SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of August 2006
PETROCHINA COMPANY LIMITED
16 ANDELU, DONGCHENG DISTRICT
BEIJING, THE PEOPLE'S REPUBLIC OF CHINA, 100011
(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.)
Form 20-F X Form 40-F
----- -----
(Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes No X
----- -----
(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-______)
PetroChina Company Limited (the "Registrant") is furnishing under the cover
of Form 6-K the Registrant's announcement with respect to its interim results
for the six months ended June 30, 2006.
This announcement contains "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements
are, by their nature, subject to significant risks and uncertainties. These
forward-looking statements include, without limitation, statements relating to:
- the Registrant's plan to speed up the implementation of oil and gas
exploration plans, steadily coordinate refining and production,
organize natural gas production and marketing in a systematic manner
and steadily promote international business; and
- the Registrant's other future plans and prospects.
These forward-looking statements reflect our current views with respect to
future events and are not a guarantee of future performance. Actual results may
differ materially from information contained in these forward-looking statements
as a result of a number of factors, including, without limitation:
- fluctuations in crude oil and natural gas prices;
- failure to achieve continued exploration success;
- failure or delay in achieving production from development projects;
- failure to complete the proposed acquisition of certain overseas
assets as planned;
- change in demand for competing fuels in the target market;
- continued availability of capital and financing;
- general economic, market and business conditions;
- changes in policies, laws or regulations of the PRC and other
jurisdictions in which the Registrant and its subsidiaries conduct
business; and
- other factors beyond the Registrant's control.
We do not intend to update or otherwise revise the forward-looking
statements in this announcement, whether as a result of new information, future
events or otherwise. Because of these risks, uncertainties and assumptions, the
forward-looking events and circumstances discussed in this announcement might
not occur in the way we expect, or at all.
You should not place undue reliance on any of these forward-looking
statements.
(PETROCHINA LOGO)
(CHINESE CHARACTERS)
PETROCHINA COMPANY LIMITED
(a joint stock limited company incorporated in the
People's Republic of China with limited liability)
(Stock Code: 857)
Announcement of the Interim Results for the six months ended June 30, 2006
FINANCIAL AND BUSINESS SUMMARY
Output of crude oil for the first half of 2006 was 419.1 million barrels,
representing an increase of 1.8% from the first half of 2005.
Output of marketable natural gas for the first half of 2006 was 684.7 billion
cubic feet, representing an increase of 30.8% from the first half of 2005.
Total output of crude oil and natural gas for the first half of 2006 was 533.2
million barrels of oil equivalent, representing an increase of 6.8% from the
first half of 2005.
Consolidated turnover for the first half of 2006 was RMB326,545 million,
representing an increase of 25.3% from the first half of 2005.
Consolidated net profit* for the first half of 2006 was RMB80,681 million,
representing an increase of 29.4% from the first half of 2005.
Basic and diluted earnings per share for the first half of 2006 were RMB0.45,
representing an increase of RMB0.10 per share from the first half of 2005.
The Board of Directors has resolved to distribute an interim dividend for 2006
of RMB0.202806 per share.
* Note: Consolidated net profit is profit attributable to the Company's
equity holders
1
The Board of Directors (the 'Board') of PetroChina Company Limited (the
'Company') is pleased to announce the unaudited consolidated interim results of
the Company and its subsidiaries (the 'Group") for the six months ended June 30,
2006 and its financial position as of June 30, 2006 :
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Six months ended June 30
-----------------------------
2005
Notes 2006 (Note 1)
----- ------------- -------------
(unaudited) (unaudited)
(RMB million) (RMB million)
TURNOVER 3 326,545 260,618
-------- --------
OPERATING EXPENSES
Purchases, services and other (112,758) (96,956)
Employee compensation costs (16,993) (13,052)
Exploration expenses, including exploratory dry holes (8,750) (8,729)
Depreciation, depletion and amortisation (29,910) (26,678)
Selling, general and administrative expenses (19,104) (14,902)
Taxes other than income taxes (24,259) (11,253)
Other income, net 522 919
-------- --------
TOTAL OPERATING EXPENSES (211,252) (170,651)
-------- --------
PROFIT FROM OPERATIONS 115,293 89,967
-------- --------
FINANCE COSTS
Exchange gain 830 231
Exchange loss (798) (213)
Interest income 959 709
Interest expense (1,848) (1,526)
-------- --------
TOTAL FINANCE COSTS (857) (799)
-------- --------
SHARE OF PROFIT OF ASSOCIATES 1,482 1,001
-------- --------
PROFIT BEFORE TAXATION 4 115,918 90,169
TAXATION 5 (30,675) (25,229)
-------- --------
PROFIT FOR THE PERIOD 85,243 64,940
======== ========
ATTRIBUTABLE TO:
Equity holders of the Company 80,681 62,363
Minority interest 4,562 2,577
-------- --------
85,243 64,940
======== ========
BASIC AND DILUTED EARNINGS PER SHARE FOR
PROFIT ATTRIBUTABLE TO EQUITY HOLDERS
OF THE COMPANY DURING THE PERIOD (RMB) 6 0.45 0.35
======== ========
DIVIDENDS ATTRIBUTABLE TO EQUITY HOLDERS
OF THE COMPANY:
Interim dividends proposed after the balance sheet date 8 36,307 27,731
======== ========
2
CONSOLIDATED BALANCE SHEET
December 31,2005
Notes June 30, 2006 (Note 1)
----- ------------- ----------------
(unaudited) (audited)
(RMB million) (RMB million)
NON CURRENT ASSETS
Property, plant and equipment 578,894 563,890
Investments in associates 12,153 12,378
Available-for-sale investments 1,963 1,230
Advance operating lease payments 17,674 16,235
Intangible and other assets 5,080 5,011
Time deposits with maturities over one year 2,990 3,428
------- -------
618,754 602,172
------- -------
CURRENT ASSETS
Inventories 80,824 62,733
Accounts receivable 9 10,531 4,630
Prepaid expenses and other current assets 32,548 22,673
Notes receivable 4,058 3,028
Investments in collateralised loans -- 235
Time deposits with maturities over three months but
within one year 3,881 1,691
Cash and cash equivalents 92,630 80,905
------- -------
TOTAL CURRENT ASSETS 224,472 175,895
------- -------
CURRENT LIABILITIES
Accounts payable and accrued liabilities 10 112,373 99,758
Income tax payable 13,317 20,567
Other taxes payable 16,848 4,824
Short-term borrowings 34,004 28,689
------- -------
176,542 153,838
------- -------
NET CURRENT ASSETS 47,930 22,057
------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES 666,684 624,229
======= =======
EQUITY
Equity attributable to equity holders of the Company
Share capital
-- State-owned shares of RMB 1.00 each 157,922 157,922
-- H shares of RMB 1.00 each 21,099 21,099
------- -------
179,021 179,021
Retained earnings 252,211 203,812
Reserves 130,817 132,556
------- -------
562,049 515,389
Minority interest 30,072 28,278
------- -------
TOTAL EQUITY 592,121 543,667
------- -------
NON CURRENT LIABILITIES
Long-term borrowings 35,804 44,570
Other long-term obligations 948 1,046
Asset retirement obligations 14,690 14,187
Deferred taxation 23,121 20,759
------- -------
74,563 80,562
------- -------
666,684 624,229
======= =======
3
Notes:
1. ACCOUNTING POLICIES
The consolidated interim condensed financial statements have been prepared
in accordance with International Accounting Standard ("IAS') 34 "Interim
Financial Reporting". The accounting policies and methods of computation
used in the preparation of the consolidated interim condensed financial
statements are consistent with those used in the preparation of the
financial statements for the year ended December 31, 2005 except for the
ones modified by the Company as a result of the adoption of the new or
revised International Financial Reporting Standards ('IFRS").
In 2006, the Group adopted the following new standards, amendments to
standards and interpretations which are relevant to its operations and
mandatory for financial year ending December 31, 2006. The adoption of
these new and revised IFRS did not result in substantial changes to the
Group's accounting policies. In summary:
- International Financial Reporting Interpretations Committee ("IFRIC')
Interpretation 4, Determining whether an Arrangement contains a Lease,
effective for annual periods beginning on or after January 1, 2006.
- IFRIC Interpretation 8, Scope of IFRS 2, effective for annual periods
beginning on or after May 1, 2006.
- IAS 39 and IFRS 4 (Amendments), Financial Guarantee Contracts,
effective for annual periods beginning on or after January 1, 2006.
The consolidated interim condensed financial statements presented herein
should be read in conjunction with the consolidated financial statements
and notes thereto included in the annual report of the Group for the year
ended December 31, 2005. The consolidated interim condensed financial
statements as of June 30, 2006 and for the six-month periods ended June 30,
2006 and June 30, 2005 included herein are unaudited but reflect, in the
opinion of the Board of Directors, all adjustments (which include only
normal recurring adjustments) necessary to properly prepare the
consolidated interim condensed financial statements, in all material
respects, in accordance with IAS 34. The results of operations for the six
months ended June 30, 2006 are not necessarily indicative of the results of
operations expected for the year ending December 31, 2006.
Costs that incur unevenly during the financial year are anticipated or
deferred in these interim financial statements only if it would be also
appropriate to anticipate or defer such costs at the end of the financial
year.
Income tax expense is recognised based on the best estimate of the weighted
average annual income tax rate expected for the full financial year. The
estimated average annual tax rate used for the six months ended June 30,
2006 is 26% (six months ended June 30, 2005: 28%).
In August 2005 the shareholders of the Company approved the acquisition and
transfer agreements relating to the Company's acquisition of a 50%
ownership interest in (CHINESE CHARACTERS) (CNPC Exploration and
Development Company Limited ('CNPC E&D')). CNPC E&D was formed in 2005 and
was wholly owned by China National Oil and Gas Exploration and Development
Corporation ("CNODC', wholly owned by China National Petroleum Corporation
("CNPC')) and one of its subsidiaries. Under the terms of the related
agreements, CNODC transferred certain oil and gas exploration operations
into CNPC E&D and the Company contributed to CNPC E&D its wholly-owned
subsidiary, PetroChina International Limited ('PTRI'), and cash amounting
to approximately RMB20,162 million, which is the difference between the
cash contribution of RMB20,741 million payable by the Company according to
the acquisition agreement and cash consideration of RMB579
4
million for PTRI receivable by the Company. The terms of the agreements
grant the Company the right to appoint four of the seven directors of CNPC
E&D and enable the Company to maintain effective control over CNPC E&D.
The investment in CNPC E&D and related transactions have been accounted for
in a manner similar to uniting of interests as all entities involved are
under common control by CNPC. The consolidated financial statements of the
Company have been restated as if the operations of the Company and CNPC E&D
have always been combined. The payment was made directly to CNPC E&D,
therefore the difference between RMB20,162 million paid and the net assets
of RMB35,551 million at the effective date acquired (including RMB20,162
million contributed by the Company and RMB50 million for the contributed
paid-in capital by CNODC and its subsidiary) has been adjusted against
equity.
The summarised results of operations for the separate entities and on a
consolidated basis for the six months ended June 30, 2005, are set out
below:
PetroChina
(As previously
reported) CNPC E&D Consolidated
-------------- ------------- -------------
(RMB million) (RMB million) (RMB million)
Results of operations:
Turnover 252,489 8,129 260,618
Profit for the period 62,221 2,719 64,940
Basic and diluted earnings per share
for profit attributable to the
equity holders of the
Company (RMB) 0.35 0.00 0.35
Equity items:
Currency translation differences -- (421) (421)
Dividends to minority interest (214) (204) (418)
Other movement of minority interest 51 40 91
2. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
Estimates and judgments are continually evaluated and are based on
historical experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances. The
matters described below are considered to be the most critical in
understanding the judgments that are involved in preparing the Group's
financial statements:
(a) Estimation of oil and natural gas reserve
Oil and gas reserves are key elements in the Group's investment
decision-making process. They are also an important element in testing
for impairment. Changes in proved oil and natural gas reserves,
particularly proved developed reserves, will affect unit-of-production
depreciation charges to income. Proved reserve estimates are subject
to revision, either upward or downward, based on new information, such
as from development drilling and production activities or from changes
in economic factors, including product prices, contract terms or
development plans. In general, changes in the technical maturity of
oil and gas reserves resulting from new information becoming available
from development and production activities have tended to be the most
significant causes of annual revisions. Changes to the Group's
estimates of proved reserves, particularly proved developed reserves,
affect the amount of depreciation, depletion and amortisation recorded
in the Group's financial statements for property, plant and equipment
5
related to oil and gas production activities. A reduction in proved
developed reserves will increase depreciation, depletion and
amortisation charges (assuming constant production) and reduce net
income.
(b) Estimated impairment of property, plant and equipment
Property, plant and equipment, including oil and gas properties are
reviewed for possible impairment when events or changes in
circumstances indicate that the carrying amount may not be
recoverable. Determination as to whether and how much an asset is
impaired involves significant management estimates and judgments such
as future prices of crude oil, refined products and chemical products
and production profile. However, the impairment reviews and
calculations are based on assumptions that are consistent with the
Group's business plan. These assumptions also include those relative
to the pricing regulations by the regulatory agencies in China that
the policies will not restrict the profit margins of refined products
to levels that will be insufficient to recover the carrying cost of
the related production assets. Favourable changes to some assumptions
might have avoided the need to impair any assets in these periods,
whereas unfavourable changes might have caused an additional unknown
number of other assets to become impaired.
(c) Estimation of asset retirement obligations
Provisions are recognised for the future decommissioning and
restoration of oil and gas properties. The amounts of the provisions
recognised are the present values of the estimated future
expenditures. The estimation of the future expenditures is based on
current local conditions and requirements, including legal
requirements, technology, price level, etc.. In addition to these
factors, the present values of these estimated future expenditures are
also impacted by the estimation of the economic life of oil and gas
properties. Changes in any of these estimates will impact the net
income and the financial position of the Group over the remaining
economic life of oil and gas properties.
3. TURNOVER
Turnover represents revenues from the sale of crude oil, natural gas,
refined products and petrochemical products and from the transportation of
crude oil and natural gas. Analysis of turnover by segment is shown in Note
11.
6
4. PROFIT BEFORE TAXATION
Six months ended June 30
-----------------------------
2006 2005
------------- -------------
(RMB million) (RMB million)
Profit before taxation is arrived at after crediting and charging
of the following items:
Crediting:
Dividends income from available-for-sale investments 173 88
Reversal of impairment of receivables 108 249
Reversal of impairment of available-for-sale investments 1 1
Reversal of write down in inventories 136 88
Charging:
Amortisation on intangible and other assets 589 328
Cost of inventories (approximates cost of goods sold) recognised as
expense 146,273 126,623
Depreciation on property, plant and equipment, including impairment
provision
-- owned assets 28,677 25,420
-- assets under finance leases 3 7
Impairment of available-for-sale investments 2 --
Impairment of receivables 53 2
Interest expense (Note (a)) 1,848 1,526
Loss on disposal of property, plant and equipment 185 41
Operating lease expenses 2,429 2,528
Repair and maintenance 2,978 2,496
Research and development expenditure 2,024 1,043
Write down in inventories 56 16
======= =======
Note (a) Interest expense
Interest expense 2,252 1,927
Less: Amounts capitalised (404) (401)
------- -------
1,848 1,526
======= =======
5. TAXATION
Six months ended June 30
-----------------------------
2006 2005
------------- -------------
(RMB million) (RMB million)
Income tax 28,682 23,746
Deferred tax 1,993 1,483
------ ------
30,675 25,229
====== ======
In accordance with the relevant PRC income tax rules and regulations, the
PRC income tax rate applicable to the Group is principally 33% (2005 :
33%). Operations of the Group in certain regions in China have qualified
for certain tax incentives in the form of reduced income tax rate to 15%
through the year 2010 or accelerated depreciation of certain plant and
equipment.
7
The tax on the Group's profit before taxation differs from the theoretical
amount that would arise using the basic tax rate in the PRC applicable to
the Group as follows:
Six months ended June 30
-----------------------------
2006 2005
------------- -------------
(RMB million) (RMB million)
Profit before taxation 115,918 90,169
------- ------
Tax calculated at a tax rate of 33% 38,253 29,756
Prior year tax return adjustment 243 364
Effect of preferential tax rate (7,319) (4,946)
Tax effect of income not subject to tax (983) (406)
Tax effect of expenses not deductible for tax purposes 481 461
------- ------
Tax charge 30,675 25,229
======= ======
6. BASIC AND DILUTED EARNINGS PER SHARE
Basic and diluted earnings per share for the six months ended June 30, 2006
have been computed by dividing the profit attributable to equity holders of
the Company by the number of 179,021 million shares issued and outstanding
for the period.
Basic and diluted earnings per share for the six months ended June 30, 2005
have been computed by dividing the profit attributable to equity holders of
the Company by the number of 175,824 million shares issued and outstanding
for the period.
There are no dilutive potential ordinary shares.
8
7. CHANGES IN EQUITY
Attributable Minority
to equity holders of the Company interest Total Equity
----------------------------------------- -------- ------------
Share Retained
Capital Earnings Reserves Subtotal
-------- -------- -------- --------
(RMB (RMB (RMB (RMB (RMB (RMB
million) million) million) million) million) million)
Balance at January 1, 2005 (Note 1) 175,824 143,115 108,834 427,773 15,199 442,972
Currency translation differences -- -- (140) (140) (281) (421)
------- ------- ------- ------- ------ -------
Net loss recognised directly in equity -- -- (140) (140) (281) (421)
Profit from January 1 to June 30, 2005 -- 62,363 -- 62,363 2,577 64,940
------- ------- ------- ------- ------ -------
Total recognised income/(loss) from
January 1 to June 30, 2005 -- 62,363 (140) 62,223 2,296 64,519
------- ------- ------- ------- ------ -------
Final dividends for 2004 (Note 8) -- (25,936) -- (25,936) -- (25,936)
Dividends to minority interest -- -- -- -- (418) (418)
Return capital to minority interest due to
liquidation of subsidiaries -- -- -- -- (848) (848)
Payment to CNPC for the acquisition of
refinery and petrochemical businesses -- -- (9) (9) -- (9)
Capital contribution to CNPC E&D (Note 1) -- -- 25 25 25 50
Other movement of minority interest -- -- -- -- 91 91
------- ------- ------- ------- ------ -------
Balance at June 30, 2005 175,824 179,542 108,710 464,076 16,345 480,421
======= ======= ======= ======= ====== =======
Balance at January 1, 2006 179,021 203,812 132,556 515,389 28,278 543,667
Currency translation differences -- -- 439 439 924 1,363
------- ------- ------- ------- ------ -------
Net income recognised directly in equity -- -- 439 439 924 1,363
Profit from January 1 to June 30, 2006 -- 80,681 -- 80,681 4,562 85,243
------- ------- ------- ------- ------ -------
Total recognised income from January 1
to June 30, 2006 -- 80,681 439 81,120 5,486 86,606
------- ------- ------- ------- ------ -------
Final dividends for 2005 (Note 8) -- (32,282) -- (32,282) -- (32,282)
Dividends to minority interest -- -- -- -- (1,426) (1,426)
Purchase from minority interest of
subsidiaries -- -- (2,178) (2,178) (2,396) (4,574)
Other movement of minority interest -- -- -- -- 130 130
------- ------- ------- ------- ------ -------
Balance at June 30, 2006 179,021 252,211 130,817 562,049 30,072 592,121
======= ======= ======= ======= ====== =======
8. DIVIDENDS ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY
Six months ended June 30
-----------------------------
2006 2005
------------- -------------
(RMB million) (RMB million)
Final dividends attributable to equity holders of the Company for
2004 (Note (i)) -- 25,936
Final dividends attributable to equity holders of the Company for
2005 (Note (ii)) 32,282 --
------ ------
32,282 25,936
====== ======
(i) A final dividend attributable to equity holders of the Company in
respect of 2004 of RMB0.147511 per share amounting to a total of
RMB25,936 million was paid on June 10, 2005, and was accounted for in
equity as an appropriation of retained earnings in the six months
ended June 30, 2005.
9
(ii) A final dividend attributable to equity holders of the Company in
respect of 2005 of RMB0.180325 per share amounting to a total of
RMB32,282 million was paid on June 9, 2006, and was accounted for in
equity as an appropriation of retained earnings in the six months
ended June 30, 2006.
(iii) As authorised by shareholders in the Annual General Meeting on May
26, 2006, the Board of Directors, in a meeting held on August 23,
2006, resolved to distribute an interim dividend attributable to
equity holders of the Company in respect of 2006 of RMB0.202806 per
share amounting to a total of RMB36,307 million. These financial
statements do not reflect this dividends payable, as it was not
authorised until after the balance sheet date.
9. ACCOUNTS RECEIVABLE
June 30, 2006 December 31, 2005
------------- -----------------
(RMB million) (RMB million)
Accounts receivable due from third parties 11,701 6,483
Accounts receivable due from related parties 2,738 2,145
Less: Impairment provision (3,908) (3,998)
------ ------
10,531 4,630
====== ======
Amounts due from related parties are interest free and unsecured.
The aging analysis of accounts receivable at June 30, 2006 is as follows:
June 30, 2006 December 31, 2005
------------- -----------------
(RMB million) (RMB million)
Within 1 year 10,233 4,280
Between 1 to 2 years 82 70
Between 2 to 3 years 68 46
Over 3 years 4,056 4,232
------ -----
14,439 8,628
====== =====
The Group offers its customers the credit terms of no more than 180 days,
except for certain selected customers.
10
10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
June 30, 2006 December 31, 2005
------------- -----------------
(RMB million) (RMB million)
Trade payables 16,087 13,749
Advances from customers 9,169 7,698
Salaries and welfare payable 8,545 7,353
Accrued expenses 6,874 4
Dividends payable by subsidiaries to minority shareholders 26 93
Interest payable 1 27
Construction fee and equipment cost payables 17,337 16,420
One-time employee housing remedial payment payable 1,102 1,174
Amounts due to related parties 40,945 41,082
Other payables 12,287 12,158
------- ------
112,373 99,758
======= ======
Other payables consist primarily of customer deposits.
Amounts due to related parties are interest-free, unsecured and with no
fixed terms of repayment.
The aging analysis of trade payables at June 30, 2006 is as follows:
June 30, 2006 December 31, 2005
------------- -----------------
(RMB million) (RMB million)
Within 1 year 14,860 12,876
Between 1 to 2 years 749 434
Between 2 to 3 years 85 85
Over 3 years 393 354
------ ------
16,087 13,749
====== ======
11. SEGMENT INFORMATION
The Group is engaged in a broad range of petroleum related activities
through its four major business segments: Exploration and Production,
Refining and Marketing, Chemicals and Marketing and Natural Gas and
Pipeline.
The Exploration and Production segment is engaged in the exploration,
development, production and sales of crude oil and natural gas.
The Refining and Marketing segment is engaged in the refining,
transportation, storage and marketing of crude oil and petroleum products.
The Chemicals and Marketing segment is engaged in the production and sale
of basic petrochemical products, derivative petrochemical products, and
other chemical products.
The Natural Gas and Pipeline segment is engaged in the transmission of
natural gas, crude oil and refined products and the sale of natural gas.
11
In addition to these four major business segments, the Other segment
includes the assets, income and expenses relating to cash management,
financing activities, the corporate center, research and development, and
other business services to the operating business segments of the Group.
Most assets and operations of the Group are located in the PRC, which is
considered as one geographic location in an economic environment with
similar risks and returns. In addition to its operations in the PRC, the
Group also has overseas operations through subsidiaries engaging in the
exploration and production of crude oil and natural gas.
The accounting policies of the operating segments are the same as those
described in Note 1 'Accounting Policies".
Operating segment information for the six months ended June 30, 2006 and
2005 is presented below:
Primary reporting format -- business segments
Exploration Refining Chemicals Natural
and and and Gas and
Six months ended June 30, 2006 Production Marketing Marketing Pipeline Other Total
------------------------------ ----------- --------- --------- -------- -------- --------
(RMB (RMB (RMB (RMB (RMB (RMB
million) million) million) million) million) million)
Turnover (including intersegment) 211,012 255,106 39,565 18,233 373 524,289
Less: Intersegment sales (170,761) (21,142) (3,072) (2,587) (182) (197,744)
-------- ------- ------ ------ ------ --------
Turnover from external customers 40,251 233,964 36,493 15,646 191 326,545
======== ======= ====== ====== ====== ========
Depreciation, depletion and amortisation (17,748) (6,614) (2,732) (2,578) (238) (29,910)
Segment result 128,906 (3,001) 4,266 4,669 (965) 133,875
Other costs (4,454) (10,888) (1,358) (82) (1,800) (18,582)
-------- ------- ------ ------ ------ --------
Profit/(loss) from operations 124,452 (13,889) 2,908 4,587 (2,765) 115,293
======== ======= ====== ====== ====== ========
Exploration Refining Chemicals Natural
and and and Gas and
Six months ended June 30, 2005 Production Marketing Marketing Pipeline Other Total
------------------------------ ----------- --------- --------- -------- -------- --------
(RMB (RMB (RMB (RMB (RMB (RMB
million) million) million) million) million) million)
Turnover (including intersegment) 152,024 200,883 37,035 11,874 -- 401,816
Less: Intersegment sales (121,484) (15,098) (2,125) (2,491) -- (141,198)
-------- ------- ------ ------ ---- --------
Turnover from external customers 30,540 185,785 34,910 9,383 -- 260,618
======== ======= ====== ====== ==== ========
Depreciation, depletion and amortisation (16,960) (5,135) (2,452) (2,083) (48) (26,678)
Segment result 92,807 2,959 6,736 1,666 (218) 103,950
Other costs (3,684) (8,908) (980) (188) (223) (13,983)
-------- ------- ------ ------ ---- --------
Profit/(loss) from operations 89,123 (5,949) 5,756 1,478 (441) 89,967
======== ======= ====== ====== ==== ========
12
Note: Effective January 1, 2006, the results of operations, together with
the corresponding assets and liabilities, of certain research and
development activities of the Group are reclassified from the
Exploration and Production segment, the Refining and Marketing
segment, the Chemicals and Marketing segment and the Natural Gas and
Pipeline segment to the Other segment to reflect the changes in the
manner under which these activities are managed. The results of
operations, together with the corresponding assets and liabilities, of
these research and development activities were included in the
previously reported segments in the segment information for the six
months ended June 30, 2005. Selected financial data of these research
and development activities for the six months ended June 30, 2005 are
as follows:
Exploration Refining Chemicals Natural
and and and Gas and
Production Marketing Marketing Pipeline Total
----------- --------- --------- -------- --------
(RMB (RMB (RMB (RMB (RMB
million) million) million) million) million)
Turnover (including intersegment) 89 -- 11 -- 100
Turnover from external customers 1 -- 7 -- 8
Depreciation, depletion and amortisation (132) (7) (17) (3) (159)
Segment result (336) (29) (60) (9) (434)
Other costs (208) (33) (33) (7) (281)
Loss from operations (544) (62) (93) (16) (715)
Secondary reporting format -- geographical segments
Turnover Total assets Capital expenditure
------------------- ------------------- -------------------
Six months ended June 30, 2006 2005 2006 2005 2006 2005
------------------------- -------- -------- -------- -------- -------- --------
(RMB (RMB (RMB (RMB (RMB (RMB
million) million) million) million) million) million)
PRC 313,927 251,853 783,842 650,735 44,990 31,285
Other (Exploration and Production) 12,618 8,765 59,384 43,721 2,262 2,090
------- ------- ------- ------- ------ ------
326,545 260,618 843,226 694,456 47,252 33,375
======= ======= ======= ======= ====== ======
12. SIGNIFICANT DIFFERENCES BETWEEN IFRS AND US GAAP
The consolidated interim condensed financial statements have been prepared
in accordance with IFRS, which differ in certain material respects from the
accounting principles generally accepted in the United States of America (
'US GAAP"). Such differences involve methods for measuring the amounts
shown in the financial statements, as well as additional disclosures
required by US GAAP.
Effect on income of significant differences between IFRS and US GAAP is as
follows:
Six months ended June 30
-----------------------------
2006 2005
------------- -------------
(RMB million) (RMB million)
Profit for the period under IFRS 85,243 64,940
US GAAP adjustments:
Depreciation charges on property, plant and
equipment revaluation gain 2,340 3,436
Depreciation charges on property, plant and
equipment revaluation loss -- (127)
Loss on disposal of revalued property, plant
and equipment 21 2
Income tax effect (779) (1,092)
Minority interest (4,592) (2,607)
Depreciation charges on property, plant and
equipment arising from purchase from
minority interest of subsidiaries (42) --
------ ------
Net income under US GAAP 82,191 64,552
====== ======
Basic and diluted net income per share under
US GAAP (RMB) 0.46 0.37
====== ======
13
Effect on equity of significant differences between IFRS and US GAAP is as
follows:
June 30, 2006 December 31, 2005
------------- -----------------
(RMB million) (RMB million)
Equity under IFRS 592,121 543,667
US GAAP adjustments:
Reversal of property, plant and equipment revaluation gain (80,555) (80,555)
Depreciation charges on property, plant and equipment
revaluation gain 54,311 51,971
Reversal of property, plant and equipment revaluation loss 1,513 1,513
Depreciation charges on property, plant and equipment
revaluation loss (1,459) (1,459)
Loss on disposal of revalued property, plant and equipment 1,767 1,746
Deferred tax assets on revaluation 8,064 8,843
Minority interest (29,858) (28,034)
Effect on the retained earnings from the one-time remedial
payments for staff housing borne by the state
shareholder of the Company (2,553) (2,553)
Effect on the other reserves of the shareholders' equity
from the one-time remedial payments for staff housing
borne by the state shareholder of the Company 2,553 2,553
Purchase from minority interest of subsidiaries 3,998 1,438
Depreciation charges on property, plant and equipment
arising from purchase from minority interest of
subsidiaries (42) --
------- -------
Shareholders' equity under US GAAP 549,860 499,130
======= =======
Changes in shareholders' equity under US GAAP for each of the periods ended June
30, 2006 and June 30, 2005 are as follows:
Six months ended June 30
-----------------------------
2006 2005
------------- -------------
(RMB million) (RMB million)
Beginning of the period 499,130 405,573
Net income for the period 82,191 64,552
Final dividends for year 2004 -- (25,936)
Final dividends for year 2005 (32,282) --
Payment to CNPC for acquisition of refinery
and petrochemical businesses -- (9)
Capital contribution to CNPC E&D -- 25
Purchase from minority interest of subsidiary 382 --
Currency translation differences 439 (140)
------- -------
End of the period 549,860 444,065
======= =======
In preparing the summary of differences between IFRS and US GAAP, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities, and
the estimates of revenues and expenses. Accounting
14
estimates have been employed in these financial statements to determine reported
amounts, including realisability, useful lives of tangible and intangible
assets, income taxes and other factors. Actual results may differ from those
estimates.
A summary of the principal differences and additional disclosures applicable to
the Group is set out below:
(a) Revaluation of property, plant and equipment
The property, plant and equipment, excluding oil and gas reserves,
transferred to the Company by CNPC were appraised as of June 30, 1999, as
required by the relevant PRC regulations, by a firm of independent valuers
registered in the PRC, China Enterprise Appraisal. As at September 30,
2003, a revaluation of the Group's refining and chemical production
equipment was undertaken by a firm of independent valuers registered in the
PRC, China United Assets Appraiser Co., Ltd, on a depreciated replacement
cost basis.
The June 1999 revaluation resulted in RMB80,549 million in excess of the
prior carrying value and a revaluation loss of RMB1,122 million on certain
property, plant and equipment.
The September 2003 revaluation resulted in a RMB872 million in excess of
the carrying value of certain property, plant and equipment immediately
prior to the revaluation and a revaluation loss of RMB1,257 million.
The depreciation charge, which includes impairment charge, on the
revaluation surplus from January 1, 2006 to June 30, 2006 was RMB2,340
million, and from January 1, 2005 to June 30, 2005 was RMB3,436 million.
The depreciation charge, which includes impairment charge, on the
revaluation loss from January 1, 2006 to June 30, 2006 was RMBNil, and from
January 1, 2005 to June 30, 2005 was RMB127 million.
The loss on disposal of revalued property, plant and equipment from January
1, 2006 to June 30, 2006 was RMB21 million, and from January 1, 2005 to
June 30, 2005 was RMB2 million.
For purposes of reconciling to the US GAAP financial data, the effect of
the revaluation, the related depreciation charges and loss on disposal is
reversed. A deferred tax asset relating to the reversal of the effect of
revaluation in 1999 is established, together with a corresponding increase
in the shareholders' equity. Under a special approval granted by the
Ministry of Finance, the effect of the revaluation in 1999 is available as
additional depreciation base for purposes of determining taxable income.
(b) One-time remedial payments for staff housing
The Ministry of Finance of the PRC issued several public notices and
regulations during the years ended December 31, 2000 and 2001 with respect
to the one-time remedial payments for staff housing payable to certain
employees who joined the workforce prior to December 31, 1998 and have
housing conditions below local standards as determined in accordance with
government regulations and guidelines. These Ministry of Finance notices
and regulations also provided that the portion of remedial payments
attributable to the periods prior to a restructuring of the employer
enterprise from a wholly state-owned status to a less than wholly
state-owned status is to be borne by the state shareholder of the
enterprise.
The restructuring that resulted in the formation of the Group took place in
November 1999. As such, the one-time remedial housing payments payable to
the eligible employees of the Group are to be borne by the state
shareholder of the Group.
15
Under IFRS, such direct payments to employees or reimbursements will not be
recorded through the consolidated profit and loss account of the Group. US
GAAP contains no such exemption but requires this principal shareholder's
action on behalf of the Company to be recorded in the consolidated profit
and loss account. In the last quarter of year 2002, the Group and CNPC
completed the process of estimating the amount payable to qualified
employees of the Group. This amount, RMB2,553 million, was reflected in
determining net income of the Group for the year ended December 31, 2002,
under US GAAP. Since this amount is borne by CNPC, a corresponding amount
has been included as an addition to the other reserves in the shareholders'
equity of the Group. There were no significant changes in this estimate
during 2005 and the first half of 2006.
(c) Minority interest
In accordance with the revised International Accounting Standard 1
"Presentation of Financial Statements" and International Accounting
Standard 27 'Consolidated and Separate Financial Statements", minority
interest becomes part of the profit for the period and total equity of the
Group, whereas under US GAAP, it is respectively excluded from the net
income and shareholder's equity of the Group. In addition, the reconciling
item also includes the impact of minority interest's share of the
revaluation gain and loss, on the property, plant and equipment of
non-wholly owned subsidiaries, to net income and shareholders' equity under
US GAAP.
(d) Purchase from minority interest of listed subsidiaries
The Company acquired certain outstanding A shares from the minority
interest of Jinzhou Petrochemical Company Limited ('JPCL') and Liaohe Jinma
Oilfield Company Limited ("LJOCL'), A Shares and H Shares (including ADS)
from minority interest of Jilin Chemical Industrial Company Limited
('JCIC'). Under IFRS, the Company applies a policy of treating transactions
with minority interest as transactions with equity participants of the
Group. Therefore, the assets and liabilities of JPCL, LJOCL and JCIC
additionally acquired by the Company from minority interest were recorded
by the Company at cost. The difference between the Company's purchase cost
and the book value of the interests in JPCL, LJOCL and JCIC acquired by the
Company from minority interest was recorded in equity. Under US GAAP, the
acquisition of additional minority interest is accounted for under purchase
method. Assets and liabilities additionally acquired were restated to fair
value and the excess of purchase cost over fair value of the minority
interest acquired and identified intangible assets was recorded as
goodwill. Additional depreciation charges were provided for the assets
which were restated to fair value.
(e) Recent US accounting pronouncements
In February 2006, the Financial Accounting Standards Board ("FASB') issued
Statement No. 155, 'Accounting for Certain Hybrid Financial Instruments"
("FAS 155'), which improves financial reporting by eliminating the
exemption from applying FAS 133 to interests in securitised financial
assets so that similar instruments are accounted for similarly regardless
of the form of the instruments and allows a preparer to elect fair value
measurement at acquisition, at issuance, or when a previously recognised
financial instrument is subject to a remeasurement (new basis) event, on an
instrument-by-instrument basis, in cases in which a derivative would
otherwise have to be bifurcated. Providing a fair value measurement
election also results in more financial instruments being measured at what
the FASB regards as the most relevant attribute for financial instruments,
fair value. FAS 155 is effective for all financial instruments acquired or
issued after the beginning of an entity's first fiscal year that begins
after September 15, 2006. The Group is currently evaluating the impact of
this standard on its financial position and results of operations.
16
In March 2006, the FASB issued Statement No. 156, 'Accounting for Servicing
of Financial Assets" ("FAS 156'), which requires all separately recognised
servicing assets and servicing liabilities be initially measured at fair
value. FAS 156 permits, but does not require, the subsequent measurement of
servicing assets and servicing liabilities at fair value. Adoption is
required as of the beginning of the first fiscal year that begins after
September 15, 2006. Early adoption is permitted. The adoption of FAS 156 is
not expected to have a material effect on the Group's financial position or
results of operations.
In July 2006, the FASB issued Interpretation No. 48. "Accounting for
Uncertainty in Income Taxes--an Interpretation of FASB Statement No. 109"
('FIN 48'). FIN 48 prescribes a comprehensive model for recognising,
measuring, presenting and disclosing in the financial statements uncertain
tax positions that the Group has taken or expects to take in its tax
returns. The provisions of FIN 48 are effective for the Group on January 1,
2007, with the cumulative effect of the change in accounting principle, if
any, recorded as an adjustment to opening retained earnings. The Group does
not expect the adoption of FIN 48 to have a material impact on the Group's
financial position or results of operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the consolidated
interim condensed financial statements for the Group and the notes thereto to be
submitted to The Stock Exchange of Hong Kong Limited ('HKSE') for publication
on the website of the HKSE, which contains information required under paragraphs
46(1) to 46(9) of Appendix 16 to the Rules Governing the Listing of Securities
on The Stock Exchange of Hong Kong Limited (the 'Listing Rules").
Overview
For the six months ended June 30, 2006, profit before taxation of the Group was
RMB115,918 million, representing an increase of 28.6% compared with the
corresponding period of last year. Net profit was RMB80,681 million,
representing an increase of 29.4% from the corresponding period in last year.
The continued improvement of the Group's operating results was primarily due to
the Group's ability to take full advantage of the opportunities presented by
persistently high oil prices and strong market demand by strengthening its
efforts in exploration and development, the optimal use of its competitive edge
in upstream activities, streamlining of its downstream product mix, unifying
resources allocation, accelerating the construction and interconnection of major
pipelines, the steady promotion of international operations, enhancement of
operational management and the continuous efforts in technological and
managerial innovations.
For the six months ended June 30, 2006, the Group's basic and diluted earnings
per share was RMB0.45 (for the six months ended June 30, 2005: RMB0.35).
Comparison between the six-month period ended June 30, 2006 and the six-month
period ended June 30, 2005
Consolidated Operating Results
Turnover Turnover increased 25.3% from RMB260,618 million for the six months
ended June 30, 2005 to RMB326,545 million for the six months ended June 30,
2006. This was primarily due to the increases in prices and sales volumes of
certain main products, namely crude oil, natural gas and certain refined
products.
17
Operating Expenses Operating expenses increased 23.8% from RMB170,651 million
for the six months ended June 30, 2005 to RMB211,252 million for the six months
ended June 30, 2006. This was primarily due to an increase in the purchase costs
of crude oil, feedstock oil and refined products from external suppliers and an
increase in taxes other than income tax.
Purchases, Services and Other Expenses Purchases, services and other expenses
increased 16.3% from RMB96,956 million for the six months ended June 30, 2005 to
RMB112,758 million for the six months ended June 30, 2006. This was primarily
due to (1) an increase in prices of crude oil and feedstock oil from external
suppliers and an increase in the volume purchased from external suppliers in the
reporting period, which resulted in an increase in the purchase costs of crude
oil and feedstock oil; and (2) an increase in the prices of refined products and
an increase in the volume purchased from external suppliers in the reporting
period, which resulted in an increase in the purchase costs of refined products.
In addition, the increase in the refined product supply operation during the
reporting period also resulted in a corresponding increase in purchase expenses.
Employee Compensation Costs Employee compensation costs increased 30.2% from
RMB13,052 million for the six months ended June 30, 2005 to RMB16,993 million
for the six months ended June 30, 2006. This was primarily due to (1) the
improvement in the Company's operating results which led to an increase in the
wages and welfare expenses of staff and workers; and (2) the increase in salary
surcharge as a result of an increase in the base and percentage for calculating
the salary surcharge since the second half of 2005 by the PRC Government. In
addition, the increase of employee compensation costs in the reporting period as
compared to the first half of 2005 was also due to an increase in the number of
employees resulting from an expansion in production capacity.
Exploration Expenses Exploration expenses were RMB8,750 million, essentially at
the same level as RMB8,729 million for the six months ended June 30, 2005.
Depreciation, Depletion and Amortisation Depreciation, depletion and
amortisation increased 12.1% from RMB26,678 million for the six months ended
June 30, 2005 to RMB29,910 million for the six months ended June 30, 2006. This
was primarily due to an increase in the gross carrying amount of property, plant
and equipment and the average net value of oil and gas assets which led to a
corresponding increase in depreciation and depletion during the reporting
period.
Selling, General and Administrative Expenses Selling, general and administrative
expenses increased 28.2% from RMB14,902 million for the six months ended June
30, 2005 to RMB19,104 million for the six months ended June 30, 2006. This was
primarily due to (1) an increase in the transportation volume which led to an
increase of freight expenses; and (2) an increase in the technological
development expenses resulting from intensified technological development
efforts.
Taxes other than Income Tax Taxes other than income tax increased 115.6% from
RMB11,253 million for the six months ended June 30, 2005 to RMB24,259 million
for the six months ended June 30, 2006. This was primarily due to (1) the
imposition by the PRC government of a special levy on the petroleum exploration
enterprises from March 2006 which is payable by them on the portion of income
realised from the domestic sales of crude oil at prices higher than a specific
level, leading to a substantial increase in the amount of taxes payable by the
Company compared with the first half of 2005; (2) an increase in consumption tax
and surcharges as a result of an increase in the output volume of gasoline and
diesel oil; and (3) an increase in compensation fees for mineral resources due
to an increase in crude oil and natural gas revenue. In addition, an increase of
the natural resource tax rates by the PRC government since the second half of
2005 and the increased oil and gas output in the reporting period also
contributed to the increase of natural resources tax.
Profit from Operations As a result of the factors discussed above, profit from
operations increased 28.2% from RMB89,967 million for the six months ended June
30, 2005 to RMB115,293 million for the six months ended June 30, 2006.
18
Net Exchange Gain Net exchange gain increased from RMB18 million for the six
months ended June 30, 2005 to RMB32 million for the six months ended June 30,
2006. This was primarily due to an appreciation of Renminbi against the US
Dollar during the first half of this year.
Net Interest Expenses Net interest expenses increased 8.8% from RMB817 million
for the six months ended June 30, 2005 to RMB889 million for the six months
ended June 30, 2006. This increase reflects an increase in the carrying amount
of the asset retirement obligations that incurs with the passage of time, which
led to a corresponding increase in the interest expense.
Profit Before Taxation Profit before taxation increased 28.6% from RMB90,169
million for the six months ended June 30, 2005 to RMB115,918 million for the six
months ended June 30, 2006.
Taxation Taxation increased 21.6% from RMB25,229 million for the six months
ended June 30, 2005 to RMB30,675 million for the six months ended June 30, 2006.
This was primarily due to an increase in taxable profits.
Net Profit As a result of the factors discussed above, net profit increased
29.4% from RMB62,363 million for the six months ended June 30, 2005 to RMB80,681
million for the six months ended June 30, 2006.
Segment Information
Exploration and Production
Turnover Turnover increased 38.8% from RMB152,024 million for the six months
ended June 30, 2005 to RMB211,012 million for the six months ended June 30,
2006. This was primarily due to an increase in prices and sales volume of crude
oil and natural gas. During the first half of 2006, the Group's average realised
crude oil price was US$58.75 per barrel, representing an increase of 35.6% from
US$43.33 per barrel for the first half of 2005.
Inter-segment sales revenue increased 40.6% from RMB121,484 million for the six
months ended June 30, 2005 to RMB170,761 million for the six months ended June
30, 2006. The increase was mainly due to an increase in prices and sales volume
of crude oil and natural gas.
Operating expenses Operating expenses increased 37.6% from RMB62,901 million for
the six months ended June 30, 2005 to RMB86,560 million for the six months ended
June 30, 2006. This was mainly due to the increase in taxes other than income
tax, purchase expenditure and staff costs.
Profit from Operations As a result of the factors discussed above, profit from
operations increased 39.6% from RMB89,123 million for the six months ended June
30, 2005 to RMB124,452 million for the six months ended June 30, 2006.
Refining and Marketing
Turnover Turnover increased 27.0% from RMB200,883 million for the six months
ended June 30, 2005 to RMB255,106 million for the six months ended June 30,
2006. The increase was primarily due to an increase in prices and changes in
sales volume of key refined products, of which:
Sales revenue from gasoline increased 6.3% from RMB54,570 million for the six
months ended June 30, 2005 to RMB57,985 million for the six months ended June
30, 2006. The increase was mainly due to an increase in prices of gasoline. The
average realised selling price of gasoline increased 21.4% from RMB3,943 per ton
for the six months ended June 30, 2005 to RMB4,785 per ton for the six months
ended June 30, 2006. The sales volume of gasoline dropped 12.4% from 13.84
million tons for the six months ended June 30, 2005 to 12.12 million tons for
the six months ended June 30, 2006.
Sales revenue from diesel increased 24.1% from RMB81,888 million for the six
months ended June 30, 2005 to RMB101,637 million for the six months ended June
30, 2006. The increase was mainly due to an increase in prices and sales volume
of diesel. The average realised selling price of diesel increased 21.0%
19
from RMB3,463 per ton for the six months ended June 30, 2005 to RMB4,191 per ton
for the six months ended June 30, 2006. The sales volume of diesel increased
2.6% from 23.64 million tons for the six months ended June 30, 2005 to 24.25
million tons for the six months ended June 30, 2006.
Sales revenue from kerosene increased 37.7% from RMB3,059 million for the six
months ended June 30, 2005 to RMB4,211 million for the six months ended June 30,
2006. The increase was mainly due to an increase in prices and sales volume of
kerosene.
Inter-segment sales revenue increased 40.0% from RMB15,098 million for the six
months ended June 30, 2005 to RMB21,142 million for the six months ended June
30, 2006. The increase was mainly due to an increase in prices and changes of
sales volumes of the key refined products.
Operating expenses Operating expenses increased 30.1% from RMB206,832 million
for the six months ended June 30, 2005 to RMB268,995 million for the six months
ended June 30, 2006. The increase was primarily due to an increase in the
expenditure on the purchase of crude oil, feedstock oil and refined products
from external suppliers, and an increase in selling, general and administrative
expenses. In addition, the increase in the level of supply operations of oil
products during the reporting period led to a corresponding increase in
operating expenses.
Loss from Operations For the six months ended June 30, 2006, there was a loss of
RMB13,889 million for this segment and for the six months ended June 30, 2005,
there was a loss of RMB5,949 million. The losses were mainly as a result of the
effect of the macroeconomic control in China of the prices of the refined
products, resulting in the selling prices of the refined products in China not
in line with the selling prices of the refined products in the international
market.
Chemicals and Marketing
Turnover Turnover increased 6.8% from RMB37,035 million for the six months ended
June 30, 2005 to RMB39,565 million for the six months ended June 30, 2006. The
increase was mainly due to the increase in prices and sales volume of certain
chemical products (primarily polyethylene and polypropylene products).
Operating expenses Operating expenses increased 17.2% from RMB31,279 million for
the six months ended June 30, 2005 to RMB36,657 million for the six months ended
June 30, 2006. The increase was mainly due to an increase in the prices of raw
materials.
Profit from Operations Due to a significant increase in operating expenses,
profit from operations decreased 49.5% from RMB5,756 million for the six months
ended June 30, 2005 to RMB2,908 million for the six months ended June 30, 2006.
Natural Gas and Pipeline
Turnover Turnover increased 53.6% from RMB11,874 million for the six months
ended June 30, 2005 to RMB18,233 million for the six months ended June 30, 2006.
The increase was primarily due to an increase in the sales volume and price of
natural gas and an increase in the sales volume and the average price of
pipeline transmission of natural gas.
Operating expenses Operating expenses increased 31.3% from RMB10,396 million for
the six months ended June 30, 2005 to RMB13,646 million for the six months ended
June 30, 2006. The increase was mainly due to an increase in gas purchase
expenses and an increase in depreciation charges.
Profit from Operations As a result of the factors discussed above, profit from
operations increased 210.4% from RMB1,478 million for the six months ended June
30, 2005 to RMB4,587 million for the six months ended June 30, 2006.
20
Liquidity and Capital Resources
For the six months ended June 30, 2006, the Group's primary sources of funds
were cash generated from operating activities, short-term borrowings and
long-term borrowings. The Group's funds were used for operating activities,
capital expenditures, repaying short-term and long-term borrowings, acquisition
of subsidiaries and distribution of dividends to shareholders of the Company.
As at June 30, 2006, short-term debts represented approximately 5.1% of the
Group's capital employed as compared with approximately 4.7% as at December 31,
2005. Our ability to obtain adequate financing may be affected by our financial
position and operating results and the conditions of the domestic and foreign
capital markets. The Company must seek approvals from the relevant PRC
government authorities before raising funds in the domestic and foreign capital
markets. In general, the Company must obtain PRC government approvals for any
project involving significant capital investments in our Refining and Marketing
segment, Chemicals and Marketing segment and the Natural Gas and Pipeline
segment.
The Group plans to fund its capital and related investments principally from the
cash generated from operating activities and short-term and long-term
borrowings. For the six months ended June 30, 2006, net cash generated from
operating activities was RMB100,825 million. As at June 30, 2006, the Group had
cash and cash equivalents of RMB92,630 million. Cash and cash equivalents were
mainly denominated in Renminbi (Renminbi accounted for approximately 96.8%, US
Dollar accounted for approximately 2.8%, and HK Dollar accounted for 0.4%).
The table below sets forth its cash flows for the six months ended June 30, 2006
and the six months ended June 30, 2005 and our cash and cash equivalents at the
end of each period.
Six months ended June 30
-----------------------------
2006 2005
------------- -------------
(RMB million) (RMB million)
Net cash generated from operating activities 100,825 98,167
Net cash used for investing activities (51,974) (5,430)
Net cash used for financing activities (37,291) (33,024)
Currency translation difference 165 (119)
Cash and cash equivalents at the end of each period 92,630 71,282
Cash flows from operating activities
In the first half of 2006, the Group's net cash from operating activities
increased 2.7% from RMB98,167 million for the six months ended June 30, 2005 to
RMB100,825 million for the six months ended June 30, 2006. This was mainly due
to an increase in profit which give rise to an increase in cash flows generated
from operating activities. In addition, an increase in inventories partly offset
the cash flows generated from operating activities.
As at June 30, 2006, our working capital was RMB47,930 million. As at December
31, 2005, our working capital was RMB22,057 million. The increase in working
capital was primarily due to an increase in receivables and prepayments,
inventories and cash and cash equivalents.
21
Cash used for financing activities
The Group's net cash used for financing activities increased 12.9% for the six
months ended June 30, 2006 compared with the amount as at the six months ended
June 30, 2005. This was mainly due to more cash dividends paid in respect of the
ordinary shares for the first half of this year as compared with the
corresponding period of last year.
The table below sets out our net borrowings as at June 30, 2006 and December 31,
2005:
June 30, December 31,
2006 2005
------------- -------------
(RMB million) (RMB million)
Short-term borrowings (including current
portion of long-term borrowings) 34,004 28,689
Long-term borrowings 35,804 44,570
------- ------
Total borrowings 69,808 73,259
======= ======
Less: Cash and cash equivalents 92,630 80,905
------- ------
Net borrowings (22,822) (7,646)
======= ======
The maturity profile of the long-term borrowings (including maturity within one
year) of the Group is as follows:
June 30, December 31,
2006 2005
------------- -------------
(RMB million) (RMB million)
To be repaid within one year 20,188 15,325
To be repaid within one to two years 9,981 18,373
To be repaid within two to five years 14,124 14,942
To be repaid after five years 11,699 11,255
------ ------
55,992 59,895
====== ======
Of the total borrowings of the Group as at June 30, 2006, approximately 28.6%
were fixed-rate loans and approximately 71.4% were floating-rate loans. Of the
borrowings as at June 30, 2006, approximately 74.7% were denominated in
Renminbi, approximately 23.8% were denominated in US Dollars, approximately 0.6%
were denominated in Singapore Dollars, approximately 0.4% were denominated in
Euro, approximately 0.2% were denominated in Japanese Yen, approximately 0.2%
were denominated in Kazakhstan Tenge and approximately 0.1% were denominated in
British Pound Sterling.
As at June 30, 2006, borrowings owed to China Petroleum Finance Company Limited
("CP Finance") amounted to RMB26,040 million. Borrowings owed to state-owned
banks and other non-bank state-owned financial institutions amounted to
RMB33,766 million and borrowings owed to other related parties amounted to RMB61
million.
As at June 30, 2006, short-term borrowings and long-term borrowings owed by the
Group to CP Finance amounted to RMB300 million and RMB25,740 million
respectively.
As at June 30, 2006, borrowings of the Group consisted of RMB698 million secured
borrowings (RMB1,108 million as at December 31, 2005), most of which were
secured by part of the Group's assets and time deposits with maturities over one
year.
As at June 30, 2006, the debt to capitalisation ratio (debt to capitalisation
ratio = total debts/(total debts + total equity)) was 10.5% (11.9% as at
December 31, 2005).
22
Capital Expenditures
The table below sets out our capital expenditures by business segments for the
six months ended June 30, 2006 and the six months ended June 30, 2005 and the
estimates for the full year of 2006. During the first half of 2006, capital
expenditures increased 41.6% from RMB33,375 million for the six months ended
June 30, 2005 to RMB47,252 million for the six months ended June 30, 2006. The
increase in capital expenditure was primarily due to increased contribution to
oil and gas exploration and development as well as safety and environmental
protection. Furthermore, the increase in the prices of fuel oil, water and
electricity and other production materials, also led to an increase in
investment.
Estimate for
First Half of 2006 First Half of 2005 the year of 2006
--------------------- --------------------- ---------------------
(RMB million) % (RMB million) % (RMB million) %
------------- ----- ------------- ----- ------------- -----
Exploration and Production 32,933* 69.7 22,413* 67.2 100,100* 60.3
Refining and Marketing 6,169 13.1 4,614 13.8 29,000 17.5
Chemicals and Marketing 3,938 8.3 2,633 7.9 15,900 9.6
Natural Gas and Pipeline 3,840 8.1 3,651 10.9 17,100 10.3
Other 372 0.8 64 0.2 3,900 2.3
------ ----- ------ ----- ------- -----
Total 47,252 100.0 33,375 100.0 166,000 100.0
====== ===== ====== ===== ======= =====
*Note: If geological and geophysical exploration costs were included, the
capital expenditures and investments for the Exploration and Production
segment for the first half of 2005 and the first half of 2006, and the
estimate of the same for the entire 2006 would be RMB26,012 million,
RMB37,253 million and RMB111,500 million, respectively.
Exploration and Production
The majority of the Group's capital expenditures is related to the Exploration
and Production segment. For the six months ended June 30, 2006, capital
expenditures in relation to exploration and production amounted to RMB32,933
million, including RMB4,251 million for exploration activities and RMB26,061
million for development activities. For the six months ended June 30, 2005,
capital expenditures in relation to this segment totalled RMB22,413 million,
including RMB4,032 million for exploration activities and RMB16,869 million for
development activities. The increase in capital expenditures was mainly due to
the Group's increased expenditures relating to oil and gas development and
supporting projects on the ground.
It is estimated that for the twelve months ending December 31, 2006, capital
expenditures of the Group in the Exploration and Production segment will amount
to RMB100,100 million. Approximately RMB20,000 million is expected to be used
for oil and gas exploration, and approximately RMB80,100 million will be used
for oil and gas development. Exploration and development is expected to be
mainly carried out in the Erdos, Junggar, Tarim, Songliao, Sichuan, Bohai Bay,
and Qaidam basins.
Refining and Marketing
For the six months ended June 30, 2006, capital expenditures of the Group in the
Refining and Marketing segment amounted to RMB6,169 million, of which RMB2,935
million was spent on upgrading our refining facilities, and RMB2,041 million was
spent on the expansion of the retail marketing network of our refined products
and oil products storage infrastructure facilities. For the six months ended
June 30, 2005, capital expenditures for this segment totalled RMB4,614 million.
The increase in capital expenditures was primarily due to the construction and
expansion of refining facilities.
It is estimated that capital expenditures of the Group for the Refining and
Marketing segment for the twelve months ending December 31, 2006 will amount to
RMB29,000 million, including approximately RMB19,300 million to be spent on
construction and expansion of refining facilities, and approximately RMB9,700
million to be spent on our refined products marketing network.
23
Chemicals and Marketing
For the six months ended June 30, 2006, capital expenditures in the Chemicals
and Marketing segment were RMB3,938 million, compared with RMB2,633 million for
the six months ended June 30, 2005. The increase in capital expenditures was
mainly due to increased investments in the ethylene projects of Lanzhou
Petrochemical Company and Dushanzi Petrochemical Company.
It is estimated that for the twelve months ending December 31, 2006, capital
expenditures of the Group in the Chemicals and Marketing segment will amount to
RMB15,900 million. The capital expenditures are expected to be used primarily
for construction relating to the ethylene projects of Lanzhou Petrochemical
Company and Dushanzi Petrochemical Company and the PTA project of Liaoyang
Petrochemical Company.
Natural Gas and Pipeline
For the six months ended June 30, 2006, capital expenditures in the Natural Gas
and Pipeline segment amounted to RMB3,840 million. RMB3,494 million of these
expenditures was spent on construction of long distance pipelines and RMB2,351
million of such amount was spent on the West-East Gas Pipeline project. For the
six months ended June 30, 2005, capital expenditures for this segment totalled
RMB3,651 million. The capital expenditures during this period were basically the
same as that during the corresponding period of last year.
It is estimated that the Group's capital expenditures in Natural Gas and
Pipeline segment for the twelve months ending December 31, 2006 will amount to
RMB17,100 million. These capital expenditures are expected to be mainly used for
the expansion of the West-East Gas Pipeline, and the construction of underground
gas tanks and crude oil and refined products transmission pipelines.
Other
The Group's capital expenditures in the Other segment for the six months ended
June 30, 2006 and for the six months ended June 30, 2005 were RMB372 million and
RMB64 million respectively. These capital expenditures were mainly used for
non-segment-specific equipment purchases.
It is estimated that the Group's capital expenditure in the Other segment for
the twelve months ending December 31, 2006 will amount to RMB3,900 million.
These capital expenditures are expected to be mainly used for research and
development and the implementation of information systems.
Material Investment
For the six months ended June 30, 2006, the Group did not hold any material
investment.
Material Acquisition or Disposal
Pursuant to the resolution passed at the meeting of the Board of Directors held
on October 26, 2005, the Company offered to acquire all of the 150,000,000
outstanding A shares of Jinzhou Petrochemical Company Limited ('JPCL') from
minority shareholders at RMB4.25 per share. As at June 30, 2006, the Company had
paid a total cash consideration of RMB602 million and acquired 141,497,463 A
shares, representing approximately 17.97% of the total issued shares of JPCL.
Upon this acquisition, the Company owns 98.92% of the outstanding shares of
JPCL. The excess of the cost of purchase over the carrying value of the
underlying assets and liabilities acquired was recorded in equity. As approved
by the China Securities Regulatory Commission, JPCL was delisted from the
Shenzhen Stock Exchange on January 4, 2006.
Pursuant to the resolution passed at the meeting of the Board of Directors held
on October 26, 2005, the Company offered to acquire all of the 200,000,000
outstanding A shares and 964,778,000 H shares (including ADS) of Jilin Chemical
Industrial Company Limited ('JCIC') from minority shareholders at RMB5.25 per
A share and HK$2.80 per H share respectively. As at June 30, 2006, the Company
had paid a
24
total cash consideration of RMB3,719 million and acquired 186,623,617 A shares
and 938,751,999 H shares (including ADS), representing approximately 31.60% of
the total issued shares of JCIC. Upon this acquisition, the Company owns 98.89%
of the outstanding shares of JCIC. The excess of the cost of purchase over the
carrying value of the underlying assets and liabilities acquired was recorded in
equity. JCIC was delisted from HKSE and the New York Stock Exchange on January
23, 2006 and February 15, 2006, respectively. As approved by the China
Securities Regulatory Commission, JCIC was delisted from the Shenzhen Stock
Exchange on February 20, 2006.
Pursuant to the resolution passed at the meeting of the Board of Directors held
on October 26, 2005, the Company offered to acquire all of the 200,000,000
outstanding A shares of Liaohe Jinma Oilfield Company Limited ('LJOCL') from
minority shareholders at RMB8.80 per share. As at June 30, 2006, the Company had
paid a total cash consideration of RMB1,713 million and acquired 194,360,943 A
shares, representing approximately 17.67% of the total issued shares of LJOCL.
Upon this acquisition, the Company owns 99.49% of the outstanding shares of
LJOCL. The excess of the cost of purchase over the carrying value of the
underlying assets and liabilities acquired was recorded in equity. As approved
by the China Securities Regulatory Commission, LJOCL was delisted from the
Shenzhen Stock Exchange on January 4, 2006.
Post-Balance Sheet Events
On August 23, 2006, the Board of Directors of the Company approved the entering
into the acquisition agreement whereby CNPC E&D will acquire a 67% ownership
interest in PetroKazakhstan Inc. ("PKZ") from CNPC International Ltd. ('CNPCI',
a subsidiary of CNODC). Currently, PK is 67% and 33% owned by CNPCI and JSC
National Company Kazmunaigaz ("KMG') respectively. A total cash consideration
for this acquisition is expected to be approximately US$2,735 million. Upon
completion of the acquisition agreement, PK will be accounted for as an
associate of the Company as it is under the joint control by CNPC E&D and KMG.
Foreign Exchange Rate Risk
From July 21, 2005, the PRC government has reformed the Renminbi exchange rate
regime and implemented a regulated floating exchange rate regime based on market
supply and demand with reference to a basket of currencies. However, Renminbi is
still regulated in capital account. The exchange rates of Renminbi are affected
by domestic and international economic developments and political conditions,
and supply and demand for Renminbi. Future exchange rates of Renminbi against
other currencies could vary significantly from the current exchange rates. As
Renminbi is the functional currency of the Company and most of its consolidated
entities, the fluctuation of the exchange rate of Renminbi may have positive or
negative impacts on the operating results of the Group. An appreciation of
Renminbi against US Dollar may decrease the Group's turnover, but the cost for
acquiring imported materials and equipment may also be reduced. A devaluation of
Renminbi against US Dollar may not have a negative impact on the Group's
turnover but may increase the cost for acquiring imported materials and
equipment as well as the debt obligations denominated in foreign currencies of
the Group.
Commodity Price Risk
The Group is engaged in a wide range of petroleum-related activities. The oil
and gas markets are affected by global and regional demands and supplies. Prices
of onshore crude oil are determined with reference to the prices of crude oil on
the international markets. A decline in the prices of crude oil and refined
products could adversely affect the Group's financial position. The Group
historically has not used commodity derivative instruments to hedge against
potential price fluctuations of crude oil and refined products. Therefore, the
Group is exposed to general price fluctuations of oil and gas commodities in
2006 and in future years.
25
Industry Risk
Like other oil and natural gas companies in China, the Group's operating
activities are subject to regulation and control by the PRC government in many
aspects. This regulation and control, such as the granting of exploration and
production licenses, the imposition of industry-specific taxes and levies and
the implementation of environmental and safety standards are expected to have an
impact on the Group's business operations. As a result, the Group may be subject
to fairly significant restrictions when implementing its business strategy,
developing and expanding its business or maximising its profitability. Any
future changes in PRC governmental policies on the oil and natural gas industry
may also affect the Group's business operations.
Employees and Employees Compensation
Number of Employees
As at June 30, 2006 and June 30, 2005, the Group had 438,127 and 423,200
employees respectively. The table below sets out the number of employees of
business segments as at June 30, 2006:
Number of Percentage of
Employees total (%)
--------- -------------
Exploration and Production 246,969 56.4
Refining and Marketing 117,799 26.9
Chemicals and Marketing 58,583 13.4
Natural Gas and Pipeline 10,776 2.4
Other* 4,000 0.9
------- -----
Total 438,127 100.0
======= =====
*Note: Including staff of the Company headquarters, specialised entities,
Exploration & Development Research Institute, Planning & Engineering
Institute and Petrochemical Technological Research Centres.
Employee Compensation
The total employee compensation payable by the Group for the six months ended
June 30, 2006 was RMB11,198 million, being the total salaries of employees
during the reporting period. Compensation of employees is determined according
to industry practice and the actual conditions of the Group, and is based on the
principles of attracting and retaining high-calibre personnel, and motivating
all staff for the realisation of the best results.
The Company's senior management remuneration system links senior management
members' financial interests (including those of executive directors and
supervisors) with the Company's operating results and the market performance of
its shares. All members of the senior management have entered into performance
contracts with the Company. Under this system, the senior management members'
compensation has three components, namely, fixed salaries, performance bonuses
and stock appreciation rights. The variable components account for approximately
70% to 75% of the senior management officers' total potential compensation,
including approximately 0% to 25% forming the performance bonus component and
approximately 50% to 70% forming the stock appreciation rights component.
Variable compensation rewards are linked to the attainment of specific
performance targets, such as net profit, return on capital and cost reduction
targets. The chart below sets forth the components of the total potential
compensation for key officers.
26
Stock
appreciation Performance
Fixed salary rights bonus
(%) (%) (%)
------------ ------------ -----------
Chairman 30 70 0
President 25 60 15
Vice president 25 60 15
Department general manager 25 50 25
Details of the emoluments of directors and supervisors for the six months ended
June 30, 2006 and June 30, 2005 are as follows:
For the six months ended
June 30
------------------------
2006 2005
--------- ---------
(RMB'000) (RMB'000)
Emoluments of directors and supervisors 816 62
Salaries, allowances and other benefits 985 927
Contribution to retirement benefit scheme 28 28
----- -----
1,829 1,017
===== =====
The number of directors and supervisors whose emoluments fall within the
following band (including directors and supervisors whose term expired during
the current period):
As at June 30, 2006 As at June 30, 2005
------------------- -------------------
Number Number
Nil-RMB1,000,000 20 20
=== ===
Upon exercise of their share options, senior management staff will not receive
any shares in the Company. Instead, they will receive, by way of stock
appreciation rights, a monetary sum which is calculated on the basis of the
share price of the H shares listed on the HKSE.
Training Programmes
The training programmes of the Company for 2006 have been geared towards
achieving the development strategy and operation objectives of the Company. In
line with the strategic requirement for "a strong corporation with highly
talented personnel", the Company has targeted high-calibre, skilful and
international staff in its training programmes with a focus on the training of
the "core" and 'backbone" personnel and strived to build a proficient operating
and management team, a technology innovative team and a skilful operators' team
to ensure the supply of talents required for the continuous and stable
development of the Company.
27
Contingent Liabilities
Information on the Group's contingent liabilities as at June 30, 2006 is as
follows:
Bank and other guarantees
As at June 30, 2006, the Group had contingent liabilities in respect of
guarantees made to CP Finance, a subsidiary of CNPC, and state-controlled bank
from which it is anticipated that no material liabilities will arise.
June 30, 2006 December 31, 2005
------------- -----------------
(RMB million) (RMB million)
Guarantee of borrowings of associates
from CP Finance 176 187
Guarantee of borrowings of third party
from State-controlled bank 41 --
--- ---
217 187
=== ===
Environmental Liabilities
CNPC and the Group have operated in China for many years. China has adopted
extensive environmental laws and regulations that affect the operation of the
oil and gas industry. The outcome of environmental liabilities under proposed or
future environmental legislation cannot reasonably be estimated at present, and
could be material. Under existing legislation, however, management believes that
there are no probable liabilities, except for the amounts which have already
been reflected in the financial statements that will have a material adverse
effect on the financial position of the Group.
Legal contingencies
The Group is the named defendant in certain insignificant lawsuits as well as
the named party in other proceedings arising in the ordinary course of business.
While the outcome of such contingencies, lawsuits or other proceedings cannot be
determined at present, management believes that any resulting liabilities will
not have a material adverse effect on the financial position of the Group.
Leasing of land, roads and buildings
According to the restructuring agreement entered into between the Company and
CNPC in 1999 upon the formation of the Company, CNPC has undertaken to the
Company as follows:
- CNPC will use its best endeavours to obtain formal land use right
certificates to replace the entitlement certificates in relation to the
28,649 parcels of land which were leased or transferred to the Company from
CNPC, within one year from August, September and October 1999 when the
relevant entitlement certificates were issued;
- CNPC will complete, within one year from November 5, 1999, the necessary
governmental procedures for the requisition of the collectively-owned land
on which 116 service stations owned by the Company are located; and
- CNPC will obtain individual building ownership certificates in the name of
the Company for all of the 57,482 buildings transferred to the Company by
CNPC, before November 5, 2000.
As at June 30, 2006, CNPC has obtained formal land use right certificates in
relation to 27,400 out of the above-mentioned 28,649 parcels of land and some
building ownership certificates for the above-mentioned buildings, but has
completed none of the necessary governmental procedures for the above-mentioned
service stations located on collectively-owned land. The directors of the
Company confirm that the use of and the conduct of relevant activities at the
above-mentioned parcels of land, service stations and buildings are not affected
by the fact that the relevant land use right certificates or individual building
ownership
28
certificates have not been obtained or the fact that the relevant governmental
procedures have not been completed. In management's opinion, the outcome of the
above events will not have a material adverse effect on the results of
operations or the financial position of the Group.
Group insurance
Except for limited insurance coverage for vehicles and certain assets subject to
significant operating risks, the Group does not carry any other insurance for
property, facilities or equipment with respect to its business operations. In
addition, the Group does not carry any third-party liability insurance against
claims relating to personal injury, property and environmental damages or
business interruption insurance since such insurance coverage is not customary
in China. While the effect of under-insurance on future incidents cannot be
reasonably assessed at present, management believes that it may have a material
impact on the operating results but will not have a material adverse effect on
the financial position of the Group.
Others
On November 13, 2005, explosions occurred at a manufacturing facility of a
branch of the Company located in the Jilin Province. The impact of the accident
is undergoing government investigation. The Company is presumed to bear related
liability according to the investigation results.
Market Review
Crude Oil Market Review
During the first half of 2006, international crude oil prices remained at high
levels due to rapidly expanding demand, insufficient residual supply of crude
oil, intensified geo-political risk, speculation and other factors. The average
prices for WTI, Brent and Minas crude oil in the first half of the year were
US$66.80, US$65.65 and US$65.81 per barrel respectively, representing an
increase of US$15.31, US$16.00 and US$14.94 per barrel or 29.7%, 32.2% and 29.4%
respectively from the corresponding period in last year. Corresponding to the
rise in international oil prices, domestic crude oil prices also increased. The
average realised price was higher than that of the first half of 2005.
Domestic crude oil imports continued to increase during the first half of 2006
with net import volume of 70.33 million tons, representing an increase of 17.6%
from the corresponding period in last year. Domestic crude oil output and the
amount of crude oil processed reached 92.10 million tons and 142 million tons
respectively.
Refined Products Market Review
During the first half of 2006, although the PRC government strengthened its
control on the domestic macroeconomy, demand for refined products still remained
relatively high. In general, resources were tight and market prices continued to
rise and hit new historical highs repeatedly. In the first half of the year,
nominal consumption of refined products increased 7.1% to 85.73 million tons
compared with the corresponding period in last year. By the end of June 2006,
the refined products inventory held by the Company and Sinopec reached 7.88
million tons, representing an increase of 0.54 million tons from the
corresponding period in last year.
The PRC government has made certain adjustments to the prices of domestic
refined products during the first half of 2006. However, under the impact of
international oil prices, the average benchmark prices of gasoline and diesel
were still higher than their levels during the corresponding period of last
year.
Chemical Products Market Review
In the first half of 2006, the sustained rapid economic development in China
resulted in strong demand of chemical products. Market supply of crude oil was
unable to satisfy the increase in demand due to strong demand, limited increase
in supply and the overhaul of facilities. In a climate of persistently high
crude oil prices, chemical products market tended to favour the sellers and the
prices of most chemical products achieved a 10-year record high.
29
Natural Gas Market Review
In the first half of 2006, China's natural gas market has continued to show a
trend of rapid growth. Despite the adoption by the PRC government of a new
pricing regulation for natural gas in December 2005 and further raising the
ex-factory price of natural gas in China, the demand for natural gas has been
growing at an excessive rate and the discrepancy between its supply and demand
remained prominent.
Business Review
For the six months ended June 30, 2006, total oil and gas output of the Company
was 533.2 million barrels of oil equivalent, including 419.1 million barrels of
crude oil and 684.7 billion cubic feet of marketable natural gas, representing
an average daily crude oil output of 2.32 million barrels and an average daily
marketable natural gas output of 3,783 million cubic feet. A total of 417
million barrels of crude oil and 653.5 billion cubic feet of natural gas were
sold during the six months ended June 30, 2006. The Company sold approximately
84.8% of its crude oil to its refineries. During the first half of 2006, lifting
cost of the Company was US$5.91 per barrel, compared with the lifting cost of
US$5.10 per barrel in the first half of 2005.
For the six months ended June 30, 2006, the Company's refineries processed 393
million barrels of crude oil, representing an average daily processed output of
2.17 million barrels. The Exploration and Production segment provided
approximately 83.0% of the crude oil processed by the Company's refineries. The
Company produced approximately 34.30 million tons of gasoline, diesel and
kerosene and sold approximately 37.35 million tons of these products. The
Company is actively expanding its sales network, and its retail network in
particular, by taking advantage of the complementary value-added effect of the
integration of Refining and Marketing segment. As at June 30, 2006, there were
17,952 service stations either owned, controlled or franchised by the Company or
owned by CNPC but to which the Company provided supervisory support. The cash
processing cost of the Company's refineries has arisen from RMB126 per ton
during the first half of 2005 to RMB151 per ton for the same period of 2006.
For the six months ended June 30, 2006, the Company produced 1.003 million tons
of ethylene, 1.525 million tons of synthetic resin, 0.628 million tons of
synthetic fibre raw materials and polymers, 0.155 million tons of synthetic
rubber, and 1.737 million tons of urea.
The Natural Gas and Pipeline segment is the Company's core business segment for
development. For the six months ended June 30, 2006, the Company sold 566.8
billion cubic feet of marketable natural gas through its Natural Gas and
Pipeline segment. As at June 30, 2006, the Company owned and operated 20,340
kilometers of regional natural gas pipeline network, of which 19,212 kilometers
of the pipeline network were operated by the Natural Gas and Pipeline segment.
The Company owned and operated 9,391 kilometers of crude oil pipeline and owned
2,460 kilometers of refined products pipeline.
The Second Half of 2006 and Beyond
In the first half of 2006, in an environment characterised by strong domestic
demand for oil and gas, the Company advanced its main operations in an active
and orderly manner and improved the micro- management of its production. As a
result, the principal production and operation targets were achieved and new
breakthroughs occurred in various aspects of operations. Various significant
achievements were made in the efforts of oil and gas exploration, leading to a
sustainable increase in oil and gas reserves of the Company. Crude oil
processing volume has achieved steady growth which further improved the major
techno-economical indices. The Company strived to produce more value added
products in its chemical production, leading to an effective increase in the
competitiveness of its major products. The construction of major oil and gas
pipelines was progressing smoothly and certain key projects have been completed
and have commenced operations.
30
In the second half of 2006, the Company anticipates that it will continue to
enjoy a generally favorable macroeconomic environment. The Company plans to
steadily coordinate its production and business operations according to the work
plans formulated at the beginning of the year. The Company plans to continue
'prioritising safety and environment and people orientation", further strengthen
safety and environmental protection, emphasise the creation of corporate harmony
and actively fulfill its social duties. The Company aims to fully achieve the
annual performance targets to promote its sustainable, effective and rapid
growth.
In the Exploration and Production area, the Company plans to speed up the
implementation of oil and gas exploration plans and actively promote the steady
growth of crude oil output and rapid growth of natural gas output; put special
emphasis on petroleum exploration, intensify natural gas exploration and promote
risk explorations in key basins and favorable regions; strengthen the
comprehensive management of mature oilfields, enlarge production capacity in new
regions and carefully coordinate production and operations as well as the
linkage and management of different stages of operations; ensure that the annual
targets of oil and gas reserves volume and production plans will be achieved.
In the Refining and Marketing area, the Company plans to steadily coordinate
refining and production, and consistently improve marketing quality and returns;
further optimise the overall refining layout to ensure that key refining
construction projects are implemented as scheduled; strengthen the management of
the overall control of the production process, improve the stability rate and
effective rate of the operation of facilities to ensure safe and reliable
production; improve the linkage of production, transportation and marketing,
enlarge end-user sales volume and improve sales quality and operation returns;
leverage on the strength of integrated refining, continue to improve the
chemical product mix and increase the proportion of high quality and high value
added products, aiming to maximise the overall returns.
In the Natural Gas and Pipeline area, the Company plans to organise natural gas
production and marketing in a systematic manner, steadily and gradually increase
the construction of major pipelines. The Company plans to proactively grasp the
changes in the use of gas in downstream industries, further strengthen the
balance among production, transmission and sales of natural gas and enhance safe
operation of pipelines.
In its international operations, the Company plans to steadily promote
international business and expand international cooperation, continue to
increase exploration in key regions and actively promote risk explorations;
further develop overseas business, coordinate production in existing regions in
full gear to ensure that the annual targets of oil and gas operational output
and share oil output will be achieved. The Company plans to promote
international trade by actively diversifying imports of resources, consistently
improving trading methods and trading system to enhance the total trade volume
and improve profitability.
In the future, the Company intends to continue seeking to maximise its returns
and value for its shareholders, emphasise main businesses, and continue
developing international businesses and promoting rapid growth in international
operations while intensifying domestic oil and gas exploration and development
and solidifying the resource base. The Company plans to continue to maintain its
steady, credible and responsible operation style, and improve corporate
governance and continuously increase corporate value by strengthening internal
control and operations management.
Interim Dividends and Closure of Register of Members
The Board was authorised by the shareholders to approve the distribution of an
interim dividend for 2006 at the shareholders' meeting held on May 26, 2006. The
Board has resolved to pay an interim dividend of RMB0.202806 per share
(inclusive of applicable tax) for the six months ended June 30, 2006 on the
basis of 45% of the net profit for the period. The interim dividend will be paid
to shareholders whose names appear on the register of members of the Company at
the close of business on September 13, 2006. The Company will close its share
register and suspend registration of transfer of shares from September 8, 2006
31
to September 13, 2006 (both days inclusive). In order to qualify for the interim
dividend, all transfer documents must be lodged with the relevant share
certificates at the Hong Kong Registrars Limited not later than 4 p.m. on
September 7, 2006.
In accordance with Article 149 of its Articles of Association, the Company shall
declare dividends payable to shareholders in Renminbi. Dividends payable in
respect of state-owned shares shall be paid in Renminbi. Dividends payable in
respect of H shares shall be paid in Hong Kong Dollar. The amount of Hong Kong
Dollar payable shall be calculated on the basis of the average closing exchange
rate between Renminbi and Hong Kong Dollar published by the People's Bank of
China during the week before the Board declares the dividend on August 23, 2006,
which is RMB1.0260 = HK$1.00. Accordingly, the amount of dividend payable per H
share will be HK$0.197667.
The interim dividend will be paid on or around September 26, 2006.
Repurchase, Sale or Redemption of Securities
For the six months ended June 30, 2006, none of the Company or its subsidiaries
has sold any other type of securities of the Company nor has any of them
repurchased or redeemed any of the securities of the Company.
Disclosure of Other Information
Save as mentioned above, there have been no material changes in respect of
matters required to be disclosed under paragraph 46(3) of Appendix 16 to the
Listing Rules since the publication of the annual report of the Group for the
year ended December 31, 2005.
Compliance with the Model Code for Securities Transactions by Directors
The Company has adopted the model code provisions in respect of the dealing of
the Company's shares by its directors as contained in the Model Code for
Securities Transactions by Directors of Listed Issuers (the "Model Code') set
out in Appendix 10 of the Listing Rules. The directors and supervisors of the
Company have confirmed that they have complied with the required standards set
out in the Model Code.
Compliance with the Code on Corporate Governance Practices
The Company has complied with the Code on Corporate Governance Practices
contained in Appendix 14 to the Listing Rules throughout the six months ended
June 30, 2006.
Audit Committee
The audit committee of the Company, formed pursuant to the Listing Rules,
comprises Mr. Franco Bernabe, Mr. Chee-Chen Tung, Mr. Liu Hongru and Mr. Gong
Huazhang. The main function of the audit committee is to review and supervise
the financial reporting procedures and the internal supervision procedures of
the Group, and to provide opinion to the Board. The audit committee of the
Company has reviewed and confirmed the unaudited interim results announcement /
the interim report for the six months ended June 30, 2006.
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Publication of Results on the Website of the HKSE and of the Company
The Company will submit to the HKSE and publish on the website of the HKSE
(website: http:// www.hkex.com.hk) all the information on the results for the
six months ended June 30, 2006. This information will also be published on the
website of the Company (website: http:// www.petrochina.com.cn).
By Order of the Board
PetroChina Company Limited
Chen Geng
Chairman
Beijing, PRC
August 23, 2006
As at the date of this announcement, the Board of Directors comprises Mr. Chen
Geng as Chairman, Mr. Jiang Jiemin as Vice Chairman, Mr. Su Shulin and Mr. Duan
Wende as executive directors, Mr. Zheng Hu, Mr. Zhou Jiping, Mr. Wang Yilin, Mr.
Zeng Yukang, Mr. Gong Huazhang and Mr. Jiang Fan as non-executive directors; and
Mr. Chee-Chen Tung, Mr. Liu Hongru and Mr. Franco Bernabe as independent
non-executive directors.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PetroChina Company Limited
Dated: August 25, 2006 By: /s/ Li Huaiqi
------------------------------------
Name: Li Huaiqi
Title: Company Secretary