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 September 2004
PETROCHINA COMPANY LIMITED
16 ANDELU, DONGCHENG DISTRICT
BEIJING, THE PEOPLE'S REPUBLIC OF CHINA, 100011
(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.)
Form 20-F X Form 40-F
--- ---
(Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes No X
--- ---
(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82- )
-----------
PetroChina Company Limited (the "Registrant") is furnishing, under the
cover of Form 6-K, the Registrant's interim report for the six months ended June
30, 2004.
This interim report contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements are, by their nature, subject to significant risks and uncertainties.
These forward-looking statements include, without limitation, statements
relating to:
o the Registrant's anticipated capital expenditures for each of its
segments for the year ended December 31, 2004 and non segment-specific
capital expenditures for the same period;
o the Registrant's plan to focus its exploration efforts for oil and
natural gas on the Erdos, Junggar, Tarim, Songliao and Bohai Bay
basins;
o the Registrant's plan for segment operations, including:
- continuing to enhance oil and gas exploration and production;
- speeding up the development of its marketing network;
- adopting various measures to improve the profitability of the
refining and chemicals businesses; and
- continuing to carefully organize the construction of key natural
gas pipeline projects to achieve various construction targets;
o the Registrant's plan to continue to develop its overseas operations;
o the Registrant's plan to continue to improve the qualifications of its
staff and maintain strict control over the size of its workforce;
o the Registrant's plan to further streamline its production facilities
for the next several years and the anticipated impact of such plan on
the results of operations and financial position of the Registrant;
o the Registrant's plans to adopt various measures to enhance its value
and maximize shareholders' value;
o the Registrant's plans and prospectus specified under "The Second Half
of 2004 and Beyond"; and
o the Registrant's other future plans and prospects.
These forward-looking statements reflect the Registrant's current views
with respect to future events and are not a guarantee of future performance.
Actual results may differ materially from information contained in these
forward-looking statements as a result of a number of factors, including,
without limitation:
o fluctuations in crude oil and natural gas prices;
o failure to achieve continued exploration success;
o failure or delay in achieving production from development projects;
o change in demand for competing fuels in the target market;
o continued availability of capital and financing;
o general economic, market and business conditions;
o changes in policies, laws or regulations of the People's Republic of
China and other jurisdictions in which the Registrant and its
subsidiaries conduct business; and
o other factors beyond the Registrant's control.
The Registrant does not intend to update or otherwise revise the
forward-looking statements in this interim report, 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 the Registrant expects, or at all.
You should not place undue reliance on any of these forward-looking
statements.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PetroChina Company Limited
Dated: September 8, 2004 By: /s/ Li Huaiqi
-------------------------
Name: Li Huaiqi
Title: Company Secretary
[PetroChina LOGO]
2004
INTERIM REPORT
PETROCHINA COMPANY LIMITED
2004
[PetroChina LOGO] INTERIM REPORT
PETROCHINA COMPANY LIMITED
PETROCHINA COMPANY LIMITED 2004 INTERIM REPORT
FINANCIAL AND BUSINESS SUMMARY
o Output of crude oil for the first half of 2004 was 388.5 million barrels,
representing an increase of 0.54% from the first half of 2003.
o Output of marketable natural gas for the first half of 2004 was 410.3
billion cubic feet, representing an increase of 17.40% from the first half
of 2003.
o Total output of crude oil and natural gas for the first half of 2004 was
456.9 million barrels of oil equivalent, representing an increase of 2.74%
from the first half of 2003.
o Consolidated turnover for the first half of 2004 was RMB179.552 billion,
representing an increase of 21.35% from the first half of 2003.
o Consolidated net profit for the first half of 2004 was RMB45.292 billion,
representing an increase of 17.28% from the first half of 2003.
o Basic and diluted earnings per share for the first half of 2004 were
RMB0.26, representing an increase of RMB0.04 from the first half of 2003.
o The Board of Directors has resolved to distribute an interim dividend for
2004 of RMB0.115919 per share.
CONTENTS
2004 INTERIM REPORT
01 CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
30 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
44 BUSINESS OPERATING REVIEW AND PROSPECTS
48 INTERIM DIVIDEND AND CLOSURE OF REGISTER OF MEMBERS
48 SHARE CAPITAL STRUCTURE
48 REPURCHASE, SALE OR REDEMPTION OF SECURITIES
48 TRUST DEPOSITS AND OVERDUE TIME DEPOSITS
49 INTERESTS OF DIRECTORS AND SUPERVISORS IN THE SHARE
CAPITAL OF THE COMPANY
49 COMPLIANCE WITH THE MODEL CODE
49 COMPLIANCE WITH THE CODE OF BEST PRACTICE
49 AUDIT COMMITTEE
49 DIRECTORS OF THE COMPANY
CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
PETROCHINA COMPANY LIMITED UNAUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the six months ended June 30, 2004 and June 30, 2003 (Amounts in millions
except for per share data)
SIX MONTHS ENDED JUNE 30
------------------------------------------
NOTES 2004 2003
----- ------------------- -------------------
RMB RMB
TURNOVER 3 179,552 147,960
------------------- -------------------
OPERATING EXPENSES
Purchases, services and other (52,699) (40,465)
Employee compensation costs (10,487) (8,275)
Exploration expenses, including exploratory dry holes (5,630) (4,811)
Depreciation, depletion and amortisation (24,673) (20,909)
Selling, general and administrative expenses (12,776) (11,094)
Taxes other than income taxes (9,285) (7,872)
Other income, net 248 461
------------------- -------------------
TOTAL OPERATING EXPENSES (115,302) (92,965)
------------------- -------------------
PROFIT FROM OPERATIONS 64,250 54,995
------------------- -------------------
FINANCE COSTS
Exchange gain 35 26
Exchange loss (25) (90)
Interest income 451 241
Interest expense (1,386) (1,364)
------------------- -------------------
TOTAL FINANCE COSTS (925) (1,187)
------------------- -------------------
SHARE OF PROFIT OF ASSOCIATED COMPANIES 720 308
------------------- -------------------
PROFIT BEFORE TAXATION 4 64,045 54,116
TAXATION 5 (18,019) (15,201)
------------------- -------------------
PROFIT BEFORE MINORITY INTERESTS 46,026 38,915
MINORITY INTERESTS (734) (296)
------------------- -------------------
NET PROFIT 45,292 38,619
=================== ===================
BASIC AND DILUTED EARNINGS PER SHARE 6 0.26 0.22
=================== ===================
The accompanying notes are an integral part of these financial statements.
1
CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
PETROCHINA COMPANY LIMITED UNAUDITED CONSOLIDATED BALANCE SHEET
As of June 30, 2004 and December 31, 2003 (Amounts in millions)
NOTES JUNE 30, 2004 DECEMBER 31, 2003
------- --------------------- ----------------------------
RMB RMB
NON CURRENT ASSETS
Property, plant and equipment 8 434,388 433,419
Investments in associates 6,193 5,571
Available-for-sale investments 1,742 1,839
Intangible and other assets 4,903 4,732
--------------------- ----------------------------
447,226 445,561
--------------------- ----------------------------
CURRENT ASSETS
Inventories 9 34,939 28,872
Accounts receivable 10 3,871 3,263
Prepaid expenses and other current assets 20,518 13,528
Notes receivable 11 4,546 2,416
Receivables under resale agreements 12 37,464 24,224
Time deposits with maturities over three months 800 2,640
Cash and cash equivalents 17,808 11,231
--------------------- ----------------------------
TOTAL CURRENT ASSETS 119,946 86,174
--------------------- ----------------------------
CURRENT LIABILITIES
Accounts payable and accrued liabilities 13 71,981 64,180
Income tax payable 8,838 12,043
Other taxes payable 9,884 8,916
Short-term borrowings 14 28,608 28,890
--------------------- ----------------------------
119,311 114,029
--------------------- ----------------------------
NET CURRENT ASSETS/(LIABILITIES) 635 (27,855)
--------------------- ----------------------------
TOTAL ASSETS LESS CURRENT LIABILITIES 447,861 417,706
===================== ============================
FINANCED BY:
Share capital
-State-owned shares of RMB 1.00 each 158,242 158,242
-H shares of RMB 1.00 each 17,582 17,582
--------------------- ----------------------------
175,824 175,824
Retained earnings 120,922 89,577
Reserves 91,212 91,212
--------------------- ----------------------------
Shareholders' equity 387,958 356,613
--------------------- ----------------------------
Minority interests 6,191 5,608
--------------------- ----------------------------
NON CURRENT LIABILITIES
Long-term borrowings 14 40,049 41,959
Deferred credits and other long-term obligations 2,248 2,000
Deferred taxation 11,415 11,526
--------------------- ----------------------------
53,712 55,485
--------------------- ----------------------------
447,861 417,706
===================== ============================
The accompanying notes are an integral part of these financial statements.
2
CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS PETROCHINA COMPANY LIMITED
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
For the six months ended of June 30, 2004 and June 30, 2003 (Amounts in
millions)
SIX MONTHS ENDED JUNE 30
-----------------------------------------
NOTES 2004 2003
------- ----------------- -------------------
RMB RMB
CASH FLOWS FROM OPERATING ACTIVITIES
Net Profit 45,292 38,619
Adjustments for:
Minority interests 734 296
Taxation 5 18,019 15,201
Depreciation, depletion and amortisation 4 24,673 20,909
Dry hole costs 3,130 3,015
Share of profit of associated companies (720) (308)
Impairment of receivables 4 749 1,132
Write down in inventories, net 4 1 (12)
Impairment of available-for-sale investments 4 24 6
Loss on disposal of associated companies 2 -
Gain on disposal of available-for-sale investments (4) -
Loss on disposal of property, plant and equipment 4 98 123
Dividend income 4 (62) (44)
Interest income (451) (241)
Interest expense 1,386 1,364
Changes in working capital:
Accounts receivable, prepaid expenses and other
current assets (10,111) (5,816)
Inventories (6,068) 636
Accounts payable and accrued liabilities 12,422 6,385
----------------- -------------------
CASH GENERATED FROM OPERATIONS 89,114 81,265
Interest received 448 241
Interest paid (1,679) (1,844)
Income taxes paid (21,215) (12,834)
----------------- -------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 66,668 66,828
----------------- -------------------
The accompanying notes are an integral part of these financial statements.
3
CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
PETROCHINA COMPANY LIMITED UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
For the six months ended of June 30, 2004 and June 30, 2003 (Amounts in
millions)
SIX MONTHS ENDED JUNE 30
--------------------------------------
NOTES 2004 2003
------- ---------------- ----------------
RMB RMB
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (30,627) (26,068)
Acquisition of associated companies (164) (605)
Repayment of capital by associated companies 115 17
Acquisition of available-for-sale investments (6) (257)
Net Acquisition of receivables under resale agreements (13,240) (10,068)
Acquisition of intangible assets (114) (3)
Acquisition of other non-current assets (580) (234)
Proceeds from disposal of associated companies 26 --
Proceeds from disposal of available-for-sale investments 22 69
Proceeds from disposal of other non-current assets -- 52
Proceeds from disposal of property, plant and equipment 96 38
Dividends received 160 98
Decrease/(Increase) in time deposits with maturities over three months 1,840 (15)
----------------- -----------------
NET CASH USED FOR INVESTING ACTIVITIES (42,472) (36,976)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term borrowings 13,946 12,235
Repayments of short-term borrowings (11,716) (17,578)
Increase in long-term borrowings 8,826 863
Repayments of long-term borrowings (13,285) (3,862)
Principal payment on finance lease obligations (25) (41)
Dividends paid to minority interests (190) (52)
Capital contribution from minority interests -- 39
Dividends paid 7 (13,947) (12,299)
Change in deferred credits and other long-term obligations 248 200
Cash payment for acquisition of CNPC marketing enterprises (1,476) --
----------------- -----------------
NET CASH USED FOR FINANCING ACTIVITIES (17,619) (20,495)
----------------- -----------------
INCREASE IN CASH AND CASH EQUIVALENTS 6,577 9,357
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 11,231 9,977
----------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 17,808 19,334
================= =================
The accompanying notes are an integral part of these financial statements.
SHARE RETAINED
CAPITAL EARNINGS RESERVES TOTAL
-------------- -------------- --------------- ---------------
RMB RMB RMB RMB
Balance at January 1, 2003 175,824 59,004 81,848 316,676
Net profit from January 1 to June 30, 2003 - 38,619 - 38,619
Final dividend for 2002 (Note 7) - (12,299) - (12,299)
-------------- -------------- --------------- ---------------
Balance at June 30, 2003 175,824 85,324 81,848 342,996
============== ============== =============== ===============
4
CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
PETROCHINA COMPANY LIMITED NOTES TO THE UNAUDITED CONSOLIDATED INTERIM
CONDENSED FINANCIAL STATEMENTS
For the six months ended June 30, 2004 (Amounts in million)
Balance at January 1, 2004 175,824 89,577 91,212 356,613
Net profit from January 1 to June 30, 2004 - 45,292 - 45,292
Final dividend for 2003 (Note 7) - (13,947) - (13,947)
-------------- --------------- --------------- -------------
Balance at June 30, 2004 175,824 120,922 91,212 387,958
============== =============== =============== =============
The accompanying notes are an integral part of these financial statements.
5
CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
PETROCHINA COMPANY LIMITED NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2004 (Amounts in million)
1 ORGANISATION AND PRINCIPAL ACTIVITIES
PetroChina Company Limited (the "Company") was established in the People's
Republic of China (the "PRC" or "China") on November 5, 1999 as a joint stock
company with limited liability as a result of a group restructuring (the
"Restructuring") of China National Petroleum Corporation ("CNPC") in preparation
for the listing of the Company's shares on the New York Stock Exchange and the
Stock Exchange of Hong Kong Limited. The Company and its subsidiaries are
collectively referred to as the "Group".
In accordance with the restructuring agreement between CNPC and the Company
effective as of November 5, 1999, the Company issued 160 billion state-owned
shares in exchange for the assets and liabilities transferred to the Company by
CNPC. The 160 billion state-owned shares were the initial registered capital of
the Company with a par value of RMB1.00 per share. On April 7, 2000, the Company
issued 17,582,418,000 shares, represented by 13,447,897,000 H shares and
41,345,210 American Depositary Shares ("ADSs", each representing 100 H shares)
in a global offering and the trading of the H shares and the ADSs on the Stock
Exchange of Hong Kong Limited and the New York Stock Exchange commenced on April
7, 2000 and April 6, 2000, respectively. Pursuant to the approval of the China
Securities Regulatory Commission, 1,758,242,000 state-owned shares of the
Company owned by CNPC were converted into H shares for sale in the global
offering.
2 ACCOUNTING POLICIES
The consolidated interim condensed financial statements have been prepared
in accordance with International Accounting Standards ("IAS") 34 "Interim
Financial Reporting". The accounting policies 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, 2003.
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, 2003. The consolidated interim condensed financial statements as of
June 30, 2004 and for the six-month periods ended June 30, 2004 and June 30,
2003 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, 2004 are not necessarily indicative
of the results of operations expected for the year ended December 31, 2004.
Costs that incur unevenly during the financial year are anticipated or
deferred in these interim financial statements only if it would also be
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, 2004 is
principally 33% (six months ended June 30, 2003: 33%).
6
CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
PETROCHINA COMPANY LIMITED NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2004 (Amounts in million)
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 15.
4 PROFIT BEFORE TAXATION
SIX MONTHS ENDED JUNE 30
------------------------
2004 2003
------- -------
RMB RMB
Profit before taxation is arrived at after crediting and charging of the
following items:
Crediting
Dividend income from available-for-sale investments 62 44
Reversal of impairment of receivables 274 --
Reversal of write down in inventories 122 12
Reversal of impairment of available-for-sale investments 4 --
Charging
Amortisation on intangible and other assets 523 301
Cost of inventories (approximates cost of goods sold) recognised as expense 77,301 62,447
Depreciation on property, plant and equipment, including impairment provision
- owned assets 24,142 20,592
- assets under finance leases 8 16
Impairment of available-for-sale investments 28 6
Impairment of receivables 1,023 1,132
Interest expense (Note (a)) 1,386 1,364
Loss on disposal of property, plant and equipment 98 123
Operating lease rentals on land and buildings and equipment 1,564 1,448
Repair and maintenance 2,493 1,804
Research and development expenditure 906 676
Write down in inventories 123 --
======= =======
Note (a) Interest expense
Interest expense 1,733 1,872
Less: amounts capitalised (347) (508)
------- -------
1,386 1,364
======= =======
7
CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
PETROCHINA COMPANY LIMITED NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2004 (Amounts in million)
5 TAXATION
SIX MONTHS ENDED JUNE 30
------------------------
2004 2003
------- -------
RMB RMB
Income tax 18,010 14,494
Deferred tax (111) 661
Share of tax of associated companies 120 46
------- -------
18,019 15,201
======= =======
In accordance with the relevant PRC income tax rules and regulations, the
PRC income tax rate applicable to the Group is principally 33% (2003: 33%). The
Group in the last quarter of year 2002 obtained approvals from several
provincial and local tax authorities whereby a portion of the taxable income of
the Group's qualifying operations in these locales through 2010 are assessed
income tax at a reduced rate of 15% instead of the statutory rate of 33%.
The tax on the Group's profit before taxation differs from the theoretical
amount that would arise using the basic tax rate in the PRC applicable to the
Group as follows:
SIX MONTHS ENDED JUNE 30
------------------------
2004 2003
------- -------
RMB RMB
Profit before taxation 64,045 54,116
------- -------
Tax calculated at a tax rate of 33% 21,135 17,858
Prior year tax return adjustment 2 (323)
Effect of preferential tax rate (2,668) (2,156)
Income not subject to tax (517) (204)
Expenses not deductible for tax purposes 67 26
------- -------
Tax charge 18,019 15,201
======= =======
6 BASIC AND DILUTED EARNINGS PER SHARE
Basic and diluted earnings per share for the six months ended June 30, 2004
and 2003 have been computed by dividing net profit by the number of 175,824
million shares issued and outstanding for each of the periods.
There are no dilutive potential ordinary shares.
8
CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
PETROCHINA COMPANY LIMITED NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2004 (Amounts in million)
7 DIVIDENDS
SIX MONTHS ENDED JUNE 30
------------------------
2004 2003
------ ------
RMB RMB
Final dividend for 2002 (Note (i)) -- 12,299
Final dividend for 2003 (Note (ii)) 13,947 --
------ ------
13,947 12,299
====== ======
(i) A final dividend in respect of 2002 of RMB 0.069951 per share amounting to
a total of RMB 12,299 was paid on June 12, 2003, and was accounted for in
shareholders' equity as an appropriation of retained earnings in the six
months ended June 30, 2003.
(ii) A final dividend in respect of 2003 of RMB 0.079324 per share amounting to
a total of RMB 13,947 was paid on June 2, 2004, and was accounted for in
shareholders' equity as an appropriation of retained earnings in the six
months ended June 30, 2004.
(iii) As authorised by shareholders in the Annual General Meeting on May 18,
2004, the Board of Directors, in a meeting held on August 26, 2004,
resolved to distribute an interim dividend in respect of 2004 of RMB
0.115919 per share amounting to a total of RMB 20,381. These financial
statements do not reflect this dividend payable, as it was not authorised
until after the balance sheet date.
8 PROPERTY, PLANT AND EQUIPMENT
RMB
--------
COST OR VALUATION
At January 1, 2004 699,507
Additions 28,853
Disposals and write off (6,602)
--------
At June 30, 2004 721,758
--------
ACCUMULATED DEPRECIATION
At January 1, 2004 (266,088)
Charge for the period (24,150)
Disposals and write off 2,868
--------
At June 30, 2004 (287,370)
--------
NET BOOK VALUE
At June 30, 2004 434,388
========
The depreciation charge of the Group for the six months ended June 30, 2004
included RMB 1,957 (six months ended June 30, 2003: RMB 504) relating to
impairment provision for plant and equipment held for use. Of this amount, RMB
740 (six months ended June 30, 2003: RMB 504) was related to the Chemicals and
Marketing segment, RMB 352 (six months ended June 30, 2003: Nil) was for the
Refining and Marketing segment and RMB 865 (six months ended June 30, 2003: Nil)
was for the Exploration and Production segment.
9
CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
PETROCHINA COMPANY LIMITED NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2004 (Amounts in million)
A valuation of the Group's property, plant and equipment, excluding oil and
gas reserves, was carried out during 1999 by independent valuers. The valuation
was based on depreciated replacement costs.
As at September 30, 2003, a revaluation of the Group's refining and
chemical production equipment was undertaken by a firm of independent valuers,
China United Assets Appraiser Co., Ltd, in the PRC on a depreciated replacement
cost basis.
The June 1999 revaluation resulted in RMB 80,549 in excess of the prior
carrying value and a revaluation loss of RMB 1,122 on certain property, plant
and equipment.
The September 2003 revaluation resulted in a RMB 872 in excess of the
carrying value of certain property, plant and equipment immediately prior to the
revaluation and a revaluation loss of RMB 1,257.
Bank borrowings are secured on property, plant and equipment at net book
value of RMB 152 at June 30, 2004 (December 31, 2003: RMB 152).
9 INVENTORIES
JUNE 30, 2004 DECEMBER 31, 2003
------------- -----------------
RMB RMB
Crude oil and other raw materials 13,160 9,553
Work in progress 3,588 3,652
Finished goods 18,894 16,367
Spare parts and consumables 64 66
------- -------
35,706 29,638
Less: Write down in inventories (767) (766)
------- -------
34,939 28,872
======= =======
Inventories of the Group carried at net realisable value amounted to RMB
2,398 at June 30, 2004 (December 31, 2003: RMB 2,249).
10
CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
PETROCHINA COMPANY LIMITED NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2004 (Amounts in million)
10 ACCOUNTS RECEIVABLE
JUNE 30, 2004 DECEMBER 31, 2003
------------- -----------------
RMB RMB
Accounts receivable due from third parties 8,672 8,263
Less: Impairment provision (5,816) (5,872)
------ ------
2,856 2,391
Accounts receivable due from related parties
- Fellow CNPC subsidiaries 736 592
- Associated companies 279 280
------ ------
3,871 3,263
====== ======
Amounts due from related parties are interest free, unsecured and repayable
in accordance with normal commercial terms.
The aging analysis of accounts receivable at June 30, 2004 is as follows:
JUNE 30, 2004 DECEMBER 31, 2003
------------- -----------------
RMB RMB
Within 1 year 3,450 2,594
Between 1 to 2 years 100 136
Between 2 to 3 years 236 423
Over 3 years 5,901 5,982
----- -----
9,687 9,135
===== =====
The Group offers its customers the credit terms of no more than 180 days,
except for certain selected customers.
11 NOTES RECEIVABLE
Notes receivable represent mainly the bills of acceptance issued by banks
for sale of goods and products. All notes receivable are due within one year.
12 RECEIVABLES UNDER RESALE AGREEMENTS
Securities purchased under agreements to resell ("resale agreements") are
recorded as receivables under resale agreements. The difference between purchase
and resell prices is treated as interest income and accrued over the life of
resale agreements using the effective yield method.
Resale agreements are accounted for as collateralised financing
transactions and are recorded at their contractual amounts plus interest
accrued. The underlying collaterals are principally PRC government bonds.
11
CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
PETROCHINA COMPANY LIMITED NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2004 (Amounts in million)
13 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
JUNE 30, 2004 DECEMBER 31, 2003
------------- -----------------
RMB RMB
Trade payables 10,377 10,150
Advances from customers 5,072 6,861
Salaries and welfare payable 6,085 5,413
Accrued expenses 6,753 5
Dividends payable by subsidiaries to minority shareholders 70 118
Interest payable 122 130
Construction fee and equipment cost payables 11,639 13,760
Payable to Sinopec 621 610
Advances from Sinopec 86 233
One-time employee housing remedial payment payable 2,065 2,270
Other payables 12,164 10,628
Amounts due to related parties
- CNPC 2,664 1,531
- Fellow CNPC subsidiaries 13,085 11,880
- Associated companies 1,178 591
------ ------
71,981 64,180
====== ======
Other payables consist primarily of customer deposits.
Amounts due to related parties are interest-free, unsecured and repayable
in accordance with normal commercial terms.
The aging analysis of trade payables at June 30, 2004 is as follows:
JUNE 30, 2004 DECEMBER 31, 2003
------------- -----------------
RMB RMB
Within 1 year 9,568 9,108
Between 1 to 2 years 257 402
Between 2 to 3 years 51 127
Over 3 years 501 513
------ ------
10,377 10,150
====== ======
12
CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
PETROCHINA COMPANY LIMITED NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2004 (Amounts in million)
14 BORROWINGS
JUNE 30, 2004 DECEMBER 31, 2003
------------- -----------------
RMB RMB
Short-term borrowings 28,608 28,890
Long-term borrowings 40,049 41,959
------ ------
68,657 70,849
====== ======
The movements in the borrowings can be analysed as follows:
RMB
-------
Balance at January 1, 2004 70,849
Increase in borrowings 22,873
Repayments of borrowings (25,065)
-------
Balance at June 30, 2004 68,657
=======
The long-term borrowings can be analysed as follows:
JUNE 30, 2004 DECEMBER 31, 2003
------------- -----------------
RMB RMB
Unsecured Loans 57,217 61,614
Obligations under finance leases 31 56
Current portion of long-term liabilities (17,199) (19,711)
------- -------
40,049 41,959
======= =======
The analysis of the above is as follows:
Bank loans
- Wholly repayable within five years 29,136 30,173
- Not wholly repayable within five years 1,987 3,417
Other loans and obligations under finance leases
- Wholly repayable within five years 21,211 23,181
- Not wholly repayable within five years 4,914 4,899
------- -------
57,248 61,670
Current portion of long-term liabilities (17,199) (19,711)
------- -------
40,049 41,959
======= =======
Other loans and obligations under finance leases not wholly repayable
within five years are repayable by installments from July 2009 to April 2032.
Interest is charged on the outstanding balances at the rate of 0% to 6.44% per
annum (December 31, 2003: 0% to 6.44% per annum).
13
CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
PETROCHINA COMPANY LIMITED NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2004 (Amounts in million)
At June 30, 2004, the Group's bank loans and other borrowings were
repayable as follows:
OTHER LOANS AND OBLIGATIONS UNDER
BANK LOANS FINANCE LEASES
------------------------------ ----------------------------------
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
2004 2003 2004 2003
-------- ------------ -------- -------------
RMB RMB RMB RMB
Within one year 9,062 11,291 8,137 8,420
Between one to two years 4,739 9,963 5,065 8,220
Between two to five years 16,145 10,397 8,211 6,711
After five years 1,177 1,939 4,712 4,729
------ ------ ------ ------
31,123 33,590 26,125 28,080
====== ====== ====== ======
15 SEGMENT INFORMATION
The Group is engaged in a broad range of petroleum related activities
through its four major business segments: Exploration and Production, Refining
and Marketing, Chemicals and Marketing and Natural Gas and Pipeline.
The Exploration and Production segment is engaged in the exploration,
development, production and sales of crude oil and natural gas.
The Refining and Marketing segment is engaged in the refining,
transportation, storage and marketing of crude oil and petroleum products.
The Chemicals and Marketing segment is engaged in the production and sale
of basic petrochemical products, derivative petrochemical products, and other
chemical products.
The Natural Gas and Pipeline segment is engaged in the transmission of
natural gas, crude oil and refined products and the sale of natural gas.
In addition to these four major business segments, the Other segment
includes the assets, income and expenses relating to cash management, financing
activities, the corporate center, research and development, and other business
services to the operating business segments of the Group.
Substantially all assets and operations of the Group are located in the
PRC, which is considered as one geographic location in an economic environment
with similar risks and returns. In addition to its operations in the PRC, the
Group conducts exploration and production of crude oil and natural gas in
Indonesia.
The accounting policies of the operating segments are the same as those
described in Note 2 -- "Accounting Policies".
Operating segment information for the six months ended June 30, 2003 and
2004 is presented below:
14
CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
PETROCHINA COMPANY LIMITED NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2004 (Amounts in million)
Primary reporting format - business segments
EXPLORATION REFINING CHEMICALS NATURAL
AND AND AND GAS AND
SIX MONTHS ENDED JUNE 30, 2003 PRODUCTION MARKETING MARKETING PIPELINE OTHER TOTAL
------------------------------ ----------- --------- --------- -------- -------- --------
RMB RMB RMB RMB RMB RMB
Turnover (including intersegment) 91,485 106,213 18,928 7,777 -- 224,403
Less: Intersegment sales (65,714) (8,064) (1,064) (1,601) -- (76,443)
-------- -------- -------- -------- -------- --------
Turnover from external customers 25,771 98,149 17,864 6,176 -- 147,960
======== ======== ======== ======== ======== ========
Depreciation, depletion and amortisation (12,534) (4,345) (3,210) (769) (51) (20,909)
Segment result 53,309 9,866 1,197 1,377 (121) 65,628
Other costs (3,039) (6,799) (549) (56) (190) (10,633)
-------- -------- -------- -------- -------- --------
Profit/(loss) from operations 50,270 3,067 648 1,321 (311) 54,995
-------- -------- -------- -------- --------
Finance costs (1,187)
Share of (loss)/profit of associated
companies (14) 10 3 1 308 308
--------
Profit before taxation 54,116
Taxation (15,201)
Minority interests (296)
--------
Net profit 38,619
========
Interest income (including intersegment) 1,116 217 56 55 2,271 3,715
Less: Intersegment interest income (3,474)
--------
Interest income from external entities 241
========
Interest expense (including intersegment) (1,368) (907) (440) (181) (1,942) (4,838)
Less: Intersegment interest expense 3,474
--------
Interest expense to external entities (1,364)
========
Segment assets 302,125 111,273 56,844 39,709 444,564 954,515
Elimination of intersegment balances (448,992)
Investments in associated companies 1,190 1,660 90 61 1,234 4,235
--------
Total assets 509,758
========
Segment capital expenditure
- for property, plant and equipment 17,336 3,558 1,123 4,492 39 26,548
Segment liabilities 101,320 71,247 39,652 28,177 105,047 345,443
Other liabilities 26,196
Elimination of intersegment balances (210,098)
--------
Total liabilities 161,541
========
15
CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
PETROCHINA COMPANY LIMITED NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2004 (Amounts in million)
Primary reporting format - business segments (continued)
EXPLORATION REFINING CHEMICALS NATURAL
SIX MONTHS ENDED AND AND AND GAS AND
JUNE 30, 2004 PRODUCTION MARKETING MARKETING PIPELINE OTHER TOTAL
--------------- ---------- --------- --------- --------- ---------- ----------
RMB RMB RMB RMB RMB RMB
Turnover (including intersegment) 99,526 137,149 25,434 8,917 -- 271,026
Less: Intersegment sales (78,818) (9,504) (1,332) (1,820) -- (91,474)
---------- ---------- ---------- ---------- ---------- ----------
Turnover from external customers 20,708 127,645 24,102 7,097 -- 179,552
========== ========== ========== ========== ========== ==========
Depreciation, depletion and amortisation (14,511) (4,836) (4,002) (1,274) (50) (24,673)
Segment result 55,607 17,066 3,190 1,321 (406) 76,778
Other costs (2,906) (8,088) (1,237) (88) (209) (12,528)
---------- ---------- ---------- ---------- ---------- ----------
Profit/(loss) from operations 52,701 8,978 1,953 1,233 (615) 64,250
---------- ---------- ---------- ---------- ----------
Finance costs (925)
Share of profit/(loss) of associated
companies 91 (8) 21 8 608 720
----------
Profit before taxation 64,045
Taxation (18,019)
Minority interests (734)
----------
Net profit 45,292
==========
Interest income (including intersegment) 1,019 264 165 20 2,483 3,951
Less: Intersegment interest income (3,500)
----------
Interest income from external entities 451
==========
Interest expense (including intersegment) (1,419) (873) (316) (350) (1,928) (4,886)
Less: Intersegment interest expense 3,500
----------
Interest expense to external entities (1,386)
==========
Segment assets 324,142 119,943 53,316 51,163 478,110 1,026,674
Elimination of intersegment balances (465,695)
Investments in associated companies 1,267 1,913 252 88 2,673 6,193
----------
Total assets 567,172
==========
Segment capital expenditure
- for property, plant and equipment 19,146 4,688 1,062 3,905 52 28,853
Segment liabilities 104,174 67,298 17,800 30,051 103,881 323,204
Other liabilities 30,198
Elimination of intersegment balances (180,379)
----------
Total liabilities 173,023
==========
16
CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
PETROCHINA COMPANY LIMITED NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2004 (Amounts in million)
Note (a) - Intersegment sales are conducted principally at market price.
Note (b) - Segment result is profit from operations before other costs.
Other costs include selling, general and administrative expenses
and other net income.
Note (c) - Segment result for the six months ended June 30, 2003 and 2004
included impairment provision for property, plant and equipment
(Note 8).
Note (d) - Other liabilities mainly include income tax payable, other taxes
payable and deferred taxation.
Note (e) - Elimination of intersegment balances represents elimination of
intersegment current accounts and investments.
SECONDARY REPORTING FORMAT - GEOGRAPHICAL SEGMENTS
TURNOVER TOTAL ASSETS CAPITAL EXPENDITURE
---------------------- ---------------------- ----------------------
SIX MONTHS ENDED JUNE 30, 2004 2003 2004 2003 2004 2003
------------------------- ------- ------- ------- ------- ------- -------
RMB RMB RMB RMB RMB RMB
PRC 179,044 147,434 563,521 506,667 28,453 26,362
Others (Exploration and
Production) 508 526 3,651 3,091 400 186
------- ------- ------- ------- ------- -------
179,552 147,960 567,172 509,758 28,853 26,548
======= ======= ======= ======= ======= =======
16 CONTINGENT LIABILITIES
(a) BANK AND OTHER GUARANTEES
At June 30, 2004, the Group had contingent liabilities in respect of bank
and other guarantees and other matters arising in the ordinary course of
business from which it is anticipated that no material liabilities will arise.
JUNE 30, 2004 DECEMBER 31, 2003
------------- -----------------
RMB RMB
Guarantee of borrowings of associated companies 211 448
=== ===
(b) ENVIRONMENTAL LIABILITIES
CNPC and the Group have operated in China for many years and certain
environmental problems have developed. China has adopted extensive environmental
laws and regulations that affect the operation of the oil and gas industry. The
outcome of environmental liabilities under proposed or future environmental
legislation cannot reasonably be estimated at present, and could be material.
Under existing legislation, however, management believes that there are no
probable liabilities, except for the amounts which have already been reflected
in the financial statements, that will have a material adverse effect on the
financial position of the Group.
(c) LEGAL CONTINGENCIES
The Group is the named defendant in certain insignificant lawsuits as well
as the named party in other
17
CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
PETROCHINA COMPANY LIMITED NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2004 (Amounts in million)
proceedings arising in the ordinary course of business. While the outcomes
of such contingencies, lawsuits or other proceedings cannot be determined at
present, management believes that any resulting liabilities will not have a
material adverse effect on the financial position of the Group.
(d) LEASING OF ROADS, LAND AND BUILDINGS
According to the Restructuring Agreement entered into between the Company
and CNPC in 1999 upon the formation of the Company, CNPC has undertaken to the
Company the following:
o CNPC will use its best endeavours to obtain formal land use right
certificates to replace the entitlement certificates in relation to the
28,649 parcels of land which were leased or transferred to the Company
from CNPC, within one year from August, September and October 1999 when
the relevant entitlement certificates were issued;
o CNPC will complete, within one year from November 5, 1999, the
necessary governmental procedures for the requisition of the
collectively-owned land on which 116 service stations owned by the
Company are located; and
o CNPC will obtain individual building ownership certificates in the name
of the Company for all of the 57,482 buildings transferred to the
Company by CNPC, before November 5, 2000.
As at June 30, 2004, CNPC has obtained formal land use right certificates
in relation to 24,046 out of the above-mentioned 28,649 parcels of land, some
building ownership certificates for the above-mentioned buildings, but has
completed none of the necessary governmental procedures for the above-mentioned
service stations located on collectively-owned land. The Directors of the
Company confirm that the use of and the conduct of relevant activities at the
above-mentioned parcels of land, service stations and buildings are not affected
by the fact that the relevant land use right certificates or individual building
ownership certificates have not been obtained or the fact that the relevant
governmental procedures have not been completed. In management's opinion, the
outcome of the above events will not have a material adverse effect on the
results of operations or the financial position of the Group.
(e) GROUP INSURANCE
Except for limited insurance coverage for vehicles and certain assets
subject to significant operating risks, the Group does not carry any other
insurance for property, facilities or equipment with respect to its business
operations. In addition, the Group does not carry any third-party liability
insurance against claims relating to personal injury, property and environmental
damages or business interruption insurance since such insurance coverage is not
customary in China. While the effect of under-insurance on future incidents
cannot be reasonably assessed at present, management believes that it may have a
material impact on the operating results but will not have a material adverse
effect on the financial position of the Group.
(f) COST REDUCTION MEASURES
The Group may further streamline its production facilities within the next
several years to further improve the operating efficiency and competitiveness of
the Group. Management has not approved all significant actions to be taken to
complete such plans. Management does not believe such plans will have a material
adverse impact on the Group's financial position, but may have a material
adverse effect on the Group's results
18
CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
PETROCHINA COMPANY LIMITED NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2004 (Amounts in million)
of operations.
(g) OTHER
In December 2003, a gas blow-out incident occurred at one of the gas wells
of the Group. The blow-out caused the leakage of a large quantity of sulfurated
hydrogen, causing injuries and death to many residents living in the surrounding
area. As a result of an investigation conducted by the PRC government, CNPC,
which provided drilling services for the well, was held liable for this
blow-out. The incident has not had, and the Company does not believe it will
have, a material adverse effect on the results of operations and financial
position of the Group.
17 COMMITMENTS
(a) OPERATING LEASE COMMITMENTS
Operating lease commitments of the Group are mainly for leasing of land and
buildings and equipment. Leases range from one to fifty years and usually do not
contain renewal options. Future minimum lease payments as of June 30, 2004 and
December 31, 2003 under non-cancellable operating leases are as follows:
JUNE 30, 2004 DECEMBER 31, 2003
------------- -----------------
RMB RMB
First year 2,440 2,552
Second year 2,332 2,433
Third year 2,325 2,409
Fourth year 2,310 2,391
Fifth year 2,308 2,380
Thereafter 83,701 84,776
------ ------
95,416 96,941
====== ======
Operating lease expenses for land and buildings and equipment were RMB
1,564 for the six months ended June 30, 2004 (six months ended June 30, 2003
were RMB 1,448).
19
CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
PETROCHINA COMPANY LIMITED NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2004 (Amounts in million)
(b) CAPITAL COMMITMENTS
JUNE 30, 2004 DECEMBER 31, 2003
------------- -----------------
RMB RMB
Contracted but not provided for
Oil and gas properties 381 896
Plant and equipment 8,038 10,055
Other 433 194
------ ------
8,852 11,145
====== ======
(c) EXPLORATION AND PRODUCTION LICENSES
The Company is obligated to make annual payments with respect to its
exploration and production licenses to the Ministry of Land and Resources.
Payments incurred were approximately RMB 211 for the six months ended June 30,
2004 (six months ended June 30, 2003 were RMB 36).
Estimated annual payments in the future are as follows:
RMB
---
2004 515
2005 618
2006 681
2007 712
2008 712
(d) DIVIDENDS
Dividends received from the Company are likely to be one of the principal
sources of funding for CNPC. Subject to the relevant provisions of the PRC
Company law and the Articles of Association of the Company, CNPC, as major
shareholder of the Company, may seek to influence the determination of the
amount of dividends paid by the Company with a view to satisfying its cash flow
requirements including those relating to its obligations to provide
supplementary social services to its employees and a limited number of third
parties. The Ministry of Finance has committed to provide subsidies to enable
CNPC to fund a portion of future operating shortfalls arising out of CNPC's
obligation to provide social services. The directors believe that these
subsidies will substantially reduce CNPC's reliance on dividends from the
Company.
18 RELATED PARTY TRANSACTIONS
The Group is part of a larger group of companies under CNPC and has
extensive transactions and relationships with members of the CNPC group. Because
of these relationships, it is possible that the terms of these transactions are
not the same as those that would result from transactions among wholly unrelated
parties. Related parties refer to corporations in which CNPC is a major
shareholder and is able to control or exercise significant influence.
CNPC itself is a state-owned enterprise. In accordance with a specific
exemption in IAS 24 "Related Party Disclosures", the Group does not accumulate
or disclose transactions with other state-owned enterprises as related party
transactions, other than those with other CNPC group companies and significant
customers.
20
CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
PETROCHINA COMPANY LIMITED NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2004 (Amounts in million)
The majority of the Group's business activities are conducted with
state-owned enterprises. Sale of certain products to these state-owned
enterprises are at state-prescribed prices which are similar to prices to other
customers. The Group considers that these sales are activities in the ordinary
course of business and has not accumulated or disclosed such related party
transactions.
As a result of the Restructuring (Note 1), the Company and CNPC entered
into a Comprehensive Products and Services Agreement for a range of products and
services which may be required and requested by either party; a Land Use Rights
Leasing Contract (Note 16 (d)) under which CNPC leases 42,476 parcels of land
located throughout the PRC to the Company; and a Buildings Leasing Contract
under which CNPC leases 191 buildings located throughout the PRC to the Company.
The term of the Comprehensive Products and Services Agreement is 10 years
commencing from November 5, 1999. The products and services to be provided by
the CNPC group to the Company under the Comprehensive Products and Services
Agreement include construction and technical services, production services,
supply of material services, social services, ancillary services and financial
services. The products and services are provided in accordance with (1)
state-prescribed prices; or (2) where there is no state-prescribed price,
relevant market prices; or (3) where neither (1) nor (2) is applicable, actual
cost incurred; or the agreed contractual price, being the actual cost plus a
margin of no more than 15% for certain construction and technical services, and
3% for all other types of services.
The Land Use Rights Contract provides for the lease of an aggregate area of
approximately 1,145 million square meters of land located throughout the PRC to
business units of the Group for a term of 50 years at an annual fee of RMB
2,000. The total fee payable for the lease of all such property may, after the
expiration of 10 years, be adjusted by agreement between the Company and CNPC.
Under the Buildings Leasing Contract, 191 buildings covering an aggregate
area of 269,770 square meters located throughout the PRC are leased at an
aggregate annual fee of RMB 39 for a term of 20 years.
The Company also entered into a Supplemental Buildings Leasing Agreement
with CNPC in September 2002 to lease an additional 404 buildings covering
approximately 442,730 square meters at an annual rental of RMB 157. The
Supplemental Buildings Leasing Agreement will expire at the same time as the
Building Leasing Agreement.
In addition to the related party information shown elsewhere in the
financial statements, the following is a summary of significant related party
transactions entered into in the ordinary course of business between the Group
and entities controlled by CNPC during the periods indicated below:
21
CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
PETROCHINA COMPANY LIMITED NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2004 (Amounts in million)
SIX MONTHS ENDED JUNE 30
------------------------
NOTES 2004 2003
----- ------ ------
RMB RMB
Sale of goods (a) 6,146 4,548
Fees paid for construction and technical services (b)
- Exploration and development services (c) 12,542 11,191
- Other construction and technical services (d) 4,801 4,389
Fees for production services (e) 7,825 7,384
Social services charge (f) 582 558
Ancillary service charges (g) 899 803
Interest income (h) 12 15
Interest expense (i) 533 535
Rental expense (j) 1,009 964
Commission expense and other charges (k) 380 341
Notes:
(a) Represents sale of crude oil, refined and chemical products conducted
principally at market prices.
(b) Under the Comprehensive Products and Services Agreement entered into
between CNPC and the Company, certain construction and technical
services provided by CNPC are charged at cost plus an additional
margin of no more than 15%, including exploration and development
services and oilfield construction services.
(c) Direct costs for exploration and development services comprise
geophysical survey, drilling, well cementing, logging and well
testing.
(d) The fees paid for other construction and technical services comprise
fees for construction of refineries and chemical plants and technical
services in connection with oil and gas exploration and production
activities such as oilfield construction, technology research,
engineering and design, etc.
(e) The fees paid for production services comprise fees for the repair of
machinery, supply of water, electricity and gas, provision of services
such as communications, transportation, fire fighting, asset leasing,
environmental protection and sanitation, maintenance of roads,
manufacture of replacement parts and machinery.
(f) These represent expenditures for social welfare and support services
which are charged at cost.
(g) Ancillary service charges represent mainly fees for property
management, the provision of training centres, guesthouses, canteens,
public shower rooms, etc.
(h) The Group had deposits placed with China Petroleum Finance Company
Limited ("CP Finance"), a subsidiary of CNPC and a non-bank financial
institution approved by the People's Bank of China, amounting to RMB
3,434 (December 31, 2003: RMB 2,331) as of June 30, 2004. The deposits
yield interest at prevailing saving deposit rates.
(i) The Group had unsecured short-term and long-term loans from CP Finance
amounting to RMB 23,186 (December 31, 2003: RMB 25,188) as of June 30,
2004 included under loans from related parties. The loans were
interest bearing at market rates.
(j) Rental expenses are calculated in accordance with the lease agreements
entered into between the
22
CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
PETROCHINA COMPANY LIMITED NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2004 (Amounts in million)
Company and CNPC.
(k) CNPC purchases materials on behalf of the Company and charges
commission thereon. The commission is calculated at rates ranging from
1% to 5% of the goods purchased.
(l) The Group had a 7.5% equity interest in CP Finance at a book value of
RMB 299 as of December 31, 2003 and June 30, 2004.
23
INTERIM CONDENSED FINANCIAL STATEMENTS
PETROCHINA COMPANY LIMITED NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2004 (Amounts in million)
SIGNIFICANT DIFFERENCES BETWEEN IFRS AND US GAAP
The consolidated interim condensed financial statements have been prepared
in accordance with International Financial Reporting Standards (IFRS), which may
differ in certain material respects from the accounting principles generally
accepted in the United States of America (US GAAP). Such differences involve
methods for measuring the amounts shown in the financial statements, as well as
additional disclosures required by US GAAP.
Effect on net income of significant differences between IFRS and US GAAP is
as follows:
SIX MONTHS ENDED JUNE 30
--------------------------------------
2004 2003
------------------ ----------------
RMB RMB
Net income under IFRS 45,292 38,619
US GAAP adjustments:
Depreciation charges on property, plant and equipment revaluation gain 4,391 4,615
Depreciation charges on property, plant and equipment revaluation loss (465) (56)
Loss on disposal of property, plant and equipment 47 4
Income tax effect (1,311) (1,506)
Minority interests (30) (30)
------------------ ----------------
Net income under US GAAP 47,924 41,646
================== ================
Basic and diluted net income per share under US GAAP (RMB) 0.27 0.24
================== ================
24
INTERIM CONDENSED FINANCIAL STATEMENTS
PETROCHINA COMPANY LIMITED NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2004 (Amounts in million)
Effect on shareholders' equity of significant differences between IFRS and
US GAAP is as follows:
JUNE 30, 2004 DECEMBER 31,2003
------------- ----------------
RMB RMB
Shareholders' equity under IFRS 387,958 356,613
US GAAP adjustments:
Reversal of property, plant and equipment revaluation gain (80,555) (80,555)
Depreciation charges on property, plant and equipment
revaluation gain 41,664 37,273
Reversal of property, plant and equipment revaluation loss 1,513 1,513
Depreciation charges on property, plant and equipment
revaluation loss (945) (480)
Loss on disposal of property, plant and equipment 838 791
Deferred tax assets on revaluation 12,375 13,686
Minority interests 334 364
Effect on the retained earnings from the one-time remedial
payments for staff housing borne by the state shareholder
of the Company (2,553) (2,553)
Effect on the other reserves of the shareholders' equity from
the one-time remedial payments for staff housing borne by
the state shareholder of the Company 2,553 2,553
------------- ----------------
Shareholders' equity under US GAAP 363,182 329,205
============= ================
25
INTERIM CONDENSED FINANCIAL STATEMENTS
PETROCHINA COMPANY LIMITED NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2004 (Amounts in million)
Changes in shareholders' equity under US GAAP for each of the periods ended
June 30, 2003 and June 30, 2004 are as follows:
SIX MONTHS ENDED JUNE 30
--------------------------------------
2004 2003
---------------- -----------------
RMB RMB
Beginning of the period 329,205 283,464
Net profit for the period 47,924 41,646
Final dividend for year 2002 -- (12,299)
Final dividend for year 2003 (13,947) --
---------------- -----------------
End of the period 363,182 312,811
================ =================
In preparing the summary of differences between IFRS and US GAAP,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities, and the estimates of revenues and expenses. Accounting
estimates have been employed in these financial statements to determine reported
amounts, including realisability, useful lives of tangible and intangible
assets, income taxes and other areas. Actual results could differ from those
estimates.
A summary of the principal differences and additional disclosures
applicable to the Group is set out below:
(a) REVALUATION OF PROPERTY, PLANT AND EQUIPMENT
The property, plant and equipment, excluding oil and gas reserves,
transferred to the Company by CNPC were appraised as of June 30, 1999, as
required by the relevant PRC regulations, by a firm of independent valuers
registered in the PRC, China Enterprise Appraisal. As at September 30, 2003, a
revaluation of the Group's refining and chemical production equipment was
undertaken by a firm of independent valuers registered in the PRC, China United
Assets Appraiser Co., Ltd, on a depreciated replacement cost basis.
The June 1999 revaluation resulted in RMB 80,549 in excess of the prior
carrying value and a revaluation loss of RMB 1,122 on certain property, plant
and equipment.
The September 2003 revaluation resulted in a RMB 872 in excess of the
carrying value of certain property, plant and equipment immediately prior to the
revaluation and a revaluation loss of RMB 1,257.
The depreciation charge, which includes impairment charge, on the
revaluation surplus from January 1, 2004 to June 30, 2004 was RMB 4,391, and
from January 1, 2003 to June 30, 2003 was RMB 4,615.
The depreciation charge, which includes impairment charge, on the
revaluation loss from January 1, 2004 to June 30, 2004 was RMB 465, and from
January 1, 2003 to June 30, 2003 was RMB 56.
The loss on disposal of property, plant and equipment from January 1, 2004
to June 30, 2004 was RMB 47, and from January 1, 2003 to June 30, 2003 was RMB
4.
26
CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
PETROCHINA COMPANY LIMITED NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2004 (Amounts in 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) RELATED PARTY TRANSACTIONS
The Group has disclosed in Note 18 transactions and balances with its
immediate parent, CNPC, and related companies. CNPC is owned by the PRC
government, which also owns a significant portion of the productive assets in
the PRC. IFRS exempts state controlled enterprises from disclosing transactions
with other state controlled enterprises. IFRS also excludes from related parties
government departments and agencies to the extent that such dealings are in the
normal course of business. US GAAP contains no similar exemptions but requires
disclosure of material related party transactions. The Group believes that it
has provided meaningful disclosures in Note 18. Although the majority of the
Group's activities are conducted with the PRC government and its affiliates and
other state controlled enterprises, none individually constitutes a major
customer or supplier other than those disclosed.
(c) ONE-TIME REMEDIAL PAYMENTS FOR STAFF HOUSING
The Ministry of Finance of the PRC issued several public notices and
regulations during the year ended December 31, 2000 and in January 2001 with
respect to the one-time remedial payments for staff housing payable to certain
employees who joined the workforce prior to December 31, 1998 and have housing
conditions below local standards as determined in accordance with government
regulations and guidelines. These Ministry of Finance notices and regulations
also provided that the portion of remedial payments attributable to the periods
prior to a restructuring of the employer enterprise from a wholly state-owned
status to a less than wholly state-owned status is to be borne by the state
shareholder of the enterprise.
The restructuring that resulted in the formation of the Group took place in
November 1999. As such, the one-time remedial housing payments payable to the
eligible employees of the Group are to be borne by the state shareholder of the
Group.
Under IFRS, such direct payments to employees or reimbursements will not be
recorded through the consolidated profit and loss account of the Group. US GAAP
contains no such exemption but requires this principal shareholder's action on
behalf of the Company to be recorded in the consolidated profit and loss
account. In the last quarter of year 2002, the Group and CNPC completed the
process of estimating the amount payable to qualified employees of the Group.
This amount, RMB 2,553, was reflected in determining net income of the Group for
the year ended December 31, 2002, under US GAAP. Since this amount is borne by
CNPC, a corresponding amount has been included as an addition to the other
reserves in the shareholders' equity of the Group.
27
CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
PETROCHINA COMPANY LIMITED NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2004 (Amounts in million)
(d) RECENT US ACCOUNTING PRONOUNCEMENTS
There are no recently adopted or pending pronouncements that would have a
material effect on the financial statements of the Group.
28
[PetroChina Logo]
29
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.
OVERVIEW
For the six months ended June 30, 2004, the profit before taxation of the Group
was RMB64,045 million, representing an increase of 18.35% from the corresponding
period of last year. Net profit was RMB45,292 million, representing an increase
of 17.28% from the corresponding period of last year. The continued rapid
improvement of the Company's operating results was attributable to the
streamlining of production activities and enhancement of operation management
during a period of continuous and rapid economic growth, sustained high oil
prices and strong demand for oil and petrochemical products.
For the six months ended June 30, 2004, the Company's basic and diluted earnings
per share was RMB0.26.
Comparison between the six-month period ended June 30, 2004 and the six-month
period ended June 30, 2003.
CONSOLIDATED OPERATING RESULTS
Turnover Turnover increased 21.35% from RMB147,960 million for the six months
ended June 30, 2003 to RMB179,552 million for the six months ended June 30,
2004. The growth was mainly attributable to the increase in prices of crude oil,
the increase in the prices and sales volume of refined products and chemicals,
and the rise in the sales volume of natural gas.
Operating Expenses Operating expenses increased 24.03% from RMB92,965 million
for the six months ended June 30, 2003 to RMB115,302 million for the six months
ended June 30, 2004. The change was mainly attributable to an increase in the
purchase of oil from external suppliers and increased depreciation, depletion
and amortization caused by an increase in the amount of property, plant and
equipment.
Purchases, Services and Other Expenses Purchases, services and other expenses
increased 30.23% from RMB40,465 million for the six months ended June 30, 2003
to RMB52,699 million for the six months ended June 30, 2004. This was due
primarily to the increase in the purchase cost of crude oil resulted from the
increase of crude oil price and the increase in the purchase volume of crude oil
by the Company's refineries.
Employee Compensation Costs Employee compensation costs rose 26.73% from
RMB8,275 million for the six months ended June 30, 2003 to RMB10,487 million for
the six months ended June 30, 2004. This was due primarily to the increase in
the wages and welfare expenses of staff and workers as a result of strong
operating results achieved by the Company, and the increase in labour service
costs as a result of further development of the Company's retail network.
Depreciation, Depletion and Amortization Depreciation, depletion and
amortization increased 18.00% from RMB20,909 million for the six months ended
June 30, 2003 to RMB24,673 million for the six months ended June 30, 2004. This
was mainly attributable to an increase in impairment of assets, and increase in
30
depreciation and depletion and amortization caused by an increase in the amount
of property, plant and equipment.
Selling, General and Administrative Expenses Selling, general and
administrative expenses increased 15.16% from RMB11,094 million for the six
months ended June 30, 2003 to RMB12,776 million for the six months ended June
30, 2004. This was due primarily to an increase in transportation and storage
costs caused by an increase in the sales volume of refined oil and petrochemical
products.
Taxes other than Income Tax Taxes other than income tax increased 17.95% from
RMB7,872 million for the six months ended June 30, 2003 to RMB9,285 million for
the six months ended June 30, 2004. The increase was due primarily to an
increase in consumption tax and surcharges as a result of an increase in the
sales volume of gasoline and diesel oil by the Company's refineries.
Profit from Operations As a result of the factors discussed above, profit from
operations advanced 16.83% from RMB54,995 million for the six months ended June
30, 2003 to RMB64,250 million for the six months ended June 30, 2004.
Net Exchange Gain (Loss) A turn from net exchange loss of RMB64 million for the
six months ended June 30, 2003 to a net exchange gain of RMB10 million for the
six months ended June 30, 2004 was recorded. The turnaround was due primarily to
a depreciation of value of the Japanese Yen and the Euro against Renminbi of
1.17% and 2.63% respectively during the first half of this year. During the
corresponding period of last year, the value of the Euro and the British
Sterling appreciated against Renminbi significantly.
Net Interest Expenses Net interest expenses decreased 16.74% from RMB1,123
million for the six months ended June 30, 2003 to RMB935 million for the six
months ended June 30, 2004. The decrease in net interest expenses was due
primarily to the increase in interest income resulted from sufficient cash flow
generated from operating activities.
Profit Before Taxation Profit before taxation rose 18.35% from RMB54,116
million for the six months ended June 30, 2003 to RMB64,045 million for the
six months ended June 30, 2004.
Taxation Taxation increased 18.54% from RMB15,201 million for the six months
ended June 30, 2003 to RMB18,019 million for the six months ended June 30, 2004.
The increase was mainly due to an increase in taxable profits.
Net Profit As a result of the factors discussed above, net profit increased
17.28% from RMB38,619 million for the six months ended June 30, 2003 to
RMB45,292 million for the six months ended June 30, 2004.
SEGMENT INFORMATION
THE GROUP IS ENGAGED IN A BROAD RANGE OF PETROLEUM AND RELATED ACTIVITIES
THROUGH ITS FOUR MAJOR BUSINESS SEGMENTS: THE EXPLORATION AND PRODUCTION
SEGMENT, THE REFINING AND MARKETING SEGMENT, THE CHEMICALS AND MARKETING
SEGMENT, AND THE NATURAL GAS AND PIPELINE SEGMENT.
31
Exploration and Production
The Exploration and Production segment is engaged in the exploration,
development, production and sales of crude oil and natural gas.
Turnover Turnover increased 8.79% from RMB91,485 million for the six months
ended June 30, 2003 to RMB99,526 million for the six months ended June 30, 2004.
The increase was mainly attributable to the further climbing of oil prices and
the increase in the sales volume of oil and gas. During the first half of 2004,
our average realized crude oil price was US$29.76 per barrel, representing an
increase of 5.98% from US$28.08 per barrel for the corresponding period in the
first half of 2003.
Intersegment sales increased 19.94% from RMB65,714 million for the six months
ended June 30, 2003 to RMB78,818 million for the six months ended June 30, 2004.
The increase was mainly due to the rise of oil prices and growth in sales volume
of natural gas.
Operating Expenses Operating expenses increased 13.61% from RMB41,215 million
for the six months ended June 30, 2003 to RMB46,825 million for the six months
ended June 30, 2004. The increase was principally due to the augmentation in
crude oil import from Russia, the increase in depreciation and depletion of
fixed assets, increases in staff costs and fixed asset impairment provisions.
Profit from Operations Profit from operations increased 4.84% from RMB50,270
million for the six months ended June 30, 2003 to RMB52,701 million for the six
months ended June 30, 2004.
Refining and Marketing
The Refining and Marketing segment is engaged in the refining, transportation,
storage and marketing of crude oil and petroleum products.
Turnover Turnover rose 29.13% from RMB106,213 million for the six months ended
June 30, 2003 to RMB137,149 million for the six months ended June 30, 2004. The
increase was caused by an increase in sales volume and prices of key refined
products.
Revenue from sales of gasoline grew 26.62% from RMB29,713 million for the six
months ended June 30, 2003 to RMB37,621 million for the six months ended June
30, 2004. The increase was mainly due to soaring prices and sales volume. The
average realized selling price of gasoline surged 11.96% from RMB3,003 per ton
for the six months ended June 30, 2003 to RMB3,362 per ton for the six months
ended June 30, 2004. The sales volume of gasoline increased 13.09% from 9.90
million tons for the six months ended June 30, 2003 to 11.19 million tons for
the six months ended June 30, 2004.
Revenue from sales of diesel grew 28.03% from RMB48,808 million for the six
months ended June 30, 2003 to RMB62,491 million for the six months ended June
30, 2004. The increase was mainly due to increased sales volume. The average
realized selling price of diesel increased 7.55% from RMB2,771 per ton for the
six months ended June 30, 2003 to RMB2,980 per ton for the six months ended June
30, 2004. The sales volume of diesel increased 19.05% from 17.62 million tons
for the six months ended June 30, 2003 to 20.97 million tons for the six months
ended June 30, 2004.
32
Revenue from sales of kerosene grew 27.99% from RMB2,056 million for the six
months ended June 30, 2003 to RMB2,632 million for the six months ended June 30,
2004. The increase was mainly due to increased sales volume.
Intersegment sales revenue increased 17.86% from RMB8,064 million for the six
months ended June 30, 2003 to RMB9,504 million for the six months ended June 30,
2004. The increase was mainly due to an increase in selling prices and sales
volume.
Operating Expenses Operating expenses increased 24.26% from RMB103,146 million
for the six months ended June 30, 2003 to RMB128,171 million for the six months
ended June 30, 2004. The increase was mainly attributable to the increase of the
purchase cost of crude oil and other feedstock from external suppliers.
Profit from Operations Profit from operations increased 192.73% from RMB3,067
million for the six months ended June 30, 2003 to RMB8,978 million for the six
months ended June 30, 2004.
CHEMICALS AND MARKETING
THE CHEMICALS AND MARKETING SEGMENT IS ENGAGED IN THE PRODUCTION AND SALES OF
BASIC PETROCHEMICAL PRODUCTS, DERIVATIVE PETROCHEMICAL PRODUCTS AND OTHER
CHEMICAL PRODUCTS.
Turnover Turnover rose 34.37% from RMB18,928 million for the six months ended
June 30, 2003 to RMB25,434 million for the six months ended June 30, 2004. The
growth in turnover of this segment was principally due to an increase in the
sales volume and selling prices of chemical products.
Operating Expenses Operating expenses increased 28.45% from RMB18,280 million
for the six months ended June 30, 2003 to RMB23,481 million for the six months
ended June 30, 2004. The increase was mainly due to increased expenses in the
purchase of raw materials.
Profit from Operations Profit from operations increased 201.39% from RMB648
million for the six months ended June 30, 2003 to RMB1,953 million for the six
months ended June 30, 2004.
NATURAL GAS AND PIPELINE
THE NATURAL GAS AND PIPELINE SEGMENT IS ENGAGED IN THE TRANSMISSION OF NATURAL
GAS, CRUDE OIL AND REFINED PRODUCTS, AND THE SALES OF NATURAL GAS.
Turnover Turnover increased 14.66% from RMB7,777 million for the six months
ended June 30, 2003 to RMB8,917 million for the six months ended June 30, 2004.
The increase was primarily due to an increase in the sales volume of natural
gas.
Operating Expenses Operating expenses increased 19.02% from RMB6,456 million for
the six months ended June 30, 2003 to RMB7,684 million for the six months ended
June 30, 2004. This was mainly due to increased expenses in the purchase of gas
and an increase in depreciation charges caused by the commencement of operation
of the eastern section of the West-East Gas Pipeline.
Profit from Operations Profit from operations decreased 6.66% from RMB1,321
million for the six
33
months ended June 30, 2003 to RMB1,233 million for the six months ended
June 30, 2004.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 2004, the Group's primary sources of funds
were cash generated from operating activities, short-term and long-term
borrowings. The Group's funds were used for operating activities, capital
expenditures, repaying short-term and long-term borrowings and distribution of
dividends to shareholders.
For the six months ended June 30, 2004, short-term debts represented
approximately 6.18% of the Group's capital employed as compared with
approximately 5.97% for the six months ended June 30, 2003. Our ability to
obtain adequate financing may be affected by our financial condition and
operating results and the conditions of the domestic and foreign capital
markets. We must seek approvals from the relevant PRC government authorities
before raising funds in the domestic and foreign capital markets. In general, we
must obtain PRC government approvals for any project involving significant
capital investments in our Refining and Marketing segment, Chemicals and
Marketing segment and the Natural Gas and Pipeline segment.
We plan to fund our capital and related investments principally from the cash
generated from operating activities and short-term and long-term borrowings. For
the six months ended June 30, 2004, net cash generated from operating activities
was RMB66,668 million. As at June 30, 2004, we had cash and cash equivalents of
RMB17,808 million. Cash and cash equivalents were mainly denominated in Renminbi
(Renminbi accounting for approximately 79.56% and United States Dollar
accounting for approximately 20.44%).
The table below sets forth our cash flows for the six months ended June 30, 2004
and the six months ended June 30, 2003 and our cash equivalents at the end of
each period.
Six months ended June, 30
--------------------------------------------
2004 2003
------------- -------------
(RMB million) (RMB million)
Net cash generated from operating activities 66,668 66,828
Net cash used for investment activities (42,472) (36,976)
Net cash used for financing activities (17,619) (20,495)
Cash and cash equivalents at the end of each period 17,808 19,334
CASH GENERATED FROM OPERATING ACTIVITIES
Our net cash generated from operating activities during the first half of this
year was basically the same as that during the corresponding period of last
year. Our net cash generated from operating activities for the six months ended
June 30, 2003 and for the six months ended June 30, 2004 were RMB66,828 million
and RMB66,668 million respectively.
As at December 31, 2003, our working capital deficit was RMB27,855 million. As
at June 30, 2004, our
34
working capital was RMB635 million. The increase in working capital was
primarily due to an increase in receivables under resale agreements,
inventories, prepaid expenses and cash and cash equivalents.
CASH USED FOR FINANCING ACTIVITIES
The table below sets out our net borrowings as at June 30, 2004 and December 31,
2003:
June 30, 2004 December 31, 2003
------------- -----------------
(RMB million) (RMB million)
Short-term borrowings (including current portion of long-term borrowings) 28,608 28,890
Long-term borrowings 40,049 41,959
Total borrowings 68,657 70,84
---------- ----------
Less:
Cash and cash equivalents 17,808 11,231
Time deposits with maturities over three months 800 2,640
Receivables under resale agreements 37,464 24,22
---------- ----------
Net borrowings 12,585 32,754
========== ==========
The maturity profile of the long-term borrowings of the Group is as follows:
Principal as at June 30, 2004
-----------------------------
(RMB million)
To be repaid within one year 17,199
To be repaid within one to two years 9,804
To be repaid within two to five years 24,356
To be repaid after five years 5,889
-----------
57,248
===========
Of the total borrowings of the Group as at June 30, 2004, approximately 29.16%
were fixed-rate loans and approximately 70.84% were floating-rate loans. Of the
borrowings as at June 30, 2004, approximately 85.48% were denominated in
Renminbi, approximately 12.73% were denominated in US Dollars, approximately
0.57% were denominated in British Sterling, approximately 0.72% were denominated
in Japanese Yen, and approximately 0.50% were denominated in Euro.
As at December 31, 2003 and June 30, 2004, short-term borrowings owed to related
parties were both RMB610 million. As at December 31, 2003 and June 30, 2004,
long-term borrowings owed to related parties amounted to RMB24,578 million and
RMB22,576 million respectively.
As at June 30, 2004, short-term borrowings and long-term borrowings owed to
China Petroleum Finance Company
35
Limited amounted to RMB610 million and RMB22,576 million respectively.
Our net cash used for financing activities decreased 14.03% during the six
months ended June 30, 2004 compared with the six months ended June 30, 2003.
This decrease was primarily due to lower net repayment compared with the
corresponding period of last year.
As at June 30, 2004, loans of the Group consisted of RMB104 million secured
loans (lease financing and bank loans) (RMB170 million as at December 31, 2003),
of which RMB73 million (RMB114 million as at December 31, 2003) were secured by
plant and equipment of the Group valued at RMB152 million (RMB152 million as at
December 31, 2003). As ownership of leased assets will be transferred to the
lessor in case of default, lease obligations are in fact secured obligations. As
at June 30, 2004, finance lease obligations of the Group amounted to RMB31
million (RMB56 million as at December 31, 2003), and the book value of
properties, plant and equipment held under finance lease was RMB144 million
(RMB240 million as at December 31, 2003).
As at June 30, 2004, the debt to capitalization ratio was 15.04% (16.57% as at
December 31, 2003).
CAPITAL EXPENDITURES
The table below sets out our capital expenditures by business segment for each
of the six months ended June 30, 2004 and the six months ended June 30, 2003.
During the first half of 2004, capital expenditures increased 8.68% to RMB28,853
million from RMB26,548 million of the corresponding period in 2003. The increase
was due primarily to the continued increase in expenditures relating to oil and
gas exploration and development, and acquisition of service stations.
First half of 2004 First half of 2003 Estimate for 2004
-------------------- -------------------- -------------------
(RMB million) % (RMB million) % (RMB million) %
Exploration and Production 19,146* 66.36 17,336* 65.30 57,040* 62.66
Refining and Marketing 4,688 16.25 3,558 13.40 11,600 12.74
Chemicals and Marketing 1,062 3.68 1,123 4.23 6,190 6.80
Natural Gas and Pipeline 3,905 13.53 4,492 16.92 15,600 17.14
Others 52 0.18 39 0.15 600 0.66
------ ------ ------ ------ ------ ------
Total 28,853 100.00 26,548 100.00 91,030 100.00
====== ====== ====== ====== ====== ======
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 2003 and the first half of 2004, and the estimate of the
same for the entire 2004 would be RMB19,132 million, RMB21,646 million and
RMB61,300 million respectively.
EXPLORATION AND PRODUCTION
The majority of the Group's capital expenditures is related to the Exploration
and Production segment. For
36
the six months ended June 30, 2004, capital expenditures in relation to
exploration and production amounted to RMB19,146 million, including RMB3,665
million for exploration activities and RMB14,481 million for development
activities. For the six months ended June 30, 2003, capital expenditures in
relation to this segment totalled RMB17,336 million, including RMB2,594 million
for exploration activities and RMB13,909 million for development activities. The
increase in capital expenditures was mainly due to the increased expenditures
relating to oil and gas exploration and development.
It is estimated that for the twelve months ended December 31, 2004, capital
expenditures of the Group in the Exploration and Production segment will amount
to RMB57,040 million. Approximately RMB16,590 million will be used for oil and
gas exploration, and approximately RMB40,450 million will be used for oil and
gas development. Exploration and development will be mainly carried out in the
Erdos, Junggar, Tarim, Songliao and Bohai Bay basins.
REFINING AND MARKETING
For the six months ended June 30, 2004, capital expenditures of the Group in the
Refining and Marketing segment amounted to RMB4,688 million, of which RMB3,386
million was spent on the expansion of the retail marketing network of our
refined products and storage infrastructure facilities, and RMB1,302 million was
spent on upgrading our refining facilities. For the six months ended June 30,
2003, capital expenditures for this segment totalled RMB3,558 million. The
increase in capital expenditures was mainly due to increased expenditures for
acquisition of service stations.
It is estimated that capital expenditures of the Group for the Refining and
Marketing segment for the twelve months ending December 31, 2004 will amount to
RMB11,600 million, including approximately RMB5,100 million to be spent on
construction and expansion of refining facilities; and approximately RMB6,500
million to be spent on investments in our refined product retail marketing
network and addition of service stations and storage facilities.
CHEMICALS AND MARKETING
For the six months ended June 30, 2004, capital expenditures in the Chemicals
and Marketing segment decreased 5.43% from RMB1,123 million for the six months
ended June 30, 2003 to RMB1,062 million for the six months ended June 30, 2004.
This was mainly due to a decrease of chemical engineering expenditures.
It is estimated that for the twelve months ended December 31, 2004, capital
expenditures of the Group in the Chemicals and Marketing segment will amount to
RMB6,190 million. The capital expenditures will mainly be used for upgrading
ethylene facilities in Daqing, Jilin and Lanzhou, expansion of the production
capacity of the chemical fertiliser plants in Daqing, Ningxia and Urumqi and the
PTA project at Liaoyang Petrochemical Company.
NATURAL GAS AND PIPELINE
For the six months ended June 30, 2004, capital expenditures in the Natural Gas
and Pipeline segment amounted to RMB3,905 million. We spent RMB3,858 million of
these expenditures on construction of long distance pipelines and RMB850 million
of such amount on the West-East Gas Pipeline project. For the six
37
months ended June 30, 2003, capital expenditures in the segment totalled
RMB4,492 million. The decrease in capital expenditures was mainly due to a
dramatic decrease in expenditures relating to the West-East Gas Pipeline
project.
It is estimated that for the twelve months ended December 31, 2004, capital
expenditures of the Group in the Natural Gas and Pipeline segment will amount to
RMB15,600 million, of which approximately RMB13,400 million will be invested in
the West-East Gas Pipeline project, the Zhongxian-Wuhan pipeline, and the second
Shaanxi-Beijing pipeline and approximately RMB2,200 million will be invested in
natural gas storage infrastructure facilities and natural gas, crude oil and
refined product transmission pipelines.
OTHERS
The Group's non segment-specific capital expenditures for the six months ended
June 30, 2003 and for the six months ended June 30, 2004 were RMB39 million and
RMB52 million respectively. These capital expenditures were mainly used for non
segment-specific equipment purchases and research and development activities.
It is estimated that the Group's non segment-specific capital expenditures for
the twelve months ended December 31, 2004 will amount to RMB600 million. These
capital expenditures will be used for the construction of water and power supply
systems, roads and telecommunications system for the benefit of various
segments.
MATERIAL INVESTMENT
For the six months ended June 30, 2004, the Group did not hold any material
investment.
MATERIAL ACQUISITION OR DISPOSAL
The Group had no material acquisition or disposal of subsidiaries and associated
companies for the six months ended June 30, 2004.
FOREIGN EXCHANGE RATE RISK
Foreign Exchange Rate Risk Renminbi is not a freely convertible currency. Future
exchange rates of Renminbi could vary significantly from the current or
historical exchange rates as a result of controls that could be imposed by the
PRC government. The exchange rates of Renminbi are affected by changes in PRC
government policies. The exchange rates of Renminbi are also affected by
economic developments and political changes domestically and internationally,
and supply and demand for Renminbi. The official exchange rate for the
conversion of Renminbi to United States Dollar has generally been stable
recently. As Renminbi is the measurement currency of the Company and most of its
consolidated entities, the fluctuation of exchange rates of Renminbi may have
positive or negative impacts on the results of operations of the Group. As the
prices of the Group's crude oil and refined products are set generally with
reference to United States Dollar-denominated prices in the international
market, a devaluation of Renminbi against United States Dollar may not have a
negative impact on the Group's turnover but may increase the cost incurred by
the Group to acquire imported materials and equipment as well as the foreign
currency-denominated obligations of the
38
Group. On the other hand, an appreciation of Renminbi against United States
Dollar may decrease the Group's turnover, but the cost for acquiring imported
materials and equipment may be reduced. The results of operations and the
financial position of the Group may also be affected by fluctuations in exchange
rates against Renminbi of a number of other foreign currencies other than United
States Dollar.
COMMODITY PRICE RISK
The Group is engaged in a wide range of petroleum-related activities. The global
oil and gas market is affected by international political, economic and military
developments and global demand for and supply of oil and gas. As the prices of
Chinese crude oil and refined products are determined by reference to
international benchmark prices, fluctuations of prices of crude oil and refined
products in the international market will directly or indirectly affect prices
of Chinese crude oil and refined products. A decrease in the prices of crude oil
and refined products could adversely affect the Group's financial position.
Historically, the Group has not used derivative instruments to hedge against
potential price fluctuations of crude oil and refined products. Accordingly, the
Group is exposed to general price fluctuations of oil and gas commodities in
2004 and will remain to be so exposed thereafter.
INDUSTRY RISK
Like other oil and natural gas companies in China, the Company's operating
activities are subject to regulation and control by the PRC government in many
aspects. Regulation and control, such as by way of grant of exploration and
production licences, the imposition of industry-specific taxes and levies and
the implementation of environmental and safety standards, is expected to have an
impact on the Company's business operations. As a result, the Company may be
subject to relatively significant restrictions when implementing its business
strategy, developing and expanding its business or maximising its profitability.
Any future changes in PRC governmental policies on the crude oil and natural gas
industry may also affect the Company's business operations.
EMPLOYEES
NUMBER OF EMPLOYEES
As at June 30, 2003 and June 30, 2004, the Group had 419,415 and 417,163
employees respectively. The table below sets out the number of employees of
business segments as at June 30, 2004:
Number of Employees % of total
------------------- ----------
Exploration and Production 234,768 56.28
Refining and Marketing 111,513 26.73
Chemicals and Marketing 57,701 13.83
Natural Gas and Pipeline 10,367 2.49
Others* 2,814 0.67
Total 417,163 100.00
39
Note*: Including management staff of PetroChina Exploration & Development
Research Institute, PetroChina Planning & Engineering Institute, Oil Refining
and Petrochemical Technological Research Centres, Company headquarters and
business segment head offices.
EMPLOYEE COMPENSATION
For the six months ended June 30, 2004, the total employee compensation payable
by the Group was RMB5,564 million, being the total salaries of employees during
the reporting period. Compensation of employees is determined according to
industry practice and the actual conditions of the Group, and is based on the
principles of attracting and retaining high calibre personnel, and motivating
all staff for the realization of the best results.
The Company's senior management remuneration system links senior management
members' financial interests (including those of executive directors and
supervisors) with the Company's operating results and the market performance of
its shares. The senior management members have entered into performance
contracts with the Company. Under this system, the senior management members'
compensation has three components, namely, fixed salaries, performance bonuses
and stock appreciation rights. The variable components account for approximately
70% to 75% of the senior management officers' total potential compensation,
including approximately 0% to 25% forming the performance bonus component and
approximately 50% to 70% forming the stock appreciation rights 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.
Fixed salary (%) Stock appreciation rights (%) Performance bonus (%)
---------------- ----------------------------- ---------------------
Chairman 30 70 0
President 25 60 15
Vice-President 25 60 15
Departmental General Manager 25 50 25
Details of the directors' and supervisors' emoluments as at June 30, 2004 and
June 30, 2003 are as follows:
As at June 30, 2004 As at June 30, 2003
------------------- -------------------
(RMB'000) (RMB'000)
Fees for directors and supervisors 58 33
Salaries, allowances and other benefits 647 611
Contribution to retirement benefit scheme 17 18
------------------- -------------------
722 662
=================== ===================
The number of directors and supervisors whose emoluments fall within the
following band (including directors
40
and supervisors whose term expired during the current period):
As at June 30, 2004 As at June 30, 2003
------------------- -------------------
Number Number
Nil-RMB1,000,000 24 19
------------------- -------------------
Upon exercise of their share options, senior management staff will not receive
any shares in the Company. Instead, they will receive, by way of stock
appreciation rights, a monetary sum which is calculated on the basis of the
share price of the H shares listed on the HKSE.
WORKFORCE REDUCTION PLAN
During the period from 1999 to 2002, a total of 58,300 people were laid off,
which has met the target of laying off 50,000 employees originally committed by
the Company.
The Company has no plan for any substantial reduction of its workforce in the
next few years, but will continue to keep a strict control on the total number
of employees. Workforce required for new projects or expanded production
capacity will first be obtained by way of tapping existing resources and making
use of any spare capacity, with the aim of keeping the workforce at its present
size. The target is to maintain zero growth in head count while striving to
reduce head count.
TRAINING PROGRAMMES
In order to develop the Company into a first class international oil company,
the Company will focus on exploring the possibility of establishing a
learning-oriented enterprise in its training programme. The Company will focus
on the training of core employees, actively promote the training of all of its
employees and strive to build up an operating and management team, a technology
renovation team and a skillful operators' team so as to achieve an overall
improvement in the quality of its staff and ensure the supply of talents
required for the continuous, steady and rapid development of the Company.
MEDICAL INSURANCE
Since October 1, 2002, the Company's headquarters and its regional branches
based in Beijing are members of the basic medical insurance scheme organized by
the Beijing Municipality, making contributions at 9% of the total salaries of
the employees. Other regional companies of the Group have also participated in
their respective local basic medical insurance schemes.
Basic medical insurance is organized by local authorities. The dates of
implementation, rates of contribution and reimbursement methods vary with
localities. The rate of contribution is generally set at 6% to 10% of the total
basic salaries of the employees of various companies.
In accordance with relevant regulations of the PRC government, the Company has
given permission to regional companies that have participated in local basic
insurance schemes to establish a supplemental medical insurance scheme from
2002. Contributions to the schemes are set at not more than 4% of the total
salaries and
41
are expensed.
Contingent Liabilities
Information on the Group's contingent liabilities as of June 30, 2004 is as
follows:
BANK AND OTHER GUARANTEES
As at June 30, 2004, the Group had contingent liabilities in respect of bank and
other guarantees and other matters arising in the ordinary course of business
from which it is expected that no material liabilities will arise.
June 30, 2004 December 31, 2003
------------- -----------------
(RMB million) (RMB million)
Guarantees in respect of borrowings of associated companies 211 448
------------- -----------------
ENVIRONMENTAL LIABILITIES
CNPC and the Group have operated in China for many years and certain
environmental problems have developed. China has adopted extensive environmental
laws and regulations that affect the operation of the oil and gas industry. The
impact of environmental liabilities under proposed or future environmental
legislation cannot reasonably be estimated at present, and could be material.
Under existing legislation, however, the 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, the management believes that any liabilities which may
arise will not have a material adverse effect on the financial position of the
Group.
LEASING OF LAND, ROADS AND BUILDINGS
According to the Restructuring Agreement entered into between the Company and
CNPC in 1999 upon the formation of the Company, CNPC has undertaken to the
Company as follows:
o CNPC will use its best endeavours to obtain formal land use right certificates
to replace the entitlement certificates in relation to the 28,649 parcels of
land which were leased or transferred to the Company from CNPC, within one year
from August, September and October 1999 when the relevant entitlement
certificates were issued;
o CNPC will complete, within one year from November 5, 1999, the necessary
governmental procedures for
42
the requisition of the collectively-owned land on which 116 service stations
owned by the Company are located; and
o CNPC will obtain individual building ownership certificates in the name of the
Company for all of the 57,482 buildings transferred to the Company by CNPC,
before November 5, 2000.
As at June 30, 2004, CNPC obtained formal land use right certificates in
relation to 24,046 out of the above-mentioned 28,649 parcels of land, and some
building ownership certificates for the above-mentioned buildings, but did not
complete the necessary governmental procedures for the above-mentioned service
stations located on collectively-owned land. The Directors of the Company
confirm that the use of and the conduct of relevant activities at the
above-mentioned parcels of land, service stations and buildings are not affected
by the fact that the relevant land use right certificates or individual building
ownership certificates have not been obtained or the fact that the relevant
governmental procedures have not been completed. In the management's opinion,
the outcome of the above events will not have a material adverse effect on the
results of operations or the financial position of the Group.
GROUP INSURANCE
Except for limited insurance coverage for vehicles and certain assets subject to
significant operating risks, the Group does not carry any other insurance for
property, facilities or equipment with respect to its business operations. In
addition, the Group does not carry any third-party liability insurance against
claims relating to personal injury, property and environmental damages or
business interruption insurance since such insurance coverage is not customary
in China. While the effect of under-insurance on future incidents cannot be
reasonably assessed at present, the management believes that it may have a
material impact on the operating results but will not have a material adverse
effect on the financial position of the Group.
RE-ALLOCATION OF PRODUCTION AND OPERATION FACILITIES
The Group may further streamline its production facilities within the next
several years to further improve the operating efficiency and competitiveness of
the Group. The management has not approved all significant actions to be taken
to complete such plans. The management does not believe such plans will have a
material adverse impact on the Group's financial position, but may have a
material adverse effect on the Group's results of operations.
OTHERS
In December 2003, a gas blow-out incident occurred at one of the gas wells of
the Group. The blow-out caused the leakage of a large quantity of sulfurated
hydrogen, causing injuries and deaths to many residents living in the
surrounding area. As a result of an investigation conducted by the PRC
government, CNPC, which provided drilling services for the well, was held liable
for this blow-out. The incident has not had, and the Company does not believe it
will have, a material adverse effect on the results of operations and financial
position of the Group.
43
BUSINESS OPERATING REVIEW AND PROSPECTS
MARKET REVIEW
Crude Oil Market Review
During the first half of 2004, international crude oil prices hit an all-time
high due to geopolitical and economic developments and regional demand and
supply imbalance. The average oil price soared. WTI, Brent and Minas crude oil
in the first half of the year averaged US$36.81, US$33.66 and US$33.14 per
barrel respectively, representing an increase of US$5.36, US$4.89 and US$3.08
per barrel respectively from the first half of 2003. Domestic crude oil prices
rose under the impact of international oil prices. The average realized price
was higher than that of the first half of 2003.
Chinese import of crude oil continued to grow during the first half of 2004.
Chinese net crude oil import surged 46.12% to 57.95 million tons compared with
the same period of last year. Chinese crude oil output and crude oil processed
reached 86.38 million tons and 127 million tons respectively.
Refined Products Market Review
The domestic refined products market performed well during the first half of
2004. Nominal consumption increased 24.6% to 75.75 million tons compared with
the same period of last year. Except for January and February in which
consumption was low, demand for refined products, driven by rapid GDP growth,
was strong in the other four months. The supply of refined products was
relatively tight. By the end of June, the refined products inventory held by our
company and Sinopec dropped to 8.14 million tons, a reduction of 0.38 million
tons compared with the corresponding period of last year.
The PRC government has made appropriate adjustments to the prices of domestic
refined products during the first half of 2004. However, under the impact of
international oil prices, the average benchmark prices of gasoline and diesel
were still higher than the level during the corresponding period of last year.
Chemical Products Market Review
During the first half of 2004, domestic investment and production activities
were still growing rapidly. The Chinese GDP growth rate for the first quarter
and the second quarter was recorded at 9.7% and 9.5% respectively. A strong
market demand for petroleum and chemical products was created. Owing to
sustained high crude oil prices in the international market and strong demand
for downstream products, output of key petroleum and chemical products grew
rapidly during the first half of 2004. Prices continued to surge, market sales
were active and imports and exports grew steadily. Key economic targets hit
historical high. Prices of all chemical products increased markedly from those
of the corresponding period of last year.
There was a tight supply of resources in the first half of the year. Inventory
as a whole dropped to a low level. The PRC economy grew steadily in line with
the global economic recovery. The increase in demand for chemical products
outpaced the growth of the domestic gross product. There was a strong demand for
plastic and textile products and demand for aromatics soared in particular. As
there was limited domestic production capacity, prices and output of chemical
products increased.
44
It is estimated that in the second half of the year the global economy will
continue to grow. In particular, economic development in the United States will
accelerate and the European economy will also speed up its recovery. There will
be increased demand for basic chemical materials which will lead to an increase
in prices of chemical products. Global demand for chemical products will rise
steadily.
In the second half of the year, prices of domestic chemical products will remain
high, although prices may drop mildly compared with the first half of the year.
Overall, it is expected that prices on average will be higher than those of the
second half of last year.
In summary, persistent high crude prices will inevitably lead to US opposition
and result in increased output by OPEC. This will push crude prices down
gradually. The macro-economic control measures implemented by the PRC government
will curb inappropriate investments in real estates and small-scale enterprises,
which will in turn affect demand. Owing to sustained high prices, downstream
enterprises are forced to operate at high costs for a long period of time which
will affect the rate of operation of these enterprises. Over a certain period of
time, this will result in excess supply over demand.
BUSINESS REVIEW
For the six months ended June 30, 2004, total oil and gas output of the Company
was 456.9 million barrels of oil equivalent, including 388.5 million barrels of
crude oil and 410.3 billion cubic feet of marketable natural gas, representing
an average daily crude oil output of 2.12 million barrels and an average daily
marketable natural gas output of 2,254 million cubic feet. A total of 366
million barrels of crude oil and 381 billion cubic feet of natural gas were
sold. The Company sold approximately 81% of its crude oil to its refineries.
During the first half of 2004, lifting cost of the Company (including overseas
operations) was US$4.45 per barrel. For the same period of 2003, lifting cost
was US$4.35 per barrel.
For the six months ended June 30, 2004, the Company's refineries processed 347
million barrels of crude oil, representing an average daily processed output of
1.91 million barrels. The Exploration and Production segment provided
approximately 86% of the crude oil processed by the Company's refineries. The
Company produced approximately 30.22 million tons of gasoline, diesel and
kerosene and sold approximately 33.18 million tons of these products. The
Company is actively expanding its sales network, and its retail network in
particular in order to benefit from the synergy created by the integration of
refining and marketing. As at June 30, 2004, there were 16,677 service stations
either owned, controlled or franchised by the Company or owned by CNPC but to
which the Company provided supervisory support. The cash processing cost of the
Company's refineries is constantly decreasing, from RMB132 per ton during the
first half of 2003 to RMB129 per ton for the same period of 2004.
During the six months ended June 30, 2004, the Company produced 0.923 million
tons of ethylene, 1.287 million tons of synthetic resin, 0.6293 million tons of
synthetic fibre raw materials and polymer, 0.133 million tons of synthetic
rubber, and 1.902 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, 2004, the Company sold 321.4
billion cubic feet of marketable natural gas through its Natural Gas and
Pipeline segment. As at December 31, 2003, the Company owned and operated 15,144
45
kilometres of regional natural gas pipeline network, of which 14,017 kilometres
of the pipeline network were operated by the Natural Gas and Pipeline segment.
The Company owned and operated 9,141 kilometres of crude oil pipeline and owned
2,276 kilometres of refined product pipeline.
THE SECOND HALF OF 2004 AND BEYOND
During the first half of 2004, the Company availed itself of the opportunity
created by high oil prices and strong market demand for oil and chemical
products, improved production organization and strengthened management of
operation and in so doing, achieved rapid growth of operating results. The
following exemplifies the excellent operating results: oil exploration realized
important achievements and showed good development prospects; crude oil output
increased steadily, natural gas output surged; marked increase in crude oil
processed and refined products output, and key technological and economic
indicators hit an all-time high; marketing efforts were enhanced, and sales and
profitability grew at the same time; smooth progress of construction of key
pipelines was made.
At present, international oil prices remain high. The effect of macro-economic
control measures is becoming apparent. The Company is developing under
favourable internal and external circumstances. During the second half of 2004,
the Company will step up its exploration and development activities so as to
locate more reserves and bring them into stream; further optimise the
petrochemical business operations and conduct necessary structural adjustments
to ensure the realization of increased output, sales and profits; make further
efforts to the construction and commencement of operation of key pipelines in
order to promote the fast development of natural gas business; accelerate merger
and acquisition for the purposes of achieving rapid development; emphasise safe
production to create a favourable environment for development.
In terms of the Exploration and Production segment, the Company will continue to
give top priority to the exploration of resources. The Company will develop its
oil and gas operations simultaneously, promote the integration of exploration
and development, and achieve a benign cycle of replacement of resources, stable
increase of crude oil output and speedy growth of natural gas output. In the
development of oil and gas fields, there should be meticulous design of
production efforts and co-ordination, active implementation of measures to
increase output, consolidate the basis for stable output in aging oilfields, and
speed up commencement of production in new oilfields. The Company will implement
natural gas projects as a matter of priority in order to create new production
capacity as soon as possible.
In terms of the refining and chemicals sectors, the Company will make full use
of the current flourishing market demand to improve allocation of resources,
promote technological advancement, improve processing procedures and the quality
of processing, make prompt adjustments to the product mix and increase output of
value-added products and readily marketable products. The Company will also
strengthen management of the production process, plan for repair and maintenance
arrangements in a scientific manner, ensure full-load operation of key
facilities in a safe and stable manner and realization of the target of improved
production and profitability, and speed up the pace of construction of key
refining projects.
In terms of marketing, the Company will carry out market development actively,
orderly and efficiently, and speed up the establishment of the marketing
network. The Company will adhere to the principle of quality
46
first, and focus on the development in central cities, main arteries and key
locations, taking the rate of return on investment into consideration. The
Company will strengthen management of existing stations and terminals as well as
sales centres in order to enhance daily sales of individual stations and profit
generating capability of sales centres. The Company will also broaden its
institutional and consumer client base in order to increase the ratio of sales
to end-users. Finally, the Company will speed up the establishment of the
information infrastructure for marketing so as to build up a loyal customer
base.
In terms of the Natural Gas and Pipeline segment, the Company will endeavour to
improve the balance and connection between upstream resources, pipeline
operation and downstream users carefully. The Company will co-ordinate the
production, transmission and sale of natural gas, and ensure safe and stable
supply of gas. The Company will strive to commence natural gas transmission from
Lunnan in the western section of the West-East Gas Pipeline project on October
1, and to commence commercial supply of natural gas to Shanghai from Tarim by
the end of this year. The Zhongxian-Wuhan main trunk line and the
Xiangfan-Huangshi branch line will be ready for commercial gas transmission by
the end of this year. The Company will speed up construction of the
Shaanxi-Beijing Pipeline. The Daliangshan Tunnel and the Zhangjiawan Tunnel have
been completed. The Company will strive to complete construction of the trunk
lines before October 30 this year.
The Company will continue to further develop its overseas operations, secure
overseas resources and enhance the value of the Company.
In future, the Company will keep up its efforts in accelerating the development
of key operations, take advantage of its edge in resources, and consolidate its
leading position in the upstream sector in order to drive forward and
co-ordinate the development of its business segments.
The management of the Company will strive to continue to enhance the value of
the Company and maximise benefits and value for its shareholders. The Company
intends to invest substantial efforts in technological and management
innovations and promote the continuous, effective and speedy development of the
Company.
47
INTERIM DIVIDEND AND CLOSURE OF REGISTER OF MEMBERS
The Board was authorized by the shareholders to approve the distribution of an
interim dividend for 2004 at the shareholders' meeting held on May 18, 2004. The
Board has resolved to pay an interim dividend of RMB0.115919 (inclusive of
applicable tax) for the six months ended June 30, 2004 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 16, 2004. The Company will suspend registration of
transfer of shares from September 11, 2004 to September 16, 2004 (both days
inclusive). In order to qualify for the interim dividend, all transfer documents
must be lodged with the relevant share certificates at the Computershare Hong
Kong Investor Services Limited not later than 4 p.m. on 10 September 2004.
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 26, 2004,
which is RMB1.0608=HK$1.00. Accordingly, the amount of dividend payable per H
share will be HK$0.109275.
The interim dividend will be paid on or about October 8, 2004.
SHARE CAPITAL STRUCTURE
The share capital of the Company in issue as fully paid or credited as fully
paid as at June 30, 2004 was 175,824,176,000 shares, with a par value of RMB1.00
each. As at June 30, 2004, the share capital structure of the Company was as
follows:
Number of shares as at Percentage of the total number of shares
Shares June 30, 2004 in issue as at June, 30, 2004 (%)
-------------------------------------------- ---------------------- -----------------------------------------
State-owned shares 158,241,758,000 90
Foreign-invested shares (H shares and ADSs) 17,582,418,000 10
---------------------- -----------------------------------------
Total 175,824,176,000 100
====================== =========================================
REPURCHASE, SALE OR REDEMPTION OF SECURITIES
For the six months ended June 30, 2004, 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.
TRUST DEPOSITS AND OVERDUE TIME DEPOSITS
As at June 30, 2004, the Company did not have any trust deposits or
irrecoverable overdue time deposits.
48
INTERESTS OF DIRECTORS AND SUPERVISORS IN THE SHARE CAPITAL OF THE COMPANY
As at June 30, 2004, other than Zou Haifeng, a Director of the Company, who
holds 3,550 A shares in Jilin Chemical Industrial Company Limited, a subsidiary
of the Company, none of the Directors or Supervisors had any interest or short
position in any shares, underlying shares or debentures of the Company or any
associated corporation (within the meaning of Part XV of the Securities and
Futures Ordinance (Cap. 571 of the Laws of Hong Kong) ) as recorded in the
register required to be kept under Section 352 of such Ordinance or as otherwise
required to be notified by the Directors and Supervisors of the Company and the
HKSE pursuant to the Model Code for Securities Transactions by Directors of
Listed Companies.
As at June 30, 2004, the Company did not grant any option to purchase securities
or debentures in the share capital of the Company to any Director or Supervisor
or any of his spouse or child under the age of 18.
COMPLIANCE WITH THE MODEL CODE
Having made specific enquiries with the Directors, the Directors have complied
with the Model Code for Securities Transactions by Directors of Listed Issuers
set out in Appendix 10 to the Listing Rules during the reporting period. The
Company has not adopted a code of conduct regarding securities transactions of
the Directors.
COMPLIANCE WITH THE CODE OF BEST PRACTICE
Following its listing of H shares on the HKSE, the Company has complied with the
Code of Best Practice contained in Appendix 14 to the Listing Rules.
AUDIT COMMITTEE
The audit committee of the Company has reviewed and confirmed the interim
results announcement and the interim report for the six months ended June 30,
2004.
DIRECTORS OF THE COMPANY
As at the date of this announcement, the Board of Directors comprises Mr. Chen
Geng as the Chairman, Mr. Jiang Jiemin and Mr. Ren Chuanjun as Vice Chairmen,
Mr. Su Shulin, Mr. Duan Wende and Mr. Wang Fucheng, as executive directors, Mr.
Zheng Hu, Mr. Zhou Jiping, Mr. Gong Huazhang and Mr. Zou Haifeng as
non-executive directors and Mr. Chee-Chen Tung, Mr. Liu Hongru and Mr. Franco
Bernabe as independent non-executive directors.
/s/ Chen Geng
---------------------
By Order of the Board
PetroChina Company Limited
Chen Geng
Chairman
Beijing, PRC
August 26, 2004
49