SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of September 2006
PETROCHINA COMPANY LIMITED
16 ANDELU, DONGCHENG DISTRICT
BEIJING, THE PEOPLE'S REPUBLIC OF CHINA, 100011
(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.)
Form 20-F [X] Form 40-F
(Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes [ ] No [X]
(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-____)
PetroChina Company Limited (the "Registrant") is furnishing under the
cover of Form 6-K the Registrant's 2006 interim report.
This report contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements
are, by their nature, subject to significant risks and uncertainties. These
forward-looking statements include, without limitation, statements relating to:
- the Registrant's plan to speed up the implementation of oil and gas
exploration plans, steadily coordinate refining and production,
organize natural gas production and marketing in a systematic manner
and steadily promote international business; and
- the Registrant's other future plans and prospects.
These forward-looking statements reflect our current views with respect to
future events and are not a guarantee of future performance. Actual results may
differ materially from information contained in these forward-looking statements
as a result of a number of factors, including, without limitation:
- fluctuations in crude oil and natural gas prices;
- failure to achieve continued exploration success;
- failure or delay in achieving production from development projects;
- failure to complete the proposed acquisition of certain overseas
assets as planned;
- change in demand for competing fuels in the target market;
- continued availability of capital and financing;
- general economic, market and business conditions;
- changes in policies, laws or regulations of the PRC and other
jurisdictions in which the Registrant and its subsidiaries conduct
business; and
- other factors beyond the Registrant's control.
We do not intend to update or otherwise revise the forward-looking
statements in this report, whether as a result of new information, future events
or otherwise. Because of these risks, uncertainties and assumptions, the
forward-looking events and circumstances discussed in this report might not
occur in the way we expect, or at all.
You should not place undue reliance on any of these forward-looking
statements.
2006
INTERIM REPORT
PETROCHINA COMPANY LIMITED
FINANCIAL AND BUSINESS SUMMARY
1.8%
Output of crude oil for the first half of 2006 was 419.1 million barrels,
representing an increase of 1.8% from the first half of 2005.
30.8%
Output of marketable natural gas for the first half of 2006 was 684.7
billion cubic feet, representing an increase of 30.8% from the
first half of 2005.
6.8%
Total output of crude oil and natural gas for the first half of
2006 was 533.2 million barrels of oil equivalent, representing an increase of
6.8% from the first half of 2005.
25.3%
Consolidated turnover for the first half of 2006 was RMB326,545 million,
representing an increase of 25.3% from the first half of 2005.
29.4%
Consolidated net profit* for the first half of 2006 was RMB80,681 million,
representing an increase of 29.4% from the first half of 2005.
RMB0.10
Basic and diluted earnings per share for the first half of 2006 were
RMB0.45, representing an increase of RMB 0.10 per share from the first
half of 2005.
RMB0.202806
The Board of Directors has resolved to distribute an interim dividend for
2006 of RMB0.202806 per share.
- Note: Consolidated net profit is profit attributable to the
Company's equity holders.
CONTENTS
01. Consolidated Interim Condensed Financial Statements
38. Management's Discussion and Analysis of Financial Condition and Results of
Operations
59. Business Operating Review and Prospects
63. Interim Dividends and Closure of Register of Members
63. Share Capital Structure
64. Repurchase, Sale or Redemption of Securities
64. Qualified Accountant
64. Disclosure of Other Information
65. Shareholdings of Majority Shareholders
67. Interests of Directors and Supervisors in the Share Capital of the Company
67. Compliance with the Model Code for Securities Transactions by Directors
67. Compliance with the Code on Corporate Governance Practices
68. Audit Committee
68. Directors of the Company
PETROCHINA COMPANY LIMITED
UNAUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the six months ended June 30, 2006 and June 30, 2005
(Amounts in millions except for per share data)
SIX MONTHS ENDED JUNE 30
--------------------------------
2005
NOTES 2006 (NOTE 2)
----- --------- --------
RMB RMB
----- --------- --------
TURNOVER 4 326,545 260,618
--------- --------
OPERATING EXPENSES
Purchases, services and other (112,758) (96,956)
Employee compensation costs (16,993) (13,052)
Exploration expenses, including exploratory dry holes (8,750) (8,729)
Depreciation, depletion and amortisation (29,910) (26,678)
Selling, general and administrative expenses (19,104) (14,902)
Taxes other than income taxes 5 (24,259) (11,253)
Other income, net 522 919
-------- --------
TOTAL OPERATING EXPENSES (211,252) (170,651)
-------- --------
PROFIT FROM OPERATIONS 115,293 89,967
-------- --------
FINANCE COSTS
Exchange gain 830 231
Exchange loss (798) (213)
Interest income 959 709
Interest expense (1,848) (1,526)
-------- --------
TOTAL FINANCE COSTS (857) (799)
-------- --------
SHARE OF PROFIT OF ASSOCIATES 1,482 1,001
-------- --------
PROFIT BEFORE TAXATION 6 115,918 90,169
TAXATION 7 (30,675) (25,229)
-------- --------
PROFIT FOR THE PERIOD 85,243 64,940
======== ========
ATTRIBUTABLE TO:
Equity holders of the Company 80,681 62,363
Minority interest 4,562 2,577
-------- --------
85,243 64,940
======== ========
BASIC AND DILUTED EARNINGS PER SHARE FOR
PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF
THE COMPANY DURING THE PERIOD 8 0.45 0.35
======== ========
DIVIDENDS ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY:
Interim dividends proposed after the balance sheet date 9 36,307 27,731
======== ========
The accompanying notes are an integral part of these financial statements
2006 INTERIM REPORT
1
PETROCHINA COMPANY LIMITED
UNAUDITED CONSOLIDATED BALANCE SHEET
As of June 30, 2006 and December 31, 2005
(Amounts in millions)
DECEMBER 31, 2005
NOTES JUNE 30, 2006 (NOTE 2)
----- ------------- -----------------
RMB RMB
---------------------------------------------------------------------------------------------------
NON CURRENT ASSETS
Property, plant and equipment 10 578,894 563,890
Investments in associates 12,153 12,378
Available-for-sale investments 1,963 1,230
Advance operating lease payments 17,674 16,235
Intangible and other assets 5,080 5,011
Time deposits with maturities over one year 2,990 3,428
------- -------
618,754 602,172
------- -------
CURRENT ASSETS
Inventories 11 80,824 62,733
Accounts receivable 12 10,531 4,630
Prepaid expenses and other current assets 32,548 22,673
Notes receivable 13 4,058 3,028
Investments in collateralised loans 14 - 235
Time deposits with maturities over three months but
within one year 3,881 1,691
Cash and cash equivalents 92,630 80,905
------- -------
TOTAL CURRENT ASSETS 224,472 175,895
------- -------
CURRENT LIABILITIES
Accounts payable and accrued liabilities 15 112,373 99,758
Income tax payable 13,317 20,567
Other taxes payable 16,848 4,824
Short-term borrowings 16 34,004 28,689
------- -------
176,542 153,838
------- -------
NET CURRENT ASSETS 47,930 22,057
------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES 666,684 624,229
======= =======
EQUITY
Equity attributable to equity holders of the Company
Share capital
-State-owned shares of RMB 1.00 each 157,922 157,922
-H shares of RMB 1.00 each 21,099 21,099
------- -------
179,021 179,021
Retained earnings 252,211 203,812
Reserves 130,817 132,556
------- -------
562,049 515,389
Minority interest 30,072 28,278
------- -------
TOTAL EQUITY 592,121 543,667
------- -------
NON CURRENT LIABILITIES
Long-term borrowings 16 35,804 44,570
Other long-term obligations 948 1,046
Asset retirement obligations 17 14,690 14,187
Deferred taxation 23,121 20,759
------- -------
74,563 80,562
------- -------
666,684 624,229
======= =======
The accompanying notes are an integral part of these financial statements.
2006 INTERIM REPORT
2
PETROCHINA COMPANY LIMITED
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
For the six months ended June 30, 2006 and June 30, 2005
(Amounts in millions)
SIX MONTHS ENDED JUNE 30
------------------------
2005
NOTES 2006 (NOTE 2)
----- ------- --------
RMB RMB
---------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Profit for the period 85,243 64,940
Adjustments for:
Taxation 7 30,675 25,229
Depreciation, depletion and amortisation 29,910 26,678
Dry hole costs 4,430 5,130
Share of profit of associates (1,482) (1,001)
Impairment of receivables, net 6 (55) (247)
Write down in inventories, net 6 (80) (72)
Impairment of available-for-sale investments, net 6 1 (1)
Loss on disposal of property, plant and equipment 6 185 41
Loss on disposal of intangible assets 1 -
Gain on disposal of associates (18) -
Loss on disposal of available-for-sale investments 4 2
Dividends income 6 (173) (88)
Interest income (959) (709)
Interest expense 1,848 1,526
Advance payments on long-term operating leases (2,080) (1,557)
Changes in working capital:
Accounts receivable, prepaid expenses and other
current assets (15,800) (19,093)
Inventories (17,862) (5,701)
Accounts payable and accrued liabilities 23,517 32,090
------- -------
CASH GENERATED FROM OPERATIONS 137,305 127,167
Interest received 934 709
Interest paid (1,851) (1,810)
Income taxes paid (35,563) (27,899)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 100,825 98,167
------- -------
The accompanying notes are an integral part of these financial statements.
2006 INTERIM REPORT
3
PETROCHINA COMPANY LIMITED
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
For the six months ended June 30, 2006 and June 30, 2005
(Amounts in millions)
SIX MONTHS ENDED JUNE 30
------------------------
2005
NOTES 2006 (NOTE2)
----- ---- -------
RMB RMB
----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (45,574) (36,821)
Acquisition of associates (1,085) (494)
Acquisition of available-for-sale investments (59) (583)
Acquisition of investments in collateralised loans
with maturities over three months - (433)
Acquisition of intangible assets (318) (252)
Acquisition of other non-current assets (387) (127)
Proceeds from investments in collateralised loans with
maturities over three months - 5,620
Repayment of capital by associates 83 77
Purchase from minority interest of subsidiaries 18 (4,574) -
Return capital to minority interest due to liquidation
of subsidiaries - (848)
Proceeds from disposal of property, plant and equipment 100 171
Proceeds from disposal of associates 69 1,081
Proceeds from disposal of available-for-sale investments 3 53
Proceeds from disposal of intangible and other
non-current assets 2 22
Net proceeds of investments in collateralised loans
with maturities not greater than three months 235 27,388
Dividends received 1,283 553
Increase in time deposits with maturities over three months (1,752) (827)
------- -------
NET CASH USED FOR INVESTING ACTIVITIES (51,974) (5,430)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of short-term borrowings (13,109) (18,930)
Repayments of long-term borrowings (14,007) (9,707)
Principal payment on finance lease obligations - (15)
Dividends paid to minority interest (1,493) (411)
Dividends paid to equity holders of the Company 9 (32,282) (25,936)
Capital contribution from minority interest 63 90
Increase in short-term borrowings 13,541 15,820
Increase in long-term borrowings 10,094 7,727
Change in other long-term obligations (98) (1,662)
------- -------
NET CASH USED FOR FINANCING ACTIVITIES (37,291) (33,024)
------- -------
CURRENCY TRANSLATION DIFFERENCES 165 (119)
------- -------
Increase in cash and cash equivalents 11,725 59,594
Cash and cash equivalents at beginning of period 80,905 11,688
------- -------
Cash and cash equivalents at end of period 92,630 71,282
======= =======
The accompanying notes are an integral part of these financial statements
2006 INTERIM REPORT
4
PETROCHINA COMPANY LIMITED
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months ended June 30, 2006 and June 30, 2005
(Amounts in millions)
ATTRIBUTABLE TO EQUITY HOLDERS MINORITY TOTAL
OF THE COMPANY INTEREST EQUITY
-----------------------------------------------------------------------
SHARE RETAINED
CAPITAL EARNINGS RESERVES SUBTOTAL
------- -------- -------- --------
RMB RMB RMB RMB RMB RMB
--------------------------------------------------------------------------------------------------------------------
Balance at January 1, 2005 (Note 2) 175,824 143,115 108,834 427,773 15,199 442,972
Currency translation differences (140) (140) (281) (421)
------- ------- ------- ------- ------ -------
Net loss recognised directly in equity - (140) (140) (281) (421)
Profit from January 1 to June 30, 2005 - 62,363 - 62,363 2,577 64,940
------- ------- ------- ------- ------ -------
Total recognised income/(loss) from
January 1 to June 30, 2005 - 62,363 (140) 62,223 2,296 64,519
------- ------- ------- ------- ------ -------
Final dividends for 2004 (Note 9) - (25,936) - (25,936) - (25,936)
Dividends to minority interest - - - - (418) (418)
Return capital to minority interest due
to liquidation of subsidiaries - - - - (848) (848)
Payment to CNPC for the acquisition of
refinery and petrochemical businesses - - (9) (9) - (9)
Capital contribution to CNPC
Exploration and Development Company
Limited (Note 2) - - 25 25 25 50
Other movement of minority interest - - - - 91 91
------- ------- ------- ------- ------ -------
Balance at June 30, 2005 175,824 179,542 108,710 464,076 16,345 480,421
======= ======= ======= ======= ====== =======
Balance at January 1, 2006 179,021 203,812 132,556 515,389 28,278 543,667
Currency translation differences - - 439 439 924 1,363
------- ------- ------- ------- ------ -------
Net income recognised directly in equity - - 439 439 924 1,363
Profit from January 1 to June 30, 2006 - 80,681 - 80,681 4,562 85,243
------- ------- ------- ------- ------ -------
Total recognised income from January 1
to June 30, 2006 - 80,681 439 81,120 5,486 86,606
------- ------- ------- ------- ------ -------
Final dividends for 2005 (Note 9) - (32,282) (32,282) - (32,282)
Dividends to minority interest - - - - (1,426) (1,426)
Purchase from minority interest of
subsidiaries (Note 18) - - (2,178) (2,178) (2,396) (4,574)
Other movement of minority interest - - - - 130 130
------- ------- ------- ------- ------ -------
Balance at June 30, 2006 179,021 252,211 130,817 562,049 30,072 592,121
======= ======= ======= ======= ====== =======
The accompanying notes are an integral part of these financial statements.
2006 INTERIM REPORT
5
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
For the six months ended June 30, 2006 (Amounts in millions)
1 ORGANISATION AND PRINCIPAL ACTIVITIES
PetroChina Company Limited (the "Company") was established in the People's
Republic of China (the "PRC" or "China") on November 5, 1999 as a joint stock
company with limited liability as a result of a group restructuring (the
"Restructuring") of China National Petroleum Corporation ("CNPC") in preparation
for the listing of the Company's shares in Hong Kong and in the United States of
America. The Company and its subsidiaries are collectively referred to as
the"Group".
In accordance with the restructuring agreement between CNPC and the
Company effective as of November 5, 1999, the Company issued 160 billion
state-owned shares in exchange for the assets and liabilities transferred to the
Company by CNPC. The 160 billion state-owned shares were the initial registered
capital of the Company with a par value of RMB1.00 per share. On April 7, 2000,
the Company issued 17,582,418,000 shares, represented by 13,447,897,000 H shares
and 41,345,210 American Depositary Shares ("ADSs", each representing 100 H
shares) in a global offering and the trading of the H shares and the ADSs on the
Stock Exchange of Hong Kong Limited and the New York Stock Exchange commenced on
April 7, 2000 and April 6, 2000, respectively. Pursuant to the approval of the
China Securities Regulatory Commission, 1,758,242,000 state-owned shares of the
Company owned by CNPC were converted into H shares for sale in the global
offering.
In September 2005, the Company issued 3,196,801,818 new H shares at HK$
6.00 per share and net proceed to the Company was approximately RMB 19,692. CNPC
also sold 319, 680,182 state-owned shares it held concurrently with PetroChina's
sale of new H shares in September 2005.
2 ACCOUNTING POLICIES
The consolidated interim condensed financial statements have been prepared
in accordance with International Accounting Standard ("IAS") 34"Interim
Financial Reporting". The accounting policies and methods of computation used in
the preparation of the consolidated interim condensed financial statements are
consistent with those used in the preparation of the financial statements for
the year ended December 31, 2005 except for the ones modified by the Company as
a result of the adoption of the new or revised International Financial Reporting
Standards ("IFRS").
In 2006, the Group adopted the following new standards, amendments to
standards and interpretations which are relevant to its operations and mandatory
for financial year ending December 31, 2006. The adoption of these new and
revised IFRS did not result in substantial changes to the Group's accounting
policies. In summary:
-- International Financial Reporting Interpretations Committee ("IFRIC")
Interpretation 4, Determining whether an Arrangement contains a Lease, effective
for annual periods beginning on or after January 1, 2006.
-- IFRIC Interpretation 8, Scope of IFRS 2, effective for annual periods
beginning on or after May 1, 2006.
-- IAS 39 and IFRS 4 (Amendments), Financial Guarantee Contracts, effective
for annual periods beginning on or after January 1, 2006.
The consolidated interim condensed financial statements presented herein
should be read in conjunction with the consolidated financial statements and
notes thereto included in the annual report of the Group for the year ended
December 31, 2005. The consolidated interim condensed financial statements as of
June 30, 2006 and for the six-month periods ended June 30, 2006 and June 30,
2005 included herein are unaudited but reflect, in the opinion of the Board of
Directors, all adjustments (which include only normal recurring adjustments)
necessary to properly prepare the consolidated interim condensed financial
statements, in all material respects, in accordance with IAS 34. The results of
operations for the six months ended June 30, 2006 are not necessarily indicative
of the results of operations expected for the year ending December 31, 2006.
2006 INTERIM REPORT
6
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
For the six months ended June 30, 2006 (Amounts in millions)
Costs that incur unevenly during the financial year are anticipated or
deferred in these interim financial statements only if it would be also
appropriate to anticipate or defer such costs at the end of the financial year.
Income tax expense is recognised based on the best estimate of the
weighted average annual income tax rate expected for the full financial year.
The estimated average annual tax rate used for the six months ended June 30,
2006 is 26% (six months ended June 30, 2005: 28%).
In August 2005 the shareholders of the Company approved the acquisition
and transfer agreements relating to the Company's acquisition of a 50% ownership
interest in Zhong You Kan Tan Kai Fa Company Limited (CNPC Exploration and
Development Company Limited ("CNPC E&D")). CNPC E&D was formed in 2005 and was
wholly owned by China National Oil and Gas Exploration and Development
Corporation ("CNODC", wholly owned by CNPC) and one of its subsidiaries. Under
the terms of the related agreements, CNODC transferred certain oil and gas
exploration operations into CNPC E&D and the Company contributed to CNPC E&D its
wholly-owned subsidiary, PetroChina International Limited ("PTRI"), and cash
amounting to approximately RMB 20,162, which is the difference between the cash
contribution of RMB 20,741 payable by the Company according to the acquisition
agreement and cash consideration of RMB 579 for PTRI receivable by the Company.
The terms of the agreements grant the Company the right to appoint four of
the seven directors of CNPC E&D and enable the Company to maintain effective
control over CNPC E&D.
The investment in CNPC E&D and related transactions have been accounted
for in a manner similar to uniting of interests as all entities involved are
under common control by CNPC. The consolidated financial statements of the
Company have been restated as if the operations of the Company and CNPC E&D have
always been combined. The payment was made directly to CNPC E&D, therefore the
difference between RMB 20,162 paid and the net assets of RMB 35,551 at the
effective date acquired (including RMB 20,162 contributed by the Company and RMB
50 for the contributed paid-in capital by CNODC and its subsidiary) has been
adjusted against equity.
The summarised results of operations for the separate entities and on a
consolidated basis for the six months ended June 30, 2005, are set out below:
PETROCHINA
(AS PREVIOUSLY
REPORTED) CNPC E&D CONSOLIDATED
-------------- -------- ------------
RMB RMB RMB
-------------- -------- ------------
Results of operations:
Turnover 252,489 8,129 260,618
Profit for the period 62,221 2,719 64,940
Basic and diluted earnings per share for profit
attributable to the equity holders of the
Company (RMB) 0.35 0.00 0.35
Equity items:
Currency translation differences - (421) (421)
Dividends to minority interest (214) (204) (418)
Other movement of minority interest 51 40 91
2006 INTERIM REPORT
7
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
For the six months ended June 30, 2006 (Amounts in millions)
3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgements are continually evaluated and are based on
historical experience and other factors, including expectations of future events
that are believed to be reasonable under the circumstances.
The matters described below are considered to be the most critical in
understanding the judgements that are involved in preparing the Group's
financial statements.
(a) ESTIMATION OF OIL AND NATURAL GAS RESERVE
Oil and gas reserves are key elements in the Group's investment
decision-making process. They are also an important element in testing for
impairment. Changes in proved oil and natural gas reserves, particularly proved
developed reserves, will affect unit-of-production depreciation charges to
income. Proved reserve estimates are subject to revision, either upward or
downward, based on new information, such as from development drilling and
production activities or from changes in economic factors, including product
prices, contract terms or development plans. In general, changes in the
technical maturity of oil and gas reserves resulting from new information
becoming available from development and production activities have tended to be
the most significant causes of annual revisions. Changes to the Group's
estimates of proved reserves, particularly proved developed reserves, affect the
amount of depreciation, depletion and amortisation recorded in the Group's
financial statements for property, plant and equipment related to oil and gas
production activities. A reduction in proved developed reserves will increase
depreciation, depletion and amortisation charges (assuming constant production)
and reduce net income.
(b) ESTIMATED IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including oil and gas properties are
reviewed for possible impairment when events or changes in circumstances
indicate that the carrying amount may not be recoverable. Determination as to
whether and how much an asset is impaired involves significant management
estimates and judgements such as future prices of crude oil, refined products
and chemical products and production profile. However, the impairment reviews
and calculations are based on assumptions that are consistent with the Group's
business plan. These assumptions also include those relative to the pricing
regulations by the regulatory agencies in China that the policies will not
restrict the profit margins of refined products to levels that will be
insufficient to recover the carrying cost of the related production assets.
Favourable changes to some assumptions might have avoided the need to impair any
assets in these periods, whereas unfavourable changes might have caused an
additional unknown number of other assets to become impaired.
(c) ESTIMATION OF ASSET RETIREMENT OBLIGATIONS
Provisions are recognised for the future decommissioning and restoration
of oil and gas properties. The amounts of the provisions recognised are the
present values of the estimated future expenditures. The estimation of the
future expenditures is based on current local conditions and requirements,
including legal requirements, technology, price level, etc.. In addition to
these factors, the present values of these estimated future expenditures are
also impacted by the estimation of the economic life of oil and gas properties.
Changes in any of these estimates will impact the net income and the financial
position of the Group over the remaining economic life of oil and gas
properties.
2006 INTERIM REPORT
8
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
For the six months ended June 30, 2006 (Amounts in millions)
4 TURNOVER
Turnover represents revenues from the sale of crude oil, natural gas,
refined products and petrochemical products and from the transportation of crude
oil and natural gas. Analysis of turnover by segment is shown in Note 19.
5 TAXES OTHER THAN INCOME TAXES
Taxes other than income taxes include RMB 10,289 for the six months ended
June 30, 2006 (Six months ended June 30, 2005: RMB Nil) of special levy which is
payable on the portion of income realised by petroleum exploration enterprises
from the domestic sales of crude oil at prices higher than a specific level.
This levy is introduced by the PRC government and was effective from March 26,
2006.
6 PROFIT BEFORE TAXATION
SIX MONTHS ENDED JUNE 30
------------------------
2006 2005
------- -------
RMB RMB
----------------------------------------------------------------------------------------------------------
Profit before taxation is arrived at after crediting and charging of the
following items:
Crediting
Dividends income from available-for-sale investments 173 88
Reversal of impairment of receivables 108 249
Reversal of impairment of available-for-sale investments 1 1
Reversal of write down in inventories 136 88
Charging
Amortisation on intangible and other assets 589 328
Cost of inventories (approximates cost of goods sold)
recognised as expense 146,273 126,623
Depreciation on property, plant and equipment, including impairment
provision
- owned assets 28,677 25,420
- assets under finance leases 3 7
Impairment of available-for-sale investments 2 -
Impairment of receivables 53 2
Interest expense (Note (a)) 1,848 1,526
Loss on disposal of property, plant and equipment 185 41
Operating lease expenses 2,429 2,528
Repair and maintenance 2,978 2,496
Research and development expenditure 2,024 1,043
Write down in inventories 56 16
======= =======
Note (a) Interest expense
Interest expense 2,252 1,927
Less: Amounts capitalised (404) (401)
------- -------
1,848 1,526
======= =======
2006 INTERIM REPORT
9
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
For the six months ended June 30, 2006 (Amounts in millions)
7 TAXATION
SIX MONTHS ENDED JUNE 30
------------------------
2006 2005
------- ------
RMB RMB
-------------------------------------------------
Income tax 28,682 23,746
Deferred tax 1,993 1,483
------ ------
30,675 25,229
====== ======
In accordance with the relevant PRC income tax rules and regulations, the
PRC income tax rate applicable to the Group is principally 33% (2005: 33%).
Operations of the Group in certain regions in China have qualified for certain
tax incentives in the form of reduced income tax rate to 15% through the year
2010 or accelerated depreciation of certain plant and equipment.
The tax on the Group's profit before taxation differs from the theoretical
amount that would arise using the basic tax rate in the PRC applicable to the
Group as follows:
SIX MONTHS ENDED JUNE 30
------------------------
2006 2005
------- ------
RMB RMB
------- ------
Profit before taxation 115,918 90,169
------- ------
Tax calculated at a tax rate of 33% 38,253 29,756
Prior year tax return adjustment 243 364
Effect of preferential tax rate (7,319) (4,946)
Tax effect of income not subject to tax (983) (406)
Tax effect of expenses not deductible for tax purposes 481 461
------- ------
Tax charge 30,675 25,229
======= ======
2006 INTERIM REPORT
10
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
For the six months ended June 30, 2006 (Amounts in millions)
8 BASIC AND DILUTED EARNINGS PER SHARE
Basic and diluted earnings per share for the six months ended June 30,
2006 have been computed by dividing the profit attributable to equity holders of
the Company by the number of 179,021 million shares issued and outstanding for
the period.
Basic and diluted earnings per share for the six months ended June 30,
2005 have been computed by dividing the profit attributable to equity holders of
the Company by the number of 175,824 million shares issued and outstanding for
the period.
There are no dilutive potential ordinary shares.
9 DIVIDENDS ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY
SIX MONTHS ENDED JUNE 30
------------------------
2006 2005
------ ------
RMB RMB
---------------------------------------------------------------------------------------------
Final dividends attributable to equity holders of the Company
for 2004 (Note (i)) - 25,936
Final dividends attributable to equity holders of the Company
for 2005 (Note (ii)) 32,282 -
------ ------
32,282 25,936
====== ======
(i) A final dividend attributable to equity holders of the Company in respect
of 2004 of RMB 0.147511 per share amounting to a total of RMB 25,936 was
paid on June 10, 2005, and was accounted for in equity as an appropriation
of retained earnings in the six months ended June 30, 2005.
(ii) A final dividend attributable to equity holders of the Company in respect
of 2005 of RMB 0.180325 per share amounting to a total of RMB 32,282 was
paid on June 9, 2006, and was accounted for in equity as an appropriation
of retained earnings in the six months ended June 30, 2006.
(iii) As authorised by shareholders in the Annual General Meeting on May 26,
2006, the Board of Directors, in a meeting held on August 23, 2006,
resolved to distribute an interim dividend attributable to equity holders
of the Company in respect of 2006 of RMB 0.202806 per share amounting to a
total of RMB 36,307. These financial statements do not reflect this
dividends payable, as it was not authorised until after the balance sheet
date.
2006 INTERIM REPORT
11
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
For the six months ended June 30, 2006 (Amounts in millions)
10 PROPERTY, PLANT AND EQUIPMENT
RMB
---------
COST OR VALUATION
At January 1, 2006 921,606
Additions 47,263
Disposals or write off (6,115)
Currency translation differences 1,938
---------
At June 30, 2006 964,692
---------
ACCUMULATED DEPRECIATION
At January 1, 2006 (357,716)
Charge for the period (28,680)
Disposals or write off 1,370
Currency translation differences (772)
---------
At June 30, 2006 (385,798)
---------
NET BOOK VALUE
At June 30, 2006 578,894
=========
RMB
---------
COST OR VALUATION
At January 1, 2005 799,480
Additions 33,389
Disposals or write off (5,736)
Currency translation differences (557)
---------
At June 30, 2005 826,576
---------
ACCUMULATED DEPRECIATION
At January 1, 2005 (313,868)
Charge for the period (25,427)
Disposals or write off 340
Currency translation differences 217
---------
At June 30, 2005 (338,738)
---------
NET BOOK VALUE
At June 30, 2005 487,838
=========
RMB
---------
COST OR VALUATION
At July 1, 2005 826,576
Additions 104,670
Disposals or write off (9,328)
Currency translation differences (312)
---------
At December 31, 2005 921,606
---------
ACCUMULATED DEPRECIATION
At July 1, 2005 (338,738)
Charge for the period (23,784)
Disposals or write off 4,702
Currency translation differences 104
---------
At December 31, 2005 (357,716)
---------
NET BOOK VALUE
At December 31, 2005 563,890
=========
2006 INTERIM REPORT
12
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
For the six months ended June 30, 2006 (Amounts in millions)
The depreciation charge of the Group for the six months ended June 30,
2006 included RMB 1,535 (six months ended June 30, 2005: RMB 1,725) relating to
impairment of property, plant and equipment to be disposed. Of this amount, RMB
1,535 (six months ended June 30, 2005: RMB 975) was for the Refining and
Marketing segment and RMB Nil (six months ended June 30, 2005: RMB 750) was for
the Exploration and Production segment.
A valuation of the Group's property, plant and equipment, excluding oil
and gas reserves, was carried out during 1999 by independent valuers. The
valuation was based on depreciated replacement costs.
As at September 30, 2003, a revaluation of the Group's refining and
chemical production equipment was undertaken by a firm of independent valuers,
China United Assets Appraiser Co., Ltd, in the PRC on a depreciated replacement
cost basis.
The June 1999 revaluation resulted in RMB 80,549 in excess of the prior
carrying value and a revaluation loss of RMB 1,122 on certain property, plant
and equipment.
The September 2003 revaluation resulted in RMB 872 in excess of the
carrying value of certain property, plant and equipment immediately prior to the
revaluation and a revaluation loss of RMB 1,257.
As at March 31, 2006, a revaluation of the Group's oil and gas properties
was undertaken by independent valuers, China United Assets Appraisal Co., Ltd
and China Enterprise Appraisals, on a depreciated replacement cost basis. The
revaluation result was substantially in line with the carrying value of the oil
and gas properties, no adjustment was made to the carrying value of the oil and
gas properties.
Bank borrowings are secured on property, plant and equipment at net book
value of RMB 66 at June 30, 2006 (December 31, 2005: RMB 75).
11 INVENTORIES
JUNE 30, 2006 DECEMBER 31, 2005
------------- -----------------
RMB RMB
-----------------------------------------------------------------------
Crude oil and other raw materials 33,559 22,396
Work in progress 7,079 5,933
Finished goods 40,833 35,131
Spare parts and consumables 42 43
------ ------
81,513 63,503
Less: Write down in inventories (689) (770)
------ ------
80,824 62,733
====== ======
2006 INTERIM REPORT
13
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
For the six months ended June 30, 2006 (Amounts in millions)
12 ACCOUNTS RECEIVABLE
JUNE 30, 2006 DECEMBER 31, 2005
------------- -----------------
RMB RMB
----------------------------------------------------------------------------------------
Accounts receivable due from third parties 11,701 6,483
Accounts receivable due from related parties 2,738 2,145
Less: Impairment provision (3,908) (3,998)
------ ------
10,531 4,630
====== ======
Amounts due from related parties are interest free and unsecured.
The aging analysis of accounts receivable at June 30, 2006 is as follows:
JUNE 30, 2006 DECEMBER 31, 2005
------------- -----------------
RMB RMB
--------------------------------------------------------------
Within 1 year 10,233 4,280
Between 1 to 2 years 82 70
Between 2 to 3 years 68 46
Over 3 years 4,056 4,232
------ -----
14,439 8,628
====== =====
The Group offers its customers the credit terms of no more than 180 days,
except for certain selected customers.
13 NOTES RECEIVABLE
Notes receivable represent mainly the bills of acceptance issued by banks
for sale of goods and products. All notes receivable are due within one year.
14 INVESTMENTS IN COLLATERALISED LOANS
Securities, in the form of loans collateralised by principally PRC
government bonds, purchased by the Group are recorded as investments in
collateralised loans. These securities have terms ranging from 3 days to 182
days. The difference between the purchase price and the amount that the Company
can receive upon the maturity of these securities is treated as interest income
and accrued over the life of these securities using the effective yield method.
Investments in collateralised loans are accounted for as collateralised
financing transactions and are recorded at their contractual amounts plus
interest accrued.
2006 INTERIM REPORT
14
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
For the six months ended June 30, 2006 (Amounts in millions)
15 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
JUNE 30, 2006 DECEMBER 31, 2005
RMB RMB
------------- -----------------
Trade payables 16,087 13,749
Advances from customers 9,169 7,698
Salaries and welfare payable 8,545 7,353
Accrued expenses 6,874 4
Dividends payable by subsidiaries to minority
shareholders 26 93
Interest payable 1 27
Construction fee and equipment cost payables 17,337 16,420
One-time employee housing remedial payment payable 1,102 1,174
Amounts due to related parties 40,945 41,082
Other payables 12,287 12,158
------- ------
112,373 99,758
======= ======
Other payables consist primarily of customer deposits.
Amounts due to related parties are interest-free, unsecured and with no
fixed terms of repayment.
The aging analysis of trade payables at June 30, 2006 is as follows:
JUNE 30, 2006 DECEMBER 31, 2005
RMB RMB
------------- -----------------
Within 1 year 14,860 12,876
Between 1 to 2 years 749 434
Between 2 to 3 years 85 85
Over 3 years 393 354
------ ------
16,087 13,749
====== ======
2006 INTERIM REPORT
15
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
For the six months ended June 30, 2006 (Amounts in millions)
16 BORROWINGS
JUNE 30, 2006 DECEMBER 31, 2005
RMB RMB
------------- -----------------
Short-term borrowings 34,004 28,689
Long-term borrowings 35,804 44,570
------ ------
69,808 73,259
====== ======
The movements in the borrowings can be analysed as follows:
RMB
-------
Balance at January 1, 2006 73,259
Increase in borrowings 24,237
Repayments of borrowings (27,688)
-------
Balance at June 30, 2006 69,808
=======
The long-term borrowings can be analysed as follows:
JUNE 30, 2006 DECEMBER 31, 2005
RMB RMB
------------- -----------------
Unsecured Loans 55,341 58,821
Secured loans 651 1,074
Current portion of long-term borrowings (20,188) (15,325)
------- -------
35,804 44,570
======= =======
The long-term borrowings can be further analysed as follows:
Bank loans
- Wholly repayable within five years 23,006 26,268
- Not wholly repayable within five years 1,869 1,313
Loans other than bank loans
- Wholly repayable within five years 20,461 21,501
- Not wholly repayable within five years 10,656 10,813
------- -------
55,992 59,895
Current portion of long-term borrowings (20,188) (15,325)
------- -------
35,804 44,570
======= =======
Loans other than bank loans not wholly repayable within five years are
repayable by installments through April 2032. Interest is charged on the
outstanding balances at rates ranging from 1.55% to 9.50% per annum (December
31, 2005: 1.55% to 9.50% per annum).
2006 INTERIM REPORT
16
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
For the six months ended June 30, 2006 (Amounts in millions)
At June 30, 2006, the Group's long-term borrowings were repayable as
follows:
BANK LOANS LOANS OTHER THAN BANK LOANS
----------------------------------- -----------------------------------
JUNE 30, 2006 DECEMBER 31, 2005 JUNE 30, 2006 DECEMBER 31, 2005
RMB RMB RMB RMB
------------- ----------------- ------------- -----------------
Within 1 year 11,640 5,378 8,548 9,947
Between 1 to 2 years 7,332 11,009 2,649 7,364
Between 2 to 5 years 4,701 10,417 9,423 4,525
After 5 years 1,202 777 10,497 10,478
------ ------ ------ ------
24,875 27,581 31,117 32,314
====== ====== ====== ======
17 ASSET RETIREMENT OBLIGATIONS
RMB
------
At January 1, 2006 14,187
Liabilities incurred 11
Accretion expense 380
Currency translation differences 112
------
At June 30, 2006 14,690
======
RMB
------
At January 1, 2005 919
Liabilities incurred 14
Accretion expense 31
Currency translation differences (37)
------
At June 30, 2005 927
======
RMB
------
At July 1, 2005 927
Liabilities incurred 13,244
Liabilities settled (1)
Accretion expense 29
Currency translation differences (12)
------
At December 31, 2005 14,187
======
2006 INTERIM REPORT
17
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
For the six months ended June 30, 2006 (Amounts in millions)
18 SUBSIDIARIES
Principal subsidiaries are:
PAID-UP TYPE OF ATTRIBUTABLE
COUNTRY OF CAPITAL LEGAL EQUITY
COMPANY NAME INCORPORATION RMB ENTITY INTEREST% PRINCIPAL ACTIVITIES
----------------------- ------------- ------- ------- ------------- ---------------------
*Daqing Oilfield PRC 47,500 + 100.00 Exploration,
Company Limited production and the
sale of crude oil
and natural gas;
production and sale
of refined products
*Jinzhou Petrochemical PRC 788 ++ 98.92 Production and sale
Company Limited (i) of oil and chemical
products
*Jilin Chemical PRC 3,561 ++ 98.89 Production and sale
Industrial Company of chemical products
Limited (ii)
Daqing Yu Shu Lin PRC 1,272 + 88.16 Exploration and
Oilfield Company production of crude
Limited oil and natural gas
*Liaohe Jinma Oilfield PRC 1,100 ++ 99.49 Exploration,
Company Limited (iii) production,
transportation and
sale of crude oil
and natural gas
*CNPC Exploration and PRC 100 + 50.00 Exploration and
Development Company production of crude
Limited oil and natural gas
outside of the PRC
----------
+-- Limited liability company.
++-- Joint stock company with limited liability.
* -- Subsidiaries directly held by the Company as of June 30, 2006.
(i) Pursuant to the resolution passed at the Board of Directors' meeting
held on October 26, 2005, the Company offered to acquire all of the
150,000,000 outstanding A shares of Jinzhou Petrochemical Company
Limited ("JPCL") from minority shareholders at RMB 4.25 per share.
As at June 30, 2006, the Company had paid a total cash consideration
of RMB 602 and acquired 141,497,463 A shares, representing
approximately 17.97% of the total issued shares of JPCL. Upon this
acquisition, the Company owns 98.92% of the outstanding shares of
JPCL. The excess of the cost of purchase over the carrying value of
the underlying assets and liabilities acquired was recorded in
equity. As approved by China Securities Regulatory Commission, JPCL
was delisted from the Shenzhen Stock Exchange on January 4, 2006.
2006 INTERIM REPORT
18
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
For the six months ended June 30, 2006 (Amounts in millions)
(ii) Pursuant to the resolution passed by the Board of Directors' meeting
held on October 26, 2005, the Company offered to acquire all the
200,000,000 outstanding A shares and 964,778,000 H shares (including
ADS) of Jilin Chemical Industrial Company Limited ("JCIC") from
minority shareholders at RMB 5.25 per A share and HK$2.80 per H
share respectively. As at June 30, 2006, the Company had paid a
total cash consideration of RMB 3,719 and acquired 186,623,617 A
shares and 938,751,999 H shares ( including ADS), representing
approximately 31.60% of the total issued shares of JCIC. Upon this
acquisition, the Company owns 98.89% of the outstanding shares of
JCIC. The excess of the cost of purchase over the carrying value of
the underlying assets and liabilities acquired was recorded in
equity. JCIC was delisted from the Stock Exchange of Hong Kong
Limited and the New York Stock Exchange on January 23, 2006 and
February 15, 2006, respectively. As approved by China Securities
Regulatory Commission, JCIC was delisted from the Shenzhen Stock
Exchange on February 20, 2006.
(iii) Pursuant to the resolution passed by the Board of Directors' meeting
held on October 26, 2005, the Company offered to acquire all of the
200,000,000 outstanding A shares of Liaohe Jinma Oilfield Company
Limited ("LJOCL") from minority shareholders at RMB 8.80 per share.
As at June 30, 2006, the Company had paid a total cash consideration
of RMB 1,713 and acquired 194,360,943 A shares, representing
approximately 17.67% of the total issued shares of LJOCL. Upon this
acquisition, the Company owns 99.49% of the outstanding shares of
LJOCL. The excess of the cost of purchase over the carrying value of
the underlying assets and liabilities acquired was recorded in
equity. As approved by China Securities Regulatory Commission, LJOCL
was delisted from the Shenzhen Stock Exchange on January 4, 2006.
(iv) The acquisitions of interest from minority shareholders of the above
non-wholly owned principal subsidiaries and another non- wholly
owned subsidiary in the six months ended June 30, 2006 resulted in a
total adjustment to equity of RMB 2,178.
19 SEGMENT INFORMATION
The Group is engaged in a broad range of petroleum related activities
through its four major business segments: Exploration and Production, Refining
and Marketing, Chemicals and Marketing and Natural Gas and Pipeline.
The Exploration and Production segment is engaged in the exploration,
development, production and sales of crude oil and natural gas.
The Refining and Marketing segment is engaged in the refining,
transportation, storage and marketing of crude oil and petroleum products.
The Chemicals and Marketing segment is engaged in the production and sale
of basic petrochemical products, derivative petrochemical products, and other
chemical products.
The Natural Gas and Pipeline segment is engaged in the transmission of
natural gas, crude oil and refined products and the sale of natural gas.
In addition to these four major business segments, the Other segment
includes the assets, income and expenses relating to cash management, financing
activities, the corporate center, research and development, and other business
services to the operating business segments of the Group.
Most assets and operations of the Group are located in the PRC, which is
considered as one geographic location in an economic environment with similar
risks and returns. In addition to its operations in the PRC, the Group also has
overseas operations through subsidiaries engaging in the exploration and
production of crude oil and natural gas.
The accounting policies of the operating segments are the same as those
described in Note 2- "Accounting Policies".
2006 INTERIM REPORT
19
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
For the six months ended June 30, 2006 (Amounts in millions)
Operating segment information for the six months ended June 30, 2005 and
2006 is presented below:
Primary reporting format - business segments
EXPLORATION REFINING CHEMICALS NATURAL
SIX MONTHS ENDED AND AND AND GAS AND
JUNE 30, 2005 PRODUCTION MARKETING MARKETING PIPELINE OTHER TOTAL
----------------------------- ----------- --------- --------- -------- ------- ---------
RMB RMB RMB RMB RMB RMB
----------- --------- --------- -------- ------- ---------
Turnover (including
intersegment) 152,024 200,883 37,035 11,874 - 401,816
Less: Intersegment sales (121,484) (15,098) (2,125) (2,491) - (141,198)
-------- ------- ------ ------ ------- ---------
Turnover from external
customers 30,540 185,785 34,910 9,383 - 260,618
======== ======= ====== ====== ======= =========
Depreciation, depletion and
amortisation (16,960) (5,135) (2,452) (2,083) (48) (26,678)
Segment result 92,807 2,959 6,736 1,666 (218) 103,950
Other costs (3,684) (8,908) (980) (188) (223) (13,983)
-------- ------- ------ ------ ------- ---------
Profit/(loss) from operations 89,123 (5,949) 5,756 1,478 (441) 89,967
-------- ------- ------ ------ -------
Finance costs (799)
Share of profit of associates 608 46 18 28 301 1,001
---------
Profit before taxation 90,169
---------
Taxation (25,229)
---------
Profit for the period 64,940
=========
Interest income (including
intersegment) 1,705 384 78 62 2,829 5,058
Less: Intersegment interest
income (4,349)
---------
Interest income from
external entities 709
=========
Interest expense (including
intersegment) (1,946) (1,193) (319) (514) (1,903) (5,875)
Less: Intersegment interest
expense 4,349
---------
Interest expense to
external entities (1,526)
=========
Segment assets 393,893 170,354 65,308 61,745 575,685 1,266,985
Elimination of intersegment
balances (582,461)
Investments in associates 4,302 2,941 274 218 2,197 9,932
---------
Total assets 694,456
=========
Segment capital expenditure
- for property, plant and
equipment 22,413 4,614 2,633 3,651 64 33,375
Segment liabilities 141,723 110,722 25,582 37,340 132,478 447,845
Other liabilities 39,995
Elimination of intersegment
balances (273,804)
---------
Total liabilities 214,036
=========
2006 INTERIM REPORT
20
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
For the six months ended June 30, 2006 (Amounts in millions)
Primary reporting format - business segments (continued)
EXPLORATION REFINING CHEMICALS NATURAL
SIX MONTHS ENDED AND AND AND GAS AND
JUNE 30, 2006 PRODUCTION MARKETING MARKETING PIPELINE OTHER TOTAL
----------------------------- ----------- --------- --------- -------- ------- ---------
RMB RMB RMB RMB RMB RMB
----------- --------- --------- -------- ------- ---------
Turnover (including 211,012 255,106 39,565 18,233 373 524,289
intersegment)
Less: Intersegment sales (170,761) (21,142) (3,072) (2,587) (182) (197,744)
-------- ------- ------ ------ ------- ---------
Turnover from external
customers 40,251 233,964 36,493 15,646 191 326,545
======== ======= ====== ====== ======= =========
Depreciation, depletion and
amortisation (17,748) (6,614) (2,732) (2,578) (238) (29,910)
Segment result 128,906 (3,001) 4,266 4,669 (965) 133,875
Other costs (4,454) (10,888) (1,358) (82) (1,800) (18,582)
-------- ------- ------ ------ ------- ---------
Profit/(loss) from operations 124,452 (13,889) 2,908 4,587 (2,765) 115,293
-------- ------- ------ ------ -------
Finance costs (857)
Share of profit of associates 1,022 68 14 - 378 1,482
---------
Profit before taxation 115,918
---------
Taxation (30,675)
---------
Profit for the period 85,243
=========
Interest income (including
intersegment) 2,316 592 353 87 3,184 6,532
Less: Intersegment interest
income (5,573)
---------
Interest income from external
entities 959
=========
Interest expense (including
intersegment) (2,623) (1,744) (344) (773) (1,937) (7,421)
Less: Intersegment interest
expense 5,573
---------
Interest expense to external
entities (1,848)
=========
Segment assets 480,544 215,454 81,609 72,506 667,359 1,517,472
Elimination of intersegment
balances (686,399)
Investments in associates 6,101 3,489 128 15 2,420 12,153
---------
Total assets 843,226
=========
Segment capital expenditure
- for property, plant and
equipment 32,933 6,169 3,938 3,840 372 47,252
Segment liabilities 158,437 149,353 34,199 43,508 145,529 531,026
Other liabilities 68,002
Elimination of intersegment
balances (347,923)
---------
Total liabilities 251,105
=========
2006 INTERIM REPORT
21
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
For the six months ended June 30, 2006 (Amounts in millions)
Note (a)-Intersegment sales are conducted principally at market prices.
Note (b)-Segment result is profit from operations before other costs.
Other costs include selling, general and administrative expenses and
other net expense.
Note (c)-Segment result for the six months ended June 30, 2005 and 2006
included impairment of property, plant and equipment (Note 10).
Note (d)-Other liabilities mainly include income tax payable, other taxes
payable and deferred taxation.
Note (e)-Elimination of intersegment balances represents elimination of
intersegment current accounts and investments.
Note (f)-Effective January 1, 2006, the results of operations, together
with the corresponding assets and liabilities, of certain research
and development activities of the Group are reclassified from the
Exploration and Production segment, the Refining and Marketing
segment, the Chemicals and Marketing segment and the Natural Gas and
Pipeline segment to the Other segment to reflect the changes in the
manner under which these activities are managed. The results of
operations, together with the corresponding assets and liabilities,
of these research and development activities were included in the
previously reported segments in the segment information for the six
months ended June 30, 2005. Selected financial data of these
research and development activities as of June 30, 2005 and for the
six months ended June 30, 2005 are as follows:
NATURAL
EXPLORATION AND REFINING AND CHEMICALS AND GAS AND
PRODUCTION MARKETING MARKETING PIPELINE TOTAL
RMB RMB RMB RMB RMB
--------------- ------------ ------------- -------- ------
Turnover (including intersegment) 89 - 11 - 100
Turnover from external customers 1 - 7 - 8
Depreciation, depletion and
amortisation (132) (7) (17) (3) (159)
Segment result (336) (29) (60) (9) (434)
Other costs (208) (33) (33) (7) (281)
loss from operations (544) (62) (93) (16) (715)
Share of profit of associates - - - - -
Interest income - - - - -
Interest expense (8) - - - (8)
Segment assets 1,965 195 349 55 2,564
Segment liabilities 887 257 213 17 1,374
SECONDARY REPORTING FORMAT -GEOGRAPHICAL SEGMENTS
TURNOVER TOTAL ASSETS CAPITAL EXPENDITURE
-------------------- -------------------- -------------------
SIX MONTHS ENDED JUNE 30, 2006 2005 2006 2005 2006 2005
------- ------- ------- ------- ----- ------
RMB RMB RMB RMB RMB RMB
------- ------- ------- ------- ----- ------
PRC 313,927 251,853 783,842 650,735 44,990 31,285
Other (Exploration and Production) 12,618 8,765 59,384 43,721 2,262 2,090
------- ------- ------- ------- ------ ------
326,545 260,618 843,226 694,456 47,252 33,375
======= ======= ======= ======= ====== ======
2006 INTERIM REPORT
22
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
For the six months ended June 30, 2006 (Amounts in millions)
20 CONTINGENT LIABILITIES
(a) BANK AND OTHER GUARANTEES
At June 30, 2006, the Group had contingent liabilities in respect of
guarantees made to China Petroleum Finance Company Limited ("CP Finance"), a
subsidiary of CNPC, and state-controlled bank from which it is anticipated that
no material liabilities will arise.
JUNE 30, 2006 DECEMBER 31, 2005
------------- -----------------
RMB RMB
Guarantee of borrowings of associates from
CP Finance 176 187
Guarantee of borrowings of third party from
State-controlled bank 41 -
--- ---
217 187
=== ===
(b) ENVIRONMENTAL LIABILITIES
CNPC and the Group have operated in China for many years. China has
adopted extensive environmental laws and regulations that affect the operation
of the oil and gas industry. The outcome of environmental liabilities under
proposed or future environmental legislation cannot reasonably be estimated at
present, and could be material. Under existing legislation, however, management
believes that there are no probable liabilities, except for the amounts which
have already been reflected in the financial statements that will have a
material adverse effect on the financial position of the Group.
On November 13, 2005, explosions occurred at a manufacturing facility of a
branch of the Company located in the Jilin Province. The impact of the accident
is undergoing government investigation. The Company is presumed to bear related
liability according to the investigation results.
(c) LEGAL CONTINGENCIES
The Group is the named defendant in certain insignificant lawsuits as well
as the named party in other proceedings arising in the ordinary course of
business. While the outcome of such contingencies, lawsuits or other proceedings
cannot be determined at present, management believes that any resulting
liabilities will not have a material adverse effect on the financial position of
the Group.
(d) LEASING OF ROADS, LAND AND BUILDINGS
According to the restructuring agreement entered into between the Company
and CNPC in 1999 upon the formation of the Company, CNPC has undertaken to the
Company the following:
- CNPC will use its best endeavours to obtain formal land use right
certificates to replace the entitlement certificates in relation to the 28,649
parcels of land which were leased or transferred to the Company from CNPC,
within one year from August, September and October 1999 when the relevant
entitlement certificates were issued;
- CNPC will complete, within one year from November 5, 1999, the necessary
governmental procedures for the requisition of the collectively-owned land on
which 116 service stations owned by the Company are located; and
- CNPC will obtain individual building ownership certificates in the name
of the Company for all of the 57,482 buildings transferred to the Company by
CNPC, before November 5, 2000.
2006 INTERIM REPORT
23
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
For the six months ended June 30, 2006 (Amounts in millions)
As at June 30, 2006, CNPC has obtained formal land use right certificates
in relation to 27,400 out of the above-mentioned 28,649 parcels of land and some
building ownership certificates for the above-mentioned buildings, but has
completed none of the necessary governmental procedures for the above-mentioned
service stations located on collectively-owned land. The Directors of the
Company confirm that the use of and the conduct of relevant activities at the
above-mentioned parcels of land, service stations and buildings are not affected
by the fact that the relevant land use right certificates or individual building
ownership certificates have not been obtained or the fact that the relevant
governmental procedures have not been completed. In management's opinion, the
outcome of the above events will not have a material adverse effect on the
results of operations or the financial position of the Group.
(e) GROUP INSURANCE
Except for limited insurance coverage for vehicles and certain assets
subject to significant operating risks, the Group does not carry any other
insurance for property, facilities or equipment with respect to its business
operations. In addition, the Group does not carry any third-party liability
insurance against claims relating to personal injury, property and environmental
damages or business interruption insurance since such insurance coverage is not
customary in China. While the effect of under-insurance on future incidents
cannot be reasonably assessed at present, management believes that it may have a
material impact on the operating results but will not have a material adverse
effect on the financial position of the Group.
21 COMMITMENTS
(a) OPERATING LEASE COMMITMENTS
Operating lease commitments of the Group are mainly for leasing of land
and buildings and equipment. Leases range from one to fifty years and usually do
not contain renewal options. Future minimum lease payments as of June 30, 2006
and December 31, 2005 under non-cancelable operating leases are as follows:
JUNE 30, 2006 DECEMBER 31, 2005
------------- -----------------
RMB RMB
First year 3,069 3,208
Second year 2,605 2,595
Third year 2,518 2,558
Fourth year 2,538 2,437
Fifth year 2,927 2,926
Thereafter 80,372 81,266
------ ------
94,029 94,990
====== ======
(b) CAPITAL COMMITMENTS
JUNE 30, 2006 DECEMBER 31, 2005
------------- -----------------
RMB RMB
Contracted but not provided for
Oil and gas properties 79 847
Plant and equipment 11,640 12,496
Other 351 22
------ ------
12,070 13,365
====== ======
2006 INTERIM REPORT
24
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
For the six months ended June 30, 2006 (Amounts in millions)
(c) LONG-TERM NATURAL GAS SUPPLY COMMITMENTS
The Group markets a portion of its natural gas production under long-term
take-or-pay contracts. Under these contracts, the customers are required to take
or pay, and the Group is obligated to deliver, minimum quantities of natural gas
annually. The prices for the natural gas are based on those approved by the PRC
National Development and Reform Commission at the time of deliveries.
At June 30, 2006 and December 31, 2005, future minimum delivery
commitments under contracts are as follows:
JUNE 30, 2006 DECEMBER 31, 2005
------------------- -------------------
QUANTITIES (BILLION QUANTITIES (BILLION
OF CUBIC FEET) OF CUBIC FEET)
------------------- -------------------
2006 281 451
2007 580 583
2008 636 639
2009 700 704
2010 575 583
2011 and thereafter 5,407 5,528
----- -----
8,179 8,488
===== =====
(d) EXPLORATION AND PRODUCTION LICENSES
The Company is obligated to make annual payments with respect to its
exploration and production licenses to the Ministry of Land and Resources.
Payments incurred were approximately RMB 304 for the six months ended June 30,
2006 (six months ended June 30, 2005 were RMB 233).
Estimated annual payments in the future are as follows:
RMB
---
2006 681
2007 712
2008 712
2009 712
2010 850
2006 INTERIM REPORT
25
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
For the six months ended June 30, 2006 (Amounts in millions)
22 RELATED PARTY TRANSACTIONS
CNPC, the immediate parent of the Company, is a state-controlled
enterprise directly controlled by the PRC government. The PRC government is the
Company's ultimate controlling party. State-controlled enterprises and their
subsidiaries, in addition to CNPC group companies, directly or indirectly
controlled by the PRC government are also related parties of the Group. Neither
CNPC nor the PRC government publishes financial statements available for public
use.
The Group has extensive transactions with other members of the CNPC group.
Because of the relationship, it is possible that the terms of the transactions
between the Group and other members of the CNPC group are not the same as those
that would result from transactions with other related parties or wholly
unrelated parties.
As a result of the restructuring of CNPC to form the Company in 1999, the
Company and CNPC entered into a Comprehensive Products and Services Agreement
for a range of products and services which may be required and requested by
either party; a Land Use Rights Leasing Contract under which CNPC leases 42,476
parcels of land located throughout the PRC to the Company; and a Buildings
Leasing Contract under which CNPC leases 191 buildings located throughout the
PRC to the Company.
The term of the current Comprehensive Products and Services Agreement were
amended during 2005 and the agreement is effective through December 31, 2008.
The products and services to be provided by the CNPC group to the Company under
the Comprehensive Products and Services Agreement include construction and
technical services, production services, supply of material services, social
services, ancillary services and financial services. The products and services
are provided in accordance with (1) state-prescribed prices; or (2) where there
is no state-prescribed price, relevant market prices; or (3) where neither (1)
nor (2) is applicable, actual cost incurred; or the agreed contractual price,
being the actual cost plus a margin of no more than 15% for certain construction
and technical services, and 3% for all other types of services.
The Land Use Rights Leasing Contract provides for the lease of an
aggregate area of approximately 1,145 million square meters of land located
throughout the PRC to business units of the Group for a term of 50 years at an
annual fee of RMB 2,000. The total fee payable for the lease of all such
property may, after every 10 years, be adjusted by agreement between the Company
and CNPC.
Under the Buildings Leasing Contract, 191 buildings covering an aggregate
area of 269,770 square meters located throughout the PRC are leased at an
aggregate annual fee of RMB 39 for a term of 20 years. The Company also entered
into a Supplemental Buildings Leasing Agreement with CNPC in September 2002 to
lease an additional 404 buildings covering approximately 442,730 square meters
at an annual rental of RMB 157. The Supplemental Buildings Leasing Agreement
will expire at the same time as the Building Leasing Agreement.
In addition to the related party information shown elsewhere in the
financial statements, the following is a summary of significant related party
transactions entered into in the ordinary course of business between the Group
and its related parties during the periods and balances arising from related
party transactions at the end of the periods indicated below:
2006 INTERIM REPORT
26
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
For the six months ended June 30, 2006 (Amounts in millions)
(a) BANK DEPOSITS
NOTE JUNE 30, 2006 DECEMBER 31, 2005
---- ------------- -----------------
RMB RMB
------ ------
Bank deposits balance at the end of the period
CP Finance (i) 4,384 24,356
State-controlled banks and other financial
institutions 84,596 55,139
------ ------
88,980 79,495
====== ======
SIX MONTHS ENDED JUNE 30
------------------------
NOTE 2006 2005
---- ---- ----
RMB RMB
---- ----
Interest income from bank deposits
CP Finance (i) 61 11
State-controlled banks and other financial
institutions 853 236
---- ---
914 247
==== ===
(i) CP Finance is a subsidiary of CNPC and a non-bank financial institution
approved by the People's Bank of China. The deposits yield interest at
prevailing saving deposit rates.
(b) SALES OF GOODS AND SERVICES
SIX MONTHS ENDED JUNE 30
------------------------
2006 2005
------ ------
RMB RMB
------ ------
Sales of goods
Associates
- Crude Oil 1,638 562
- Refined Products 5,407 5,014
- Chemical Products 1 107
Fellow subsidiaries (CNPC Group)
- Crude Oil 864 139
- Refined Products 8,081 3,967
- Chemical Products 2,553 1,781
- Natural Gas 542 426
- Other 205 96
Other state-controlled enterprises
- Crude Oil 17,780 18,090
- Refined Products 39,875 21,795
- Chemical Products 4,110 4,047
- Natural Gas 4,788 5,213
------ ------
85,844 61,237
====== ======
Sales of goods to related parties are conducted at market prices.
2006 INTERIM REPORT
27
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
For the six months ended June 30, 2006 (Amounts in millions)
SIX MONTHS ENDED JUNE 30
------------------------
2006 2005
----- -----
RMB RMB
----- -----
Sales of services
Fellow subsidiaries (CNPC Group) 864 556
Other state-controlled enterprises 3,493 2,190
----- -----
4,357 2,746
===== =====
Sales of services principally represent the provision of the services in
connection with the transportation of crude oil and natural gas at market
prices.
(c) PURCHASES OF GOODS AND SERVICES
SIX MONTHS ENDED JUNE 30
NOTES 2006 2005
----- ------ ------
RMB RMB
------ ------
Purchases of goods (i)
Associates 7,049 2,824
Other state-controlled enterprises 18,897 17,875
Purchases of services
Associates 22 23
Fellow subsidiaries (CNPC Group)
-Fees paid for construction and technical services (ii)
-exploration and development services (iii) 19,455 14,405
-other construction and technical services (iv) 11,006 6,269
-Fees for production services (v) 11,243 8,946
-Social services charges (vi) 923 707
-Ancillary services charges (vii) 1,033 915
-Commission expense and other charges (viii) 451 724
Other state- controlled enterprises (ix) 2,334 3,319
------ ------
72,413 56,007
====== ======
----------
(i) Purchases of goods principally represent the purchase of raw
materials, spare parts and low cost consumables at market prices.
2006 INTERIM REPORT
28
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
For the six months ended June 30, 2006 (Amounts in millions)
(ii) Under the Comprehensive Products and Services Agreement entered into
between CNPC and the Company, certain construction and technical
services provided by CNPC are charged at cost plus an additional
margin of no more than 15%, including exploration and development
services and oilfield construction services.
(iii) Direct costs for exploration and development services comprise
geophysical survey, drilling, well cementing, logging and well
testing.
(iv) The fees paid for other construction and technical services comprise
fees for construction of refineries and chemical plants and
technical services in connection with oil and gas exploration and
production activities such as oilfield construction, technology
research, engineering and design, etc.
(v) The fees paid for production services comprise fees for the repair
of machinery, supply of water, electricity and gas at the
state-prescribed prices, provision of services such as
communications, transportation, fire fighting, asset leasing,
environmental protection and sanitation, maintenance of roads,
manufacture of replacement parts and machinery at cost or market
prices.
(vi) These represent expenditures for social welfare and support services
which are charged at cost.
(vii) Ancillary services charges represent mainly fees for property
management, the provision of training centers, guesthouses,
canteens, public shower rooms, etc., at market prices.
(viii) CNPC purchases materials on behalf of the Company and charges
commission thereon. The commission is calculated at rates ranging
from 1% to 5% of the goods purchased.
(ix) Purchases of services from other state-controlled enterprises
principally represent the purchases of the construction and
technical services at market prices.
(d) PURCHASES OF ASSETS
SIX MONTHS ENDED JUNE 30
------------------------
2006 2005
----- -----
RMB RMB
----- -----
Purchases of assets
Associates - 3
Fellow subsidiaries (CNPC Group) 573 1,395
Other state-controlled enterprises 446 3,605
----- -----
1,019 5,003
===== =====
Purchases of assets principally represent the purchases of manufacturing
equipments, office equipments, transportation equipments, etc., at market
prices.
2006 INTERIM REPORT
29
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
For the six months ended June 30, 2006 (Amounts in millions)
(e) PERIOD-END BALANCES ARISING FROM SALES/PURCHASES OF GOODS/SERVICES
/ASSETS
JUNE 30, 2006 DECEMBER 31, 2005
------------- -----------------
RMB RMB
------ ------
Accounts receivable from related parties at the end of the
period
Associates 53 12
Fellow subsidiaries (CNPC Group) 731 337
Other state-controlled enterprises 1,954 1,796
------ ------
2,738 2,145
Less: Impairment provision
Associates (6) -
Fellow subsidiaries (CNPC Group) (250) (246)
Other state-controlled enterprises (881) (924)
------ ------
(1,137) (1,170)
------ ------
1,601 975
====== ======
Prepayment and other receivables from related parties at the
end of the period
Associates 4,249 3,634
Parent (CNPC) 105 103
Fellow subsidiaries (CNPC Group) 9,506 7,430
Other state-controlled enterprises 2,784 2,357
------ ------
16,644 13,524
Less: Impairment provision
Associates (220) (240)
Fellow subsidiaries (CNPC Group) (18) (70)
Other state-controlled enterprises (317) (330)
------ ------
(555) (640)
------ ------
16,089 12,884
====== ======
Accounts payable and accrued liabilities to related parties at
the end of the period
Associates 4,478 3,118
Parent (CNPC) 2,362 2,516
Fellow subsidiaries (CNPC Group) 23,674 20,285
Other state-controlled enterprises 10,431 15,163
------ ------
40,945 41,082
====== ======
2006 INTERIM REPORT
30
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
For the six months ended June 30, 2006 (Amounts in millions)
SIX MONTHS ENDED JUNE 30
------------------------
2006 2005
---- ----
RMB RMB
---- ----
Impairment provision of accounts receivable from related parties charged
to the profit and loss account
Associates 6 -
Fellow subsidiaries (CNPC Group) 4 1
Other state-controlled enterprises (31) (58)
---- ----
(21) (57)
==== ====
Impairment provision of prepayment and other receivables from related parties
charged to the profit and loss account
Associates (20) (4)
Fellow subsidiaries (CNPC Group) (29) -
Other state-controlled enterprises (5) (3)
---- ----
(54) (7)
==== ====
(f) LEASES
SIX MONTHS ENDED JUNE 30
------------------------
NOTES 2006 2005
----- ----- -----
RMB RMB
Advance operating lease payments paid to related parties (i)
Parent (CNPC) - 131
Other state-controlled enterprises - 11
----- -----
- 142
===== =====
Other operating lease payments paid to related parties
Parent (CNPC) (ii) 1,025 1,116
Other state-controlled enterprises - 5
----- -----
1,025 1,121
===== =====
(i) Advance operating lease payments principally represent the advance payment
paid for the long-term operating lease of land and gas stations at prices
prescribed by local governments or market prices.
(ii) Other operating lease payments to CNPC principally represent the rental
paid for the operating lease of land and buildings at the prices
prescribed in the Land Use Rights Leasing Contract, the Building Leasing
Contract and Supplemental Buildings Leasing Agreement with CNPC.
JUNE 30, 2006 DECEMBER 31, 2005
------------- -----------------
RMB RMB
--- ---
Operating lease payable to related parties
Parent (CNPC) 19 2
Other state-controlled enterprises - 1
--- ---
19 3
=== ===
2006 INTERIM REPORT
31
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
For the six months ended June 30, 2006 (Amounts in millions)
(g) LOANS
SIX MONTHS ENDED JUNE 30
------------------------
2006 2005
----- ----
LOANS TO RELATED PARTIES RMB RMB
------------------------ ----- ----
Loans to associates:
Beginning of the period 1,640 569
Loans advanced during the period 809 22
Loans repayments received (482) (46)
Interest charged 68 19
Interest received (56) (6)
----- ----
End of the period 1,979 558
===== ====
Loans to associates are included in prepaid expenses and other current
assets.
The loans to related parties are mainly with interest rates ranging from
4.94% to 9.48% per annum as of June 30, 2006.
SIX MONTHS ENDED JUNE 30
------------------------
NOTES 2006 2005
----- ------ -------
LOANS FROM RELATED PARTIES RMB RMB
------- -------
Loans from CP Finance: (i)
Beginning of the period 27,319 29,932
Loans received during the period 5,357 3,397
Loans repayments paid (6,646) (6,493)
Interest charged 610 665
Interest paid (600) (665)
------- ------
End of the period 26,040 26,836
======= ======
Loans from state-controlled banks and other financial
institutions: (ii)
Beginning of the period 31,178 36,562
Loans received during the period 15,226 13,618
Loans repayments paid (12,613) (17,281)
Interest charged 854 840
Interest paid (879) (831)
------- -------
End of the period 33,766 32,908
======= =======
Loans from other related parties: (iii)
Beginning of the period 62 16
Loans repayments paid (1) (1)
Interest charged 1 -
Interest paid (1) -
------- -------
End of the period 61 15
======= =======
(i) The loans from CP Finance are mainly with interest rates ranging
from 4.46% to 6.59% per annum as of June 30, 2006, with maturities
through 2032;
2006 INTERIM REPORT
32
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS
For the six months ended June 30, 2006 (Amounts in millions)
(ii) The loans from state-controlled banks and other financial
institutions are mainly with interest rates ranging from free to
8.66% per annum as of June 30, 2006, with maturities through 2038;
(iii) The loans from other related parties are mainly with interest rates
ranging from free to 6.32% per annum as of June 30, 2006, with no
fixed repayment term.
The secured loans from related parties amounted to RMB 52 at June 30, 2006
(December 31, 2005: RMB 54).
The guaranteed loans amounted to RMB 643 at June 30, 2006 (December 31,
2005: RMB 674). All these guaranteed loans are from non-related parties,
long-term and guaranteed by CNPC.
(h) KEY MANAGEMENT COMPENSATION
SIX MONTHS ENDED JUNE 30
------------------------
2006 2005
------- -------
RMB'000 RMB'000
------- -------
Fee for key management personnel
-Directors and supervisors 816 62
Salaries, allowances and other benefits
-Directors and supervisors 985 927
-Other key management 687 459
Pension costs (defined contribution plans)
-Directors and supervisors 28 28
-Other key management 25 18
----- -----
2,541 1,494
===== =====
As at June 30, 2006, none of the key management personnel has exercised
the stock appreciation rights. The liability for the units awarded to key
management personnel amounted to approximately RMB 243 at June 30, 2006 (June
30, 2005: RMB 207).
(i) CONTINGENT LIABILITIES
The Group has disclosed in Note 20 in respect of the contingent
liabilities arising from the guarantees made for related parties.
(j) COLLATERAL FOR BORROWINGS
The Group pledged time deposits with maturities over one year as
collateral with Citibank, N.A, Singapore Branch for the borrowings of
subsidiaries and associates. As at June 30, 2006, the balance of these time
deposits amounted to RMB 2,990 (December 31, 2005: RMB 3,428), including RMB 600
(December 31, 2005: RMB 968) for the borrowings of subsidiaries and RMB 2,390
(December 31, 2005: RMB 2,460) for the borrowings of associates.
23 SUBSEQUENT EVENT
On August 23, 2006, the Board of Directors of the Company approved
entering into the acquisition agreement whereby CNPC E&D will acquire a 67%
ownership interest in PetroKazakhstan Inc. ("PKZ") from CNPC International Ltd.
("CNPCI", a subsidiary of CNODC). Currently, PKZ is 67% and 33% owned by CNPCI
and JSC National Company Kazmunaigaz ("KMG") respectively. A total cash
consideration for this acquisition is expected to be approximately US$ 2,735.
Upon completion of the acquisition agreement, PKZ will be accounted for an
associate of the Company as it is under joint control by CNPC E&D and KMG.
2006 INTERIM REPORT
33
PETROCHINA COMPANY LIMITED
SUPPLEMENTARY INFORMATION ON SIGNIFICANT DIFFERENCES BETWEEN IFRS AND US GAAP
(UNAUDITED)
For the six months ended June 30, 2006 (Amounts in millions)
SIGNIFICANT DIFFERENCES BETWEEN IFRS AND US GAAP
The consolidated interim condensed financial statements have been prepared
in accordance with International Financial Reporting Standards ("IFRS"), which
differ in certain material respects from the accounting principles generally
accepted in the United States of America ("US GAAP"). Such differences involve
methods for measuring the amounts shown in the financial statements, as well as
additional disclosures required by US GAAP.
Effect on income of significant differences between IFRS and US GAAP is as
follows:
SIX MONTHS ENDED JUNE 30
----------------------------
2006 2005
------ ------
RMB RMB
------ ------
Profit for the period under IFRS 85,243 64,940
US GAAP adjustments:
Depreciation charges on property, plant and equipment
revaluation gain 2,340 3,436
Depreciation charges on property, plant and equipment
revaluation loss - (127)
Loss on disposal of revalued property, plant and equipment 21 2
Income tax effect (779) (1,092)
Minority interest (4,592) (2,607)
Depreciation charges on property, plant and equipment
arising from purchase from minority interest of
subsidiaries (42) -
------ ------
Net income under US GAAP 82,191 64,552
====== ======
Basic and diluted net income per share under US GAAP (RMB) 0.46 0.37
====== ======
Effect on equity of significant differences between IFRS and US GAAP is as
follows:
JUNE 30, 2006 DECEMBER 31, 2005
------------- -----------------
RMB RMB
------- -------
Equity under IFRS 592,121 543,667
US GAAP adjustments:
Reversal of property, plant and equipment revaluation gain (80,555) (80,555)
Depreciation charges on property, plant and equipment
revaluation gain 54,311 51,971
Reversal of property, plant and equipment revaluation loss 1,513 1,513
Depreciation charges on property, plant and equipment
revaluation loss (1,459) (1,459)
Loss on disposal of revalued property, plant and equipment 1,767 1,746
Deferred tax assets on revaluation 8,064 8,843
Minority interest (29,858) (28,034)
Effect on the retained earnings from the one-time remedial payments for staff
housing borne by the state shareholder of the Company (2,553) (2,553)
Effect on the other reserves of the shareholders' equity from the one-time
remedial payments for staff housing borne by the state shareholder of
the Company 2,553 2,553
Purchase from minority interest of subsidiaries (Note 18 to the consolidated
interim condensed financial statements) 3,998 1,438
Depreciation charges on property, plant and equipment arising from purchase
from minority interest of subsidiaries (42) -
------- -------
Shareholders' equity under US GAAP 549,860 499,130
======= =======
2006 INTERIM REPORT
34
PETROCHINA COMPANY LIMITED
SUPPLEMENTARY INFORMATION ON SIGNIFICANT DIFFERENCES BETWEEN IFRS
AND US GAAP (UNAUDITED)
For the six months ended June 30, 2006 (Amounts in millions)
Changes in shareholders' equity under US GAAP for each of the periods ended
June 30, 2006 and June 30, 2005 are as follows:
SIX MONTHS ENDED JUNE 30
-----------------------------
2006 2005
------- -------
RMB RMB
------- -------
Beginning of the period 499,130 405,573
Net income for the period 82,191 64,552
Final dividends for year 2004 - (25,936)
Final dividends for year 2005 (32,282) -
Payment to CNPC for acquisition of refinery and petrochemical businesses - (9)
Capital contribution to CNPC E&D
- 25
Purchase from minority interest of subsidiary (Note 18 to the consolidated
interim condensed financial statements) 382 -
Currency translation differences 439 (140)
------- -------
End of the period 549,860 444,065
======= =======
In preparing the summary of differences between IFRS and US GAAP,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities, and the estimates of revenues and expenses. Accounting
estimates have been employed in these financial statements to determine reported
amounts, including realisability, useful lives of tangible and intangible
assets, income taxes and other factors. Actual results may differ from those
estimates.
A summary of the principal differences and additional disclosures
applicable to the Group is set out below:
(a) REVALUATION OF PROPERTY, PLANT AND EQUIPMENT
The property, plant and equipment, excluding oil and gas reserves,
transferred to the Company by CNPC were appraised as of June 30, 1999, as
required by the relevant PRC regulations, by a firm of independent valuers
registered in the PRC, China Enterprise Appraisal. As at September 30, 2003, a
revaluation of the Group's refining and chemical production equipment was
undertaken by a firm of independent valuers registered in the PRC, China United
Assets Appraiser Co., Ltd, on a depreciated replacement cost basis.
The June 1999 revaluation resulted in RMB 80,549 in excess of the prior
carrying value and a revaluation loss of RMB 1,122 on certain property, plant
and equipment.
The September 2003 revaluation resulted in a RMB 872 in excess of the
carrying value of certain property, plant and equipment immediately prior to the
revaluation and a revaluation loss of RMB 1,257.
The depreciation charge, which includes impairment charge, on the
revaluation surplus from January 1, 2006 to June 30, 2006 was RMB 2,340, and
from January 1, 2005 to June 30, 2005 was RMB 3,436.
The depreciation charge, which includes impairment charge, on the
revaluation loss from January 1, 2006 to June 30, 2006 was RMB Nil, and from
January 1, 2005 to June 30, 2005 was RMB 127.
The loss on disposal of revalued property, plant and equipment from
January 1, 2006 to June 30, 2006 was RMB 21, and from January 1, 2005 to June
30, 2005 was RMB 2.
For purposes of reconciling to the US GAAP financial data, the effect of
the revaluation, the related depreciation charges and loss on disposal is
reversed. A deferred tax asset relating to the reversal of the effect of
revaluation in 1999 is established, together with a corresponding increase in
the shareholders' equity. Under a special approval granted by.
2006 INTERIM REPORT
35
PETROCHINA COMPANY LIMITED
SUPPLEMENTARY INFORMATION ON SIGNIFICANT DIFFERENCES BETWEEN IFRS
AND US GAAP (UNAUDITED)
For the six months ended June
30, 2006 (Amounts in millions)
the Ministry of Finance, the effect of the revaluation in 1999 is available as
additional depreciation base for purposes of determining taxable income
(b) ONE-TIME REMEDIAL PAYMENTS FOR STAFF HOUSING
The Ministry of Finance of the PRC issued several public notices and
regulations during the years ended December 31, 2000 and 2001 with respect to
the one-time remedial payments for staff housing payable to certain employees
who joined the workforce prior to December 31, 1998 and have housing conditions
below local standards as determined in accordance with government regulations
and guidelines. These Ministry of Finance notices and regulations also provided
that the portion of remedial payments attributable to the periods prior to a
restructuring of the employer enterprise from a wholly state-owned status to a
less than wholly state-owned status is to be borne by the state shareholder of
the enterprise.
The restructuring that resulted in the formation of the Group took place
in November 1999. As such, the one-time remedial housing payments payable to the
eligible employees of the Group are to be borne by the state shareholder of the
Group.
Under IFRS, such direct payments to employees or reimbursements will not
be recorded through the consolidated profit and loss account of the Group. US
GAAP contains no such exemption but requires this principal shareholder's action
on behalf of the Company to be recorded in the consolidated profit and loss
account. In the last quarter of year 2002, the Group and CNPC completed the
process of estimating the amount payable to qualified employees of the Group.
This amount, RMB 2,553, was reflected in determining net income of the Group for
the year ended December 31, 2002, under US GAAP. Since this amount is borne by
CNPC, a corresponding amount has been included as an addition to the other
reserves in the shareholders' equity of the Group. There were no significant
changes in this estimate during 2005 and the first half of 2006.
(c) MINORITY INTEREST
In accordance with the revised International Accounting Standard 1
"Presentation of Financial Statements" and International Accounting Standard 27
"Consolidated and Separate Financial Statements", minority interest becomes part
of the profit for the period and total equity of the Group, whereas under US
GAAP, it is respectively excluded from the net income and shareholder's equity
of the Group. In addition, the reconciling item also includes the impact of
minority interest's share of the revaluation gain and loss, on the property,
plant and equipment of non-wholly owned subsidiaries, to net income and
shareholders' equity under US GAAP.
(d) PURCHASE FROM MINORITY INTEREST OF LISTED SUBSIDIARIES
The Company acquired certain outstanding A shares from the minority
interest of Jinzhou Petrochemical Company Limited ("JPCL") and Liaohe Jinma
Oilfield Company Limited ("LJOCL"), A shares and H shares (including ADS) from
minority interest of Jilin Chemical Industrial Company Limited ("JCIC"). Under
IFRS, the Company applies a policy of treating transactions with minority
interest as transactions with equity participants of the Group. Therefore, the
assets and liabilities of JPCL, LJOCL and JCIC additionally acquired by the
Company from minority interest were recorded by the Company at cost. The
difference between the Company's purchase cost and the book value of the
interests in JPCL, LJOCL and JCIC acquired by the Company from minority interest
was recorded in equity. Under US GAAP, the acquisition of additional minority
interest is accounted for under purchase method. Assets and liabilities
additionally acquired were restated to fair value and the difference of purchase
cost over fair value of the minority interest acquired and identified intangible
assets was recorded as goodwill. Additional depreciation charges were provided
for the assets which were restated to fair value.
2006 INTERIM REPORT 36
36
PETROCHINA COMPANY LIMITED
SUPPLEMENTARY INFORMATION ON SIGNIFICANT DIFFERENCES BETWEEN IFRS
AND US GAAP (UNAUDITED)
For the six months ended June
30, 2006 (Amounts in millions)
(e) RECENT US ACCOUNTING PRONOUNCEMENTS
In February 2006, the Financial Accounting Standards Board ("FASB") issued
Statement No. 155, "Accounting for Certain Hybrid Financial Instruments" ("FAS
155"), which improves financial reporting by eliminating the exemption from
applying FAS 133 to interests in securitized financial assets so that similar
instruments are accounted for similarly regardless of the form of the
instruments and allows a preparer to elect fair value measurement at
acquisition, at issuance, or when a previously recognised financial instrument
is subject to a remeasurement (new basis) event, on an instrument-by-instrument
basis, in cases in which a derivative would otherwise have to be bifurcated.
Providing a fair value measurement election also results in more financial
instruments being measured at what the FASB regards as the most relevant
attribute for financial instruments, fair value. FAS 155 is effective for all
financial instruments acquired or issued after the beginning of an entity's
first fiscal year that begins after September 15, 2006. The Group is currently
evaluating the impact of this standard on its financial position and results of
operations.
In March 2006, the FASB issued Statement No. 156, "Accounting for
Servicing of Financial Assets" ("FAS 156"), which requires all separately
recognised servicing assets and servicing liabilities be initially measured at
fair value. FAS 156 permits, but does not require, the subsequent measurement of
servicing assets and servicing liabilities at fair value. Adoption is required
as of the beginning of the first fiscal year that begins after September 15,
2006. Early adoption is permitted. The adoption of FAS 156 is not expected to
have a material effect on the Group's financial position or results of
operations.
In July 2006, the FASB issued Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109" ("FIN
48"). FIN 48 prescribes a comprehensive model for recognising, measuring,
presenting and disclosing in the financial statements uncertain tax positions
that the Group has taken or expects to take in its tax returns. The provisions
of FIN 48 are effective for the Group on January 1, 2007, with the cumulative
effect of the change in accounting principle, if any, recorded as an adjustment
to opening retained earnings. The Group does not expect the adoption of FIN 48
to have a material impact on the Group's financial position or results of
operations.
2006 INTERIM REPORT
37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the consolidated
interim condensed financial statements for the Group and the notes thereto.
OVERVIEW
For the six months ended June 30, 2006, profit before taxation of the Group was
RMB115,918 million, representing an increase of 28.6% compared with the
corresponding period of last year. Net profit was RMB80,681 million,
representing an increase of space 29.4% from the corresponding period in last
year. The continued improvement of the Group's operating results was primarily
due to the Group's ability to take full advantage of the opportunities presented
by persistently high oil prices and strong market demand by strengthening its
efforts in exploration and development, the optimal use of its competitive edge
in upstream activities, streamlining of its downstream product mix, unifying
resources allocation, accelerating the construction and interconnection of major
pipelines, the steady promotion of international operations, enhancement of
operational management and the continuous efforts in technological and
managerial innovations.
For the six months ended June 30, 2006, the Group's basic and diluted earnings
per share was RMB0.45 (for the six months ended June 30, 2005: RMB0.35).
COMPARISON BETWEEN THE SIX-MONTH PERIOD ENDED JUNE 30, 2006 AND THE SIX-MONTH
PERIOD ENDED JUNE 30, 2005
CONSOLIDATED OPERATING RESULTS
Turnover Turnover increased 25.3% from RMB260,618 million for the six months
ended June 30, 2005 to RMB326,545 million for the six months ended June 30,
2006. This was primarily due to the increases in prices and sales volumes of
certain main products, namely crude oil, natural gas and certain refined
products.
Operating Expenses Operating expenses increased 23.8% from RMB170,651 million
for the six months ended June 30, 2005 to RMB211,252 million for the six months
ended June 30, 2006. This was primarily due to an increase in the purchase costs
of crude oil, feedstock oil and refined products from external suppliers and an
increase in taxes other than income tax.
Purchases, Services and Other Expenses Purchases, services and other expenses
increased 16.3% from RMB96,956 million for the six months ended June 30, 2005 to
RMB112,758 million for the six months ended June 30, 2006. This was primarily
due to (1) an
2006 INTERIM REPORT
38
increase in prices of crude oil and feedstock oil from external suppliers and an
increase in the volume purchased from external suppliers in the reporting
period, which resulted in an increase in the purchase costs of crude oil and
feedstock oil; and (2) an increase in the prices of refined products and an
increase in the volume purchased from external suppliers in the reporting
period, which resulted in an increase in the purchase costs of refined products.
In addition, the increase in the refined product supply operation during the
reporting period also resulted in a corresponding increase in purchase expenses.
Employee Compensation Costs Employee compensation costs increased 30.2% from
RMB13,052 million for the six months ended June 30, 2005 to RMB16,993 million
for the six months ended June 30, 2006. This was primarily due to (1) the
improvement in the Company's operating results which led to an increase in the
wages and welfare expenses of staff and workers; and (2) the increase in salary
surcharge as a result of an increase in the base and percentage for calculating
the salary surcharge since the second half of 2005 by the PRC Government. In
addition, the increase of employee compensation costs in the reporting period as
compared to the first half of 2005 was also due to an increase in the number of
employees resulting from an expansion in production capacity.
Exploration Expenses Exploration expenses were RMB8,750 million, essentially at
the same level as RMB8,729 million for the six months ended June 30, 2005.
Depreciation, Depletion and Amortisation Depreciation, depletion and
amortisation increased 12.1% from RMB26,678 million for the six months ended
June 30, 2005 to RMB29,910 million for the six months ended June 30, 2006. This
was primarily due to an increase in the gross carrying amount of property, plant
and equipment and the average net value of oil and gas assets which led to a
corresponding increase in depreciation and depletion during the reporting
period.
Selling, General and Administrative Expenses Selling, general and administrative
expenses increased 28.2% from RMB14,902 million for the six months ended June
30, 2005 to RMB19,104 million for the six months ended June 30, 2006. This was
primarily due to (1) an increase in the transportation volume which led to an
increase of freight expenses; and (2) an increase in the technological
development expenses resulting from intensified technological development
efforts.
Taxes other than Income Tax Taxes other than income tax increased 115.6% from
RMB11,253 million for the six months ended June 30, 2005 to RMB24,259 million
for the six months ended June 30, 2006. This was primarily due to (1) the
imposition by the PRC government of a special levy on the petroleum exploration
enterprises from March 2006 which is payable by them on the portion of income
realised from the domestic sales of crude oil at prices higher than a specific
level, leading to a substantial increase in the amount of taxes payable by the
Company compared with the first half of 2005; (2) an increase in consumption tax
and surcharges as a result of an increase in the output volume of gasoline and
diesel oil; and (3) an increase in compensation fees for mineral resources due
to an increase in crude oil and natural gas revenue. In addition, an increase of
the natural resource tax rates by the PRC government since the second half of
2005 and the increased oil and gas output in the reporting period also
contributed to the increase of natural resources tax.
2006 INTERIM REPORT
39
Profit from Operations As a result of the factors discussed above, profit from
operations increased 28.2% from RMB89,967 million for the six months ended June
30, 2005 to RMB115,293 million for the six months ended June 30, 2006.
Net Exchange Gain Net exchange gain increased from RMB18 million for the six
months ended June 30, 2005 to RMB32 million for the six months ended June 30,
2006. This was primarily due to an appreciation of Renminbi against the US
Dollar during the first half of this year.
Net Interest Expenses Net interest expenses increased 8.8% from RMB817 million
for the six months ended June 30, 2005 to RMB889 million for the six months
ended June 30, 2006. This increase reflects an increase in the carrying amount
of the asset retirement obligations that incurs with the passage of time, which
led to a corresponding increase in the interest expense.
Profit Before Taxation Profit before taxation increased 28.6% from RMB90,169
million for the six months ended June 30, 2005 to RMB115,918 million for the six
months ended June 30, 2006.
Taxation Taxation increased 21.6% from RMB25,229 million for the six months
ended June 30, 2005 to RMB30,675 million for the six months ended June 30, 2006.
This was primarily due to an increase in taxable profits.
Net Profit As a result of the factors discussed above, net profit increased
29.4% from RMB62,363 million for the six months ended June 30, 2005 to RMB80,681
million for the six months ended June 30, 2006.
SEGMENT INFORMATION
The Group is engaged in a broad range of petroleum related activities through
four major business segments: the Exploration and Production segment, the
Refining and Marketing segment, the Chemicals and Marketing segment, and the
Natural Gas and Pipeline segment.
EXPLORATION AND PRODUCTION
THE EXPLORATION AND PRODUCTION SEGMENT IS ENGAGED IN THE EXPLORATION,
DEVELOPMENT, PRODUCTION AND SALE OF PETROLEUM AND NATURAL GAS.
2006 INTERIM REPORT
40
Turnover Turnover increased 38.8% from RMB152,024 million for the six months
ended June 30, 2005 to RMB211,012 million for the six months ended June 30,
2006. This was primarily due to an increase in prices and sales volume of crude
oil and natural gas. During the first half of 2006, the Group's average realised
crude oil price was US$58.75 per barrel, representing an increase of 35.6% from
US$43.33 per barrel for the first half of 2005.
Inter-segment sales revenue increased 40.6% from RMB121,484 million for the six
months ended June 30, 2005 to RMB170,761 million for the six months ended June
30, 2006. The increase was mainly due to an increase in prices and sales volume
of crude oil and natural gas.
(PHOTO)
2006 INTERIM REPORT
41
(PHOTO)
Operating expenses Operating expenses increased 37.6% from RMB62,901 million for
the six months ended June 30, 2005 to RMB86,560 million for the six months ended
June 30, 2006. This was mainly due to the increase in taxes other than income
tax, purchase expenditure and staff costs.
Profit from Operations As a result of the factors discussed above, profit from
operations increased 39.6% from RMB89,123 million for the six months ended June
30, 2005 to RMB124,452 million for the six months ended June 30, 2006.
REFINING AND MARKETING
THE REFINING AND MARKETING SEGMENT IS ENGAGED IN THE REFINING, TRANSPORTATION,
STORAGE AND MARKETING OF CRUDE OIL AND PETROLEUM PRODUCTS.
Turnover Turnover increased 27.0% from RMB200,883 million for the six months
ended June 30, 2005 to RMB255,106 million for the six months ended June 30,
2006. The increase was primarily due to an increase in prices and changes in
sales volume of key refined products, of which:
Sales revenue from gasoline increased 6.3% from RMB54,570 million for the six
months ended June 30, 2005 to RMB57,985 million for the six months ended June
30, 2006. The increase was mainly due to an increase in prices of gasoline. The
average realised selling price of gasoline increased 21.4% from RMB3,943 per ton
for the six months ended June 30, 2005 to RMB4,785 per ton for the six months
ended June 30, 2006. The sales volume of gasoline dropped 12.4% from 13.84
million tons for the six months ended June 30, 2005 to 12.12 million tons for
the six months ended June 30, 2006.
2006 INTERIM REPORT
42
Sales revenue from diesel increased 24.1% from RMB81,888 million for the six
months ended June 30, 2005 to RMB101,637 million for the six months ended June
30, 2006. The increase was mainly due to an increase in prices and sales volume
of diesel. The average realised selling price of diesel increased 21.0% from
RMB3,463 per ton for the six months ended June 30, 2005 to RMB4,191 per ton for
the six months ended June 30, 2006. The sales volume of diesel increased 2.6%
from 23.64 million tons for the six months ended June 30, 2005 to 24.25 million
tons for the six months ended June 30, 2006.
Sales revenue from kerosene increased 37.7% from RMB3,059 million for the six
months ended June 30, 2005 to RMB4,211 million for the six months ended June 30,
2006. The increase was mainly due to an increase in prices and sales volume of
kerosene.
Inter-segment sales revenue increased 40.0% from RMB15,098 million for the six
months ended June 30, 2005 to RMB21,142 million for the six months ended June
30, 2006. The increase was mainly due to an increase in prices and changes of
sales volumes of the key refined products.
Operating expenses Operating expenses increased 30.1% from RMB206,832 million
for the six months ended June 30, 2005 to RMB268,995 million for the six months
ended June 30, 2006. The increase was primarily due to an increase in the
expenditure on the purchase of crude oil, feedstock oil and refined products
from external suppliers, and an increase in selling, general and administrative
expenses. In addition, the increase in the level of supply operations of oil
products during the reporting period led to a corresponding increase in
operating expenses.
Loss from Operations For the six months ended June 30, 2006, there was a loss of
RMB13,889 million for this segment and for the six months ended June 30, 2005,
there was a loss of RMB5,949 million. The losses were mainly as a result of the
effect of the macroeconomic control in China of the prices of the refined
products, resulting in the selling prices of the refined products in China not
in line with the selling prices of the refined products in the international
market.
(PHOTO)
2006 INTERIM REPORT
43
CHEMICALS AND MARKETING
THE CHEMICALS AND MARKETING SEGMENT IS ENGAGED IN THE PRODUCTION AND SALES OF
BASIC PETROCHEMICAL PRODUCTS, DERIVATIVE PETROCHEMICAL PRODUCTS AND OTHER
CHEMICAL PRODUCTS.
Turnover Turnover increased 6.8% from RMB37,035 million for the six months ended
June 30, 2005 to RMB39,565 million for the six months ended June 30, 2006. The
increase was mainly due to the increase in prices and sales volume of certain
chemical products (primarily polyethylene and polypropylene products).
Operating expenses Operating expenses increased 17.2% from RMB31,279 million for
the six months ended June 30, 2005 to RMB36,657 million for the six months ended
June 30, 2006. The increase was mainly due to an increase in the prices of raw
materials.
Profit from Operations Due to a significant increase in operating expenses,
profit from operations decreased 49.5% from RMB5,756 million for the six months
ended June 30, 2005 to RMB2,908 million for the six months ended June 30, 2006.
NATURAL GAS AND PIPELINE
THE NATURAL GAS AND PIPELINE SEGMENT IS ENGAGED IN THE TRANSMISSION OF NATURAL
GAS, CRUDE OIL AND REFINED PRODUCTS AND THE SALES OF NATURAL GAS.
Turnover Turnover increased 53.6% from RMB11,874 million for the six months
ended June 30, 2005 to RMB18,233 million for the six months ended June 30, 2006.
The increase was primarily due to an increase in the sales volume and price of
natural gas and an increase in the sales volume and the average price of
pipeline transmission of natural gas.
(PHOTO)
2006 INTERIM REPORT
44
Operating expenses Operating expenses increased 31.3% from RMB10,396 million for
the six months ended June 30, 2005 to RMB13,646 million for the six months ended
June 30, 2006. The increase was mainly due to an increase in gas purchase
expenses and an increase in depreciation charges.
Profit from Operations As a result of the factors discussed above, profit from
operations increased 210.4% from RMB1,478 million for the six months ended June
30, 2005 to RMB4,587 million for the six months ended June 30, 2006.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 2006, the Group's primary sources of funds
were cash generated from operating activities, short-term borrowings and
long-term borrowings. The Group's funds were used for operating activities,
capital expenditures, repaying short-term and long-term borrowings, acquisition
of subsidiaries and distribution of dividends to shareholders of the Company.
As at June 30, 2006, short-term debts represented approximately 5.1% of the
Group's capital employed as compared with approximately 4.7% as at December 31,
2005. Our ability to obtain adequate financing may be affected by our financial
position and operating results
2006 INTERIM REPORT
45
and the conditions of the domestic and foreign capital markets. The Company must
seek approvals from the relevant PRC government authorities before raising funds
in the domestic and foreign capital markets. In general, the Company must obtain
PRC government approvals for any project involving significant capital
investments in our Refining and Marketing segment, Chemicals and Marketing
segment and the Natural Gas and Pipeline segment.
The Group plans to fund its capital and related investments principally from the
cash generated from operating activities and short-term and long-term
borrowings. For the six months ended June 30, 2006, net cash generated from
operating activities was RMB100,825 million. As at June 30, 2006, the Group had
cash and cash equivalents of RMB92,630 million. Cash and cash equivalents were
mainly denominated in Renminbi (Renminbi accounted for approximately 96.8%, US
Dollar accounted for approximately 2.8%, and HK Dollar accounted for 0.4%).
The table below sets forth its cash flows for the six months ended June 30, 2006
and June 30, 2005 and our cash and cash equivalents at the end of each period.
SIX MONTHS ENDED JUNE 30
--------------------------------
2006 2005
------------- -------------
(RMB MILLION) (RMB MILLION)
------------------------------------------------------------------------------------------------
Net cash generated from operating activities 100,825 98,167
Net cash used for investing activities (51,974) (5,430)
Net cash used for financing activities (37,291) (33,024)
Currency translation difference 165 (119)
Cash and cash equivalents at the end of each period 92,630 71,282
------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
In the first half of 2006, the Group's net cash from operating activities
increased 2.7% from RMB98,167 million for the six months ended June 30, 2005 to
RMB100,825 million for the six months ended June 30, 2006. This was mainly due
to an increase in profit which gave rise to an increase in cash flows generated
from operating activities. In addition, an increase in inventories partly offset
the cash flows generated from operating activities.
2006 INTERIM REPORT
46
As at June 30, 2006, our working capital was RMB47,930 million. As at December
31, 2005, our working capital was RMB22,057 million. The increase in working
capital was primarily due to an increase in receivables and prepayments,
inventories and cash and cash equivalents.
CASH USED FOR FINANCING ACTIVITIES
The Group's net cash used for financing activities increased 12.9% for the six
months ended June 30, 2006 compared with the amount as at the six months ended
June 30, 2005. This was mainly due to more cash dividends paid in respect of the
ordinary shares for the first half of this year as compared with the
corresponding period of last year.
The table below sets out our net borrowings as at June 30, 2006 and December 31,
2005:
JUNE 30, 2006 DECEMBER 31, 2005
------------- -----------------
(RMB MILLION) (RMB MILLION)
------------- -------------
Short-term borrowings (including current portion of long-term borrowings)
34,004 28,689
Long-term borrowings 35,804 44,570
------- ------
Total borrowings 69,808 73,259
======= ======
Less:
Cash and cash equivalents 92,630 80,905
------- ------
Net borrowings (22,822) (7,646)
======= ======
The maturity profile of the long-term borrowings (including maturity within one
year) of the Group is as follows:
JUNE 30, 2006 DECEMBER 31, 2005
------------- -----------------
(RMB MILLION) (RMB MILLION)
------------- -------------
To be repaid within one year 20,188 15,325
To be repaid within one to two years 9,981 18,373
To be repaid within two to five years 14,124 14,942
To be repaid after five years 11,699 11,255
------ ------
55,992 59,895
====== ======
47
Of the total borrowings of the Group as at June 30, 2006, approximately 28.6%
were fixed-rate loans and approximately 71.4% were floating-rate loans. Of the
borrowings as at June 30, 2006, approximately 74.7% were denominated in
Renminbi, approximately 23.8% were denominated in US Dollars, approximately 0.6%
were denominated in Singapore Dollars, approximately 0.4% were denominated in
Euro, approximately 0.2% were denominated in Japanese Yen, approximately 0.2%
were denominated in Kazakhstan Tenge and approximately 0.1% were denominated in
British Pound Sterling.
As at June 30, 2006, borrowings owed to China Petroleum Finance Company Limited
("CP Finance") amounted to RMB26,040 million. Borrowings owed to state-owned
banks and other non-bank state-owned financial institutions amounted to
RMB33,766 million and borrowings owed to other related parties amounted to RMB61
million.
As at June 30, 2006, short-term borrowings and long-term borrowings owed by the
Group to CP Finance amounted to RMB300 million and RMB25,740 million
respectively.
As at June 30, 2006, borrowings of the Group consisted of RMB698 million secured
borrowings (RMB1,108 million as at December 31, 2005), most of which were
secured by part of the Group's assets and time deposits with maturities over one
year.
As at June 30, 2006, the debt to capitalisation ratio (debt to capitalisation
ratio = total debts / (total debts + total equity)) was 10.5% (11.9% as at
December 31, 2005).
CAPITAL EXPENDITURES
The table below sets out our capital expenditures by business segments for the
six months ended June 30, 2006 and the six months ended June 30, 2005 and the
estimates for the full year of 2006. During the first half of 2006, capital
expenditures increased 41.6% from RMB33,375 million for the six months ended
June 30, 2005 to RMB47,252 million for the six months ended June 30, 2006. The
increase in capital expenditure was primarily due to increased contribution to
oil and gas exploration and development as well as safety and environmental
protection. Furthermore, the increase in the prices of fuel oil, water and
electricity and other production materials, also led to an increase in
investment.
48
FIRST HALF OF 2006 FIRST HALF OF 2005 ESTIMATE FOR THE YEAR OF 2006
-------------------- ------------------------ -----------------------------
(RMB MILLION) % (RMB MILLION) % (RMB MILLION) %
------------- ----- ------------- ----- ------------- ------
Exploration and Production 32,933* 69.7 22,413* 67.2 100,100* 60.3
Refining and Marketing 6,169 13.1 4,614 13.8 29,000 17.5
Chemicals and Marketing 3,938 8.3 2,633 7.9 15,900 9.6
Natural Gas and Pipeline 3,840 8.1 3,651 10.9 17,100 10.3
Other 372 0.8 64 0.2 3,900 2.3
------ ----- ------ ----- ------- -----
Total 47,252 100.0 33,375 100.0 166,000 100.0
====== ===== ====== ===== ======= =====
----------
* Note: If geological and geophysical exploration costs were
included, the capital expenditures and investments for the Exploration and
Production segment for the first half of 2005 and the first half of 2006, and
the estimate of the same for the entire 2006 would be RMB26,012 million,
RMB37,253 million and RMB111,500 million, respectively.
EXPLORATION AND PRODUCTION
The majority of the Group's capital expenditures is related to the Exploration
and Production segment. For the six months ended June 30, 2006, capital
expenditures in relation to exploration and production amounted to RMB32,933
million, including RMB4,251 million for exploration activities and RMB26,061
million for development activities. For the six months ended June 30, 2005,
capital expenditures in relation to this segment totalled RMB22,413 million,
including RMB4,032 million for exploration activities and RMB16,869 million for
development activities. The increase in capital expenditures was mainly due to
the Group's increased expenditures relating to oil and gas development and
supporting projects on the ground.
It is estimated that for the twelve months ending December 31, 2006, capital
expenditures of the Group in the Exploration and Production segment will amount
to RMB100,100 million. Approximately RMB20,000 million is expected to be used
for oil and gas exploration, and approximately RMB80,100 million will be used
for oil and gas development. Exploration and development is expected to be
mainly carried out in the Erdos, Junggar, Tarim, Songliao, Sichuan, Bohai Bay,
and Qaidam basins.
49
REFINING AND MARKETING
For the six months ended June 30, 2006, capital expenditures of the Group in the
Refining and Marketing segment amounted to RMB6,169 million, of which RMB2,935
million was spent on upgrading our refining facilities, and RMB2,041 million was
spent on the expansion of the retail marketing network of our refined products
and oil products storage infrastructure facilities. For the six months ended
June 30, 2005, capital expenditures for this segment totalled RMB4,614 million.
The increase in capital expenditures was primarily due to the construction and
expansion of refining facilities.
It is estimated that capital expenditures of the Group for the Refining and
Marketing segment for the twelve months ending December 31, 2006 will amount to
RMB29,000 million, including approximately RMB19,300 million to be spent on
construction and expansion of refining facilities, and approximately RMB9,700
million to be spent on our refined products marketing network.
CHEMICALS AND MARKETING
For the six months ended June 30, 2006, capital expenditures in the Chemicals
and Marketing segment were RMB3,938 million, compared with RMB2,633 million for
the six months ended June 30, 2005. The increase in capital expenditures was
mainly due to increased investments in the ethylene projects of Lanzhou
Petrochemical Company and Dushanzi Petrochemical Company.
It is estimated that for the twelve months ending December 31, 2006, capital
expenditures of the Group in the Chemicals and Marketing segment will amount to
RMB15,900 million. The capital expenditures are expected to be used primarily
for construction relating to the ethylene projects of Lanzhou Petrochemical
Company and Dushanzi Petrochemical Company and the PTA project of Liaoyang
Petrochemical Company.
NATURAL GAS AND PIPELINE
For the six months ended June 30, 2006, capital expenditures in the Natural Gas
and Pipeline segment amounted to RMB3,840 million. RMB3,494 million of these
expenditures was spent on construction of long distance pipelines and RMB2,351
million of such amount was spent on the West-East Gas Pipeline project. For the
six months ended June 30, 2005, capital expenditures for this segment totalled
RMB3,651 million. The capital expenditures during this period were basically the
same as that during the corresponding period of last year.
50
It is estimated that the Group's capital expenditures in Natural Gas and
Pipeline segment for the twelve months ending December 31, 2006 will amount to
RMB17,100 million. These capital expenditures are expected to be mainly used for
the expansion of the West-East Gas Pipeline, and the construction of underground
gas tanks and crude oil and refined products transmission pipelines.
OTHER
The Group's capital expenditures in the Other segment for the six months ended
June 30, 2006 and for the six months ended June 30, 2005 were RMB372 million and
RMB64 million respectively. These capital expenditures were mainly used for
non-segment-specific equipment purchases.
It is estimated that the Group's capital expenditure in the Other segment for
the twelve months ending December 31, 2006 will amount to RMB3,900 million.
These capital expenditures are expected to be mainly used for research and
development and the implementation of information systems.
MATERIAL INVESTMENT
For the six months ended June 30, 2006, the Group did not hold any material
investment.
MATERIAL ACQUISITION OR DISPOSAL
Pursuant to the resolution passed at the meeting of the Board of Directors held
on October 26, 2005, the Company offered to acquire all of the 150,000,000
outstanding A shares of Jinzhou Petrochemical Company Limited ("JPCL") from
minority shareholders at RMB 4.25 per share. As at June 30, 2006, the Company
had paid a total cash consideration of RMB 602 million and acquired 141,497,463
A shares, representing approximately 17.97% of the total issued shares of JPCL.
Upon this acquisition, the Company owns 98.92% of the outstanding shares of
JPCL. The excess of the cost of purchase over the carrying value of the
underlying assets and liabilities acquired was recorded in equity. As approved
by the China Securities Regulatory Commission, JPCL was delisted from the
Shenzhen Stock Exchange on January 4, 2006.
Pursuant to the resolution passed at the meeting of the Board of Directors held
on October 26, 2005, the Company offered to acquire all of the 200,000,000
outstanding A shares and 964,778,000 H shares (including ADS) of Jilin Chemical
Industrial Company Limited ("JCIC") from minority shareholders at RMB 5.25 per A
share and HK$2.80 per H share respectively. As at June 30, 2006, the Company
51
had paid a total cash consideration of RMB 3,719 million and acquired
186,623,617 A shares and 938,751,999 H shares (including ADS), representing
approximately 31.60% of the total issued shares of JCIC. Upon this acquisition,
the Company owns 98.89% of the outstanding shares of JCIC. The excess of the
cost of purchase over the carrying value of the underlying assets and
liabilities acquired was recorded in equity. JCIC was delisted from HKSE and the
New York Stock Exchange on January 23, 2006 and February 15, 2006, respectively.
As approved by the China Securities Regulatory Commission, JCIC was delisted
from the Shenzhen Stock Exchange on February 20, 2006.
Pursuant to the resolution passed at the meeting of the Board of Directors held
on October 26, 2005, the Company offered to acquire all of the 200,000,000
outstanding A shares of Liaohe Jinma Oilfield Company Limited ("LJOCL") from
minority shareholders at RMB 8.80 per share. As at June 30, 2006, the Company
had paid a total cash consideration of RMB 1,713 million and acquired
194,360,943 A shares, representing approximately 17.67% of the total issued
shares of LJOCL. Upon this acquisition, the Company owns 99.49% of the
outstanding shares of LJOCL. The excess of the cost of purchase over the
carrying value of the underlying assets and liabilities acquired was recorded in
equity. As approved by the China Securities Regulatory Commission, LJOCL was
delisted from the Shenzhen Stock Exchange on January 4, 2006.
POST-BALANCE SHEET EVENTS
On August 23, 2006, the Board of Directors of the Company approved the entering
into the acquisition agreement whereby CNPC E&D will acquire a 67% ownership
interest in PetroKazakhstan Inc. ("PKZ") from CNPC International Ltd. ("CNPCI",
a subsidiary of CNODC). Currently, PKZ is 67% and 33% owned by CNPCI and JSC
National Company Kazmunaigaz ("KMG") respectively. A total cash consideration
for this acquisition is expected to be approximately US$2,735 million. Upon
completion of the acquisition agreement, PKZ will be accounted for as an
associate of the Company as it is under the joint control by CNPC E&D and KMG.
FOREIGN EXCHANGE RATE RISK
From July 21, 2005, the PRC government has reformed the Renminbi exchange rate
regime and implemented a regulated floating exchange rate regime based on market
supply and demand with reference to a basket of currencies. However, Renminbi is
still regulated
52
in capital account. The exchange rates of Renminbi are affected by domestic and
international economic developments and political conditions, and supply and
demand for Renminbi. Future exchange rates of Renminbi against other currencies
could vary significantly from the current exchange rates. As Renminbi is the
functional currency of the Company and most of its consolidated entities, the
fluctuation of the exchange rate of Renminbi may have positive or negative
impacts on the operating results of the Group. An appreciation of Renminbi
against US Dollar may decrease the Group's turnover, but the cost for acquiring
imported materials and equipment may also be reduced. A devaluation of Renminbi
against US Dollar may not have a negative impact on the Group's turnover but may
increase the cost for acquiring imported materials and equipment as well as the
debt obligations denominated in foreign currencies of the Group.
COMMODITY PRICE RISK
The Group is engaged in a wide range of petroleum-related activities. The oil
and gas markets are affected by global and regional demands and supplies. Prices
of onshore crude oil are determined with reference to the prices of crude oil on
the international markets. A decline in the prices of crude oil and refined
products could adversely affect the Group's financial position. The Group
historically has not used commodity derivative instruments to hedge against
potential price fluctuations of crude oil and refined products. Therefore, the
Group is exposed to general price fluctuations of oil and gas commodities in
2006 and in future years.
INDUSTRY RISK
Like other oil and natural gas companies in China, the Group's operating
activities are subject to regulation and control by the PRC government in many
aspects. This regulation and control, such as the granting of exploration and
production licenses, the imposition of industry-specific taxes and levies and
the implementation of environmental and safety standards are expected to have an
impact on the Group's business operations. As a result, the Group may be subject
to fairly significant restrictions when implementing its business strategy,
developing and expanding its business or maximising its profitability. Any
future changes in PRC governmental policies on the oil and natural gas industry
may also affect the Group's business operations.
53
EMPLOYEES AND EMPLOYEES COMPENSATION
NUMBER OF EMPLOYEES
As at June 30, 2006 and June 30, 2005, the Group had 438,127 and 423,200
employees respectively. The table below sets out the number of employees of
business segments as at June 30, 2006:
NUMBER OF EMPLOYEES PERCENTAGE OF TOTAL (%)
------------------- -----------------------
Exploration and Production 246,969 56.4
Refining and Marketing 117,799 26.9
Chemicals and Marketing 58,583 13.4
Natural Gas and Pipeline 10,776 2.4
Other* 4,000 0.9
------- -----
Total 438,127 100.0
======= =====
----------
* Note: Including staff of the Company headquarters, specialised
entities, Exploration & Development Research Institute, Planning & Engineering
Institute and Petrochemical Technological Research Centres.
EMPLOYEE COMPENSATION
The total employee compensation payable by the Group for the six months ended
June 30, 2006 was RMB11,198 million, being the total salaries of employees
during the reporting period. Compensation of employees is determined according
to industry practice and the actual conditions of the Group, and is based on the
principles of attracting and retaining high-calibre personnel, and motivating
all staff for the realisation of the best results.
The Company's senior management remuneration system links senior management
members' financial interests (including those of executive directors and
supervisors) with the Company's operating results and the market performance of
its shares. All members of the senior management have entered into performance
contracts with the Company. Under this system, the senior management members'
compensation has three components, namely, fixed salaries, performance bonuses
and stock appreciation rights. The variable components account for approximately
70% to 75% of the senior management officers' total potential compensation,
including
54
approximately 0% to 25% forming the performance bonus component and
approximately 50% to 70% forming the stock appreciation rights component.
Variable compensation rewards are linked to the attainment of specific
performance targets, such as net profit, return on capital and cost reduction
targets. The chart below sets forth the components of the total potential
compensation for key officers.
FIXED SALARY (%) STOCK APPRECIATION RIGHTS(%) PERFORMANCE BONUS (%)
---------------- ---------------------------- ---------------------
Chairman 30 70 0
President 25 60 15
Vice president 25 60 15
Department general manager 25 50 25
Details of the emoluments of directors and supervisors for the six months ended
June 30, 2006 and June 30, 2005 are as follows:
FOR THE SIX MONTHS ENDED JUNE 30
--------------------------------
2006 2005
--------- ---------
(RMB'000) (RMB'000)
--------- ---------
Emoluments of directors and supervisors 816 62
Salaries, allowances and other benefits 985 927
Contribution to retirement benefit scheme 28 28
----- -----
1,829 1,017
===== =====
The number of directors and supervisors whose emoluments fall within the
following band (including directors and supervisors whose term expired during
the current period):
AS AT JUNE 30, 2006 AS AT JUNE 30, 2005
NUMBER NUMBER
------------------- -------------------
Nil ~ RMB1,000,000 20 20
== ==
55
Upon exercise of their share options, senior management staff will not receive
any shares in the Company. Instead, they will receive, by way of stock
appreciation rights, a monetary sum which is calculated on the basis of the
share price of the H shares listed on the HKSE.
TRAINING PROGRAMMES
The training programmes of the Company for 2006 have been geared towards
achieving the development strategy and operation objectives of the Company. In
line with the strategic requirement for "a strong corporation with highly
talented personnel", the Company has targeted high-calibre, skilful and
international staff in its training programmes with a focus on the training of
the "core" and "backbone" personnel and strived to build a proficient operating
and management team, a technology innovative team and a skilful operators' team
to ensure the supply of talents required for the continuous and stable
development of the Company.
CONTINGENT LIABILITIES
Information on the Group's contingent liabilities as at June 30, 2006 is as
follows:
BANK AND OTHER GUARANTEES
As at June 30, 2006, the Group had contingent liabilities in respect of
guarantees made to CP Finance, a subsidiary of CNPC, and state-controlled bank
from which it is anticipated that no material liabilities will arise.
JUNE 30, 2006 DECEMBER 31, 2005
------------- -----------------
(RMB MILLION) (RMB MILLION)
------------- -----------------
Guarantee of borrowings of associates from CP Finance 176 187
Guarantee of borrowings of third party from State-controlled bank 41 -
--- ---
217 187
=== ===
2006 INTERIM REPORT
56
ENVIRONMENTAL LIABILITIES
CNPC and the Group have operated in China for many years. China has adopted
extensive environmental laws and regulations that affect the operation of the
oil and gas industry. The outcome of environmental liabilities under proposed or
future environmental legislation cannot reasonably be estimated at present, and
could be material. Under existing legislation, however, management believes that
there are no probable liabilities, except for the amounts which have already
been reflected in the financial statements that will have a material adverse
effect on the financial position of the Group.
LEGAL CONTINGENCIES
The Group is the named defendant in certain insignificant lawsuits as well as
the named party in other proceedings arising in the ordinary course of business.
While the outcome of such contingencies, lawsuits or other proceedings cannot be
determined at present, management believes that any resulting liabilities will
not have a material adverse effect on the financial position of the Group.
LEASING OF LAND, ROADS AND BUILDINGS
According to the restructuring agreement entered into between the Company and
CNPC in 1999 upon the formation of the Company, CNPC has undertaken to the
Company as follows:
- CNPC will use its best endeavours to obtain formal land use right
certificates to replace the entitlement certificates in relation to the 28,649
parcels of land which were leased or transferred to the Company from CNPC,
within one year from August, September and October 1999 when the relevant
entitlement certificates were issued;
- CNPC will complete, within one year from November 5, 1999, the necessary
governmental procedures for the requisition of the collectively-owned land on
which 116 service stations owned by the Company are located; and
- CNPC will obtain individual building ownership certificates in the name
of the Company for all of the 57,482 buildings transferred to the Company by
CNPC, before November 5, 2000.
2006 INTERIM REPORT
57
As at June 30, 2006, CNPC has obtained formal land use right certificates in
relation to 27,400 out of the above-mentioned 28,649 parcels of land and some
building ownership certificates for the above-mentioned buildings, but has
completed none of the necessary governmental procedures for the above-mentioned
service stations located on collectively-owned land. The directors of the
Company confirm that the use of and the conduct of relevant activities at the
above-mentioned parcels of land, service stations and buildings are not affected
by the fact that the relevant land use right certificates or individual building
ownership certificates have not been obtained or the fact that the relevant
governmental procedures have not been completed. In management's opinion, the
outcome of the above events will not have a material adverse effect on the
results of operations or the financial position of the Group.
GROUP INSURANCE
Except for limited insurance coverage for vehicles and certain assets subject to
significant operating risks, the Group does not carry any other insurance for
property, facilities or equipment with respect to its business operations. In
addition, the Group does not carry any third-party liability insurance against
claims relating to personal injury, property and environmental damages or
business interruption insurance since such insurance coverage is not customary
in China. While the effect of under-insurance on future incidents cannot be
reasonably assessed at present, management believes that it may have a material
impact on the operating results but will not have a material adverse effect on
the financial position of the Group.
OTHERS
On November 13, 2005, explosions occurred at a manufacturing facility of a
branch of the Company located in the Jilin Province. The impact of the accident
is undergoing government investigation. The Company is presumed to bear related
liability according to the investigation results.
2006 INTERIM REPORT
58
BUSINESS OPERATING REVIEW AND PROSPECTS
MARKET REVIEW
CRUDE OIL MARKET REVIEW
During the first half of 2006, international crude oil prices remained at high
levels due to rapidly expanding demand, insufficient residual supply of crude
oil, intensified geo-political risk, speculation and other factors. The average
prices for WTI, Brent and Minas crude oil in the first half of the year were
US$66.80, US$65.65 and US$65.81 per barrel respectively, representing an
increase of US$15.31, US$16.00 and US$14.94 per barrel or 29.7%, 32.2% and 29.4%
respectively from the corresponding period in last year. Corresponding to the
rise in international oil prices, domestic crude oil prices also increased. The
average realised price was higher than that of the first half of 2005.
Domestic crude oil imports continued to increase during the first half of 2006
with net import volume of 70.33 million tons, representing an increase of 17.6%
from the corresponding period in last year. Domestic crude oil output and the
amount of crude oil processed reached 92.10 million tons and 142 million tons
respectively.
REFINED PRODUCTS MARKET REVIEW
During the first half of 2006, although the PRC government strengthened its
control on the domestic macroeconomy, demand for refined products still remained
relatively high. In general, resources were tight and market prices continued to
rise and hit new historical highs repeatedly. In the first half of the year,
nominal consumption of refined products increased 7.1% to 85.73 million tons
compared with the corresponding period in last year. By the end of June 2006,
the refined products inventory held by the Company and Sinopec reached 7.88
million tons, representing an increase of 0.54 million tons from the
corresponding period in last year.
2006 INTERIM REPORT
59
The PRC government has made certain adjustments to the prices of domestic
refined products during the first half of 2006. However, under the impact of
international oil prices, the average benchmark prices of gasoline and diesel
were still higher than their levels during the corresponding period of last
year.
CHEMICAL PRODUCTS MARKET REVIEW
In the first half of 2006, the sustained rapid economic development in China
resulted in strong demand of chemical products. Market supply of crude oil was
unable to satisfy the increase in demand due to strong demand, limited increase
in supply and the overhaul of facilities. In a climate of persistently high
crude oil prices, chemical products market tended to favour the sellers and the
prices of most chemical products achieved a 10-year record high.
NATURAL GAS MARKET REVIEW
In the first half of 2006, China's natural gas market has continued to show a
trend of rapid growth. Despite the adoption by the PRC government of a new
pricing regulation for natural gas in December 2005 and further raising the
ex-factory price of natural gas in China, the demand for natural gas has been
growing at an excessive rate and the discrepancy between its supply and demand
remained prominent.
BUSINESS REVIEW
For the six months ended June 30, 2006, total oil and gas output of the Group
was 533.2 million barrels of oil equivalent, including 419.1 million barrels of
crude oil and 684.7 billion cubic feet of marketable natural gas, representing
an average daily crude oil output of 2.32 million barrels and an average daily
marketable natural gas output of 3,783 million cubic feet. A total of 417
million barrels of crude oil and 653.5 billion cubic feet of natural gas were
sold during the six months ended June 30, 2006. The Group sold approximately
84.8% of its crude oil to its refineries. During the first half of 2006, lifting
cost of the Group was US$5.91 per barrel, compared with the lifting cost of
US$5.10 per barrel in the first half of 2005.
For the six months ended June 30, 2006, the Group's refineries processed 393
million barrels of crude oil, representing an average daily processed output of
2.17 million barrels. The Exploration and Production segment provided
approximately 83.0% of the crude oil processed by the Group's refineries. The
Group produced approximately 34.30 million tons of gasoline, diesel and kerosene
and sold approximately 37.35 million tons of these products. The Group is
actively expanding its sales network, and its retail network in
2006 INTERIM REPORT
60
particular, by taking advantage of the complementary value-added effect of the
integration of Refining and Marketing segment. As at June 30, 2006, there were
17,952 service stations either owned, controlled or franchised by the Group or
owned by CNPC but to which the Group provided supervisory support. The cash
processing cost of the Group's refineries has arisen from RMB126 per ton during
the first half of 2005 to RMB151 per ton for the same period of 2006.
For the six months ended June 30, 2006, the Group produced 1.003 million tons of
ethylene, 1.525 million tons of synthetic resin, 0.628 million tons of synthetic
fibre raw materials and polymers, 0.155 million tons of synthetic rubber, and
1.737 million tons of urea.
The Natural Gas and Pipeline segment is the Group's core business segment for
development. For the six months ended June 30, 2006, the Group sold 566.8
billion cubic feet of marketable natural gas through its Natural Gas and
Pipeline segment. As at June 30, 2006, the Group owned and operated 20,340
kilometers of regional natural gas pipeline network, of which 19,212 kilometers
of the pipeline network were operated by the Natural Gas and Pipeline segment.
The Group owned and operated 9,391 kilometers of crude oil pipeline and owned
2,460 kilometers of refined products pipeline.
THE SECOND HALF OF 2006 AND BEYOND
In the first half of 2006, in an environment characterised by strong domestic
demand for oil and gas, the Company advanced its main operations in an active
and orderly manner and improved the micro-management of its production. As a
result, the principal production and operation targets were achieved and new
breakthroughs occurred in various aspects of operations. Various significant
achievements were made in the efforts of oil and gas exploration, leading to a
sustainable increase in oil and gas reserves of the Company. Crude oil
processing volume has achieved steady growth which further improved the major
techno-economical indices. The Company strived to produce more value added
products in its chemical production, leading to an effective increase in the
competitiveness of its major products. The construction of major oil and gas
pipelines was progressing smoothly and certain key projects have been completed
and have commenced operations.
In the second half of 2006, the Company anticipates that it will continue to
enjoy a generally favorable macroeconomic environment. The Company plans to
steadily coordinate its production and business operations according to the work
plans formulated at the beginning of the year. The Company plans to continue
"prioritising safety and environment and people orientation", further strengthen
safety and environmental protection, emphasise the creation of corporate harmony
and actively fulfill its social duties. The Company aims to fully achieve the
annual performance targets to promote its sustainable, effective and rapid
growth.
2006 INTERIM REPORT
61
In the Exploration and Production area, the Company plans to speed up the
implementation of oil and gas exploration plans and actively promote the steady
growth of crude oil output and rapid growth of natural gas output; put special
emphasis on petroleum exploration, intensify natural gas exploration and promote
risk explorations in key basins and favorable regions; strengthen the
comprehensive management of mature oilfields, enlarge production capacity in new
regions and carefully coordinate production and operations as well as the
linkage and management of different stages of operations; ensure that the annual
targets of oil and gas reserves volume and production plans will be achieved.
In the Refining and Marketing area, the Company plans to steadily coordinate
refining and production, and consistently improve marketing quality and returns;
further optimise the overall refining layout to ensure that key refining
construction projects are implemented as scheduled; strengthen the management of
the overall control of the production process, improve the stability rate and
effective rate of the operation of facilities to ensure safe and reliable
production; improve the linkage of production, transportation and marketing,
enlarge end-user sales volume and improve sales quality and operation returns;
leverage on the strength of integrated refining, continue to improve the
chemical product mix and increase the proportion of high quality and high value
added products, aiming to maximise the overall returns.
In the Natural Gas and Pipeline area, the Company plans to organise natural gas
production and marketing in a systematic manner, steadily and gradually increase
the construction of major pipelines. The Company plans to proactively grasp the
changes in the use of gas in downstream industries, further strengthen the
balance among production, transmission and sales of natural gas and enhance safe
operation of pipelines.
In its international operations, the Company plans to steadily promote
international business and expand international cooperation, continue to
increase exploration in key regions and actively promote risk explorations;
further develop overseas business, coordinate production in existing regions in
full gear to ensure that the annual targets of oil and gas operational output
and share oil output will be achieved. The Company plans to promote
international trade by actively diversifying imports of resources, consistently
improving trading methods and trading system to enhance the total trade volume
and improve profitability.
In the future, the Company intends to continue seeking to maximise its returns
and value for its shareholders, emphasise main businesses, and continue
developing international businesses and promoting rapid growth in international
operations while intensifying domestic oil and gas exploration and development
and solidifying the resource base. The Company plans to continue to maintain its
steady, credible and responsible operation style, and improve corporate
governance and continuously increase corporate value by strengthening internal
control and operations management.
2006 INTERIM REPORT
62
INTERIM DIVIDENDS AND CLOSURE OF REGISTER OF MEMBERS
The Board was authorised by the shareholders to approve the distribution of an
interim dividend for 2006 at the shareholders' meeting held on May 26, 2006. The
Board has resolved to pay an interim dividend of RMB0.202806 per share
(inclusive of applicable tax) for the six months ended June 30, 2006 on the
basis of 45% of the net profit for the period. The interim dividend will be paid
to shareholders whose names appear on the register of members of the Company at
the close of business on September 13, 2006. The Company will close its share
register and suspend registration of transfer of shares from September 8, 2006
to September 13, 2006 (both days inclusive). In order to qualify for the interim
dividend, all transfer documents must be lodged with the relevant share
certificates at the Hong Kong Registrars Limited not later than 4 p.m. on
September 7, 2006.
In accordance with Article 149 of its Articles of Association, the Company shall
declare dividends payable to shareholders in Renminbi. Dividends payable in
respect of state-owned shares shall be paid in Renminbi. Dividends payable in
respect of H shares shall be paid in Hong Kong Dollar. The amount of Hong Kong
Dollar payable shall be calculated on the basis of the average closing exchange
rate between Renminbi and Hong Kong Dollar published by the People's Bank of
China during the week before the Board declares the dividend on August 23, 2006,
which is RMB1.0260= HK$ 1.00. Accordingly, the amount of dividend payable per H
share will be HK$0.197667.
The interim dividend will be paid on or around September 26, 2006.
SHARE CAPITAL STRUCTURE
The share capital of the Company in issue as fully paid or credited as fully
paid as at June 30, 2006 was 179,020,977,818 shares, with a par value of RMB1.00
each. As at June 30, 2006, the share capital structure of the Company was as
follows:
ERCENTAGE OF THE TOTAL NUMBER OF
SHARES NUMBER OF SHARES AS AT JUNE 30, SHARES IN ISSUE AS AT JUNE 30,
2006 2006 (%)
------------------------------------------- ------------------------------- ------------------------------
State-owned shares
157,922,077,818 88.21
Foreign-invested shares (H shares and ADSs) 21,098,900,000 11.79
--------------- -----
Total 179,020,977,818 100
=============== =====
2006 INTERIM REPORT
63
REPURCHASE, SALE OR REDEMPTION OF SECURITIES
For the six months ended June 30, 2006, none of the Company or its subsidiaries
has sold any other type of securities of the Company nor has any of them
repurchased or redeemed any of the securities of the Company.
QUALIFIED ACCOUNTANT
In an announcement dated October 18, 2004, the Company announced that it had not
been able to find a suitable accountant with professional accounting
qualifications recognised to assume the position of qualified accountant as
required under Rule 3.24 of the Listing Rules by September 30, 2004. The Company
is still in the process of identifying suitable candidates with professional
accounting qualifications to assist the Chief Financial Officer to oversee the
compliance by the Company of the financial reporting and other related
accounting matters. However, despite numerous attempts to find such a candidate,
given the importance of the role and the function of the qualified accountant,
the Company has still not been able to find a suitable candidate that meets all
the requirements in Rule 3.24 of the Listing Rules. The Company is trying its
best to identify a candidate with the appropriate qualifications, experience and
understanding of the oil and gas industry to act as the joint qualified
accountant to assist the Chief Financial Officer of the Company to carry out his
duties. The Company will make an application for a 3-year waiver to the HKSE
when it has identified the joint qualified accountant.
DISCLOSURE OF OTHER INFORMATION
Save as mentioned above, there have been no material changes in respect of
matters required to be disclosed under paragraph 46(3) of Appendix 16 to the
Listing Rules since the publication of the annual report of the Group for the
year ended December 31, 2005.
2006 INTERIM REPORT
64
SHAREHOLDINGS OF MAJORITY SHAREHOLDERS
As at June 30, 2006, the register of interests in shares and short positions
kept by the Company under section 336 of the Securities and Futures Ordinance
(Cap. 571 of the Laws of Hong Kong) (the "SFO") showed that the persons in the
following table and notes held interests or short positions in the Company's
shares:
PERCENTAGE (%) OF THE
NAME OF TOTAL NUMBER OF THAT CLASS PERCENTAGE (%) OF THE
SHAREHOLDER TYPE OF SHARES NO. OF SHARES IN ISSUE TOTAL SHARE CAPITAL
-------------------------- ------------------ --------------------- -------------------------- ---------------------
CNPC State-owned shares 157,922,077,818 100.00 88.21
Warren E. Buffett(1) H shares 2,347,761,000 11.13 1.311
J.P. Morgan Chase & Co.(2) H shares 1,266,853,762(L) 6.00(L) 0.708
825,934,402(P)(3) 3.91(P) 0.461
Templeton Asset
Management Limited H shares 1,085,834,903(L) 5.15(L) 0.607
(1) By virtue of Warren E. Buffett's 35.4% interest in Berkshire Hathaway
Inc., Berkshire Hathaway's 100% interest in OBH Inc., OBH Inc.'s 100%
interest in National Indemnity Co. and 100% interest in GEICO Corporation,
and GEICO Corporation's 100% interest in Government Employees Inc.
Company, each of Warren E. Buffett, Berkshire Hathaway Inc. and OBH Inc.
is deemed to be interested in 2,279,151,000 H shares held by National
Indemnity Co. and 68,610,000 H shares held by Government Employees Inc.
Company, totalling 2,347,761,000 H shares.
(2) J.P. Morgan Chase & Co. through its various controlled corporations is
interested in an aggregate of 1,266,853,762 H shares of the Company.
Of these 1,266,853,762 H shares, 836,570,402 H Shares are directly held by
JP Morgan Chase Bank, N.A., J.P. Morgan Chase & Co. is deemed to be
interested in these 836,570,402 H shares by virtue of its 100% interest in
JP Morgan Chase Bank, N.A.; 48,900,010 H shares are directly held by J.P.
Morgan Securities Ltd., by virtue of J.P. Morgan Chase International
Holdings Limited's 98.95% interest in J.P. Morgan Securities Ltd., J.P.
Morgan Chase (UK) Holdings Limited's 100% interest in J.P. Morgan Chase
International Holdings Limited, J.P. Morgan Capital Holdings Limited's
100% interest in J.P. Morgan Chase (UK) Holdings Limited and J.P. Morgan
International Finance Limited's 72.72% interest in J.P. Morgan Capital
Holdings Limited,
2006 INTERIM REPORT
65
J.P. Morgan Chase International Holdings Limited, J.P. Morgan Chase (UK)
Holdings Limited, J.P. Morgan Capital Holdings Limited and J.P. Morgan
International Finance Limited are deemed to be interested in these
48,900,010 H shares; 99,663,648 H shares are directly held by J.P. Morgan
Whitefriars Inc., J.P. Morgan Overseas Capital Corporation is deemed to be
interested in these 99,663,648 H shares by virtue of its 100% interest in
J.P. Morgan Whitefriars Inc.; 29,849,702 H shares are directly held by
J.P. Morgan Investment Management Inc., JP Morgan Asset Management
Holdings Inc. is deemed to be interested in these 29,849,702 H shares by
virtue of its 100% interest in J.P. Morgan Investment Management Inc.;
11,178,000 H shares are directly held by JF International Management Inc.,
JP Morgan Asset Management (Asia) Inc. is deemed to be interested in these
11,178,000 H shares by virtue of its 100% interest in JF International
Management Inc.; 217,204,000 H shares are directly held by JF Asset
Management Limited, JP Morgan Asset Management (Asia) Inc. is deemed to be
interested in these 217,204,000 H shares by virtue of its 100% interest in
JF Asset Management Limited; 4,094,000 H shares are directly held by J.P.
Morgan International Bank Limited, J.P. Morgan Overseas Capital
Corporation is deemed to be interested in these 4,094,000 H shares by
virtue of its 100% interest in J.P. Morgan International Bank Limited;
11,362,000 H shares are directly held by JF Asset Management (Singapore)
Limited - Co Reg #:197601586K, JP Morgan Asset Management (Asia) Inc. is
deemed to be interested in these 11,362,000 H shares by virtue of its 100%
interest in JF Asset Management (Singapore) Limited; and 8,032,000 H
shares are directly held by JP Morgan Asset Management (Japan) Limited, JP
Morgan Asset Management (Asia) Inc. is deemed to be interested in these
8,032,000 H shares by virtue of its 100% interest in JP Morgan Asset
Management (Japan) Limited.
Of these 1,266,853,762 H shares, 152,657,658 H shares are indirectly held
by J.P. Morgan International Finance Limited, by virtue of Bank One
International Holdings Corporation's 100% interest in J.P. Morgan
International Finance Limited, J. P. Morgan International Inc.'s 100%
interest in Bank One International Holdings Corporation, JP Morgan Chase
Bank, N.A.'s 100% interest in J. P. Morgan International Inc., J.P. Morgan
Chase & Co.'s 100% interest in JP Morgan Chase Bank, N.A., Bank One
International Holdings Corporation, J. P. Morgan International Inc., JP
Morgan Chase Bank, N.A. and J.P. Morgan Chase & Co. are also deemed to be
interested in these 152,657,658 H shares; 103,757,648 H shares are also
indirectly held by J. P. Morgan Overseas Capital Corporation, J. P. Morgan
International Finance Limited is also deemed to be interested in these
shares by virtue of its 100% interest in J. P. Morgan Overseas Capital
Corporation; 277,625,702 H shares are also indirectly held by JP Morgan
Asset Management Holdings Inc., J.P. Morgan Chase & Co. is also deemed to
be interested in these shares by virtue of its 100% interest in JP Morgan
Asset Management Holdings Inc.; and 247,776,000 H shares are also
indirectly held by JP Morgan Asset Management (Asia) Inc., JP Morgan Asset
Management Holdings Inc. is also deemed to be interested in these shares
by virtue of its 100% interest in JP Morgan Asset Management (Asia) Inc..
(3) Comprising 825,934,402 shares in the lending pool as described in the SFO.
The term "lending pool" is defined as (i) shares that the approved lending
agent holds as agent for a third party which he is authorised to lend and
other shares that can be lent according to the requirements of the
Securities Borrowing and Lending
2006 INTERIM REPORT
66
Rules; and (ii) shares that have been lent by the approved lending agent,
and only if the right of the approved lending agent to require the return
of the shares has not yet been extinguished.
As at June 30, 2006, save as disclosed above, no person (other than the
Directors, senior management or the Supervisors of the Company) had recorded an
interest in the register of interests in shares and short positions kept
pursuant to section 336 of the SFO.
INTERESTS OF DIRECTORS AND SUPERVISORS IN THE SHARE CAPITAL OF THE COMPANY
As at June 30, 2006, none of the directors or supervisors had any interest and
short positions in any shares, underlying shares or debentures of the Company or
any associated corporation within the meaning of Part XV of the SFO required to
be recorded in the register mentioned under Section 352 of the SFO or as
otherwise notifiable to the Company and the HKSE by the directors and
supervisors pursuant to the Model Code for Securities Transactions by Directors
of Listed Issuers.
As at June 30, 2006, the Company has not granted any option to purchase
securities or debentures in the share capital of the Company to any directors or
supervisors or any of his spouse or child under the age of 18.
COMPLIANCE WITH THE MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS
The Company has adopted the model code provisions in respect of the dealing of
the Company's shares by its directors as contained in the Model Code for
Securities Transactions by Directors of Listed Issuers (the "Model Code") set
out in Appendix 10 of the Listing Rules. The directors and supervisors of the
Company have confirmed that they have complied with the required standards set
out in the Model Code.
COMPLIANCE WITH THE CODE ON CORPORATE GOVERNANCE PRACTICES
The Company has complied with the Code on Corporate Governance Practices
contained in Appendix 14 to the Listing Rules throughout the six months ended
June 30, 2006.
2006 INTERIM REPORT
67
AUDIT COMMITTEE
The audit committee of the Company, formed pursuant to the Listing Rules,
comprises Mr. Franco Bernabe, Mr. Chee-Chen Tung, Mr. Liu Hongru and Mr. Gong
Huazhang. The main function of the audit committee is to review and supervise
the financial reporting procedures and the internal supervision procedures of
the Group, and to provide opinion to the Board. The audit committee of the
Company has reviewed and confirmed the unaudited interim results announcement /
the interim report for the six months ended June 30, 2006.
DIRECTORS OF THE COMPANY
As at the date of this announcement, the Board of Directors comprises Mr. Chen
Geng as Chairman, Mr. Jiang Jiemin as Vice Chairman, Mr. Su Shulin and Mr. Duan
Wende as executive directors, Mr. Zheng Hu, Mr. Zhou Jiping, Mr. Wang Yilin, Mr.
Zeng Yukang, Mr. Gong Huazhang and Mr. Jiang Fan as non-executive directors; and
Mr. Chee-Chen Tung, Mr. Liu Hongru and Mr. Franco Bernabe as independent
non-executive directors.
By Order of the Board
PetroChina Company Limited
Chen Geng
Chairman
Beijing, PRC
August 23, 2006
2006 INTERIM REPORT
68
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
PetroChina Company Limited
Dated: September 7, 2006 By: /s/ Li Huaiqi
-----------------------------
Name: Li Huaiqi
Title: Company Secretary