UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One) | |
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◻ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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OR | |
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⌧ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| FOR THE FISCAL YEAR ENDED DECEMBER 31, 2021 |
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OR | |
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◻ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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OR | |
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◻ | SHELL 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 TRANSACTION PERIOD FORM TO
COMMISSION FILE NUMBER 1-15138
中国石油化工股份有限公司
CHINA PETROLEUM & CHEMICAL CORPORATION
(Exact name of Registrant as specified in its charter)
The People’s Republic of China
(Jurisdiction of incorporation or organization)
22 Chaoyangmen North Street
Chaoyang District, Beijing, 100728
The People’s Republic of China
(Address of principal executive offices)
Mr. Huang Wensheng
22 Chaoyangmen North Street
Chaoyang District, Beijing, 100728
The People’s Republic of China
Tel: +86 (10) 5996 0028
Fax: +86 (10) 5996 0386
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12 (b) of the Act.
Title of Each Class |
| Trading Symbol(s) |
| Name of Each Exchange On Which Registered |
American Depositary Shares, each representing 100 H Shares of par value RMB1.00 per share | | SNP |
| New York Stock Exchange, Inc. |
H Shares of par value RMB1.00 per share* | | |
| New York Stock Exchange, Inc. |
* | Not for trading, but only in connection with the registration of American Depository Shares. |
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.
H Shares, par value RMB1.00 per share | 25,513,438,600 |
A Shares, par value RMB1.00 per share | 95,557,771,046 |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
⌧ Yes ◻ No
If this report 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.
◻ Yes ⌧ No
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) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
⌧ Yes ◻ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
⌧ Yes ◻ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer, “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ⌧ | Accelerated filer ◻ | Non-accelerated filer ◻ | Emerging growth company ◻ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ◻
†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ⌧
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ◻ |
| International Financial Reporting Standards |
| |
| | as issued by the International Accounting Standards Board ⌧ | | Other ◻ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
◻ Item 17 ◻ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
◻ Yes ⌧ No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 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. *
◻ Yes ◻ No
* | This requirement does not apply to the registrant in respect of this filing. |
Table of Contents
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MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 91 | |
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PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS | 94 | |
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DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS | 99 | |
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100 | ||
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CERTAIN TERMS AND CONVENTIONS
Definitions
Unless the context otherwise requires, references in this annual report to:
| ● | “Sinopec Corp.,” “Company,” “we,” “our” and “us” are to China Petroleum & Chemical Corporation, a PRC joint stock limited company, and its subsidiaries; |
| ● | “Sinopec Group Company” are to our controlling shareholder, China Petrochemical Corporation, a PRC limited liability company; |
| ● | “Sinopec Group” are to the Sinopec Group Company and its subsidiaries other than Sinopec Corp. and its subsidiaries; |
| ● | “provinces” are to provinces and to provincial-level autonomous regions and municipalities in China which are directly under the supervision of the central PRC government; |
| ● | “RMB” are to Renminbi, the currency of the PRC; |
| ● | “HK$” are to Hong Kong dollar, the currency of the Hong Kong Special Administrative Region of the PRC; and |
| ● | “US$” are to US dollars, the currency of the United States of America. |
Conversion Conventions
Unless otherwise specified, conversion of crude oil from tonnes to barrels are made at a rate of one tonne to 7.10 barrels for crude oil we produced domestically and one tonne to 7.21, 7.20 and 7.22 barrels for the years ended December 31, 2019, 2020 and 2021, respectively, for crude oil produced overseas. Conversions of natural gas from cubic meters to cubic feet are made at a rate of one cubic meter to 35.31 cubic feet; and 6,000 cubic feet of natural gas is converted to one BOE.
Glossary of Technical Terms
Unless otherwise indicated in the context, references to:
| ● | “BOE” are to barrels-of-oil equivalent. |
| ● | “primary distillation capacity” are to the crude oil throughput capacity of a refinery’s crude oil distillation units, calculated by estimating the number of days in a year that such crude oil distillation units are expected to operate, excluding downtime for regular maintenance, and multiplying that number by the amount equal to the units’ optimal daily crude oil throughput. |
| ● | “rated capacity” are to the output capacity of a given production unit or, where appropriate, the throughput capacity, calculated by estimating the number of days in a year that such production unit is expected to operate, excluding downtime for regular maintenance, and multiplying that number by an amount equal to the unit’s optimal daily output or throughput, as the case may be. |
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CURRENCIES AND EXCHANGE RATES
We publish our financial statements in Renminbi. Unless otherwise indicated, all translations from Renminbi to US dollars in this annual report were made at RMB6.4515 to US$1.00, the average of mid-point exchange rates of Renminbi as published by the PRC State Administration of Foreign Exchange (SAFE) for the year of 2021. We do not suggest that the Renminbi or US dollar amount can be converted to US dollars or Renminbi, as appropriate, at this exchange rate or any specific exchange rate.
FORWARD-LOOKING STATEMENTS
This annual report includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included in this annual report that address activities, events or developments which we expect or anticipate will or may occur in the future are hereby identified as forward-looking statements for the purpose of the safe harbor provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words such as believe, intend, expect, anticipate, project, estimate, predict, plan and similar expressions are also intended to identify forward-looking statements. These forward-looking statements address, among others, such issues as:
| ● | amount and nature of future exploration and development, |
| ● | future prices of and demand for our products, |
| ● | future earnings and cash flow, |
| ● | development projects and drilling prospects, |
| ● | future plans and capital expenditures, |
| ● | estimates of proved oil and gas reserves, |
| ● | exploration prospects and reserves potential, |
| ● | expansion and other development trends of the petroleum and petrochemical industry, |
| ● | production forecasts of oil and gas, |
| ● | expected production or processing capacities, including expected rated capacities and primary distillation capacities, of units or facilities not yet in operation, |
| ● | expansion and growth of our business and operations, and |
| ● | our prospective operational and financial information. |
These statements are based on assumptions and analyses made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in particular circumstances. However, whether actual results and developments will meet our expectations and predictions depends on a number of risks and uncertainties which could cause actual results to differ materially from our expectations, including the risks set forth in “Item 3. Key Information—D. Risk Factors” and the following:
| ● | fluctuations in crude oil and natural gas prices, |
| ● | fluctuations in prices of our refined oil and chemical products, |
| ● | failures or delays in achieving production from development projects, |
| ● | failures to receive crude oil and gas storage and transportation services subject to terms we agreed to, |
| ● | potential acquisitions and other business opportunities, |
| ● | general economic, market and business conditions, and |
| ● | other risks and factors beyond our control. |
Consequently, all of the forward-looking statements made in this annual report are qualified by these cautionary statements and readers are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements should be considered in light of the various important factors set forth above and elsewhere in this Form 20-F. In addition, we cannot assure you that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected effect on us or our business or operations.
ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS |
Not applicable.
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ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE |
Not applicable.
ITEM 3. | KEY INFORMATION |
A. | [Reserved] |
B. | CAPITALIZATION AND INDEBTEDNESS |
Not applicable.
C. | REASONS FOR THE OFFER AND USE OF PROCEEDS |
Not applicable.
D. | RISK FACTORS |
Risks Relating to the PRC
Changes in government regulations and legislation may limit our activities and affect our business operations and the price of our ADSs, and result in risks that affect our future financing plans and securities offerings, the liquidity of our investors, and the enforcement of court judgment and shareholders’ rights.
We are a joint stock limited company incorporated in China, our controlling shareholder is Sinopec Group Company, which is in turn controlled by the State-owned Assets Supervision and Administration Commission of the State Council of China. Our management makes decisions with respect to our business strategies and operations in accordance with applicable laws and regulations, listing rules, and industrial policies based on procedures stipulated in our articles of association and other corporate governance documents and polices. All major corporate matters relating to our business operations are (i) submitted for the approval of our board of directors, which is required to review and approve certain operational matters, and convene general meetings of shareholders and present certain matters to the shareholders for their approval, in each case in accordance with our articles of association, (ii) approved by resolutions adopted by our board of directors and/or shareholders, as appropriate, and (iii) carried out under the supervision of our board of supervisors. Because our business strategies are formulated, and our business operations are conducted, based on and pursuant to applicable laws and regulations and industrial policies, any changes thereto that bear on our business operations will likely have an impact on our business and our results of operations.
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As a major integrated petroleum and petrochemical company operating in China, our business operations may be directly affected by new laws and regulations covering our industries that are enacted by the PRC government or the exercise of its supervisory power over our industries. The PRC government, while gradually liberalizing its regulations on entry into and operation in the petroleum and petrochemical industry and improving and developing the market-based regime – where the price of regular domestically-produced natural gas and imported pipeline natural gas is regulated, and the price of imported LNG, non-regular domestically-produced natural gas and natural gas traded via natural gas exchange is determined by the market – continues to exercise certain controls over such industry in China. These control mechanisms include granting the licenses to explore for and produce crude oil and natural gas, granting the licenses to market and distribute crude oil and refined oil products, setting periodically the upper limit of the retail prices for gasoline and diesel, collecting special oil income levies, deciding import and export quotas and procedures, setting safety, environmental and quality standards, and formulating policies to save energy and reduce emission. In addition, the PRC government may continue to make and adopt changes to its existing macroeconomic and industry policies for the petroleum and petrochemical industry, including further reforming and improvement of pricing mechanism of refined oil products and natural gas, which could impact the development of the petroleum and petrochemical industry in China and the production and operations of the market players in such industry. Our board of directors and management, when developing and formulating our business plan and operating strategies, are required to take into consideration of those control mechanisms and industry policies, some of which may impose constraints and limitations on our business planning and strategy-making, and we cannot assure you there will not be material adverse effects on our operations and profitability. The Special Administrative Measures for Entry of Foreign Investment (Negative List) (2021 Version) currently in effect, or the Negative List, while requiring enterprises incorporated in China and operating in industries that are subject to foreign investment prohibition to obtain approval from relevant competent government authorities for their overseas securities offerings and listings, does not prohibit or impose restrictions on foreign investments in the petroleum and petrochemical industries. However, we cannot rule out the possibility that the PRC government may in the future amend and revise PRC laws and regulations in this area to advance new energy security policies. In addition, the Measures for the Security Review of Foreign Investments, which was issued by the PRC government and came into effect on January 18, 2021, provides that a foreign investor must seek the approval of the competent PRC regulatory authorities prior to investing in key energy and resources sectors that have national security implications where such investment will result in such investor obtaining actual control over the invested enterprises. The Measures for the Security Review of Foreign Investments also provides that PRC regulatory authorities should enact implementing rules applicable to the acquisition by foreign investors of publicly-traded securities of listed companies that have or may have national security consequences, and pending the enactment of such implementing rules, there are uncertainties as to whether there are restrictions on open-market purchase of our publicly-traded ADSs by foreign investors under the said measures. Given that Sinopec Group Company, our controlling shareholder, currently holds approximately 68.85% of our outstanding shares, we do not expect any foreign investor will be able to obtain control in us by investing in our publicly-traded H shares or ADSs. Meanwhile, other than approvals and filing processes required under prevailing PRC laws and regulations, our ability to transfer money or other assets out of China or enter into business transactions with non-Chinese parties in the ordinary course of our business have not been substantively affected by the Measures for the Security Review of Foreign Investments. If the PRC government, in keeping with its national security policy, promulgates new laws and regulations in the future to regulate and restrict our ability to enter into cross-border transactions or obtain foreign investments, we may be required to make adjustments to our operating and financing plans, which may in turn affect our business operations and financial position, and have material impacts on the value of our ADSs. If, in the future, foreign investments in petroleum and/or petrochemical industries in China become prohibited or restricted, investors in our ADSs may need to seek exit for their investments in accordance with applicable laws and regulations, which may result in a significant decline in the price of our ADSs and materially and adversely affect the value of the investments made by such foreign investors.
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In light of the dynamic nature of the Chinese economy and the continuing evolvement of the PRC legal system, the PRC authorities may promulgate new laws and regulations regulating the petroleum and petrochemical industry, or overall investment and market activities in general. While certain legislative changes are required by law to go through review and comment procedures open to certain market participants or the general public, and to the extent that such changes are made to regulate our business operation, we may have the opportunity to participate in such review and comment procedures during the policy and rule-making process, we cannot assure you that the rules or policies finally adopted will be in our favor. The new regulations and policies or the amendment to the current ones may at times only afford a short period for transition or adjustment, and may influence the implementation of our established business plans and operation strategies may subject us to enhanced compliance scrutiny, result in more compliance costs and expenses, or otherwise adversely affect our business by requiring adjustments to our business plans and operations. For example, the PRC government has recently adopted, and may further adopt, stricter laws and regulations with respect to the environment protection and carbon emission, the compliance of which may lead to higher operating costs and expenses, and a prolonged project development timetable. As a result of those new or amended rules and policies, we may not have control over the timing or outcome of approvals of certain of our planned projects, and may encounter significant constraints on our ability to implement our business strategies, to develop or expand our business operations or to maximize our profitability, which could in turn adversely affect our operations by raising our operating costs and lowering our profits or otherwise impeding our efforts to improve our operational efficiency and profitability, and further adversely affect the market expectations of our business operations. Depending on the extent to which our operations are so affected, there may be a material change in our operations and the value of our ADSs.
Specifically, the PRC government has recently taken various legislative initiatives in the area of data security and to address market monopoly concerns. With respect to data security protection, the revised Measures for Cybersecurity Review took effect on February 15, 2022 and provides that (i) critical information infrastructures operators, or CIIOs, must evaluate potential risks that the deployment of any products and services will have on national security prior to the procurement of such products and services, and must apply for a cybersecurity review if such products and services affect or may affect national security, and “online platform operators” must apply for a cybersecurity review if any of their data processing activities affects or may affect national security, and (ii) if an “online platform operator” that is in possession of personal data of more than one million users intends to list its securities on a foreign stock exchange, it must apply for a cybersecurity review. However, the measures have not clarified if any follow-on offering of ADSs by us will be regulated as a “listing shares on a foreign stock exchange” or whether public companies already listed overseas would be subject to regular cybersecurity reviews. With respect to anti-monopoly laws and regulations, the PRC Anti-monopoly Law prohibits monopolistic activities by market participants such as the entering into monopoly agreements, the abuse of dominant market position and anti-competitive activities that have or may have an effect of eliminating or reducing competition. In addition, the National Development and Reform Commission, the State Administration of Market Regulation and the Cyberspace Administration of China, or the CAC, among others, jointly issued the Several Opinions on Promotion of the Standardized, Sound and Sustainable Development of Platform Economy, which embodies legislative and regulatory anti-monopoly initiatives in relation to the “platform economy.” The Opinions on Promotion of the Standardized, Sound and Sustainable Development of Platform Economy focuses on the following aspects of the platform economy: formulation and promulgation of regulations on the prohibition of unfair online anti-competitive activities; future issuance of detailed rules applicable to data processing activities conducted by online platform enterprises; the formulation of regulations on pricing; the investigation on monopoly and unfair competition activities; and the enforcement against monopolistic agreements, abuse of dominant market position and unlawful market concentration. During the reporting period of this annual report, we have not received from the CAC, the Ministry of Public Security or its local counterparts, or any industrial regulatory authorities, any notices imposing administrative penalties against us or demanding any remedial actions be taken in relation to data security matters. We do not believe the abovementioned rules have any material impact on our capacity to operate our business in the ordinary course, obtain foreign investment, or maintain our listing overseas. However, we may be categorized by PRC authorities as a CIIO or an online platform operation in possession of personal data of more than one million users due to our extensive and broad business operations. In addition, given our significant market share in the PRC petroleum and petrochemical industries, we cannot rule out the possibility that the abovementioned rules, or other new rules and policies to be formulated and promulgated in relation to data security, market monopoly or other aspects of our business operation, and the enforcement thereof may impose more stringent compliance requirements on us, compel us to adjust our business plan and the way we operate our business, or otherwise have a material impact on our ability to obtain foreign investments or maintain our listing on stock exchanges in the U.S. or other foreign countries.
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We are required to obtain permits and approvals for the operation of our business pursuant to applicable PRC laws, regulation and industrial policies. See "Item 4 Information of the Company ― B. Business Overview ― Regulatory Matters" for a list of material permits and approvals for our business operation. We have obtained all approvals and permits that are material for our business operations under the PRC laws and regulations, and we have not been subject to any material administrative penalties from the PRC regulatory authorities. In addition, pursuant to the Special Regulations of the State Council concerning Offering and Listing of Shares Overseas by Companies Limited by Shares promulgated in 1994, which is currently in effect, as a PRC company with equity securities listed in PRC, Hong Kong and the U.S., we are required to obtain the prior approval of the China Securities Regulatory Commission (the "CSRC") for any public offering of equity securities to foreign investors. In addition, we may be subject to legal liabilities under the PRC Securities Law if our offering or the trading of our securities overseas is deemed to "disrupt the order of PRC domestic market and harm legitimate rights and interests of PRC domestic investors". We have received from the CSRC the approval for our public offerings of equity securities in the past. We are required to continue to comply with the provisions of the PRC Securities Law and we remain subject to the supervision of the PRC regulatory authorities. However, we cannot assure you that we will can timely receive such approval if we wish to make any new equity offerings in the future. Pursuant to the Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments), and the Administrative Measures for the Filing of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) issued by the CSRC on December 24, 2021, collectively, the Overseas Listing Rules, the abovementioned Special Regulations of the State Council concerning Offering and Listing of Shares Overseas by Companies Limited by Shares will be replaced upon the effectiveness of the Overseas Listing Rules. The Overseas Listing Rules provides that our overseas refinancing activities may be subject to a filing process within three business days after their completion. However, it is uncertain when and in what form will the Overseas Listing Rules be enacted. If we fail to obtain any requisite approvals with respect to future offerings of our equity securities to foreign investors, or if we inadvertently conclude that such approvals are not required, our ability to execute our financing and equity offering plans may be significantly limited or completely hindered. In the absence of alternative sources of financing, this could impede our efforts to improve our liquidity or expand our business operation, and we cannot assure you that there will not be material negative impacts on our financial conditions and result of operations, or a significant decline in the value of our ADSs. Furthermore, we cannot assure you that PRC authorities will not promulgate new laws to further regulate the listing of our ADSs, or impose new compliance obligations for us to maintain the listing of our ADSs. Certain of our actions in relation to our overseas listing may also constitute a violation of PRC Securities Law or other relevant laws, and as a consequence, subject us to penalties, including without limitation fines, limitations on our ability to conduct financing activities, or the suspension or termination of certain aspects of our business operations, which may in turn result in substantial difficulty for us to maintain our listing overseas. Any measures taken by the PRC authorities to regulate or exert more control over securities offerings conducted overseas and foreign investments in China-based issuers may limit or hinder our ability to offer or continue to offer securities to investors, and the price of our ADSs may decline significantly, leading to a material adverse effect on the value of investments in our ADSs by investors.
In addition, foreign exchange transactions under the capital account, including principal payments in respect of foreign currency-denominated obligations, continue to be subject to significant foreign exchange controls and require the approval of the State Administration of Foreign Exchange. While we have not been denied of our applications for foreign exchange for the payment of our dividends, we cannot rule out the possibility that such control and limitation could affect our ability to obtain foreign exchange to pay cash dividends declared on our H shares (including ADSs representing our H shares). Consequently, we cannot assure you that your investment will not be subject to foreign exchange payment risks as a result of these foreign exchange control measures. See “Risks Relating to the PRC — Government control of currency conversion and exchange rate fluctuation may adversely affect our operations and financial results.” and “Item 8. Financial Information ― A. Consolidated Statements and Other Financial Information ― Dividend Distribution Policy.”
Furthermore, the primary sources of our shareholder rights are our articles of association, the PRC Company Law and the Listing Rules of the Hong Kong Stock Exchange, which, among other things, impose certain standards of conduct, fairness and disclosure on us, our directors and our controlling shareholder. In general, the protection of shareholder’s rights and access to information granted by their respective provisions are different from those applicable to companies incorporated in the United States and other Western countries, and are constantly evolving. The legal system in China is a civil law system based on written statutes. Unlike common law systems, such legal system is a system in which decided legal cases or administrative actions may be of reference value but have less precedential value, and a court ruling or administrative finding is made primarily based on written statues currently in effect. The legal system in China also evolves rapidly, and the interpretations of laws, regulations and rules may contain inconsistencies. In addition, the judicial and administrative authorities may, within the scope of their respective discretions, enforce laws and regulations inconsistently, which may result in uncertainties with respect to the interpretation and enforcement of PRC laws and regulations. While China has become a signatory to various treaties providing for the recognition and enforcement of certain foreign judgments in general, whether a specific judgment issued by a foreign court is capable of being recognized or enforced in China is still subject to uncertainties. Therefore, our investors may be faced with risks associated with the enforcement of court
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judgements and shareholders rights. See “Risks Relating to the PRC — Risks relating to enforcement of shareholder rights; Mandatory arbitration.”
The PRC governmental authorities, from time to time, audit or inspect our ultimate controlling shareholder. We cannot predict the impact, if any, of their outcome on our reputation, business and financial condition as well as the trading prices of our ADSs and H shares.
The PRC governmental authorities, from time to time, perform audits, inspections, inquiries or similar actions on state-owned companies, such as Sinopec Group Company, our ultimate controlling shareholder. Such inspections are not conducted on a regular basis with specific targets, and therefore we cannot predict the outcome of these governmental activities. If, as a result of such audits, inspections or inquiries, (i) material irregularities are found within Sinopec Group Company or us or our employees or (ii) Sinopec Group Company or we become the target of any negative publicity, our reputation, business and financial condition as well as the trading prices of our ADSs and H shares may be materially and negatively impacted.
Our business operations may be adversely affected by present or future environmental regulations.
As an integrated petroleum and petrochemical company, we are subject to extensive environmental protection laws and regulations in China. These laws and regulations permit:
| ● | the government, in accordance with law, to impose fines, to order correction, limitation on production or discharge, and suspend production for pollution discharge exceeding standards; |
| ● | the government to impose fines for late payment of environmental tax for the discharge of waste materials; |
| ● | the government, in accordance with law, to order correction, suspend production and impose fines for unlicensed or uncertified pollution discharge; |
| ● | the government, at its discretion, to seal up or close down any facility which has caused or may cause severe environmental damage and require it to correct or stop operations; and |
| ● | litigations and liabilities arising from pollutions and damages to the environment and public interests. |
Our production activities produce substantial amounts of liquid, gas and solid waste materials. We have established a system to treat waste materials to prevent and reduce pollution. In the future, we may have certain facilities built in regions newly reclassified as ecological preservation areas, and therefore need to be relocated. Also, the PRC government has moved, and may move further, toward more rigorous enforcement of applicable laws, and toward the adoption of more stringent environmental standards.
In recent years, we have commenced exploration and production of unconventional oil and gas resources, such as shale oil and gas and coal bed methane, through the application of relatively advanced technologies. As a result, our unconventional oil and gas operations rely on unproven technology which may expose us to higher environmental compliance standards and requirements, which, in turn, would require us to incur additional expenditures on environmental matters.
Some of our development plans require compliance with state policies and governmental regulation.
We are currently engaged in a number of construction, renovation and expansion projects. Some of our large new constructions, revamping and expansion projects are subject to governmental approval. The timing and cost of completion of these projects will depend on numerous factors, including when we can receive the required confirmation and registration from relevant PRC government authorities and the general economic condition in China. If any of our key projects required for our future growth is not confirmed or registered, or not confirmed or registered in a timely manner, our results of operations and financial condition could be adversely impacted.
Government control of currency conversion and exchange rate fluctuation may adversely affect our operations and financial results.
We receive a significant majority of our revenues in Renminbi. A portion of such revenues will need to be converted into other currencies to meet our foreign currency needs, which include, among other things:
| ● | import of crude oil and other materials; |
| ● | debt service on foreign currency-denominated debt; |
| ● | purchases of imported equipment; |
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| ● | payment of the principals and interests of bonds issued overseas; and |
| ● | payment of any cash dividends declared in respect of the H shares (including ADS). |
The existing foreign exchange regulations have significantly reduced government foreign exchange controls for transactions under the current account, including trade and service related foreign exchange transactions and payment of dividends. Foreign exchange transactions under the capital account, including principal payments in respect of foreign currency-denominated obligations, continue to be subject to significant foreign exchange controls and require the approval of the State Administration of Foreign Exchange. These limitations could affect our ability to obtain foreign exchange through debt or equity financing, or to obtain foreign exchange. The PRC government has stated publicly that it intends to make the Renminbi freely convertible in the future. However, we cannot predict whether the PRC government will continue its existing foreign exchange policy and when the PRC government will allow free conversion of Renminbi.
The exchange rate of the Renminbi against the US dollar and other foreign currencies fluctuates with market and is affected by, among other things, the changes in the PRC’s and international political and economic conditions. On July 21, 2005, the PRC government introduced a floating exchange rate system to allow the value of the Renminbi to fluctuate within a regulated band based on market supply and demand and by reference to a basket of foreign currencies. On June 19, 2010 and August 11, 2015, respectively, the People’s Bank of China (PBOC) decided to further promote the reform of exchange rate regime and enhance the flexibility of Renminbi exchange rate. The changes in foreign exchange rate will impact our cost in purchasing crude oil given the majority of our crude oil purchases are settled in foreign currencies and priced in US dollar. Besides, prices of refined oil products are guided by the PRC government and are pegged to the exchange rate of the Renminbi against the US dollar. Therefore the impact of Renminbi exchange rate fluctuation on the purchase cost of crude oil could largely be offset by the corresponding fluctuation in the prices of domestic refined oil products and chemical products.
Risks relating to enforcement of shareholder rights; Mandatory arbitration.
Currently, the primary sources of shareholder rights are our articles of association, the PRC Company Law and the Listing Rules of the Hong Kong Stock Exchange, which, among other things, impose certain standards of conduct, fairness and disclosure on us, our directors and our controlling shareholder. In general, their provisions for protection of shareholder’s rights and access to information are different from those applicable to companies incorporated in the United States, the United Kingdom and other Western countries. In addition, the mechanism for enforcement of rights under the corporate framework to which we are subject may also be relatively undeveloped and untested. To our knowledge, there has not been any published report of judicial enforcement in the PRC by H share shareholders of their rights under constituent documents of joint stock limited companies or the PRC Company Law or in the application or interpretation of the PRC or Hong Kong regulatory provisions applicable to PRC joint stock limited companies. We cannot guarantee that our shareholders will enjoy protections that they may be entitled in other jurisdictions.
China does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the United States, the United Kingdom or most other Western countries, and therefore the recognition and enforcement in China of judgments of a court in any of these jurisdictions in relation to any matter not subject to a binding arbitration provision may not be assured. Our articles of association as well as the Listing Rules of the Hong Kong Stock Exchange provide that most disputes between holders of H shares and us, our directors, supervisors, officers or holders of domestic shares, arising out of the articles of association or the PRC Company Law concerning the affairs of our company, are to be resolved through arbitration, at the election of the claimant, by arbitration organizations in Hong Kong or the PRC, rather than through a court of law. On June 18, 1999, an arrangement was made between Hong Kong and the PRC for the mutual enforcement of arbitral awards. This arrangement was approved by the Supreme People’s Court of the PRC and the Hong Kong Legislative Council, and became effective on February 1, 2000. Nonetheless, there are uncertainties with respect to the outcome of any action brought in China to enforce an arbitral award.
Certain judgments obtained against our directors and/or officers by our shareholders may not be enforceable.
We are a company limited by shares incorporated under the laws of China. The majority of our directors and executive officers reside within China or Hong Kong. As a result, your ability to bring an action against us or against these individuals in the United States in the event that you believe your rights have been infringed under the U.S. federal securities laws or otherwise, or the procedures in relation thereto, may be subject to uncertainties. Even if you are successful in bringing an action of this kind, whether you can successfully, pursuant to the laws of the PRC or Hong Kong enforce a judgment against our directors and officers in China is uncertain.
The Public Company Accounting Oversight Board has determined that it is unable to inspect or investigate completely registered public accounting firms headquartered in China, including our auditor, because of a position taken by one or more
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authorities in China. As a result, our ADSs may be delisted or prohibited from trading in the over-the-counter trading market in the United States under the Holding Foreign Companies Accountable Act, the occurrence or threatened occurrence of which may materially affect the value of your investment.
The Holding Foreign Companies Accountable Act, or the HFCA Act, was enacted on December 18, 2020. The HFCA Act states if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit our shares or ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the U.S.
On March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements of the HFCA Act. We will be required to comply with these rules if the SEC identifies us as having a “non-inspection” year under a process to be subsequently established by the SEC. On September 22, 2021, the PCAOB adopted a new rule related to its responsibilities under the HFCA Act, which provides a framework for the PCAOB to use when determining, as contemplated under the HFCA Act, whether it is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction. The PCAOB issued a HFCA Act Determination Report to the SEC on December 16, 2021, notifying SEC of its determination that that it is unable to inspect or investigate completely registered public accounting firms headquartered in China because of a position taken by one or more authorities in China (the “PCAOB PRC Determination”). Our auditor is subject to the PCAOB PRC Determination.
On December 2, 2021, the SEC adopted amendments to finalize rules implementing the submission and disclosure requirements in the HFCA Act. These rules apply to certain registrants, or the SEC-Identified Issuers, that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that the PCAOB has determined it is unable to inspect or investigate completely because of a position taken by an authority in the foreign jurisdiction. Identification of SEC-Identified Issuers will be made for fiscal years beginning after December 18, 2020. In other words, because our auditor is subject to the PCAOB PRC Determination, we may be classified as an SEC-Identified Issuer after we have filed our annual reports for fiscal year ended December 31, 2021. The final rules also provide an update to the interim final rules adopted on March 24, 2021 in terms of the submission and disclosure requirements of the HFCA Act which must be followed by an SEC-Identified Issuer in the annual report for each year in which it is so identified. The SEC will also delist or impose an initial trading prohibition on a registrant as soon as practicable after it is conclusively classified as a SEC-Identified Issuer for three consecutive years under the final rules.
On June 22, 2021, the U.S. Senate passed a bill which, if passed by the U.S. House of Representatives and signed into law, would reduce the number of consecutive non-inspection years required for triggering the prohibitions under the HFCA Act from three years to two years. Furthermore, the SEC may propose additional rules or guidance that could impose more stringent disclosure requirements or more unfavorable delisting and/or trading prohibition timeline under the HFCA Act regime.
In May 2013, the PCAOB announced that it had entered into a Memorandum of Understanding on Enforcement Cooperation with the CSRC and the PRC Ministry of Finance, which establishes a cooperative framework between the parties for the production and exchange of audit documents relevant to investigations undertaken by the PCAOB in the PRC or by the CSRC or the PRC Ministry of Finance in the United States. The PCAOB continues to be in discussions with the CSRC and the PRC Ministry of Finance to permit joint inspections in the PRC of audit firms that are registered with the PCAOB and audit Chinese companies that trade on U.S. exchanges.
If our auditor is subject to the PCAOB PRC Determination and as a result we are classified as a SEC-Identified Issuer, investors may lose confidence in our financial statements and reporting, the price of our securities may be adversely affected and our securities could be delisted or prohibited from being traded over-the-counter under the HFCA Act. Further, uncertainties relating to potential legislative changes in this area could cause the market price of our ADSs to be materially affected and our securities to be delisted or prohibited from trading earlier than the timeframe that is currently provided under the HFCA Act. In the event of the delisting of our securities or the prohibition of our securities from trading, investors in our ADS will need to dispose of their ADSs or exchange their ADSs for our H shares on applicable terms and conditions and may suffer significant loss on their investment. If any investor fails to exchange any of our ADSs for our H Shares for any reason, such ADSs may become worthless due to their loss of liquidity on the NYSE.
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Risks Relating to Our Business Operation
We are exposed to risks associated with price fluctuations of crude oil and refined oil products and petrochemical products.
We consume a large amount of crude oil to produce our refined oil products and petrochemical products. Increases in crude oil prices may result in cost inflation, and high prices may also reduce market demand for our products which might adversely affect our profitability. Decreases in prices of crude oil, refined oil products and petrochemical products may cause us to incur impairment to our investment and assets. A prolonged period of low oil prices may impact our profit and ability to maintain our long-term investment projects. We use financial derivatives, including commodity futures, to hedge risks of the volatility in the crude oil price. The use of such financial derivatives may not successfully hedge all risks. The fair value of derivatives fluctuates due to the volatility of crude oil price, which in turn impacts our financial performance. In addition, while we try to adjust the sale prices of our products to reflect international crude oil price fluctuations, our ability to pass on the increased cost resulting from crude oil price increases to our customers may be limited, and is dependent on international and domestic market conditions as well as the PRC government’s price control policies over refined oil products. For instance, the PRC government could exercise price control over refined oil products when international crude oil prices experience a sustained rise or become significantly volatile. As a result, our results of operations and financial condition may be subject to material risks resulted from the fluctuation of prices of crude oil, refined oil products and petrochemical products.
Our continued business success depends in part on our ability to replace reserves and develop newly discovered reserves.
Our ability to achieve our growth objectives is dependent in part on our level of success in discovering or acquiring additional oil and natural gas reserves. Our exploration and development activities for additional reserves also expose us to inherent risks associated with drilling, including the risk that no proved oil or natural gas reserves might be discovered. Exploring for, developing and acquiring reserves are highly risky and capital intensive. The fluctuation in the prices of crude oil and natural gas will impact the amount of our proved oil or natural gas reserves. In a low oil price environment, only large scale, high quality reserves meet our development criteria, and some exploration projects may not be viable and thus cannot be carried forward, potentially leading to failure in supplementing our oil and natural gas reserves with additional reserves through future exploration. Without reserve additions through further exploration and development or acquisition activities, or if the prices of crude oil and natural gas fall sharply, our reserves and production will decline over time, which may adversely affect our results of operations and financial condition.
We rely heavily on external suppliers for crude oil and other raw materials, and we may even experience disruption to our ability to obtain crude oil and other raw materials.
We purchased a significant portion of crude oil and other feedstock from external suppliers located in different countries and regions in the world. Our business growth requires us to source an increasing amount of crude oil from external suppliers. We continued to source our crude oil from a diversified portfolio of external suppliers to avoid any potential risks in relation to the purchase of the crude oil, however, we are still subject to the political, geographical and economic risks associated with these countries and areas. If our contractual relationships with one or more external suppliers were terminated or disrupted due to any natural disasters or political events, it is possible that we would not be able to find sufficient alternative sources of supply in a timely manner or on commercially reasonable terms. As a result, our business and financial condition would be materially and adversely affected.
Since 2020, due to factors such as the continuous pandemic of COVID-19 and its variants, the imbalance between crude oil supply and demand, the sharp decline in oil production by major oil-producing countries, geopolitical situations, and the recession of global economic growth, crude oil prices have fluctuated sharply. In addition, some extreme major incidents may also occur and causes short-term disruptions to crude oil supplies in certain regions. We have taken flexible measures in answer to such changes and incidents, however, it is still impossible for us to completely avert risks arising from the sharp fluctuations in international crude oil prices and the sudden short-term disruption to regional crude oil supply.
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We rely on our collaboration agreement with PipeChina for the use of certain oil and gas storage and pipeline facilities. Any adverse change to our collaboration with PipeChina may materially impact our business operation and financial status.
In September 2020, we closed the transaction with PipeChina, pursuant to which we sold certain oil and gas storage and pipeline facilities to PipeChina in exchange for approximately 14% of the registered capital of, and cash paid by, PipeChina as consideration. We have entered into a long-term service agreement with respect to the use of oil and gas storage and pipeline facilities with PipeChina, pursuant to which PipeChina shall provide us with oil and gas transportation and storage services on the agreed terms including, among others, that PipeChina shall meet our demand of production and operation following the agreed service specifications and standards.
Due to the special nature of our business operations, especially our production, refining and marketing activities, the successful execution of our operation plan will largely depend on our access to reliable and stable performance of oil and gas storage and transportation services, through our owned self-operated storage and pipeline facilities as we did prior to the transaction with PipeChina, and/or through purchasing storage and transportation services from PipeChina and other third parties. Considering the difficulty of the construction of the oil and gas pipeline, storage and other ancillary facilities, which involves time-consuming construction projects with major capital expenditure that are subject to regulatory approvals, we expect that, in the foreseeable future, it would be hard for us to promptly construct, develop and commission oil and gas pipeline, storage and other ancillary facilities, and our main production sites will be connected with and supported by pipelines and storage facilities owned by PipeChina. As a result, the smooth operation of our business in the future will partially depend upon our collaboration relationship with PipeChina based on service agreement(s) between us and PipeChina. We do not have control over PipeChina, and all key terms of service agreements between us and PipeChina shall be determined based on the applicable laws and regulations as well as the result of arm’s-length commercial negotiations between us and PipeChina, as a result of which we cannot guarantee that we will continue to secure service from PipeChina on current terms in the future. If we cannot continue to receive service from PipeChina on terms we desire, the operation of our business may be interrupted, and the results of our operations and our financial condition may be materially impacted.
Our business faces operation risks and natural disasters that may cause significant property damages, personal injuries and interruption of operations, and we may not have sufficient insurance coverage for all the financial losses incurred by us.
Exploring for, producing and transporting crude oil and natural gas and producing and transporting refined oil products and petrochemical products involve a number of operating hazards. Our operations are subject to significant hazards and risks inherent in refining operations and in transporting and storing crude oil, intermediate products, refined oil products and chemical products. These hazards and risks include, but are not limited to, natural disasters, fires, explosions, pipeline ruptures and spills, third-party interference and mechanical failure of equipment at our or third-party facilities, any of which could result in production and distribution difficulties and disruptions, environmental pollution, personal injury or wrongful death claims and damage to our properties and the property of others. There is also risk of mechanical failure and equipment shutdowns both in general and as a result of subsequent unforeseen events. In certain situations, undamaged refinery processing units may be dependent on or interact with damaged process units and, accordingly, are also subject to shut down. Even though we have a strong institutional focus on the safety of our operations and have implemented health, safety and environment (HSE) management system within our company, established a dual-track risk prevention regime focusing on both risk control and management based on risk classification and the inspection and treatment of hidden risks, and developed a risk evaluation and management platform, “PHAMS,” to conduct dynamic and quantitative management and control of relevant risks with the view to preventing accidents, and reducing personal injuries, property losses and environment pollution, our preventative measures may not be effective. We also maintain insurance coverage on our property, plant, equipment, inventory and potential third party liability, but our insurance coverage may not be sufficient to cover all the financial losses caused by operation risks and natural disasters. Significant operating hazards and natural disasters may cause interruption to our operations, property or environmental damages as well as personal injuries, and each of these incidents could have a material adverse effect on our financial condition and results of operations.
The oil and natural gas reserves data in this annual report are only estimates, and our actual production, revenues and expenditures with respect to our reserves may differ materially from these estimates.
There are numerous uncertainties inherent in estimating quantities of proved oil and natural gas reserves, and in the timing of development expenditures and the projection of future rates of production. Adverse changes in economic conditions, such as a prolonged period of low oil prices, may render it uneconomical to develop certain reserves and lead to downward revisions in our reserves. Our actual production, revenues, taxes and fees payable and development and operating expenditures with respect to our reserves may likely vary from these estimates.
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The estimate of reserves is affected by, among other things:
| ● | the quality and quantity of technical and economic data; |
| ● | the prevailing oil and gas prices applicable to our production; |
| ● | the production performance of the reservoirs; and |
| ● | the production plans. |
In addition, new drilling, testing and production results achieved following completion of the estimates may cause substantial upward or downward revisions in the estimates.
Oilfield exploration and drilling involves numerous risks, including risks that no commercially productive crude oil or natural gas reserves can be discovered and risks of failure to acquire or retain reserves.
Our oil and gas business is currently involved in exploration activities in various regions, including in areas where natural conditions may be challenging and where the costs of such exploration activities may be high. As a result, our oil and gas business may incur cost overruns or may be required to curtail, delay or terminate drilling operations because of many factors, including, but not limited to, the following:
| ● | disruption caused by unexpected geological factors; |
| ● | irregularities in geological formations pressure; |
| ● | equipment failures; |
| ● | oil/gas well blowouts; |
| ● | adverse weather conditions or natural disasters; |
| ● | compliance with existing or enhanced environmental regulations; |
| ● | governmental requirements and standards; or |
| ● | delays in the availability of drilling rigs and delivery and maintenance of equipment. |
The future production of our oil and gas business depends significantly upon our success in finding or acquiring additional reserves and retaining and developing such reserves. If our oil and gas business fails to conduct successful exploration activities or to acquire or retain assets holding proved reserves, it may not meet its production or growth targets, and its proved reserves will decline as it extracts crude oil and natural gas from the existing reservoirs, which could adversely affect our business, financial condition and results of operations.
We have been actively pursuing business opportunities outside China to supplement our domestic resources. However, there can be no assurance 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 adversely affected.
Our exploration, development and production activities and our refining and petrochemical business require substantial expenditure and investments and our plans for and ability to make such expenditures and investments are subject to various risks.
Exploring for, developing and producing crude oil and natural gas fields are capital-intensive activities involving a high degree of risk. Our ability to undertake exploration, development and production activities and make the necessary capital expenditures and investments is subject to many risks, contingencies and other uncertainties, which may prevent our oil and gas business from achieving the desired results, or which may significantly increase the expenditures and investments that our oil and gas business makes, including, but not limited to, the following:
| ● | ability to generate sufficient cash flows from operations to finance our expenditures, investments and other requirements, which are affected by changes in crude oil and natural gas prices and sales volumes, and other factors; |
| ● | availability and terms of external financing; |
| ● | mix of exploration and development activities conducted on an independent basis and those conducted jointly with other partners; |
| ● | extent to which our ability to influence or adjust plans for exploration and development related expenditures is limited under joint operating agreements for those projects in which we have partners; |
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| ● | government approvals required for exploration and development-related expenditures and investments in jurisdictions in which we conduct business; and |
| ● | economic, political and other conditions in jurisdictions in which we conduct business. |
We may, as appropriate, construct new and/or revamp existing refining and petrochemical facilities, which require substantial capital expenditures and investments. There can be no assurance 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. Our inability to obtain sufficient funding for development plans could adversely affect our business, financial condition and results of operations.
Our development projects and production activities involve many uncertainties and operating risks that can prevent us from realizing profits and cause substantial losses.
Our development projects and production activities may be curtailed, delayed or cancelled for many reasons, including without limitation equipment shortages or failures, natural hazards, unexpected drilling conditions, mechanical and technical difficulties caused by complex geological conditions and operating errors by our employees. These projects and activities, which include projects focused on non-conventional oil and gas exploration and development, will also often require the use of new and advanced technologies that may be expensive to develop, purchase and implement, and may not function as expected. There is a risk that any development project that we undertake may not yield expected returns. In addition, our development projects and production activities, particularly those in remote areas, could become less profitable, or unprofitable, if we experience a prolonged period of low oil or gas prices or cost overruns.
Our business may be adversely affected by actions and regulations prompted by global climate changes.
Many nations in the world have reached consensus on the importance and urgency of addressing climate change. The oil and gas industry in which we operate is drawing increasing concerns in recent years. A number of international, national and regional measures to limit greenhouse gas emissions have been enacted. The Paris Agreement adopted in December 2015 has placed binding commitments on nations that have ratified it since November 2016, which may lead to more stringent national and regional measures in the near future. Compliance with these measures could result in substantial impact on capital expenditure, profit and strategic growth. In addition, PRC government has undertaken to strive to peak its CO2 emissions by 2030 and to achieve carbon neutrality by 2060, if possible, and to increase the non-fossil fuel share of all energy to around 25% by 2030 while reducing the CO2 emissions by no less than 65% as compared with 2005. China has officially launched a national carbon exchange in 2021, and some of our power plants supporting our operation have been identified to be subject to emission control. It is expected that the scope of industries subject to such control will expand, with most of our domestic subsidiaries may be recognized as emission-control enterprises, which change could have certain effect on our business operations.
Our overseas businesses may be adversely affected by changes of overseas government policies and business environment.
We have operations and assets and may seek new opportunities in various countries and regions, some of which are deemed to be subject to a high degree of political risk. The operations in these countries and regions may experience debt divergence, changes in taxation and foreign exchange controls, legal litigations, deterioration in compliance management environments or public security, public health risk, market fluctuations and oil and gas price fluctuations, changes in political situations and sanctions rules and policies, investment decision risk, safety production and equipment integrity risk. The occurrence of any of these conditions could disrupt or curtail our operations or development activities. These events may also limit our ability to pursue new opportunities, affect the recoverability of our assets or cause us to incur additional costs, particularly due to the long-term nature of many of our projects and the significant capital expenditure required by those projects.
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We may be classified as a passive foreign investment company for United States federal income tax purposes, which could result in adverse United States federal income tax consequences to United States holders of the H shares or ADSs.
A non-United States corporation, such as our company, will be a “passive foreign investment company” (PFIC), for United States federal income tax purposes for any taxable year, if either (a) 75% or more of its gross income for such year consists of certain types of “passive” income or (b) 50% or more of the value of our assets (generally based on the average quarterly value of our assets during the taxable year) produce or are held for the production of passive income. Depending upon the value of our assets, which may be determined based, in part, on the market price of our H shares or ADSs (which may be volatile), and the nature of our assets and income over time, we could be classified as a PFIC for United States federal income tax purposes. Based on our income and assets and the market price of our H shares or ADSs, we do not believe that we were a PFIC for the taxable year ended December 31, 2021 and do not anticipate becoming a PFIC in the current taxable year or in the foreseeable future. Because PFIC status is a factual determination made annually after the close of each taxable year on the basis of the composition of our income and the value of our active versus passive assets for that year, there can be no assurance that we will not be a PFIC for any future taxable year. The overall level of our passive assets will be affected by how, and how quickly, we expend our liquid assets. Under circumstances where gross income from activities that produce passive income significantly increase relative to our gross income from activities that produce non-passive income or where we determine not to deploy significant amounts of cash for active purposes, our risk of becoming classified as a PFIC may substantially increase. If we were to be or become classified as a PFIC, a US Holder (as defined in “Item 10. Additional Information—E. Taxation—United States Federal Income Tax Considerations”) may incur significantly increased United States income tax on gains recognized on the sale or other disposition of the H shares or ADSs and on the receipt of distributions on the H shares or ADSs to the extent such gains or distributions are treated as an “excess distribution” under the United States federal income tax rules. For more information see “Item 10. Additional Information—E. Taxation—United States Federal Income Tax Considerations.”
Our operations may be adversely affected by cyber-attacks or similar disruptions.
We have established cybersecurity control schemes and cybersecurity operation and information system emergency response regime, built a cybersecurity risk management and control information platform, and devoted significant resources to the protection of our digital infrastructure and information system against cyber-attacks. If our systems against cyber-security risk prove to be ineffective, we could be adversely affected by, among other things, disruptions to our business operations, and loss of proprietary information, including intellectual property, financial information and employer and customer data, injury to people, property, environment and reputation. As cyber-security attacks continue to evolve, we may be required to expend additional resources to enhance our protective measures against cyber-security breaches.
COVID-19 pandemic could materially and adversely affect our business.
In 2021, the global pandemic of COVID-19 continues to spread. Due to its unique nature and continuous spread, this pandemic and the public prevention measures taken in relation thereto have had and may continue to have certain adverse impacts on our procurement for raw materials, the conduct of our operation, the demand for our end products and on our operating activities, including disruptions to our work scheduling, which, in aggregate, may have significant impacts on our business, financial condition and results of operations. We have taken measures in response to the outbreak, including the adoption of robust, strict and standardized pandemic prevention and control system. At present, domestic COVID-19 is generally under control within China, however, unpredictable factors still exist in terms of COVID-19 global trend. The extent to which this pandemic impacts our results will depend on future developments of COVID-19, including new actions taken to contain the pandemic or treat its impact, among others.
Risks Relating to Our Industry
Our operations may be adversely affected by the global and domestic economic conditions.
Our results of operations are materially affected by economic conditions in China and elsewhere around the world. There are some uncertainty and instability in the current global economy and pandemic control. The Chinese economy has entered a new stage of development and is progressing towards high quality development, guided by its “carbon peak” and “carbon neutrality” strategic objectives. Our operations may also be adversely affected by factors such as trade protection policies adopted by other countries and increase in import activities facilitated by regional trade agreements.
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Our operations may be adversely affected by the cyclical nature of the market.
Most of our revenues are attributable to sales of refined oil products and petrochemical products, and certain of these businesses and related products have historically been cyclical and sensitive to a number of factors that are beyond our control. These factors include the availability and prices of feedstock and macro-economic conditions, such as changes in industry capacity and output levels, cyclical changes in regional and global economic conditions, prices and availability of substitute products and fluctuation in prices and demands of natural gas, refined oil products and chemical products. Although we are an integrated company with upstream, midstream and downstream businesses, we have limited ability to mitigate the adverse influence of the cyclicality of global markets.
We face strong competition from domestic and foreign competitors.
Among our competitors, some are major integrated petroleum and petrochemical companies within and outside China, which have recently become more significant participants in the petroleum and petrochemical industry in China. The PRC government has accelerated the removal of restrictions on the right to use imported crude oil. This development may lead to excessive refining capacity in China and intensify competition among local refineries. The Chinese crude oil and refined oil product markets are becoming increasingly dynamic and internationalized with implementation of tariff concessions and relaxation of market restrictions. As the wholesale market of refined oil products previously dominated by PetroChina Company Limited and us opens up, we are facing stronger competition from new players and imported products. Our market share of chemical products is also under stronger competitive pressure due to the increasingly active participation of diversified new market players including multinational petroleum and petrochemical companies and domestic private enterprises. We are also expected to face competition in both domestic and overseas refined oil products and petrochemical product market as a result of our domestic and international competitors’ increasing production capacity. In addition, the competition among market participants on overseas premium resources, construction of LNG stations and pipeline and storage facilities, development of high-end markets and construction of terminal projects have intensified since PipeChina started its business operation and after the market of natural gas pipeline network, LNG station and gas storage facilities opened up. Increased competition may have a material adverse effect on our financial condition and results of operations.
Risks Relating to Our Controlling Shareholder
We engage in related party transactions with Sinopec Group from time to time which may create potential conflict of interest.
We have engaged from time to time and will continue to engage in a variety of transactions with Sinopec Group, which provides us with a number of services, including, but not limited to, ancillary supply, engineering, maintenance, transport, lease of land use right, lease of buildings, as well as educational and ancillary services. The nature of our transactions with Sinopec Group is governed by a number of service and other contracts between Sinopec Group and us. We have established various schemes in those agreements so that these transactions, when entered into, are at arm’s length. However, we cannot assure you that Sinopec Group Company or any of its members would not take actions that may favor its interests or its other subsidiaries’ interests over ours.
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We are controlled by Sinopec Group Company, our ultimate controlling shareholder, whose interest in certain businesses are likely to compete with our business.
Sinopec Group Company has interests in certain businesses, such as petrochemical and overseas exploration and development, which compete or are likely to compete, either directly or indirectly, with our businesses. To avoid adverse effects that may be brought by the competition between us and Sinopec Group Company to the maximum extent possible, we and Sinopec Group Company have entered into a non-competition agreement. In 2012, we received from Sinopec Group Company an undertaking to avoid competing with us. For details, please refer to the descriptions under “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders.” Notwithstanding the foregoing contractual arrangements, because Sinopec Group Company is our controlling shareholder, Sinopec Group Company may take actions that may conflict with our own interests.
It is possible that the current or future activities of our ultimate controlling shareholder, Sinopec Group Company, or its affiliates in or with certain countries that are the subject of economic sanctions under relevant U.S. laws could result in negative media and investor attention to us and possible imposition of sanctions on Sinopec Group Company, which could materially and adversely affect our shareholders’ value and operations.
Sinopec Group Company undertakes, from time to time and without our involvement, overseas investments and operations in the oil and gas industry, including exploration and production of oil and gas, refining and Liquefied Natural Gas or LNG, oilfield services and refining engineering projects. Sinopec Group Company’s overseas asset portfolio includes a limited number of projects in countries that are subject to U.S. sanctions administrated by OFAC and by the U.S. Department of State, including Iran, Syria and Sudan. We currently do not believe that any existing investments of Sinopec Group Company will result in any direct sanctions imposed by OFAC. However, we cannot predict the interpretation or implementation of sanction policy at the U.S. federal, state or local levels with respect to any current or future activities by Sinopec Group Company or its affiliates in countries or with individuals or entities that are the subject of U.S. sanctions. Similarly, we cannot predict whether U.S. sanctions will be further tightened in the case of Iran, or whether sanction scope will be modified or updated, or if any other countries or regions will be incorporated into the sanction list, or the impact that such actions may have on Sinopec Group Company and us. If it becomes the target of U.S. sanctions, Sinopec Group Company may be prohibited from conducting business activities in the United States or with individuals or entities in the United States, and the transactions involving our securities in the United States will also be significantly affected. In addition, certain U.S. state and local governments and institutions impose restrictions on the investment of public funds or endowment funds, respectively, in companies that are members of corporate groups with activities in certain countries that are the subject of U.S. sanctions. These investors may not wish to invest, and may withdraw their investment, in us because of our relationship with Sinopec Group Company and its investments and activities in those OFAC sanctioned countries. It is possible that, as a result of activities undertaken by Sinopec Group Company or its affiliates in countries that are the subject of U.S. sanctions, we may be subject to negative publicity, which may distract management attention, consume internal resources and affect investors’ perception of our Company.
ITEM 4. | INFORMATION ON THE COMPANY |
A. | HISTORY AND DEVELOPMENT OF THE COMPANY |
Our legal and commercial name is China Petroleum & Chemical Corporation. Our head office is located at 22 Chaoyangmen North Street, Chaoyang District, Beijing 100728, the People’s Republic of China, our telephone number is (8610) 5996-0028 and our fax number is (8610) 5996-0386. We have appointed our representative office in the North America, located at 3050 Post Oak Blvd, Suite 800, Houston, 77056, with telephone number of +1 (713) 544 8888 and fax number of +1 (713) 544 8878, as our agent for service of processes for actions brought under the U.S. securities laws. The SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding us that have been filed electronically with the SEC, which can be accessed at https://www.sec.gov. Information about the Company and documents the Company submitted to the SEC are available on our investor relations website: http://spc.sinopec.com/spc/en/investor/.
We were established as a joint stock limited company on February 25, 2000 under the Company Law of the PRC with Sinopec Group Company as the sole shareholder at our inception. Our principal businesses include:
| ● | exploration for, development, production and marketing of crude oil and natural gas; |
| ● | refining of crude oil and marketing and distribution of refined oil products, including transportation, storage, trading, import and export of petroleum products; |
| ● | production and sales of petrochemical products; |
16
| ● | the operation in relation to hydrogen, the production, storage, transportation and sales of hydrogen, production and sales of hydrogen production, hydrogen refueling and hydrogen storage facilities and other hydrogen energy business and related services; and |
| ● | power supply business, vehicle battery charging and swaping, solar energy, wind energy and other new energy power generation, operation of new energy vehicle charging facilities, battery sales, sales of new energy vehicle battery swap facilities and other electric energy businesses and related services. |
Sinopec Group’s continuing activities primarily consist, among other things, of:
| ● | exploring and developing oil and gas reserves overseas; |
| ● | operating certain petrochemical facilities; |
| ● | providing geophysical exploration, and well drilling, survey, logging and downhole operational services; |
| ● | manufacturing production equipment and providing equipment maintenance services; |
| ● | providing construction services; |
| ● | providing utilities, such as electricity and water; and |
| ● | providing other operational services including transportation services. |
Sinopec Group Company transferred the businesses to us either by transferring its equity holdings in subsidiaries or by transferring their assets and liabilities. Sinopec Group Company also agreed in the reorganization agreement to transfer to us its exploration and production licenses and all rights and obligations under the agreements in connection with its core businesses transferred to us. The employees relating to these assets were also transferred to us.
From July 8, 2015 to July 7, 2016, Sinopec Group Company increased its shareholding in the Company through acquisitions of our ordinary shares on the stock market in its own name or through other concerting parties, by way of acquiring 72,000,000 A shares. Immediately following the shareholding increase, Sinopec Group Company directly and indirectly held 86,345,821,101 shares of the Company.
On October 29, 2015, we entered into a joint venture agreement with Sinopec Assets Management Co., Ltd. (“SAMC”), a wholly-owned subsidiary of Sinopec Group Company, in relation to the formation of Sinopec Shanghai Gaoqiao Petrochemical Co., Ltd. (“Gaoqiao”). We and SAMC subscribed for 55% and 45% of the registered capital of Gaoqiao, respectively, and Gaoqiao became a subsidiary of the Company.
On August 2, 2016, our board of directors unanimously approved the proposal to introduce capitals from potential investors to invest in Sichuan-to-East China gas pipeline project, through our indirectly wholly-owned subsidiary Sinopec Sichuan-to-East China Natural Gas Pipeline Co., Ltd. (“Sichuan-to-East China Pipeline Co.”). On December 12, 2016, Sinopec Natural Gas Limited Company, our wholly-owned subsidiary (“Natural Gas Company”), China Life Insurance Co., Ltd. (“China Life”) and SDIC Communications Holding Co., Ltd. (“SDIC Communications”) entered into the Capital Injection Agreement in relation to Sichuan-to-East China Pipeline Co. and agreed to collectively subscribe for 50% equity interest in Sichuan-to-East China Pipeline Co. for an aggregate amount of RMB22.8 billion in cash. Upon completion of the capital injection, China Life, SDIC Communications and the Natural Gas Company held 43.86%, 6.14% and 50% equity interest in Sichuan-to-East China Pipeline Co., respectively.
On April 27, 2017, our board of directors unanimously approved the proposal of the acquisition of equity interest in Shanghai SECCO Petrochemical Company Limited (“Shanghai SECCO”) by Gaoqiao. On October 26, 2017, Gaoqiao purchased 50% equity interest in Shanghai SECCO from BP Chemicals East China Investment Limited with a cash consideration of RMB10,135 million. Before the acquisition, we and one of our subsidiaries held 30% and 20% equity interest in Shanghai SECCO, respectively. Upon completion of the acquisition, we, together with our subsidiaries, hold 100% equity interest of Shanghai SECCO, which became a subsidiary of us.
Following the instruction by the State-owned Assets Supervision and Administration Commission of the State Council, on August 9, 2018, Sinopec Group Company gratuitously transferred 1,241,721,854 A shares of the Company to Beijing Chengtong Financial Control Investment Co., Ltd., and 1,241,721,854 A shares to Guoxin Investment Co., Ltd. Upon the completion of such transfers, Sinopec Group Company directly and indirectly held 83,862,377,393 shares of the Company.
17
In July 2020, we and certain of our subsidiaries entered into transactions with PipeChina to sell the ownership of certain oil and gas pipeline assets and other facilities to PipeChina in exchange for approximately 14% of registered capital of, and cash paid by, PipeChina as consideration (the “Pipeline Transactions”). The Pipeline Transactions closed on September 30, 2020. In accordance with the arrangements of the Pipeline Transactions, we and PipeChina have entered into agreements for the continuous use of relevant oil and gas pipelines and other facilities in the future on the terms and subject to conditions set forth therein.
B. | BUSINESS OVERVIEW |
Exploration and Production
Overview
We currently explore for, develop and produce crude oil and natural gas in a number of areas in China and overseas. As of December 31, 2021, we held 265 production licenses in China, with an aggregate acreage of 36,480 square kilometers and with terms ranging from 10 to 80 years. Our production licenses may be renewed upon our application at least 30 days prior to the expiration date, which are renewable for unlimited times. During the term of our production license, we pay an annual production license fee of RMB1,000 per square kilometer.
As of December 31, 2021, we held 178 exploration licenses in China for various blocks in which we engaged in exploration activities, with an aggregate acreage of approximately 390 thousand square kilometers.
As of December 31, 2021, our overseas subsidiary held one production license, with an acreage of 322.57 square kilometers. It currently does not have exploration licenses. Our overseas equity-accounted investments held 74 production licenses, with an aggregate acreage of 5,588.9 square kilometers, and no exploration license.
Properties
We currently operate 249 oil and gas producing fields and blocks.
Shengli production field is our most important crude oil production field. It consists of 75 producing blocks of various sizes extending over an area of 2,554 square kilometers in northern Shandong province, all of which are our net developed acreage. Most of Shengli's blocks are located in the Jiyang trough with various oil producing layers. In 2021, Shengli production field produced approximately 166 million barrels of crude oil and 22.13 billion cubic feet of natural gas, with an average daily production of 465.3 thousand BOE.
As of December 31, 2021, the total acreage of our oil and gas producing fields and blocks in China was 17,135 square kilometers, including 10,021 square kilometers of developed acreage, all of which were net developed acreage; and 7,114 square kilometers of gross undeveloped acreage, all of which were net undeveloped acreage.
As of December 31, 2021, the total acreage of our oil and gas producing fields and blocks of our overseas subsidiary was 322.57 square kilometers, including 169.21 square kilometers of developed acreage, of which 110 square kilometers were net developed acreage; and 153.36 square kilometers of gross undeveloped acreage, of which 31.8 square kilometers were net undeveloped acreage.
As of December 31, 2021, the total acreage of our oil and gas producing fields and blocks of our overseas equity-accounted investments was 1,683.4 square kilometers, including 1,683.4 square kilometers of developed acreage, of which 1,683.4 square kilometers were net developed acreage; and none gross undeveloped acreage.
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Oil and Natural Gas Reserves
As of December 31, 2021, our estimated proved reserves of crude oil and natural gas in China were 2,825 million BOE (including 1,416.64 million barrels of crude oil and 8,449.26 billion cubic feet of natural gas), and our estimated proved reserves of crude oil and natural gas outside of China, which included a share of the estimated proved reserves of our equity-accounted investments, were 334.98 million BOE. Our estimated proved reserves do not include additional quantities recoverable beyond the term of the relevant production licenses, or that may result from extensions of currently proved areas, or from application of improved recovery processes not yet tested and determined to be economical.
We established reasonable certainty of our proved reserves estimates by using the performance methods, the volumetric methods, analogy, or a combination of multiple methods. Performance methods include, but are not be limited to, decline curve analysis, material balance and reservoir simulation, which utilize extrapolations of historical production available. The volumetric method, analogy, or a combination of such methods were used where historical performance data was inadequate to establish a definitive trend or where the use of production performance data as the basis for reserves estimates was considered inappropriate. All proved undeveloped reserves were estimated by volumetric method and analogy.
The following tables set forth our proved developed and undeveloped crude oil and natural gas reserves by region as of December 31, 2021.
| | |
Crude Oil Proved Reserves | | As of December 31, 2021 |
| | (in millions of barrels) |
Developed Subsidiaries |
|
|
China |
| 1,291 |
Shengli |
| 961 |
Others |
| 330 |
Overseas |
| 24 |
Subtotal |
| 1,315 |
Equity-accounted investments |
| |
China |
| ― |
Overseas |
| 263 |
Subtotal |
| 263 |
Total Proved Developed |
| 1,578 |
Undeveloped Subsidiaries |
| |
China |
| 125 |
Shengli |
| 17 |
Others |
| 108 |
Overseas |
| ― |
Subtotal |
| 125 |
Equity-accounted investments |
| |
China |
| ― |
Overseas |
| 46 |
Subtotal |
| 46 |
Total Proved Undeveloped |
| 171 |
Total Crude Oil Proved Reserves |
| 1,749 |
19
| | |
Natural Gas Proved Reserves |
| As of December 31, 2021 |
| | (in billions of cubic feet) |
Developed Subsidiaries | | |
China |
| 6,734 |
Puguang |
| 1,582 |
Fuling |
| 1,529 |
Others |
| 3,623 |
Overseas |
| ― |
Subtotal |
| 6,734 |
Equity-accounted investments |
| |
China |
| ― |
Overseas |
| 6 |
Subtotal |
| 6 |
Total Proved Developed |
| 6,740 |
Undeveloped Subsidiaries |
| |
China |
| 1,715 |
Puguang |
| 64 |
Fuling |
| 99 |
Others |
| 1,552 |
Overseas |
| ― |
Subtotal |
| 1,715 |
Equity-accounted investments |
| |
China |
| ― |
Overseas |
| 1 |
Subtotal |
| 1 |
Total Proved Undeveloped |
| 1,716 |
Total Natural Gas Proved Reserves |
| 8,456 |
As of December 31, 2021, approximately 171.66 million barrels of our crude oil proved reserves and 1,715.59 billion cubic feet of our natural gas proved reserves were classified as proved undeveloped reserves in China and overseas. 2.23 million barrels of crude oil and 648.04 billion cubic feet natural gas proved reserves in China have been classified as proved undeveloped for more than five years, mainly under Sinopec Shanghai Offshore Petroleum Company, one of our subsidiaries. The reason that such proved reserves had remained undeveloped for more than five years was that offshore oil and gas production sites generally had a longer construction period, which was further protracted due to the COVID-19 pandemic. The Company is currently optimizing the development plan for such reserves.
During 2021, a total of 319 wells were drilled in China and 123 wells were drilled overseas.
During the year of 2021, our proved crude oil reserves and proved crude oil reserves of our equity method investees increased by 207.96 million barrels, as a result of:
| ● | an upward revision of previous estimate by 241.83 million barrels, comprising an upward revision of 297.16 million barrels due to increased crude oil price, an upward revision of 14.99 million barrels due to infill drilling, an upward revision of 25.61 million barrels due to the extension of our existing licenses, and an upward revision of 6.60 million barrels due to improved production performance, partially offset by an downward revision of 102.53 million barrels due to increase in cost; |
| ● | an increase of 127.76 million barrels by reason of the adoption of technologies and methods such as gas displacement and chemical displacement; |
| ● | an increase of 111.66 million barrels due to the extension of and new discoveries in the Chengdao oil field and Shunbei oil and gas field; and |
| ● | a decrease of 273.29 million barrels due to production activities. |
During the year of 2021, our proved natural gas reserves and proved natural gas reserves of our equity method investees increased by 265.62 billion cubic feet, as a result of:
| ● | a decrease of 1,111.21 billion cubic feet due to production activities; |
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| ● | an upward revision of previous estimate by 662.30 billion cubic feet of proved natural gas reserves, comprising an increase of 149.59 billion cubic feet resulting from an increase in oil and gas price, an increase of 227.67 billion cubic feet due to improved production performance, an increase of 56.65 billion cubic feet due to the addition of compression for gas wells, an increase of 120.01 billion cubic feet due to the adoption of refracturing, and an increase of 155.45 billion cubic feet due to infill drilling, partially offset by a decrease of 47.07 billion cubic feet due to increase in cost; |
| ● | an increase of 36.28 billion cubic feet by reason of the adoption of improved recovery techniques; and |
| ● | an increase of 678.25 billion cubic feet due to the extension and new discoveries in Puguang gas field, Weirong gas field and Yongchuan gas field. |
Noteworthy changes in proved undeveloped reserves during the year of 2021 are as follows:
| ● | our proved undeveloped crude oil reserves increased by 18.44 million barrels, resulting from an upward revision of 1.81 million barrels due to the change of our drilling plan, an increase of 5.33 million barrels of proved undeveloped crude oil reserves due to contract extension, and an increase of 68.42 million barrels of proved undeveloped crude oil reserves due to extension, partially offset by a conversion of 53.51 million barrels from proved undeveloped crude oil reserves to proved developed reserves due to our production activities and a downward revision of 3.61 million barrels to a cut-back of our drilling plan for cost control purposes; and |
| ● | our proved undeveloped natural gas reserves decreased by 109.43 billion cubic feet, resulting from a conversion of 314.93 billion cubic feet from proved undeveloped natural gas reserves to proved developed natural gas reserves due to our productions activities and a downward revision of 27.73 billion cubic feet as we scaled back our drilling activities for cost control purposes, partially offset by an increase of 233.23 billion cubic feet of proved undeveloped natural gas reserves due to extension. |
Total capital expenditure incurred in converting proved undeveloped reserves into proved developed reserves amounted to RMB8.53 billion, including RMB7.77 billion and RMB0.76 billion incurred in connection with our operations in China and overseas, respectively, in 2021.
Our reserves estimation is managed by a two-tier management system. The Oil and Natural Gas Reserves Management Committee, or the RMC, at our headquarters level, organizes, coordinates and oversees the overall reserves estimation, and is in charge of major issues in reserves estimation and approving the reserves estimation report of our company. Each of our Branches has a reserves management committee that manages and coordinates the reserves estimation process, organizes evaluators to conduct reserves estimation, reviews and inspects the evaluation materials and results at the branch level, and reports to the RMC of the Company.
Our RMC consists of our senior managements, the senior management of related divisions at our headquarters level, our exploration and production institution and our Branches in each oil field. The current Chairman of our RMC, Mr. Liu Hongbin, Senior Vice President of the company, has over 30 years of experience in the oil and gas industry. A majority of our RMC members hold doctor’s or master’s degrees and our RMC members have an average of 20 years of technical experience in relevant industry fields, such as geology, development and economics.
Our reserves estimation is guided by procedural manuals and technical guidance. Initial collection and compilation of reserves information are conducted by different working divisions, including exploration, development and financial divisions, at production bureau level. Technical experts in exploration, development and economics divisions of our Branches in each oil field collectively prepare the initial report on reserves estimation. The RMC at production bureau level then review to ensure the qualitative and quantitative compliance with technical guidance and accuracy and reasonableness of the reserves estimation. We also engage outside consultants who assist us to be in compliance with the U.S. Securities and Exchange Commission rules and regulations. Our reserves estimation process is further facilitated by a specialized reserves database which is reviewed and updated periodically.
Oil and Natural Gas Production
In 2021, we produced an average of 1,230.03 thousand BOE per day in China, of which approximately 55.6% was crude oil and 44.4% was natural gas. We produced an average of 84.3 thousand BOE per day overseas, of which 98% was crude oil and 2% was natural gas.
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The following tables set forth our average daily production of crude oil and natural gas for the years ended December 31, 2019, 2020 and 2021. The production of crude oil includes condensate.
| | | | | | |
|
| Year Ended December 31, | ||||
| | 2019 | | 2020 | | 2021(1) |
| | (in thousands of barrels) | ||||
Average Daily Crude Oil Production |
|
|
|
|
|
|
China |
| 683 |
| 682 |
| 684 |
Subsidiaries |
| 683 |
| 682 |
| 684 |
Shengli |
| 455 |
| 454 |
| 455 |
Others |
| 228 |
| 228 |
| 229 |
Overseas |
| 95 |
| 84 |
| 83 |
Subsidiary |
| 19 |
| 17 |
| 14 |
Equity-accounted investments |
| 76 |
| 67 |
| 69 |
Total Crude Oil Production |
| 778 |
| 766 |
| 767 |
Note:
| (1) | Includes 0.49 thousand BOE of crude oil consumed in the production. |
| | | | | | |
|
| Year Ended December 31, | ||||
| | 2019 | | 2020 | | 2021(1) |
| | (in millions of cubic feet) | ||||
Average Daily Natural Gas Production |
|
|
|
|
|
|
China |
| 2,862 |
| 2,921 |
| 3,277 |
Subsidiaries |
| 2,862 |
| 2,921 |
| 3,277 |
Puguang |
| 664 |
| 598 |
| 651 |
Fuling |
| 613 |
| 647 |
| 695 |
Others |
| 1,585 |
| 1,676 |
| 1,931 |
Overseas |
| 9 |
| 9 |
| 9 |
Equity-accounted investments |
| 9 |
| 9 |
| 9 |
Total Natural Gas Production |
| 2,871 |
| 2,930 |
| 3,286 |
Note :
| (1) | Includes 163.59 million cubic feet of natural gas consumed in the production. |
Lifting Cost & Realized Prices
The following table sets forth our average lifting costs per BOE of crude oil produced, average sales prices per barrel of crude oil and average sales prices per thousand cubic meters of natural gas for the years ended December 31, 2019, 2020 and 2021.
| | | | | | |
|
| Weighted Average |
| China |
| Overseas(1) |
| | (RMB) | ||||
For the year ended December 31, 2021 |
|
|
|
|
|
|
Average petroleum lifting cost per BOE |
| 113.91 |
| 108.42 |
| 193.94 |
Average realized sales price |
| |
| |
| |
Per barrel of crude oil |
| 415.85 |
| 411.93 |
| 448.4 |
Per thousand cubic feet of natural gas |
| 40.61 |
| 40.61 |
| — |
For the year ended December 31, 2020 |
| |
| |
| |
Average petroleum lifting cost per BOE |
| 105.28 |
| 101.67 |
| 154.41 |
Average realized sales price |
| |
| |
| |
Per barrel of crude oil |
| 269.85 |
| 266.86 |
| 294.12 |
Per thousand cubic feet of natural gas |
| 37.33 |
| 37.33 |
| — |
For the year ended December 31, 2019 |
| |
| |
| |
Average petroleum lifting cost per BOE |
| 117.0 |
| 110.32 |
| 164.49 |
Average realized sales price |
| |
| |
| |
Per barrel of crude oil |
| 406.0 |
| 400.37 |
| 445.96 |
Per thousand cubic feet of natural gas |
| 37.56 |
| 37.56 |
| — |
22
(1) | The exchange rates we used for overseas data in this table were exchange rates for each year ended December 31, 2019, 2020 and 2021, which were RMB6.8985 to US$ 1.00, RMB6.8976 to US$ 1.00 and RMB6.45 to US$1.00, respectively. |
Exploration and Development Activities
In 2021, focusing on exploration for large-scale quality reserves, we pressed ahead with high quality exploration and profit-oriented development, making efforts to stabilize crude oil production, increase gas production, reduce costs and improve efficiency, and completed the construction project in the West Sichuan Gas Field, and started the construction of a national-level demonstration area for shale oil in the Jiyang Continental-phase Fault Depression Lake Basin.
The following table sets forth the number of our exploratory and development wells, including a breakdown of productive wells and dry wells we drilled during the years ended December 31, 2019, 2020 and 2021.
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| As of December 31, | ||||||||||||||||||||||
| | 2019 | | 2020 | | 2021 | ||||||||||||||||||
Number of | | Exploratory | | Development | | Exploratory | | Development | | Exploratory | | Development | ||||||||||||
Drilled Wells | | Productive | | Dry | | Productive | | Dry | | Productive | | Dry | | Productive | | Dry | | Productive | | Dry | | Productive | | Dry |
China |
| 350 |
| 174 |
| 2,098 |
| 5 |
| 383 |
| 136 |
| 2,015 |
| 3 |
| 363 |
| 129 |
| 1,828 |
| 4 |
Subsidiaries |
| 350 |
| 174 |
| 2,098 |
| 5 |
| 383 |
| 136 |
| 2,015 |
| 3 |
| 363 |
| 129 |
| 1,828 |
| 4 |
Shengli |
| 195 |
| 81 |
| 1,168 |
| 4 |
| 204 |
| 64 |
| 1,080 |
| 2 |
| 170 |
| 58 |
| 944 |
| 2 |
Others |
| 155 |
| 93 |
| 930 |
| 1 |
| 179 |
| 72 |
| 935 |
| 1 |
| 193 |
| 71 |
| 884 |
| 2 |
Overseas |
| 3 |
| 1 |
| 99 |
| — |
| 2 |
| — |
| 100 |
| — |
| 2 |
| 1 |
| 114 |
| — |
Subsidiaries |
| — |
| — |
| — |
| — |
| — |
| — |
| 4 |
| — |
| — |
| — |
| 2 |
| — |
Equity- accounted investments |
| 3 |
| 1 |
| 99 |
| — |
| 2 |
| — |
| 96 |
| — |
| 2 |
| 1 |
| 112 |
| — |
Total |
| 353 |
| 175 |
| 2,197 |
| 5 |
| 385 |
| 136 |
| 2,115 |
| 3 |
| 365 |
| 130 |
| 1,942 |
| 4 |
The following table sets forth the number of wells being drilled by us as of December 31, 2019, 2020 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| As of December 31, | ||||||||||||||||||||||
| | 2019 | | 2020 | | 2021 | ||||||||||||||||||
Number of Drilling | | Gross | | Net | | Gross | | Net | | Gross | | Net | ||||||||||||
Welling | | Exploratory | | Development | | Exploratory | | Development | | Exploratory | | Development | | Exploratory | | Development | | Exploratory | | Development | | Exploratory | | Development |
China |
| 117 |
| 177 |
| 117 |
| 176 |
| 92 |
| 212 |
| 92 |
| 212 |
| 108 |
| 201 |
| 108 |
| 201 |
Subsidiaries |
| 117 |
| 177 |
| 117 |
| 176 |
| 92 |
| 212 |
| 92 |
| 212 |
| 108 |
| 201 |
| 108 |
| 201 |
Shengli |
| 60 |
| 20 |
| 60 |
| 20 |
| 29 |
| 52 |
| 29 |
| 52 |
| 33 |
| 55 |
| 33 |
| 55 |
Others |
| 57 |
| 157 |
| 57 |
| 156 |
| 63 |
| 160 |
| 63 |
| 160 |
| 75 |
| 146 |
| 75 |
| 146 |
Overseas |
| — |
| — |
| — |
| — |
| 2 |
| — |
| 2 |
| — |
| — |
| 123 |
| — |
| 62 |
Subsidiaries |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 3 |
| — |
| 1 |
Equity-accounted investments |
| — |
| — |
| — |
| — |
| 2 |
| — |
| 2 |
| — |
| — |
| 120 |
| — |
| 61 |
Total |
| 117 |
| 177 |
| 117 |
| 176 |
| 94 |
| 212 |
| 94 |
| 212 |
| 108 |
| 324 |
| 108 |
| 263 |
The following tables set forth the number of our productive wells for crude oil and natural gas as of December 31, 2021, as compared to December 31, 2020 and 2019:
| | | | | | | | | | | | |
|
| As of December 31, | ||||||||||
| | 2019 | | 2020 | | 2021 | ||||||
Productive Wells for Crude Oil | | Gross | | Net | | Gross | | Net | | Gross | | Net |
China |
| 52,112 |
| 52,112 |
| 53,240 |
| 53,240 |
| 53,851 |
| 53,851 |
Subsidiaries |
| 52,112 |
| 52,112 |
| 53,240 |
| 53,240 |
| 53,851 |
| 53,851 |
Shengli |
| 33,819 |
| 33,819 |
| 34,572 |
| 34,572 |
| 34,991 |
| 34,991 |
Others |
| 18,293 |
| 18,293 |
| 18,668 |
| 18,668 |
| 18,860 |
| 18,860 |
Overseas |
| 7,248 |
| 2,855 |
| 7,055 |
| 2,752 |
| 5,534 |
| 2,372 |
Subsidiaries |
| 28 |
| 14 |
| 28 |
| 10 |
| 30 |
| 11 |
Equity-accounted investments |
| 7,220 |
| 2,841 |
| 7,027 |
| 2,742 |
| 5,504 |
| 2,361 |
Total |
| 59,360 |
| 54,967 |
| 60,295 |
| 55,992 |
| 59,385 |
| 56,223 |
23
| | | | | | | | | | | | |
|
| As of December 31, | ||||||||||
| | 2019 | | 2020 | | 2021 | ||||||
Productive Wells for Natural Gas | | Gross | | Net | | Gross | | Net | | Gross | | Net |
China |
| 6,420 |
| 6,378 |
| 6,976 |
| 6,928 |
| 7,539 |
| 7,489 |
Subsidiaries |
| 6,420 |
| 6,378 |
| 6,976 |
| 6,928 |
| 7,539 |
| 7,489 |
Puguang |
| 61 |
| 61 |
| 67 |
| 67 |
| 79 |
| 79 |
Fuling |
| 482 |
| 482 |
| 632 |
| 632 |
| 779 |
| 779 |
Others |
| 5,877 |
| 5,835 |
| 6,277 |
| 6,229 |
| 6,681 |
| 6,631 |
Total |
| 6,420 |
| 6,378 |
| 6,976 |
| 6,928 |
| 7,539 |
| 7,489 |
Refining
Overview
In 2021, our refinery throughputs were approximately 255.28 million tonnes. We produce a full range of refined oil products. The production of our principal refined oil products for the years ended December 31, 2019, 2020 and 2021 is as follows:
| | | | | | |
|
| Year Ended December 31, | ||||
|
| 2019 |
| 2020 |
| 2021 |
| | (in million tonnes) | ||||
Gasoline | | 62.77 | | 57.91 | | 65.21 |
Diesel | | 66.06 | | 63.21 | | 59.85 |
Kerosene | | 31.16 | | 20.38 | | 21.15 |
Light chemical feedstock | | 39.78 | | 40.22 | | 45.41 |
Liquefied petroleum gas | | 12.57 | | 11.61 | | 12.72 |
Fuel oil | | 1.95 | | 7.71 | | 11.31 |
Gasoline and diesel are our largest revenue-generating products, and are sold mostly through Sinopec Marketing Co., Ltd., our subsidiary, through both wholesale and retail channels. We use most of our production of chemical feedstock as feedstock for our own chemical operations. Most of our other refined oil products are sold in China to a wide variety of industrial and agricultural customers, and a small amount is exported.
Refining Facilities
Currently we operate 29 refineries in China. As of December 31, 2021, our comprehensive processing capacity of oil refining was 287.25 million tonnes per annum.
The following table sets forth our total comprehensive processing capacity per annum of crude oil and refinery throughputs as of and for the years ended December 31, 2019, 2020 and 2021.
| | | | | | |
|
| As of and for the year ended December 31, | ||||
|
| 2019 |
| 2020 |
| 2021 |
Comprehensive processing capacity of oil refining (million tonnes per annum)(1) | | 271.65 | | 283.25 | | 287.25 |
Refinery throughputs (million tonnes)(2) | | 248.5 | | 236.91 | | 255.28 |
| (1) | The comprehensive processing capacity of oil refining and refinery throughputs of joint ventures are fully included in our statistics. |
| (2) | When calculating refinery throughputs, conversion from tonnes to barrels are made at a rate of one tonne to 7.35 barrels. |
In 2021, our gasoline yield was 25.55%, diesel yield was 23.45%, kerosene yield was 8.28%, and light chemical feedstock yield was 17.79%. For the years ended December 31, 2019, 2020 and 2021, our overall yield for all refined oil products at our refineries was 94.98%, 94.77% and 94.65%, respectively.
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The following table sets forth the comprehensive processing capacity per annum as of December 31, 2021 of each of our refineries with the comprehensive supporting of 8 million tonnes or more per annum.
| | |
|
| Comprehensive Processing |
| | Capacity of oil refining as of |
Refinery | | December 31, 2021 |
| | (in million tonnes per annum) |
Zhenhai |
| 27 |
Maoming |
| 20 |
Jinling |
| 18 |
Shanghai |
| 16 |
Zhongke |
| 15 |
Fujian |
| 14 |
Yangzi |
| 13.5 |
Qilu |
| 13 |
Guangzhou |
| 12.75 |
Tianjin |
| 12.5 |
Qingdao Refining & Chemical |
| 12 |
Gaoqiao |
| 11.3 |
Yanshan |
| 10 |
Luoyang |
| 10 |
Hainan |
| 9.2 |
Changling |
| 8 |
Shijiazhuang |
| 8 |
Jiujiang |
| 8 |
Anqing |
| 8 |
In 2021, the Zhenhai Refining & Chemical revamping project for ethylene feedstock adoptability was put into operation. Newly added comprehensive processing capacity of oil refining totaled 4 million tonnes/year.
Source of crude oil
In 2021, approximately 89.3% of the crude oil required for our refinery business was imported.
Marketing of Refined Oil Products
Overview
We operate the largest sales and distribution network for refined oil products in China. In 2021, we distributed and sold approximately 171.31 million tonnes of gasoline, diesel and kerosene domestically. Most of the refined oil products sold by us are produced internally. In 2021, approximately 72.72% of our gasoline sales volume and approximately 79.95% of our diesel sales volumes were produced internally.
The table below sets forth a summary of key data in the marketing and sales of refined oil products in the years of 2019, 2020 and 2021.
| | | | | | |
|
| As of December 31, | ||||
|
| 2019 |
| 2020 |
| 2021 |
Total sales volume of refined oil products (in million tonnes)* | | 254.95 | | 217.91 | | 220.79 |
Domestic sales volume of refined oil products (in million tonnes) | | 184.45 | | 167.99 | | 171.31 |
Retail | | 122.54 | | 113.19 | | 114.30 |
Wholesale and Distribution | | 61.91 | | 54.80 | | 57.01 |
Average annual throughput of service stations (in tonnes per station) | | 3,992 | | 3,686 | | 3,720 |
*The total sales volume of refined oil products includes the amount of refined oil marketing and trading sales volume.
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| | | | | | |
|
| As of December 31, | ||||
|
| 2019 |
| 2020 |
| 2021 |
Total number of service stations under Sinopec brand | | 30,702 | | 30,713 | | 30,725 |
Self-operated service stations | | 30,696 | | 30,707 | | 30,725 |
Retail
All of our retail sales are made through a network of service stations and petroleum shops operated under the Sinopec brand. Through this unified network we are able to implement consistent pricing policies, maintain both product and service quality standards and more efficiently deploy our retail network.
In 2021, we sold approximately 114.30 million tonnes of gasoline, diesel and kerosene through our retail network, representing approximately 66.72% of our total domestic gasoline, diesel, jet fuel and kerosene sales volume. Our retail network mainly consists of service stations that are wholly-owned and operated by us, and jointly-owned and generally operated or leased by us, all of which are operated under the Sinopec brand.
Wholesale and Distribution
In 2021, we sold approximately 57.01 million tonnes of refined oil products, including 13.91 million tonnes of gasoline, 27.64 million tonnes of diesel and 15.46 million tonnes of kerosene, through wholesale and distribution to independent distributors such as domestic industrial enterprises, hotels, restaurants and agricultural producers and long-term large-scale end users such as railways, airlines, shipping and public utilities.
We operate 331 storage facilities with a total capacity of approximately 18.0 million cubic meters, substantially all of which are wholly-owned by us. These storage facilities and our wholesale centers are connected to our refineries by railway, waterway and pipelines. We also own some dedicated railways, oil wharfs and oil barges, as well as a number of rail tankers and oil trucks.
Chemicals
Overview
We are the largest petrochemicals producer and distributor in China, with our petrochemical production plants located in economically developed regions such as central, eastern and southern China. We produce and distribute a full range of chemical products including intermediate petrochemicals, synthetic resins, synthetic fiber monomer and polymers, synthetic fibers and synthetic rubber. Synthetic resins, synthetic fibers, and synthetic rubber comprise a significant majority of our external sales. Synthetic fiber monomer and polymers and intermediate petrochemicals, on the other hand, are mostly internally consumed as feedstock for the production of other chemical products. Our chemical operations are integrated upstream and downstream with our refining businesses, which supply a significant portion of our naphtha and light hydrocarbons feedstock. Due to the high demand in China, we sell most of our chemical products in China.
Products
Intermediate Petrochemicals
We are the largest ethylene producer in China. Our rated ethylene capacity as of December 31, 2021 was 13.548 million tonnes per annum. In 2021, we produced 13.38 million tonnes of ethylene. Nearly all of our olefins production is used as feedstock for our petrochemical operations.
We produce aromatics mainly in the forms of benzene and para-xylene, which are used primarily as feedstock for purified terephthalic acid, or PTA, the preferred raw material for polyester.
Chemicals extracted from olefins and aromatics are mainly used to produce synthetic resins, synthetic rubber and synthetic fibers, as well as intermediate petrochemicals.
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The following table sets forth our rated capacity per annum, production volume and major plants of production as of or for the year ended December 31, 2021 for our principal intermediate chemical products.
| | | | | | |
|
| Our Rated Capacity |
| Our Production |
| Major Plants of Production |
| | (thousand tonnes per annum) | | (thousand tonnes) | | |
Ethylene |
| 13,548 |
| 13,380 |
| Yanshan, Shanghai, Yangzi, Qilu, Maoming, Guangzhou, Tianjin, Zhongyuan, Shanghai SECCO, BASF-YPC*, Fujian*, Sinopec Sabic (Tianjin)*, Zhongke, Zhenhai, Sino-Korean (Wuhan)*, Gulei* and Great Wall EC* |
Propylene |
| 11,867 |
| 12,052 |
| Yanshan, Shanghai, Yangzi, Qilu, Maoming, Guangzhou, Tianjin, Zhongyuan, Shanghai SECCO, Zhongke, BASF-YPC*, Jinling, Anqing, Qingdao, Hainan, Fujian*, Sinopec Sabic (Tianjin)*, Zhenhai, Sino-Korean (Wuhan)*, Gulei* and Great Wall EC* |
Benzene |
| 5,925 |
| 4,698 |
| Yanshan, Shanghai, Yangzi, Qilu, Guangzhou, Zhenhai, Tianjin, Luoyang, Shanghai SECCO, Zhongke, BASF-YPC*, Fujian*, Maoming, Hainan, Sino-Korean (Wuhan)*, Jinling and Gulei* |
Styrene |
| 3,250 |
| 2,751 |
| Zhenhai, Yanshan, Qilu, Guangzhou, Maoming, Shanghai SECCO, Anqing, Hainan, BASF-YPC*, Sinopec Sabic (Tianjin)*, Gulei*, Sino-Korean (Wuhan)* and Baling |
Para-xylene |
| 5,834 |
| 5,256 |
| Shanghai, Yangzi, Tianjin, Luoyang, Zhenhai, Jinling, Fujian* and Hainan |
Phenol |
| 758 |
| 814 |
| Yanshan, Gaoqiao* and Sinopec Sabic (Tianjin)* |
*Joint ventures, of which the production capacities and outputs are fully included in our statistics.
Synthetic Resins
We are the largest producer of synthetic resins products in China.
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The following table sets forth our rated capacity per annum, production volumes and major plants of production for each of our principal synthetic resins as of or for the year ended December 31, 2021.
| | | | | | |
|
| Our Rated Capacity |
| Our Production |
| Major Plants of Production |
| | (thousand tonnes per annum) | | (thousand tonnes) | | |
Polyethylene |
| 9,039 |
| 8,240 |
| Yanshan, Shanghai, Yangzi, Qilu, Maoming, Guangzhou, Tianjin, Zhongyuan, Shanghai SECCO, Zhongke, BASF-YPC*, Fujian*, Sinopec Sabic (Tianjin)*, Zhenhai, Sino-Korean (Wuhan)* and Great Wall EC* |
Polypropylene |
| 9,257 |
| 9,044 |
| Yanshan, Shanghai, Yangzi, Qilu, Guangzhou, Maoming, Tianjin, Zhongyuan, Shanghai SECCO, Zhongke, Jingmen Branch, Fujian*, Sinopec Sabic (Tianjin)*, Zhenhai, Sino-Korean (Wuhan)*, Great Wall EC*, Luoyang, Jiujiang, Jingmen, Hainan, Beihai, Shijiazhuang and Gulei* |
Polyvinyl chloride |
| 600 |
| 281 |
| Qilu |
Polystyrene |
| 698 |
| 677 |
| Maoming, Guangzhou, Shanghai SECCO and BASF-YPC* |
Acrylonitrile butadiene styrene |
| 200 |
| 187 |
| Gaoqiao |
*Joint ventures, of which the production capacities and outputs are fully included in our statistics.
Synthetic Fiber Monomers and Polymers
Our principal synthetic fiber monomers and polymers are purified terephthalic acid, ethylene glycol, acrylonitrile, caprolactam, polyester, polyethylene glycol and polyamide fiber.
The following table sets forth our rated capacity per annum, our production volume and major plants of production as of or for the year ended December 31, 2021 for each type of our principal synthetic fiber monomers and polymers.
| | | | | | |
|
| Our Rated Capacity |
| Our Production |
| Major Plants of Production |
| | (thousand tonnes per annum) | | (thousand tonnes) | | |
Purified terephthalic acid |
| 2,819 |
| 1,817 |
| Shanghai, Yangzi, Yizheng and Luoyang |
Ethylene glycol |
| 4,399 |
| 2,574 |
| Yanshan, Shanghai, Yangzi, Tianjin, Maoming, Zhongke, Fujian*, BASF-YPC*, Sinopec Sabic (Tianjin)*, Zhenhai, Gulei* and Sino-Korean (Wuhan)* |
Acrylonitrile |
| 990 |
| 958 |
| Anqing, Qilu Koruhr* and Shanghai SECCO |
Caprolactam |
| 949 |
| 814 |
| Baling |
Polyester |
| 3,378 |
| 2,862 |
| Shanghai, Yizheng, Tianjin and Luoyang |
*Joint ventures, of which the production capacities and outputs are fully included in our statistics.
Synthetic Fibers
Our principal synthetic fiber products are polyester fiber and acrylic fiber.
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The following table sets forth our rated capacity per annum, production volume and major plants of production for each type of our principal synthetic fibers as of or for the year ended December 31, 2021.
| | | | | | |
|
| Our Rated Capacity |
| Our Production |
| Major Plants of Production |
| | (thousand tonnes per annum) | | (thousand tonnes) | | |
Polyester fiber |
| 1,531 |
| 1,213 |
| Yizheng, Shanghai, Tianjin and Luoyang |
Acrylic fiber |
| 265 |
| 137 |
| Shanghai, Anqing and Qilu |
Synthetic Rubbers
We are the largest manufacturer of synthetic rubbers in China. Our principal synthetic rubbers products are cis-polybutadiene rubber, styrene butadiene rubber, or SBR, styreneic block copolymers (SBCs) thermoplastic elastomer, isobutadiene isoprene rubber, or IIR (brominated IIR included), and ethylene propylene rubber.
The following table sets forth our rated capacity per annum, production volume and major plants of production as of or for the year ended December 31, 2021 for each of our principal synthetic rubbers.
| | | | | | |
|
| Our Rated Capacity |
| Our Production |
| Major Plants of Operation |
| | (thousand tonnes per annum) | | (thousand tonnes) | | |
Cis-polybutadiene rubber |
| 450 |
| 349 |
| Yanshan, Qilu, Maoming, Yangzi and Gaoqiao |
Styrene butadiene rubber |
| 460 |
| 347 |
| Qilu, Yangzi, Gaoqiao, Yanshan and Baling |
Styrene-butadiene-styrene thermoplastic elastomers |
| 440 |
| 294 |
| Yanshan, Maoming, Gulei* and Baling |
Isobutylene isoprene rubber |
| 125 |
| 13 |
| Yanshan |
Ethylene propylene rubber |
| 75 |
| 85 |
| Gaoqiao* |
*Joint ventures, of which the production capacities and outputs are fully included in our statistics.
Marketing and Sales of Petrochemicals
The central, eastern and southern regions in China, where most of our petrochemical plants are located, constitute the major petrochemical market in China. Our proximity to the major petrochemical market gives us a geographic advantage over our competitors.
The prices of petrochemical products in China have become market-oriented. Our principal sales channels consist of (i) direct sales to domestic and foreign large- and medium-sized manufacturing enterprises, which account for more than 77.9% of our direct sales, (ii) sales to distributors, who are responsible for sales and distribution to a portion of our smaller and scattered customers or specific customers, and (iii) sales of chemical products through our e-commerce platform “Chem E-Mall,” which effectively launched an e-commerce channel of petrochemical products and improved customer experience.
Competition
Pursuant to the Anti-Monopoly Law of the PRC which became effective on August 1, 2008, when market concentration by business carriers through merger, acquisition of control through shares or assets acquisition, or acquisition of control or the ability to exercise decisive influence over other business carriers by contract or by other means reaches a threshold of declaration level prescribed by the State Council, the business carriers shall declare in advance to the Anti-monopoly Law enforcement agency, otherwise, the business carriers shall not implement such market concentration.
Refining and Marketing of Refined Oil Products
Market participants compete primarily on the basis of wide-established sales network and logistics system, quality of products and service, efficiency of operations including proximity to customers, awareness of brand name and price. While we constantly face competition from other market participants, we believe that we have a competitive advantage in our principal market against our competitors.
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Chemicals
We compete with domestic and foreign chemicals producers and distributors in the chemicals market. We adopt the strategy of “one product one policy, one customer one case” to meet customers’ needs, coordinate production, sales, research and application, produce targeted solutions based on client’s needs, provide customized services, and strive to create value for customers. Our petrochemical production facilities’ proximity to customers has given us significant regional advantages over our competitors, resulting in lower transportation costs and better competitiveness of our products.
Patents and Trademarks
In 2021, we were granted 4,868 patents in China and overseas. As of December 31, 2021, we owned a total of 43,563 patents in China and overseas.
In 2021, we had 45 PRC material trademarks and 11 overseas material trademarks approved internally.
Business Operations Relating to Iran Threat Reduction and Syria Human Rights Act of 2012
In 2021, we did not source any of our refinery throughputs of crude oil from Iran. Based on our internal reports and statistics, no revenue or net profit was recorded from trading activity with Iranian companies.
Based on feedback to our inquiries to Sinopec Group Company, our controlling shareholder, Sinopec Group Company engaged in a small amount of business activities in Iran such as providing engineering services and designs. Sales revenue and profits from these business activities accounted for 0.021% and 0.43% of its total unaudited sales revenue and profits, respectively.
Regulatory Matters
Overview
China’s petroleum and petrochemical industry has seen significant deregulation in the past ten years. However, the exploration, production, marketing and distribution of crude oil and natural gas, as well as the production, marketing and distribution of certain refined oil products are still subject to regulation of many government agencies including:
National Development and Reform Commission (NDRC)
NDRC is responsible for formulating and implementing key policies in respect of petroleum and petrochemical industry, including:
| ● | Formulating guidance plan for annual production, import and export amount of crude oil, natural gas and petroleum products nationwide based on its forecast on macro-economic conditions in China; |
| ● | Setting the pricing policy for refined oil products; and |
| ● | Amending Guiding Catalogue of Petroleum and Chemical Industry Structural Adjustment and Petrochemical Industry Layout Planning Plan and approving certain domestic and overseas resource investment projects which are subject to NDRC’s approval as required by the Catalogue of Investment Projects Approved by the Government in effect. |
National Energy Administration (NEA)
NEA is primarily responsible for the formulation of energy development plans and annual directive plans, approving major energy-related projects and facilitating the implementation of sustainable development of energy strategies, coordinating the development and utilization of renewable energies and new energies, and organizing matters relating to energy conservation and comprehensive utilization as well as environmental protection for the energy industry.
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The Ministry of Commerce (MOFCOM)
MOFCOM is responsible for the record-filing of Sino-foreign equity joint venture contracts and Sino-foreign cooperation joint venture contracts, and monitoring the foreign investors’ oil and gas exploration projects in the PRC. It is responsible for approving or filing of the overseas investment by PRC enterprises and issuing the enterprise overseas investment certificate and quotas and licenses for import and export of crude oil and refined oil products. According to the law, MOFCOM is also responsible for supervising, approving and record-filing of foreign investment (excluding financial investment) of domestic enterprises.
Ministry of Natural Resources (MNR)
The MNR (formerly known as the Ministry of Land and Resources, or MLR) is responsible for issuing the licenses that are required to explore and produce crude oil and natural gas in China. In March 2018, according to the Institutional Reform Plan of the State Council, the responsibilities of the Ministry of Land and Resources were integrated to form the Ministry of Natural Resources of the People’s Republic of China.
To operate business in China, we and all of our PRC subsidiaries shall register with the State Administration of Market Regulation and obtain a business license with the scope of our/its business set forth therein, and obtain approvals and permits from relevant government authorities for certain specialized business activities. The table below sets forth the permits and approvals we and our PRC subsidiaries need to obtain that are material to our business.
Permits/Approvals |
| Underlying Business |
| Regulatory Authorities |
|
Exploration Permit | | Exploration of crude oil and natural gas | | Authorities of Geology and Mineral Resources (Ministry of Natural Resources and its counterparts) | |
Mining Permit | | Mining, development and production of crude oil, natural gas and geothermal resources | | Authorities of Geology and Mineral Resources (Ministry of Natural Resources and its counterparts) | |
Work Safety Permit for Non-coal Mines | | Mining and production (pursuant to relevant work safety requirements) in non-coal mines | | Authorities of Work Safe Regulation and Supervision (Ministry of Emergency Managements and its counterparts) | |
Manufacturing License for Industrial Products | | Manufacture of certain industrial products | | Authorities of Industrial Products Manufacture Licensing (State Administration of Market Regulation and its counterparts) | |
Approval for Refined Oil Retailing Business | | Retailing business for Refined Oil (for petrol station) | | Ministry of Commerce and its counterparts | |
Gas Business Permits | | Gas-related business operation | | Gas-regulatory and Supervision Department of Local Government (county level above) | |
Registration for Manufacturer of Hazardous Chemicals | | Manufacture of Hazardous Chemicals | | Authorities of Work Safe Regulation and Supervision (Ministry of Emergency Managements and its counterparts) | |
Registration for Hazardous Chemicals | | | | | |
Work Safety Permit for Hazardous Chemicals | | | | | |
Business Permits for Hazardous Chemicals | | Operation of business in relation to Hazardous Chemicals (including storage thereof) | | Authorities of Work Safe Regulation and Supervision (Ministry of Emergency Managements and its counterparts) | |
Pollution Permit | | Emission of pollutant to the environment | | Authorities of Environment Protection | |
Urban Drainage License | | Emission of wasted water to urban drainage facilities | | Authorities of Urban Drainage (Ministry of Water Resources and its counterparts) | |
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Regulation of Exploration and Production
Exploration and Production Rights
The PRC Constitution provides that all mineral and oil resources belong to the state. In 1986, the Standing Committee of the National People’s Congress passed the Mineral Resources Law which authorizes MNR, to exercise administrative authority over the exploration and production of the mineral and oil resources within the PRC, including its territorial waters. The Mineral Resources Law and its supplementary regulations provide the basic legal framework under which exploration licenses and production licenses are granted. The MNR has the authority to grant exploration licenses and production licenses on a competitive bidding or other basis it considers appropriate. Applicants for these licenses must be companies approved by the State Council to engage in oil and gas exploration and production activities. Currently, we are one of the few companies that have received such exploration licenses and production licenses in oil and gas industry.
Applicants for exploration licenses must first submit applications to the MNR with respect to blocks in which they intend to engage in exploration activities. The holder of an exploration license is obligated to make an annual minimum exploration investment and pay annual exploration license fees, ranging from RMB100 to RMB500 per square kilometer, relating to the exploration blocks in respect of which the license is issued. The maximum term of an oil and gas exploration license is 7 years. Such exploration license may be renewed upon application by the holder at least 30 days prior to expiration date, with each renewal for a maximum two-year term. Under the PRC laws and regulations, we are entitled for reductions and exemptions of exploration license fees for exploration in the western, offshore and northeastern regions of China.
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 proved. The progressive oil and gas exploration and production license has a maximum term of 15 years. When the reserves become proved for a block, the holder must apply for a full production license in order to undertake production.
The MNR issues full production licenses to applicants on the basis of the reserve reports approved by relevant authorities. The maximum term of a full production license is 30 years unless a special dispensation is given by the State Council. Due to a special dispensation granted to us by the State Council, the maximum term of our full production licenses is 80 years. The full production license is renewable upon application by the holder at least 30 days prior to expiration of the original term. A holder of the full production license has to pay an annual full production right usage fee of RMB1,000 per square kilometer.
Exploration and production licenses do not grant the holders the right to enter upon any land for the purpose of exploration and production. Holders of exploration and production licenses must separately obtain the right to use the land covered by the licenses, and if permissible under applicable laws, current owners of the rights to use such land may transfer or lease the land to the license holder.
Incentives for Shale Gas Development
In order to incentivize the exploration, discovery and development of China’s shale gas reserves, to increase the supply of natural gas and to relieve the imbalance between supply and demand of natural gas, the Ministry of Finance of China and China National Energy Administration issued the Notice on Subsidy for Shale Gas Development and Utilization (Ministry of Finance No. 847 [2012]), pursuant to which the central government will subsidize shale gas production companies at a rate of RMB0.4 per cubic meter of shale gas produced from 2012 to 2015.
China National Energy Administration issued the Shale Gas Industry Policy (NEA No. 5 [2013]) in October 2013, which classifies shale gas as a “national strategic new industry” and calls for more fiscal support for exploration and development of shale gas. In particular, subsidies should be given directly to a shale gas production company according to the amount of its shale gas development and utilization. Local governments are also encouraged to provide subsidies to shale gas production companies, with the subsidy amount to be determined by local fiscal authorities. The Policy also reduces or waives compensatory fee for mineral resources, license and royalty fees for shale gas production companies. For encouraged projects like shale gas exploration and discovery, the policy also waives customs duty for imported equipment and machineries that cannot be manufactured domestically in accordance with relevant regulations.
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In April 2015, to facilitate the development of the shale gas industry, the Ministry of Finance of China and China National Energy Administration issued the Notice on Fiscal Subsidies for Shale Gas Development and Utilization (Ministry of Finance No. 112 [2015]) to further implement the policy of fiscally subsidizing the shale gas industry during the period of the thirteenth “five-year” plan, and the subsidy will be RMB0.3 per cubic meter of shale gas produced and RMB0.2 per cubic meter of shale gas produced from 2016 to 2018 and from 2019 to 2020, respectively.
In March 2018, in order to promote the development and utilization of shale gas, the Ministry of Finance and the State Administration of Taxation jointly issued the Notice on the Reduction of Resource Tax on Shale Gas (Ministry of Finance No. 26 [2018]) which provides that from April 1, 2018 to March 31, 2021, a 30% reduction shall be applied to the 6% tax rate applicable to shale gas.
In June 2019, the Ministry of Finance issued the Supplemental Notice on Interim Measures for the Management of Special Funds for Renewable Energy Development (Ministry of Finance No. 298 [2019]), which cancels the fixed-rate subsidy on shale gas industry, and provides that the increased gradient subsidy shall be granted to enterprises if their production of shale gas increases over the last year, while only reduced subsidy shall be granted if the production decreases over the last year. The Notice also provides increased subsidy for the incremental production of unconventional natural gas in winter.
Price Controls on Crude Oil
According to Measures for Administration of Petroleum Products Price issued by NDRC on January 13, 2016, the crude oil price shall be determined by reference to the international market price.
Price Controls on Natural Gas
In recent years, the pace of market-oriented natural gas price reforms has accelerated significantly. In April 2015, according to the change in the price of alternative energy, NDRC unified the stock natural gas and incremental natural gas prices. In November 2015, NDRC to further liberalized the pricing of natural gas by replacing the reference ceiling price for city-gate prices of non-residential natural gas with a reference base rate. In October 2016, NDRC has relaxed the control over service prices for gas prices used for fertilizer production, determined that the relevant prices of gas storage facilities were market-oriented, and launched a trial reform of the marketization of city-gate prices in Fujian Province.
In August 2017, based on the results of the supervision and review of the pricing of natural gas pipelines, NDRC adjusted the pipeline transportation prices, in conjunction with the adjustment of the natural gas value-added tax rate. The non-residential natural gas reference city-gate prices have been reduced by RMB0.1 per cubic meter. NDRC encouraged the natural gas production and operation enterprises and users to actively enter the natural gas trading platform, and the prices of natural gas that have been openly traded on trading platforms such as the Shanghai Oil and Gas Exchange Center and Chongqing Oil and Gas Exchange Center are formed by the market. In May 2018, NDRC adjusted the price of natural gas for civil use, improved price mechanism, replaced the reference ceiling price for city-gate prices of residential natural gas with a reference base rate, and thus brought the price of residential gas in line with the price of non-resident gas.
In March 2019, NDRC issued the Notice on Adjusting the City-Gate Price (NDRC Pricing Circular No, 562 [2019]) to adjust the city-gate price based on adjustments on value-added tax applicable to natural gas with effective date on April 1, 2019. We have adjusted the sales price of natural gas to grant the benefits of the lower value-added tax rate to our customers.
Regulation of Pipelines Networks
In October 2016, NDRC issued the Interim Provisions for Management Measures of Natural Gas Pipeline Transmission Prices and the Interim Provisions for Supervision and Review of Natural Gas Pipeline Transmission Cost (for Trial Implementation) (NDRC Pricing Circular 2142[2016]) (the “Interim Provisions”).
In August 2017, according to the Interim Provisions, after the supervision and review of the pricing of natural gas interprovincial pipelines, NDRC adjusted the prices of 13 natural gas interprovincial pipelines. Since September 1, 2017, based on the pipeline transmission prices (traffic price rate) of the Sichuan-East Gas Pipeline and Yulin-Jinan Pipeline published by the NDRC, along the transportation distance of the natural gas inlet and export, we have calculated and determined the prices of the gas transmission points for Sichuan-East Gas Pipeline and the Yulin-Jinan Pipeline and published the list of prices on our official website. We have updated the information disclosure on our website regarding the cost of operation and the maintenance expense on annual basis.
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In March 2019, the NDRC issued the Notice on Adjusting the Prices of Trans-provincial Pipeline Transportation of Natural Gas (NDRC Pricing Circular No.561 [2019]) to adjust the trans-provincial pipeline transportation price of natural gas based on adjustments on the value-added tax rate applicable to natural gas with effective date on April 1, 2019. We have adjusted our trans-provincial pipeline transportation price.
In 2020, we sold certain pipeline assets to PipeChina. Pursuant to the oil and gas pipeline transportation service price policy specified by the NDRC, (i) if there exists government-specified price, such price shall be applied, and (ii) if there exists no government-specified price, the supply and demand parties shall negotiate and determine a price, or refer to the existing similar pipeline transportation rates. We negotiated with PipeChina to determine the pipeline transportation service price, among which, the natural gas and crude oil pipeline transportation service fee and LNG receiving terminal usage fee shall be priced pursuant to government policy, and refined oil pipeline transportation service fee shall be negotiated by both Parties with reference to the pricing principle applicable to natural gas pipeline transportation service fee.
Regulation of Refining and Marketing of Refined Oil Products
Gasoline and Diesel Prices
Gasoline and diesel prices are government-guided.
In March 2013, NDRC released Circular on Establishment of Sound Price Formation Mechanism of Refined Oil Products (NDRC Pricing Circular 624[2013]), which specified that a reformed refined oil product price formation mechanism shall include shortening of the refined oil product price adjustment period to 10 working days. To save social resources, if the assessed adjustment in domestic refined oil product prices is less than RMB50 per tonne, the adjustment will be postponed to next period. In cases of special conditions such as significant increase in domestic CPI, significant emergencies or significant fluctuations of crude oil price on international market which may trigger adjustment of domestic refined oil price, NDRC may implement ad hoc suspension, delay or narrowing of price adjustment upon the approval by the State Council. Upon elimination of the special conditions, the price formation mechanism may resume operation after NDRC obtains the State Council’s for approval.
On January 13, 2016, NDRC made further adjustments to the pricing mechanism for refined oil products, effective immediately. When benchmark crude oil price falls below US$ 40/bbl, NDRC will not further adjust oil product prices, the unadjusted portion would be transferred into a risk fund, which can be used for energy conservation and emission reduction, refined oil product quality upgrading and security of crude oil and gas supply upon approval by relevant departments.
Jet Fuels Price
The ex-factory price of the jet fuels will be determined by the buyers and the sellers, with reference to the price in the Singapore market.
Regulation of Crude Oil and Refined Oil Products Market
On December 4, 2006, Ministry of Commerce of the PRC promulgated the “Administrative Rules for Crude Oil Market” and “Administrative Rules for Refined Oil Products Market.”
Starting in 2015, qualified refineries has been allowed to use, and conduct business in connection with, imported crude oil. On December 4, 2019, Ministry of Commerce issued the Notice of Reform of “Release-Management-Service” on Crude Oil and Refined Oil Products to further open up the domestic oil and refined oil products market. Ministry of Commerce formally abolished the “Administrative Rules for Crude Oil Market” and “Administrative Rules for Refined Oil Products Market” on July 1, 2020, and promogulated the “Guidelines for the Administration of Petroleum Refined Oil Circulation Industry” on December 31, 2020. In September 2020, the State Council issued the “Decision on the Cancellation and Decentralization of a Batch of Administrative Licensing Items”, clarifying that “the approval of the wholesale and warehousing operation qualifications for petroleum refined oil will be cancelled, and the approval for the retail operation qualification of refined oil products will be delegated to the designated department of the municipal people’s government with local governments to implement territorial supervision responsibilities.” The domestic crude oil and refined oil product markets are increasingly open.
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Investment
Overseas investments by central state-owned enterprises involving sensitive countries or regions or sensitive industries shall be submitted to NDRC and MOFCOM for approval, and other overseas investments by central state-owned enterprises will only need to submit a filing with NDRC and MOFCOM.
According to Measures for the Administration of Overseas Investment of Enterprises (NDRC No.11 [2017]), investments made directly, or indirectly through offshore entities controlled by the investor, involving sensitive countries or regions or sensitive industries shall be approved by the NDRC. For non-sensitive direct investments, namely investments for which the investor provide financing or guarantee, or make asset or interest investment directly, filings with NDRC or its local branches shall be made.
According to the Measures for Supervision and Administration of Overseas Investment by Central Enterprises (SASAC Decree No. 35[2017]) promulgated by the State-owned Assets Supervision and Administration Commission of the State Council, central enterprises shall establish a negative list for overseas investment under which prohibited investments and specially supervised investments shall be administered separately. Central enterprises shall not make any investments categorized as prohibited ones. The foreign investment projects listed in the special supervision category of the negative list shall be submitted to the SASAC for approval.
In accordance with the Administrative Measures for Overseas Investments (MOFCOM Order No. 3 [2014]) issued by MOFCOM, overseas investment shall be subject to approval or filing requirements of MOFCOM or its provincial counterparts based on its investment category. Overseas investments involving sensitive countries (regions) or sensitive industries shall be approved by MOFCOM. All other investments will require only a filing with MOFCOM.
Taxation, Fees and Royalty
Companies which operate petroleum and petrochemical businesses in China are subject to a variety of taxes, fees and royalties.
Effective from December 1, 2014, the rate of mineral resource compensation charges on crude oil and natural gas is reduced to zero, and the applicable resource tax rate is correspondingly increased from 5% to 6%.
Effective from January 1, 2015, the threshold of the special oil income levy is increased from US$55 to 65 per barrel, and a five-level progressive rate is applied to special oil income levy collection based on the sale prices.
From November 29, 2014 to January 12, 2015, the unit tax amount of consumption tax on gasoline, naphtha, solvent and lubricant have been adjusted three times and the current applicable consumption tax rates are set forth in the table below. For further information about consumption tax rates, see Note 7 to our consolidated financial statements.
Effective from May 1, 2016, business tax has been completed replaced by value-added tax to cover all the business sectors that used to fall under the business tax regime.
In April 2017, the State Council issued a notice to implement the reform of the existing mineral resources income levy system, in which the existing license fees of exploration rights and production rights will be integrated into mining rights occupancy fees, and will be dynamically adjusted based on the changes in mineral product prices and economic development needs. Collection methods and standards have not yet been released.
Starting on January 1, 2018, environmental tax has been levied, with the original sewage charges being cancelled.
Starting in April 2019, the value-added tax rate has been further lowered.
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Applicable tax, fees and royalties on refined oil products and other refined oil products generally payable by us or by other companies in similar industries are shown below.
Tax Item |
| Tax Base |
| Tax Rate/Fee Rate |
Enterprise income tax | | Taxable income | | 25% effective from January 1, 2008. |
Value-added tax | | Revenue | | 9% for liquefied petroleum gas, natural gas, low-density polyethylene for production of agricultural film and fertilizers, 13% for other commodities and 6% for the taxable service. On behalf of the tax authorities, we collect value-added tax from users other than the selling price of the products when settling payments with users. The value-added tax paid by us when purchasing raw materials for production, and the payment of drilling and other engineering service fees may be deducted from the value-added tax collected by us from users. |
Consumption tax | | Aggregate volume sold or self-consumed | | Effective from January 13, 2015, RMB1.52 per liter for gasoline, naphtha, solvent oil and lubricant, and RMB1.2 per liter for diesel, fuel oil and jet kerosene. |
Import tariff | | CIF China price | | 5% for gasoline, 6% for diesel, 9% for jet kerosene and 6% for fuel oil. In 2017, the applicable tax rate for motor gasoline and aviation gasoline, No. 5-7 fuel oil and diesel is 1%, and 0% for jet kerosene and naphtha. |
Resource tax | | Aggregate Sales Revenue | | Effective from December 1, 2014, for domestic production of crude oil and natural gas, the applicable tax rate is increased from 5% to 6% of the sales revenue, exemption or deduction may apply if qualified. |
Resource compensation tax | | Sales revenue of crude oil and natural gas | | Effective from December 1, 2014, the applicable tax rate is reduced from 1% to zero. |
Exploration license fee | | Area | | RMB100 to RMB500 per square kilometer per annum. |
Production license fee | | Area | | RMB1,000 per square kilometer per annum. |
Royalty fee(1) | | Production volume | | Progressive rate of 0-12.5% for crude oil and 0-3% for natural gas. |
City construction tax | | Total payment of value-added tax and consumption tax | | 1%, 5% and 7%. |
Education surcharge and local education surcharge | | Total payment of value-added tax and consumption tax | | 3% for education surcharge and 2% for local education surcharge. |
Special Oil Income Levy | | Any revenue derived from sale of domestically produced crude oil when the realized crude oil price exceeds US$65 per barrel. | | Progressive rate of 20% to 40% for revenues derived from crude oil with realized price in excess of US$65 per barrel. |
| (1) | Sino-foreign oil and gas exploration and development cooperative projects whose contracts were signed prior to November 1, 2011 and have not yet expired are still subject to royalty fee, and the project companies of those cooperative projects are not subject to any other resource taxes or fees. Sino-foreign oil and gas exploration cooperative projects whose contracts are signed after November 1, 2011 are not subject to royalty fee, but are subject to resource taxes. |
C. | ORGANIZATIONAL STRUCTURE |
For a description of our relationship with Sinopec Group Company, see “Item 4. Information on the Company—A. History and Development of the Company” and “Item 7. Major Shareholders and Related Party Transactions.” For a description of our significant subsidiaries, see Note 39 to our consolidated financial statements.
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Like many large scale companies with businesses across industries, we conduct our business through a large number of Chinese and foreign operating entities. The chart below summarizes our business segments and identifies our significant subsidiaries, as that term is defined under Section 1-02 of Regulation S-X under the U.S. Securities Act. We combined our refining and chemicals segments in the chart below given that most of our significant subsidiaries conducting relevant businesses can be categorized under both segments. See Note 39 to our consolidated financial statements.
Notes:
| (1) | Our significant subsidiary under Exploration and Production segment is Sinopec International Petroleum Exploration and Production Limited. |
| (2) | Our significant subsidiaries under Refining and Chemicals segments are Sinopec Great Wall Energy & Chemical Company Limited, Sinopec Yangzi Petrochemical Company Limited, Sinopec Yizheng Chemical Fibre Limited Liability Company, Sinopec Lubricant Company Limited, Sinopec Qingdao Petrochemical Company Limited, Sinopec Chemical Sales Company Limited, Sinopec Beihai Refining and Chemical Limited Liability Company, ZhongKe (Guangdong) Refinery & Petrochemical Company Limited, Sinopec Qingdao Refining and Chemical Company Limited, Sinopec Hainan Refining and Chemical Company Limited, Shanghai SECCO Petrochemical Company Limited, Sinopec-SK (Wuhan) Petrochemical Company Limited, Gaoqiao Petrochemical Company Limited, Sinopec Baling Petrochemical Co. Ltd, Sinopec Shanghai Petrochemical Company Limited, and Fujian Petrochemical Company Limited. |
| (3) | Our significant subsidiary under Marketing and Distribution segment is Sinopec Marketing Company Limited. |
| (4) | Our significant subsidiaries under Others segment are Sinopec Overseas Investment Holding Limited, China International United Petroleum and Chemical Company Limited, Sinopec Catalyst Company Limited, China Petrochemical International Company Limited, and Sinopec Kantons Holdings Limited. |
D. | PROPERTY, PLANT AND EQUIPMENT |
We own substantially all of our properties, plants and equipment relating to our business activities. See “Item 4. Information on the Company—B. Business Overview” for description of our property, plant and equipment.
Environmental Matters
We are subject to various national environmental laws and regulations and also environmental regulations promulgated by the local governments in those jurisdictions we have operations, and we must pay the environmental tax for pollutant emissions. Usually the environmental tax increases for each incremental amount of discharge up to a certain level. Above a certain level prescribed by the pollutant discharge permits or other standards, the PRC regulations permit the local government to order any of our facilities to cure certain behavior causing environmental damage and subject to the central government’s approval, the local government may also issue orders to close any of our facilities that fail to comply with the existing regulations. In addition, we have incurred capital expenditure specifically in compliance with the various environmental protection objectives set by the PRC government for the petroleum and chemical industry, to promote energy saving and environmental protection.
Our Energy Management and Environmental Protection Department is responsible for environmental management functions such as energy saving, emission reduction, environmental protection, water saving, comprehensive utilization of resources and clean production. Each of our production subsidiaries has implemented policies to control its pollutant emissions and discharge and to oversee compliance with the PRC environmental regulations.
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Most of our production facilities have their own environmental protection facilities, and the rest of our production facilities utilize available social resources, to guarantee the effective treatment of waste water, solid waste and waste gases, to ensure the compliance with applicable emission standard for our emission of waste water and waste gas, and to follow applicable disposal procedures for our disposal of solid waste.
Environmental regulations also require companies to file an environmental impact evaluation report to the Ministry of Ecology and Environment or local ecology and environment department for approval before undertaking any project with negative impact on the environment. When carrying out such projects, companies shall construct and implement environmental protection facilities and measures as required by the environmental bureau. After the completion of the construction, the projects shall be assessed according to the relevant requirements of environmental assessment, and the projects will only be permitted to operate after the assessment of its discharge treatment facilities, measures and pollutant discharge satisfactory environmental assessment and approval requirements and reporting on the national information platform for completion-based environmental protection check and acceptance of construction projects.
We believe our environmental protection systems and facilities are adequate for us to comply with current applicable national and local environmental protection regulations. The PRC government, however, may impose stricter regulations which may require additional expenditure on compliance with environmental regulations. In addition, to proactively discharge our social responsibility and to demonstrate our leadership in fulfilling China’s “dual carbon” goals, we intend to embrace the “Green Revolution” and the carbon neutrality objectives, and to build our competitiveness on de-carbonization.
Our environmental protection expenditures were approximately RMB9.3 billion in 2019, RMB11.4 billion in 2020 and RMB11.0 billion in 2021.
Insurance
In respect of our refining, petrochemical production, and marketing and sales operations, we currently maintain with Sinopec Group Company, under the terms of its Safety Production Insurance Fund (SPI Fund), approximately RMB876.7 billion of coverage on our property and plants and approximately RMB105.8 billion of coverage on our inventory. In 2021, we paid an insurance premium of approximately RMB2.242 billion to Sinopec Group Company for such coverage.
Transportation vehicles and products in transit are not covered by Sinopec Group Company and we maintain insurance policies for those assets with insurance companies in the PRC.
The insurance coverage under SPI Fund applies to all domestic enterprises controlled by Sinopec Group Company under regulations published by the Ministry of Finance. We believe that, in the event of a major accident, we will be able to recover most of our losses from insurance proceeds paid under the SPI Fund or by insurance companies.
Pursuant to an approval of the Ministry of Finance, Sinopec Group Company entered into an agreement with PICC Property and Casualty Company Limited on January 29, 2002 to purchase a property and casualty policy which would also cover our assets. The policy provides for an annual maximum cumulative claim amount of RMB4 billion and a maximum of RMB2.36 billion per occurrence.
ITEM 4A. | UNRESOLVED STAFF COMMENTS |
None.
ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
A. | GENERAL |
The following discussion and analysis should be read in conjunction with our audited consolidated financial statements. Our consolidated financial statements have been prepared in accordance with IFRS. Certain financial information presented in this section is derived from our audited consolidated financial statements. Unless otherwise indicated, all financial data presented on a consolidated basis or by segment, are presented net of inter-segment transactions (i.e., inter-segment and other intercompany transactions have been eliminated).
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Critical Accounting Policies
Our reported consolidated financial condition and consolidated results of operations are sensitive to accounting methods, assumptions and estimates that underlie the preparation of our financial statements. We base our assumptions and estimates on historical experience and on various other assumptions that we believe to be reasonable and which form the basis for making judgments about matters that are not readily apparent from other sources. On an on-going basis, our management evaluates its estimates. Actual results may differ from those estimates as facts, circumstances and conditions change.
The selection of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing our financial statements. Our principal accounting policies are set forth in Note 2 to the consolidated financial statements. We believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements.
Oil and gas properties and reserves
The accounting for the exploration and production activities of oil and gas is subject to accounting rules that are unique to the oil and gas industry. There are two methods to account for oil and gas business activities, the successful efforts method and the full cost method. We have elected to use the successful efforts method. The successful efforts method reflects the volatility that is inherent in exploring for mineral resources in that costs of unsuccessful exploratory efforts are charged to expense as they are incurred. These costs primarily include dry hole costs, seismic costs and other exploratory costs. Under the full cost method, these costs are capitalized and written-off or depreciated over time.
Engineering estimates of our oil and gas reserves are inherently imprecise and represent only approximate amounts because of the subjective judgements involved in developing such information. There are authoritative guidelines regarding the engineering criteria that have to be met before estimated oil and gas reserves can be designated as “proved.” Proved and proved developed reserves estimates are updated at least annually and take into account recent production and technical information about each field. In addition, as prices and cost levels change from year to year, the estimate of proved and proved developed reserves also changes. This change is considered a change in estimate for accounting purposes and is reflected on a prospective basis in relation to depreciation rates. Oil and gas reserves have a direct impact on the assessment of the recoverability of the carrying amounts of oil and gas properties reported in the financial statements. If proved reserves estimates are revised downwards, earnings could be affected by changes in depreciation expense or an immediate write-down of the property’s carrying amount.
Future dismantlement costs for oil and gas properties are estimated with reference to engineering estimates after taking into consideration the anticipated method of dismantlement required in accordance with industry practices in similar geographic area, including estimation of economic life of oil and gas properties, technology and price level. The present values of these estimated future dismantlement costs are capitalized as oil and gas properties with equivalent amounts recognized as provisions for dismantlement costs.
Despite the inherent imprecision in these engineering estimates, these estimates are used in determining depreciation expense, impairment loss and future dismantlement costs. Capitalized costs of proved oil and gas properties are amortized on a unit-of-production method based on volumes produced and reserves.
Impairment for long-lived assets
If circumstances indicate that the net book value of a long-lived asset may not be recoverable, the asset may be considered “impaired,” and an impairment loss may be recognized in accordance with IAS 36 “Impairment of Assets.” The carrying amounts of long-lived assets are reviewed periodically in order to assess whether the recoverable amounts have declined below the carrying amounts. These assets are tested for impairment whenever events or changes in circumstances indicate that their recorded carrying amounts may not be recoverable. When such a decline has occurred, the carrying amount is reduced to recoverable amount. For goodwill, the recoverable amount is estimated annually. The recoverable amount is the greater of the net selling price and the value in use. It is difficult to precisely estimate selling price because quoted market prices for our assets or cash-generating units are not readily available. In determining the value in use, expected cash flows generated by the asset or the cash-generating unit are discounted to their present value, which requires significant judgement relating to level of sale volume, selling price, amount of operating costs and discount rate. Management uses all readily available information in determining an amount that is a reasonable approximation of recoverable amount, including estimates based on reasonable and supportable assumptions and projections of sale volume, selling price, amount of operating costs and discount rate.
39
Impairment losses recognized for each of the three years ended December 31, 2019, 2020 and 2021 in our consolidated statement of income on long-lived assets are summarized as follows:
| | | | | | |
| | Year ended December 31, | ||||
|
| 2019 |
| 2020 |
| 2021 |
| | (RMB in millions) | ||||
Exploration and production |
| 3 | | 8,495 | | 2,467 |
Refining |
| 256 | | 1,923 | | 860 |
Marketing and distribution |
| 80 | | 536 | | 1,211 |
Chemicals |
| 17 | | 3,675 | | 5,332 |
Corporate and others |
| — | | — | | 165 |
Total* |
| 356 | | 14,629 | | 10,035 |
* | Information relating to the detailed analysis of the change in impairment losses is presented in Note 8 to the consolidated financial statements. |
Depreciation
Property, plant and equipment, other than oil and gas properties, are depreciated on a straight-line basis over the estimated useful lives of the assets, after taking into account the estimated residual value. Management reviews the estimated useful lives of the assets at least annually in order to determine the amount of depreciation expense to be recorded during any reporting period. The useful lives are based on our historical experience with similar assets and take into account anticipated technological changes. The depreciation expense for future periods is adjusted if there are significant changes from previous estimates.
Measurement of expected credit losses
We measure and recognize expected credit losses, considering reasonable and supportable information about the relevant past events, current conditions and forecasts of future economic conditions. We regularly monitor and review the assumptions used for estimating expected credit losses. The changes in the impairment losses for bad and doubtful accounts of bills receivable and accounts receivable are as follows:
| | | | | | |
| | Year ended December 31, | ||||
|
| 2019 |
| 2020 |
| 2021 |
| | (RMB in millions) | ||||
Balance as of January 1 |
| 606 | | 1,848 | | 3,860 |
Impairment losses recognized for the year |
| 1,566 | | 2,173 | | 436 |
Reversal of impairment losses |
| (283) | | (68) | | (127) |
Written off |
| (41) | | (23) | | (30) |
Others |
| — | | (70) | | (106) |
Balance as of December 31 |
| 1,848 | | 3,860 | | 4,033 |
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Allowance for diminution in value of inventories
If the costs of inventories become higher than their net realizable values, an allowance for diminution in value of inventories is recognized. Net realizable value represents the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. Management bases the estimates on all available information, including the current market prices of the finished goods and raw materials, and historical operating costs. If the actual selling prices were to be lower or the costs of completion were to be higher than estimated, the actual allowance for diminution in value of inventories could be higher than estimated. Allowance for diminution in value of inventories is analyzed as follows:
| | | | | | |
| | Year ended December 31, | ||||
|
| 2019 |
| 2020 |
| 2021 |
| | (RMB in millions) | ||||
Balance as of January 1 |
| 6,401 | | 2,597 | | 3,107 |
Allowance for the year |
| 1,616 | | 11,689 | | 3,148 |
Reversal of allowance on disposal |
| (199) | | (333) | | (18) |
Written off |
| (5,233) | | (10,795) | | (1,300) |
Others |
| 12 | | (51) | | (40) |
Balance as of December 31 |
| 2,597 | | 3,107 | | 4,897 |
Recently Pronounced International Financial Reporting Standards
Information relating to the recently pronounced IFRS is presented in Note 1 to the consolidated financial statements.
Overview of Our Operations
We are the largest integrated petroleum and petrochemical company in China and one of the largest in Asia in terms of operating revenues. We engage in exploring for, developing and producing crude oil and natural gas, operating refineries and petrochemical facilities and marketing crude oil, natural gas, refined oil products and petrochemical products. We have reported our consolidated financial results according to the following four principal business segments and the corporate and others segment.
| ● | Exploration and Production Segment, which consists of our activities related to exploring for and developing, producing and selling crude oil and natural gas; |
| ● | Refining Segment, which consists of purchasing crude oil from our exploration and production segment and from third parties, processing of crude oil into refined oil products, selling refined oil products principally to our marketing and distribution segment; |
| ● | Marketing and Distribution Segment, which consists of purchasing refined oil products from our refining segment and third parties, and marketing, selling and distributing refined oil products by wholesale to large customers and independent distributors and retail through our retail network; |
| ● | Chemicals Segment, which consists of purchasing chemical feedstock principally from the refining segment and producing, marketing, selling and distributing chemical products; and |
| ● | Corporate and Others Segment, which consists principally of trading activities of the import and export subsidiaries and our research and development activities. |
B. | CONSOLIDATED RESULTS OF OPERATIONS |
The Company completed the purchase of non-equity assets of Cangzhou branch of Sinopec Group Asset Management Co., Ltd and Beijing Orient Petrochemical Industry Co., Ltd on July 1, 2021, and Sinopec Beihai Refining and Chemical Limited Liability Company, a subsidiary of the Company, completed the purchase of non-equity assets of Beihai Petrochemical Limited Liability Company July 1, 2021. The Company has completed the purchase of non-equity assets and liabilities of Sinopec Group Asset Management Co., Ltd. and Sinopec Beijing Yanshan Petrochemical Co., Ltd. on December 1, 2021. Sinopec Yizheng Chemical Fibre Company Limited, a subsidiary of the Company, has completed the purchase of non-equity assets and liabilities of Sinopec Group Asset Management Co., Ltd. on December 1, 2021. The transactions described above have been accounted as business combination under common control, thus, the Company retroactively adjusted the relevant financial data.
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Year Ended December 31, 2021 Compared with Year Ended December 31, 2020
In 2021, the Company’s revenue was RMB2,740.9 billion, increased by 30.2% compared with that of 2020. That was mainly due to the good momentum of Chinese economy, increase of international crude oil price, recovery of domestic refined oil products demand and increase of chemical products prices. The Company sized the opportunity of demand recovery, optimized operation and production, promoted structural adjustment and transition and upgrading, and realized RMB94.6 billion operating profit, up by 592.3% year on year.
The following table sets forth major revenue and expense items in the consolidated statement of income for the years ended December 31, 2020 and 2021.
| | | | | | |
| | Year Ended December 31, | ||||
| | | | | | Change from |
|
| 2020(1) |
| 2021 |
| 2020 to 2021 |
| | (RMB in millions) | | (%) | ||
Revenue |
| 2,104,724 | | 2,740,884 | | 30.2 |
Revenues from primary business |
| 2,048,654 | | 2,679,500 | | 30.8 |
Other operating revenues |
| 56,070 | | 61,384 | | 9.5 |
Operating expenses |
| (2,091,055) | | (2,646,256) | | 26.6 |
Purchased crude oil, products and operating supplies and expenses |
| (1,589,821) | | (2,076,665) | | 30.6 |
Selling, general and administrative expenses |
| (53,668) | | (54,978) | | 2.4 |
Depreciation, depletion and amortization |
| (107,461) | | (115,680) | | 7.6 |
Exploration expenses, including dry holes |
| (9,716) | | (12,382) | | 27.4 |
Personnel expenses |
| (87,525) | | (103,492) | | 18.2 |
Taxes other than income tax |
| (235,018) | | (259,032) | | 10.2 |
Other operating income /(expenses), net(2) |
| (7,846) | | (24,027) | | 206.2 |
Operating income |
| 13,669 | | 94,628 | | 592.3 |
Net finance costs |
| (9,510) | | (9,010) | | (5.3) |
Investment income and share of profits less losses from associates and joint ventures |
| 44,456 | | 23,551 | | (47.0) |
Earnings before income tax |
| 48,615 | | 109,169 | | 124.6 |
Income tax expense |
| (6,344) | | (23,318) | | 267.6 |
Net income |
| 42,271 | | 85,851 | | 103.1 |
Attributable to: |
| | | | | |
Owners of the Company |
| 33,443 | | 71,975 | | 115.2 |
Non-controlling interests |
| 8,828 | | 13,876 | | 57.2 |
| (1) | Detailed information relating to the gain on sale of certain business is presented in Note 10 to the consolidated financial statements. |
| (2) | Other operating income /(expenses),net include impairment losses on trade and other receivables of RMB2.3 billion and RMB2.1 billion for the years ended December 31, 2021 and 2020, respectively. |
Operating revenues
In 2021, the Company’s revenue from primary business was RMB2,679.5 billion, representing an increase of 30.8% over 2020. This was mainly due to the price and sales volume increase in refined oil products and chemical products.
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The following table sets forth our external sales volume, average realized prices and the respective rates of change from 2020 to 2021 for our major products:
| | | | | | | | | | | | |
|
| Sales Volume |
| Change from |
| Average Realized Price |
| Change from | ||||
| | 2020 | | 2021 | | 2020 to 2021 | | 2020 | | 2021 | | 2020 to 2021 |
| | (thousand tonnes) | | (%) | | (RMB per tonne) | | (%) | ||||
Crude oil |
| 7,422 |
| 7,162 |
| (3.5) |
| 2,029 |
| 3,049 |
| 50.3 |
Natural gas |
| 26,280 | (1) | 29,953 | (1) | 14.0 | | 1,352 | (2) | 1,606 | (2) | 18.8 |
Gasoline |
| 86,193 |
| 90,836 |
| 5.4 |
| 6,300 |
| 7,731 |
| 22.7 |
Diesel |
| 77,280 |
| 78,335 |
| 1.4 |
| 4,789 |
| 5,891 |
| 23.0 |
Kerosene |
| 20,828 |
| 21,270 |
| 2.1 |
| 2,635 |
| 3,772 |
| 43.1 |
Basic chemical feedstock |
| 47,109 |
| 48,059 |
| 2.0 |
| 3,569 |
| 5,311 |
| 48.8 |
Monomer and polymer for synthetic fiber |
| 9,743 |
| 7,010 |
| (28.1) |
| 4,302 |
| 6,580 |
| 53.0 |
Synthetic resins |
| 17,124 |
| 17,924 |
| 4.7 |
| 7,150 |
| 8,325 |
| 16.4 |
Synthetic fiber |
| 1,403 |
| 1,457 |
| 3.8 |
| 6,407 |
| 7,521 |
| 17.4 |
Synthetic rubber |
| 1,364 |
| 1,289 |
| (5.5) |
| 7,986 |
| 11,104 |
| 39.0 |
Chemical fertilizer |
| 1,181 |
| 981 |
| (16.9) |
| 1,950 |
| 2,797 |
| 43.4 |
| (1) | million cubic meters |
| (2) | RMB per thousand cubic meters |
Sales of crude oil and natural gas
Most crude oil and a small portion of natural gas produced by the Company were internally used for refining and chemical production, with the remaining sold to external customers. In 2021, the revenue from crude oil, natural gas and other upstream products sold externally amounted to RMB156.0 billion, representing an increase of 49.3% over 2020. The change was mainly due to increases in crude oil and natural gas prices, and the increase of natural gas sales volume.
Sales of refined petroleum products
In 2021, petroleum products (mainly consisting of refined oil products and other refined petroleum products) sold by Refining Segment and Marketing and Distribution Segment achieved external sales revenues of RMB1,535.5 billion (accounting for 56.0% of the Company’s revenue), representing an increase of 30.6% over 2020, mainly due to the increase in prices and volume of refined oil products. The sales revenue of gasoline, diesel and kerosene was RMB1,243.9 billion, representing an increase of 28.5% over 2020, and accounting for 81.0% of the total sales revenue of petroleum products. Revenue of other refined petroleum products was RMB291.6 billion, representing an increase of 49.0% compared with that of 2020, accounting for 19.0% of the total sales revenue of petroleum products.
Sales of chemical products
In 2021, the Company’s external sales revenue of chemical products was RMB424.8 billion, representing an increase of 31.8% over 2020, accounting for 15.5% of the Company’s total revenue. This was mainly due to the increase in price and sales volume of chemical products.
Revenue from corporate and others
In 2021, our corporate and others realized operating revenue of RMB1,297.7 billion (including an operating revenue of RMB1,291.1 billion in import and export trade business), representing an increase of 48.5% over 2020. This was mainly because the sharp increase of the price and trading volume of refined petroleum products.
Operating expenses
In 2021, the Company’s operating expenses was RMB2,646.3 billion, increased by 26.6% compared with that of 2020. Among the operating expenses:
43
Purchased crude oil, products and operating supplies and expenses were RMB2,076.7 billion, representing an increase of 30.6% over the same period of 2020, accounting for 78.5% of the total operating expenses, of which:
| ● | crude oil purchasing expenses was RMB689.5 billion, representing an increase of 43.9% over the same period of 2020. Crude oil purchased externally used for processing in 2021 was 212.55 million tonnes (excluding the volume processed for third parties), representing an increase of 7.9% over the same period of 2020. The average cost of crude oil purchased externally was RMB3,244 per tonne, representing an increase by 33.3% over 2020. |
| ● | other purchasing expenses was RMB1,387.2 billion, representing an increase of 24.9% over the same period of 2020. This was mainly attributable to the sharp increase in international bulk raw material prices and purchasing volume increase. |
Selling, general and administrative expenses totaled RMB55.0 billion, representing an increase of 2.4% over 2020.
Depreciation, depletion and amortization was RMB115.7 billion, representing an increase of 7.6% over the same period of 2020. That was mainly because that the proved reserve decreased resulting from the decrease of international crude oil prices and appreciation of RMB exchange rate in 2020, thus the depletion ratio of oil and gas assets increased, which led to the depreciation and depletion increased.
Exploration expenses, including dry holes was RMB12.4 billion, representing an increase of 27.4% compared with 2020. That was mainly due to increased investment in exploration and development to improve the quality of oil and gas assets.
Personnel expenses was RMB103.5 billion, representing an increase of 18.2% over 2020. That was due to the government’s preferential policy on social insurance during the COVID-19 pandemic in 2020, which was cancelled in 2021, as well as a year-on-year increase in performance-related bonus as a reward for the significant improvement in operating profit.
Taxes other than income tax was RMB259.0 billion, representing an increase of 10.2% over the same period of 2020. That was mainly due to the increase of consumption tax resulting from the increase of production volume in gasoline and diesel.
Other operating expenses, net was RMB21.7 billion, representing an increase of RMB275.7% over the same period of 2020. That was mainly due to impact of the loss on disposal of property, plant, equipment and other non-current assets.
Operating income
In 2021, our operating income was RMB94.6 billion, representing an increase of 592.3% over the same period of 2020. That was mainly because that with the increase of international crude oil prices and steady improvement of market demand, the Company increased its processing volume and sales volumes which led to an increase in the gross profit margin of petrochemical products and significant improvement of the Company’s operating results.
Earnings before income tax
In 2021, our earnings before income tax was RMB109.2 billion, representing an increase of 124.6% compared with 2020.
Income tax expense
In 2021, we recognized income tax expense of RMB23.3 billion, representing an increase of 267.6% year on year. That was mainly due to the taxable income increase as a result of good profit the Company achieved in 2021.
Net income attributable to non-controlling interests
In 2021, our net income attributable to non-controlling interests was RMB13.9 billion, representing an increase of RMB5.0 billion and 57.2% over the same period of 2020. That was mainly due to the improvement in the profits of our non-wholly owned subsidiaries.
44
Net income attributable to owners of the Company
In 2021, our net income attributable to our owners was RMB72.0 billion, representing a year-on-year increase of 115.2%.
Year Ended December 31, 2020 Compared with Year Ended December 31, 2019
In 2020, our total operating revenues were RMB2,104.72 billion, representing a decrease of 28.8% over 2019. Our operating income was RMB13.7 billion, representing a decrease of 84.2% over 2019.
The following table sets forth major revenue and expense items in the consolidated statement of income for the years ended December 31, 2019 and 2020.
| | | | | | |
|
| Year Ended December 31, | ||||
| | | | | | Change from |
|
| 2019 |
| 2020(1) |
| 2019 to 2020 |
| | (RMB in millions) | | (%) | ||
Revenue | | 2,957,868 | | 2,104,724 | | (28.8) |
Revenues from primary business | | 2,899,382 | | 2,048,654 | | (29.3) |
Other operating revenues | | 58,486 | | 56,070 | | (4.1) |
Operating expenses | | (2,871,352) | | (2,091,055) | | (27.2) |
Purchased crude oil, products and operating supplies and expenses | | (2,367,533) | | (1,589,821) | | (32.8) |
Selling, general and administrative expenses | | (54,390) | | (53,668) | | (1.3) |
Depreciation, depletion and amortization | | (109,643) | | (107,461) | | (2.0) |
Exploration expenses, including dry holes | | (10,510) | | (9,716) | | (7.6) |
Personnel expenses | | (83,054) | | (87,525) | | 5.4 |
Taxes other than income tax | | (244,602) | | (235,018) | | (3.9) |
Other operating income /(expenses), net(2) | | (1,620) | | (7,846) | | 384.3 |
Operating income | | 86,516 | | 13,669 | | (84.2) |
Net finance costs | | (10,051) | | (9,510) | | (5.4) |
Investment income and share of profits less losses from associates and joint ventures | | 13,696 | | 44,456 | | 224.6 |
Earnings before income tax | | 90,161 | | 48,615 | | (46.1) |
Income tax expense | | (18,054) | | (6,344) | | (64.9) |
Net income | | 72,107 | | 42,271 | | (41.4) |
Attributable to: | | | | | | |
Owners of the Company | | 57,517 | | 33,443 | | (41.9) |
Non-controlling interests | | 14,590 | | 8,828 | | (39.5) |
| (1) | Detailed information relating to the gain on sale of certain business is presented in Note 10 to the consolidated financial statements. |
| (2) | Other operating income /(expenses),net include impairment losses on trade and other receivables of RMB2.1 billion and RMB1.3 billion for the years ended December 31, 2020 and 2019, respectively. Operating revenues |
In 2020, revenue from primary business was RMB2,048.7 billion, representing a decrease of 29.3% over 2019. This was mainly due to decreased price and sales volume of refined oil products, decreased price of chemical products, and shrank international trading scale of crude oil and refined oil products, which was impacted by the COVID-19 outbreak and the slump in international crude oil price.
45
The following table sets forth our external sales volume, average realized prices and the respective rates of change from 2019 to 2020 for our major products:
| | | | | | | | | | | | |
|
| Sales Volume |
| Change from |
| Average Realized Price |
| Change from | ||||
| | 2019 | | 2020 | | 2019 to 2020 | | 2019 | | 2020 | | 2019 to 2020 |
| | (thousand tonnes) | | (%) | | (RMB per tonne) | | (%) | ||||
Crude oil |
| 6,034 |
| 7,422 |
| 23.0 |
| 3,000 |
| 2,029 |
| (32.4) |
Natural gas |
| 27,073 | (1) | 26,280 | (1) | (2.9) | | 1,562 | (2) | 1,352 | (2) | (13.4) |
Gasoline |
| 92,233 |
| 86,193 |
| (6.5) |
| 7,387 |
| 6,300 |
| (14.7) |
Diesel |
| 87,083 |
| 77,280 |
| (11.3) |
| 5,811 |
| 4,789 |
| (17.6) |
Kerosene |
| 27,041 |
| 20,828 |
| (23.0) |
| 4,298 |
| 2,635 |
| (38.7) |
Basic chemical feedstock |
| 52,007 |
| 47,109 |
| (9.4) |
| 4,534 |
| 3,569 |
| (21.3) |
Monomer and polymer for synthetic fiber |
| 14,089 |
| 9,743 |
| (30.8) |
| 5,722 |
| 4,302 |
| (24.8) |
Synthetic resins |
| 16,131 |
| 17,124 |
| 6.2 |
| 7,804 |
| 7,150 |
| (8.4) |
Synthetic fiber |
| 1,370 |
| 1,403 |
| 2.4 |
| 8,438 |
| 6,407 |
| (24.1) |
Synthetic rubber |
| 1,284 |
| 1,364 |
| 6.3 |
| 9,595 |
| 7,986 |
| (16.8) |
Chemical fertilizer |
| 925 |
| 1,181 |
| 27.7 |
| 2,109 |
| 1,950 |
| (7.5) |
| (1) | million cubic meters |
| (2) | RMB per thousand cubic meters |
Sales of crude oil and natural gas
Most of crude oil and a small portion of natural gas we produced were used internally for refining and chemical production and the remaining were sold to external customers. In 2020, the total revenue from crude oil, natural gas and other upstream products that were sold externally amounted to RMB104.5 billion, representing a decrease of 5.9% over 2019. The change was mainly due to decreases in crude oil and natural gas prices.
Sales of refined petroleum products
In 2020, our refining segment and marketing and distribution segment sell petroleum products (mainly consisting of gasoline, diesel and kerosene which are referred to as the refined oil products and other refined petroleum products) to external parties. The external sales revenue realized by these two segments were RMB1,163.8 billion, accounting for 55.3% of our operating revenues and representing a decrease of 24.1% over 2019. The change was mainly due to the decrease in prices and volume of major products, such as gasoline, diesel and kerosene, resulting from the impact of COVID-19 and slump of international crude oil price. The sales revenue of gasoline, diesel and kerosene was RMB968.0 billion, accounting for 83.2% of the total revenue of other refined petroleum products and representing a decrease of 25.7% over 2019. The sales revenue of other refined petroleum products was RMB195.8 billion, accounting for 16.8% of the total revenue of petroleum products and representing a decrease of 15.1% over 2019.
Sales of chemical products
Our external sales revenue of chemical products was RMB322.2 billion, accounting for 15.3% of our operating revenues and representing a decrease of 25.0% over 2019. This was mainly attributable to the decrease in price of chemical products.
Revenue from corporate and others
In 2020, our corporate and others realized operating revenue of RMB890.3 billion (including an operating revenue of RMB886.4 billion in import and export trade business), representing a decrease of 39.9% over 2019. This was mainly because sales volume and prices of crude oil and refined oil products plunged as a result of COVID-19 impact.
46
Operating expenses
In 2020, our operating expenses were RMB2,091.1 billion, representing a decrease of 27.2% over 2019. Among the operating expenses:
Purchased crude oil, products and operating supplies and expenses were RMB1,589.8 billion, representing a decrease of 32.8% over 2019, accounting for 76.0% of the total operating expenses, of which:
| ● | crude oil purchase expenses were RMB479.1 billion, representing a decrease of 29.7% over 2019. In 2019, the total throughput of crude oil that was purchased externally was 222.79 million tonnes (excluding the volume processed for third parties), representing a decrease of 2.6% over 2019; the average unit processing cost for crude oil purchased externally was RMB2,380 per tonne, representing a decrease of 28.4% over 2019; |
| ● | refined oil purchase expenses were RMB257.6 billion, representing a decrease of 29.4% over 2019; |
| ● | trade purchase expenses were RMB421.2 billion, representing a decrease of 42.6% over 2019; and |
| ● | other purchasing expenses were RMB431.9 billion, representing a decrease of 26.1% over 2019. |
Selling, general and administrative expenses totaled RMB53.7 billion, representing a decrease of 1.3% over 2019.
Depreciation, depletion and amortization was RMB107.5 billion, representing a decrease of 2.0% over 2019. This was mainly due to the depletion ratio of oil and gas assets decreased.
Exploration expenses, including dry holes were RMB9.7 billion, representing a decrease of 7.6% over 2019. That was mainly due to optimization of investment scale and structure in upstream and improvement of success rate in exploration.
Personnel expenses were RMB87.5 billion, representing an increase of 5.4% over 2019.
Taxes other than income tax were RMB235.0 billion, representing a decrease of 3.9% over 2019. That was mainly due to the decrease of consumption tax resulting from the decrease of production volume in gasoline and diesel.
Other operating expenses, net were RMB5.8 billion, representing an increase of RMB5.4 billion over the same period of 2019. That was mainly due to the increased impairment in fixed and long-term assets.
Operating income
In 2020, our operating income was RMB13.7 billion, representing a decrease of 84.2% over 2019, mainly due to the decrease of processing volume, sales volume, and products margin affected by the COVID-19 outbreak, slump of crude oil prices, and drop of market demand.
Net finance costs
In 2020, our net finance costs were RMB9.5 billion, representing a decrease of RMB0.5 billion over 2019.
Earnings before income tax
In 2020, our earnings before income tax were RMB48.6 billion, representing a decrease of 46.1% over 2019.
Income tax expense
In 2020, we recognized income tax expense of RMB6.3 billion, representing a decrease of 64.9% over 2019. That was mainly due to decrease of earnings before income tax, resulting in a decrease of RMB11.7 billion in earning before income tax.
Net income attributable to non-controlling interests
In 2020, our net income attributable to non-controlling interests was RMB8.8 billion, representing a decrease of RMB5.8 billion over 2019.
47
Net income attributable to owners of the Company
In 2020, our net income attributable to our owners was RMB33.4 billion, representing a decrease of 41.9% over 2019.
C. | DISCUSSIONS ON RESULTS OF SEGMENT OPERATIONS |
We divide our operations into four business segments (exploration and production segment, refining segment, marketing and distribution segment and chemicals segment, and corporate and others). Unless otherwise specified, the inter-segment transactions have not been eliminated in the financial data discussed in this section. In addition, the operating revenue data of each segment have included the “other operating revenues” of this segment.
The following table sets forth the operating revenues by each segment, the contribution of external sales and inter-segment sales as a percentage of operating revenues before elimination of inter-segment sales, and the contribution of external sales as a percentage of consolidated operating revenues (i.e. after elimination of inter-segment sales) for the periods indicated.
| | | | | | | | | | | | | | |
|
| |
| |
| |
| As a Percentage of |
| As a Percentage of | ||||
| | | | | | | | Consolidated | | Consolidated | ||||
| | | | | | | | Operating Revenues | | Operating Revenues | ||||
| | | | | | | | Before Elimination of | | After Elimination of | ||||
| | Year Ended December 31, | | Inter-segment Sales | | Inter-segment Sales | ||||||||
| | 2019 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 |
| | (RMB in billions) | | (%) | | (%) | | (%) | | (%) | ||||
Exploration and production |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External sales(1) |
| 122 |
| 110 |
| 163 |
| 3.2 |
| 3.4 |
| 5.2 |
| 5.9 |
Inter-segment sales |
| 89 |
| 58 |
| 87 |
| 1.7 |
| 1.8 |
| |
| |
Total operating revenue |
| 211 |
| 168 |
| 250 |
| 4.9 |
| 5.2 |
| |
| |
Refining |
| |
| |
| |
| |
| |
| |
| |
External sales(1) |
| 146 |
| 118 |
| 173 |
| 3.4 |
| 3.6 |
| 5.6 |
| 6.3 |
Inter-segment sales |
| 1,077 |
| 826 |
| 1,212 |
| 23.7 |
| 24.9 |
| |
| |
Total operating revenue |
| 1,224 |
| 944 |
| 1,386 |
| 27.1 |
| 28.5 |
| |
| |
Marketing and distribution |
| |
| |
| |
| |
| |
| |
| |
External sales(1) |
| 1,427 |
| 1,097 |
| 1,404 |
| 31.6 |
| 29.0 |
| 52.1 |
| 51.2 |
Inter-segment sales |
| 4 |
| 5 |
| 7 |
| 0.1 |
| 0.1 |
| |
| |
Total operating revenue |
| 1,431 |
| 1,102 |
| 1,412 |
| 31.7 |
| 29.1 |
| |
| |
Chemicals |
| |
| |
| |
| |
| |
| |
| |
External sales(1) |
| 437 |
| 331 |
| 435 |
| 9.5 |
| 9.0 |
| 15.2 |
| 16.0 |
Inter-segment sales |
| 78 |
| 41 |
| 70 |
| 1.2 |
| 1.4 |
| |
| |
Total operating revenue |
| 515 |
| 372 |
| 506 |
| 10.7 |
| 10.4 |
| |
| |
Corporate and others |
| |
| |
| |
| |
| |
| |
| |
External sales(1) |
| 827 |
| 460 |
| 565 |
| 13.2 |
| 11.7 |
| 21.9 |
| 20.6 |
Inter-segment sales |
| 654 |
| 430 |
| 732 |
| 12.4 |
| 15.1 |
|
|
|
|
Total operating revenue |
| 1,481 |
| 890 |
| 1,298 |
| 25.6 |
| 26.8 |
|
|
|
|
Total operating revenue before inter-segment eliminations |
| 4,862 |
| 3,476 |
| 4,850 |
| 100.0 |
| 100.0 |
|
|
|
|
Elimination of inter-segment sales |
| (1,904) |
| (1,371) |
| (2,109) |
|
|
|
|
|
|
|
|
Consolidated operating revenues |
| 2,958 |
| 2,105 |
| 2,741 |
| | | |
| 100.0 |
| 100.0 |
| (1) | include other operating revenues. |
48
The following table sets forth the operating revenues, operating expenses and operating income/(loss) by each segment before elimination of the inter-segment transactions for the periods indicated, and the changes from 2020 to 2021.
| | | | | | | | |
| | Year Ended December 31, |
| Change from | ||||
|
| 2019 |
| 2020 |
| 2021 |
| 2020 to 2021 |
|
| (RMB in billions) | | (%) | ||||
Exploration and production |
|
|
|
|
|
|
|
|
Total operating revenues |
| 211 |
| 168 |
| 250 |
| 49.0 |
Total operating expenses |
| (201) |
| (184) |
| (245) |
| 33.2 |
Total operating income/(loss) |
| 9 |
| (16) |
| 5 |
| — |
Refining |
| |
| |
| |
| |
Total operating revenues |
| 1,224 |
| 944 |
| 1,386 |
| 46.8 |
Total operating expenses |
| (1,193) |
| (950) |
| (1,320) |
| 39.0 |
Total operating income/(loss) |
| 31 |
| (6) |
| 65 |
| (1,281.5) |
Marketing and distribution |
| |
| |
| |
| |
Total operating revenues |
| 1,431 |
| 1,102 |
| 1,412 |
| 28.1 |
Total operating expenses |
| (1,402) |
| (1,081) |
| (1,390) |
| 28.6 |
Total operating income |
| 29 |
| 21 |
| 21 |
| 1.8 |
Chemicals |
| |
| |
| |
| |
Total operating revenues |
| 515 |
| 372 |
| 506 |
| 36.0 |
Total operating expenses |
| (498) |
| (361) |
| (494) |
| 37.0 |
Total operating income |
| 17 |
| 11 |
| 11 |
| 2.7 |
Corporate and others |
| |
| |
| |
| |
Total operating revenues |
| 1,485 |
| 890 |
| 1,298 |
| 45.8 |
Total operating expenses |
| (1,485) |
| (891) |
| 1,301 |
| 46.1 |
Total operating income/(loss) |
| 0.06 |
| (0.39) |
| (3.23) |
| — |
Elimination of inter-segment income |
| (0.04) |
| 4 |
| (4.42) |
| — |
Exploration and Production Segment
Most of the crude oil and a small portion of the natural gas produced by the exploration and production segment were used for our refining and chemicals operations. Most of our natural gas and a small portion of crude oil were sold to other customers.
Year Ended December 31, 2021 Compared with Year Ended December 31, 2020
In 2021, the operating revenues of this segment was RMB250.0 billion, representing an increase of 49.0% over 2020. This was mainly attributed to the increase of realized price in crude oil and natural gas, as well as the sales volume of natural gas increase.
In 2021, the segment sold 34.09 million tonnes of crude oil, representing a decrease of 1.2% over 2020. Natural gas sales volume was 30.8 billion cubic meters (bcm), representing an increase of 11.1% over 2020. Regasified LNG sales volume was 19.1 bcm, representing an increase of 22.3% over 2020. LNG sales volume was 6.18 million tonnes, representing an increase of 0.1% over 2020. Average realized prices of crude oil, natural gas, Regasified LNG, and LNG were RMB2,932 per tonne, RMB1,605 per thousand cubic meters, RMB2,119 per thousand cubic meters, and RMB3,909 per tonne, respectively, representing an increase of 54.2%, 18.0%, 19.4%, and 53.7% respectively over 2020.
In 2021, the operating expenses of this segment was RMB245.3 billion, representing an increase of 33.2% over 2020. This was mainly due to:
49
In 2021, the oil and gas lifting cost was RMB776.94 per tonne, representing a year on year increase of 6.5%, mainly attributable to the increase in the cost of purchased material, fuels, and power as the international commodities prices increased, and the increase of personnel expenses.
In 2021, the operating profit of the exploration and production segment was RMB4.7 billion, representing an increase of RMB21.2 billion over the same period of 2020, which was mainly attributable to the fact that the segment promoted high-quality exploration and profitable development, focused on reducing cost, enhanced integrated operation of production, supply, storage and sales.
Year Ended December 31, 2020 Compared with Year Ended December 31, 2019
In 2020, the operating revenues of this segment were RMB167.8 billion, representing a decrease of 20.4% over 2019. This was mainly attributed to the decrease of realized price in crude oil, natural gas and LNG.
This segment sold 34.52 million tonnes of crude oil and 27.8 billion cubic meters of natural gas in 2020, representing an increase of 0.5% and a decrease of 3.6% over 2019, respectively; 15.7 billion cubic meters of gasified LNG, representing an increase of 40.3% over 2019; and 6.17 million tonnes of LNG, representing an increase of 30.2% over 2019. The average realized price of crude oil and natural gas was RMB1,902 per tonne and RMB1,360 per thousand cubic meters, respectively, representing a decrease of 33.6% and a decrease of 13.2%, respectively, over 2019, and the average realized price of gasified LNG and LNG was RMB1,774 per thousand cubic meters and RMB2,543 per tonne, respectively, representing a decrease of 13.0% and a decrease of 23.1%, respectively.
In 2020, the operating expenses of this segment were RMB184.2 billion, representing a decrease of 8.5% over 2019. This was mainly due to:
| ● | Procurement cost decreased by RMB12.0 billion year on year, as a result of decrease of LNG price; |
| ● | Depreciation, depletion and amortization decreased by RMB4.5 billion year on year; |
| ● | Cost of power fuel and purchased materials decreased by RMB2.1 billion year on year; |
| ● | Resource Tax and special oil income levy decreased by RMB2.0 billion year on year; and |
| ● | Impairment losses on long-lived assets increased by RMB7.9 billion year on year. |
The lifting cost for oil and gas was RMB729.59 per tonne in 2020, representing a decrease of 6.7% over 2019, mainly attributable to the decrease in the cost of purchased material, fuels, and power since the upstream segment proactively reinforced the cost control to cope with the low oil price environment.
In 2020, the operating loss of the exploration and production segment was RMB16.5 billion, representing a decrease of RMB25.8 billion compared with 2019, mainly attributable to decrease of international oil price.
Refining Segment
Business activities of the refining segment consist of purchasing crude oil from third parties and from our exploration and production segment, processing crude oil into refined oil products, selling gasoline, diesel and kerosene to the marketing and distribution segment, selling a portion of chemical feedstock to our chemicals segment, and selling other refined oil products to the domestic and overseas customers.
Year Ended December 31, 2021 Compared with Year Ended December 31, 2020
In 2021, the operating revenues of this segment was RMB1,385.6 billion, representing an increase of 46.8% over 2020. This was mainly attributed to the demand recovery and the increases of refined oil products prices and sales volume.
50
The table below sets forth sales volume and average realized prices by product for 2021 and 2020, as well as the percentage changes in sales volume and average realized prices for the periods shown.
| | | | | | | | | | | | |
|
| Sales volume |
| Change from |
| Average realized prices |
| Change from | ||||
| | 2020 | | 2021 | | 2020 to 2021 | | 2020 | | 2021 | | 2020 to 2021 |
| | (thousand tonnes) | | (%) | | (RMB per tonne) | | (%) | ||||
Gasoline |
| 56,259 |
| 63,827 |
| 13.5 |
| 5,813 |
| 7,208 |
| 24.0 |
Diesel |
| 61,167 |
| 58,807 |
| (3.9) |
| 4,354 |
| 5,563 |
| 27.8 |
Kerosene |
| 17,309 |
| 17,313 |
| 0.0 |
| 2,673 |
| 3,734 |
| 39.7 |
Chemical feedstock |
| 39,872 |
| 45,234 |
| 13.5 |
| 2,596 |
| 3,989 |
| 53.7 |
Other refined oil products |
| 65,353 |
| 68,783 |
| 5.3 |
| 3,004 |
| 5,061 |
| 68.5 |
In 2021, sales revenue of gasoline was RMB460.1 billion, representing an increase of 40.7% over 2020; The sales revenue of diesel was RMB327.1 billion, representing an increase of 22.8% over 2020; the sales revenue of kerosene was RMB64.6 billion, representing an increase of 39.7% over 2020; the sales revenue of chemical feedstock was RMB180.4 billion, representing an increase of 74.3% over 2020; and the sales revenue of refined petroleum products other than gasoline, diesel, kerosene and chemical feedstock was RMB348.1 billion, representing an increase of 77.3% over 2020.
In 2021, the segment’s operating expenses was RMB1,320.3 billion, representing an increase of 39.0% over 2020. This was mainly attributed to the increase in procurement cost of crude oil, and the increase of taxes and surcharges related to sales revenue year on year.
In 2021, the average processing cost for crude oil was RMB3,329 per tonne, representing an increase of 35.6% over 2020. Total crude oil processed was 263.85 million tonnes (excluding volume processed for third parties), representing an increase of 7.3% over 2020. The total cost of crude oil processed was RMB878.4 billion, representing an increase of 45.5% over 2020.
In 2021, refining margin was RMB532 per tonne, representing an increase of RMB292 per tonne compared with that of the same period of 2020. This was mainly attributed to the increase in demand for refined oil products and chemical raw materials, and substantial improvement in gross margin of refined oil products and naphtha, as well as the significant inventory gains of crude oil and refined products.
In 2021, the refining unit cash operating cost (defined as operating expenses less the processing cost of crude oil and refining feedstock, depreciation and amortization, taxes other than income tax and other operating expenses, then divided by the throughput of crude oil and refining feedstock) was RMB213.24 per tonne, representing an increase of 17.5% over 2020, which was mainly attributed to the increased expense of safety, environment protection, and maintenance year on year.
In 2021, the operating income of the segment totaled RMB65.3 billion, representing an increase of RMB70.8 billion compared with that of 2020. This was mainly due to the fact that the segment seized the opportunity of market recovery to increase the utilization rates of facilities and made efforts to optimize the product slate. The inventory gains of crude oil and refined products increased, and the refining margin improved significantly.
51
Year Ended December 31, 2020 Compared with Year Ended December 31, 2019
In 2020, the operating revenues of this segment was RMB944.1 billion, representing a decrease of 22.9% over 2019. This was mainly attributed to the decrease in products prices and crude oil throughput compared with the same period of last year as a result of recession in market demand which was impacted by the COVID-19 pandemic.
The table below sets forth sales volume and average realized prices by product for 2020 and 2019, as well as the percentage changes in sales volume and average realized prices for the periods shown.
| | | | | | | | | | | | |
|
| Sales volume |
| Change from |
| Average realized prices |
| Change from | ||||
|
| 2019 |
| 2020 |
| 2019 to 2020 |
| 2019 |
| 2020 |
| 2019 to 2020 |
| | (thousand tonnes) | | (%) | | (RMB per tonne) | | (%) | ||||
Gasoline |
| 60,750 |
| 56,259 |
| (7.4) |
| 7,057 |
| 5,813 |
| (17.6) |
Diesel |
| 63,509 |
| 61,167 |
| (3.7) |
| 5,477 |
| 4,354 |
| (20.5) |
Kerosene |
| 23,890 |
| 17,309 |
| (27.6) |
| 4,252 |
| 2,673 |
| (37.2) |
Chemical feedstock |
| 39,720 |
| 39,872 |
| 0.4 |
| 3,531 |
| 2,596 |
| (26.5) |
Other refined oil products |
| 61,890 |
| 65,353 |
| 5.6 |
| 3,230 |
| 3,004 |
| (7.0) |
In 2020, our sales revenues of gasoline were RMB327.0 billion, representing a decrease of 23.7% over 2019; the sales revenues of diesel were RMB266.3 billion, representing a decrease of 23.4% over 2019; the sales revenues of kerosene were RMB46.3 billion, representing a decrease of 54.5% over 2019; the sales revenues of chemical feedstock were RMB103.5 billion, representing a decrease of 26.2% over 2019; and the sales revenues of other refined oil products other than gasoline, diesel, kerosene and chemical feedstock were RMB196.3 billion, representing a decrease of 1.8% over 2019.
This segment’s operating expenses were RMB949.6 billion in 2020, representing a decrease of 20.4% over 2019, which is mainly attributable to the decrease in procurement cost of crude oil resulted from the slump of international crude oil price.
In 2020, the average processing cost of crude oil was RMB2,456 per tonne, representing a decrease of 27.8% over 2019. Refining throughput were 245.92 million tonnes (excluding the volume processed for third parties), representing a decrease of 2.6% over 2019. In 2020, the total costs of crude oil processed were RMB603.9 billion, representing a decrease of 29.7% over 2019, which was accounted for 63.6% of the segment’s operating expenses, a decrease of 8.4 percentage points year on year.
The refining margin was RMB240 per tonne in 2020, representing a decrease of RMB126 per tonne compared with 2019. This is mainly due to the significant shrink of margin in kerosene and other refined petroleum products which was impacted by the COVID-19 outbreak and market demand recession as well as inventory losses of crude oil and refined products due to crude oil price slump.
In 2020, the refining cash operating cost (defined as operating expenses less the processing cost of crude oil and refining feedstock, depreciation and amortization, taxes other than income tax and other operating expenses, then divided by the throughput of crude oil and refining feedstock) was RMB181.48 per tonne, an increase of 2.1% over 2019, which was mainly because the unit cost increased as a result of the throughput decreased compared with last year.
In 2020, the operating loss of the segment totaled RMB5.5 billion, representing a decline of RMB36.2 billion compared with 2019.
Marketing and Distribution Segment
The business activities of the marketing and distribution segment include purchasing refined oil products from our refining segment and third parties, making wholesale and distribution to domestic customers, and retail of the refined oil products through this segment’s retail distribution network, as well as providing related services.
Year Ended December 31, 2021 Compared with Year Ended December 31, 2020
In 2021, the operating revenues of this segment was RMB1,411.5 billion, up by 28.1% year-on-year. This was mainly attributed to the recovery of market demand and thus the increase in the sales volume and price of refined oil products. The sales revenues of gasoline totaled RMB702.5 billion, up by 27.9% year-on-year; the sales revenues of diesel was RMB462.8 billion, up by 22.7% year-on-year; the sales revenues of kerosene was RMB80.3 billion, up by 46.4% year-on-year.
52
The following table sets forth the sales volumes, average realized prices and the respective rates of changes of the four major product categories in 2021 and 2020, including breakdown in retail, wholesale and distribution of gasoline and diesel.
| | | | | | | | | | | | |
|
| Sales Volume |
| Change from |
| Average Realized Prices |
| Change from | ||||
|
| 2020 |
| 2021 |
| 2020 to 2021 |
| 2020 |
| 2021 |
| 2020 to 2021 |
| | (thousand tonnes) | | (%) | | (RMB per tonne) | | (%) | ||||
Gasoline | | 86,216 | | 90,873 | | 5.4 | | 6,370 | | 7,730 | | 21.4 |
Retail sale | | 61,446 | | 64,325 | | 4.7 | | 6,940 | | 8,223 | | 18.5 |
Wholesale and distribution | | 24,770 | | 26,548 | | 7.2 | | 4,955 | | 6,537 | | 31.9 |
Diesel | | 77,507 | | 78,566 | | 1.4 | | 4,865 | | 5,890 | | 21.1 |
Retail sale | | 36,757 | | 33,644 | | (8.5) | | 5,351 | | 6,537 | | 22.2 |
Wholesale and distribution | | 40,750 | | 44,923 | | 10.2 | | 4,426 | | 5,406 | | 22.1 |
Kerosene | | 20,828 | | 21,296 | | 2.2 | | 2,634 | | 3,772 | | 43.2 |
Fuel oil | | 23,331 | | 25,847 | | 10.8 | | 2,536 | | 3,437 | | 35.6 |
In 2021, the operating expenses of the segment were RMB1,390.3 billion, up by 28.6% year-on-year. This was mainly due to the increase of sales volumes and prices of refined oil products, and thus the increase of procurement costs.
In 2021, the segment’s marketing expense (defined as the operating expenses less the purchase costs, taxes other than income tax, depreciation and amortization, divided by sales volume) was RMB197.66 per tonne, up by 4.11% year on year.
In 2021, the operating revenues of nonfuel business was RMB35.4 billion, up by RMB1.5 billion year-on-year and the profit of non-fuel business was RMB4.1 billion, up by RMB0.4 billion. This was mainly because the Company vigorously promoted company-owned brands and actively explored emerging business models to maintain the increase of volume and profit of non-fuel business.
In 2021, the segment seized the favorable opportunity of market recovery, brought synergy advantages of industrial chain into full play, coordinated internal and external resources, expanded market and increased sales, and continuously expand business volume. Operating profit was RMB21.2 billion, representing an increase of RMB0.4 billion or 1.8% year on year.
Year Ended December 31, 2020 Compared with Year Ended December 31, 2019
In 2020, the operating revenues of this segment was RMB1,102.2 billion, down by 23.0% year-on-year. This was mainly because demand and sales volume of refined oil products decreased as a result of COVID-19 impact and reduced oil prices. The sales revenues of gasoline totaled RMB549.2 billion, down by 19.4% year-on-year; the sales revenues of diesel were RMB377.0 billion, down by 25.7% year-on-year; and the sales revenues of kerosene was RMB54.9 billion, down by 52.8% year-on-year.
The following table sets forth the sales volumes, average realized prices and the respective rates of changes of the four major product categories in 2020 and 2019, including breakdown in retail, wholesale and distribution of gasoline and diesel.
| | | | | | | | | | | | |
|
| Sales Volume |
| Change from |
| Average Realized Prices |
| Change from | ||||
| | 2019 |
| 2020 |
| 2019 to 2020 |
| 2019 |
| 2020 |
| 2019 to 2020 |
| | (thousand tonnes) | | (%) | | (RMB per tonne) | | (%) | ||||
Gasoline |
| 92,261 |
| 86,216 |
| (6.6) |
| 7,387 |
| 6,370 |
| (13.8) |
Retail sale |
| 66,440 |
| 61,446 |
| (7.5) |
| 7,968 |
| 6,940 |
| (12.9) |
Wholesale and distribution |
| 25,820 |
| 24,770 |
| (4.1) |
| 5,892 |
| 4,955 |
| (15.9) |
Diesel |
| 87,335 |
| 77,507 |
| (11.3) |
| 5,812 |
| 4,865 |
| (16.3) |
Retail sale |
| 43,503 |
| 36,757 |
| (15.5) |
| 6,227 |
| 5,351 |
| (14.1) |
Wholesale and distribution |
| 43,832 |
| 40,750 |
| (7.0) |
| 5,399 |
| 4,426 |
| (18.0) |
Kerosene |
| 27,068 |
| 20,828 |
| (23.1) |
| 4,297 |
| 2,634 |
| (38.7) |
Fuel oil |
| 21,772 |
| 23,331 |
| 7.2 |
| 3,072 |
| 2,536 |
| (17.4) |
In 2020, the operating expenses of the segment were RMB1,081.4 billion, representing a decrease of RMB320.5 billion year-on-year, down by 22.9%. This was mainly due to the decrease of sales volumes and procurement costs.
In 2020, the operating revenues of nonfuel business was RMB33.9 billion, up by RMB1.8 billion year-on-year and the profit of non-fuel business was RMB3.7 billion, up by RMB0.5 billion. This was mainly because the Company vigorously promoted company-owned brands and innovated marketing model to boost the increase of volume and profit of non-fuel business.
53
In 2020, the segment’s marketing operating cash cost (defined as the operating expenses less the purchase costs, taxes other than income tax, depreciation and amortization, divided by sales volume) was RMB189.86 per tonne, up by 4.0% year-on-year, which was mainly because the unit cost increased as a result of the decreased sales volume.
In 2020, the segment’s operating profit was RMB20.8 billion, down by 28.4% year-on-year. This was mainly because sales volume decreased as a result of shrinking demand of refined oil product.
Chemicals Segment
The business activities of the chemicals segment include purchasing refined oil product from the refining segment and third parties, producing, marketing and distributing petrochemical and inorganic chemical products.
Year Ended December 31, 2021 Compared with Year Ended December 31, 2020
In 2021, the operating revenues of this segment was RMB505.5 billion, up by 36.0% year-on-year. This was mainly due to the steady growth of domestic economy, and the fact that the demand for chemical products still maintained a high level, and the product prices increased year on year.
In 2021, the sales revenue generated by the segment’s six major categories of chemical products (namely basic organic chemicals, synthetic resin, synthetic fiber monomer and polymer, synthetic fiber, synthetic rubber, and chemical fertilizer) was RMB478.6 billion, up by 34.9%, accounting for 94.7% of the operating revenues of the segment.
The following table sets forth the sales volume, average realized price and the respective rates of changes for each of these six categories of chemical products of this segment from 2020 to 2021.
| | | | | | | | | | | | |
|
| Sales Volume |
| Change from |
| Average Realized Prices |
| Change from | ||||
| | 2020 |
| 2021 |
| 2020 to 2021 |
| 2020 |
| 2021 |
| 2020 to 2021 |
| | (thousand tonnes) | | (%) | | (RMB per tonne) | | (%) | ||||
Basic organic chemicals |
| 47,109 |
| 48,059 |
| 2.0 |
| 3,569 |
| 5,311 |
| 48.8 |
Synthetic fiber monomers and polymers |
| 9,743 |
| 7,010 |
| (28.1) |
| 4,302 |
| 6,580 |
| 53.0 |
Synthetic resin |
| 17,124 |
| 17,924 |
| 4.7 |
| 7,150 |
| 8,325 |
| 16.4 |
Synthetic fiber |
| 1,403 |
| 1,457 |
| 3.8 |
| 6,407 |
| 7,521 |
| 17.4 |
Synthetic rubber |
| 1,364 |
| 1,289 |
| (5.5) |
| 7,986 |
| 11,104 |
| 39.0 |
Chemical fertilizer |
| 1,181 |
| 981 |
| (16.9) |
| 1,950 |
| 2,797 |
| 43.4 |
In 2021, the operating expenses of the chemicals segment was RMB494.4 billion, representing an increase of 37.0% over 2020, mainly because of the increase in the price of externally procured raw materials as a result of crude oil price increase.
In 2021, the Company seized the favorable opportunities of economy recovery and high realized prices of chemical products, continuously optimized the structures of feedstock, product and facilities, and achieved growing profits with increased margins of petrochemicals. The operating profit of this segment was RMB11.1 billion, representing an increase of 2.7% over 2020.
Year Ended December 31, 2020 Compared with Year Ended December 31, 2019
In 2020, the operating revenues of this segment was RMB371.6 billion, down by 27.9% year-on-year. This was mainly due to the decrease in chemical products prices and sales volume of some products because of COVID-19 impact.
In 2020, the sales revenue generated by the segment’s six major categories of chemical products (namely basic organic chemicals, synthetic resin, synthetic fiber monomer and polymer, synthetic fiber, synthetic rubber, and chemical fertilizer) was RMB354.7 billion, down by 24.2%, accounting for 95.4% of the operating revenues of the segment.
54
The following table sets forth the sales volume, average realized price and the respective rates of changes for each of these six categories of chemical products of this segment from 2019 to 2020.
| | | | | | | | | | | | |
|
| Sales Volume |
| Change from |
| Average Realized Prices |
| Change from | ||||
| | 2019 |
| 2020 |
| 2019 to 2020 |
| 2019 |
| 2020 |
| 2019 to 2020 |
| | (thousand tonnes) | | (%) | | (RMB per tonne) | | (%) | ||||
Basic organic chemicals |
| 52,007 |
| 47,109 |
| (9.4) |
| 4,534 |
| 3,569 |
| (21.3) |
Synthetic fiber monomers and polymers |
| 14,089 |
| 9,743 |
| (30.8) |
| 5,722 |
| 4,302 |
| (24.8) |
Synthetic resin |
| 16,131 |
| 17,124 |
| 6.2 |
| 7,804 |
| 7,150 |
| (8.4) |
Synthetic fiber |
| 1,370 |
| 1,403 |
| 2.4 |
| 8,438 |
| 6,407 |
| (24.1) |
Synthetic rubber |
| 1,284 |
| 1,364 |
| 6.3 |
| 9,595 |
| 7,986 |
| (16.8) |
Chemical fertilizer |
| 925 |
| 1,181 |
| 27.7 |
| 2,109 |
| 1,950 |
| (7.5) |
In 2020, the operating expenses of the segment was RMB360.8 billion, down by 27.6% year-on-year.
In 2020, the segment’s operating profit was RMB10.8 billion, down by RMB6.6 billion year-on-year. This was mainly due to the decrease in chemical product prices and narrowed gross margin as a result of COVID-19 impact.
Corporate and Others
The business activities of corporate and others mainly consist of the import and export business activities of our subsidiaries, research and development activities of us and managerial activities of our headquarters.
Year Ended December 31, 2021 Compared with Year Ended December 31, 2020
In 2021, the operating revenue generated from corporate and others was approximately RMB1,297.7 billion, representing an increase of 45.8% over 2020. This was mainly attributed to the great increase in the trading prices of crude oil and refined oil products.
In 2021, the operating expenses of corporate and others was RMB1,300.9 billion, representing an increase of 46.1% over 2020.
In 2021, the operating loss from corporate and others was RMB3.2 billion, representing an increase in loss of RMB2.8 billion over the same period of 2020. This was mainly attributed to the expansion of research and development investment scale which led to increase in research and development expenses and the increase of personnel expenses, and the cancellation of the government’s preferential treatment granted in 2020 with respect to social insurance during the COVID-19 pandemic.
Year Ended December 31, 2020 Compared with Year Ended December 31, 2019
In 2020, the operating revenues generated from corporate and others was RMB890.3 billion, down by 39.9% year-on-year. This was mainly because sales volume and prices of crude oil and refined oil products plunged as a result of COVID-19 impact.
In 2020, the operating expenses for corporate and others was RMB890.7 billion, down by 39.8% year-on-year.
In 2020, the segment’s operating loss was RMB0.04 billion, of which trading companies realized an operating profit of RMB4.1 billion.
D. | LIQUIDITY AND CAPITAL RESOURCES |
Our primary sources of funding have been cash provided by our operating activities, along with short-term and long-term loans. Our primary uses of cash have been for working capital, capital expenditures and repayment of short-term and long-term loans. We arrange and negotiate financing with financial institutions to finance our capital resource requirement, and maintain a certain level of standby credit facilities to reduce liquidity risk. We believe that our current cash on hand, expected cash flows from operations and available standby credit facilities from financial institutions will be sufficient to meet our working capital requirements and repay our short-term debts and obligations when they become due.
55
The following table sets forth a summary of our consolidated statements of cash flow data for the years ended December 31, 2019, 2020 and 2021.
| | | | | | |
|
| Year Ended December 31, | ||||
Statement of cash flow data | | 2019 | | 2020 | | 2021 |
| | (RMB in millions) | ||||
Net cash generated from operating activities |
| 154,380 |
| 168,520 |
| 225,174 |
Net cash used in investing activities |
| (121,314) |
| (102,650) |
| (145,198) |
Net cash used in financing activities |
| (84,702) |
| (37,510) |
| (57,942) |
Net (decrease)/increase in cash and cash equivalents |
| (51,636) |
| 28,360 |
| 22,034 |
In 2021, the net cash generated from operating activities of the Company was RMB225.2 billion, representing an increase of RMB56.7 billion over 2020. This was mainly due to the increase of RMB60.6 billion in earnings before income tax.
In 2020, the net cash generated from operating activities of the Company was RMB168.5 billion, representing an increase in cash of RMB14.1 billion year on year. This was mainly due to the strengthened management of inventories and receivables and payables resulting in sharp decrease of occupation of funds.
In 2021, the net cash used in investing activities was RMB145.2 billion, representing an increase of RMB42.5 billion over 2020, of which: proceeds from disposal of investments and investments in associates increased by RMB44.8 billion, capital expenditure increased by RMB9.6 billion, exploratory wells expenditure increased by RMB3.6 billion, purchasing investment and associates and joint ventures investments decreased by RMB1.1 billion, and cash outflow from changes in time deposit with maturities over three months decreased by RMB13.2 billion.
In 2020, the net cash used in investing activities was RMB102.7 billion, representing a year on year decrease of RMB18.7 billion, mainly because capital expenditures decreased by RMB12.0 billion.
In 2021, the net cash used in the Company’s financing activities was RMB57.9 billion, representing an increase of cash outflow by RMB20.4 billion over 2020. This was mainly due to an decrease of RMB3.2 billion in investments from non-controlling shareholders, increase of RMB3.6 billion in cash paid for dividends, increase of RMB3.2 billion in dividends allocated to non-controlling shareholders by subsidiaries, and increase of RMB7.1 billion in in acquisition of non-controlling equity interests, and increase in repayment for lease liabilities of RMB4.1 billion.
In 2020, the net cash used in financing activities were RMB37.5 billion, representing a year on year decrease of RMB47.2 billion, mainly because proceeds from bank and other loans decreased by RMB43.9 billion, repayments of bank and other loans decreased by RMB74.2 billion, dividends paid by the Company decreased by RMB14.5 billion, distributions by subsidiaries to non-controlling shareholders decreased by RMB3.0 billion.
In respect of our cash flow situation of 2021, we further reduced capital precipitation, accelerated capital revenue, strengthened the centralized management of funds, strictly controlled the scale of monetary funds and interest-bearing debts, and improved our operating cash flow situation.
In respect of our debts and borrowings in 2021, we managed to stabilize our operating cash flow, we increased our debts to RMB130.1 billion at the end of 2021 from RMB112.8 billion from the beginning of 2021. Among which, our short-term debts increased by RMB11.5 billion as compared to the beginning of 2021, representing a increase from 21.06% at the beginning of 2021 to 27.09% at the end of 2021 of the debts, primarily because of the increased short-form loan by our listed entity. Our long-term debts increased by RMB6.3 billion from the beginning of 2021, representing an decrease from 63.84% at the beginning of 2021 to 60.18% at the end of 2021 of the debts, which was mainly due to the issuance of corporate bonds. Our short-term debts consist of revolving loans borrowed according to our business plan and operation needs and overdrawing agreements entered into on the corporate bank account with our strategic-alliance banks to meet our intra-day payment requirements.
56
Contractual Obligations and Commercial Commitments
The following table sets forth our obligations and commitments to make future payments under contracts and commercial commitments as of December 31, 2021.
| | | | | | |
|
| As of December 31, 2021 | ||||
| | Total | | less than 1 year | | More than 1 year |
| | (RMB in millions) | ||||
Contractual obligations(1) |
|
|
|
| | |
Short-term debt |
| 54,622 |
| 54,622 | | ― |
Long-term debt |
| 101,257 |
| 2,425 | | 98,832 |
Total contractual obligations |
| 155,879 |
| 57,047 | | 98,832 |
| | | | | | |
Other commercial commitments |
| |
| | | |
Capital commitments |
| 274,657 |
| 184,430 | | 90,227 |
Exploration and production licenses |
| 1,535 |
| 301 | | 1,234 |
Guarantees(2) |
| 14,863 |
| 14,863 | | — |
Total commercial commitments |
| 291,055 |
| 199,594 | | 91,461 |
| (1) | Contractual obligations include the contractual obligations relating to interest payments. |
| (2) | Guarantee is not limited by time, therefore specific payment due period is not applicable. As of December 31, 2021, with respect to guarantees in relation to banking facilities granted to certain parties, we have not entered into any off-balance sheet arrangements. As of December 31, 2021, the maximum amount of potential future payments under the guarantees was RMB14.9 billion. As of December 31, 2020, the maximum amount of potential future payments under the guarantees was RMB14.8 billion. See Note 34 to the consolidated financial statements for further information of the guarantees. |
Historical and Planned Capital Expenditure
The following table sets forth our capital expenditure by segment for the years of 2019, 2020 and 2021 and the capital expenditure in each segment as a percentage of our total capital expenditure for such year.
| | | | | | | | | | | | | | | | | |
|
| 2019 |
| 2020 |
| 2021 |
| Total |
| ||||||||
| | RMB | | Percent | | RMB | | Percent | | RMB | | Percent | | RMB | | Percent |
|
| | (in billions, except percentage data) |
| ||||||||||||||
Exploration and production |
| 61.7 |
| 42 | % | 56.4 |
| 41 | % | 68.1 |
| 41 | % | 186.2 |
| 41 | % |
Refining |
| 31.4 |
| 21 | % | 24.8 |
| 18 | % | 22.5 |
| 13 | % | 78.7 |
| 17 | % |
Marketing and distribution |
| 29.6 |
| 20 | % | 25.4 |
| 18 | % | 21.9 |
| 13 | % | 76.9 |
| 17 | % |
Chemicals |
| 23.6 |
| 16 | % | 28.2 |
| 21 | % | 51.6 |
| 31 | % | 103.4 |
| 23 | % |
Corporate and others |
| 1.9 |
| 1 | % | 2.3 |
| 2 | % | 3.8 |
| 2 | % | 8.0 |
| 2 | % |
Capital Expenditure |
| 148.2 |
| 100 | % | 137.1 |
| 100 | % | 167.9 |
| 100 | % | 453.2 |
| 100 | % |
In 2021, focusing on investment quality and return, the Company continued to optimize investment management. The capital expenditures for the whole year were RMB167.9 billion, among which:
| ● | Exploration and production. RMB68.1 billion, mainly used for crude production capacity construction in Shunbei Oilfield, natural gas production capacity construction in Western Sichuan, Fuling and Weirong, storage and transmission facilities of Tianjin LNG Phase II and Qingdao LNG Phase III, and the CCUS Project in Shengli Oilfield. |
| ● | Refining. RMB22.5 billion, mainly used for the expansion of Zhenhai refinery and structural adjustment of Anqing and Yangzi refineries. |
| ● | Marketing and distribution. RMB21.9 billion, mainly used for service stations, integrated energy stations and logistics facilities. |
| ● | Chemicals. RMB51.6 billion, mainly used for Zhenhai, Sinopec-SK, Hainan, Tianjin Nangang, Gulei ethylene projects, AGCC project, Jiujiang Aromatics project, Shanghai large-tow carbon fiber project, Yizheng PTA project, Guizhou PGA project, and Qilu CCUS project. |
| ● | Corporate and others. RMB3.8 billion, mainly for research and development facilities and information technology projects. |
57
Capital expenditures for the year 2022 are budgeted at RMB198 billion, among which,
| ● | Exploration and production. The planned capital expenditure in 2022 for this segment is approximately RMB81.5 billion, with focuses on construction of crude oil production capacity in Shunbei and Tahe oilfields, and natural gas production capacity in Western Sichuan, Dongsheng and Zhongjiang and construction of storage and transmission facilities such as Longkou LNG. |
| ● | Refining. The planned capital expenditure in 2022 for this segment is RMB20.4 billion, mainly on the construction of Anqing, Yangzi refinery structural adjustment projects and Zhenhai refinery Phase II. |
| ● | Marketing and distribution.The planned capital expenditure in 2022 for this segment is RMB23.7 billion mainly used for the construction of service stations, integrated energy stations and logistics facilities. |
| ● | Chemicals.The planned capital expenditure in 2022 for this segment is RMB66.1 billion, which will be mainly used for Hainan and Tianjin Nangang ethylene projects, Jiujiang Aromatics project, Shanghai large-tow carbon fiber project, Yizheng PTA project, Guizhou PGA project, Zhenhai Refinery Phase II. |
| ● | Corporate and others.The planned capital expenditure in 2022 for this segment is RMB6.3 billion, mainly for research and development facilities and information technology projects. |
Research and Development
Our expenditures for research and development were RMB15.5 billion in 2019, RMB15.2 billion in 2020 and RMB21.1 billion in 2021, among which, the research expenses were RMB9.5 billion, RMB10.1 billion and RMB11.5 billion for each of the three years, respectively.
Consumer Price Index
According to the data provided by the National Bureau of Statistics, the consumer price index (CPI) in the PRC increased by 0.9% in 2021 over 2020 (CPI increased by 2.5% in 2020) and increased by 3.4% over 2019.
ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
| A. | DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT |
Directors
The table and discussion below set forth certain information concerning our directors. The current term for all of our directors of the seventh session of the Board of Directors will expire in May 2024.
Name |
| Age |
| Position with the Company |
|
Ma Yongsheng | | 60 | | Chairman | |
Zhao Dong | | 51 | | Director | |
Yu Baocai | | 57 | | Director, President | |
Ling Yiqun | | 59 | | Director, Senior Vice President | |
Li Yonglin | | 55 | | Director, Senior Vice President | |
Liu Hongbin | | 59 | | Director, Senior Vice President | |
Cai Hongbin | | 54 | | Independent Director | |
Ng, Kar Ling Johnny | | 61 | | Independent Director | |
Shi Dan | | 60 | | Independent Director | |
Bi Mingjian | | 66 | | Independent Director | |
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Ma Yongsheng, aged 60, Chairman of the Board of Sinopec Corp. Mr. Ma is a professor level senior engineer with a Ph.D. degree. Mr. Ma is a member of the 13th National Committee of Chinese People’s Political Consultative Conference (“CPPCC”) and an academician of the Chinese Academy of Engineering. In April 2002, he was appointed as Chief Geologist of Sinopec Southern Exploration and Production Company; in April 2006, he was appointed as Executive Deputy Manager (in charge of overall management), Chief Geologiest of Sinopec Southern Exploration and Production Company; in January 2007, he was appointed as General Manager and Party Secretary of CPC Committee of Sinopec Southern Exploration and Production Company; in March 2007, he served as General Manager and Deputy Party Secretary of CPC Committee of Sinopec Exploration Company; in May 2007, he was appointed as Deputy Commander of Sichuan-East China Gas Pipeline Project Headquarter of Sinopec Corp.; in May 2008, he was appointed as Deputy Director General of Exploration and Production Department of Sinopec Corp. (Director General Level); in July 2010, he served as Deputy Chief Geologist of Sinopec Corp.; in August 2013, he was appointed as Chief Geologist of Sinopec Corp.; in December 2015, he served as Vice President of China Petrochemical Corporation and was appointed as Senior Vice President of Sinopec Corp.; in January 2017, he was appointed as Member of the Leading Party Member Group of China Petrochemical Corporation; in October 2018, he was appointed as President of Sinopec Corp; in April 2019, he was appointed as Director, President and Vice Secretary of the Leading Party Member Group of China Petrochemical Corporation; in November 2021, he was appointed as Chairman and Secretary of the Leading Party Member Group of China Petrochemical Corporation. Mr. Ma was elected as Director of Sinopec Corp. in February 2016, and was elected as the Chairman of the Board of Sinopec Corp. in November 2021.
Zhao Dong, aged 51, Director of Sinopec Corp. Mr. Zhao is a professor level senior accountant with a Ph.D. degree. In July 2002, he was appointed as Chief Accountant and General Manager of Financial Assets Department of CNPC International (Nile) Ltd.; in January 2005, he was appointed as Deputy Chief Accountant and Executive Deputy Director of Financial and Capital Operation Department of China National Oil and Gas Exploration and Development Corporation; in April 2005, he was appointed as Deputy Chief Accountant and General Manager of Financial and Capital Operation Department of China National Oil and Gas Exploration and Development Corporation; in June 2008, he was appointed as Chief Accountant of China National Oil and Gas Exploration and Development Corporation; in October 2009, he was appointed as Chief Accountant of China National Oil and Gas Exploration and Development Corporation and Chief Financial Officer of PetroChina International Investment Company Limited; in September 2012, he was appointed as Deputy General Manager of CNPC Nile Company; in August 2013, he was appointed as General Manager of CNPC Nile Company; in November 2015, he was appointed as Chief Financial Officer of PetroChina Company Limited. In November 2016, he was appointed as a Member of the Leading Party Member Group and Chief Accountant of China Petrochemical Corporation; in May 2020, he was appointed as Director and Deputy Secretary of the Leading Party Member Group of China Petrochemical Corporation. In June 2017, he was elected as Chairman of Board of Supervisors of Sinopec Corp.; in May 2021, he was elected as Director of Sinopec Corp.
Yu Baocai, aged 57, Director and President of Sinopec Corp. Mr. Yu is a senior engineer with a master’s degree in economics. In September 1999, Mr. Yu was appointed as Deputy General Manager of Daqing Petrochemical Company; in December 2001, he was appointed as General Manager and Deputy Secretary of CPC Committee of Daqing Petrochemical Company; in September 2003, he was appointed as General Manager and Secretary of CPC Committee of Lanzhou Petrochemical Company; in June 2007, he was appointed as General Manager and Deputy Secretary of CPC Committee of Lanzhou Petrochemical Company and General Manager of Lanzhou Petroleum & Chemical Company; in September 2008, he was appointed as a member of the Leading Party Member Group and Deputy General Manager of China National Petroleum Corporation (“CNPC”) and since May 2011, he acted concurrently as Director of PetroChina Company Limited; in June 2018, he was appointed as a Member of the Leading Party Member Group and Vice President of China Petrochemical Corporation; in September 2020, he was appointed as Senior Vice President of Sinopec Corp. Mr. Yu was elected as Director of Sinopec Corp. in October 2018, and was appointed as President of Sinopec Corp. in November 2021.
Ling Yiqun, aged 59, Director and Senior Vice President of Sinopec Corp. Mr. Ling is a professor level senior engineer with a Ph.D. degree. From August 1983, he worked in the refinery of Beijing Yanshan Petrochemical Company and the Refining Department of Beijing Yanshan Petrochemical Company Ltd.; in February 2000, he was appointed as Deputy Director General of Refining Department of Sinopec Corp.; in June 2003, he was appointed as Director General of Refining Department of Sinopec Corp.; in July 2010, he was appointed as Vice President of Sinopec Corp.; in May 2012, he was appointed concurrently as Executive Director, President and Secretary of CPC Committee of Sinopec Refinery Product Sales Company Limited; in August 2013, he was appointed concurrently as President and Secretary of CPC Committee of Sinopec Qilu Petrochemical Company, and President of Sinopec Qilu Company; in March 2017, he was appointed as Vice President of China Petrochemical Corporation; since April 2019, he has been a member of the Leading Party Member Group of China Petrochemical Corporation. In February 2018, he was appointed as Senior Vice President of Sinopec Corp.; in May 2018, he was elected as Director of Sinopec Corp.
59
Li Yonglin, aged 55, Director and Senior Vice President of Sinopec Corp. Mr. Li is a professor level senior engineer with a Ph.D. degree. Mr. Li is a member of the 13th National Committee of CPPCC. He was appointed as Vice General Manager of Sinopec Maoming Company in March 2003; in July 2009, he was appointed as Chief of Preparatory Group for the Beihai Refining Off-Site Reconstruction Project; in November 2011, he was appointed as General Manager and Deputy Secretary of CPC Committee of Sinopec Beihai Refining & Chemical Co., Ltd.; in March 2015, he was appointed as Vice Director General of Refining Division of Sinopec Corp. (Director General Level); in December 2016 he was appointed as General Manager and Deputy Secretary of CPC Committee of Sinopec Tianjin Petrochemical Company, General Manager of Sinopec Tianjin Company and Vice Chairman of SINOPEC SABIC Tianjin Petrochemical Co., Ltd.; in October 2019, he was appointed as Secretary of CPC Committee of Sinopec Tianjin Petrochemical Company and Corporate Representative of Sinopec Tianjin Company; in July 2020, he was appointed as Assistant to the President of China Petrochemical Corporation, concurrently serving as General Manager of Human Resources Department and Head of Organizational Department of the Leading Party Member Group; in November 2020, he was appointed as a member of Leading Party Member Group and Vice President of China Petrochemical Corporation.; in May 2021, he was elected as Director of Sinopec Corp. and was appointed as Senior Vice President of Sinopec Corp.
Liu Hongbin, aged 59, Director and Senior Vice President of Sinopec Corp. Mr. Liu is a senior engineer with a bachelor’s degree. In June 1995, he was appointed as Chief Engineer of Tuha Petroleum Exploration & Development Headquarters; in July 1999, he was appointed as Deputy General Manager of PetroChina Tuha Oilfield Company; in July 2000, he was appointed as Commander and Deputy Secretary of CPC Committee of Tuha Petroleum Exploration & Development Headquarters; in March 2002, he served as General Manager of the Planning Department of PetroChina Company Limited; in September 2005, he served as Director of the Planning Department of CNPC; in June 2007, he was appointed as Vice President of PetroChina Company Limited, and in November 2007, he served concurrently as General Manager and Secretary of CPC Committee of the Marketing Branch of PetroChina Company Limited; in June 2009, he served concurrently as General Manager and Deputy Secretary of CPC Committee of the Marketing Branch of PetroChina Company Limited; in July 2013, he was appointed as Member of the Leading Party Member Group and Deputy General Manager of CNPC and in August 2013, he served concurrently as an Executive Director and General Manager of Daqing Oilfield Company Limited, Head of enterprise Coordination in Heilongjiang Province, Director of Daqing Petroleum Administration Bureau and Deputy Secretary of CPC Committee of Daqing Oilfield; in May 2014, he served concurrently as Director of PetroChina Company Limited; in November 2019, he was appointed as a member of the Leading Party Member Group of China Petrochemical Corporation; in December 2019, he was appointed as Vice President of China Petrochemical Corporation. In March 2020, he was appointed as Senior Vice President of Sinopec Corp. In May 2020, he was elected as Director of Sinopec Corp.
Cai Hongbin, aged 54, Independent Director of Sinopec Corp. Mr. Cai is Dean of Faculty of Business and Economics and Professor of Economics of the University of Hong Kong. Mr. Cai has a Ph.D. degree in Economics. From 1997 to 2005, Mr. Cai taught at the University of California, Los Angeles. Since 2005, he served as a professor and Ph.D. supervisor in Applied Economics Department at Guanghua School of Management at Peking University, and he once served as Director, Assistant to the Dean and Vice Dean of the Applied Economics Department. From December 2010 to January 2017, he served as Dean of Guanghua School of Management at Peking University. In June 2017, he joined the Faculty of Business and Economics of the University of Hong Kong. Mr. Cai once served as a member of the 12th National People’s Congress, a member of Beijing Municipal Committee of CPPCC, a member of the 11th Central Committee of China Democratic League, Deputy Chairman of Beijing Municipal Committee of China Democratic League and a Special Auditor of the National Audit Office. He currently serves as an Independent Director of CCB International (Holdings) Limited and Ping An Bank Co., Ltd. In May 2018, he was elected as Independent Director of Sinopec Corp.
Ng, Kar Ling Johnny, aged 61, Independent Director of Sinopec Corp. Mr. Ng currently is a practicing Certified Public Accountant in Hong Kong, a practicing auditor and accountant in Macau, a Fellow of the Hong Kong Institute of Certified Public Accountants (FCPA), a Fellow of the Association of Chartered Certified Accountant (FCCA), and a Fellow of the Institute of Chartered Accountants in England and Wales (FCA). Mr. Ng obtained a bachelor’s degree and a master’s degree in business administration from the Chinese University of Hong Kong in 1984 and 1999, respectively. Mr. Ng joined KPMG (Hong Kong) in 1984 and became a Partner in 1996. He acted as a Managing Partner from June 2000 to September 2015 and Vice Chairman of KPMG China from October 2015 to March 2016. Mr. Ng currently serves as Independent Nonexecutive Director of China Vanke Co., Ltd., Fangdd Network Group Ltd. and Metallurgical Corporation of China Ltd. In May 2018, he was elected as Independent Director of Sinopec Corp.
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Shi Dan, aged 60, Independent Director of Sinopec Corp. Ms. Shi is the legal representative and Chairman of China Industrial Economics Society, a member of Expert Advisory Committee of the National Energy Commission and a member of National Expert Committee on Climate Change and enjoys special government subsidies from the State Council. Ms. Shi obtained bachelor’s degree in engineering, master’s degree in economics, master’s degree of development economics and Ph.D. degree in management from Changchun University of Technology, Renmin University of China, Australian National University and Huazhong University of Science and Technology respectively. In October 1993, Ms. Shi was appointed as Research Fellow and Assistant to the Dean of the Institute of Industrial Economics of Chinese Academy of Social Sciences; in August 2010, Ms. Shi was appointed as a Research Fellow and Deputy Dean of National Academy of Economic Strategy, Chinese Academy of Social Sciences; in November 2013, she was appointed as a Research Fellow and Secretary of CPC Committee (Deputy Dean) of the Institute of Industrial Economics of Chinese Academy of Social Sciences; in November 2017, she served as External Director of China Energy Investment Corporation Limited. In March 2019, she was appointed as Dean of Institute of Industrial Economics of Chinese Academy of Social Sciences. In May 2021, she was elected as Independent Director of Sinopec Corp.
Bi Mingjian, aged 66, Independent Director of Sinopec Corp. Mr. Bi obtained the certificate of diploma majoring in English from East China Normal University in 1982 and master’s degree in business administration from George Mason University in the United States of America in 1993 respectively. Mr. Bi served as a cadre at Shanghai Subei Haifeng Farm from April 1977 to April 1979; he studied at the External Training Program of the Cadre School of the Ministry of State Farms and Land Reclamation, and subsequently he studied at a farm in Saskatchewan Province of Canada from April 1979 to November 1980; he served as a cadre at the Foreign Affairs Bureau of the Ministry of State Farms and Land Reclamation from November 1980 to December 1983; he served as Deputy Division Chief of the State Farms and Land Reclamation Bureau of the Ministry of Agriculture from January 1984 to December 1985; he served as Operation Officer of the World Bank Representative Office in China from December 1985 to June 1988; he served as Deputy Director of the project office of China Rural Trust and Investment Corporation from June 1988 to October 1988; he served as Project Economist and Advisor of the World Bank from October 1988 to January 1994; he served as a cadre at People’s Construction Bank of China from January 1994 to July 1995; he served as Deputy Chief Executive Officer, member and Deputy Chairman of the Management Committee, Co-Chief Operating Officer and Co-Head of the Investment Banking Department of China International Capital Corporation Limited (“CICC”) from August 1995 to February 2006; he served as a Senior Advisor to CICC from March 2006 to November 2012; he served as a Managing Partner of HOPU Investment Management Co., Ltd. from November 2012 to March 2015; he served as a non-executive director for China Investment Securities Co., Ltd. (currently known as China CICC Wealth Management Securities Company Limited) from March 2017 to January 2020; from March 2015 to December 2019, he served as Chief Executive Officer and Chairman of Management Committee of CICC; from May 2015 to February 2020, he served as Executive Director of CICC. In May 2021, he was elected as Independent Director of Sinopec Corp.
Supervisors
The table and discussion below set forth certain information concerning our supervisors. The current term for all of our supervisors of the seventh session of the Board of Supervisors will expire in May 2024.
Name |
| Age |
| Position with the Company |
|
Zhang Shaofeng | | 50 | | Chairman of the Board of Supervisors | |
Jiang Zhenying | | 57 | | Supervisor | |
Zhang Zhiguo | | 59 | | Supervisor | |
Yin Zhaolin | | 56 | | Supervisor | |
Guo Hongjin | | 56 | | Supervisor | |
Li Defang | | 60 | | Employee Representative Supervisor | |
Lv Dapeng | | 60 | | Employee Representative Supervisor | |
Chen Yaohuan | | 58 | | Employee Representative Supervisor | |
Zhang Shaofeng, aged 50, Chairman of Board of Supervisors of Sinopec Corp. Mr. Zhang is a professor level senior accountant with a master’s degree in business administration. In December 2008, he was appointed as Chief Accountant and Member of the CPC Committee of Trans-Asia Gas Pipeline Company Limited of China National Petroleum Corporation (“CNPC”); in July 2017, he was appointed as General Manager of Finance Department of CNPC (PetroChina Company Limited); in December 2017, he was appointed as General Manager of Finance Department of CNPC (PetroChina Company Limited); in July 2020, he was appointed as Member of the Leading Party Member Group and Chief Accountant of China Petrochemical Corporation. In September 2020, he was elected as Director of Sinopec Corp.; in May 2021, he was elected as Chairman of Board of Supervisors of Sinopec Corp.
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Jiang Zhenying, aged 57, Supervisor of Sinopec Corp. Mr. Jiang is a professor level senior economist with a Ph.D. degree in management. In December 1998, he was appointed as Vice President of China Petrochemical Supplies & Equipment Co., Ltd.; in February 2000, he was appointed as Deputy Director General of Sinopec Procurement Management Department; in December 2001, he was appointed as Director General of Sinopec Procurement Management Department; in November 2005, he concurrently held the positions of Chairman of Board of Directors, President and Secretary of CPC Committee of China Petrochemical International Co., Ltd.; in March 2006, he was appointed as Director General (General Manager), Executive Director and Secretary of the CPC Committee of Sinopec Procurement Management Department (Sinopec International Co. Ltd.); in April 2010, he was appointed as Director General (General Manager), Executive Director and Deputy Secretary of the CPC Committee of Sinopec Procurement Management Department (Sinopec International Co. Ltd.); in November 2014, he was appointed as Director of Safety Supervisory Bureau of China Petrochemical Corporation and Director General of Safety Supervisory Department of Sinopec Corp. In May 2017, he was appointed as Deputy Director General (Director General Level) of the Office of Leading Party Member Group Inspection Work of China Petrochemical Corporation; in December 2018, he was appointed as Director of Audit Bureau of China Petrochemical Corporation, and Director of Audit Department of Sinopec Corp.; in December 2019, he was appointed as President of Audit Bureau of Sinopec Corp. and Director of the Office of Audit Committee of Leading Party Member Group of China Petrochemical Corporation. In December 2010, he was elected as Employee’s Representative Supervisor of Sinopec Corp.; in May 2018, he was elected as Supervisor of Sinopec Corp.
Zhang Zhiguo, aged 59, Supervisor of Sinopec Corp. Mr. Zhang is a professor level senior administration engineer with a master’s degree. In September 2009, he was appointed as Deputy Director General of Corporate Office of China Petrochemical Corporation (Sinopec President’s office); in March 2015, he was appointed as Secretary of CPC Committee of Sinopec Management Institute (Sinopec Communist Party School); in December 2018, he was appointed as Director General of the Office of Leading Party Member Group Inspection Work of China Petrochemical Corporation; in December 2019, he was appointed as Director General of the General Management Department and Director of Leading Party Member Group Office of China Petrochemical Corporation. In May 2021, he was elected as Supervisor of Sinopec Corp.
Yin Zhaolin, aged 56, Supervisor of Sinopec Corp. Mr. Yin is a professor level senior engineer with a master’s degree in engineering. In April 2010, he was appointed as Deputy General Manager of Sinopec Maoming Company; in January 2017, he was appointed as Executive Deputy General Manager of Sinopec Maoming Company (administrated as a General Manager of a Level-I Largescale Enterprise); in April 2017, he was appointed as General Manager and Deputy Secretary of CPC Committee of Sinopec Maoming Petrochemical Company and General Manager of Sinopec Maoming Company; in July 2017, he was appointed to serve a temporary position as a member of the Standing Committee of the CPC Maoming Municipal Committee; in October 2020, he was appointed as Executive Director and Secretary of CPC Committee of the Sinopec Maoming Petrochemical Company and the representative of the Sinopec Maoming Company, head of Maoming-Zhanjiang Integration Leading Group. In May 2021, he was elected as Supervisor of Sinopec Corp.
Guo Hongjin, aged 56, Supervisor of Sinopec Corp. Mr. Guo is a professor level senior engineer with a Ph.D. degree. In July 2013, he was appointed as Deputy General Manager of Sinopec Shengli Oilfield Company; in March 2018, he was appointed as General Manager and Deputy Secretary of CPC Committee of Sinopec Shengli Petroleum Administrative Bureau Co., Ltd. and General Manager of Sinopec Shengli Oilfield Company; in December 2018, he was appointed as Executive Director, General Manager and Deputy Secretary of CPC Committee of Sinopec Jianghan Petroleum Administrative Bureau Co., Ltd. and General Manager of Sinopec Jianghan Oilfield Company; in July 2019, he was appointed as Executive Director and Secretary of CPC Committee of Sinopec Jianghan Petroleum Administrative Bureau Co., Ltd. and the representative of Sinopec Jianghan Oilfield Company; in April 2020, he was appointed as General Manager of the Petroleum Exploration & Development Department of Sinopec Corp. In May 2021, he was elected as Supervisor of Sinopec Corp.
Li Defang, aged 60, Employee’s Representative Supervisor of Sinopec Corp. Mr. Li is a professor level senior engineer with a Ph.D. degree. In May 2001, he was appointed as Deputy Secretary of CPC Committee and Trade Union Chairman of Sinopec Engineering Incorporation; in December 2001, he was appointed as Director General of Information System Management Department of Sinopec Corp.; in September 2013, he was appointed as Director General of Informatisation Management Department of Sinopec Corp.; in October 2014, he was appointed as Chairman of PetroCyberWorks Information Technology Co., Ltd.; in January 2018, he was elected as Employee Supervisor of China Petrochemical Corporation; in March 2019, he was appointed as Secretary of CPC Committee of Sinopec Management Institute (Sinopec Communist Party School); in November 2020, he was appointed as the Secretary of CPC Committee of Sinopec Management Institute and Executive Vice Principal of Sinopec Communist Party School. In May 2020, he was elected as Employee’s Representative Supervisor of Sinopec Corp.
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Lv Dapeng, aged 60, Employee’s Representative Supervisor of Sinopec Corp. Mr. Lv is a professor level senior administration engineer with a Master’s degree of business administration. In December 2001, he was appointed as Deputy Director General of China Petrochemical News; in March 2003, he was appointed as Deputy Director General and Chief Editor of China Petrochemical News; in June 2004, he was appointed as Director General and Chief Editor of China Petrochemical News; in December 2004, he was appointed as Director General, Secretary of CPC Committee and Chief Editor of China Petrochemical News; in March 2011, he was appointed as Director General of Corporate Culture Department of Sinopec Corp., and Director General of the Political Work Department of and Deputy Secretary of the CPC Committee directly under China Petrochemical Corporation; in June 2012, he was appointed concurrently as Deputy Director General of Working Committee of Trade Union and Deputy Director of the Youth Working Committee of China Petrochemical Corporation; in March 2015, he was appointed as Director General of Corporate Culture Department of Sinopec Corp. and Director General of Communications Department (Press Office) of China Petrochemical Corporation; in December 2019, he was appointed as Director General of Corporate Culture Department of Sinopec Corp., Director General of Communication Department and Director General of Press Office of China Petrochemical Corporation. In January 2021, he was elected as Employee’s Representative Supervisor of Sinopec Corp.
Chen Yaohuan, aged 58, Employee’s Representative Supervisor of Sinopec Corp. Mr. Chen is a professor level senior engineer with a Master’s degree awarded by Central Party School of the CPC. In October 2008, he was appointed as Deputy Director General of Refining Department of Sinopec Corp.; in March 2015, he was appointed as Executive Director, General Manager and Deputy Secretary of the CPC Committee of Sinopec Beihai Refining and Chemical Limited Liability Company; in May 2015, he was appointed as a member of the Standing Committee of the CPC Beihai Municipal Committee; in June 2018, he was appointed as General Manager and Deputy Secretary of the CPC Committee of Guanzhou Branch of Sinopec Corp. and General Manager of Guangzhou Branch of Sinopec Assets Management Corporation; in July 2019, he was appointed as Deputy Director General (Director General Level) and Chief Engineer of Refining Department of Sinopec Corp.; in October 2019, he was appointed concurrently as Chairman of Sinopec Kantons International Limited and Sinopec Kantons Holdings Limited; in December 2019, he was appointed as General Manager and Chief Engineer of Refining Department of Sinopec Corp.; in December 2019, he was appointed concurrently as Vice Chairman and Chairman of Audit Committee of Yanbu Aramco Sinopec Refining Company Ltd.; in August 2020, he was appointed concurrently as Executive Director and Secretary of CPC Committee of Sinopec Petroleum Marketing Company Limited and Chairman of Sinopec Petroleum Storage and Reserve Limited. In January 2021, he was elected as Employee’s Representative Supervisor of Sinopec Corp.
Other Executive Officers
Name |
| Age |
| Positions with Sinopec Corp. |
|
Chen Ge | | 59 | | Senior Vice President | |
Yu Xizhi | | 59 | | Vice President | |
Shou Donghua | | 52 | | CFO | |
Zhao Rifeng | | 59 | | Vice President | |
Huang Wensheng | | 55 | | Vice President/Secretary to the Board of Directors | |
Chen Ge, aged 59, Senior Vice President of Sinopec Corp. Mr. Chen is a senior economist with a Master’s degree. In February 2000, he was appointed as Deputy Director General of the Board Secretariat of Sinopec Corp.; in December 2001, he was appointed as Director General of the Board Secretariat of Sinopec Corp.; in April 2003, he was appointed as Secretary to the Board of Directors of Sinopec Corp.; from April 2005 to August 2013, he was appointed concurrently as Director General of Corporate Reform & Management Dept. of Sinopec Corp.; in July 2010, he was appointed as Assistant to President of China Petrochemical Corporation; from December 2013 to December 2015, he was appointed temporarily as Deputy Secretary-General of Guizhou Provincial People’s Government and a member of the Leading Party Member Group of Guizhou Provincial General Office; in November 2015, he was appointed as Employee’s Representative Director of China Petrochemical Corporation; in December 2017, he was appointed concurrently as Director General of Corporate Reform & Management Dept. of Sinopec Corp.; in October 2018, he was appointed as Senior Vice President of Sinopec Corp.; in July 2020, he was appointed concurrently as General counsel.
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Yu Xizhi, aged 59, Vice President of Sinopec Corp. Mr Yu is a professor-level senior engineer with a Ph.D. degree in engineering. In August 1997, he was appointed as Deputy General Manager of Anqing Petrochemical General Plant and concurrently as General Manager of Fertiliser Plant; in September 1999, he became a member of the CPC Standing Committee of Anqing Petrochemical General Plant; in February 2000, he was appointed as Deputy General Manager of Sinopec Anqing Company and in September 2000, he was appointed as General Manager of Sinopec Anqing Company; in January 2005, he was appointed as General Manager of Anqing Petrochemical General Plant and from May 2009 to July 2010, he temporarily served as a member of the Standing Committee of the CPC Anqing Municipal Committee; in July 2010, he became General Manager and Deputy Secretary of the CPC Committee of Maoming Petrochemical Company and General Manager of Sinopec Maoming Company; in July 2016, Mr. Yu was appointed as head of Maoming-Zhanjiang Integration Leading Group; in December 2016, he became Executive Director, General Manager and Deputy Secretary of the CPC Committee of Zhongke (Guangdong) Refining and Petrochemical Co., Ltd.; in April 2017, Mr. Yu was appointed as Director General of Human Resources Department of Sinopec Corp.; in June 2017, he was elected as Employee’s Representative Supervisor of Sinopec Corp.; in December 2019, he was appointed as President of Human Resource Department of Sinopec Corp. and the Director General of Organization Department of China Petrochemical Corporation; in January 2020, he was elected as Director of China Petrochemical Corporation. In July 2020, he was appointed as Vice President of Sinopec Corp.
Shou Donghua, aged 52, Chief Financial Officer and General Manager of Finance Department of Sinopec Corp. Ms. Shou is a professor level senior accountant with a Master’s degree of business administration. In July 2010, she was appointed as the Chief Financial Officer of Sinopec Zhenhai Refining & Chemical Company; in October 2014, she was appointed as Deputy Director General of Human Resource Department of Sinopec Corp.; in August 2017, she was appointed as the Secretary of CPC Committee of Sinopec Zhenhai Refining & Chemical Company and Deputy General Manager of Sinopec Zhenhai Refining & Chemical Company; in August 2018, she was appointed as the Director General of Finance Department of China Petrochemical Corporation and concurrently served as the Chairman of Sinopec Century Bright Capital Investment Limited; in December 2019, she was appointed as General Manager of Finance Department of Sinopec Corp. and concurrently served as the Chairman of Sinopec Century Bright Capital Investment Limited. In January 2020, she was appointed as Chief Financial Officer of Sinopec Corp. and General Manager of Finance Department.
Zhao Rifeng, aged 59, Vice President of Sinopec Corp. Mr. Zhao is a professor level Senior Engineer with a Master’s degree. In July 2000, he was appointed as Deputy General Manager of Sinopec Jinling Petrochemical Co., Ltd. and Deputy Manager of Sinopec Jinling Company; in October 2004, he was appointed as General Manager of Sinopec Jinling Company; in October 2006, he was appointed as Vice Chairman and General Manager of Sinopec Jinling Petrochemical Co., Ltd.; in November 2010, he was appointed as Chairman, General Manger, Deputy Secretary of CPC Committee of Sinopec Jinling Petrochemical Co., Ltd.; in August 2013, he was appointed as Director General of Refining Department of Sinopec Corp.; in December 2017, he was appointed as the Director General of the Marketing Department of Sinopec Corp. and Chairman and Secretary of CPC Committee of Sinopec Marketing Company Limited; in December 2019, he was appointed as the President of the Marketing Department of Sinopec Corp. and Chairman and Secretary of CPC Committee of Sinopec Marketing Company Limited. In February 2018, he was appointed as Vice President of Sinopec Corp.
Huang Wensheng, aged 55, Vice President of Sinopec Corp., Secretary to the Board of Directors. Mr. Huang is a professor level senior economist with a university diploma. In March 2003, he was appointed as Deputy Director General of the Board Secretariat of Sinopec Corp.; in May 2006, he was appointed as Representative on Securities Matters of Sinopec Corp.; in August 2009, he was appointed as the Deputy Director General of President’s office of Sinopec Corp.; in September 2009, he was appointed as Director General of the Board Secretariat of Sinopec Corp.; in; in June 2018, he was appointed concurrently as Director General of Department of Capital Management and Financial Services of China Petrochemical Corporation; in July 2018, he was appointed concurrently as Chairman and Secretary of CPC Committee of Sinopec Capital Co., Ltd.; in December 2019, he was appointed as President of Department of Capital Management and Financial Services of China Petrochemical Corporation. In May 2012, he was appointed as Secretary to the Board of Directors of Sinopec Corp; In May 2014, he was appointed as Vice President of Sinopec Corp.
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B. | COMPENSATION |
Salaries of Directors, Supervisors and Members of the Senior Management
Our directors and supervisors who hold working posts with us and other senior management members receive all their compensation from us in cash. Our compensation committee, with assistances from relevant administrative departments, determines the appropriate level of annual compensation for each of our directors and supervisors who hold working posts with us and other senior management members in two components: a base salary component and a performance rewards component. The base salary component is a fixed amount that will be paid on monthly basis. The performance rewards component is paid in one lump sum at about year end and the exact amounts of the performance rewards to be paid will be based on the completion by the Company of certain performance targets (key performance indicators, or KPIs) which are set at the beginning of the year and reviewed at year end. The KPIs cover areas such as profitability, workplace safety and environmental protection. Based on the annual review by our compensation committee, with the assistances from relevant administrative departments, of the Company’s completion of various KPIs, our directors and supervisors who hold working posts with us and other senior management members will receive full or partial payments as their performance rewards.
The following table sets forth the compensation on individual basis for our directors, supervisors and executive officers who received compensation from us in 2021.
| | | | |
Name |
| Position with the Company |
| Remuneration paid by the Company in 2021 |
| | | | (RMB in ten thousands before tax) |
Directors | | | | |
Ma Yongsheng |
| Chairman, |
| 71.53 |
Zhao Dong(1) |
| Director |
| ― |
Yu Baocai |
| Director, President |
| 44.18 |
Li Yonglin(2) |
| Director, Senior Vice President |
| ― |
Ling Yiqun |
| Director, Senior Vice President |
| ― |
Liu Hongbin |
| Director, Senior Vice President |
| ― |
Cai Hongbin |
| Independent Director |
| 41.67 |
Ng, Kar Ling Johnny |
| Independent Director |
| 41.67 |
Shi Dan(3) |
| Independent Director |
| 30 |
Bi Mingjian(4) |
| Independent Director |
| 30 |
| | | | |
Supervisors |
|
|
|
|
Zhang Shaofeng(5) |
| Chairman of the Board of Supervisors |
| ― |
Jiang Zhenying |
| Supervisor |
| ― |
Zhang Zhiguo(6) |
| Supervisor |
| ― |
Yin Zhaolin(7) |
| Supervisor |
| ― |
Guo Hongjin(8) |
| Supervisor |
| 40.32 |
Li Defang |
| Employee Representative Supervisor |
| 29.84 |
Lv Dapeng |
| Employee Representative Supervisor |
| 41.72 |
Chen Yaohuan |
| Employee Representative Supervisor |
| 116.54 |
| | | | |
Other Executive officers |
|
|
|
|
Chen Ge |
| Senior Vice President |
| 158.67 |
Yu Xizhi |
| Vice President |
| 141.1 |
Shou Donghua |
| CFO |
| 129.24 |
Zhao Rifeng |
| Vice President |
| 145.19 |
Huang Wensheng |
| Vice President/Secretary to the Board of Directors |
| 140.79 |
Note: (1) Mr. Zhao Dong was elected on May 25, 2021.
(2) Mr. Li Yonglin was elected on May 25, 2021.
(3) Ms. Shi Dan was elected on May 25, 2021.
(4) Ms. Bi Mingjian was elected on May 25, 2021.
(5) Mr. Zhang Shaofeng was elected on May 25, 2021.
(6) Mr. Zhang Zhiguo was elected on May 25, 2021.
(7) Mr. Yin Zhaolin was elected on May 25, 2021.
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(8) Mr. Guo Hongjin was elected on May 25, 2021.
C. | BOARD PRACTICE |
We have ten directors. We have five special board committees, namely the strategic committee, the audit committee, the remuneration and evaluation committee, the nominating committee and sustainable development committee. All members of the audit committee and the majority of the members of the remuneration and evaluation committee and the nominating committee are independent directors. In addition, there is at least one independent director who is a financial expert in the audit committee.
The main responsibilities of the strategy committee are to conduct research and put forward proposals on the long-term development strategy and significant investments.
The members of our strategy committee are Ma Yongsheng, Yu Baocai, Ling Yiqun, Li Yonglin, Liu Hongbin, Cai Hongbin, Shi Dan and Bi Mingjian.
The main responsibilities of the audit committee include:
| ● | to propose the appointment or replacement of the independent auditor; |
| ● | to oversee the internal auditing system and its implementation; |
| ● | to coordinate the communication between the internal auditing department and the independent auditor; |
| ● | to examine and approve financial information and it disclosure; and |
| ● | to examine the financial policies, internal auditing, internal control and risk management system. |
The members of our audit committee are Ng, Kar Ling Johnny, Cai Hongbin, Shi Dan and Bi Mingjian, all of whom are our Independent Non-executive Directors. Our Board has determined that Ng, Kar Ling Johnny qualifies as an audit committee financial expert.
The main responsibilities of the remuneration and appraisal committee (remuneration committee) include:
| ● | to review evaluation standards on the performance of directors and senior management, to conduct their evaluations and make suggestions to the Board; and |
| ● | to review compensation policies and scheme in respect of the remuneration of directors, supervisors and executive officers, and make suggestions to the Board. |
The members of our remuneration committee are Bi Mingjian, Ma Yongsheng and Ng, Kar Ling Johnny.
The main responsibilities of the nominating committee include:
| ● | to advise the Board on the size and composition of the Board based on the company’s business activities, asset size and shareholding structure; |
| ● | to review the selection criteria and procedures for directors and senior management, and to make suggestions to the Board; and |
| ● | to search in the domestic and overseas talent market and within the Company for qualified candidates, review the director and president candidates, senior vice president candidates, chief financial officer and vice president candidates as suggested by the president, and secretary to the Board as proposed by the chairman, and make recommendations to the Board. |
The members of nominating committee are Shi Dan, Ma Yongsheng and Ng, Kar Ling Johnny.
The main responsibilities of the sustainable development committee include:
| ● | make recommendations to the Board on major decisions related to the Company’s sustainable development (including environmental, social and governance, etc.); |
| ● | supervise the implementation and progress of the Company’s sustainable development strategies and plans; |
| ● | supervise the Company’s commitment and performance on key issues such as climate change, safeguarding health and safety, and fulfilling social responsibilities, and make recommendations to the Board; |
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| ● | pay attention to important information on sustainable development matters related to the Company’s business, study the company’s sustainable development-related matters, and make recommendations to the Board; |
| ● | review the Company’s annual sustainable development report and make recommendations to the board of directors; and |
| ● | other matters authorized by the Board. |
The members of sustainable development committee are Ma Yongsheng, Zhao Dong, Li Yonglin and Cai Hongbin.
Our directors have entered into directors service contracts with us and under such contracts, there is no severance pay arrangements for our directors.
As a joint stock company incorporated in the PRC, we are required by the PRC law to have in place a board of supervisors. The board of supervisors shall consist of no less than three supervisors, and at least one third of the board of supervisors shall be employee representative supervisors. Employee representative supervisors shall be elected by our employees at a meeting of employee representatives, a general meeting of employees or through other means.
Under our articles of association, the main responsibilities of our board of supervisors include:
| ● | to review the Company’s financial affairs; |
| ● | to supervise directors and executive officers when they perform their duties, and to propose to our shareholders the dismissal of any director or executive officer who has violated our articles of association and relevant laws and regulation; |
| ● | to demand directors or executive officers to rectify their conducts that conflict with our interests; |
| ● | to propose the call of any extraordinary general meeting of shareholders to the Board, and to convene and preside over such shareholders’ meeting if the Board fails to do so; and |
| ● | to initiate legal proceedings against directors and executive officers on behalf of the Company. |
Our board of supervisors currently consists of eight supervisors including three employee representative supervisors. In 2021, some of the supervisors attended the Company’s shareholders’ meetings and presented at the Company’s board meetings, and made assessment on the work of the Board. The supervisors went to the Company’s subsidiaries for research, made suggestions to improve management of the Company.
D. | EMPLOYEES |
As of December 31, 2019, 2020 and 2021, we had approximately 402,206, 384,065 and 385,691 employees, respectively. The following table sets forth the number of our employees by our business segments, their scope of work and their education as of December 31, 2021.
| | | | |
|
| |
| Percentage of Total |
| | Number of | | Number of Employees |
By Segment | | Employees | | (%) |
Exploration and production | | 126,874 | | 33 |
Refining |
| 57,513 |
| 15 |
Marketing and distribution |
| 122,232 |
| 32 |
Chemicals |
| 67,794 |
| 17 |
Research and Development |
| 6,212 |
| 2 |
Corporate and other |
| 5,066 |
| 1 |
Total |
| 385,691 |
| 100 |
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| | | | |
|
| |
| Percentage of Total |
| | Number of | | Number of Employees |
By Employee’s Scope of Work | | Employees | | (%) |
Production | | 145,786 | | 38 |
Technical |
| 87,231 |
| 22 |
Sales |
| 110,797 |
| 29 |
Finance |
| 8,612 |
| 2 |
Administration |
| 30,725 |
| 8 |
Others |
| 2,540 |
| 1 |
Total |
| 385,691 |
| 100 |
| | | | |
|
| |
| Percentage of Total |
| | Number of | | Number of Employees |
By Education | | Employees | | (%) |
Master’s degree and above | | 21,839 | | 6 |
University |
| 109,327 |
| 28 |
Junior college |
| 87,432 |
| 23 |
Technical secondary school |
| 30,426 |
| 8 |
Senior high school and technical school degree or below |
| 136,667 |
| 35 |
Total |
| 385,691 |
| 100 |
During this report period, there has been no significant change to our core technical team and key technicians.
We have a workers’ association that protects employee rights, organizes educational programs, assists in the fulfillment of economic objectives, encourages employee participation in management decisions, and assists in mediating disputes between us and individual employees. We regulate employee behavior through the “Employee Code of Conduct” and build a good working atmosphere. We have not been subject to any strikes or other labor disturbances that have interfered with our operation, and we believe that our relations with our employees are good.
The total remuneration of our employees includes salary, performance bonuses and allowances. Employees also receive certain subsidies in housing, health services, education and other miscellaneous items.
E. | SHARE OWNERSHIP |
As of December 31, 2021, except our director and senior vice president Ling Yiqun who holds 13,000 shares of our A shares, none of our directors, supervisors and executive officers beneficially own any of our shares.
ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
A. | MAJOR SHAREHOLDERS |
The following table sets forth information regarding our 5% or more shareholders as of April 15, 2022.
| | | | |
|
| Number of Shares Owned |
| Percentage of |
Shareholder | | (in millions) | | Ownership (%) |
Sinopec Group Company(1) |
| 83,363 |
| 68.85 |
| (1) | Inclusive of 654,034,000 H shares held by Sinopec Century Bright Capital Investment Ltd. (overseas wholly-owned subsidiary of Sinopec Group Company) under HKSCC Nominees Limited. |
As of April 15, 2022, 1,103,116,100 H shares were registered in the name of a nominee of Citibank, N.A., the depositary under our ADS deposit agreement. Citibank, N.A. has advised us that, as of April 15, 2022, 11,031,061 ADSs, representing 1,103,116,100 H shares, were held of record by Cede & Co. and 21 other registered shareholders domiciled in and outside of the United States. We have no further information as to our shares held, or beneficially owned, by U.S. persons.
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To avoid the adverse effects brought by intra-industry competition to the maximum extent possible, we and Sinopec Group Company have entered into a non-competition agreement whereby Sinopec Group Company has agreed to: refrain from operating new businesses which compete or could compete with us in any of our domestic or international markets; grant us an option to purchase Sinopec Group Company’s operations that compete or could compete with our businesses; operate its sales enterprises in a manner uniform to our sales and service operations; and appoint us as sales agent for certain of its products which compete or could compete with our products.
In March 2017, Sinopec Group has earnestly fulfilled its undertaking in eliminating competitions in chemical business with us through: (1) subscribing capital contribution of joint ventures controlled by us, by way of injecting net assets of certain chemical business and cash; (2) authorizing us to be in charge of production plan, management and sales of the remaining chemical business. The competition in chemical business between Sinopec Group and us has been eliminated.
Given that Sinopec Group Company engages in the same or similar businesses as us with regard to the exploration and production of overseas petroleum and natural gas, Sinopec Group Company issued an undertaking on April 28, 2014, granting us an option, in ten years since the issue date of the undertaking, (1) after thorough analysis from political, economic and other perspectives, to require Sinopec Group Company to sell its overseas oil and gas assets owned at the time, to the extent remaining in its possession, to us, (2) to require Sinopec Group Company to sell its overseas oil and gas assets to us, provided that the aforementioned proposed acquisitions comply with the applicable laws and regulations, contractual obligations and other procedural requirements. By then, to the extent in compliance with the applicable law and the requirements of the contract and procedures, Sinopec Group Company will sell the oil and gas assets as mentioned in (1) and (2) to us as required.
Sinopec Group Company is controlled by the State-owned Assets Supervision and Administration Commission of the State Council of China.
B. | RELATED PARTY TRANSACTIONS |
Sinopec Group Company owned 68.85% of our outstanding equity as of April 15, 2022. Sinopec Group Company is able to exercise all the rights of a controlling shareholder, including the election of directors and voting in respect of amendments to our articles of association. Sinopec Group Company, as our controlling shareholder, is subject to certain non-controlling shareholder protection provisions under our articles of association.
We have engaged from time to time and will continue to engage in a variety of transactions with Sinopec Group Company, which provide a number of services to us, including ancillary supply, transport, educational and community services. The nature of our transactions with Sinopec Group Company is governed by a number of service and other contracts between Sinopec Group Company and us. A discussion of these agreements and arrangements is set forth under the heading “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions” in our annual report on Form 20-F filed with the Securities and Exchange Commission on October 10, 2000, April 13, 2007, May 20, 2009, April 30, 2010, April 11, 2013, April 16, 2014, April 10, 2015, April 20, 2016, April 24, 2017, April 27, 2018, April 29, 2019, April 10, 2020 and April 20, 2021, respectively.
On July 9, 2018, we entered into the Articles of Association of Sinopec Capital Co., Ltd., or Sinopec Capital, with Sinopec Group Company, pursuant to which, we will establish Sinopec Capital with Sinopec Group Company with a registered capital of RMB10 billion, of which, we will subscribe capital contribution of RMB4.9 billion by cash, representing 49% of the registered capital of Sinopec Capital, and Sinopec Group will subscribe capital contribution of RMB5.1 billion by cash, representing 51% of the registered capital of Sinopec Capital. Upon the establishment of Sinopec Capital, its investments will focus on strategic emerging industries, including new energy, new material, energy conservation and environmental protection, and intelligence manufacturing in relation to the industry chain. In respect of the investment projects which are related to our principal business, we will have the right of first refusal to acquire such projects.
On August 24, 2018, we entered into the Continuing Connected Transaction Fifth Supplemental Agreement with Sinopec Group Company, pursuant to which the terms of Continuing Connected Transactions under the Mutual Supply Agreement and the Cultural, Educational, Hygiene and Auxiliary Agreement (formerly named Cultural, Educational, Hygiene and Community Services Agreement) were renewed as January 1, 2019 to December 31, 2021. On October 23, 2018 the First Extraordinary General Meeting of 2018 of the Company approved the Continuing Connected Transactions for the three years ending December 31, 2021. See Exhibit 4.15.4 herewith for details of the Continuing Connected Transactions.
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On August 27, 2021, we entered into the Continuing Connected Transaction Sixth Supplemental Agreement with Sinopec Group Company, pursuant to which amendments were made to the terms of certain Continuing Connected Transactions under the Mutual Supply Agreement and the Properties Leasing Agreement. On October 20, 2021, the First Extraordinary General Meeting of 2021 of the Company approved the Continuing Connected Transactions for the three years ending December 31, 2024. See Exhibit 4.15.5 herewith for details of the continuing Connected Transactions.
In 2021, our related connected transactions occurred in accordance with the abovementioned Continuing Connected Transaction agreements amounted to RMB382.445 billion, among which, our purchase amounted to RMB259.882 billion, accounting for 9.35% of the amount of similar transactions, including products and services (purchasing, storage and transportation, exploration and development services, and production-related services) of RMB246.211 billion, auxiliary and community service of RMB1.730 billion, house rental payment of RMB0.565 million, land rental payment of RMB10.831 billion, other rental payment of RMB0.159 billion, and the interest expense of RMB0.386 billion. The amount of our sales was RMB122.563 billion, accounting for 4.25% of the transaction amount of similar transactions, including revenues from primary business of RMB121.676 billion, agency commission income of RMB0.165 billion and interest income of RMB0.722 billion.
On April 29, 2020, Zhongke (Guangdong) Refining and Petrochemical Co., Ltd. (“Zhongke Refining”), a wholly-owned subsidiary of the Company, entered into a merger agreement with Sinopec Zhanjiang Dongxing Petrochemical Company Limited (“Zhanjiang Dongxing”), and the Company entered into a joint venture contract with Sinopec Century Bright Capital Investment Ltd. (“Century Bright Company”), pursuant to which, Zhongke Refining shall absorb and merge Zhanjiang Dongxing and, upon the completion of such transaction, Zhongke Refining will become the owner of all assets and liabilities of Zhanjiang Dongxing and will assume the existing businesses and personnel of Zhanjiang Dongxing with the Company and Century Bright Company holding 90.3% and 9.7% equity interest in Zhongke Refining, respectively.
On October 28, 2020, our board of directors approved the capital increase in Sinopec Baling Petrochemical Company Limited (“Baling Petrochemical”) by the Company with the Sinopec Group Asset Management Co., Ltd. (“Assets Company”) on a pro rata basis. The capital increase in Baling Petrochemical will be contributed by the Company and the Assets Company with an aggregate amount of approximately RMB6.3 billion, of which, the Company will contribute approximately RMB3.5 billion by injecting the relevant assets of the Company. Baling Branch and cash, and the Assets Company will contribute approximately RMB2.8 billion by injecting the relevant assets of Assets Company Baling Branch. Pursuant to the capital increase agreement, the registered capital of Baling Petrochemical will be increased from RMB100 million to RMB3 billion. Upon completion of the capital increase, the shareholders of Baling Petrochemical and their respective shareholdings will remain unchanged, while the Company and the Assets Company will continue to hold 55% and 45% equity interest in Baling Petrochemical, respectively. Baling Petrochemical will remain a subsidiary of the Company.
On March 26, 2021, (i) Sinopec Overseas Investment Holding Limited (“Overseas Investment Company”), a subsidiary of the Company, and Century Bright Company entered into the Agreement on Purchasing Equity Interest in Sinopec Hainan Refining and Chemical Company Limited, pursuant to which Overseas Investment Company proposed to purchase the 25% equity interest in Sinopec Hainan Refining and Chemical Company Limited held by Century Bright Company at a consideration of RMB5,769 million; (ii) the Company and Assets Company entered into the Agreement on Purchasing Equity Interest in Cangzhou Toray Fine Chemical Co., Ltd., pursuant to which the Company proposed to purchase the 40% equity interest in Cangzhou Toray held by Assets Company at a consideration of RMB20 million; (iii) the Company and Assets Company entered into the Agreement on Purchasing the Polypropylene and Utility Business Assets, pursuant to which the Company proposed to purchase the non-equity assets held by Assets Company, including the polypropylene and utility business assets of Cangzhou branch of Assets Company, at a consideration of RMB138 million; (iv) the Company and Beijing Orient Petrochemical Industry Co., Ltd. (“Orient Petrochemical”) entered into the Agreement on Purchasing Equipment and Relevant Assets, pursuant to which the Company proposed to purchase the non-equity assets held by Orient Petrochemical, including inventory and equipment, at a consideration of RMB715 million; and (v) Sinopec Beihai Refining and Chemical Limited Liability Company (“Beihai Refining and Chemical”), a subsidiary of the Company, and Beihai Petrochemical Limited Liability Company of Sinopec Group (“Beihai Petrochemical”) entered into the Agreement on Purchasing Assets of Beihai Petrochemical related to Pier Business, pursuant to which Beihai Refining and Chemical proposed to purchase the non-equity assets held by Beihai Petrochemical, including the pier operation platform, at a consideration of RMB149 million.
On September 7, 2021, Shanghai Petrochemical, a subsidiary of the Company, entered into a Joint Venture Agreement with Sinopec Baling Petrochemical Company Limited, pursuant to which both parties will jointly establish a joint venture and each shall contribute in cash the amount of RMB400 million.
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On November 29, 2021, (i) the Company and Sinopec Group Asset Management Co., Ltd. (the “Assets Company”) entered into the Assets Company Agreement, pursuant to which it was agreed that Sinopec Corp. shall purchase the equity assets, non-equity assets and liabilities of the production and operating business held by the Assets Company at the price of RMB4,432.2570 million; (ii) Yizheng Chemical Fibre, a subsidiary of the Company, and Assets Company entered into the Yizheng Chemical Fibre Agreement, pursuant to which it was agreed that Yizheng Chemical Fibre shall purchase the equity assets, non-equity assets and liabilities of the production and operating business held by the Assets Company at the price of RMB1,142.9952 million; (iii) Sinopec Corp. and Group Yanshan entered into the Group Yanshan Agreement, pursuant to which it was agreed that Sinopec Corp. shall purchase the non-equity assets and liabilities of the production and operating business held by Group Yanshan at the price of RMB1,473.6977 million.
The above-mentioned variety of transactions with Sinopec Group Company are in compliance with the upper limit of the amount of related party transactions approved by the shareholders and the Board.
C. | INTERESTS OF EXPERTS AND COUNSEL |
Not applicable.
ITEM 8. | FINANCIAL INFORMATION |
A. | CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION |
See consolidated financial statements included in this annual report following Item 19.
Legal Proceedings
We are involved in certain judicial and arbitral proceedings before Chinese courts or arbitral bodies concerning matters arising in connection with the conduct of our businesses. We believe, based on currently available information, that the results of such proceedings, in the aggregate, will not have a material adverse effect on our financial condition or results of operations.
Dividend Distribution Policy
In 2012, we amended our dividend distribution policy in articles of association. Our dividend distribution policy was amended. According to our amended articles of association:
Our board of directors will determine the payment of dividends, if any, with respect to our shares on a per share basis. Any final dividend for a financial year shall be subject to shareholders’ approval. The board may declare interim and special dividends at any time under general authorization by a shareholders’ ordinary resolution. A decision to declare or to pay any dividends in the future, and the amount of any dividends, will depend on our results of operations, cash flows, financial condition, the payment by our subsidiaries of cash dividends to us, future prospects and other factors which our directors may determine to be important.
For holders of our H shares, cash dividend payments, if any, shall be declared by our board of directors in Renminbi and paid in HK dollars. The depositary will convert the HK dollar dividend payments and distribute them to holders of ADSs in US dollars, less expenses of conversion.
The Company may distribute dividends in the following forms: cash, shares or other forms provided by laws, administrative rules, regulations of competent authorities and regulatory provisions in the place where the Company’s shares are listed. The Company shall give priority to the distribution of dividends in cash. The Company may make interim dividends distribution. The Company shall distribute cash dividends when the Company’s net profit and retained earnings, in separate financial statement, are positive and the Company has adequate cash inflows over the requirements of cash outflows of operation and sustainable development. The cash dividends per annum should not be less than thirty percent of the net profit of the Company in the current year. Dividends in the form of shares will be distributed to the depositary and, except as otherwise described in the Deposit Agreement, will be distributed by the depositary in the form of additional ADSs, to holders of ADSs. The Company will be required to, pursuant to applicable PRC laws and regulations, withhold 10-20% dividend tax (based on the status of the shareholder) for dividends paid to holders of H shares (including ADSs representing such H shares), and make filing pursuant to applicable foreign exchange control procedures for the payment of such dividends. See “Item 10. Additional Information ― D. Exchange Controls” and “Item 10. Additional Information ― E. Taxation.” In addition, ADS holders will be required to pay applicable service fees in relation to the distribution of cash dividends pursuant to the Deposit Agreement for China Petroleum & Chemical Corporation’s American Depositary Shares. See “Item 12. Description of Securities other than Equity Securities ― D. American Depositary Shares.”
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At the annual general meeting held on May 25, 2021, our shareholders adopted the distribution of a final cash dividend of RMB0.07 (including tax) per share, combining with an interim distributed dividend of RMB0.13 (including tax) per share, the total dividend for 2020 is RMB0.20 (including tax) per share.
At the 7th meeting of the eighth session of our board, our board approved the proposal to distribute a final cash dividend of RMB0.31 (including tax) per share, combining with an interim distributed dividend of RMB0.16 (including tax) per share, the total dividend for 2021 is RMB0.47 (including tax) per share. The proposal is subject to the shareholder’s approval at the annual general meeting.
B. | SIGNIFICANT CHANGES |
None.
ITEM 9. | THE OFFER AND LISTING |
A. | OFFER AND LISTING DETAILS |
Not applicable, except for Item 9A (4) and Item 9C.
Our H Shares have been listed on the Hong Kong Stock Exchange (Code: 0386), and our ADSs, each representing 100 H Shares, have been listed on the New York Stock Exchange and the London Stock Exchange under the symbol “SNP,” since we completed our initial public offering on October 19, 2000. Prior to that time, there was no public market for our H Shares. The Hong Kong Stock Exchange is the principal non-U.S. trading market for our H Shares. Our publicly traded domestic shares, or A shares, are listed on the Stock Exchange of Shanghai since August 8, 2001 (Code: 600028).
On 14 February 2013, we issued 2,845,234,000 listed H shares with a par value of RMB1.00 each at the price of HKD 8.45 per share. The aggregate gross proceeds from the placing amounted to approximately HKD 24.0 billion.
On January 26, 2015, the conditional redemption of the 2011 convertible bonds amounting to RMB23 billion, was triggered. As of February 11, 2015 (the redemption registration date), the cumulative conversion of the 2011 convertible bonds to listed A shares is 4,623,769,047 shares, and the balance of registered 2011 convertible bonds is RMB52,766,000. On February 17, 2015, we redeemed the balance plus interests payable at the aggregate amount of RMB53,348,948.28. The 2011 convertible bonds were delisted from the Shanghai Stock Exchange.
ITEM 10. | ADDITIONAL INFORMATION |
A. | SHARE CAPITAL |
Not applicable.
B. | MEMORANDUM AND ARTICLES OF ASSOCIATION |
In 2021, we amended the articles of association.
The following is a summary of certain provisions of our articles of association and its appendices, as amended, the Company Law of the PRC (2018) and certain other applicable laws and regulations of the PRC. You and your advisors should refer to the text of our articles of association, as amended, and to the texts of applicable laws and regulations for further information.
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Objects 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 of Industry and Commerce with business license number 100000000032985. Article 13 of our articles of association provides that our scope of businesses includes, among other things, the production, storage, pipeline transportation, land transportation, water transportation and sale of non-coal mines (oil and natural gas etc.), dangerous chemicals (ethylene, propylene, butadiene and naphtha etc.), heavy oil, rubber and other chemical raw materials and products; oil refining; wholesaling and retailing (for subsidiaries only) of gasoline, kerosene and diesel oil; the production, storage, transportation and sale of natural gas chemicals and coal chemicals; sale of lubricant, fuel oil, solvent naphtha and asphalt; production of chemical fertilizer; operation of LPG station, sale of CNG, LNG, LPG and city gas; operation of electrical vehicle charging station; production, supervision of manufacturing, installation of oil and petrochemical machinery and equipment; manufacturing of equipment, tools, instruments and gauges in petroleum drilling and production; purchase and sale of oil and petrochemical raw and auxiliary materials, equipment and parts; technology and information, research, development, application and consultation of alternative energy products; production and sale of electricity, steam, water and industrial gases; wholesaling of farm, forestry and pasture products; operation of general merchandise convenience stores; wholesaling and retailing of knitted garments and housewares; wholesaling and retailing of cultural and sports goods and equipment; sale of food, beverages and tobacco products; wholesaling and retailing of pharmaceuticals and medical devices; retailing of automobiles, motorcycles and components; repair and maintenance of and technical training for automobiles and motorcycles; wholesaling and retailing of machineries, hardware products, electronic products and household appliances; retailing of furniture and materials for indoor decoration; stalls, no-store sale and other forms of retail business; general merchandise retail; accommodation and catering services; manufacturing of food and food additives; residents´ services; transportation agency services; warehousing; operation of self-owned properties; leasing of natural gas storage facility; leasing of houses, working places, vehicles and equipment; lease of machineries; media, advertising and acting as commission agent; insurance brokerage and agency services; financial trust and management services; E-commerce; self-operation of and acting as agency for the import and export of various commodities and technologies other than those restricted or prohibited by the state from import and export; contractor of overseas mechanical, electronics, petrochemical projects and domestic international bid-inviting projects; export of equipment and materials required for the aforementioned overseas projects; dispatch of labor required for the aforementioned overseas projects; railway transportation; coastal engineering auxiliary operations, port operations, oil spill response, safety guard, ship pollution removal operations; professional technical service industry quality inspection technical services, environmental and ecological monitoring and testing services; edible salt production, wholesale, retail; shale gas, coalbed methane, shale oil, combustible ice, uranium and other resources exploration, development, storage and transportation, pipeline transportation, sales; natural gas power generation, power supply; power installation and maintenance, power technology development and services. Hydrogen energy businesses and related services such as production, storage, transportation and sales of hydrogen; manufacturing and sales of equipment for hydrogen production, refuelling and storage. Power businesses and related services such as power supply; motor vehicle charging; operation of new energy power generation facilities such as solar power generation and wind power generation facilities, as well as new energy vehicle charging facilities; battery sales; battery swapping for new energy vehicle.
Directors
Our directors shall be elected at our shareholders’ general meeting. Cumulative voting shall be adopted for the election of directors if a controlling shareholder controls 30% or more of our shares. Details of the cumulative voting mechanism are set forth in Article 59 of the Rules and Procedures for the Shareholders’ General Meetings that is an appendix to, and forms an integral part of, our articles of association. Our directors shall be elected for a term of three years and may serve consecutive terms upon re-election, except that independent directors may only serve a maximum of two terms. Our directors are not required to hold any shares in us, and there is no age limit requirement for the retirement or non-retirement of our directors.
Where a director is materially interested, directly or indirectly, in a contract, transaction or arrangement (including any proposed contract, transaction or arrangement) with us, he or she shall declare the nature and extent of his or her interests to the board of directors at the earliest opportunity, whether or not such contract, transaction or arrangement is otherwise subject to the approval of the board. A director shall not vote, and shall not be counted in the quorum of the meeting, on any resolution concerning any contract, transaction or arrangement where the director owns material rights or interests therein. A director is deemed to be interested in a contract, transaction or arrangement in which his associate (as defined by the Listing Rule of the Hong Kong Stock Exchange) is interested.
Unless the interested director discloses his interests to the board and the contract, transaction or arrangement in which the director is materially interested is approved by the board at a meeting in which the director neither votes nor is not counted in the quorum, such contract, transaction or arrangement shall be voidable by us except with respect to a bona fide party thereto who does not have notice of the director’s interests.
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We are prohibited from making loans or providing guarantees to our directors and their associates except where such loan or guarantee is to meet expenditure requirement incurred or to be incurred by the director for the purposes of the company or for the purpose of enabling the director to perform his or her duties properly in accordance with the terms of a service contract approved by the shareholders in a general meeting.
The board of directors shall examine and approve the amount of the long-term loans for the current year according to the annual investment plan as approved by the shareholders’ general meeting. The chairman of the board of directors is authorized to make adjustments of no more than 10% of the total amount of the long-term loans as approved by the board of directors for the current year. Within the total amount of the long-term loans as approved by the board of directors, the chairman of the board of directors is authorized to approve and execute individual long-term loan agreement with the loan amount exceeding RMB1 billion, and the president is authorized to approve and execute individual long-term loan agreement with the loan amount not exceeding RMB1 billion. Within the total amount of the working capital loans for the current year as approved by the board of directors, the chairman of the board of directors is authorized to execute the overall short-term loan facility agreement for raising working capitals as we need.
Matters relating to the remuneration of our directors shall be determined by the shareholders’ general meeting.
Dividends
A distribution of final dividends for any financial year is subject to shareholders’ approval. Except as otherwise decided by Shareholders’ meeting, the board of directors may make decision on the distribution of interim dividends. Except as otherwise provided by laws and regulations, the sum of interim dividends shall not exceed 50 percent of the net profit for the half year interim period. Dividends may be distributed in the forms of cash, shares or other forms provided by laws, administrative rules or regulations of competent authorities and regulatory provisions in the place where the Company’s shares are listed. The Company shall give priority to the distribution of dividends in cash. A distribution of shares, however, must be approved by special resolution of the shareholders.
Dividends may only be distributed after allowance has been made for:
The allocations to the statutory surplus reserve fund shall be 10% of our after-tax profits of the current year determined in accordance with ASBE. In the event that the statutory surplus reserve balance reaches fifty (50) percent of the registered capital of the Company, no allocation is needed.
The articles of association require us to appoint on behalf of the holders of H shares 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 shares on behalf of such shareholders. The articles of association require that cash dividends in respect of H shares be declared in Renminbi and paid by us in HK dollars. The depositary of our ADSs will convert such proceeds into US dollars and will remit such converted proceeds to our holders of ADSs. If we record no profit for the year, we may not normally distribute dividends for the year.
Dividend payments may be subject to PRC withholding tax.
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Voting Rights and Shareholders’ Meetings
Our board of directors shall convene a shareholders’ annual general meeting once every year and within six months from the end of the preceding financial year. Our board shall 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 actually paid-in share capital; |
| ● | where shareholder(s) holding 10% or more of our issued and outstanding voting shares request(s) in writing the convening of an extraordinary general meeting; |
| ● | whenever our board deems necessary or our board of supervisors so requests; or |
| ● | circumstances provided in the articles of association. |
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. Proposals made by the board of directors, the board of supervisors or shareholder(s) holding 3% or more of the total number of voting shares shall be included in the agenda for the relevant general meeting if they are matters which fall within the scope of the functions and powers of shareholders in general meeting. Shareholder(s) holding 3% or more of the total shares of the Company may put forward interim motions by written proposals to the convener 10 days before the shareholders’ general meeting. The convener shall publish supplementary notice to announce the interim motion within two days upon receiving.
All shareholders’ meetings must be convened by our board of directors by written notice given to shareholders no less than 45 days before the meeting, by our board of supervisors or certain qualified shareholders in case a shareholders’ meeting is not convened by our board of directors and board of supervisors. Shareholder(s) holding 10% or more the total number of shares of the Company have the right to convene and chair the interim shareholders’ general meeting or class shareholders’ meeting in accordance with the provisions in laws, administrative rules and the articles of association, in the event that the board of directors and the board of supervisors fail to convene and chair such meeting upon demand made by such shareholders. Based on the written replies received by us 20 days before a shareholders’ meeting, we shall 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 shall, 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 power, among other things, to approve or reject our profit distribution plans, annual budget, financial statements, increase or decrease in share capital, issuance of debentures, merger or liquidation and any amendment to our articles of association. Shareholders of the shares which the Company issues to foreign investors for subscription in foreign currencies possess the same rights and undertake the same obligations as those of the shares which the Company issues to domestic investors for subscription in Renminbi. 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. 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.
Cumulative voting in accordance with the relevant laws and regulations in effect is adopted for the election of directors and supervisors. For all other matters, each share is entitled to one vote on all such 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.
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, no 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 resolution(s). When the instrument appointing a proxy is executed by the shareholder’s attorney-in-fact, such proxy when deposited must be accompanied by a notary certified copy of the relevant power of attorney or other authority under which the proxy was executed.
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Except for those actions discussed below which require supermajority votes (special resolutions), 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 or 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, including stock distributions, of any class, warrants and other similar securities; |
| ● | issuance of debentures; |
| ● | our division, merger, dissolution and liquidation; (Shareholders who object to a proposed division or merger are entitled to demand that either we or the shareholders who approved the merger purchase their shares at a fair price.) |
| ● | amendments to our articles of association and its appendices; |
| ● | change of our company form; |
| ● | acquisition or disposal of material assets or provision of material guarantee within one year, with the value exceeding 30% of our latest audited total assets; |
| ● | any stock incentive plan; |
| ● | any other matters required by laws and regulations or our articles of association and its appendices 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 supervisors and the declaration of cash dividend payments, will be decided by an ordinary resolution of the shareholders. The listing agreement between us and the Hong Kong Stock Exchange (Listing Agreement) provided that we may not permit amendments to certain sections of the articles of association which have been mandated by the Hong Kong Stock Exchange. These sections include provisions relating to:
| ● | varying the rights of existing classes of shares; |
| ● | voting rights; |
| ● | our power to purchase our own shares; |
| ● | rights of non-controlling shareholders; and |
| ● | procedure on liquidation. |
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 of any laws or administrative regulations of the PRC will be null and void subject to statutory procedures.
Liquidation Rights
In the event of our liquidation, the H shares will rank pari passu with the domestic ordinary shares, and payment of debts out of our remaining assets shall be made in the order of priority prescribed by applicable laws and regulations or, if no such standards exist, in accordance with such procedure as the liquidation committee which has been appointed either by us or the People’s Court of the PRC may consider to be fair and reasonable. After payment of debts, we shall distribute the remaining property to shareholders according to the class and proportion of their shareholders.
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Further Capital Call
Shareholders are not liable to make any further contribution to the share capital other than according to the terms, which were agreed by the subscriber of the relevant shares at the time of subscription.
Increases in Share Capital and Preemptive Rights
The articles of association require the approval by a special resolution of the shareholders and by special resolution of holders of domestic ordinary shares and overseas-listed foreign invested shares at separate shareholder class meetings be obtained prior to authorizing, allotting, issuing or granting shares, securities convertible into shares or options, warrants or similar rights to subscribe for any shares or such convertible securities. No such approval is required if, but only to the extent that:
| ● | we issue domestic ordinary shares and/or overseas-listed foreign-invested shares, either separately or concurrently, in numbers not exceeding 20% of the number of domestic ordinary shares and overseas-listed foreign-invested shares then in issue, respectively, in any 12-month period, as approved by a special resolution of the shareholders; or |
| ● | if our plans for issuing domestic ordinary shares and overseas-listed foreign-invested shares upon our establishment are implemented within fifteen months of the date of approval by the China Securities Regulatory Commission. |
New issues of shares must also be approved by the relevant PRC authorities.
Reduction of Share Capital and Purchase by Us of Our Shares and General Mandate to Repurchase Shares
We may reduce our registered share capital only upon obtaining the approval of the shareholders by a special resolution and, in certain circumstances, of relevant PRC authorities. The number of H shares, which may be purchased is subject to the Hong Kong Takeovers and Share Repurchase Codes.
Restrictions on Large or Controlling Shareholders
Our articles of association provide that, in addition to any obligation imposed by laws and administration regulations or required by the listing rules of the stock exchanges on which our H shares 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 (for his or her own benefit or for the benefit of another person) of our assets in any way, including, without limitation, opportunities which may benefit us; or |
| ● | to approve the expropriation by a director or supervisor (for his or her own benefit or for the benefit of another person) of the individual rights of other shareholders, including, without limitation, rights to distributions and voting rights (save 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 and its appendices). |
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 shares 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 half or more of the board of directors; |
| ● | has the power to exercise, or to control the exercise of, 30% or more of our voting rights; |
| ● | acting separately or in concert with others, holds 30% or more of our issued and outstanding shares; or |
| ● | acting separately or in concert with others, has de facto control of us in any other way. |
As of the date of this annual report, Sinopec Group Company is and will be our only controlling shareholder.
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Disclosure
The Listing Agreement imposes a requirement on us to keep the Hong Kong Stock Exchange, our shareholders and other holders of our listed securities informed as soon as reasonably practicable of any information relating to us and our subsidiaries, including information on any major new developments which are not public knowledge, which:
| ● | is necessary to enable them and the public to appraise the position of us and our subsidiaries; |
| ● | is necessary to avoid the establishment of a false market in its securities; and |
| ● | might be reasonably expected materially to affect market activity in and the price of its securities. |
There are also requirements under the Listing Rules for us to obtain prior shareholders’ approval and/or to disclose to shareholders details of certain acquisitions or disposals of assets and other transactions (including transactions with controlling shareholders).
Sources of Shareholders’ Rights
The PRC’s legal system is based on written statutes and is a system in which decided legal cases have little precedent value. The PRC’s legal system is similar to civil law systems in this regard. In 1979, the PRC began the process of developing its legal system by undertaking to promulgate a comprehensive system of laws. In December 1993, the Standing Committee of the 8th National People’s Congress adopted the PRC Company Law. On October 27, 2005, the PRC Company law was amended by the Standing Committee of the 10th National People’s Congress, and came into force on January 1, 2006. The amended PRC Company Law enhanced the protection of shareholders’ rights primarily in the following regards:
| ● | Shareholders holding 10 percent or more of the shares of the Company are entitled to petition the court to dissolve the Company if (i) the Company is in serious operational difficulties; (ii) its continuing existence will seriously prejudice the interests of the shareholders; and (iii) such difficulties cannot be resolved through any other means; |
| ● | Shareholders holding 1 percent or more of the shares of the Company for more than 180 consecutive days are entitled to request the board of supervisors (in terms of directors and senior management) or the board of directors (in terms of supervisors) to bring legal proceedings, or bring legal proceedings in their own name on behalf of the Company where it is in emergency and the Company will be subject to irreparable loss if not to do so, against directors, supervisors or senior management who fail to comply with the laws and regulations or the Company’s articles of association in the course of performing their duties and cause loss to the Company; |
| ● | Shareholders who oppose the Company’s decision on merger or separation are entitled to request the Company to repurchase their shares; and |
| ● | Shareholders holding 10 percent or more of the voting rights of the Company are entitled to convene a shareholders’ meeting. |
Currently, the primary sources of shareholder rights are our articles of association, as amended, the PRC Company Law and the Listing Rules of the Hong Kong Stock Exchange, which, among other things, impose certain standards of conduct, fairness and disclosure on us, our directors and our controlling shareholder, i.e., Sinopec Group Company. To facilitate the offering and listing of shares of PRC companies overseas, and to regulate the behavior of companies whose shares are listed overseas, the State Council Securities Committee and the State Commission for Restructuring the Economic System issued on August 27, 1994 the Mandatory Provisions for articles of association of Company Listing Overseas (Mandatory Provisions). These Mandatory Provisions become entrenched in that, once they are incorporated into the articles of association of a PRC company, any amendment to those provisions will only become effective after approval by the SASAC. The Listing Rules require a number of additional provisions to the Mandatory Provisions to be included in the articles of association of PRC companies listing H shares on the Hong Kong Stock Exchange (Additional Provisions). The Mandatory Provisions and the Additional Provisions have been incorporated into our articles of association.
In addition, upon the listing of and for so long as the H shares are listed on the Hong Kong Stock Exchange, we will be subject to those relevant ordinances, rules and regulations applicable to companies listed on the Hong Kong Stock Exchange, including the Listing Rules of the Hong Kong Stock Exchange, the Securities (Disclosure of Interests) Ordinance (SDI Ordinance), the Securities (Insider Dealing) Ordinance and the Hong Kong Codes on Takeovers and Mergers and Share Repurchases (Hong Kong Takeovers and Repurchase Codes).
Unless otherwise specified, all rights, obligations and protections discussed below derive from our articles of association and/or the PRC Company Law.
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Enforceability of Shareholders’ Rights
There has not been any public disclosure in relation to the enforcement by holders of H shares of their rights under constitutive documents of joint stock limited companies or the PRC Company Law or in the application or interpretation of the PRC or Hong Kong regulatory provisions applicable to PRC joint stock limited companies.
In most states of the United States, shareholders may sue a corporation “derivatively.” A derivative suit involves the commencement by a shareholder of a corporate cause of action against persons (including corporate officers, directors or controlling shareholders) who have allegedly wronged the corporation, where the corporation itself has failed to enforce such claim against such persons directly. Such action is brought based upon a primary right of the corporation, but is asserted by a shareholder on behalf of the corporation. The PRC company law as amended in October 2005 and effective in January 2006 has also granted shareholders with the rights to bring such derivative suits.
Our articles of association provide that all differences or claims, arising from any provision of our 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:
| ● | between a holder of overseas-listed foreign-invested shares and us; |
| ● | between a holder of overseas-listed foreign-invested shares and any of our directors, supervisors, general managers, deputy general managers or other senior officers; or |
| ● | between a holder of overseas-listed foreign-invested shares and a holder of domestic ordinary shares |
must be referred to arbitration at either the China International Economic and Trade Arbitration Commission in the PRC or the Hong Kong International Arbitration Center, and the laws of the PRC shall apply, save as otherwise provided in the laws and administrative regulations. Our articles of association provide that such arbitration will be final and conclusive. In June 1999, an arrangement was made between the People’s Courts of the PRC and the courts of Hong Kong to mutually enforce arbitration rewards rendered in the PRC and Hong Kong according to their respective laws. This new arrangement was approved by the Supreme Court of the PRC and the Hong Kong Legislative Council and became effective on February 1, 2000. We have provided an undertaking to the United States Securities and Exchange Commission that, at such time, if any, as all applicable laws and regulations of the PRC and (unless our H shares are no longer listed on the Hong Kong Stock Exchange) all applicable regulations of the Stock Exchange of Hong Kong Ltd. shall not prohibit, and to the extent Section 14 under the United States Securities Act of 1933, as amended, so requires, our board of directors shall propose an amendment to the articles of association which would permit shareholders to adjudicate disputes arising between our shareholders and us, our directors, supervisors or officers by means of judicial proceedings.
The holders of H shares will not be able to bring actions on the basis of violations of the Listing Rules and must rely on the Hong Kong Stock Exchange to enforce its rules. The SDI Ordinance establishes certain obligations in relation to disclosure of shareholder interests in Hong Kong listed companies, the violation of which is subject to prosecution by the Securities and Futures Commission of Hong Kong. The Hong Kong Takeovers and Repurchase Codes do not have the force of law and are only standards of commercial conduct considered acceptable for takeover and merger transactions and share repurchases in Hong Kong as established by the Securities and Futures Commission and the securities and futures industry in Hong Kong.
We have appointed our representative office, located 3050 Post Oak Blvd, Suite 800, Houston, Texas, 77056, as our agent to receive service of process with respect to any action brought against us in certain courts in New York under the United States federal and New York State’s securities laws. However, as the PRC does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts within the United States, the United Kingdom, Japan or most other the Organization for Economic Cooperation and Development countries, administrative actions brought by regulatory authorities, such as the Commission, and other actions which result in foreign court judgments, could (assuming such actions are not required by PRC law and the articles of association to be arbitrated) only be enforced in the PRC on a reciprocal basis or according to relevant international treaty to which China is a party if such judgments or rulings do not violate the basic principles of the law of the PRC or the sovereignty, security and public interest of the society of the PRC, as determined by a People’s Court of the PRC which has the jurisdiction for recognition and enforcement of judgments. We have been advised by our PRC counsel, Haiwen & Partners, that there is certain doubt as to the enforceability in the PRC of actions to enforce judgments of United States courts arising out of or based on the ownership of H shares or ADSs, including judgments arising out of or based on the civil liability provisions of United States federal or state securities laws.
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Restrictions on Transferability and the Share Register
As provided in the articles of associations we may refuse to register a transfer of H shares unless:
| ● | any relevant transfer fee is paid; |
| ● | the instrument of transfer is only related to H shares listed in Hong Kong; |
| ● | 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 stamp duty which is chargeable on the instrument of transfer has already been paid; |
| ● | if it is intended that the shares be transferred to joint owners, the maximum number of joint owners shall not be more than four (4); and |
| ● | the Company does not have any lien on the relevant shares. |
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 shares to be listed on the Hong Kong Stock Exchange. Shareholders have the right to inspect and, for a nominal charge, to copy the share register. No transfers of ordinary shares shall be recorded in our share register within 30 days prior to the date of a shareholders’ general meeting or within 5 days prior to the record date established for the purpose of distributing a dividend.
We have appointed HKSCC Registrars Limited to act as the registrar of our H shares. This registrar maintains our register of holders of H shares at our offices in Hong Kong and enters transfers of shares in such register upon the presentation of the documents described above.
C. | MATERIAL CONTRACTS |
We have not entered into any material contracts other than in the ordinary course of business and other than those described under “Item 4. Information on the Company,” “Item 7. Major Shareholders and Related Party Transactions” or elsewhere in this Form 20-F.
D. | EXCHANGE CONTROLS |
The existing foreign exchange regulations have significantly reduced government foreign exchange controls for transactions under the current account, including trade and service related foreign exchange transactions and payment of dividends. We may undertake current account foreign exchange transactions 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, we cannot predict whether the PRC government will continue its existing foreign exchange policy and when the PRC government will allow free conversion of Renminbi to foreign currency.
Foreign exchange transactions under the capital account, including principal payments in respect of foreign currency-denominated obligations, continue to be subject to significant foreign exchange controls and require the approval of the State Administration of Foreign Exchange. These limitations could affect our ability to obtain foreign exchange through debt or equity financing, or to obtain foreign exchange for capital expenditures.
The exchange rate of the Renminbi against the US dollar and other foreign currencies fluctuates and is affected by, among other things, the changes in the PRC’s and international political and economic conditions. The PRC government has been gradually promoting the reform of exchange rate regime and enhance the flexibility of Renminbi exchange rate. On August 11, 2015, the PBOC decided to further improve the mechanism of RMB’s central parity rate against the US dollar. Any fluctuation of exchange rate of the Renminbi against US dollars and Hong Kong dollars may have an effect on our revenues and financial condition, and the value of, and any dividends payable on, our ADSs in foreign currency terms. We cannot assure you that the fluctuation of exchange rate of the Renminbi against US dollars or other foreign currencies would not have a material and adverse effect on our operation and financial condition in the future. Information relating to the exchange risk, exchange rate and hedging activities is presented in “Item 11. Qualitative and Quantitative Disclosures about Market risk—Foreign Exchange Rate Risk.”
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E. | TAXATION |
PRC Taxation
The following discussion addresses the principal PRC tax consequences of investing in the H shares or ADSs.
Taxation of Dividends
Individual Investors
According to the PRC Individual Income Tax Law, as amended, dividends paid by Chinese companies are ordinarily subject to a Chinese withholding tax levied at a flat rate of 20%. For a foreign individual who has no domicile and does not stay in the territory of China or who has no domicile but has stayed in the territory of China for less than 183 days, the receipt of dividends from a company in China is normally subject to a withholding tax of 20% unless reduced or exempted by an applicable tax treaties.
Foreign Enterprises
In accordance with the new Enterprise Income Tax Law and its implementation rules that became effective on January 1, 2008 and amended on February 24, 2017 and December 29, 2018, dividends derived from the revenues accumulated from January 1, 2008 and are paid to non-resident enterprises, which are established under the laws of non-PRC jurisdictions and have no establishment or place of business in China or whose dividends from China do not relate to their establishment or place of business in China, 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. Dividends paid by PRC companies to resident enterprises, including enterprises established under the laws of non-PRC jurisdictions but whose “de facto management body” is located in the PRC, are not subject to any PRC withholding tax, unless the investment income are derived from the publicly traded shares which have been held continuously by the resident enterprises for less than twelve months. Dividends, bonuses and other return based on equity investment that a non-resident enterprise with establishment or place of business in China receives from a resident enterprise and that have actual connection with such establishment or place of business are also exempted from any PRC withholding tax, except for investment income derived from the publicly traded shares which have been held continuously by the resident enterprises for less than 12 months. Chinese resident enterprises are required to withhold PRC enterprise income tax at the rate of 10% on dividends paid for 2009 and later years’ earnings payable to their respective H Shares holders that are “non-resident enterprises,” except for those holders whose dividend income is not subject to PRC enterprise income tax pursuant to PRC governmental approval.
Tax Treaties
Holders resident in countries which have entered into avoidance of double taxation treaties or arrangements with the PRC may be entitled to a reduction or exemption of the withholding tax imposed on the payment of dividends.
Under a tax treaty between United States and China, China may tax dividends paid by Sinopec Corp. to eligible US Holders up to a maximum of 10% of the gross amount of such dividend. Under the tax treaty, an eligible US Holder is a person who, by reason of domicile, residence, place of head office, place of incorporation or any other criterion of similar nature is liable to tax in the United States, subject to a detailed “treaty shopping” provision.
Taxation of Capital Gains
In accordance with the new Enterprise Income Tax Law effective from January 1, 2008 and amended on January 8, 2011, February 24, 2017 and December 29, 2018, and its implementation rules, capital gains realized by foreign enterprises which are non-resident enterprises in China upon the sale of overseas-listed 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. The capital gains realized by resident enterprises, including enterprises established under the laws of non-PRC jurisdictions but whose “de facto management body” is located in the PRC, upon the sales of overseas-listed shares are subject to the PRC enterprise income tax.
PRC Stamp Tax Considerations
Under the Provisional Regulations of The People’s Republic of China Concerning Stamp Tax, which was effective on October 1, 1988 and amended in January 2011, PRC stamp tax should not be imposed on the transfer of shares of H Shares or ADSs of PRC publicly traded companies.
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United States Federal Income Tax Considerations
The following is a summary of United States federal income tax considerations relating to the ownership and disposition of our H shares or ADSs by a US Holder (as defined below). This summary is based upon existing United States federal income tax law, which is subject to differing interpretations or change, possibly with retroactive effect. This summary does not discuss all aspects of United States federal income taxation which may be important to particular investors in light of their individual investment circumstances, such as certain investors subject to special tax rules including: financial institutions, regulated investment companies, real estate investment trusts, broker-dealers, cooperatives, pension plans, insurance companies, traders in securities that elect mark-to-market treatment, partnerships and their partners, tax-exempt organizations (including private foundations), non-US Holders, holders who own (directly, indirectly, or constructively) 10% or more of our stock (by vote or value), investors that hold H shares or ADSs as part of a straddle, hedge, conversion, constructive sale, or other integrated transaction for United States federal income tax purposes, holders who acquired their H shares or ADSs pursuant to any employee share option or otherwise as compensation, or US Holders that have a functional currency other than the United States dollar, all of whom may be subject to tax rules that differ significantly from those summarized below. In addition, this summary does not discuss any state, local, non-United States, alternative minimum tax, non-income tax (such as the U.S. federal estate and gift tax) or Medicare considerations. This summary assumes that our H shares or ADSs held by investors are “capital assets” (generally, property held for investment) under the United States Internal Revenue Code of 1986, as amended (Code). US Holders should consult their tax advisors regarding the United States federal, state, local, and non-United States income and other tax considerations relating to their ownership or disposition of our H shares or ADSs.
For purposes of this summary, a US Holder is a beneficial owner of H shares or ADSs that is, for United States federal income tax purposes:
| ● | an individual who is a citizen or resident of the United States; |
| ● | a corporation created in or organized under the laws of, the United States or any State thereof or the District of Columbia; |
| ● | an estate the income of which is includible in gross income for United States federal income tax purposes regardless of its source; or |
| ● | a trust (a) the administration of which is subject to the primary supervision of a United States court and which has one or more United States persons who have the authority to control all substantial decisions of the trust or (b) that has otherwise elected to be treated as a United States person under the Code. |
If a partnership (including any entity treated as a partnership for United States federal income tax purposes) is a beneficial owner of H shares or ADSs, the tax treatment of a partner in such partnership will depend upon the status of the partner and the activities of the partnership. Partners in a partnership holding our H shares or ADSs should consult their tax advisors regarding the United States federal income tax considerations relating to the investment in our H shares or ADSs.
For United States federal income tax purposes, it is generally expected that US Holders of ADSs will be treated as the beneficial owners of the underlying H shares represented by the ADSs. The remainder of this discussion assumes that a holder of ADSs will be treated in this manner. Accordingly, deposits or withdrawals of H shares for ADSs will generally not be subject to United States federal income tax.
Passive Foreign Investment Company Considerations
A non-United States corporation, such as our company, will be a PFIC, for United States federal income tax purposes for any taxable year, if either (a) 75% or more of its gross income for such year consists of certain types of “passive” income or (b) 50% or more of the value of our assets (generally based on the average quarterly value of our assets during the taxable year) produce or are held for the production of passive income. For this purpose, cash and assets readily convertible into cash are categorized as passive assets and the Company’s goodwill and other unbooked intangibles associated with active business activities may generally be classified as active assets. We will be treated as owning a proportionate share of the assets and earning a proportionate share of the income of any other corporation in which we own, directly or indirectly, 25% or more (by value) of the stock.
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We do not believe that we were classified as a PFIC for the taxable year ended December 31, 2021 and we do not expect to be classified as a PFIC for the current taxable year or for the foreseeable future. The determination of whether we will be or become a PFIC will depend, in part, upon the composition of our income and our assets (which are subject to change from year to year) and the market price of our H shares or ADSs (which may be volatile). Although we do not expect that our business plans will change in a manner that will affect our PFIC status, no assurance can be given in this regard. Because there are uncertainties in the application of the relevant rules and PFIC status is a fact-intensive determination made on an annual basis, no assurance can be given that we will not be classified as a PFIC for any taxable year.
The discussion below under “Dividends” and “Sale or Other Disposition” of H shares or ADSs assumes that we will not be classified as a PFIC for United States federal income tax purposes. See the discussion below under the heading “Passive Foreign Investment Company Rules” for a brief summary of the PFIC rules.
Dividends
The gross amount of any cash distributions (including the amount of any tax withheld) paid on our H shares or ADSs out of our current or accumulated earnings and profits, as determined under United States federal income tax principles, will be subject to tax as dividend income on the day actually or constructively received by a US Holder, in the case of H shares, or by the depositary bank, in the case of ADSs. Because we do not intend to determine our earnings and profits on the basis of United States federal income tax principles, any distribution paid will generally be reported as a “dividend” for United States federal income tax purposes. A non-corporate recipient of dividend income will generally be subject to tax on dividend income from a “qualified foreign corporation” at a reduced capital gains rate rather than the marginal tax rates generally applicable to ordinary income provided that the holding period requirement is met.
A non-U.S. corporation (other than a corporation that is classified as a PFIC for the taxable year in which the dividend is paid or the preceding taxable year) generally will be considered to be a qualified foreign corporation (i) if it is eligible for the benefits of a comprehensive tax treaty with the United States which the Secretary of Treasury of the United States determines is satisfactory for purposes of this provision and which includes an exchange of information program or (ii) with respect to any dividend it pays on stock which is readily tradable on an established securities market in the United States. There is currently a tax treaty in effect between the United States and the People’s Republic of China (U.S.-PRC Treaty) which the Secretary of Treasury of the United States determined is satisfactory for these purposes and we believe that we are eligible for the benefits of such treaty. Additionally, our ADSs trade on the New York Stock Exchange, an established securities market in the United States. Although we presently believe that we are a qualified foreign corporation for purposes of the reduced tax rate, no assurance can be given that we will continue to be treated as a qualified foreign corporation in the future. US Holders should consult their tax advisors regarding the availability of the reduced tax rate on dividends under their particular circumstances. Dividends received on H shares or ADSs will not be eligible for the dividends received deduction allowed to corporations.
Dividends paid in non-United States currency will be includible in income in a United States dollar amount based on the exchange rate prevailing at the time of receipt of such dividends by the depositary, in the case of ADSs, or by the US Holder, in the case of H shares held directly by such US Holder, regardless of whether the non-United States currency is actually converted into United States dollars at that time. Gain or loss, if any, recognized on a subsequent sale, conversion or other disposition of the non-United States currency will generally be United States source income or loss.
Dividends received on H shares or ADSs will be treated, for United States foreign tax credit purposes, as foreign source income and generally will constitute passive category income. A US Holder may be eligible, subject to a number of complex limitations, to claim a foreign tax credit in respect of any non-United States withholding taxes imposed on dividends received on H shares or ADSs. US Holders who do not elect to claim a foreign tax credit for foreign income tax withheld may instead claim a deduction, for United States federal income tax purposes, in respect of such withholdings, but only for a year in which the US Holder elects to do so for all creditable foreign income taxes. US Holders should consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.
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Sale or Other Disposition of H shares or ADSs
A US Holder will recognize capital gain or loss upon the sale or other disposition of H shares or ADSs in an amount equal to the difference between the amount realized upon the disposition and the US Holder’s adjusted tax basis in such H shares or ADSs. The gain or loss will generally be capital gain or loss. Individuals and other non-corporate US Holders who have held the H shares or ADSs for more than one year will generally be eligible for reduced tax rates. Any capital gain or loss will be long-term if the H shares or ADSs have been held for more than one year and will generally be United States source gain or loss for United States foreign tax credit purposes, which will generally limit the availability of foreign tax credits. The deductibility of a capital loss may be subject to limitations.
As described in “Item 10. Additional Information—E. Taxation—PRC Taxation,” if we are deemed to be a PRC resident enterprise under the Enterprise Income Tax Law, gains from the disposition of H shares or ADSs, may be subject to PRC income tax and will generally be United States source, which may limit the ability to receive a foreign tax credit. If a US Holder is eligible for the benefits of the U.S.- PRC Treaty, such holder may be able to elect to treat such gain as PRC-source income under the U.S.-PRC Treaty. Pursuant to recently issued United States Treasury regulations, however, if a US Holder is not eligible for the benefits of the U.S.-PRC Treaty or does not elect to apply the U.S.-PRC Treaty, then such holder may not be able to claim a foreign tax credit arising from any PRC tax imposed on the disposition of H shares or ADSs. The rules regarding foreign tax credits and deduction of foreign taxes are complex. US Holders should consult their tax advisors regarding the availability of a foreign tax credit or deduction in light of their particular circumstances, , including their eligibility for benefits under the U.S.-PRC Treaty, and the potential impact of the recently issued United States Treasury Regulations.
US Holders that receive currency other than the United States dollar upon the sale or other disposition of H shares will realize an amount equal to the United States dollar value of the non-United States currency on the date of such sale or other disposition, or if the shares are traded on an established securities market, in the case of cash basis and electing accrual basis taxpayers, the settlement date. US Holders will recognize currency gain or loss if the United States dollar value of the currency received on the settlement date differs from the amount realized. US Holders will have a tax basis in the currency received equal to the United States dollar amount at the spot rate on the settlement date. Generally, any gain or loss realized by US Holders on a subsequent conversion or disposition of such currency will be United States source ordinary income or loss.
Passive Foreign Investment Company Rules
If we were to be classified as a PFIC in any taxable year, a special tax regime will apply to both (a) any “excess distribution” by us to a US Holder (generally, the US Holder’s ratable portion of distributions in any year which are greater than 125% of the average annual distribution received by such US Holder in the shorter of the three preceding years or the US Holder’s holding period for our H shares or ADSs) and (b) any gain realized on the sale or other disposition of the H shares or ADSs. Under this regime, any excess distribution and realized gain will be treated as ordinary income and will be subject to tax as if (a) the excess distribution or gain had been realized ratably over the US Holder’s holding period, (b) the amount deemed realized in each year had been subject to tax in each year of that holding period at the highest marginal rate for such year (other than income allocated to the current period or any taxable period before we became a PFIC, which would be subject to tax at the US Holder’s regular ordinary income rate for the current year and would not be subject to the interest charge discussed below), and (c) the interest charge generally applicable to underpayments of tax had been imposed on the taxes deemed to have been payable in those years. In addition, dividends made to a US Holder will not qualify for the lower rates of taxation applicable to long-term capital gains discussed above under “Dividends.”
If a “mark-to-market” election is available and a US Holder validly makes such an election, notwithstanding the foregoing, such a holder generally will be required to take into account the difference, if any, between the fair market value and its adjusted tax basis in H shares or ADSs at the end of each taxable year as ordinary income or ordinary loss (to the extent of any net mark-to-market gain previously included in income). In addition, any gain from a sale or other disposition of H shares or ADSs will be treated as ordinary income, and any loss will be treated as ordinary loss (to the extent of any net mark-to-market gain previously included in income).
Because a mark-to-market election cannot technically be made for any lower-tier PFICs that we may own, a US Holder may continue to be subject to the PFIC rules with respect to such US Holder’s indirect interest in any investments held by us that are treated as an equity interest in a PFIC for United States federal income tax purposes.
We do not intend to provide information necessary for US Holders to make qualified electing fund elections which, if available, would result in tax treatment different from (and generally less adverse than) the general tax treatment for PFICs described above.
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Each US Holder is urged to consult its tax advisor concerning the United States federal income tax consequences of holding and disposing H shares or ADSs if we are or become treated as a PFIC, including the possibility of making a mark-to-market election, the “deemed sale” and “deemed dividend” elections and the unavailability of the election to treat us as a qualified electing fund.
F. | DIVIDENDS AND PAYING AGENTS |
Not applicable.
G. | STATEMENT BY EXPERTS |
Not applicable.
H. | DOCUMENTS ON DISPLAY |
This annual report contains exhibits and schedules. Any statement in this annual report about any of our contracts or other documents is not necessarily complete. If the contract or document is filed or incorporated by reference as an exhibit to this annual report, the contract or document is deemed to modify the description contained in this annual report. You must review the exhibits themselves for a complete description of the contracts or documents.
Copies of reports and other information, when so filed, may be inspected without charge and may be obtained at prescribed rates at the public reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street, Room 1024, NW, Washington, D.C. 20549; or at New York (address: 233 Broadway, New York, NY 10279) and Chicago (address: Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661). Copies of the above materials may also be obtained from the Public Information Department of SEC at 450 Fifth Street, NW, Washington DC 20549, charges as appropriate. You may also view the registration statement (including attachments and schedules) at the New York Stock Exchange at Wall Street, New York, NY 10005. The SEC maintains a web site at www.sec.gov. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
| I. | SUBSIDIARY INFORMATION |
Not applicable.
ITEM 11. | QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK |
Our primary market risk exposures are to fluctuations in oil and gas prices, exchange rates and interest rates. Please also refer to Note 40 to the consolidated financial statements included elsewhere in this annual report for a detailed discussion of other market risks that we have exposure to.
Commodity Price Risk
We engage in oil and gas operations and is exposed to commodity price risk related to price volatility of crude oil, refined oil products and chemical products. The fluctuations in prices of crude oil, refined oil products and chemical products could have significant impact on us. We use derivative financial instruments, including commodity futures and swaps contracts, to manage a portion of such risk.
As of December 31, 2021, we had certain commodity contracts of crude oil, refined oil products and chemical products designated as qualified cash flow hedges and economic hedges. As of December 31, 2021, the fair value of such derivative hedging financial instruments is derivative financial assets of RMB18,359 million (2020: RMB12,353 million) and derivative financial liabilities of RMB3,214 million (2020: RMB4,808 million).
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As of December 31, 2021, it is estimated that a general increase/decrease of USD 10 per barrel in basic price of derivative financial instruments, with all other variables held constant, would impact the fair value of derivative financial instruments, which would decrease/ increase our net income for the year by approximately RMB2,996 million (2019: increase/decrease RMB3,592 million), and decrease/ increase our other comprehensive income by approximately RMB1,160 million (2020: increase/ decrease RMB10,379 million). This sensitivity analysis has been determined assuming that the change in prices had occurred at the balance sheet date and the change was applied to our derivative financial instruments at that date with exposure to commodity price risk. The analysis is performed on the same basis for 2020.
Foreign Exchange Rate Risk
The Renminbi is not a freely convertible currency. With the authorization from the PRC government, the PBOC announced that the PRC government reformed the exchange rate regime by moving into a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies on July 21, 2005. The PRC government has been gradually promoting the Renminbi exchange rate formation mechanism to enhance the flexibility of Renminbi exchange rate. On August 11, 2015, the PBOC decided to further improve the mechanism of RMB’s central parity rate against the US dollar. Actions taken by the PRC government could cause future exchange rates to vary significantly from current or historical exchange rates. Fluctuations in exchange rates may adversely affect the value, translated or converted into US dollars or Hong Kong dollars, of our net assets, earnings and any declared dividends. We cannot give any assurance that any future movements in the exchange rate of the Renminbi against the US dollar and other foreign currencies will not adversely affect our results of operations and financial condition.
The following presents various market risk information regarding market-sensitive financial instruments that we held or issued as of December 31, 2020 and 2021. We conduct our business primarily in Renminbi, which is also our functional and reporting currency.
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The following tables provide information regarding instruments that are sensitive to foreign exchange rates as of December 31, 2020 and 2021. For debt obligations, the table presents cash flows and related weighted average rates by expected maturity dates.
| | | | | | | | | | | | | | | | |
| | As of December 31, 2021 | ||||||||||||||
| | | | Total | | | ||||||||||
| | Expected Maturity Date | | carrying | | Fair | ||||||||||
| | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | Thereafter | | amount | | Value |
| | (RMB equivalent in millions, except interest rate) | ||||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In US Dollar |
| 46,087 |
| — |
| — |
| — |
| — |
| — |
| 46,087 |
| 46,087 |
In HK Dollar |
| 4,006 |
| — |
| — |
| — |
| — |
| — |
| 4,006 |
| 4,006 |
In Japanese Yen |
| 37 |
| — |
| — |
| — |
| — |
| — |
| 37 |
| 37 |
In Euro |
| 502 |
| — |
| — |
| — |
| — |
| — |
| 502 |
| 502 |
Others |
| 200 |
| — |
| — |
| — |
| — |
| — |
| 200 |
| 200 |
Time deposits with financial institutions |
| |
|
|
|
|
|
|
|
|
|
|
| |
| |
In US Dollar |
| 11,103 |
| — |
| — |
| — |
| — |
| — |
| 11,103 |
| 11,103 |
Liabilities |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debts in US Dollar |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate |
| 583 |
| 7,962 |
| 1 |
| 1 |
| 1 |
| 4,382 |
| 12,930 |
| 11,603 |
Average interest rate |
| 3.01 | % | 3.11 | % | 3.31 | % | 1.53 | % | 3.32 | % | 3.32 | % | — |
| — |
Variable rate |
| 362 |
| — |
| — |
| — |
| — |
| — |
| 362 |
| 362 |
Average interest rate(1) |
| 0.57 | % | — |
| — |
| — |
| — |
| — | | — |
| — |
Debts in HK Dollar |
| — | | — | | — | | — | | — | | — | | — | | — |
Fixed rate |
| — | | — | | — | | — | | — | | — | | — | | — |
Average interest rate |
| — | | — | | — | | — | | — | | — | | — | | — |
Variable rate |
| — | | — | | — | | — | | — | | — | | — | | — |
Average interest rate(1) |
| — | | — | | — | | — | | — | | — | ||||