UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
 
FORMForm 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
(Mark One)
oREGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g)
OF THE SECURITIES EXCHANGE ACT OF 1934
or
þANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009.
or
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
or
oSHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
For the transition period fromto
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2006
Commission File Number 1-15006
 
(PETRO CHINA COMPANY NAME)
(CHINESE CHARACTERS)
(Exact name of Registrant as specified in its charter)
PetroChina Company Limited
(Translation of Registrant’s name into English)
 
The People’s Republic of China
(Jurisdiction of incorporation or organization)
 
16 Andelu
9 Dongzhimen North Street
Dongcheng District, Beijing 100011
100007
The People’s Republic of China,
(Address of principal executive offices)
 
 
Li Hualin
Telephone number: 8610 59986223
Facsimile number: 8610 62099557
Email address: suxinliang@petrochina.com.cn
Address: 9 Dongzhimen North Street, Dongcheng District, Beijing 100007 The People’s Republic of China
(Name, telephone,e-mail and/or facsimile number and address of registrant’s contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
   
Title of Each Class
 
Name of each exchange
Each classExchange on which registeredWhich Registered
 
American Depositary Shares, each representing 100 H Shares, par value RMB 1.00RMB1.00 per share* New York Stock Exchange, Inc.
H Shares, par value RMB 1.00RMB1.00 per share New York Stock Exchange, Inc.**
 
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None

(Title of Class)
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None

(Title of Class)
 
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
   
 State-owned shares,A Shares, par value RMB 1.00RMB1.00 per share***161,922,077,818(1)
H Shares, par value RMB1.00 per share 157,922,077,818
 H Shares, par value RMB 1.00 per share21,098,900,00021,098,900,000****
 
(1): Includes 157,764,597,259 A Shares held by CNPC and 4,157,480,559 A Shares held by the public shareholders.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yesxþ      Noo
If this is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yeso      Noxþ
Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) or the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrantregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yesxþ      Noo
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yeso      Noo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” inRule 12b-2 of the Exchange Act (Check one):
Large Accelerated FilerþAccelerated FileroNon-Accelerated Filero
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
Large Accelerated Filer xo U.S. GAAPAccelerated Filer þ International Financial Reporting Standards as issued by the International Accounting Standards BoardoNon-Accelerated Filer o Other
 Indicate
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the Registrantregistrant has elected to follow.
Item 17o       Item 18xo
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act).
Yeso      Noxþ
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS)
 
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yeso      Noo
* * PetroChina’s H Shares are listed and traded on The Stock Exchange of Hong Kong Limited.
**
 ** Not for trading, but only in connection with the registration of American Depository Shares.
***PetroChina’s A Shares became listed on the Shanghai Stock Exchange on November 5, 2007.
****Includes 3,166,123,0001,970,667,300 H Shares represented by American Depositary Shares.
 

Table of Contents
           
      Page
Certain Terms and Conventions
 Page4
Forward-Looking Statements
8
       
 ��Certain Terms and Conventions3 
      Part I   Forward-Looking Statements6 
Part IItem 1
 Item 1 — Identity of Directors, Senior Management and Advisors  89 
Item 2
 — Offer Statistics and Expected Timetable  89 
Item 3
 — Key Information8
  Exchange Rates8
  Selected Financial Data  9 
      Exchange Rates    Risk Factors13
Item 4—Information on the Company189 
      Selected Financial Data    Introduction1810 
      Risk Factors  12
  Exploration and ProductionItem 4
  25—Information on the Company17 
      Introduction    Refining and Marketing3617 
      Exploration and Production    Chemicals and Marketing4324 
      Refining and Chemicals35
    Marketing41
Natural Gas and Pipeline44
Competition  47 
      Environmental Matters48
      CompetitionLegal Proceedings49
Properties  50 
      Intellectual Property    Environmental Matters5150 
      Regulatory Matters  50
  Legal ProceedingsItem 4A
  52—Unresolved Staff Comments57
Item 5
—Operating and Financial Review and Prospects57 
      General    Properties5357 
      Operating Results    Regulatory Matters53
Item 4A—Unresolved Staff Comments60
Item 5—Operating and Financial Review and Prospects6162 
        GeneralLiquidity and Capital Resources61
  Operating Results  69 
      Off-Balance Sheet Arrangements    Liquidity and Capital Resources7974 
      Long-Term Contractual Obligations and Other Commercial Commitments and Payment Obligations    Off-Balance Sheet Arrangements8574 
      Research and Development    Long-Term Contractual Obligations and Other Commercial Commitments and Payment Obligations8575 
      Trend Information75
      ResearchOther Information76
Item 6
—Directors, Senior Management and DevelopmentEmployees77
Directors, Senior Management and Supervisors77
Compensation  86 
      Board Practices    Trend Information8786 
      Employees    Other Information87
Item 6—Directors, Senior Management and Employees9388 
      Share Ownership  88
  Directors, Senior Management and SupervisorsItem 7
  93—Major Shareholders and Related Party Transactions89 
      Major Shareholders    Compensation10089 
      Related Party Transactions    Board Practices10189 
      Interests of Experts and Counsel    Employees102
  Share Ownership103
Item 7—Major Shareholders and Related Party Transactions104
  Major Shareholders104
  Related Party Transactions104
  Loans or Guarantees with Related Parties11091 


2

1

Table of Contents
           
      Page
 
Item 8
 — Financial Information  11092 
      Financial Statements    Financial Statements11092 
      Significant Changes    Significant Changes11193 
Item 9
 — The Offer and Listing  11294 
      Nature of the Trading Market and Market Price Information  11294 
Item 10
 — Additional Information  11395 
      Memorandum and Articles of Association  11395 
      Material Contracts    Material Contracts118102 
      Foreign Exchange Controls    Exchange Controls119102 
      Taxation    Taxation119102 
      Documents on Display108
Item 11
—Quantitative and Qualitative Disclosures About Market Risk108
Item 12
—Description of Securities Other Than Equity Securities112
     Significant Differences in Corporate Governance Practices 125 
      Part II  Documents on Display125
    
Item 1113
 — QuantitativeDefaults, Dividends Arrearages and Qualitative Disclosures About Market RiskDelinquencies  126112 
Item 14
 Item 12 — Description of Securities Other Than Equity Securities130
Part IIItem 13—Defaults, Dividends Arrearages and Delinquencies130
Item 14—Material Modifications to the Rights to Security Holders and Use of Proceeds  130112 
Item 15
 — Controls and Procedures  130113 
Item 16A
 — Audit Committee Financial Expert  130113 
Item 16B
 — Code of Ethics  131113 
Item 16C
 — Principal Accountant Fees and Services  131114 
Item 16D
 — Exemptions from Listing Standards for Audit Committees  132114 
Item 16E
 — Purchases of Equity Securities by the Issuer and Affiliated Purchasers  132115 
Part IIIItem 16F
 Item 17 — Financial StatementsChange In Registrant’s Certifying Accountant  132115
Item 16G
—Corporate Governance115
 
    Item 18 —Part IIIFinancial Statements132
    
Item 1917
 — ExhibitsFinancial Statements  132116
Item 18
—Financial Statements117
Item 19
—Exhibits117 
 EX-1.1 ARTICLES OF ASSOCIATIONEX-4.1
 EX-1.2 ARTICLES OF ASSOCIATIONEX-4.4
 EX-4.1 MANAGEMENT PERFORMANCE CONTRACTEX-4.24
 EX-4.2 CRUDE OIL MUTUAL SUPPLY FRAMEWORK AGREEMENTEX-4.25
 EX-4.19 SHARE PURCHASE AGREEMENTEX-4.26
EX-4.27
EX-4.28
EX-4.29
 EX-8.1 LIST OF SUBSIDIARIES
 EX-12.1 CERTIFICATION OF CEO REQUIRED BY SECTION 302
 EX-12.2 CERTIFICATION OF CFO REQUIRED BY SECTION 302
 EX-13.1 CERTIFICATION OF CEO REQUIRED BY SECTION 906
 EX-13.2 CERTIFICATION OF CFO REQUIRED BY SECTION 906
EX-15.1
EX-15.2


3

2

CERTAIN TERMS AND CONVENTIONS
Conventions Which Apply to this Annual Report
 
Unless the context otherwise requires, references in this annual report to:
 • “CNPC” or “CNPC group” are to our parent, China National Petroleum Corporation and its affiliates and subsidiaries, excluding PetroChina, its subsidiaries and its interests in long-term investments, and where the context refers to any time prior to the establishment of CNPC, those entities and businesses which were contributed to CNPC upon its establishment.
 
 • “PetroChina”, “we”, “our”, “our company”, “the company” and “us” are to:
 —• PetroChina Company Limited, a joint stock company incorporated in the People’s Republic of China with limited liability and its subsidiaries and branch companies, or
 
 —• the CNPC group’s domestic crude oil and natural gas exploration and production, refining and marketing, chemicals and natural gas businesses that were transferred to us in the restructuring of the CNPC group in 1999.
 • “PRC” or “China” areis to the People’s Republic of China, but dodoes not apply to Hong Kong, Macau or Taiwan for purposes of this annual report.
 
We publish our consolidated financial statements in Renminbi.Renminbi or RMB. The audited consolidated financial statements included in this annual report have been prepared as if the operations and businesses transferred to us from CNPC were transferred as of the earliest period presented or from the date of establishment of the relevant unit, whichever is later, and conducted by us throughout the period. In this annual report, IFRS refers to International Financial Reporting Standards.Standards as issued by the International Accounting Standards Board.
In December 2008, the United States Securities and Exchange Commission (the “SEC“or the “Commission”) announced that it had approved revisions designed to modernize the oil and gas company reserves reporting requirements. The revisions became effective on January 1, 2010. For purposes of this annual report, the oil and gas reserve disclosure rules prior to the effectiveness of the revisions are referred to herein as the “old SEC reserve rules.” The new oil and gas reserve disclosure rules that became effective on January 1, 2010 are referred to herein as the “new SEC reserve rules.” Our reserve-related disclosure as of and for the years ended December 31, 2007 and 2008 comply with the old SEC reserve rules. Our reserve-related disclosure as of and for the year ended December 31, 2009 complies with the new SEC reserve rules.
Conversion Table
     
1 barrel-of-oil equivalent
 = 1 barrel of crude oil = 6,000 cubic feet of natural gas
1 cubic meter = 35.315 cubic feet  
1 ton of crude oil = 1 metric ton of crude oil = 7.389 barrels of crude oil (assuming an API gravity of 34 degrees)
Certain Oil and Gas Terms
 
Unless the context indicates otherwise, the following terms have the meanings shown below:
“acreage”The total area, expressed in acres, over which an entity has interests in exploration or production. Net acreage is the entity’s interest, expressed in acres, in the relevant exploration or production area.
 
“API gravity”An indication of the density of crude oil or other liquid hydrocarbons as measured by a system recommended by the American Petroleum Institute (API), measured in degrees. The lower the API gravity, the heavier the compound.


4

“condensate”Light hydrocarbon substances produced with natural gas that condense into liquid at normal temperatures and pressures associated with surface production equipment.
 
“crude oil”Crude oil, including condensate and natural gas liquids.

3

“developed reserves”Under the new SEC reserve rules, developed reserves are reserves of any category that can be expected to be recovered:
(i) through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well; and
(ii) through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.
“development cost”For a given period, costs incurred to obtain access to proved reserves and to provide facilities for extracting, treating, gathering and storing the oil and gas.
 
“finding cost”For a given period, costs incurred in identifying areas that may warrant examination and in examining specific areas that are considered to have prospects of containing oil and gas reserves, including costs of drilling exploratory wells and exploratory-type stratigraphic test wells. Finding cost is also known as exploration cost.
 
“lifting cost”For a given period, costs incurred to operate and maintain wells and related equipment and facilities, including applicable operating costs of support equipment and facilities and other costs of operating and maintaining those wells and related equipment and facilities. Lifting cost is also known as production cost.
 
“natural gas liquids”Hydrocarbons that can be extracted in liquid form together with natural gas production. Ethane and pentanes are the predominant components, with other heavier hydrocarbons also present in limited quantities.
 
“offshore”Areas under water with a depth of five meters or greater.
 
“onshore”Areas of land and areas under water with a depth of less than five meters.
 
“primary distillation capacity”At a given point in time, the maximum volume of crude oil a refinery is able to process in its basic distilling units.
 
“proved developed reserves”ReservesUnder the old SEC reserve rules, proved developed reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Additional oil and gas expected to be obtained through the application of fluid injection or other improved recovery techniques for supplementing the natural forces and mechanisms of primary recovery are included as “proved developed reserves” only after testing by a pilot project or after the operation of an installed program has confirmed through production response that increased recovery will be achieved.
 
“proved reserves”EstimatedUnder the new SEC reserve rules, proved reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically


5

producible — from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations — prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.
(i) The area of the reservoir considered as proved includes:
(A) The area identified by drilling and limited by fluid contacts, if any, and (B) Adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis of available geoscience and engineering data.
(ii) In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons (LKH) as seen in a well penetration unless geoscience, engineering, or performance data and reliable technology establishes a lower contact with reasonable certainty.
(iii) Where direct observation from well penetrations has defined a highest known oil (HKO) elevation and the potential exists for an associated gas cap, proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geoscience, engineering, or performance data and reliable technology establish the higher contact with reasonable certainty.
(iv) Reserves which can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when:
(A) Successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program was based; and (B) The project has been approved for development by all necessary parties and entities, including governmental entities.
(v) Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average price during the12-month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of thefirst-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.
Under the old SEC reserve rules, proved reserves are estimated quantities of crude oil and natural gas which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and


6

operating conditions, i.e., prices and costs as of the date the estimate is made. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not of escalations based upon future conditions.
 
“proved undeveloped reserves”ReservesUnder the old SEC reserve rules, proved undeveloped reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Reserves on undrilled acreage shall be limited to those drilling units offsetting productive units that are reasonably certain of production when drilled. Proved reserves for other undrilled units can be claimed only where it can be demonstrated with certainty that there is

4

continuity of production from the existing productive formation. Under no circumstances should estimates for proved undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual tests in the area and in the same reservoir.
 
“reserve-to-production ratio”For any given well, field or country, the ratio of proved reserves to annual production of crude oil or, with respect to natural gas, to wellhead production excluding flared gas.
 
“sales gas”Marketable production of gas on an “as sold” basis, excluding flared gas, injected gas and gas consumed in operations.
 
“undeveloped reserves”Under the new SEC reserve rules, undeveloped reserves are reserves of any category that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.
(i) Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances.
(ii) Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless the specific circumstances, justify a longer time.
(iii) Under no circumstances shall estimates for undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, or by other evidence using reliable technology establishing reasonable certainty.
“water cut”For a given oil region, the percentage that water constitutes of all fluids extracted from all wells in that region.

 
References to:
 • BOE is tobarrels-of-oil equivalent,
 
 • Mcf is to thousand cubic feet, and
 
 • Bcf is to billion cubic feet.


7

5

FORWARD-LOOKING STATEMENTS
 
This annual report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. These forward-looking statements are, by their nature, subject to significant risks and uncertainties. These forward-looking statements include, without limitation, statements relating to:
 • the amounts and nature of future exploration, development and other capital expenditures;
 
 • future prices and demand for crude oil, natural gas, refined products and chemical products;
 
 • development projects;
 
 • exploration prospects;
 
 • reserves potential;
 
 • production of oil and gas and refined and chemical products;
 
 • development and drilling potential;
 
 • expansion and other development trends of the oil and gas industry;
 
 • the planned development of our natural gas operations;
 
 • the planned expansion of our refined product marketing network;
 
 • the planned expansion of our natural gas infrastructure;
 
 • the anticipated benefit from the acquisition of certain overseas assets from CNPC, our parent company;
 
 • the plan to continue to pursue attractive business opportunities outside China;
 
 • our future overall business development and economic performance;
 
 • our anticipated financial and operating information regarding, and the future development and economic performance of our business;
 
 • our anticipated market risk exposure arising from future changes in interest rates, foreign exchange rates and commodity prices; and
 
 • other prospects of our business and operations.
 
The words “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “seek”, “will” and “would” and similar expressions, as they related to us, are intended to identify a number of these forward-looking statements.
 
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that will occur in the future and are beyond our control. The forward-looking statements reflect our current views with respect to future events and are not a guarantee of future performance. Actual results may differ materially from information contained in the forward-looking statements as a result of a number of factors, including, without limitation, the risk factors set forth in this annual report and the following:
 • fluctuations in crude oil and natural gas prices;
 
 • failure to achieve continued exploration success;
 
 • failures or delays in achieving production from development projects;
 
 • continued availability of capital and financing;
 
 • acquisitions and other business opportunities that we may pursue;

6

 • general economic, market and business conditions, including volatility in interest rates, changes in foreign exchange rates and volatility in commodity markets;


8

 • liability for remedial actions under environmental regulations;
 
 • impact of the PRC’s entry into the World Trade Organization;
 
 • the actions of competitors;
 
 • wars and acts of terrorism or sabotage;
 
 • changes in policies, laws or regulations of the PRC, including changes in applicable tax rates;
 
 • the other changes in global economic and political conditions affecting the production, supply and demand and pricing of crude oil, refined products, petrochemical products and natural gas; and
 
 • the other risk factors discussed in this annual report, and other factors beyond our control.
 
You should not place undue reliance on any forward-looking statement.

7

PART I
ITEM 1 — IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
 
Not applicable. However, see “Item 6 — Directors, Senior Management and Employees — Directors, Senior Management and Supervisors.”
ITEM 2 — OFFER STATISTICS AND EXPECTED TIMETABLE
 
Not applicable.
ITEM 3 — KEY INFORMATION
Exchange Rates
 The noon buying rate in New York City for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York was US$1.00=RMB 7.7039 on May 7, 2007.
The following table sets forth the high and low noon buying rates between Renminbi and U.S. dollars for each month during the previous six months:months and the most recent practicable date:
         
  Noon buying rate
   
  High Low
     
  (RMB per US$)
November 2006  7.8750   7.8303 
December 2006  7.8350   7.8041 
January 2007  7.8127   7.7705 
February 2007  7.7632   7.7410 
March 2007  7.7454   7.7232 
April 2007  7.7345   7.7090 
May 2007 (through May 7)  7.7065   7.7035 
 
         
  Noon Buying Rate(1)
  High Low
  (RMB per US$)
 
December 2009  6.8299   6.8244 
January 2010  6.8295   6.8258 
February 2010  6.8330   6.8258 
March 2010  6.8270   6.8254 
April 2010  6.8275   6.8240 
May 2010  6.8310   6.8245 
June 2010 (ending as of June 18)  6.8323   6.8267 
(1)The exchange rates reflect the noon buying rates as set forth in the H.10 statistical release of the Federal Reserve Board.


9

Average Noon Buying Rates(1)
The following table sets forth the average noon buying rates between Renminbi and U.S. dollars for each of 2002, 2003, 2004, 2005, 2006, 2007, 2008 and 2006,2009, calculated by averaging the noon buying rates on the last day of each month during the relevant year:
     
  Average noon buying rate
   
  (RMB per US$)
2002  8.2772 
2003  8.2772 
2004  8.2768 
2005  8.1826 
2006  7.9725 

8

     
  Average Noon
  Buying Rate
  (RMB per US$)
 
2005  8.1826 
2006  7.9579 
2007  7.5806 
2008  6.9193 
2009  6.8295 
(1)For periods prior to January 1, 2009, the exchange rates reflect the noon buying rates as reported by the Federal Reserve Bank of New York. For periods after January 1, 2009, the exchange rates reflect the noon buying rates as set forth in the H.10 statistical release of the Federal Reserve Board.
Selected Financial Data
Historical Financial Information
 
You should read the selected historical financial data set forth below in conjunction with the consolidated financial statements of PetroChina and their notes and “Item 5 — Operating and Financial Review and Prospects” included elsewhere in this annual report. The selected historical income statement and cashflowcash flow data for the years ended December 31, 2004, 20052007, 2008 and 20062009 and the selected historical balance sheetstatement of financial position data as of December 31, 20052008 and 20062009 set forth below are derived from our audited consolidated financial statements included elsewhere in this annual report. The selected historical income statement data and cashflowcash flow data for the years ended December 31, 20022005 and 20032006 and the selected historical balance sheetstatement of financial position data as of December 31, 2002, 20032005, 2006 and 20042007 set forth below are derived from our audited financial statements not included in this annual report. Our consolidated financial statements were prepared in accordance with IFRS as issued by the International Accounting Standards Board. The financial information included in this section may not necessarily reflect our results of operations, financial position and cash flows in the future.
                     
  Year Ended December 31,(1) 
  2005  2006  2007  2008  2009 
        RMB  RMB  RMB 
  RMB  RMB          
  (In millions, except for per share and per ADS data) 
 
Income Statement Data
                    
Turnover  554,063   691,448   837,542   1,072,604   1,019,275 
                     
Operating expenses                    
Purchases, services and other  (199,317)  (270,112)  (369,786)  (562,851)  (492,472)
Employee compensation costs  (29,770)  (39,292)  (50,940)  (62,167)  (65,977)
Exploration expenses, including exploratory dry holes  (15,569)  (18,827)  (20,956)  (21,879)  (19,398)
Depreciation, depletion and amortization  (51,803)  (62,155)  (67,423)  (94,759)  (92,259)
Selling, general and administrative expenses  (36,650)  (43,400)  (52,389)  (59,617)  (65,423)
Taxes other than income taxes  (23,997)  (57,208)  (73,806)  (124,132)  (135,465)
Other (expenses)/incomes, net  (3,083)  (430)  (1,225)  12,372   (4,837)
                     
Total operating expenses  (360,189)  (491,424)  (636,525)  (913,033)  (875,831)
                     
Profit from operations  193,874   200,024   201,017   159,571   143,444 
                     
Share of profit of affiliates and jointly controlled entities  2,002   1,686   6,445   4,290   1,184 


10

9

                       
  Year ended December 31,
   
  2002(1) 2003(1) 2004(1) 2005 2006
           
  RMB RMB RMB RMB RMB
  (in millions, except for per share
  and per ADS data)
Income Statement Data
                    
IFRS
                    
Revenues                    
 Sales and other operating revenues  249,386   310,431   397,354   552,229   688,978 
                     
Operating expenses                    
 Purchases, services and other  (71,383)  (89,741)  (114,249)  (200,321)  (271,123)
 Employee compensation costs  (16,665)  (20,044)  (22,934)  (29,675)  (39,161)
 Exploration expenses, including exploratory dry holes  (8,203)  (10,624)  (12,090)  (15,566)  (18,822)
 Depreciation, depletion and amortization  (37,680)  (42,163)  (48,362)  (51,305)  (61,388)
 Selling, general and administrative expenses  (23,930)  (25,982)  (28,302)  (36,538)  (43,235)
 Employee separation costs and shutting down of manufacturing assets  (2,121)  (2,355)  (220)  —   — 
 Taxes other than income taxes  (15,366)  (16,821)  (19,943)  (23,616)  (56,666)
 Revaluation loss of property, plant and equipment  —   (391)  —   —   — 
 Other expenses, net  (59)  (598)  (116)  (3,037)  (607)
                     
  Total operating expenses  (175,407)  (208,719)  (246,216)  (360,058)  (491,002)
                     
Income from operations  73,979   101,712   151,138   192,171   197,976 
                     
Income from equity affiliates and jointly controlled entities  169   933   1,621   2,401   2,277 
Exchange gain (loss), net  (430)  (36)  8   88   74 
Interest income  663   973   1,373   1,924   2,066 
Interest expense  (4,068)  (2,889)  (2,896)  (2,762)  (3,220)
                     
Income before taxes  70,313   100,693   151,244   193,822   199,173 
Income taxes  (22,939)  (28,796)  (43,598)  (54,180)  (49,776)
                     
Income for this year  47,374   71,897   107,646   139,642   149,397 
                     
Attributable to:                    
Shareholders  46,766   69,835   103,843   133,362   142,224 
Minority shareholders  608   2,062   3,803   6,280   7,173 
                     
   47,374   71,897   107,646   139,642   149,397 
                     
Basic and diluted net income per share                    
 
Attributable to shareholders for this year(2)
  0.27   0.40   0.59   0.75   0.79 
Basic and diluted net income per ADS(3)
  26.60   39.72   59.06   75.44   79.45 
US GAAP
                    
Net income  49,693   75,640   109,051   137,866   146,087 
Basic and diluted net income per share(2)
  0.28   0.43   0.62   0.78   0.82 
Basic and diluted net income per ADS(3)
  28.26   43.02   62.02   77.99   81.60 
                     
  Year Ended December 31,(1) 
  2005  2006  2007  2008  2009 
        RMB  RMB  RMB 
  RMB  RMB          
  (In millions, except for per share and per ADS data) 
 
Exchange gain (loss), net  85   272   (751)  (1,081)  (783)
Interest income  2,036   2,148   2,101   2,277   1,459 
Interest expense  (2,929)  (3,328)  (3,673)  (3,044)  (5,272)
                     
Profit before income tax expense  195,068   200,802   205,139   162,013   140,032 
Income tax expense  (54,912)  (50,615)  (49,802)  (35,211)  (33,473)
                     
Profit for the year  140,156   150,187   155,337   126,802   106,559 
                     
Other comprehensive income/(loss)                    
Foreign currency translation difference  (799)  (358)  (1,852)  (2,676)  (3,500)
Income/(loss) from the change in the fair value of the financial assets available for sale  83   (4)  395   (340)  191 
Income tax relating to components of other comprehensive income/(loss)  (28)  2   (87)  67   (38)
                     
Other comprehensive loss (after tax net)  (744)  (360)  (1,544)  (2,949)  (3,347)
                     
Total comprehensive income for the year  139,412   149,827   153,793   123,853   103,212 
                     
Profit for the year attributable to:                    
Owners of the company  134,381   143,498   146,796   114,453   103,387 
Non-controlling interest  5,775   6,689   8,541   12,349   3,172 
                     
   140,156   150,187   155,337   126,802   106,559 
                     
Basic and diluted earnings per share for profit                    
attributable to owners of the company(2)
  0.76   0.80   0.82   0.63   0.56 
Basic and diluted earnings per ADS for profit                    
attributable to owners of the company(3)
  76.02   80.16   81.69   62.54   56.49 
                     
  As of December 31,(1)
  2005 2006 2007 2008 2009
  RMB RMB RMB RMB RMB
  (In millions, except for per share and per ADS data)
 
Statement of Financial Position Data
                    
Inventories  62,782   76,081   88,507   90,670   114,781 
Cash and cash equivalents  83,034   50,869   68,817   33,150   86,925 
Total current assets  178,926   165,778   235,902   224,946   294,383 
Total non-current assets  606,483   714,509   833,709   971,289   1,155,905 
Total current liabilities  156,878   181,993   200,150   265,651   388,553 
Total non-current liabilities  81,862   75,675   86,742   82,744   154,034 
Equity attributable to owners of the company  517,921   590,414   738,246   790,910   847,223 
Non-controlling interest  28,748   32,205   44,473   56,930   60,478 
Total equity  546,669   622,619   782,719   847,840   907,701 
Share capital  179,021   179,021   183,021   183,021   183,021 
Other Financial Data
                    
Dividend per share  0.34   0.36   0.36   0.28   0.25 
Dividend per ADS  33.80   35.75   36.25   28.14   25.42 
Capital expenditures  (125,814)  (149,493)  (182,678)  (232,377)  (266,836)

11

10

                       
  As of December 31,
   
  2002(1) 2003(1) 2004(1) 2005 2006
           
  RMB RMB RMB RMB RMB
  (in millions, except for per share and
  per ADS data)
Balance Sheet Data
                    
IFRS
                    
Assets
                    
Current assets                    
 Cash and cash equivalents  19,532   11,613   11,688   80,905   48,559 
 Time deposits with maturities after three months but within 12 months  2,621   2,648   1,425   1,691   3,012 
 Investments in collateralized loans  420   24,224   33,217   235   — 
 Accounts receivable  6,544   4,115   3,842   4,630   8,488 
 Inventories, at net book value  29,352   30,064   47,377   62,733   76,038 
 Prepaid expenses and other current assets  19,618   18,845   24,704   25,701   26,125 
                     
  Total current assets  78,087   91,509   122,253   175,895   162,222 
                     
Non-current assets                    
 Property, plant and equipment, less accumulated depreciation, depletion and amortization  404,135   442,311   485,612   563,890   645,337 
 Long-term investments, at net book value  6,055   9,405   11,504   13,608   35,010 
 Prepaid operating lease rentals  6,267   7,286   12,307   16,235   20,468 
 Intangible and other assets  2,769   3,027   3,020   5,011   6,627 
 Time deposits mature after one year  3,498   3,485   3,751   3,428   2,499 
                     
 Total non-current assets  422,724   465,514   516,194   602,172   709,941 
                     
  Total assets  500,811   557,023   638,447   778,067   872,163 
                     
 
Liabilities and shareholders’ equity
Current liabilities                    
 Short-term debt  23,185   34,328   34,937   28,689   35,763 
 Accounts payable and accrued liabilities  59,950   66,700   73,072   99,758   120,182 
 Income tax payable  5,581   12,068   17,484   20,567   17,744 
 Other taxes payable  5,767   9,251   5,032   4,824   6,190 
                     
  Total current liabilities  94,483   122,347   130,525   153,838   179,879 
                     
Non-current liabilities                    
 Long-term debt  68,894   51,601   44,648   44,570   35,634 
 Other long-term obligations  1,707   2,010   2,481   1,046   995 
 Assets disposal obligations  585   735   919   14,187   18,481 
 Deferred taxes  10,832   13,436   16,902   20,759   19,583 
                     
  Total non-current liabilities  82,018   67,782   64,950   80,562   74,693 
                     
  Total liabilities  176,501   190,129   195,475   234,400   254,572 
                     
Equity
                    
Shareholder’s equity                    
Share capital  175,824   175,824   175,824   179,021   179,021 
Retained income  57,358   88,152   143,115   203,812   264,092 
Reserves  84,456   93,952   108,834   132,556   143,564 
                     
   317,638   357,928   427,773   515,389   586,677 
Minority interest  6,672   8,966   15,199   28,278   30,914 
                     
Total equity  324,310   366,894   442,972   543,667   617,591 
                     
  Total liabilities and equity  500,811   557,023   638,447   778,067   872,163 
                     
Share capital, issued and outstanding, RMB 1.00 par value                    
 State-owned shares  158,242   158,242   158,242   157,922   157,922 
 H shares and ADSs  17,582   17,582   17,582   21,099   21,099 
US GAAP
                    
Property, plant and equipment, less accumulated depreciation, depletion and amortization  353,932   413,383   452,017   537,106   622,668 
Total assets  457,065   528,685   605,018   774,740   858,400 
Shareholders’ equity  284,426   330,520   405,573   510,141   574,470 

11

                     
  As of December 31,
   
  2002(1) 2003(1) 2004(1) 2005 2006
           
  RMB RMB RMB RMB RMB
  (in millions)
Other Financial Data
                    
Dividend per share  0.12   0.18   0.26   0.34   0.36 
Dividend per ADS  12.00   17.82   26.34   33.80   35.75 
Capital expenditures  (75,496)  (86,373)  (98,946)  (124,801)  (148,746)
Cash Flow Data
                    
IFRS
                    
Net cash provided by operating activities  98,989   139,570   141,691   203,885   198,102 
Net cash used for investing activities  (73,732)  (102,549)  (102,276)  (91,576)  (158,451)
Net cash used for financing activities  (26,488)  (35,593)  (39,586)  (42,634)  (71,739)
                     
  As of December 31,(1)
  2005 2006 2007 2008 2009
  RMB RMB RMB RMB RMB
  (In millions, except for per share and per ADS data)
 
Cash Flow Data
                    
Net cash flows from operating activities  207,656   202,701   207,633   172,465   261,972 
Net cash flows used for investing activities  (91,445)  (159,065)  (183,656)  (211,797)  (261,453)
Net cash flows from/used in financing activities  (46,083)  (75,385)  (5,838)  3,777   53,077 
 
Notes:
(1)Certain financial data for these periodsDue to business combinations under common control completed in 2005, 2008 and as of these dates are derived from our audited consolidated2009, the relevant financial statements not includedof our company have been restated in this annual report,a manner similar to a uniting of interests whereby the assets and were retroactively restated. In 2005, we retroactively restated our prior years’ consolidated financial statementsliabilities acquired are accounted for at carryover predecessor values to reflect the effectother party to the business combination with all periods presented as if the refinery and petrochemicalour operations of Ningxia Dayuan Refinery and Petrochemical Company Limited, or Dayuan, Qingyang Refinery and Petrochemical Company Limited, or Qingyang, both of which we acquired from CNPC, and the operations of CNPC Exploration and Development Company Limited, or CNPC E&D, of which webusiness acquired a 50% interest from China National Oil and Gas Exploration and Development Corporation, or CNODC, a wholly-owned subsidiary of CNPC, hadhave always been combined since inception.combined. The difference between the consideration paid by us and the net assets or liabilities of the business acquired is adjusted against equity.
 
(2)The basic and diluted income per share for the years ended December 31, 2002, 2003 and 2004 has been calculated by dividing the net profit by the number of 175,824 million shares issued and outstanding for the corresponding years. The basic and diluted incomeearnings per share for the year ended December 31, 2005 was calculated by dividing the net profit bywith the weighted average number of 176,770 million shares issued and outstanding for the year presented. The basic and diluted incomeearnings per share for the year ended December 31, 2006 was calculated by dividing the net profit bywith the number of 179,021 million shares issued and outstanding for the year presented.
(3)The basic and diluted incomeearnings per ADSshare for the yearsyear ended December 31, 2002, 2003 and 2004 has been2007 was calculated by dividing the net profit bywith the weighted average number of 175,824179,700 million shares issued and outstanding for the corresponding years, each ADS representing 100 H shares.year presented. The basic and diluted incomeearnings per share for the year ended December 31, 2008 was calculated by dividing the net profit with the number of 183,021 million shares issued and outstanding for the year presented. The basic and diluted earnings per share for the year ended December 31, 2009 was calculated by dividing the net profit with the number of 183,021 million shares issued and outstanding for the year presented.
(3)The basic and diluted earnings per ADS for the year ended December 31, 2005 has beenwas calculated by dividing the net profit bywith the weighted average number of 176,770 million shares issued and outstanding for the year presented, each ADS representing 100 H shares.Shares. The basic and diluted incomeearnings per ADS for the year ended December 31, 2006 has beenwas calculated by dividing the net profit bywith the weighted average number of 179,021 million shares issued and outstanding for the year presented, each ADS representing 100 H shares.Shares. The basic and diluted earnings per ADS for the year ended December 31, 2007 was calculated by dividing the net profit with the weighted average number of 179,700 million shares issued and outstanding for the year presented, each ADS representing 100 H Shares. The basic and diluted earnings per ADS for the year ended December 31, 2008 was calculated by dividing the net profit with the number of 183,021 million shares issued and outstanding for the year presented, each ADS representing 100 H Shares. The basic and diluted earnings per ADS for the year ended December 31, 2009 was calculated by dividing the net profit with the number of 183,021 million shares issued and outstanding for the year presented, each ADS representing 100 H Shares.

12

Risk Factors
 
Our business is primarily subject to various changing competitive, economic and social conditions in the PRC. Such changing conditions entail certain risks, which are described below.
• The global financial crisis and economic downturn have adversely affected economies and businesses around the world, including in China. Due to the global economical downturn and a decrease in consumer demand, the economic situation in China has been quite severe since the second half of 2008. Although the Chinese economy has recovered recently, it is uncertain whether such recovery will continue into the rest of 2010 and beyond. Any recurrence of the global financial crisis which may be sparked by the recent market volatility attributed to concerns over several European countries including Greece, Portugal, Ireland and Spain may cause a further decline in the PRC economy. This change in the macro-economic conditions has and is expected to continue to have an adverse impact on our business and operations. Our profitability may be adversely affected due to the low growth in oil and gas demand. We have experienced pricing pressure on

12

our refined products, which has an adverse effect on our profitability. These factors may also lead to intensified competition for market share and available margin, with consequential potential adverse effects on volumes. The financial and economic situation may have a negative impact on third parties with whom we do, or may do, business. Any of these factors may affect our results of operations, financial condition and liquidity.
• In early 2003, several regions in Asia, including Hong Kong and China, were affected by the outbreak of SARS. Furthermore, in early 2008, severe snowstorms hit many areas of China and particularly affected southern China. Additionally, in May 2008, a major earthquake struck China’s populous Sichuan Province, causing great loss of life, numerous injuries, property loss and disruption to the local economy. Finally, in April 2009, an outbreak of H1N1 influenza occurred in Mexico and the United States and human cases of swine flu were and continue to be discovered in China and Hong Kong. Any future outbreak of SARS, avian flu or similar adverse public health development or an increase in the severity of H1N1 influenza or other contagious diseases, extreme unexpected bad weather or severe natural disasters would adversely affect our business and operating results.
 • Our operations are affected by the volatility of prices for crude oil and refined products. We and China Petroleum and Chemical Corporation, or Sinopec, set our crude oil median prices monthly based on the Singapore trading prices for crude oil. In 2006, the PRC government, under its macro economicmacroeconomic controls, introduced a new mechanism for determining thedomestic prices of refined products. On December 18, 2008, the PRC government further modified this mechanism by linking the domestic prices of refined oil products to a number of factors, including international market prices, average domestic processing cost, tax, selling expenses and appropriate profit margin. Historically, international prices for crude oil and refined products have fluctuated widely in response to changes in many factors, such as global and regional economic and political developments, and global and regional supply and demand for crude oil and refined products. We do not have, and will not have, control over the factors affecting international prices for crude oil and refined products. A decline in crude oil prices will reduce our crude oil revenues derived from external customers. If crude oil prices remain at a low level for a prolonged period, our company has to determine and estimate whether our oil and gas assets may suffer impairment losses and, if so, the amount of the impairment losses. An increase in crude oil prices may, however, increase the production costs of refined products. In addition, a decline in refined products prices will reduce our revenue derived from refining operations. An increase in the refined products prices, however, will increase the production costs of chemical products which use refined products as raw materials.
In addition to the adverse effect on our revenues, margins and profitability from any future fall in oil and natural gas prices, a prolonged period of low prices or other indicators would lead to a review for impairment of our oil and natural gas properties. This review would reflect management’s view of long-term oil and natural gas prices. Such a review could result in a charge for impairment which could have a significant effect on our results of operations in the period in which it occurs.
 • The crude oil and natural gas reserve data in this annual report are only estimates. The reliability of reserve estimates dependdepends on a number of factors, assumptions and variables, such as the quality and quantity of our technical and economic data and the prevailing oil and gas prices applicable to our production, manysome of which are beyond our control and may prove to be incorrect over time. Results of drilling, testing and production after the date of the estimates may require substantial upward or downward revisions in our reserve data. Our actual production, revenues and expenditures with respect to our reserves may differ materially from these estimates because of these revisions.
 
 • Our proved crude oil reserves decreased gradually and modestly from 2001 to 2003 because the decrease in the crude oil reserves in our Daqing and Liaohe oil regions could not be offset by the increase in the crude oil reserves in our oil regions in northwestern China, such as the Xinjiang oil region, the Changqing oil and gas region and the Tarim oil region. Although ourOur proved crude oil reserves increased slightly in 2004, 2005, 2006 and 20062007 compared to prior years, we cannot assure you that we will be able to increase or maintain ouryears. Our proved crude oil reserves slightly decreased in China in 2008 and 2009 as a result of the future by our exploration activitieslower oil price in China.2008 and 2009. We are actively pursuing business opportunities outside China to supplement our domestic resources. For instance, in 2005 and 2006, we acquired certain overseas crude oil and natural


13

gas assets from CNPC. We cannot assure you, however, that we can successfully locate sufficient alternative sources of crude oil supply or at all due to the complexity of the international political, economic and other conditions. If we fail to obtain sufficient alternative sources of crude oil supply, our results of operations and financial condition may be materially and adversely affected.
• The United States Securities and Exchange Commission, or the SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company in the United States to include a management report on such company’s internal control over financial reporting in its annual report, which contains management’s assessment of the effectiveness of the company’s internal control over financial reporting. In addition, an independent registered public accounting firm must attest to and report on management’s assessment of the effectiveness of the company’s internal control over financial reporting. Although our management concluded that our internal control over our financial reporting for the fiscal year ended December 31, 2006 was effective, we may discover other deficiencies in the course of our future evaluation of our internal control over our financial reporting and

13

 • mayThe oil, gas and petrochemicals industries are highly competitive. There is strong competition, both within the oil and gas industry and with other industries, in supplying the fuel needs of commerce, industry and the home. Competition puts pressure on product prices, affects oil products marketing and requires continuous management focus on reducing unit costs and improving efficiency. The implementation of our growth strategy requires continued technological advances and innovation, including advances in exploration, production, refining, petrochemicals manufacturing technology and advances in technology related to energy usage. Our performance could be unableimpeded if competitors developed or acquired intellectual property rights to remediate such deficiencies in a timely manner. Moreover, in future years, eventechnology that we required or if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may still be unable to attest to our management’s assessment or may issue a report that concludes that our internal control over financial reporting is not effective. If we fail to maintaininnovation lagged the adequacy of our internal control over financial reporting, we may not be able to conclude that we have effective internal control over financial reporting on an ongoing basis, in accordance with the Sarbanes-Oxley Act. Moreover, effective internal control is necessary for us to produce reliable financial reports and is important to prevent fraud. As a result, our failure to achieve and maintain effective internal control over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the trading prices of our ADSs or H shares.industry.
 
 • Exploring for, producing and transporting crude oil and natural gas and producing and transporting refined products and chemical products involve many hazards. These hazards may result in:
 —• fires;
 
 —• explosions;
 
 —• spills;
 
 —• blow-outs; and
 
 —• other unexpected or dangerous conditions causing personal injuries or death, property damage, environmental damage and interruption of operations.
Some of our oil and natural gas fields are surrounded by residential areas or located in areas where natural disasters, such as earthquakes, floods and sandstorms, tend to occur more frequently than in other areas. As with many other companies around the world that conduct similar businesses, we have experienced accidents that have caused property damage and personal injuries and death.
Significant operating hazards and natural disasters may cause partial interruptions to our operations and property and environmental damage that could have an adverse impact on our financial condition. On November 13, 2005, an explosion occurred at one of our branch companies in Jilin Province. The incident caused serious personal injuries and deaths, loss of property and water pollution of the Songhuajing River. The Chinese government completed its investigation of this accident in December 2006. As a result, our company paid a fine of RMB 1 million in settlement of all liabilities arising from the accident.
Except for limited insurance coverage for vehicles and certain assets that we consider to be subject to significant operating risks, we do not carry any other insurance for our property, facilities or equipment in respect of our business operations. We do not currently carry any third party liability insurance against claims relating to personal injury or death, property or environmental damage arising from accidents on our property or relating to our operations. We also do not currently carry any business interruption insurance. The limited insurance coverage of our assets exposes us to substantial risks and will not cover most losses.
Some of our oil and natural gas fields are surrounded by residential areas or located in areas where natural disasters, such as earthquakes, floods and sandstorms, tend to occur more frequently than in other areas. As with many other companies around the world that conduct similar businesses, we have experienced accidents that have caused property damage and personal injuries and death.
Significant operating hazards and natural disasters may cause partial interruptions to our operations and property and environmental damage that could have an adverse impact on our financial condition.
We maintain insurance coverage against some, but not all, potential losses. We may suffer material losses resulting from uninsurable or uninsured risks or insufficient insurance coverage.
 • As of December 31, 2009, CNPC ownsbeneficially owned approximately 88.21%86.285% of our share capital. This ownership percentage enables CNPC to elect our entire board of directors without the concurrence of any of our other shareholders. Accordingly, CNPC is in a position to:
 —• control our policies, management and affairs;
 
 —• subject to applicable PRC laws and regulations and provisions of our articles of association, determineaffect the timing and amount of dividend payments and adopt amendments to certain of the provisions of our articles of association; and

14

 —• otherwise determine the outcome of most corporate actions and, subject to the regulatory requirements of the Listing Rules of the Hong Kong Stock Exchange,jurisdictions in which our shares are listed, cause our company to effect corporate transactions without the approval of minority shareholders.
CNPC’s interests may sometimes conflict with those of some or all of our minority shareholders. We cannot assure you that CNPC, as our controlling shareholder, will always vote its shares in a way that benefits our minority shareholders.
 • CNPC may choose to undertake, without our involvement, overseas investments and operations in the oil and gas industry, including exploration and production of oil and gas, refining and LNG projects. CNPC’s interestsoverseas asset portfolio includes oil and gas development projects in Iran and Sudan, which countries are on the sanction list published and administrated by the Office of Foreign Assets Control, or OFAC, of the


14

U.S. Department of Treasury. CertainU.S.-based investors may sometimes conflictnot wish to invest, and have proposed or adopted divestment or similar initiatives regarding investments, in companies that do business with those of some or allcountries on OFACs sanction list. These investors may not wish to invest, and may divest their investment, in us because of our minority shareholders. We cannot assure you thatrelationship with CNPC as controlling shareholder, will always voteand its sharesinvestments and activities in those OFAC sanctioned countries. As a way that benefitsresult, the trading prices of our minority shareholders.ADSs may be materially and adversely affected.
 • In addition to its relationship with us as our controlling shareholder, CNPC by itself or through its affiliates also provides us with certain services and products necessary for our business activities, such as construction and technical services, production services and supply of material services. The interests of CNPC and its affiliates as providers of these services and products to us may conflict with our interests. Although we have entered into a Comprehensive Products and Services Agreement with CNPC and our transactions with CNPC over the past three years have been conducted on open, fair and competitive commercial terms, we have only limited leverage in negotiating with CNPC and its affiliates over the specific terms of the agreements for the future provision of these services and products.
 
 • The eastern and southern regions of China have a higher demand for refined products and chemical products than the western and northern regions. Most of our refineries and chemical plants are located in the western and northern regions of China. We incur relatively higher transportation costs for delivery of our refined products and chemical products to certain areas of the eastern and southern regions from our refineries and chemical plants in western and northern China. While we continue to expand the sales of these products in the eastern and southern regions of China, we face strong competition from Sinopec and China National Offshore Oil Corp, or CNOOC. As a result, we expect that we will continue to encounter difficulty in increasing our sales of refined products and chemical products in these regions.
 
 • We are currently constructing new, and expanding some of ourexisting, refinery and petrochemical facilities and constructing several natural gas pipelines. In addition, we may commence offshore crudeand oil and natural gas exploration and production activities,pipelines, which could require substantial capital expenditures and investments. We cannot assure you that the cash generated by our operations will be sufficient to fund these development plans or that our actual future capital expenditures and investments will not significantly exceed our current planned amounts. If either of these conditions arises,arise, we may have to seek external financing to satisfy our capital needs. Under such circumstance, ourOur inability to obtain sufficient funding for our development plans could adversely affect our business, financial condition and results of operations.
• Compliance with changes in laws, regulations and obligations relating to climate change or environmental protection could result in substantial capital expenditure and reduced profitability from changes in operating costs.
 
 • We are also subject to a number of risks relating to the PRC and the PRC oil and gas industry. These risks are described as follows:
 —• Our operations, like those of other PRC oil and gas companies, are subject to extensive regulations and control by the PRC government. These regulations and control affect many material aspects of our operations, such as exploration and production licensing, industry-specific and product-specific taxes and fees and environmental and safety standards. As a result, we may face significant constraints on our ability to implement our business strategies, to develop or expand our business operations or to maximize our profitability. Our business may also be adversely affected by future changes in certain policies of the PRC government with respect to the oil and gas industry. For example, since March 26, 2006, we have been subject to a crude oil special gain levy imposed by the PRC government. AsOn June 1, 2010, the Ministry of Finance and the State Administration of Taxation jointly promulgated a result, we recorded an aggregate of RMB 28,914.0 million as such levy tonew resource tax regulation for the PRC government in relation to our domestic salesextraction of crude oil and natural gas. Pursuant to this regulation, effective from June 1, 2010, the resource tax payable by the resource tax payers in 2006.connection with their extraction of crude oil and natural gas in Xinjiang shall be collected based on value instead of volume. In the future if the Ministry of Finance and the State Administration of Taxation promulgate similar regulations applicable to any other provinces or regions in China, our results of operations may be adversely affected.
 
 —• Currently, the PRC government must approve the construction and major renovation of significant refining and petrochemical facilities as well as the construction of significant natural gas and refined


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 natural gas and refined product pipelines and storage facilities. We presently have several significant projects pending approval from the relevant government authorities and will need approvals from the relevant government authorities in connection with several other significant projects. We do not have control over the timing and outcome of the final project approvals.
 —• We receive most of our revenues in Renminbi. A portion of our Renminbi revenues must be converted into other currencies to meet our foreign currency obligations. The existing foreign exchange limitations under the PRC laws and regulations could affect our ability to obtain foreign exchange through debt financing, or to obtain foreign exchange for capital expenditures.
— Prior The value of Renminbi against U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. On July 21, 2005, the PRC government introduced a floating exchange rate system to 2005, our company performed capping or plugging on wellheads and surface facilities that could be salvaged for alternative use. For safety reasons, our company also performed capping or plugging on certain wells that were considered to be in areas with extensive human use atallow the timevalue of the abandonment. Our company, however, did not perform capping or pluggingRenminbi to fluctuate within a regulated band based on wells that were neither consideredmarket supply and demand and by reference to bea basket of foreign currencies. From July 21, 2005 to December 31, 2009, the value of the Renminbi has appreciated significantly against the U.S. dollar. The appreciation of Renminbi against U.S. dollar may cause a decrease in areas with extensive human use nor could be salvaged for alternative use. Consequently, such wellheads and surface facilities were left at their original sites after the wells were retired.our exportation of our products.
 The Environmental Protection Regulation for Oil• A number of provinces and Gas Exploration and Production Activitiesregions in Heilongjiang ProvinceandThe Environmental Protection Regulation for Oil and Gas Exploration and Production Activities in Gansu Provincewere issued in mid and late 2005. Based onwhich our reading of the new provincial regulations and in consultation with the environmental administrative authorities in Heilongjiang and Gansu provinces, we believe that such regulations only apply to the oil and gas properties retired after theseexploration and production activities are located have promulgated environment protection regulations, were issued in 2005. Accordingly, our companywhich set forth specific abandonment and disposal processes for oil and gas exploration and production activities. We have established standard abandonment procedures, requesting thatincluding plugging all of its branchretired wells, dismantling all retired metering stations and subsidiary companies recognize asset retirement provisions for their currently used oilother related facilities and gas properties.
Our company believes it had no obligation to adopt such abandonment procedures priorperforming site restoration, in response to the issuance of the new regulations in 2005. Forthese provincial and regional regulations. As to the oil and gas properties that were retired prior to the issuance of such regulations, we believe that the activities required to retire these assets at aneed not to be performed to the level that would be in compliance with the regulations and our internal policy, have not been performed.policy. The costs associated with these activities have not been included in the asset retirement obligations accrued during 2005.since the issuance of these regulations. However, Heilongjiang Provincethe governments of these provinces and Gansu Provinceregions could enact new regulations, amend the current regulations or retroactively apply the relevant requirements. If any of these regulations is determined to be applicable to assets other than those that were retired subsequent to the dates that these regulations were issued, in 2005, we could be required to incur substantial costs associated with such asset retirement obligations. In addition, we cannot assure you that thethere may be additional provincial governments other than Heilongjiang Province and Gansu Province will notto enact new regulations which willthat may require our company to perform additional asset retirement activities related to the assets retired before the establishment of our company’s internal policy and areas in which these assets were or continue to be located. Such potential new regulations could increase our asset retirement costs.
 —• Because PRC laws, regulations and legal requirements dealing with economic matters are relatively new and continue to evolve, and because of the limited volume of published judicial interpretations and the non-binding nature of prior court decisions, the interpretation and enforcement of these laws, regulations and legal requirements involve some uncertainty. We have included the Mandatory Provisions and certain additional requirements that are imposed by the Hong Kong Stock Exchange Listing Rules in our Articles of Association for the purpose of reducing the scope of difference between the Hong Kong Company Law and the PRC Company Law. However, becauseBecause the PRC Company Law is different in certain important aspects from company laws in the United States, Hong Kong

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and other common law jurisdictions, and because the PRC securities laws and regulations are still at an early stage of development, you may not enjoy shareholders’ protections that you may be entitled to in other jurisdictions.
 
 —• In additionSEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company in the United States to include a management report on such company’s internal control over financial reporting in its annual report, which contains management’s assessment of the adverse effect oneffectiveness of the company’s internal control over financial reporting. Although our revenues, margins and profitability from any future fallmanagement concluded that our internal control over our financial reporting for the fiscal year ended December 31, 2009 was effective, we may discover other deficiencies in oil and natural gas prices, a prolonged period of low prices or other indicators would lead to a review for impairmentthe course of our oilfuture evaluation of our internal control over our financial reporting and natural gas properties. This review would reflect management’s viewmay be unable to remediate such deficiencies in a timely manner. If we fail to maintain the adequacy of long-term oilour internal control over financial reporting, we may not be able to conclude that we have effective internal control over financial reporting on an ongoing basis, in accordance with the Sarbanes-Oxley Act. Moreover, effective internal control is necessary for us to produce reliable financial reports and natural gas prices. Suchis important to prevent fraud. As a reviewresult, our failure to achieve and maintain effective internal control over financial reporting could result in a charge for impairment which could have a significant effect on our resultsthe loss of operationsinvestor confidence in the periodreliability of our financial statements, which in which it occurs.turn could harm our business and negatively impact the trading prices of our ADSs, H Shares or A Shares.


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See also “Item 4 — Information on theour Company — Regulatory Matters”, “Item 5 — Operating and Financial Review and Prospects”, “Item 8 — Financial Information” and “Item 11 — Quantitative and Qualitative Disclosures About Market Risk”.

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ITEM 4 — INFORMATION ON THE COMPANY
Introduction
History and Development of the Company
ITEM 4 —Overview of Our OperationsINFORMATION ON THE COMPANY
 
Introduction
History and Development of Our Company
Overview of Our Operations
We are one of the largest companies in China in terms of sales. We are engaged in a broad range of petroleum and natural gas related activities, including:
 • the exploration, development, production and sale of crude oil and natural gas;
 
 • the refining transportation, storage and marketing of crude oil and petroleum products;
• products, as well as the production and marketing of basic petrochemical products, derivative chemical products and other chemical products;
• the marketing and trading of refined oil products; and
 
 • the transmission and storage of natural gas, crude oil and refined oil products and natural gas as well as the sale of natural gas.
 
Prior to 2009, our business consisted of exploration and production segment, refining and marketing segment, chemicals and marketing segment, and natural gas and pipeline segment. We restructured our business segmentation in 2009 by dividing our business into four segments, including exploration and production, refining and chemicals, marketing segment, and natural gas and pipeline. As a result, the refining and chemicals segment now consists of the refining of crude oil and petroleum products, as well as the production and marketing of basic petrochemical products, derivative chemical products and other chemical products. The marketing segment now consists of the marketing and trading of refined oil products.
We are China’s largest producer of crude oil and natural gas. Currently, substantially all of our crude oil and natural gas reserves and production-related assets are located in China. In the year ended December 31, 2006,2009, we had total revenueturnover of RMB 688,9781,019,275 million and net incomeprofit attributable to the owners of our company of RMB 142,224103,387 million.
 
Our exploration, development and production activities commenced in the early 1950s, when we conducted exploration activities in the Yumen oil region in northwestern China. The discovery of crude oil in 1959 in northeastern China’s Daqing oil region, one of the world’s largest oil regions in terms of proved crude oil reserves, marked the beginning of our large-scale upstream activities. Over the past fourmore than five decades, we have conducted crude oil and natural gas exploration activities in many regions of China. As of December 31, 2006,2009, we had estimated proved reserves of approximately 11,618.011,262.6 million barrels of crude oil and approximately 53,469.263,243.8 billion cubic feet of natural gas. We believe that we hold production licenses for a majority of China’s proved crude oil reserves and proved natural gas reserves. In the year ended December 31, 2006,2009, we produced 830.7843.5 million barrels of crude oil and 1,371.92,112.2 billion cubic feet of natural gas for sale, representing an average production of 2.282.31 million barrels of crude oil and 3.765.79 billion cubic feet of natural gas for sale per day. In 2006, we sold 832.8 million barrels of crude oil and 1,357 billion cubic feet of natural gas. Approximately 83% of the crude oil we sold in the year ended December 31, 20062009, a substantial majority of crude oil we sold was supplied to our refineries.
 
We commenced limited refining activities in the mid-1950s, when we began producing gasoline and diesel at refineries in the Yumen oil region. We now operate 26 refineries located in eight provinces, four autonomous regions and one municipality. In 2006, our refineries processed approximately 785 million barrels of crude oil or an average of 2.2 million barrels per day. In the year ended December 31, 2006, we produced approximately 68.3 million tons of gasoline, diesel and kerosene and sold approximately 74.90 million tons of these products. In the year ended December 31, 2006, approximately 82% of the crude oil processed in our refineries was provided by our exploration and production segment and approximately 16% of the crude oil processed in our refineries was imported. As of December 31, 2006, our retail distribution network consisted of 16,624 service stations that we own and operate, 282 service stations wholly owned by CNPC or jointly owned by CNPC and third parties to which we provide supervisory support and 1,301 franchise service stations.
Our chemicals operations commenced in the early 1950s, when we began producing urea at our first petrochemical plant in Lanzhou in northwestern China. In the early 1960s, we began producing ethylene. We currently producenow operate 30 enterprises located in nine provinces, four autonomous regions and sell a wide rangethree municipalities to engage in refining of crude oil and petroleum products, as well as the production and marketing of basic andpetrochemical products, derivative petrochemicalchemical products and other chemical products through 12 chemical plantsproducts. In 2009, our refineries processed approximately 828.6 million barrels of crude oil or an average of 2.3 million barrels per day. In 2009, we produced approximately 73.2 million tons of gasoline, diesel and four chemical products saleskerosene. In 2009, approximately 75.4% of the crude oil processed in our refineries was provided by our exploration and production segment and approximately


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companies located
23.0% of the crude oil processed in seven provinces and three autonomous regionsour refineries was imported. We are one of the major producers of ethylene in China. Our other segments supply substantially allWe produced 2,988.9 thousand tons of the hydrocarbon feedstock requirementsethylene in 2009. In 2009, we produced 2,434.1 thousand tons of our chemicals operations.polyethylene, 1,800.9 thousand tons of polypropylene and 201.8 thousand tons of ABS, respectively.
 
As of December 31, 2009, our retail distribution network consisted of 16,607 service stations that we own and operate and 655 franchise service stations. In 2009, we sold approximately 101.25 million tons of gasoline, diesel and kerosene in total.
We are China’s largest natural gas transporter and seller in terms of sales volume. Our natural gas transmission and marketing activities commenced in Sichuan in southwestern China in the 1950s. In 2006,2009, our sales of natural gas totaled 1,3572,105.1 billion cubic feet, of which 1,200.5 billion cubic feet was sold through our natural gas and pipeline segment.feet. As of December 31, 2006,2009, we owned and operated regional natural gas pipeline networks consisting of 20,59028,595 kilometers of pipelines, of which 19,662 kilometers were operated by our natural gas and pipeline segment.pipelines. As of December 31, 2006,2009, we owned and operated a crude oil pipeline network consisting of 9,62013,164 kilometers of pipelines with an average daily throughput of approximately 2.493.03 million barrels of crude oil. As of December 31, 2006,2009, we also had a refined product pipeline network consisting of 2,4138,868 kilometers of pipelines with an average daily throughput of approximately 37,30048,803 tons of refined products.
 
We have increased our efforts to pursue attractive business opportunities outside China as part of our business growth strategy to utilize both domestic and international resources to strengthen our competitiveness. In JuneSince 2005, we entered into a capital contribution agreement with CNODC, Central Asia Petroleum Company Limited and CNPC E&D, pursuant to which,have acquired interests in December 2005, we acquired a 50% interest in CNPC E&D, a subsidiary of CNODC, for a consideration of RMB 20,741 million, which was paid to CNPC E&D as a part of our capital contribution. Under this agreement, CNODC, a wholly-owned subsidiary of CNPC, transferred certain of its overseasvarious oil and natural gas assets to CNPC E&D in November 2005. Following the completion of the transactions contemplated by this agreement, each of CNODC and us obtained a 50% interest in CNPC E&D and CNODC subsequently transferred its 50% interest in CNPC E&D to CNPC, which resulted in CNPC holding the 50% interest in CNPC E&D directly. We have the right to appoint four of the seven directors of CNPC E&D, which enables us to maintain effective control over CNPC E&D. We also entered into a transfer agreement with CNPC E&D in December 2005 to transfer all of our interest in PTRI, the operating entity of our oil and natural gas assets in Indonesia, as the remaining part of our capital contribution to CNPC E&D for a consideration of RMB 579 million.
      Following the completion of the acquisition of CNPC E&D through capital contribution, we obtained a 50% interest in the oil and natural gas assets held by CNPC E&D in twelve countries, including, among others, Kazakhstan, Venezuela and Peru. The consummation of the transactions described above hasIraq, which significantly expanded our overseas operations and effectively increased our oil and gas reserves and production volumes, and streamlined our existing overseas businessvolumes. In November 2009, we signed a contract to develop Iraq’s Rumaila oilfield, pursuant to which we hold a 37% stake in Indonesia with the acquired businesses.
operation of Rumaila project. In August 2006, CNPC E&DJanuary 2010, we entered into an acquisition agreementa development and production contract in respect of the Halfaya Oilfield in Iraq for a term of 20 years, pursuant to acquirewhich we own a 67% equity37.5% of the participating interest in PetroKazakhstan Inc., or PKZ, from CNPC for a consideration of US$2,735 million. This acquisition was consummated in December 2006. This acquisition has streamlined our existing exploration and development operations in Kazakhstan and increased our oil and gas assets.
      In 2006, we acquired a 100% interest in an exploration block in Chad through CNPC E&D. This Chad Block covers an area of 220,000 square kilometers and a trap resource of more than 1,000 million barrels of crude oil and is currently one of our most important overseas exploration blocks. The term “trap resource” means the geological reserve estimated on a non-filled-trap basis. It is equal to the trap area multiplied by the unit reserve factor and then multiplied by the filling percentage of the trap. The term “unit reserve factor” means the geological serve within one unit area and one unit depth.
      In addition, weHalfaya oilfield. We are currently assessing the feasibility of making further investments in international oil and gas markets.

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In the year ended December 31, 2006,2009, we imported approximately 228.8326.5 million barrels of crude oil, as compared to 184.9281.1 million barrels and 175.1272.3 million barrels of crude oil in the years ended December 31, 20052008 and 2004, respectively.
Acquisitions
      Pursuant to our board resolutions dated October 26, 2005, we made an offer to the holders of the A Shares of Jinzhou Petrochemical Co., Ltd. or Jinzhou Petrochemical, to acquire at the purchase price of RMB 4.25 per share 150 million outstanding Jinzhou Petrochemical A Shares. As of December 31, 2006, we acquired 141,497,463 Jinzhou Petrochemical A Shares, representing 17.97% of the total share capital of Jinzhou Petrochemical, for a total cash consideration of approximately RMB 602 million. After the acquisition, we owned 98.92% of the total share capital of Jinzhou Petrochemical. Jinzhou Petrochemical was delisted from the Shenzhen Stock Exchange on January 4, 2006 upon approval from the China Securities Regulatory Commission.
      Pursuant to our board resolutions dated October 26, 2005, we made separate offers to the holders of the A Shares of Jilin Chemical Industrial Company Limited, or Jilin Chemical, and the holders of the H Shares of Jilin Chemical to acquire at the purchase price of RMB 5.25 per share 200 million outstanding A Shares, and at the purchase price of HK$2.80 per Share 964.778 million outstanding H Shares (including Jilin Chemical ADSs). As of December 31, 2006, we paid an aggregate of RMB 3,799 million and acquired 189,357,726 A Shares and 961,495,999 H Shares (including ADSs) of Jilin Chemical, representing 32.32% of the total issued and outstanding shares of Jilin Chemical. Following the completion of this acquisition, we owned 99.61% of the total share capital of Jilin Chemical. Jilin Chemical H Shares, A Shares, and ADSs were delisted from the Hong Kong Stock Exchange, the Shenzhen Stock Exchange, and the New York Stock Exchange on January 23, February 20 and February 15, 2006,2007, respectively.
 Pursuant to
Acquisitions
On May 15, 2009, PetroChina Kunlun Gas Limited (“Kunlun Gas”), a wholly owned subsidiary of our board resolutions dated October 26, 2005, we made an offer to the holders of A Shares of Liaohe Jinma Oilfield Co., Ltd. or Liaohe Jinma, to acquire at the purchase price of RMB 8.80 per share 200 million issued and outstanding Liaohe Jinma A Shares. As of December 31, 2006, we acquired 194,360,943 Liaohe Jinma A Shares, representing 17.67% of the total share capital of Liaohe Jinma for a total consideration of approximately RMB 1,713 million. Following the completion of this acquisition, we owned 99.49% of the total share capital of Liaohe Jinma. Upon the approval by China Securities Regulatory Commission, Liaohe Jinma was delisted from the Shenzhen Stock Exchange on January 4, 2006.
      On December 6, 2005, wecompany, entered into two separate purchase agreementsa transfer agreement with two wholly-owned subsidiarieseach of CNPC, Liaohe Petroleum Exploration BureauChina Huayou Group Corporation and China Petroleum Pipeline Bureau, wholly owned subordinated entities of CNPC, pursuant to which Kunlun Gas agreed to acquire city gas business from the twotransferors. The targets of the acquisitions include the equity interests in eight companies a 15.56% equity interestheld by China Huayou Group Corporation and a 20.17% equity interest, respectively, in PetroChina Fuel Oil Company, or the Fuel Oil Company, a 55.43% subsidiary of our company, with a total cash consideration of RMB 559 million. The Fuel Oil Company principally engages in investing inChina Petroleum Pipeline Bureau and developing of fuel oil in the upstream and downstream areas outside the PRC.relevant assets owned by China Huayou Group Corporation. Upon completion of the above acquisitions, we increased our interestacquisition agreement, Kunlun Gas paid the transferors a consideration of approximately RMB1,093.9 million.
On June 18, 2009, an acquisition agreement was entered into between PetroChina West Pipeline Branch Company and CNPC West Pipeline Company Limited, pursuant to which Western Pipeline Branch Company agreed to acquire the western pipeline assets from the transferor. Upon completion of the acquisition on June 30, 2009, the parties referred to the appraised net assets value of the western pipeline assets as at March 31, 2009, the valuation date, and adjusted the consideration by reference to the change in the Fuel Oil Companynet asset value of the western pipeline assets for the period from the valuation date to 91.16%.the completion date on adollar-for-dollar basis. The final consideration paid by our company to the transferor was approximately RMB8,355.4 million.
Disposal
      We have gradually been transferringOn August 28, 2009, our import and export businesses of crude oil and refined oil to PetroChina International, our wholly-owned subsidiary. Accordingly, wecompany entered into an equity transfer agreement with CNPC on March 17, 2007Exploration and Development Company Ltd. (“CNPC E&D”) and CNPC Central Asia Petroleum Company Limited (“CNPC Central Asia”), pursuant to dispose ofwhich our entire equity interestcompany agreed to acquire the 100% share capital in China National UnitedSouth Oil Corporation, or China United Oil, representing 70%Exploration and Development Co., Ltd. from CNPC E&D and CNPC Central Asia. Upon completion of the registered capital of China United Oil, foracquisition, the company will pay a cash consideration of approximately RMB 1.01 billion. China United Oil, over which we have no unilateral control, engages inRMB2,813.3 million to CNPC E&D and CNPC Central Asia. Such consideration will be adjusted by reference to the import, exportfinal appraised value filed with the State-owned Assets Supervision and sale of crude oil, refined oil and other petrochemical products. The completion ofAdministration Commission. Any net profit or loss incurred during the disposal is subject to certainpre-conditions, including approvalsperiod from our independent shareholders, CNPC and the relevantvaluation


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regulatory authorities. Following
date to the disposal,completion date shall be attributable to the transferors. As at the end of the reporting period, the transaction has not yet been completed.
On August 28, 2009, several asset transfer agreements were entered into between ten of our company’s branch companies and ten subordinated entities of CNPC (including CNPC Daqing Petrochemical Factory), pursuant to which our company agreed to acquire refinery equipment assets from the transferors. Upon completion of the acquisition on November 30, 2009, the parties referred to the appraised net asset value of the refinery equipment assets as at February 28, 2009, the valuation date, and adjusted the consideration by reference to the change in the net asset value of the refinery equipment assets for the period from the valuation date to the completion date on adollar-for-dollar basis. The final consideration paid by our company to the transferors was approximately RMB11,327.2 million.
On August 28, 2009, PetroChina Amu Darya Natural Gas Exploration and Development (Beijing) Company Limited, a wholly owned subsidiary of the company, and China National Petroleum Corporation International (“CNPCI”), a subsidiary of CNPC, entered into the Contractual Rights Transfer Agreement, pursuant to which we have agreed to acquire from CNPCI the contractual rights under the production sharing contract on the Bagtyiarlyk area at Amu Darya Right Bank in Turkmenistan, and the relevant assets and liabilities formed in the course of CNPCI’s fulfillment of the same. Upon completion of the acquisition, the company will ceasepay the consideration in the sum of approximately US$1,186.5 million (approximately RMB8,106.6 million), of which the company will pay approximately US$350.5 million in cash to hold anyCNPCI, and assume bank loans amounting to approximately US$836.0 million owed by CNPCI in the course of performing its obligations under the production sharing contract. The consideration is determined by reference to the valuation results and will be adjusted by reference to the final valuation results filed with the State-owned Assets Supervision and Administration Commission and the change in value of the net asset in connection with this acquisition for the period from the valuation date to the completion date. As at the end of the reporting period, the acquisition has not yet been completed. The Amu Darya Project is an offshore natural gas project cooperation between CNPC and the Government of Turkmenistan on a product sharing basis. The product sharing contract under the Amu Darya Project involves an area of approximately 14,300 square kilometers. The term of the contract is 35 years.
On December 30, 2009, Kunlun Gas, a wholly owned subsidiary of our company, and Daqing Petroleum Administrative Bureau, a wholly owned subordinated entity of CNPC, entered into an asset transfer agreement, pursuant to which Kunlun Gas will acquire the 100% equity interest in China United Oil and mostDaqing Oilfield Zhongqing Gas Holdings Co., Ltd. held by Daqing Petroleum Administrative Bureau. Upon completion of our import, export and related international trade businessesthe acquisition, Kunlun Gas will pay to the Daqing Petroleum Administrative Bureau the consideration in the amount of approximately RMB1,088.1 million, representing the net asset value of the target equity interest as at the date of valuation. This consideration will be conducted through PetroChina International.adjusted by any gain/loss attributable to the target equity interest which arise between the reference date of valuation and the completion date on the basis of such floor price of the target equity interest as submitted for the open tender by the Daqing Petroleum Administrative Bureau. As at the end of the reporting period, the acquisition has not yet been completed.
In addition, we have launched a series of overseas acquisitions, for example:
• In May 2009, PetroChina International (Singapore) Pte. Ltd., an indirectly wholly owned subsidiary of our company, acquired from Keppel Oil and Gas Services Pte Ltd approximately 45.51% share capital in Singapore Petroleum Company Limited (“SPC”) and completed the mandatory general cash offer for all the remaining shares in the capital of SPC in October, 2009;
• In November 2009, Mangistau Investments B.V., a joint venture equally owned by CNPC E&D and JSC National Company “KazMunayGas”, acquired 100% of the common shares of JSC Mangistaumunaigas, which is one of the major oil-producing companies in Kazakhstan. CNPC E&D is 50% owned by our company;
• In February 2010, PetroChina International Investment Company Limited, a subsidiary of our company, and Canada’s Athabasca Oil Sands Corp. (“AOSC”) entered into a share purchase agreement, a joint venture agreement, a shareholder agreement, a loan agreement and a put/call option agreement for the acquisition of the oil sand asset projects of AOSC; and


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Our Corporate Organization
• In March 2010, CS CSG (Australia) Pty Ltd entered into an acquisition agreement with Arrow Energy Limited (“Arrow”) for the acquisition of all the shares in Arrow. Arrow is an Australian integrated energy company focusing on the development of coal seam gas throughout eastern Australia and Shareholding StructureAsia. CS CSG (Australia) Pty Ltd is a joint venture equally owned by PetroChina International (Singapore) Pte. Ltd. and Shell Energy Holdings Australia Ltd.
 PetroChina was
Our Corporate Organization and Shareholding Structure
We were established as a joint stock company with limited liability under the Company Law of the PRC on November 5, 1999 as part of a restructuring in which CNPC transferred to us most of the assets and liabilities of CNPC relating to its exploration and production, refining and marketing, chemicals and natural gas businesses. CNPC retained the assets and liabilities relating to its remaining businesses and operations, including assets and liabilities relating to international exploration and production and refining and pipeline operations. CNPC is our primary provider of a wide range of services and products. On April 7, 2000, PetroChinawe completed a global offering of H sharesShares and ADSs. In September 2005, PetroChinawe completed a follow-on offering of over 3 billion H Shares at the price of HK$6.00 per share. Currently,In October 2007, we issued 4 billion A Shares at an issue price of RMB 16.7 per share. The A Shares were listed on the Shanghai Stock Exchange on November 5, 2007. As of December 31, 2009, CNPC ownsbeneficially owned 157,919,717,259 shares, which include 155,120,000 H Shares indirectly held by CNPC through Fairy King Investments Limited, an approximate 88.21% interest inoverseas wholly owned subsidiary of CNPC, representing approximately 86.285% of the share capital of PetroChina.
 
The following chart illustrates our corporate organization and our shareholding structure:structure as of December 31, 2009:
(CHART)
 
(FLOW CHART)
(1)Indicates approximate shareholding.
 
(2)IncludesIndicates approximate shareholding, including the 155,120,000 H Shares indirectly held by CNPC through Fairy King Investments Limited, an overseas wholly owned subsidiary companies and those branches without legal person status.of CNPC, as of December 31, 2009.
 
(3)Represents enterprises directly administered and operated by such segment.
(4)Includes PetroChina Planning & Engineering Institute, PetroChina Exploration & Development Research Institute, CNPC E&D,IT Service Center, PetroChina Foreign Cooperation Administration Department, PetroChina International Co., Ltd. and Petrochemical Research Institute.Institute and several other companies.


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21

The following chart illustrates our management structure:
(CHART)
(FLOW CHART)
 


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(1)Includes subsidiary companies and those branches without legal person status.
(2)Represents enterprises directly administered and operated by such segment.

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For a description of our principal subsidiaries, see Note 19 to our consolidated financial statements.
General Information
 
Our legal name is “(CHINESE CHARACTERS)”, and its English translation is PetroChina Company Limited. Our headquarters are located at 16 Andelu,9 Dongzhimen North Street, Dongcheng District, Beijing, China, 100011,100007, and our telephone number at this address is(86-10) 8488-6270.5998-6223. Our website address is www.petrochina.com.cn. The information on our website is not part of this annual report.
Launch
Our agent for service of New Logo
      Effective December 26, 2004, we began using a new logo “(PETROCHINA COMPANY LOGO)” that is jointly owned by us and CNPC. We have applied for trademark registration of the new logo with the State Trademark Bureau of the PRC. This application is currently pending with the State Trademark Bureau of the PRC. To date, we have registered our new logo as a trademark in Hong Kong and Burma. We are alsoprocess in the process of registering the new logo in a number of other countries.United States is CT Corporation System, located at 111 Eighth Avenue, New York, New York 10011.


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(GAS AND OIL MAP)
(MAP)


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Exploration and Production
 
We are engagedengage in crude oil and natural gas exploration, development and production. Substantially all of our total estimated proved crude oil and natural gas reserves are located in China, principally in northeastern, northern, southwestern and northwestern China. The Songliao basin, located in Heilongjiang and Jilin provinces in northeastern China, including the Daqing and Jilin oil regions, accounted for 42.8%37.6% of our proved crude oil reserves as of December 31, 20062009 and 43.9%39.9% of our crude oil production in 2006.2009. We also have significant crude oil reserves and operations in the area around the Bohai Bay. The Bohai Bay basin includes the Liaohe, Dagang, Huabei and Jidong oil regions and accounted for 19.2%19.5% of our proved crude oil reserves as of December 31, 20062009 and 20.8%17.8% of our crude oil production in 2006.2009. In 2009, we discovered Tanan, Nanbeier, Yongpinghe and Honggouzi oil fields. Our proved natural gas reserves and production are generally concentrated in northwestern and southwestern China, specifically in the Erdos, Tarim and Sichuan basins. OurAs of December 31, 2009, our overseas proved crude oil reserves accounted for 6.6% of our total proved crude oil reserves and our overseas proved natural gas reserves accounted for 5.5%1.4% of our proved crude oil reserves and 1.5% of ourtotal proved natural gas reserves asreserves. In 2009, our overseas crude oil production accounted for 10.4% of December 31, 2006our total crude oil production and our overseas oil production and natural gas production accounted for 6.0%4.5% of our crude oil production and 3.0% of ourtotal natural gas production in 2006.production.
 
We currently hold exploration and exploitation licenses for oil and gas (including coal seam gas) covering a total area of approximately 458.7 million acres, consisting of the exploration licenses covering a total area of approximately 446.4436.7 million acres and productionthe exploitation licenses covering a total area of approximately 16.422.0 million acres. In 2006,2009, our exploration and production segment had incomeprofit from operations of RMB 219,860105,019 million.
 
To further develop our crude oil and natural gas businesses, we have applied to the Ministry of Land and Resources forobtained oil and gas exploration and production licenses covering the southern partan area of the41.82 million acres in South China Sea to commence offshoreSea. The crude oil and natural gas exploration and production. We cannot assure youin that we will ultimately obtain these licenses or that we will have sufficient capital to fund these activities.area is currently under way.
Reserves
 
Our estimated proved reserves as of December 31, 20062009 totaled approximately 11,618.011,262.6 million barrels of crude oil and approximately 53,469.263,243.8 billion cubic feet of natural gas. As of December 31, 2006,2009, proved developed reserves accounted for 79.1%69.9% and 42.2%48.9% of our total proved crude oil and natural gas reserves, respectively. Total proved hydrocarbon reserves on abarrels-ofbarrels-of-oil-oil equivalent basis increased by 5.0%1.8% from approximately 19,556.721,419.5 millionbarrels-ofbarrels-of-oil-oil equivalent as of the end of 2005December 31, 2008 to approximately 20,529.421,803.2 millionbarrels-ofbarrels-of-oil-oil equivalent as of the end of 2006,December 31, 2009, taking account of our overseas crude oil reserves of 642.5747.0 million barrels and overseas natural gas reserves of 795.6866.9 billion cubic feet, totaling 775.1 891.5 millionbarrels-ofbarrels-of-oil-oil equivalent. Natural gas as a percentage of total proved hydrocarbon reserves increased from 41.0%47.6% as of December 31, 20052008 to 43.4%48.3% as of December 31, 2006.2009.

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 The following table sets forth our estimated proved reserves (including proved developed reserves and proved undeveloped reserves) and proved developed reserves of crude oil and natural gas as of December 31, 2004, 2005 and 2006.
We prepared our reserve estimates as of December 31, 2004, 20052007, 2008 and 2006,2009 on the basis of reports prepared by two independent engineering consultants, DeGolyer & MacNaughton and Gaffney, Cline & Associates independent engineering consultants, in accordance with Statement of Financial Accounting Standards No. 69, or SFAS No. 69.(Consultants) Pte Ltd. Our reserve estimates include only crude oil and natural gas which we believe can be reasonably produced within the current terms of our production licenses. See “Regulatory Matters — Exploration Licenses and Production Licenses” for a discussion of our production licenses. Also see “Item 3 — Key Information — Risk Factors” for a discussion of the uncertainty inherent in the estimation of proved reserves.
              
  Crude oil Natural gas(1) Combined(1)
       
  (millions of barrels) (Bcf) (BOE, in millions)
Proved developed and undeveloped reserves
            
Reserves as of December 31, 2004  11,501.2   45,248.9   19,042.7 
 Revisions of previous estimates  156.8   212.9   192.3 
 Extensions and discoveries  605.5   4,004.8   1,273.0 
 Improved recovery  101.4   —   101.4 
 Production for the year  (828.7)  (1,343.5)  (1,052.7)
Reserves as of December 31, 2005  11,536.2   48,123.1   19,556.7 
 Revisions of previous estimates  196.1��  685.9   310.4 
 Extensions and discoveries  635.3   6,247.7   1,676.5 
 Improved recovery  81.1   —   81.1 
 Production for the year  (830.7)  (1,587.5)  (1,095.3)
Reserves as of December 31, 2006  11,618.0   53,469.2   20,529.4 
Proved developed reserves
            
 As of December 31, 2004  9,067.9   17,254.5   11,943.6 
 As of December 31, 2005  9,194.8   19,857.8   12,504.4 
 As of December 31, 2006  9,185.2   22,563.9   12,945.8 
 
Our reserve data for 2009 was prepared in accordance with the SEC’s final rules on “Modernization of Oil and Gas Reporting”, which became effective on January 1, 2010 and for annual reports for accounting periods ending on or after December 31, 2009. The comparative information for 2007 and 2008 is not restated.
New SEC Reserve Disclosures
In December 2008, the SEC announced that it had approved revisions designed to modernize the oil and gas company reserve reporting requirements. The most significant amendments to the requirements included the following:
• Economic producibility of reserves and discounted cash flows are now based on a12-month unweighted average commodity price unless contractual arrangements designate the price to be used.

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• Probable and possible reserves may be disclosed separately on a voluntary basis.
• Reserves may be classified as proved undeveloped if there is a high degree of confidence that the quantities will be recovered and they are scheduled to be drilled within the next five years, unless the specific circumstances justify a longer time.
• Reserves may be estimated through the use of reliable technology in addition to flow tests and production history.
• Additional disclosure is required regarding the qualifications of the chief technical person who oversees the reserves estimation process. We are also required to provide a general discussion of our internal controls used to assure the objectivity of the reserves estimate.
• Reserves in foreign countries or continents must be presented separately if they represent more than 15% of our total oil and gas proved reserves.
• The definition of oil and gas producing activities has expanded and focuses on the marketable product rather than the method of extraction.
All reserve estimates involve some degree of uncertainty. The uncertainty depends chiefly on the amount of reliable geological and engineering data available at the time of the estimate and the interpretation of these data.
Internal Controls Over Reserves Estimates
We have appointed a Reserve Assessment Directing Team (the “RAD Team”). The leader of the RAD Team is our Vice President in charge of our upstream business. The responsibilities of the RAD Team include:
• formulation of reserve development strategies;
• arrangement of annual reserves; and
• review of the reserve assessment results.
We have established a special reserve management department in our exploration and production segment. Each of the officers and employees of that department has over 20 years’ experience in oil industry and over 10 years’ experience in SEC-guided reserve assessment. Many members of that department have national-level registered qualifications in reserve expertise. Each regional company has established a reserve management committee and a multi-disciplinary reserve study office. The reserve study office is responsible for the calculation of the newly discovered reserves and updating of the assessment of the existing reserves. The results of our oil and gas reserve assessment are subject to a two-level review by both the regional companies and our exploration and production company and the final examination and approval of the RAD Team.
In addition, we commissioned independent assessment firms to independently reassess our annually assessed proved reserves in accordance with relevant SEC rules. We disclose the proved reserves so assessed by the independent assessment firms pursuant to relevant SEC requirements.
Third-Party Reserve Report
We commissioned DeGolyer and MacNaughton, an independent petroleum engineering consulting firm based in the United States, to carry out an independent assessment of our reserves in China and certain other countries as of December 31, 2007, 2008 and 2009. DeGolyer and MacNaughton has been providing petroleum consulting services throughout the world for over 70 years. DeGolyer and MacNaughton does not have any financial interest, including stock ownership, in our company. The fees of DeGolyer and MacNaughton are not contingent on the results of its evaluation.
Mr. R.M. Shuck, a Senior Vice President with DeGolyer and MacNaughton is primarily responsible for the preparation of our reserve report. Mr. R.M. Shuck is a petroleum engineer and a Registered Professional Engineer in the State of Texas. Mr. R.M. Shuck is also a member of the Society of Petroleum Engineers and has 32 years of experience in oil and gas reservoir studies and evaluations.


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We also commissioned Gaffney, Cline & Associates (Consultants) Pte Ltd, as independent reserve auditors, to carry out an independent assessment of our reserves estimation and valuation in Algeria, Chad, Kazakhstan and Venezuela as of December 31, 2007, 2008 and 2009. Gaffney, Cline & Associates (Consultants) Pte Ltd’s senior partners, officers, and employees have no direct or indirect financial interest in either our company or our affiliated companies. Gaffney, Cline & Associates (Consultants) Pte Ltd’s remuneration was not in any way contingent upon reported reserve estimates.
The reserve report of Gaffney, Cline & Associates (Consultants) Pte Ltd has been compiled under the supervision of Mr. David S. Ahye Mr. Ahye is Gaffney, Cline & Associates (Consultants) Pte Ltd’s regional director for the Asia Pacific region, based in Singapore. He has over 30 years’ experience in the petroleum industry and has managed numerous reserves certification audits. Mr. Ahye holds a Bachelor’s Degree (Honors) in Chemical Engineering.
For detailed information about our net proved reserves estimates, please refer to the summary of the reports of DeGolyer & MacNaughton and Gaffney, Cline & Associates (Consultants) Pte Ltd as filed hereto as exhibit 15.1 and exhibit 15.2 of this annual report.
The following table sets forth our estimated proved reserves (including proved developed reserves and proved undeveloped reserves), proved developed reserves and proved undeveloped reserves of crude oil and natural gas as of December 31, 2007, 2008 and 2009.
             
  Crude Oil Natural Gas(1) Combined(1)
  (Millions of barrels) (Bcf) (BOE, in millions)
 
Proved developed and undeveloped reserves
            
Reserves as of December 31, 2007  11,705.6   57,110.6   21,223.9 
Revisions of previous estimates  (574.0)  (636.3)  (680.0)
Extensions and discoveries  885.4   6,579.0   1,982.0 
Improved recovery  75.0   0   75.0 
Production for the year  (870.7)  (1,864.1)  (1,181.4)
Reserves as of December 31, 2008  11,221.3   61,189.2   21,419.5 
Revisions of previous estimates  (192.6)  (1,272.8)  (404.6)
Extensions and discoveries  1,004.5   5,439.6   1,911.1 
Improved recovery  72.9   0   72.9 
Production for the year  (843.5)  (2,112.2)  (1,195.7)
Reserves as of December 31, 2009  11,262.6   63,243.8   21,803.2 
Proved developed reserves
            
As of December 31, 2007  9,047.1   26,047.1   13,388.3 
As of December 31, 2008  8,324.1   26,666.8   12,768.6 
As of December 31, 2009  7,870.8   30,948.8   13,038.9 
Proved undeveloped reserves
            
As of December 31, 2007  2,658.5   31,063.5   7,835.6 
As of December 31, 2008  2,897.2   34,522.4   8,650.9 
As of December 31, 2009  3,391.8   32,295.0   8,774.3 
(1)Represents natural gas remaining after field separation for condensate removal and reduction for flared gas.


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The following tables set forth our crude oil and natural gas proved reserves and proved developed reserves by region as of December 31, 2004, 20052007, 2008 and 2006.2009.
                          
  As of December 31,
   
  2004 2005 2006
       
  Proved   Proved   Proved  
  developed   developed   developed  
  and Proved and Proved and Proved
  undeveloped developed undeveloped developed undeveloped developed
             
  (millions of barrels)
Crude oil reserves
                        
Daqing  4,615.0   4,122.3   4,396.9   3,863.9   4,200.3   3,516.0 
Liaohe  1,123.1   915.1   1,114.6   937.5   1,067.5   845.8 
Xinjiang  1,232.1   921.9   1,261.8   1,010.8   1,306.6   1,077.0 
Changqing  1,191.6   769.6   1,267.0   840.6   1,450.6   1,182.9 
Jilin  643.8   404.4   675.0   472.2   775.5   501.8 
Dagang  482.3   402.0   516.1   426.7   482.1   400.0 
Tarim  507.6   374.8   543.8   418.1   523.9   370.4 
Huabei  510.3   353.9   536.2   381.5   500.9   388.4 
Qinghai  226.1   181.2   243.0   185.5   227.9   187.2 
Tuha  218.3   168.4   165.0   110.8   156.5   104.9 
Sichuan  8.6   5.3   8.0   5.5   11.7   5.4 
Other regions(1)
  742.4   449.0   808.8   541.7   914.5   605.4 
                   
 Total  11,501.2   9,067.9   11,536.2   9,194.8   11,618.0   9,185.2 
                   
                          
  As of December 31,
   
  2004 2005 2006
       
  Proved   Proved   Proved  
  developed   developed   developed  
  and Proved and Proved and Proved
  undeveloped developed undeveloped developed undeveloped developed
             
  (Bcf)
Natural gas reserves(2)
                        
Sichuan  8,729.8   4,767.9   9,211.2   5,063.5   10,362.8   4,867.3 
Changqing  14,932.7   4,091.3   15,765.6   4,089.8   17,846.1   4,559.7 
Xinjiang  1,712.3   1,036.8   1,686.8   1,120.4   1,723.0   1,047.0 
Daqing  1,060.6   879.4   1,936.8   813.3   1,894.6   740.2 
Qinghai  4,603.6   1,583.4   4,534.1   1,528.0   4,467.0   1,584.0 
Tarim  10,897.8   2,934.8   11,838.8   5,347.9   14,443.6   7,818.4 
Liaohe  522.7   455.4   489.8   417.6   429.3   338.8 
Tuha  705.3   427.8   677.4   367.8   640.5   401.8 
Huabei  375.9   217.5   369.3   211.8   340.3   264.6 
Dagang  599.5   186.8   586.9   207.8   275.0   189.7 
Jilin  203.9   150.4   187.8   132.7   198.6   113.7 
Other regions(1)
  904.8   523   838.6   557.2   848.4   638.7 
                         
 Total  45,248.9   17,254.5   48,123.1   19,857.8   53,469.2   22,563.9 
                         
 
                         
  As of December 31, 
  2007  2008  2009 
  Proved
     Proved
     Proved
    
  Developed
     Developed
     Developed
    
  and
  Proved
  and
  Proved
  and
  Proved
 
  Undeveloped  Developed  Undeveloped  Developed  Undeveloped  Developed 
  (Millions of barrels) 
 
Crude oil reserves
                        
Daqing  3,856.1   3,324.3   3,548.0   2,912.0   3,463.4   2,740.8 
Liaohe  1,121.0   888.1   895.9   675.2   795.7   581.8 
Xinjiang  1,354.9   1,198.9   1,302.6   1,106.6   1,395.1   1,117.6 
Changqing  1,488.9   1,194.8   1,624.5   1,256.7   1,783.8   1,298.8 
Jilin  784.2   463.4   819.8   441.0   771.6   393.4 
Dagang  523.2   346.7   520.8   352.7   602.9   364.9 
Tarim  590.3   379.7   594.0   371.3   584.8   277.0 
Huabei  448.0   307.0   431.5   281.8   487.9   298.5 
Qinghai  200.1   186.3   177.8   157.5   176.6   146.5 
Tuha  164.7   91.7   162.3   97.8   134.6   87.9 
Sichuan  9.5   4.4   13.1   3.6   19.9   3.5 
Jidong  413.1   126.0   379.2   133.5   314.0   95.0 
Other regions(1)
  751.5   535.8   751.8   534.4   732.3   465.1 
                         
Total  11,705.6   9,047.1   11,221.3   8,324.1   11,262.6   7,870.8 
                         
                         
  As of December 31, 
  2007  2008  2009 
  Proved
     Proved
     Proved
    
  Developed
     Developed
     Developed
    
  and
  Proved
  and
  Proved
  and
  Proved
 
  Undeveloped  Developed  Undeveloped  Developed  Undeveloped  Developed 
  (Bcf) 
 
Natural gas reserves(2)
                        
Sichuan  10,400.5   4,365.5   11,285.4   4,030.4   11,177.3   4,219.0 
Changqing  19,105.0   6,943.9   19,261.7   6,901.6   20,363.2   9,884.4 
Xinjiang  1,537.1   999.3   4,061.8   2,028.7   3,497.9   2,156.6 
Daqing  3,039.7   1,046.2   2,961.1   960.6   3,028.1   1,261.4 
Qinghai  4,352.8   3,003.5   4,302.1   2,948.4   4,903.2   3,554.9 
Tarim  15,114.3   7,918.8   15,516.4   7,722.7   16,892.1   7,758.3 
Liaohe  386.4   296.2   283.2   193.6   133.9   100.5 
Tuha  581.6   350.4   609.4   382.3   589.8   397.0 
Huabei  193.1   119.2   207.8   133.7   140.0   119.6 
Dagang  347.4   197.1   289.7   148.9   261.7   93.1 
Jilin  1,169.9   104.1   1,180.5   113.4   1,177.0   450.6 
Jidong  191.4   40.4   203.3   96.7   137.5   31.8 
Other regions(1)
  691.4   662.5   1,026.8   1,005.8   942.1   921.6 
                         
Total  57,110.6   26,047.1   61,189.2   26,666.8   63,243.8   30,948.8 
                         
(1)Represents the JidongYumen and Yumenother oil regions and our overseas oil and gas fields as a result of our acquisition of overseas assets.
 
(2)Represents natural gas remaining after field separation for condensate removal and reduction for flared gas.


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Exploration and Development
 
We are currently conducting exploration and development efforts in 1112 provinces, two municipalities under the direct administration of the central government and three autonomous regions in China. We believe that we have more extensive experience in the exploration and development of crude oil and natural gas than any of our principal competitors in China. Since the early 1950s, we have been working on developing exploration and recovery technologies and methods tailored to the specific geological conditions in China.
 
The following table sets forth the number of wells we drilled, or in which we participated, and the results thereof, for the periods indicated.
                                       
Year   Daqing Xinjiang Liaohe Changqing Huabei Dagang Sichuan Others(1) Total
                     
2004 Net exploratory wells drilled(2)  221   153   68   427   96   53   32   355   1,405 
  Crude oil  85   85   40   201   49   32   4   172   668 
  Natural gas  3   0   0   22   0   0   17   9   51 
  Dry(3)  133   68   28   204   47   21   11   174   686 
  Net development wells drilled(2)  2,857   1,440   622   1,675   224   188   76   1,463   8,545 
  Crude oil  2,853   1,440   605   1,597   223   184   6   1,387   8,295 
  Natural gas  4   0   13   46   1   3   56   73   196 
  Dry(3)  0   0   4   32   0   1   14   3   54 
2005 Net exploratory wells drilled(2)  250   191   71   456   83   39   58   360   1,508 
  Crude oil  78   92   47   200   53   22   0   152   644 
  Natural gas  6   1   0   24   0   0   30   15   76 
  Dry(3)  166   98   24   232   30   17   28   193   788 
  Net development wells drilled(2)  3,722   1,608   563   2,608   250   192   101   2,587   11,631 
  Crude oil  3,712   1,604   549   2,364   248   188   6   2,495   11,166 
  Natural gas  10   4   12   195   2   4   83   88   398 
  Dry(3)  0   0   2   49   0   0   12   4   67 
2006 Net exploratory wells drilled(2)  250   180   64   466   83   50   62   390   1,545 
  Crude oil  73   88   35   203   49   21       114   583 
  Natural gas  7   21   1   37       7   31   6   110 
  Dry(3)  170   71   28   226   34   22   31   270   852 
  Net development wells drilled(2)  4,183   1,605   713   2,023   330   179   57   2,361   11,451 
  Crude oil  4,160   1,586   688   1,772   225   173   9   2,235   10,848 
  Natural gas  23   8   14   216   105   6   40   123   535 
  Dry(3)  0   11   11   35   0   0   8   3   68 
 
                                       
Year
   Daqing Xinjiang Liaohe Changqing Huabei Dagang Sichuan Others(1) Total
 
2007 Net exploratory wells drilled(2)  294   183   68   447   104   70   48   415   1,629 
  Crude oil  103   103   49   186   47   59   3   141   691 
  Natural gas  12   15   —   41   —   —   30   16   114 
  Dry(3)  179   65   19   220   57   11   15   258   824 
  Net development wells drilled(2)  4,670   1,350   529   3,087   528   260   83   2,377   12,884 
  Crude oil  4,643   1,346   515   2,652   259   252   8   2,208   11,883 
  Natural gas  17   4   11   384   269   8   75   163   931 
  Dry(3)  10   —   3   51   —   —   —   6   70 
2008 Net exploratory wells drilled(2)  234   162   63   583   94   91   67   354   1,648 
  Crude oil  71   72   38   207   42   69   2   136   637 
  Natural gas  1   15   0   26   0   0   38   12   92 
  Dry(3)  162   75   25   350   52   22   27   206   919 
  Net development wells drilled(2)  4,238   1,887   356   5,079   415   238   100   2,887   15,200 
  Crude oil  4,223   1,868   349   4,469   225   226   2   2,685   14,047 
  Natural gas  4   18   6   528   186   8   77   179   1,006 
  Dry(3)  11   1   1   82   4   4   21   23   147 
2009 Net exploratory wells drilled(2)  306   149   77   688   77   67   61   369   1,794 
  Crude oil  297   140   77   540   77   67   2   258   1,458 
  Natural gas  9   9   0   148   0   0   59   111   336 
  Dry(3)  227   69   58   331   27   22   29   278   1,041 
  Net development wells drilled(2)  4,924   681   93   7,288   299   155   147   1,516   15,103 
  Crude oil  4,923   674   84   6,808   224   148   8   1,162   14,031 
  Natural gas  1   7   9   480   75   7   139   354   1,072 
  Dry(3)  10   0   0   133   0   0   23   5   171 
(1)Represents the Jilin, Tarim, Tuha, Qinghai, Jidong, Yumen and Yumenother oil regions.
 
(2)“Net” wells refer to the wells after deducting interests of others. No third parties own any interests in any of our wells.
 
(3)“Dry” wells are wells with insufficient reserves to sustain commercial production.


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Oil-and-Gas Properties
 
Oil-and-Gas Properties
The following table sets forth our interests in developed and undeveloped acreage by oil region and in productive crude oil and natural gas wells as of December 31, 2006.2009.
                          
  Acreage(1)(thousands of acres)
   
  Productive wells(1) Developed Undeveloped
       
Oil region Crude oil Natural gas Crude oil Natural gas Crude oil Natural gas
             
Daqing  66,271   192   745.4   76.2   656.1   110.4 
Liaohe  19,924   640   191.0   35.8   94.6   4.7 
Xinjiang  21,422   81   328.1   44.5   98.2   25.6 
Jilin  21,453   53   307.9   20.9   315.9   19.5 
Changqing  18,563   1,007   452.6   1,536.6   304.3   1,801.5 
Huabei  7,032   91   140.0   12.6   60.8   3.5 
Dagang  4,735   62   106.2   24.9   61.1   19.8 
Tuha  2,068   87   41.8   21.4   28.3   10.7 
Tarim  817   160   141.5   131.7   50.6   195.3 
Sichuan  414   1,423   358.5   414.6   17.6   264.5 
Other regions(2)
  4,871   291   79.4   43.0   36.6   28.5 
                         
 Total  167,570   4,087   2,892.5   2,362.3   1,724.1   2,484.2 
                         
 
                         
        Acreage(1) 
  Productive Wells(1)  Developed  Undeveloped 
Oil Region
 Crude Oil  Natural Gas  Crude Oil  Natural Gas  Crude Oil  Natural Gas 
           (Thousands of acres)    
 
Daqing  46,044   252   839.2   85.3   811.0   112.6 
Liaohe  17,454   658   194.8   35.9   92.9   6.4 
Xinjiang  19,792   134   304.1   52.0   167.6   27.2 
Jilin  16,159   197   304.7   34.1   322.0   19.6 
Changqing  23,397   3,853   548.5   2,202.8   537.4   2,725.5 
Huabei  5,710   110   148.9   12.3   65.4   2.9 
Dagang  3,503   72   107.4   24.5   87.8   21.4 
Tuha  1,727   114   51.5   24.8   24.4   10.7 
Tarim  1,025   249   107.0   75.7   62.7   275.3 
Sichuan  423   1,826   335.5   401.3   —   520.9 
Other regions(2)
  5,526   517   74.5   32.5   58.9   25.2 
Total  140,760   7,982   3,016.1   2,981.1   2,230.1   3,747.8 
                         
(1)Includes all wells and acreage in which we have an interest. No third parties own any interests in any of our wells or acreage.
 
(2)Represents the Qinghai, Jidong and Yumen and other oil regions.
 
Approximately 69.1%66.0% of our proved crude oil reserves are concentrated in the Daqing, Liaohe and Xinjiang oil regions and the Changqing oil and gas region, and approximately 88.1%84.3% of our proved natural gas reserves are concentrated in the Changqing oil and gas region, the Tarim oil and gas region, the Sichuan gas region and the Qinghai oil region. We believe that the Erdos, Junggar, and Songliao basins and Bohai Bay have the highest potential for increasing our crude oil reserve base through future exploration and development, and that the Erdos, Tarim, Sichuan, and Qaidam basins have the highest potential for increasing our natural gas reserve base through future exploration and development.

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Production
 
The following table sets forth our historical average net daily crude oil and natural gas production by region and our average sales price for the periods ended December 31, 2004, 20052007, 2008 and 2006.2009.
                  
  For the year ended  
  December 31,  
    % of
  2004 2005 2006 2006 Total
         
Crude oil production(1)                
(thousands of barrels per day, except percentages or otherwise indicated)                
Daqing  942.0   915.1   883.1   38.80 
Liaohe  245.4   238.2   230.4   10.13 
Xinjiang  227.1   238.8   244.2   10.73 
Changqing  164.6   191.4   215.6   9.47 
Tarim  109.9   122.8   123.9   5.44 
Huabei  87.6   88.4   89.4   3.93 
Jilin  102.6   112.1   115.6   5.08 
Dagang  97.9   102.6   93.6   4.11 
Tuha  48.4   45.2   44.4   1.95 
Other(2)
  199.1   200.0   235.7   10.36 
             
 Total  2,224.6   2,254.5   2,275.9   100.0 
             
Annual production (million barrels)  814.2   822.9   830.7     
Average sales price                
 (RMB per barrel)  279.1   396.2   476.8     
 (US$ per barrel)  33.72   48.37   59.81     
Natural gas production(1)(3)
                
(millions of cubic feet per day, except percentages or otherwise indicated)                
Sichuan  905.7   1,107.9   1,233.9   32.8 
Changqing  651.4   640.7   650.4   17.3 
Daqing  135.4   133.8   138.0   3.7 
Qinghai  145.5   172.8   200.7   5.3 
Tuha  92.2   121.1   133.4   3.5 
Xinjiang  95.7   109.8   114.2   3.0 
Liaohe  58.7   56.0   52.8   1.4 
Huabei  44.2   43.5   41.3   1.1 
Tarim  89.2   479.5   1,015.7   27.0 
Dagang  26.5   26.2   28.7   0.8 
Other(4)
  149.8   175.9   149.6   4.1 
             
 Total  2,394.3   3,067.2   3,758.7   100.0%
             
Annual production (Bcf)  876.3   1,119.5   1,371.9     
Average sales price                
 (RMB per Mcf)  21.11   23.35   27.6     
 (US$ per Mcf)  2.55   2.85   3.46     
 
                 
  For the Year Ended
  
  December 31, % of
  2007 2008 2009 2009 Total
 
Crude oil production(1)
                
(thousands of barrels per day, except percentages or otherwise indicated)                
Daqing  847.3   813.2   806.2   34.9 
Liaohe  231.3   224.6   202.4   8.8 
Xinjiang  249.4   246.9   220.5   9.5 
Changqing  246.9   279.8   318.1   13.8 
Tarim  131.6   132.7   112.2   4.9 
Huabei  90.8   89.7   86.3   3.7 
Jilin  120.0   121.2   115.5   5.0 


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  For the Year Ended
  
  December 31, % of
  2007 2008 2009 2009 Total
 
Dagang  91.2   92.2   87.8   3.8 
Tuha  44.8   46.7   32.8   1.4 
Other(2)
  264.5   332.0   329.2   14.2 
                 
Total  2,317.8   2,379.0   2,311.0   100 
                 
Annual production (million barrels)  846.0   870.7   843.5     
Average sales price                
(RMB per barrel)  496.3   608.1   368.2     
(US$ per barrel)  65.27   87.55   53.9     
Natural gas production(1)(3)
                
(millions of cubic feet per day, except percentages or otherwise indicated)                
Sichuan  1,329.8   1,364.6   1,381.4   23.9 
Changqing  838.4   1,024.5   1,434.1   24.8 
Daqing  123.7   136.0   156.5   2.7 
Qinghai  286.0   378.1   378.1   6.5 
Tuha  111.5   107.0   94.0   1.6 
Xinjiang  102.3   129.9   173.4   3.0 
Liaohe  43.9   40.8   38.7   0.7 
Huabei  39.1   38.9   45.1   0.8 
Tarim  1,383.1   1,564.1   1,650.3   28.5 
Dagang  43.0   44.2   43.1   0.7 
Other(4)
  158.7   265.2   392.0   6.8 
                 
Total  4,459.5   5,093.3   5,786.7   100 
                 
Annual production (Bcf)  1,627.7   1,864.2   2,112.2     
Average sales price                
(RMB per Mcf)  29.2   32.8   32.7     
(US$ per Mcf)  3.84   4.72   4.78     
(1)Production volumes for each region include our share of the production from all of our cooperative projects with foreign companies in that region.

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(2)Represents production from the Qinghai, Jidong, Yumen and Yumenother oil regions the Sichuan gas region and our share of overseas production as a result of our acquisition of overseas assets.
 
(3)Represents production of natural gas for sale.
 
(4)Represents production from the Jilin, Jidong, Yumen and Yumenother oil regions and our share of overseas production as a result of our acquisition of overseas assets.
 
In 2006,2009, we supplied approximately 83.2%81.1% of our total crude oil sales to our refineries, 7.9%5.5% to Sinopec’s refineries, 6.4%9.4% to companies or entities outside China, and the remaining 2.5%4.0% to regional refineries or other entities. We entered into a crude oil mutual supply framework agreement with Sinopec on January 29, 2007December 30, 2009 for the supply of crude oil to each other’s refineries in 2007.2010. Under this agreement, we agreed in principle to supply 52.465.41 million barrelstons of crude oil to Sinopec, and Sinopec agreed in principle to supply to us approximately 8.27 million barrels of crude oil in 2007 at negotiated prices based on the Singapore market FOB prices for crude oil. See “Item 5 — Operating and Financial Review and Prospects — General — Factors Affecting Results of Operations — Crude Oil Prices” for a detailed discussion of the crude oil premium and discount calculation agreement and its supplemental agreement.Sinopec. For the years ended December 31, 2004, 20052007, 2008 and 2006,2009, the average lifting costs of our crude oil and natural gas production were US$4.607.75 perbarrel-ofbarrel-of-oil-oil equivalent, US$5.289.48 perbarrel-ofbarrel-of-oil-oil equivalent and US$6.749.12 perbarrel-ofbarrel-of-oil-oil equivalent, respectively.

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Principal Oil and Gas Regions
Daqing Oil Region
Daqing Oil Region
 
The Daqing oil region, our largest oil and gas producing property, is located in the Songliao basin and covers an area of approximately one million acres. The successful discovery and development of the oil fields in the Daqing oil region marked a critical breakthrough in the history of both our company and the PRC oil and gas industry. In terms of proved hydrocarbon reserves and annual production, the Daqing oil region is the largest oil region in China and one of the most prolific oil and gas properties in the world. We commenced exploration activities in the Daqing oil region in 1955 and discovered oil in the region in 1959. Annual crude oil production volume in the Daqing oil region reached one million barrels per day in 1976 and remained relatively stable until 2002. In 2004, 20052007, 2008 and 2006,2009, our crude oil production volume in the Daqing oil region was 942.0847.3 thousand barrels per day, 915.1813.2 thousand barrels per day, and 883.1806.2 thousand barrels per day, respectively. As of December 31, 2006,2009, we produced crude oil from 20 fields in the Daqing oil region.
 
As of December 31, 2006,2009, our proved crude oil reserves in the Daqing oil region were 4,200.33,463.4 million barrels, representing 36.2%30.8% of our total proved crude oil reserves. The proved crude oil reserves in our Daqing oil region have gradually decreased since 1996 because the crude oil production exceeded the crude oil reserve additions in our Daqing oil region in each year since 1996. As of December 31, 2004, 20052007, 2008 and 2006,2009, the proved crude oil reserves in our Daqing oil region were 4,615.03,856.1 million barrels, 4,396.93,548.0 million barrels, and 4,200.33,463.4 million barrels, respectively. As a result, we decreased the crude oil production in our Daqing oil region over past years, and plan to continue to decrease the crude oil production in our Daqing oil region each year in the next few years. In 2006,2009, our oil fields in the Daqing oil region produced an average of 883.1806.2 thousand barrels of crude oil per day, representing approximately 38.8%34.9% of our total daily crude oil production. The crude oil production in our Daqing oil region decreased by 3.5%0.86% from 334.0297.6 million barrels in 20052008 to 322.3294.3 million barrels in 2006.2009. In 2006,2009, the crude oilreserve-toreserve-to-production-production ratio of the Daqing oil region was 13.011.6 years, compared to 13.211.92 years in 2005.2008.
 
The crude oil we produce in the Daqing oil region has an average API gravity of 35.7 degrees. In 2006,2009, the crude oil we produced in the Daqing oil region had an average water cut of 90.44%91.5%, increased from the average water cut of 89.78%91.2% in 2005.2008.

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The crude oil in the Daqing oil region is primarily located in large reservoirs with relatively moderate depths of approximately 900 meters to 1,500 meters and with relatively simple geological structures and most of the crude oil produced at Daqing is medium viscosity oil. Crude oil produced using enhanced recovery techniques accounted for 25.7%27.0%, 26.9%27.4%, and 27.0%30.5% of our crude oil production from the Daqing oil region in 2004, 20052007, 2008 and 2006,2009, respectively.
 
Because our oil fields in the Daqing oil region are relatively mature, the difficulty of extracting crude oil from these fields has increased in recent years and is likely to continue to increase gradually in the future. As a result, our lifting costs at these fields increased by 33.5%4.0% from US$5.149.72 per barrel for the year ended December 31, 20052008 to US$6.8610.11 per barrel for the year ended December 31, 2006.2009. However, we have adopted a number of measures to containcontrol the increase in our lifting costs at these fields. Those measures include:
 • terminating unprofitableimplementing ground optimization and simplification projects and reducing investments with low or marginally profitable exploration and production activities;
• reducing expenditures on ancillary ground facilities inno return so as to control cost from the outer areas of the Daqing oil region;
• increasing preventive maintenance to prolong the useful life of our production facilities;source; and
 
 • applying new technologies to reduce energy consumption.consumption to increase our ability to maximize profit.
 
Although we plan to continue to carry out these measures to containcontrol the increase in our lifting costs, we expect our lifting costs at these fields will continue to increase gradually in the future.
 
We have an extensive transportation infrastructure network to transport crude oil produced in the Daqing oil region to internal and external customers in northeastern China and beyond. Crude oil pipelines link our oil fields in the Daqing oil region to the port of Dalian and the port of Qinhuangdao in Bohai Bay, providing efficient transportation for selling Daqing crude oil. These crude oil pipelines have an aggregate length of 2,5902,500 kilometers and an aggregate throughput capacity of approximately 9111,067.7 thousand barrels per day.
 
Daqing’s crude oil has a low sulfur and high paraffin content. As many refineries in China, particularly those in northeastern China, are configured to refine Daqing crude oil, we have a stable market for the crude oil we produce


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in the Daqing oil region. In 2006,2009, we refined approximately 80.3%76.5% of Daqing crude oil in our own refineries, exported approximately 1.2%1.7% and sold the remaining portion to Sinopec or other local refineries.
Liaohe Oil Region
Liaohe Oil Region
 
The Liaohe oil region is one of our threefour largest crude oil producing properties and is located in the northern part of the Bohai Bay basin. We began commercial production in the Liaohe oil region in 1971. The Liaohe oil region covers a total area of approximately 580,000 acres.
 
As of December 31, 2006,2009, our proved crude oil reserves in the Liaohe oil region were 1,067.5795.7 million barrels, representing 9.2%7.1% of our total proved oil reserves. In 2006,2009, our oil fields in the Liaohe oil region produced an average of 230.4202.4 thousand barrels of crude oil per day, representing approximately 10.1%8.8% of our total daily crude oil production. In 2006,2008, the crude oilreserve-toreserve-to-production-production ratio in the Liaohe oil region was 12.711.4 years. In 2006,2009, the crude oil we produced in the Liaohe oil region had an average API gravity of 26 degrees and an average water cut of 77.71%81.4%. We have proved crude oil reserves in 3738 fields in the Liaohe oil region, all of which are currently in production. We produce several varieties of crude oil in the Liaohe oil region, ranging from light crude oil to heavy crude oil and high pour point crude oil.
 
We have easy access to crude oil pipelines for Liaohe crude oil. The pipelines linking Daqing to Dalian port and Qinhuangdao port pass through the Liaohe oil region. In 2006,2009, we sold about approximately 89.7%87.4% of the crude oil we produced at the Liaohe oil region to our own refineries.

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Xinjiang Oil Region
 
Xinjiang Oil Region
The Xinjiang oil region is one of our threefour largest crude oil producing properties and is located in the Junggar basin in northwestern China. We commenced our operations in the Xinjiang oil region in 1951. The Xinjiang oil region covers a total area of approximately 900 thousand900,000 acres.
 
As of December 31, 2006,2009, our proved crude oil reserves in the Xinjiang oil region were 1,306.61,395.1 million barrels, representing 11.2%12.4% of our total proved crude oil reserves. In 2006,2009, our oil fields in the Xinjiang oil region produced an average of 244.2220.5 thousand barrels of crude oil per day, representing approximately 10.7%9.5% of our total daily crude oil production. In 2006,2009, the crude oilreserve-toreserve-to-production-production ratio at the Xinjiang oil region was 14.717.2 years. In 2006,2009, the crude oil we produced in the Xinjiang oil region had an average API gravity of 36.8 degrees and an average water cut of 72.6%77.5%.
Sichuan Gas Region
Sichuan Gas Region
 The Sichuan gas region is the largest natural gas region in China in terms of annual natural gas production.
We began natural gas exploration and production in Sichuan in the 1950s. The Sichuan gas region covers a total area of approximately 2.3 million acres. The natural gasreserve-toreserve-to-production-production ratio in the Sichuan gas region was approximately 23.022.2 years in 2006.2009. As of December 31, 2006,2009, we had 90112 natural gas fields under development in the Sichuan gas region.
 
As of December 31, 2006,2009, our proved natural gas reserves in the Sichuan gas region were 10,362.811,177,3 billion cubic feet, representing 19.4%17.7% of our total proved natural gas reserves and an increasea decrease of 12.5%1.0% from 9,211.211,285.4 billion cubic feet as of December 31, 2005.2008. In 2006,2009, our natural gas production for sale in the Sichuan gas region reached 450.4504.2 billion cubic feet, representing 32.8%23.9% of our total natural gas production for sale and an increase of 11.4%1.0% from 404.4499.4 billion cubic feet in 2005.2008.
 
In 2002,2007, we discovered and proved significant natural gas reserves in Luojiazhai gasthe Guang’an field in the Sichuan gas region in our border expansion in that region. As of December 31, 2006, Luojiazhai2009, the Guang’an gas field had a total proved natural gas reserve of 1,655.51,541.8 billion cubic feet. Currently, Luojiazhai gas field is the largest gas field in the Sichuan basin. We have developed a broad range of technologies relating to natural gas exploration, production, pipeline systems and marketing activities tailored to local conditions in Sichuan.
 In November 2002, we obtained approval from the State Development Planning Commission, the predecessor of the National Development
Changqing Oil and Reform Commission, to construct pipelines to transmit natural gas produced in the Sichuan gas region to major cities in central China. This is known as the Zhong County to Wuhan City natural gas pipeline project. By the end of 2004, we completed the construction and commenced the commercial operation of the main line of the Zhong County to Wuhan City natural gas pipeline and its Xiangfan branch pipeline and Huangshi branch pipeline. In addition, we completed the construction of the Xiangtan branch pipeline and commenced the commercial operation of this branch pipeline in July 2005. As of March 31, 2007, we had entered into take-or-pay contracts with 27 customers in Hubei Province and Hunan Province, including municipal governments and enterprises, to supply them with natural gas through the main line and branch lines of the Zhong County to Wuhan City natural gas pipeline. See “— Natural Gas and Pipeline — Expansion of Our Natural Gas Transmission and Marketing Business” for a discussion of the Zhong County to Wuhan City natural gas pipeline project.Region
Changqing Oil and Gas Region
The Changqing oil and gas region covers parts of Shaanxi Province and Gansu Province and the Ningxia and Inner Mongolia Autonomous Regions. We commenced operations in the Changqing oil and gas region in 1970. In 2006, we produced 78.7 million barrels As


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of December 31, 2009, our proved crude oil reserves in the Changqing oil region were 1,783.8 million barrels, representing 15.8% of our total proved crude oil reserves. In 2009, our crude oil production in the Changqing oil region were an average of 318.1 thousand barrels per day, representing approximately 13.8% of our total daily crude oil production. In 2009, the crude oilreserve-to-production ratio at the Changqing oil region was 18.1 years. In 2009, the crude oil we produced in the Changqing oil region had an average API gravity of 35 degrees and gas region.an average water cut of 51.3%.
 
In the early 1990s, we discovered the Changqing gas field, which had total estimated proved natural gas reserves of 17,846.120,363.2 billion cubic feet as of December 31, 2006,2009, representing 33.4%32.2% of

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our total proved natural gas reserves. In January 2001, we discovered the Sulige gas field, withwhich had total estimated proved natural gas reserves of 4,290.07,674.1 billion cubic feet.feet as of December 31, 2009. Sulige gas field is currently the largest gas field in China. In 20062009 we produced 237.4523.4 billion cubic feet of natural gas for sale in the Changqing oil and gas region, representing an increase of 1.5%39.6% from 233.9375.0 billion cubic feet in 2005. The establishment of a natural gas pipeline from Shaanxi to Beijing in 1997 has significantly expanded the range of target markets for natural gas produced in the Changqing oil2008.
Tarim Oil and gas region over the years. In July 2005, we completed the construction and commenced commercial operation of the second Shaanxi to Beijing natural gas pipeline, with a designed annual throughput capacity of 423.8 billion cubic feet of natural gas. In 2006, we transmitted 66.2 billion cubic feet of natural gas through the second Shaanxi to Beijing natural gas pipeline. See “— Natural Gas and Pipeline — Expansion of Our Natural Gas Transmission and Marketing Business” for a discussion of this additional Shaanxi to Beijing natural gas pipeline project.Region
Tarim Oil and Gas Region
The Tarim oil and gas region is located in the Tarim basin in northwestern China with a total area of approximately 590 thousand590,000 acres. As of December 31, 2006,2009, our proved crude oil reserves in the Tarim oil region were 523.9584.8 million barrels. The Kela 2 natural gas field, which we discovered in 1998 in the Tarim oil and gas region, had estimated proved natural gas reserves of approximately 6,973.75,439.2 billion cubic feet as of December 31, 2006.2009. As of December 31, 2006,2009, the proved natural gas reserves in the Tarim oil and gas region reached 14,443.616,892.1 billion cubic feet, representing 27.0%26.7% of our total proved natural gas reserves. Currently, the Kela 2 natural gas field is the largest natural gas field in China in terms of proved natural gas reserves.
 
In 2006,2009, we produced 370.7602.4 billion cubic feet of natural gas for sale in the Tarim oil and gas region. We have completed the construction of the pipelines to deliver natural gas in the Tarim oil and gas region to the central and eastern regions of China where there is strong demand for natural gas transmitted through our West to East natural gas pipeline project. See “— Natural Gas and Pipeline — Expansion of Our NaturalNature Gas Transmission and Marketing Business”Infrastructure” for a discussion of our West to East natural gas pipeline project. The commencement of the operation of this West to East natural gas pipeline significantly increased our natural gas production in the Tarim oil and gas region.


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34

(REFINING AND MARKETING SEGMENT MAP)
(MAP)


34

35

Refining and MarketingChemicals
 
We now operate 30 enterprises located in nine provinces, four autonomous regions and three municipalities to engage in refining and marketing operations in China through 26 refineries, 22 regional sales and distribution branch companies and one lubricants branch company. These operations include the refining, transportation, storage and marketing of crude oil and petroleum products, as well as the wholesale, retailproduction and exportmarketing of refinedbasic petrochemical products, including gasoline, diesel, kerosenederivative chemical products and lubricant.other chemical products.
 
In 2006,2009, our refining and marketingchemicals segment had lossa profit from operations of RMB 29,164RMB17,308 million.
 
The following sets forth the highlights of our refining and marketingchemicals segment in 2006:2009:
 • as of December 31, 2006,2009, our refineries’ annual primary distillation capacity totaled 935.8975 million barrels of crude oil per year, or 2,563.92,671.2 thousand barrels per day;
 
 • we processed 785828.6 million barrels of crude oil, or 2.202.3 million barrels per day; and
 
 • we produced approximately 68.3073.2 million tons of gasoline, diesel and kerosene and sold approximately 74.9 million tons of these products;
• as of December 31, 2006, our retail distribution network consisted of:
 — 16,624 service stations owned and operated by us,
 — 282 service stations either wholly owned by CNPC or jointly owned by CNPC and third parties and to which we provide supervisory support, representing a significant decrease from last year, as a result of our taking ownership of or operating certain service stations previously owned by CNPC or jointly owned by CNPC and third parties, and
 — 1,301 franchise service stations owned and operated by third parties with which we have long-term refined product supply agreements, representing a significant decrease from last year, as a result of our termination of cooperation arrangements with certain franchise service stations that had demonstrated deficiencies in image, service or oil quality; and
• in 2006, our service stations, which are located throughout China, sold approximately 47.0 million tons of gasoline and diesel, representing 64.5% of the total of these products sold through our marketing operations.
Refining
      Our refineries are located in eight provinces, four autonomous regions and one municipality in the northeastern, northwestern and northern regions of China.

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Refined Productskerosene.
 
Refining
Refined Products
We produce a wide range of refined products at our refineries. Some of the refined products are for our internal consumption and used as raw materials in our petrochemical operation. The table below sets forth production volumevolumes for our principal refined products for each of the three years ended December 31, 2004, 20052007, 2008 and 2006.
              
  Year ended December 31,
   
Product 2004 2005 2006
       
  (in thousands of tons)
Diesel  38,941.8   43,000.7   44,226.5 
Gasoline  20,606.1   21,414.6   22,027.2 
Fuel oil  4,290.2   3,816.3   3,491.4 
Naphtha  4,942.8   4,872.8   6,317.9 
Asphalt  1,946.8   1,484.7   1,605.7 
Kerosene  1,961.8   1,970.3   2,063.7 
Lubricants  1,467.8   1,528.6   1,488.4 
Paraffin  1,140.0   1,139.3   1,051.8 
             
 Total  75,297.3   79,227.3   82,272.6 
             
      We generally adjust our product mix to reflect market demand and to focus on the production of high margin products. This has resulted in an overall modest increase in the production of lighter refined products which generally are higher margin products, such as gasoline. In 2004 and 2005, we increased our production volume of lubricants to 1,467.8 thousand tons and 1,528.6 thousand tons, respectively, to meet the growing market demands for lubricants. In 2006, we produced 1,488.4 thousand tons of lubricants. This decrease is primarily due to increases in the production of packaged lubricants and high-end lubricants, as a result of our effort to adjust product mix. We have decreased the production of low margin products, such as fuel oil.2009.
 
             
  Year Ended December 31, 
Product
 2007  2008  2009 
  (In thousands of tons) 
 
Diesel  47,345.4   48,294.4   48,827.7 
Gasoline  22,018.7   23,465.2   22,114.3 
Fuel oil  4,162.0   4,076.5   3,057.1 
Naphtha  7,491.9   7,225.8   8,041.2 
Asphalt  1,563.4   2,093.3   2,307.1 
Kerosene  2,017.2   2,208.8   2,252.9 
Lubricants  1,760.4   1,767.9   1,401.1 
Paraffin  1,003.0   948.5   770.5 
             
Total  87,362.0   90,080.4   88,771.9 
             
In recent years, we have made significant capital investments in facility expansions and upgrades to improve product quality to meet evolving market demand and environmental requirements in China. In each of the three years ended December 31, 2004, 20052007, 2008 and 2006,2009, our capital expenditures for our refining and marketingchemicals segment were RMB 17,684RMB21,499 million, RMB 16,454RMB30,619 million and RMB 19,206RMB42,558 million, respectively. These capital expenditures were incurred primarily in connection with the expansion and upgrades of our refining facilities and expansionthe upgrading of our refined product retail marketing network and storage infrastructure forquality. In 2009, we had completed the purposeconstruction or renovation of maintaining and increasing our market share. We built or renovated 10 of our18 refining facilities in 2005,projects including, among others, the regular pressure reducingexpansion of the 5 million tons per year refining unit at DalianHuhhot Petrochemical, with a designed annual capacitythe renovation of 10the 5 million tons the delayed cokingper year refining unit at LanzhouNingxia Petrochemical, with an annual capacity of 1,000 thousand tons and the catalytic reformingexpansion of the 320,000 tons per year styrene unit at Jinzhou Petrochemical with an annual capacity of 600 thousand tons. In 2006, we built a coking unit at Daqing Petrochemical with an annual capacity of 1.2 million tons and upgraded the heavy oil catalytic cracking unit at Jinxi Petrochemical to increase its annual capacity to 1.8 million tons. In 2006, we operated an aggregate of 18,207 service stations.Jilin Petrochemical. In addition, we have also focused on enhancing our processing technologies and methods. These efforts have enabled us to improve the quality of refined products at our refineries, particularly that of gasoline and diesel. We believe that our refined products generally meetare capable of meeting product specification and environmental protection requirements as set by the PRC government, including the specification limiting the olefin and sulfur content in gasoline.government.
Our Refineries
Our Refineries
 
Most of our refineries are strategically located close to our crude oil production and storage facilities,bases, along our crude oil and refined product transmission pipelinesand/or railways. These systems railways, which provide our

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refineries with secure supplies of crude oil and facilitate our distribution of refined products to the domestic markets. In each of the three years


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ended December 31, 2004, 20052007, 2008 and 2006,2009, our exploration and production operations supplied approximately 84%80%, 89%77% and 82%75.4%, respectively, of the crude oil processed in our refineries.
 
The table below sets forth certain operating statistics regarding our refineries as of December 31, 2004, 20052007, 2008 and 2006.2009.
               
  As of December 31,
   
  2004 2005 2006
       
Primary distillation capacity(1)(thousand barrels per day)
            
Lanzhou Petrochemical(2)
  212.6   212.6   212.6 
Dalian Petrochemical  212.6   212.6   415.0 
Fushun Petrochemical  186.2   186.2   186.2 
Daqing Petrochemical  121.5   121.5   121.5 
Jinzhou Petrochemical(3)
  127.5   131.6   131.6 
Jinxi Petrochemical  131.6   131.6   131.6 
Jilin Petrochemical(4)
  107.3   141.7   141.7 
Urumqi Petrochemical  101.2   101.2   101.2 
Other refineries  982.8   1,098.2   1,122.5 
             
  Total  2,183.3   2,337.2   2,563.9 
           �� 
Refining throughput(thousand barrels per day)
            
Lanzhou Petrochemical(2)
  166.4   178.7   191.4 
Dalian Petrochemical  242.3   223.7   244.7 
Fushun Petrochemical  181.7   194.4   196.4 
Daqing Petrochemical  119.2   125.5   128.5 
Jinzhou Petrochemical(3)
  120.8   127.9   137.8 
Jinxi Petrochemical  123.9   129.2   132.1 
Jilin Petrochemical(4)
  129.6   138.0   146.5 
Urumqi Petrochemical  81.8   85.3   98.0 
Other refineries  773.6   858.4   875.3 
             
 Total  1,939.3   2,061.1   2,150.8 
             
Conversion equivalent(5)(percent)
            
Lanzhou Petrochemical(2)
  41.9   53.3   53.3 
Dalian Petrochemical  54.3   54.3   27.8 
Fushun Petrochemical  70.7   68.5   70.7 
Daqing Petrochemical  76.7   76.7   76.7 
Jinzhou Petrochemical(3)
  63.5   84.6   84.6 
Jinxi Petrochemical  60.0   66.2   66.2 
Jilin Petrochemical(4)
  75.5   61.4   61.4 
Urumqi Petrochemical  62.0   62.0   62.0 
Average of other refineries  53.7   50.5   51.8 
 
             
  As of December 31, 
  2007  2008  2009 
 
Primary distillation capacity(1) (thousand barrels per day)
            
Lanzhou Petrochemical  212.6   212.6   212.6 
Dalian Petrochemical  415.0   415.0   415.0 
Fushun Petrochemical  186.2   186.2   236.9 
Dushanzi Petrochemical  121.5   121.5   202.4 
Daqing Petrochemical  121.5   121.5   121.5 
Jinzhou Petrochemical  131.6   131.6   131.6 
Jinxi Petrochemical  131.6   131.6   131.6 
Jilin Petrochemical  141.7   141.7   141.7 
Urumqi Petrochemical  121.5   121.5   121.5 
Other refineries  996.9   996.9   956.4 
             
Total  2,580.1   2,580.1   2,671.2 
             
Refining throughput(thousand barrels per day)
            
Lanzhou Petrochemical  213.9   202.3   211.6 
Dalian Petrochemical  233.5   267.2   281.5 
Fushun Petrochemical  196.6   193.1   187.9 
Dushanzi Petrochemical  81.2   90.0   120.9 
Daqing Petrochemical  124.3   117.1   124.7 
Jinzhou Petrochemical  133.6   132.5   117.2 
Jinxi Petrochemical  133.6   126.8   79.9 
Jilin Petrochemical  146.1   136.3   144.9 
Urumqi Petrochemical  106.1   110.3   106.3 
Other refineries  887.6   946.4   895.3 
             
Total  2,256.5   2,322.0   2,270.2 
             
             
  As of December 31, 
  2007  2008  2009 
 
Conversion equivalent(2) (percent)
            
Lanzhou Petrochemical  53.3   53.3   53.3 
Dalian Petrochemical  27.8   44.9   44.9 
Fushun Petrochemical  70.7   70.7   55.6 
Dushanzi Petrochemical  41.7   41.7   57.0 
Daqing Petrochemical  76.7   80.0   80.0 
Jinzhou Petrochemical  84.6   84.6   84.6 
Jinxi Petrochemical  66.2   66.2   66.2 
Jilin Petrochemical  61.4   61.4   61.4 
Urumqi Petrochemical  51.7   51.7   56.7 
Average of other refineries  53.2   55.5   56.9 
(1)Represents the primary distillation capacity of crude oil and condensate.
(2)Includes Lanzhou Refinery, which was merged into Lanzhou Petrochemical in October 2000 as part of our ongoing restructuring.


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(3)Includes a 1.08% minority interest held by unrelated third parties in Jinzhou Petrochemical Company Limited in the relevant periods.
(4)(2)Includes Jilin Chemical Industrial Company Limited, in which we held a 99.61% equity interest in the relevant periods. Data regarding the primary distillation capacity, refining throughput and conversion equivalent of Jilin Petrochemical includes a 0.39% minority interest held by unrelated third parties in Jilin Chemical Industrial Company Limited in the relevant periods.
(5)Stated in fluid catalytic cracking, delayed coking and hydrocracking equivalent/ topping (percentage by weight), based on 100% of balanced distillation capacity.
 
In each of the three years ended December 31, 2004, 20052007, 2008 and 2006,2009, the average utilization rate of the primary distillation capacity at our refineries was 93.2%97.7%, 95.5%94.9% and 95.9%87.7%, respectively. The average yield for our four principal refined products (gasoline, kerosene, diesel and lubricants) at our refineries was 65.6%, 66.7%65.8% and 65.7,65.4%, respectively, in the same periods. “Yield” represents the number of tons of a refined product expressed as a percentage of the number of tons of crude oil from which that product is processed. In each of the three years ended December 31, 2004, 20052007, 2008 and 2006,2009, the yield for all refined products at our refineries was 91.5%93.0%, 92.3%92.7% and 92.2%93.1%, respectively.
 
Dalian Petrochemical, Fushun Petrochemical, Lanzhou Petrochemical and LanzhouDushanzi Petrochemical were our leading refineries in terms of both primary distillation capacity and throughput in 2006.2009. They are all located close to our major oil fields in the northeast and northwest regions of China and produce a wide range of refined products. Lanzhou Petrochemical has a strategic position in our plan to expand our markets in refined product sales in the southwestern and central regions of China. It is located in the northwestern part of China, providing easy access to markets in the southwestern and central regions in China. As of December 31, 2006,2009, these threefour refineries had an aggregate primary distillation capacity of 297.0389.4 million barrels per year, or 813.81,066.9 thousand barrels per day, representing approximately 31.7%39.9% of the total primary distillation capacity of all our refineries as of the same date. In 2006,2009, these threefour refineries processed an aggregate of 230.9292.7 million barrels of crude oil, or 632.5801.9 thousand barrels per day, representing approximately 29.4%35.3% of our total throughput in the same period.
To maintain effective operations of our facilities and lower production costs, we have endeavored to achieve the most cost-efficient proportions of various types of crude oil in our refining process. We purchase a portion of our crude oil requirements from third-party international suppliers located in different countries and regions. As a result, in 2009, we purchased a small amount of crude oil, through independent suppliers, from Sudan, a country that is on the U.S. sanction list. The Sudanese crude oil we purchased were mingled with crude oil from other sources during the refining process.
MarketingChemicals
 We market a wide range of refined products, including gasoline, diesel, kerosene and lubricants, through an extensive network of sales personnel and independent distributors and a broad wholesale and retail distribution system across China. As of December 31, 2006, our marketing network consisted of:
• approximately 1,073 regional wholesale distribution outlets nationwide. Substantially all of these outlets are located in high demand areas such as economic centers across China, particularly in the coastal areas, along major railways and along the Yangtze River; and
• 16,624 service stations owned and operated by us, 282 service stations wholly owned by CNPC or jointly owned by CNPC and third parties that exclusively sell refined products produced or supplied by us and to which we provide supervisory support under contractual arrangement, and 1,301 franchise service stations owned and operated by third parties.

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      In 2006, we sold approximately 72.9 million tons of gasoline and diesel. The PRC government and other institutional customers, including railway, transportation and fishery operators, are our long-term purchasers of the gasoline and diesel that we produce. We sell gasoline and diesel to these customers at the ex-works median prices published by the PRC government with an 8% floating range. See “— Regulatory Matters — Pricing — Refined Products” for a discussion of refined product pricing. In 2006, sales of gasoline and diesel to these customers accounted for approximately 3.3% and 14.4% of our total sales of gasoline and diesel, respectively. The following table sets forth our refined product sales volumes by principal product category for each of the three years ended December 31, 2004, 2005 and 2006.
              
  Year ended December 31,
   
Product 2004 2005 2006
       
  (in thousands of tons)
Diesel  43,178.3   47,811.0   48,863.9 
Gasoline  21,714.2   26,161.6   23,993.2 
Fuel oil  5,747.4   6,409.6   8,711.2 
Naphtha  5,325.9   5,574.1   6,887.6 
Kerosene  2,116.2   2,008.0   2,047.4 
Lubricants  1,974.0   2,181.6   2,044.4 
Asphalt  2,348.7   2,475.6   3,321.2 
Paraffin  1,138.1   1,160.3   1,104.3 
             
 Total  83,542.8   93,781.8   96,973.2 
             
Wholesale Marketing
      We sell refined products both directly and through independent distributors into various wholesale markets, as well as to utility, commercial, petrochemical, aviation, agricultural, fishery and transportation companies in China. Our gasoline and diesel sales also include the amount we transferred to our retail operations. We made wholesale sales of approximately 0.6 million tons of gasoline and diesel to Sinopec in 2006, representing approximately 0.8% of our total sales of these products in the same period. In 2006, we sold approximately 16.4 million tons of our other principal refined products.
      As part of the restructuring of the CNPC group in 1999, we completed the implementation of a plan to consolidate our wholesale operations and reduce distribution layers and the number of wholesale outlets. In 2001, we completed a series of initiatives to change the business scope, adjust the business functions or shut down operations in respect of 558 county level outlets. In addition, we merged 18 municipal level outlets in 2001. In 2002, we continued these initiatives by integrating our markets in Shandong Province and Anhui Province, enhancing our logistics system and shutting down a number of inefficient oil storage facilities. In 2003, we further consolidated our wholesale operations. In 2004, we consolidated our sales operations in the southern and central regions of China, respectively, by establishing a branch company in each area which is fully engaged in sales and marketing.
Retail Marketing
      In 2006, we sold approximately 47.0 million tons of gasoline and diesel through our service station network, accounting for 64.5% of the total of these products sold through our marketing operations in the same period. Although sales volumes vary significantly by geographic region, the weighted average sales volume of gasoline and diesel per business day at our service station network in 2004, 2005 and 2006 was 5.5 tons, 6.7 tons and 7.8 tons per service station, respectively.

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      We sell our refined products to service stations owned and operated by CNPC. These service stations sell exclusively refined products produced or supplied by us in accordance with contractual arrangements between CNPC and us. Under these contractual arrangements, we also provide supervisory support to these service stations.
      We currently operate a majority of our service stations under the trade name of “(PETROCHINA COMPANY LOGO)”. We intend to gradually adopt our new logo “(PETROCHINA COMPANY LOGO)” for all our service stations in the next few years.
      Most of the service stations in our service station network are concentrated in the northern, northeastern and northwestern regions of China where we have a dominant wholesale market position. However, the eastern and southern regions of China have a higher demand for gasoline and diesel. We have made significant efforts in recent years to expand our sales and market share in those regions through expanding the number of our service stations and storage facilities in those regions. As part of our expansion initiatives, on May 14, 2004, we entered into the Joint Venture Contract and the Articles of Association with BP Global Investments Limited, a subsidiary of BP Amoco p.l.c., to form BP PetroChina Petroleum Company Limited in Guangdong Province. We and BP Global Investments Limited hold 51% and 49% equity interests in BP PetroChina Petroleum Company Limited, respectively. We expect that BP PetroChina Petroleum Company Limited will build, acquire and manage approximately 500 service stations in Guangdong Province within three years from its establishment. As of December 31, 2006, BP PetroChina Petroleum Company Limited owned and operated 445 service stations in the Pearl River Delta of Guangdong Province.
      We invested a total of RMB 4,923 million in expanding our service station network in 2006, of which 76.4% was invested in the eastern and southern regions of China. In 2006, we sold approximately 21,480 thousand tons of gasoline and diesel through our owned and franchised service stations in these regions, as compared to approximately 13,130 thousand tons and approximately 17,490 thousand tons we sold in 2004 and 2005, respectively.
      In 2006, we acquired or constructed an aggregate of 902 service stations that are owned and operated by us, of which 583 are in the eastern and southern regions of China. We plan to further increase our retail market share and improve the efficiency of our retail operations, with a continued focus on the eastern and southern regions of China. We plan to invest approximately RMB 8,000 million in 2007 to expand our service station network and storage infrastructure by adding approximately 800 new service stations.
      The following table sets forth the number of the service stations in our marketing network as of December 31, 2006:
Owned and operated by us(1)
16,624
Wholly owned by CNPC or jointly owned by CNPC and third parties(2)
282
Franchised1,301
Total18,207
(1)Includes 445 service stations owned and operated by BP PetroChina Petroleum Company Limited.
(2)These service stations exclusively sell refined products produced or supplied by us. We also provide supervisory support to these service stations.
      In order to improve the efficiency and profitability of our existing service station network, we standardize the interior and exterior of our service stations, our service procedures, staff uniforms and the product quality of all our service stations. We are in the process of promoting the use of pre-paid gasoline/diesel filling cards at our service stations. We have equipped 4,813 service stations located in 18 municipalities with facilities that allow customers to purchase gasoline or diesel with their pre-paid filling cards. In addition to selling gasoline and diesel, we have planned to gradually increase the sale of lubricants and other non-fuel products at our service stations.

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(CHEMICALS AND MARKETING SEGMENT MAP)

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Chemicals and Marketing
      Through 12 chemical plants and four chemical products sales companies, we produce and market basic petrochemical products, derivative petrochemical products, and other chemical products. As of December 31, 2006, our chemicals and marketing segment had income from operations of RMB 5,058 million.
      Our chemical plants and sales companies are located in seven provinces and three autonomous regions in China. Most of our chemical plants are co-located withnear to our refineries and are also connected with the refineries by pipelines, providing additional production flexibility and opportunities for cost competitiveness. Our exploration and production refining and marketing, and natural gas and pipeline operations supply substantially all of the hydrocarbon feedstock requirements for our chemicals operations. We believe that the proximity of our refineries to our chemical plants promotes efficiency in production, secures feedstock supply and minimizes the risk of production interruption. Our production capacity and our market share in China for chemical products allow us to solidify our dominant position in the northern and western regions of China. In addition, our stable customer base in the eastern and southern regions of China provides us with the opportunity to expand our market share in these regions.


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Our Chemical Products
 
The table below sets forth the production volumes of our principal chemical products for each of the three years ended December 31, 2004, 20052007, 2008 and 2006.2009.
               
  Year ended December 31,
   
  2004 2005 2006
       
  (in thousand tons)
Basic petrochemicals
            
 Propylene  1,969.1   2,493.5   2,671.2 
 Ethylene  1,845.6   1,887.9   2,067.9 
 Benzene  712.7   707.9   749.6 
Derivative petrochemicals
            
 Synthetic resin            
  Polyethylene  1,309.5   1,355.9   1,531.3 
  Polypropylene  986.9   1,142.8   1,291.0 
  ABS  228.1   223.0   223.0 
  Other synthetic resin products  27.6   35.2   15.8 
 Synthetic fiber            
  Polyacrylic fiber  108.1   97.1   81.0 
  Terylene fiber  94.3   86.2   53.3 
  Other synthetic fiber products  7.4   6.3   6.4 
 Synthetic rubber            
  Styrene butadiene rubber  190.2   194.4   212.9 
  Other synthetic rubber products  95.6   87.0   99.1 
 Intermediates            
  Alkylbenzene  194.9   205.7   207.9 
Other chemicals
            
 Urea  3,652.3   3,577.6   3,576.3 
 Ammonium nitrate  32.0   5.4   — 
 
             
  Year Ended December 31,
  2007 2008 2009
  (In thousand tons)
 
Basic petrochemicals
            
Propylene  3,083.2   3,152.4   3,278.0 
Ethylene  2,581.5   2,675.6   2,988.9 
Benzene  827.8   943.5   1,021.7 
Derivative petrochemicals
            
Synthetic resin            
Polyethylene  2,101.2   2,153.7   2,434.1 
Polypropylene  1,630.2   1,730.0   1,800.9 
ABS  215.0   198.9   201.8 
Other synthetic resin products  16.1   16.9   43.5 
Synthetic fiber            
Polyacrylic fiber  79.3   61.6   72.6 
Terylene fiber  48.1   35.7   19.6 
Other synthetic fiber products  9.3   9.0   8.0 
Synthetic rubber            
Styrene butadiene rubber  210.6   249.6   300.8 
Other synthetic rubber products  100.0   94.4   119.3 
Intermediates            
Alkylbenzene  197.5   205.4   176.6 
Other chemicals
            
Urea  3,634.5   3,823.7   3,973.3 
We are one of the major producers of ethylene in China. We use the bulk of the ethylene we produce as a principal feedstock for the production of many chemical products, such as

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polyethylene. In 2001, we implemented a five-year plan to invest RMB 10,000 million to upgrade our ethylene production facilities at Daqing Petrochemical, Jilin Petrochemical, Liaoyang Petrochemical, Dushanzi Petrochemical and Lanzhou Petrochemical. As of December 31, 2006, we had completed the upgrades of all ethylene projects included in such five-year plan. In 2006, we also completed a new capacity-expansion project at Jilin Petrochemical. As of December 31, 2006,2009, our annual ethylene production capacity was 2,6303,710 thousand tons, representing an increase of 78036.9% from 2,710 thousand tons fromin the year ended December 31, 2005.2008. Our production volume of ethylene increased by 9.5%11.7% from 1,887.92,675.6 thousand tons in 20052008 to 2,067.92,988.9 thousand tons in 2006. We expect to complete the further upgrading of the ethylene facilities at Liaoyang Petrochemical prior to the end of 2007 and the upgrading of the ethylene production facilities at Dushanzi Petrochemical by 2009. The petrochemical ethylene projects at Fushun Petrochemical, Sichuan Petrochemical and SichuanDaqing Petrochemical have been approved by the National Development and Reform Commission and we are currently in the process of implementing these projects.
 
In 2006,2009, the monthly average capacity utilization rate at our ethylene production facilities was 95.1%98.6%. The cost of ethylene production is an important component of our overall chemical production costs. Reduction of energy consumption and raw material loss is a key factor in reducing ethylene production costs. We have implemented a series of measures to reduce energy consumption. The average energy consumption of our ethylene production facilities was 734.3, 751.5743.8, 713.8 and 748.4682.2 kilograms of standard oil per ton in 2004, 20052007, 2008 and 2006,2009, respectively. This is significantly higher than the world average of 500 to 690 kilograms of standard oil per ton. We plan to continue to implement measures to reduce our energy consumption.
 In addition, high
The average ethylene percentage loss at our chemical plants in 2009 was 0.86%. High ethylene percentage loss has also contributed to the relatively high cost of our ethylene production. In order to reduce high ethylene percentage loss in our ethylene production, we have implementedwill continue to implement a series of measures at our chemical plants in the past several years,future, such as improving our process management of key units for ethylene production, reducing unplanned temporary interruptions of our chemical facilities and enhancing pyrolysis material composition and production plans. As a result, the average ethylene percentage loss at our chemical plants decreased from 0.57% in 2003 to 0.54% in 2004. The average ethylene percentage loss rate went up to 0.61% in 2005, due to the significant losses resulting from the trial of an upgraded ethylene production facility. In 2006, our average ethylene percentage loss decreased to 0.55%. We believe that our measures will enable us to further reduce the cost of our ethylene production without incurring significant capital expenditures.


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We produce a number of synthetic resin products, including polyethylene, polypropylene and ABS. As of December 31, 2006,2009, our production capacities for polyethylene, polypropylene and ABS were 2,2123,112 thousand tons, 1,8742,524 thousand tons and 220325 thousand tons, respectively. In 2006,2009, we produced 1,531 thousand tons and 1,2912,434.1 thousand tons of polyethylene, 1,800.9 thousand tons of polypropylene and polypropylene,201.8 thousand tons of ABS, respectively, which respectively increased by 12.9%13.0% , 4.1% and 13.0%1.5% as compared with 2005. In 2006, we produced 223.0 thousand tons of ABS that is consistent with our ABS production volume in 2005.2008. Currently, China imports significant volumes of these products to meet the domestic demand due to an inadequate supply of high-quality domestically produced polyethylene and polypropylene. We intend to increase the production, and improve the quality, of these products. We have builtare building new production facilities with new technology for the production of these products in Daqing Petrochemical, Daqing Refining and Chemical, JilinFushun Petrochemical, Lanzhou Petrochemical, DalianSichuan Petrochemical/Jilin Petrochemical and other branch companies to meet this target.
Sales and Marketing of Chemicals
 
Our chemical products are distributed to a number of industries that manufacture components used in a wide range of applications, including automotive, construction, electronics, medical manufacturing, printing, electrical appliances, household products, insulation, packaging, paper, textile, paint, footwear, agriculture and furniture industries.

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The following table sets forth the sales volumes of our chemical products by principal product category for each of the three years ended December 31, 2004, 20052007, 2008 and 2006.2009.
               
  Year ended December 31,
   
Product 2004 2005 2006
       
  (in thousands of tons)
Derivative petrochemicals
            
 Synthetic resin            
  Polyethylene  1,423.6   1,477.0   1,594.8 
  Polypropylene  793.3   972.3   1,069.6 
  ABS  231.8   232.0   233.4 
 Synthetic fiber            
  Terylene fiber  103.6   103.3   59.4 
  Polyacrylic fiber  115.8   95.5   91.2 
 Synthetic rubber            
  Butadiene styrene rubber  187.8   202.2   203.4 
 Intermediates            
  Alkylbenzene  110.9   112.3   127.9 
Other chemicals
            
 Urea  3,662.8   3,413.8   3,570.6 
 Ammonium nitrate  32.8   4.1   1.4 
             
  Year Ended December 31,
Product
 2007 2008 2009
  (In thousands of tons)
 
Derivative petrochemicals
            
Synthetic resin            
Polyethylene  2,102.4   2,194.9   2,350.5 
Polypropylene  1,434.8   1,549.1   1,939.0 
ABS  216.7   327.1   302.4 
Synthetic fiber            
Terylene fiber  56.6   41.7   18.7 
Polyacrylic fiber  71.6   67.5   107.5 
Synthetic rubber            
Butadiene styrene rubber  219.0   233.8   327.0 
Intermediates            
Alkylbenzene  156.6   164.6   165.4 
Other chemicals
            
Urea  3,662.2   4,393.2   4,054.1 


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45

(MAP)
(NATURAL GAS AND PIPELINE SEGMENT MAP)


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Marketing
We engage in the marketing of refined products through 31 regional sales branch companies, three distribution branch companies, one lubricants branch company and one fuel oil company. These operations include the transportation and storage of the refined products, and the wholesale, retail and export of gasoline, diesel, kerosene, lubricant, paraffin, asphalt and other refined products. For the year ended December 31, 2009, our marketing segment had an profit from operations of RMB13,265 million. In 2009, we sold approximately 101.25 million tons of gasoline, diesel and kerosene.
We market a wide range of refined products, including gasoline, diesel, kerosene and lubricants, through an extensive network of sales personnel and independent distributors and a broad wholesale and retail distribution system across China. As of December 31, 2009, our marketing network consisted of:
• Approximately 837 regional wholesale distribution outlets nationwide. Substantially all of these outlets are located in high demand areas such as economic centers across China, particularly in the coastal areas, along major railways and along the Yangtze River; and
• 16,607 service stations owned and operated by us and 655 franchise service stations owned and operated by third parties.
In 2009, we sold approximately 95.4 million tons of gasoline and diesel. The PRC government and other institutional customers, including railway, transportation and fishery operators, are our long-term purchasers of the gasoline and diesel that we produce. We sell gasoline and diesel to these customers at the supply prices for special customers published by the PRC government. See “— Regulatory Matters — Pricing — Refined Products” for a discussion of refined product pricing. In 2009, sales of gasoline and diesel to these customers accounted for approximately 2.3% and 8.5% of our total sales of gasoline and diesel, respectively.
The following table sets forth our refined product sales volumes for each of the years ended December 31, 2007, 2008 and 2009.
             
  Year Ended December 31, 
Product
 2007  2008  2009 
  (In thousands of tons) 
 
Diesel  54,376.9   56,081.0   64,659.4 
Gasoline  27,003.1   29,399.4   30,777.1 
Kerosene  3,781.8   4,797.6   5,816.9 
Lubricants  2,378.4   2,003.4   1,795.8 
Wholesale Marketing
We sell refined products both directly and through independent distributors into various wholesale markets, as well as to utility, commercial, petrochemical, aviation, agricultural, fishery and transportation companies in China. Our gasoline and diesel sales also include the amount we transferred to our retail operations. We made wholesale sales of approximately 2.35 million tons of gasoline and diesel to Sinopec in 2009, representing approximately 2.5% of our total sales of these products in the same period.
Retail Marketing
The weighted average sales volume of gasoline and diesel per business day at our service station network was 8.4 tons per service station in 2007, 9.6 tons per service station in 2008 and 10.1 tons per service station in 2009.
We sell our refined products to service stations owned and operated by CNPC. These service stations sell exclusively refined products produced or supplied by us in accordance with contractual arrangements between CNPC and us. Under these contractual arrangements, we also provide supervisory support to these service stations.
We currently use “(LOGO)” for all our service stations.
Most of the service stations in our service station network are concentrated in the northern, northeastern and northwestern regions of China where we have a dominant wholesale market position. However, the eastern and


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southern regions of China have a higher demand for gasoline and diesel. We have made significant efforts in recent years to expand our sales and market share in the eastern and southern regions of China through expanding the number of our service stations and storage facilities in these regions.
We invested a total of RMB10,177 million in expanding our service station network in 2009. In 2009, we sold approximately 27,847 thousand tons of gasoline and diesel through our owned and franchised service stations in the eastern and southern regions of China, as compared to approximately 25,660 thousand tons and 26,370 thousand tons we sold in 2007 and 2008, respectively.
In 2009, we acquired or constructed an aggregate of 692 service stations that are owned and operated by us, of which 480 are in the eastern and southern regions of China. We plan to further increase our retail market share and improve the efficiency of our retail operations, with a continued focus on the eastern and southern regions of China.
We plan to invest approximately RMB12,000 million in 2010 to expand our service station network and storage infrastructure by developing new oil storage facilities, service stations and informationization projects.
The following table sets forth the number of service stations in our marketing network as of December 31, 2009:
Owned and operated by us(1)
16,607
Franchised655
Total17,262
(1)Includes 462 service stations owned and operated by BP PetroChina Petroleum Company Limited.
In order to improve the efficiency and profitability of our service station network, through several years’ efforts, we have completed the standardization upgrade of most of our service stations and have further standardized our service procedures, staff uniforms and client service quality of all our service stations. We have been making great efforts to implement a centralized service station computerized management system covering all the service stations across the country. We plan to use this system in all our service stations across the country by end of 2010. In addition, we are making great efforts to promote the use of pre-paid gasoline/diesel filling cards at our service stations. We are developing convenience-store-like service stations with a view to improving the management and client service quality of our service stations. In addition to selling gasoline and diesel, we have planned to gradually increase the sale of lubricants and other non-fuel products at our service stations.


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(MAP)


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Natural Gas and Pipeline
 
We are China’s largest natural gas transporter and seller in terms of sales volume, with revenuesturnover of RMB 38,917RMB77,658 million and total sales volume of 1,357.02,105.1 billion cubic feet in 2006, of which 1,200.5 billion cubic feet was sold by our natural gas and pipeline segment.2009. In 2006,2009, our natural gas and pipeline segment generated incomeprofit from operations of RMB 8,986RMB19,046 million. We sell natural gas primarily to fertilizer and chemical companies, commercial users and municipal utilities owned by local governments. In addition, we also conduct the operation of crude oil and refined product transmission in the natural gas and pipeline segment.
 
The following table sets forth the length of our natural gas pipelines as of December 31, 2004, 20052007, 2008 and 20062009 and the volume of natural gas sold by us in each of the three years ended December 31, 2004, 20052007, 2008 and 2006.2009.
             
  As of December 31 or year
  ended December 31,
   
  2004 2005 2006
       
Length of natural gas pipelines used by our natural gas segment (km)  17,868   19,212   19,662 
Total length of natural gas pipelines (km)  18,995   20,340   20,590 
Volume of natural gas sold by our natural gas segment (Bcf)  657.3   888.8   1,200.5 
Total volume of natural gas sold(1)(Bcf)  781.4   1,052.2   1,357.0 
 
             
  As of December 31 or Year
  Ended December 31,
  2007 2008 2009
 
Total length of natural gas pipelines (km)  22,043   24,037   28,595 
Total length of crude oil pipeline (km)  10,559   11,028   13,164 
Total length of refined oil products pipeline (km)  2,669   2,656   8,868 
Total volume of natural gas sold(1) (Bcf)
  1,538.7   1,802.8   2,105.1 
(1)Including bothRepresenting the natural gas sold to third parties and the natural gas sold within our company for the production of other products.
 In addition, we also conduct the operation of crude oil and refined product transmission and storage infrastructure in the natural gas and pipeline segment.
Our Principal Markets for Natural Gas
 
In 2006, 34.7%2009, 23.0%, 17.7%22.8%, 16.1%23.6%, 5.0%17.9%, 2.7%4.9% and 23.8%7.8% of our natural gas sales were to the southwestern, northern, eastern, northwestern, northeastern central, and easterncentral regions of the PRC, respectively.
 
Currently, Sichuan Province and Chongqing Municipality in southwest China are two of our principal markets for natural gas. We sold 415.6454.3 billion cubic feet of natural gas to Sichuan Province and Chongqing Municipality in 2006, as compared to 388.1 billion cubic feet in 2005,2009, representing approximately 31.8%21.6% of our total natural gas sales in 2006.2009. We supply natural gas to Sichuan Province and Chongqing Municipality from our exploration and production operations in the Sichuan oil region. Our natural gas pipelines in these areas are well developed, consisting of a natural gas transmission network with a total length of approximately 5,6617,305 kilometers. As these areas lack adequate supply of alternative energy resources, such as coal, we believe that we can further expand our natural gas sales as energy demand increases in these areas.
 
Beijing Municipality, Tianjin Municipality, Hebei Province and Shandong Province in northern China have high energy consumption levels. These areas are also important markets for our natural gas transmission and marketing business. We sold an aggregate of 217.5415.8 billion cubic feet of natural gas to these areas in 2006,2009, as compared to 167.5349 billion cubic feet in 2005.2008. Our natural gas sales to Beijing Municipality increased 23.0%15.6% from 110.2197.2 billion cubic feet in 20052008 to 135.6227.8 billion cubic feet in 2006.2009. We supply natural gas to Beijing Municipality, Tianjin Municipality and Hebei Province primarily from the Changqing oil region through the Shaanxi to Beijing natural gas pipeline, which is one of our natural gas trunk pipelines, and from the Huabei and Dagang oil regions. Currently, we have 2,9213,090 kilometers of natural gas pipelines in these areas.
 Henan Province, Anhui Province,
Shanghai Municipality, Jiangsu Province, Zhejiang Province Hubeiand Anhui Province Hunan Province, Shanxi Province, Gansu Province and Qinghai Province are alsolocated in Yangtze River Delta of eastern China have become our significant natural gas markets. In 2001,2009, we completed the constructionsold 496.5 billion cubic feet of the Sebei to Xining to Lanzhou

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natural gas pipeline and in 2004, we completed the construction and commenced commercial operationto this area, representing approximately 23.6% of the mainlines of the West to Eastour total natural gas pipeline and the Zhong County to Wuhan City natural gas pipeline. These three pipelines link our Xinjiang, Changqing, Sichuan and Qinghai gas fields with our natural gas markets referred to above.sales in 2009.
 
Each year, we must supply natural gas to customers subject to the government-formulated guidance supply plan first as required by the PRC government. We enter into natural gas supply contracts with those customers on the basis of the amount of natural gas to be supplied according to the guidance supply plan for the following year’s supply.
 We have entered into long-term take-or-pay contracts with 23 municipalities and enterprises in Qinghai Province, Gangsu Province, Shanxi Province and Tianjin Municipality, 27 municipalities and enterprises in Hubei Province and Hunan Province, 16 municipalities in Shandong Province and 50 municipalities and enterprises in Henan Province, Anhui Province, Shanghai Municipality and other provinces located in the Yangtze River Delta. Under these take-or-pay contracts, we have agreed in principle to supply natural gas to these customers in the next 20 to 25 years at prices determined based on the ex-works prices published by the National Development and Reform Commission, formerly the State Development Planning Commission, supplemented by the pipeline transportation tariffs. See “— Regulatory Matters — Pricing — Natural Gas” for a discussion of natural gas pricing.
Driven by environmental and efficiency concerns, the PRC government is increasingly encouraging industrial and residential use of natural gas to meet primary energy and environmental protection needs. The PRC government has adopted a number of laws and regulations to require municipal governments to increase the use of clean energy, such as natural gas and liquefied petroleum gas, to replace the use of raw coal. Several municipal governments, including that of Beijing, have adopted policies to facilitate natural gas consumption in order to reduce the air


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pollution level. The PRC government has also adopted a preferential value-added tax rate of 13% for natural gas production as compared to a 17% value-added tax rate for crude oil production.
 
We believe that these policies have had a positive effect on the development and consumption of natural gas in many municipalities that are our existing or potential markets for natural gas. We believe that these favorable policies will continue to benefit our natural gas business.
Natural Gas Transmission Infrastructure
 
As of December 31, 2006,2009, our natural gas and pipeline segment owned and operated approximately 19,66225,517 kilometers of natural gas pipelines in China, which represented the vast majority of China’s onshore natural gas pipelines. Our existing natural gas pipelines form regional natural gas supply networks in northwestern, southwestern, northern and central China as well as the Yangtze River Delta. Our experience in the design, construction management and operation of our existing natural gas pipelines has enabled us to develop relatively advanced technologies and skills in China in long distance pipeline design, construction and automated operational communications. We believe that we will continue to benefit from those technologies and skills in the future expansion of our natural gas pipeline networks and their ancillary facilities.
Expansion
As of OurDecember 31, 2009, we constructed and operated the following main natural gas pipelines in China:
West to East Natural Gas Transmission and Marketing BusinessPipelines
 In October
Completed in 2004, we completed the construction of the main line of our West to East natural gas pipeline and commenced commercial operation in December 2004. Our West to East natural gas pipelinepipelines project is designed to linklinks our natural gas fields in Xinjiang and Changqing with Henan Province, Anhui Province, Shanghai Municipality and other areas in the Yangtze River Delta. The total length of the main line for theis 3,839 kilometers.
The West to East natural gas pipelinepipelines project is 3,786 kilometers. As of December 31, 2006, we had invested RMB 37,717 million in this project. We have completed the construction of twoalso includes three additional connecting pipelines for the West to East natural gas pipeline project, thepipelines. These lines are: (i) Hebei to Nanjing pipeline, and the Huaiyang to Wuhan pipeline. The Hebei to Nanjing pipeline startscompleted in January 2006, starting at Qingshan, Jiangsu Province and endsending at Anping, Hebei Province, with its mainline having a length of

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886 kilometers. We completed the construction and commenced the commercial operation of the main line of this pipeline in January 2006. Thekilometers; (ii) Huaiyang to Wuhan pipeline, startscompleted in December 2006, starting at Huaiyang, Anhui Province and endsending at Wuhan, Hubei Province, with a total length of 455 kilometers. We completed the constructionkilometers; and commenced the commercial operation of this pipeline in December 2006. We are currently constructing another connecting pipeline for the West to East natural gas pipeline project, the Lanzhou to Yinchuan pipeline. The(iii) Lanzhou to Yinchuan pipeline, startscompleted in July 2007, starting at Lanzhou, Gansu Province and endsending at Yinchuan, Ningxia Autonomous Region, with a total length of 402 kilometers. We expect
Our West to complete the construction and commence commercial operationEast natural gas pipelines has a designed annual throughput capacity of this pipeline in June 2007.423.8 billion cubic feet. As of MarchDecember 31, 2007,2009, we entered into long-termtake-or-pay contracts with 5095 subscribers and distributors to supply them with natural gas through the West to East natural gas pipeline. pipelines. We sold 496.5 billion cubic feet of natural gas through these pipelines in 2009, representing approximately 23.6% of our total natural gas sales in 2009.
We believe that the successful completion of this natural gas pipelinepipelines project and associated storage facilities will substantially enhanceenhanced our ability to capitalize on the anticipated growth in demand forof natural gas in thesethe destination regions. We are currently expanding the transmission capacity of the West to East natural gas pipelinepipelines by upgrading the existing 10 gas compression stations and building additional 12 gas compression stations to increase the capacity from 12 billion cubic metersthroughput capacity. In addition, we began constructing the second phase of West to 17 billion cubic meters per year.East natural gas pipelines project in February 2008, which will connect Xinjiang Autonomous Region, Gansu Province, Ningxia Autonomous Region and Shaanxi Province with a natural gas pipeline of 4,843 kilometers.
 
Zhong County to Wuhan Municipality natural gas pipeline
The Zhong County to Wuhan CityMunicipality natural gas pipeline is designed to linklinks our natural gas fields in the Sichuan gas region withto Wuhan City, theMunicipality and other areasregions in Hubei provinceProvince and Hunan Province, with a total length of 1,375 kilometers, including the main line of 719 kilometers and three branch lines with a total length of 656 kilometers. This line has a designed annual throughput capacity of 105.9 billion cubic feet of natural gas. We commenced the construction of the pipeline in August 2003. In December 2004, we completed the construction and commenced commercial operation of thefeet. The main line of the Zhong County to Wuhan City natural gas pipeline and its Xiangfan branch pipelineline and Huangshi branch pipeline. Weline were completed the construction and commencedput into commercial operation ofin December 2004 and the Xiangtan branch line was completed and put into commercial operation in July 2005.
As of MarchDecember 31, 2007,2009, we had entered into long-termtake-or-pay contracts with 27 customers in Hubei Province29 subscribers and Hunan Province including municipal governments and enterprises,distributors to supply them with natural gas to be transmitted through the main line and branch lines of theour Zhong County to Wuhan City pipeline.
      We completed constructing the secondMunicipality natural gas pipeline. We sold


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77.7 billion cubic feet of natural gas through this pipeline fromin 2009, representing approximately 3.7% of our total natural gas sales for the period.
The First and Second Shaanxi to Beijing Municipality in July 2005. This second Shaanxinatural gas pipelines
The Shaanixi to Beijing Municipality natural gas pipeline has a total length of 935 kilometers and can be used to deliver natural gas frompipelines link our Changqing oil and gas region towith Shaanxi Province, Shanxi Province, Hebei Province and Beijing MunicipalityMunicipality. The first line was completed in September 1997, with a length of 910 kilometers and a designed annual throughput capacity of 116.5 billion cubic feet. The second line was completed in July 2005, with a total length of 940 kilometers and a designed annual throughput capacity of 423.8 billion cubic feetfeet.
As of December 31, 2009, we entered into long-termtake-or-pay contracts with 78 subscribers and distributors to supply them with natural gas. In 2006, we transmitted 66.2gas through our Shaanxi to Beijing Municipality natural gas pipelines. We sold 412.8 billion cubic feet of natural gas through these pipelines in 2009, representing approximately 19.7% of our total natural gas sales in 2009.
In addition to the major transmission infrastructures described above, we also operate other natural gas pipelines linking our domestic gas fields to natural gas consumption markets in China, including the pipeline network within the Sichuan gas region, the Sebei to Xining to Lanzhou natural gas pipeline, the Daqing to Harbin natural gas pipeline and Daqing to Qiqihar gas pipeline.
In 2008, we also commenced the construction of several natural gas pipeline projects to expand our existing transmission infrastructures. These projects include, but are not limited to, (i) Yongqing to Tangshan to Qinhuangdao natural gas pipeline of 321 kilometers that connects Beijing Municipality, Tianjin Municipality and Hebei Province, (ii) Changling to Changchun to Jihua natural gas pipeline of 221 kilometers that runs within the Jilin oil and gas region, and (iii) Naxi to Anbian natural gas pipeline of 106 kilometers that runs within the Sichuan gas region. The construction of these projects has been completed.
In 2009, we commenced the construction of the second West to East Pipeline, the third Shaanxi-Beijing Pipeline, the Taian to Qingdao Pipeline and the Qinhuangdao to Shenyang Pipeline projects. The second West to East Pipeline includes one main line, 8 branch lines and 3 underground storage facilities, with a total length of 8,704 kilometers. The main line of the second West to East Pipeline has a length of 4,978 kilometers. The western section of the main line extends from Horgos to Zhongwei with a length of 2,461 kilometers and a designed annual throughput capacity of 30 billion cubic feet. The eastern section of the main line extends from Zhongwei to Guangzhou with a length of 2,517 kilometers and a designed annual throughput capacity of 28 billion cubic feet. The third Shaanxi to Beijing natural gas pipeline.Pipeline has a total length of 819.2 kilometers and a designed annual throughput capacity of 15 billion cubic feet. The Taian to Qingdao Pipeline has a total length of 355 kilometers and a designed annual throughput capacity of 15 billion cubic feet. The Qinhuangdao to Shenyang Pipeline has a total length of 421 kilometers and a designed annual throughput capacity of 15 billion cubic feet.
Crude Oil and Refined Product Transportation and Storage Infrastructure
 
We have an extensive network for the transportation, storage and distribution of both crude oil and refined products, which covers many regions of China. Our goal is to exploit and optimize our existing infrastructure to further consolidate our presence as the leading integrated oil and gas company in China.
 
In 2005, we completed the construction of athe PRC portion of the Sino-Kazakhstan oil pipeline that lies within the territory of the PRC. It startspipeline. The PRC portion, starting at Ala Mountain Pass and endsending at Dushanzi in Xinjiang Autonomous Region, withhas a total length of 246 kilometers. Commercial operation of the Sino-Kazakhstan oil pipeline was commenced in July 2006.
 
In June 2007, we completed the construction and commenced the commercial operation of the Dagang to Zaozhuang oil pipeline, which starts at Dagang, Tianjin and ends at Zaozhuang, Shandong Province, with a total length of 679 kilometers.
The Lanzhou to Zhengzhou to Changsha refined oil pipeline was approved by the National Development and Reform Commission in December 2007 and we commenced the construction of that pipeline thereafter. We


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finished the construction and commenced the operation of the section from Lanzhou to Zhengzhou in April 2009 and the section from Zhengzhou to Wuhan in August 2009.
In May 2009, we commenced the construction of the Mohe to Daqing section on the Russia to China crude oil transmission pipeline. This section has a length of 927 kilometers and a designed annual throughput capacity of 15 million tons.
As of December 31, 2006,2009, our crude oil transportation and storage infrastructure consisted of:
 • 9,62013,164 kilometers of crude oil pipelines with an average daily throughput of approximately 2.503.03 million barrels; and
 
 • crude oil storage facilities with an aggregate storage capacity of approximately 17.221.7 million cubic meters.
 
We deliver crude oil to customers through our pipeline and storage facility network, through crude oil storage facilities that we lease from third parties and by ships leased by customers. In

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2006, 2009, approximately 86.7%90.21% of our crude oil production was delivered to refineries through our crude oil pipeline network. We believe that our crude oil pipeline network is sufficient for our current and anticipated transportation needs. During the past three years, we have not experienced any delays in delivering crude oil due to pipeline capacity constraints.
 
Our transportation and storage infrastructure also includes:
��• 2,4138,868 kilometers of refined product pipelines with an average daily throughput of approximately 37,00048,803 tons; and
 
 • refined product storage facilities with a total storage capacity of approximately 18.726.0 million cubic meters.
 
Most of our refineries are located in the northeastern and northwestern regions of China. Our ability to distribute products through our own product distribution infrastructure to the eastern and southern regions will provide us with greater flexibility in supplying refined products to the domestic markets across China. We plan to continue to enhance our product distribution infrastructure in the northeastern, northwestern, northern and southwestern regions where we already have a significant market share, and to expand our product distribution infrastructure in the eastern and southern regions by acquiring and constructing transportation storage facilities and distribution storage facilities in these regions.
 
Together with the expansion of our service stations, we expect that our pipelines, primary storage and secondary distribution storage facilities will significantly enhance our existing distribution infrastructure for refined products. We believe that our enhanced distribution infrastructure will help us increase the sales of our refined products.
Competition
 
As an oil and gas company operating in a competitive industry, we compete in each of our business segments in both China and international markets for desirable business prospects and for customers. Our principal competitors in China are Sinopec, including its subsidiary China National Star Petroleum Corporation, or CNSPC, and China National Offshore Oil Corporation, or CNOOC.
Exploration and Production Operations
 
We are the largest onshore oil and gas company in China in terms of proved crude oil and natural gas reserves as well as crude oil and natural gas production and sales. However, we compete with Sinopec for the acquisition of desirable crude oil and natural gas prospects. Similarly, we face some competition in the development of offshore oil and gas resources. We believe that our experience in crude oil and natural gas exploration and production and our advanced exploration and development technologies that are suitable for diverse geological conditions in China will enable us to maintain our dominant position in discovering and developing crude oil and natural gas reserves in China.


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Refining and Marketing and Chemicals Operations and Marketing Operations
 
We compete with Sinopec in our refining and marketing and chemicals operations and marketing operations on the basis of price, quality and customer service. Most of our refineries and chemical plants are located in the northeastern northwestern and northernnorthwestern regions of China where we have the dominant market share for refined products and chemical products. We also sell the remainder of our refined products and chemical products into the eastern, southern, southwestern and central-southern regions of China, where our products have a considerable market share. The eastern and southern regions of China, where refined products and chemical products are in higher demand, are important markets for our refined products and chemical products. Sinopec has a strong presence in the eastern and southern regions of China in competition with us, and most of Sinopec’s refineries, chemical plants and distribution networks are located in these regions in close proximity to these

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markets. Moreover, as the newly constructed facilities of CNOOC commenced operation in the same region, large quantity of chemical products have been marketed into that area. As a result, the competition ishas further intensified. We expect that we will continue to face competition from, among other competitors, Sinopec and CNOOC in increasing our refined products and chemical products sales in these regions. See “Item 3 — Key Information — Risk Factors”.
 
We also face competition from imported refined products and chemical products on the basis of price and quality. As a result of China’s entry into the WTO we expect thatand the continuous expansion of China’s free trade zones, competition from foreign producers of refined products and chemical products may increasehas increased and the retail and wholesale markets in China for refined products and chemical products will be gradually opened to foreign competition as tariff and non-tariff barriers for imported refined products and chemical products will be reduced or eliminatedare being lifted over time, includingtime. For example, sales of chemical products imported from the opening over time of retail and wholesale marketsMiddle East have increased rapidly in China forin recent years. We will face more and more challenges in the competition of refined products and chemical products to foreign competition. Our ability to compete with foreign producers of refined products and chemical products will depend on our abilityproducts. All these force us to reduce our production costs, and improve the quality of our products.products and optimize our product mix. See “Item 3 — Key Information — Risk Factors”.
Natural Gas and Pipeline Operations
 
We are the largest supplier of natural gas supplier in terms of volume of natural gas supplied.the PRC. Currently, we face very limited competition in the supply of natural gas in Beijing Municipality, Tianjin Municipality, Hebei Province, Shanghai Municipality, Jiangsu Province, Zhejiang Province, Anhui Province, Henan Province, Hubei Province, Hunan Province and the northwestern regions of China, our existing principal markets for natural gas. Currently, Sinopec has natural gas fields in Sichuan Province and Chongqing Municipality and sells natural gas to users in Sichuan and Chongqing. We, therefore, have limited competition from Sinopec in our markets in Sichuan Province and Chongqing Municipality. Further, we intend to expand our markets for natural gas into the coastal regions in easternsoutheastern China where we may face competition from CNOOC and, to a lesser extent, Sinopec. We believe that our dominant natural gas resources base, our relatively advanced technologies and skills in managing long distance pipelines will enable us to continue to be a dominant player in the natural gas markets in China.
Environmental Matters
 
Together with other companies in the industries in which we operate, we are subject to numerous national, regional and local environmental laws and regulations concerningand environmental regulations promulgated by the governments in whose jurisdictions we have operations. These laws and regulations concern our oil and gas exploration and production operations, petroleum and petrochemical products and other activities. In particular, some of these laws and regulations:
 • require an environmental evaluation report to be submitted and approved prior to the commencement of exploration, production, refining and chemical projects;
 
 • restrict the type, quantities, and concentration of various substances that can be released into the environment in connection with drilling and production activities;
 
 • limit or prohibit drilling activities within protected areas and certain other areas; and


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 • impose penalties for pollution resulting from oil, natural gas and petrochemical operations, including criminal and civil liabilities for serious pollution.
 
These laws and regulations may also restrict air emissions and discharges to surface and subsurface water resulting from the operation of natural gas processing plants, chemical plants, refineries, pipeline systems and other facilities that we own. In addition, our operations are subject to laws and regulations relating to the generation, handling, storage, transportation, disposal and treatment of solid waste materials.
 
We anticipate that the environmental laws and regulations to which we are subject will become increasingly strict and are therefore likely to have an increasing impact on our operations. It is difficult, however, to predict accurately the effect of future developments in such laws and regulations on our future earnings and operations. Some risk of environmental costs and liabilities is inherent in

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certain of our operations and products, as it is with other companies engaged in similar businesses. We cannot assure you that material costs and liabilities will not be incurred. However, we do not currently expect any material adverse effect on our financial condition or results of operations as a result of compliance with such laws and regulations. We paid pollutant discharge fees of approximately RMB 182RMB231 million, RMB 199RMB200 million and RMB 211RMB301 million in 2004, 20052007, 2008 and 2006,2009, respectively.
 
To meet future environmental obligations, we are engaged in a continuous program to develop effective environmental protection measures. This program includes research on:
• building environment-friendly projects;
 • reducing sulphur levels in heavy fuel oil and diesel fuel;
 
 • reducing olefin and benzene content in gasoline, and continuously reducing the quantity of emissions and effluents from our refineries and petrochemical plants; and
 
 • developing and installing monitoring systems at our pollutant discharge openings and developing environmental impact assessments for majorconstruction projects.
 
Our capital expenditures on environmental programs in 2004, 20052007, 2008 and 20062009 were approximately RMB 1,345RMB2,299 million, RMB 1,633RMB1,366 million and RMB 4,634RMB1,336 million, respectively.
 On December 23, 2003, a gas blow-out incident occurred at our Luojia No. 16H gas well located in Kaixian County, Chongqing Municipality. The gas blow-out caused the leakage of a large quantity of sulfurated hydrogen, resulting in injuries and death to many residents living in the surrounding areas. The PRC government investigated this gas blow-out and found CNPC, who had provided drilling services to us for the Luojia No. 16H gas well, liable. This incident has not had, and we do not believe it will have, a material adverse effect on our results of operations and financial condition.
Because a number of our production facilities are located in populated areas, we have established a series of preventative measures to improve the safety of our employees and surrounding residents and minimize disruptions or other adverse effects on our business. These measures include:
 • providing each household in areas surrounding our production facilities with printed materials to explain and illustrate safety and protection knowledge and skills; and
 
 • enhancing the implementation of various effective safety production measures we have adopted previously.
 
We believe that these preventative measures have helped minimize the possibility of similar incidents resultingthat may result in serious casualties and environmental consequences. In addition, the adoption of these preventative measures has not required significant capital expenditures to date, and therefore, will not have a material adverse effect on our results of operations and financial condition.
 On November 13, 2005, an explosion occurred at one
Legal Proceedings
We are involved in certain legal proceedings concerning matters arising in the ordinary course of our branch companies in Jilin Province. The Chinese government completed the investigation of this accident in December 2006. Basedbusiness. We believe, based on the results of the investigation, our company paid a fine of RMB 1 million in settlement of all liabilities arised from the accident.
      We have implemented the following measures to prevent future occurrences of similar incidents:
• conducting environmental risk monitoring; and
• establishing preventive systems for emergency use at refinery and petrochemical enterprises.
Legal Proceedings
      We are not involved in any judicial and arbitralcurrently available information, that these proceedings, the results of which,individually or in the aggregate, wouldwill not have a material adverse impacteffect on our results of operations or financial condition.


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Properties
 
Under a restructuring agreement we entered into with CNPC on the date of our establishment in 1999,March 10, 2000, CNPC undertook to us the following:
 • CNPC would use its best endeavors to obtain formal land use right licenses to replace the entitlement certificates in relation to the 28,649 parcels of land, which were leased or transferred to us from CNPC, within one year from August, September and October 1999 when the relevant entitlement certificates were issued;
 
 • CNPC would 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 us are located; and
 
 • CNPC would obtain individual building ownership certificates in our name for all of the 57,482 buildings transferred to us by CNPC, before November 5, 2000.
 
As of December 31, 2006,2009, CNPC obtained formal land use right certificates for 27,49427,765 of the 28,649 parcels of land and ownership certificates for some buildings. The governmental procedures for the above-mentioned service stations located on collectively owned land have not been completed to date. Our directorsWe believe 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 building ownership certificates have not been obtained or the fact that the relevant governmental procedures have not been completed. Our directors believe that this will not have any material adverse effect on our results of operations and financial condition.
 We own substantially all of the equipment and production facilities relating to all our business activities.
We hold exploration and production licenses covering all of our interests in developed and undeveloped acreage, and oil and natural gas wells.wells and relevant facilities. See “ —“— Exploration and Production — Properties”.
Regulatory Matters
OverviewIntellectual Property
 
Our company logo “(LOGO)” is jointly owned by us and CNPC and has been used since December 26, 2004. We have applied for trademark registrations of the logo with the State Trademark Bureau of the PRC. To date, several of our applications have been approved and others are either in the process of review or public announcement phase. In addition, we have applied for international trademark registration for our logo in other jurisdictions. We have received 27 Madrid International Trademark Registration Certificates for our logo covering 50 jurisdictions and 390 trademark registration certificates from individual countries and regions.
As of December 31, 2009, we owned approximately 3,800 patents in China and other jurisdictions. We were granted 700 patents in China in 2009.
Regulatory Matters
Overview
China’s oil and gas industry is subject to extensive regulation by the PRC government with respect to a number of aspects of exploration, production, transmission and marketing of crude oil and natural gas as well as production, transportation and marketing of refined products and chemical products. The following central government authorities exercise control over various aspects of China’s oil and gas industry:
 • The Ministry of Land and Resources has the authority for granting, examining and approving oil and gas exploration and production licenses, the administration of registration and transfer of exploration and production licenses.
 
 • The Ministry of Commerce:
 —• sets the import and export volume quotas for crude oil and refined products according to the overall supply and demand for crude oil and refined products in China as well as the WTO requirements for China;


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 —• issues import and export licenses for crude oil and refined products to oil and gas companies that have obtained import and export quotas; and
 
 —• examines and approves production sharing contracts and Sino-foreign equity and cooperative joint venture contracts.

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 • The National Development and Reform Commission:
 —• has the industry administration and policy coordination authority over China’s oil and gas industry;
 
 —• determines mandatory minimum volumes and applicable prices of natural gas to be supplied to certain fertilizer producers;
 
 —• publishes guidance prices for natural gas and retail median guidance prices for certain refined products, including gasoline and diesel;
 
 —• approves significant petroleum, natural gas, oil refinery and chemical projects set forth under the Catalogues of Investment Projects Approved by the Central Government; and
 
 —• approves Sino-foreign equity and cooperative projects exceeding certain capital amounts.
Exploration Licenses and Production Licenses
 
The Mineral Resources Law authorizes the Ministry of Land and Resources to exercise administrative authority over the exploration and production of mineral resources within the PRC. The Mineral Resources Law and its supplementary regulations provide the basic legal framework under which exploration licenses and production licenses are granted. The Ministry of Land and Resources has the authority to issue exploration licenses and production licenses. Applicants must be companies approved by the State Council to engage in oil and gas exploration and production activities.
 
Applicants for exploration licenses must first register with the Ministry of Land and Resources blocks in which they intend to engage in exploration activities. The holder of an exploration license is obligated to make a progressively increasing annual minimum exploration investment relating to the exploration blocks in respect of which the license is issued. Investments range from RMB 2,000RMB2,000 per square kilometer for the initial year to RMB 5,000RMB5,000 per square kilometer for the second year, and to RMB 10,000RMB10,000 per square kilometer for the third and subsequent years. Additionally, the holder has to pay an annual exploration license fee that starts at RMB 100RMB100 per square kilometer for each of the first three years and increases by an additional RMB 100RMB100 per square kilometer per year for subsequent years up to a maximum of RMB 500RMB500 per square kilometer. The maximum term of an oil and natural gas exploration license is seven years, subject to twice renewal upon expiration of the original term, with each renewal being for a two-year term.up to two years. At the exploration stage, an applicant can also apply for a progressive exploration and production license that allows the holder to test and develop reserves not yet fully proven. Upon the detection and confirmation of the quantity of reserves in a certain block, the holder must apply for a production license based on economic evaluation, market conditions and development planning in order to shift into the production phase in a timely fashion. In addition, the holder needs to obtain the right to use that block of land. Generally, the holder of a full production license must obtain a land use rights certificate for industrial land use covering that block of land.
 
The Ministry of Land and Resources issues production licenses to applicants on the basis of the reserve reports approved by the relevant authorities. Production license holders are required to pay an annual production right usage fee of RMB 1,000RMB1,000 per square kilometer. Administrative rules issued by the State Council provide that the maximum term of a production license is 30 years. In accordance with a special approval from the State Council, the Ministry of Land and Resources has issued production licenses with terms coextensive with the projected productive life of those reservoirs.the assessed proven reserves as discussed above. Each of our production licenses is renewable upon our application 4030 days prior to expiration. If oil and gas prices increase, the productive life of our crude oil and natural gas reservoirs may be extended beyond the current terms of the relevant production licenses.
 
Among the major PRC oil and gas companies, the exploration licenses and production licenses held by PetroChina, Sinopec and CNOOC account for the majority of mining rights in China. Among those companies,


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those companies,
PetroChina and Sinopec primarily engage in onshore exploration and production, while CNOOC primarily engages in offshore exploration and production.
Pricing
Crude Oil
Crude Oil
 
PetroChina and Sinopec set their crude oil median prices each month based on the average Singapore market FOB prices for crude oil of different grades in the previous month. In addition, PetroChina and Sinopec negotiate a premium or discount to reflect transportation costs, the differences in oil quality and market supply and demand. The National Development and Reform Commission will mediate if PetroChina and Sinopec cannot agree on the amount of premium or discount.
Refined Products
Refined Products
 
Since October 2001, PetroChina has set its retail prices within an 8% floating range of the published retail median guidance prices of gasoline and diesel published by the National Development and Reform Commission (but after March 26, 2006, the price of diesel for fishing vessels has been set in line with the published retail base price, published in the current year, with no upward adjustment for the time being). These retail median guidance prices of gasoline and diesel vary in each provincial level distribution region. From October 2001 to early 2006, the National Development and Reform Commission published the retail median guidance prices of gasoline and diesel from time to time based on the weighted average FOB Singapore, Rotterdam and New York trading prices for diesel and gasoline plus transportation costs and taxes. Generally, adjustments were made only if the weighted average prices fluctuate beyond 8% of the previously published retail median guidance price. In 2006, the PRC government, under its macro economic controls, introduced a new mechanism for determining the prices of refined products.
 PetroChina sets
On December 18, 2008, the wholesalePRC government further improved the pricing mechanism and the domestic prices for its gasoline and dieselof refined oil products continue to be indirectly linked to the international market. Under the improved mechanism, the domestic selling price of the refined oil products are determined on the basis of itsthe corresponding international crude oil prices and by taking consideration of the average domestic processing cost, tax, selling expenses and appropriate profit margin. The prices of diesel and gasoline continue to follow the government set prices and the government guiding prices. The retail pries of diesel and gasoline are subject to highest retail prices and a discount to its retail prices of at least 4.5% as requiredset by the National Developmentgovernment. The highest retail price is determined on the basis of the ex-works price and Reform Commission.the profit margin for retailing activities.
 In addition,
On May 7, 2009, the National Development and Reform Commission setspromulgated and implemented the ex-works medianMeasures for Administration of Petroleum Price(on trial) (the “Oil Price Measures”). The Oil Price Measures officially specifies the relevant conditions and mechanisms for the adjustment of the prices of China’s domestic refined oil products. Under the Oil Price Measures, when the change in the average price of crude oil on the international market for gasoline and diesel sold for military use and national reserve. For other institutional customers including airlines and railway operators, PetroChina22 consecutive days exceeds 4%, prices of domestic refined oil products may chargebe adjusted accordingly. When the price of crude oil on the international market becomes lower than US$80 per barrel, the prices of domestic refined oil products shall be computed on the basis of normal profit margin for processing. On the ex-works mediancontrary, when the price of crude oil on the international market becomes higher than US$80 per barrel, the profit margin for processing shall be reduced until being reduced to zero. When the price of crude oil becomes higher than US$130 per barrel, appropriate financial and tax policies shall be adopted to ensure the production and supply of refined oil products and the stability of the domestic gasoline and diesel prices. Retailers of refined oil products may set the retail prices adjustment within an upward or downward adjustment up to 8%.freely as long as their retail prices are not higher than the highest retail prices of gasoline and diesel set by the government.
Chemical Products
Chemical Products
 
PetroChina determines the prices of all of its chemical products.
Natural Gas
Natural Gas
 
The price of natural gas has two components: ex-works price and pipeline transportation tariff.


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Prior to December 26, 2005, ex-works prices varied depending on whether or not the natural gas sold was within the government-formulated natural gas supply plan. For natural gas sold within the government-formulated supply plan, the National Development and Reform Commission fixed ex-works prices according to the nature of the customers. Most of these customers were fertilizer producers. For natural gas sold to customers not subject to the government-formulated supply plan, the National Development and Reform Commission published median guidance ex-works prices, and allowed natural gas producers to adjust prices upward or downward by up to 10%.

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On December 26, 2005, the National Development and Reform Commission reformed the mechanism for setting the ex-works prices of domestic natural gas by changing the ex-works prices to governmental guidance prices, and categorizing domestic natural gas into two categories. On the basis of the ex-works price set by the government, subject to the negationsnegotiations between the seller and the buyer, the actual ex-works price of the first category may float upward or downward up to 10%; while the actual ex-works price of the second category may float upward up to 10% and downward to any level. The price of the first category will be adjusted to the same level as the second category within three to five year.years. The National Development and Reform Commission does not allow PetroChina and Sinopec to charge different prices towards internal and external enterprises. On November 10, 2007, the National Development and Reform Commission increased the ex-works price of the industrial use natural gas by RMB400/thousand cubic meters.
 
On June 1, 2010, the National Development and Reform Commission raised the median ex-works prices of the domestic onshore natural gas and as a result of that, the median ex-works price of all the oil and gas fields in China increased by RMB0.23/cubic meter. At the same time, the National Development and Reform Commission combined the first category and the second category median ex-works prices of the natural gas from Dagang Oil Field, Liaohe Oil Field and Zhongyuan Oil Field, thus ending the “dual-track natural gas pricing system” as described above. In addition, the National Development and Reform Commission expanded the floating range of the median ex-works price by allowing the median ex-works price to float upward to 10% and downward to any level.
PetroChina negotiates the actual ex-works price with natural gas users within the benchmark price and the adjustment range set by the government and the adjustment range.government.
 
The National Development and Reform Commission sets the pipeline transportation tariff for the natural gas transported by pipelines constructed prior to 1991. For natural gas transported by pipelines constructed after 1991, PetroChina submits to the National Development and Reform Commission for examination and approval proposed pipeline transmission tariffs based on the capital investment made in the pipeline, the depreciation period for the pipeline, the ability of end users to pay and PetroChina’s profit margin.
On April 25, 2010, the National Development and Reform Commission adjusted the originally government-set flat pipeline transportation tariff for the natural gas transported by pipelines. As a result of such adjustment, our average pipeline transportation tariff for the natural gas transported by pipelines increased from RMB0.06 per cubic meter to RMB0.14 per cubic meter.
Production and Marketing
Crude Oil
Crude Oil
 
Each year, the National Development and Reform Commission publishes the projected target for the production and sale of crude oil by PetroChina, Sinopec and CNOOC, based on the domestic consumption estimates submitted by domestic producers, including PetroChina, Sinopec and CNOOC, the production of these companies as well as the forecast of international crude oil prices. The actual production levels are determined by the producers themselves and may vary from the submitted estimates. Since January 1, 2007, when the Measures on the Administration of the Refined Products Market promulgated by the Ministry of Commerce became effective, qualified domestic producers are permitted to engage in the sale and storage of crude oil. Foreign companies are also allowed to establish and invest in enterprises to conduct crude oil-relatedoil business.


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Refined Products
Refined Products
 
Previously, only PetroChina, Sinopec and joint ventures established by the two companies had the right to conduct gasoline and diesel wholesale business. Other companies, including foreign invested companies, were not allowed to engage in wholesale of gasoline and diesel in China’s domestic market. In general, only domestic companies, including Sino-foreign joint venture companies, were permitted to engage in retail of gasoline and diesel. Since December 11, 2004, wholly-owned foreignwholly foreign-owned enterprises are permitted to conduct cruderefined oil retail business. Since January 1, 2007, when the Measures on the Administration of the Refined Products Market became effective, all entities meeting certain requirements are allowed to submit applications to the Ministry of Commerce to conduct gasoline and dieselrefined oil products wholesale, retail and storage businesses.
Natural Gas
Natural Gas
 
The National Development and Reform Commission publishes in each year the production targets for natural gas producers based on the annual production target prepared on the basis of consumption estimates submitted by all natural gas producers such as PetroChina. The National Development and Reform Commission also formulates the annual natural gas guidance supply plan, which requires natural gas producers to distribute a specified amount of natural gas to specified fertilizer producers, municipal governments and enterprises. The actual production levels of natural gas, except the amount supplied to the fertilizer producers, are determined by the natural gas producers.

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Foreign Investments
Cooperation in Exploration and Production with Foreign Companies
Cooperation in Exploration and Production with Foreign Companies
 
Currently, only CNPC and Sinopec have the right to cooperate with foreign companies in onshore crude oil and natural gas exploration and production in China. CNOOC has the right to cooperate with foreign companies in offshore crude oil and natural gas exploration and production in China.
 
Sino-foreign cooperation projects and foreign parties in onshore oil and gas exploration and production in China are generally selected through open bids and bilateral negotiations. Those projects are generally conducted through production sharing contracts. The Ministry of Commerce must approve those contracts.
 
As authorized by the Regulations of the PRC on Exploration of Onshore Petroleum Resources in Cooperation with Foreign Enterprises, CNPC has the right to enter into joint cooperation arrangements with foreign oil and gas companies for onshore crude oil and natural gas exploration and production. PetroChina does not have the capacity to enter into production sharing contracts directly with foreign oil and gas companies under existing PRC law. Accordingly, CNPC will continue to enter into production sharing contracts. After signing a production sharing contract, CNPC will, subject to approval of the Ministry of Commerce, assign to PetroChina most of its commercial and operational rights and obligations under the production sharing contract as required by the Non-competition Agreement between CNPC and PetroChina. See “Item 7 — Major Shareholders and Related Party Transactions — Contract for the Transfer of Rights under Production Sharing Contracts”.
Transportation and Refining
Transportation and Refining
Since December 1, 2007, PRC regulations permitencourage foreign minority ownershipinvestment in pipeline transportation,the construction and operation of oil and gas pipelines and storage facilities and oil jetties. There is no express general restriction onbut restrict foreign investment in refineries and petrochemical facilities. However, constructionwith an annual capacity of 8 million tons or lower. Construction of new refinery or ethylene facilities, expansion of existing refinery facilities and upgrading of existing ethylene facilities by increasing annual production capacity of more than 200 thousand tons are subject to the approval of relevant government authorities. The ethylene production of ethyleneprojects with an annual production capacity exceeding 600800 thousand tons must be conducted by companies majority-owned by Chinese entities.parties. Furthermore, when appropriate, projects must receive necessary approvals from relevant PRC government agencies. See “Item 3 — Key Information — Risk Factors”.
Import and Export
 
Since January 1, 2004, the2002, state-owned trading companies have been allowed to import crude oil under an automatic licensing system. Non-state-owned trading companies have been allowed to import crude oil and refine


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products subject to quotas. The export of crude oil and refined oil products by state-owned trading companies has been exempted from import quota and licensing control. Non-state-owned trading companies which are qualified to import crude oil and refine products are subject to quotas. Bothboth state-owned trading companies and non-state-owned trading companies are permitted to export crude oil and refined oil productsis subject to quotas.quota control. The Ministry of Commerce has granted PetroChina the right to conduct crude oil and refined product import and export business.
Capital Investment and Financing
 
Capital investments in exploration and production of crude oil and natural gas made by Chinese oil and gas companies are subject to approval by or filing with relevant government authorities. The development of new oil field with an annual production capacity equalfollowing projects are subject to or exceeding one million tons and new natural gas field with an annual production capacity equal to or exceeding two billion cubic meters is required to be approvedapproval by the National Development and Reform Commission. Any otherCommission:
(1) new oil field development projectprojects with an annual capacity of 1 million tons or above and new gas field development projects with an annual capacity of 2 billion cubic meters or above;
(2) facilities for taking delivery of, storing or transporting imported liquefied natural gas, and cross-province (region or municipality) major oil transmission pipeline facilities;
(3) cross-province (region or municipality) gas transmission facilities, or gas transmission facilities with an annual capacity of 500 million cubic meters or above;
(4) new refineries, first expansion of existing refineries, new ethylene projects, and transformation or expansion of existing ethylene projects which will result in an additional annual capacity of 200 thousand tons;
(5) new PTA, PX, MDI and TDI projects, and transformation of existing PTA and PX projects which will result in an additional capacity of 100 thousand tons;
(6) potassium mineral fertilizer projects with an annual capacity of 500 thousand tons or more; and
(7) national crude oil and natural gas needs to be filed with the National Development and Reform Commission. Oil and gas companies need to obtain approval from thereserve facilities.

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National Development and Reform Commission and the State Administration of Foreign Exchange to borrow from foreign banks and foreign governments in connection with those capital investments.
Taxation, Fees and Royalty
 
PetroChina is subject to a variety of taxation, fees and royalty. The table below sets forth the various taxation, fees and royalty payable by PetroChina or by Sino-foreign oil and gas exploration and development cooperative projects. Since January 1, 2000, PetroChina and its wholly-ownedwholly owned subsidiary, Daqing Oilfield Company Limited, and branch companies have been taxed on a consolidated basis as approved by the Ministry of Finance and the State Taxation Bureau.
     
Tax itemItem
 
Tax baseBase
 
Tax Rate
Enterprise income tax
Taxable incomeEffective January 1, 2008, charged at the legal rate of 25%. However, certain of our qualified operations in west regions of the PRC are entitled to a rate of 15% prior to 2010.
     
Enterprise incomeValue-added tax
 Taxable incomeCurrently at a rate of 33%. However, our qualified branch companies in the west regions of the PRC are entitled to a rate of 15%. Tax concession or exemption enjoyed by any subsidiary or branch company continues to apply. Effective from January 1, 2008, PRC enterprises will be subject to new income tax rates. Its impact on our operating results and financial positions of future periods remains uncertain until more detailed regulations and measures are announced.
Value-added tax
RevenueTurnover 13% for liquified natural gas, natural gas, liquified petroleum gas, agricultural film and fertilizers and 17% for other items. PetroChina charges value-added tax from its customers at the time of settlement on top of the selling prices of its products on behalf of the taxation authority. The value-added tax paid by PetroChina for purchasing materials to be consumed during the production process and for charges paid for drilling and other engineering services and labor is deducted from output value-added tax payable by PetroChina. Since March 14, 2006, the rebate of the value-added tax paid in connection with export of gasoline has been suspended.
 
  Sales volume 5% for the Sino-foreign oil and gas exploration and development cooperative projects. However input value-added tax cannot be deducted.

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Tax item
Business tax
 Tax baseIncome from transportation services Tax Rate3%
     
Business tax
Revenue from transportation services3%
Consumption tax
 Aggregate volume sold or self-consumed RMB 277.6 per ton for gasoline; sinceEffective January 1, 1999, RMB 388.64 per ton for leaded gasoline.

RMB 117.6 per ton for diesel.

Since April 1, 2006, RMB 277 per ton for naphtha and levied at2009, the rate of 30%unit tax amount of the taxable amountconsumption tax for the time being.

Since April 1, 2006, RMB 256.4refined oil products was increased as follows:
RMB1.0 per tonliter for solvent naphtha and levied at the rate of 30% of the taxable amountunleaded gasoline
RMB0.8 per liter for the time being.

Since April 1, 2006, RMB 225.2 per ton for lubricants and levied at the rate of 30% of the taxable amount for the time being.

Since April 1, 2006, RMB 101.5 per ton for fuel oil and levied at the rate of 30% of the taxable amount for the time being.

Since April 1, 2006, RMB 124.6 per ton for aviation kerosene and not levied for the time being.diesel.


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Tax Item
Tax Base
Tax Rate
 
RMB1.0 per liter for naphtha, solvent naphtha and lubricants.
RMB0.8 per liter for fuel oil
Resource tax
 Aggregate volume sold or self-consumed SinceEffective July 1, 2005, resource tax applicable to crude oil of our company was adjusted upward from the original RMB 8RMB8 to 30 per ton to RMB 14RMB14 to 30 per ton, and the resource tax for natural gas was adjusted from the original RMB 2RMB2 to 15 per thousand cubic meter to RMB 7RMB7 to 15 per thousand cubic meter.

The actual applicable rate for each oil field may differ, depending on the resource differences, volume of the exploration and production activities and costs required for the production at the particular oil field.
 
Effective from June 1, 2010, the resource tax payable by the resource tax payers in connection with their extraction of crude oil and natural gas in Xinjiang shall be collected based on value at the rate of 5%. The amount of the resource tax payable = sales value × tax rate. Taxpayers shall be eligible for a reduced resource tax rate in connection with their extraction of viscous oil, high pour-point oil, and high sour natural gas as well as enhanced oil recovery.
Compensatory fee for mineral resources
 RevenueTurnover 1% for crude oil and natural gas
 
Crude oil special gain levy
 Sales amount above certainspecific threshold Effective March 26, 2006, levied on the domestic crude oil sold at or above US$40/barrel, with a five-level progressive tax rates, varying from 20% to 40%

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Tax item
Exploration license fee
 Tax baseArea Tax RateRMB100 to 500 per square kilometer per year
     
ExplorationProduction license fee
 Area RMB 100 to 500RMB1,000 per square kilometer per year
 
Production license fee
 AreaRMB 1,000 per square kilometer per year
 
Royalty fee(1)
 Production volume Progressive rate of 0–12.5%0-12.5% for crude oil and 0–3%0-3% for natural gas
 
(1)Payable only by Sino-foreign oil and gas exploration and development cooperative projects. The project entity of those cooperative projects is not subject to any other resource tax or fee.
 
The PRC Highway Law, as amended on October 31, 1999, provides that the PRC government will collect funds for highway maintenance by imposing fuel taxes. TheOn December 18, 2008, the State Council will formulate specific implementation methodspromulgated theCircular on Implementing the Reform of Refined Oil Product Pricing and procedures forRelevant Tax and Charge Collection. According to the imposition ofCircular, effective January 1, 2009, the PRC government ceased to impose the fuel oil tax. The State Council has not yet announced or published any specific rate, implementation method or procedure for the impositionInstead, as part of the tax.reform of the refined oil product pricing, the government used the existing system of taxation, methods of tax collection and means of taxation administration to further improve the refined oil product pricing mechanism. As a result, the unit tax amount of the consumption tax for refined oil products was increased.

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Environmental Regulations
We are subject to various PRC national environmental laws and regulations and also environmental regulations promulgated by the local governments in whose jurisdictions we have operations. China has adopted extensive environmental laws and regulations that affect the operation of the oil and gas industry. There are national and local standards applicable to emissions control, discharges to surface and subsurface water and disposal, and the generation, handling, storage, transportation, treatment and disposal of solid waste materials.
 
The environmental regulations require a company, such as us, to register or file an environmental impact report with the relevant environmental bureau for approval before it undertakes any construction of a new production facility or any major expansion or renovation of an existing production facility. The new facility or the expanded or renovated facility will not be permitted to operate unless the relevant environmental bureau has inspected to its satisfaction that environmental equipment that satisfies the environmental protection requirements has been installed for the facility. A company that wishes to discharge pollutants, whether it is in the form of emission, water or materials, must submit a pollutant discharge declaration statement detailing the amount, type, location and method of treatment. After reviewing the pollutant discharge declaration, the relevant environmental bureau will determine the amount of discharge allowable under the law and will issue a pollutant discharge license for that amount of discharge subject to the payment of discharge fees. If a company discharges more than is permitted in the pollutant discharge license, the relevant environmental bureau can fine the company up to several times the discharge fees payable by the offending company for its allowable discharge, or require the offending company to close its operation to remedy the problem.
ITEM 4A —UNRESOLVED STAFF COMMENTS
ITEM 4A — UNRESOLVED STAFF COMMENTS
We do not have any unresolved Staff comments that are required to be disclosed under this item.

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ITEM 5 —OPERATING AND FINANCIAL REVIEW AND PROSPECTS
ITEM 5 — OPERATING AND FINANCIAL REVIEW AND PROSPECTS
General
 
You should read the following discussion together with our consolidated financial statements and their notes included elsewhere in this annual report. Our consolidated financial statements have been prepared in accordance with IFRS, which differ in many respects from US GAAP. Note 37 to our consolidated financial statements included elsewhere in this annual report and the section headed “— Other Information — US GAAP Reconciliation” summarize the significant differences between IFRS and US GAAP as they relate to us.IFRS.
Overview
 
We are engaged in a broad range of petroleum and natural gas related activities, including:
 • the exploration, development, production and sale of crude oil and natural gas;
 
 • the refining transportation, storage and marketing of crude oil and petroleum products;
• products, and the production and marketing of basic petrochemical products, derivative chemical products and other chemical products;
• marketing and trading of refined oil products; and
 
 • the transmission and storage of natural gas, crude oil and refined oil products and natural gas as well as the sale of natural gas.
 
We are China’s largest producer of crude oil and natural gas and are one of the largest companies in China in terms of sales. In the year ended December 31, 2006,2009, we produced approximately 830.7843.5 million barrels of crude oil and approximately 1,371.92,122.2 billion cubic feet of natural gas for sale. Our refineries also processed approximately 785828.6 million barrels of crude oil in the year ended December 31, 2006.2009. In the year ended December 31, 2006,2009, we had total revenueturnover of RMB 688,978RMB1,019,275 million and net incomeprofit attributable to the owners of RMB 142,224our company of RMB103,387 million.
Factors Affecting Results of Operations
 
Our results of operations and theperiod-toperiod-to-period-period comparability of our financial results are affected by a number of external factors, including changes in the prices of crude oil, refined products, natural gas and chemical products, decrease in our crude oil reserves in China and fluctuations in exchange rates and interest rates.


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Crude Oil Prices
Crude Oil Prices
 
Our results of operations are substantially affected by crude oil prices. Since March 2001, we and Sinopec have set our crude oil median prices monthly based on the Singapore market FOB prices for crude oil. Our actual realized crude oil prices include a premium on, or discount from, the median prices which primarily reflects transportation costs, differences in oil quality and market supply and demand conditions.
 Since September 1, 1999, the discounts and premiums applied to our crude oil sales have been determined in accordance with a crude oil premium or discount calculation agreement and its supplemental agreement we entered into with Sinopec. These agreements establish premiums or discounts which effect adjustments to the benchmark prices. These agreements do not obligate either party to purchase or sell any crude oil and is thus subject to renegotiation. Under these agreements, the National Development and Reform Commission, formerly the State Development Planning Commission, will mediate if we cannot agree with Sinopec on the premium or discount applicable to a particular crude oil purchase.
The table below sets forth the median prices for our principal grades of crude oil in 2004, 20052007, 2008 and 20062009 and the negotiated premiums or discounts applicable to those grades of crude oil since 2004.

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    Median prices for principal grades of Premium/(discount)
    crude oil (RMB/barrel) (RMB/barrel)
       
    Year 2004 Year 2005 Year 2006  
Grade of crude oil Benchmark average average average 2004 2005 2006
               
Daqing  Minas   300.7   430   513   0   (4.4)  (3.8)
                             
Jidong  Minas   300.7   430   513   0   (4.4)  (3.8)
                             
Huabei  Minas   300.7   430   513   1.3   (3.0)  (2.4)
                             
Dagang  Cinta   290.5   412   494   1.4   (1.8)  (2.5)
                             
Tarim  Minas   300.7   430   513   (34.6)  (34.9)  (34.6)
                             
Tuha  Tapis   329.2   457   554   (25.5)      (29.0)
                             
      In 2006, the median prices for our principal grades of crude oil and crude oil produced in our Daqing oil region were RMB 501 per barrel and RMB 513 per barrel, respectively.2007.
 
                             
    Median Prices for Principal Grades of
      
    Crude Oil (RMB/Barrel) Premium/(Discount)
    Year 2007
 Year 2008
 Year 2009
 (RMB/Barrel)
Grade of Crude Oil
 Benchmark Average Average Average 2007 2008 2009
 
Daqing  Cinta   536   701   390   (3.8)  (3.8)  (3.8)
Jidong  Cinta   536   701   390   (3.8)  (3.8)  (3.8)
Huabei  Cinta   536   701   390   (3.9)  (3.9)  (3.9)
Dagang  Duri   512   651   350   (4)  (4)  (4)
Tarim  Cinta   536   701   390   (51)  (51)  (51)
Tuha  Minas   571   729   418   (36)  (36)  (36)
Increases or decreases in the price of crude oil in China have a significant effect on the revenueturnover from our exploration and production segment. As a result ofOur turnover from the increases in the prices and sales volume of crude oil and natural gas, the revenue from our exploration and production segment increased 24.9% from RMB 337,208 million infor the year ended December 31, 2005 to2009 was RMB 421,340405,326 million, inrepresenting a decrease of 35.3% from RMB626,367 million for the year ended December 31, 2006.2008, mainly as a result of the decreases in the prices of crude oil. In the year ended December 31, 2006,2009, our average realized selling price for crude oil was RMB 477RMB368 per barrel, increaseddecreased by 20%39.5% from RMB 396RMB608 per barrel in the year ended December 31, 2005.2008. See “Item 4 — Information on the Company — Regulatory Matters — Pricing” for a more detailed discussion of current PRC crude oil pricing regulations.
Refined Product Prices
Refined Product Prices
 Prior to October 2001, the State Development Planning Commission published from time to time retail median gasoline and diesel guidance prices for major cities and provinces. Once published, the retail median prices remained unchanged until either we or Sinopec requested an adjustment and demonstrated that the cumulative change of the FOB Singapore gasoline or diesel trading price from the then applicable retail median guidance price exceeded 5%.
From October 2001 to early 2006, the State Development Planning Commission or the National Development and Reform Commission has adjusted such retail median prices from time to time to reflect the FOB Singapore, Rotterdam and New York trading prices for gasoline and diesel, supplemented by transportation costs and taxes. In 2006, the PRC government, under its macro economic controls, introduced a new mechanism for determining the prices of refined products. See “Item 4 — Information on the Company — Regulatory Matters — Pricing” for a more detailed discussion of current PRC refined products pricing regulations.
      Since October 2001,December 18, 2008, we and Sinopec have set our retail prices within an 8% floating range of the published median gasoline and diesel guidance prices published by the National Development and Reform Commission or its predecessor, the State Planning Commission. Beginning from December 19, 2008, the PRC government set upper limits for the retail prices of various refined oil products, which had previously been allowed to float within a floating range of the median guidance prices. We determine the prices of other refined products with reference to the published median guidance prices of gasoline and diesel. Our retail prices may differ from those of Sinopec within a given market. Our average realized selling prices tend to be higher in the western and northern regions of China, where we dominate the market, as compared to our average realized selling prices in the eastern and southern regions, where Sinopec has a stronger presence. See “Item 4 — Information on the company — Regulatory Matters — Pricing” for a more detailed discussion of current PRC refined products pricing regulations.


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As of the end of 2008, the ex works prices were RMB 6,229 per ton for 90# gasoline and RMB 5,625 per ton for 0# diesel. The following table sets forth the retailadjustments that were made to such median prices for 90(#) gasoline and 0(#) dieselfrom January 2009 to June 18, 2010, as published by the State Development Planning Commission or the National Development and Reform Commission from January 2006 to March 2007 when such adjustments were made.Commission.
         
  90(#) 0(#)
Date Gasoline Diesel
     
  (RMB/ton) (RMB/ton)
March 26, 2006  5,172   4,510 
May 24, 2006  5,672   5,010 
January 14, 2007  5,452   — 
         
  90(#)
 0(#)
Date
 Gasoline Diesel
  (RMB/ton) (RMB/ton)
 
January 15, 2009  (140)  (160)
March 25, 2009  290   180 
June 10, 2009  400   400 
June 30, 2009  600   600 
July 29, 2009  (220)  (220)
September 2, 2009  300   300 
September 30, 2009  (190)  (190)
November 10, 2009  480   480 
April 14, 2010  320   320 
June 1, 2010  (230)  (220)
Chemical Product Prices
 
Chemical Product Prices
We determine and set the prices of all chemical products produced by our chemicals business segment.segment based on market conditions.
Natural Gas Prices
Natural Gas Prices
 The price of our
Our natural gas price is comprised of the ex-works price and pipeline transportation tariff.
 Prior to December 26, 2005, ex-works prices varied depending on whether the natural gas sold was within the government-formulated natural gas supply plan. For natural gas sold within the government-formulated supply plan, the National Development and Reform Commission fixed ex-works prices according to the nature of the customers. Most of these customers were fertilizer producers. For natural gas sold to customers not subject to the government-formulated supply plan, the National Development and Reform Commission published median guidance ex-works prices, and allowed natural gas producers to adjust the prices upward or downward by up to 10%.
      On December 26, 2005, the National Development and Reform Commission reformed the mechanism for setting the ex-works prices of domestic natural gas by changing the ex-works prices to governmental guidance prices, and categorizing the domestic natural gas into two tiers. On the basis of the ex-works price set by the government, subject to the negotiations between the seller and the buyer, the actual ex-works price of the first tier may float upward or downward of up to 10%; while the actual ex-works price of the second tier may float upward of up to 10% and downward to any level. The price of the first tier will be adjusted to the same level as the second tier within three to five years.
      PetroChina negotiatesWe negotiate the actual ex-works price with natural gas users on the basis of the benchmark price set by the government and the adjustment range.
      The National Development and Reform Commission sets the pipeline transportation tariff for the natural gas transported by pipelines constructed prior to 1991. For natural gas transported by pipelines constructed after 1991, PetroChina submits to the National Development and Reform Commission for examination and approval proposed pipeline transmission tariffs based on the capital investment made in the pipeline, the depreciation period for the pipeline, the ability of end users to pay and PetroChina’s profit margin.
      We sell our natural gas at prices which exceed our production and transportation costs.
      The results of operations of these segments will be impacted to the extent that our prices do not vary to reflect increases or decreases in our costs. See “Item 4 — Information on the Companycompany — Regulatory Matters — Pricing” for a furthermore detailed discussion of thesecurrent PRC natural gas products pricing controls.regulations.

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Foreign Currency Exposure
 
Foreign Currency Exposure
For a discussion of the effect of exchange rate fluctuations on our results of operations, please see “Item 11 — Quantitative and Qualitative Disclosures About Market Risk — Foreign Exchange Rate Risk”.
Interest Rate Exposure
Interest Rate Exposure
 
For a discussion of the effect of interest rate changes on our results of operations, please see “Item 11 — Quantitative and Qualitative Disclosures About Market Risk — Interest Rate Risk”.
Critical Accounting Policies
 
The preparation of our consolidated financial statements requires our management to select and apply significant accounting policies, the application of which may require management to make judgments and estimates that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of our financial statements, and the reported amounts of revenueturnover and expenses during the reporting period. Notwithstanding the presentation of our principal accounting policies in Note 3 to our consolidated financial statements included elsewhere in this annual report, we have identified the accounting policies below as most critical to our business operations and the understanding of our financial condition and results of operations presented in accordance with IFRS. Although these estimates are based on our management’s best knowledge of current events and actions, actual results ultimately may differ from those estimates.


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Accounting for Oil and Gas Exploration and Production Activities
Accounting of Oil and Gas Exploration and Production Activities
 
We use the successful efforts method of accounting, with specialized accounting rules that are unique to the oil and gas industry, for oil and gas exploration and production activities. Under this method, geological and geophysical costs incurred are expensed prior to the discovery of proved reserves. However, all costs for developmental wells, support equipment and facilities, and mineral interests in oil and gas properties are capitalized. Costs of exploratory wells are capitalized as construction in progress pending determination of whether the wells find proved reserves. The costs of exploratory wells will be further capitalized pending determination of whether the wells find sufficient economically exploitable reserves. For exploratory wells located in regions that do not require substantial capital expenditures before the commencement of production, the evaluation of the economic benefits of the reserves in such wells will be completed within one year following the completion of the exploration drilling. Where such evaluation indicates that no economic benefits can be obtained, the relevant costs of exploratory wells will be converted to dry hole exploration expenses. The relevant costs will be capitalized if the evaluation indicates that economic benefits can be obtained. For wells that found economically viable reserves in areas where a major capital expenditure would be required before production can begin, the related well costs remain capitalized only if additional drilling is under way or firmly planned. Otherwise the well costs are expensed as dry holes. We have no costs of unproved properties capitalized in oil and gas properties.
Oil and Gas Reserves
Oil and Gas Reserves
 
The estimation of the quantities of recoverable oil and gas reserves in oil and gas fields is integral to effective management of our exploration and production operations. Because of the subjective judgments involved in developing and assessing such information, engineering estimates of the quantities of recoverable oil and gas reserves in oil and gas fields are inherently imprecise and represent only approximate amounts.
 
Before estimated oil and gas reserves are designated as “proved”, certain engineering criteria must be met in accordance with industry standards and the regulations of the United States Securities and Exchange Commission.SEC. Proved oil and gas reserves are the estimated quantities of crude oil and natural gas which geological and engineering data demonstrate with reasonable

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certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Therefore, these estimates do not include probable or possible reserves. Our proved reserve estimates are updated annually by independent, qualified and experienced oil and gas reserve engineering firms in the United States. Our oil and gas reserve engineering department has policies and procedures in place to ensure that these estimates are consistent with these authoritative guidelines. Among other factors as required by authoritative guidelines, this estimation takes into account recent information about each field, including production and seismic information, estimated recoverable reserves of each well, and oil and gas prices and operating costs as of the date the estimate is made. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not on escalations based upon future conditions. Therefore, as prices and cost levels change from year to year, the estimate of proved reserves also changes. We have no costs of unproved properties capitalized in oil and gas properties.
 
Despite the inherent imprecision in these engineering estimates, estimated proved oil and gas reserve quantity has a direct impact on certain amounts reported in the financials statements. In addition to the capitalization of costs related to oil and gas properties on the balance sheet discussed earlier, estimated proved reserves also impact the calculation of depreciation, depletion and amortization expenses of oil and gas properties. The cost of oil and gas properties is amortized at the field level on the unit of production method. Unit of production rates are based on the total oil and gas reserves estimated to be recoverable from existing facilities based on the current terms of our production licenses. Our reserve estimates include only crude oil and natural gas which management believes can be reasonably produced within the current terms of the production licenses that are granted by the Ministry of Land and Resources, ranging from 30 years to 55 years from the effective date of issuance in March 2000, renewable upon application 30 days prior to expiration. Consequently, the impact of changes in estimated proved reserves is reflected prospectively by amortizing the remaining book value of the oil and gas property assets over the expected future production. If proved reserve estimates are revised downward, earnings could be affected by higher depreciation expense or an immediate write-down of the property’s book value had the downward revisions been significant See “— Property, Plant and Equipment” below. Given our large number of producing properties in our portfolio, and the estimated proved reserves, it is unlikely that any changes in reserve estimates will have a significant effect on prospective charges for depreciation, depletion and amortization expenses.


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In addition, due to the importance of these estimates to better understanding the perceived value and future cash flows of a company’s oil and gas operations, we have also provided supplemental disclosures of “proved” oil and gas reserve estimates prepared in accordance with authoritative guidelines elsewhere in this annual report.
Property, Plant and Equipment
Property, Plant and Equipment
 
We record property, plant and equipment, including oil and gas properties, initially at cost less accumulated depreciation, depletion and amortization. Cost represents the purchase price of the asset and other costs incurred to bring the asset into existing use. Subsequent to their initial recognition, property, plant and equipment are carried at revalued amount, being the estimated fair value at the date of the revaluation less accumulated depreciation and impairment losses. Revaluations are performed by independent qualified valuers on a periodic basis to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the balance sheet date. Revaluation surpluses realized through the depreciation or disposal of revalued assets are retained in the revaluation reserve and will not be available to offset against possible future revaluation losses. As disclosed in Note 1816 to our consolidated financial statements included elsewhere in this annual report, our property, plant and equipment, excluding oil and gas reserves, were revalued as of June 30, 1999. Subsequently, our refining and chemical production equipment and oil and gas properties were revalued as of September 30, 2003 and our oil and gas properties as of March 31, 2006.

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Depreciation, depletion and amortization to write off the cost or valuation of each asset, other than oil and gas properties, to its residual value is calculated using the straight-line method over the estimated useful life of such asset as follows:
   
Buildings and plant 20-408-40 years
PlantEquipment and machinery 10-254-30 years
Motor vehicles 7-154-14 years
Other5-12 years
 
We do not provide depreciation for construction in progress until it is completed and ready for use.
 
The useful lives of non-oil-and-gasnon-oil and gas properties are estimated at the time these purchases are made after considering future changes, business developments and our strategies. Estimated production lives for oil aidand gas properties are also made after considering the specific factors discussed under “— Oil and Gas Reserves” above. Should there be unexpected adverse changes in these circumstances or events, which include, among others, declines in projected operating results and negative industry or economic trends we would be required to assess the need to shorten the useful livesand/or make impairment provisions.
 
In performing this impairment assessment, we review internal and external sources of information to identify indications of these unexpected adverse changes. The sources utilized to identify indications of impairment are often subjective in nature and require us to use judgment in applying such information to our businesses. Our interpretation of this information has a direct impact on whether an impairment assessment is performed as at any given balance sheet date. Such information is particularly significant as it relates to our oil and gas properties. If an indication of impairment is identified, the recoverable amount of each cash generating unit is estimated, which is the higher of its fair pricevalue net of selling cost and its value in use, which is the estimated net present value of future cash flows to be derived from the continuing use of the asset and from its ultimate disposal. To the extent the carrying amount of a cash generating unit exceeds the recoverable amount, an impairment loss is recognized in the income statement.
 
Depending on our assessment of the overall materiality of the asset under review and complexity of deriving reasonable estimates of the recoverable value, we may perform such assessment utilizing internal resources or we may engage external advisors to advise us in making this assessment. Regardless of the resources utilized, we are required to make many assumptions in making this assessment, including our utilization of such asset, plans to continue to produce and develop proved and associated probable or possible reserves, the cash flows to be generated based on assumptions for future commodity prices and development costs, appropriate market discount rates and the projected market and regulatory conditions. Changes in any of these assumptions could result in a material change to future estimates of the recoverable value of any asset.


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Provision for Asset Decommissioning
Provision for Asset Decommissioning
Provision is recognized for the future decommissioning and restoration is recognized in full upon the actual decommissioning and restoring of oil and gas properties. The amountamounts of the provision recognized isare the present valuevalues of the estimated future expenditure determined in accordance withexpenditures. The estimation of the future expenditures is based on current local conditions and requirements. A correspondingrequirements, including legal requirements, technology, price level, etc. In addition to these factors, the relatedpresent values of these estimated future expenditures are also impacted by the estimation of the economic lives of oil and gas propertiesproperties. Changes in any of an amount equivalent tothese estimates will impact the provision is also created. This is subsequently depreciated as partoperating results and the financial position of the capital costscompany over the remaining economic lives of the oil and gas properties. Any change in the present value of the estimated expenditure other than the one due to passage of time which is regarded as interest cost, is reflected as an adjustment to the provision and oil and gas properties.
Impairment of Accounts Receivable
 Accounts receivables are recognized initially at fair value and subsequently measured at amortized costs, using the effective interest method, less provisions made for the impaired

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receivables. Accounts where there are indications that a receivable may be impaired or not collectible, a provision would be recorded based on best estimates to reduce the receivable balance to the amount that is expected to be collected. Factors considered in making a provision include the historical payment and collection experience, debtors’ credit worthiness and appropriate discount rates. The recording of provisions requires the application of judgments about the ultimate resolution of these accounts receivable. As a result, provisions are reviewed at each balance sheet date and adjusted to reflect our current best estimates.
Deferred Tax Assets
      We are required to exercise considerable judgment in making provisions for deferred tax under the liability method. Under this method, deferred tax is provided for temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. Specifically, we must make estimates of projected capital expenditures to be incurred and the resulting incremental timing difference that such capital expenditures would generate for the determination of the amount of temporary difference that will be recovered. We use currently enacted tax rates to determine deferred tax. If these rates change, we would have to adjust our deferred tax in the period in which these changes happen through the income statement.
      The principal temporary differences arise from depreciation on oil and gas properties and equipment and provision for impairment of receivables, inventories, investments and property, plant and equipment. Deferred tax assets relating to the carry-forward of unused tax losses are recognized to the extent that it is probable that future taxable income will be available against which the unused tax losses can be utilized.
Revenue Recognition
      Sales are recognized upon delivery of products and customer acceptance or performance of services, net of sales taxes and discounts. Revenues are recognized only when we have transferred to the buyer the significant risks and rewards of ownership of the goods in the ordinary course of business, and when the amount of revenue and the costs incurred or to be incurred in respect of the transaction can be measured reliably and the collectibility of the related receivables is reasonably assured.
      We sell part of the natural gas produced by us under take-or-pay contracts entered into with our customers. Customers who entered into such a take-or-pay contract are required to take or pay for the minimum amount of natural gas specified in the contract. Revenues from the sale and transportation of natural gas under take-or-pay contracts are recognized under the above accounting policies. Any advance payment for natural gas that has not been consumed will be recorded as deferred revenue until the natural gas has been actually consumed.
      We entered into a Crude Oil Mutual Supply Framework Agreement with Sinopec, which can be characterized as a buy/sell contract, and recognized the revenue derived from this agreement in our consolidated statements of income. Since the transactions under the agreement are separately invoiced and settled and cannot be offset with each other, they were not treated as non-monetary transactions as defined in APB Opinion No. 29 “Accounting for Non-monetary transactions”. In February 2005, the U.S. Securities and Exchange Commission issued a letter to the oil and gas industry requesting additional disclosures regarding buy/sell contracts. Accordingly, we have reviewed such transactions and estimated that, if we are required to report the net amount of such buy/sell contracts, our reported amount in the line items of “Sales and other operating revenues” and “Purchase, services and other” for the year ended December 31, 2004, 2005 and 2006 would be reduced by RMB 2,217 million, RMB 1,384 million and RMB 2,119 million, respectively. No change will occur to our net income as a result of this.

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      For detailed discussions of significant differences between IFRS and US GAAP, see Note 37 to our consolidated financial statements included elsewhere in this annual report and the section headed “— Other Information — US GAAP Reconciliation” below.
AcquisitionsOperating Results
 In June 2005, we entered into a capital contribution agreement with CNODC, Central Asia Petroleum Co., Ltd. and CNPC E&D, whereby, in December 2005 we acquired a 50% interest in CNPC E&D, a subsidiary of CNODC, for a consideration of RMB 20,741 million which was paid to CNPC E&D as our capital contribution. Upon consummation of the transaction, we obtained a 50% interest in certain overseas oil and gas assets transferred by CNODC to CNPC E&D. We also entered into a transfer agreement, pursuant to which, in December 2005, we transferred all of our interest in PTRI to CNPC E&D for a consideration of RMB 579 million. See “Item 4 — Information on the Company — Introduction — History and Development of the Company — Overview of Our Operations.”
      Upon completion of the acquisition and transfer, we obtained control over CNPC E&D by having the right to appoint four of the seven directors. Our investment in CNPC E&D and the transfer of PTRI to CNPC E&D will be accounted for in a manner similar to a uniting of interests since these transactions are among entities under common control by CNPC. Our consolidated financial statements will be restated as if operations of PetroChina and CNPC E&D had always been combined.
      We plan to continue to pursue attractive opportunities outside China as part of our business growth strategy to utilize both domestic and international resources to strengthen our competitiveness. As we continue to implement this strategy, we expect that acquisitions of overseas assets will over time have a material effect on our results of operations and financial condition.
      Pursuant to an acquisition agreement by and between our company and CNPC dated March 28, 2005, we acquired the refinery and petrochemical operations respectively owned by CNPC’s wholly-owned subsidiaries, Dayuan and Qingyang, from CNPC for which we paid a cash consideration of RMB 9 million.
      The acquisition is deemed a combination of entities under common control since we and the refinery and petrochemical operations of Dayuan and Qingyang are under the common control of CNPC. As a result, we have accounted for the acquisition in a manner similar to a uniting of interests, whereby the assets and liabilities of the refinery and petrochemical operations acquired are accounted for at historical cost to CNPC with net liabilities of RMB 183 million as at the effective date. Our prior years’ consolidated financial statements were restated to give effect to the acquisition in these periods as if the operations of our company and these operations had always been combined in these periods. The difference between the RMB 9 million acquisition price and the net liabilities transferred from CNPC was adjusted against equity.
      Pursuant to our board resolutions dated October 26, 2005, we made an offer to the holders of the A Shares of Jinzhou Petrochemical to acquire 150 million outstanding Jinzhou Petrochemical A Shares at the purchase price of RMB 4.25 per share. As of December 31, 2006, we acquired 141,497,463 Jinzhou Petrochemical A Shares, representing 17.97% of the total share capital of Jinzhou Petrochemical, for a total cash consideration of approximately RMB 602 million. After the acquisition, we own 98.92% of the total share capital of Jinzhou Petrochemical. Jinzhou Petrochemical was delisted from the Shenzhen Stock Exchange on January 4, 2006 upon approval from the China Securities Regulatory Commission.
      Pursuant to our board resolutions dated October 26, 2005, we made separate offers to the holders of the A Shares of Jilin Chemical and the holders of the H Shares of Jilin Chemical to acquire 200 million outstanding A Shares at the purchase price of RMB 5.25 per share, and 964.778 million outstanding H Shares (including ADSs) at the purchase price of HK$2.80 per Share.

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As of December 31, 2006, we paid an aggregate of RMB 3,799 million and acquired 189,357,726 A Shares and 961,495,999 H Shares (including ADSs) of Jilin Chemical, representing 32.32% of the total issued and outstanding shares of Jilin Chemical. Following the completion of this acquisition, we owned 99.61% of the total share capital of Jilin Chemical. Jilin Chemical H Shares, A Shares and ADSs were delisted from the Hong Kong Stock Exchange, Shenzhen Stock Exchange and the New York Stock Exchange on January 23, February 20 and February 15, 2006, respectively.
      Pursuant to our board resolutions dated October 26, 2005, we made an offer to the holders of A Shares of Liaohe Jinma to acquire 200 million issued and outstanding Liaohe Jinma A Shares at the purchase price of RMB 8.80 per share. As of December 31, 2006, we acquired 194,360,943 Liaohe Jinma A Shares, representing 17.67% of the total share capital of Liaohe Jinma for a total consideration of approximately RMB 1,713 million. Following the completion of this acquisition, we own 99.49% of the total share capital of Liaohe Jinma. Upon the approval by China Securities Regulatory Commission, Liaohe Jinma was delisted from the Shenzhen Stock Exchange on January 4, 2006.
      On December 6, 2005, we entered into two separate purchase agreements with two wholly-owned subsidiaries of CNPC, Liaohe Petroleum Exploration Bureau and China Petroleum Pipeline Bureau, to acquire from the two companies a 15.56% equity interest and a 20.17% equity interest, respectively, in the Fuel Oil Company, a 55.43% subsidiary of our company, with a total cash consideration of RMB 559 million. The Fuel Oil Company principally engages in investing in and developing of fuel oil in the upstream and downstream areas outside the PRC. Upon completion of the above acquisitions, we increased our interest in the Fuel Oil Company to 91.16%.
      In August 2006, CNPC E&D entered into an acquisition agreement to acquire a 67% equity interest in PetroKazakhstan Inc., or PKZ, from CNPC for a consideration of US$2,735 million. This acquisition, completed in December 2006, has been accounted for in a manner similar to a pooling of interests. This acquisition increased the level of our oil and gas assets and streamlined our existing exploration and development operations in Kazakhstan.
      In 2006, we acquired a 100% interest in an exploration block in Chad through CNPC E&D. This Chad Block covers an area of 220,000 square kilometers and a trap resource of more than 1,000 million barrels of crude oil and is currently one of our most important overseas exploration blocks.
Operating Results
The following discussion is based on our historical results of operations. As a result of the factors discussed above, such results of operations may not be indicative of our future operating performance. In 2009, we restated our consolidated financial statements to reflect the corporate mergers between the certain subsidiaries of our company and the certain subsidiaries of CNPC. These corporate mergers, whether individually or taken as a whole, do not have a significant effect on our company.

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Our income statement for each of the three years ended December 31, 2004, 20052007, 2008 and 20062009 is summarized in the table below.
             
  Year ended December 31,
   
  2004 2005 2006
       
  in million RMB in million RMB in million RMB
Total revenues  397,354   552,229   688,978 
             
Operating expenses  (246,216)  (360,058)  (491,002)
             
Income from operations  151,138   192,171   192,976 
             
Exchange gain (loss), net  8   88   74 
Interest expense, net  (1,523)  (838)  (1,154)
Income from equity affiliates and jointly controlled entities  1,621   2,401   2,277 
             
Income before income taxes  151,244   193,822   199,173 
Income taxes  (43,598)  (54,180)  (49,776)
(Income) loss attributable to minority interest  (3,803)  (6,280)  (7,173)
             
Net income  103,843   133,362   142,224 
             
 
             
  Year Ended December 31, 
  2007  2008  2009 
  (RMB in millions) 
 
Turnover  837,542   1,072,604   1,019,275 
Operating expenses  (636,525)  (913,033)  (875,831)
Profit from operations  201,017   159,571   143,444 
Exchange gain (loss), net  (751)  (1,081)  (783)
Interest expense, net  (1,572)  (767)  (3,813)
Share of profit of affiliates and jointly controlled entities  6,445   4,290   1,184 
Profit before income tax expense  205,139   162,013   140,032 
Income tax expense  (49,802)  (35,211)  (33,473)
Profit for the year attributable to non-controlling interest  (8,541)  (12,349)  (3,172)
             
Profit for the year attributable to owners of the company  146,796   114,453   103,387 
             
The table below sets forth our revenuesturnover by business segment for each of the three years ended December 31, 2004, 20052007, 2008 and 20062009 as well as the percentage changes in revenuesturnover for the periods shown.
                     
      2005   2006
      vs.   vs.
  2004 2005 2004 2006 2005
           
  (RMB in millions, except percentages)
Sales and other operating revenues
                    
Exploration and production  233,948   337,208   44.1%  421,340   24.9%
Refining and marketing  296,427   428,494   44.6%  543,299   26.8%
Chemicals and marketing  57,179   73,978   29.4%  82,791   11.9%
Natural gas and pipeline  18,255   26,214   43.6%  38,917   48.5%
Other  0   0   —   1,080   — 
Total  605,809   865,894   42.9%  1,087,427   25.6%
                
Less intersegment sales  (208,455)  (313,665)  50.5%  (398,449)  27.0%
                
Consolidated net sales from operations  397,354   552,229   39.0%  688,978   24.8%
                
                     
        2008
     2009
 
        vs.
     vs.
 
  2007  2008  2007  2009  2008 
  (RMB in millions, except percentages) 
 
Turnover
                    
Exploration and production  473,117   626,367   32.4%  405,326   (35.3%
Refining and chemicals  481,726   560,729   16.4%  501,300   (10.6)%
Marketing  584,115   778,141   33.2%  768,295   (1.3)%
Natural gas and pipeline  50,066   63,315   26.5%  77,658   22.7%
Other  1,718   1,418   (17.5)%  1,372   (3.2)%
Total  1,590,742   2,029,970   27.6%  1,753,951   (13.6)%
                     
Less intersegment sales  (753,200)  (957.366)  27.1%  (734,676)  (23.3)%
                     
Consolidated net sales from operations  837,542   1,072,604   28.1%  1,019,275   (5.0)%
                     


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The table below sets forth our operating profitsincome by business segment for each of the three years ended December 31, 2004, 20052007, 2008 and 2006,2009, as well as the percentage changes in operating income for the periods shown. Other incomeprofit from operations shown below consists of research and development, business services and infrastructure support to our operating business segments.
                     
      2005   2006
      vs.   vs.
  2004 2005 2004 2006 2005
           
  (RMB in millions, except percentages)
Income (loss) from operations
                    
Exploration and production  130,213   208,080   59.8%  219,860   5.7%
Refining and marketing  11,891   (19,810)  —   (29,164)  — 
Chemicals and marketing  7,655   3,276   (57.2)%  5,058   54.4%
Natural gas and pipeline  2,535   3,183   25.6%  8,986   182.3%
Other  (1,156)  (2,558)  121.3%  (6,764)  — 
                
Total  151,138   192,171   27.1%  197,976   3.0%
                
                     
        2008
     2009
 
        vs.
     vs.
 
  2007  2008  2007  2009  2008 
  (RMB in millions, except percentages) 
 
Profit (loss) from operations
                    
Exploration and production  207,749   240,470   15.8%  105,019   (56.3)%
Refining and chemicals  (23,659)  (93,830)  —   17,308   — 
Marketing  10,810   7,982   (26.2)%  13,265   66.2%
Natural gas and pipeline  12,495   16,057   28.5%  19,046   18.6%
Other  (6,378)  (11,108)  —   (11,194)  — 
                     
Total  201,017   159,571   (20.6)%  143,444   (10.1)%
                     
Year Ended December 31, 20062009 Compared to Year Ended December 31, 20052008
Consolidated Results of Operation
Consolidated Results of Operations
Overview
Overview
Our profit before taxation was RMB140,032 million for the year ended December 31, 2009, representing a decrease of 13.6% compared with the previous period. Profit attributable to the owners of the company for the year ended December 31, 2009 was RMB103,387 million, representing a decrease of 9.7% compared with the previous period. For the year ended December 31, 2006, our total revenue was RMB 688,978 million, representing an increase of 24.8% from2009, the total revenue of RMB 552,229 for the year ended December 31, 2005. Our net income for the year ended December 31, 2006 was RMB 142,224 million, representing an increase of 6.6% from RMB 133,362 for the year ended December 31, 2005. Our basic and diluted earnings per share attributable to our shareholdersthe owners of the company were RMB0.56 while the same for the year ended December 31, 20062008 was RMB 0.79, representing an increase of 5.3%RMB0.63.
Turnover.  Turnover decreased 5.0% from RMB 0.75 for the year ended December 31, 2005.
Total Revenue. Total revenue increased 24.8% from RMB 552,229RMB1,072,604 million for the year ended December 31, 20052008 to RMB 688,978RMB1,019,275 million for the year ended December 31, 2006.2009. This was primarily due to decreases in the selling prices and changes in the sales volume of major products including crude oil, gasoline, diesel and kerosene.
The table below sets out the external sales volume and average realized prices for major products sold by us for 2008 and 2009 and percentages of change in the sales volume and average realized prices during these two years.
                         
  Sales Volume (’000 ton) Average Realized Price (RMB/ton)
      Percentage of
     Percentage of
  2009 2008 Change (%) 2009 2008 Change (%)
 
Crude oil*  53,768   38,603   39.3   2,750   4,348   (36.8)
Natural gas (million cubic
metre, RMB/’000 cubic metre)		  59,614   51,054   16.8   814   813   0.1 
Gasoline  30,777   29,399   4.7   5,763   5,881   (2.0)
Diesel  64,659   56,081   15.3   4,965   5,526   (10.2)
Kerosene  5,817   4,798   21.2   3,896   6,355   (38.7)
Heavy oil  8,472   7,061   20.0   2,903   3,541   (18.0)
Polyethylene  2,349   2,195   7.0   8,430   10,219   (17.5)
Lubricant  1,796   2,003   (10.3)  7,204   7,515   (4.1)
*The crude oil listed above represents all the external sales volume of crude oil of the company.


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Operating Expenses.  Operating expenses decreased 4.1% from RMB913,033 million for the year ended December 31, 2008 to RMB875,831 million for the year ended December 31, 2009, of which:
Purchases, Services and Other Expenses.  Purchases, services and other expenses decreased 12.5% from RMB562,851 million for the year ended December 31, 2008 to RMB492,472 million for the year ended December 31, 2009. This was primarily due to (1) a decrease in the purchase prices of crude oil and feedstock oil from external suppliers that resulted in a decrease in purchase costs; (2) a decrease in the prices of raw materials, fuel, energy and other production materials as well as changes in inventories that resulted in a decrease in purchase costs.
Employee Compensation Costs.  Employee compensation costs of the company were RMB65,977 million for the year ended December 31, 2009, representing an increase of 6.1% compared with that of last year. Taking into account factors including the expansion of business of the company, the level of employee compensation was basically the same as that of last year, which demonstrated that the company has maintained effective control on labor cost.
Exploration Expenses.  Exploration expenses decreased 11.3% from RMB21,879 million for the year ended December 31, 2008 to RMB19,398 million for the year ended December 31, 2009. This was primarily due to adjustments made by the company to optimize the structure and workload of exploration and to further strengthen the management of oil and gas exploration as well as control over the process of exploration.
Depreciation, Depletion and Amortization.  Depreciation, depletion and amortization decreased 2.6% from RMB94,759 million for the year ended December 31, 2008 to RMB92,259 million for the year ended December 31, 2009. This was primarily due to the impairment charges recorded by the company against its refining assets and oil and gas properties in 2008.
Selling, General and Administrative Expenses.  Selling, general and administrative expenses increased 9.7% from RMB59,617 million for the year ended December 31, 2008 to RMB65,423 million for the year ended December 31, 2009. This was primarily due to higher production safety expenses in 2009 as required by the relevant PRC regulations.
Taxes Other than Income Taxes.  Taxes other than income taxes increased 9.1% from RMB124,132 million for the year ended December 31, 2008 to RMB135,465 million for the year ended December 31, 2009. The change was primarily due to (1) a significant decrease in the payment of the special levy on the sale of domestic crude oil by the company compared with that of last year, from RMB85,291 million for the year ended December 31, 2008 to RMB20,020 million for the year ended December 31, 2009; (2) a sharp increase in consumption tax expenses borne by the company as a result of the implementation of a new policy on fuel consumption tax in 2009, from RMB13,570 million for the year ended December 31, 2008 to RMB82,429 million for the year ended December 31, 2009; and (3) an increase of RMB5,368 million in urban maintenance and construction tax and educational surcharge as a result of the increase in tax payments including fuel consumption tax.
Other Incomes/(Expenses), net.  Other incomes/expenses, net was RMB4,837 million for the year ended December 31, 2009, while other incomes, net was RMB12,372 million for the year ended December 31, 2008. This was primarily due to the recognition by the company of government grants for the supply of crude oil and refined products in 2008.
Profit from Operations.  Profit from operations of the company for the year ended December 31, 2009 was RMB143,444 million, representing a decrease of 10.1% from RMB159,571 million for the preceding year.
Net Exchange Loss.  Net exchange loss decreased from RMB1,081 million for the year ended December 31, 2008 to RMB783 million for the year ended December 31, 2009. The decrease in the net exchange loss was primarily due to the appreciation of the Renminbi against the U.S. dollar and other currencies in 2008 being more significant than the changes in exchange rates in 2009.
Net Interest Expenses.  Net interest expenses increased 397.1% from RMB767 million for the year ended December 31, 2008 to RMB3,813 million for the year ended December 31, 2009. The increase in net interest expenses was primarily due to the combined effect of a substantial increase in the outstanding balance of interest-


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bearing debts and a decrease in interest income resulting from a decrease in the average outstanding balance of deposits.
Profit before Income Tax Expense.  Profit before income tax expense decreased 13.6% from RMB162,013 million for the year months ended December 31, 2008 to RMB140,032 million for the year ended December 31, 2009.
Income Tax Expense.  Income tax expense decreased 4.9% from RMB35,211 million for the year ended December 31, 2008 to RMB33,473 million for the year ended December 31, 2009. The decrease was primarily due to a reduction in the taxable income for the year and taxation adjustments.
Profit for the Year.  Profit for the year decreased 16.0% from RMB126,802 million for the year ended December 31, 2008 to RMB106,559 million for the year ended December 31, 2009.
Profit Attributable to Non-controlling Interest of the Company.  As international crude oil prices in 2009 were lower than that during 2008, certain subsidiaries of the company recorded material decreases in profits. This resulted in a significant decrease in the profit attributable to non-controlling interest, from RMB12,349 million for the year ended December 31, 2008 to RMB3,172 million for the year ended December 31, 2009.
Profit Attributable to Owners of the Company.  Profit attributable to the owners of the company decreased 9.7% from RMB114,453 million for the year ended December 31, 2008 to RMB103,387 million for the year ended December 31, 2009.
Exploration and Production
Turnover.  Turnover decreased 35.3% from RMB626,367 million for the year ended December 31, 2008 to RMB405,326 million for the year ended December 31, 2009. The decrease was primarily due to a significant decrease in crude oil prices.
Operating Expenses.  Operating expenses decreased 22.2% from RMB385,897 million for the year ended December 31, 2008 to RMB300,307 million for the year ended December 31, 2009. The decrease was primarily due to a decrease in the purchase costs of imported crude oil as international crude oil prices remained low throughout 2009 and a sharp decrease in the payment of special levy on the sale of domestic crude oil by the company.
Profit from Operations.  Impacted by factors such as the sharp decrease in crude oil prices, the profit from operations for the year ended December 31, 2009 was RMB105,019 million, representing a decrease of 56.3% from RMB240,470 million for the preceding year. However, the exploration and production segment remains the most important contributor to the profit of the company.
Refining and Chemicals
Turnover.  Turnover decreased 10.6% from RMB560,729 million for the year ended December 31, 2008 to RMB501,300 million for the year ended December 31, 2009. The decrease was primarily due to decrease in the selling prices of key refining and chemical products.
Operating Expenses.  Operating expenses decreased 26.1% from RMB654,559 million for the year ended December 31, 2008 to RMB483,992 million for the year ended December 31, 2009. The decrease was primarily due to the international crude oil price being lower than last year, which resulted in a decrease in the purchase costs of crude oil and feedstock oil from external suppliers.
Profit/Loss from Operations.  The profit from operations amounted to RMB17,308 million for the year ended December 31, 2009, compared with a loss of RMB93,830 million for the year ended December 31, 2008.
Marketing
Turnover.  Turnover decreased 1.3% from RMB778,141 million for the year ended December 31, 2008 to RMB768,295 million for the year ended December 31, 2009. The decrease in turnover was primarily due to a


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decrease in the selling prices of refined products and reductions in sales revenues from the oil products trading business.
Operating Expenses.  Operating expenses decreased 2.0% from RMB770,159 million for the year ended December 31, 2008 to RMB755,030 million for the year ended December 31, 2009. The decrease was primarily due to a decrease in the purchase costs of refined products from external suppliers, together with a decrease in expenses relating to the oil products trading business.
Profit from Operations.  Profit from operations was RMB13,265 million for the year ended December 31, 2009, representing an increase of 66.2% from RMB7,982 million for the proceeding year.
Natural Gas and Pipeline
Turnover.  Turnover increased 22.7% from RMB63,315 million for the year ended December 31, 2008 to RMB77,658 million for the year ended December 31, 2009. The increase was primarily due to an increase in the natural gas sales volume and the volume of natural gas from pipeline transmission.
Operating Expenses.  Operating expenses increased 24.0% from RMB47,258 million for the year ended December 31, 2008 to RMB58,612 million for the year ended December 31, 2009. The increase was primarily due to an increase in the purchase costs of natural gas.
Profit from Operations.  Profit from the natural gas and pipeline segment to the company continue to grow. Profit from operations of the natural gas and pipeline segment was RMB19,046 million for the year ended December 31, 2009, representing an increase of 18.6% from RMB16,057 million for the year ended December 31, 2008.
Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
Consolidated Results of Operations
Overview
Our profit before taxation was RMB162,013 million for the year ended December 31, 2008, representing a decrease of 21.0% compared with the previous period. Profit attributable to the owners of the company was RMB114,453 million, representing a decrease of 22.0% compared with the previous period. For the year ended December 31, 2008, the basic and diluted earnings per share attributable to the owners of the company were RMB0.63 while the same for 2007 was RMB0.82.
Turnover.  Our turnover increased 28.1% from RMB837,542 million for the year ended December 31, 2007 to RMB1,072,604 million for the year ended December 31, 2008. This was primarily due to the increases in the selling prices and changes in the sales volume of our principalmajor products including crude oil, natural gas and certain refined products. products, and the efforts made by us in expanding resources and developing markets by leveraging on the opportunities presented by high prices in crude oil and petrochemical products in the international market. In addition, the increase of the trading business of refined oil products during the year also increased our turnover.


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The table below sets out the external sales volume and average realized selling priceprices for crude oil increased from US$48.37 per barrelmajor products sold by us for 2007 and 2008 and percentages of change in the year ended December 31, 2005 to US$59.81 per barrel for the year ended December 31, 2006.sales volume and average realized prices during these two years.
 
                         
  Sales Volume (’000 ton) Average Realized Price (RMB/ton)
      Percentage of
     Percentage of
  2008 2007 Change (%) 2008 2007 Change (%)
 
Crude oil*  38,603   29,154   32.4   4,348   3,659   18.8 
Natural gas (million cubic metre, RMB/’000 cubic metre)  51,054   43,570   17.2   813   693   17.3 
Gasoline  29,399   27,003   8.9   5,881   5,168   13.8 
Diesel  56,081   54,377   3.1   5,526   4,668   18.4 
Kerosene  4,798   3,782   26.9   6,355   4,684   35.7 
Heavy oil  7,061   8,772   (19.5)  3,541   2,519   40.6 
Polyethylene  2,195   2,102   4.4   10,219   10,497   (2.6)
Lubricant  2,003   2,378   (15.8)  7,515   6,420   17.1 
*The crude oil listed above represents all the external sales volume of crude oil of the company.
Operating Expenses.Operating expenses increased 36.4%43.4% from RMB 360,058RMB636,525 million for the year ended December 31, 20052007 to RMB 491,002RMB913,033 million for the year ended December 31, 2006. This was primarily due to (i) a 35.3% increase in purchases, services and other expenses, (ii) a 32.0% increase in employee compensation costs, (iii) a 19.7% increase in depreciation, depletion and amortization, (iv) a 18.3% increase in selling, general and administrative expenses and (v) a 20.9% increase in exploration expenses.2008, of which:
 
Purchases, Services and Other Expenses.Purchases, services and other expenses increased 35.3%52.2% from RMB 200,321RMB369,786 million for the year ended December 31, 20052007 to RMB 271,123RMB562,851 million for the year ended December 31, 2006.2008. This was primarily due to (i)(1) an increase in the purchase cost of crude oil and other feedstock as a result of the increases in the purchase priceprices and purchase volume of crude oil, and other feedstock from external suppliers, as we purchased an aggregate of 22.22 million tons of crude oil and other feedstock at an average price of RMB 3,832 per ton in 2006, as compared to 18.98 million tons of crude oil and other feedstock at an average price of RMB 3,194 per ton in 2005; (ii) an increase in the purchase cost of refined products as a result of the increases in the purchase price and purchase volume of refined products from external suppliers as we purchased 16.93 million tons of refined products at an average price of RMB 3,308 per tonthat resulted in

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2006 as compared to 13.11 million tons of refined oil products at an average price of RMB 2,883 the increase in 2005; and (iii)the purchase costs; (2) an increase in the lifting costs of oil and gas operations and the processing costs of our refineries as a result ofthat resulted from the increasesincrease in prices of raw materials, fuel, electricityenergy and other production materials in the PRC as well as an expansion of our expanded production scale.scale; and (3) impairment losses for decline in the value of inventories in the amount of RMB8,608 million were recorded during 2008, which was driven by the low price market conditions. In addition, the increase in the purchase expenses was also resulted fromdue to an increase in theour refined product supply operationoil products trading operations in 2006.2008.
 
Employee Compensation Costs.Employee compensation costs increased 32.0% from RMB 29,675were RMB62,167 million for the year ended December 31, 20052008, representing an increase of 11.7% compared with that of 2007. This increase in employee compensation costs was mainly due to RMB 39,161the adjustment to the level of salaries in line with the domestic commodity prices.
Exploration Expenses.  Exploration expenses increased 4.4% from RMB20,956 million for the year ended December 31, 2006.2007 to RMB21,879 million for the year ended December 31, 2008. To further boost crude oil and natural gas resources, we undertook more exploration activities for crude oil and natural gas.
Depreciation, Depletion and Amortisation.  Depreciation, depletion and amortisation increased 40.5% from RMB67,423 million for the year ended December 31, 2007 to RMB94,759 million for the year ended December 31, 2008. This was primarily due to (1) an increase in depreciation, depletion and amortisation that resulted from an increase in the average costs of fixed assets and the average net value of oil and gas properties; and (2) as a result of the significant volatility in international crude oil prices in 2008 and deterioration in the overall international and domestic economic conditions since the fourth quarter of 2008 which resulted in the recoverable amounts of certain property, plant and equipment being less than their carrying amounts, we recorded impairment charges of RMB11,949 million and RMB4,235 million against the refining and chemical production assets and oil and gas properties, respectively.
Selling, General and Administrative Expenses.  Selling, general and administrative expenses increased 13.8% from RMB52,389 million for the year ended December 31, 2007 to RMB59,617 million for the year ended December 31, 2008. This was primarily due to an increase of RMB 7,278 million in the employees’ salariestransportation, maintenance and benefits as a result of the improvement of our operating results and theother related costs that resulted from expansion of ourin production scale and retail distribution network.business development.


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Depreciation, Depletion and Amortization.Taxes Other than Income Taxes. Depreciation, depletion and amortization  Taxes other than income taxes increased 19.7%68.2% from RMB 51,305RMB73,806 million for the year ended December 31, 20052007 to RMB 61,388RMB124,132 million for the year ended December 31, 2006. This2008. The increase was primarily due to an increase of RMB 8,220RMB40,629 million compared with 2007 in the provision for depreciation, depletion and amortization that resulted from increases inpayment of the special levy on the sale of domestic crude oil by us as the average balance of fixed assets and the average balance ofcrude oil and gas assets during 2006.prices remained high throughout 2008.
 
Selling, General and Administrative Expenses.Other Incomes/(Expenses), net. Selling, general and administrative expenses increased 18.3% from RMB 36,538  Other incomes, net, was RMB12,372 million for the year ended December 31, 2005 to RMB 43,2352008, while the other expenses, net, was RMB1,225 million for the year ended December 31, 2006.2007. This was primarily due to (i) an increasethe recognition of RMB 3,050 million in transportation expenses that resulted from increases in railway freights and marine fuel prices and an increase in the sales volume of refined and petrochemical products, and (ii) an increase of RMB 1,065 million in research and development expenses as a result of intensified research and development efforts.
Exploration Expenses. Exploration expenses increased 20.9% from RMB 15,566 milliongovernment grants to our company for the year ended December 31, 2005 to RMB 18,822 million for the year ended December 31, 2006. This increase was due primarily to increased expenditures in exploration activities, for the purpose of increasing ourimported crude oil and gas reserves, and an increase in the expensing of exploratory well costs.
Taxes other than Income Taxes. Taxes other than income taxes increased 139.9% from RMB 23,616 million for the year ended December 31, 2005 to RMB 56,666 million for the year ended December 31, 2006. The increase was primarily due to (i) a recorded levy of RMB 28,914 million torefined products by the PRC government as the PRC government commenced to impose a special levy on petroleum exploration enterprises such as our company from March 26, 2006; (2) an increase of RMB 1,510 million in consumption tax as a result of increased sales volume of gasoline and diesel and an expansion of the scope of consumption tax in the PRC in 2006; and (3) an increaseamount of RMB 632 million in resource tax as a result of an increase in resource tax rates in the second half of 2005 and increased production volumes of crude oil and natural gas.RMB15,700 million.
 
IncomeProfit from Operations.  As a result of the factors discussed above, incomeprofit from operations increased 3.0%decreased 20.6% from RMB 192,171RMB201,017 million for the year ended December 31, 20052007 to RMB 197,976RMB159,571 million for the year ended December 31, 2006.2008.
 
Net Exchange Gain.Loss.  Net exchange gain decreased 15.9%loss increased from RMB 88RMB751 million for the year ended December 31, 20052007 to RMB 74RMB1,081 million for the year ended December 31, 2006.2008. The decreaseincrease in the net exchange gainloss was primarily due to the combined effect of the appreciation of Renminbi against both the United States Dollar and the Japanese Yen, offset by the depreciation in Renminbi against both the Euro and the Pound Sterling.other currencies.
 
Net Interest Expense.Expenses.  Net interest expenses increased 37.7%decreased 51.2% from RMB 838RMB1,572 million for the year ended December 31, 20052007 to RMB 1,154RMB767 million for the year ended December 31, 2006. This increase2008. The decrease in net interest expenses was primarily due to the combined effect of a decrease in the interest expenses from the sharp reduction of average interest rates on loans and an increase in interest income from an increase in the average outstanding balance of RMB 736 million in accretion expense, recognized as interest expense, in relation to asset retirement obligations.deposits.

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Profit before Income Before Income Taxes.Tax Expense.Income  Profit before income taxes increased by 2.8%tax expense decreased 21.0% from RMB 193,822RMB205,139 million for the year ended December 31, 20052007 to RMB 199,173RMB162,013 million for the year ended December 31, 2006.2008.
 
Income Taxes.Tax Expense.  Income taxestax expense decreased 8.1%29.3% from RMB 54,180RMB49,802 million for the year ended December 31, 20052007 to RMB 49,776RMB35,211 million for the year ended December 31, 2006. This2008. The decrease was primarily due to the reversalcombined effect of a tax liabilityreduction in the taxable income and the reduction of RMB 4,401 million in relation to certain crude oil sales that were exempted fromcorporate income tax priorrate for 2008.
Profit Attributable to Owners of the establishment of our company in November 1999.
Net Income.Company.  As a result of the factors discussed above, net income increased 6.6% from RMB 133,362profit attributable to the owners of the company was RMB114,453 million for the year ended December 31, 2005 to RMB 142,2242008, a decrease of 22.0% from 2007.
Exploration and Production
Turnover.  Turnover from our exploration and production segment increased 32.4% from RMB473,117 million for the year ended December 31, 2006.
Exploration and Production
Sales and Other Operating Revenue.Sales and other operatingrevenue increased 24.9% from RMB 337,2082007 to RMB626,367 million for the year ended December 31, 20052008. The increase was primarily due to RMB 421,340an increase in the prices and sales volume of crude oil and natural gas.
Intersegment sales turnover increased 32.1% from RMB378,888 million for the year ended December 31, 2006. The increase was primarily due2007 to increases in the prices and sales volumes of crude oil and natural gas. Our average realized selling price of crude oil in 2006 was US$ 59.81 per barrel, representing an increase of US$ 11.44 per barrel or 23.7% from US$ 48.37 per barrel in the year ended December 31, 2005. In 2006, our exploration and production segment sold 832.8 million barrels of crude oil and 1,322.7 billion cubic feet of natural gas, representing an increase of 5.6% and 26.0% from 2005, respectively.
      Intersegment sales revenue increased 25.3% from RMB 270,943RMB500,522 million for the year ended December 31, 2005 to RMB 339,619 million for the year ended December 31, 2006.2008. This increase was mainly due to an increase in the prices of crude oil and natural gas and an increase in the intersegment sales volume. In 2006, our revenue from sales of crude oil to Sinopec was RMB 33,682 million, representing an increase of 21.9% from 2005.
 
Operating Expenses.Operating expenses increased 56.0%45.4% from RMB 129,128RMB265,368 million for the year ended December 31, 20052007 to RMB 201,480RMB385,897 million for the year ended December 31, 2006.2008. The increase was primarily due to: (1) a significant increase in the expenses for crude oil imports; (2) an increase in the payment of the special levy on our sale of domestic crude oil as international crude oil prices were higher in 2008; (3) impairment charges for oil and gas properties increased sharply as a result of the significant volatility in the international crude oil prices.
Profit from Operations.  Profit from operations increased 15.8% from RMB207,749 million for the year ended December 31, 2007 to RMB240,470 million for the year ended December 31, 2008. The profit from the exploration and production segment reached a historically high level.


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Refining and Chemicals
Turnover.  Turnover from our refining and chemicals segment rose 16.4% from RMB481,726 million for the year ended December 31, 2007 to RMB560,729 million for the year ended December 31, 2008. The increase was primarily due to an increase of RMB 31,114 million in taxes other than income taxes, an increase of RMB 27,564 million in purchase expensesthe selling prices and an increase of RMB 7,021 million in depreciation, depletion and amortization.the processing quantity.
 Income
Intersegment sales turnover increased 20.0% from Operations. Income from operations increased 5.7% from RMB 208,080RMB330,281 million for the year ended December 31, 20052007 to RMB 219,860RMB396,410 million for the year ended December 31, 2006.
Refining and Marketing
Sales and Other Operating Revenue. Sales and other operating revenue increased 26.8% from RMB 428,494 million for the year ended December 31, 2005 to RMB 543,299 million for the year ended December 31, 2006. The increase was due primarily to increases in the selling prices and sales volume of our key refined products.
      Sales revenue from gasoline increased 9.4% from RMB 110,438 million for the year ended December 31, 2005 to RMB 120,771 million for the year ended December 31, 2006, primarily due to a 19.3% increase in our average realized selling price from RMB 4,221 per ton for the year ended December 31, 2005 to RMB 5,034 per ton for the year ended December 31, 2006, partially offset by a 8.3% decrease in the sales volume from 26.16 million tons for the year ended December 31, 2005 to 23.99 million tons for the year ended December 31, 2006.
      Sales revenue from diesel increased 21.7% from RMB 176,999 million for the year ended December 31, 2005 to RMB 215,459 million for the year ended December 31, 2006. The average

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realized selling price of diesel increased 19.1% from RMB 3,702 per ton for the year ended December 31, 2005 to RMB 4,409 per ton for the year ended December 31, 2006, resulting in an increase in revenue by RMB 34,544 million. The sales volume of diesel increased 2.2% from 47.81 million tons for the year ended December 31, 2005 to 48.86 million tons for the year ended December 31, 2006, resulting in an increase in revenue by RMB 3,916 million.
      Sales revenue from kerosene increased 23.2% from RMB 7,480 million for the year ended December 31, 2005 to RMB 9,219 million for the year ended December 31, 2006.
      Intersegment sales revenue increased 35.7% from RMB 33,019 million for the year ended December 31, 2005 to RMB 44,806 million for the year ended December 31, 2006.2008. This increase was primarily due to increases in the selling prices and changesincrease in intersegment sales volume of key refined products.
 
Operating Expenses.  Operating expenses increased 27.7%29.5% from RMB 448,304RMB505,385 million for the year ended December 31, 20052007 to RMB 572,463RMB654,559 million for the year ended December 31, 2006. This2008. The increase was primarily due to an increase of RMB 80,650 million in the purchase expensescosts of crude oil, other feedstock oil and refined products from external suppliers, and an increase of RMB 2,784 million in the selling, general and administrative expenses. In addition, the increase in our supply of refined products in 2006 also contributed to the increase in the operating expenses. In 2006, we purchased 775 million barrels of crude oil, representing an increase of 31 million barrels as compared with 2005. The average purchase price of crude oil in 2006 was RMB 494 per barrel, representing an increase of RMB 85 per barrel as compared with 2005. As a result, our expenses for purchased crude oil in 2006 were RMB 383,087 million, representing an increase of RMB 78,731 million as compared with 2005.suppliers.
 
Loss Fromfrom Operations.  Loss from operations amounted to RMB 29,164RMB93,830 million for the year ended December 31, 2006,2008, representing an increase of RMB70,171 million in loss from the year ended December 31, 2007. The loss was primarily due to (i) the fact that there was a substantial increase in the prices of refined oil products on the international market but the prices of the refined oil products in China’s domestic market were much lower than those on the international market due to China’s macro-economic control, and (ii) a substantial decline in domestic market demands for certain chemical products in the second half of 2008 caused by the global financial crisis. In addition, impairment charges for refining production assets increased significantly compared with that of 2007 due to RMB 19,810the deterioration of overall economic conditions in 2008.
Marketing
Turnover.  Turnover from our marketing segment rose 33.2% from RMB584,115 million for the year ended December 31, 2005, primarily due2007 to the fact that the price increase for crude oil in the international market exceeded that of refined products in the domestic market.
Chemicals and Marketing
Sales and Other Operating Revenue. Sales and other operating revenue increased 11.9% from RMB 73,978RMB778,141 million for the year ended December 31, 20052008. The growth was primarily due to RMB 82,791an increase in the selling prices and sales volume of certain refined oil products.
Operating Expenses.  Operating expenses increased 34.3% from RMB573,305 million for the year ended December 31, 2006, primarily due2007 to increases in the sales volumes and selling prices of certain chemical products. The average realized selling prices of polyethylene, polyester, styrene butadiene rubber and urea in 2006 increased 11%, 4%, 22% and 3%, respectively, from 2005. Our chemicals and marketing segment sold 13,562 thousand tons of chemical products for the year ended December 31, 2006, representing an increase of 3.4% from the year ended December 31, 2005.
Operating Expenses. Operating expenses increased 9.9% from RMB 70,702RMB770,159 million for the year ended December 31, 20052008. The increase was primarily due to RMB 77,733an increase in the prices and sales of refined oil products and an increase in the trading business of oil products.
Profit from Operations.  Profit from operations decreased 26.2% from RMB10,810 million for the year ended December 31, 2006. The increase was primarily due2007 to the increase in purchase expenses for direct materials.
Income from Operations. As a result of the factors discussed above, income from operations increased 54.4% from RMB 3,276RMB7,982 million for the year ended December 31, 20052008. The decrease was mainly due to RMB 5,058the significant increase of the impairment charges for inventory in 2008 compared with that of 2007.
Natural Gas and Pipeline
Turnover.  Turnover from our natural gas and pipeline segment increased 26.5% from RMB50,066 million for the year ended December 31, 2006.
Natural Gas and Pipeline
Sales and Other Operating Revenue.Sales and other operating revenue increased 48.5% from RMB 26,2142007 to RMB63,315 million for the year ended December 31, 20052008. The increase was primarily due to RMB 38,917an increase in the selling prices of natural gas and an increase in the sales volume.
Operating Expenses.  Operating expenses increased 25.8% from RMB37,571 million for the year ended December 31, 2006. The increase was primarily due2007 to increases in the sales volume and selling prices of natural gas, as well as increases in the transmission volume and average transmission price of natural gas. Our natural gas and pipeline segment sold 1,200.5 billion cubic

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feet of natural gas in the year ended December 31, 2006, representing an increase of 35.1% from the year ended December 31, 2005. The selling price of natural gas in the year ended December 31, 2006 was US$2.44 per thousand cubic feet, representing an increase of 15.1% from the year ended December 31, 2005. Our natural gas and pipeline segment transmitted 1,123 billion cubic feet of natural gas in the year ended December 31, 2006, representing an increase of 36.8% from the year ended December 31, 2005. The average natural gas transmission price in the year ended December 31, 2006 was US$1.2 per thousand cubic feet, representing an increase of 24.7% from the year ended December 31, 2005.
Operating Expenses. Operating expenses increased 30.0% from RMB 23,031RMB47,258 million for the year ended December 31, 20052008. The increase was primarily due to RMB 29,931an increase in the purchase costs of natural gas and an increase in depreciation charges.
Profit from Operations.  Profit from operations increased 28.5% from RMB12,495 million for the year ended December 31, 2006 due primarily2007 to (i) an increase of RMB 5,155 million in purchase expenses of natural gas primarily as a result of the increase of 312 billion cubic feet in the natural gas purchase volume, as well as the increase of the average purchase price of natural gas from US$1.8 per thousand cubic feet in 2005 to US$1.9 per thousand cubic feet in 2006, and (ii) an increase of RMB 785 million in depreciation expenses.
Income from Operations. As a result of the factors discussed above, income from operations increased 182.3% from RMB 3,183RMB16,057 million for the year ended December 31, 2005 to RMB 8,986 million for the year ended December 31, 2006.
Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
Consolidated Results of Operation
Overview
      For the year ended December 31, 2005, our total revenue was RMB 552,229 million, representing an increase of 39.0% from the year ended December 31, 2004. Our net income in the year ended December 31, 2005 was RMB 133,362 million, increased 28.4% from the year ended December 31, 2004. Our basic and diluted earnings per share for the year ended December 31, 2005 was RMB 0.75, representing an increase of 27.1% from RMB 0.59 for the year ended December 31, 2004.
Total Revenue.Total Revenue increased 39.0% from RMB 397,354 million for the year ended December 31, 2004 to 552,229 million for the year ended December 31, 2005.2008. The increase was primarily due to the increases in the sales prices and sales volume of the principal products, such as crude oil, gasoline and diesel, as well as increases in the sales volume of natural gas. The average realized selling price for crude oil increased 43.4% from US$33.72 per barrel for the year ended December 31, 2004 to US$48.37 per barrel for the year ended December 31, 2005.
Operating Expenses.Operating expenses increased 46.2% from RMB 246,216 million for the year ended December 31, 2004 to RMB 360,058 million for the year ended December 31, 2005. This increase was due primarily to (i) a 75.3% increase in purchases, services and other expenses, (ii) a 29.4% increase in employee compensation costs, (iii) a 28.8% increase in exploration expenses, (iv) a 6.1% increase in depreciation, depletion and amortization and (v) a 29.1% increase in selling expenses and in general and administrative expenses.
Purchases, Services and Other Expenses.Purchases, services and other expenses increased 75.3% from RMB 114,249 million for the year ended December 31, 2004 to RMB 200,321 million for the year ended December 31, 2005. This increase was due primarily to (i) increases in the processing volume at our refineries and the increase of crude oil prices, as we purchased 157 million barrels of crude oil, 15.7 million tons of refined products and 1,706 thousand tons of chemical products in 2005, as compared to 121.8 million barrels of crude oil, 12.0 million tons of refined products and 990 thousand tons of chemical products in 2004; the average purchase price of the crude oil in 2005 was RMB 423 per barrel, representing a 30.6% increase from 2004, (ii) increases in the prices of other raw materials such as water and electricity, and (iii) the

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expansion of our production scale. The increase in our refined product supply operation in 2005 also contributed to the increase in purchase, services and other expenses.
Employee Compensation Costs.Employee compensation costs increased 29.4% from RMB 22,934 million for the year ended December 31, 2004 to RMB 29,675 million for the year ended December 31, 2005. This increase was due primarily to an increase of RMB 4,992 million in salaries and other benefits with the improvement of our operating results and an increase in labor costs as a result of the expansion of our retail distribution network.
Depreciation, Depletion and Amortization.Depreciation, depletion and amortization increased 6.1% from RMB 48,362 million for the year ended December 31, 2004 to RMB 51,305 million for the year ended December 31, 2005. This increase was due primarily to an increase of RMB 4,020 million in the allocation of depreciation and depletion expenses as a result of the increase in the average balance of the assets, and a decrease of RMB 1,720 million in the depreciation expenses as a result of fixed asset disposals and a decrease in the provisions for impairment.
Selling, General and Administrative Expenses.Selling, general and administrative expenses increased 29.1% from RMB 28,302 million for the year ended December 31, 2004 to RMB 36,538 million for the year ended December 31, 2005. This increase was due primarily to an increase of RMB 2,580 million in transportation expenses as a result of our increased sales volume of refined products and the increased railway transportation price, as well as an increase of RMB 720 million in repair expenses and lease expenses.
Exploration Expenses.Exploration expenses increased 28.8% from RMB 12,090 million for the year ended December 31, 2004 to RMB 15,566 million for the year ended December 31, 2005. This increase was due primarily to increased expenditures in exploration activities for the purpose of increasing our crude oil and gas reserves.
Taxes Other than Income Taxes.Taxes other than income taxes increased 18.4% from RMB 19,943 million for the year ended December 31, 2004 to RMB 23,616 million for the year ended December 31, 2005. This increase was due primarily to an increase of RMB 1,309 million in consumption tax as a result of increased sales volume of gasoline and diesel, an increase of RMB 951 million in resources compensation fees as a result of increased revenues from crude oil and natural gas, as well as an increase of RMB 504 million in resources tax as a result of the government’s upward adjustment to the tax rate.
Income From Operations.As a result of the factors discussed above, income from operations increased 27.1% from RMB 151,138 million for the year ended December 31, 2004 to RMB 192,171 million for the year ended December 31, 2005.
Net Exchange Gain.Net exchange income increased from RMB 8 million for the year ended December 31, 2004 to RMB 88 million for the year ended December 31, 2005. This increase was due primarily to the appreciation of RMB in 2005.
Net Interest Expense.Net interest expense decreased 45.0% from RMB 1,523 million for the year ended December 31, 2004 to RMB 838 million for the year ended December 31, 2005. This decrease was due primarily to a decrease of RMB 134 million in the interest expenses resulted from the decrease in the average outstanding balance of interest-bearing debts and an increase of RMB 551 million in the interest income as a result of sufficient cashflow derived from operating activities.
Income Before Income Taxes.Income before income taxes increased 28.2% from RMB 151,244 million for the year ended December 31, 2004 to RMB 193,822 million for the year ended December 31, 2005.

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Income Taxes.Income taxes increased 24.3% from RMB 43,598 million for the year ended December 31, 2004 to RMB 54,180 million for the year ended December 31, 2005, due primarily to the increase in the taxable income.
Net Income.As a result of the factors discussed above, net income increased 28.4% from RMB 103,843 million for the year ended December 31, 2004 to RMB 133,362 million for the year ended December 31, 2005.
Exploration and Production
Sales and Other Operating Revenue.Sales and other operating revenue increased 44.1% from RMB 233,948 million for the year ended December 31, 2004 to RMB 337,208 million for the year ended December 31, 2005. This increase was due primarily to increases in the price and sales volume of crude oil, as well as an increase in sales volume of natural gas. Our average realized selling price of crude oil for the year ended December 31, 2005 was US$48.37 per barrel, representing an increase of US$14.65 per barrel or 43.4% from US$33.72 per barrel for the year ended December 31, 2004. In 2005, we sold 788.8 million barrels of crude oil, representing an increase of 21.5 million barrels as compared with 2004. Our exploration and production segment sold 1,049.4 billion cubic feet of natural gas in the year ended December 31, 2005, as compared to 810.4 billion cubic feet of natural gas in the year ended December 31, 2004.
      Intersegment sales increased 50.4% from RMB 180,129 million for the year ended December 31, 2004 to RMB 270,943 million for the year ended December 31, 2005. This increase was due primarily to an increase in the price of crude oil and an increase of intersegment sales volume of crude oil and natural gas. Sales of crude oil to Sinopec increased 14.9% from 24,053 million in 2004 to 27,640 million in 2005 as a result of the increase in the price of crude oil.
Operating Expenses.Operating expenses increased 24.5% from RMB 103,735 million for the year ended December 31, 2004 to RMB 129,128 million for the year ended December 31, 2005. This increase was due primarily to (i) an increase of RMB 13,543 million in purchase expenses, and (ii) an increase of RMB 3,822 million in exploration expenses resulting from the increase of the investment in the hydrocarbon exploration for the purpose of increasing hydrocarbon reserve, and (iii) an increase of RMB 3,221 million in salaries and other benefits.
Income From Operations.As a result of the factors discussed above, income from operations increased 59.8% from RMB 130,213 million for the year ended December 31, 2004 to RMB 208,080 million for the year ended December 31, 2005.
Refining and Marketing
Sales and Other Operating Revenue. Sales and other operating revenue increased 44.6% from RMB 296,427 million for the year ended December 31, 2004 to RMB 428,494 million for the year ended December 31, 2005. This increase was due primarily to increases in the prices and the sales volumes of our products.
      Sales revenue from gasoline increased 43.6% from RMB 76,919 million for the year ended December 31, 2004 to RMB 110,438 million for the year ended December 31, 2005. The average realized selling price of gasoline increased 19.2% from RMB 3,542 per ton for the year ended December 31, 2004 to RMB 4,221 per ton for the year ended December 31, 2005, which contributed RMB 17,763 million to the increase of gasoline sales revenue. We sold approximately 26,160 thousand tons of gasoline for the year ended December 31, 2005, representing an increase of 20.5% from approximately 21,710 thousand tons for the year ended December 31, 2004, which contributed RMB 15,756 million to the increase of gasoline sales revenue.
      Sales revenue from diesel increased 29.5% from RMB 136,649 million for the year ended December 31, 2004 to RMB 176,999 million for the year ended December 31, 2005. The average realized selling price of diesel increased 17.0% from RMB 3,165 per ton for the year ended

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December 31, 2004 to RMB 3,702 per ton for the year ended December 31, 2005, which contributed RMB 25,674 million to the increase of diesel sales revenue. Sales volume of diesel increased from 43,180 thousand tons for the year ended December 31, 2004 to 47,810 thousand tons for the year ended December 31, 2005, representing an increase of 10.7%, which contributed RMB 14,676 million to the increase of diesel sales revenue.
      Sales revenue from kerosene increased 27.2% from RMB 5,881 million for the year ended December 31, 2004 to RMB 7,480 million for the year ended December 31, 2005.
      Intersegment sales revenue increased 51.0% from RMB 21,862 million for the year ended December 31, 2004 to RMB 33,019 million for the year ended December 31, 2005, due primarily to increases in the prices and intersegement sales volume of our principal products.
Operating Expenses. Operating expenses increased 57.6% from RMB 284,536 million for the year ended December 31, 2004 to RMB 448,304 million for the year ended December 31, 2005. This increase was due primarily to (i) an increase of RMB 141,600 million in purchasing crude oil and refined oil, and (ii) an increase of RMB 5,354 million in sales and administrative expenses. In 2005, we purchased 744 million barrels of crude oil, representing an increase of 58 million barrels as compared with 2004. The average purchase price of crude oil was RMB 409 per barrel, which was an increase of RMB 116 per barrel as compared with 2004. As a result, our expenses for purchased crude oil in 2005 were RMB 304,400 million, representing an increase of RMB 103,200 million as compared with 2004. In addition, the increase in our sales volume of refined products in 2005 also contributed to the increase in the operating expenses.
Loss From Operations. As a result of the factors discussed above, in the year ended December 31, 2005 we suffered a loss of RMB 19,810 million from operations while in the year ended December 31, 2004 we realized an income of RMB 11,891 million from operations, due primarily to the fact that, in 2005, the price increase of crude oil exceeded that of refined oil products in China.
Chemicals and Marketing
Sales and Other Operating Revenue. Sales and other operating revenue increased 29.4% from RMB 57,179 million for the year ended December 31, 2004 to RMB 73,978 million for the year ended December 31, 2005. This increase was due primarily to increases in the prices and sales volumes of chemical products. The average realized selling prices of polyethylene, polyester, styrene butadiene rubber and urea in 2005 increased 13.9%, 3.4%, 9.6% and 17.4%, respectively, from 2004. Our chemicals and marketing segment sold 13,113 thousand tons of chemical products for the year ended December 31, 2005, representing an increase of 10.5% from the year ended December 31, 2004.
Operating Expenses. Operating expenses increased 42.8% from RMB 49,524 million for the year ended December 31, 2004 to RMB 70,702 million for the year ended December 31, 2005, due primarily to an increase of RMB 11,892 million in the purchase expenses of direct materials and an increase of RMB 782 million in the sales and administrative expenses.
Income From Operations. As a result of the factors discussed above, income from operations decreased 57.2% from RMB 7,655 million for the year ended December 31, 2004 to RMB 3,276 million for the year ended December 31, 2005 due primarily to the increase in the prices of the raw materials.
Natural Gas and Pipeline
Sales and Other Operating Revenue. Sales and other operating revenue increased 43.6% from RMB 18,255 million for the year ended December 31, 2004 to RMB 26,214 million for the year ended December 31, 2005, due primarily to increases in the sales volume and selling price of natural gas, as well as increases in the transmission volume and transmission price of natural gas.

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Our natural gas and pipeline segment sold 888.81 billion cubic feet natural gas inbusiness developed rapidly and has continued to increase its contributions to the year ended December 31, 2005, representing an increaseincome of 231.51 billion cubic feet from 657.3 billion cubic feet in the year ended December 31 2004, which resulted in an increase in sales revenue of RMB 4,020 million. In 2005, our average realized selling price of natural gas was US$2.12 per thousand cubic feet, representing an increase of US$0.09 as compared with 2004. The increase of RMB 2,848 million in our income from pipeline transmission of natural gas in 2005 was attributable to an increase in the pipeline transmission volume of natural gas from 616.0 billion cubic feet in 2004 to 820.9 billion cubic feet in 2005, and an increase in the transmission price of natural gas from RMB 5.6 per thousand cubic feet in 2004 to RMB 7.7 per thousand cubic feet in 2005.company.
 Operating Expenses. Operating expenses increased 46.5% from RMB 15,720 million for the year ended December 31, 2004 to RMB 23,031 million for the year ended December 31, 2005, due primarily to (i) an increase of RMB 3,479 million in purchase expenses of natural gas primarily as a result of the increase of 235.1 billion cubic feet in the natural gas purchase volume, as well as the increase of the average purchase price of natural gas from RMB 14.6 per thousand cubic feet in 2004 to RMB 14.7 per thousand cubic feet in 2005, and (ii) an increase of RMB 1,833 million in depreciation expenses.
Income From Operations. As a result of the factors discussed above, income from operations increased 25.6% from RMB 2,535 million for the year ended December 31, 2004 to RMB 3,183 million for the year ended December 31, 2005.
Liquidity and Capital Resources
 
Our primary sources of funding include cash generated by operating activities and short-term and long-term borrowings. Our primary uses of funds were for operating activities, acquisitions, capital expenditures, repayment of short-term and long-term borrowings and distributions of dividends to shareholders. Our payments to CNPC are limited to dividends and payments for services provided to us by CNPC. In the year ended December 31, 2006,2009, we distributed as dividends 45% of our reported net income. We expect that we will continue to distribute as dividends approximately 40% to 50% of our reported net income for all years.the year attributable to our shareholders. See “Item 8


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Financial Information — Dividend Policy” for a discussion of factors which may affect the determination by our board of directors of the appropriate level of dividends.
 We finance a significant portion of our business operations with short-term borrowings, including short-term debt obtained from PRC State-owned banks. As of December 31, 2006, short-term debt comprised approximately 5.2% of our capital employed as compared to approximately 4.7% as of December 31, 2005.
Our financing ability may be limited by our financial condition, our results of operations and the international and domestic capital markets. Prior to accessing the international and domestic capital markets, we must obtain approval from the relevant PRC government authorities. In general, we must obtain PRC government approval for any project involving significant capital investment for our refining and marketing, chemicals, and marketing and natural gas and pipeline segments. For a more detailed discussion of factors which may affect our ability to satisfy our financing requirements, see “Item 3 — Key Information — Risk Factors”.
 
We plan to fund the capital and related expenditures described in this annual report principally through cash generated byfrom operating activities, short-term and long-term borrowings and cash and cash equivalents. Net cash generated byflows from operating activities in the year ended December 31, 20062009 was RMB 198,102RMB261,972 million. As of December 31, 2006,2009, we had cash and cash equivalents of RMB 48,559RMB86,925 million. While each of the projects described in this annual report for which significant capital expenditures will be required is important to our future development, we do not believe that failure to implement any one of these projects would have a material adverse effect on our financial condition or results of operations. If the price of crude oil undergoes a steep decline in the future, it is likely that we would delay or reduce the scale of the capital expenditures for our exploration and production segment.

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 Our shareholders approved at our shareholders’ meeting held on May 28, 2003 the proposed issuances of our corporate bonds in the principal amount of up to RMB 1,500 million and RMB 4,000 million to PRC citizens and enterprises. Upon the grant of PRC government approval,
In October 2007, we issued a portion of these corporate bonds in4 billion A Shares, which have been listed and traded on the principal amount of RMB 1,500 million in October 2003. We received RMB 1,500 million inShanghai Stock Exchange since November 5, 2007. The total proceeds and net proceeds from this issuance. Wesuch issuance were RMB66,800 million and RMB66,243 million respectively. Of the net proceeds, approximately RMB6,840 million were used for the proceeds received fromproject to increase the issuance of these corporate bonds for various crude oil production capacity of Changqing Oilfield; approximately RMB5,930 million were used for the project to increase the crude oil production capacity of Daqing Oilfield; approximately RMB1,500 million were used for the project to increase the crude oil production capacity of Jidong Oilfield; approximately RMB17,500 million were used for the project to process and natural gas exploration projects inrefine sulphur-bearing crude oil imported from Kazakhstan and the ethylene technology development project of Dushanzi Petrochemical, and approximately RMB6,000 million were used for the 1.2 million tons/year ethylene redevelopment and expansion project of Daqing Petrochemical. The balance of the net proceeds will be used as additional working capital and for general commercial purpose. A total of RMB61,621 million were used by the end of 2009, and the unused amount currently is deposited a numberspecial bank account of our oil and gas regions, as well as for upgrading refining facilities in Daqing Petrochemical and constructing the natural gas pipeline from Zhong County to Wuhan City. We issued another portion of these corporate bonds in the principal amount of RMB 2,000 million in October 2006. We received RMB 2,000 million in net proceeds from this issuance. We used the proceeds received from the issuance of these corporate bonds for various crude oil and natural gas exploration projects in a number of our oil and gas regions, as well as for the construction of supporting facilities to transmit natural gas from our Southwest Oil and Gas Field to eastern China and upgrading PTA (Pure Terephthalic Acid) and raw materials facilities in Liaoyang PetroChemical. In addition, we consider from time to time opportunities to fund our capital needs by accessing the domestic equity capital markets.company.
 
We currently do not have any outstanding options, warrants or other rights for any persons to require us to issue any common stock at a price below its market value. We do not currently intend to issue any such rights or to otherwise issue any common stock for a price below its market value.
 
In addition, we did not have for the year ended December 31, 2006,2009, and do not currently have, any transactions, arrangements or other relationships with unconsolidated entities or other persons that are reasonably likely to materially affect the liquidity or availability of or requirements for our capital resources.
 
The table below sets forth our cash flows for each of the three years ended December 31, 2004, 20052007, 2008 and 20062009 and our cash equivalents at the end of each period.
             
  Year Ended December 31,
   
  2004 2005 2006
       
  (RMB in millions)
Net cash generated by operating activities  141,691   203,885   198,102 
Net cash used for investing activities  (102,276)  (91,576)  (158,451)
Net cash used for financing activities  (39,586)  (42,634)  (71,739)
Currency translation difference  246   (458)  (258)
Cash and cash equivalents at the end of period  11,688   80,905   48,559 
 
             
  Year Ended December 31, 
  2007  2008  2009 
  (RMB in millions) 
 
Net cash flows from operating activities  207,663   172,465   261,972 
Net cash flows used for investing activities  (183,656)  (211,797)  (261,453)
Net cash flows from financing activities  (5,838)  3,777   53,077 
Currency translation difference  (221)  (112)  179 
Cash and cash equivalents at year end  68,817   33,150   86,925 
Our cash and cash equivalents decreasedincreased by 40.0%162.2% from RMB 80,905RMB33,150 million as of December 31, 20052008 to RMB 48,559RMB86,925 million as of December 31, 2006.2009.


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Net Cash Generated byFlows from Operating Activities
 
Our net cash flows from operating activities for the year ended December 31, 2009 was RMB261,972 million, representing an increase of 51.9% compared with RMB172,465 million generated for the year ended December 31, 2008. This was mainly due to the decrease in cash outflow arising from the strengthened working capital management by the company in response to the global financial crisis, and the reduction of value-added taxes as a result of the new pricing mechanism for refined products implemented by the PRC government. As at December 31, 2009, the company had cash and cash equivalents of RMB86,925 million. The cash and cash equivalents were mainly denominated in Renminbi (approximately 77.2% were denominated in Renminbi, approximately 17.2% were denominated in U.S. dollar, approximately 4.5% were denominated in HK dollar and approximately 1.1% were denominated in other currencies).
Our net cash flows from operating activities was RMB 198,102RMB172,465 million for the year ended December 31, 2006,2008, representing a decrease of RMB 5,783 million16.9% from RMB 203,885RMB207,663 million for the year ended December 31, 2005, due primarily2007, mainly as a result of a decrease in our profit attributable to an increasethe owners of RMB 6,657 million in income tax paid during the year endedcompany compared with that of 2007. As of December 31, 2006.2008, our cash and cash equivalents amounted to RMB33,150 million, which were mainly denominated in RMB (approximately 67.7% were denominated in Renminbi, and approximately 32.3% were denominated in U.S. dollar).
 We had a working capital deficit of RMB 17,657 million
Net Cash Flows Used for Investing Activities
Our net cash flows used for investing activities for the year ended December 31, 2006,2009 was RMB261,453 million, representing an increase of 23.4% compared with a working capital balance of RMB 22,057RMB211,797 million used for investing activities for the year ended December 31, 2005. This decrease2008. The net increase was primarily due to an increase in working capital was due primarily to (i)expenditures paid in cash during the year as a payment of approximately RMB 21,376 million for the acquisitionresult of the 67% equity interestconstruction of PKZ,the strategic projects (including the Second West-East Gas Pipeline project) and (ii) an increase of RMB 14,922 million inmajor programs by the dividends we distributed to our shareholders.company.
 
Our net cash flow generated by operatingflows used for investing activities was RMB 203,885 million for the year ended December 31, 2005,2008 was RMB211,797 million, representing an increase of RMB 62,19415.3% compared with RMB183,656 million from RMB 141,691 millionused for

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the year ended December 31, 2004, due primarily to an increase of RMB 31,996 million in income for the year and an increase of RMB 22,089 million in our accounts payable.
      We had a working capital balance of RMB 22,057 million investing activities for the year ended December 31, 2005, compared with2007. The net increase in cash used for investing activities was primarily due to an increase in capital expenditures paid in cash during the working capital deficit of RMB 8,272year.
Net Cash Flows from Financing Activities
Our net cash flows from financing activities for year ended December 31, 2009 was RMB53,077 million, while our net cash flows from financing activities for the year ended December 31, 2004.2008 was RMB3,777 million. This increase was primarily because we increased our financing activities in working capital balanceresponse to the financial crisis.
Our net cash flows from financing activities for the year ended December 31, 2008 was RMB3,777 million, while our net cash flows from financing activities for the year ended December 31, 2007 was RMB5,838 million. This decrease was primarily due primarily to (i) the increase in our cash and cash equivalents as a result of a substantial increase of RMB 154,875 million in our sales revenue and (ii) an increase of RMB 15,356 million in inventory, as a result of the expansion of our sales and an increase in the purchase price.amount of net borrowings and capital contributions by minority shareholders during the year.
 Our notes and other receivables include notes receivable from customers. Other receivables represent advances to employees, non-trade related receivables from other companies, and receivables from government agencies. Allowance for doubtful accounts were primarily related to other receivables which we estimated to be uncollectible. Our notes receivable do not include past due customer amounts and, as a majority portion of our notes receivable are approved by banks, we do not have special arrangements with respect to extended payment terms on notes receivable.
Cash Used for Financing Activities
Our net borrowings as of December 31, 2004, 20052007, 2008 and 20062009 were as follows:
               
  December 31,
   
  2004 2005 2006
       
  (RMB in millions)
Short-term debt (including current portion of long-term debt)  34,937   28,689   35,763 
Long-term debt  44,648   44,570   35,634 
          
 Total debt  79,585   73,259   71,397 
          
Less:            
 Cash and cash equivalents  11,688   80,905   48,559 
 Time deposits with term exceeding three months within one year  1,425   1,691   3,012 
 Investments in Collateralized Loans  33,217   235   — 
 Time deposits exceeding one year  3,751   3,428   2,499 
          
  Net debt  29,504   (13,000)  17,327 
          
 See Note 24 to
             
  December 31, 
  2007  2008  2009 
  (RMB in millions) 
 
Short-term debt (including current portion of long-term debt)  31,578   93,670   148,851 
Long-term debt  40,067   32,852   85,471 
             
Total debt  71,645   126,522   234,322 
             
Less:            
Cash and cash equivalents  68,817   33,150   86,925 
             
Net debt  2,828   93,372   147,397 
             


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Of our consolidated financial statements included elsewhere in this annual report for information regarding the maturity profile of debt, currency and interest rate structure.
      The debts which were guaranteed by CNPC amounted to RMB 756 million, RMB 674 million and RMB 597 million in the three years endedtotal borrowings as at December 31, 2004, 2005 and 2006, respectively. CNPC and we have undertaken to the Hong Kong Stock Exchange that we will continue to, on a best endeavor basis, approach each lender with respect to these guaranteed debts with a view toward obtaining the unconditional release of such guarantees.
      Of the total debts outstanding as of December 31, 2006,2009, approximately 29.3%69.7% were fixed-rate loans and approximately 70.7%30.3% were floating-rate loans. Of the total debts outstandingborrowings as ofat December 31, 2006,2009, approximately 74.0%83.2% were denominated in Renminbi, approximately 24.8%16.7% were denominated in the U.S. dollar, and approximately 1.2%0.1% were denominated in other major foreign currencies.Euro dollar.
 Our debts included short-term and long-term debts owed to China Petroleum Finance Company Limited of RMB 29,932 million, RMB 27,319 million and RMB 27,184 million in the three years ended December 31, 2004, 2005 and 2006, respectively. The amount of such short-term debts in the three years ended December 31, 2004, 2005 and 2006 were RMB 4,351 million, RMB 520 million and RMB 320 million, respectively. The amount of such long-term debts in each of the three years ended

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December 31, 2004, 2005 and 2006 were RMB 25,581 million, RMB 26,799 million and RMB 26,864 million, respectively. These debts were unsecured with interest at below the prime rate as published by the People’s Bank of China. We also maintain a portion ofOf our deposits at China Petroleum Finance Company Limited at the same deposit interest rate for commercial banks published by the People’s Bank of China.
      Our net cash used for financing activities increased 68.3% from RMB 42,634 million for the year ended December 31, 2005 to RMB 71,739 million for the year ended December 31, 2006. This increase resulted primarily from the following:
• an increase in the distribution of dividends leading to an increase of RMB 14,922 million in cash outflow; and
• our follow-on offering of H shares in 2005 leading to an increase of RMB 19,692 million in cash inflow while no such financing activity occurred in 2006.
      Our net cash used for financing activities increased 7.7% from RMB 39,586 million for the year ended December 31, 2004 to RMB 42,634 million for the year ended December 31, 2005. This increase resulted primarily from the following:
• a decrease in new long-term debts leading to a decrease of RMB 2,939 million in cash inflow;
• an increase in the repayment of short-term debts leading to an increase of RMB 10,667 million in cash outflow; and
• an increase in the distribution of dividends leading to an increase of RMB 19,339 million in cash outflow;
      These changes were offset primarily by the following:
• our follow-on offering of H shares leading to an increase of RMB 19,692 million in cash inflow.
• an increase in new short-term debts leading to an increase of RMB 3,906 million in cash inflow; and
• a decrease in the repayment of long-term debts leading to a decrease of RMB 9,156 million in cash outflow.
      Astotal borrowings as at December 31, 2006, our debts consisted of RMB 359 million secured2008, approximately 67.1% were fixed-rate loans most of whichand approximately 32.9% were secured by our assetsfloating-rate loans. Of the borrowings as at December 31, 2008, approximately 84.3% were denominated in Renminbi, approximately 15.5% were denominated in U.S. dollar, and time deposits with a term longer than one year.approximately 0.2% were denominated in Euro dollar.
 
Our debt to capital employed ratio (calculated by dividing interest-bearing debts by the aggregate of interest-bearing debts and shareholder’s equity) as of December 31, 20062009 was 10.4%20.5%, as compared to 11.9%13.0% as of December 31, 2005.2008.
Capital Expenditures and Investments
 Our net cash used for investing activities includes
For the year ended December 31, 2009, our capital expenditures increased 14.8% to RMB266,836 million from RMB232,377 million for the year ended December 31, 2008. The increase in capital expenditures was primarily due to an increase in expenditures relating to construction of sales network and investments, offsetconstruction of natural gas pipelines by proceeds from the sale of assets and dividends received. our company.
The table below sets forth our capital expenditures and investments (including non dry hole exploration expenses) by business segment for each of the years ended December 31, 2004, 20052007, 2008 and 20062009 as well as those anticipated for the

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year ending December 31, 2007.2010. Actual capital expenditures and investments for periods after January 1, 20072010 may differ materially from the amounts indicated below.
                                  
        2007
  2004 2005 2006 anticipated
         
  (RMB in   (RMB in   (RMB in   (RMB in  
  millions) % millions) % millions) % millions) %
Exploration and production  70,217   66.06   92,233   68.92   114,520   72.44   127,200   64.34 
Refining and marketing  17,684   16.64   16,454   12.30   19,206   12.15   28,000   14.16 
Chemicals and marketing  4,319   4.06   13,569   10.14   10,681   6.76   16,000   8.09 
Natural gas and pipeline  13,901   13.08   11,137   8.32   11,309   7.15   18,000   9.10 
Corporate and other  174   0.16   427   0.32   2,358   1.50   8,500   4.31 
                         
 Total  106,295   100.0   133,820   100.0   158,074   100.0   197,700   100.0 
                         
 Our capital expenditures and investments increased 18.1% from RMB 133,820 million for the year ended December 31, 2005 to RMB 158,074 million for the year ended December 31, 2006. This increase was due primarily to an increase of RMB 22,287 million in capital expenditures and investments in the exploration and production segment and an increase of RMB 2,752 million in capital expenditures in the refining and marketing segment, which were partially offset by a decrease of RMB 2,888 million in capital expenditures in the chemicals and marketing segment. Taking into account the exclusion of the investments relating to the non-dry hole exploration expenses, our capital expenditures for the years ended 2004, 2005 and 2006 would have been RMB 98,946 million, RMB 124,801 million and RMB 148,746 million, respectively.
                                 
        2010
  2007 2008 2009 Anticipated
  (RMB in
   (RMB in
   (RMB in
   (RMB in
  
  millions) % millions) % millions) % millions) %
 
Exploration and production(1)
  135,351   74.1   157,194   67.6   129,017   48.4   157,700   53.9 
Refining and chemicals  21,499   11.8   30,619   13.2   42,558   15.9   49,500   16.9 
Marketing  13,212   7.2   4,974   2.1   18,174   6.8   19,600   6.7 
Natural gas and pipeline  11,003   6.0   36,848   15.9   74,754   28.0   62,000   21.2 
Corporate and other  1,613   0.9   2,742   1.2   2,333   0.9   3,900   1.3 
                                 
Total  182,678   100.0   232,377   100.0   266,836(2)  100.00   292,700   100.00 
                                 
 
(1)If investments related to geological and geophysical exploration costs are included, the capital expenditures and investments for the exploration and production segment for 2008 and 2009, and the estimates for the same in 2010 would be RMB168,732 million, RMB138,396 million and RMB169,000 million, respectively.
(2)The capital expenditure for 2009 has excluded the consideration for the acquisition of Singapore Petroleum Company Limited in the amount of Singapore dollars (“S$”)3,239 million (approximately RMB15,296 million).
As of December 31, 2006,2009, the capital expenditures contracted for at the balance sheet date but not recognized in our consolidated financial statements were approximately RMB 9,193RMB56,657 million.
Exploration and Production
Exploration and Production
 
A majority of our capital expenditures and investments relate to our exploration and production segment. Our capital expenditures and investments in this segment for the year ended December 31, 2006 totaled RMB 114,520 million, including RMB 29,809 million for exploration activities and RMB 75,050 million for development activities. Our capital expenditures and investments for the segment for the year ended December 31, 2005 totaled RMB 92,233 million, including RMB 25,518 million for exploration activities and RMB 59,113 million for development activities. The increase in our capital expenditures and investments from the year ended December 31, 2005 to the year ended December 31, 2006 was primarily due to the increased capital expenditures for oil and natural gas exploration activities as a part of our efforts to achieve a stable production of crude oil in eastern regions, a rapid development of our operations in western regions and an expedited development of our natural gas business. In addition, we also increased our capital expenditures for safety and environmental protections for this segment in 2006. Taking into account the exclusion of the investments relating to the non-dry hole exploration expenses, the capital expenditures of our exploration and production segment for the years ended December 31, 2004, 2005 and 2006 would have been RMB 62,868 million, RMB 83,214 million and RMB 105,192 million, respectively.
      Our anticipated capital expenditures and investments for our exploration and production segment for the year ending December 31, 2007 amount to RMB 127,200 million. Approximately RMB 32,000 million is expected to be used for exploration activities and approximately RMB 95,200 million for development activities. We plan to focus our exploration and development efforts in Erdos, Junggar, Tarim, Songliao, Sichuan, Bohai Bay and Qaidam basins.
Refining and Marketing
      Our capital expenditures for our refining and marketing segment forFor each of the three years ended December 31, 2004, 20052007, 2008, and 20062009, capital expenditures in relation to the exploration and production segment amounted to RMB135,351 million, 157,194 million, 129,017 million, respectively. The capital expenditures and investments in the exploration and production segment were RMB 17,684 million, RMB 16,454 millionprimarily used for large oil and gas exploration projects such as in the oil and gas fields located in Changqing, Daqing, Tarim and Southwestern


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RMB 19,206 million, respectively. The increase
oil and gas fields in 2006 is due primarily to an increase of RMB 4,034 million in our investment inChina and Aktyubinsk oil and gas fields and for the construction of refining facilities. In addition, we also increased thekey production capacities for various oil and gas fields.
We anticipate that capital expenditures for safetythe exploration and production protectionsegment for thisthe year ended December 31, 2010 will amount to approximately RMB157,700 million, of which approximately RMB29,000 million will be mainly used for oil and gas exploration activities, and approximately RMB128,700 million will be used for the oil and gas developmen activities. Domestic exploration activities will be mainly focused on the overall development of regions in Songliao Basin, Bohai Basin, Erdos Basin, Sichuan Basin, Tarim Basin and other key oil and gas regions. Development activities will be focused on the construction of new proved oil and gas fields, while the steady and increasing production of Daqing, Changqing, Tarim and Southwestern oil and gas fields will also be emphasized; oil and gas exploration and development in Central Asia and the Middle East will be the focus of our overseas development efforts.
Refining and Chemicals
Our capital expenditures for our refining and chemicals segment in 2006.for each of the years ended December 31, 2007, 2008 and 2009 were RMB21,499 million, RMB30,619 million and RMB42,558 million, respectively.
 
Our anticipated capital expenditures for our refining and marketingchemicals segment for the year ending December 31, 20072010 amount to RMB 28,000RMB49,500 million, which include:
 • approximately RMB 20,000RMB26,400 million for the construction and expansion of our refining facilities;facilities, mainly including the construction of large-sized refining projects in Sichuan Petrochemical and Huhhot Petrochemical; and
 
 • approximately RMB 8,000RMB23,100 million for the construction of our service stationschemical facilities, mainly including the large-sized ethylene projects at Sichuan Petrochemical, Fushun Petrochemical and retail facilities for finished oil products.
Chemicals and MarketingDaqing Petrochemical.
 
Marketing
Our capital expenditures for our chemicals and marketing segment for each of the three years ended December 31, 2004, 20052007, 2008 and 20062009 were RMB 4,319RMB13,212 million, RMB 13,569RMB4,974 million and RMB 10,681RMB18,174 million, respectively. LowerOur capital expenditures for the marketing segment in 20062009 were primarily due tomainly used for the completionconstruction of service stations, storage facilities and commencement of commercial production of the upgrades and expansion of the ethylene productionother facilities in Jilin Petrochemical and Lanzhou Petrochemical in 2006.for our sales network.
 
Our anticipated capital expenditures for our chemicals and marketing segment for the year ending December 31, 20072010 amount to RMB 16,000RMB19,600 million, which are expected to be mainly includeused for the construction and expansion of our sales network.
Natural Gas and Pipeline
Our capital expenditures for the ethylene facilities in Dushanzi Petrochemical and Fushun Petrochemical.
Natural Gas and Pipeline
      Our capital expenditures for our natural gas and pipeline segment for each of the three years ended December 31, 2004, 20052007, 2008 and 20062009 were RMB 13,901RMB11,003 million, RMB 11,137RMB36,848 million and RMB 11,309 million,RMB74,754, respectively. Our capital expenditures for the natural gas and pipeline segment in 2009 were mainly used for the construction of the SecondWest-to-East Pipeline project, the Russia to China crude oil transmission pipeline and theLanzhou-Zhengzhou-Changsha refined oil product transmission pipeline project.
 
Our anticipated capital expenditures for our natural gas and pipeline segment for the year ending December 31, 20072010 amount to approximately RMB 18,000RMB62,000 million, which are expected to be used primarily for increasing transmission capacity of the West-East Gas Pipeline, the construction of underground naturalmajor oil and gas storage facilities andtransmission projects such as the constructionsecond phase of pipelines fortheWest-to-East Gas Pipeline project, the Russia to China crude oil transmission pipeline and refined products. See “Item 4 — Information on the Company — Natural Gas and Pipeline — Expansion of Our Natural Gas Transmission and Marketing Business” for a more detailed discussion of the expansion plans of ourassociated liquefied natural gas and pipeline segment.gas storage facilities.
Other
Others
 
Our non-segment-specific capital expenditures and investments for each of the three years ended December 31, 2004, 20052007, 2008 and 20062009 were RMB 174RMB1,613 million, RMB 427RMB2,742 million and RMB 2,358RMB2,333 million, respectively. Since we started from January 1, 2006 to include capital expenditures and investments for certain research and development activities, which were previously included in the capital expenditures of our four operational segments, in our non-segment-specific capital expenditures, our expenditures for this category increased significantly in 2006.


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Our anticipated non-segment-specific capital expenditures and investments for the year ending December 31, 20072010 amount to RMB 8,500RMB3,900 million. These planned capital expenditures and investments mainly include capital expenditures for scientific research activities and the construction of the ERP information system.

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Off-Balance Sheet Arrangements
 
There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
 
Long-Term Contractual Obligations and Other Commercial
Commitments and Payment Obligations
All information that is not historical in nature disclosed under “Item 5 — Operating and Financial Review and Prospects — Long-Term Contractual Obligations and Other Commercial Commitments and Payment Obligations” is deemed to be a forward looking statement. See “Forward — Looking“Forward-Looking Statements” for additional information.
Long-Term Contractual Obligations and Other Commercial
Commitments and Payment Obligations
The tables below set forth certain information in connection with our long-term contractual obligations and other commercial commitments outstanding as of December 31, 2006.2009.
                     
  Payment due by period
   
    Less than   After
Contractual obligations Total 1 year 1-3 years 3-5 years 5 years
           
  (RMB in millions)
Long-term debt  56,241   20,607   18,211   4,035   13,388 
Capital lease obligations  0   0   0   0   0 
Operating leases  94,780   3,099   5,463   6,142   80,076 
Capital commitments  9,193   4,871   4,315   3   4 
Unconditional purchase obligations  1,412.1   1,063.2   274.1   28.4   46.4 
Other long-term obligations  0   0   0   0   0 
Total contractual cash obligations  161,626.1   29,640.2   28,263.1   10,208.4   93,514.4 
                     
  Amount of commitment expiration per period
   
  Total  
  amounts Less than   Over
Other commercial commitments committed 1 year 1-3 years 3-5 years 5 years
           
  (RMB in million)
Lines of credit  0   0   0   0   0 
Standby letters of credit  0   0   0   0   0 
Guarantees  203   87   49   22   45 
Total commercial commitments  203   87   49   22   45 
 
                     
  Payment Due by Period
    Less Than
     After
Contractual Obligations
 Total 1 Year 1-3 Years 3-5 Years 5 Years
  (RMB in millions)
 
Long-term debt  99,700   14,229   49,473   25,560   10,438 
Capital lease obligations  —   —   —   —   — 
Operating leases  93,934   4,071   6,383   6,095   77,385 
Capital commitments  56,657   44,306   11,996   65   290 
Unconditional purchase obligations  1,817   796   836   60   125 
Other long-term obligations  —   —   —   —   — 
Total contractual cash obligations  252,108   63,402   68,688   31,780   88,238 
                     
  Amount of Commitment Expiration per Period
  Total
        
  Amounts
 Less Than
     Over
Other Commercial Commitments
 Committed 1 Year 1-3 Years 3-5 Years 5 Years
  (RMB in millions)
 
Lines of credit  —   —   —   —   — 
Standby letters of credit  —   —   —   —   — 
Guarantees  21   —   21   —   — 
Total commercial commitments  21   —   21   —   — 
We are obligated to make annual payment with respect to our exploration and production licenses to the Ministry of Land and Resources. The table below sets forth the estimated amount of the annual payments in the futurenext five years:
     
Year Annual payment
   
  (RMB in millions)
2007  750 
2008  780 
2009  800 
2010  850 
2011  900 
     
Year
 Annual Payment
  (RMB in millions)
 
2010  1,000 
2011  1,000 
2012  1,000 
2013  1,000 
2014  1,000 


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      We sell a substantial portion
Assets Retirement Obligation
A number of provinces and regions in which our naturaloil and gas under long-term take-or-pay contracts. Under these contracts, the customersexploration and production activities are required to take or pay, and we are obligated to deliver, minimum quantities of natural gas annually.
      As of December 31, 2006, our future minimum delivery commitments under such take-or-pay contracts are as follows:
     
  Quantities
   
  (billion of
  cubic feet)
2007  720 
2008  885 
2009  943 
2010  1,002 
2011  1,050 
2012 and thereafter  10,460 
Oil-and-Gas Assets Retirement Obligation
      Before the issuance of two provinciallocated have promulgated environment protection regulations,The Environmental Protection Regulation for Oil and Gas Exploration and Production Activities in Heilongjiang ProvinceandThe Environmental Protection Regulation for Oil and Gas Exploration and Production Activities in Gansu Province,which set forth specific abandonment and disposal processes for oil and gas exploration and production activities in 2005, our company was neither legally obligated to, nor was our company under the constructive obligation, to take any abandonment measures for its retired oil and gas properties located in China. In 2005, our companyactivities. We have established standard abandonment procedures, including plugging all retired wells, dismantling all retired metering stations and other related facilities and performing site restoration, in response to the issuance of twothese provincial regulations which set forth specific abandonment and disposal processes for oil and gas exploration and production activities. As a result, our company became legally obligated to take abandonment measures for its retired oil and gas properties located in the two provinces where the new regulations were enacted, and is under the constructive obligation to take abandonment measures for its retired oil and gas properties located in other provinces where comparable regulations were not enacted.regional regulations. An additional obligation of RMB 3,589RMB7,162 million was recorded in 2006 and did not have a material impact on our financial condition.2009.
Research and Development
 
We have a research and development management department, directly under which there are three research institutions. Except for our branch companies which are engaged in marketing activities, each of our branch companies has its own research and development management department. Most of our branch companies have their own research institutions. Our research and development management departments are mainly responsible for managing and coordinating the research and development activities conducted by each of the research institutions. As of December 31, 2006,2009, we had 22,03519,800 employees engaged in research and development functions.
 In 2006, we applied for 423 patents and 135 trademarks in China and 499 trademarks in other countries. We were granted patent rights for 259 patents in China in the same year.
In each of the three years ended December 31, 2004, 20052007, 2008 and 2006,2009, our total expenditures for research and development were approximately RMB 2,977RMB5,315 million, RMB 3,195RMB7,760 million and RMB 4,260RMB9,887 million, respectively.

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Exploration and Production
 
Most of China’s major oil and gas fields are characterized by a broad range of geological conditions, and a majority of China’s oil and gas fields are in continental sedimentary basins with complex structures. Our research and development efforts with respect to our exploration and production business focus on:
 • geological structurestheories and technologies of crude oil and natural gas reserves;exploration;
 
 • oil and gas explorationdevelopment and development;surface engineering technology;
 
 • oil and gas production and pipeline transportation; and
 
 • security, energy conservation and environment protection.
Refining and Chemicals
 In order to organize and coordinate
Currently, our research and development activities related to ourefforts in the refining and chemicals businesses, we established PetroChina Refining & Chemicals Technology Research Center in July 2003. In order to enhance our competitiveness and develop core technologies, we have integratedsegment are focusing on the resources of our down-stream scientific research and development. In April 2006, we expanded PetroChina Refining & Chemicals Technology Research Center and renamed it to PetroChemical Research Institute to carry out our research and development of technologies for refining and chemicals. In the meantime, we have integrated the research and development resources of our local petrochemical companies, and established four research and development centers in Lanzhou Petrochemical, Daqing Petrochemical, Jilin Petrochemical and Liaoyang Petrochemical.following areas:
• technology for clean refined oil products;
• core technology for heavy oil processing;
• technology for developing high quality and high value synthetic resin products;
• high performance synthetic rubber products; and
• production technology for low cost chemical raw materials.
Trend Information
Streamlining of Production Facilities
 We plan
The world economic situation and energy industry are developing and changing rapidly. China may encounter unexpected challenges and obstacles in maintaining a stable economic development. The rebound of China’s domestic demand for refined oil products is still subject to continuemany uncertainties. The competition on China’s domestic petroleum and petrochemical market will be more intense.
Other than as disclosed above and elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the periods from January 1, 2007 to streamline our production facilities within the next several yearsDecember 31, 2009 that are reasonably likely to further improve our operating efficiency and competitiveness by consolidating or shutting down some of our production facilities. We do not believe that the implementation of such plans will have a material adverse impact on our financial position, although we believe that it could have a material adverse effect on our net revenues, income, profitability, liquidity or capital


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resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results of operations because we would be required under our accounting policies to recognize in our income statement any impairment loss or impairment provision associated with shutting down our production facilities. See “— General — Critical Accounting Policies” and “— General — Factors Affecting Results of Operations” above for a detailed discussion of other trend information.financial conditions.
Other Information
Inflation
 
Inflation
Inflation or deflation has not had a significant impact on our results of operations for the year ended December 31, 2006.

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Non-Exchange Traded Contracts2009.
 We did not engage for the year ended December 31, 2006, and do not currently engage, to a material extent, in any trading activities involving commodity contracts that are accounted for at fair value but for which a lack of market price quotations makes it necessary to apply fair value estimation techniques.
Related Party Transactions
 
For a discussion of related party transactions, see “Item 7 — Major Shareholders and Related Party Transactions — Related Party Transactions” and Note 3537 to our consolidated financial statements included elsewhere in this annual report.
Recent IFRSEnvironmental Expenses
 
We paid pollutant discharge fees of approximately RMB231 million, RMB200 million and RMB301 million, respectively, in 2007, 2008 and 2009. Our capital expenditures on environmental programs in 2007, 2008 and 2009 were approximately RMB2,299 million, RMB1,366 million and 1,336 million, respectively.
Recent Developments in IFRS
As we prepared our consolidated financial statements in accordance with IFRS, any adoption of new standards or amendment or interpretation to existing standards, when effective, may affect our consolidated results of operation, consolidated financial position and consolidated cash flows.
 
The following standardstandards and interpretations to existing standards, which are relevant to our operations, have been published and are mandatory for accounting periods beginning on or after MayJanuary 1, 2006.2010. We didhave not adopt such standardadopted these standards or interpretations as of December 31, 2006:2009.
 
IFRS 3 (Revised), ‘Business combinations’ — effective July 1, 2009. The IFRS 7, Financial Instruments: Disclosures, andrevised standard continues to apply the complementary Amendmentacquisition method to IAS 1, Presentation of Financial Statements — Capital Disclosures, introduces new disclosures relatingbusiness combinations, with some significant changes. For example, all payments to financial instruments. We do not expect this standard to have any impact on the classification or valuation of our financial instruments.
      The IFRIC Interpretation 10, Interim Financial Reporting and Impairment, prohibits impairment losses, recognized in an interim period, relating to goodwill, investments in equity instruments and investments in financial assets carried at costpurchase a business are to be reversedrecorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the statement of comprehensive income. There is a subsequent balance sheet date. Wechoice on anacquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair vale or at the non-controlling interest’s proportionate share of the acquiree’s net assets. All acquisition-related costs should be expensed. The company will adopt IFRIC Interpretation 10 fromapply the revised standard prospectively to all business combinations for which the acquisition date is on or after January 1, 2007, but do not expect it will have any impact on our consolidated financial statements.
US GAAP Reconciliation2010.
 We prepared our consolidated financial statements
IFRS 5 (Amendment), ‘Non-current assets held for sale and discontinued operations’ — effective July 1, 2009. The amendment clarifies that all of a subsidiary’s assets and liabilities are classified as held for sale if a partial disposal plan results in accordance with IFRS. This basisloss of accounting may differ from US GAAP. Such differences involve methodscontrol, and relevant disclosure should be made for measuringthis subsidiary if the amounts shown indefinition of a discontinued operation is met. The Company is currently evaluating the financial statements, as well as additional disclosures required by US GAAP.
      A summaryimpact of the principal differences and additional disclosures applicable to us is set out below:
  Acquisition of PKZ
      As described in Note 19 toamendment on the consolidated financial statements included elsewhere in this annual report, we acquired a 67% equity interest in PKZ from CNPC International limited (CNPCI), a subsidiary of CNPC, for a consideration of RMB 21,376 million. The acquisition was completed on December 28, 2006, when we paid the consideration for the acquisitionbut it is not expected to CNPCI. As both CNPCI and our company are under common control by CPNC, our acquisition of the 67% equity interest in PKZ has been accounted for in a manner similar to pooling of interest under US GAAP accounting and the US GAAP financial data reflects the acquisition since PKZ was first acquired by CNPCI on October 26, 2005.have any significant impact.
 On December 15, 2006, PKZ paid to CNPCI a dividend
IFRS 5 (Amendment), ‘Measurement of RMB 3,044 million and was recordednon-current assets (or disposal groups) classified as a deemed distribution to CNPCI.

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Revaluation of Property, Plant and Equipment
      As described in Note 18 to the consolidated financial statements, the property, plant and equipment, excluding oil and gas reserves, transferred to our 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. In September 2003, our company’s refining and chemical production equipment was revalued by a firm of independent valuers registered in the PRC, China United Assets Appraiser Co., Ltd, on a depreciated replacement cost basis. In March 2006, our company’s oil and gas properties were revalued by two independent valuers, China United Assets Appraiser Co., Ltd and China Enterprise Appraisals, on a depreciated replacement cost basis.
      The June 1999 revaluation resulted in RMB 80,549 million in excess of the prior carrying value and a revaluation loss of RMB 1,122 million on certain property, plant and equipment.
      The September 2003 revaluation resulted in RMB 872 million 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 million.
      The March 2006 revaluation did not result in significant differences from the carrying value of our oil and gas properties.
      The depreciation charge, which includes impairment charge, on the revaluation surplus fromheld-for-sale’ — effective January 1, 2006 to December 31, 2006 was RMB 3,828 million, from January 1, 2005 to December 31, 2005 was RMB 6,528 million, and from January 1, 2004 to December 31, 2004 was RMB 8,170 million.
2010. The depreciation charge, which includes impairment charge, on the revaluation loss from January 1, 2006 to December 31, 2006 was RMB Nil, from January 1, 2005 to December 31, 2005 was RMB 149 million, and from January 1, 2004 to December 31, 2004 was RMB 830 million.
      The loss on disposal of revalued property, plant and equipment, which includes shut down of manufacturing assets, from January 1, 2006 to December 31, 2006 was RMB 287 million, from January 1, 2005 to December 31, 2005 was RMB 432 million, and from January 1, 2004 to December 31, 2004 was RMB 523 million.
      For purposes of reconciling to the US GAAP financial data, the effect of the revaluation, the related depreciation charges and loss on disposalamendment 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.
One-time Compensatory Payments for Staff Housing
      The Ministry of Finance of the PRC issued several public notices and regulations during the years ended December 31, 2000 and 2001 with respect to the one-time compensatory 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 CNPC group took place in November 1999. As such, the one-time compensatory housing payments payable to the eligible employees of our company are to be borne by the state shareholder of our company.

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      Under IFRS, such direct payments to employees or reimbursements will not be recorded through the consolidated profit and loss account of CNPC. US GAAP contains no such exemption but requires this principal shareholder’s action on behalf of our company to be recorded in the consolidated profit and loss account. In the last quarter of year 2002, our company and CNPC completed the process of estimating the amount payable to qualified employees of our company. This amount, RMB 2,553 million, was reflected in determining net income of CNPC 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 our company. There were no significant changes in this estimate during 2005 and 2006.
Minority Interest
      In accordance with the revised IAS 1, “Presentation of Financial Statements” and IAS 27, “Consolidated and Separate Financial Statements”, minority interest becomes part of the profit forIASB’s annual improvements project published in April 2009. The amendment provides clarification that IFRS 5 specifies the yeardisclosures required in respect of non-current assets (or disposal groups) classified asheld-for-sale or discontinued operations. It also clarifies that the general requirement of IAS 1 still apply, particularly paragraph 15 (to achieve a fair presentation) and total equityparagraph 125 (sources of our company, whereas under US GAAP, it is respectively excluded from the net income and shareholders’ equityestimation uncertainty) of our company. In addition, the reconciling item also includes the impact of minority interest’s share of the revaluation gain and loss, on the property, plant and equipment of non-wholly owned subsidiaries and minority interest arising as a result of the acquisition of 67% equity interest in PKZ through a non-wholly owned subsidiary of our company, to net income and shareholders’ equity under US GAAP.
Purchase from Minority Interest of Listed Subsidiaries
      As described in Note 39 to the consolidated financial statements, our company acquired certain outstanding A shares from the minority interest of Jinzhou Petrochemical Company Limited (“JPCL”) and Liaohe Jinma Oilfield Company Limited (“LJOCL”) and certain A shares and H shares (including ADSs) from the minority interest of Jilin Chemical Industrial Company Limited (“JCC”). Under IFRS, our company applies a policy of treating transactions with minority interest as transactions with equity participants of our company. Therefore, the assets and liabilities of JPCL, LJOCL and JCC additionally acquired by our company from minority interest were recorded by our company at cost.IAS 1. The difference between the company’s purchase cost and the book value of the interests in JPCL and LJOCL acquired by our company from minority interest was recorded in equity. Under US GAAP, the acquisition of additional minority interest is accounted for under purchase method. Assets and liabilities additionally acquired were restated to fair value and the difference of purchase cost over fair value of the minority interest acquired and identified intangible assets was recorded as goodwill. Additional depreciation charge for the assets restated to fair value was recorded.
Recent US Accounting Pronouncements
      In September 2005, the Emerging Issues Task Force (“EITF”) reached consensus on Issue No. 04-13, “Accounting for Purchases and Sales of Inventory with the Same Counterparty” (“EITF 04-13”) which requires two or more inventory purchase and sales transactions with the same counterparty that are entered into in contemplation of one another to be combined for purposes of applying Opinion 29, “Accounting for Nonmonetary Transactions”. The Task Force also agreed that an entity should disclose the amount of revenue and costs (or gains and losses) associated with inventory exchanges recognized at fair value. EITF 04-13 should be applied to new arrangements entered into, or modifications or renegotiations of existing arrangements, beginning in the first interim or annual reporting period beginning after March 15, 2006 and early application is permitted in periods for which financial statements have not been issued. Our company did not early adopt EITF 04-13 and does not expect the adoption of EITF 04-13 to have a material impact on our financial position or results of operations.
      In June 2006, EITF issued No. 06-3, “How Sales Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement” (“EITF 06-3”).

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EITF 06-3 requires disclosure of the presentation of taxes on either a gross or a net basis as an accounting policy decision. The provisions of EITF 06-3 are effective for interim and annual reporting periods beginning after December 15, 2006, and early application is permitted. Our company did not early adopt EITF 06-3 and does not expect the adoption of EITF 06-3 to have a material impact on the presentation of our financial statements.
      In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements uncertain tax positions that an enterprise has taken or expects to take in its tax returns. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. Earlier adoption is permitted as of the beginning of an enterprise’s fiscal year, provided the enterprise has not yet issued financial statements, including financial statements for any interim period, for that fiscal year. The cumulative effect of applying the provisions of this Interpretation should be reported as an adjustment to the opening balance of retained earnings for that fiscal year. Our company is currently evaluating the impact of adopting FIN 48.the amendment on the disclosures in the consolidated financial statements but it is not expected to have any significant impact.
 In September 2006,
IAS 1 (Amendment), ‘Presentation of financial statements’ — effective January 1, 2010. The amendment is part of the FASB issued StatementIASB’s annual improvements project published in April 2009. The amendment provides clarification


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that the potential settlement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“FAS157”), which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. FAS 157 doesa liability by the issuance of equity is not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. FAS 157 willrelevant to its classification as current or non current. By amending the definition of current liability, the amendment permits a liability to be effective for fiscal years beginning after November 15, 2007, and all interim periods within those fiscal years. Earlier application is permitted ifclassified as non-current (provided that the entity has not issued interiman unconditional right to defer settlement by transfer of cash or annual financial statementsother assets for at least 12 months after the accounting period) notwithstanding the fact that fiscal year. Ourthe entity could be required by the counterparty to settle in shares at any time. The company is currently evaluating the impact of adopting FAS 157the amendment on the consolidated financial statements but doesit is not expected the adoption of which to have any significant impact.
IAS 27 (Revised), ‘Consolidated and separate financial statements’ — effective July 1, 2009. The revised standard requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. IAS 27 (Revised) also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value and a material effectgain or loss is recognized in profit or loss. The company will apply the revised standard prospectively to transactions with non-controlling interests from January 1, 2010.
IAS 38 (Amendment), ‘Intangible Assets’ — effective January 1, 2010. The amendment is part of the IASB’s annualimprovements project published in April 2009 and the company will apply IAS 38 (Amendment) from the date IFRS 3 (Revised) is adopted. The amendment clarifies guidance in measuring the fair value of an intangible asset acquired in a business combination and it permits the grouping of intangible assets as a single asset if each asset has similar useful economic lives. The company is currently evaluating the impact of the amendment on our company’sthe consolidated financial position and results of operations.
      In September 2006, the U.S. Securities and Exchange Commission (“SEC”) released SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 provides interpretive guidance on the SEC’s views on the consideration of effects of prior year misstatements in quantifying current year misstatements for the purpose of determining whether the current year’s financial statements are materially misstated. The provisions of SAB 108 are effective for fiscal years ending after November 15, 2006. The application of SAB 108 didbut it is not expected to have any material effect on our company’s consolidated financial position, and results of operations.significant impact.
Quantitative Disclosure Relating to US GAAP and IFRS
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
 Net income. Net income under US GAAP increased 6.0% from RMB 137,866 million for the year ended December 31, 2005 to RMB 146,087 million for the year ended December 31, 2006. This increase was due primarily to an increase of RMB 9,755 million in the net income under IFRS as discussed in “Item 5 — Operating and Financial Review and Prospects — Operating Results”.
Shareholders’ equity. Shareholders’ equity under US GAAP increased 12.6% from RMB 510,141 million as of December 31, 2005 to RMB 574,470 million as of December 31, 2006. This increase was due primarily to the net income of RMB 146,087 million under US GAAP, which was partially offset by the payment of (i) the final dividend of RMB 32,282 million for the year of 2005 and (ii) the interim dividend of RMB 36,307 million for the year of 2006.
Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
Net income. Net income under US GAAP increased 26.4% from RMB 109,051 million for the year ended December 31, 2004 to RMB 137,866 million for the year ended December 31, 2005.

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This increase was due primarily to an increase of RMB 31,996 million in the net income under IFRS as discussed in “Item 5 — Operating and Financial Review and Prospects — Operating Results”.
Shareholders’ equity. Shareholders’ equity under US GAAP increased 25.8% from RMB 405,573 million as of December 31, 2004 to RMB 510,141 million as of December 31, 2005. This increase was due primarily to the net income of RMB 137,866 million under US GAAP, which was partially offset by the payment of (i) the final dividend of RMB 25,936 million for the year of 2004 and (ii) the interim dividend of RMB 27,731 million for the year of 2005.
Environmental Expenses and Capital Expenditures
      We paid pollutant discharge fees of approximately RMB 182 million, RMB 199 million and RMB 211 million respectively, in 2004, 2005 and 2006. Our capital expenditures on environmental programs in 2004, 2005 and 2006 were approximately RMB 1,345 million, RMB 1,633 million and RMB 4,634 million, respectively. On November 13, 2005, an explosion occurred at our branch company in Jilin Province. The Chinese government completed its investigation of this accident in December 2006, and we paid a fine of RMB 1 million in settlement of all liabilities arising from the accident.

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ITEM 6 —DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
Directors, Senior Management and Supervisors
 Our
Currently, our board of directors currently consists of twelvefourteen directors, threefive of whom are independent non-executive directors. The directors are elected at a meeting of our shareholders for a term of three years. The directors may be re-elected and re-appointed upon the expiration ofhis/her term of office. The functions and duties conferred on the board of directors include:
 • convening shareholders’ meetings and reporting its work to the shareholders’ meetings;
 
 • implementing the resolutions of the shareholders’ meetings;
 
 • determining our business plans and investment plans;
 
 • formulating our annual budget and final accounts;
 
 • formulating our proposals for dividend and bonus distributions and for the increase or reduction of capital; and
 
 • exercising other powers, functions and duties as conferred by our articles of association.
 Seven
Eight of the directors are currently affiliated with CNPC or an affiliate of CNPC.
 
The PRC Company Law requires a joint stock company with limited liability to establish a supervisory committee.board. This requirement is reflected in our articles of association. The supervisory committeeboard is responsible for monitoring our financial matters and overseeing the corporate actions of our board of directors and our management personnel. The supervisory committeeboard consists of sevennine supervisors, six of whom are elected, including four shareholders representatives and two independent supervisors, and may be removed, by the shareholders in a general meeting and onethree of whom is anare employees’ representativerepresentatives who isare elected by our staff, and may be removed, by our staff. ThreeFour of our supervisors are affiliated with CNPC. The term of office of our supervisors is three years. The supervisors may be re-elected and re-appointed upon the expiration ofhis/her term of office. An elected supervisor cannot concurrently hold the position of a director, manager or financial controller. The functions and powers conferred on the supervisory committeeboard include:
 • attending board meetings;
 
 • examining our financial affairs;


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 • examining balance sheets, profit and loss accounts, business reports, dividend distribution proposals and other financial information proposed at shareholders’ general meetings by the directors from time to time; and
 
 • overseeing the actions of our board of directors and our senior management personnel in carrying out their duties.
 
In the event that any action of our directors adversely affects our interests, supervisors shall confer with or initiate legal proceedings against such directors on our behalf. A resolution proposed at any meeting of the supervisory committeeboard shall be adopted only if it is approved by two-thirds or more of our supervisors.
 
Our senior management is appointed by and serves at the discretion of our board of directors.

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The following table sets forth certain information concerning our current directors, supervisors and executive officers.
           
Name
 AgePositionDate of election(1)
  
Position
Date of Election(1)
Jiang Jiemin  
Chen Geng6054  Chairman of the board of directors  May 18, 200415, 2008 
Jiang JieminZhou Jiping  5157  Vice Chairman of the board of directors and Presidentpresident  May 18, 200415, 2008 
Duan WendeWang Yilin  55Director and Senior Vice PresidentMay 18, 2004
Zheng Hu6053  Director  May 26, 200615, 2008 
Zhou JipingZeng Yukang  5459  Director  May 18, 200415, 2008 
Wang YilinFucheng  5059  Director  November 8, 2005May 15, 2008 
Zeng YukangLi Xinhua  56  Director  November 8, 2005May 15, 2008 
Gong HuazhangLiao Yongyuan  6047Director and vice presidentMay 15, 2008
Wang Guoliang57  Director  November 8, 2005May 15, 2008 
Jiang Fan  4346  Director  November 8, 2005May 15, 2008 
Chee-Chen Tung  64Independent non-executive directorNovember 8, 2005
Liu Hongru76Independent non-executive directorNovember 8, 2005
Franco Bernabè5867  Independent non-executive director  May 26, 200615, 2008
Liu Hongru79Independent non-executive directorMay 15, 2008
Franco Bernabè61Independent non-executive directorMay 15, 2008 
Li HuaiqiYongwu  5765  Independent non-executive directorMay 15, 2008
Cui Junhui63Independent non-executive directorMay 15, 2008
Li Hualin47Vice President and Secretary to the board of directors    
Wang GuoliangSun Longde  5447  Chief Financial OfficerVice president    
Liao YongyuanShen Diancheng  4450Vice president
Liu Hongbin46Vice president
Zhou Mingchun42Chief financial officer
Zhao Zhengzhang53Vice president
Bo Qiliang(2)
47Chief engineer
Sun Bo(2)
49  Vice President    
Jia ChengzaoLin Aiguo  5851  Vice President
Hu Wenrui57Vice PresidentChief engineer    
Wang FuchengDaofu  5654Chief geologist
Huang Weihe52Chief engineer
Chen Ming59  Chairman of the supervisory committeeboard    
Wen Qingshan  4851  Supervisor    
Sun Xianfeng  5457  Supervisor    
Xu FengliYu Yibo  5946Supervisor
Wang Yawei55  Supervisor    
Qin Gang  5356Supervisor
Wang Shali55  Supervisor    
Li YongwuYuan  62  Independent supervisor    
Wu Zhipan
Wang Daocheng(3)
  5069  Independent supervisor    


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(1)For directors only.
(2)Mr. Bo Qiliang and Mr. Sun Bo were appointed as Vice Presidents of our company from January 2010.
(3)Mr. Wang Daocheng has been acting as our independent supervisor since May 2009.
Directors
 Chen Geng,aged 60, is Chairman of the Board of our company. Mr Chen is a senior economist and holds a college degree. He has nearly 40 years of working experience in China’s oil and gas industry. Mr Chen was appointed Deputy Director of Changqing Petroleum Exploration Bureau in October 1983, Deputy Director of the Labor Department under the Ministry of Petroleum Industry in April 1985, Director of the Labor Bureau of China National Petroleum Corporation from August 1988, Assistant to the General Manager of China National Petroleum Corporation in December 1993, Deputy General Manager of China National Petroleum Corporation in September 1997, Deputy Director of the State Petroleum and Chemical Industry Bureau in March 1998, Deputy General Manager of CNPC in February 2001, and the General Manager of CNPC from April 2004 to November 2006. Mr Chen was appointed as a Director of our company in June 2001. He was the President of our company from December 2002 to May 2004. He became the Chairman of our company in May 2004.
Jiang Jiemin,aged 51,54, is the Vice Chairman President of our company and the General Manager of CNPC. MrMr. Jiang is a senior economist and holds a master’s degree. Mrhas been awarded with post-graduate qualification. Mr. Jiang has over 3035 years of working experience in China’s oil and gas industry. He was made Deputy Director of the

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Shengli Petroleum Administration Bureau in March 1993, Senior Executive of the Qinghai Petroleum Administration Bureau in June 1994 and Director of Qinghai Petroleum Administration Bureau in November 1994, and Assistant to the General Manager and Team Leader for the Restructuring and Listing Preparatory Team of CNPC in February 1999, and a Director and Vice President of our company in November 1999. MrMr. Jiang was appointed Deputy Provincial Governor of the Qinghai Province sincein June 2000, was made a member of the provincial party committee of the Qinghai Province and Deputy Provincial Governor of Qinghai in November 2000, and the deputy secretary of the provincial party committee of Qinghai Province and Deputy Provincial Governor of Qinghai in June 2003. MrMr. Jiang became the Deputy General Manger of CNPC in April 2004, and Vice Chairman and President of our company in May 2004 and the General Manager of CNPC in November 2006.
Duan Wende,aged 55, is a Director and Senior Vice President of our company. He is a senior engineer and holds a master’s degree. He2004. Mr. Jiang has over 35 years of working experience in China’s petrochemical industry. From April 1975, Mr Duan was the Deputy Factory Manager of Fushun Chemical Fibers Factory, the Commander of the Fushun Ethylene Project Command Division, Deputy Factory Manager of the ethylene factory, the Factory Manager of the acrylic fibers factory and the Factory Manager of the detergent factory. He was made Deputy Manager of Fushun Petrochemical Corporation in May 1997 and Manager in May 1999. He was made General Manager of PetroChina Fushun Petrochemical Company in October 1999. He had been an Assistant to the General Manager of CNPC since August 2001. He had been a Vice President of our company since March 2002. He has been a DirectorNovember 2006, and the Chairman of our company since May 2004. He has been a Senior Vice2007. Mr. Jiang stepped down as the President of our company since November 2005.in May 2008.
 
Zheng Hu,Zhou Jiping,aged 60,57, is a Directorthe Vice Chairman and President of our company and a Deputy General Manager of CNPC. Mr ZhengMr. Zhou is a senior engineer and holds a college degree. He has nearly 40 years of working experience in China’s oil and gas industry. From May 1990, Mr Zheng was the Vice Chancellor of Beijing Petroleum Managers Training Institute. From July 1992, Mr Zheng worked as Deputy General Manager of China Petroleum Materials and Equipment (Group) Corporation and concurrently as General Manager of China Petroleum Technology Development Corporation. Mr Zheng was appointed Director of Personnel and Labour Department of CNPC in September 1999. He has been a Director of our company since June 2000, and a Deputy General Manager of CNPC since August 2000.
Zhou Jiping,aged 54, is a Director of our company and a Deputy General Manager of CNPC. Mr Zhou is aprofessor-level senior engineer and holds a master’s degree. He has over 35nearly 40 years of working experience in China’s oil and gas industry. In November 1996, he was appointed Deputy Director of the International Exploration and Development Cooperation Bureau of China National Petroleum Corporation and Deputy General Manager of China National Oil & Gas Exploration and Development Corporation. In December 1997, he was appointed General Manager of China National Oil & Gas Exploration and Development Corporation and Deputy Director of the International Exploration and Development Cooperation Bureau of China National Petroleum Corporation. SinceCorporation, and in August 2001, he was appointed Assistant to the General Manager of CNPC and General Manager of China National Oil & Gas Exploration and Development Corporation. Since December 2003, MrMr. Zhou has been a Deputy General Manager of CNPC. Mr Zhou was appointedCNPC since December 2003, and a Director of our company insince May 2004. In May 2008, Mr. Zhou was appointed the Vice Chairman and President of our company.
 
Wang Yilin,aged 50,53, is a Director of our company and a Deputy General Manager and the Safety Director of CNPC. MrMr. Wang is a rofessor-level senior engineer and holds a doctor’sdoctoral degree. He has nearlyover 25 years of working experience in China’s oil and gas industry. MrMr. Wang had beenwas appointed the Deputy Director and Chief Exploration Geologist of Xinjiang Petroleum Administration Bureau sincein June 1996. He was appointed as1996, and the General Manager of theour Xinjiang Oilfield Branch of our companyCompany in September 1999. He had beenwas appointed the Senior Executive of Karamay City and Xinjiang Petroleum Administration Bureau and the General Manager of theour Xinjiang Oilfield Branch of our company sinceCompany in June 2001. FromIn July 2003, onwards, he had been thewas appointed Assistant to General Manager of CNPC, Senior Executive of Xinjiang Petroleum Administration Bureau and the General Manager of Xinjiang Oilfield Branch of our company concurrently.CNPC. In December 2003, he was appointed Deputy General Manager of CNPC and

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Senior Executive of Xinjiang Petroleum Administration Bureau and the General Manager of Xinjiang Oilfield Branch of our company concurrently.CNPC. From May 2004, he ceased to work as the Senior Executive of Karamay City and Xinjiang Petroleum Administration Bureau and the General Manager of theour Xinjiang Oilfield Branch of our company.Company. From July 2004 onwards,to July 2007, he had alsoconcurrently worked as the Safety Director of CNPC. He has been a Director of our company since November 2005.
 
Zeng Yukang,aged 56,59, is a Director of our company and a Deputy General Manager of CNPC. MrMr. Zeng is a professor-level senior economist and holds a college degree. He has nearlyover 40 years of working experience in China’s oil and gas industry. MrMr. Zeng had been the Senior Executive of the Exploration and Development Institute of Daqing Petroleum Administration Bureau since December 1996. From February 2000, onwards, he was appointed as the Standing Deputy Director of Daqing Petroleum Administration Bureau. SinceFrom March 2001 to February 2008 he had beenwas acting as the Director of Daqing Petroleum Administration Bureau. SinceBureau, and in November 2002, he had beenwas appointed the Assistant to the General Manager of CNPC. From September 2005 onwards, heHe has been a Deputy General Manager of CNPC. He has beenCNPC since September 2005, and a Director of our company since November 2005.
 
Gong Huazhang,Wang Fucheng,aged 60,59, is a Director of our company and theconcurrently a Deputy General AccountantManager of CNPC. Mr GongMr. Wang is a professor-level senior accountanteconomist and holds a bachelor’s degree. Mr. Wang has over 40 years of working


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experience in China’s oil and gas industry. Mr GongFrom August 1986, Mr. Wang worked as Chief Accountant, Deputy Director andSenior Executive of the Shengli Petroleum Administration Bureau. Since December 1992, Mr. Wang had worked as Senior Executive of the Liaohe Petroleum Exploration Administration Bureau. Since November 1997, Mr. Wang had worked as Director of the Finance Bureau of China NationalLiaohe Petroleum Corporation from 1991. HeExploration Administration Bureau. Since October 1999, Mr. Wang had been the DirectorGeneral Manager of Finance and Assets Departmentthe Liaohe Oilfield Branch of CNPC since October 1998 and has been the General Accountant of CNPC since February 1999. Mr Gong hasour company. Mr. Wang had been a Director of our company from June 2000. Mr. Wang was appointed a Vice President of our company in July 2000. From November 2005 to May 2008, Mr. Wang had worked as the Chairman of the Supervisory Board of our company. Mr. Wang has been a Deputy General Manager of CNPC since November 1999.September 2007. In May 2008, Mr. was again appointed Director of our company.
 
Jiang Fan,Li Xinhua,aged 43,56, is a Director of our company and thea Deputy General Manager of Dalian Petrochemical Company. Mr JiangCNPC. Mr. Li is a senior engineer and holds a master’scollege degree. HeMr. Li has over 20nearly 35 years of working experience in China’s petrochemical industry. Mr JiangIn June, 1985 Mr. Li was appointed asthe Vice Director of Yunnan Province Natural Gas Chemical Plant, in February 1992 the Director of Yunnan Province Natural Gas Chemical Plant, in March 1997 the Chairman and General Manager of Yunnan Province Yuntianhua Group, in March 2002 the Assistant Governor of Yunnan Province, In January 2003 the Deputy Governor of Yunnan Province, and in April 2007a Deputy General Manager of Dalian Petrochemical Company since December 1996. In September 1999, he was appointedCNPC. Since May 2008, Mr. Li has been acting as a Director of our company.
Liao Yongyuan,aged 47, is a Director and Vice President of our company and concurrently serves as the Deputy General Manager of Dalian Petrochemical Company. In February 2002, he became the General Manager of Petrochina Dalian Petrochemical Company. Mr Jiang has been aand Safety Director of our company since November 2005.
Independent Non-executive Directors
Chee-Chen Tung,aged 64, is an independent non-executive Director of our company. Mr Tung is the Chairman and Chief Executive Officer of Orient Overseas (International) Limited. He was educated at the University of Liverpool, England, where he received his Bachelor of Science degree. He later acquiredCNPC. Mr. Liao holds a Master’smaster’s degree in Mechanical Engineering at the Massachusetts Institute of Technology in the United States. He served as Chairman of the Hong Kong Shipowners’ Association between 1993 and 1995. From 1999 to 2001, he was the Chairman of the Hong Kong General Chamber of Commerce. He is an independent non-executive director of Zhejiang Expressway Co., Ltd., BOC Hong Kong (Holdings) Limited, Sing Tao News Corporation Limited, Wing Hang Bank Limited and Cathay Pacific Airways Limited, and a member of the Hong Kong Port Development Board. Mr Tung is also the Chairman of the Institute for Shipboard Education Foundation, the Chairman of the Advisory Council of the Hong Kong Polytechnic University and is a member of the Board of Trustees of the International Academic Center of the University of Pittsburgh and the School of Foreign Service of Georgetown University. Mr Tung has been an independent non-executive Director of our company since November 5, 1999.
Liu Hongru,aged 76, is an independent non-executive Director of our company. Mr Liu graduated from the Faculty of Economics of the University of Moscow in 1959 with an associate Doctorate’s degree. Mr Liu worked as Vice Governor of the Agricultural Bank of China, Vice-Governor of the People’s Bank of China, Deputy Director of the State Economic Restructuring Committee, and the Chairman of the China Securities Regulatory Commission. Mr Liu is currently the Chairman of the China Foundation for Development of Financial Education and the Chairman of the Capital Market Research Institute. Mr Liu is also a professor at the Peking University, the

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Postgraduate School of the People’s Bank of China and the City University of Hong Kong. Mr Liu serves as an independent non-executive director or non-executive director in three listed companies in Hong Kong, and possesses the accounting or financial management qualification required under the Listing Rules. Mr Liu was appointed as an independent Supervisor of our company in December 1999. Upon his resignation from this post, he has been an independent non-executive Director of our company since November 19, 2002.
Franco Bernabè, aged 58, is an independent non-executive Director of our company. Mr Bernabè is the Chairman of the Franco Bernabè Group and Vice Chairman of H3G. He is also a Vice Chairman of Rothschild Europe. He is a former CEO of ENI and of Telecom Italia. He has also served as a special representative of the Italian government for the reconstruction of the Balkan region. Mr Bernabè joined ENI in 1983 to become an assistant to the chairman; in 1986 he became director for development, planning and control; and between 1992 and 1998 was the Chief Executive Officer of ENI. Mr Bernabè led the restructuring program of the ENI Group, making it one of the world’s most profitable oil companies. Between 1998 and 1999, Mr Bernabè was the Chief Executive Officer of Telecom Italia. Prior to his joining ENI, Mr Bernabè was the head of economic studies at FIAT. Mr Bernabè was a senior economist at the OECD Department of Economics and Statistics in Paris. Earlier he was a professor of economic politics at the School of Industrial Administration, Turin University. Mr Bernabè has been an independent non-executive Director of our company since June 30, 2000.
Secretary to the Board of Directors
Li Huaiqi,aged 57, is the Secretary to the Board of Directors of our company. Mr Li is a senior economist. He has over 35 years of working experience in China’s oil and gas industry. Mr Li once worked in the Daqing Oilfield, the Liaohe Oilfield and the Huabei Oilfield and in the Nanhai Petroleum Company. From June 1992, Mr Li worked as Deputy Director and Director of the Foreign Affairs Bureau of China National Petroleum Corporation successively. From October 1998, Mr Li was appointed as Director of the International Co-operation Department (Foreign Affairs Bureau) of CNPC. Mr Li has been the Secretary to the Board of Directors of our company since August 2001.
Other Senior Management Personnel
Wang Guoliang,aged 54, is Chief Financial Officer of our company. Mr Wang is a senior accountant and holds a master’s degree. Mr Wang has 25 years of working experience in China’s oil and gas industry. Mr Wang worked as the Vice President of China Petroleum Finance Company Limited from October 1995. From November 1997, he was the Deputy General Manager and General Accountant of China National Oil & Gas Exploration and Exploitation Corporation. Mr Wang had been the Chief Financial Officer of our company since November 1999. From November 1999 to March 2002, he was also the General Manager of our company’s Finance Department.
Liao Yongyuan,aged 44, is the Vice President of our company. Mr Liao is a master’s degree holder and aprofessor-level senior engineer. He has nearlyover 25 years of working experience in China’s oil and gas industry. He was Deputy Director of the New Zone Exploration and Development Department of China National Petroleum Corporation from June 1996, the Standing Deputy Commander and then Commander of Tarim Petroleum Exploration and Development Headquarters from November 1996. He was the General Manager of Tarim Oilfield Branch Company from September 1999, and also Deputy Director of Gansu Provincial Economic and Trade Committee from October 2001. He has worked as the Assistant to the General Manager of CNPC since January 2004 and has been concurrently the Head of Coordination Team for Oil Enterprises in Sichuan and Chongqing and Director of Sichuan Petroleum Administration since April 2004. He has been a Vice President of our company since November 2005.

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Jia Chengzao,aged 58, is He was appointed a Vice President of our company. Mr Jia is a Doctorate degree holder, a senior engineer and a fellow of the Chinese Academy of Sciences. He has over 25 years of working experience in China’s oil and geological industry. From August 1994, Mr Jia worked as the Deputy Chief Geologist, the Chief Geologist and Deputy Commander of the Tarim Petroleum Exploration and Development Headquarters. From February 1998 to July 2000, he worked as a Vice President of the China Oil Exploration and Exploitation Scientific Research Institute of CNPC. From September 1999, Mr Jia worked as the Deputy General Manager of the Tarim Oilfield BranchCNPC in February 2007, and Safety Director of our company.CNPC in July 2007. He has been the Chief Geologist of our company from July 2000. Mr Jia also served as the President of the China Oil Exploration and Exploitation Research Institute from December 2002 to October 2006. Mr Jia has been a Vice PresidentDirector of our company since November 2005.May 2008.
 
Hu Wenrui,Wang Guoliang,aged 57, is a Vice PresidentDirector of our company.company and the General Accountant of CNPC. Mr HuWang is a professor-level senior engineeraccountant and holds a master’s degree. Mr Wang has over 35nearly 30 years of working experience in China’s oil and gas industry. From April 1984, Mr HuWang had worked as the Vice President of China Petroleum Finance Company Limited from October 1995. In November 1997, he was appointed a Deputy General Manager and the General Accountant of Changqing Oilfield No. 2China National Oil Extraction Plant. He& Gas Exploration and Exploitation Corporation. Mr Wang had been Deputythe Chief Financial Officer of our company from November 1999. He was appointed General Accountant of CNPC in February 2007, and Director of Changqing Petroleum Exploration Bureau since April 1989, Standing Deputy Director since November 1996, and eventuallyour company in May 2008.
Jiang Fan,aged 46, is a Director of Changqing Petroleum Exploration Bureau since April 1999. From September 1999, he wasour company and the General Manager of Changqing Oilfield BranchDalian Petrochemical Company. He has been the General Manager of our company’s Exploration and Production Branch since December 2002. Mr Hu has been a Vice President of our company since November 2005.
Supervisors
Wang Fucheng,aged 56, is the Chairman of the Supervisory Committee. Mr WangMr. Jiang is a professor-level senior economistengineer and holds a bachelor’smaster’s degree. Mr WangHe has over 40nearly 25 years of working experience in China’s oil and gas industry. From August 1986, Mr Wang worked as Senior ExecutiveMr. Jiang was appointed the Deputy Manager of Dalian Petrochemical Company in December 1996 and the Shengli Petroleum Administration Bureau. Since December 1992, Mr Wang had worked as Senior ExecutiveDeputy General Manager of the Liaohe Petroleum Administration Bureau. Since November 1997, Mr Wang had worked as Director of the Liaohe Petroleum Administration Bureau. Since October 1999, Mr Wang hadDalian Petrochemical Company in September 1999. He has been the General Manager of the Liaohe Oilfield Branch of our company. Mr Wang was appointed asPetrochina Dalian Petrochemical Company since February 2002, and a Director of our company in June 2000 and was appointed as the Vice President of our company in July 2000. Prior to the appointment as Supervisor of our company, Mr Wang resigned from his office as Director of our company. Mr Wang has been the Chairman of the Supervisory Committee of our company since November 2005.
 
Independent Non-executive Directors
Wen Qingshan,Chee-Chen Tung,aged 48,67, is a Supervisoran independent non-executive Director of our companycompany. Mr. Tung is the Chairman and Chief Executive Officer of Orient Overseas (International) Limited. He was educated at the University of Liverpool, England, where he received his Bachelor of Science degree. He later acquired a Master’s degree in Mechanical Engineering at the Massachusetts Institute of Technology in the United States. He served as Chairman of the Hong Kong Shipowners’ Association between 1993 and 1995. From 1999 to 2001, he was the Chairman of the Hong Kong General Chamber of Commerce. He is an independent non-executive director of Zhejiang Expressway Co., Ltd., BOC Hong Kong (Holdings) Limited, Wing Hang Bank Limited, Sing Tao News Corporation Limited, Cathay Pacific Airways Limited and U-Ming Marine Transport Corporation, and a member


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of the Hong Kong Port Development Board. Mr. Tung is also the Chairman of the Institute for Shipboard Education Foundation, the Chairman of the Advisory Council and a member of the Board of Trustees of the Hong Kong Polytechnic University and a member of the Board of Trustees of the International Academic Center of the University of Pittsburgh and the DirectorSchool of the Finance and Assets DepartmentForeign Service of CNPC. Mr Wen is a senior accountant and holds a master’s degree. He was the Deputy Chief Accountant of the Finance and Assets Department of CNPC from November 1998, Deputy Director of the Finance and Assets Department of CNPC from May 1999 and Director of the Finance and Assets Department of CNPC from May 2002. HeGeorgetown University. Mr. Tung has been a Supervisoran independent non-executive Director of our company since November 2002.1999.
 
Sun Xianfeng,Liu Hongru,aged 54,79, is an independent non-executive Director of our company. Mr. Liu is a Supervisorprofessor and holds a doctoral degree. He graduated from the Faculty of our company and the DirectorEconomics of the Audit Department andUniversity of Moscow in 1959 with an associate Doctoral degree. Mr. Liu worked as Vice Governor of the Audit Services CentreAgricultural Bank of CNPC. Mr Sun holds a college degree. Mr Sun worked asChina, Vice-Governor of the People’s Bank of China, Deputy Director of the Supervisory BureauState Economic Restructuring Committee, and the Chairman of the China Securities Regulatory Commission. Mr. Liu is also a professor at the Peking University, the Postgraduate School of the People’s Bank of China National Petroleum Corporation from November 1996, and was transferred to the Eighth Office of the State Council Compliance Inspectors’ General Office (Supervisory Committee of Central Enterprises Working Commission) as its temporary head in June 1998. He had been the Deputy Director of the Audit Department of CNPC from October 2000 and has been the Director of the Audit Services Centre from December 2000. He had been the Director of the Audit Department of CNPC and the DirectorCity University of Hong Kong. Mr. Liu also serves as a non-executive director of OP Financial Investments Limited and possesses the Audit Service Centre from April 2004. He has been a Supervisoraccounting or financial management qualification required under the Rules Governing the Listing of our company since May 2004.
Xu Fengli,aged 59, is a Supervisor and General Manager ofSecurities on the Audit Department of our company. Mr Xu is a senior accountant and has nearly 35 years of work experience in China’s petrochemical industry. Mr XuStock Exchange Hong Kong Limited. Mr. Liu was appointed as the Chief Accountant of Fushun Petrochemical Corporation in November 1995, Deputy Director of the Finance and Assets Department of CNPC in

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November 1998, Deputy General Manager of the Finance Departmentan independent Supervisor of our company in December 1999, and1999. After his resignation from this position as independent supervisor, Mr. Liu was appointed an independent non-executive Director of the Administrative Office of the Supervisory Committee of our company in October 2003.November 2002.
Franco Bernabè,aged 61, is an independent non-executive Director of our company. He holds a doctoral degree in political economics. He is currently the Chief Executive Officer of Telecom Italia (serving a second time). Prior to that, he held the responsibilities of the chairman of the Franco Bernabè Group, the Vice Chairman of H3G, the Vice Chairman of Rothschild Europe, a non-executive director of Pininfarina Spa and an independent non-executive director of Areoportidi Bologna. Mr. Bernabè joined ENI in 1983 to become an assistant to the chairman; in 1986 he became director for development, planning and control; and between 1992 and 1998 he was the Chief Executive Officer of ENI. Mr. Bernabè led the restructuring program of the ENI Group, making it one of the world’s most profitable oil companies. Between 1998 and 1999, Mr. Bernabè was the Chief Executive Officer of Telecom Italia. Between 1999 and 2000, he has also served as a special representative of the Italian government for the reconstruction of the Balkan region. He was the Chairman of La Biennale di Venezia from 2001 to 2003 and has been the Chairman of the Modern Arts Museum of Trento and Rovereto since 2005. Prior to his joining ENI, Mr. Bernabè was the head of economic studies at FIAT. Mr. Bernabè was a Supervisorsenior economist at the OECD Department of Economics and Statistics in Paris. Earlier he was a professor of economic politics at the School of Industrial Administration, Turin University. He had also served on the Advisory Board of the Council of Foreign Relations and is currently an International Governor of the Peres Center for Peace. Mr. Bernabè has been an independent non-executive Director of our company since May 2004 and the General Manager of the Audit Department of our company since November 2005.June 2000.
 Qin Gang,aged 53, is an employee representative of our company’s Supervisory Committee and a Senior Executive of Tarim Oilfield Branch of our company. Mr Qin is a senior engineer and has nearly 35 years of experience in China’s oil and gas industry. Mr Qin had acted as a Deputy Commander of Tarim Petroleum Exploration and Development Headquarters since November 1997 and a Deputy General Manager of Tarim Oilfield Company since September 1999. From June 2000, Mr Qin worked as the Senior Executive of Tarim Southwest Company concurrently. Since July 2002, Mr Qin has worked as an executive and the Chairman of Labour Union of PetroChina Tarim Oilfield Company. Mr Qin has been a Supervisor of our company since November 2005.
Li Yongwu,aged 62,65, is an independent Supervisornon-executive Director of our company. MrMr. Li is a senior engineer and holds a bachelor’s degree. In June 1991, MrMr. Li was appointed as the Director of Tianjin Chemicals Bureau. In July 1993, he was appointed as the Director of Tianjin Economic Committee. He was elected as the Vice Minister of the PRC Ministry of Chemical Industry in April 1995. He became Director of the State’s Petroleum and Chemical Industry Bureau sincein March 1998. In April 2001, he was appointed as a Deputy Director of the Liaison Office of the Central Government at the Special Administrative Region of Macau. In December 2004, he was appointed as the Vice President of China Petroleum and Petrochemical Industry Association. In May 2005, he became the Chairman of China Petroleum and Petrochemical Industry Association. Mr Li has beenAssociation and in November 2005, he became an Independent Supervisor of our company since November 2005.company. In 2003, he was elected as a standing member of the Tenth Chinese People’s Consultative Conference. In May 2008, Mr. Li was appointed an independent non-executive Director of our company.
 
Wu Zhipan,Cui Junhui,aged 63, is an independent non-executive Director of our company. Mr. Cui is a representative of the 11th National People’s Congress of the PRC and a Committee Member of the Financial and Economic Affairs Committee of the National People’s Congress of the PRC. He is holder of a postgraduate degree (part-time study). The positions he held include Deputy Director of the Tax Bureau of Shandong Province and the Director of State Tax Bureau of Shandong Province. From January 2000 to January 2007, he served as a Deputy Director of the State Administration of Taxation. In December 2006, he was made a Vice President of China Society of Taxation and a Vice President of China Charity Federation. Mr. Cui was elected as a representative of the 11th National People’s Congress and a member of the Financial and Economic Affairs Committee of the National People’s Congress in March 2008. In April 2008, Mr Cui was elected as the President of the sixth term of the Chinese Taxation Institute. Mr. Cui has served as a non-executive Director of our company since May 2008.


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Secretary to the Board of Directors
Li Hualin,aged 47, is the Secretary to the Board of Directors and Vice President of our company and Vice Chairman and General Manager of China Petroleum Hongkong (Holding) Limited. Mr Li holds a master’s degree and is a professor-level senior economist. Mr Li has 25 years of experience in the oil and gas industry in China. In March 1993, Mr Li became the Deputy Director-General of the Houston Office of China National Petroleum Company. In May 1995, he was appointed as the director and General Manager of China National Oil and Gas Corporation (Canada). In December 1997, Mr. Li became the Deputy General Manager of the China National Oil and Gas Exploration Development Corporation and the Chairman and General Manager of CNPC International (Canada) Ltd. In September 1999, Mr. Li became the General Manager of CNPC International (Kazakhstan) Ltd. whilst remaining as the Deputy General Manager of the China National Oil and Gas Exploration and Development Corporation. In January 2001, Mr. Li became the Deputy General Manager of China Petroleum Hongkong (Holding) Limited. In December 2001, he was appointed as the Chairman of Shenzhen Petroleum Industrial Co., Ltd. From July 2006, Mr Li became the Vice-Chairman and General Manager of China Petroleum Hongkong (Holding) Limited, whilst remaining as the Chairman of Shenzhen Petroleum Industrial Co., Ltd. Mr. Li has been acting as the Vice President of our company while concurrently acting as the General Manager of China Petroleum Hong Kong (Holding) Limited since November 2007. Mr. Li was appointed as the Secretary to the Board of Directors of our company in May 2009.
Other Senior Management Personnel
Sun Longde,aged 47, is a Vice President of our company. Mr. Sun is a professor-level senior engineer and holds a doctoral degree. He has 25 years of working experience in China’s oil and geological industry. Mr. Sun was appointed the Deputy Chief Geologist of Xianhe Oil Extraction Plant and Deputy Manager of Dongxin Oil Extraction Plant of Shengli Petroleum Administration Bureau in January 1994, Chief Deputy Director-General of Exploration Business Department of Shengli Petroleum Administration Bureau in April 1997, the Manager of Exploration & Development Company of Shengli Petroleum Administration Bureau in September 1997, Chief Geologist of Tarim Petroleum Exploration & Development Headquarters in November 1997, Deputy General Manager of PetroChina Tarim Oilfield Company in September 1999 and the General Manager of PetroChina Tarim Oilfield Company in July 2002. Mr. Sun has been a Vice President of our company since June 2007.
Shen Diancheng,aged 50, is the Vice President of our company and concurrently and concurrently the General Manager of the Refining & Chemicals Company of our company. Mr. Shen is a professor-level senior engineer and holds a college degree. He has 25 years of working experience in China’s oil and gas industry. Mr. Shen was appointed the Deputy Manager of the Chemical Agent Plant of Daqing Oilfield in June 1994, the Deputy Manager, Standing Deputy Director and acting Manager of the General Chemical Plant of Daqing Oilfield in January 1997, the Standing Deputy General Manager of PetroChina Daqing Refining & Chemical Company in October 2000, the General Manager of PetroChina Liaoyang Petrochemical Company in April 2002, and the General Manager of PetroChina Jilin Petrochemical Company in November 2005. Mr. Shen has been the Vice President of our company and General Manager of Chemical & Marketing Company since June 2007. Mr. Shen has served as the Vice President of our company and concurrently as the General Manager of the Refining and Chemicals Company since November 2007.
Liu Hongbin,aged 46, is the Vice President of our company and concurrently the General Manager of the Marketing Company of our company. Mr. Liu is a senior engineer and holds a college degree. He has 25 years of working experience in China’s oil and gas industry. Mr. Liu was appointed the Vice President of Exploration & Development Research Institute of Yumen Petroleum Administration Bureau in May 1991, the Director of the Development Division of Tuha Petroleum Exploration & Development Headquarters in October 1994, the Chief Engineer of Tuha Petroleum Exploration & Development Headquarters in June 1995, the Deputy General Manager of PetroChina Tuha Oilfield Company in July 1999, the Commander of Tuha Petroleum Exploration & Development Headquarters in July 2000, the General Manager of the Planning Department of our company in March 2002 and the Director of the Planning Department of CNPC in September 2005. Mr. Liu has become a Vice President of our company since June 2007. Mr. Liu has served as the Vice President of our company and concurrently as the General Manager of the Marketing Company since November 2007.


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Zhou Mingchun,aged 42, is the Chief Financial Officer of our company and currently the General Manager of the Finance Department of our company. Mr. Zhou is a professor-level senior accountant and holds a master’s degree. He has nearly 20 years of working experience in China’s oil and gas industry. Mr. Zhou was appointed the Director of the Finance Division and the Director-General of Financial Settlement Centre of Daqing Petroleum Administration Bureau in October 1998, the principal officer of the Finance & Assets Division of Daqing Oilfield Company in 1999, the director and Deputy Chief Accountant of Daqing Oilfield Company Limited in January 2000, the director and Chief Accountant of Daqing Oilfield Company Limited in October 2000, and the General Manager of the Finance Department of our company in March 2002. Mr. Zhou serves as the Chief Financial Officer of our company from June 2007.
Zhao Zhengzhang,aged 53, is a Vice President of our company and concurrently the General Manager of Exploration and Production Company of our company. Mr Zhao holds a master’s degree. He is a professor-level senior engineer and has nearly 25 years of working experience in China’s oil and industry. In June 1996, Mr Zhao was appointed as the Deputy Director of the New District Exploration Department of China National Petroleum Company. In November 1996, he was appointed as Deputy Director of the Exploration Bureau of China National Petroleum Company and Director of the New District Exploration Department. In October 1998, Mr Zhao was appointed as Deputy Director of the Exploration Department of China National Petroleum Company. In September 1999, he was appointed as a member of the Preparatory Group of CNPC Exploration and Production Company. In December 1999, Mr Zhao was appointed as Deputy General Manager of CNPC Exploration and Production Company. In January 2005, he was appointed as Senior Executive and Deputy General Manager of CNPC Exploration and Production Company. In January 2006, he was appointed as the General Manager of CNPC Exploration and Production Company. In May 2008, Mr Zhao was appointed as a Vice President of the company and the General Manager of the Exploration and Production Company.
Bo Qiliang,aged 47, is the Vice President of our company and concurrently the General Manager of PetroChina International Ltd. Mr. Bo holds a doctor’s degree and is a professor-level senior engineer. He has nearly 25 years of working experience in China’s oil and gas industry. In June 2001, he obtained his master of business administration degree from the Massachusetts Institute of Technology, USA. In June 2005, he obtained his doctor’s degree from China University of Petroleum (Beijing), majoring in Oil and Gas Field Development. Mr. Bo became the Vice President of the Scientific Research Institute of Petroleum Exploration and Development in February 1997, key leader of CNPC International (E&D) Ltd. in December 2001, Senior Deputy General Manager of China National Oil and Gas Exploration and Development Corporation in October 2004, President of PetroKazakhstan Inc. and was concurrently leader of the Kazakhstan Coordination and Steering Team since November 2005, General Manager of China National Oil and Gas Exploration and Development Corporation since September 2008. Mr. Bo began to act as the General Manager of PetroChina International Ltd. while concurrently acting as the General Manager of China National Oil and Gas Exploration and Developing Corporation from November 2009. Mr. Bo has been acting as the Vice President of our company and concurrently as the General Manager at PetroChina International Ltd. since January 2010.
Sun Bo,aged 49, is the Vice President of our company and the General Manager of Tran-Asia Gas Pipeline Company Limited. Mr. Sun is a professor-level senior engineer and has over 25 years of working experience in China’s oil and gas industry. He was appointed the Deputy General Manager of Al Waha Oil Company Ltd. in June 1996; Vice President of CNPC International (Venezuela) Ltd. in October 1998; Chief Engineer and Deputy General Manager of China National Oil and Gas Exploration and Development Corporation and concurrently President of CNPC International (Venezuela) Ltd. in September 1999; General Manager of China Petroleum Engineering & Construction Corporation in January 2004; Vice Chairman and President of CNPC Services & Engineering Ltd. and concurrently General Manager of China Petroleum Engineering & Construction Corporation in June 2006. Mr. Sun was appointed as the General Manager of Trans-Asia Gas Pipeline Company Limited in September 2007. Mr. Sun has been acting as the Vice President of our company and the General Manager of Tran-Asia Gas Pipeline Company Limited in January 2010.
Lin Aiguo,aged 51, is the Chief Engineer of our company. Mr. Lin is a professor-level senior engineer and holds a college degree. He has over 30 years of working experience in China’s oil and petrochemical industry. Mr. Lin was appointed the Deputy Manager and the Standing Deputy Manager of Shengli Refinery of Qilu Petrochemical Company in July 1993, the Deputy General Manager of Dalian West Pacific Petrochemical Co. Ltd.


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in May 1996, and the General Manager of Dalian West Pacific Petrochemical Co. Ltd. in August 1998, and the General Manager of Refining & Marketing Company of our company in December 2002. Mr. Lin serves as the Chief Engineer of our company from June 2007.
Wang Daofu,aged 54, is the General Geologist of our company and Director of the Exploration and Development Institute. Mr Wang is a professor-level senior engineer and holder of a doctorate degree. He has over 25 years of working experience in China’s oil and gas industry. He was appointed Deputy General Manager of PetroChina Changqing Oilfield Company in September 1999 and General Manager of PetroChina Changqing Oilfield Company in January 2003. He was elected as a representative of the 11th National People’s Congress of the PRC in 2008. Mr. Wang has become the General Geologist of our company since May 2008. Mr. Wang has been acting concurrently as the Director of the Exploration and Development Institute since September 2008.
Huang Weihe,aged 52, is the Chief Engineer of our company and the General Manager of PetroChina Natural Gas and Pipelines Company. Mr Huang is a professor-level senior engineer and holds a doctorate degree. He has over 25 years of working experience in China’s oil and gas industry. In December 1998, he was appointed as Deputy Director of the Petroleum and Pipelines Bureau. In November 1999, he was appointed Deputy Director of the Petroleum and Pipelines Bureau while concurrently acting as Chief Engineer. In October 2000, Mr Huang was appointed as the General Manager of PetroChina Pipelines Company and in May 2002, concurrently as the General Manger of PetroChinaWest-to-East Natural Gas Transmission Pipelines Company. In November 2002, Mr Huang was appointed as the General Manager of PetroChinaWest-to-East Natural Gas Transmission Pipelines Company. In December 2002, he was appointed as the General Manager of PetroChina Natural Gas and Pipelines Company under the company and the General Manager of PetroChinaWest-to-East Natural Gas Transmission Pipelines Company. In February 2006, Mr Huang ceased to be the General Manager of PetroChina Natural Gas Transmission Pipelines Company. In May 2008, Mr Huang was appointed as the Chief Engineer of the company and the General Manager of PetroChina Natural Gas and Pipelines Company.
Supervisors
Chen Ming,aged 59, is the Chairman of the Supervisory Board of our company. Mr. Chen is a professor-level senior economist and holds a bachelor’s degree. He has over 35 years of working experience in China’s oil and gas industry. Mr. Chen was appointed Deputy Commissioner of CNPC in November 1996, Deputy Director of the Supervisory Department of CNPC in October 1998, Deputy General Manager of Human Resource Department of our company and concurrently Director of the Supervisory Department of our company in September 1999, General Manager of the Supervisory Department of our company in September 2001, Assistant to the General Manager of CNPC in January 2007, and Team Leader of the Discipline Team of CNPC in September 2007. He has been acting as the Chairman of our Supervisory Board since May 2008.
Wen Qingshan,aged 51, is a Supervisor of our company and the Deputy Chief Accountant of CNPC and the Director of the Finance and Assets Department of CNPC. Mr. Wen is a professor-level senior accountant and holds a master’s degree in economics. Mr. Wen has nearly 30 years of working experience in China’s petrochemical industry. He had acted as the Deputy Director of the Finance and Assets Department of CNPC from May 1999 and Director of the Finance and Assets Department of CNPC from May 2002. He has been a Supervisor of our company since November 2002. He has been acting as the Deputy Chief Accountant and the Director of the Finance and Assets Department of CNPC since November 2007.
Sun Xianfeng,aged 57, is a Supervisor and the General Manager of the Audit Department of our company. Mr. Sun is a senior economist and holds a bachelor’s degree. Mr. Sun has nearly 40 years of working experience in China’s oil and gas industry. Mr. Sun worked as Deputy Director of the Supervisory Bureau of China National Petroleum Corporation from November 1996, and was transferred to the Eighth Office of the State Council Compliance Inspectors’ General Office (Supervisory Committee of Central Enterprises Working Commission) as its temporary head in June 1998. He was appointed the Deputy Director of the Audit Department of CNPC in October 2000. He was appointed as the Vice Director of the Audit Department and the concurrently the Director of the Audit Institute in December 2000. Mr. Sun has been the Director of the Audit Department of CNPC and the Director of the Audit Service Centre since April 2004. Mr. Sun has been a Supervisor of our company since May 2004. In October 2005, Mr Sun was appointed as a concurrent State-owned Company Supervisor from State-owned


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Assets Supervision and Administration Commission to CNPC. Mr. Sun has been acting as the General Manager of the Audit Department of our company since July 2007.
Yu Yibo,aged 46, is a Supervisor and the General Manager of the Capital Operation Department of our company. Mr. Yu is a professor-level senior accountant and holds a doctoral degree. Mr. Yu has 10 years of working experience in China’s oil and gas industry. In February 1999, Mr. Yu was appointed as a member of the Restructuring and Listing Preparatory Team of CNPC . In September 1999, Mr. Yu was appointed as the Deputy General Manager of the Finance Department of our company. Mr. Yu had been acting as the Deputy General Manager of PetroChina Dagang Oilfield Branch Company from March 2002 to October 2002. In April 2003, Mr. Yu was appointed as the General Manager of the Capital Operation Department of our company. Mr. Yu has been acting as a Supervisor of our company since May 2008.
Wang Yawei,aged 55, is an employee representative of the Supervisory Committee of our company and a Senior Executive of the Daqing Refining & Chemicals Company of our company. Mr. Wang is a professor-level senior engineer and holds a master’s degree. He has over 25 years of working experience in China’s oil and gas industry. Mr. Wang was acting as the Deputy Director of Daqing Petroleum Administration Bureau since November 1997 and as the Chairman of the Labour Union of Daqing Petroleum Administration Bureau since March 2001. He was appointed as the Chairman of the Labour Union of Daqing Oilfield Company Limited in February 2008. Since May 2008, Mr. Wang has been acting as a Supervisor of our company. Mr. Wang has served as the principal officer of Daqing Refining and Chemical since August 2009.
Qin Gang,aged 56, is an employee representative of the Supervisory Board of our company and a Senior Executive and Chairman of the Labor Union of PetroChina West-East Gas Pipeline Company. Mr. Qin is a senior engineer and has nearly 40 years of experience in China’s oil and gas industry. Mr. Qin had acted as a Deputy Commander of Tarim Petroleum Exploration and Development Headquarters since November 1997 and a Deputy General Manager of Tarim Oilfield Company since September 1999. In July 2002, Mr. Qin was appointed as the Chairman of Labour Union of PetroChina Tarim Oilfield Company. Mr. Qin has been the Senior Executive and the Chairman of the Labor Union of Petrochina West-East Gas Pipeline Company since June 2007. Since November 2005, Mr. Qin has become a member of our Supervisory Board.
Wang Shali,female, aged 55, is an employee representative of Supervisory Board of our company and a Senior Executive of PetroChina International Ltd. Ms. Wang is a professor-level senior economist and holder of a master’s degree. She has nearly 40 years of working experience in China’s oil and gas industry. She was appointed as the General Economist of China National Oil and Gas Exploration and Development Corporation in November 1996 and Deputy General Manger and General Economist of China National Oil and Gas Exploration and Development Corporation in December 1997. Ms Wang began to act concurrently as the Executive Deputy General Manager of the CNPC International (Nile) Company in April 1998. She was appointed as the Deputy General Manger of China National Oil and Gas Exploration and Development Corporation and the leader of the Project Coordination Group in August 2004, and the Senior Deputy General Manager of the CNPC Exploration and Development Company in June 2006. She has been acting as a Supervisor of our company since May 2008. In September 2008, Ms Wang was appointed as Senior Executive, Senior Deputy General Manager and General Legal Counsel of CNPC Exploration and Development Company Limited. Ms. Wang ceased to act as the General Legal Counsel of CNPC Exploration and Development Company Limited in April 2009. Ms. Wang has acted concurrently as a Senior Executive of PetroChina International Ltd. since November 2009.
Li Yuan,aged 62, is an independent Supervisor of our company. Mr Wu isMr. Li was graduated from Renmin University of China with a holder of doctor’s degree. Mr Wu is currently the Vice Chancellorbachelor’s degree in Economics. Mr. Li’s past positions include Deputy Director of the Peking University. He is also an expert consultantForeign Affairs Department of Ministry of Petroleum Industry, Team Leader of the Supreme People’s CourtBusiness Team of the PRC, an arbitratorCPC Central Committee’s General Office, Director of the Arbitration Panel of China International Economic and Trade Arbitration Commission and PresidentAdministrative Reform Bureau of the ChinaPolitical System Reform Studies Office of the CPC Central Committee, Director of the Distribution Department of the National Economic Law Research Societies. Mr WuSystem Reform Committee, Deputy Director of the State Administration of Land, and Deputy Minister and concurrently the Deputy Chief Land Inspector of the Ministry of Land and Resources. Mr. Li is now a Deputy Director of the Committee of Population, Resources and Environment of the 11th National Committee of the Chinese People’s Political Consultative Conference, and has been acting as an independent Supervisor of our company since December 1999.May 2008.


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Wang Daocheng,aged 69, is an independent supervisor of our company. Mr. Wang is currently the President of the China Institute of Internal Audit. He is a senior auditor and holds a bachelor’s degree. He has over 40 years of experience in finance and auditing. From 1981 to 1984, he led the preparatory committee within the audit department of the Ministry of Finance and headed the science and technology training centre of the National Audit Office as well as the financial and monetary authority. From August 1984, Mr Wang held a number of positions, including Deputy Director of Xicheng District Audit Bureau of Beijing, Deputy Director of the Research Department of the National Audit Office, and successively, the Deputy Director of the General Affairs Bureau, Deputy Director of the Foreign Investment Bureau, Director of the Foreign Investment Department, Director of the Financial Audit Department and Director of the General Office of the National Audit Office. From March 1999 to March 2005, Mr Wang headed the discipline inspection panel of the Central Commission for Discipline Inspection in the National Audit Office. In June 2005, he became the President of the China Institute of Internal Audit. Mr. Wang has been an independent supervisor of our company since May 2009.
Compensation
Senior Management Compensation System
 Our senior management compensation system links our senior management members’ financial interests, including those of our executive directors and our supervisors, with our results of operations and the performance of our shares. All of our senior management members have entered into performance contracts with us. Under this system, the
The senior management members’ compensation has threetwo components, namely, fixed salaries performance bonuses and stock appreciation rights.variable compensation. The variable components in their compensation accountcomponent, which accounts for approximately 70% to 75% of our senior management officers’the total potential compensation including up to 25% forming the performance bonus component and approximately 50% to 70% forming the stock appreciation rights component. Variable compensation rewards arepackage, is linked to the attainment of specific performance targets, such as netour income for the year, return on capital and cost reduction targets. The chart below sets forth the components of the total potential compensation for key officers.individual performance evaluation results.
             
    % Stock  
  % Fixed appreciation % Performance
  salary rights bonus
       
Chairman  30   70   0 
President  25   60   15 
Vice President  25   60   15 
Department GM  25   50   25 
 We have granted stock appreciation rights to 300 persons, including members of the board of directors and the supervisory committee, president, vice presidents and departmental managers, general managers and deputy general managers of specialized companies and local subsidiaries. Upon exercise of these stock appreciation rights, members of the senior management will not receive any of our shares, but will, by way of stock appreciation rights, receive a monetary sum that is calculated on the basis of the price of our H shares. In 2006, none of the directors and senior management exercised any of the stock appreciation rights granted to them. Since companies are not permitted to repurchase and hold their own shares for offering stock options under current PRC law, we expect to calculate our book gains and losses on the basis of share prices and in accordance with stock appreciation rights measures and make cash payment of such compensations.
Directors’ and Supervisors’ Compensation
 
Our directors and supervisors, who hold senior management positions or are otherwise employed by us, receive compensation in the form of salaries, housing allowances, other allowances and benefits in kind, including our contribution to the pension plans for these directors and supervisors.
 
The aggregate amount of salaries, housing allowances, other allowances and benefits in kind paid by us to the five highest paid individuals of PetroChina during the year ended December 31, 20062009 was RMB 3,303,929.RMB3,251,352. We paid RMB 133,110RMB182,700 as our contribution to the pension plans in respect of those individuals in the year ended December 31, 2006.2009.
 
The aggregate amount of salaries or other compensation, housing allowances, other allowances and benefits in kind paid by us to our directors, who hold senior management positions or are otherwise employed by us, during the year ended December 31, 20062009 was RMB 3,223,043.RMB1,940,739.16.
 
Save as disclosed, no other payments have been paid or are payable, in respect of the year ended December 31, 2006,2009, by us or any of our subsidiaries to our directors. In addition, we have no service contracts with our directors that provide for benefits to our directors upon the termination of their employment with us.

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In 2006,2009, we paid RMB 162,830RMB132,620.16 as our contribution to the pension plans in respect of our directors and supervisors, who hold senior management positions or are otherwise employed by us. The aggregate amount of salaries or other compensation, housing allowances, other allowances and benefits in kind paid by us to our supervisors, who hold senior management positions or are otherwise employed by us, during the year ended December 31, 20062009 was RMB 714,423.RMB507,180.2.
For discussions about the compensations of our individual directors and supervisors, please see Note 11 to our consolidated financial statements included elsewhere in this annual report.
Board Practices
 
Our board of directors has four principal committees: an audit committee, an investment and development committee, an evaluation and remuneration committee and a health, safety and environment committee.


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Audit Committee
 
Our audit committee is currently composed of three non-executive independent directors, Mr. Franco Bernabè, Mr. Chee-Chen Tung and Mr. Liu Hongru,Cui Junhui, and one non-executive director, Mr. Gong Huazhang.Wang Guoliang. Mr. Franco Bernabè serves as the chairman of the committee. Under our audit committee charter, the chairman of the committee must be an independent director and all resolutions of the committee must be approved by independent directors. The audit committee’s major responsibilities include:
 • supervising the integrity of financial reporting process to ensure fair, transparent and true financial disclosure;
 
 • reviewing and evaluating the effectiveness of the internal control and risk management framework;
 
 • inspecting and supervising the effectiveness of the internal audit functions;
 
 • reviewing and supervising the engagement and work of external auditors, including evaluating the performance of external auditors annually and raising proposals together with the supervisory committeeboard to the shareholders’ meetings with respect to the engagement, re-engagement and dismissal of external auditors and the compensation of such external auditors;
 
 • receiving, keeping and dealing with complaints regarding accounting, internal control or auditing matters.matters; and
 
 • receiving and dealing with anonymous submissions and complaints by employees regarding accounting or auditing matters, and keeping such submission and complaints confidential, and other duties provided in the Listing Rules from time to time.time provided by applicable laws and regulations and listing rules of the market where the securities of our company listed.
Investment and Development Committee
 
The current members of our investment and development committee are Mr. Zhou JipingLi Yongwu, as chairman of the committee and Mr. Wang Yilin and Mr. Li Xinhua, as membermembers of the committee. The former chairman of the investment and development committee, Mr. Su Shulin, resigned as a Director of our company in November 2006. The investment and development committee’s major responsibilities include:
 • studying strategic action plansthe long-term development strategies of the company as proposed by our Presidentpresident and making recommendations to the board of directors;
 
 • studying the annual investment budget and the adjustment proposal regarding the investment plan as proposed by our Presidentpresident and making recommendations to the board of directors; and
 
 • reviewing preliminary feasibility studies and feasibility studies for material investment and financing proposals, material capital operation projects requiringand material asset operation projects subject to the approval of the board of directors and making recommendations to the board of directors; and
• studying any other significant matters that may affect the development of the company and making recommendations to the board of directors.

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Evaluation and Remuneration Committee
 
The current members of our evaluation and remuneration committee are Mr. Liu Hongru, as chairman of the committee, Mr. Zheng HuChee-Chen Tung and Mr. Chee-Chen Tung,Wang Fucheng, as membermembers of the committee. The evaluation and remuneration committee’s major responsibilities include:
 • managingstudying the criteria for and conducting the evaluation of the performance evaluationsof the directors and the management members and making recommendations to the board of directors;
• studying and reviewing the director and management compensation policies and proposals, including the policies and proposals regarding the compensation payable to directors and senior management for their loss of positions or retirement;


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• organizing the evaluation of the performance of our Presidentpresident and submitting reportreporting the evaluation result to the board of directors, supervising the evaluation of the performance of our board and monitoring performance evaluations led by our President for Senior Vice President, Vice Presidents, Chief Financial Officersenior vice presidents, vice presidents, chief financial officer and other senior management personnel;members conducted under the leadership of the president; and
 
 • studying our incentive plan, compensation plan and stock appreciation rights plan, supervising and evaluating the implementation of these plans and making recommendations for improvements to and perfection of such plans.
Health, Safety and Environment Committee
 
The current members of our health, safety and environment committee are Duan Wende,Mr. Liao Yongyuan, as chairman of the committee, Mr. Zeng Yukang and Mr. Jiang Fan, as member of the committee. The health, safety and environment committee’s major responsibilities include:
 • supervising the effective implementation of our Health, Safety and Environmental Protection Plan;Plan (HSE Plan);
 
 • making recommendations to the board of directors and our Presidentpresident for major decisions or major issues with respect of health, safety and environmental protection;protection that may affect the company; and
 
 • inquiring the occurrence of and responsibilities for material accidents with respect to the operation, property and assets, employees and other facilities of the company, and supervising the remedial measurestreatment of materialsuch accidents.
Employees
 
As of December 31, 2004, 20052007, 2008 and 2006,2009, we had 424,175, 439,220466,502, 477,780 and 446,290539,168 employees, respectively.respectively (excluding temporary staff). The table below sets forth the number of our employees by business segment as of December 31, 2006.2009.
          
  Employees % of total
     
Exploration and production  247,442   55.44 
Refining and marketing  118,504   26.55 
Chemicals and marketing  61,152   13.70 
Natural gas and pipeline  15,496   3.47 
Other(1)
  3,696   0.84 
         
 Total  446,290   100.0%
         
 
         
  Employees % of Total
 
Exploration and production  265,499   49.24 
Refining and chemicals  178,689   33.15 
Marketing  68,803   12.76 
Natural gas and pipeline  20,667   3.83 
Other(1)
  5,510   1.02 
         
Total  539,168   100.0 
         
(1)Including the numbers of employees of the management of our headquarters, specialized companies, PetroChina Exploration & Development Research Institute, PetroChina Planning & Engineering Institute, Petrochemical Research Institute and other units.
 
Our employees participate in various retirement benefitbasic social insurance plans organized by municipal and provincial governments whereby we are required to make monthly insurance contributions to these plans at certain rates ranging from 16% to 22% of the employees’ salary.salary as stipulated by relevant local regulations. Expenses incurred by us in connection with the retirement benefit plans were approximately RMB 2,476RMB5,754 million, RMB 3,104RMB6,997 million and RMB 4,645RMB8,437 million, respectively, for the three years ended December 31, 2004, 20052007, 2008 and 2006,2009, respectively.

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In 2006,2009, we have not experienced any strikes, work stoppages, labor disputes or actions which affected the operation of any of our businesses. We consider ourOur company maintains good relationship with our employees to be good.employees.
Share Ownership
 Our
Other than two supervisors, our directors, senior officers and supervisors do not have share ownership in PetroChina or any of PetroChina’s affiliates. We have granted stock appreciation rights relating to our H shares to our directors, senior officers and supervisors. Upon exercise of these stock appreciation rights, members of the senior management will not receive anyAs at May 31, 2010, Mr. Yu Yibo, one of our supervisors, held 66,500 A shares but will, by way of stock appreciation rights, receive a monetary sum which is calculatedour company, including shares acquired on the basis of the pricesecondary market and Ms. Wang Shali, one of our H shares. Because the relevant PRC laws limit the ownership of thesupervisors, held 7,000 A shares and 18,000 H shares of a company incorporated under the PRC laws to only non-PRC nationals, and companies are not permitted to repurchase and hold their own shares for offering stock appreciation rights under current PRC law, our directors, senior officers and supervisors do not hold our H shares under the stock options granted to them. Instead, we expect to calculate the book gains and losses on the basis of share prices and in accordance with our stock appreciation rights granting criteria to be finalized, and make cash payments of such compensation to our directors, senior officers and supervisors.company.


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ITEM 7 — MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
Major Shareholders
 
Major Shareholders
Prior to the restructuring of the CNPC group in November 1999, CNPC was one of the largest companies in the PRC in terms of sales. As part of the restructuring of the CNPC group, CNPC transferred to PetroChina substantially all its businesses and assets in China relating to the exploration and production of crude oil and natural gas, refining and marketing, chemicals and natural gas sales and transmission. Since the restructuring of the CNPC group, CNPC has engaged in crude oil and natural gas exploration and production business activities outside the PRC and limited chemicals production and retail of refined products. CNPC’s primary business activities relate to the provision of various services and products to PetroChina.
 
PetroChina was established on November 5, 1999 with CNPC as its sole promoter. As of DecemberMay 31, 2006,2010, CNPC beneficially owned 157,922,077,818 State-owned158,035,717,259 shares, which include 271,120,000 H shares indirectly held by CNPC through Fairy King Investments Limited, an overseas wholly owned subsidiary of CNPC, representing approximately 88.21%86.348% of the share capital of PetroChina, and, accordingly, CNPC is our controlling shareholder.
 
The following table sets forth the major shareholders of our A shares as of May 31, 2010:
                 
      Percentage
  
      of the
  
      Issued Share
 Percentage
      Capital of the
 of
      Same
 the Total
    Number of Shares
 Class of
 Share
Name of Shareholders
 Class of Shares Held Shares (%) Capital (%)
 
CNPC  A shares   157,764,597,259   97.432   86.200 
The following table sets forth the major shareholders of our H shares as of May 31, 2010:
                 
      Percentage of
  
      Such Shares
  
      in That Class
 Percentage of
  Class of
   of the Issued
 Total Share
Name of Shareholder
 Shares Number of Shares Share Capital (%) Capital (%)
 
CNPC  H shares   271,120,000(1)  1.285   0.148 
JPMorgan Chase & Co.   H shares   1,132,355,050(2)  5.37   0.62 
(1)Held by Fairy King Investments Limited, an overseas wholly-owned subsidiary of CNPC.
(2)Includes (i) 61,594,980 shares held by JPMorgan Chase & Co. through various subsidiaries in short position in its capacity as beneficial owner and (ii) 1,070,760,070 shares held by JPMorgan Chase & Co. through various subsidiaries in long position in its capacity as beneficial owner, investment manager and custodian/approved lending agent under Hong Kong laws.
Related Party Transactions
CNPC is a controlling shareholder of our company. We enter into extensive transactions with CNPC and other members of the CNPC group, all of which constitute related party transactions for us. We also continue to carry out existing continuing transactions with other related parties in the reporting period.
One-off Related Party Transactions
Acquisition of City Gas Business from CNPC
On May 15, 2009, Kunlun Gas, a wholly owned subsidiary of our company, entered into a transfer agreement with each of China Huayou Group Corporation and China Petroleum Pipeline Bureau, wholly owned subordinated entities of CNPC, pursuant to which Kunlun Gas agreed to acquire city gas business from the transferors. The targets of the acquisitions include the equity interests in eight companies held by China Huayou Group Corporation and China Petroleum Pipeline Bureau and relevant assets owned by China Huayou Group Corporation. Upon completion of the acquisition agreement, Kunlun Gas paid the transferors a consideration of approximately RMB1,093.9 million.


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Acquisition of Western Pipeline Assets of CNPC
On June 18, 2009, an acquisition agreement was entered into between PetroChina West Pipeline Branch Company and CNPC are state-owned sharesWest Pipeline Company Limited, pursuant to which Western Pipeline Branch Company agreed to acquire the western pipeline assets from the transferor. Upon completion of the acquisition on June 30, 2009, the parties referred to the appraised net assets value of the western pipeline assets as at March 31, 2009, the valuation date, and adjusted the consideration by reference to the change in the net asset value of the western pipeline assets for the period from the valuation date to the completion date on adollar-for-dollar basis. The final consideration paid by our company to the transferor was approximately RMB8,355.4 million.
Acquisition of 100% Equity Interest in South Oil from CNPC
On August 28, 2009, our company entered into an equity transfer agreement with CNPC E&D and CNPC Central Asia, pursuant to which our company agreed to acquire the 100% share capital in South Oil from CNPC E&D and CNPC Central Asia. Upon completion of PetroChina. However,the acquisition, the company will pay a consideration of approximately RMB2,813.3 million to CNPC E&D and CNPC Central Asia. Such consideration will be adjusted by reference to the final appraised value filed with the State-owned Assets Supervision and Administration Commission. Any net profit or loss incurred during the period from the valuation date to the completion date shall be attributable to the transferors. As at the end of the reporting period, the transaction has identical votingnot yet been completed.
Acquisition of the Refinery Equipment Assets from CNPC
On August 28, 2009, several asset transfer agreements were entered into between ten of our company’s branch companies and ten subordinated entities of CNPC (including CNPC Daqing Petrochemical Factory), pursuant to which our company agreed to acquire refinery equipment assets from the transferors. Upon completion of the acquisition on November 30, 2009, the parties referred to the appraised net asset value of the refinery equipment assets as at February 28, 2009, the valuation date, and adjusted the consideration by reference to the change in the net asset value of the refinery equipment assets for the period from the valuation date to the completion date on adollar-for-dollar basis. The final consideration paid by our company to the transferors was approximately RMB11,327.2 million.
Acquisition of the Contractual Rights under the Production Sharing Contract from CNPC
On August 28, 2009, PetroChina Amu Darya Natural Gas Exploration and Development (Beijing) Company Limited, a wholly owned subsidiary of the company, and CNPCI, a subsidiary of CNPC, entered into the Contractual Rights Transfer Agreement, pursuant to which we have agreed to acquire from CNPCI the contractual rights under the production sharing contract on the Bagtyiarlyk area at Amu Darya Right Bank in Turkmenistan, and the relevant assets and liabilities formed in the course of CNPCI’s fulfillment of the same. Upon completion of the acquisition, the company will pay the consideration in the sum of approximately US$1,186.5 million (approximately RMB8,106.6 million), of which the company will pay approximately US$350.5 million in cash to CNPCI, and assume bank loans amounting to approximately US$836.0 million owed by CNPCI in the course of performing its obligations under the production sharing contract. The consideration is determined by reference to the valuation results and will be adjusted by reference to the final valuation results filed with the State-owned Assets Supervision and Administration Commission and the change in value of the net asset in connection with this acquisition for the period from the valuation date to the completion date. As at the end of the reporting period, the acquisition has not yet been completed.
Acquisition of the Equity Interest in Zhongqing Gas from CNPC
On December 30, 2009, Kunlun Gas, one of our wholly owned subsidiaries, and Daqing Petroleum Administrative Bureau, a wholly owned subordinated entity of CNPC, entered into an asset transfer agreement, pursuant to which Kunlun Gas will acquire the 100% equity interest in Zhongqing Gas held by Daqing Petroleum Administrative Bureau. Upon completion of the acquisition, Kunlun Gas will pay to the Daqing Petroleum Administrative Bureau the consideration in the amount of approximately RMB1,088.1 million, representing the net asset value of the target equity interest as holdersat the date of H shares. Holdersvaluation. This consideration will be adjusted by any gain/loss attributable to the target equity interest which arise between the reference date of state-owned sharesvaluation and H sharesthe completion date on the basis


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of such floor price of the target equity interest as submitted for the open tender by the Daqing Petroleum Administrative Bureau. As at the end of the reporting period, the acquisition has not yet been completed.
Subscription of Additional Share Capital of China Petroleum Finance Co., Ltd (CPF)
On March 25, 2010, our company entered into a Subscription Agreement with CPF and CNPC, pursuant to which we have agreed to unilaterally contribute a total capital of approximately RMB9.6 billion to (a) subscribe for a total of RMB2.4 billion new registered capital of CPF and (b) account the remaining approximately RMB7.2 billion into the capital reserves of CPF. The capital contribution by our company to CPF will be paid in cash in full with our own funds at the closing date agreed in the Subscription Agreement. Following the completion of this subscription, we will hold 49% and CNPC will hold 51% of the enlarged total registered capital of CPF.
Continuing Related Party Transactions
During the reporting period, our company continued to engage in a variety of continuing related party transactions with CNPC, which provide a number of services to us. These transactions are deemedgoverned by several agreements between CNPC and us, including the comprehensive products and services agreement and its supplemental agreements, product and service implementation agreements, land use rights leasing contract, buildings leasing contract and buildings supplementary leasing agreement, intellectual property licensing contracts, contract for the transfer of rights under production sharing contracts and guarantee of debts contract. A detailed discussion of these agreements is set forth in Note 37 to be shareholdersour consolidated financial statements included elsewhere in this annual report and under the heading “Item 7 — Major Shareholders and Related Party Transactions — Related Party Transactions” in our annual report onForm 20-F filed with the SEC on May 27, 2008.
Our comprehensive products and services agreement and its supplemental agreements expired on December 31, 2008. On August 27, 2008, we and CNPC entered into a new comprehensive products and services agreement that incorporates the provisions from the previous agreements and became effective on January 1, 2009 for a period of different classes for certain matters which may have effect on their respective interest.
three years. As of December 31, 2006, Warren E. Buffett, Berkshire Hathaway Inc., OBH, Inc., National Indemnity Company, GEICO Corporation and Government Employees Insurance Company, as a group as defined under Rule 13d-1(b)(1)(ii)(J)2009, the balance of the Securities Exchange Act of 1934, as amended, collectively owned 2,347,761,000 H shares, representing approximately 1.311% of the total outstanding share capital of PetroChina, or approximately 11.13% of the H shares of PetroChina.
Related Party Transactions
      As of December 31, 2006, CNPC directly owns an aggregate of approximately 88.21% of the sharesamount of our companydebts guaranteed by CNPC and therefore transactions between our company and CNPC constituteits affiliates was RMB 1,154.0 million.
During the reporting period, we continue to carry out a number of continuing related party transactions between our companywith CNPC Exploration and CNPC under the Rules Governing the Listing of Securities on The Stock Exchange of Hong KongDevelopment Company Limited, or the Listing Rules. As of December 31, 2006, CNPC (Hong Kong) Limited, or CNPC (HK), is a 51.99% owned subsidiary of CNPC. Therefore, transactions between our company and CNPC (HK) constitute related party transactions between our company and CNPC (HK) under the Listing Rules. As Beijing Gas Group Co., Ltd., or Beijing Gas, and China Railway Materials and Suppliers Corporation, or CRMSC, are respectively a substantial shareholder (as definedCorporation. A detailed discussion of our relationships and transactions with these parties is set forth in Note 37 to our consolidated financial statements included elsewhere in this annual report and under the Listing Rules) of Beijing Huayou Gas Corporation Limitedheading “Item 7 — Major Shareholders and PetroChina and CRMSC Oil Marketing Company Limited, both of which are our company’s subsidiaries, pursuant to the Listing Rules, the transactions between our company and Beijing Gas and CRMSC respectively constitute related party transactions of our company. Moreover, CNPC and our company each holds 50% interest in CNPC E&D; according to the Listing Rules, CNPC E&D is a connected person of our company. On December 28, 2006, our company acquired 67% equity interest in PKZ through CNPC E&D. Pursuant to the Listing Rules, any subsidiaries of a connected person of our company will also be treated as connected person(s) of our company. Therefore, transactions between our company and (i) CNPC E&D and (ii) PKZ constitute related party transactions of our company under the Listing Rules.
One-off Related Party Transactions
Acquisition of a 67% interest in PKZ
      Pursuant to an acquisition agreement dated August 23, 2006 entered into between Pervinage Holding B.V. (a wholly-owned subsidiary of CNPC E&D) and 819 Luxembourg S. a r. l. (an indirect wholly-owned subsidiary of CNPC), CNPC E&D has acquired from CNPC the 67% equity interest

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indirectly held by CNPC in PKZ for a cash consideration of RMB 21,376 million. The acquisition was completed on December 28, 2006. As CNPC is the controlling shareholder of our company, and as CNPC and our company each holds 50% interest in CNPC E&D, CNPC and CNPC E&D are both connected persons of our company. The acquisition constitutes a related party transaction for our company under the Listing Rules. Details of the transaction were announced by our company on August 23, 2006.
Continuing Related Party Transactions
     Continuing Related Party Transactions — Related Party Transactions” in our annual report onForm 20-F filed with CNPCthe Securities and Exchange Commission on May 27, 2008.
Loans from Related Parties
 Our company and CNPC continue to carry out certain existing continuing related party transactions. We obtained independent shareholders’ approval at the general meeting held on November 8, 2005 for a renewal of the existing continuing related party transactions and the new continuing related party transactions; in addition, at the same general meeting we proposed the new caps for existing continuing related party transactions and the new continuing related party transactions from January 1, 2006 to December 31, 2008. We further sought independent shareholders’ approval at the general meeting held on November 1, 2006 for a renewal of the caps for the existing continuing related party transactions for January 1, 2006 to December 31, 2008, which were previously approved by independent shareholders at the general meeting held on November 8, 2005.
      Our company and CNPC will continue to carry out the existing continuing related party transactions referred to in the following agreements:
          Comprehensive Products and Services Agreement, First Supplemental Comprehensive Agreement and Second Supplemental Comprehensive Agreement
      Our company and CNPC continue to implement the Comprehensive Products and Services Agreement (“Comprehensive Agreement”) entered into on March 10, 2000 for the provision (i) by our company to CNPC and (ii) by CNPC Group to our company, of a range of products and services which may be required and requested from time to time by either party and/or its subsidiary companies and affiliates. The Comprehensive Agreement has been amended by the First Supplemental Comprehensive Agreement and the Second Supplemental Comprehensive Agreement.
      The term of the Comprehensive Agreement was initially ten years starting from the date when our company’s business license was issued. This term has been amended by the Second Supplemental Comprehensive Agreement to three years commencing from January 1, 2006.
      During the term of the Comprehensive Agreement, termination of the product and service implementation agreements described below may be effected from time to time by the parties to the product and service implementation agreements providing at least six months’ written notice of termination in relation to any one or more categories of products or services. Further, in respect of any products or services already contracted to be provided, termination may not take place until after such products and services have been provided.
      Under the Comprehensive Products and Services Agreement, products and services to be provided by our company to CNPC Group include such products as refined products, chemical products, natural gas, crude oil and such services as relating to the supply of water, electricity, gas and heating, quantifying and measuring and quality inspection and other products and services as may be requested by the CNPC Group for its own consumption, use or sale from time to time.
      More products and services are to be provided by CNPC to our company, both in terms of quantity and variety, than those to be provided by our company to CNPC. Products and services to

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be provided by CNPC to our company have been grouped together and categorized according to the following types of products and services:
• Construction and technical services,
• Production services,
• Supply of materials services,
• Social services,
• Ancillary services, and
• Financial services.
      The First Supplemental Comprehensive Agreement dated June 9, 2005 was entered principally to amend the definitions of “state-prescribed price” and “market price” in the Comprehensive Agreement in view of the characteristics of overseas business and to amend the term of the Comprehensive Agreement to three years. The First Supplemental Comprehensive Agreement took effect on December 19, 2005.
      The Second Supplemental Comprehensive Agreement entered into by CNPC and our company on September 1, 2005 provides for certain new continuing related party transactions between our company and certain companies in which both our company and CNPC are shareholders, and where CNPC and/or its subsidiaries and/or affiliates (individually or together) is/are entitled to exercise, or control the exercise of, 10% or more of the voting power at any general meeting of such company.
      The Second Supplemental Comprehensive Agreement took effect on January 1, 2006.
Product and Service Implementation Agreements
      According to the current arrangements, from time to time and as required, individual product and service implementation agreements may be entered into between the relevant service companies and affiliates of CNPC Group or our company providing the relevant products or services, as appropriate, and the relevant members of our company or CNPC Group, requiring such products or services, as appropriate.
      Each product and service implementation agreement will set out the specific products and services requested by the relevant party and any detailed technical and other specifications which may be relevant to those products or services. The product and service implementation agreements may only contain provisions which are in all material respects consistent with the binding principles and guidelines and terms and conditions in accordance with which such products and services are required to be provided as contained in the Comprehensive Agreement.
      As the product and service implementation agreements are simply further elaborations on the provision of products and services as contemplated by the Comprehensive Agreement, they do not as such constitute new categories of related party transactions.
Land Use Rights Leasing Contract
      Our company and CNPC continue to implement the Land Use Rights Leasing Contract entered into on March 10, 2000 under which CNPC has leased a total of 42,476 parcels of land in connection with all aspects of the operations and business of our company covering an aggregate area of approximately 1,145 million square meters, located throughout the PRC, to our company for a term of 50 years at an annual fee of RMB 2 billion. The total fee payable for the lease of all such property may, after the expiration of ten years from the effective date of the Land Use Rights Leasing Contract, be adjusted (to reflect market conditions prevalent at such time of adjustment,

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including the then prevailing marketing prices, inflation or deflation, as applicable, and such other factors considered as important by both parties in negotiating and agreeing to any such adjustment) by agreement between our company and CNPC. In addition, any governmental, legal or other administrative taxes and fees required to be paid in connection with the leased properties will be borne by CNPC. However, any additional amount of such taxes payable as a result of changes in the PRC government policies after the effective date of the contract shall be shared proportionately on a reasonable basis between CNPC and our company.
Buildings Leasing Contract and Buildings Supplementary Leasing Agreement
      Our company and CNPC continue to implement the Buildings Leasing Contract entered into on March 10, 2000 in which CNPC has leased to our company a total of 191 buildings covering an aggregate of area of 269,770 square meters, located throughout the PRC for the use by our company for its business operations including the exploration, development and production of crude oil, the refining of crude oil and petroleum products, and the production and sale of chemicals. The 191 buildings were leased at a price of RMB 145 per square meter per year, that is, an aggregate annual fee of RMB 39,116,650 for a term of 20 years. Our company is responsible for the payment of any governmental, legal or other administrative taxes and maintenance charges in connection with these 191 buildings. The Building Leasing Contract sets forth the details of the buildings leased to our company by other member companies within CNPC group.
      Further to the Buildings Leasing Contract mentioned above, our company entered into a Supplemental Buildings Leasing Agreement (the “Supplemental Buildings Agreement”) with CNPC on September 26, 2002 under which CNPC agrees to lease to our company an additional 404 buildings covering an aggregate of 442,730 square meters. The increase in the number of units being leased in the Supplemental Buildings Agreement is primarily attributed to the expansion of our company’s operations mainly in the areas such as oil and natural gas exploration, the West-East Gas Pipeline Project and the construction of the northeast refineries and chemical operation base. The total rent payable under the Supplemental Buildings Agreement amounts to RMB 157,439,540 per annum. Our company and CNPC will, based on changes in their production and operations, and changes in the market price, adjust the sizes and quantities of buildings leased under the Buildings Leasing Contract as well as the Supplemental Buildings Agreement every three years. The Supplemental Buildings Agreement became effective on January 1, 2003 and will expire at the same time as the Buildings Leasing Contract. The terms and conditions of the Buildings Leasing Contract will, to the extent not contradictory to the Supplemental Buildings Agreement, remain in full force.
Intellectual Property Licensing Contracts
      Our company and CNPC continue to implement the three intellectual property licensing contracts entered into on March 10, 2000, being the Trademark Licensing Contract, the Patent and Know-how Licensing Contract and the Computer Software Licensing Contract. Pursuant to these licensing contracts, CNPC has granted our company the exclusive right to use certain trademarks, patents, know-how and computer software of CNPC at no cost. These intellectual property rights relate to the assets and businesses of CNPC which were transferred to our company pursuant to the restructuring.
Contract for the Transfer of Rights under Production Sharing Contracts
      Our company and CNPC continue to implement the Contract for the Transfer of Rights under Production Sharing Contracts dated March 10, 2000. As part of the restructuring, CNPC transferred to our company relevant rights and obligations under 23 Production Sharing Contracts entered into with a number of international oil and natural gas companies, except for the rights and obligations relating to CNPC’s supervisory functions.

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Guarantee of Debts Contract
      Our company and CNPC continue to implement the Guarantee of Debts Contract entered into on March 10, 2000, pursuant to which all of the debts of CNPC relating to the assets transferred to our company in the restructuring were also transferred to, and assumed by, our company.
      In the Guarantee of Debts Contract, CNPC has agreed to guarantee certain debts of our company at no cost. As of December 31, 2006, the total amount guaranteed was RMB 597 million.
      As each of the applicable percentage ratio(s) (other than the profits ratio) in respect of the Trademark Licensing Contract, the Patent and Know-how Licensing Contract, the Computer Software Licensing Contract, the Contract for the Transfer of Rights under Production Sharing Contracts and the Guarantee of Debts Contract is less than 0.1%, these transactions are exempted from the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules. The Directors believe that these continuing transactions had been entered into in the ordinary course of business for the benefits of our company, and are in the interests of the shareholders as a whole.
New Continuing Related Party Transactions with CNPC E&D
      The following new continuing related party transactions arose as a result of the completion of the acquisition of the 67% equity interest in PKZ on December 28, 2006, which was set forth on the announcement dated August 23, 2006:
• the provision of production services by CNPC Group to our company;
• the provision of construction and technical services such as exploration technology services by CNPC Group to our company;
• the provision of materials supply services by CNPC Group to our company.
Continuing Related Party Transactions with CNPC (HK)
      As part of the restructuring of CNPC and in preparation for the listing of our company on HKSE, and as disclosed in our company’s prospectus dated March 27, 2000, CNPC and our company entered into the Contract for the Transfer of Rights under Production Sharing Contracts whereby the relevant rights and obligations (other than the supervisory functions related to CNPC’s role as representative of the PRC government) of CNPC under certain contracts, including the Blocks 9-1 to 9-5 of the Xinjiang Karamay Oilfield Petroleum Contract dated July 1, 1996, entered into between CNPC and Hafnium Limited (“Xinjiang Contract”), and the Leng Jiapu Area Petroleum Contract dated December 30, 1997, entered into between CNPC and Beckbury International Limited (“Liaohe Contract”), were novated to our company.
      CNPC (HK) is a 51.99% owned subsidiary of CNPC. CNPC is also our company’s controlling shareholder which holds approximately 88.21% of the issued share capital of our company. Upon the effective novation by CNPC to our company of the above interest in the PRC Oil Production Sharing Contracts (the Xinjiang Contract and the Liaohe Contract), certain transactions pursuant to the PRC Oil Production Sharing Contracts constitute continuing related party transactions between our company and CNPC (HK).
      Summary of the major terms and conditions of these continuing related party transactions under the Xinjiang Contract and the Liaohe Contract are as follows:
      (1) Production and development cost sharing between our company and CNPC (HK):For both Leng Jiapu Oilfield and blocks 9-1 to 9-5 of the Karamay Oilfield, our company and CNPC (HK) share the development costs for these oilfields as to 46% by our company and 54% by CNPC (HK), and share the oil and natural gas produced from these oilfields, as to 30% by our company and 70% by CNPC (HK).

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      (2) Provision of assistance by our company to CNPC (HK):Our company shall provide assistance to CNPC (HK), including: (i) leasing warehouses, terminal facilities, barges, pipeline and land, etc.; (ii) obtaining approvals necessary for the conduct of the petroleum operations; and (iii) obtaining office space, office supplies, transportation and communication facilities. For such assistance, CNPC (HK) will pay an annual assistance fee of US$50,000 to each of blocks9-1 to9-5 of the Karamay Oilfield and the Leng Jiapu Oilfield. The amount of such fee was determined after negotiations, and has taken into account the actual circumstances and conditions, including the scope of the projects and the level of demand for such assistance. This fee shall be accounted for as operating costs and shared by our company and CNPC (HK) in accordance with the procedures described in the Xinjiang Contract and the Liaohe Contract.
      (3) Payment of training fees:In the course of development and operations of each oilfield, CNPC (HK) shall pay our company an amount of US$50,000 annually for the training of personnel carried out by our company for each of the blocks 9-1 to 9-5 of the Karamay Oilfield and the Leng Jiapu Oilfield. The amount of such fee was determined after negotiations, and has taken into account the actual circumstances and conditions, including the scope of the projects and the level of demand for training.
      (4) Sale of crude oil by CNPC (HK) to our company:CNPC (HK) has the right to deliver its share of oil production from each of blocks 9-1 to 9-5 of the Karamay Oilfield and the Leng Jiapu Oilfield to a destination of its choice, except for destinations which infringe on the political interests of the PRC. However, given the transportation costs and the prevailing oil prices, the only likely purchaser of the oil production attributable to CNPC (HK) from each of blocks9-1 to9-5 of the Karamay Oilfield and the Leng Jiapu Oilfield is CNPC or its affiliates, including our company, which will accept delivery of oil produced in blocks9-1 to9-5 of the Karamay Oilfield and the Leng Jiapu Oilfield at the market price. Since the signing of the PRC Oil Production Sharing Contracts, CNPC (HK) has sold all of its share of the oil production to CNPC or its affiliates, including our company. As far as the Board of Directors is aware, CNPC (HK) intends to continue with this arrangement. There is no contractual obligation upon our company to purchase oil produced from blocks9-1 to9-5 of the Karamay Oilfield and the Leng Jiapu Oilfield, although, from a commercial perspective, our company intends to continue to accept part of the deliveries. The price of various grades of crude oil sold shall be set either with reference to the price approved by the relevant PRC authorities, or as determined with reference to the prevailing fair market price for transactions of crude oil of a similar quality in the major oil markets. This will be adjusted to take into account the terms of transportation, payment and other terms.
      The waiver in respect of the above continuing related party transactions between our company and CNPC (HK) granted by the HKSE expired on December 31, 2006. Our company made an announcement on August 23, 2006 in respect of the reporting and announcement obligations for these continuing related party transaction for the period from January 1, 2007 to December 31, 2008.
Continuing Related Party Transactions with CRMSC and Beijing Gas
      Our company entered into a Products and Services Agreement with Beijing Gas on September 1, 2005. Pursuant to the agreement, our company shall continuously provide products and services to Beijing Gas, including the provision of natural gas and natural gas related transmission services. The agreement was effective from January 1, 2006.
      On September 1, 2005, our company entered into the CRMSC Products and Services Agreement with CRMSC. Under the CRMSC Products and Services Agreement, products and services to be continuously provided by our company to CRMSC include, among other things, refined products (such as gasoline, diesel and other petroleum products). The term of the CRMSC Products and Services Agreement is three years commencing from January 1, 2006.

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      During the term of the CRMSC Products and Services Agreement, the product and service implementation agreements may be terminated from time to time by the contracting parties providing at least six months’ written notice of termination in relation to any one or more categories of products or services. Further, in respect of any products or services already contracted to be provided, termination may not take place until after such products and services have been provided.
Loans or Guarantees with Related Parties
      As of December 31, 2006,2009, we had unsecured short-term and long-term loans from CP FinanceCNPC and its affiliates in an aggregate amount of RMB 27,184 million. TheRMB77,305 million with an average annual interest rate on these loans is 4.98%of 3.35%.
Interests of Experts and Counsel
Not applicable.


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ITEM 8 —FINANCIAL INFORMATION
Financial Statements
 
See pages F-1 to F-78F-56 following Item 19.
Dividend Policy
 
Our board of directors will declare dividends, if any, in Renminbi with respect to H shares on a per share basis and will pay such dividends in Renminbi with respect to A Shares and HK dollars.dollars with respect to H Shares. Any final dividend for a financial year shall be subject to shareholders’ approval. The Bank of New York will convert the HK dollar dividend payments and distribute them to holders of ADSs in U.S. dollars, less expenses of conversion. The holders of the A Shares and H sharesShares will share proportionately on a per share basis in all dividends and other distributions declared by our board of directors.
 
The declaration of dividends is subject to the discretion of our board of directors. Our board of directors will take into account factors including the following:
 • general business conditions;
 
 • our financial results;
 
 • capital requirements;
 
 • contractual restrictions on the payment of dividends by us to our shareholders or by our subsidiaries to us;
 
 • our shareholders’ interests;
 
 • the effect on our debt ratings; and
 
 • other factors our board of directors may deem relevant.
 
We may only distribute dividends after we have made allowance for:
 • recovery of losses, if any;
 
 • allocations to the statutory common reserve fund; and
 
 • allocations to a discretionary common reserve fund if approved by our shareholders.
 
The allocation to the statutory funds is 10% of our net income for the year attributable to our shareholders determined in accordance with PRC accounting rules. Under PRC law, our distributable earnings will be equal to our net income for the year attributable to our shareholders determined in accordance with PRC accounting rules or IFRS, whichever is lower, less allocations to the statutory and discretionary funds.
 Subject to the above and to ensure that our dividend policy is consistent with that of major international oil and gas companies, we currently expect that we will distribute as dividends

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approximately 40% to 50% of our reported net income for all years commencing on or after January 1, 2000. We believe that our dividend policy strikes a balance between two important goals:
 • providing our shareholders with a competitive return on investment; and
 
 • assuring sufficient reinvestment of profits to enable us to achieve our strategic objectives.
 
A dividend of RMB 0.202806RMB0.12417 per H share (inclusive of applicable tax) for the six months ended June 30, 20062009 was paid to our shareholders on September 26, 2006.October 16, 2009. The board of directors proposed to distribute the final dividend of RMB 0.154699RMB0.13003 per H share (inclusive of applicable tax) which was calculated on the basis of the balance between 45% of our net income for the year attributable to our shareholders under IFRS for the year ended December 31, 20062009 and the interim dividend for 20062008 which was paid on September 26, 2006.October 16, 2009. The final dividend to be paid is subject to approvalfor the year ended December 31, 2009 was approved by the annual shareholders’ general meeting to be held on May 16, 2007.20, 2010. The final dividendpayment will be paid aroundmade to shareholders whose names appear on the register of the company at close of business on June 1, 2007.2, 2010.


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Significant Changes
      None.

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Significant Changes
Operating and Financial Results in the First Quarter of 2010
In the first quarter of 2010, net profit attributable to our company’s shareholders was RMB32,492 million, and the basic earnings per share was RMB0.18, up 71.2%year-on-year. In the first quarter of 2010, we produced 210 million barrels of crude oil, representing an increase of 2.1% as compared with the same period last year, and produced 609.9 billion cubic feet of marketable natural gas, representing an increase of 16.5% as compared with the same period last year. In the first quarter of 2010, we processed 215 million barrels of crude oil, representing an increase of 16.2% compared with the same period last year; produced 18.824 million tons of gasoline, diesel and kerosene, representing an increase of 15.0% as compared with the same period last year; and produced 0.908 million tons of ethylene, representing an increase of 37.0% as compared with the same period last year. In the first quarter of 2010, we sold 27.05 million tons of gasoline, diesel and kerosene, representing an increase of 27.3% as compared with the same period last year.


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ITEM 9 —THE OFFER AND LISTING
Nature of the Trading Market and Market Price Information
 
Our ADSs, each representing 100 H shares,Shares, par value RMB 1.00RMB1.00 per H share,Share, have been listed and traded on the New York Stock Exchange since April 6, 2000 under the symbol “PTR”. Our H sharesShares have been listed and traded on the Hong Kong Stock Exchange since April 7, 2000. In September 2005, our company issued an additional 3,196,801,818 H shares.Shares. CNPC also sold 319,680,182 state-owned shares it held concurrently with our Company’s issuecompany’s issuance of new H sharesShares in September 2005. In October 2007, PetroChina issued 4 billion A Shares and these shares were listed on the Shanghai Stock Exchange on November 5, 2007. Following the issuance of A Shares, all the domestic shares of our company existing prior to the issuance of A Shares, i.e. the shares held by CNPC (our controlling shareholder) in our company, have been registered with China Securities Depository and Clearing Corporation Limited as tradable A Shares. The New York Stock Exchange, and the Hong Kong Stock Exchange and Shanghai Stock Exchange are the principal trading markets for our ADSs, H Shares and H shares,A Shares, respectively.
 
As of December 31, 2006,2009, there were 21,098,900,000 H sharesShares and 161,922,077,818 A Shares issued and outstanding. As of December 31, 2006,2009, there were 303311 registered holders of American depositary receipts evidencing 31,661,23019,706,673 ADSs. The depositary of the ADSs is Thethe Bank of New York.
 
The high and low closing sale prices of our A Shares on the Shanghai Stock Exchange, of H sharesShares on the Hong Kong Stock Exchange and of the ADSs on the New York Stock Exchange for each quarterly periodyear from 20022005 through 20072009 for each quarter from 2008 to 2010 (up to the end of the first quarter of 2010), and for each month from December 2009 to June 2010 (through April 30, 2007)June 18, 2010) are set forth below.
                  
  Price per  
  H share Price per ADS
     
  High Low High Low
         
  (HK$) (US$)
2002
                
 First quarter  1.62   1.39   21.07   18.03 
 Second quarter  1.75   1.52   22.40   19.23 
 Third quarter  1.72   1.53   21.72   19.25 
 Fourth quarter  1.57   1.44   20.75   18.40 
2003
                
 First quarter  1.70   1.55   21.61   19.10 
 Second quarter  2.38   1.62   30.82   20.94 
 Third quarter  2.80   2.15   35.89   27.67 
 Fourth quarter  4.45   2.60   57.05   33.75 
2004
                
 First quarter  4.85   3.75   63.70   47.53 
 Second quarter  4.00   3.20   50.96   41.63 
 Third quarter  4.175   3.60   53.76   45.98 
 Fourth quarter  4.375   4.075   56.60   52.22 
2005
                
 First quarter  5.10   4.025   65.36   51.65 
 Second quarter  5.85   4.675   74.65   59.71 
 Third quarter  7.35   5.90   94.50   74.95 
 Fourth quarter  6.50   5.65   83.70   72.70 
2006
                
 First quarter  8.10   6.35   104.95   83.50 
 Second quarter  9.55   7.10   122.75   90.63 
 Third quarter  9.09   8.17   117.20   104.60 
 Fourth quarter  11.12   8.12   142.12   104.95 
2006
                
 November  9.90   8.66   128.10   110.74 
 December  11.12   9.91   142.12   128.10 
2007
                
 January  11.08   9.39   137.90   120.75 
 February  9.73   9.11   124.70   114.25 
 March  9.27   8.57   118.40   109.55 
 April  9.26   8.90   118.80   112.14 
 
                         
  Price Per H
    
  Share Price Per ADS Price Per A Share
  HK$ US$ RMB
  High Low High Low High Low
 
Annual Data
                        
2005  7.35   4.025   94.50   51.65   —   — 
2006  11.12   6.35   142.12   83.50   —   — 
2007  19.90   8.57   263.70   109.55   43.96   29.24 
2008  14.24   4.25   182.12   57.25   31.31   9.95 
2009  10.48   5.10   133.65   64.09   16.38   10.02 
Quarterly Data
                        
2008
                        
First quarter  14.24   9.17   182.12   120.63   31.31   16.99 
Second quarter  12.12   9.77   156.97   125.92   18.35   14.94 
Third quarter  10.66   7.45   136.92   92.79   15.63   10.17 
Fourth quarter  8.14   4.25   104.30   57.25   12.19   9.95 
2009
                        
First quarter  7.82   5.10   101.25   64.09   12.16   10.02 
Second quarter  9.41   6.11   122.78   80.98   14.48   11.22 
Third quarter  9.49   7.66   122.34   101.31   16.38   12.57 
Fourth quarter  10.48   8.52   133.65   109.67   14.16   12.98 
2010
                        
First quarter  10.18   8.25   130.51   106.30   14.28   12.65 
Monthly Data
                        
2009
                        
December  9.92   8.97   128.01   116.43   13.99   13.06 


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  Price Per H Share  Price Per ADS  Price Per A Share 
  HK$  US$  RMB 
  High  Low  High  Low  High  Low 
 
2010
                        
January  10.18   8.80   130.51   111.49   14.28   13.08 
February  9.13   8.25   116.58   106.30   13.05   12.70 
March  9.25   8.75   119.82   111.78   13.06   12.65 
April  9.55   8.92   122.67   113.26   13.23   11.92 
May  8.99   7.97   115.74   101.92   11.97   10.73 
June (through June 18, 2010)  8.99   8.1   115.57   104.04   11.05   10.34 
The closing prices per A Share, per H shareShare and per ADS on April 30, 2007June 18, 2010 were RMB10.58, HK$8.918.82 and US$112.14,114.51, respectively.

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ITEM 10 —ADDITIONAL INFORMATION
Memorandum and Articles of Association
Our Articles of Association Currently in Effect
 
The following is a summary based on the significant provisions of our articles of association currently in effect, which is filed with the Commission as an exhibit to this annual report onForm 20-F. We hereby incorporate by reference the relevant exhibit to this annual report.
Enforceability of Shareholders’ Rights
Objectives and Purposes
 
We are a joint stock limited company established in accordance with the company Law and certain other laws and regulations of the PRC. We are registered with the PRC State Administration for Industry and Commerce with a business license number being 100000000032522. Article 10 of our articles of association provides that our scope of businesses includes, among other things, exploration and production of oil and natural gas; production and sale of crude oil, refined oil, petrochemical and chemical products; import and export; construction and operation of oil and natural gas pipelines; technical development, consultation and service for oil exploration and petrochemistry and related engineering; sale of materials, equipment and machines necessary for production and construction of oil and gas, petrochemicals and pipelines.
Enforceability of Shareholders’ Rights
Our articles of association provide that all differences or claims
 • between a holder of H sharesShares and us;
 
 • between a holder of H sharesShares and any of our directors, supervisors, general managers, deputy general managerspresident, senior vice presidents, vice presidents, chief financial officer or other senior officers; or
 
 • between a holder of H sharesShares and a holder of State-owneddomestic shares, arising from any provision of the articles of association, any right or obligation conferred or imposed by the PRC Company Law or any other relevant law or administrative regulation which concerns our affairs must, with certain exceptions, be referred to arbitration at either the China International Economic and Trade Arbitration Commission in the PRC or the Hong Kong International Arbitration Center. Our articles of association provide that such arbitration will be final and conclusive.
Restrictions on Transferability and the Share Register
If the directors, president, senior vice presidents, chief financial officer or any other executive officers violate any laws, administrative regulations or the articles of association of our company during the performance of their corporate duties, which results in any damage to our company, shareholders individually or in the aggregate hold more than 1% of the shares in our company for a consecutive 180 days shall have the right to request our supervisory


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board in writing to bring a lawsuit to the competent courts. If our supervisory board violates any laws, administrative regulations or the articles of association of our company during the performance of its corporate duties, which results in any damage to our company, the shareholders may request our board of directors in writing to bring a lawsuit to the competent courts.
 
If the supervisory board or the board of directors refuses to bring such lawsuits upon receiving the written request of the shareholders, or fails to file such lawsuit within 30 day following their receipt of such written request, or in case of emergency under which our company would sustain losses hard to be recovered if such lawsuit fails to be filed immediately, such shareholders as described in the above paragraph shall have the right, in the interests of our company, to bring a lawsuit directly in their own name.
If any third parties infringe our legal interests and make our company sustain any losses, the shareholders described in the above paragraphs may file a lawsuit to the competent court in accordance with the provisions in the above two paragraphs.
Restrictions on Transferability and the Share Register
The articles of association provide that PRC investors are not entitled to be registered as holders of H shares.Shares.
 
As provided in the articles of association, we may refuse to register a transfer of H sharesShares unless:
 • any relevant transfer fee is paid;
 
 • the instrument of transfer is accompanied by the share certificates to which it relates, or such other evidence is given as may be reasonably necessary to show the right of the transferor to make the transfer;
 
 • the instrument of transfer is in respect of one class of shares only; and
 
 • the transfer is conducted in accordance with the laws and administrative regulations of or required by the securities exchanges on which the shares are listed.
 
Our articles of association provide that the shares held by our promoter in our company may not be transferred within one year from the establishment date of our company. The shares issued prior to the public offering of our company may not be transferred within one year from the date the stocks issued in such public offering commencing to be listed on the relevant stock exchange.
The directors, supervisors, president, senior vice presidents, vice presidents, chief financial officer and other executive officers shall report the number and change of the number of shares they hold in our company, and may not transfer more than 25% of the total number of shareshe/she holds in our company in each year duringhis/her term of office. No shares held by such persons in our company may be transferred (i) within one year from the date the stocks of our company commencing to be listed on the relevant stock exchange, or (ii) within half a year from the date of their resignation or removal, other than any transfer of such shares due to judicial enforcement, inheritance, legacy, or partition of property by operation of law.
If any director, supervisor, president, senior vice president, vice president, chief financial officer and any other executive officer holds less than 1,000 shares in our company, the transfer of such shares is not subject to the above restriction on the percentage of share transfer, all of which may be transferred in one time.
If the directors, supervisors, president, senior vice presidents, vice presidents, chief financial officer and other executive officers or the shareholders holding at least 5% of the domestic shares of our company sell the shares they hold in our company within six months of acquiring the same, or buy such shares back within six months of selling the same, the gains obtained therefrom shall belong to our company and the board of directors of the company shall recover such gains from them and disclose the relevant situation timely. However, a securities company that underwrote shares on a firm commitment basis and which, after purchasing the shares remaining after the sale, holds at least 5% of the shares shall not be subject to the six month time limit when selling such shares.
If the board of directors of our company fails to act in accordance with the preceding paragraph, the shareholders shall have the right to demand that the board of directors act within 30 days. If the board of directors of our company fails to act within such30-day time period, the shareholders shall have the right, in the interests of our


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company, to directly institute legal proceedings in a competent court in their own name. If the board of directors of our company fails to act in accordance with the above provisions, the responsible directors shall be jointly and severally liable in accordance with the law.
We are required to keep a register of our shareholders which shall be comprised of various parts, including one part which is to be maintained in Hong Kong in relation to H sharesShares to be listed on the Hong Kong Stock Exchange.
Dividends
Dividends
 
We may distribute dividends twice a year, with the final dividend for any financial year being subject to the approval of the shareholders by way of an ordinary resolution. The articles of association allow for distribution of dividends in the form of cash or shares.shares or any other form permitted under applicable laws and regulations. If a proposal concerning distribution of dividends in the form of cash or shares or conversion of the common reserve fund into share capital is approved in a shareholders’ meeting, we shall implement a specific plan in connection with such proposal within two months following the shareholders’ meeting.

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Dividends may only be distributed, however, after allowance has been made for:
 • recovery of losses, if any;any and the statutory common reserve fund is not enough to recover such losses;
 
 • allocations to the statutory common reserve fund;
• allocations to the statutory common welfare fund; and
 
 • allocations to a discretionary common reserve fund if approved by the shareholders.
 The minimum
We shall allocate ten percent of income for the year attributable to the equity holders of our company to the statutory common reserve fund. If the statutory common reserve fund of our company amounts to more than 50% of our registered capital, we may cease any further allocation.
If the shareholders’ meeting of our company distributes profits to our shareholders before recovering the losses and maximum aggregatemaking allocations to the statutory funds are 15% and 20%, respectively, ofcommon reserve fund, the shareholders must return such profits they have received to our net income determinedcompany. The shares held by our company in accordance with PRC accounting rules.itself do not participate any dividends distribution.
 
The articles of association require us to appoint on behalf of the holders of H sharesShares a receiving agent which is registered as a trust corporation under the Trustee Ordinance of Hong Kong to receive dividends declared by us in respect of the H sharesShares on behalf of such shareholders. The articles of association require that cash dividends in respect of H sharesShares be declared in Renminbi and paid by us in HK dollars.
Voting Rights and Shareholders’ Meetings
Voting Rights and Shareholders’ Meetings
 
Our board of directors will convene a shareholders’ annual general meeting once every year and within six months’ from the end of the preceding financial year. Our board will convene an extraordinary general meeting within two months of the occurrence of any one of the following events:
 • where the number of directors is less than the number stipulated in the PRC Company law or two-thirds of the number specified in our articles of association;
 
 • where our unrecovered losses reach one-third of the total amount of our share capital;
 
 • where shareholders individually or in the aggregate holding 10% or more of our issued and outstanding voting shares request in writing the convening of an extraordinary general meeting; or
 
 • where our board deems necessary or our supervisory board so request; or
• any other events provided by applicable laws, administrative regulations, rules or the articles of supervisors so request.association of our company.
 
Meetings of a special class of shareholders must be called in certain enumerated situations when the rights of the holders of such class of shares may be modified or adversely affected, as discussed below. Resolutions proposed by shareholdersShareholders holding 5%3% or more of the total number of voting shares will be includedmay present special proposals ten days prior to the annual shareholders meetings and shall deliver such proposal in writing to the persons convening such shareholders’ meetings. The matters proposed in the agenda for the relevant annual general meeting if they are matters whichspecial proposals shall fall within the scope of the functions and powers of


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shareholders meetings, and such proposals shall have specific subjects as well as specific matters to be resolved, and shall be in general meeting.compliance with the requirements of applicable laws, administrative regulations and the articles of association of our company. The persons convening the shareholders’ meetings shall send additional notices of shareholders’ meetings within two days after receiving such proposals and announce the matters proposed therein.
 
All shareholders’ meetings must be convened by our board by written notice given to shareholders not less than 45 days before the meeting. Based on the written replies received by us 20 days before a shareholders’ meeting, we will calculate the number of voting shares represented by shareholders who have indicated that they intend to attend the meeting. Where the number of voting shares represented by those shareholders amount to more than one-half of our total voting shares, we may convene the shareholders’ general meeting, regardless of the number of shareholders who actually attend. Otherwise, we will, within five days, inform the shareholders again of the motions to be considered and the date and venue of the meeting by way of public announcement. After the announcement is made, the shareholders’ meeting may be convened. The accidental omission by us to give notice of a meeting to, or the non-receipt of notice of a meeting by, a shareholder will not invalidate the proceedings at that shareholders’ meeting.
 
Shareholders at meetings have the rights, among other things, to approve or reject ourthe annual profit distribution plans, the annual budget, the financial statements, an increase or decrease in share capital, the issuance of debentures, the merger or liquidation of PetroChina, and any amendment to our articles of association.association, external guarantees, purchase or sale of significant assets of PetroChina, change of the purposes of the funds raised and our stock incentive plans. In addition, the rights of a class of shareholders may not be modified or abrogated, unless approved by a special resolution of all shareholders at a general shareholders’ meeting and by a special resolution of shareholders of that class of shares at a separate meeting.

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Our articles of association enumerate, without limitation, certain amendments which would be deemed to be a modification or abrogation of the rights of a class of shareholders, including increasing or decreasing the number of shares of a class disproportionate to increases or decreases of other classes of shares, removing or reducing rights to receive dividends in a particular currency or creating shares with voting or equity rights superior to shares of such class.
 
Each H shareShare is entitled to one vote on all matters submitted to a vote of our shareholders at all shareholders’ meetings, except for meetings of a special class of shareholders where only holders of shares of the affected class are entitled to vote on the basis of one vote per share of the affected class. The shares held by our company in itself are not entitled to any vote, and such shares will not be included in the total number of voting shares in any shareholders’ meeting. When any shareholder is required to abstain from voting on any particular resolution or restricted to voting only for or against any particular resolution under the Rules Governing the Listing of Securities on the Stock Exchange Hong Kong Limited, or the HKSE Listing Rules, any votes cast by or on behalf of such shareholder in contravention of such requirement or restriction shall not be counted.
 
Shareholders are entitled to attend and vote at meetings either in person or by proxy. Proxies must be in writing and deposited at our legal address, or such other place as is specified in the meeting notice, not less than 24 hours before the time for holding the meeting at which the proxy proposes to vote or the time appointed for the passing of the relevant resolutions. When the instrument appointing a proxy is executed by the shareholder’sattorney-in-fact, such proxy when deposited must be accompanied by a notarially certified copy of the relevant power of attorney or other authority under which the proxy was executed.
 
Except for those actions discussed below which require supermajority votes, resolutions of the shareholders are passed by a simple majority of the voting shares held by shareholders who are present in person or by proxy. Special resolutions must be passed by more than two-thirds of the voting rights represented held by shareholders who are present in person or by proxy.
 
The following decisions must be adopted by special resolution:
 • an increase or reduction of our share capital or the issue of shares of any class, warrants and other similar securities;
 
 • the issue of our debentures;
 
 • our division, merger, dissolution and liquidation;
 
 • amendments to our articles of association;


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• any purchase or sale of significant assets or any guarantee provided by our company within one year exceeding 30% of our most recent audited aggregate assets;
• stock incentive plans; and
 
 • any other matters required by applicable laws, administrative regulations or our articles of association, or considered by the shareholders in a general meeting and which they have resolved by way of an ordinary resolution to be of a nature which may have a material impact on us and should be adopted by special resolution.
 
All other actions taken by the shareholders, including the appointment and removal of our directors and independent auditors and the declaration of normal dividend payments or stock distributions, will be decided by an ordinary resolution of the shareholders.
 
In addition, certain amendments to the articles of association require the approval and consent of the relevant PRC authorities.
 Any shareholder resolution which is in violation
If any resolutions of our shareholders’ meetings or our board meetings violate any applicable laws or administrative regulations, of the PRCshareholders shall have the right to request competent courts to decide that such resolutions are invalid. If the procedures to convene any shareholders’ meetings or theany board meetings or any voting methods violate any applicable laws, administrative regulations or our articles of association, will be null and void.or any resolutions violate our articles of association, the shareholders shall, within 60 days from the adoption of such resolutions, have the right to request competent courts to cancel such resolutions.
Board of Directors
There are no limitations imposed by PRC law or our articles of association on the right of non-residents or foreign shareholders to hold or vote our company’s shares, other than limitations that would generally apply to all of the shareholders.
 
Board of Directors
Directors will be elected by shareholders at a general meeting. Because the shares do not have cumulative voting rights, a holder of a majority of our shares is able to elect all of the directors. Directors are elected for a term of not more than three years.

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Meetings of the board of directors shall be held at least four times every year and shall be convened by the Chairman of the board of directors, who shall notify all directors 14 days before each meeting.
 
Our board of directors is accountable to the shareholders in general meetings and exercises the following functions and powers to:
      (a) be responsible for the convening of shareholders’ meetings and reporting on its work to the shareholders at such meetings;
      (b) implement the resolutions passed by the shareholders in general meetings;
      (c) determine our business plans and investment proposals;
      (d) formulate our annual preliminary and final budgets;
      (e) formulate our profit distribution proposal and loss recovery proposals;
      (f) formulate proposals for the increase or reduction of our registered capital and the issuance of our debentures;
      (g) draw up plans for our merger, division or dissolution;
      (h) decide on our internal management structure;
      (i) appoint or remove our president and to appoint or remove the vice presidents and other senior officers, including the financial controller, based on the recommendation of the general manager, and to decide on their remuneration;
      (j) formulate our basic management system;
      (k) formulate proposals for any amendment of our articles of association; and
      (l) exercise any other powers conferred by the shareholders in general meetings.
(a) be responsible for the convening of shareholders’ meetings and reporting on its work to the shareholders at such meetings;
 
(b) implement the resolutions passed by the shareholders in general meetings;
(c) determine our business plans and investment proposals;
(d) formulate our annual preliminary and final budgets;
(e) formulate our profit distribution proposal and loss recovery proposals;
(f) formulate proposals for the increase or reduction of our registered capital and the issuance of our debentures or other securities and listings;
(g) draw up plans for our acquisition of our shares or our merger, division or dissolution, or change of our corporation form;
(h) decide on our internal management structure;
(i) appoint or remove our president and to appoint or remove the vice presidents and other senior officers, including the financial controller, based on the recommendation of the general manager, and to decide on their remuneration;


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(j) formulate our basic management system;
(k) formulate proposals for any amendment of our articles of association;
(l) manage the information disclosures of our company; and
(m) exercise any other powers conferred by the shareholders in general meetings.
Except for items (f), (g) and (k), which require the affirmative vote of more than two-thirds of all of our directors, resolutions on any other items may be approved by the affirmative vote of a simple majority of our directors.
 
A director shall abstain from voting on any resolutions of the board of directors ifhe/she or any ofhis/her associates or the relevant significant shareholder is interested therein, andhe/she shall not be counted in the quorum of the directors for such meetings. The board of directors shall transact its businesses by convening a board meeting instead of by circulation of papers. If an independent non-executive director or any of its associates does not have any significant interest in the matters to be resolved in a board meeting,he/she shall attend the board meeting. For purpose of this paragraph, the relevant significant shareholder and the associate herein hashave the same meaning ascribed to it in the HKSE Listing Rules. If any listing rules of other stock exchanges on which our stocks listed have stricter stipulations on the abstention of voting by directors, then such stipulations shall be followed.
 
In addition to obligations imposed by laws, administrative regulations or the listing rules of the stock exchanges on which our H sharesShares are listed, the articles of association place on each of our directors, supervisors, president, senior vice presidents, vice presidents and any other senior officers a duty to each shareholder, in the exercise of our functions and powers entrusted to such person:
 • not to cause us to exceed the scope of business stipulated in our business license;
 
 • to act honestly in our best interests;
 
 • not to expropriate our property in any way, including, without limitation, usurpation of opportunities which benefit us; and

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 • not to expropriate the individual rights of shareholders, including, without limitation, rights to distributions and voting rights, save and except according to a restructuring which has been submitted to the shareholders for their approval in accordance with the articles of association.
 
Our articles of association further place on each of our directors, supervisors, president, vice presidents and senior officers:
 • a duty, in the exercise of such person’s powers and discharge of such person’s duties, to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances;
 
 • a fiduciary obligation, in the exercise of our powers entrusted to him or her, not to place himself or herself in a position where his or her duty to us and his or her interests may conflict; and
 
 • a duty not to direct a person or entity related or connected to a director, supervisor, president, vice president or senior officer in certain relationships enumerated in the articles of association to act in a manner which such director, supervisor, president, vice president or senior officer is prohibited from doing.
 
Subject to compliance with all relevant laws and administrative regulations, the shareholders in a general meeting may by ordinary resolution remove any director before the expiration of his term of office. Subject to certain qualifications, a director, supervisor, president, vice president or other senior officer may be relieved of liability for a specific breach of his or her duties by the informed consent of shareholders in a general meeting.
Supervisory Board of Supervisors
 
The Supervisory board of supervisors is composed of sevennine members appointed to monitor our financial matters:
• to review the periodic reports prepared by the board of directors and issue written opinions in connection with such review;


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 • to verify financial reports and other financial information which have been prepared by the board and which are proposed to be presented at shareholders’ meetings, andmeetings;
 
 • to oversee our directors, president, vice presidents and other senior officers in order to prevent such persons from abusing their authority or infringing upon our interest.interest; and
• to contact with the directors on behalf of our company, or bring lawsuits against the directors, president, senior vice president, vice president, chief financial officer or any other executive officers pursuant to Article 152 of the PRC Company Law.
 
The rights of the supervisory board of supervisors are generally limited to investigating and reporting to shareholders and management on our affairs and to calling shareholders’ extraordinary general meetings.
 One member
At least one third of the boardmembers of supervisorsthe supervisory board will be an employee representative appointedrepresentatives elected by our employees. The remaining members will be appointed by the shareholders in a general meeting. One member of the supervisory board of supervisors shall be the chairman. A member of the supervisory board of supervisors may not be a director, the president, a vice president or the chief financial officer. The term of office of each member of the supervisory board of supervisors is three years, including the term of office of the chairman of the supervisory board, of supervisors, both of which terms of office are renewable upon re-election and re-appointment. Reasonable expenses incurred by the supervisory board of supervisors in carrying out its duties will be paid by us.
 
The supervisory board of supervisors is accountable, and will report, to the shareholders in the shareholders’ general meetings.
Restrictions on Large or Controlling Shareholders
Restrictions on Large or Controlling Shareholders
 
Our articles of association provide that, in addition to any obligation imposed by laws and administrative regulations or required by the listing rules of the stock exchanges on which our

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H sharesShares are listed, a controlling shareholder shall not exercise his voting rights in a manner prejudicial to the interests of the shareholders generally or of some part of the shareholders:
 • to relieve a director or supervisor from his or her duty to act honestly in our best interests;
 
 • to approve the expropriation by a director or supervisor of our assets in any way, including, without limitation, opportunities which may benefit us; or
 
 • to approve the expropriation by a director or supervisor of the individual rights of other shareholders, including, without limitation, rights to distributions and voting rights, except according to a restructuring of our company which has been submitted for approval by the shareholders in a general meeting in accordance with our articles of association.
 
A controlling shareholder, however, will not be precluded by our articles of association or any laws and administrative regulations or the listing rules of the stock exchanges on which our H sharesShares are listed from voting on these matters.
 
A controlling shareholder is defined by our articles of association as any person who acting alone or in concert with others:
 • is in a position to elect more than one-half of the board of directors;
 
 • has the power to exercise, or to control the exercise of, 30% or more of our voting rights;
 
 • holds 30% or more of our issued and outstanding shares; or
 
 • has de facto control of us in any other way.
Amended Articles
On May 15, 2008, our annual shareholders’ meeting for 2007 approved certain amendments to our articles of Association Pending for Approvalassociation. Those amendments were approved by the State-owned Assets Supervision and Administration Commission on October 24, 2008.


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Material Contracts
 In November 2006, our shareholders approved our amended articles of association at the annual general meeting of shareholders, which is subject to the applicable regulatory approval and filing before they become effective. Accordingly, we are still governed by our current articles of association in effect.
We expect the approval for our amended articles of association to be granted in due course.
      The amended articles of association purports to expand our business scope to allow us to operate convenient stores in service stations and provide related services.
Share Capital Structure
      Upon the completion of our company’s global initial public offering, the aggregate number of common shares of our company was 175,824,176,000, of which the promoter CNPC held 158,241,758,000 shares, representing 90% of our total share capital at the time, and H shareholders held 17,582,418,000 shares, representing 10% of our total share capital at the time.
      On September 15, 2005, our company issued 3,196,801,818 new shares. Concurrently CNPC sold 319,680,182 state-owned shares it held. Following these transactions, the share capital structure of our company changed to the following: the number of common shares is 179,020,977,818, of which CNPC holds 157,922,077,818 shares, representing 88.21% of the total share capital, and H shareholders hold 21,098,900,000 shares, representing 11.79% of the total share capital.
Material Contracts
      The followinghave not entered into any material contracts not being contractsother than in the ordinary course of business have been entered into by our company and/and other than those described under Item 4 — Information on the Company, Item 7 — Major Shareholders and Related Party Transactions or its subsidiaries within the two years preceding the date ofelsewhere in this Form annual report and are or may be material.report.

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• Share Purchase Agreement in respect of the shares of PetroKazakhstan, dated August 23, 2006, between Pervinage Holding B.V. (a wholly-owned subsidiary of CNPC E&D) and 819 Luxembourg S. a r. l. (an indirect wholly-owned subsidiary of CNPC);
• Capital Contribution Agreement, dated June 9, 2005, among China National Oil and Gas Exploration and Development Corporation, Central Asia Petroleum Company Limited, Zhong You Kan Tan Kai Fa Company Limited and our company (English Translation); and
• Transfer Agreement, dated June 9, 2005, between Zhong You Kan Tan Kai Fa Company Limited and our company (English Translation).
Foreign Exchange Controls
 
The Renminbi currently is not a freely convertible currency. We receive most of our revenues in Renminbi. A portion of our Renminbi revenues must be converted into other currencies to meet our foreign currency obligations. We have substantial requirements for foreign currency,obligations, including:
 • debt service on foreign currency-denominated debt;
 
 • purchases of imported equipment and materials; and
 
 • payment of any dividends declared in respect of the H shares.Shares.
 
Under the existing foreign exchange regulations in China, we may undertake current account foreign exchange transactions, including the payment of dividends, without prior approval from the State Administration of Foreign Exchange by producing commercial documents evidencing such transactions, provided that they are processed through Chinese banks licensed to engage in foreign exchange transactions. The PRC government has stated publicly that it intends to make the Renminbi freely convertible in the future. However, uncertainty exists as to whether the PRC government may restrict access to foreign currency for current account transactions if foreign currency becomes scarce in the PRC.
 
Foreign exchange transactions under the capital account, including principal payments with respect to foreign currency-denominated obligations, continue to be subject to limitations and require the prior approval of the State Administration of Foreign Exchange. These limitations could affect our ability to obtain foreign exchange through debt financing, or to obtain foreign exchange for capital expenditures.
 
We have been, and will continue to be, affected by changes in exchange rates in connection with our ability to meet our foreign currency obligations and will be affected by such changes in connection with our ability to pay dividends on the H sharesShares in Hong Kong dollars and on ADSs in USU.S. dollars. We believe that we have or will be able to obtain sufficient foreign exchange to continue to satisfy these obligations. We do not engage in any financial contract or other arrangement to hedge our currency exposure.
 
We are not aware of any other PRC laws, decrees or regulations that restrict the export or import of capital or that affect the remittance of dividends, interest or other payments to non-resident holders.
Taxation
 
The following discussion addresses the main PRC and United States tax consequences of the ownership of H sharesShares or ADSs purchased held by the investor as capital assets.

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PRC Taxation
Dividends and Individual Investors
Dividends and Individual Investors
 Under the Provisional Regulations of China Concerning Questions of Taxation on Enterprises Experimenting with the Share System (the “Provisional Regulations”) and other applicable tax laws and regulations, dividends paid by PRC companies on shares experimenting with the share system to individuals are generally subject to a PRC withholding tax of 20%. However, on
On July 21, 1993, the PRC State Administration of Taxation issued theNotice Concerning the Taxation of Gains on Transfer and Dividends from Shares (Equities) Received by Foreign Investment Enterprises, Foreign Enterprises and Foreign Individuals (the “Tax Notice”). UnderAccording to the Tax Notice, dividends paid by a PRC company to foreign personsindividuals with respect to shares listed on an overseas stock exchange (“Overseas Shares”), including the H sharesShares and ADSs, are not subject towere provisionally exempted from PRC withholding tax for the time being.
 
The first amendment to theIndividual Income Tax Law of the PRC was amendedbecame effective on January 1, 1994 and states that it supersedes any contradictory prior administrative regulation concerning individual income tax. The amended Individual Income Tax Law can be interpreted as providing that all foreign individuals are subject to the 20% withholding tax on dividends paid by a PRC company on its Overseas Shares unless specifically exempted by the financial authority of the State Council of the PRC. However, in a letter dated July 26, 1994 to the former State Commission for Restructuring the Economic System, the former State Council Securities Committee and the China


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Securities Regulatory Commission, the PRC State Administration of Taxation restated the exemption. In the event that the letter is withdrawn, a 20% tax may be withheld on dividends paid to you, subject to reduction by an applicable tax treaty between China and the country where you reside. To date, the relevant tax authorities have not collected withholding tax from dividend payments on such sharesShares exempted under the Tax Notice.
Dividends and Foreign Enterprises
Dividends and Foreign Enterprises
 According
Prior to January 1, 2008, on which theEnterprise Income Tax Law of the Provisional Regulations and other applicable tax laws and regulations,PRCbecame effective, dividends paid by a PRC companiescompany to foreign enterprises are ordinarily subjectwith respect to aOverseas Shares were provisionally exempted from PRC withholding tax levied at a flat rate of 20%. However,FEIT according to the Tax Notice,Notice.
Pursuant to theEnterprise Income Tax Law of the PRCwhich is effective from January 1, 2008 and the implementing rules thereunder, and theCircular on Issues Concerning the Withholding of Corporate Income Tax by PRC Resident Enterprises from Dividends Payable to H Share Non-resident Corporate Shareholders, or the Circular, each PRC resident enterprise, when paying any of its H share non-resident corporate shareholders any dividends for 2008 and the years thereafter, is required to withhold the corporate income tax from such dividends at a foreign enterprise with no permanent establishment in China receivinguniform rate of 10%. After its receipt of any dividends paid on Overseas Shares will temporarily not be subjectits H shares, an H share non-resident corporate shareholder may by itself or through an agent or the withholding agent, apply to the 20% withholding tax. Ifcompetent taxation authority for the treatment under the applicable tax treaty (arrangement) against the documents evidencing that such withholdingshareholder is qualified to be a beneficial owner as defined under the applicable tax becomes applicabletreaty (arrangement). The competent tax authority after having verified the correctness of such documents, shall refund the difference between the amount of the tax actually paid by such shareholder and the amount of the tax payable by such shareholder as calculated on the basis of the rate stipulated in the future, such rate may still be reduced under relevantapplicable tax treaties, if applicable.treaty (arrangement).
Tax Treaties
Tax Treaties
 
If you are a tax resident or citizen of a country that has entered into a double-taxation treaty with the PRC, you may be entitled to a reduction in the amount of tax withheld, if any, imposed on the payment of dividends. The PRC currently has such treaties with a number of countries, including but not limited to:
 • the United States;
 
 • Australia;
 
 • Canada;
 
 • France;
 
 • Germany;
 
 • Japan;
 
 • Malaysia;
 
 • Singapore;

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 • the United Kingdom; and
 
 • the Netherlands.
 
Under each one of suchcertain treaties, the rate of withholding tax imposed by China’s taxation authorities is generallymay be reduced. For example,Pursuant to theMeasures for the Administration of the Enjoyment by Non-residents of the Treatments under the double taxation treaty between China andTax Treaties(Trial) promulgated by the United States, China mayState Administration of Taxation on August 24, 2009, non-PRC resident are required to apply for approval or filing in order to claim any benefit under tax dividends paid by ustreaties.
Capital Gains
The fifth amendment to an eligible U.S. holder up to a maximum of 10% of their gross amount. Under the treaty, an eligible U.S. holder is a person who, by reason of domicile, residence, place or head office, place of incorporation or any other criterion of similar nature is subject to taxation in the United States, as applicable under the treaty’s “treaty shopping provisions”.
Capital Gains
      The Tax Notice provides that gains realized by foreign enterprises upon the sale of Overseas Shares which are not held by entities established by such enterprises in the PRC and gains realized by foreign individuals upon the sale of Overseas Shares are not subject to withholding tax for the time being. However, as far as individuals are concerned, the Individual Income Tax Law of the PRC, as amended on October 31, 1993 andwhich became effective on JanuaryMarch 1, 1994,2008, provides for a capital gainsgain tax of 20% on individuals. On January 28, 1994, the TheProvisions for Implementing the Individual Income Tax Law of the PRC was promulgated whichas amended on February 18, 2008, provides that the measures to levy individual income tax on the


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gains realized on the sale of shares will be made in the future by the Ministry of Finance and subject to the approval of the State Council. However, the Tax Notice provides that gains realized by foreign individuals upon the sale of Overseas Shares are not subject to withholding tax for the time being. On June 20, 1994, February 9, 1996 and March 30, 1998, the Ministry of Finance and the State Administration of Taxation issued notices providing that temporarily no capital gains tax will be imposed on gains from the sale of shares by individuals. However, it is uncertain whether the above exemption for foreign enterprises and foreign individuals will continue to apply or be renewed in the future. If such exemption does not apply or is not renewed, and the Tax Notice is found not to apply, as aan individual holder of H sharesShares or ADSs you may be subject to a 20% tax on capital gains, unless reduced by an applicable double taxation treaty.
Additional PRC Tax Considerations
Before the effectiveness of the new Enterprise Income Tax Law, gains realized by foreign enterprises that are holders of Overseas Shares excluding the shares held through their PRC domestic establishments were exempted from the withholding tax according to the Tax Notice. However, theCircular of the Ministry of Finance and the State Administration of Taxation concerning Several Preferential Policies for Enterprise Income Tax(Cai Shui [2008] No.) promulgated on February 22, 2008 provides that, other than those preferential policies specially stipulated thereunder, any other preferential policies concerning enterprise income tax that were implemented prior to January 1, 2008 shall all be repealed. The Tax Notice does not fall into the category of preferential policies defined under theCircular of the Ministry of Finance and the State Administration of Taxation concerning Several Preferential Policies for Enterprise Income Tax.
 
Under the Enterprise Income Tax Law that became effective on January 1, 2008, capital gains realized by foreign enterprises which are non-resident enterprises in the PRC upon the sale of Overseas Shares are generally subject to a PRC withholding tax levied at a rate of 10%, unless exempted or reduced pursuant to an applicable double-taxation treaty or other exemptions. Currently pursuant to theCircular of the State Administration of Taxation on Printing and Issuing the Interim Measures for Administration of Withholding at Source of Income Tax of Non-resident Enterprisespromulgated on January 9, 2009, where both parties to the transaction of equity transfer are non-resident enterprises and such transaction is conducted outside the territory of PRC, the non-resident enterprise that receives incomes shall, by itself or through its agent, declare and pay tax to the competent tax authority in the place where the Chinese enterprise whose equities have been transferred is located.
Additional PRC Tax Considerations
Under the Provisional Regulations of the People’s Republic of China Concerning the Stamp Duty, a stamp duty is not imposed by the PRC on the transfer of shares, such as the H sharesShares or ADSs, of PRC publicly traded companies that take place outside of China.
United States Federal Income Taxation
 
The following is a general discussion of the material United States federal income tax consequences of purchasing, owning and disposing of the H sharesShares or ADSs if you are a U.S. holder, as defined below, and hold the H sharesShares or ADSs as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended, or the Code. This discussion does not address all of the tax consequences relating to the purchase, ownership and disposition of the H sharesShares or ADSs, and does not take into account U.S. holders who may be subject to special rules including:
 • tax-exempt entities;
 
 • certain insurance companies;
 
 • broker-dealers;
 
 • traders in securities that elect to mark to market;
 
 • U.S. holders liable for alternative minimum tax;
 
 • U.S. holders that own 10% or more of our voting stock;

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 • U.S. holders that hold the H sharesShares or ADSs as part of a straddle or a hedging or conversion transaction; or
 
 • U.S. holders whose functional currency is not the U.S. dollar.


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This discussion is based on the Code, its legislative history, final, temporary and proposed United States Treasury regulations promulgated thereunder, published rulings and court decisions as in effect on the date hereof, all of which are subject to change, or changes in interpretation, possibly with retroactive effect. In addition, this discussion is based in part upon representations of the depositary and the assumption that each obligation in the deposit agreement and any related agreements will be performed according to its terms.
 
You are a “U.S. holder” if you are:
 • a citizen or resident of the United States for United States federal income tax purposes;
 
 • a corporation, or other entity treated as a corporation for United States federal income tax purposes, created or organized under the laws of the United States or any political subdivision thereof;
 
 • an estate the income of which is subject to United States federal income tax without regard to its source; or
 
 • a trust:
  —• subject to the primary supervision of a United States court and the control of one or more United States persons; or
 
  —• that has elected to be treated as a United States person under applicable United States Treasury regulations.
 
If a partnership holds the H sharesShares or ADSs, the tax treatment of a partner generally will depend on the status of the partner and the activities of the partnership. If you are a partner of a partnership that holds the H sharesShares or ADSs, we urge you to consult your tax advisors regarding the consequences of the purchase, ownership and disposition of the H sharesShares or ADSs.
 
This discussion does not address any aspects of United States taxation other than federal income taxation.
 
We urge you to consult your tax advisors regarding the United States federal, state, local andnon-United States tax consequences of the purchase, ownership and disposition of the H sharesShares or ADSs.
 
In general, if you hold ADRsAmerican depositary receipts evidencing ADSs, you will be treated as the owner of the H sharesShares represented by the ADSs. The following discussion assumes that we are not a passive foreign investment company, or PFIC, as discussed under “PFIC Rules” below.
Distributions on the H Shares or ADSs
Distributions on the H Shares or ADSs
 
The gross amount of any distribution (without reduction for any PRC tax withheld) we make on the H sharesShares or ADSs out of our current or accumulated earnings and profitsincome (as determined for United States federal income tax purposes) will be includible in your gross income as dividend income when the distribution is actually or constructively received by you, in the case of the H shares,Shares, or by the depositary in the case of ADSs. Subject to certain limitations, dividends paid for taxable years beginning prior to January 1, 2011 to non-corporate U.S. holders, including individuals, may be eligible for a reduced rate of taxation if we are deemed to be a “qualified foreign corporation” for United States federal income tax purposes. A qualified foreign corporation includes:
 • a foreign corporation that is eligible for the benefits of a comprehensive income tax treaty with the United States that includes an exchange of information program; or

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 • a foreign corporation if its stock with respect to which a dividend is paid (or ADSs backed by such stock) is readily tradable on an established securities market within the United States,
but does not include an otherwise qualified foreign corporation that is a PFIC.PFIC in the taxable year that the dividend is paid or in the prior taxable year. We believe that we will be a qualified foreign corporation so long as we are not a PFIC and we are considered eligible for the benefits of the Agreement between the Government of the United States of America and the Government of the People’s Republic of China for the Avoidance of Double Taxation and the Prevention of Tax Evasion with Respect to Taxes on Income, or the Treaty. Our status as a qualified foreign corporation, however, may change.


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Distributions that exceed our current and accumulated earnings and profits will be treated as a return of capital to you to the extent of your basis in the H sharesShares or ADSs and thereafter as capital gain. Any dividend will not be eligible for the dividends-received deduction generally allowed to United States corporations in respect of dividends received from United States corporations. The amount of any distribution of property other than cash will be the fair market value of such property on the date of such distribution.
 
If we make a distribution paid in HK dollars, you will be considered to receive the U.S. dollar value of the distribution determined at the spot HK dollar/ U.S. dollar rate on the date such distribution is received by you or by the depositary, regardless of whether you or the depositary convert the distribution into U.S. dollars. Any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend payment is includible in your income to the date you or the depositary convert the distribution into U.S. dollars will be treated as United States source ordinary income or loss for foreign tax credit limitation purposes.
 
Subject to various limitations, any PRC tax withheld from distributions in accordance with PRC law, as limited by the Treaty, will be deductible or creditable against your United States federal income tax liability. For foreign tax credit limitation purposes, dividends paid on the H sharesShares or ADSs will be foreign source income, and for taxable years beginning on or before December 31, 2006, generally will be treated as “passive income” or, in the case of some U.S. holders, “financial services income.” For taxable years beginning after December 31, 2006, such dividends generally will be treated as “passive category income” or, in the case of some U.S. holders, “general category income.” You may not be able to claim a foreign tax credit (and instead may claim a deduction) fornon-United States taxes imposed on dividends paid on the H Shares or ADSs if you (i) have held the H Shares or ADSs for less than a specified minimum period during which you are not protected from risk of loss with respect to such shares,Shares, or (ii) are obligated to make payments related to the dividends (for example, pursuant to a short sale).
Sale, Exchange or Other Disposition
Sale, Exchange or Other Disposition
 
Upon a sale, exchange or other disposition of the H sharesShares or ADSs, you will recognize a capital gain or loss for United States federal income tax purposes in an amount equal to the difference between the U.S. dollar value of the amount realized and your tax basis, determined in U.S. dollars, in such H sharesShares or ADSs. Any gain or loss will generally be United States source gain or loss for foreign tax credit limitation purposes. Capital gain of certain non-corporate U.S. holders, including individuals, is generally taxed at a maximumreduced rate of 15% where the property has been held more than one year. Your ability to deduct capital losses is subject to limitations. If any PRC tax is withheld from your gain on a disposition of H Shares or ADSs, such tax would only be creditable against your United States federal income tax liability to the extent that you have foreign source income. However, in the event that such PRC tax is withheld, a U.S. holder that is eligible for the benefit of the Treaty may be able to treat the gain as foreign source income for foreign tax credit satisfaction purposes. You are urged to consult your tax advisors regarding the United States federal income tax consequences if PRC tax is withheld from your gain on the sale or other disposition of H Shares or ADSs, including the availability of a foreign tax credit under your particular circumstances.
 
If you are paid in a currency other than U.S. dollars, any gain or loss resulting from currency exchange fluctuations during the period from the date of the payment resulting from sale, exchange or other disposition to the date you convert the payment into U.S. dollars will be treated as United States source ordinary income or loss for foreign tax credit limitation purposes.

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PFIC Rules
 
PFIC Rules
In general, a foreign corporation is a PFIC for any taxable year in which, after applying relevant look-through rules with respect to the income and assets of subsidiaries:
 • 75% or more of its gross income consists of passive income, such as dividends, interest, rents and royalties; or
 
 • 50% or more of the average quarterly value of its assets consists of assets that produce, or are held for the production of, passive income.
 
We believe that we did not meet either of the PFIC tests in the taxable year that ended December 31, 2009 and believe that we will not meet either of the PFIC tests in the current or subsequent taxable years and therefore will not be


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treated as a PFIC for such periods. However, there can be no assurance that we will not be a PFIC in the current or subsequent taxable years.
 
If we were a PFIC in any taxable year that you held the H sharesShares or ADSs, you generally would be subject to special rules with respect to “excess distributions” made by us on the H sharesShares or ADSs and with respect to gain from your disposition of the H sharesShares or ADSs. An “excess distribution” generally is defined as the excess of the distributions you receive with respect to the H sharesShares or ADSs in any taxable year over 125% of the average annual distributions you have received from us during the shorter of the three preceding years or your holding period for the H sharesShares or ADSs. Generally, you would be required to allocate any excess distribution or gain from the disposition of the H sharesShares or ADSs ratably over your holding period for the H sharesShares or ADSs. The portion of the excess distribution or gain allocated to a prior taxable year, other than a year prior to the first year in which we became a PFIC, would be taxed at the highest United States federal income tax rate on ordinary income in effect for such taxable year, and you would be subject to an interest charge on the resulting tax liability, determined as if the tax liability had been due with respect to such particular taxable years. The portion of the excess distribution or gain that is not allocated to prior taxable years, together with the portion allocated to the years prior to the first year in which we became a PFIC, would be included in your gross income for the taxable year of the excess distribution or disposition and taxed as ordinary income.
 
The foregoing rules with respect to excess distributions and dispositions may be avoided or reduced if you are eligible for and timely make a valid“mark-to “mark-to -market” election. If your H sharesShares or ADSs were treated as shares regularly traded on a “qualified exchange” for United States federal income tax purposes and a validmark-to-market election was made, in calculating your taxable income for each taxable year you generally would be required to take into account as ordinary income or loss the difference, if any, between the fair market value and the adjusted tax basis of your H sharesShares or ADSs at the end of your taxable year. However, the amount of loss you would be allowed is limited to the extent of the net amount of previously included income as a result of themark-to-market election. The New York Stock Exchange on which the ADSs are traded is a qualified exchange for United States federal income tax purposes.
 
Alternatively, a timely election to treat us as a qualified electing fund under Section 1295 of the Code could be made to avoid the foregoing rules with respect to excess distributions and dispositions. You should be aware, however, that if we become a PFIC, we do not intend to satisfy record keeping requirements that would permit you to make a qualified electing fund election.
 
If you own the H sharesShares or ADSs during any year that we are a PFIC, you must file Internal Revenue Service, or IRS, Form 8621.8621 for each taxable year in which you recognize gain, receive distributions, or make a reportable election with respect to such H Shares or ADSs, and file any such other form as is required by the United States Treasury Department. We encourage you to consult your own tax advisor concerning the United States federal income tax consequences of holding the H sharesShares or ADSs that would arise if we were considered a PFIC.
Backup Withholding and Information Reporting
Backup Withholding and Information Reporting
 
In general, information reporting requirements will apply to dividends in respect of the H sharesShares or ADSs or the proceeds of the sale, exchange, or redemption of the H sharesShares or ADSs paid within

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the United States, and in some cases, outside of the United States, other than to various exempt recipients, including corporations. In addition, you may, under some circumstances, be subject to “backup withholding” with respect to dividends paid on the H sharesShares or ADSs or the proceeds of any sale, exchange or transfer of the H sharesShares or ADSs, unless you
 • are a corporation or fall within various other exempt categories, and, when required, demonstrate this fact; or
 
 • provide a correct taxpayer identification number on a properly completed IRSForm W-9 or a substitute form, certify that you are exempt from backup withholding and otherwise comply with applicable requirements of the backup withholding rules.
 
Any amount withheld under the backup withholding rules generally will be creditable against your United States federal income tax liability provided that you furnish the required information to the IRS in a timely manner. If you do not provide a correct taxpayer identification number you may be subject to penalties imposed by the IRS.


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Significant Differences in Corporate Governance PracticesRecent Legislative Developments
 We have filed a summary
Newly enacted legislation requires certain U.S. holders who are individuals, estates or trusts to pay up to an additional 3.8% tax on, among other things, dividends and capital gains for taxable years beginning after December 31, 2012. In addition, for taxable years beginning after March 18, 2010, new legislation requires certain U.S. holders who are individuals that hold certain foreign financial assets (which may include the H Shares or ADSs) to report information relating to such assets, subject to certain exceptions. You should consult your own tax advisors regarding the effect, if any, of this legislation on your ownership and disposition of the significant differences in our corporate governance practices for purposes of Section 303A.11 of the New York Stock Exchange Listed Company Manual with the Commission as an exhibit to this annual report on Form 20-F and have disclosed the same on our website,www.petrochina.com.cn, which may be accessed as follows:H Shares or ADSs.
1. From our main web page, first click on “Investor Relations”.
2. Next, click on “Corporate Governance Structure”.
3. Finally, click on “Significant Differences In Corporate Governance Practices For Purposes Of Section 303A.11 of The New York Stock Exchange Listed Company Manual”.
Documents on Display
 
You may read and copy documents referred to in this annual report onForm 20-F that have been filed with the U.S. Securities and Exchange Commission at the Commission’s public reference room located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the Commission at1-800-SEC-0330 for further information on the public reference rooms and their copy charges.
 
The Commission allows us to “incorporate by reference” the information we file with the Commission. This means that we can disclose important information to you by referring you to another document filed separately with the Commission. The information incorporated by reference is considered to be part of this annual report onForm 20-F.

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ITEM 11 —QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
In the normal course of business, we hold or issue various financial instruments which expose us to interest rate and foreign exchange rate risks. Additionally, our operations are affected by certain commodity price movements. We historically have not used derivative instruments for hedging or trading purposes. Such activities are subject to policies approved by our senior management. Substantially all of the financial instruments we hold are for purposes other than trading. We regard an effective market risk management system as an important element of our treasury function and are currently enhancing our systems. A primary objective of our market risk management is to implement certain methodologies to better measure and monitor risk exposures.
 
The following discussions and tables, which constitute “forward-looking statements” that involve risks and uncertainties, summarize our market-sensitive financial instruments including fair value, maturity and contract terms. Such discussions address market risk only and do not present other risks which we face in the normal course of business.
Interest Rate Risk
 
Our interest risk exposure arises from changing interest rates. The tables below provide information about our financial instruments including various debt obligations that are sensitive to changes in interest rates. The tables present principal cash flows and related weighted-average interest rates at expected maturity dates. Weighted-average variable rates are based on effective rates as of December 31, 2004, 20052007, 2008 and 2006.2009. The information is presented in Renminbi equivalents, our reporting currency.
Foreign Exchange Rate Risk
 
We conduct our business primarily in Renminbi. However, a portion of our RMB revenues are converted into other currencies to meet foreign currency financial instrument obligations and to pay for imported equipment, crude oil and other materials. Foreign currency payments for imported equipment represented 18.6%13.6%, 29.1%5.8% and 33.6%5.0% of our total payments for equipment in 2004, 20052007, 2008 and 20062009 respectively. Foreign currency payments for imported crude oil and other materials represented 9.6%1.9%, 3.4%2.8% and 5.5%1.4% of our total payments for materials in 2004, 20052007, 2008 and 20062009 respectively.
 
The Renminbi is not a freely convertible currency. Limitation in foreign exchange transactions imposed by the PRC government could cause future exchange rates to vary significantly from current or historical exchange rates.


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The tables below provide information about our financial instruments including foreign currency denominated debt instruments that are sensitive to foreign currency exchange rates. The tables below summarize such information by presenting principal cash flows and related weighted-average interest rates at expected maturity dates in RMB equivalents, using the exchange rates in effect as of December 31, 2004, 20052007, 2008 and 2006,2009, respectively.
December 31, 2009
                                     
                       Percentage
    
                       to Total
    
  Expected Maturity Date  Long-Term
  Fair
 
  2010  2011  2012  2013  2014  Thereafter  Total  Debt (%)  Value 
  (RMB equivalent in millions, except percentages) 
 
Long term debt
                                    
Loans in RMB                                    
Fixed rate  233   221   5560   —   —   26   6,040   6.06%  5,824 
Average interest rate  4.64%  4.78%  4.32%  —   —   2.91%  —   —   — 
Variable rate(1)
  11,306   135   68   33   552   6,045   18,139   18.19%  18,139 
Average interest rate  4.90%  5.38%  5.33%  5.40%  6.03%  3.07%  —   —   — 
Loans in Euros                                    
Fixed rate  16   16   16   16   15   113   192   0.19%  65 
Average interest rate  2.12%  2.12%  2.12%  2.12%  2.12%  2.11%  —   —   — 
Variable rate  —   —   —   —   —   —   —   —   — 
Average interest rate  —   —   —   —   —   —   —   —   — 
Loans in United States Dollars                                    
Fixed rate  37   37   37   37   37   1,225   1,410   1.41%  1,517 
Average interest rate  1.43%  1.43%  1.43%  1.43%  1.43%  5.95%  —   —   — 
Variable rate  2,456   9,632   1,580   83   8,287   2,735   24,733   24,85%  24,733 
Average interest rate  1.00%  1.95%  2.54%  1.91%  1.80   1.72%  —   —   — 
Loans in Japanese Yen                                    
Fixed rate  10   —   —   —   —   —   10   0.01%  10 
Average interest rate  2.42%  —   —   —   —   —   —   —   — 
Variable rate  —   —   —   —   —   —   —   —   — 
Average interest rate  —   —   —   —   —   —   —   —   — 
Debentures in United States Dollar                                    
Fixed Rate  171   171   —   —   —   294   636   0.64%  630 
Average interest rate  9.50%  9.50%  —   —   —   3.00%  —   —   — 
Debentures in RMB                                    
Fixed rate  —   2,000   —   1,500   —   —   3,500   3.51%  3,516 
Average interest rate  —   3.76%  —   4.11%  —   —   —   —   — 
Medium term note in RMB                                    
Fixed rate  —   —   30,000   —   15,000   —   45,000   45.14%  43,587 
Average interest rate  —   —   2.49%  —   3.35%  —   —   —   — 
Total  14,229   12,212   37,261   1,669   23,891   10,438   99,700   100.00%  98,061 
                                     


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December 31, 20062008
                                      
    Percentage  
  Expected maturity date to total  
    long-term Fair
  2007 2008 2009 2010 2011 Thereafter Total debt (%) value
                   
  (RMB equivalent in millions, except percentages)
Long term debt
                                    
Loan in RMB                                    
 Fixed rate  62   272           1       335   0.60%   320 
 Average interest rate  4.45%   3.83%   —   —   —   —   —   —   — 
 
Variable rate(1)
  13,740   7,280   5,220   1,142       7,590   34,972   62.17%   34,972 
 Average interest rate  5.21%   5.35%   4.64%   5.01%   —   5.07%   —   —   — 
Loan in Euro                                    
 Fixed rate  17   16   16   16   16   176   257   0.46%   214 
 Average interest rate  2.12%   2.12%   2.12%   2.12%   2.12%   2.11%   —   —   — 
 Variable rate  —   —   —   —   —   —   —   —   — 
 Average interest rate  —   —   —   —   —   —             
Loan in United States Dollar                                    
 Fixed rate  568   146   73   41   41   562   1,431   2.55%   1,200 
 Average interest rate  7.69%   5.12%   3.96%   1.43%   1.43%   1.39%   —   —   — 
 Variable rate  4,541   4,042   706   297   82   3,217   12,885   22.91%   12,885 
 Average interest rate  5.68%   6.81%   5.95%   5.79%   4.72%   5.77%   —   —   — 
Loan in British Pound                                    
 Fixed rate  49   —   —   —   —   —   49   0.09%   47 
 Average interest rate  2.85%   —   —   —   —   —   —   —   — 
Loan in Japanese Yen                                    
 Fixed rate  37   21   9   8           75   0.13%   78 
 Average interest rate  4.25%   3.40%   2.42%   2.42%   —   —   —   —   — 
 Variable rate  —   —   —   —   —   —   —   —   — 
 Average interest rate  —   —   —   —   —   —   —   —   — 
Debenture in United States Dollar                                    
 Fixed Rate  205   20   —   —   781   343   1,349   2.40%   1,403 
 Average interest rate  13.48%   15.00%   —   —   9.50%   3.00%   —   —   — 
Debenture in RMB                                    
 Fixed rate  1,388   —   —   —   2,000   1,500   4,888   8.69%   4,449 
 Average interest rate  4.49%   —   —   —   3.76%   4.11%   —   —   — 
                            
 Total  20,607   11,797   6,024   1,504   2,921   13,388   56,241   100.00%   55,568 
                            
                                     
                       Percentage
    
                       to Total
    
  Expected Maturity Date  Long-Term
  Fair
 
  2009  2010  2011  2012  2013  Thereafter  Total  Debt (%)  Value 
  (RMB equivalent in millions, except percentages) 
 
Long term debt
                                    
Loans in RMB                                    
Fixed rate  2   2   —   —   —   3   7   0.02%  5 
Average interest rate  0   7.47%  —   —   —   0   —   —   — 
Variable rate(1)
  5,220   11,351   274   20   —   6,000   22,865   59.59%  22,865 
Average interest rate  6.07%  5.51%  5.84%  6.20%  —   6.26%  —   —   — 
Loans in Euros                                    
Fixed rate  15   17   17   16   16   126   207   0.54%  147 
Average interest rate  2.11%  2.12%  2.12%  2.12%  2.12%  2.10%  —   —   — 
Variable rate  —   —   —   —   —   —   —   —   — 
Average interest rate  —   —   —   —   —   —   —   —   — 
Loans in United States Dollars                                    
Fixed rate  66   37   37   37   37   416   630   1.64%  367 
Average interest rate  3.88%  1.43%  1.43%  1.43%  1.43%  1.38%  —   —   — 
Variable rate  63   3,826   2,805   248   254   3,132   10,328   26.92%  10,328 
Average interest rate  2.36%  2.80%  2.88%  6.23%  6.15%  2.94%  —   —   — 
Loans in Japanese Yen                                    
Fixed rate  7   13   —   —   —   —   20   0.05%  19 
Average interest rate  2.42%  2.42%  —   —   —   —   —   —   — 
Variable rate  —   —   —   —   —   —   —   —   — 
Average interest rate  —   —   —   —   —   —   —   —   — 
Debentures in United States Dollars                                    
Fixed rate  171   171   171   —   —   301   814   2.12%  758 
Average interest rate  9.50%  9.50%  9.50%  —   —   3.00%  —   —   — 
Debentures in RMB                                    
Fixed rate  —   —   2,000   —   1,500   —   3,500   9.12%  3,262 
Average interest rate  —   —   3.76%  —   4.11%  —   —   —   — 
Total  5,544   15,417   5,304   321   1,807   9,978   38,371   100.00%  37,751 
                                     
December 31, 2007
                                     
                       Percentage
    
                       to Total
    
  Expected Maturity Date  Long-Term
  Fair
 
  2008  2009  2010  2011  2012  Thereafter  Total  Debt (%)  Value 
  (RMB equivalent in millions, except percentages) 
 
Long term debt
                                    
Loans in RMB                                    
Fixed rate  272   —   2   —   1   —   275   0.53%  254 
Average interest rate  3.83%  —   0   —   0   —   —   —   — 
Variable rate(1)
  7,280   5,220   11,182   10   20   8,700   32,412   62.45%  32,412 
Average interest rate  5.49%  5.07%  5.46%  6.89%  6.89%  5.84%  —   —   — 
Loans in Euros                                    
Fixed rate  16   16   16   16   16   167   247   0.48%  163 
Average interest rate  2.12%  2.12%  2.12%  2.12%  2.12%  2.10%  —   —   — 
Variable rate  —   —   —   —   —   —   —   —   — 
Average interest rate  —   —   —   —   —   —   —   —   — 


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December 31, 2005
                                     
                       Percentage
    
                       to Total
    
  Expected Maturity Date  Long-Term
  Fair
 
  2008  2009  2010  2011  2012  Thereafter  Total  Debt (%)  Value 
  (RMB equivalent in millions, except percentages) 
 
Loans in United States Dollars                                    
Fixed rate  137   79   45   39   39   468   807   1.56%  539 
Average interest rate  5.25%  3.62%  1.44%  1.43%  1.43%  1.38%  —   —   — 
Variable rate  4,234   249   2,629   77   3,431   2,867   13,487   25.99%  13,487 
Average interest rate  4.92%  5.33%  5.07%  5.50%  7.40%  5.12%  —   —   — 
Loans in Japanese Yen                                    
Fixed rate  20   9   8   —   —   —   37   0.07%  36 
Average interest rate  3.40%  2.42%  2.42%  —   —   —   —   —   — 
Variable rate  —   —   —   —   —   —   —   —   — 
Average interest rate  —   —   —   —   —   —   —   —   — 
Debentures in United States Dollars                                    
Fixed rate  241   181   184   183   —   334   1,123   2.17%  1,123 
Average interest rate  10.83%  9.50%  9.50%  9.50%  —   3.30%  —   —   — 
Debentures in RMB                                    
Fixed rate  —   —   —   2,000   —   1,500   3,500   6.75%  2,981 
Average interest rate  —   —   —   3.76%  —   4.11%  —   —   — 
                                     
Total  12,200   5,754   14,066   2,325   3,507   14,036   51,888   100.00%  50,995 
                                     
                                      
    Percentage  
  Expected maturity date to total  
    long-term Fair
  2006 2007 2008 2009 2010 Thereafter Total debt (%) value
                   
  (RMB equivalent in millions, except percentages)
Long term debt
                                    
Loan in RMB                                    
 Fixed rate  —   66   274   —   —   1   341   0.57%   323 
 Average interest rate  1.53%   4.18%   3.80%   —   —   —             
 
Variable rate(1)
  9,128   13,740   6,390   100   911   6,000   36,269   60.54%   36,269 
 Average interest rate  5.18%   5.08%   5.12%   5.51%   4.77%   4.90%             
Loan in Euro                                    
 Fixed rate  16   16   16   16   15   177   256   0.43%   221 
 Average interest rate  2.11%   2.11%   2.11%   2.11%   2.11%   2.11%             
 Variable rate  —   —   —   —   —   —   —   —   — 
 Average interest rate  —   —   —   —   —   —             
Loan in United States Dollar                                    
 Fixed rate  409   621   142   74   43   624   1,913   3.19%   1,633 
 Average interest rate  6.26%   7.56%   5.02%   3.92%   1.43%   1.39%             
 Variable rate  5,508   2,497   4,371   2,293   79   1,649   16,397   27.38%   16,397 
 Average interest rate  5.60%   5.42%   5.99%   5.37%   2.69%   4.69%             
Loan in British Pound                                    
 Fixed rate  116   44   —   —   —   —   160   0.27%   156 
 Average interest rate  2.85%   2.85%   —   —   —   —             
Loan in Japanese Yen                                    
 Fixed rate  148   39   21   9   9   —   226   0.38%   242 
 Average interest rate  4.74%   4.84%   4.48%   5.02%   5.02%   —             
 Variable rate  —   —   —   —   —   —   —   —   — 
 Average interest rate  —   —   —   —   —   —             
Debenture in United States Dollar                                    
 Fixed rate  —   —   179   —   —   1,304   1,483   2.48%   1,509 
 Average interest rate  —   —   15%   —   —   8.25%             
Debenture in RMB                                    
 Fixed rate  —   1,350   —   —   —   1,500   2,850   4.76%   2,664 
 Average interest rate  —   —   —   —   —   4.11%             
                            
Total  15,325   18,373   11,393   2,492   1,057   11,255   59,895   100%   59,414 
                            

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December 31, 2004
                                      
    Percentage  
  Expected maturity date to total  
    long-term Fair
  2005 2006 2007 2008 2009 Thereafter Total debt (%) value
                   
  (RMB equivalent in millions, except percentages)
Long term debt
                                    
Loan in RMB                                    
 Fixed rate  1,021   221   100   200   —   1   1,543   2.43%   1,529 
 Average interest rate  4.57%   4.32%   4.25%   3.60%   —   6.10%             
 
Variable rate(1)
  12,234   6,366   13,718   4,440   100   4,500   41,358   65.01%   41,358 
 Average interest rate  5.08%   5.12%   4.85%   5.03%   5.18%   4.62%             
Loan in Euro                                    
 Fixed rate  36   35   17   17   17   238   360   0.57%   302 
 Average interest rate  5.47%   5.42%   2.13%   2.13%   2.13%   2.01%             
 Variable rate  —   —   —   —   —   —   —   —   — 
 Average interest rate  —   —   —   —   —   —             
Loan in United States Dollar                                    
 Fixed rate  480   406   586   169   103   693   2,437   3.83%   2,172 
 Average interest rate  6.46%   6.29%   7.57%   5.48%   4.50%   1.57%             
 Variable rate  4,868   2,817   2,442   960   2,725   482   14,294   22.47%   14,294 
 Average interest rate  3.78%   4.43%   3.41%   3.19%   3.41%   2.10%             
Loan in British Pound                                    
 Fixed rate  154   133   51   —   —   —   338   0.53%   326 
 Average interest rate  2.85%   2.85%   2.85%   —   —   —             
Loan in Japanese Yen                                    
 Fixed rate  170   167   43   24   9   17   430   0.68%   463 
 Average interest rate  4.63%   4.62%   4.84%   4.45%   5.02%   5.02%             
 Variable rate  —   —   —   —   —   —   —   —   — 
 Average interest rate  —   —   —   —   —   —             
Debenture in RMB                                    
 Fixed rate  —   —   1,350   —   —   1,500   2,850   4.48%   2,632 
 Average interest rate  —   —   4.50%   —   —   4.11%             
                            
Total  18,963   10,145   18,307   5,810   2,954   7,431   63,610   100%   63,076 
                            
 
(1)Due to the declining interest rates in recent years in China, the PRC government has implemented a program to adjust interest rates on certain fixed RMB loans periodically to reflect the market rates in effect published by the People’s Bank of China, or the PBOC, from time to time. As a result, these previously fixed RMB loans are categorized as variable rate loans as of December 31, 2004, 20052007, 2008 and 2006.2009. The newly adjusted rates usually become effective one year after the announcement by the PBOC. The average interest rates on these loans are calculated based on the then effective rates as of December 31, 2004, 20052007, 2008 and 2006,2009, respectively.
Commodity Price Risk
 
We are engaged in a broadwide range of petroleum related activities.petroleum-related activities and purchase certain quantity of oil from the international market to meet our demands. The hydrocarbon commodity markets are influenced by global as well as regional supply and demand conditions. We publish the prices of crude oil supplied to the domestic and foreign market on a monthly basis with reference to international prices of crude oil. A decline in prices of crude oil and refined products could adversely affect our financial performance. We historically have not used commodity derivative instruments to hedgein the potential price fluctuationsinternational market are affected by various factors such as changes in global and regional politics and economy, the demand and supply of crude oil and other refined products. Therefore, during 2007products, as well as unexpected events and years thereafter, we were exposeddisputes with international repercussions. The domestic crude oil price is determined with reference to the generalinternational price fluctuations of broadly tradedcrude oil and gas commodities.whereby the prices of domestic refined products were allowed to adjust more in line with the prices in the international crude oil market. Other than certain subsidiaries of our company, we generally do not use any derivative instruments to evade such price risks.

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129

ITEM 12 —DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
 Not applicable.
Fees paid by our ADS holders
The Bank of New York Mellon, the depositary of our ADS program, collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.
Persons Depositing or Withdrawing Shares Must Pay:
For:
$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property
Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates
$0.02 (or less) per ADSAny cash distribution to ADS registered holders
A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSsDistribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS registered holders
Registration or transfer feesTransfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares
Expenses of the depositaryCable, telex and facsimile transmissions (when expressly provided in the deposit agreement)
Converting foreign currency to U.S. dollars
Taxes and other governmental charges the depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxesAs necessary
Any charges incurred by the depositary or its agents for servicing the deposited securitiesAs necessary
Fees and Payments from the Depositary to Us
From January 1, 2009 to December 31, 2009, we received from the depositary a reimbursement of US$473,333.11, net of withholding tax, for our continuing annual stock exchange listing fees and our expenses incurred in connection with investor relationship programs. In addition, the depositary has agreed to reimburse us certain amount per year of the facility, including but not limited to, investor relations expenses or any other American depositary receipts program related expenses. The amount of such reimbursements is subject to certain limits.
PART II
ITEM 13 —DEFAULTS, DIVIDENDS ARREARAGES AND DELINQUENCIES
 
None.
ITEM 14 —MATERIAL MODIFICATIONS TO THE RIGHTS
TO SECURITY HOLDERS AND USE OF PROCEEDS
 
None.


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ITEM 15 —CONTROLS AND PROCEDURES
Evaluation of the Management on Disclosure Controls and Procedures
Evaluation of the Management on Disclosure Controls and Procedures
 
Our Chairman, who performs the functions of Chief Executive Officer, and our Chief Financial Officer, after evaluating the effectiveness of PetroChina’s disclosure controls and procedures (as defined in the United States Exchange ActRules 13a-15(e) and 15d(e)) as of the end of the period covered by this annual report, have concluded that, as of such date, our company’s disclosure controls and procedures were effective to ensure that material information required to be disclosed in the reports that we file and furnish under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and regulations.regulations and that such information is accumulated and communicated to our company’s management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Management’s Report on Internal Control over Financial Reporting
 
Our company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange ActRules 13a-15(f). Under the supervision and with the participation of our company’s management, including our principal executive officer and principal financial officer, our company evaluated the effectiveness of the its internal control over financial reporting based on criteria established in the framework inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our company’s management has concluded that its internal control over financial reporting was effective as of December 31, 2006.2009.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
 Our independent registered public accounting firm, PricewaterhouseCoopers (Certified Public Accountants, Hong Kong), has audited management’s assessment of the
The effectiveness of our company’s internal control over financial reporting as of December 31, 2006,2009 has been audited by PricewaterhouseCoopers (Certified Public Accountants, Hong Kong), our company’s independent registered public accountants, as stated in theirits report which is included elsewhereattached hereto.
Changes in this annual report.Internal Control over Financial Reporting
During the year ended December 31, 2009, there were no changes in the company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our company’s internal control over financial reporting.
ITEM 16A —AUDIT COMMITTEE FINANCIAL EXPERT
 
Our audit committee is composed of three non-executive independent directors, Messrs. Franco Bernabè, Chee-Chen Tung and Liu Hongru,Cui Junhui, and one non-executive director, Gong Huazhang.Wang Guoliang. See “Item 6 — Directors, Senior Management and Employees — Board Practices — Audit Committee”. Our board of directors has determined that Liu Hongru,Cui Junhui, our non-executive independent director is

130

qualifiedhas been confirmed as a “financial expert,” as defined in Item 16A ofForm 20-F. In June 2006, with the consent of the audit committee, we retained COSO Chairman, Dr. Larry E Rittenberg, as the financial advisor to our audit committee to give assistance with relevant work.
ITEM 16B —CODE OF ETHICS
 
We have adopted a Code of Ethics that applies to our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, other executives and senior officers and a separate Code of Ethics that applies to all of our employees. We have included these two Codes of Ethics as Exhibit 16.111.1 and Exhibit 16.211.2 to this annual report.
 
These two Codes of Ethics are also posted on our website,www.petrochina.com.cn,and may be accessed as follows:
1. From our main web page, first click on “Investor Relations”.
2. Next, click on “Corporate Governance Structure”.
3. Finally, click on “Code of Ethics for Senior Management” or “Code of Ethics for Employees of PetroChina Company Limited”.
1. From our main web page, first click on “Investor Relations”.
2. Next, click on “Corporate Governance Structure”.


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3. Finally, click on “Code of Ethics for Senior Management” or “Code of Ethics for Employees of PetroChina Company Limited”.
ITEM 16C —PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
PricewaterhouseCoopers (Certified Public Accountants, Hong Kong) has served as PetroChina’s independent registered public accountants for each of the fiscal years in the three-year period ended December 31, 2006,2009, for which audited financial statements appear in this annual report onForm 20-F. The auditors are elected annually at the annual general meeting of PetroChina.
 
The offices of PricewaterhouseCoopers (Certified Public Accountants, Hong Kong) are located at Prince’s Building, 22nd Floor, Central, Hong Kong.
 
The following table presents the aggregate fees for professional audit services and other services rendered by PricewaterhouseCoopers (Certified Public Accountants, Hong Kong) to PetroChina for each of the years ended December 31, 20052008 and 2006.2009.
         
  December 31,
   
  2005 2006
     
  RMB RMB
  (in millions)
Audit fees  50   140 
Audit-related fees  —   — 
Tax fees  —*  —*
All other fees  —   25 
         
Total  50   165 
         
 
         
  December 31, 
  2008  2009 
  RMB  RMB 
  (In millions) 
 
Audit fees  95   80 
Audit-related fees  —   — 
Tax fees  —   — 
All other fees  —   — 
         
Total  95   80 
         
Audit fees consist of fees billed for the annual audit services and other audit services, which are those services that only the external auditor reasonably can provide, and include the group audit, statutory audits, and assistance with and review of documents filed with SEC.
 
Tax fees include fees billed for tax compliance services and the aggregate fees are less than RMB 1RMB1 million for each of years ended December 31, 20052008 and 2006.2009.
 Included in other fees mainly include fees approved
Audit Committee Pre-approved Policies and billed in 2006 in relation to the services in connection with the Company’s preparedness project on internal control procedures over financial reporting under Section 404 of the Sarbanes-Oxley Act.Procedures

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Audit Committee Pre-approved Policies and Procedures
 
Currently, all non-auditaudit services to be provided by our independent registered public accountants, PricewaterhouseCoopers (Certified Public Accountants, Hong Kong), must be approved by our audit committee.
 
During 2006,2009, services relating to all audit-relatednon-audit-related fees provided to us by PricewaterhouseCoopers (Certified Public Accountants, Hong Kong) were approved by our audit committee in accordance with thede minimisexception to the pre-approval requirement provided by paragraph (c)(7)(i)(C) ofRule 2-01 ofRegulation S-X.
ITEM 16D —EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES
 Not applicable.
We rely on an exemption contained in paragraph (b)(1)(iv)(D) ofRule 10A-3 under the Securities and Exchange Act of 1934, as amended, from the New York Stock Exchange listing requirement that each member of the audit committee of a listed issuer must be independent. Our single non-independent audit committee member, who is a representative of CNPC, has only observer status on the audit committee of our board of directors and is not an executive officer of our company, which qualifies us for the exemption from the independence requirements available under paragraph (b)(1)(iv)(D) ofRule 10A-3. See “Item 6 — Directors, Senior Management and Employees — Board Practice — Audit Committee.” We believe our reliance on this exemption does not have any adverse effect on the ability of our audit committee to act independently.


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ITEM 16E —PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
 
Not applicable.
ITEM 16F —CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
None.
ITEM 16G —CORPORATE GOVERNANCE
We are incorporated under the laws of the People’s Republic of China, or the PRC, with A Shares publicly traded on the Shanghai Stock Exchange, or the SSE and H Shares publicly traded on the Hong Kong Stock Exchange, or the HKSE and American Deposit Shares representing H Shares on the NYSE. As a result, our corporate governance framework is subject to the mandatory provisions of the PRC Company Law and the Corporate Governance Rules as well as the securities laws, regulations and the listing rules of Hong Kong and the United States.
The following discussion summarizes the significant differences between our corporate governance practices and those that would apply to a U.S. domestic issuer under the NYSE corporate governance rules.
Director Independence
Under the NYSE corporate governance rule 303A.01, a listed company must have a majority of independent directors on its board of directors. A company of which more than 50% of the voting power is held by an individual, a group or another company, or a controlled company, is not required to comply with this requirement. We are not required under the PRC Company Law and the HKSE Listing Rules to have a majority of independent directors on our board of directors. Currently, five of our fourteen directors are independent non-executive directors.
Under the NYSE corporate governance rule 303A.03, the non-management directors of a listed company must meet at regularly scheduled executive sessions without management. There are no mandatory requirements under the PRC Company Law and the HKSE Listing Rules that a listed company should hold, and we currently do not hold, such executive sessions.
Nominating/Corporate Governance Committee
Under the NYSE corporate governance rule 303A.04, a listed company must have a nominating/corporate governance committee composed entirely of independent directors, with a written charter that covers certain minimum specified duties, but a controlled company is not required to comply with this requirement. We are not required under the PRC Company Law and the HKSE Listing Rules to have, and we do not currently have, a nominating/corporate governance committee.
Compensation Committee
Under the NYSE corporate governance rule 303A.05, a listed company must have a compensation committee composed entirely of independent directors, with a written charter that covers certain minimum specified duties. A controlled company is not required to comply with this requirement. We are not required under the PRC Company Law to have a compensation committee. Under the Corporate Governance Code of the HKSE Listing Rules, a listed company must have a remuneration committee composed of a majority of independent non-executive directors, with a written terms of references that covers certain minimum specified duties.
We currently do not have a compensation committee composed entirely of independent directors. However, we have an evaluation and remuneration committee including a majority of independent non-executive directors.


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Corporate Governance Guidelines
Under the NYSE corporate governance rule 303A.09, a listed company must adopt and disclose corporate governance guidelines that cover certain minimum specified subjects. We are not required under the PRC Company Law and the HKSE Listing Rules to have, and we do not currently have, formal corporate governance guidelines.
However, we have the Articles of Association, the Rules and Procedures of Board of Directors and the Trial Implementation Rules for Compensation of Senior Management that address the following subjects:
• director qualification standards and responsibilities;
• key board committee responsibilities;
• director compensation; and
• director orientation and continuing education.
In addition, under the HKSE Listing Rules, we are expected to comply with, but may choose to deviate from, certain code provisions in the Corporate Governance Code of the Listing Rules which sets forth the principles and standards of corporate governance for listed companies. Pursuant to the HKSE Listing Rules, if we choose to deviate from any code provisions of the Corporate Governance Code, we must disclose such deviations in our annual report.
In 2009, we formulated the Administrative Measures on Independent Directors, the Administrative Rules on Holding of Company Shares by Directors, Supervisors and Senior Management, the Administrative Measures on Investor’s Relationship and the rules and procedures of the Audit Committee, the Performance Review and Compensation Committee, the Investment and Development Committee, and the Safety and Environmental Protection Committee. All these policies have further enhanced our corporate governance system and can ensure the better performance of duties of directors, supervisors, senior managers and committee members.
Code of Business Conduct and Ethics
Under the NYSE corporate governance rule 303A.10, a listed company must adopt and disclose its code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. We adopted our code of business conduct and ethics for senior management on March 23, 2004 and have disclosed the content of this code on our website and in the annual report onForm 20-F for the fiscal year ended December 31, 2003. In addition, we adopted our code of business conduct and ethics for employees on March 2, 2005 and have disclosed the content of this code on our website. We are not required under the PRC Company Law and the HKSE Listing Rules to have, and we do not currently have, a code of business conduct and ethics for directors. However, pursuant to the HKSE Listing Rules, all of our directors must comply with the Model Code for Securities Transactions by Directors of Listed Companies (the “Model Code”) as set out in the Listing Rules. The Model Code sets forth required standards with which the directors of a listed company must comply in securities transactions of the listed company.
Certification Requirements
Under the NYSE corporate governance rule 303A.12(a), each listed company CEO must certify to the NYSE each year that he or she is not aware of any violation by the company of NYSE corporate governance listing standards. Our CEO is not required under the PRC Company Law and the HKSE Listing Rules to submit, and our CEO does not currently submit, such certification.
PART III
ITEM 17 —FINANCIAL STATEMENTS
 
We have elected to provide the financial statements and related information specified in Item 18 in lieu of Item 17.


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ITEM 18 —FINANCIAL STATEMENTS
 
SeepageF-1 toF-78  F-56 following Item 19.
ITEM 19 —EXHIBITS
(a) See Item 18 for a list of the financial statements as part of this annual report.
(b) Exhibits to this annual report.
Exhibit
NumberDescription of Exhibits
 1.1Articles of Association (as amended) (English translation)
 1.2Articles of Association (as amended and pending for approval of SASAC) (English translation)
 4.1Form of 2007 Management Performance Contract (English Translation)
 4.2Crude Oil Mutual Supply Framework Agreement, dated January 29, 2007, between China Petroleum and Chemical Corporation and PetroChina (English translation)
 4.3Second Supplemental Agreement to Comprehensive products and Services Agreement, dated September 1, 2005, between CNPC and PetroChina (English translation)(1)
 4.4Capital Contribution Agreement, dated June 9, 2005, among China National Oil and Gas Exploration and Development Corporation, Central Asia Petroleum Company Limited, Zhong You Kan Tan Kai Fa Company Limited and PetroChina (English Translation)(2)
 4.5Transfer Agreement, dated June 9, 2005, between Zhong You Kan Tan Kai Fa Company Limited and PetroChina (English Translation)(2)
     
Exhibit
  
Number
 
Description of Exhibits
 
 1.1 Articles of Association (as amended) (English translation)(5)
 1.2 Articles of Association (as amended on May 15, 2008) (English translation)(5)
 4.1 2010 Management Performance Contract (English Translation)
 4.2 Risk Operation Service Business Assets Transfer Agreement, dated August 23, 2007, between CNPC and PetroChina (English Translation)(5)
 4.3 Capital Injection Agreement Concerning CNPC Exploration and Development Company Limited, dated December 27, 2007, among CNODC, CNPC E&D and PetroChina (English Translation)(5)
 4.4 Annual Crude Oil Mutual Supply Framework Agreement, dated December 30, 2009, between China Petroleum and Chemical Corporation and PetroChina (English translation)
 4.5 Second Supplemental Agreement to Comprehensive products and Services Agreement, dated September 1, 2005, between CNPC and PetroChina (English translation)(2)
 4.6 Supplementary Agreement to Comprehensive Products and Services Agreement, dated June 9, 2005, between CNPC and PetroChina (English Translation)(3)
 4.7 Form of Non-competition Agreement between CNPC and PetroChina (together with English translation)(4)
 4.8 Form of Comprehensive Products and Services Agreement between CNPC and PetroChina (together with English translation)(4)
 4.9 Form of Land Use Rights Leasing Contract between CNPC and PetroChina (together with English translation)(4)
 4.10 Form of Buildings Leasing Contract between CNPC and PetroChina (together with English translation)(4)
 4.11 Form of Trademark Licensing Contract between CNPC and PetroChina (together with English translation)(4)
 4.12 Form of Patent and Know-how Licensing Contract between CNPC and PetroChina (together with English translation)(4)
 4.13 Form of Computer Software Licensing Contract between CNPC and PetroChina (together with English translation)(4)
 4.14 Form of Contract for Transfer of Rights under Production Sharing Contracts between CNPC and PetroChina (together with English translation)(4)
 4.15 Form of Guarantee of Debts Contract between CNPC and PetroChina (together with English translation)(4)
 4.16 Form of Contract for the Supervision of Certain Sales Enterprises between CNPC and PetroChina (together with English translation)(4)
 4.17 Form of Agreement for Transfer of Rights and Interests under the Crude Oil Premium and Discount Calculation Agreement between China Petrochemical Corporation, CNPC and PetroChina (together with English translation)(4)
 4.18 Form of Agreement for the Transfer of Rights and Interests under the Retainer Contracts relating to Oil Exploration and Exploitation in Lengjiapu Area, Liaohe Oil Region andNo. 9.1-9.5 Areas, Karamay Oil Field (together with English translation)(4)
 4.19 Inspection and Maintenance Business Equity and Assets Transfer Agreement, dated April 28, 2008, between CNPC and Petrochina (English translation)(6)
 4.20 Assets Transfer Agreement, date June 10, 2008, between Petrochina and CNPC (English translation)(6)


117

132

Exhibit
NumberDescription of Exhibits
 4.6Supplementary Agreement to Comprehensive Products and Services Agreement, dated June 9, 2005, between CNPC and PetroChina (English Translation)(2)
 4.7Form of Non-competition Agreement between CNPC and PetroChina (together with English translation)(3)
 4.8Form of Comprehensive Products and Services Agreement between CNPC and PetroChina (together with English translation)(3)
 4.9Form of Land Use Rights Leasing Contract between CNPC and PetroChina (together with English translation)(3)
 4.10Form of Buildings Leasing Contract between CNPC and PetroChina (together with English translation)(3)
 4.11Form of Trademark Licensing Contract between CNPC and PetroChina (together with English translation)(3)
 4.12Form of Patent and Know-how Licensing Contract between CNPC and PetroChina (together with English translation)(3)
 4.13Form of Computer Software Licensing Contract between CNPC and PetroChina (together with English translation)(3)
 4.14Form of Contract for Transfer of Rights under Production Sharing Contracts between CNPC and PetroChina (together with English translation)(3)
 4.15Form of Guarantee of Debts Contract between CNPC and PetroChina (together with English translation)(3)
 4.16Form of Contract for the Supervision of Certain Sales Enterprises between CNPC and PetroChina (together with English translation)(3)
 4.17Form of Agreement for Transfer of Rights and Interests under the Crude Oil Premium and Discount Calculation Agreement between China Petrochemical Corporation, CNPC and PetroChina (together with English translation)(3)
 4.18Form of Agreement for the Transfer of Rights and Interests under the Retainer Contracts relating to Oil Exploration and Exploitation in Lengjiapu Area, Liaohe Oil Region and No. 9.1-9.5 Areas, Karamay Oil Field (together with English translation)(3)
 4.19Share Purchase Agreement in respect of the shares of PetroKazakhstan, dated August 23, 2006, between Pervinage Holding B.V. (a wholly-owned subsidiary of CNPC E&D) and 819 Luxembourg S. a r. l. (an indirect wholly-owned subsidiary of CNPC)
 8.1List of major subsidiaries
10.1Significant Differences in Corporate Governance Practices for Purposes of Section 303A.11 of the New York Exchange Listed Company Manual(2)
12.1Certification of Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002
12.2Certification of Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002
13.1Certification of Chief Executive Officer required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2Certification of Chief Financial Officer required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
16.1Code of Ethics for Senior Management(2)
16.2Code of Ethics for Employees(2)

133

     
Exhibit
  
Number
 
Description of Exhibits
 
 4.21 Agreement for the Sale and Purchase of Shares in Sun World Limited, dated August 27, 2008, among Petrochina, CNPC and China Petroleum Hong Kong (Holding) Limited (English translation)(6)
 4.22 Form of Risk Operation Service Business Assets Transfer Agreements, dated August November 19, 2008, among six branch companies of Petrochina and six subordinate enterprises of CNPC (English translation)(6)
 4.23 Equity Interests Transfer Agreement, dated May 15, 2009, between PetroChina Kunlun Gas Limited and China Petroleum Pipeline Bureau; Form of Equity Interests Transfer Agreements, dated May 15, 2009, between PetroChina Kunlun Gas Limited and China Huayou Group Corporation; Assets Transfer Agreement, dated May 15, 2009, between PetroChina Kunlun Gas Limited and China Petroleum Pipeline Bureau (English translation)(6)
 4.24 Asset Transfer Agreement, dated June 18, 2009, between PetroChina West Pipeline Company and CNPC West Pipeline Company Limited (English translation)
 4.25 Equity Transfer Agreement, dated August 28, 2009, among CNPC E&D, CNPC Central Asia and PetroChina (English translation)
 4.26 Asset Transfer Agreement, dated August 28, 2009, between ten branch companies of PetroChina and ten subordinated entities of CNPC including CNPC Daqing Petrochemical Factory (English translation)
 4.27 Contractual Rights Transfer Agreement, dated August 28, 2009, between Beijing Amu Darya Company and CNPCI (English translation)
 4.28 Equity Transfer Agreement, dated December 30, 2009, between PetroChina Kunlun Gas Limited and Daqing Petroleum Administrative Bureau (English translation)
 4.29 Subscription Agreement, Dated March 25, 2010 among PetroChina, CNPC and CPF (English translation)
 8.1 List of major subsidiaries
 11.1 Code of Ethics for Senior Management(3)
 11.2 Code of Ethics for Employees(3)
 12.1 Certification of Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002
 12.2 Certification of Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002
 13.1 Certification of Chief Executive Officer required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 13.2 Certification of Chief Financial Officer required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 15.1 Reserve Report for the year ended on December 31, 2009 prepared by DeGolyer and MacNaughton
 15.2 Reserve Report for the year ended on December 31, 2009 prepared by Gaffney, Cline & Associates (Consultants) Pte Ltd
 
(1)Incorporated by reference to our annual report onForm 20-F for the fiscal year ended December 31, 2005 (File No. 1-15006) filed with the Commission.
(2)Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2004 (File2006(File No. 1-15006) filed with the Commission.
 
(2)Incorporated by reference to our annual report onForm 20-F for the fiscal year ended December 31, 2005(File No. 1-15006) filed with the Commission.
(3)Incorporated by reference to our annual report onForm 20-F for the fiscal year ended December 31, 2004(File No. 1-15006) filed with the Commission.
(4)Incorporated by reference to our Registration Statement onForm F-1 (FileNo. 333-11566) filed with the Commission, as declared effective on March 29, 2000.
(5)Incorporated by reference to our annual report onForm 20-F for the fiscal year ended December 31, 2007(File No. 1-15006) filed with the Commission.
(6)Incorporated by reference to our annual report onForm 20-F for the fiscal year ended December 31, 2008(File No. 1-15006) filed with the Commission.

118

134

SIGNATURE
 
The registrant hereby certifies that it meets all of the requirements for filing onForm 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
PETROCHINA COMPANY LIMITED
/s/LI HUAIQI
Name: Li Huaiqi
PETROCHINA COMPANY LIMITED
/s/  Li Hualin
Name: Li Hualin
 Title:Secretary to Board of Directors
Date: May 11, 2007June 25, 2010


119

135

INDEX OF CONSOLIDATED FINANCIAL STATEMENTS
     
  Page
 
PetroChina Company Limited and its Subsidiaries
    
Consolidated Financial Statements
    
Management’s Report on Internal Control Over Financial Reportingof Independent Registered Public Accounting Firm
  F-2 
ReportConsolidated Statement of Independent Registered Public Accounting Firm
F-3
Consolidated Statements ofComprehensive Income for each of the three years in the period ended December 31, 20062009
  F-5F-3 
Consolidated Balance SheetsStatement of Financial Position as of December 31, 20052008 and 20062009
  F-6F-4 
Consolidated StatementsStatement of Cash Flows for each of the three years in the period ended December 31, 20062009
  F-7F-5 
Consolidated StatementsStatement of Changes in Equity for each of the three years in the period ended December 31, 20062009
  F-9F-7 
Notes to the Consolidated Financial Statements
  F-11F-8 
Supplementary information on Oil and Gas Producing Activities (unaudited)
  F-73F-49 


F-1

F-1

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTINGOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of the Company’s management, including our principal executive officer and principal financial officer, the Company evaluated the effectiveness of the its internal control over financial reporting based on criteria established in the framework inInternal Control-integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, the Company’s management has concluded that its internal control over financial reporting was effective as of December 31, 2006.
      Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
      The Company’s independent registered public accounting firm, PricewaterhouseCoopers (Certified Public Accountants, Hong Kong), has audited management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, as stated in their report which is included herein.

F-2

Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of PetroChina Company Limited:
 We have completed an integrated audit of PetroChina Company Limited’s 2006 consolidated financial statements and of its internal control over financial reporting as of December 31, 2006 and audits of its 2005 and 2004 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.
Consolidated financial statements
In our opinion, the accompanying consolidated statementsstatement of income, consolidated balance sheetsfinancial position and the related consolidated statementsstatement of cash flows andcomprehensive income, of changes in equity and of cash flows (“consolidated financial statements”) present fairly, in all material respects, the consolidated financial position of PetroChina Company Limited (“the Company”(the “Company”) and its subsidiaries (collectively referred to as the “Group”) at December 31, 20062009 and 2005,2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 20062009 in conformity with International Financial Reporting Standards. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits of these consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
      International Financial Reporting Standards vary in certain significant respects from accounting principles generally accepted in the United States. The application of the latter would have affected the determination of consolidated net income for each of the three years in the period ended December 31, 2006 and the determination of consolidated equity at December 31, 2006 and 2005 to the extent summarized in Note 37 to the consolidated financial statements.
Internal control over financial reporting
      Also, in our opinion, management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that the Company maintained effective internal control over financial reporting as of December 31, 2006 based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore,International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006,2009, based on criteria established inInternal Control — Integrated Frameworkissued by the COSO.Committee of Sponsoring Organisations of the Treadway Commission (“COSO”). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessmentthese financial statements and on the effectiveness of the Company’s internal control over financial reporting based on our audit.integrated audits. We conducted our audit of internal control over financial reportingaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. AnOur audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting includesincluded obtaining an understanding of internal control over financial reporting, evaluating management’s assessment,assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control andbased on the assessed risk. Our audits also included performing such other procedures as we

F-3

consider considered necessary in the circumstances. We believe that our audit providesaudits provide a reasonable basis for our opinions.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizationsauthorisations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorizedunauthorised acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers
Certified Public Accountants
Hong Kong, May 10, 2007
PricewaterhouseCoopers
Hong Kong, May 20, 2010


F-2

F-4

PETROCHINA COMPANY LIMITED


CONSOLIDATED STATEMENTSSTATEMENT OF COMPREHENSIVE INCOME

For the YearsYear Ended December 31, 2004, 20052009, 2008 and 2006
2007
(Amounts in millions except for per share data)millions)
                   
    Year Ended December 31,
     
  Notes 2004 2005 2006
         
    RMB RMB RMB
REVENUES
                
 Sales and other operating revenues      397,354   552,229   688,978 
             
OPERATING EXPENSES
                
 Purchases, services and other      (114,249)  (200,321)  (271,123)
 Employee compensation costs  5   (22,934)  (29,675)  (39,161)
 Exploration expenses, including exploratory dry holes      (12,090)  (15,566)  (18,822)
 Depreciation, depletion and amortization      (48,362)  (51,305)  (61,388)
 Selling, general and administrative expenses      (28,302)  (36,538)  (43,235)
 Shut down of manufacturing assets  6   (220)  —   — 
 Taxes other than income taxes  7   (19,943)  (23,616)  (56,666)
 Other expense, net      (116)  (3,037)  (607)
             
TOTAL OPERATING EXPENSES
      (246,216)  (360,058)  (491,002)
             
INCOME FROM OPERATIONS
      151,138   192,171   197,976 
             
FINANCE COSTS
                
 Exchange gain      225   942   1,830 
 Exchange loss      (217)  (854)  (1,756)
 Interest income      1,373   1,924   2,066 
 Interest expense  8   (2,896)  (2,762)  (3,220)
             
TOTAL NET FINANCE COSTS
      (1,515)  (750)  (1,080)
             
INCOME FROM EQUITY AFFILIATES AND JOINTLY CONTROLLED ENTITIES
  19   1,621   2,401   2,277 
             
INCOME BEFORE INCOME TAXES
      151,244   193,822   199,173 
INCOME TAXES
  9   (43,598)  (54,180)  (49,776)
             
INCOME FOR THE YEAR
      107,646   139,642   149,397 
             
ATTRIBUTABLE TO:
                
  
EQUITY HOLDERS OF THE COMPANY
      103,843   133,362   142,224 
  
MINORITY INTEREST
      3,803   6,280   7,173 
             
       107,646   139,642   149,397 
             
BASIC AND DILUTED NET INCOME PER SHARE FOR INCOME ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY DURING THE YEAR
  10   0.59   0.75   0.79 
             
NUMBER OF SHARES
  10   175,824   179,021   179,021 
             
DIVIDENDS ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY:
                
 Interim dividends declared during the year  11   20,381   27,731   36,307 
 Final dividends proposed after the balance sheet date  11   25,936   32,282   27,694 
             
       46,317   60,013   64,001 
             
               
  Notes 2009  2008  2007 
    RMB  RMB  RMB 
 
TURNOVER
 6  1,019,275   1,072,604   837,542 
               
OPERATING EXPENSES
              
Purchases, services and other    (492,472)  (562,851)  (369,786)
Employee compensation costs 8  (65,977)  (62,167)  (50,940)
Exploration expenses, including exploratory dry holes    (19,398)  (21,879)  (20,956)
Depreciation, depletion and amortisation    (92,259)  (94,759)  (67,423)
Selling, general and administrative expenses    (65,423)  (59,617)  (52,389)
Taxes other than income taxes 9  (135,465)  (124,132)  (73,806)
Other (expenses)/income, net    (4,837)  12,372   (1,225)
               
TOTAL OPERATING EXPENSES
    (875,831)  (913,033)  (636,525)
               
PROFIT FROM OPERATIONS
    143,444   159,571   201,017 
               
FINANCE COSTS
              
Exchange gain    552   1,774   1,808 
Exchange loss    (1,335)  (2,855)  (2,559)
Interest income    1,459   2,277   2,101 
Interest expense 10  (5,272)  (3,044)  (3,673)
               
TOTAL NET FINANCE COSTS
    (4,596)  (1,848)  (2,323)
               
SHARE OF PROFIT OF ASSOCIATES AND JOINTLY CONTROLLED ENTITIES
 17  1,184   4,290   6,445 
               
PROFIT BEFORE INCOME TAX EXPENSE
 7  140,032   162,013   205,139 
INCOME TAX EXPENSE
 12  (33,473)  (35,211)  (49,802)
               
PROFIT FOR THE YEAR
    106,559   126,802   155,337 
               
OTHER COMPREHENSIVE INCOME:
              
Currency translation differences    (3,500)  (2,676)  (1,852)
Fair value gain/(loss) fromavailable-for-sale financial assets
    191   (340)  395 
Income tax relating to components of other comprehensive income/(loss)    (38)  67   (87)
               
OTHER COMPREHENSIVE LOSS, NET OF TAX
    (3,347)  (2,949)  (1,544)
               
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
    103,212   123,853   153,793 
               
PROFIT FOR THE YEAR ATTRIBUTABLE TO:
              
Owners of the Company    103,387   114,453   146,796 
Non-controlling interest    3,172   12,349   8,541 
               
     106,559   126,802   155,337 
               
TOTAL COMPREHENSIVE INCOME FOR THE YEAR ATTRIBUTABLE TO:
              
Owners of the Company    102,067   113,044   146,144 
Non-controlling interest    1,145   10,809   7,649 
               
     103,212   123,853   153,793 
               
BASIC AND DILUTED EARNINGS PER SHARE FOR PROFIT ATTRIBUTABLE TO OWNERS OF THE COMPANY (RMB)
 14  0.56   0.63   0.82 
               
The accompanying notes are an integral part of these financial statements.


F-3

F-5

PETROCHINA COMPANY LIMITED


CONSOLIDATED BALANCE SHEETS
STATEMENT OF FINANCIAL POSITION
As of December 31, 20052009 and 2006
2008
(Amounts in millions)
             
    At December 31,
     
  Notes 2005 2006
       
    RMB RMB
ASSETS
Current assets            
Cash and cash equivalents  12   80,905   48,559 
Time deposits with maturities over three months but within one year      1,691   3,012 
Investments in collateralized loans  13   235   — 
Notes receivable  14   3,028   2,844 
Accounts receivable, less provision for impairment of accounts receivables  15   4,630   8,488 
Inventories  16   62,733   76,038 
Prepaid expenses and other current assets  17   22,673   23,281 
          
TOTAL CURRENT ASSETS
      175,895   162,222 
Property, plant and equipment, less accumulated depreciation, depletion and amortization  18   563,890   645,337 
Investments in equity affiliates and jointly controlled entities  19   12,378   32,956 
Available-for-sale investments  20   1,230   2,054 
Advance operating lease payments  21   16,235   20,468 
Intangible and other assets  22   5,011   6,627 
Time deposits with maturities over one year      3,428   2,499 
          
TOTAL ASSETS
      778,067   872,163 
          
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities            
Short-term debts  24   28,689   35,763 
Accounts payable and accrued liabilities  23   99,758   120,182 
Income tax payable      20,567   17,744 
Other taxes payable      4,824   6,190 
          
TOTAL CURRENT LIABILITIES
      153,838   179,879 
Long-term debts  24   44,570   35,634 
Other long-term obligations      1,046   995 
Asset retirement obligations  25   14,187   18,481 
Deferred taxes  26   20,759   19,583 
          
TOTAL LIABILITIES
      234,400   254,572 
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY:
            
State-owned shares  27   157,922   157,922 
H shares  27   21,099   21,099 
          
Share capital, issued and outstanding, RMB 1.00 Par value  27   179,021   179,021 
Retained earnings      203,812   264,092 
Capital reserve  28   (8,881)  (8,881)
Revaluation reserve  28   79,946   79,946 
Statutory common reserve fund  28   48,736   89,928 
Statutory common welfare fund  28   27,837   — 
Currency translation differences  28   (379)  (570)
Other reserves  28   (14,703)  (16,859)
MINORITY INTEREST
      28,278   30,914 
          
TOTAL EQUITY
      543,667   617,591 
          
TOTAL LIABILITIES AND EQUITY
      778,067   872,163 
          
             
  Notes  2009  2008 
     RMB  RMB 
 
NON-CURRENT ASSETS
            
Property, plant and equipment  16   1,075, 467   900,424 
Investments in associates and jointly controlled entities  17   28,223   28,850 
Available-for-sale financial assets
  18   2,343   2,034 
Advance operating lease payments  20   30,236   26,280 
Intangible and other assets  21   18,017   10,694 
Deferred tax assets  31   289   497 
Time deposits with maturities over one year      1,330   2,510 
             
TOTAL NON-CURRENT ASSETS
      1,155,905   971,289 
             
CURRENT ASSETS
            
Inventories  22   114,781   90,685 
Accounts receivable  23   28,785   16,810 
Prepaid expenses and other current assets  24   59,595   69,557 
Notes receivable  25   4,268   4,319 
Time deposits with maturities over three months but within one year      29   10,425 
Cash and cash equivalents  26   86,925   33,150 
             
TOTAL CURRENT ASSETS
      294,383   224,946 
             
CURRENT LIABILITIES
            
Accounts payable and accrued liabilities  27   204,739   156,780 
Income taxes payable      9,721   1,271 
Other taxes payable      25,242   13,930 
Short-term borrowings  28   148,851   93,670 
             
TOTAL CURRENT LIABILITIES
      388,553   265,651 
             
NET CURRENT LIABILITIES
      (94,170)  (40,705)
             
TOTAL ASSETS LESS CURRENT LIABILITIES
      1,061,735   930,584 
             
EQUITY
            
EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY:
            
Share capital  29   183,021   183,021 
Retained earnings      424,067   378,473 
Reserves  30   240,135   229,416 
             
TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY
      847,223   790,910 
NON-CONTROLLING INTEREST
      60,478   56,930 
             
TOTAL EQUITY
      907,701   847,840 
             
NON-CURRENT LIABILITIES
            
Long-term borrowings  28   85,471   32,852 
Asset retirement obligations  32   44,747   36,262 
Deferred tax liabilities  31   21,449   12,466 
Other long-term obligations      2,367   1,164 
             
TOTAL NON-CURRENT LIABILITIES
      154,034   82,744 
             
TOTAL EQUITY AND NON-CURRENT LIABILITIES
      1,061,735   930,584 
             
The accompanying notes are an integral part of these financial statements.
ChairmanVice Chairman and PresidentChief Financial Officer
Jiang JieminZhou JipingZhou Mingchun


F-4

F-6

PETROCHINA COMPANY LIMITED


CONSOLIDATED STATEMENTSSTATEMENT OF CASH FLOWS

For the YearsYear Ended December 31, 2004, 20052009, 2008 and 2006
2007
(Amounts in millions)
                   
    Year Ended December 31,
     
  Notes 2004 2005 2006
         
    RMB RMB RMB
CASH FLOWS FROM OPERATING ACTIVITIES
                
 Net income      107,646   139,642   149,397 
 Adjustments for:                
  Income taxes  9   43,598   54,180   49,776 
  Depreciation, depletion and amortization      48,362   51,305   61,388 
  Provision for shut down of manufacturing assets  6   220   —   — 
  Dry hole costs      4,741   6,547   9,494 
  Income from equity affiliates and jointly controlled entities  19   (1,621)  (2,401)  (2,277)
  Provision for impairment of receivables, net  15, 17   676   (455)  (316)
  Write down in inventories, net  16   147   (139)  140 
  Impairment of available-for-sale investments, net  20   26   (23)  32 
  Loss on disposal of property, plant and equipment      2,818   2,026   1,753 
  Loss/(Profit) on disposal of equity affiliates and jointly controlled entities      33   2   (10)
  Loss/(Profit) on disposal of available-for-sale investments      6   27   (3)
  Loss on disposal of intangible and other assets      50   106   192 
  Dividend income  20   (113)  (109)  (208)
  Interest income      (1,373)  (1,924)  (2,066)
  Interest expense  8   2,896   2,762   3,220 
 Advance payments on long-term operating leases      (5,624)  (5,170)  (5,694)
 Changes in working capital:                
  — accounts receivable and prepaid expenses and other current assets      (6,195)  165   (3,115)
  — inventories      (17,460)  (15,896)  (13,445)
  — accounts payable and accrued liabilities      398   22,089   5,346 
             
CASH GENERATED FROM OPERATIONS
      179,231   252,734   253,604 
 Interest received      1,373   1,917   1,993 
 Interest paid      (3,998)  (3,628)  (3,700)
 Income taxes paid      (34,915)  (47,138)  (53,795)
             
NET CASH PROVIDED BY OPERATING ACTIVITIES
      141,691   203,885   198,102 
             
             
  2009  2008  2007 
  RMB  RMB  RMB 
 
CASH FLOWS FROM OPERATING ACTIVITIES
            
Profit for the year  106,559   126,802   155,337 
Adjustments for:            
Income tax expense  33,473   35,211   49,802 
Depreciation, depletion and amortisation  92,259   94,759   67,423 
Capitalised exploratory costs charged to expense  10,019   10,341   9,161 
Share of profit of associates and jointly controlled entities  (1,184)  (4,290)  (6,445)
(Reversal) of provision/provision for impairment of receivables, net  (123)  4   (2,318)
Write down in inventories, net  354   8,593   55 
Impairment ofavailable-for-sale financial assets, net
  2   45   — 
Impairment of investments in associates and jointly controlled entities  8   29   5 
Loss on disposal of property, plant and equipment  1,642   2,602   1,808 
Loss/(gain) on disposal of intangible and other assets  10   19   (2)
(Gain)/loss on disposal of investments in associates and jointly controlled entities  (33)  3   (320)
Gain on disposal ofavailable-for-sale financial assets
  (4)  (5)  (142)
Gain on disposal of subsidiaries  (22)  (259)  — 
Dividend income  (177)  (252)  (126)
Interest income  (1,459)  (2,277)  (2,101)
Interest expense  5,272   3,044   3,673 
Advance payments on long-term operating leases  (6,045)  (4,675)  (4,803)
Changes in working capital:            
Accounts receivable and prepaid expenses and other current assets  16,240   (26,815)  (16,054)
Inventories  (20,044)  (10,775)  (12,041)
Accounts payable and accrued liabilities  41,637   (5,715)  19,799 
             
CASH FLOWS GENERATED FROM OPERATIONS
  278,384   226,389   262,711 
Income taxes paid  (16,412)  (53,924)  (55,048)
             
NET CASH FLOWS FROM OPERATING ACTIVITIES
  261,972   172,465   207,663 
             
The accompanying notes are an integral part of these financial statements.


F-5

F-7

PETROCHINA COMPANY LIMITED


CONSOLIDATED STATEMENTSSTATEMENT OF CASH FLOWS — (Continued)

For the YearsYear Ended December 31, 2004, 20052009, 2008 and 2006
2007
(Amounts in millions)
                  
    Year Ended December 31,
     
  Notes 2004 2005 2006
         
    RMB RMB RMB
CASH FLOWS FROM INVESTING ACTIVITIES
                
 Capital expenditures      (94,045)  (119,227)  (130,409)
 Acquisition of equity affiliates and jointly controlled entities      (1,000)  (2,334)  (22,549)
 Acquisition of available-for-sale investments      (476)  (782)  (62)
 Net (acquisition)/proceeds of investments in collateralized loans with maturities not greater than three months      (8,049)  26,896   235 
 Acquisition of investments in collateralized loans with maturities over three months      (8,301)  (443)  — 
 Acquisition of intangible assets      (531)  (1,600)  (1,358)
 Acquisition of other non-current assets      (280)  (1,133)  (1,706)
 Return of capital to minority interest due to liquidation of subsidiaries      —   (935)  — 
 Purchase from minority interest of listed subsidiaries  38   —   (2,019)  (4,095)
 Other purchase from minority interest      —   (376)  (640)
 Proceeds from sale of investments in collateralized loans with maturities over three months      7,357   6,529   — 
 Repayment of capital by equity affiliates and jointly controlled entities      272   115   99 
 Proceeds from disposal of property, plant and equipment      873   898   346 
 Proceeds from disposal of equity affiliates and jointly controlled entities      27   1,102   69 
 Proceeds from disposal of available-for-sale investments      83   976   4 
 Proceeds from disposal of intangible and other non-current assets      37   22   2 
 Dividends received      800   678   2,099 
 Decrease/(Increase) in time deposits with maturities over three months      957   57   (486)
             
NET CASH USED FOR INVESTING ACTIVITIES
      (102,276)  (91,576)  (158,451)
             
CASH FLOWS FROM FINANCING ACTIVITIES
                
 Repayments of short-term debts      (23,862)  (34,529)  (28,349)
 Repayments of long-term debts      (28,331)  (19,175)  (17,587)
 Principal payment on capital lease obligations      (35)  (21)  — 
 Dividends paid to minority interest      (736)  (1,486)  (3,033)
 Cash payment for acquisition of CNPC marketing enterprises      (1,476)  —   — 
 Dividends paid to equity holders of the Company  11   (34,328)  (53,667)  (68,589)
 Increase in short-term debts      28,113   32,019   30,183 
 Increase in long-term debts      18,453   15,514   14,195 
 Capital contribution from minority interest      2,145   454   1,492 
 Change in other long-term obligations      471   (1,435)  (51)
 Issuance of H shares  27   —   19,692   — 
             
NET CASH USED FOR FINANCING ACTIVITIES
      (39,586)  (42,634)  (71,739)
             
TRANSLATION OF FOREIGN CURRENCY
      246   (458)  (258)
             
 Increase/(Decrease) in cash and cash equivalents      75   69,217   (32,346)
 Cash and cash equivalents at beginning of the year  12   11,613   11,688   80,905 
             
 Cash and cash equivalents at end of the year  12   11,688   80,905   48,559 
             
             
  2009  2008  2007 
  RMB  RMB  RMB 
 
CASH FLOWS FROM INVESTING ACTIVITIES
            
Capital expenditures  (257,562)  (215,610)  (173,528)
Acquisition of investments in associates and jointly controlled entities  (1,487)  (3,641)  (1,903)
Acquisition ofavailable-for-sale financial assets
  (111)  (23)  (328)
Consolidation of PetroKazakhstan Inc.   —   —   1,542 
Acquisition of intangible assets and other non-current assets  (3,505)  (3,909)  (3,378)
Purchase of non-controlling interest  (533)  (177)  (178)
Acquisition of subsidiaries  (16,451)  (6,693)  — 
Repayment of capital by associates and jointly controlled entities  —   —   6,618 
Proceeds from disposal of property, plant and equipment  4,053   436   1,028 
Proceeds from disposal of investments in associates and jointly controlled entities  139   67   1,033 
Proceeds from disposal of subsidiaries  60   535   — 
Proceeds from disposal ofavailable-for-sale financial assets
  136   52   276 
Proceeds from disposal of intangible and other non-current assets  26   37   — 
Interest received  1,425   2,365   2,074 
Dividends received  783   4,095   1,113 
Decrease in time deposits with maturities over three months  11,574   10,669   (18,025)
             
NET CASH FLOWS USED FOR INVESTING ACTIVITIES
  (261,453)  (211,797)  (183,656)
             
CASH FLOWS FROM FINANCING ACTIVITIES
            
Repayments of short-term borrowings  (113,212)  (84,471)  (33,556)
Repayments of long-term borrowings  (7,947)  (14,196)  (24,218)
Interest paid  (5,238)  (4,065)  (4,232)
Dividends paid to non-controlling interest  (2,425)  (2,805)  (4,832)
Dividends paid to owners of the Company  (50,092)  (52,835)  (64,517)
Dividends paid to owners from business combinations pre-acquisition  —   (801)  (9)
Issuance of A shares  —   —   66,243 
Increase in short-term borrowings  157,576   153,444   37,236 
Increase in long-term borrowings  67,880   4,472   20,650 
Capital contribution from non-controlling interest  7,098   8,788   1,364 
Capital reduction of subsidiaries  (671)  (3,754)  — 
Increase in other long-term obligations  108   —   33 
             
NET CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES
  53,077   3,777   (5,838)
             
TRANSLATION OF FOREIGN CURRENCY
  179   (112)  (221)
             
Increase/(decrease) in cash and cash equivalents  53,775   (35,667)  17,948 
Cash and cash equivalents at beginning of the year  33,150   68,817   50,869 
             
Cash and cash equivalents at end of the year  86,925   33,150   68,817 
             
The accompanying notes are an integral part of these financial statements.


F-6

F-8

PETROCHINA COMPANY LIMITED


CONSOLIDATED STATEMENTSSTATEMENT OF CHANGES IN EQUITY

For the YearsYear Ended December 31, 2004, 20052009, 2008 and 2006
2007
(Amounts in millions)
                         
  Attributable to equity holders    
  of the Company    
       
  Share Retained   Minority Total
  Capital Earnings Reserves Subtotal interest equity
             
  RMB RMB RMB RMB RMB RMB
Balance at January 1, 2004  175,824   88,152   93,952   357,928   8,966   366,894 
                   
Currency translation differences  —   —   330   330   677   1,007 
                   
Net income recognized directly in equity  —   —   330   330   677   1,007 
Net income for the year ended December 31, 2004  —   103,843   —   103,843   3,803   107,646 
                   
Total recognized income for 2004  —   103,843   330   104,173   4,480   108,653 
                   
Transfer to reserves (Note 28)  —   (14,552)  14,552   —   —   — 
Final dividends for 2003 (Note 11)  —   (13,947)  —   (13,947)  —   (13,947)
Interim dividends for 2004 (Note 11)  —   (20,381)  —   (20,381)  —   (20,381)
Dividends to minority interest  —   —   —   —   (656)  (656)
Other movements of minority interest  —   —   —   —   2,409   2,409 
                   
Balance at December 31, 2004  175,824   143,115   108,834   427,773   15,199   442,972 
                   
                         
     Non-
    
     Controlling
  Total
 
  Attributable to Owners of the Company  Interest  Equity 
  Share
  Retained
             
  Capital  Earnings  Reserves  Subtotal       
  RMB  RMB  RMB  RMB  RMB  RMB 
 
Balance at December 31, 2006
  179,021   267,850   143,552   590,423   31,749   622,172 
                         
Business combinations under common control  —   (183)  174   (9)  456   447 
                         
Balance at January 1, 2007
  179,021   267,667   143,726   590,414   32,205   622,619 
                         
Total comprehensive income/(loss) for the year ended December 31, 2007  —   146,796   (652)  146,144   7,649   153,793 
Special Reserve-Safety Fund Reserve  —   (3,536)  3,536   —   —   — 
Transfer to reserves  —   (12,768)  12,768   —   —   — 
Final dividend for 2006  —   (27,694)  —   (27,694)  —   (27,694)
Interim dividend for 2007 (Note 15)  —   (36,823)  —   (36,823)  —   (36,823)
Dividends to non-controlling interest  —   —   —   —   (4,823)  (4,823)
Purchase of non-controlling interest in subsidiaries  —   —   (113)  (113)  (65)  (178)
Consolidation of PetroKazakhstan Inc.   —   —   —   —   8,101   8,101 
Issuance of A shares  4,000   —   62,243   66,243   —   66,243 
Capital contribution from non-controlling interest  —   —   —   —   1,364   1,364 
Dividends to owners from business combinationspre-acquisition
  —   (2)  —   (2)  (15)  (17)
Other  —   —   77   77   57   134 
                         
Balance at December 31, 2007
  183,021   333,640   221,585   738,246   44,473   782,719 
                         
Total comprehensive income/(loss) for the year ended December 31, 2008  —   114,453   (1,409)  113,044   10,809   123,853 
Special Reserve-Safety Fund Reserve  —   (3,214)  3,214   —   —   — 
Transfer to reserves  —   (12,770)  12,770   —   —   — 
Final dividends for 2007 (Note 15)  —   (28,708)  —   (28,708)  —   (28,708)
Interim dividends for 2008 (Note 15)  —   (24,127)  —   (24,127)  —   (24,127)
Dividends to non-controlling interest  —   —   —   —   (2,842)  (2,842)
Purchase of non-controlling interest in subsidiaries  —   —   (17)  (17)  (160)  (177)
Capital contribution from non-controlling interest  —   —   —   —   8,788   8,788 
Capital reduction of subsidiaries  —   —   (61)  (61)  (3,693)  (3,754)
Dividends to owners from business combinations
pre-acquisition		  —   (801)  —   (801)  —   (801)
Disposal of subsidiaries  —   —   —   —   (429)  (429)
Acquisition of a subsidiary  —   —   (6,693)  (6,693)  —   (6,693)
Other  —   —   27   27   (16)  11 
                         
Balance at December 31, 2008
  183,021   378,473   229,416   790,910   56,930   847,840 
                         
Total comprehensive income/(loss) for the year ended December 31, 2009  —   103,387   (1,320)  102,067   1,145   103,212 
Special Reserve-Safety Fund Reserve  —   2,280   1,325   3,605   3   3,608 
Transfer to reserves  —   (9,981)  9,981   —   —   — 
Final dividends for 2008 (Note 15)  —   (27,367)  —   (27,367)  —   (27,367)
Interim dividends for 2009 (Note 15)  —   (22,725)  —   (22,725)  —   (22,725)
Dividends to non-controlling interest  —   —   —   —   (2,358)  (2,358)
Acquisition of subsidiaries  —   —   (248)  (248)  590   342 
Purchase of non-controlling interest in subsidiaries  —   —   (179)  (179)  (354)  (533)
Capital contribution from non-controlling interest  —   —   1,158   1,158   5,940   7,098 
Capital reduction of a subsidiary  —   —   —   —   (1,354)  (1,354)
Other  —   —   2   2   (64)  (62)
                         
Balance at December 31, 2009
  183,021   424,067   240,135   847,223   60,478   907,701 
                         
The accompanying notes are an integral part of these financial statements.


F-7

F-9

PETROCHINA COMPANY LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY — (Continued)
For the Years Ended December 31, 2004, 2005 and 2006
(Amounts in millions)
                         
  Attributable to equity holders    
  of the Company    
       
  Share Retained   Minority Total
  Capital Earnings Reserves Subtotal interest Equity
             
  RMB RMB RMB RMB RMB RMB
Currency translation differences  —   —   (268)  (268)  (465)  (733)
                   
Net loss recognized directly in equity  —   —   (268)  (268)  (465)  (733)
Net income for the year ended December 31, 2005  —   133,362   —   133,362   6,280   139,642 
                   
Total recognized income/(loss) for 2005  —   133,362   (268)  133,094   5,815   138,909 
                   
Issue of H shares (Note 27 and 28)  3,197   —   16,495   19,692   —   19,692 
Transfer to reserves (Note 28)  —   (18,998)  18,998   —   —   — 
Final dividends for 2004 (Note 11)  —   (25,936)  —   (25,936)  —   (25,936)
Interim dividends for 2005 (Note 11)  —   (27,731)  —   (27,731)  —   (27,731)
Payment to CNPC for the acquisition of the refinery and petrochemical businesses (Note 2)  —   —   (9)  (9)  —��  (9)
Dividends to minority interest  —   —   —   —   (1,568)  (1,568)
Return of capital to minority interest due to liquidations of subsidiaries  —   —   —   —   (935)  (935)
Purchase from minority interest of listed subsidiaries (Note 38)  —   —   (1,438)  (1,438)  (581)  (2,019)
Other movement in minority interest  —   —   —   —   242   242 
Capital contribution to CNPC Exploration and Development Company Limited (Note 2)  —   —   (10,056)  (10,056)  10,106   50 
                   
Balance at December 31, 2005  179,021   203,812   132,556   515,389   28,278   543,667 
                   
Currency translation differences  —   —   (191)  (191)  (204)  (395)
                   
Net loss recognized directly in equity  —   —   (191)  (191)  (204)  (395)
Net income for the year ended December 31, 2006  —   142,224   —   142,224   7,173   149,397 
                   
Total recognized income/(loss) for 2006  —   142,224   (191)  142,033   6,969   149,002 
                   
Transfer to reserves (Note 28)  —   (13,355)  13,355   —   —   — 
Final dividends for 2005 (Note 11)  —   (32,282)  —   (32,282)  —   (32,282)
Interim dividends for 2006 (Note 11)  —   (36,307)  —   (36,307)  —   (36,307)
Dividends to minority interest  —   —   —   —   (3,000)  (3,000)
Purchase from minority interest of subsidiaries (Note 38)  —   —   (2,156)  (2,156)  (2,579)  (4,735)
Other movement of minority interest  —   —   —   —   (246)  (246)
Minority interest paid-in capital  —   —   —   —   1,492   1,492 
                   
Balance at December 31, 2006  179,021   264,092   143,564   586,677   30,914   617,591 
                   
Balance at December 31, 2006 in US$  22,939   33,840   18,396   75,175   3,961   79,137 
                   
The accompanying notes are an integral part of these financial statements.

F-10

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except for per share data or unless otherwise stated)
1  ORGANIZATIONORGANISATION 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”) ofon November 5, 1999 by China National Petroleum Corporation (“CNPC”) as the sole proprietor in preparation foraccordance with the listingapproval Guo Jing Mao Qi Gai [1999] No. 1024 “Reply on the approval of the Company’s sharesestablishment of PetroChina Company Limited” from the former State Economic and Trade Commission of the People’s Republic of China (“China” or “PRC”). CNPC restructured (“the Restructuring”) and injected its core business and the related assets and liabilities into the Company. CNPC is a wholly state-owned company registered in Hong Kong and in the United States of America in 2000 (See Note 27).China. The Company and its subsidiaries are collectively referred to as the “Group”.
 
The Group is principally engaged in (i) the exploration, development and production of crude oil and natural gas, (ii) the refining, transportation, storage and marketing of crude oil and natural gas; (ii) the refining of crude oil and petroleum products, production and marketing of primary petrochemical products, derivative petrochemical products and other chemical products; (iii) the productionmarketing of refined products and sale of chemicals,trading business; and (iv) the transmission marketingof natural gas, crude oil and refined products and the sale of natural gas (See Note 36)(Note 38).
2  BASIS OF PREPARATION
 
The consolidated financial statements and the statement of financial position of the Group (comprising the consolidated statements of income, consolidated balance sheets, consolidated statements of cash flows and the consolidated statements of changes in equity of the Group )Company have been prepared in accordance with the International Financial Reporting Standards (“IFRS”IFRSs”) as issued by the International Accounting Standards Board (“IASB”). The consolidated financial statements and the statement of financial position of the GroupCompany have been prepared under the historical cost convention except as disclosed in the accounting policies below.
 
The preparation of financial statements in conformity with IFRSIFRSs requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet date of the statement of financial position and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current events and actions, actual results may ultimately differ from those estimates. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4.5.
 In 2006, the Group adopted the following amendments and interpretations to existing standards which are relevant to its operations. The adoption of these amendments and interpretations did not result currently in changes to the Group’s accounting policies. In summary:
(a) Amendments and interpretations to existing standards effective in 2006
• International Accounting Standard (“IAS”) No 39 (IAS 39) and IFRS 4 (Amendment), Financial Guarantee Contracts; and
• International Financial Reporting Interpretations Committee (“IFRIC”) Interpretation 4, Determining whether an Arrangement contains a Lease;
(b) Interpretations to existing standards early adopted by the Group
• IFRIC Interpretation 8, Scope of IFRS 2 (effective for annual periods beginning on or after May 1, 2006)
      The following amendments and interpretations are mandatory for accounting periods beginning on or after January 1, 2006 but are not relevant to the Group’s operations:
• IAS 19 (Amendment), Employee Benefits: Actuarial Gains and Losses, Group Plans and Disclosures;

F-11

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
• IAS 21 (Amendment), Net Investment in a Foreign Operation;
• IAS 39 (Amendment), Cash Flow Hedge Accounting of Forecast Intragroup Transactions;
• IAS 39 (Amendment), The Fair Value Option;
• IFRIC Interpretation 5, Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds; and
• IFRIC Interpretation 6, Liabilities arising from Participating in a Specific Market — Waste Electrical and Electronic Equipment.
      In accordance with the acquisition agreement between the Company and CNPC dated March 28, 2005, the Company acquired the refining and petrochemical businesses owned by CNPC’s wholly-owned subsidiaries, Ningxia Dayuan Refinery and Petrochemical Company Limited (“Dayuan”) and Qingyang Refinery and Petrochemical Company Limited (“Qingyang”) with a total consideration of Renminbi 9 (“RMB”, the national currency of the PRC).
      The acquisition was a combination of businesses under common control since the Company and CNPC’s refinery and petrochemical businesses owned by Dayuan and Qingyang are under the common control of CNPC. As a result, the Company accounted for the acquisition in a manner similar to a uniting of interests, whereby the assets and liabilities acquired are accounted for at historical cost to CNPC (net liabilities of RMB 183 at the effective date). The consolidated financial statements have been restated to give effect to the acquisition with all periods presented as if the operations of the Group and these refinery and petrochemical businesses have always been combined. The difference between RMB 9 payable and the net liabilities transferred from CNPC have been adjusted against equity.
      In August 2005 the shareholders of the Company approved the acquisition and transfer agreements relating to the Company’s acquisition of a 50% ownership interest in CNPC Exploration and Development Company Limited (“CNPC E&D”). CNPC E&D was formed in 2005 and was wholly owned by China National Oil and Gas Exploration and Development Corporation (“CNODC”, wholly owned by CNPC) and one of its subsidiaries. Under the terms of the related agreements, CNODC transferred certain oil and gas exploration operations into CNPC E&D and the Company contributed to CNPC E&D its wholly-owned subsidiary, PetroChina International Limited (“PTRI”), and cash amounting to approximately RMB 20,162, which is the difference between the cash contribution of RMB 20,741 payable by the Company according to the acquisition agreement and cash consideration of RMB 579 for PTRI receivable by the Company.
      The terms of the agreements grant the Company the right to appoint four of the seven directors of CNPC E&D and enable the Company to maintain effective control over CNPC E&D.
      Similar to the acquisition of the refinery and petrochemical businesses from CNPC described above,the investment in CNPC E&D and related transactions have been accounted for in a manner similar to uniting of interests as all entities involved are under common control by CNPC. The consolidated financial statements of the Company have been restated as if the operations of the Company and CNPC E&D have always been combined. The payment was made directly to CNPC E&D, therefore the difference between RMB 20,162 paid and the net assets of RMB 35,551 at the effective date acquired (including RMB 20,162 contributed by the Company and RMB 50 for the contributed paid-in capital by CNODC and its subsidiary) have been adjusted against equity.

F-12

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
3  SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
(a) Basis of consolidation
(a)  Basis of consolidation
 The consolidated financial statements include the financial statements of the Company and its subsidiaries.
Subsidiaries are those entities in which the Group has an interest of more than one half of the voting rights or otherwise has the power to govern the financial and operating policies.
 Subsidiaries are
A subsidiary is consolidated from the date on which control is transferred to the Group and areis no longer consolidated from the date that control ceases. Other than the business combination under common control for which the accounting policy is disclosed in Note 2, theThe purchase method of accounting is used to account for the acquisition of subsidiaries.subsidiaries except for business combinations under common control. The cost of an acquisition is measured as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minoritynon-controlling interest. The excess of the cost of an acquisition over the fair value of the Group’s share of the identifiable net assets of the subsidiary acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the Group’s share of the identifiable net assets of the subsidiary acquired, the difference is recognizedrecognised directly in the consolidated statementsprofit or loss.
An acquisition of income. a business which is a business combination under common control is accounted for in a manner similar to a uniting of interests whereby the assets and liabilities acquired are accounted for at carryover predecessor values to the other party to the business combination with all periods presented as if the operations of


F-8

PETROCHINA COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(Amounts in millions unless otherwise stated)
the Group and the business acquired have always been combined. The difference between the consideration paid by the Group and the net assets or liabilities of the business acquired is adjusted against equity.
Intercompany transactions, balances and unrealizedunrealised gains on transactions between group companies are eliminated; unrealizedunrealised losses are also eliminated but considered an impairment indicator of the asset transferred. Where necessary, accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the Group.
 
A listing of the Group’s principal subsidiaries is set out in Note 38.19.
(b) Investments in equity affiliates
(b)  Investments in associates
 Equity affiliates
Associates are entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in equity affiliatesassociates are accounted for by the equity method of accounting in the consolidated financial statements of the Group and are initially recognizedrecognised at cost. Under this method of accounting the Group’s share of the post-acquisition incomeprofits or losses of equity affiliatesassociates is recognizedrecognised in the consolidated statements of incomeprofit or loss and its share of post-acquisition movements in reservesother comprehensive income is recognizedrecognised in reserves.other comprehensive income. The cumulative post-acquisition movements are adjusted against the costcarrying amounts of the investment.investments. When the Group’s share of losses in an equity affiliateassociate equals or exceeds its interest in the equity affiliate,associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the equity affiliate. Unrealizedassociate. Unrealised gains on transactions between the Group and its equity affiliatesassociates are eliminated to the extent of the Group’s interest in the equity affiliates; unrealizedassociates; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The Group’s investment in equity affiliatesassociates includes goodwill identified on acquisition, net of any accumulated loss and is tested for impairment as part of the overall balance. Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired associate at the date of acquisition.
 
A listing of the Group’s principal equity affiliatesassociates is shown in Note 19.17.

F-13

PETROCHINA COMPANY LIMITED(c)  Investments in jointly controlled entities
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
(c) Investments in jointly controlled entities
Jointly controlled entities are those over which the Group has contractual arrangements to jointly share control with one or more parties. The Group’s interest in joint venturesjointly controlled entities is accounted for by the equity method of accounting (Note 3(b)) in the consolidated financial statements.
 
A listing of the Group’s principal jointly controlled entities is shown in Note 19.17.
(d) Transactions with minority interest
(d)  Transactions with non-controlling interest
 
The Group applies a policy of treating transactions with minority interestnon-controlling interests as transactions with equity participantsowners in their capacity as owners of the Group. Gains and losses resulting from the disposals to minority interestnon-controlling interests are recorded in equity. The differences between any consideration paid and the relevant share of the carrying value of net assets of the subsidiary acquired resulting from the purchase from minority interest,non-controlling interests, are recorded in equity.
(e) Foreign currencies
(e)  Foreign currencies
 
Items included in the financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). Most assets and operations of the Group are located in the PRC (Note 38), and the functional currency of the Company and most of the consolidated subsidiaries is RMB. For the majority of the overseas oil and gas exploration and production operations, the functional currency is United States Dollar.Renminbi (“RMB”). The consolidated financial statements and the balance sheet of the Company are presented in RMB which is the presentation currency of the Company and most of the consolidated subsidiaries.RMB.


F-9

PETROCHINA COMPANY LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(Amounts in millions unless otherwise stated)
Foreign currency transactions of the Group are accounted for at the exchange rates prevailing at the daterespective dates of the transactions; monetary assets and liabilities denominated in foreign currencies are translated at balance sheetexchange rates at the date exchange rates;of the statement of financial position; gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities are recognizedrecognised in the consolidated statements of income. Statements of income and cash flows ofprofit or loss.
For the Group’sGroup entities that have a functional currency different from the Group’s presentation currency, assets and liabilities for each statement of financial position presented are translated intoat the Group’s presentation currencyclosing rate at the date of the statement of financial position. Income and expenses for each statement of comprehensive income presented are translated at the average exchange rates for each period and the year and their balance sheets are translated at theresulting exchange rates at the balance sheet date. Currency translation differences are recognizedrecognised in shareholders’ equity.other comprehensive income.
 The Group did not enter into material hedge contracts during any of the years presented. No foreign currency exchange gains or losses were capitalized in any of the years presented.
(f) Financial instruments
      Financial instruments carried at the balance sheet date include cash(f)  Property, plant and cash equivalents, investments (including available-for-sale investments and time deposits), receivables, payables, lease obligations and debts. Where necessary, the particular recognition methods adopted are disclosed in the individual policy statements associated with each item.equipment
 Derivatives are initially recognized at fair value on the date a derivative contract is entered into with subsequent changes in the fair value recognized in the consolidated statements of income. The Group did not hold any derivative financial instruments for hedging or risk management purposes in any of the years presented.

F-14

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
(g) Investments
      The Group classifies its investments into the following categories: at fair value through income or loss,held-to-maturity, loans and receivables and available-for-sale.
      Investments that are acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as investments at fair value through income or loss and included in current assets. The Group did not hold any investments in this category in any of the years presented.
      Investments with fixed maturity that the management has the intent and ability to hold to maturity are classified asheld-to-maturity and are included in current assets if their respective maturity dates are twelve months or less from balance sheet date, or in non-current assets if their respective maturity dates are more than twelve months from balance sheet date; the Group did not hold any investments in this category in any of the years presented.
      Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months from the balance sheet date. These are classified as non-current assets. Loans and receivables are initially recorded at fair value and subsequently at amortized cost.
      Available-for-sale investments are non-derivatives that are either designated in this category or not classified in any other categories; these are included in non-current assets unless management intends to dispose of the investment within twelve months of the balance sheet date. Management determines the appropriate classification of the investments at the time of the purchase andre-evaluates such designation on a regular basis.
      Regular purchases and sales of available-for-sale investments are recognized on settlement date, the date that the asset is delivered to or by the Group (the effective acquisition or sale date). Available-for-sale investments are initially recognized at fair value plus transaction costs. Available-for-sale investments are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership in the investment. Available-for-sale investments are measured at fair value except where there are no quoted market prices in active markets and the fair values cannot be reliably measured using valuation techniques. Available-for-sale investments carried at cost are subject to review for impairment.
     (h) Property, plant and equipment
Property, plant and equipment, including oil and gas properties (Note 3(i)3(g)), are initially recorded at cost less accumulated depreciation, depletion and amortization.amortisation. Cost represents the purchase price of the asset and other costs incurred to bring the asset into existing use. Subsequent to their initial recognition, property, plant and equipment are carried at revalued amounts. Revaluations are performed by independent qualified valuers periodically.on a periodic basis.
 
In the intervening years between independent revaluations, the directors review the carrying values of the property, plant and equipment and adjustment isadjustments are made whereif the carrying value differsvalues differ materially from their respective fair value.values.
 
Increases in the carrying amountvalues arising on revaluationfrom revaluations are credited torecognised in other comprehensive income and accumulated in equity under the heading of revaluation reserve. Decreases in valuation of property, plant and equipmentthe carrying values arising from revaluations are first offset against increases from earlier revaluations in respect of the same assetassets and are thereafter charged to the consolidated statements of income.profit or loss. All other decreases in valuationcarrying values are charged to the consolidated statements of income.

F-15

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share dataprofit or unless otherwise stated)
loss. Any subsequent increases are credited to the consolidated statements of incomeprofit or loss up to the amountrespective amounts previously charged.
 
Revaluation surpluses realizedrealised through the depreciation or disposal of revalued assets are retained in the revaluation reserve and will not be available for offsetting against possible future revaluation losses.
 
Depreciation, to write off the cost or valuation of each asset, other than oil and gas properties (Note 3(i)3(g)), to their residual values over their estimated useful lives is calculated using the straight-line method.
 
The Group uses the following useful lives for depreciation purposes:
   
Buildings 20-408-40 years
PlantEquipment and equipmentMachinery 10-254-30 years
Motor vehicles 7-154-14 years
Other5-12 years
 
No depreciation is provided foron construction in progress until theythe assets are completed and ready for use.
 
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each balance sheet date.reporting period.
 
Property, plant and equipment, including oil and gas properties (Note 3(i)3(g)), are reviewed for possible impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognizedrecognised for the amount by which the carrying amount of a cash generating unit exceeds the


F-10

PETROCHINA COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(Amounts in millions unless otherwise stated)
higher of its fair value less costs to sell and its value in use, which is the estimated net present value of future cash flows to be derived from the continuing use of the assets.cash generating unit.
 
Gains and losses on disposaldisposals of property, plant and equipment are determined by reference to their carrying amountamounts and are recorded in the consolidated statements of income.profit or loss.
 
Interest and other costs on debtsborrowings to finance the construction of property, plant and equipment are capitalizedcapitalised during the period of time that is required to complete and prepare the propertyasset for its intended use. Costs for planned majorrepairs and maintenance activities primarily related to refinery turnarounds, are expensed as incurred except for costs of components that result in improvements andor betterments which are capitalizedcapitalised as part of property, plant and equipment and depreciated over their useful lives.
     (i) Oil and gas properties
(g)  Oil and gas properties
 
The successful efforts method of accounting is used for oil and gas exploration and production activities. Under this method, all costs for development wells, support equipment and facilities, and proved mineral interests in oil and gas properties are capitalized.capitalised. Geological and geophysical costs are expensed when incurred. Costs of exploratory wells are capitalizedcapitalised as construction in progress pending determination of whether the wells find proved oil and gas reserves. Proved oil and gas reserves are the estimated quantities of crude oil natural gas and natural gas, liquids which, geologicalby analysis of geoscience and engineering data, demonstratecan be estimated with reasonable certainty to be recoverable in future yearseconomically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and operatinggovernment regulation before the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether the estimate is a deterministic estimate or probabilistic estimate. Existing economic conditions i.e.,include prices and costs asat which economic producibility from a reservoir is to be determined. The price shall be the average price during the12-month period before the ending date of the dateperiod covered by the estimate is made. Prices include considerationreport, determined as an unweighted arithmetic average of changes in existingthefirst-day-of-the-month price for each month within such period, unless prices provided onlyare defined by contractual arrangements, but not onexcluding escalations based upon future conditions. The costs shall be that prevailing at the end of the period.
Exploratory wells in areas not requiring major capital expenditures are evaluated for economic

F-16

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
viability within one year of completion of drilling. The related well costs are expensed as dry holes if it is determined that such economic viability is not attained. Otherwise, the related well costs are reclassified to oil and gas properties and are subject to impairment review (Note 3(h)3(f)). For exploratory wells that are found to have economically viable reserves in areas where major capital expenditure wouldwill be required before production can begin,commence, the related well costs remain capitalizedcapitalised only if additional drilling is under wayunderway or firmly planned. Otherwise the related well costs are expensed as dry holes. The Group does not have any significant costs of unproved properties capitalizedcapitalised in oil and gas properties.
 
The Ministry of Land and Resources in China issues production licenses to applicants on the basis of the reserve reports approved by relevant authorities. Administrative rules issued by the State Council provide that the maximum term of a production license is 30 years. However, in accordance with a special approval from the State Council, the Ministry of Land and Resources has issued production licenses effective from March 2000 to the Group for all of its crude oil and natural gas reservoirs with terms coextensive with the projected production life of those reservoirs, ranging up to 55 years. Production licenses to be issued to the Group in the future will be subject to the30-year maximum unless additional special approvals can be obtained from the State Council. Each of the Group’s production licenses is renewable upon application by the Group 30 days prior to expiration. Future oil and gas price increases may extend the productive lives of crude oil and natural gas reservoirs beyond the current terms of the relevant production licenses. Payments on such licenses are made annually and are expensed as incurred.
 
The cost of oil and gas properties is amortizedamortised at the field level based on the unitunits of production method. UnitUnits of production rates are based on oil and gas reserves estimated to be recoverable from existing facilities based on the current terms of the Group’s production licenses. The Group’s oil and gas reserves estimates include only crude oil and natural gas which management believes can be reasonably produced within the current terms of these production licenses.
     (j) Intangible assets
(h)  Intangible assets
 Expenditure
Expenditures on acquired patents, trademarks, technical know-how and licenses is capitalizedare capitalised at historical cost and amortizedamortised using the straight-line method over their estimated useful lives, generally over 10 years.lives. Intangible assets are not subsequently revalued. The carrying amount of each intangible asset is reviewed annually and adjusted for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognizedrecognised whenever the carrying amount of an asset exceeds its recoverable amount and is recognizedrecognised in the


F-11

PETROCHINA COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(Amounts in millions unless otherwise stated)
consolidated statements of income.profit or loss. The recoverable amount is measured as the higher of fair value less costs to sell and value in use which is the estimated net present value of estimated future cash flows to be derived from continuing usethe asset.
(i)  Financial assets
Financial assets are classified into the following categories: financial assets at fair value through profit or loss,held-to-maturity investments, loans and receivables andavailable-for-sale financial assets. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. The Group has only loans and receivables andavailable-for-sale financial assets. The detailed accounting policies for loans and receivables andavailable-for-sale financial assets held by the Group are set out below.
(i)  Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months after the date of the asset.statement of financial position, which are classified as non-current assets. The Group’s loans and receivables comprise accounts receivable, notes receivable, other receivables, time deposits and cash and cash equivalents. The recognition methods for loans and receivables are disclosed in the respective policy notes.
(k) Leases
(ii)  Available-for-sale financial assets
 
Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories; these are included in non-current assets unless management intends to dispose of the investment within 12 months of the date of the statement of financial position. The Group’savailable-for-sale financial assets primarily comprise unquoted equity instruments.
Regular purchases and sales ofavailable-for-sale financial assets are recognised on settlement date, the date that the asset is delivered to or by the Group (the effective acquisition or sale date).Available-for-sale financial assets are initially recognised at fair value plus transaction costs.Available-for-sale financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership in the investment.Available-for-sale financial assets are measured at fair value except where there are no quoted market prices in active markets and the fair values cannot be reliably measured using valuation techniques.Available-for-sale financial assets that do not have quoted market prices in active markets and whose fair value cannot be reliably measured are carried at cost. The Group assesses at each date of the statement of financial position whether there is objective evidence that anavailable-for-sale financial asset is impaired. The amount of the impairment loss is measured as the difference between the carrying amount of theavailable-for-sale financial asset and the present value of the estimated cash flows.
(j)  Leases
Leases of property, plant and equipment where the Group assumes substantially all the benefits and risks of ownership are classified as capitalfinance leases. Capital leases are capitalized at the inception of the lease at the lower of the fair value of the leased property and the estimated present value of the underlying lease payments. Each lease payment is allocated between the liability andThe Group has no significant finance charges so as to achieve a constant rate on the finance balance outstanding. Property, plant and equipment acquired under capital leases are generally depreciated over the useful life of the asset as the Group usually obtains ownership of such leased assets by the end of the lease term.leases.
 
Leases of assets under which a significant portion of the risks and benefits of ownership are effectively retained by the lessorlessors are classified as operating leases. Payments made under operating

F-17

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
leases (net of any incentives received from the lessor)lessors) are expensed on a straight-line basis over the lease term.terms. Payments made to the PRC’s land authorities to secure land use rights are treated as operating leases. Land use rights are generally obtained through advance lump-sum payments and the terms forof use range up to 50 years.


F-12

(l) Related parties
PETROCHINA COMPANY LIMITED
      Related parties include CNPC and its subsidiaries, other state-controlled enterprises and their subsidiaries directly or indirectly controlled by the PRC government, corporations in which the Company is able to control or exercise significant influence, key management personnel of the Company and CNPC and their close family members.
 Transactions with related parties do not
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(Amounts in millions unless otherwise stated)
(k)  Inventories
Inventories include those done in the ordinary course of business with terms consistently applied to all public and private entities and where there is no choice of supplier such as electricity, telecommunications, postal service and local government retirement funds.
(m) Inventories
      Inventories are oil products, chemical products and materials and supplies which are stated at the lower of cost and net realizablerealisable value. Cost is primarily determined by the weighted average cost method. The cost of finished goods comprises raw materials, direct labour, other direct costs and related production overheads, but excludes debt cost.borrowing costs. Net realizablerealisable value is the estimate of theestimated selling price in the ordinary course of business, less the cost of completion and selling expenses.
(n) Accounts receivable
(l)  Accounts receivable
 
Accounts receivable are recognizedrecognised initially at fair value and subsequently measured at amortizedamortised cost using the effective interest method, less provision made for impairment of these receivables. Such provision for impairment of accounts receivable is established if there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The factors the Group considers when assessing whether an account receivable is impaired include but are not limited to significant financial difficulties of the customer, probability that the debtor will enter bankruptcy or financial reorganisation and default or delinquency in payments. The amount of the provision is the difference between the asset’s carrying amount and the present value of expectedestimated future cash flows, discounted at the market rate oforiginal effective interest for similar borrowers.rate.
(o) Cash and cash equivalents
(m)  Cash and cash equivalents
 
Cash and cash equivalents comprise cash in hand, deposits held with banks and highly liquid investments with original maturities of three months or less from the time of purchase.
(p) Debts
(n)  Accounts payable
 Debts
Accounts payable are recognizedrecognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
(o)  Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. In subsequent periods, debtsborrowings are stated at amortizedamortised cost using the effective yield method. Any difference between proceeds (net of transaction costs) and the redemption value is recognizedrecognised in the consolidated statements of incomeprofit or loss over the termsperiod of the debts,borrowings.
Borrowing costs are recognised as an expense in the period in which they are incurred except for the portion eligible for capitalization.capitalisation as part of qualifying property, plant and equipment.
 Debts
Borrowings are classified as current liabilities unless the Group has an unconditional rightrights to defer settlementsettlements of the liabilityliabilities for at least 12 months after the balance sheet date.reporting period.

F-18

PETROCHINA COMPANY LIMITED(p)  Taxation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
(q) Taxation
      The Company has obtained approval from the State Administration for Taxation to report taxable income on a consolidated basis.
Deferred tax is provided in full, using the liability method, for temporary differences arising between the tax bases of assets and liabilities and their carrying values in the financial statements. However, deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable incomeprofit or loss. Currently enactedDeferred tax is determined using tax rates that have been enacted or substantively enacted by the date of the statement of financial position and are usedexpected to determineapply to the period when the related deferred tax.tax asset is realised or deferred tax liability is settled.


F-13

PETROCHINA COMPANY LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(Amounts in millions unless otherwise stated)
The principal temporary differences arise from depreciation on oil and gas properties and equipment and provision for impairment of receivables, inventories, investments and property, plant and equipment. Deferred tax assets relating to the carryforwardcarry forward of unused tax losses are recognizedrecognised to the extent that it is probable that future taxable income will be available against which the unused tax losses can be utilized.utilised.
 
The Group also incurs various other taxes and levies that are not income taxes. “Taxes other than income taxes”, which form part of the operating expenses, primarily comprise a special levy on domestic sales of crude oil (See Note 7)(Note 9), consumption tax (Note 9), resource tax, urban construction tax, education surcharges and business tax.
(r) Revenue recognition
(q)  Revenue recognition
 
Sales are recognizedrecognised upon delivery of products and customer acceptance or performance of services, net of sales taxes and discounts. Revenues are recognizedrecognised only when the Group has transferred to the buyer the significant risks and rewards of ownership of the goods in the ordinary course of the Group’s activities, and when the amount of revenue and the costs incurred or to be incurred in respect of the transaction can be measured reliably and collectability of the related receivables is reasonably assured.
 
The Group markets a portion of its natural gas production undertake-or-pay contracts. Customers under thetake-or-pay contracts are required to take or pay for the minimum natural gas deliveries specified in the contract clauses. Revenue recognition for natural gas sales and transmission tariff under thetake-or-pay contracts follows the accounting policies described in this note. Payments received from customers for natural gas not yet taken are recorded as deferred revenues until actual deliveries take place.
 The Group reports gross the revenue under take-or-pay contracts in the consolidated statements of income. As a result of a communication to the oil and gas industry issued by the US Securities and Exchange Commission in February 2005 requesting additional disclosures regarding buy/sell contracts, the Group reviewed such contracts and estimated that, if buy/sell contracts were reported net, both “Sales and other operating revenues” and “Purchase, services and other” for the years ended December 31, 2004, 2005 and 2006 would be reduced by RMB 2,217, RMB 1,384 and RMB 2,119, respectively, with no impact on net income.
(r)  Provisions
(s) Provisions
 
Provisions are recognizedrecognised when the Group has a present legal or constructive obligationobligations as a result of past events, it is probable that an outflow of resources will be required to settle the obligation,obligations, and a reliable estimateestimates of the amountamounts can be made.

F-19

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
Provision for future decommissioning and restoration is recognizedrecognised in full on the installation of oil and gas properties. The amount recognizedrecognised is the present value of the estimated future expenditure determined in accordance with local conditions and requirements. A corresponding addition to the related oil and gas properties of an amount equivalent to the provision is also created. This is subsequently depreciated as part of the costs of the oil and gas properties. Any change in the present value of the estimated expenditure other than the one due to passage of time which is regarded as interest cost,expense, is reflected as an adjustment to the provision and oil and gas properties.
(t) Research and development
(s)  Research and development
 
Research expenditure incurred is recognizedrecognised as an expense. Costs incurred on development projects are recognizedrecognised as intangible assets to the extent that such expenditure is expected to generate future economic benefits. Research and development expenses were RMB 2,977, RMB 3,195 and RMB 4,260 for the years ended December 31, 2004, 2005 and 2006, respectively.
(u) Retirement benefit plans
(t)  Retirement benefit plans
 
The Group contributes to various employee retirement benefit plans organised by ChinesePRC municipal and provincial governments under which it is required to make monthly contributions to these plans at prescribed rates prescribed by the related municipal and provincial governments.for its employees in China. The Chineserelevant PRC municipal and provincial governments undertake to assume the retirement benefit obligations of existing and future retired Chinese employees of the Group.Group in China. The Group has similar retirement benefit plans for its employees in its overseas operations. Contributions to these PRC and overseas plans are charged to expense as incurred. In addition, the Group joined the corporate annuity plan approved by relevant PRC authorities. Contribution to the annuity plan is charged to expense as incurred.


F-14

PETROCHINA COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(Amounts in millions unless otherwise stated)
The Group currently has no additional material obligations outstanding for the payment of retirement and other post-retirement benefits of employees in Chinathe PRC or overseas other than the monthly contributionswhat described above.
(v) Share-based compensation — Share appreciation rights
(u)  New accounting developments
 Compensation under
(i)  New and amended standards adopted by the share appreciation rights is measured basedGroup
The Group adopted the following relevant new and amended IFRSs as of January 1, 2009:
IFRS 7 ‘Financial instruments — Disclosures’ (Amendment) — effective January 1, 2009. The amendment requires enhanced disclosures about fair value measurement and liquidity risk. In particular, the amendment requires disclosure of fair value measurements by level of a fair value measurement hierarchy. The amendment did not have a material impact on the fair value of the liability incurred and is expensed over the vesting period. The liability is remeasured at each balance sheet date to its fair value until settlement with all changes included in employee compensation costdisclosures in the consolidated statementsfinancial statements.
IFRS 8, ‘Operating segments’ — effective January 1, 2009. IFRS 8 replaces IAS 14, ‘Segment reporting’. It requires a ‘management approach’ under which segment information is presented on the same basis as that used for internal reporting purposes (Note 38).
IAS 1 (Revised), ‘Presentation of income;financial statements’ — effective January 1, 2009. The revised standard requires all changes in equity arising from transactions with owners in their capacity as owners and the related liability is includedcurrent and deferred tax impacts be presented separately from non-owner changes in the salariesequity. Recognised income and welfare payable. expenses shall be presented in a single statement (a statement of comprehensive income) or in two statements (a statement of profit and loss and a statement of comprehensive income), separately from owner changes in equity.
The Group doeshas elected to present recognised income and expenses in a single statement of comprehensive income and these consolidated financial statements have been prepared under the revised disclosure requirements.
IAS 19 (Amendment), ‘Employee benefits’ — effective January 1, 2009. The amendment clarifies that the distinction between short-term and long-term employee benefits will be based on whether benefits are due to be settled within or after 12 months of employee service being rendered. The amendment did not have any significant impact on the consolidated financial statements.
IAS 23 (Amendment), ‘Borrowing costs’ — effective January 1, 2009. The amendment requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. The option of immediately expensing those borrowing costs will be removed. The amendment did not have any impact on the consolidated financial statements as the Group has always capitalised borrowing costs directly attributable to the acquisition, construction or production of qualifying assets.
IAS 24 (Revised), ‘Related Party Disclosures’ — effective January 1, 2011. The revised standard exempts disclosures in relation to related party transactions and outstanding balances, including commitments, with a government that has control, joint control or significant influence over the reporting entity and another entity that is related party because the same government has control, joint control or significant influence over both the reporting entity and the other share-based compensation.entity. The Group has elected to early adopt the partial exemption in paragraphs 25 -27 of the revised standard for government-related entities from January 1, 2009.
(w) New accounting developments
IAS 28 (Amendment), ‘Investments in associates’ — effective January 1, 2009. The amendment requires an investment in an associate be treated as a single asset for the purposes of impairment testing and any impairment loss is not allocated to specific assets included within the investment, for example, goodwill. Reversals of impairment are recorded as an adjustment to the investment balance to the extent that the recoverable amount of the associate increases. The amendment did not have any significant impact on the consolidated financial statements.
 (1) New standards
IAS 36 (Amendment), ‘Impairment of assets’ — effective January 1, 2009. The amendment requires that where fair value less costs to sell is calculated on the basis of discounted cash flows, disclosures equivalent to those


F-15

PETROCHINA COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(Amounts in millions unless otherwise stated)
forvalue-in-use calculation should be made. The amendment did not have any significant impact on the consolidated financial statements.
IAS 38 (Amendment), ‘Intangible assets’ — effective January 1, 2009. The amendment requires a prepayment only be recognised in the event that payment has been made in advance of obtaining right of access to goods or receipt of services. The amendment did not have any significant impact on the consolidated financial statements.
(ii)  Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group
 
The following new standard and interpretationsrelevant IFRSs, amendments to existing standardsIFRSs and interpretation of IFRSs have been published thatand are mandatory for accounting periods beginning on or after MayJanuary 1, 20062010 or later periods but thatand have not been early adopted by the Group has not early adopted:Group:
• IFRS 7, Financial Instruments: Disclosures, and the complementary Amendment to IAS 1, Presentation of Financial Statements — Capital Disclosures
IFRS 7 introduces new disclosures relating3 (Revised), ‘Business combinations’. The revised standard continues to financial instruments. The Group does not expectapply the standardacquisition method to have any impactbusiness combinations, with some significant changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the statement of comprehensive income. There is a choice on anacquisition-by-acquisition basis to measure the classification and valuationnon-controlling interest in the acquiree either at fair vale or at the non-controlling interest’s proportionate share of the Group’s financial instruments.
• IFRIC Interpretation 10, Interim Financial Reporting and Impairment (effective for annual periods beginning on or after November 1, 2006)

F-20

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
      IFRIC Interpretation 10 prohibits the impairment losses recognized in an interim period on goodwill, investments in equity instruments and investments in financial assets carried at cost toacquiree’s net assets. All acquisition-related costs should be reversed at a subsequent balance sheet date.expensed. The Group will apply IFRIC Interpretation 10 fromthe revised standard prospectively to all business combinations for which the acquisition date is on or after January 1, 2007,2010.
IFRS 5 (Amendment), ‘Non-current assets held for sale and discontinued operations’ — effective July 1, 2009. The amendment clarifies that all of a subsidiary’s assets and liabilities are classified as held for sale if a partial disposal plan results in loss of control, and relevant disclosure should be made for this subsidiary if the definition of a discontinued operation is met. The Group is currently evaluating the impact of the amendment on the consolidated financial statements but it is not expected to have any significant impact.
IFRS 5 (Amendment), ‘Measurement of non-current assets (or disposal groups) classified asheld-for-sale’ — effective January 1, 2010. The amendment is part of the IASB’s annual improvements project published in April 2009. The amendment provides clarification that IFRS 5 specifies the disclosures required in respect of non-current assets (or disposal groups) classified asheld-for-sale or discontinued operations. It also clarifies that the general requirement of IAS 1 still apply, particularly paragraph 15 (to achieve a fair presentation) and paragraph 125 (sources of estimation uncertainty) of IAS 1. The Group is currently evaluating the impact of the amendment on the disclosures in the consolidated financial statements but it is not expected to have any significant impact.
IAS 1 (Amendment), ‘Presentation of financial statements’ — effective January 1, 2010. The amendment is part of the IASB’s annual improvements project published in April 2009. The amendment provides clarification that the potential settlement of a liability by the issuance of equity is not relevant to its classification as current or non current. By amending the definition of current liability, the amendment permits a liability to be classified as non-current (provided that the entity has an unconditional right to defer settlement by transfer of cash or other assets for at least 12 months after the accounting period) notwithstanding the fact that the entity could be required by the counterparty to settle in shares at any time. The Group is currently evaluating the impact of the amendment on the consolidated financial statements.statements but it is not expected to have any significant impact.
 (2) Interpretations
IAS 27 (Revised), ‘Consolidated and separate financial statements’ — effective July 1, 2009. The revised standard requires the effects of all transactions with non-controlling interests to existing standards that are not yetbe recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. IAS 27 (Revised) also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value and a gain or loss is recognised in profit or loss. The Group will apply the revised standard prospectively to transactions with non-controlling interests from January 1, 2010.


F-16

PETROCHINA COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(Amounts in millions unless otherwise stated)
IAS 38 (Amendment), ‘Intangible Assets’ — effective and not relevant for the Group’s operations
January 1, 2010. The following interpretations to existing standards have been published that are mandatory for accounting periods beginning on or after May 1, 2006 or later periods but are not relevant for the Group’s operations:
• IFRIC Interpretation 7, Applying the Restatement Approach under IAS 29, Financial Reporting in Hyperinflationary Economies (effective from March 1, 2006)
• IFRIC Interpretation 9, Reassessment of Embedded Derivatives (effective for annual periods beginning on or after June 1, 2006)
(x) Convenience translation
      The consolidated financial statements are expressed in RMB. Solely for the convenienceamendment is part of the reader,IASB’s annual improvements project published in April 2009 and the December 31, 2006,Group will apply IAS 38 (Amendment) from the date IFRS 3 (Revised) is adopted. The amendment clarifies guidance in measuring the fair value of an intangible asset acquired in a business combination and it permits the grouping of intangible assets as a single asset if each asset has similar useful economic lives. The Group is currently evaluating the impact of the amendment on the consolidated financial statements but it is not expected to have any significant impact.
4  FINANCIAL RISK AND CAPITAL MANAGEMENT
4.1  Financial risk factors
The Group’s activities expose it to a variety of financial risks, including market risk, credit risk and liquidity risk.
(a)  Market risk
(i)  Foreign exchange risk
The Group conducts its business primarily in RMB, but maintains a portion of its assets in other currencies to pay for imported crude oil, imported equipment and other materials and to meet foreign currency financial liabilities. The Group is exposed to currency risks arising from fluctuations in various foreign currency exchange rates against the RMB. The RMB is not a freely convertible currency and is regulated by the PRC government. Limitations on foreign exchange transactions imposed by the PRC government could cause future exchange rates to vary significantly from current or historical exchange rates. The Group did not enter into material hedge contracts to hedge against its foreign exchange rate risk during the current year.
(ii)  Interest rate risk
The Group has no significant interest rate risk on interest-bearing assets. The Group’s exposure to interest rate risk arises from its borrowings. The Group’s borrowings at floating rates expose the Group to cash flow interest rate risk and its borrowings at fixed rates expose the Group to fair value interest rate risk. However, the exposure to interest rate risk is not material to the Group. A detailed analysis of the Group’s borrowings, together with their respective interest rates and maturity dates, is included in Note 28.
(iii)  Price risk
The Group is engaged in a wide range of petroleum-related activities. Prices of crude oil and petroleum products are affected by a wide range of global and domestic factors which are beyond the control of the Group. The fluctuations in such prices may have favourable or unfavourable impacts on the Group.
(b)  Credit risk
Credit risk arises from cash and cash equivalents, time deposits with banks and credit exposure to customers with outstanding receivable balances.
A substantial portion of the Group’s cash at bank and time deposits are placed with the major state-owned banks and financial institutions in China and management believes that the credit risk is low.
The Group performs ongoing assessment of the credit quality of its customers and sets appropriate credit limits taking into account the financial position and past history of defaults of customers. The Group’s accounts receivable balances over 3 years have been translated into United States dollarssubstantially provided for and accounts receivable balances within one year are generally neither past due nor impaired. The Group’s accounts receivable balances that are neither past due nor impaired are with customers with no recent history of default.


F-17

PETROCHINA COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(Amounts in millions unless otherwise stated)
The carrying amounts of cash and cash equivalents, time deposits placed with banks, accounts receivable, other receivables and notes receivable included in the consolidated statement of financial position represent the Group’s maximum exposure to credit risk. No other financial assets carry a significant exposure to credit risk.
The Group has no significant concentration of credit risk.
(c)  Liquidity risk
The Group’s liquidity risk management involves maintaining sufficient cash and cash equivalents and availability of funding through an adequate amount of committed credit facilities.
Given the low level of gearing and continued access to funding, the Group believes that its liquidity risk is not material.
Analysis of the Group’s financial liabilities based on the remaining period at the noon buying ratedate of the statement of financial position to the contractual maturity dates are presented in New York CityNote 28.
4.2  Capital management
The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, optimise returns for owners and to minimise its cost of capital. In meeting its objectives of managing capital, the Group may issue new shares, adjust its debt levels or the mix between short-term and long-term borrowings.
The Group monitors capital on the basis of the gearing ratio which is calculated as interest-bearing borrowings/(interest-bearing borrowings + total equity). The gearing ratio at December 31, 2006 for cable transfer2009 is 20.5% (2008: 13.0%).
4.3  Fair value estimation
The methods and assumptions applied in RMB as certified for customs purposes bydetermining the Federal Reserve Bankfair value of New Yorkeach class of US$1.00 = RMB 7.8041. No representation is made thatfinancial assets and financial liabilities of the RMB amounts could have been, or could be, converted into United States dollarsGroup at that rate or at any other certain rate on December 31, 2006, or at any2009 and 2008 are disclosed in the respective accounting policies.
The carrying amounts of the following financial assets and financial liabilities approximate their fair value as all of them are short-term in nature: cash and cash equivalents, time deposits with maturities over three months but within one year, accounts receivable, other date.receivables, trade payables, other payables and short-term borrowings. The fair values of fixed rate long-term borrowings are likely to be different from their respective carrying amounts. Analysis of the fair values and carrying amounts of long-term borrowings are presented in Note 28.
4CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
5  CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
 
Estimates and judgements are continuallyregularly evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
 
The matters described below are considered to be the most critical in understanding the estimates and judgements that are involved in preparing the Group’s consolidated financial statements.
(a)  Estimation of oil and natural gas reserves
Estimates of oil and natural gas reserves
      Oil and nature gas reserves are key elements in the Group’s investment decision-making process. They are also an important element in testing for impairment. Changes in proved oil and natural gas reserves, particularly proved developed reserves, will affectunit-ofunit-of-production-production depreciation, depletion and amortization charges to the consolidated statement of income. Proved reserve estimates are subject to revision, either upward or downward, based on new information, such as from development drilling and production activities or from changes in economic factors, including product prices, contract terms or development plans. In general, changes in the technical maturity of oil and natural gas reserves resulting from new information becoming available from development and production activities have tended to be the most significant cause of annual revisions. Changes to the Group’s estimates of proved reserves, particularly proved developed reserves, affect the amount of depreciation, depletion and amortizationamortisation recorded in the Group’s consolidated financial statements for property, plant and equipment related to oil and gas production activities. A reduction

F-21

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
in proved developed reserves will increase depreciation, depletion and amortization charges (assuming constant production)amortisation charges. Proved reserve estimates are subject to revision, either upward or downward, based on new


F-18

PETROCHINA COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(Amounts in millions unless otherwise stated)
information, such as from development drilling and reduce net income.production activities or from changes in economic factors, including product prices, contract terms, evolution of technology or development plans.
(b) Estimated impairment of property, plant and equipment
(b)  Estimation of impairment of property, plant and equipment
 
Property, plant and equipment, including oil and gas properties, are reviewed for possible impairmentimpairments when events or changes in circumstances indicate that the carrying amount may not be recoverable. Determination as to whether and how much an asset is impaired involves management estimates and judgements such as the future pricesprice of crude oil, refined products and chemical products and the production profile. However, the impairment reviews and calculations are based on assumptions that are consistent with the Group’s business plan. These assumptions also include those relative to the pricing regulations by the regulatory agencies in China that the policies will not restrict the profit margins of refined products to levels that will be insufficient to recover the carrying cost of the related production assets. Favorableplans. Favourable changes to some assumptions may allow the Group to avoid the need to impair any assets in these years, whereas unfavourable changes may cause the assets to become impaired.
(c) Estimation of asset retirement obligations
(c)  Estimation of asset retirement obligations
 Provisions are recognized
Provision is recognised for the future decommissioning and restoration of oil and gas properties. The amounts of the provisions recognizedprovision recognised are the present values of the estimated future expenditures. The estimation of the future expenditures is based on current local conditions and requirements, including legal requirements, technology, price level, etclevels, etc. In addition to these factors, the present valuesvalue of these estimated future expenditures are also impacted by the estimation of the economic lifelives of oil and gas properties. Changes in any of these estimates will impact the operating results and the financial position of the Group over the remaining economic lifelives of the oil and gas properties.
5EMPLOYEE COMPENSATION COSTS
             
  Year Ended December 31,
   
  2004 2005 2006
       
  RMB RMB RMB
Wages and salaries  15,449   19,351   26,629 
Social security costs(i)
  7,485   10,324   12,532 
          
   22,934   29,675   39,161 
          
6  TURNOVER
 
Turnover represents revenues from the sale of crude oil, natural gas, refined products and petrochemical products and from the transportation of crude oil, refined products and natural gas. Analysis of turnover by segment is shown in Note 38.


F-19

(i) Social security costs mainly represent contributions to funds for staff welfare organized by the PRC municipal and provincial governments including contribution to the retirement benefit plans (See Note 29).

F-22

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)
7  PROFIT BEFORE INCOME TAX EXPENSE
             
  2009 2008 2007
  RMB RMB RMB
 
Items credited and debited in arriving at the profit before income tax expense include:            
Credited            
Dividend income fromavailable-for-sale financial assets
  177   252   126 
Reversal of provision for impairment of receivables  240   184   2,473 
Reversal of write down in inventories  23   15   98 
Government grants(i)  1,097   16,914   1,197 
Charged            
Amortisation on intangible and other assets  2,153   1,888   1,507 
Auditors’ remuneration  80   95   119 
Cost of inventories recognised as expense  613,702   662,758   459,281 
Provision for impairment of receivables  117   188   155 
Loss on disposal of property, plant and equipment  1,642   2,602   1,808 
Operating lease expenses  7,367   6,819   7,448 
Research and development expenses  9,887   7,760   5,315 
Write down in inventories  377   8,608   153 
6(i)SHUT DOWN OF MANUFACTURING ASSETSGovernment grants during the year 2008 primarily comprise financial support measures provided by the PRC government to ensure supply of crude oil and refined products in the domestic market implemented from 2008.
 During
8  EMPLOYEE COMPENSATION COSTS
             
  2009 2008 2007
  RMB RMB RMB
 
Wages, salaries and allowances  44,202   39,008   32,856 
Social security costs  21,775   23,159   18,084 
             
   65,977   62,167   50,940 
             
Social security costs mainly represent contributions to plans for staff welfare organised by the years ended December 31, 2004, 2005PRC municipal and 2006,provincial governments and others including contributions to the Group provided RMB 220, RMB Nil and RMB Nil respectively for the shut down of certain less efficient operating facilities in the refining and chemical manufacturing plants.
      The charge of RMB 220 provided for in the year ended December 31, 2004 represented the net book value of the refining facilities (RMB 192) and chemical facilities (RMB 28)retirement benefit plans (Note 33).
 There were no employee termination or relocation costs relating to the shut down of these manufacturing equipments.
9  TAXES OTHER THAN INCOME TAXES
7TAXES OTHER THAN INCOME TAXES
 
Taxes other than income taxes include consumption taxes of RMB Nil, RMB Nil and RMB 28,91482,429 for the year ended December 31, 2004, 20052009 (2008: RMB 13,570, 2007: RMB 12,931) and 2006 of special levy which is paid or payablelevies on the portion of income realized by petroleum exploration enterprises from thedomestic sales of domestic crude oil at prices higher thanof RMB 20,020 for the year ended December 31, 2009 (2008: RMB 85,291, 2007: RMB 44,662).


F-20

PETROCHINA COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(Amounts in millions unless otherwise stated)
10  INTEREST EXPENSE
             
  2009 2008 2007
  RMB RMB RMB
 
Interest on            
Bank loans            
— wholly repayable within five years  1,339   2,065   2,058 
— not wholly repayable within five years  90   22   181 
Other loans            
— wholly repayable within five years  4,624   1,365   1,643 
— not wholly repayable within five years  477   598   327 
Accretion expense (Note 32)  1,943   1,746   1,202 
Less: Amounts capitalised  (3,201)  (2,752)  (1,738)
             
   5,272   3,044   3,673 
             
Amounts capitalised are borrowing costs that are attributable to the construction of a specific level. This levyqualifying asset. The average interest rate used to capitalise such borrowings cost was imposed by5.184% per annum for the PRC governmentyear ended December 31, 2009.
11  EMOLUMENTS OF DIRECTORS AND SUPERVISORS
Details of the emoluments of directors and became effective from March 26, 2006.supervisors for the years ended December 31, 2009, 2008 and 2007 are as follows:
                         
  2009 2008 2007
  Fee for
 Salaries,
        
  Directors
 Allowances
 Contribution
      
  and
 and Other
 to Retirement
      
Name
 Supervisors Benefits Benefit Scheme Total Total Total
  RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
 
Chairman:
                        
Mr. Chen Geng(i)  —   —   —   —   —   598 
Mr. Jiang Jiemin  —   —   —   —   —   916 
                         
   —   —   —   —   —   1,514 
                         
Vice Chairman:
                        
Mr. Zhou Jiping  —   737   37   774   515   — 
Executive directors:
                        
Mr. Duan Wende(iii)  —   —   —   —   366   824 
Mr. Liao Yongyuan  —   710   37   747   869   — 
                         
   —   710   37   747   1,235   824 
                         


F-21

PETROCHINA COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(Amounts in millions unless otherwise stated)
                         
  2009 2008 2007
  Fee for
 Salaries,
        
  Directors
 Allowances
 Contribution
      
  and
 and Other
 to Retirement
      
Name
 Supervisors Benefits Benefit Scheme Total Total Total
  RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
 
Non-executive directors:
                        
Mr. Wang Yilin  —   —   —   —   —   — 
Mr. Zeng Yukang  —   —   —   —   —   — 
Mr. Wang Fucheng  —   —   —   —   —   — 
Mr. Wang Guoliang  —   —   —   —   —   — 
Mr. Li Xinhua  —   —   —   —   —   — 
Mr. Jiang Fan  —   494   25   519   569   499 
Mr. Chee-chen Tung  260   —   —   260   249   264 
Mr. Liu Hongru  339   —   —   339   343   349 
Mr. Li Yongwu(ii)  344   —   —   344   197   — 
Mr. Cui Junhui  348   —   —   348   331   — 
Mr. Franco Bernabè  246   —   —   246   243   257 
                         
   1,537   494   25   2,056   1,932   1,369 
                         
Supervisors:
                        
Mr. Chen Ming  —   —   —   —   —   — 
Mr. Wen Qingshan  —   —   —   —   —   — 
Mr. Sun Xianfeng  —   —   —   —   —   — 
Mr. Yu Yibo  —   —   —   —   —   — 
Mr. Xu Fengli(i)  —   —   —   —   —   264 
Mr. Wang Yawei  —   —   —   —   —   — 
Mr. Qin Gang  —   507   34   541   521   469 
Ms. Wang Shali  —   —   —  ��—   —   — 
Mr. Li Yongwu(ii)  —   —   —   —   110   315 
Mr. Zhang Jinzhu(iii)  —   —   —   —   206   333 
Mr. Wu Zhipan(iv)  107   —   —   107   234   319 
Mr. Li Yuan  217   —   —   217   124   — 
Mr. Wang Daocheng(iv)  117   —   —   117   —   — 
                         
   441   507   34   982   1,195   1,700 
                         
   1,978   2,448   133   4,559   4,877   5,407 
                         
8INTEREST EXPENSE
              
  Year Ended December 31,
   
  2004 2005 2006
       
  RMB RMB RMB
Interest on            
 — loans  3,846   3,766   3,739 
 — capital leases  2   1   — 
Accretion expense (Note 25)  54   60   796 
Less: amounts capitalized  (1,006)  (1,065)  (1,315)
          
   2,896   2,762   3,220 
          
      Amounts capitalized are debt costs related to funds borrowed specifically for the purpose of acquiring qualifying assets. Interest rates on such capitalized debts were 5.020% per annum in 2004, 5.265% per annum in 2005 and ranged from 5.265% to 5.832% per annum in 2006.
9(i)INCOME TAXESNo longer a director or supervisor since May 16, 2007.
(ii)Elected as an independent non-executive director in May 16, 2008 and no longer a supervisor since then.
(iii)No longer an executive director or a supervisor since May 16, 2008.
(iv)Mr. Wu Zhipan no longer as a supervisor since May 12, 2009 and Mr. Wang Daocheng was elected as a supervisor since then.
(v)Emoluments exclude the one-off payments by the Company to some of the independent non-executive directors of approximately RMB7.30 million in 2009.
             
  Year Ended December 31,
   
  2004 2005 2006
       
  RMB RMB RMB
Current taxes  40,331   50,221   50,972 
Deferred taxes (Note 26)  3,267   3,959   (1,196)
          
   43,598   54,180   49,776 
          
 
The emoluments of the directors and supervisors fall within the following bands (including directors and supervisors whose term expired during the year):
             
  2009 2008 2007
  Number Number Number
 
RMB Nil — RMB 1 million  24   25   20 
             

F-22

PETROCHINA COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(Amounts in millions unless otherwise stated)
None of the directors and supervisors has waived their remuneration during the year ended December 31, 2009 (2008: None, 2007: None).
The five highest paid individuals in the Company for each of the three years ended December 31, 2009, 2008 and 2007 were also directors or supervisors and their emoluments are reflected in the analysis shown above.
During 2009, 2008 and 2007 the Company did not incur any severance payment to any director for loss of office or any payment as inducement to any director to join the Company.
12  INCOME TAX EXPENSE
             
  2009 2008 2007
  RMB RMB RMB
 
Current taxes  24,862   43,423   48,995 
Deferred taxes (Note 31)  8,611   (8,212)  807 
             
   33,473   35,211   49,802 
             
In accordance with the relevant PRC income tax rules and regulations, the PRC corporate income tax rate applicable to the Group is principally 33%25% for the years ended December 31, 2004, 20052009 and 2006.2008 and 33% for 2007. Operations of the Group in certain regions in China have qualified for certain tax incentives in the form of reduceda preferential income tax rate toof 15% through the year 2010 or accelerated depreciation of certain property, plant and equipment.

F-23

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)2010.
 
The tax on the Group’s incomeprofit before income taxestaxation differs from the theoretical amount that would arise using the statutorycorporate income tax rate in the PRC applicable to the Group as follows:
             
  Year Ended December 31,
   
  2004 2005 2006
       
  RMB RMB RMB
Income before income taxes  151,244   193,822   199,173 
          
Tax calculated at a tax rate of 33%  49,911   63,961   65,727 
Prior year tax return adjustment  27   364   243 
Effect of preferential tax rate  (6,886)  (10,744)  (14,169)
Tax effect of income not subject to tax  (913)  (427)  (1,602)
Tax effect of expenses not deductible for tax purposes  2,428   1,026   2,466 
Effect of income taxes from international operations in excess of taxes at the PRC statutory rate  —   —   1,512 
Reversal of a tax liability in an amount of RMB 4,401 million in relation to certain crude oil sales that were exempted from tax prior to the establishment of the company in November 1999  —   —   (4,401)
Utilization of previously unrecognized tax loss of subsidiaries  (969)  —   — 
          
Tax charge  43,598   54,180   49,776 
          
             
  2009 2008 2007
  RMB RMB RMB
 
Profit before income tax expense  140,032   162,013   205,139 
             
Tax calculated at a tax rate of 25% (2007: 33%)  35,008   40,503   67,696 
Prior year tax return adjustment  (2,216)  25   451 
Effect of income taxes from international operations in excess of taxes at the PRC statutory tax rate  1,820   6,876   633 
Effect of preferential tax rate  (5,502)  (10,907)  (17,043)
Effect of change in statutory income tax rates on deferred taxes  (184)  (3,134)  (3,788)
Tax effect of income not subject to tax  (1,140)  (1,357)  (2,840)
Tax effect of taxable items deductible for tax purposes  —   —   (2,365)
Tax effect of expenses not deductible for tax purposes  5,687   3,205   4,140 
Tax effect of unused tax losses which had expired  —   —   2,918 
             
Taxation  33,473   35,211   49,802 
             
10BASIC AND DILUTED NET INCOME PER SHARE
 
13  PROFIT ATTRIBUTABLE TO OWNERS OF THE COMPANY
The profit attributable to owners of the Company is dealt with in the consolidated financial statements of the Group to the extent of RMB 103,387 for the year ended December 31, 2009 (2008: RMB 114,453, 2007: RMB 146,796).


F-23

PETROCHINA COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(Amounts in millions unless otherwise stated)
14  BASIC AND DILUTED EARNINGS PER SHARE
Basic and diluted earnings per share for the year ended December 31, 20042009 and December 31, 2008 have been computed by dividing profit for the year attributable to owners of the Company by the 183,021 million shares issued and outstanding for the year.
Basic and diluted net income per share for the year ended December 31, 2007 have been computed by dividing income for the year attributable to equity holders of the Company by the weighted average number of 175,824179,700 million shares issued and outstanding for the year.
 Basic and diluted earnings per share for the year ended December 31, 2005 have been computed by dividing income for the year attributable to equity holders of the Company by weighted average number of 176,770 million shares issued and outstanding for the year.
      Basic and diluted earnings per share for the year ended December 31, 2006 have been computed by dividing income for the year attributable to equity holders of the Company by the number of 179,021 million shares issued and outstanding for the year.
There are no potentialpotentially dilutive ordinary shares.

F-24

PETROCHINA COMPANY LIMITED15  DIVIDENDS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
             
  2009 2008 2007
  RMB RMB RMB
 
Interim dividends attributable to owners of the Company for 2009 (note a)  22,725   —   — 
Proposed final dividends attributable to owners of the Company for 2009 (note b)  23,799   —   — 
Interim dividends attributable to owners of the Company for 2008 (note c)  —   24,127   — 
Final dividends attributable to owners of the Company for 2008 (note d)  —   27,367   — 
Interim dividends attributable to owners of the Company for 2007 (note e)  —   —   36,823 
Final dividends attributable to owners of the Company for 2007 (note f)  —   —   28,708 
             
   46,524   51,494   65,531 
             
(Amounts in millions except for per share data or unless otherwise stated)
11DIVIDENDS ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY
             
  Year Ended December 31,
   
  2004 2005 2006
       
  RMB RMB RMB
Final dividends attributable to equity holders of the Company for 2003 (Note (i))  13,947   —   — 
Interim dividends attributable to equity holders of the Company for 2004 (Note (ii))  20,381   —   — 
Final dividends attributable to equity holders of the Company for 2004 (Note (iii))  —   25,936   — 
Interim dividends attributable to equity holders of the Company for 2005 (Note (iv))  —   27,731   — 
Final dividends attributable to equity holders of the Company for 2005 (Note (v))  —   —   32,282 
Interim dividends attributable to equity holders of the Company for 2006 (Note (vi))  —   —   36,307 
          
   34,328   53,667   68,589 
          
 (i) (a)FinalInterim dividends attributable to equity holdersowners of the Company in respect of 20032009 of RMB 0.0793240.12417 yuan per share amounting to a total of RMB 13,94722,725 and were paid on June 2, 2004, and were accounted for in equity as an appropriation of retained earnings in the year ended December 31, 2004.October 16, 2009.
 
 (ii) (b)Interim dividends attributable to equity holders of the Company in respect of 2004 of RMB 0.115919 per share amounting to a total of RMB 20,381 were paid on October 8, 2004, and were accounted for in equity as an appropriation of retained earnings in the year ended December 31, 2004.
 (iii) Final dividends attributable to equity holders of the Company in respect of 2004 of RMB 0.147511 per share amounting to a total of RMB 25,936 were paid on June 10, 2005, and were accounted for in equity as an appropriation of retained earnings in the year ended December 31, 2005.
 (iv) Interim dividends attributable to equity holders of the Company in respect of 2005 of RMB 0.157719 per share amounting to a total of RMB 27,731 were paid on September 30, 2005, and were accounted for in equity as an appropriation of retained earnings in the year ended December 31, 2005.
 (v) Final dividends attributable to equity holders of the Company in respect of 2005 of RMB 0.180325 per share amounting to a total of RMB 32,282 were paid on June 9, 2006, and were accounted for in equity as an appropriation of retained earnings in the year ended December 31, 2006.
 (vi) Interim dividends attributable to equity holders of the Company in respect of 2006 of RMB 0.202806 per share amounting to a total of RMB 36,307 were paid on September 26, 2006 and were accounted for in equity as an appropriation of retained earnings in the year ended December 31, 2006.
 (vii) At the meeting on March 19, 2007,25, 2010, the Board of Directors proposed final dividends attributable to equity holdersowners of the Company in respect of 20062009 of RMB 0.1546990.13003 yuan per share amounting to a total of RMB 27,694.23,799. These consolidated financial statements do not reflect this dividend

F-25

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
payable as the final dividends were proposed after the balance sheet datereporting period and will be accounted for in equity as an appropriation of retained earnings in the year ending December 31, 20072010 when approved at the forthcoming annual general meeting.Annual General Meeting.
(c)Interim dividends attributable to owners of the Company in respect of 2008 of RMB 0.13183 yuan per share amounting to a total of RMB 24,127 and were paid on October 16, 2008.
(d)Final dividends attributable to owners of the Company in respect of 2008 of RMB 0.14953 yuan per share amounting to a total of RMB 27,367 were approved by the shareholders in the Annual General Meeting on May 12, 2009 and were paid on June 19, 2009.
(e)Interim dividends attributable to owners of the Company in respect of 2007 of RMB 0.205690 yuan per share amounting to a total of RMB 36,823 and were paid on September 28, 2007.
12CASH AND CASH EQUIVALENTS
      The weighted average effective interest rate on bank deposits was 1.97% and 1.95% for the years ended December 31, 2005 and 2006, respectively.
13(f)INVESTMENTS IN COLLATERALIZED LOANSFinal dividends attributable to owners of the Company in respect of 2007 of RMB 0.156859 yuan per share amounting to a total of RMB 28,708 and were paid on June 13, 2008.
      Securities, in the form of loans collateralized by principally PRC government bonds, purchased by the Group are recorded as investments in collateralized loans. These securities have terms ranging from 3 days to 182 days. The difference between the purchase price and the amount that the Group is expected to receive upon the maturity of these securities is accounted as interest income and accrued over the lives of the corresponding securities using the effective yield method. Investments in collateralized loans are accounted for as collateralized financing transactions and are recorded at their contractual amounts plus interest accrued.


F-24

14NOTES 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.
15ACCOUNTS RECEIVABLE
         
  At
  December 31,
   
  2005 2006
     
  RMB RMB
Accounts receivable due from third parties  6,483   9,498 
Accounts receivable due from related parties  2,145   2,247 
Less: Provision for impairment of receivables  (3,998)  (3,257)
       
   4,630   8,488 
       
      Movement in provision for impairment of accounts receivable is as follows:
             
  Year Ended
  December 31,
   
  2004 2005 2006
       
  RMB RMB RMB
Balance at beginning of the year  5,952   4,848   3,998 
Provision/(Write back)  (408)  (333)  (126)
Amount written off against provision  (696)  (517)  (615)
          
Balance at end of the year  4,848   3,998   3,257 
          
      Amounts due from related parties are interest free and unsecured (Note 34).

F-26

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)
16INVENTORIES
         
  At
  December 31,
   
  2005 2006
     
  RMB RMB
Crude oil and other raw materials  22,396   24,143 
Work in progress  5,933   5,493 
Finished goods  35,131   47,263 
Spare parts and consumables  43   41 
       
   63,503   76,940 
Less: Write down in inventories  (770)  (902)
       
   62,733   76,038 
       
      Movements in allowance for write down in inventories, which relate primarily to oil and chemical products, are as follows:
             
  Year Ended
  December 31,
   
  2004 2005 2006
       
  RMB RMB RMB
Balance at beginning of the year  803   926   770 
Provision /(Write back)  147   (139)  140 
Amount written off against provision  (24)  (17)  (8)
          
Balance at end of the year  926   770   902 
          
      Cost of inventory (approximates cost of goods sold) recognized as expense amounted to RMB 174,169, RMB 257,957 and RMB 341,456 for the years ended December 31, 2004, 2005 and 2006, respectively.16  PROPERTY, PLANT AND EQUIPMENT
 Inventories of the Group carried at net realizable value amounted to RMB 2,236 and RMB 3,415 at December 31, 2005 and 2006, respectively.
                             
      Equipment
        
    Oil and Gas
 and
 Motor
   Construction
  
Year Ended December 31, 2009
 Buildings Property Machinery Vehicles Other in Progress Total
  RMB RMB RMB RMB RMB RMB RMB
 
Cost or valuation
                            
At beginning of the year  99,680   790,354   366,953   17,537   9,924   172,353   1,456,801 
Additions  4,516   11,141   27,315   3,277   2,880   236,285   285,414 
Transfers  9,746   97,136   62,540   —   1,497   (170,919)  — 
Disposals or write offs  (2,167)  (5,838)  (3,842)  (503)  (3,107)  (11,614)  (27,521)
Currency translation differences  (415)  (3,944)  (402)  (127)  (143)  (626)  (5,657)
                             
At end of the year  110,910   888,849   452,564   20,184   11,051   225,479   1,709,037 
                             
Accumulated depreciation
and impairment
At beginning of the year  (27,710)  (317,301)  (196,842)  (8,536)  (5,723)  (265)  (556,377)
Charge for the year  (5,614)  (57,088)  (24,988)  (1,657)  (1,012)  (11)  (90,370)
Disposals or write offs or transfers  1,087   3,455   3,363   378   2,873   —   11,156 
Currency translation differences  124   1,497   179   83   137   1   2,021 
                             
At end of the year  (32,113)  (369,437)  (218,288)  (9,732)  (3,725)  (275)  (633,570)
                             
Net book value
                            
At end of the year  78,797   519,412   234,276   10,452   7,326   225,204   1,075,467 
                             
17PREPAID EXPENSES AND OTHER CURRENT ASSETS
         
  At
  December 31,
   
  2005 2006
     
  RMB RMB
Other receivables  9,404   7,083 
Amounts due from related parties  13,524   15,925 
Less: Provision for impairment of these receivables  (6,814)  (6,506)
       
   16,114   16,502 
Advances to suppliers  5,819   6,087 
Prepaid expenses  279   326 
Other current assets  461   366 
       
   22,673   23,281 
       


F-25

F-27

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)
 Other receivables consist primarily of taxes other than income taxes refund receivables, subsidies receivable, and receivables for the sale of materials and scrap.
                             
      Equipment
        
    Oil and Gas
 and
 Motor
   Construction
  
Year Ended December 31, 2008
 Buildings Property Machinery Vehicles Other in Progress Total
  RMB RMB RMB RMB RMB RMB RMB
 
Cost or valuation
                            
At beginning of the year  90,951   676,011   334,948   15,284   9,034   113,283   1,239,511 
Additions  1,006   14,382   3,720   2,816   288   220,202   242,414 
Transfers  10,287   106,930   32,296   —   930   (150,443)  — 
Disposals or write offs  (2,317)  (3,946)  (3,631)  (496)  (222)  (10,341)  (20,953)
Currency translation differences  (247)  (3,023)  (380)  (67)  (106)  (348)  (4,171)
                             
At end of the year  99,680   790,354   366,953   17,537   9,924   172,353   1,456,801 
                             
Accumulated depreciation and impairment
                            
At beginning of the year  (22,907)  (269,289)  (167,074)  (7,446)  (5,050)  (285)  (472,051)
Charge for the year  (5,869)  (50,848)  (31,916)  (1,466)  (946)  (1)  (91,046)
Disposals or write offs or transfers  1,008   1,868   2,039   340   214   20   5,489 
Currency translation differences  58   968   109   36   59   1   1,231 
                             
At end of the year  (27,710)  (317,301)  (196,842)  (8,536)  (5,723)  (265)  (556,377)
                             
Net book value
                            
At end of the year  71,970   473,053   170,111   9,001   4,201   172,088   900,424 
                             
 Except for loans to related parties (Note 34 (g)), amounts due from related parties are interest free, unsecured and with no fixed terms of repayment.
      Movements in provision for impairment of these receivables are as follows:
             
  Year Ended
  December 31,
   
  2004 2005 2006
       
  RMB RMB RMB
Balance at beginning of the year  6,365   7,255   6,814 
Provision/(Write back)  1,084   (122)  (190)
Amount written off against provision  (194)  (319)  (118)
          
Balance at end of the year  7,255   6,814   6,506 
          
18PROPERTY, PLANT AND EQUIPMENT
                             
Year Ended   Oil and Gas Plant and Motor   Construction  
December 31, 2005 Buildings Properties Equipment Vehicles Other in Progress Total
               
  RMB RMB RMB RMB RMB RMB RMB
Cost or valuation
                            
At beginning of the year  64,824   428,577   250,840   9,397   6,705   39,137   799,480 
Additions  1,394   14,308   1,292   1,744   122   119,199   138,059 
Transfers  7,661   67,223   27,451   —   362   (102,697)  — 
Disposals or write off  (714)  (11,817)  (2,152)  (286)  (95)  —   (15,064)
Currency translation differences  (32)  (659)  (67)  (26)  (43)  (42)  (869)
                      
At end of the year  73,133   497,632   277,364   10,829   7,051   55,597   921,606 
                      
Accumulated depreciation and impairment
                            
At beginning of the year  (12,905)  (180,926)  (112,000)  (4,810)  (3,025)  (202)  (313,868)
Charge for the year  (3,454)  (25,819)  (18,234)  (955)  (749)  —   (49,211)
Disposals or write off  329   3,054   1,279   200   76   104   5,042 
Currency translation differences  1   275   23   10   12   —   321 
                      
At end of the year  (16,029)  (203,416)  (128,932)  (5,555)  (3,686)  (98)  (357,716)
                      
Net book value
                            
At end of the year  57,104   294,216   148,432   5,274   3,365   55,499   563,890 
                      
Carrying value of the property, plant and equipment had they been stated at cost less accumulated depreciation  52,779   289,820   131,411   4,787   2,810   55,499   537,106 
                      

F-28

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
                             
Year Ended   Oil and Gas Plant and Motor   Construction  
December 31, 2006 Buildings Properties Equipment Vehicles Other in Progress Total
               
  RMB RMB RMB RMB RMB RMB RMB
Cost or valuation
                            
At beginning of the year  73,133   497,632   277,364   10,829   7,051   55,597   921,606 
Additions  516   4,080   656   1,597   20   145,361   152,230 
Transfers  7,156   85,178   33,621   —   989   (126,944)  — 
Disposals or write off  (723)  (11,420)  (3,756)  (297)  (102)  —   (16,298)
Currency translation differences  61   (149)  (50)  (17)  18   (122)  (259)
                      
At end of the year  80,143   575,321   307,835   12,112   7,976   73,892   1,057,279 
                      
Accumulated depreciation and impairment
                            
At beginning of the year  (16,029)  (203,416)  (128,932)  (5,555)  (3,686)  (98)  (357,716)
Charge for the year  (3,643)  (31,540)  (21,431)  (1,107)  (755)  (199)  (58,675)
Disposals or write off  418   1,186   2,544   126   67   —   4,341 
Currency translation differences  (19)  93   35   6   (7)  —   108 
                      
At end of the year  (19,273)  (233,677)  (147,784)  (6,530)  (4,381)  (297)  (411,942)
                      
Net book value
                            
At end of the year  60,870   341,644   160,051   5,582   3,595   73,595   645,337 
                      
Carrying value of the property, plant and equipment had they been stated at cost less accumulated depreciation  57,204   338,007   145,571   5,171   3,120   73,595   622,668 
                      
The additions of oil and gas propertiesdepreciation charge of the Group included RMB 13,258 and RMB 3,589 for the year ended December 31, 20052009 included impairment losses of RMB 1,580 and 2006 respectively relatingRMB 478 (2008: RMB 4,235 and RMB 11,950, 2007: RMB Nil and RMB 294) primarily related to the asset retirement obligations recognized during the year (See Note 25).
      The depreciation chargecertain of the Group included RMB 4,020, RMB 3,019Group’s oil and RMB 2,642 relatinggas properties and refining and chemical production assets. The carrying values of these assets were written down to impairment provision fortheir recoverable values.
A valuation of all of the Group’s property, plant and equipment, excluding oil and gas reserves, was carried out during 1999 by independent valuers on a depreciated replacement cost basis. As at September 30, 2003, a revaluation of the years ended DecemberGroup’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 revaluation surplus net of applicable deferred income taxes was credited to equity.
As at March 31, 2004, 20052006, a revaluation of the Group’s oil and 2006, respectively. Of this amount, RMB 798, RMB 1,955gas properties was undertaken by independent valuers, China United Assets Appraiser Co., Ltd. and RMB 908 for the years ended December 31, 2004, 2005 and 2006 respectively was related to the Chemicals and Marketing segment, RMB 1,423, RMB 372 and RMB 1,734 for the year ended December 31, 2004, 2005 and 2006 respectively was for the Refining and Marketing segment, and RMB 1,799, RMB 692 and RMB Nil for the year ended December 31, 2004, 2005 and 2006 respectively was for the Exploration and Production segment.China Enterprise Appraisals, on a depreciated replacement cost basis. The revaluation did not result in significant differences from their carrying values.

F-26

F-29

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)
 Buildings owned by the Group are on leased land. The net book values of the buildings owned by the Group can be analyzed by the following categories of lease terms:
         
  At December 31,
   
  2005 2006
     
  RMB RMB
Short-term lease (less than 10 years)  336   363 
Medium-term lease (10 to 50 years)  56,768   60,507 
       
   57,104   60,870 
       
      Substantially all the buildings of the Group are located in the PRC.
      The net book values of property, plant and equipment under capital leases at the end of year are as follows:
         
  At
  December 31,
   
  2005 2006
     
  RMB RMB
Exploration and Production  45   45 
Refining and Marketing  —   — 
Chemicals and Marketing  —   — 
Accumulated depreciation  (12)  (18)
       
   33   27 
       
      Capital leases are principally related to plant and equipment and generally contain purchase options at the end of the lease terms.
The following table indicates the changes to the Group’s exploratory well costs, which are included in construction in progress, for the years ended December 31, 2004, 20052009, 2008 and 2006.
             
  Year Ended December 31,
   
  2004 2005 2006
       
  RMB RMB RMB
Beginning balance at January 1  4,335   5,751   8,296 
Additions to capitalized exploratory well costs pending the determination of proved reserves  10,913   16,181   19,076 
Reclassified to wells, facilities, and equipment based on the determination of proved reserves  (4,756)  (7,089)  (8,880)
Capitalized exploratory well costs charged to expense  (4,741)  (6,547)  (9,494)
          
Ending balance at December 31  5,751   8,296   8,998 
          
Number of wells at year end  783   993   869 
          

F-30

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)2007.
 
             
  2009 2008 2007
  RMB RMB RMB
 
At beginning of the year  15,853   11,975   9,005 
Additions to capitalised exploratory well costs pending the determination of proved reserves  22,891   26,503   23,067 
Reclassified to wells, facilities, and equipment based on the determination of proved reserves  (11,504)  (12,284)  (10,936)
Capitalised exploratory well costs charged to expense  (10,019)  (10,341)  (9,161)
             
At end of the year  17,221   15,853   11,975 
             
The following table provides an aging of capitalizedcapitalised exploratory well costs based on the date the drilling was completed.
         
  At December 31,
   
  2005 2006
     
  RMB RMB
One year or less  8,023   8,359 
Over one year  273   639 
       
Balance at December 31  8,296   8,998 
       
 
         
  December 31,
 December 31,
  2009 2008
  RMB RMB
 
One year or less  15,560   14,318 
Over one year  1,661   1,535 
         
Balance at December 31  17,221   15,853 
         
RMB 6391,661 at December 31, 2006 for capitalized2009 of capitalised exploratory well costs over one year are principally related to wells that are under further evaluation of drilling results or pending completion of development planning to ascertain economic viability.
 Cash payments of RMB 25,099 and RMB 26,052 have been incurred in connection with exploration activities, including RMB 9,019 and RMB 9,328 related to operating activities and RMB 16,080 and RMB 16,724 related to investing activities for the year ended December 31, 2005 and 2006, respectively.
17  INVESTMENTS IN ASSOCIATES AND JOINTLY CONTROLLED ENTITIES
 A valuation
The summarised financial information of the Group’s property, plant and equipment, excluding oil and gas reserves, was carried out during 1999 by independent valuers on depreciated replacement costs basis.
      The 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.
      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 September 2003 revaluation resulted in RMB 872 in excess of the carrying value on certain property, plant and equipment immediately prior to the revaluation and a revaluation loss of RMB 1,257.
      As at March 31, 2006, a revaluation of the Group’s oil and gas properties was undertaken by independent valuers, China United Assets Appraiser Co., Ltd and China Enterprise Appraisals, on a depreciated replacement cost basis. The revaluation did not result in significant difference from their carrying value.
      Repair and maintenance costs were RMB 6,314, RMB 7,880 and RMB 9,233 for the years ended December 31, 2004, 2005 and 2006, respectively.
      Bank debts are secured on property, plant and equipment with a net book value of RMB 75 and RMB 39 at December 31, 2005 and 2006, respectively.
      Depreciation expenses on property, plant and equipment are as follows:
             
  Year Ended December 31,
   
  2004 2005 2006
       
  RMB RMB RMB
Owned assets  46,988   49,198   58,669 
Assets under capital lease  23   13   6 
          
   47,011   49,211   58,675 
          

F-31

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
19INVESTMENTS IN EQUITY AFFILIATES AND JOINTLY CONTROLLED ENTITIES
      The Group’s interests in its principal equity affiliatesassociates and jointly controlled entities, (allincluding the aggregated amounts of which are unlisted), together with its share of their respective assets, liabilities, revenues, profit or loss and incomes,the interest held by the Group were as follows:
                             
  Country of         Interest Type of
Name Incorporation Assets Liabilities Revenue Income Held % Share
               
At December 31,2005                            
Dalian West Pacific Petrochemical Co., Ltd.   PRC   3,114   2,233   8,563   135   28.4   ordinary 
China Marine Bunker (PetroChina) Co., Ltd.   PRC   3,210   2,098   14,021   127   50.0   ordinary 
Other      19,832   9,447   30,579   2,139   20.0-70.0   ordinary 
                      
       26,156   13,778   53,163   2,401         
                      
At December 31,2006                            
Dalian West Pacific Petrochemical Co., Ltd.   PRC   3,410   2,608   10,188   6   28.4   ordinary 
China Marine Bunker (PetroChina) Co., Ltd.   PRC   3,388   2,098   19,003   139   50.0   ordinary 
PetroKazakhstan Inc.   Canada   22,642   1,240   144   43   67.0   ordinary 
Other      26,995   17,533   40,903   2,089   20.0-70.0   ordinary 
                      
       56,435   23,479   70,238   2,277         
                      
 
                             
  Country of
         Interest
 Type of
Name
 Incorporation Assets Liabilities Revenues Profit/(loss) Held % Share
    RMB RMB RMB RMB    
 
As of or for the year ended December 31, 2009:
                            
Dalian West Pacific
Petrochemical Co., Ltd. 		  PRC   10,168   12,228   28,205   1,076   28.44   ordinary 
China Marine Bunker (PetroChina) Co., Ltd.   PRC   6,546   3,501   27,510   358   50.00   ordinary 
As of or for the year ended December 31, 2008:
                            
Dalian West Pacific
Petrochemical Co., Ltd. 		  PRC   10,433   13,182   41,643   (5,660)  28.44   ordinary 
China Marine Bunker (PetroChina) Co., Ltd.   PRC   6,619   3,972   43,037   392   50.00   ordinary 
Dividends received and receivable from equity affiliatesassociates and jointly controlled entities were RMB 634 and568 in 2009 (2008: RMB 1,730 at December 31, 2005 and 2006, respectively.3,886, 2007: RMB 991).


F-27

PETROCHINA COMPANY LIMITED
 Investments
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(Amounts in equity affiliatesmillions unless otherwise stated)
In 2009, investments in associates and jointly controlled entities of RMB 1,104 and345 (2008: RMB 5936, 2007: RMB 833) were disposed of, withresulting in a gain of RMB 33 (2008: A loss of RMB 2 and a profit3, 2007: A gain of RMB 10 incurred for the years ended December 31, 2005 and 2006, respectively.320).
 The Group acquired a 67% equity interest in PetroKazakhstan Inc. from CNPC International Limited, a subsidiary of CNPC, effective on December 28, 2006 for RMB 21,376. The revenue and income disclosed in the table above represents the Group’s share of PetoKazakhstan Inc.’s revenue and income for the period from December 28, 2006 to December 31, 2006. Pursuant to the shareholders’ agreement in relation to the acquisition of PetroKazakhstan Inc., each shareholder has a veto right relating to certain financial and operating decisions, and is therefore considered as having joint control over PetroKazakhstan Inc.. In accordance with the Group’s accounting policy, the Group accounts for its investment in PetroKazakhstan Inc., using the equity method of accounting from December 28, 2006.
20AVAILABLE-FOR-SALE INVESTMENTS
         
  At December 31,
   
  2005 2006
     
  RMB RMB
Unlisted available-for-sale investments  1,907   2,562 
Less: Impairment provision  (677)  (508)
       
   1,230   2,054 
       

F-32

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED18  AVAILABLE-FOR-SALE FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)ASSETS
 
         
  December 31,
 December 31,
  2009 2008
  RMB RMB
 
Available-for-sale financial assets
  2,799   2,509 
Less: Impairment losses  (456)  (475)
         
   2,343   2,034 
         
Available-for-sale investments financial assets comprise principally unlisted equity securities.
 Dividend income from available-for-sale investments was RMB 113, RMB 109 and RMB 208 for the years ended December 31, 2004, 2005 and 2006, respectively.
      Available-for-sale investmentsIn 2009,available-for-sale financial assets of RMB 1,003 and137 (2008: RMB 174, 2007: RMB 145) were disposed of, withresulting in the realisation of a lossgain of RMB 274 (2008: RMB 5, 2007: RMB 142).
19  SUBSIDIARIES
The principal subsidiaries of the Group are:
                 
        Attributable
  
  Country of
 Paid-Up
 Type of
 Equity
  
Company Name
 Incorporation 
Capital
 
Legal Entity
 
Interest %
 
Principal Activities
    (RMB)      
 
Daqing Oilfield Company Limited  PRC   47,500  Limited liability
company		  100.00  Exploration, production and sale of crude oil and natural gas
CNPC Exploration and Development Company Limited  PRC   16,100  Limited liability
company		  50.00  Exploration, production and sale of crude oil and natural gas in and outside the PRC
PetroKazakhstan Inc.   Canada   US Dollar 665  Joint stock company
with limited liability		  67.00  Exploration, production and sale of crude oil and natural gas outside the PRC
PetroChina Hong Kong Limited  Hong Kong   HK Dollar 7,592  Limited liability
company		  100.00  Investment holding. The principal activities of its subsidiaries, associates and jointly controlled entities are the exploration and production of crude oil and natural gas in and outside the PRC
Business combinations under common control between certain subsidiaries of the Group and a profitsubsidiaries of RMB 3 incurred forCNPC were completed during the years ended December 31, 2005year and 2006, respectively.accordingly, the financial statements have been restated. These business combinations are not individually or in aggregate material to the Group.


F-28

PETROCHINA COMPANY LIMITED
 Movements
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(Amounts in provision for impairment of available-for-sale investments are as follows:millions unless otherwise stated)
             
  Year Ended December 31,
   
  2004 2005 2006
       
  RMB RMB RMB
Balance at beginning of the year  813   755   677 
Provision/ (Write back)  26   (23)  32 
Amount written off against provision  (84)  (55)  (201)
          
Balance at end of the year  755   677   508 
          
20  ADVANCE OPERATING LEASE PAYMENTS
         
  December 31,
 December 31,
  2009 2008
  RMB RMB
 
Land use rights  19,901   16,954 
Advance lease payments  10,335   9,326 
         
   30,236   26,280 
         
21ADVANCE OPERATING LEASE PAYMENTS
         
  At
  December 31,
   
  2005 2006
     
  RMB RMB
Land use rights  9,786   12,184 
Advance lease payments  6,449   8,284 
       
   16,235   20,468 
       
 
Land use rights have terms up to 50 years. Advance lease payments are principally for use of landsub-leased from entities other than the PRC land authorities. These advance operating lease payments are amortizedamortised over the related lease periodsterms using the straight-line method.
21  INTANGIBLE AND OTHER ASSETS
                         
  December 31, 2009 December 31, 2008
    Accumulated
     Accumulated
  
  Cost amortisation Net Cost amortisation Net
  RMB RMB RMB RMB RMB RMB
 
Patents  3,076   (1,939)  1,137   3,071   (1,729)  1,342 
Technical know-how  1,654   (242)  1,412   372   (174)  198 
Goodwill(i)  2,818   —   2,818   148   —   148 
Other  11,025   (2,992)  8,033   7,098   (2,109)  4,989 
                         
Intangible assets  18,573   (5,173)  13,400   10,689   (4,012)  6,677 
                         
Other assets          4,617           4,017 
                         
           18,017           10,694 
                         
22(i)INTANGIBLE AND OTHER ASSETSDuring the current year, the Group through PetroChina International (Singapore) Pte. Ltd. (an indirectly wholly owned subsidiary of the Company), acquired 100% of the share capital in Singapore Petroleum Company Limited for cash consideration of Singapore Dollars S$3,239 (approximately RMB 15,296). At the date of acquisition, the fair value of the net assets in Singapore Petroleum Company Limited is S$2,668 (approximately RMB 12,597) and consequently, goodwill of S$571 (approximately RMB 2,699) was recognised.
 Intangible and other assets consist of the following:
                         
  At December 31,
   
  2005 2006
     
    Accumulated     Accumulated  
  Cost Amortization Net Cost Amortization Net
             
  RMB RMB RMB RMB RMB RMB
Patents  2,166   (1,140)  1,026   2,325   (1,109)  1,216 
Technical know-how  325   (209)  116   276   (103)  173 
Other  2,664   (684)  1,980   3,369   (1,041)  2,328 
                   
Intangible assets  5,155   (2,033)  3,122   5,970   (2,253)  3,717 
                   
Other assets          1,889           2,910 
                   
           5,011           6,627 
                   

F-33

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
      Amortization on intangible and other assets was RMB 755, RMB 888 and RMB 1,250 for the years ended December 31, 2004, 2005 and 2006, respectively.
Patents principally represent expenditure incurred in acquiring processes and techniques that are generally protected by the relevant government authorities. Identifiable technicalTechnical know-how areis amounts attributable to operational technology acquired in connection with the purchase of equipment. The costs of technical know-how are included as part of the purchase price and are separately distinguishable from the other assets acquired.


F-29

PETROCHINA COMPANY LIMITED
23ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
         
  At
  December 31,
   
  2005 2006
     
  RMB RMB
Trade payable  13,749   22,490 
Advances from customers  7,698   9,310 
Salaries and welfare payable  7,353   8,844 
Accrued expenses  4   10 
Dividends payable by subsidiaries to minority shareholders  93   60 
Interest payable  27   3 
Construction fee and equipment cost payables  16,420   28,349 
One-time employee housing remedial payment payable  1,174   933 
Other payables  12,158   14,910 
Amounts due to related parties  41,082   35,273 
       
   99,758   120,182 
       
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(Amounts in millions unless otherwise stated)
 
22  INVENTORIES
         
  December 31, 2009 December 31, 2008
  RMB RMB
 
Crude oil and other raw materials  30,928   31,319 
Work in progress  7,006   3,472 
Finished goods  77,685   65,074 
Spare parts and consumables  28   31 
         
   115,647   99,896 
Less: Write down in inventories  (866)  (9,211)
         
   114,781   90,685 
         
The carrying amounts of inventories of the Group, which are carried at net realisable value, amounted to RMB 7,216 (2008: RMB 53,551) at December 31, 2009.
23  ACCOUNTS RECEIVABLE
         
  December 31,
 December 31,
  2009 2008
  RMB RMB
 
Accounts receivable  30,909   19,233 
Less: Provision for impairment of receivables  (2,124)  (2,423)
         
   28,785   16,810 
         
The aging analysis of accounts receivable at December 31, 2009 and December 31, 2008 is as follows:
         
  December 31,
 December 31,
  2009 2008
  RMB RMB
 
Within 1 year  28,579   16,563 
Between 1 to 2 years  112   156 
Between 2 to 3 years  84   25 
Over 3 years  2,134   2,489 
         
   30,909   19,233 
         
The Group offers its customers credit terms up to 180 days.
Movements in the provision for impairment of accounts receivable are as follows:
         
  2009 2008
  RMB RMB
 
At beginning of the year  2,423   2,880 
Provision for impairment of accounts receivable  38   36 
Receivables written off as uncollectible  (232)  (388)
Reversal of provision for impairment of accounts receivable  (105)  (105)
         
At end of the year  2,124   2,423 
         


F-30

PETROCHINA COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(Amounts in millions unless otherwise stated)
24  PREPAID EXPENSES AND OTHER CURRENT ASSETS
         
  December 31,
 December 31,
  2009 2008
  RMB RMB
 
Other receivables  8,528   10,122 
Advances to suppliers  36,009   37,209 
         
   44,537   47,331 
Less: Provision for impairment  (3,741)  (3,943)
         
   40,796   43,388 
Prepaid income taxes  —   — 
Value-added tax recoverable  15,663   25,677 
Prepaid expenses  421   275 
Other current assets  2,715   217 
         
   59,595   69,557 
         
Other receivables consist primarily of taxes other than income tax refunds, subsidies receivable, and receivables for the sale of materials and scrap.
25  NOTES RECEIVABLE
Notes receivable represent mainly bills of acceptance issued by banks for the sale of goods and products. All notes receivable are due within one year.
26  CASH AND CASH EQUIVALENTS
The weighted average effective interest rate on bank deposits was 1.46% per annum for the year ended December 31, 2009 (2008: 2.24% per annum).
27  ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
         
  December 31,
  December 31,
 
  2009  2008 
  RMB  RMB 
 
Trade payables  62,840   38,795 
Advances from customers  21,193   13,008 
Salaries and welfare payable  5,105   6,377 
Accrued expenses  31   20 
Dividends payable by subsidiaries to non-controlling shareholders  105   154 
Interest payable  1,448   156 
Construction fee and equipment cost payables  93,920   79,491 
Other payables  20,097   18,779 
         
   204,739   156,780 
         
Other payables consist primarily of customer deposits.
      Amounts due to related parties are interest-free, unsecured and with no fixed terms of repayment (Note 34).


F-31

24DEBTS
(a) Short-term debts
          
  At
  December 31,
   
  2005 2006
     
  RMB RMB
Bank loans        
 — secured  34   23 
 — unsecured  12,753   14,812 
Loans from fellow CNPC subsidiary  520   320 
Other  57   1 
       
   13,364   15,156 
Current portion of long-term debts  15,325   20,607 
       
   28,689   35,763 
       

F-34

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)
(b) Long-term debts
       
    At December 31,
     
  Interest Rate and Final Maturity 2005 2006
       
    RMB RMB
Renminbi — denominated debts:    
Bank loans for the development of oil fields and construction of refining plants Majority floating interest rates ranging from 5.18% to 6.16% per annum as of December 31, 2006, with maturities through 2022 9,778 8,390
Bank loans for working capital Floating interest rate at 5.18% per annum as of December 31, 2006, with maturities through 2007 6,030 6,000
Loans from fellow CNPC subsidiary for the development of oil fields and construction of refining plants Floating interest rates ranging from 4.46% to 5.18% per annum as of December 31, 2006, with maturities through 2032 16,462 16,782
Working capital loans from fellow CNPC subsidiary Majority floating interest rates at 4.61% per annum as of December 31, 2006, with maturities through 2008 4,335 4,130
Working capital loans Fixed interest rates at 6.32% per annum with no fixed repayment term 5 5
Corporate debenture for the development of oil fields and construction of refining plants Fixed interest rate at 4.50% per annum with maturities through 2007 1,350 1,365
Corporate debenture for the development of oil and gas properties Fixed interest rates ranging from 3.76% to 4.11% per annum with maturities through 2013 1,500 3,523
US Dollar — denominated debts:    
Bank loans for the development of oil fields and construction of refining plants Fixed interest rates ranging from free to 9.00% per annum with maturities through 2038 1,404 969
Bank loans for the development of oil fields and construction of refining plants Floating interest rates ranging from 4.72% to 6.17% per annum as of December 31, 2006, with maturities through 2014 6,751 3,589
Bank loans for working capital Floating interest rates ranging from LIBOR plus 0.40% to LIBOR plus 5.00% per annum as of December 31, 2006 with maturities through 2008 1,362 1,326
Bank loans for acquisition of overseas oil and gas properties Floating interest rate at LIBOR plus 0.55% per annum as of December 31, 2006, with maturities through 2009 1,614 1,368
Loans from fellow CNPC subsidiary for the development of oil fields and construction of refining plants Floating interest rates ranging from LIBOR minus 0.25% to LIBOR plus 0.50% per annum as of December 31, 2006, with maturities through 2020 2,852 4,481
The aging analysis of trade payables at December 31, 2009 and 2008 is as follows:
         
  December 31,
  December 31,
 
  2009  2008 
  RMB  RMB 
 
Within 1 year  60,420   36,892 
Between 1 to 2 years  1,404   1,054 
Between 2 to 3 years  505   306 
Over 3 years  511   543 
         
   62,840   38,795 
         
28  BORROWINGS
(a)  Short-term borrowings
         
  December 31,
  December 31,
 
  2009  2008 
  RMB  RMB 
 
Bank loans        
— secured  1,876   1,841 
— unsecured  18,377   25,111 
Loans from CNPC and a fellow CNPC subsidiary  54,369   60,819 
Short-term financing bills  60,000   — 
Other  —   1 
         
   134,622   87,772 
Current portion of long-term borrowings  14,229   5,898 
         
   148,851   93,670 
         
(b)  Long-term borrowings
           
    December 31,
 December 31,
  
Interest rates and final maturities
 2009 2008
    RMB RMB
 
Renminbi — denominated borrowings:
          
Bank loans for the development of oil fields and construction of refining plants Floating interest rate at 5.35% per annum as of December 31, 2009, with maturities through 2010  100   200 
Bank loans for working capital Majority floating interest rates ranging from 4.86% to 6.23% per annum as of December 31, 2009, with maturities through 2019  7,013   6,409 


F-32

F-35

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)
        
    At December 31,
     
  Interest Rate and Final Maturity 2005 2006
       
    RMB RMB
Loans from fellow CNPC subsidiary for acquisition of overseas oil and gas properties Floating interest rate at LIBOR plus 0.40% per annum as of December 31, 2006, with maturities through 2006 593 —
Loans from fellow CNPC subsidiary for working capital Floating interest rates ranging from LIBOR plus 0.50% to LIBOR plus 0.69% per annum as of December 31, 2006, with maturities through 2008 2,557 1,471
Loans for the development of oil fields and construction of refining plants Fixed interest rate at 1.55% per annum with maturities through 2022 509 462
Loans for working capital Floating interest rate at LIBOR plus 0.35% per annum as of December 31, 2006, with maturities through 2008 668 650
Corporate debenture for the development of oil fields and construction of refining plants Fixed interest rate at 3.00% per annum with maturities through 2019 347 353
Corporate debenture for the development of oil and gas properties Fixed interest rate at 9.50% per annum with maturities through 2011 844 817
Corporate debenture for the development of oil and gas properties Fixed interest rate at 15.00% per annum with maturities through 2008 292 179
Japanese Yen — denominated debts:    
Bank loans for the development of oil fields and construction of refining plants Fixed interest rates ranging from 2.42% to 5.30% per annum with maturities through 2010 226 75
Euro — denominated debts:    
Bank loans for the development of oil fields and construction of refining plants Fixed interest rates ranging from 2.00% to 2.30% per annum with maturities through 2023 256 257
British Pound — denominated debts:    
Bank loans for the development of oil fields and construction of refining plants Fixed interest rate at 2.85% per annum with maturities through 2007 
160		 
49
       
Total long-term debts   59,895 56,241
       
 Less: Current portion of long-term debts   (15,325) (20,607)
       
    44,570 35,634
       
 
           
    December 31,
 December 31,
  
Interest rates and final maturities
 2009 2008
    RMB RMB
 
Loans from CNPC and a fellow CNPC subsidiary for the development of oil fields and construction of refining plants Majority floating interest rates ranging from 2.48% to 5.04% per annum as of December 31, 2009, with maturities through 2032  16,262   16,181 
Working capital loans from a fellow CNPC subsidiary Fixed interest rates ranging from 4.32% to 4.90% per annum as of December 31, 2009, with maturities through 2012  760   456 
Working capital loans Majority fixed interest rates ranging from 2.55% to 6.32% per annum as of December 31, 2009, with no fixed repayment terms  44   5 
Corporate debenture for the development of oil and gas properties Fixed interest rates ranging from 3.76% to 4.11% per annum as of December 31, 2009, with maturities through 2013  3,500   3,500 
Medium-term notes for the development of oil and gas properties Fixed interest rates ranging from 2.28% to 3.35% per annum as of December 31, 2009, with maturities through 2014  45,000   — 
US Dollar — denominated borrowings:
          
Bank loans for the development of oil fields and construction of refining plants Fixed interest rates ranging from zero to 1.50% per annum as of December 31, 2009, with maturities through 2038  240   278 
Bank loans for the development of oil fields and construction of refining plants Floating interest rates ranging from LIBOR plus 0.50% to LIBOR plus 3.00% per annum as of December 31, 2009, with maturities through 2014  4,577   3,825 
Bank loans for working capital Floating interest rates ranging from LIBOR plus 0.30% to LIBOR plus 2.00% per annum as of December 31, 2009, with maturities through 2014  10,632   2,392 

F-33

PETROCHINA COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(Amounts in millions unless otherwise stated)
           
    December 31,
 December 31,
  
Interest rates and final maturities
 2009 2008
    RMB RMB
 
Loans from a fellow CNPC subsidiary for the development of oil fields and construction of refining plants Floating interest rates ranging from LIBOR plus 0.30% to 0.40% per annum as of December 31, 2009, with maturities through 2020  2,688   2,691 
Loans from fellow CNPC subsidiaries for working capital Majority floating interest rate at LIBOR plus 1.00% per annum as of December 31, 2009, with maturities through 2015  7,674   851 
Loans for the development of oil fields and construction of refining plants Fixed interest rate at 1.55% per annum as of December 31, 2009, with maturities through 2022  325   352 
Loans for working capital Floating interest rate at 5.00% per annum as of December 31, 2009, with no fixed repayment terms  47   569 
Corporate debenture for the development of oil fields and construction of refining plants Fixed interest rate at 3.00% per annum as of December 31, 2009, with maturities through 2019  295   301 
Corporate debenture for the development of oil and gas properties Fixed interest rate at 9.50% per annum as of December 31, 2009, with maturities through 2011  341   513 
Japanese Yen — denominated borrowings:
          
Bank loans for the development of oil fields and construction of refining plants Fixed interest rate at 2.42% per annum as of December 31, 2009, with maturities through 2010  10   20 
Euro — denominated borrowings:
          
Bank loans for the development of oil fields and construction of refining plants Fixed interest rates ranging from 2.00% to 2.30% per annum as of December 31, 2009, with maturities through 2023  192   207 
           
Total long-term borrowings  99,700   38,750 
Less: Current portion of long-term borrowings  (14,229)  (5,898)
         
     85,471   32,852 
           
For loans denominated in RMB with floating interest rates, the interest rates are re-set annually on the respective anniversary dates based on interest rates announced by the People’s Bank of China. For loans

F-34

PETROCHINA COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(Amounts in millions unless otherwise stated)
denominated in currencies other than RMB with floating interest rates, the interest rates are re-set quarterly or semi-annually as stipulated in the respective agreements. Other loans represent loans

F-36

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
from independent third parties other than banks. Interest free loans amounted to RMB 110 and RMB 68 at December 31, 2005 and 2006, respectively.
 Debts
Borrowings of the Group of RMB 674 and RMB 5971,154 were guaranteed by CNPC and its subsidiaries at December 31, 2005 and 2006, respectively.2009 (2008: RMB 941).
 
The Group’s debtsborrowings include secured liabilities (bank debts) totalling RMB 1,108 and RMB 3597,904 at December 31, 2005 and 2006, respectively.2009 (2008: RMB 3,403). These bank debtsborrowings are mainly secured mostly over certain of the Group’s propertiesnotes receivable, inventories, fixed assets, intangible assets, cash and cash equivalents and time deposits with maturities over one year.year amounting to RMB 8,693(2008:RMB 4,031).
          
  At December 31,
   
  2005 2006
     
  RMB RMB
Total debts:        
 — interest free  110   68 
 — at fixed rates  19,640   20,850 
 — at floating rates  53,509   50,479 
       
   73,259   71,397 
       
Weighted average effective interest rates:        
 — bank loans  5.26%   5.51% 
 — loans from fellow CNPC subsidiary  4.90%   4.98% 
 — other loans  3.38%   3.93% 
 — corporate debentures  5.86%   5.04% 
 
         
  December 31,
  December 31,
 
  2009  2008 
  RMB  RMB 
 
Total borrowings:        
— interest free  51   53 
— at fixed rates  163,155   85,170 
— at floating rates  71,116   41,299 
         
   234,322   126,522 
         
Weighted average effective interest rates:        
— bank loans  3.10%  4.20%
— loans from CNPC and fellow CNPC subsidiaries  3.21%  4.32%
— corporate debentures  4.31%  4.51%
— medium-term notes  2.78%  — 
— short-term notes  2.01%  — 
— other loans  2.22%  3.05%
The carrying amounts and fair values of long-term debtsborrowings are as follows:
         
  Carrying Amounts
  At December 31,
   
  2005 2006
     
  RMB RMB
Bank loans  27,581   22,023 
Loans from fellow CNPC subsidiary  26,799   26,864 
Corporate debentures  4,333   6,237 
Other  1,182   1,117 
       
   59,895   56,241 
       
         
  Fair Values At
  December 31,
   
  2005 2006
     
  RMB RMB
Bank loans  27,397   21,858 
Loans from fellow CNPC subsidiary  26,795   26,861 
Corporate debentures  4,173   5,852 
Other  1,049   997 
       
   59,414   55,568 
       
 
         
  Carrying Amounts 
  December 31,
  December 31,
 
  2009  2008 
  RMB  RMB 
 
Bank loans  22,764   13,331 
Loans from CNPC and fellow CNPC subsidiaries  27,384   20,179 
Corporate debentures  4,136   4,314 
Medium-term notes  45,000   — 
Other  416   926 
         
   99,700   38,750 
         


F-35

PETROCHINA COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(Amounts in millions unless otherwise stated)
         
  Fair Values 
  December 31,
  December 31,
 
  2009  2008 
  RMB  RMB 
 
Bank loans  22,601   13,111 
Loans from CNPC and fellow CNPC subsidiaries  27,377   20,179 
Corporate debentures  4,146   4,020 
Medium-term notes  43,587   — 
Other  350   798 
         
   98,061   38,108 
         
The fair values are based on discounted cash flows using applicable discount rates based upon the prevailing market rates of interest available to the Group for financial instruments with

F-37

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
substantially the same terms and characteristics at the balance sheet dates.dates of the statement of financial position. Such discount rates ranged from 0.13%1.02% to 7.45% and 0.53% to 6.54%5.93% per annum as of December 31, 2005 and 2006, respectively2009 (2008: 1.47% to 7.41%) depending on the type of the debts.borrowings. The carrying amounts of short-term debtsborrowings approximate their fair value.values.
 
Maturities of long-term debtsborrowings at the dates indicated below are as follows:
         
  At December 31,
   
  2005 2006
     
  RMB RMB
First year  15,325   20,607 
Second year  18,373   11,797 
Third year  11,393   6,024 
Fourth year  2,492   1,504 
Fifth year  1,057   2,921 
Thereafter  11,255   13,388 
       
   59,895   56,241 
       
25ASSET RETIREMENT OBLIGATIONS
             
  Year Ended December 31,
   
  2004 2005 2006
       
  RMB RMB RMB
At beginning of the year  735   919   14,187 
Liabilities incurred  48   13,258   3,589 
Liabilities settled  —   (1)  (105)
Accretion expense (Note 8)  54   60   796 
Currency translation differences  82   (49)  14 
          
At end of the year  919   14,187   18,481 
          
 Asset retirement obligations are in relation to oil and gas properties (See Note 18).
         
  December 31,
  December 31,
 
Bank Loans
 2009  2008 
  RMB  RMB 
 
Within one year  8,756   579 
Between one to two years  2,996   9,991 
Between two to five years  10,668   2,395 
After five years  344   366 
         
   22,764   13,331 
         
 The 2004 opening balance represented the obligation recognized by CNPC E&D acquired by the Company through a business combination under common control (See Note 2).
         
  December 31,
  December 31,
 
Loans Other than Bank Loans
 2009  2008 
  RMB  RMB 
 
Within one year  5,473   5,319 
Between one to two years  9,216   5,451 
Between two to five years  52,153   5,037 
After five years  10,094   9,612 
         
   76,936   25,419 
         
 Before the issuance of two provincial regulations which set forth specific abandonment and disposal processes for oil and gas exploration and production activities in 2005, the Group was neither legally obligated to, nor was the Group under any constructive obligations to take any abandonment measures for its retired oil and gas properties located in China. For safety purposes, the Group performed capping or plugging on certain wells, which were considered to be in areas with extensive human use at the time of the abandonment.
29  SHARE CAPITAL
 In 2005, the Group established standard abandonment procedures, including plugging all retired wells, dismantling all retired metering stations and other related facilities and performing site restoration, in response to the issuance of two provincial regulations which set forth specific abandonment and disposal processes for oil and gas exploration and production activities. As a result of this change in legal requirements as well as the Group’s practice in China, the Group became legally obligated to take abandonment measures for its retired oil and gas properties located
         
  December 31,
  December 31,
 
  2009  2008 
  RMB  RMB 
 
Registered, issued and fully paid:        
A shares  161,922   161,922 
H shares  21,099   21,099 
         
   183,021   183,021 
         

F-36

F-38

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)
in the two provinces where the new regulations were enacted and is constructively obligated to take abandonment measures for its retired oil and gas properties located in all other provinces in China.
      The Group does not have any assets that are legally restricted for purposes of setting asset retirement obligations.
26DEFERRED TAXES
      Deferred taxes are calculated on temporary differences under the liability method using a principal tax rate of 33%.
      The movements in the deferred tax liabilities are as follows:
              
  Year Ended December 31,
   
  2004 2005 2006
       
  RMB RMB RMB
At beginning of the year  13,436   16,902   20,759 
Income statement charge/(credit) (Note 9)  3,267   3,959   (1,196)
Charged to/(credit) equity            
 — currency translation difference  199   (102)  20 
          
At end of the year  16,902   20,759   19,583 
          
      Deferred tax balances are attributable to the following items:
           
  At December 31,
   
  2005 2006
     
  RMB RMB
Deferred tax assets        
 Current:        
  Provisions, primarily for receivables and inventories  (4,767)  (7,107)
  Tax losses of subsidiaries  (1,014)  (2,175)
 Non current:        
  Shut down of manufacturing assets and impairment of long-term assets  (4,022)  (4,342)
  Other  (796)  (457)
       
Total deferred tax assets  (10,599)  (14,081)
       
Deferred tax liabilities        
 Current:        
  Sales  4,401   — 
 Non current:        
  Accelerated tax depreciation  26,615   33,398 
  Other  342   266 
       
Total deferred tax liabilities  31,358   33,664 
       
Net deferred tax liabilities  20,759   19,583 
       
      There were no material unrecognized tax losses at December 31, 2006.

F-39

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
27SHARE CAPITAL
          
  At December 31,
   
  2005 2006
     
  RMB RMB
Registered, issued and fully paid:        
 State-owned shares  157,922   157,922 
 H shares  21,099   21,099 
       
   179,021   179,021 
       
             
  Year Ended December 31,
   
Number of Shares of the Company (millions) 2004 2005 2006
       
  RMB RMB RMB
Beginning balance  175,824   175,824   179,021 
Issue of shares  —   3,197   — 
          
Ending balance  175,824   179,021   179,021 
          
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 RMB 1.00 yuan 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”)ADSs (each representing 100 H shares) in a global initial public offering (“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. The H shares and ADSs were issued at prices of HK$1.28 per H share and US$16.44 per ADS respectively for which the net proceeds to the Company were approximately RMB 20 billion. The shares issued pursuant to the Global Offering rank equally with existing shares.
 
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.
 
In September 2005, the Company issued 3,196,801,818 new H shares at HK$6.00 per share and net proceeds to the Company amounted to approximately RMB 19,692. CNPC also sold 319,680,182 state-owned shares it held concurrently with PetroChina’s sale of new H shares in September 2005.
 
On November 5, 2007, the Company issued 4,000,000,000 new A shares at RMB 16.70 yuan per share and net proceeds to the Company amounted to approximately RMB 66,243 and the listing and trading of the A shares on the Shanghai Stock Exchange commenced on November 5, 2007.
Following the issuance of the A shares, all the existing state-owned shares issued before November 5, 2007 held by CNPC have been registered with the China Securities Depository and Clearing Corporation Limited as A shares.
Shareholders’ rights are governed by the PRC Company Law of the PRC that requires an increase in registered capital to be approved by the shareholders in shareholders’ general meetings and the relevant PRC Government and regulatory authorities.


F-37

F-40

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)
28RESERVES
         
  Year Ended
  December 31,
   
  2005 2006
     
  RMB RMB
Revaluation Reserve
        
Beginning balance  79,946   79,946 
       
Ending balance  79,946   79,946 
Capital Reserve
        
Beginning balance  (25,376)  (8,881)
Issue of shares (Note 27)  16,495   — 
       
Ending balance  (8,881)  (8,881)
Statutory Common Reserve Fund(Note a) 
        
Beginning balance  36,071   48,736 
Transfer from retained earnings  12,665   13,355 
Transfer from Statutory Common Welfare Fund  —   27,837 
       
Ending balance  48,736   89,928 
Statutory Common Welfare Fund(Note b) 
        
Beginning balance  21,504   27,837 
Transfer from retained earnings  6,333   — 
Transfer to Statutory Common Reserve Fund  —   (27,837)
       
Ending balance  27,837   — 
Currency translation differences
        
Beginning balance  (111)  (379)
Currency translation adjustments  (268)  (191)
       
Ending balance  (379)  (570)
Other Reserves
        
Beginning balance  (3,200)  (14,703)
Payment to CNPC for the acquisition of the refinery and petrochemical business  (9)  — 
Purchase from minority interest of subsidiaries (Note 38)  (1,438)  (2,156)
Paid-in capital to CNPC E&D (Note 2)  (10,056)  — 
       
Ending balance  (14,703)  (16,859)
       
   132,556   143,564 
       
30  RESERVES
 
         
  2009  2008 
  RMB  RMB 
 
Revaluation Reserve
        
Beginning balance  79,946   79,946 
         
Ending balance  79,946   79,946 
Capital Reserve
        
Beginning balance  53,362   53,362 
         
Ending balance  53,362   53,362 
Statutory Common Reserve Fund(Note a)
        
Beginning balance  115,466   102,696 
Transfer from retained earnings  9,981   12,770 
         
Ending balance  125,447   115,466 
Special Reserve-Safety Fund Reserve
        
Beginning balance  6,750   3,536 
Safety fund reserve  1,325   3,214 
         
Ending balance  8,075   6,750 
Currency translation differences
        
Beginning balance  (2,726)  (1,554)
Currency translation differences  (1,460)  (1,172)
         
Ending balance  (4,186)  (2,726)
Other reserves
        
Beginning balance  (23,382)  (16,401)
Purchase of non-controlling interest in subsidiaries  (179)  (17)
Acquisition of subsidiaries  (248)  (6,693)
Capital reduction of a subsidiary  —   (61)
Fair value gain/(loss) onavailable-for-sale financial assets
  140   (237)
Capital contribution from non-controlling interest  1,158   — 
Other  2   27 
         
Ending balance  (22,509)  (23,382)
         
   240,135   229,416 
         
(a)Pursuant to the PRC regulations and the Company’s Articles of Association, the Company is required to transfer 10% of its net profit, as determined under the PRC accounting regulations, to a Statutory Common Reserve Fund (“Reserve Fund”). Appropriation to the Reserve Fund may be ceasedcease when the fund aggregates to 50% of the Company’s registered capital. The transfer to this reserve must be made before distribution of dividends to shareholders.
 
The Reserve Fund shall only be used to make good previous years’ losses, to expand the Company’s production operations, or to increase the capital of the Company. Upon approval by

F-41

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
of a resolution of shareholders’ in a general meeting, the Company may convert its Reserve Fund into share capital and issue bonus shares to existing shareholders in proportion to their original shareholdings or to increase the nominal value of each share currently held by them, provided that the balance of the Reserve Fund after such issueissuance is not less than 25% Company’s of the Company’s registered capital.


F-38

PETROCHINA COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(Amounts in millions unless otherwise stated)
(b)Pursuant to the Company Law of the PRC revised on October 27, 2005 and carried out as of January 1, 2006, the Company is required to cease to draw the statutory common welfare from January 1, 2006. In accordance with the Circular on Accounting Treatment Following the Implementation of “Company Law” issued by the Ministry of Finance of the PRC on March 15, 2006, the Company transferred the statutory common welfare fund balance as at the December 31, 2005 into the Reserve Fund.
(c)According to the Company’s Articles of Association,relevant PRC regulations, the distributable reserve is the lower of the retained earnings computed under PRC accounting regulations and IFRS. As of December 31, 2006,2009, the Company’s distributable reserve amounted to RMB 205,379 million which was computed under IFRS.
(d)As of December 31, 2006, revaluation surplus realized through the depreciation or disposal of revalued assets amounted to approximately358,415 (2008: RMB 53,717 and RMB 57,832 as of December 31, 2005 and 2006, respectively.
29PENSIONS316,708).
 
31  DEFERRED TAXATION
Deferred taxation is calculated on temporary differences under the liability method using a principal tax rate of 25% at December 31,2009 and 2008 and 33% at December 31,2007.
The movements in the deferred taxation account are as follows:
             
  Year Ended December 31, 
  2009  2008  2007 
  RMB  RMB  RMB 
 
At beginning of the year  11,969   20,571   19,979 
Transfer to profit and loss (Note 12)  8,611   (8,212)  807 
Charge/(credit) to other comprehensive income  38   (67)  87 
Acquisition of a subsidiary  991   —   (174)
Currency translation differences  (420)  (364)  (128)
Others  (29)  41   — 
             
At end of the year  21,160   11,969   20,571 
             
Deferred tax balances before offset are attributable to the following items:
         
  December 31,
  December 31,
 
  2009  2008 
  RMB  RMB 
 
Deferred tax assets:        
Current:        
Receivables and inventories  7,173   9,165 
Tax losses of subsidiaries  166   294 
Non-current:        
Impairment of long-term assets  3,983   4,580 
Other  2,379   885 
         
Total deferred tax assets  13,701   14,924 
         
Deferred tax liabilities:        
Non-current:        
Accelerated tax depreciation  32,348   24,613 
Other  2,513   2,280 
         
Total deferred tax liabilities  34,861   26,893 
         
Net deferred tax liabilities  21,160   11,969 
         


F-39

PETROCHINA COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(Amounts in millions unless otherwise stated)
Deferred tax balances after offset are listed as below:
         
  December 31,
 December 31,
  2009 2008
  RMB RMB
 
Deferred tax assets  289   497 
Deferred tax liabilities  21,449   12,466 
There were no material unrecognised tax losses at December 31, 2009 and 2008.
32  ASSET RETIREMENT OBLIGATIONS
             
  2009  2008  2007 
  RMB  RMB  RMB 
 
At beginning of the year  36,262   24,761   18,481 
Liabilities incurred  7,162   10,033   4,818 
Consolidation of PetroKazakhstan Inc.   —   —   385 
Liabilities settled  (434)  (169)  (110)
Accretion expense (Note 10)  1,943   1,746   1,202 
Currency translation differences  (186)  (109)  (15)
             
At end of the year  44,747   36,262   24,761 
             
Asset retirement obligations relate to oil and gas properties (Note 16).
33  PENSIONS
The Group participates in various employee retirement benefit plans organized by PRC municipal and provincial governments under which it is required to make monthly contributions to these plans at rates ranging from 16% to 22% of the employees’ basic salary for the relevant periods.(Note 3(t)). Expenses incurred by the Group in connection with the retirement benefit plans were RMB 2,476, RMB 3,104 and RMB 4,645, for the yearsyear ended December 31, 2004, 20052009 amounted to RMB 8,437 (2008: RMB 6,997, 2007: RMB 5,754).
34  CONTINGENT LIABILITIES
(a)  Bank and 2006, respectively.
30FINANCIAL INSTRUMENTS
      The Group holds or issues various financial instruments which expose it to credit, interest rate, foreign exchange rate and fair value risks. In addition, the Group’s operations are affected by certain commodity price movements. The Group historically has not used derivative instruments for hedging or trading purposes. Such activities are subject to policies approved by the Group’s senior management. Substantially all of the financial instruments the Group holds is for purposes other than trading. The Group regards an effective market risk system as an important element of the Group’s treasury function and is continuously enhancing its systems. A primary objective is to implement certain methodologies to better measure and monitor risk exposures.
     (a) Credit risk
      The carrying amounts of accounts receivable included in the balance sheet represent the Group’s maximum exposure to credit risk in relation to its financial assets. Majority of cash and time deposits are placed with state-owned banks and financial institutions. No other financial assets carry a significant exposure to credit risk. The Group has no significant concentration of credit risk.

F-42

PETROCHINA COMPANY LIMITEDguarantees
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
     (b) Interest rate risk
      The Group is exposed to the risk arising from changing interest rates. A detailed analysis of the Group’s debts, together with their respective interest rates and maturity dates, are included in Note 24.
     (c) Foreign exchange rate risk
      From July 21, 2005, the PRC government reformed the Renminbi exchange rate regime and implemented a regulated floating exchange rate regime based on market supply and demand with reference to a basket of currencies. However, Renminbi is still regulated in capital projects. The exchange rates of Renminbi are affected by domestic and international economic developments and political changes, and supply and demand for Renminbi. Future exchange rates of Renminbi against other currencies could vary significantly from the current exchange rates. As Renminbi is the functional currency of the Company and most of its consolidated subsidiaries, the fluctuation of the exchange rate of Renminbi may have positive or negative impacts on the results of operations of the Group. An appreciation of Renminbi against United States Dollar may decrease the Group’s turnover, but the cost of acquiring imported materials and equipment may be reduced. A devaluation of Renminbi against United States Dollar may not have a negative impact on the Group’s turnover but may increase the cost for acquiring imported materials and equipment as well as the debt obligations denominated in foreign currencies of the Group.
     (d) Commodity price risk
      The Group is engaged in a wide range of petroleum-related activities. The oil and gas markets are affected by global and regional demands and supplies. Prices of onshore crude oil are determined with reference to the prices of crude oil on the international markets. A decline in the prices of crude oil and refined products could adversely affect the Group’s financial position. The Group historically has not used commodity derivative instruments to hedge against potential price fluctuations of crude oil and refined products. Therefore, the Group is exposed to the general price fluctuations of broadly traded oil and gas commodities in 2007 and thereafter.
     (e) Fair values
      The carrying amounts of the following financial assets and financial liabilities approximate their fair value as all of them are in short-term in nature: cash and cash equivalents, short-term investments (comprising investments in collateralized loans and time deposits with maturities over three months but within one year), accounts receivable and trade payable, other receivables and payables, lease obligations, short-term debts and floating rate long-term debts. The fair value of the fixed rate long-term debts is likely to be different from their carrying amounts. As the majority of the debts are at floating rates, the fair value of these debts approximate their carrying amounts. Analysis of the fair value and carrying amounts of long-term debts are presented in Note 24.

F-43

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
31  CONTINGENT LIABILITIES
     (a) Bank and other guarantees
At December 31, 2006,2009, borrowings of associates of RMB 21 (2008: RMB 43) from China Petroleum Finance Company Limited (“CP Finance”, a subsidiary of CNPC) were guaranteed by the Group. The Group had contingent liabilities in respect of the guarantees made to China Petroleum Finance Company Limited (“CP Finance”), a subsidiary of CNPC, and a State-controlled bank from which it is anticipated that no material liabilities will arise.
          
  At December 31,
   
  2005 2006
     
  RMB RMB
Guarantee of debts of equity affiliates from        
 CP Finance  187   162 
Guarantee of debts of third party from        
 a State-controlled bank  —   41 
       
   187   203 
       
     (b) Environmental liabilities
 CNPC and the Group have operated in China for many years.
(b)  Environmental liabilities
China has adopted extensive environmental laws and regulations that affect the operation of the oil and gas industry. The outcome of environmental liabilities under proposed or future environmental legislation cannot reasonably be estimated at present, and could be material. Under existing legislation, however, management believes that there are no probable liabilities, except for the amounts which have already been reflected in the consolidated financial statements, that willwhich may have a material adverse effect on the financial position of the Group.
 On November 13, 2005, explosions occurred at a manufacturing facility of a branch of the Company located in the Jilin Province. The investigation into the accident was completed by the PRC Government in December 2006. Based on the results of the investigation, the Company paid a fine of RMB 1 in settlement of all liability related to the accident.
(c)  Legal contingencies
     (c) Legal contingencies
 The Group is the named defendant in
Notwithstanding certain insignificant lawsuits as well as the named party in other proceedings arising in the ordinary course of business. While the outcomes of such contingencies, lawsuits or other proceedings cannot be determined at present, theoutstanding, management of the Group believes that any resulting liabilities will not have a material adverse effect on the financial position of the Group.


F-40

PETROCHINA COMPANY LIMITED
     (d) Leasing of roads, land and buildings
 According
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(Amounts in millions unless otherwise stated)
(d)  Leasing of roads, land and buildings
As at December 31, 2009, CNPC is still in the process of completing the process of obtaining the formal land use right certificates, necessary governmental procedures for the requisition of collectively-owned land on which gas stations are located and building ownership certificates for buildings transferred to the Group under 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:2000.
• CNPC will use its best endeavors 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;

F-44

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
• CNPC will complete, within one year from November 5, 1999, the necessary governmental procedures for the requisition of the collectively-owned land on which 116 service stations owned by the Company are located; and
• CNPC will obtain individual building ownership certificates in the name of the Company for all of the 57,482 buildings transferred to the Company by CNPC, before November 5, 2000.
      As at December 31, 2006, CNPC obtained formal land use right certificates in relation to 27,494 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 confirmManagement confirms 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 certain relevant land use right certificates or individual building ownership certificates have not been obtained to date 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
(e)  Group insurance
 Except for limited
The Group has insurance coverage for vehicles and certain assets that are 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 adverseresult from accidents and also employer liabilities insurance. The potential effect on the financial position of the Group.Group of any liabilities resulting from future uninsured incidents cannot be estimated by the Group at present.
32COMMITMENTS
35  COMMITMENTS
(a) Operating lease commitments
 
(a)  Operating lease commitments
Operating lease commitments of the Group are mainly for leasing of land, and buildings and equipment. Leases range from one1 to fifty50 years and usually do not contain renewal options. Future minimum lease payments as of December 31, 20052009 and 20062008 under non-cancelablenon-cancellable operating leases are as follows:
         
  At December 31,
   
  2005 2006
     
  RMB RMB
First year  3,208   3,099 
Second year  2,595   2,749 
Third year  2,558   2,714 
Fourth year  2,437   3,040 
Fifth year  2,926   3,102 
Thereafter  81,266   80,076 
       
   94,990   94,780 
       

F-45

PETROCHINA COMPANY LIMITED
         
  December 31,
  December 31,
 
  2009  2008 
  RMB  RMB 
 
No later than one year  4,071   3,634 
Later than one year and no later than five years  12,478   12,492 
Later than five years  77,385   78,970 
         
   93,934   95,096 
         
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)(b)  Capital commitments
 Operating lease expenses
At December 31, 2009, the Group’s capital commitments contracted but not provided for land and buildings and equipment were RMB 3,873,56,657 (2008: RMB 4,85022,719).
(c)  Exploration and RMB 5,378 for the years ended December 31, 2004, 2005 and 2006, respectively.
(b) Capital commitments
          
  At
  December 31,
   
  2005 2006
     
  RMB RMB
Contracted but not provided for        
 Oil and gas properties  847   273 
 Plant and equipment  12,496   8,658 
 Other  22   262 
       
   13,365   9,193 
       
(c) Long-term natural gas supply commitments
      The Group markets a portion of its natural gas production under long-term take-or-pay contracts. Under these contracts, the customers are required to take or pay, and the Group is obligated to deliver, minimum quantities of natural gas annually. The prices for the natural gas are based on those approved by the PRC State Development and Reform Commission at the time of deliveries.licenses
 As at December 31, 2005 and 2006, future minimum delivery commitments under the contracts are as follows:
     
  At December 31,
  2005
  Quantities
   
  (billion of cubic feet)
2006  451 
2007  583 
2008  639 
2009  704 
2010  583 
2011 and thereafter  5,528 
     
   8,488 
     
     
  At December 31,
  2006
  Quantities
   
  (billion of cubic feet)
2007  720 
2008  885 
2009  943 
2010  1,002 
2011  1,050 
2012 and thereafter  10,460 
     
   15,060 
     

F-46

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
(d) 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 444, RMB 534 and RMB 662752 for the yearsyear ended December 31, 2004, 2005 and 2006, respectively.2009 (2008: RMB 944).


F-41

PETROCHINA COMPANY LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(Amounts in millions unless otherwise stated)
Estimated annual payments for the next five years are as follows:
     
  At December 31,
  2005
   
  RMB
2006  681 
2007  712 
2008  712 
2009  712 
2010  850 
     
  At December 31,
  2006
   
  RMB
2007  750 
2008  780 
2009  800 
2010  850 
2011  900 
         
  December 31,
  December 31,
 
  2009  2008 
  RMB  RMB 
 
Within one year  1,000   1,000 
Between one and two years  1,000   1,000 
Between two and three years  1,000   1,000 
Between three and four years  1,000   1,000 
Between four and five years  1,000   1,000 
33MAJOR CUSTOMERS
 
36  MAJOR CUSTOMERS
The Group’s major customers are as follows:
                         
  Year Ended December 31,
   
  2004 2005 2006
       
    % to   % to   % to
    Total   Total   Total
  Revenue Revenue Revenue Revenue Revenue Revenue
             
  RMB % RMB % RMB %
Sinopec  36,977   9   35,848   6   44,028   6 
CNPC  10,720   3   19,823   4   27,714   4 
                   
   47,697   12   55,671   10   71,742   10 
                   
                         
  2009  2008  2007 
     Percentage
     Percentage
     Percentage
 
     of total
     of total
     of Total
 
  Revenue  revenue  Revenue  revenue  Revenue  revenue 
  RMB  %  RMB  %  RMB  % 
 
China Petroleum & Chemical Corporation  67,137   7   57,594   5   50,292   6 
CNPC and its subsidiaries  32,437   3   46,645   4   31,325   4 
                         
   99,574   10   104,239   9   81,617   10 
                         
34RELATED PARTY TRANSACTIONS
 
37  RELATED PARTY TRANSACTIONS
CNPC, the immediate parentcontrolling shareholder of the Company, is a state-controlled enterprise directly controlled by the PRC government. The PRC government is the Company’s ultimate controlling party. State-controlled
Related parties include CNPC and its subsidiaries, other state-owned enterprises and their subsidiaries in addition to CNPC Group companies, directly or indirectly controlled bywhich the PRC government are also related partieshas control, joint control or significant influence over and enterprises which the Group is able to control, jointly control or exercise significant influence over, key management personnel of the Group. NeitherCompany and CNPC norand their close family members.
(a)  Transactions with CNPC and its subsidiaries, associates and jointly controlled entities of the PRC government publishes financial statements available for public use.Group
 
The Group has extensive transactions with other members ofcompanies in the CNPC Group. Because of the relationship,and its subsidiaries. Due to these relationships, it is possible that the terms of the transactions between the Group and other members

F-47

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
of the CNPC Groupand its subsidiaries are not the same as those that would result from transactions with other related parties or wholly unrelated parties.
 As a result
The principal related party transactions with CNPC and its subsidiaries, associates and jointly controlled entities of the restructuringGroup which were carried out in the ordinary course of CNPC to form the Company in 1999,business, are as follows:
On August 27, 2008, the Company and CNPC entered into a Comprehensive Products and Services Agreement (“the Comprehensive Products and Services Agreement”), amending the original Comprehensive Products and Services Agreements and the First Supplemental Agreement and the Second Supplemental Agreement thereto. The Comprehensive Products and Services Agreement provide for a range of products and services which may be required and requested by either party; a Land Use Rights Leasing Contract 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 current Comprehensive Products and Services Agreement were amended in 2005 and the agreement is effective through December 31, 2008.party. The products and services to be provided by the CNPC Groupand its subsidiaries to the CompanyGroup under the Comprehensive Products and Services Agreement include construction and


F-42

PETROCHINA COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(Amounts in millions unless otherwise stated)
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-prescribedgovernment-prescribed prices; or (2) where there is no state-prescribedgovernment-prescribed price, with reference to relevant market prices; or (3) where neither (1) nor (2) is applicable, the actual cost incurred;incurred or the agreed contractual price, beingprice.
• Sales of goods represent the sale of crude oil, refined products, chemical products and natural gas, etc. The total amount of these transactions amounted to RMB 37,448 in the year ended December 31, 2009 (2008: RMB 51,714, 2007: RMB 49,662).
• Sales of services principally represent the provision of services in connection with the transportation of crude oil and natural gas, etc. The total amount of these transactions amounted to RMB 7,128 in the year ended December 31, 2009 (2008: RMB 9,300, 2007: RMB 3,418).
• Purchases of goods and services principally represent construction and technical services, production services, social services, ancillary services and material supply services, etc. The total amount of these transactions amounted to RMB 199,826 in the year ended December 31, 2009 (2008: RMB 204,670, 2007: RMB 169,755).
• Purchase of assets principally represent the purchases of manufacturing equipment, office equipment and transportation equipment, etc. The total amount of these transactions amounted to RMB 2,327 in the year ended December 31, 2009 (2008: RMB 3,576, 2007: RMB 2,404).
• Amounts due from and to CNPC and its subsidiaries, associates and jointly controlled entities of the Group included in the following accounts captions are summarised as follows:
         
  December 31,
  December 31,
 
  2009  2008 
  RMB  RMB 
 
Accounts receivable  3,780   4,737 
Prepayments and other receivables  16,548   15,816 
Accounts payable and accrued liabilities  57,076   42,121 
• Interest income represents interests from deposits placed with CP Finance. The total interest income amounted to RMB 143 in the year ended December 31, 2009 (2008: RMB 114, 2007: RMB 159). The balance of deposits at 31 December 2009 was RMB 10,433 (2008: RMB 8,424).
• Purchases of financial service principally represent interest charged on the loans from CNPC and fellow CNPC subsidiaries, insurance fee, etc. The total amount of these transactions amounted to RMB 3,541 in the year ended December 31, 2009 (2008: RMB 1,623, 2007: RMB 1,388). Information on loans from related parties are included in Note 28.
On March 10, 2000, the actual cost plusCompany and CNPC entered into a margin of no more than 15% for certain construction and technical services, and 3% for all other types of services.
Land Use Rights Leasing Contract. The Land Use Rights Leasing Contract provides for the lease of 42,476 parcels of land to the business units of the Group with 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 every 10 years, be adjusted by agreement between the Company and CNPC.
 
On March 10, 2000, the Company and CNPC entered into a Buildings Leasing Contract. Under the Buildings Leasing Contract, 191 buildings covering an aggregate area of 269,770 square meters located throughout the PRC arewere 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 inon September 26, 2002, which became effective on January 1, 2003 to lease an additional 404 buildings covering approximately 442,730 square meters at an annual rental of approximately RMB 157. The Supplemental Buildings Leasing Agreement will expire at the same time as the Buildings Leasing Agreement.


F-43

PETROCHINA COMPANY LIMITED
 In addition
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(Amounts in millions unless otherwise stated)
(b)  Key management compensation
             
  Year Ended December 31 
  2009  2008  2007 
  RMB’000  RMB’000  RMB’000 
 
Emoluments and other benefits  9,885   10,581   10,273 
Contribution to retirement benefit scheme  479   444   345 
             
   10,364   11,025   10,618 
             
(c)  Transactions with other state-controlled entities in the PRC
Apart from transactions with CNPC and its subsidiaries, associates and jointly controlled entities of the Group, the Group has transactions with other state-controlled entities include but not limited to the related party information shown elsewhere in the financial statements, the following is a summaryfollowing:
•  Sales and purchases of significant related partygoods and services,
•  Purchases of assets,
•  Lease of assets; and
•  Bank deposits and borrowings
These transactions entered intoare conducted in the ordinary course of business betweenbusiness.
38  SEGMENT INFORMATION
With effect from January 1, 2009, the Group andhas redefined its related parties during the years and balances arising from related party transactions at the endoperating segments as follows:
•  The businesses of the years indicated below:
(a) Bank deposits
              
    At
    December 31,
     
  Note 2005 2006
       
    RMB RMB
Bank deposits balance            
 CP Finance  (i)   24,356   8,937 
 State-controlled banks and other financial institutions      55,139   37,744 
          
       79,495   46,681 
          

F-48

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
                  
    Year Ended
    December 31,
     
  Note 2004 2005 2006
         
    RMB RMB RMB
Interest income from bank deposits                
 CP Finance  (i)   29   33   81 
 State-controlled banks and other financial institutions      132   1,582   1,804 
             
       161   1,615   1,885 
             
(i) CP Finance is a subsidiary of CNPC and a non-bank financial institution, established with the approval from the People’s Bank of China. The deposits yield interest at prevailing saving deposit rates.
(b) Sales of goods and services
              
  Year Ended December 31,
   
  2004 2005 2006
       
  RMB RMB RMB
Sales of goods            
Equity affiliates and jointly controlled entities            
 — Crude Oil  2,597   883   5,023 
 — Refined Products  6,397   9,766   19,779 
 — Chemical Products  153   308   90 
Fellow subsidiaries (CNPC Group)            
 — Crude Oil  100   155   1,546 
 — Refined Products  5,720   12,364   16,847 
 — Chemical Products  2,927   4,805   5,691 
 — Natural Gas  737   820   1,346 
 — Other  320   650   277 
Other state-controlled enterprises            
 — Crude Oil  34,212   37,168   39,632 
 — Refined Products  61,138   86,505   68,370 
 — Chemical Products  14,155   18,275   8,979 
 — Natural Gas  5,093   8,127   7,713 
          
   133,549   179,826   175,293 
          
      Sales of goods to related parties are conducted at market prices.

F-49

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
             
  Year Ended
  December 31,
   
  2004 2005 2006
       
  RMB RMB RMB
Sales of services            
Fellow subsidiaries (CNPC Group)  916   1,029   2,007 
Other state-controlled enterprises  3,047   3,592   7,761 
          
   3,963   4,621   9,768 
          
      Sales of services principally represent the provision of the services in connection with the transportationrefining of crude oil and natural gas at market prices.petroleum products and the production and marketing of primary petrochemical products, derivative petrochemical products and other chemical products have been combined to form a new Refining and Chemicals segment.
(c) Purchases of goods and services
                   
    Year Ended December 31,
     
  Notes 2004 2005 2006
         
    RMB RMB RMB
Purchases of goods  (i)             
Equity affiliates and jointly controlled entities      2,185   4,220   9,868 
Other state-controlled enterprises      36,048   59,719   50,995 
 
Purchases of services                
Equity affiliates and jointly controlled entities      29   43   126 
Fellow subsidiaries (CNPC Group)                
 — Fees paid for construction and technical services  (ii)             
  — exploration and development services  (iii)   30,058   39,653   50,485 
  — other construction and technical services  (iv)   18,673   25,010   32,256 
 — Fees for production services  (v)   16,313   23,344   32,730 
 — Social service charges  (vi)   1,289   2,153   2,301 
 — Ancillary service charges  (vii)   1,717   2,345   2,458 
 — Commission expense and other charges  (viii)   884   1,612   1,241 
 Other state-controlled enterprises  (ix)   4,752   6,390   7,703 
             
       111,948   164,489   190,163 
             
 
  (i) Purchases of goods principally represent the purchases of raw materials, spare parts and low cost consumables at market prices.
 (ii) 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.
 (iii) Direct costs for exploration and development services comprise geophysical survey, drilling, well cementing, logging and well testing.
 (iv) 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

F-50

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
exploration and production activities such as oilfield construction, technology research, engineering and design, etc
 (v) The fees paid for production services comprise fees for the repair of machinery, supply of water, electricity and gas at the state-prescribed prices, provision of services such as communications, transportation, fire fighting, asset leasing, environmental protection and sanitation, maintenance of roads, manufacture of replacement parts and machinery at cost or market prices.
 (vi) These represent expenditures for social welfare and support services which are charged at cost.
(vii)  Ancillary service charges represent mainly fees for property management, the provision of training centres, guesthouses, canteens, public shower rooms, etc., at market prices.
 (viii) 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.
 (ix) Purchases of services from other state-controlled enterprises principally represent the purchases of the construction and technical services at market prices.
(d) Purchases of assets
              
  Year Ended December 31,
   
  2004 2005 2006
       
  RMB RMB RMB
Purchases of assets            
 Equity affiliates and jointly controlled entities  9   11   2 
 Fellow subsidiaries (CNPC Group)  4,018   5,870   1,795 
 Other state-controlled enterprises  3,480   6,813   6,617 
          
   7,507   12,694   8,414 
          
      Purchases•  The marketing of assets principally represent the purchases of manufacturing equipment, office equipment, transportation equipment, etc., at market prices.

F-51

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
(e) Year-end balances arising from sales/ purchases of goods/ services/assets
          
  At
  December 31,
   
  2005 2006
     
  RMB RMB
Accounts receivable from related parties at the end of the year        
 — Equity affiliates and jointly controlled entities  12   82 
 — Fellow subsidiaries (CNPC Group)  337   599 
 — Other state-controlled enterprises  1,796   1,566 
       
   2,145   2,247 
Less: Provision for impairment of accounts receivable        
 — Equity affiliates and jointly controlled entities  —   (5)
 — Fellow subsidiaries (CNPC Group)  (246)  (232)
 — Other state-controlled enterprises  (924)  (861)
       
   (1,170)  (1,098)
       
   975   1,149 
       
Prepayments and other receivables from related parties at the end of the year        
 — Equity affiliates and jointly controlled entities  3,634   4,307 
 — Parent (CNPC)  103   196 
 — Fellow subsidiaries (CNPC Group)  7,430   7,220 
 — Other state-controlled enterprises  2,357   4,202 
       
   13,524   15,925 
Less: Provision for impairment of other receivables        
 — Equity affiliates and jointly controlled entities  (240)  (212)
 — Fellow subsidiaries (CNPC Group)  (70)  (4)
 — Other state-controlled enterprises  (330)  (299)
       
   (640)  (515)
       
   12,884   15,410 
       
Accounts payable and accrued liabilities to related parties at the end of the year        
 — Equity affiliates and jointly controlled entities  3,118   1,444 
 — Parent (CNPC)  2,516   2,321 
 — Fellow subsidiaries (CNPC Group)  20,285   26,046 
 — Other state-controlled enterprises  15,163   5,462 
       
   41,082   35,273 
       

F-52

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
              
  Year Ended
  December 31,
   
  2004 2005 2006
       
  RMB RMB RMB
Provision for impairment of accounts receivable from related parties charged to the consolidated statements of income            
 — Equity affiliates and jointly controlled entities  —   —   5 
 — Fellow subsidiaries (CNPC Group)  42   24   (11)
 — Other state-controlled enterprises  (36)  (62)  (52)
          
   6   (38)  (58)
          
Provision for impairment of prepayment and other receivables from related parties charged to the consolidated statements of income            
 — Equity affiliates and jointly controlled entities  49   (55)  (20)
 — Fellow subsidiaries (CNPC Group)  47   55   (32)
 — Other state-controlled enterprises  82   (35)  12 
          
   178   (35)  (40)
          
(f) Leases
                  
    Year Ended
    December 31,
     
  Notes 2004 2005 2006
         
    RMB RMB RMB
Advance operating lease payments paid to related parties  (i)            
 — Parent (CNPC)      186   232   — 
 — Other state-controlled enterprises      15   33   49 
             
       201   265   49 
             
Other operating lease payments paid to related parties                
 — Parent (CNPC)  (ii)  2,106   2,192   2,276 
 — Other state-controlled enterprises      5   5   16 
             
       2,111   2,197   2,292 
             
(i)   Advance operating lease payments principally represent the advance payment paid for the long-term operating lease of land and gas stations at prices prescribed by local governments or market prices.
(ii) Other operating lease payments to CNPC principally represent the rental paid for the operating lease of land and buildings at the prices prescribed in the Land Use Rights

F-53

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
Leasing Contract, the Buildings Leasing Contract and Supplemental Buildings Leasing Agreement with CNPC.
          
  At
  December 31,
   
  2005 2006
     
  RMB RMB
Operating lease payable to related parties        
 — Parent (CNPC)  2   — 
 — Other state-controlled enterprises  1   7 
       
   3   7 
       
(g) Loans
              
  Year Ended December 31,
   
Loans to related parties 2004 2005 2006
       
  RMB RMB RMB
Loans to equity affiliates:            
 Beginning of the year  1,718   569   1,640 
 Loans advanced during year  235   1,392   1,034 
 Loans repayments received  (1,384)  (321)  (884)
 Interest charged  41   29   154 
 Interest received  (41)  (29)  (144)
          
 End of the year  569   1,640   1,800 
          
      Loans to equity affiliatesrefined products and trading businesses are now included in prepaid expenses and other current assets (See Note 17).

F-54

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)a new Marketing segment.
 The loans to related parties are mainly with interest rates ranging from 5.26% to 8.54% and 9.07% to 9.36% per annum as of December 31, 2005 and 2006, respectively.
                  
    Year Ended December 31,
     
Loans from related parties Notes 2004 2005 2006
         
    RMB RMB RMB
Loans from CP Finance:  (i)            
 Beginning of the year      29,575   29,932   27,319 
 Loan received during year      12,003   10,187   7,408 
 Loan repayments paid      (11,646)  (12,803)  (7,565)
 Interest charged      1,234   1,297   1,327 
 Interest paid      (1,234)  (1,294)  (1,305)
             
 End of the year      29,932   27,319   27,184 
             
Loans from state-controlled banks and other financial institutions:  (ii)            
 Beginning of the year      38,341   36,562   31,178 
 Loan received during year      24,990   24,715   28,457 
 Loan repayments paid      (26,739)  (30,105)  (26,797)
 Interest charged      1,847   1,670   1,598 
 Interest paid      (1,877)  (1,664)  (1,626)
             
 End of the year      36,562   31,178   32,810 
             
Loans from other related parties:  (iii)            
 Beginning of the year      13   16   62 
 Loan received during year      5   51   — 
 Loan repayments paid      (2)  (5)  (57)
 Interest charged      —   1   2 
 Interest paid      —   (1)  (2)
             
 End of the year      16   62   5 
             
 (i) The loans from CP Finance are mainly with interest rates ranging from 4.45% to 5.70% and 4.46% to 6.06% per annum as of December 31, 2005 and 2006, respectively with maturities through 2032.
 (ii) The loans from state-controlled banks and other financial institutions are mainly with interest rates ranging from zero to 8.66% and zero to 8.66% per annum as of December 31, 2005 and 2006, respectively with maturities through 2038.
 (iii) The loans from other related parties are mainly with interest rates at 6.32% and 6.32% per annum as of December 31, 2005 and 2006, respectively and with no fixed repayment term.
      The secured loans from related parties amounted RMB 54 and RMB 23 at December 31, 2005 and 2006, respectively.

F-55

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
      The guaranteed loans amounted to RMB 674 and RMB 597 at December 31, 2005 and 2006, respectively. All these guaranteed loans are from non-related parties, long-term and guaranteed by CNPC.
(h) Key management compensation
              
  Year Ended December 31,
   
  2004 2005 2006
       
  RMB’000 RMB’000 RMB’000
Fee for key management personnel            
 — Directors and supervisors  120   897   1,473 
Salaries, allowances and other benefits            
 — Directors and supervisors  2,012   4,031   3,937 
 — Other key management  1,330   2,207   2,447 
Contribution to retirement benefit scheme            
 — Directors and supervisors  43   57   165 
 — Other key management  31   37   133 
          
   3,536   7,229   8,155 
          
      As at December 31, 2006, none of the key management personnel had exercised the stock appreciation rights. The liability for the units awarded to key management personnel amounted to approximately RMB 177 and RMB 329 at December 31, 2005 and 2006, respectively.
(i) Contingent liabilities
      The Group has disclosed in Note 31 in respect of the contingent liabilities arising from the guarantees made for related parties.
(j) Collateral for debts
      The Group pledged time deposits with maturities over one year as collaterals with Citibank, N.A., Singapore Branch for the debts of subsidiaries and equity affiliates. The balance of these time deposits amounted to RMB 3,428 and RMB 2,499 including RMB 968 and RMB 312 for the debts of subsidiaries and RMB 2,460 and RMB 2,187 for the debts of equity affiliates at December 31, 2005 and 2006, respectively.

F-56

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
35EMOLUMENTS OF DIRECTORS AND SUPERVISORS
      Details of the emoluments of directors and supervisors for the years ended December 31, 2004, 2005 and 2006 are as follows:
                          
  2006 2005 2004
       
    Contribution      
  Fee for Salaries, to retirement      
  directors and allowances and benefit      
Name supervisors other benefits scheme Total Total Total
             
  RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Chairman:
                        
 Mr. Chen Geng  —   770   27   797   790   389 
Vice Chairman:
                        
 Mr. Jiang Jiemin  —   695   27   722   625   130 
Executive directors:
                        
 
Mr. Su Shulin(iii)
  —   657   27   684   686   352 
 Mr. Duan Wende  —   657   27   684   686   222 
 
Mr. Wang Fucheng(ii)
  —   —   —   —   —   300 
                   
       1,314   54   1,368   1,372   874 
                   
Non-executive directors:
                        
 Mr. Zheng Hu  —   —   —   —   —   — 
 Mr. Zhou Jiping  —   —   —   —   —   — 
 Mr. Wang Yilin  —   —   —   —   —   — 
 Mr. Zeng Yukang  —   —   —   —   —   — 
 Mr. Gong Huazhang  —   —   —   —   —   — 
 Mr. Jiang Fan  —   444   17   461   33   — 
 Mr. Chee-chen Tung  275   —   —   275   275   29 
 Mr. Liu Hongru  279   —   —   279   274   33 
 Mr. Franco Bernabè  259   —   —   259   279   33 
 
Mr. Ren Chuanjun(ii)
  —   —   —   —   —   — 
 
Mr. Zou Haifeng(ii)
  —   —   —   —   283   238 
 
Mr. Ma Fucai(i)
  —   —   —   —   —   — 
 
Mr. Wu Yaowen(i)
  —   —   —   —   —   — 
                   
   813   444   17   1274   1,144   333 
                   
Supervisors:
                        
 Mr. Wang Fucheng  —   —   —   —   530   — 
 Mr. Wen Qingshan  —   —   —   —   —   — 
 Mr. Sun Xianfeng  —   —   —   —   —   — 
 Mr. Xu Fengli  —   432   27   459   374   153 
 Mr. Qin Gang  —   282   13   295   —   — 
 Mr. Li Yongwu  330   —   —   330   12   — 
 Mr. Wu Zhipan  330   —   —   330   57   12 
 
Mr. Li Kecheng(ii)
  —   —   —   —   —   — 

F-57

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
                         
  2006 2005 2004
       
    Contribution      
  Fee for Salaries, to retirement      
  directors and allowances and benefit      
Name supervisors other benefits scheme Total Total Total
             
  RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Mr. Sun Chongren(ii)
  —   —   —   —   81   272 
Mr. Zhang Youcai(ii)
  —   —   —   —   —   12 
Mr. Bai Xinhe(i)
  —   —   —   —   —   — 
Mr. Chen Weizhang(i)
  —   —   —   —   —   — 
                   
   660   714   40   1,414   1,054   449 
                   
   1,473   3,937   165   5,575   4,985   2,175 
                   
(i)No longer a director or supervisor since May 18, 2004.
(ii)No longer a director or supervisor since November 8, 2005.
(iii)No longer a director since November 24, 2006
      The emoluments of the directors and supervisors fall within the following bands (including directors and supervisors whose term expired during the year):
             
  2006 2005 2004
       
  Number Number Number
RMB Nil – RMB 1  20   25   24 
          
      Fee for directors and supervisors disclosed above included RMB 95 thousand, RMB 828 thousand and RMB 813 thousand respectively, for the year ended December 31, 2004, 2005 and 2006 paid to independent non-executive directors.
      None of the directors and supervisors has waived their remuneration during the years ended December 31, 2005 and 2006.
      The five highest paid individuals in the Group for each of the three years ended December 31, 2004, 2005 and 2006 above were also directors or supervisors and their emoluments are reflected in the analysis shown above.
      During 2004, 2005 and 2006, the Company did not incur any severance payment to any director for loss of office or any payment as inducement to any director to join the Company.
      The Company has adopted a share option scheme which is a share appreciation right arrangement payable in cash to the recipients upon exercise of the rights which became effective on the initial public offering of the H shares of the Company on April 7, 2000. The directors, supervisors and senior executives of the Company are eligible for the scheme. 87,000,000 units of share appreciation rights were granted to senior executives. 35,000,000 units were granted to the directors and supervisors; of these 35,000,000 units, 33,130,000 units are outstanding, net of subsequent forfeiture of 1,870,000 units by a former independent director.
      The rights can be exercised on or after April 8, 2003, the third anniversary of the grant, up to April 7, 2008. The exercise price is the price as at the initial public offering being HK$1.28 per share or approximately RMB 1.36 per share.

F-58

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
      As at December 31, 2006, none of the holders of the share appreciation rights had exercised the rights. The liability for the units awarded under the scheme has been calculated based on fair value of the liability incurred and is expensed over the vesting period. The liability is remeasured at each balance sheet date to its fair value and amounted to approximately RMB 630 and RMB 1,167 at December 31, 2005 and 2006 respectively.
36  SEGMENT INFORMATION
The Group is principally engaged in a broad range of petroleum related activities through its four major business segments:products, services and activities. From a products and services perspective and pursuant to the above re-segmentation, the Group’s operating segments comprise: Exploration and Production, Refining and Marketing, Chemicals, and Marketing, and Natural Gas and Pipeline. Comparative amounts have been restated to reflect the re-segmentation. Additionally, the Group has presented geographical information based on entities located in regions with similar risk profile.
 
The Exploration and Production segment is engaged in the exploration, development, production and salesmarketing of crude oil and natural gas.
 
The Refining and MarketingChemicals segment is engaged in the refining transportation, storage and marketing of crude oil and petroleum products.
      The Chemicals and Marketing segment is engaged in theproducts, production and salemarketing of basicprimary petrochemical products, and derivative petrochemical products and other chemical products.
 
The Marketing segment is engaged in the marketing of refined products and the trading of crude oil and petrochemical products.
The Natural Gas and Pipeline segment is engaged in the sale of natural gas and the transmission of natural gas, crude oil and refined products.products and the sale of natural gas.
 In addition to these four major business segments, the
The Other segment includes the assets, income and expenses relatingrelates to cash management and financing activities, the corporate centre,center, research and development, and other business services tosupporting the operating business segments of the Group.


F-44

PETROCHINA COMPANY LIMITED
 Most assets and operations
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
(Amounts in millions unless otherwise stated)
Sales between operating segments are conducted principally at market prices. On the basis of these operating segments, the management of the Group are located inCompany assesses the PRC, which is considered as one geographic location in an economic environment with similar riskssegmental operating results and returns. In addition to its operations in the PRC, the Group also has oversea operations through subsidiaries engaging in the exploration and production of crude oil and natural gas.allocates resources.
 
The accounting policies of the operating segments are the same as those described in Note 3 — “Summary of Principal Accounting Policies”.
 Operating
The segment information for the operating segments for the years ended December 31, 2004, 20052009, 2008 and 20062007 is presented below:as follows:
Primary reporting format — business segments
                         
  Exploration Refining Chemicals Natural Gas    
  and and and and    
Year Ended December 31, 2004 Production Marketing Marketing Pipeline Other Total
             
  RMB RMB RMB RMB RMB RMB
Sales and other operating revenues (including intersegment)  233,948   296,427   57,179   18,255   —   605,809 
Less: Intersegment sales  (180,129)  (21,862)  (2,679)  (3,785)  —   (208,455)
                   
Total sales and other operating revenues from external customers  53,819   274,565   54,500   14,470   —   397,354 
                   
                         
  Exploration
  Refining
     Natural
       
  and
  and
     Gas and
       
Year Ended December 31, 2009
 Production  Chemicals  Marketing  Pipeline  Other  Total 
  RMB  RMB  RMB  RMB  RMB  RMB 
 
Turnover  405,326   501,300   768,295   77,658   1,372   1,753,951 
Less: intersegment sales  (308,649)  (381,522)  (35,489)  (8,756)  (260)  (734,676)
                         
Turnover from external customers  96,677   119,778   732,806   68,902   1,112   1,019,275 
                         
Depreciation, depletion and amortisation  (64,595)  (11,824)  (7,088)  (7,694)  (1,058)  (92,259)
Profit/(loss) from operations  105,019   17,308   13,265   19,046   (11,194)  143,444 
Finance costs:                        
Exchange gain                      552 
Exchange loss                      (1,335)
Interest income                      1,459 
Interest expense                      (5,272)
                         
Total net finance costs                      (4,596)
                         
Share of profit of associates and jointly controlled entities  590   53   519   8   14   1,184 
                         
Profit before income tax expense                      140,032 
Income tax expense                      (33,473)
                         
Profit for the year                      106,559 
                         
Segment assets  756,122   256,040   237,534   198,774   1,095,827   2,544,297 
Other assets                      289 
Investments in associates and jointly controlled entities  22,183   579   5,393   68   —   28,223 
Elimination of intersegment balances(a)                      (1,122,521)
                         
Total assets                      1,450,288 
                         
Segment capital expenditure and acquisition                        
— Capital expenditure  129,017   42,558   18,174   74,754   2,333   266,836 
— Acquisition (Note 21)  —   —   15,296   —   —   15,296 
                         
                       282,132 
                         
Segment liabilities  280,573   98,590   142,254   92,538   357,107   971,062 
Other liabilities                      56,412 
Elimination of intersegment balances(a)                      (484,887)
                         
Total liabilities                      542,587 
                         


F-45

F-59

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)
                         
  Exploration Refining Chemicals Natural Gas    
  and and and and    
Year Ended December 31, 2004 Production Marketing Marketing Pipeline Other Total
             
  RMB RMB RMB RMB RMB RMB
Depreciation, depletion and amortization  (30,915)  (8,957)  (5,741)  (2,645)  (104)  (48,362)
Segment result  138,129   28,445   11,025   2,475   (518)  179,556 
Other costs  (7,916)  (16,554)  (3,370)  60   (638)  (28,418)
                   
Income/(loss) from operations  130,213   11,891   7,655   2,535   (1,156)  151,138 
                   
Finance costs                      (1,515)
Equity in income of equity affiliates and jointly controlled entities accounted for by equity method  225   75   211   16   1,094   1,621 
                   
Income before income taxes                      151,244 
Income taxes                      (43,598)
                   
Income for the year                      107,646 
                   
Interest income (including intersegment)  2,598   895   205   27   4,723   8,448 
Less: Intersegment interest income                      (7,075)
                   
Interest income from external sources                      1,373 
                   
Interest expense (including intersegment)  (3,096)  (1,777)  (502)  (693)  (3,903)  (9,971)
Less: Intersegment interest expense                      7,075 
                   
Interest expense to external sources                      (2,896)
                   
Segment assets  364,477   142,480   55,568   61,631   507,164   1,131,320 
Elimination of intersegment balances                      (502,771)
Investments in equity affiliates and jointly controlled entities  3,352   2,862   280   192   3,212   9,898 
                   
Total assets                      638,447 
                   
Segment capital expenditure-for property, plant and equipment  62,868   17,684   4,319   13,901   174   98,946 
Segment liabilities  109,602   75,664   18,484   35,385   99,711   338,846 
Other liabilities                      39,440 
Elimination of intersegment balances                      (182,811)
                   
Total liabilities                      195,475 
                   
                         
  Exploration
  Refining
     Natural
       
  and
  and
     Gas and
       
Year Ended December 31, 2008
 Production  Chemicals  Marketing  Pipeline  Other  Total 
  RMB  RMB  RMB  RMB  RMB  RMB 
 
Turnover  626,367   560,729   778,141   63,315   1,418   2,029,970 
Less: intersegment sales  (500,522)  (396,410)  (53,557)  (6,706)  (171)  (957,366)
                         
Turnover from external customers  125,845   164,319   724,584   56,609   1,247   1,072,604 
                         
Depreciation, depletion and amortisation  (58,927)  (22,796)  (5,871)  (6,310)  (855)  (94,759)
Profit/(loss) from operations  240,470   (93,830)  7,982   16,057   (11,108)  159,571 
Finance costs:                        
Exchange gain                      1,774 
Exchange loss                      (2,855)
Interest income                      2,277 
Interest expense                      (3,044)
                         
Total net finance costs                      (1,848)
                         
Share of profit/(loss) of associates and jointly controlled entities  4,561   (609)  314   5   19   4,290 
                         
Profit before income tax expense                      162,013 
Income tax expense                      (35,211)
                         
Profit for the year                      126,802 
                         
Segment assets  662,454   290,758   197,950   121,368   973,128   2,245,658 
Other assets                      497 
Investments in associates and jointly controlled entities  24,021   1,686   3,074   20   49   28,850 
Elimination of intersegment balances(a)                      (1,078,770)
                         
Total assets                      1,196,235 
                         
Segment capital expenditure  157,194   30,619   4,974   36,848   2,742   232,377 
Segment liabilities  264,230   70,879   132,340   53,294   334,972   855,715 
Other liabilities                      27,667 
Elimination of intersegment balances(a)                      (534,987)
                         
Total liabilities                      348,395 
                         

F-46

F-60

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)
                         
  Exploration Refining Chemicals Natural Gas    
  and and and and    
Year Ended December 31, 2005 Production Marketing Marketing Pipeline Other Total
             
  RMB RMB RMB RMB RMB RMB
Sales and other operating revenues (including intersegment)  337,208   428,494   73,978   26,214   —   865,894 
Less: Intersegment sales  (270,943)  (33,019)  (4,754)  (4,949)  —   (313,665)
                   
Total sales and other operating revenues from external customers  66,265   395,475   69,224   21,265   —   552,229 
                   
Depreciation, depletion and amortization  (30,896)  (8,964)  (6,869)  (4,478)  (98)  (51,305)
Segment result  220,452   2,116   6,896   3,639   (1,357)  231,746 
Other costs  (12,372)  (21,926)  (3,620)  (456)  (1,201)  (39,575)
                   
Income/(loss) from operations  208,080   (19,810)  3,276   3,183   (2,558)  192,171 
                   
Finance costs                      (750)
Equity in income of affiliates and jointly controlled entities accounted for by equity method  1,851   165   15   —   370   2,401 
                   
Income before income taxes                      193,822 
Income taxes                      (54,180)
                   
Income for the year                      139,642 
                   
Interest income (including intersegment)  3,912   998   387   100   5,763   11,160 
Less: Intersegment interest income                      (9,236)
                   
Interest income from external sources                      1,924 
                   
Interest expense (including intersegment)  (3,631)  (2,659)  (636)  (1,105)  (3,967)  (11,998)
Less: Intersegment interest expense                      9,236 
                   
Interest expense to external sources                      (2,762)
                   
Segment assets  460,814   207,724   76,439   69,232   631,696   1,445,905 
Elimination of intersegment balances                      (680,216)
Investments in equity affiliates and jointly controlled entities  5,470   4,531   250   —   2,127   12,378 
                   
Total assets                      778,067 
                   

F-61

                         
  Exploration
  Refining
     Natural
       
  and
  and
     Gas and
       
Year Ended December 31, 2007
 Production  Chemicals  Marketing  Pipeline  Other  Total 
  RMB  RMB  RMB  RMB  RMB  RMB 
 
Turnover  473,117   481,726   584,115   50,066   1,718   1,590,742 
Less: intersegment sales  (378,888)  (330,281)  (36,773)  (6,610)  (648)  (753,200)
                         
Turnover from external customers  94,229   151,445   547,342   43,456   1,070   837,542 
                         
Depreciation, depletion and amortisation  (43,731)  (11,504)  (5,615)  (5,926)  (647)  (67,423)
Profit/(loss) from operations  207,749   (23,659)  10,810   12,495   (6,378)  201,017 
Finance costs:                        
Exchange gain                      1,808 
Exchange loss                      (2,559)
Interest income                      2,101 
Interest expense                      (3,673)
                         
Total net finance costs                      (2,323)
                         
Share of profit of associates and jointly controlled entities  5,908   463   55   2   17   6,445 
                         
Profit before income tax expense                      205,139 
Income tax expense                      (49,802)
                         
Profit for the year                      155,337 
                         
Segment assets  558,589   212,179   151,758   80,252   819,153   1,821,931 
Other assets                      307 
Investments in associates and jointly controlled entities  21,069   2,279   2,734   17   68   26,167 
Elimination of intersegment balances(a)                      (778,794)
                         
Total assets                      1,069,611 
                         
Segment capital expenditure  135,351   21,499   13,212   11,003   1,613   182,678 
Segment liabilities  227,965   75,155   98,023   39,790   188,774   629,707 
Other liabilities                      43,792 
Elimination of intersegment balances(a)                      (386,607)
                         
Total liabilities                      286,892 
                         
PETROCHINA COMPANY LIMITEDGeographical information
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
                         
  Turnover  Non-Current Assets(b) 
Year Ended December 31,
 2009  2008  2007  2009  2008  2007 
  RMB  RMB  RMB  RMB  RMB  RMB 
 
Mainland China  790,748   824,703   716,134   1,073,865   902,370   765,571 
Other  228,527   247,901   121,408   78,078   63,878   60,057 
                         
   1,019,275   1,072,604   837,542   1,151,943   966,248   825,628 
                         
(Amounts in millions except for per share data or unless otherwise stated)
                         
  Exploration Refining Chemicals Natural Gas    
  and and and and    
Year Ended December 31, 2005 Production Marketing Marketing Pipeline Other Total
             
  RMB RMB RMB RMB RMB RMB
Segment capital expenditure- for property, plant and equipment  83,214   16,454   13,569   11,137   427   124,801 
Segment liabilities  146,616   97,918   30,559   40,847   161,753   477,693 
Other liabilities                      47,731 
Elimination of intersegment balances                      (291,024)
                   
Total liabilities                      234,400 
                   
                         
  Exploration Refining Chemicals Natural Gas    
  and and and and    
Year Ended December 31, 2006 Production Marketing Marketing Pipeline Other Total
             
  RMB RMB RMB RMB RMB RMB
Sales and other operating revenues (including intersegment)  421,340   543,299   82,791   38,917   1,080   1,087,427 
Less: Intersegment sales  (339,619)  (44,806)  (7,983)  (5,617)  (424)  (398,449)
                   
Total sales and other operating revenues from external customers  81,721   498,493   74,808   33,300   656   688,978 
                   
Depreciation, depletion and amortization  (37,080)  (12,080)  (6,417)  (5,263)  (548)  (61,388)
Segment result  232,404   (5,206)  8,208   9,470   (3,058)  241,818 
Other costs  (12,544)  (23,958)  (3,150)  (484)  (3,706)  (43,842)
                   
Income/(loss) from operations  219,860   (29,164)  5,058   8,986   (6,764)  197,976 
                   
Finance costs                      (1,080)
Equity in income of affiliates and jointly controlled entities accounted for by equity method  1,889   333   38   1   16   2,277 
                   
Income before income taxes       ��              199,173 
Income taxes                      (49,776)
                   
Income for the year                      149,397 
                   
Interest income (including intersegment)  4,853   1,471   634   157   7,171   14,286 
Less: Intersegment interest income                      (12,220)
                   
Interest income from external sources                      2,066 
                   

F-62

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
                         
  Exploration Refining Chemicals Natural Gas    
  and and and and    
Year Ended December 31, 2006 Production Marketing Marketing Pipeline Other Total
             
  RMB RMB RMB RMB RMB RMB
Interest expense (including intersegment)  (5,043)  (3,790)  (679)  (1,614)  (4,314)  (15,440)
Less: Intersegment interest expense                      12,220 
                   
Interest expense to external sources                      (3,220)
                   
Segment assets  507,073   248,027   81,032   75,433   729,079   1,640,644 
Elimination of intersegment balances                      (801,437)
Investments in equity affiliates and jointly controlled entities  27,127   5,587   153   20   69   32,956 
                   
Total assets                      872,163 
                   
Segment capital expenditure- for property, plant and equipment  105,192   19,206   10,681   11,309   2,358   148,746 
Segment liabilities  185,185   115,352   28,024   43,644   171,059   543,264 
Other liabilities                      62,021 
Elimination of intersegment balances                      (350,713)
                   
Total liabilities                      254,572 
                   
 
Note (a) — Intersegment sales are conducted principally at market price.
Note (b) — Segment result is income from operations before other costs. Other costs include selling, general and administrative expenses and other net expense.
Note (c) — (a)Segment results for the years ended December 31, 2004, 2005 and 2006 included impairment of property, plant and equipment (Note 18) and shut down of manufacturing assets (Note 6).
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 accounts and investments.
 
Note (f) — (b)Effective January 1, 2006, the results of operations, together with the correspondingNon-current assets mainly include non-current assets other than financial instruments and liabilities, of certain research and development activities of the Group are reclassified from the Exploration and Production segment, the Refining and Marketing segment, the Chemicals and Marketing segment and the Natural Gas and Pipeline segment to the Other segment to reflect the changes in the manner under which these activities are managed. The results of operations, together with the corresponding assets and liabilities, of these research and development activities were included in the previously reported segments in the segment information for the year ended December 31, 2005. Selected financial data of these research and development activitiesdeferred tax assets.

F-47

F-63

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)
as of December 31, 2005 and 2006 and for the year ended December 31, 2005 and 2006 are as follows:
                     
  Exploration Refining Chemicals Natural Gas  
  and and and and  
Year Ended December 31, 2005 Production Marketing Marketing Pipeline Total
           
  RMB RMB RMB RMB RMB
Sales and other operating revenues (including intersegment)  558   4   40   —   602 
Sales and other operating revenues from external customers  28   —   37   —   65 
Depreciation, depletion and amortization  (310)  (18)  (30)  (3)  (361)
Segment result  (543)  (63)  (96)  (14)  (716)
Other costs  (523)  (103)  (72)  (31)  (729)
Loss from operations  (1,066)  (166)  (168)  (45)  (1,445)
Share of profit of equity affiliates and jointly controlled entities  —   —   —   —   — 
Interest income  —   —   —   —   — 
Interest expense  —   (1)  —   —   (1)
Segment assets  2,050   251   295   51   2,647 
Segment liabilities  995   249   128   13   1,385 
                     
  Exploration Refining Chemicals Natural Gas  
  and and and and  
Year ended December 31, 2006 Production Marketing Marketing Pipeline Total
           
  RMB RMB RMB RMB RMB
Sales and other operating revenues (including intersegment)  543   —   39   —   582 
Sales and other operating revenues from external customers  21   —   29   —   50 
Depreciation, depletion and amortization  (295)  (26)  (64)  (6)  (391)
Segment result  (714)  (88)  (162)  (21)  (985)
Other costs  (664)  (96)  (81)  (42)  (883)
Loss from operations  (1,378)  (184)  (243)  (63)  (1,868)
Share of profit of equity affiliates and jointly controlled entities  3   —   —   —   3 
Interest income  —   —   —   —   — 
Interest expense  (15)  —   —   —   (15)
Segment assets  2,163   272   374   52   2,861 
Segment liabilities  1,183   320   164   21   1,688 

F-64

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
Secondary reporting format — geographical segments
                         
      Capital
  Revenue Total assets expenditure
       
Year Ended December 31, 2005 2006 2005 2006 2005 2006
             
  RMB RMB RMB RMB RMB RMB
PRC  531,520   665,267   717,934   811,919   119,505   142,371 
Other (Exploration and Production)  20,709   23,711   60,133   60,244   5,296   6,375 
                   
   552,229   688,978   778,067   872,163   124,801   148,746 
                   
37  SIGNIFICANT DIFFERENCES BETWEEN IFRS AND US GAAP
      The consolidated financial statements of the Group have been prepared in accordance with IFRS, which differ in certain material respects from the accounting principles generally accepted in the United States of America (US GAAP). Such differences involve methods for measuring the amounts shown in the consolidated financial statements, as well as additional disclosures required by US GAAP.
      Effect on income of significant differences between IFRS and US GAAP is as follows:
                   
  Year Ended December 31,
   
  2004 2005 2006 2006
         
  RMB RMB RMB US$
Income for the year under IFRS  107,646   139,642   149,397   19,143 
US GAAP adjustments:                
  Share of income of jointly controlled entities  —   2   2,735   350 
 Depreciation charges on property, plant and equipment revaluation gain  8,170   6,528   3,828   491 
 Depreciation charges on property, plant and equipment revaluation loss  (830)  (149)  —   — 
 Loss on disposal of revalued property, plant and equipment  523   432   287   37 
 Income tax effect  (2,595)  (2,248)  (1,358)  (174)
 Minority interest  (3,863)  (6,341)  (8,600)  (1,102)
  Depreciation charges on property, plant and equipment arising from purchase from minority interest of subsidiaries  —   —   (202)  (26)
             
Net income under US GAAP  109,051   137,866   146,087   18,719 
             
Basic and diluted net income per share under US GAAP (RMB)  0.62   0.78   0.82   0.10 
             

F-65

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
      Effect on equity of significant differences between IFRS and US GAAP is as follows:
              
  At December 31,
   
  2005 2006 2006
       
  RMB RMB US$
Equity under IFRS  543,667   617,591   79,137 
US GAAP adjustments:          — 
 Acquisition of PetroKazakhstan Inc.   22,129   22,129   2,836 
 Share of income of jointly controlled entities  2   2,737   351 
 Deemed distribution to CNPC International Limited  —   (3,044)  (390)
 Payment for the acquisition of PetroKazakhstan Inc.   —   (21,376)  (2,739)
 Reversal of property, plant and equipment revaluation gain  (80,555)  (80,555)  (10,322)
 Depreciation charges on property, plant and equipment revaluation gain  51,971   55,799   7,150 
 Reversal of property, plant and equipment revaluation loss  1,513   1,513   194 
 Depreciation charges on property, plant and equipment revaluation loss  (1,459)  (1,459)  (187)
 Loss on disposal of revalued property, plant and equipment  1,746   2,033   261 
 Deferred tax assets on revaluation  8,843   7,485   959 
 Minority interest  (39,100)  (30,953)  (3,966)
 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)  (327)
 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   327 
 Purchase from minority interest of subsidiaries (Note 38)  1,438   3,594   461 
 Depreciation charges on property, plant and equipment arising from purchase from minority interest of subsidiaries  —   (202)  (26)
 Currency translation differences  (54)  (822)  (108)
          
Shareholders’ equity under US GAAP  510,141   574,470   73,611 
          

F-66

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
      Changes in shareholders’ equity under US GAAP for each of the years ended December 31, 2004, 2005 and 2006 are as follows:
                  
  Year Ended December 31,
   
  2004 2005 2006 2006
         
  RMB RMB RMB US$
Balance at beginning of the year  330,520   405,573   510,141   65,368 
Net income for the year  109,051   137,866   146,087   18,719 
Acquisition of PetroKazakhstan Inc.   —   11,064   —   — 
Deemed distribution to CNPC International Limited  —   —   (1,522)  (195)
Payment for the acquisition of PetroKazakhstan Inc.   —   —   (10,688)  (1,370)
Final dividends for year 2003  (13,947)  —   —   — 
Interim dividends for year 2004  (20,381)  —   —   — 
Final dividends for year 2004  —   (25,936)  —   — 
Interim dividends for year 2005  —   (27,731)  —   — 
Final dividends for year 2005  —   —   (32,282)  (4,136)
Interim dividends for year 2006  —   —   (36,307)  (4,652)
Payment to CNPC for acquisition of refinery and petrochemical businesses (Note 2)  —   (9)  —   — 
Issue of H shares (Notes 27 and 28)  —   19,692   —   — 
Capital contribution to CNPC E&D (Note 2)  —   (10,056)  —   — 
Currency translation differences  330   (322)  (959)  (123)
             
 Balance at end of the year  405,573   510,141   574,470   73,611 
             
      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 consolidated financial statements to determine reported amounts, including realizability, useful lives of tangible and intangible assets, income taxes and other factors. Actual results may differ from those estimates.
      A summary of the principal differences and additional disclosures applicable to the Group is set out below:
          (a) Acquisition of PetroKazakhstan Inc.
      As described in Note 19 to the consolidated financial statements of the Group, the Group acquired a 67% equity interest in PetroKazakhstan Inc. from CNPC International Limited (CNPCI), a subsidiary of CNPC, effective on December 28, 2006 for RMB 21,376. As both CNPCI and the Group are under common control by CPNC, the acquisition of the 67% equity interest in PetroKazakhstan Inc. has been accounted for in a manner similar to pooling of interests under US GAAP accounting and the US GAAP financial data reflects the acquisition of the 67% equity interest in PetroKazakhstan Inc. since PetroKazakhstan Inc. was first acquired by CNPCI on October 26, 2005.

F-67

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
      On December 15, 2006, PetroKazakhstan Inc. paid to CNPCI a dividend amount to RMB 3,044 and was recorded as a deemed distribution to CNPCI.
      The purchase consideration for the acquisition of the 67% equity interest in PetroKazakhstan Inc. was paid by the Group to CNPCI on December 28, 2006.
          (b) Revaluation of property, plant and equipment
      As described in note 18, the property, plant and equipment, excluding oil and gas reserves, transferred to the Company by CNPC were appraised during 1999 by a firm of independent valuers on a depreciated replacement cost basis. The 1999 revaluation resulted in RMB 80,549 in excess of the carrying value immediately prior to the revaluation and a revaluation loss of RMB 1,122 on certain property, plant and equipment.
      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 September 2003 revaluation resulted in RMB 872 in excess of the carrying value immediately prior to the revaluation and a revaluation loss of RMB 1,257 on certain property, plant and equipment.
      As at March 31, 2006, a revaluation of the Group’s oil and gas properties was undertaken by independent valuers, China United Assets Appraiser Co., Ltd and China Enterprise Appraisals, on a depreciated replacement cost basis. The revaluation did not result in significant difference from their carrying value.
      The depreciation charge, which includes impairment charge, on the revaluation surplus from January 1, 2006 to December 31, 2006 was RMB 3,828 and from January 1, 2005 to December 31, 2005 was RMB 6,528, respectively.
      The depreciation charge, which includes impairment charge, on the revaluation loss from January 1, 2006 to December 31, 2006 was Nil, and from January 1, 2005 to December 31, 2005 was RMB 149.
      The loss on disposal of revalued property, plant and equipment from January 1, 2006 to December 31, 2006 was RMB 287, and from January 1, 2005 to December 31, 2005 was RMB 432 which includes shut down of manufacturing assets.
      For purposes of reconciling to the US GAAP financial data, the effect of the revaluation, the related depreciation charges and loss on disposal was reversed. A deferred tax asset relating to the reversal of the effect of revaluation in 1999 was established, together with a corresponding increase in the 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.
          (c) One-time remedial payments for staff housing
      The Ministry of Finance of the PRC issued several public notices and regulations during the years ended December 31, 2000 and 2001 with respect to the one-time remedial payments for staff housing payable to certain employees who joined the workforce prior to December 31, 1998 and have housing conditions below local standards as determined in accordance with government regulations and guidelines. These Ministry of Finance notices and regulations also provided that the portion of remedial payments attributable to the periods prior to a restructuring

F-68

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
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 Company.
      Under IFRS, such direct payments to employees or reimbursements will not be recorded through the consolidated statements of income 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 statements of income. 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 equity of the Group. There were no significant changes in this estimate during 2005 and 2006.
          (d) Minority interest
      In accordance with the revised IFRS 1“Presentation of Financial Statements”and IAS 27“Consolidated and Separate Financial Statements”, minority interest becomes part of the profit for the year and total equity of the Group, respectively, whereas under US GAAP, it is respectively excluded from the net income and equity of the Group.
      This reconciling item includes the impact of minority interest’s share of the revaluation gain and loss, on the property, plant and equipment of non-wholly owned subsidiaries and the impact of minority interest arising from the acquisition of the 67% equity interest in PetroKazakhstan Inc. by a non-wholly owned subsidiary of the Group to net income and equity under US GAAP.
          (e) Purchase from minority interest of listed subsidiaries
      As described in note 38, the Company acquired certain outstanding A shares from the minority interest of Jinzhou Petrochemical Company Limited (“JPCL”) and Liaohe Jinma Oilfield Company Limited (“LJOCL”) and certain A shares and H shares (including ADSs) from the minority interest of Jilin Chemical Industrial Company Limited (“JCIC”). Under IFRS, the Company applies a policy of treating transactions with minority interest as transactions with equity participants of the Group. Therefore, the assets and liabilities of JPCL, LJOCL and JCIC additionally acquired by the Company from minority interest were recorded by the Company at cost. The difference between the Company’s purchase cost and the book value of the interests in JPCL LJOCL and JCIC acquired by the Company from minority interest was recorded in equity. Under US GAAP, the acquisition of additional minority interest is accounted for under purchase method. Assets and liabilities additionally acquired were restated to fair value and the difference of purchase cost over fair value of the minority interest acquired and identified intangible assets was recorded as goodwill. Additional depreciation charges were provided for the assets which were restated to fair value.
          (f) Recent US accounting pronouncements
      In September 2005, the Emerging Issues Task Force (“EITF”) reached consensus on Issue No. 04-13,“Accounting for Purchases and Sales of Inventory with the Same Counterparty”(“EITF 04-13”) which requires two or more inventory purchase and sales transactions with the

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PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
same counterparty that are entered into in contemplation of one another should be combined for purposes of applying Opinion 29, “Accounting for Nonmonetary Transactions”. The Task Force also agreed that an entity should disclose the amount of revenue and costs (or gains and losses) associated with inventory exchanges recognized at fair value. This Issue should be applied to new arrangements entered into, or modifications or renegotiations of existing arrangements, beginning in the first interim or annual reporting period beginning after March 15, 2006 and early application is permitted in periods for which financial statements have not been issued. The Group did not early adopt EITF 04-13 and does not expect the adoption of EITF 04-13 to have a material impact on the Group’s financial position or results of operations.
      In June 2006, EITF issued No. 06-3,“How Sales Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement”(“EITF 06-3”). EITF 06-3 requires disclosure of the presentation of taxes on either a gross or a net basis as an accounting policy decision. The provisions of EITF 06-3 are effective for interim and annual reporting periods beginning after December 15, 2006, and early application is permitted. The Group did not early adopt EITF 06-3 and does not expect the adoption of EITF 06-3 to have a material impact on the presentation of the Group’s financial statements.
      In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 prescribes a comprehensive model for recognising, measuring, presenting and disclosing in the financial statements uncertain tax positions that the Group has taken or expects to take in its tax returns. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. Earlier adoption is permitted as of the beginning of an enterprise’s fiscal year, provided the enterprise has not yet issued financial statements, including financial statements for any interim period, for that fiscal year. The cumulative effect of applying the provisions of this Interpretation should be reported as an adjustment to the opening balance of retained earnings for that fiscal year. The Group is currently evaluating the impact of adopting FIN 48.
      In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157,“Fair Value Measurements”(“FAS157”), which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. FAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. FAS 157 will be effective for fiscal years beginning after November 15, 2007, and all interim periods within those fiscal years. Earlier application is permitted if the entity has not issued interim or annual financial statements for that fiscal year. The Group is currently evaluating the impact of adopting FAS 157 but does not expected to have a material effect on the Group’s consolidated financial position and results of operations.
      In September 2006, the U.S. Securities and Exchange Commission (“SEC”) released SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 provides interpretive guidance on the SEC’s views on the consideration of effects of prior year misstatements in quantifying current year misstatements for the purpose of determining whether the current year’s financial statements are materially misstated. The provisions of SAB 108 are effective for fiscal years ending after November 15, 2006. The application of SAB 108 did not have any material effect on the Group’s consolidated financial position, and results of operations.

F-70

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
38  PRINCIPAL SUBSIDIARIES
                   
  Country   Type of Attributable  
  of Paid-up Legal Equity Principal
Company Name Incorporation Capital Entity Interest Activities
           
    RMB   %  
*Daqing Oilfield Company Limited  PRC   47,500   PHI   100.00  Exploration, production and sale of crude oil and natural gas; production and sale of refined products
 
*Jinzhou Petrochemical Company Limited (i)  PRC   788   PSI   98.92  Production and sale of oil and chemical products
 
*Jilin Chemical Industrial Company Limited (ii)  PRC   3,561   PSI   99.61  Production and sale of chemical products
 
Daqing Yu Shu Lin Oilfield Company Limited  PRC   1,272   PHI   88.16  Exploration and production and sale of crude oil and natural gas
 
*Liaohe Jinma Oilfield Company Limited (iii)  PRC   1,100   PSI   99.49  Exploration, production, transportation and sale of crude oil and natural gas
 
*CNPC Exploration and Development Company Limited  PRC   100   PHI   50.00  Exploration and production and sale of crude oil and natural gas outside of the PRC
PHI —Limited liability company.
PSI —Joint stock company with limited liability.
* —Subsidiaries directly held by the Company as of December 31, 2006
 (i) Pursuant to the resolution passed at the Board of Directors’ meeting held on October 26, 2005, the Company offered to acquire all of the 150,000,000 outstanding A shares of Jinzhou Petrochemical Company Limited (“JPCL”) from minority shareholders at RMB 4.25 per share. As at December 31, 2006, the Company had paid a total cash consideration of RMB 602 and acquired 141,497,463 A shares, representing approximately 17.97% of the total issued shares of JPCL. Upon this acquisition, the Company owns 98.92% of the outstanding shares of JPCL. The excess of the cost of purchase over the carrying value of the underlying assets and liabilities acquired was recorded in equity. As approved by China Securities Regulatory Commission, JPCL was delisted from the Shenzhen Stock Exchange on January 4, 2006.

F-71

PETROCHINA COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in millions except for per share data or unless otherwise stated)
 (ii) Pursuant to the resolution passed by the Board of Directors’ meeting held on October 26, 2005, the Company offered to acquire all the 200,000,000 outstanding A shares and 964,778,000 H shares (including ADS) of Jilin Chemical Industrial Company Limited (“JCIC”) from minority shareholders at RMB 5.25 per A share and HK$2.80 per H share respectively. As at December 31, 2006, the Company had paid a total cash consideration of RMB 3,799 and acquired 189,357,726 A shares and 961,495,999 H shares (including ADS), representing approximately 32.32% of the total issued shares of JCIC. Upon this acquisition, the Company owns 99.61% of the outstanding shares of JCIC. The excess of the cost of purchase over the carrying value of the underlying assets and liabilities acquired was recorded in equity. JCIC was delisted from the Stock Exchange of Hong Kong Limited and the New York Stock Exchange on January 23, 2006 and February 15, 2006, respectively. As approved by China Securities Regulatory Commission, JCIC was delisted from the Shenzhen Stock Exchange on February 20, 2006.
(iii) Pursuant to the resolution passed by the Board of Directors’ meeting held on October 26, 2005, the Company offered to acquire all of the 200,000,000 outstanding A shares of Liaohe Jinma Oilfield Company Limited (“LJOCL”) from minority shareholders at RMB 8.80 per share. As at December 31, 2006, the Company had paid a total cash consideration of RMB 1,713 and acquired 194,360,943 A shares, representing approximately 17.67% of the total issued shares of LJOCL. Upon this acquisition, the Company owns 99.49% of the outstanding shares of LJOCL. The excess of the cost of purchase over the carrying value of the underlying assets and liabilities acquired was recorded in equity. As approved by China Securities Regulatory Commission, LJOCL was delisted from the Shenzhen Stock Exchange on January 4, 2006.
      The acquisitions of interests from minority shareholders of the above non-wholly owned principal subsidiaries and another non- wholly owned subsidiary in the year ended December 31, 2005 and 2006 resulted in a total adjustment to equity of RMB 1,438 and RMB 2,156, respectively.
39  EVENTS AFTER BALANCE SHEET DATETHE REPORTING PERIOD
 
On March 16, 2007,February 5, 2010, the corporate income tax law was passedCompany issued the first tranche of medium-term notes for the year 2010 amounting to RMB 11 billion for a term of 7 years at an interest rate of 4.60% per annum.
On May 15, 2010, the Company issued the second tranche of medium-term notes for the year 2010 amounting to RMB 20 billion for a term of 7 years (with an option to determine the interest rate for the issuer and a put option for the investors in these notes at the Fifth Session of Tenth National People’s Congress of PRC whereby all enterprises with operations in the PRC will be subject to the same statutory income tax rate. The Group will evaluate the impactend of the new tax law on5th year) at an interest rate of 3.97% per annum.
On May 19, 2010, the operating results andCompany issued the financial positionthird tranche of medium-term notes for the Group when the new tax law is implemented.year 2010 amounting to RMB 20 billion for a term of 5 years at an interest rate of 3.97% per annum.
40  APPROVAL OF FINANCIAL STATEMENTS
 
The financial statements were approved by the Board of Directors on March 19, 200725, 2010 and will be submitted to thewere approved by shareholders for approval at the annual general meeting to beAnnual General Meeting held on May 16, 2007.20, 2010.


F-48

F-72

PETROCHINA COMPANY LIMITED
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCINGEXPLORATION AND
PRODUCTION ACTIVITIES (UNAUDITED)
(Amounts in millions unless otherwise stated)
 
In accordance with US Statement of Financialthe Accounting Standard No. 69,Disclosures aboutStandards Update2010-03 Extractive Activities — Oil and Gas Producing(Topic 932): Oil and Gas Reserve Estimation and Disclosures (an update of Accounting Standards Codification Topic 932 Extractive Activities — Oil and Gas or “ASC 932”) issued by the Financial Accounting Standards Board and corresponding disclosure requirements of the U.S. Securities and Exchange Commission, this section provides supplemental information on oil and gas exploration and producing activities of the Company and its subsidiaries (the “Group”) and also the Group’s investments that are accounted for using the equity method.method of accounting.
The supplemental information presented below covers the Group’s proved oil and gas reserves estimates, historical cost information pertaining to capitalised costs, costs incurred for property acquisitions, exploration and development activities, result of operations for oil and gas producing activities, standardised measure of estimated discounted future net cash flows and changes in estimated discounted future net cash flows.
The “Other” geographic area includes oil and gas producing activities principally in countries such as Kazakhstan, Venezuela and Indonesia. As the Group does not have significant reserves held through its investments accounted for using the equity method, information presented in relation to these equity method investments are presented in the aggregate.
Results of Operations
              
  Year Ended December 31,
   
  2004 2005 2006
       
  RMB RMB RMB
Sales and other operating revenues            
 Sales to third parties  53,819   66,265   81,721 
 Intersegment sales  176,894   261,558   313,654 
          
   230,713   327,823   395,375 
Production costs excluding taxes  (34,821)  (41,713)  (54,800)
Exploration expenses  (12,090)  (15,566)  (18,822)
Depreciation, depletion and amortization  (26,287)  (25,819)  (31,540)
Taxes other than income taxes  (7,712)  (10,239)  (41,354)
Accretion expense  (54)  (60)  (796)
          
Income before income taxes  149,749   234,426   248,063 
Income taxes  (42,089)  (64,816)  (65,554)
          
Results of operations from producing activities  107,660   169,610   182,509 
          
Income from equity affiliates’ and jointly controlled entities’ results of operations from producing activities  767   1,880   4,424 
          
Capitalized Costs
             
  Year Ended December 31,
   
  2004 2005 2006
       
  RMB RMB RMB
Property costs  —   —   — 
Producing assets  303,784   359,539   425,172 
Support facilities  124,793   138,093   150,149 
Construction-in-progress  15,856   19,394   25,461 
          
Total capitalized costs  444,433   517,026   600,782 
Accumulated depreciation, depletion and amortization  (180,926)  (203,416)  (233,677)
          
Net capitalized costs  263,507   313,610   367,105 
          
Share of equity affiliates’ and jointly controlled entities’ net capitalized costs  1,632   20,597   25,136 
          

F-73

PETROCHINA COMPANY LIMITED
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED) — (Continued)
(Amounts in millions unless otherwise stated)
Costs Incurred in Property Acquisitions, ExplorationProved Oil and Development Activities
             
  Year Ended December 31,
   
  2004 2005 2006
       
  RMB RMB RMB
Property acquisition costs  —   —   — 
Exploration costs  18,338   25,335   30,567 
Development costs  47,508   72,551   79,902 
          
Total  65,846   97,886   110,469 
          
Share of equity affiliates’ and jointly controlled entities’ costs of property acquisition, exploration, and development  1,143   2,590   4,371 
          
ProvedGas Reserve Estimates
 Oil
Proved oil and gas proved reserves cannot be measured exactly. Reserve estimates are based on many factors related to reservoir performance that require evaluation by the engineers interpreting the available data, as well as price and other economic factors. The reliability of these estimates at any point in time depends on both the quality and quantity of the technical and economic data, and the production performance of the reservoirs as well as engineering judgement.judgment. Consequently, reserve estimates are subject to revision as additional data become available during the producing life of a reservoir. When a commercial reservoir is discovered, proved reserves are initially determined based on limited data from the first well or wells. Subsequent data may better define the extent of the reservoir and additional production performance, well tests and engineering studies will likely improve the reliability of the reserve estimate. The evolution of technology may also result in the application of improved recovery techniques such as supplemental or enhanced recovery projects, or both, which have the potential to increase reserves beyond those envisioned during the early years of a reservoir’s producing life.reserves.
 
Proved oil and gas reserves are the estimated quantities of crude oil and natural gas, which, geologicalby analysis of geoscience and engineering data, demonstratecan be estimated with reasonable certainty to be recoverable in future yearseconomically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and operatinggovernment regulation before the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether the estimate is a deterministic estimate or probabilistic estimate.
Existing economic conditions i.e.,include prices and costs asat which economic producibility from a reservoir is to be determined. The price shall be the average price during the12-month period before the ending date of the dateperiod covered by the estimate is made. Prices include considerationreport, determined as an unweighted arithmetic average of changes in existingthefirst-day-of-the-month price for each month within such period, unless prices provided onlyare defined by contractual arrangements, but not onexcluding escalations based upon future conditions. The costs shall be that prevailing at the end of the period.
Proved developed oil and gas reserves are thoseproved reserves whichthat can be expected to be recovered throughrecovered:
a. Through existing wells with existing equipment and operating methods. methods or in which the cost of the required equipment is relatively minor compared with the cost of a new well.
b. Through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.
Proved undeveloped oil and gas reserves are thoseproved reserves whichthat are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required.
      The Ministry of Land and Resources in China issues production licenses to applicants on the basis of the reserve reports approved by relevant authorities. Administrative rules issued by the State Council provide that the maximum term of a production license is 30 years. However, in accordance with a special approval from the State Council, the Ministry of Land and Resources has issued production licenses effective from March 2000 to the Grouprequired for all of its crude oil and natural gas reservoirs with terms coextensive with the projected productive life of those reservoirs, ranging up to 55 years. Production licenses to be issued to the Group in the future will be subject to the30-year maximum unless additional special approvals can be obtained from the State Council. Each of the Group’s production licenses is renewable upon application by the Group 30 days prior to expiration.recompletion.


F-49

F-74

PETROCHINA COMPANY LIMITED


SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING
EXPLORATION AND
PRODUCTION ACTIVITIES (UNAUDITED) — (Continued)

(Amounts in millions unless otherwise stated)
Oil and gas price increases may extend the productive lives of crude oil and natural gas reservoirs beyond the current terms of the relevant production licenses.
Proved reserve estimates as of December 31, 2004, 20052009, 2008 and 20062007 were based on reports prepared by DeGolyer and MacNaughton and Gaffney, Cline & Associates, independent engineering consultants. These reserve estimates were prepared for each oil and gas region (as opposed to individual fields within a region) and adjusted for the estimated effects of using prices and costs prevailing at the end of the period. The Company’s reserve estimates include only crude oil and natural gas, which the Company believes can be reasonably produced within the current terms of production licenses.
 
Estimated quantities of net proved crude oil and condensate and natural gas reserves and of changes in net quantities of proved developed and undeveloped reserves for each of the periodperiods indicated are as follows:
            
  Crude Oil and  
  Condensate Natural Gas
     
  (millions of (billions of
  barrels) cubic feet)
Proved developed and undeveloped        
 Reserves at January 1, 2004  11,495   41,787 
  Changes resulting from:        
   Revisions of previous estimates  141   83 
   Improved recovery  109   43 
   Extensions and discoveries  573   4,405 
   Production  (817)  (1,069)
         
 Reserves at December 31, 2004  11,501   45,249 
         
  Changes resulting from:        
   Revisions of previous estimates  157   213 
   Improved recovery  101   — 
   Extensions and discoveries  606   4,005 
   Production  (829)  (1,344)
         
 Reserves at December 31, 2005  11,536   48,123 
         
  Changes resulting from:        
   Revisions of previous estimates  197   686 
   Improved recovery  81   — 
   Extensions and discoveries  635   6,248 
   Production  (831)  (1,588)
         
 Reserves at December 31, 2006  11,618   53,469 
         
             
  Crude Oil and
     Total
 
  Condensate  Natural Gas  — All Products 
  (Millions
  (Billions
  (Million barrels of
 
  of barrels)  of cubic feet)  oil equivalent) 
 
Proved developed and undeveloped reserves            
The Group            
Reserves at December 31, 2006  11,618   53,469   20,529 
Changes resulting from:            
Revisions of previous estimates  84   (1,062)  (93)
Improved recovery  79   —   79 
Extensions and discoveries  764   6,331   1,819 
Production  (839)  (1,627)  (1,110)
             
Reserves at December 31, 2007  11,706   57,111   21,224 
Changes resulting from:            
Revisions of previous estimates  (574)  (637)  (680)
Improved recovery  75   —   75 
Extensions and discoveries  885   6,579   1,982 
Production  (871)  (1,864)  (1,181)
             
Reserves at December 31, 2008  11,221   61,189   21,420 
Changes resulting from:            
Revisions of previous estimates  (192)  (1,273)  (405)
Improved recovery  73   —   73 
Extensions and discoveries  1,005   5,440   1,911 
Production  (844)  (2,112)  (1,196)
             
Reserves at December 31, 2009  11,263   63,244   21,803 
             
Proved developed reserves at:            
December 31, 2007  9,047   26,047   13,388 
December 31, 2008  8,324   26,667   12,769 
December 31, 2009  7,871   30,949   13,029 
Proved undeveloped reserves at:            
December 31, 2007  2,659   31,064   7,836 
December 31, 2008  2,897   34,522   8,651 
December 31, 2009  3,392   32,295   8,774 
Equity method investments            
Share of proved developed and undeveloped reserves of associates and jointly controlled entities            
December 31, 2007  141   79   154 
December 31, 2008  372   65   383 
December 31, 2009  310   50   319 
At December 31, 2009, total proved developed and undeveloped reserves of the Group and equity method investments is 22,122 million barrels of oil equivalent (2008: 21,803, 2007: 21,378), comprising 11,573 million


F-50

F-75

PETROCHINA COMPANY LIMITED


SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING
EXPLORATION AND
PRODUCTION ACTIVITIES (UNAUDITED) — (Continued)

(Amounts in millions unless otherwise stated)
          
  Crude Oil and  
  Condensate Natural Gas
     
  (millions of (billions of
  barrels) cubic feet)
Proved developed reserves at:        
 December 31, 2004  9,068   17,255 
 December 31, 2005  9,195   19,858 
 December 31, 2006  9,185   22,564 
Proportional interest in proved reserves of equity affiliates and jointly controlled entities        
 December 31, 2004  439   100 
 December 31, 2005  631   145 
 December 31, 2006  543   105 
 At December 31, 2006, 10,975 million
barrels of crude oil and condensate (2008: 11,593, 2007: 11,847) and 52,673.463,294.4 billions of cubic feet of natural gas (2008: 61,254.2, 2007: 57,189.6).
At December 31, 2009, 10,516 million barrels (2008: 10,576, 2007: 11,062) of crude oil and condensate and 62,376.9 billion cubic feet (2008: 60,246.7, 2007: 56,510.0) of natural gas proved developed and undeveloped reserves of the Group are located within Mainland China, and 643747 million barrels (2008: 645, 2007: 644) of crude oil and condensate and 795.6866.9 billion cubic feet (2008: 942.6, 2007: 601.0) of natural gas proved developed and undeveloped reserves of the Group are located overseas.
Standardized MeasureCapitalised Costs
 The following disclosures concerning the standardized measure
         
  December 31,
  December 31,
 
  2009  2008 
  RMB  RMB 
 
The Group        
Property costs and producing assets  666,644   592,122 
Support facilities  222,205   197,919 
Construction-in-progress  61,581   59,078 
         
Total capitalised costs  950,430   849,119 
Accumulated depreciation, depletion and amortisation  (369,437)  (317,233)
         
Net capitalised costs  580,993   531,886 
         
Equity method investments        
Share of net capitalised costs of associates and jointly controlled entities  13,020   17,237 
         
Costs Incurred for Property Acquisitions, Exploration and Development Activities
             
  Year Ended December 31, 2009 
  Mainland
       
  China  Other  Total 
  RMB  RMB  RMB 
 
The Group            
Property acquisition and exploration costs  29,786   2,949   32,735 
Development costs  94,130   5,977   100,107 
             
Total  123,916   8,926   132,842 
             
Equity method investments            
Share of costs of property acquisition, exploration and development of associates and jointly controlled entities  —   1,620   1,620 
             


F-51

PETROCHINA COMPANY LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND
PRODUCTION ACTIVITIES (UNAUDITED)
(Amounts in millions unless otherwise stated)
             
  Year Ended December 31, 2008 
  Mainland
       
  China  Other  Total 
  RMB  RMB  RMB 
 
The Group            
Property acquisition and exploration costs  34,773   2,895   37,668 
Development costs  117,772   7,083   124,855 
             
Total  152,545   9,978   162,523 
             
Equity method investments            
Share of costs of property acquisition, exploration and development of associates and jointly controlled entities  —   4,003   4,003 
             
             
  Year Ended December 31, 2007 
  Mainland
       
  China  Other  Total 
  RMB  RMB  RMB 
 
The Group            
Property acquisition and exploration costs  35,070   1,350   36,420 
Development costs  90,427   6,022   96,449 
             
Total  125,497   7,372   132,869 
             
Equity method investments            
Share of costs of property acquisition, exploration and development of associates and jointly controlled entities  —   2,798   2,798 
             

F-52

PETROCHINA COMPANY LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND
PRODUCTION ACTIVITIES (UNAUDITED)
(Amounts in millions unless otherwise stated)
Results of future cash flows from proved oil and gas reserves are presented in accordance with the US Statement of Financial Accounting Standards No. 69,Disclosures aboutOperations for Oil and Gas Producing Activities. The amounts shown are based on prices and costs at the end of each period, currently enacted tax rates and a 10 percent annual discount factor. Since prices and costs do not remain static, and no price or cost changes have been considered, the results are not necessarily indicative of the fair market value of estimated proved reserves, but they do provide a common benchmark which may enhance the users’ ability to project future cash flows.Activities
 
             
  Year Ended December 31, 2009 
  Mainland
       
  China  Other  Total 
  RMB  RMB  RMB 
 
The Group            
Sales and other operating revenues            
Sales to third parties  62,799   33,878   96,677 
Intersegment sales  259,847   404   260,251 
             
   322,646   34,282   356,928 
Production costs excluding taxes  (68,236)  (4,355)  (72,591)
Exploration expenses  (18,426)  (972)  (19,398)
Depreciation, depletion and amortisation  (53,018)  (4,005)  (57,023)
Taxes other than income taxes  (31,210)  (9,660)  (40,870)
Accretion expense  (1,787)  (156)  (1,943)
Income taxes  (30,196)  (3,783)  (33,979)
             
Results of operations from producing activities  119,773   11,351   131,124 
             
Equity method investments            
Share of profit for producing activities of associates and jointly controlled entities  —   3,326   3,326 
             
Total of the Group and equity method investments results of operations for producing activities  119,773   14,677   134,450 
             


F-53

PETROCHINA COMPANY LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND
PRODUCTION ACTIVITIES (UNAUDITED)
(Amounts in millions unless otherwise stated)
             
  Year Ended December 31, 2008 
  Mainland
       
  China  Other  Total 
  RMB  RMB  RMB 
 
The Group            
Sales and other operating revenues            
Sales to third parties  72,218   52,169   124,387 
Intersegment sales  431,203   2,181   433,384 
             
   503,421   54,350   557,771 
Production costs excluding taxes  (69,469)  (5,410)  (74,879)
Exploration expenses  (20,868)  (1,011)  (21,879)
Depreciation, depletion and amortisation  (47,295)  (3,532)  (50,827)
Taxes other than income taxes  (99,970)  (5,843)  (105,813)
Accretion expense  (1,607)  (139)  (1,746)
Income taxes  (52,718)  (9,604)  (62,322)
             
Results of operations from producing activities  211,494   28,811   240,305 
             
Equity method investments            
Share of profit for producing activities of associates and jointly controlled entities  —   9,872   9,872 
             
Total of the Group and equity method investments results of operations for producing activities  211,494   38,683   250,177 
             
             
  Year Ended December 31, 2007 
  Mainland
       
  China  Other  Total 
  RMB  RMB  RMB 
 
The Group            
Sales and other operating revenues            
Sales to third parties  65,709   27,331   93,040 
Intersegment sales  339,436   —   339,436 
             
   405,145   27,331   432,476 
Production costs excluding taxes  (60,354)  (2,903)  (63,257)
Exploration expenses  (19,703)  (1,253)  (20,956)
Depreciation, depletion and amortisation  (34,893)  (2,129)  (37,022)
Taxes other than income taxes  (56,081)  (473)  (56,554)
Accretion expense  (1,108)  (94)  (1,202)
Income taxes  (51,487)  (6,758)  (58,245)
             
Results of operations from producing activities  181,519   13,721   195,240 
             
Equity method investments            
Share of profit for producing activities of associates and jointly controlled entities  —   5,244   5,244 
             
Total of the Group and equity method investments results of operations for producing activities  181,519   18,965   200,484 
             

F-54

PETROCHINA COMPANY LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND
PRODUCTION ACTIVITIES (UNAUDITED)
(Amounts in millions unless otherwise stated)
Standardised Measure of Discounted Future Net Cash Flows
The standardizedstandardised measure of discounted future net cash flows related to proved oil and gas reserves at the end of each of the three years in the period ended December 31, 2004, 20052009, 2008 and 20062007 is as follows (in millions of RMB):follows:
 
RMB
The Group    
At December 31, 20042009    
Future cash inflows from sales of oil and gas  4,046,1515,045,994 
Future production costs  (912,8811,628,794)
Future development costs  (106,332479,912)
Future income tax expense  (934,068615,290)
     
Future net cash flows  2,092,8702,321,998 
Discount at 10% for estimated timing of cash flows  (1,092,4121,244,183)
     
StandardizedStandardised measure of discounted future net cash flows  1,000,4581,077,815 
     

F-76

PETROCHINA COMPANY LIMITED
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED) — (Continued)
(Amounts in millions unless otherwise stated)
  
RMB
The Group    
At December 31, 20052008    
Future cash inflows from sales of oil and gas  5,337,3294,426,893 
Future production costs  (1,043,3581,521,416)
Future development costs  (156,575381,498)
Future income tax expense  (1,279,133522,158)
     
Future net cash flows  2,858,2632,001,821 
Discount at 10% for estimated timing of cash flows  (1,472,0691,046,896)
     
StandardizedStandardised measure of discounted future net cash flows  1,386,194954,925 
     
RMB
The Group
At December 31, 20062007    
Future cash inflows from sales of oil and gas  5,611,3068,714,483 
Future production costs  (1,620,7613,049,226)
Future development costs  (296,175437,946)
Future income tax expense  (1,202,9801,569,898)
     
Future net cash flows  2,491,3903,657,413 
Discount at 10% for estimated timing of cash flows  (1,336,0451,835,343)
     
StandardizedStandardised measure of discounted future net cash flows  1,155,3451,822,070 
     
Share of equity affiliates’ and jointly controlled entities’ standardized
At December 31, 2009, RMB 1,041,228 (2008: RMB 924,623, 2007: RMB 1,709,411) of standardised measure of discounted future net cash flows related to proved oil and gas reserves located within mainland China and RMB 36,587 (2008: RMB 30,302, 2007: RMB 112,659) of standardised measure of discounted future net cash flows related to proved oil and gas reserves located overseas.


F-55

PETROCHINA COMPANY LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND
PRODUCTION ACTIVITIES (UNAUDITED)
(Amounts in millions unless otherwise stated)
Share of standardised measure of discounted future net cash flows of associates and jointly controlled entities:
    
At December 31, 20042009  10,85126,457 
At December 31, 20052008  31,70317,912 
At December 31, 20062007  59,82533,543 
 
Future net cash flows were estimated using period-end prices used in estimating the Group’s proved oil and gas reserves and year-end costs, and currently enacted tax rates.rates related to existing proved oil and gas reserves.

F-77

PETROCHINA COMPANY LIMITED
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED) — (Continued)
(AmountsChanges in millions unless otherwise stated)Standardised Measure of Discounted Future Net Cash Flows
 
Changes in the standardizedstandardised measure of discounted net cash flows for the Group for each of the three years ended December 31, 2004, 20052009, 2008 and 20062007 are as follows:
              
  Year Ended December 31,
   
  2004 2005 2006
       
  RMB RMB RMB
CHANGES IN STANDARDISED MEASURE OF DISCOUNTED FUTURE CASH FLOWS
            
 Beginning of year  715,114   1,000,458   1,386,194 
 Sales and transfers of oil and gas produced, net of production costs  (187,020)  (274,921)  (328,001)
 Net changes in prices and production costs and other  366,417   523,089   (317,593)
 Extensions, discoveries and improved recovery  119,790   157,343   166,249 
 Development costs incurred  14,829   (11,282)  (47,551)
 Revisions of previous quantity estimates  13,420   21,678   32,306 
 Accretion of discount  101,787   144,709   200,771 
 Net change in income taxes  (143,879)  (174,880)  62,970 
          
 End of year  1,000,458   1,386,194   1,155,345 
          
             
  Year Ended December 31 
  2009  2008  2007 
  RMB  RMB  RMB 
 
The Group            
Beginning of the year  954,925   1,822,070   1,155,345 
Sales and transfers of oil and gas produced, net of production costs  (242,363)  (375,269)  (309,269)
Net changes in prices and production costs and other  171,170   (1,448,443)  804,330 
Extensions, discoveries and improved recovery  150,846   139,058   256,476 
Development costs incurred  (8,488)  67,673   (39,031)
Revisions of previous quantity estimates  (31,516)  (46,105)  (3,567)
Accretion of discount  120,396   260,643   171,389 
Net change in income taxes  (37,155)  535,298   (213,603)
             
End of the year  1,077,815   954,925   1,822,070 
             


F-56

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