude oil, intermediate petrochemical products, petroleum products and ancillary materials.

	(ii)	Purchases represent the purchase of materials and utility supplies directly related to the Group’s operations such as the procurement of raw and ancillary materials and related services, supply of water, electricity and gas.

	(iii)	Transportation and storage represent the cost for the use of railway, road and marine transportation services, pipelines, loading, unloading and storage facilities.

	(iv)	Exploration and development services comprise direct costs incurred in the exploration and development such as geophysical, drilling, well testing and well measurement services.

	(v)	Production related services represent ancillary services rendered in relation to the Group’s operations such as equipment repair and general maintenance, insurance premium, technical research, communications, fire fighting, security, product quality testing and analysis, information technology, design and engineering, construction of oilfield ground facilities, refineries and chemical plants, manufacture of replacement parts and machinery, installation, project management and environmental protection.

	(vi)	Ancillary and social services represent expenditures for social welfare and support services such as educational facilities, media communication services, sanitation, accommodation, canteens, property maintenance and management services.

	(vii)	Operating lease charges represent the rental paid to Sinopec Group Company for operating leases in respect of land, buildings and equipment.

	(viii)	Agency commission income represents commission earned for acting as an agent in respect of sales of products and purchase of materials for certain entities owned by Sinopec Group Company.

	(ix)	Interest received represents interest received from deposits placed with Sinopec Finance Company Limited and Sinopec Century Bright Capital Investment Limited, finance companies controlled by Sinopec Group Company. The applicable interest rate is determined in accordance with the prevailing saving deposit rate. The balance of deposits at 30 June 2012 was RMB 3,822 million (2011: RMB 7,120 million).

	(x)	Interest paid represents interest charges on the loans and advances obtained from Sinopec Group Company and fellow subsidiaries.

	(xi)	The Group obtained or repaid loans from or to Sinopec Group Company and fellow subsidiaries.

130

31	RELATED PARTY TRANSACTIONS (Continued)

	(a)	Transactions with Sinopec Group Company and fellow subsidiaries, associates and jointly controlled entities (Continued)
		In connection with the Reorganisation, the Company and Sinopec Group Company entered into a number of agreements under which 1) Sinopec Group Company will provide goods and products and a range of ancillary, social and supporting services to the Group and 2) the Group will sell certain goods to Sinopec Group Company. The terms of these agreements are summarised as follows:

		(a)	The Company has entered into a non-exclusive Agreement for Mutual Provision of Products and Ancillary Services (“Mutual Provision Agreement”) with Sinopec Group Company effective from 1 January 2000 in which Sinopec Group Company has agreed to provide the Group with certain ancillary production services, construction services, information advisory services, supply services and other services and products. While each of Sinopec Group Company and the Company is permitted to terminate the Mutual Provision Agreement upon at least six months notice, Sinopec Group Company has agreed not to terminate the agreement if the Group is unable to obtain comparable services from a third party. The pricing policy for these services and products provided by Sinopec Group Company to the Group is as follows:

			•	the government-prescribed price;

			•	where there is no government-prescribed price, the government-guidance price;

			•	where there is neither a government-prescribed price nor a government-guidance price, the market price; or

			•	where none of the above is applicable, the price to be agreed between the parties, which shall be based on a reasonable cost incurred in providing such services plus a profit margin not exceeding 6%.

		(b)	The Company has entered into a non-exclusive Agreement for Provision of Cultural and Educational, Health Care and Community Services with Sinopec Group Company effective from 1 January 2000 in which Sinopec Group Company has agreed to provide the Group with certain cultural, educational, health care and community services on the same pricing terms and termination conditions as described in the above Mutual Provision Agreement.

		(c)	The Company has entered into a series of lease agreements with Sinopec Group Company to lease certain lands and buildings effective on 1 January 2000. The lease term is 40 or 50 years for lands and 20 years for buildings, respectively. The Company and Sinopec Group Company can renegotiate the rental amount every three years for land and the rental amount is approximately RMB 6,727 million per annum (2011: RMB 6,727 million). The Company and Sinopec Group Company can renegotiate the rental amount for buildings every year. However such amount cannot exceed the market price as determined by an independent third party.

		(d)	The Company has entered into agreements with Sinopec Group Company effective from 1 January 2000 under which the Group has been granted the right to use certain trademarks, patents, technology and computer software developed by Sinopec Group Company.

		(e)	The Company has entered into a service stations franchise agreement with Sinopec Group Company effective from 1 January 2000 under which its service stations and retail stores would exclusively sell the refined products supplied by the Group.

		Amounts due from/to Sinopec Group Company and fellow subsidiaries, associates and jointly controlled entities included in the following accounts captions are summarised as follows:

	At 30 June		At 31 December
	2012		2011
	RMB millions		RMB millions

Trade accounts receivable		18,677		15,389
Prepaid expenses and other current assets		3,248		1,805
Total amounts due from Sinopec Group Company and fellow subsidiaries, associates and jointly controlled entities		21,925		17,194
Trade accounts payable		8,827		9,795
Accrued expenses and other payables		9,188		9,714
Short-term loans and current portion of long-term loans from Sinopec Group Company and fellow subsidiaries		50,658		12,149
Long-term loans excluding current portion from Sinopec Group Company and fellow subsidiaries		37,256		37,563
Total amounts due to Sinopec Group Company and fellow subsidiaries, associates and jointly controlled entities		105,929		69,221

		Amounts due from/to Sinopec Group Company and fellow subsidiaries, associates and jointly controlled entities, other than short-term loans and long-term loans, bear no interest, are unsecured and are repayable in accordance with normal commercial terms. The terms and conditions associated with short-term loans and long-term loans payable to Sinopec Group Company and fellow subsidiaries are set out in Note 25.

		As at 30 June 2012, the Group provided loans of USD 318 million (2011: USD 228 million) to certain jointly controlled entities of Sinopec Group Company according to relevant agreements.

		As at and for the six-month period ended 30 June 2012, and as at and for the year ended 31 December 2011, no individually significant impairment losses for bad and doubtful debts were recognised in respect of amounts due from Sinopec Group Company and fellow subsidiaries, associates and jointly controlled entities.

131

31	RELATED PARTY TRANSACTIONS (Continued)

	(b)	Key management personnel emoluments
		Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including directors and supervisors of the Group. The key management personnel compensation is as follows:

	Six-month periods ended 30 June
	2012	2011
	RMB’000	RMB’000

Short-term employee benefits	5,071	4,638
Retirement scheme contributions	228	142
	5,299	4,780

	Total emoluments are included in “personnel expenses” as disclosed in Note 6.

(c)	Contributions to defined contribution retirement plans
	The Group participates in various defined contribution retirement plans organised by municipal and provincial governments for its staff. The details of the Group’s employee benefits plan are disclosed in Note 32. As at 30 June 2012 and 31 December 2011, the accrual for the contribution to post-employment benefit plans was not material.

(d)	Transactions with other state-controlled entities in the PRC
	The Group is a state-controlled energy and chemical enterprise and operates in an economic regime currently dominated by entities directly or indirectly controlled by the PRC government through its government authorities, agencies, affiliations and other organisations (collectively referred as “state-controlled entities”).

	Apart from transactions with Sinopec Group Company and fellow subsidiaries, the Group has transactions with other state-controlled entities, include but not limited to the following:

	•	sales and purchase of goods and ancillary materials;

	•	rendering and receiving services;

	•	lease of assets;

	•	depositing and borrowing money; and

	•	use of public utilities.

	These transactions are conducted in the ordinary course of the Group’s business on terms comparable to those with other entities that are not state-controlled.

132

32	EMPLOYEE BENEFITS PLAN

	As stipulated by the regulations of the PRC, the Group participates in various defined contribution retirement plans organised by municipal and provincial governments for its staff. The Group is required to make contributions to the retirement plans at rates ranging from 18.0% to 23.0% of the salaries, bonuses and certain allowances of its staff. In addition, the Group provides a supplementary retirement plan for its staff at rates not exceeding 5% of the salaries. A member of the above plan is entitled to a pension equal to a fixed proportion of the salary prevailing at his or her retirement date. The Group has no other material obligation for the payment of pension benefits associated with these plans beyond the annual contributions described above. The Group’s contributions for the six-month period ended 30 June 2012 were RMB 3,193 million (2011: RMB 2,724 million).

33	SEGMENT REPORTING

	Segment information is presented in respect of the Group’s business segments. The format is based on the Group’s management and internal reporting structure.

	In a manner consistent with the way in which information is reported internally to the Group’s chief operating decision maker for the purposes of resource allocation and performance assessment, the Group has identified the following five reportable segments. No operating segments have been aggregated to form the following reportable segments.

	(i)	Exploration and production, which explores and develops oil fields, produces crude oil and natural gas and sells such products to the refining segment of the Group and external customers.

	(ii)	Refining, which processes and purifies crude oil, that is sourced from the exploration and production segment of the Group and external suppliers, and manufactures and sells petroleum products to the chemicals and marketing and distribution segments of the Group and external customers.

	(iii)	Marketing and distribution, which owns and operates oil depots and service stations in the PRC, and distributes and sells refined petroleum products (mainly gasoline and diesel) in the PRC through wholesale and retail sales networks.

	(iv)	Chemicals, which manufactures and sells petrochemical products, derivative petrochemical products and other chemical products mainly to external customers.

	(v)	Corporate and others, which largely comprises the trading activities of the import and export companies of the Group and research and development undertaken by other subsidiaries.

	The reportable segments are each managed separately because they manufacture and/or distribute distinct products with different production processes and due to their distinct operating and gross margin characteristics.

133

33	SEGMENT REPORTING (Continued)

	(1)	Information of reportable segmental revenues, profits or losses, assets and liabilities

		The Group’s chief operating decision maker evaluates the performance and allocates resources to its operating segments on an operating income basis, without considering the effects of finance costs or investment income. Inter-segment transfer pricing is based on the market price or cost plus an appropriate margin, as specified by the Group’s policy.

		Assets and liabilities dedicated to a particular segment’s operations are included in that segment’s total assets and liabilities. Segment assets include all tangible and intangible assets, except for cash and cash equivalents, time deposits with financial institutions, investments and deferred tax assets. Segment liabilities exclude short-term and long-term debts, loans from Sinopec Group Company and fellow subsidiaries, income tax payable, deferred tax liabilities and other non-current liabilities.

		Information of the Group’s reportable segments is as follows:

	Six-month periods ended 30 June
	2012			2011
	RMB millions			RMB millions

Turnover
Exploration and production
External sales		25,956			21,667
Inter-segment sales		90,728			84,281
		116,684			105,948
Refining
External sales		95,805			96,314
Inter-segment sales		540,088			496,319
		635,893			592,633
Marketing and distribution
External sales		701,769			649,997
Inter-segment sales		4,003			2,058
		705,772			652,055
Chemicals
External sales		173,576			182,994
Inter-segment sales		23,457			23,315
		197,033			206,309
Corporate and others
External sales		330,360			265,969
Inter-segment sales		323,343			306,501
		653,703			572,470
Elimination of inter-segment sales		(981,619	)		(912,474	)
Turnover		1,327,466			1,216,941
Other operating revenues
Exploration and production		9,433			6,685
Refining		2,680			3,043
Marketing and distribution		4,181			2,947
Chemicals		3,736			3,129
Corporate and others		576			527
Other operating revenues		20,606			16,331
Turnover and other operating revenues		1,348,072			1,233,272

134

33	SEGMENT REPORTING (Continued)

	(1)	Information of reportable segmental revenues, profits or losses, assets and liabilities (Continued)

	Six-month periods ended 30 June
	2012			2011
	RMB millions			RMB millions

Result
Operating profit/(loss)
By segment
– Exploration and production		40,463			34,651
– Refining		(18,501	)		(12,169	)
– Marketing and distribution		20,252			19,598
– Chemicals		(1,251	)		16,344
– Corporate and others		(356	)		(642	)
– Elimination		(524	)		657
Total segment operating profit		40,083			58,439
Share of profits less losses from associates and jointly controlled entities
– Exploration and production		123			128
– Refining		(741	)		(194	)
– Marketing and distribution		553			640
– Chemicals		(86	)		1,869
– Corporate and others		474			361
Aggregate share of profits less losses from associates and jointly controlled entities		323			2,804
Investment income/(loss)
– Refining		8			3
– Marketing and distribution		40			90
– Chemicals		15			10
– Corporate and others		—			(1	)
Aggregate investment income		63			102
Net finance costs		(5,027	)		(3,296	)
Profit before taxation		35,442			58,049

	At 30 June			At 31 December
		2012			2011
	RMB millions			RMB millions

Assets
Segment assets
– Exploration and production		334,744			329,968
– Refining		288,811			274,507
– Marketing and distribution		240,465			231,664
– Chemicals		136,249			143,215
– Corporate and others		101,748			77,489
Total segment assets		1,102,017			1,056,843
Interest in associates and jointly controlled entities		45,240			45,684
Investments		2,362			1,829
Deferred tax assets		14,169			12,706
Cash and cash equivalents and time deposits with financial institutions		13,960			25,197
Other unallocated assets		3,539			2,269
Total assets		1,181,287			1,144,528
Liabilities
Segment liabilities
– Exploration and production		70,471			86,538
– Refining		46,566			63,753
– Marketing and distribution		72,301			83,625
– Chemicals		24,031			30,459
– Corporate and others		121,462			111,680
Total segment liabilities		334,831			376,055
Short-term debts		81,017			68,224
Income tax payable		2,815			4,054
Long-term debts		134,815			116,894
Loans from Sinopec Group Company and fellow subsidiaries		87,914			49,712
Deferred tax liabilities		15,423			15,181
Other unallocated liabilities		7,687			7,064
Total liabilities		664,502			637,184

135

33	SEGMENT REPORTING (Continued)

	(1)	Information of reportable segmental revenues, profits or losses, assets and liabilities (Continued)

		Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one year.

	Six-month periods ended 30 June
	2012		2011
	RMB millions		RMB millions

Capital expenditure
Exploration and production		21,839		17,406
Refining		10,427		3,656
Marketing and distribution		12,390		9,523
Chemicals		6,341		2,120
Corporate and others		507		862
		51,504		33,567
Depreciation, depletion and amortisation
Exploration and production		19,328		16,399
Refining		6,062		5,733
Marketing and distribution		4,091		3,498
Chemicals		4,450		4,286
Corporate and others		603		594
		34,534		30,510
Impairment losses on long-lived assets
Refining		—		43
Marketing and distribution		—		32
Chemicals		—		89
		—		164

	(2)	Geographical information

		The following tables set out information about the geographical information of (i) the Group’s external sales and (ii) the Group’s non-current assets, excluding financial instruments and deferred tax assets. In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers, and segment assets are based on the geographical location of the assets.

	Six-month periods ended 30 June
	2012		2011
	RMB millions		RMB millions

External sales
Mainland China		1,016,324		933,935
Others		331,748		299,337
		1,348,072		1,233,272

	At 30 June		At 31 December
		2012		2011
	RMB millions		RMB millions

Non-current assets
Mainland China		782,997		762,805
Others		23,334		24,375
		806,331		787,180

136

34	PRINCIPAL SUBSIDIARIES

	At 30 June 2012, the following list contains the particulars of subsidiaries which principally affected the results, assets and liabilities of the Group.

	Particulars
	of issued	Percentage
Name of company	capital	of equity		Principal activities
	(millions)	%

China Petrochemical International Company Limited	RMB 1,400		100.00	Trading of petrochemical products
Sinopec Sales Company Limited	RMB 1,700		100.00	Marketing and distribution of refined petroleum products
Sinopec Yangzi Petrochemical Company Limited	RMB 13,203		100.00	Manufacturing of intermediate petrochemical products and petroleum products
Fujian Petrochemical Company Limited (Note)	RMB 4,769		50.00	Manufacturing of plastics, intermediate petrochemical products and petroleum products
Sinopec Shanghai Petrochemical Company Limited	RMB 7,200		55.56	Manufacturing of synthetic fibres, resin and plastics, intermediate petrochemical products and petroleum products
Sinopec Kantons Holdings Limited	HKD 207		72.34	Trading of crude oil and petroleum products
Sinopec Yizheng Chemical Fibre Company Limited (Note)	RMB 4,000		42.00	Production and sale of polyester chips and polyester fibres
Sinopec Zhongyuan Petrochemical Company Limited	RMB 2,400		93.51	Manufacturing of petrochemical products
Sinopec Shell (Jiangsu) Petroleum Marketing Company Limited	RMB 830		60.00	Marketing and distribution of refined petroleum products
BP Sinopec (Zhejiang) Petroleum Company Limited	RMB 800		60.00	Marketing and distribution of refined petroleum products
Sinopec Qingdao Refining and Chemical Company Limited	RMB 5,000		85.00	Manufacturing of intermediate petrochemical products and petroleum products
China International United Petroleum and Chemical Company Limited	RMB 3,000		100.00	Trading of crude oil and petrochemical products
Sinopec Hainan Refining and Chemical Company Limited	RMB 3,986		75.00	Manufacturing of intermediate petrochemical products and petroleum products
Sinopec (Hong Kong) Limited	HKD 5,477		100.00	Trading of crude oil and petrochemical products
Sinopec Senmei (Fujian) Petroleum Limited	RMB 1,840		55.00	Marketing and distribution of refined petroleum products
Sinopec Qingdao Petrochemical Company Limited	RMB 1,595		100.00	Manufacturing of intermediate petrochemical products and petroleum products
Sinopec Chemical Sales Company Limited	RMB 1,000		100.00	Marketing and distribution of petrochemical products
Sinopec International Petroleum Exploration and Production Limited	RMB 8,000		100.00	Investment in exploration, production and sales of petroleum and natural gas
Sinopec Fuel Oil Sales Company Limited	RMB 2,200		100.00	Marketing and distribution of refined petroleum products

	Except for Sinopec Kantons Holdings Limited and Sinopec (Hong Kong) Limited, which are incorporated in Bermuda and Hong Kong respectively, all of the above principal subsidiaries are incorporated in the PRC. All of the above principal subsidiaries are limited companies.

	Note:

	The Company consolidated the financial statements of the entity because it controlled the board of this entity and had the power to govern its financial and operating policies.

137

35	FINANCIAL RISK MANAGEMENT AND FAIR VALUES

	Overview
	Financial assets of the Group include cash and cash equivalents, time deposits with financial institutions, investments, trade accounts receivable, bills receivable, amounts due from Sinopec Group Company and fellow subsidiaries, advances to third parties, amounts due from associates and jointly controlled entities, derivative financial instruments and other receivables. Financial liabilities of the Group include short-term and long-term debts, loans from Sinopec Group Company and fellow subsidiaries, trade accounts payable, bills payable, amounts due to Sinopec Group Company and fellow subsidiaries, derivative financial instruments and advances from third parties.

	The Group has exposure to the following risks from its use of financial instruments:

	•	credit risk;

	•	liquidity risk;

	•	market risk; and

	•	equity price risk.

	The Board of Directors has overall responsibility for the establishment, oversight of the Group’s risk management framework, and developing and monitoring the Group’s risk management policies.

	The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management controls and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. Internal audit department undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Group’s audit committee.

	Credit risk
	Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s deposits placed with financial institutions and receivables from customers. To limit exposure to credit risk relating to deposits, the Group primarily places cash deposits only with large financial institutions in the PRC with acceptable credit ratings. The majority of the Group’s trade accounts receivable relate to sales of petroleum and chemical products to related parties and third parties operating in the petroleum and chemical industries. Management performs ongoing credit evaluations of the Group’s customers’ financial condition and generally does not require collateral on trade accounts receivable. The Group maintains an impairment loss for doubtful accounts and actual losses have been within management’s expectations. No single customer accounted for greater than 10% of total trade accounts receivable. The details of the Group’s credit policy and quantitative disclosures in respect of the Group’s exposure on credit risk for trade receivables are set out in Note 21.

	The carrying amounts of cash and cash equivalents, time deposits with financial institutions, trade accounts and bills receivables, derivative financial instruments and other receivables, represent the Group’s maximum exposure to credit risk in relation to financial assets.

	Liquidity risk
	Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach in managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. Management prepares monthly cash flow budget to ensure that the Group will always have sufficient liquidity to meet its financial obligations as they fall due. The Group arranges and negotiates financing with financial institutions and maintains a certain level of standby credit facilities to reduce the Group’s liquidity risk.

	At 30 June 2012, the Group has standby credit facilities with several PRC financial institutions which provide borrowings up to RMB 189,900 million (2011: RMB 170,500 million) on an unsecured basis, at a weighted average interest rate of 3.57% per annum (2011: 3.63%). At 30 June 2012, the Group’s outstanding borrowings under these facilities were RMB 11,462 million (2011: RMB 13,767 million) and were included in short-term debts.

138

35	FINANCIAL RISK MANAGEMENT AND FAIR VALUES (Continued)

	Liquidity risk (Continued)
	The following table sets out the remaining contractual maturities at the balance sheet date of the Group’s financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on prevailing rates current at the balance sheet date) and the earliest date the Group would be required to repay:

	At 30 June 2012
			Total
			contractual		Within		More than 1		More than 2
	Carrying		undiscounted		1 year or		year but less		years but less		More than
	amount		cash flow		on demand		than 2 years		than 5 years		5 years
	RMB millions		RMB millions		RMB millions		RMB millions		RMB millions		RMB millions

Short-term debts		81,017		82,067		82,067		—		—		—
Long-term debts		134,815		155,385		3,705		58,113		62,105		31,462
Loans from Sinopec Group Company and fellow subsidiaries		87,914		88,477		51,083		574		1,244		35,576
Trade accounts payable		172,949		172,949		172,949		—		—		—
Bills payable		4,276		4,276		4,276		—		—		—
Accrued expenses and other payables		59,104		59,104		59,104		—		—		—
		540,075		562,258		373,184		58,687		63,349		67,038

	At 31 December 2011
			Total
			contractual		Within		More than 1		More than 2
	Carrying		undiscounted		1 year or		year but less		years but less		More than
	amount		cash flow		on demand		than 2 years		than 5 years		5 years
	RMB millions		RMB millions		RMB millions		RMB millions		RMB millions		RMB millions

Short-term debts		68,224		69,713		69,713		—		—		—
Long-term debts		116,894		131,551		7,291		17,943		57,842		48,475
Loans from Sinopec Group Company and fellow subsidiaries		49,712		50,346		12,584		228		1,974		35,560
Trade accounts payable		177,002		177,002		177,002		—		—		—
Bills payable		5,933		5,933		5,933		—		—		—
Accrued expenses and other payables		53,655		53,655		53,655		—		—		—
		471,420		488,200		326,178		18,171		59,816		84,035

	Management believes that the Group’s current cash on hand, expected cash flows from operations and available standby credit facilities from financial institutions will be sufficient to meet the Group’s working capital requirements and repay its short-term debts and obligations when they become due.

	Currency risk
	Currency risk arises on financial instruments that are denominated in a currency other than the functional currency in which they are measured. The Group’s currency risk exposure primarily relates to short-term and long-term debts and loans from Sinopec Group Company and fellow subsidiaries denominated in US Dollars, Japanese Yen and Hong Kong Dollars. The Group enters into foreign exchange contracts to manage its currency risk exposure.

	Included in short-term and long-term debts and loans from Sinopec Group Company and fellow subsidiaries of the Group are the following amounts denominated in a currency other than the functional currency of the entity to which they relate:

	At 30 June	At 31 December
	2012	2011
	millions	millions

Gross exposure arising from loans and borrowings
US Dollars	USD 3,002	USD 1,794
Japanese Yen	JPY 12,635	JPY 14,532
Hong Kong Dollars	HKD 13,200	HKD 12,847

139

35	FINANCIAL RISK MANAGEMENT AND FAIR VALUES (Continued)

	Currency risk (Continued)

	A 5 percent strengthening of Renminbi against the following currencies at 30 June 2012 and 31 December 2011 would have increased profit for the period/year and retained earnings of the Group by the amounts shown below. This analysis has been determined assuming that the change in foreign exchange rates had occurred at the balance sheet date and had been applied to the foreign currency balances to which the Group has significant exposure as stated above, and that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2011.

	At 30 June		At 31 December
	2012		2011
	RMB millions		RMB millions

US Dollars		712		424
Japanese Yen		38		44
Hong Kong Dollars		404		391

	Other than the amounts as disclosed above, the amounts of other financial assets and liabilities of the Group are substantially denominated in the functional currency of respective entity within the Group.

	Interest rate risk
	The Group’s interest rate risk exposure arises primarily from its short-term and long-term debts. Debts bearing interest at variable rates and at fixed rates expose the Group to cash flow interest rate risk and fair value interest rate risk respectively. The interest rates of short-term and long-term debts, and loans from Sinopec Group Company and fellow subsidiaries of the Group are disclosed in Note 25.

	As at 30 June 2012, it is estimated that a general increase/decrease of 100 basis points in variable interest rates, with all other variables held constant, would decrease/increase the Group’s profit for the period and retained earnings by approximately RMB 682 million (2011: RMB 271 million). This sensitivity analysis has been determined assuming that the change of interest rates was applied to the Group’s debts outstanding at the balance sheet date with exposure to cash flow interest rate risk. The analysis is performed on the same basis for 2011.

	Commodity price risk
	The Group engages in oil and gas operations and is exposed to commodity price risk related to price volatility of crude oil, refined oil products and chemical products. The fluctuations in prices of crude oil, refined oil products and chemical products could have significant impact on the Group. The Group uses derivative financial instruments, including commodity futures and swaps, to manage a portion of this risk. As at 30 June 2012, the Group had certain commodity contracts of crude oil, refined oil products and chemical products designated as qualified cash flow hedges and economic hedges. The fair values of these derivative financial instruments as at 30 June 2012 are set out in Notes 23 and 27.

	As at 30 June 2012, it is estimated that a general increase/decrease of USD 10 per barrel in crude oil and refined oil products, with all other variables held constant, would decrease/increase the Group’s profit for the period and retained earnings by approximately RMB 117 million (2011: increase/decrease RMB 563 million), and decrease/increase the Group’s other reserves by approximately RMB 144 million (2011: increase/decrease RMB 450 million). This sensitivity analysis has been determined assuming that the change in prices had occurred at the balance sheet date and the change was applied to the Group’s derivative financial instruments at that date with exposure to commodity price risk. The analysis is performed on the same basis for 2011.

	Equity price risk
	The Group is exposed to equity price risk arising from changes in the Company’s own share price to the extent that the Company’s own equity instruments underlie the fair values of derivatives of the Group. At 30 June 2011, the Group’s exposure to equity price risk is the derivatives embedded in the 2007 Convertible Bonds and the 2011 Convertible Bonds issued by the Company as disclosed in Note 25(c) and (e), respectively.

	As at 30 June 2012, it is estimated that an increase of 20% in the Company’s own share price would decrease the Group’s profit for the period and retained earnings by approximately RMB 1,774 million (2011: RMB 2,159 million); a decrease of 20% in the Company’s own share price would increase the Group’s profit for the period and retained earnings by approximately RMB 1,035 million (2011: RMB 1,628 million). This sensitivity analysis has been determined assuming that the changes in the Company’s own share price had occurred at the balance sheet date and that all other variables remain constant. The analysis is performed on the same basis for 2011.

140

35	FINANCIAL RISK MANAGEMENT AND FAIR VALUES (Continued)

	Fair values

	(i)	Financial instruments carried at fair value
		The following table presents the carrying value of financial instruments measured at fair value at the balance sheet date across the three levels of the fair value hierarchy defined in IFRS 7, Financial Instruments: Disclosures, with the fair value of each financial instrument categorised in its entirety based on the lowest level of input that is significant to that fair value measurement. The levels are defined as follows:

		•	Level 1 (highest level): fair values measured using quoted prices (unadjusted) in active markets for identical financial instruments.

		•	Level 2: fair values measured using quoted prices in active markets for similar financial instruments, or using valuation techniques in which all significant inputs are directly or indirectly based on observable market data.

		•	Level 3 (lowest level): fair values measured using valuation techniques in which any significant input is not based on observable market data.

At 30 June 2012

	Level 1		Level 2		Level 3		Total
	RMB millions		RMB millions		RMB millions		RMB millions

Assets
Available-for-sale financial assets:
– Listed		56		—		—		56
Derivative financial instruments:
– Derivative financial assets		149		3,670		—		3,819
		205		3,670		—		3,875
Liabilities
Derivative financial instruments:
– Embedded derivative components of the convertible bonds		—		2,007		—		2,007
– Other derivative financial liabilities		127		5,184		—		5,311
		127		7,191		—		7,318

At 31 December 2011

	Level 1		Level 2		Level 3		Total
	RMB millions		RMB millions		RMB millions		RMB millions

Assets
Available-for-sale financial assets:
– Listed		55		—		—		55
– Non-listed		—		200		—		200
Derivative financial instruments:
– Derivative financial assets		133		758		—		891
		188		958		—		1,146
Liabilities
Derivative financial instruments:
– Embedded derivative components of the convertible bonds		—		2,680		—		2,680
– Other derivative financial liabilities		79		810		—		889
		79		3,490		—		3,569

During the six-month period ended 30 June 2012 there were no transfers between instruments in Level 1 and Level 2.

141

35	FINANCIAL RISK MANAGEMENT AND FAIR VALUES (Continued)

	Fair values (Continued)

	(ii)	Fair values of financial instruments carried at other than fair value
		The disclosures of the fair value estimates, and their methods and assumptions of the Group’s financial instruments, are made to comply with the requirements of IFRS 7 and IAS 39 and should be read in conjunction with the Group’s consolidated financial statements and related notes. The estimated fair value amounts have been determined by the Group using market information and valuation methodologies considered appropriate. However, considerable judgement is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Group could realise in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

		The fair values of the Group’s financial instruments carried at other than fair value (other than long-term indebtedness and investments in unquoted equity securities) approximate their carrying amounts due to the short-term maturity of these instruments. The fair values of long-term indebtedness are estimated by discounting future cash flows using current market interest rates offered to the Group that range between 4.41% to 6.80% (2011: 4.95% to 7.05%). The following table presents the carrying amount and fair value of the Group’s long-term indebtedness other than loans from Sinopec Group Company and fellow subsidiaries at 30 June 2012 and 31 December 2011:

	At 30 June		At 31 December
	2012		2011
	RMB millions		RMB millions

Carrying amount		147,453		160,082
Fair value		143,081		146,272

		The Group has not developed an internal valuation model necessary to estimate the fair values of loans from Sinopec Group Company and fellow subsidiaries as it is not considered practicable to estimate their fair values because the cost of obtaining discount and borrowing rates for comparable borrowings would be excessive based on the Reorganisation, the Group’s existing capital structure and the terms of the borrowings.

		Investments in unquoted equity securities are individually and in the aggregate not material to the Group’s financial condition or results of operations. There are no listed market prices for such interests in the PRC and, accordingly, a reasonable estimate of fair value could not be made without incurring excessive costs. The Group intends to hold these unquoted other investments in equity securities for long term purpose.

36	ACCOUNTING ESTIMATES AND JUDGEMENTS

	The Group’s financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that underlie the preparation of the interim financial statements. Management bases the assumptions and estimates on historical experience and on various other assumptions that it believes to be reasonable and which form the basis for making judgements about matters that are not readily apparent from other sources. On an on-going basis, management evaluates its estimates. Actual results may differ from those estimates as facts, circumstances and conditions change.

	The selection of critical accounting policies, the judgements and other uncertainties affecting application of such policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing the interim financial statements. The significant accounting policies are set forth in Note 2. Management believes the following critical accounting policies involve the most significant judgements and estimates used in the preparation of the consolidated interim financial statements.

	Oil and gas properties and reserves
	The accounting for the exploration and production’s oil and gas activities is subject to accounting rules that are unique to the oil and gas industry. There are two methods to account for oil and gas business activities, the successful efforts method and the full cost method. The Group has elected to use the successful efforts method. The successful efforts method reflects the volatility that is inherent in exploring for mineral resources in that costs of unsuccessful exploratory efforts are charged to expense as they are incurred. These costs primarily include dry hole costs, seismic costs and other exploratory costs. Under the full cost method, these costs are capitalised and written-off or depreciated over time.

	Engineering estimates of the Group’s oil and gas reserves are inherently imprecise and represent only approximate amounts because of the subjective judgements involved in developing such information. There are authoritative guidelines regarding the engineering criteria that have to be met before estimated oil and gas reserves can be designated as “proved”. Proved and proved developed reserves estimates are updated at least annually and take into account recent production and technical information about each field. In addition, as prices and cost levels change from year to year, the estimate of proved and proved developed reserves also changes. This change is considered a change in estimate for accounting purposes and is reflected on a prospective basis in related depreciation rates.

	Future dismantlement costs for oil and gas properties are estimated with reference to engineering estimates after taking into consideration the anticipated method of dismantlement required in accordance with industry practices in similar geographic area, including estimation of economic life of oil and gas properties, technology and price level. The present values of these estimated future dismantlement costs are capitalised as oil and gas properties with equivalent amounts recognised as provisions for dismantlement costs.

	Despite the inherent imprecision in these engineering estimates, these estimates are used in determining depreciation expense, impairment expense and future dismantlement costs. Depreciation rates are determined based on estimated proved developed reserve quantities (the denominator) and capitalised costs of producing properties (the numerator). Producing properties’ capitalised costs are amortised based on the units of oil or gas produced.

142

36	ACCOUNTING ESTIMATES AND JUDGEMENTS (Continued)

	Impairment for long-lived assets
	If circumstances indicate that the net book value of a long-lived asset may not be recoverable, the asset may be considered “impaired”, and an impairment loss may be recognised in accordance with IAS 36 “Impairment of Assets”. The carrying amounts of long-lived assets are reviewed periodically in order to assess whether the recoverable amounts have declined below the carrying amounts. These assets are tested for impairment whenever events or changes in circumstances indicate that their recorded carrying amounts may not be recoverable. When such a decline has occurred, the carrying amount is reduced to recoverable amount. For goodwill, the recoverable amount is estimated annually. The recoverable amount is the greater of the net selling price and the value in use. It is difficult to precisely estimate selling price because quoted market prices for the Group’s assets or cash-generating units are not readily available. In determining the value in use, expected cash flows generated by the asset or the cash-generating unit are discounted to their present value, which requires significant judgement relating to level of sale volume, selling price and amount of operating costs. Management uses all readily available information in determining an amount that is a reasonable approximation of recoverable amount, including estimates based on reasonable and supportable assumptions and projections of sale volume, selling price and amount of operating costs.

	Depreciation
	Property, plant and equipment, other than oil and gas properties, are depreciated on a straight-line basis over the estimated useful lives of the assets, after taking into account the estimated residual value. Management reviews the estimated useful lives of the assets at least annually in order to determine the amount of depreciation expense to be recorded during any reporting period. The useful lives are based on the Group’s historical experience with similar assets and take into account anticipated technological changes. The depreciation expense for future periods is adjusted if there are significant changes from previous estimates.

	Impairment for bad and doubtful debts
	Management estimates impairment losses for bad and doubtful debts resulting from the inability of the Group’s customers to make the required payments. Management bases the estimates on the ageing of the accounts receivable balance, customer credit-worthiness, and historical write-off experience. If the financial condition of the customers were to deteriorate, actual write-offs would be higher than estimated.

	Allowance for diminution in value of inventories
	If the costs of inventories become higher than their net realisable values, an allowance for diminution in value of inventories is recognised. Net realisable value represents the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. Management bases the estimates on all available information, including the current market prices of the finished goods and raw materials, and historical operating costs. If the actual selling prices were to be lower or the costs of completion were to be higher than estimated, the actual allowance for diminution in value of inventories could be higher than estimated.

37	POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE FOR THE ANNUAL ACCOUNTING PERIOD ENDING 31 DECEMBER 2012

	Up to the date of issue of these interim financial statements, the IASB has issued a number of amendments, new standards and interpretations which are not yet effective for the annual accounting period ending 31 December 2012 and which have not been adopted in these interim financial statements.

	Management is in the process of making an assessment of what the impact of these amendments, new standards and new interpretations is expected to be in the period of initial application and has so far concluded that the adoption of these amendments, new standards and new interpretations is unlikely to have a significant impact on the Group’s results of operations and financial position.

38	PARENT AND ULTIMATE HOLDING COMPANY

	The directors consider the parent and ultimate holding company of the Group as at 30 June 2012 is Sinopec Group Company, a state-owned enterprise established in the PRC. This entity does not produce financial statements available for public use.

143

(C)	DIFFERENCES BETWEEN FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH THE ACCOUNTING POLICIES COMPLYING WITH ASBE AND IFRS (UNAUDITED)

Other than the differences in the classifications of certain financial statements captions and the accounting for the items described below, there are no material differences between the Group’s financial statements prepared in accordance with the accounting policies complying with ASBE and IFRS. The reconciliation presented below is included as supplemental information, is not required as part of the basic financial statements and does not include differences related to classification, presentation or disclosures. Such information has not been subject to independent audit or review. The major differences are:

(i)	Government grants
	Under ASBE, grants from the government are credited to capital reserve if required by relevant governmental regulations. Under IFRS, government grants relating to the purchase of fixed assets are recognised as deferred income and are transferred to the income statement over the useful life of these assets.

(ii)	Safety production fund
	Under ASBE, safety production fund should be recognised in profit or loss with a corresponding increase in reserve according to PRC regulations. Such reserve is reduced for expenses incurred for safety production purposes or, when safety production related fixed assets are purchased, is reduced by the purchased cost with a corresponding increase in the accumulated depreciation. Such fixed assets are not depreciated thereafter. Under IFRS, payments are expensed as incurred, or capitalised as fixed assets and depreciated according to applicable depreciation methods.

	Effects of major differences between the net profit under ASBE and the profit for the period under IFRS are analysed as follows:

		Six-month periods ended 30 June
	Note	2012		2011
		RMB millions		RMB millions

Net profit under ASBE			24,946		43,212
Adjustments:
Government grants	(i)		51		39
Safety production fund	(ii)		802		941
Profit for the period under IFRS*			25,799		44,192

Effects of major differences between the shareholders’ equity under ASBE and the total equity under IFRS are analysed as follows:

		At 30 June			At 31 December
	Note	2012			2011
		RMB millions			RMB millions

Shareholders’ equity under ASBE			519,221			509,525
Adjustments:
Government grants	(i)					(1,438	)
Safety production fund	(ii)		(998	)		(692	)
Total equity under IFRS*			516,785			507,344

The above figures are extracted from the financial statements prepared in accordance with the accounting policies complying with IFRS which have been audited by KPMG.

144

DOCUMENTS FOR INSPECTION

The following documents will be available for inspection during normal business hours after 24 August 2012 (Friday) at the legal address of Sinopec Corp. upon requests by the relevant regulatory authorities and shareholders in accordance with the Articles of Association of Sinopec Corp. and the laws and regulations:

1	The original interim report for the first half of 2012 signed by Mr. Fu Chengyu, Chairman;

2	The original audited financial statements and consolidated financial statements of Sinopec Corp. for the six-month period ended 30 June 2012 prepared in accordance with IFRS and the ASBE and signed by Mr. Fu Chengyu, Chairman, Mr. Wang Tianpu, Vice Chairman and President, and Mr. Wang Xinhua, Chief Financial Officer (and head of the Corporate Finance Department);

3	The original auditors’ reports in respect of the above financial statements signed by the auditors; and

4	All original documents and announcements published by Sinopec Corp. in the newspapers specified by the China Securities Regulatory Commission during the reporting period.

By Order of the Board

Fu Chengyu

Chairman

Beijing, PRC, 24 August 2012

145

WRITTEN CONFIRMATION FROM THE DIRECTORS AND SENIOR MANAGEMENT

In accordance with the relevant provisions and requirements of the Securities Law of the People’s Republic of China and Management Rules for Information Disclosure by Listed Companies issued by the China Securities Regulatory Commission, as the Board Directors and senior management of Sinopec Corp., we have carefully reviewed the 2012 interim report of Sinopec Corp. and concluded that this interim report truly and objectively represents the business performance of Sinopec Corp. in the first half of 2012, contains no false representations, misleading statements or material omissions and complies with the requirements of the China Securities Regulatory Commission and other relevant regulatory authorities.

Signatures of the Directors and Senior Management:


Fu Chengyu	Wang Tianpu	Zhang Yaocang	Zhang Jianhua


Wang Zhigang	Cai Xiyou	Cao Yaofeng	Li Chunguang


Dai Houliang	Liu Yun	Chen Xiaojin	Ma Weihua


Jiang Xiaoming	Yan Yan	Bao Guoming	Wang Xinhua


Zhang Kehua	Zhang Haichao	Jiao Fangzheng	Lei Dianwu


Ling Yiqun	Huang Wensheng

24 August 2012

This interim report is published in both English and Chinese. Should any conflict regarding meaning arises, the Chinese version shall prevail.

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.

China Petroleum & Chemical Corporation

By: /s/ Huang Wensheng

Name: Huang Wensheng

Title: Secretary to the Board of Directors

Date: August 27, 2012