20-F 1 d77520d20f.htm FORM 20-F Form 20-F
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 20-F

 

(Mark One)

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

or

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020.

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

or

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report                     

For the transition period from                      to                     

Commission File Number 1-15006

 

 

LOGO

(Exact name of Registrant as specified in its charter)

 

 

PetroChina Company Limited

(Translation of Registrant’s name into English)

 

 

The People’s Republic of China

(Jurisdiction of incorporation or organization)

 

 

9 Dongzhimen North Street

Dongcheng District, Beijing 100007

The People’s Republic of China,

(Address of principal executive offices)

 

 

Chai Shouping

Telephone number: (8610) 59982622

Facsimile number: (8610) 62099557

Email address: zhanghuayi@petrochina.com.cn

Address: 9 Dongzhimen North Street, Dongcheng District, Beijing 100007, The People’s Republic of China

Wei Fang

Telephone number: (852) 2899 2010

Facsimile number: (852) 2899 2390

Email address: hko@petrochina.com.hk

Address: Suite 3705, Tower 2, Lippo Center, 89 Queensway, Hong Kong

(Name, telephone, e-mail and/or facsimile number and address of registrant’s contact person)

 

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of Each Class

 

Trading Symbol

 

Name of Each Exchange on Which Registered

American Depositary Shares, each representing 100 H Shares, par value RMB1.00 per share*

H Shares, par value RMB1.00 per share

  PTR  

New York Stock Exchange, Inc.

New York Stock Exchange, Inc.**

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

(Title of Class)

 

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

 

A Shares, par value RMB1.00 per share***

   161,922,077,818(1)

H Shares, par value RMB1.00 per share

   21,098,900,000****

 

 

(1)

Includes 146,882,339,136 A Shares held by CNPC and 15,039,738,682 A Shares held by the public shareholders.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☒    No  ☐

If this is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ☐    No  ☒

Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) or the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large Accelerated Filer  ☒                 Accelerated Filer  ☐                Non-Accelerated Filer   ☐                Emerging Growth company  ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.    ☐

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

            ☐  U.S. GAAP

   ☒  International Financial Reporting Standards as issued by the International Accounting Standards Board    ☐  Other            

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.     Item 17  ☐    Item 18  ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes  ☐    No  ☐

 

 

 

*

   PetroChina’s H Shares are listed and traded on The Stock Exchange of Hong Kong Limited.

**

   Not for trading, but only in connection with the registration of American Depository Shares.

***

   PetroChina’s A Shares became listed on the Shanghai Stock Exchange on November 5, 2007.

****

   Includes 694,287,100 H Shares represented by American Depositary Shares.

 

 

 


Table of Contents

Table of Contents

 

              Page  

Certain Terms and Conventions

     1  

Forward-Looking Statements

     5  

Part I

     7  

Item 1

     Identity of Directors, Senior Management and Advisors      7  

Item 2

     Offer Statistics and Expected Timetable      7  

Item 3

     Key Information      7  
     Selected Financial Data      7  
     Risk Factors      9  

Item 4

     Information on the Company      19  
     Introduction      19  
     Exploration and Production      22  
     Refining and Chemicals      32  
     Marketing      36  
     Natural Gas and Pipeline      38  
     Competition      39  
     Environmental Matters      41  
     Properties, Plants and Equipment      42  
     Intellectual Property      42  
     Regulatory Matters      43  

Item 4 A

     Unresolved Staff Comments      50  

Item 5

     Operating and Financial Review and Prospects      50  
     General      50  
     Operating Results      56  
     Liquidity and Capital Resources      65  
     Off-Balance Sheet Arrangements      70  
     Long-Term Contractual Obligations and Other Commercial Commitments and Payment Obligations      70  
     Research and Development      71  
     Trend Information      71  
     Other Information      73  

Item 6

     Directors, Senior Management and Employees      73  
     Directors, Senior Management and Supervisors      73  
     Compensation      85  
     Board Practices      85  
     Employees      88  
     Share Ownership      88  

Item 7

     Major Shareholders and Related Party Transactions      88  
     Major Shareholders      88  
     Related Party Transactions      89  
     Interests of Experts and Counsel      93  

Item 8

     Financial Information      93  
     Financial Statements      93  
     Legal Proceedings      94  
     Dividend Policy      94  
     Significant Changes      95  

Item 9

     The Offer and Listing      95  
     Trading Market Information      95  

Item 10

     Additional Information      95  
     Memorandum and Articles of Association      95  
     Material Contracts      100  
     Foreign Exchange Controls      101  

 

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              Page  
     Taxation      101  
     Documents on Display      107  

Item 11

     Quantitative and Qualitative Disclosures About Market Risk      108  

Item 12

     Description of Securities Other Than Equity Securities      112  

Part II

     113  

Item 13

     Defaults, Dividends Arrearages and Delinquencies      113  

Item 14

     Material Modifications to the Rights to Security Holders and Use of Proceeds      113  

Item 15

     Controls and Procedures      113  

Item 16 A

     Audit Committee Financial Expert      115  

Item 16 B

     Code of Ethics      115  

Item 16 C

     Principal Accountant Fees and Services      115  

Item 16 D

     Exemptions from Listing Standards for Audit Committees      116  

Item 16 E

     Purchases of Equity Securities by the Issuer and Affiliated Purchasers      116  

Item 16 F

     Change in Registrant’s Certifying Accountant      116  

Item 16 G

     Corporate Governance      117  

Item 16 H

     Mine Safety Disclosure      119  

Part III

     119  

Item 17

     Financial Statements      119  

Item 18

     Financial Statements      119  

Item 19

     Exhibits      119  

Signature

     122  

Index of Consolidated Financial Statements

     F-1  

 

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CERTAIN TERMS AND CONVENTIONS

Conventions Which Apply to this Annual Report

Unless the context otherwise requires, references in this annual report to:

 

 

“CNPC” or “CNPC group” are to our parent, China National Petroleum Corporation and its affiliates and subsidiaries, excluding PetroChina, its subsidiaries and its interests in long-term investments, and where the context refers to any time prior to the establishment of CNPC, those entities and businesses which were contributed to CNPC upon its establishment.

 

 

“PetroChina”, “we”, “our”, “our company”, “the Company” and “us” are to: PetroChina Company Limited, a joint stock company incorporated in the People’s Republic of China with limited liability and its subsidiaries and branch companies.

 

 

“PRC” or “China” are to the People’s Republic of China, but does not apply to its Hong Kong, Macau and Taiwan for purposes of this annual report.

We publish our consolidated financial statements in Renminbi or RMB. In this annual report, IFRS refers to International Financial Reporting Standards as issued by the International Accounting Standards Board.

Conversion Table

 

1 barrel-of-oil equivalent

   = 1 barrel of crude oil    = 6,000 cubic feet of natural gas

1 cubic meter

   = 35.315 cubic feet   

1 ton of crude oil

   = 1 metric ton of crude oil    = 7.389 barrels of crude oil (assuming an API gravity of 34 degrees)

Certain Oil and Gas Terms

Unless the context indicates otherwise, the following terms have the meanings shown below:

 

“acreage”

The total area, expressed in acres, over which an entity has interests in exploration or production. Net acreage is the entity’s interest, expressed in acres, in the relevant exploration or production area.

 

“condensate”

Light hydrocarbon substances produced with natural gas that condense into liquid at normal temperatures and pressures associated with surface production equipment.

 

“crude oil”

Crude oil, including condensate and natural gas liquids.

 

“developed reserves”

Under the reserves rules of the Securities and Exchange Commission, or SEC, developed reserves are reserves of any category that can be expected to be recovered:

 

  (i) through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well; and

 

  (ii) through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.

 

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“development cost”

For a given period, costs incurred to obtain access to proved reserves and to provide facilities for extracting, treating, gathering and storing the oil and gas.

 

“finding cost”

For a given period, costs incurred in identifying areas that may warrant examination and in examining specific areas that are considered to have prospects of containing oil and gas reserves, including costs of drilling exploratory wells and exploratory-type test wells. Finding cost is also known as exploration cost.

 

“lifting cost”

For a given period, costs incurred to operate and maintain wells and related equipment and facilities, including applicable operating costs of support equipment and facilities and other costs of operating and maintaining those wells and related equipment and facilities. Lifting cost is also known as production cost.

 

“natural gas liquids”

Hydrocarbons that can be extracted in liquid form during natural gas production. Ethane and pentanes are the predominant components, with other heavier hydrocarbons also present in limited quantities.

 

“offshore”

Areas under water with a depth of five meters or greater.

 

“onshore”

Areas of land and areas under water with a depth of less than five meters.

 

“primary distillation capacity”

At a given point in time, the maximum volume of crude oil a refinery is able to process in its basic distilling units.

 

“proved reserves”

Under the SEC reserves rules, proved reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible — from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations — prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.

 

  (i) The area of the reservoir considered as proved includes:

 

  (A) The area identified by drilling and limited by fluid contacts, if any, and (B) Adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis of available geoscience and engineering data.

 

  (ii) In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons (LKH) as seen in a well penetration unless geoscience, engineering, or performance data and reliable technology establishes a lower contact with reasonable certainty.

 

 

(iii) Where direct observation from well penetrations has defined a highest known oil (HKO) elevation and the potential exists for an associated gas cap, proved oil reserves may be assigned in the

 

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structurally higher portions of the reservoir only if geoscience, engineering, or performance data and reliable technology establish the higher contact with reasonable certainty.

 

  (iv) Reserves which can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when:

 

  (A) Successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program was based; and (B) The project has been approved for development by all necessary parties and entities, including governmental entities.

 

  (v) Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average price during the 12-month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.

 

“reserves-to-production ratio”

For any given well, field or country, the ratio of proved reserves to annual production of crude oil or, with respect to natural gas, to wellhead production excluding flared gas.

 

“natural gas for sale”

Marketable production of gas on an “as sold” basis, excluding flared gas, injected gas and gas consumed in operations.

 

“undeveloped reserves”

Under the SEC reserves rules, undeveloped reserves are reserves of any category that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.

 

  (i) Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances.

 

  (ii) Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless the specific circumstances, justify a longer time.

 

 

(iii) Under no circumstances shall estimates for undeveloped reserves be attributable to any acreage for which an application of fluid

 

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injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, or by other evidence using reliable technology establishing reasonable certainty.

References to:

 

   

BOE is to barrels-of-oil equivalent,

 

   

Mcf is to thousand cubic feet, and

 

   

Bcf is to billion cubic feet.

 

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FORWARD-LOOKING STATEMENTS

This annual report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. These forward-looking statements are, by their nature, subject to significant risks and uncertainties. These forward-looking statements include, without limitation, statements relating to:

 

   

the amounts and nature of future exploration, development and other capital expenditures;

 

   

future prices and demand for crude oil, natural gas, refined products and chemical products;

 

   

development projects;

 

   

exploration prospects;

 

   

reserves potential;

 

   

production of oil and gas and refined and chemical products;

 

   

development and drilling potential;

 

   

expansion and other development trends of the oil and gas industry;

 

   

the planned development of our natural gas operations;

 

   

the planned expansion of our refined product marketing network;

 

   

the planned expansion of our natural gas infrastructure;

 

   

the anticipated benefit from the pipeline assets restructuring and our ongoing arrangements with PipeChina;

 

   

the anticipated benefit from the acquisition of certain overseas assets from CNPC, our parent company;

 

   

the plan to continue to pursue attractive business opportunities outside China;

 

   

our future overall business development and economic performance;

 

   

our anticipated financial and operating information regarding, and the future development and economic performance of, our business;

 

   

our anticipated market risk exposure arising from future changes in interest rates, foreign exchange rates and commodity prices; and

 

   

other prospects of our business and operations.

The words “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “seek”, “will” and “would” and similar expressions, as they related to us, are intended to identify a number of these forward-looking statements.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that will occur in the future and are beyond our control. The forward-looking statements reflect our current views with respect to future events and are not a guarantee of future performance. Actual results may differ materially from information contained in the forward-looking statements as a result of a number of factors, including, without limitation, the risk factors set forth in this annual report and the following:

 

   

fluctuations in crude oil and natural gas prices;

 

   

effects of the COVID-19 pandemic;

 

   

failure to achieve continued exploration success;

 

   

failures or delays in achieving production from development projects;

 

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continued availability of capital and financing;

 

   

acquisitions and other business opportunities that we may pursue;

 

   

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

 

   

liability for remedial actions under environmental regulations;

 

   

the actions of competitors;

 

   

wars and acts of terrorism or sabotage;

 

   

changes in policies, laws or regulations of the PRC, including changes in applicable tax rates and oil and gas pipeline network reforms;

 

   

the other changes in global economic and political conditions affecting the production, supply and demand and pricing of crude oil, refined products, petrochemical products and natural gas; and

 

   

the other risk factors discussed in this annual report, and other factors beyond our control.

You should not place undue reliance on any forward-looking statements.

 

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PART I

Item 1 — IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not applicable. However, see “Item 6 — Directors, Senior Management and Employees — Directors, Senior Management and Supervisors” and “Item 16C — Principal Accountant Fees and Services”.

Item 2 — OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

Item 3 — KEY INFORMATION

Selected Financial Data

Historical Financial Information

You should read the selected historical financial data set forth below in conjunction with our consolidated financial statements and the notes and “Item 5 — Operating and Financial Review and Prospects” included elsewhere in this annual report. The selected consolidated statement of comprehensive income (except for ADS data) and cash flow data for the years ended December 31, 2018, 2019 and 2020 and the selected consolidated statement of financial position data as of December 31, 2019 and 2020 set forth below are derived from our audited consolidated financial statements included elsewhere in this annual report. The selected consolidated statement of comprehensive income data (except for ADS data) and cash flow data for the years ended December 31, 2016 and 2017 and the selected consolidated statement of financial position data as of December 31, 2016, 2017 and 2018 set forth below are derived from our audited financial statements not included in this annual report. Our consolidated financial statements were prepared in accordance with IFRS as issued by the International Accounting Standards Board. The financial information included in this section may not necessarily reflect our results of operations, financial position and cash flows in the future.

 

 

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     As of or for the Year Ended December 31,  
     2016(4)     2017(4)     2018(4)     2019(4)     2020  
     (RMB in millions, except for per share, per ADS data and percentages)  

Consolidated Statement of Comprehensive Income Data

  

Revenue

     1,627,588       2,032,298       2,374,934       2,516,810       1,933,836  

Total operating expenses

     (1,564,926     (1,961,462     (2,251,992     (2,395,048     (1,857,899

Profit from operations

     62,662       70,836       122,942       121,762       75,937  

Profit before income tax expense

     46,574       55,691       116,770       103,214       56,073  

Income tax expense

     (15,919     (16,296     (42,790     (36,199     (22,588

Profit for the year

     30,655       39,395       73,980       67,015       33,485  

Attributable to:

          

Owners of the Company

     8,222       23,537       53,036       45,682       19,006  

Non-controlling interests

     22,433       15,858       20,944       21,333       14,479  

Basic and diluted earnings per share attributable to owners of the Company(1)

     0.04       0.13       0.29       0.25       0.10  

Basic and diluted net earnings per ADS(2)

     4.49       12.86       28.98       24.96       10.38  

Consolidated Statement of Financial Position Data

          

Total current assets

     385,199       430,294       438,241       466,913       486,767  

Total non-current assets

     2,019,003       1,983,205       2,002,636       2,265,997       2,001,359  

Total assets

     2,404,202       2,413,499       2,440,877       2,732,910       2,488,126  

Total current liabilities

     507,530       588,551       596,430       661,419       605,418  

Total non-current liabilities

     529,870       446,960       435,556       627,186       516,087  

Total liabilities

     1,037,400       1,035,511       1,031,986       1,288,605       1,121,505  

Equity attributable to owners of the Company

     1,187,337       1,192,572       1,213,783       1,230,156       1,215,158  

Non-controlling interests

     179,465       185,416       195,108       214,149       151,463  

Total equity

     1,366,802       1,377,988       1,408,891       1,444,305       1,366,621  

Other Financial Data

          

Dividend declared and proposed per share

     0.06       0.13       0.18       0.14       0.17  

Dividend declared and proposed per ADS

     5.93       13.00       17.88       14.37       17.48  

Capital expenditures

     172,961       219,346       256,106       296,776       246,493  

Return on net assets (%)(3)

     0.7       2.0       4.4       3.7       1.6  

Consolidated Statement of Cash Flow Data

          

Net cash flows from operating activities

     268,897       368,729       353,256       359,610       318,575  

Net cash flows used for investing activities

     (176,310     (243,790     (267,812     (332,948     (181,986

Net cash flows used for financing activities

     (70,454     (96,746     (125,703     (27,276     (99,400

 

(1)

For the years ended December 31, 2016, 2017, 2018, 2019 and 2020, respectively, basic and diluted earnings per share were calculated by dividing the profit attributable to owners of the Company by 183,021 million, the total number of shares outstanding in each of these financial years.

(2)

Each ADS represents 100 H Shares. The basic and diluted earnings per ADS were calculated with the same method as that used for the calculation of the basic and diluted earnings per share.

(3)

Return on net assets is calculated as “Profit for the year attributable to owners of the Company” divided by “Equity attributable to owners of the Company”.

(4)

(a) The comparative data in the table was presented as if Dalian West Pacific Petrochemical Co., Ltd. had been consolidated since the earliest year presented. Please refer to “Item 4 — Information on the Company — Acquisitions and Divestments” and Note 40 to our consolidated financial statements in our Form 20-F filed with the SEC on April 29, 2020.

(b) We initially applied IFRS 16 on January 1, 2019 and IFRS 15 and IFRS 9 on January 1, 2018. According to the adopted transition plan, the comparative data has not been restated. For a detailed description of the changes and impacts of these accounting standards, please refer to Note 3 (aa) to our financial statements included in our Form 20-F filed with the SEC on April 29, 2020.

 

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Risk Factors

Our business is subject to various changing competitive, economic, social, political and regulatory and other related conditions. Such changing conditions entail certain risks, which are described below.

Risks Related to Macro Economic Conditions

Our operations may be adversely affected by international and domestic economic conditions. As the oil and gas industry is sensitive to macro-economic trends, oil and gas prices tend to fluctuate along with changes in macro-economic conditions. We may experience pricing pressure on our refined products in recessionary periods, which would have an adverse effect on our profitability. Changes in macro-economic conditions can affect the demand for certain of our products. These factors may also lead to intensified competition for market share, with consequential potential adverse effects on sales volumes. Inflation may lead to increase in our operating costs. Notwithstanding the measures taken by the PRC government to control inflation, China may experience an increase in inflation in the future and our operating costs may become higher than anticipated. The financial, economic or political situation may also have a negative impact on third parties with whom we do business, and may impact their ability to perform contractual obligations to us. In addition, other factors that affect the macro economy, such as declining population growth rates, geopolitical tensions, conflicts and wars, trade and tariff policies, and major public health events, such as the COVID-19 pandemic, may have an adverse impact on oil and gas and petrochemical industries, including us. Any of these factors may adversely affect our financial condition, results of operations and liquidity.

Risks Related to Competition

The oil, gas and petrochemicals industries are highly competitive. There is strong competition, both within the oil and gas industry and with other industries, in supplying the fuel needs of commercial, industrial and residential markets. In recent years, with the intensive reform of China’s petroleum, refining and chemical, natural gas, LNG, pipelines and refined oils sales industries, we have been facing increasingly intense competition in the exploration, refinery, chemical, sales, and oil and gas service sectors from privately-owned companies, foreign-invested enterprises and other state-owned enterprises that recently entered the oil and gas industries. In addition, the rapid development of unconventional oil and gas resources, new energy sources and new products also poses competition with the conventional energy and petrochemical industries. In particular, the booming of the new energy vehicle industry confronts the oil industry with tough challenges. In October 2020, the State Council issued the New Energy Vehicle Industry Development Plan (for 2021-2035), according to which, China expects that the share of new energy vehicles out of total vehicle sales in China to rise to 20% by 2025 and pure electric vehicles to account for the majority of vehicle sales by 2035. We expect to see continued rapid development of the new energy vehicle industry, which will adversely affect the consumption of refined oil products. Competition puts pressure on product prices, affects oil products marketing and requires continuous management focus on identifying new trends, reducing unit costs and improving efficiency. The implementation of our growth strategy requires continued technological advances and innovation, including advances in exploration, production, refining, petrochemicals manufacturing technology and advances in technology related to energy usage. Our performance could be impeded if competitors developed or acquired intellectual property rights to technology that we required or if our innovation lagged the industry.

The Eastern and Southern regions of China have a higher demand for refined products and chemical products than the Western and Northern regions. Although we have strived to increase our refinery capacity in the Southern regions of China over recent years, most of our refineries and chemical plants are located in the Northeastern and Northwestern regions of China. We incur relatively higher transportation costs for delivery of our refined products and chemical products to certain areas of the Eastern and Southern regions from our refineries and chemical plants in Western and Northern China. We face strong competition from other traditional domestic oil companies, local independent refineries and other competitors. As a result, we

 

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expect that we will continue to encounter difficulty in increasing our sales of refined products and chemical products in these regions.

Risks Related to Outbound Investments and Trading

We are subject to various political, legal and regulatory environments in foreign countries where we operate, some of which are known to be unstable and differ in certain significant respects from those prevailing in developed countries. The main factors affecting our outbound investments include unstable political situations, unstable tax policies and unstable regulatory regimes. CNPC, our controlling shareholder, and its affiliates and subsidiaries may choose to undertake, without our involvement, overseas investments, operations and trading in the oil and gas industry, including certain exploration and production of oil and gas, refining, transportation, trading, engineering construction and technical services, operations of pipelines and liquefied natural gas, or LNG projects, or other business activities in certain countries or with certain entities that are subject to U.S. economic sanctions or are designated as State Sponsors of Terrorism, including Iran, Sudan, Cuba, Russia, Burma and Venezuela.

In 2018, the United States withdrew from the Joint Comprehensive Plan of Action (“JCPOA”) and reimposed certain sanctions against Iran, which were conditionally lifted in 2015 following entry into the JCPOA. These reimposed sanctions have implications for non-U.S. companies, including requiring foreign companies to cease participation in projects in certain sectors of Iran (including the energy sector), and prohibiting or restricting oil imports from Iran, except for eight countries and regions (including China) which were granted a Significant Reduction Exception (“SRE”) to be able to continue to import limited oil until May 2019. Pursuant to section 13(r) to the U.S. Securities Exchange Act of 1934, reporting issuers are required to disclose whether they or any of their affiliates have knowingly engaged in certain activities, transactions, or dealings related to Iran during the reporting period, including activities not prohibited by U.S. or other law. Based on CNPC’s response to our inquiries, in 2020, a subsidiary of CNPC (the “CNPC Sub”) held interests in certain oil and gas development projects in Iran, namely, (i) the MIS oilfields in which the CNPC Sub obtained a 100% interest in 2010, and (ii) the North Azadegan oilfield, in which the CNPC Sub obtained a 100% interest in 2009. From the re-imposition of U.S. sanctions, the CNPC Sub has been providing minimal support and services to the two oilfields. Since May 2019 when the SRE expired, the two oilfields have suspended lifting oil for investment recovery and did not generate any revenue for the CNPC Sub.

Since July 2014, the United States has adopted economic sanctions against certain Russian persons and entities, including various entities operating in the financial, energy and defense sectors, such as Rosneft, Gazprom, Transneft, and OAO Novatek as well as those companies in which the foregoing companies independently or jointly hold a 50% or more interest. These sanctions prohibit U.S. persons from transacting in, providing financing for or otherwise dealing in debt issuance by certain of these entities, or exporting, transferring, or providing certain technologies, equipment or services to certain oil-development projects in Russia. CNPC and our company had certain pre-existing trading and investment relationships with some of these sanctioned Russian entities, which are not subject to any such restrictions. For example, CNPC entered into a long-term agreement with each of Rosneft and Transneft to import crude oil from Russia in 2009 and a long-term agreement with Rosneft to import crude oil from Russia in June 2013. CNPC has resold, and will for the foreseeable future resell, all or a substantial portion of the imported crude oil from Rosneft and Transneft under the crude oil agreements to us. In May 2014, CNPC signed a long-term agreement with Gazprom to import natural gas from Russia, which was assigned to one of our subsidiaries in 2019. CNPC also indirectly holds 20% equity interest in OAO Yamal LNG and 10% equity interest in Arctic LNG 2, in both of which OAO Novatek holds more than 50% interest. In May 2014, we entered into a long-term LNG import agreement with a subsidiary of OAO Yamal LNG to import LNG from Russia.

In August 2017, the United States imposed economic sanctions against the Government of Venezuela and certain state-owned entities, including Petroleos de Venezuela, S.A. (“PdVSA”). These sanctions prohibit U.S. persons from transacting in, providing financing for or otherwise dealing in “new debt” issued by these

 

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entities on or after August 25, 2017, with certain exceptions for short-term debt. Neither CNPC nor PetroChina purchased such new debt securities issued by the Government of Venezuela or by PdVSA, nor did they provide any assistance to third parties in this regard. In 2019, the United States issued enhanced sanction measures against Venezuela, which included blocking the property of Venezuelan government and its controlled entities (including PdVSA), and introducing new restrictions on Venezuela’s oil sector. Under these programs, persons determined to be operating in the oil sector of the Venezuelan economy, or to have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, any person included on the list of SDNs and Blocked Persons, may also be subject to risk of being designated for blocking sanctions. CNPC has longstanding trading and investment activities in Venezuela, but has suspended purchases of oil from Venezuela since 2019. In 2008, CNPC Exploration and Development Company Limited (“CNPC E&D”), a joint venture held as to 50% by us and 50% by a wholly-owned subsidiary of CNPC, established a joint venture with PdVSA (the “JV”) to operate the Sinovensa block located in Carabobo, Monagas State, Venezuela., which block produces and sells heavy oil. CNPC E&D holds a 40% interest in the JV and PdVSA holds the remaining 60%. In 2020, CNPC E&D contributed no new investment in the JV. We also indirectly hold minority interests in a few other small projects in Venezuela. For the year ended December 31, 2020, the share of profit generated from the Sinovensa block and these other projects in aggregate accounted for approximately 0.008% of our total profit.

We closely monitor the possible impacts of U.S. sanctions against the countries and entities which have trading or investment relationships with CNPC or us. We will continue to manage our risk exposure and to endeavor that our activities do not violate any applicable economic sanctions administered by the United States. However, we cannot assure you that current or future regulations or developments related to economic sanctions will not have a material adverse impact on our business or reputation. Certain U.S. based investors may not wish to invest and have proposed or adopted divestment or similar initiatives regarding investments in companies that do business with countries and entities that are subject to U.S. sanctions. These investors may not wish for CNPC or us to make investments or conduct activities in the countries or with the entities that are the subject of U.S. sanctions and may divest their investment in us because of our relationship with CNPC and its investments and activities in those countries or with those entities that are the subject of U.S. sanctions. As a result, the trading prices of our ADSs may be adversely affected.

In July 2012, OFAC added Bank of Kunlun Co., Ltd., or Kunlun Bank, an affiliate of our company due to common control by CNPC, to its “List of Foreign Financial Institutions Subject to Part 561”, which was replaced by the list of Correspondent Account of Payable-Through Account Sanctions, pursuant to the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010. OFAC reported that Kunlun Bank provided financial services to at least six Iranian banks that were on OFAC’s sanctions list during 2012. These financial services included holding accounts, making transfers and paying letters of credit on behalf of the designated banks. In 2018, Kunlun Bank has discontinued the business activities which are subject to U.S. sanctions. In 2020, Kunlun Bank’s settlement business involving Iran has been limited to settlement of humanitarian materials and other business activities that are not subject to sanctions, and it has ceased business cooperation with the banks that are subject to secondary sanctions. Beginning in May 2019, Kunlun Bank further ceased involvement in settlement activities related to Iranian crude oil trade. Our company has no involvement in or control over such activities of Kunlun Bank or CNPC and CNPC subsidiaries and affiliates, and we have never received any revenue or profit derived from these activities.

Risks Related to Government Regulation

Although we have business operations in other countries and regions, our operations in China currently contribute the large majority of our revenue. Accordingly, our financial condition and results of operations are affected to a significant extent by economic, political and legal developments in China. The PRC government regulates industry development by implementing industrial policies. The PRC government also plays a significant role in China’s economic growth by allocating resources, imposing market-entry

 

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conditions, setting financial and tax policy, foreign exchange policy and monetary policy, regulating financial services and institutions, and providing preferential treatment to certain industries. Some of these measures may benefit the overall Chinese economy, but may also have an adverse effect on us.

Our operations, like those of other PRC oil and gas companies, are subject to extensive regulations and control by the PRC government. These regulations and control affect many material aspects of our operations, such as exploration and production licensing, pricing, industry-specific and product-specific taxes and fees and environmental and safety standards. As a result, we may face significant constraints on our ability to implement our business strategies, to develop or expand our business operations or to maximize our profitability.

Currently, the PRC government must approve the construction and major renovation of significant refining and petrochemical facilities as well as the construction of significant crude oil, natural gas and refined product pipelines and storage facilities. We presently have several significant projects pending approval from the relevant government authorities and will need approvals from the relevant government authorities in connection with several other significant projects. We do not have control over the timing and outcome of the final project approvals.

Because PRC laws, regulations and legal requirements dealing with economic matters continue to evolve, and because of the limited volume of published judicial interpretations and the non-binding nature of prior court decisions, the interpretation and enforcement of these laws, regulations and legal requirements involve some uncertainty. The PRC laws and regulations with respect to companies, securities and litigations are different in certain important aspects from those in the United States, Hong Kong and other common law jurisdictions, and most of our assets are located in the PRC and most of our directors and substantially all of our executive officers reside in the PRC. As a result, it may be difficult or impossible for our shareholders (including holders of our ADSs) to bring an action against us or our directors and officers in an event that they believe their rights have been infringed. Even if any shareholders are successful in an action of this kind, they may be unable to enforce a judgment against our assets or the assets of our directors and officers.

Furthermore, due to jurisdictional limitations, the ability of U.S. authorities, such as the U.S. Securities and Exchange Commission, or the SEC, and the U.S. Department of Justice, or the DOJ, to investigate and bring enforcement actions against us may be limited. PRC laws may constrain the ability of our company and our directors and officers to cooperate with such an investigation or action. For example, according to Article 177 of the newly amended PRC Securities Law, which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigations or evidence collection activities within the territory of the PRC. Without the consent of China Securities Regulatory Commission, or CSRC, and other relevant PRC authorities, no organization or individual may provide documents or materials relating to securities business activities to overseas parties. As a result of the foregoing, you may have more difficulty in protecting your interests through actions against our company, directors, officers or our majority shareholder. Shareholder protection through actions initiated by the SEC, DOJ and other U.S. authorities may also be limited.

Risks Relating Financial Reporting Differences

As a foreign private issuer, we are exempt from certain disclosure requirements under the U.S. Exchange Act, which may afford less protection to you than you would enjoy if we were a domestic U.S. company. As a foreign private issuer, we are exempt from, among other things, the rules prescribing the furnishing and content of proxy statements under the U.S. Exchange Act and the rules relating to selective disclosure of material nonpublic information under Regulation FD under the U.S. Exchange Act. In addition, our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit and recovery provisions contained in Section 16 of the U.S. Exchange Act. We are also not required under the U.S. Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as domestic U.S. companies with securities registered under the U.S. Exchange Act. For example, in addition to annual reports with audited financial statements, domestic U.S. companies are required to file

 

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with the SEC quarterly reports that include interim financial statements reviewed by an independent registered public accounting firm and certified by the companies’ principal executive and financial officers. By contrast, as a foreign private issuer, we are not required to file such quarterly reports with the SEC or to provide quarterly certifications by our principal executive and financial officers. Although we are required by the listing rules of Shanghai Stock Exchange with respect to our A Shares to publish quarterly and semi-annual reports and also required by listing rules of Hong Kong Stock Exchange with respect to our H Shares to publish semi-annual reports, and such reports are furnished to the SEC on Form 6-K, our financial statements included in the reports are not reviewed by our independent registered public accounting firms, and are only reviewed and signed by all our directors, president and CFO.

Risks Related to Controlling Shareholder

As of December 31, 2020, CNPC beneficially owned approximately 80.41% of our share capital. This ownership percentage enables CNPC to elect our entire board of directors without the concurrence of any of our other shareholders. Accordingly, CNPC is in a position to:

 

   

control our policies and management affairs;

 

   

subject to applicable PRC laws and regulations and provisions of our articles of association, affect the timing and amount of dividend payments and adopt amendments to certain of the provisions of our articles of association; and

 

   

otherwise determine the outcome of most corporate actions and, subject to the regulatory requirements of the jurisdictions in which our shares are listed, cause our company to effect corporate transactions without the approval of minority shareholders.

CNPC’s interests may sometimes conflict with those of some or all of our minority shareholders. We cannot assure you that CNPC, as our controlling shareholder, will always vote its shares in a way that benefits our minority shareholders.

In addition to its relationship with us as our controlling shareholder, CNPC by itself or through its affiliates also provides us with certain services and products necessary for our business activities, such as construction and technical services, production services, materials supply services, social services and financial services. The interests of CNPC and its affiliates as providers of these services and products to us may conflict with our interests.

Risks Related to Pricing and Exchange Rate

Our operations are affected by the volatility of prices for crude oil, refined products and natural gas. We set our crude oil median prices monthly based on the international trading prices for crude oil.

In recent years, international prices for crude oil have fluctuated substantially in response to changes in global and regional economy, politics and supply and demand for crude oil. We do not have, and will not have, control over factors affecting international prices for crude oil. Fluctuations and volatility in crude oil prices have a significant impact in our results of operations. A decline in crude oil prices may reduce revenues from, and may result in a loss in, our exploration and production segment. For example, during the first half of 2020, due to the outbreak of COVID-19 pandemic and some other reasons, there was a rarely seen drastic drop in oil prices with an unprecedented negative oil price reported. The decline in international crude oil prices is expected to greatly affect our upstream business profits and oil and gas import costs, and affect our downstream business profits through China’s pricing mechanism of refined oil products, thereby adversely affecting our overall sales revenue and profits. Further, if crude oil prices remain at a low level for a prolonged period, we would be required to determine and estimate whether our oil and gas assets may suffer impairment and, if so, the amount of the impairment. An increase in crude oil prices may, however, increase the production costs of refined products, reduce demand for our products and affect our operating profits.

 

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Under the current refined oil pricing mechanism implemented by the PRC government, when there is a change in the average crude oil price in the international market during a given time period, the PRC government can adjust refined oil prices. When international crude oil price experiences sustained increases or becomes significantly volatile, the PRC government may increase its control over the refined oil prices. As a result, the regulation on refined product prices by the PRC government may reduce our profit and cause our refining assets to suffer impairment.

We negotiate the actual settlement price with natural gas users within the price range permitted by the PRC government. When the domestic price is lower than the international natural gas price, the cost of our imported natural gas will be higher than the sales price of our natural gas, which may reduce our revenues and profit, or result in losses, cause our natural gas assets to suffer impairment.

We receive most of our revenues in Renminbi. A portion of our Renminbi revenues must be converted into other currencies to meet our foreign currency obligations. The existing foreign exchange limitations under the PRC laws and regulations could affect our ability to obtain foreign exchange through debt financing, or to obtain foreign exchange for capital expenditures. The value of Renminbi against U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. The PRC government has implemented a floating exchange rate system to allow the value of the Renminbi to fluctuate within a regulated band based on market supply and demand and by reference to a basket of foreign currencies. Because a substantial part of our imports and our outbound investments are settled in foreign currencies, the exchange rates between RMB and U.S. dollars and any other relevant foreign currencies may have an effect on our purchase costs and our investment costs.

Risks Related to Environmental Protection and Safety Production

Compliance with changes in laws, regulations and obligations relating to environmental protection and safety production could result in substantial expenditures and reduced profitability from increases in operating costs. In recent years, the PRC government has implemented environmental protection and safety production laws and regulations and has gradually improved refined oil standards which have stricter requirements for our business, and led to an increase in our operating costs. In the future, the PRC government will implement more stringent environmental protection and safety production regulations and impose higher standards on refined oil products. Compliance with these new regulations and standards will increase our costs and expenses.

Our oil and gas exploration and production activities shall comply with relevant PRC environmental protection laws and regulations governing abandonment and disposal processes for oil and gas exploration and production activities. We have established standard abandonment procedures pursuant to these laws and regulations. We have included under our asset retirement obligations the costs for these abandonment activities and this asset retirement obligation is based on our best estimate of future abandonment expenditures. In addition, PRC national or local governments may enact stricter environmental protection regulations and our abandonment costs may increase as a result.

Exploring for, producing and transporting crude oil and natural gas and producing and transporting refined products and chemical products involve many hazards. These hazards may result in fires, explosions, spills, blow-outs and other unexpected or dangerous conditions causing personal injuries or death, property damage, environmental damage and interruption of operations.

Some of our oil and natural gas fields are surrounded by residential areas or located in areas where natural disasters, such as earthquakes, floods and sandstorms, tend to occur more frequently than in other areas. As with many other companies around the world that conduct similar businesses, we have experienced accidents that have caused property damage and personal injuries and death.

Significant operating hazards and natural disasters such as earthquake, tsunami and health epidemics such as the COVID-19 pandemic, may cause partial interruptions to our operations and property and environmental damage that could have an adverse impact on our financial condition.

 

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Risks Related to COVID-19

During the first half of 2020, affected by the COVID-19 pandemic, the global oil supply and demand were severely imbalanced, resulting in a precipitous fall in oil prices, creating heavy pressure on the oil and gas industry, which in turn posed a tough challenge to our operations. Many countries’ governments have imposed increasingly stringent restrictions to help avoid, or slow down, the spreading of COVID-19, including, for example, restrictions on international and local travel, public gatherings and participation in meetings, as well as closures of universities, schools, stores and restaurants, with some countries imposing strict curfews. In China, various forms of restrictions were imposed and certain of them continue to be in place, and there can be no assurance that these restrictions will not be extended further on one or more occasions. These measures have led to a significant decline in demand for, and prices of, our refined oil products and natural gas, and the restrictions had an adverse effect in the short to medium-term on our oil and gas business chains. Globally, these widespread restrictions in various countries across the world resulted in a decrease in demand for oil, thereby also putting pressure on global oil prices. Although some of the measures, particularly in China, have been lifted, there can be no assurance that these measures will not be reinstated.

Moving forward, the impact of the COVID-19 pandemic on our business will depend on a range of factors which we are not able to accurately predict, including the duration, severity and scope of the pandemic, including any variants or resurgence and efficacy of any vaccines, the geographies impacted, the impact of the pandemic on economic activity in China and globally, and the nature and aggressiveness of measures adopted by governments. These factors include, but are not limited to:

 

   

The deterioration of socio-economic conditions and disruptions to our operations, such as its supply chain, or refining or distribution capabilities, which may result in increased costs due to the need for more complex supply chain arrangements, to expand existing facilities or to maintain inefficient facilities, or in a reduction of our sales volumes.

 

   

Reductions or volatility in demand for crude oil and refined and petrochemical products due to quarantine or other travel restrictions, economic hardship, retail closures or illness, which may impact our revenue and market share.

 

   

Significant volatility in financial markets (including exchange rate volatility) and measures adopted by governments and central banks that further restrict liquidity, which may limit our access to funds, lead to shortages of cash or increase the cost of raising such funds.

 

   

An adverse impact on our ability to engage in new, or consummate pending, strategic transactions on the agreed terms and timetable or at all.

As of the date of this report, there is significant uncertainty relating to the severity of the long-term adverse impact of the COVID-19 pandemic on the global economy, global financial markets and the Chinese economy, and we are unable to accurately predict the long-term impact of the COVID-19 pandemic on our business. To the extent the COVID-19 pandemic will adversely affect our business and financial results, it may also have the effect of heightening many of the other risks described in this ‘‘Risk Factors’’ section, such as those relating to macro-economic conditions, pricing and our liquidity. See also “Risk Factors — Risks Related to Marco Economic Conditions”, “Risk Factors — Risks Related to Pricing and Exchange Rate.” and “Risk Factors — Risks Related to Liquidity”.

Risks Related to Climate Change

In recent years, the oil industry has faced an increasingly severe challenge imposed by global climate change. Numerous international, domestic and regional treaties and agreements that restrict carbon emissions have been executed and become effective. China and some other countries in which we operate have adopted, or are considering the adoption of, regulations to reduce carbon emissions. These include adoption of carbon emission quota and trade regimes, carbon taxes, increased efficiency standards, and

 

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incentives or mandates for clean energy. The Chinese government has announced that China aims to hit peak emissions before 2030 and realize carbon neutrality by 2060. These policies and measures will bring opportunities to our new energy business, but may lead to an increase in our expenditures for our conventional oil and gas business, make our oil products more expensive and reduce their demand. As a result, we have to adjust our investment plans and change our business strategies, and our results of operations may be adversely affected. See “Risk Factors — Risks Related to Environmental Protection and Safety Production”.

Risks Related to Insurance

Due to the fact that oil industry is susceptible to high and industry-specific risks in nature, the current ordinary commercial insurance cannot cover all the business areas in which we operate. We maintain insurance coverage against liability risks relating to assets that have significant operational risks, auto risks, and third-party liabilities for personal, property, and environmental risks, but not all, potential losses. We may suffer material losses resulting from uninsurable or uninsured risks or insufficient insurance coverage.

Risks Related to Oil and Gas Reserves

The crude oil and natural gas reserves data in this annual report are only estimates. The reliability of reserves estimates depends on a number of factors, assumptions and variables, such as the quality and quantity of our technical and economic data and the prevailing oil and gas prices applicable to our production, some of which are beyond our control and may prove to be incorrect over time. Results of drilling, testing and production after the date of estimates may require substantial upward or downward revisions in our reserves data. Our actual production, revenues and expenditures with respect to our reserves may differ materially from these estimates because of these revisions.

We are actively pursuing business opportunities outside China to improve our international operations. We cannot assure you, however, that we can successfully locate sufficient, if any, alternative sources of crude oil supply due to the complexity of the international political, economic and other conditions. If we fail to obtain sufficient alternative sources of crude oil supply, our results of operations and financial condition may be materially and adversely affected.

Risks Related to Liquidity

We have made best endeavors to ensure an appropriate level of liquidity and financing ability. However, as we are currently making our efforts to find high-quality large-scale reserves, strengthening capacity building in key areas, constructing new, and expanding some existing, refinery and petrochemical facilities and expanding the oil and gas terminal markets, we may have to make substantial capital expenditures and investments. We cannot assure you that the cash generated by our operations will be sufficient to fund these development plans or that our actual future capital expenditures and investments will not significantly exceed our current planned amounts. If either of these conditions arises, we may have to seek external financing to satisfy our capital needs. Our inability to obtain sufficient funding for our development plans could adversely affect our business, financial condition and results of operations.

Risks Related to Effectiveness of Internal Control over Financial Reporting

The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, has adopted rules requiring every public company in the United States to include a management report on such company’s internal control over financial reporting in its annual report, which contains management’s assessment of the effectiveness of our internal control over financial reporting. In addition, an independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Although our management concluded that our internal control over our financial reporting as of December 31, 2020 was

 

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effective, and our independent registered public accounting firm has issued an attestation report, which concluded that our internal control over financial reporting was effective in all material aspects as of December 31, 2020, we may discover other deficiencies in the course of our future evaluation of our internal control over our financial reporting and may be unable to remediate such deficiencies in a timely manner. If we fail to maintain the adequacy of our internal control over financial reporting, we may not be able to conclude that we have effective internal control over financial reporting on an ongoing basis, in accordance with the Sarbanes-Oxley Act. Moreover, effective internal control is necessary for us to produce reliable financial reports and is important to prevent fraud. As a result, our failure to maintain effective internal control over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the trading prices of our shares.

Risks Related to Audit Reports Prepared by an Auditor who is not Inspected by the Public Company Accounting Oversight Board

As a company with shares registered with the SEC, and traded publicly in the United States, our independent registered public accounting firm is required under the laws of the United States to be registered with the Public Company Accounting Oversight Board, or the PCAOB, and undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and professional standards. Under PRC laws, however, the PCAOB is currently unable to inspect a registered public accounting firm’s audit work relating to a company’s operations in China without the approval of the Chinese authorities. The CSRC also stated that cross-border audit supervision should be realized through regulatory cooperation between China and the United States. Accordingly, our independent registered public accounting firm’s audit of our operations in China is not subject to PCAOB inspections. In recent years, the SEC and the PCAOB have issued a number of joint statements highlighting continued challenges faced by the U.S. regulators in their oversight of financial statement audits of U.S.-listed companies with significant operations in China. In December 2020, the Holding Foreign Companies Accountable Act, or the HFCA Act, was signed into law. Among others, the HFCA Act requires (i) the SEC to prohibit securities of an identified foreign company listed in the U.S. from being traded on any national securities exchange or over-the-counter market in the U.S., if for three consecutive years, the company’s auditor that has a branch or office located in a foreign jurisdiction, and the PCAOB is unable to inspect or investigate the auditor completely because of a position taken by an authority in the foreign jurisdiction; (ii) such identified company to satisfy certain disclosure requirements. In March 2021, the SEC issued interim final rules to implement the disclosure requirements of the HFCA Act. We will be required to comply with these disclosure rules if the SEC identifies us as a covered issuer under a process to be subsequently established by the SEC. Rules of SEC to implement the trading prohibition requirement of the HFCA Act has not yet issued. Besides, in August 2020, the United State President’s Working Group on Financial Markets, or the PWG, released the Report and Recommendations on Protecting Investors from Significant Risks from Chinese Companies, or the Report. The PWG recommended that the SEC take steps to implement the recommendations outlined in the report. In particular, to address companies from jurisdictions, such as China, that do not provide the PCAOB with sufficient access to fulfill its statutory mandate, the PWG recommended enhanced listing standards on U.S. exchanges and require, as a condition to initial and continued exchange listing, PCAOB access to work papers of the principal audit firm for the audit of the listed companies. The PWG recommended the new listing standards could provide for a transition period until January 1, 2022 for currently listed companies. Implementation of the HFCA Act, the Report or other efforts to increase U.S. regulatory access to audit information could result in a suspension of trading or even mandatory delisting of our ADSs from the NYSE. This would subject our investors and us to uncertainty and have an adverse effect on the market price of our ADSs.

The PCAOB has conducted inspections of independent registered public accounting firms outside of China and has at times identified deficiencies in the audit procedures and quality control procedures of those accounting firms. Such deficiencies may be addressed in those accounting firms’ future inspection process

 

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to improve their audit quality. Due to the lack of PCAOB regular inspections of audit work undertaken in China, our investors do not have the benefit of the PCAOB inspection of our independent registered public accounting firm’s audit work and audit quality control procedures.

Risks Related to SEC Litigation Against the “Big Four” PRC-based Accounting Firms

On January 22, 2014, Judge Cameron Elliot, an SEC administrative law judge, issued an initial decision suspending the Chinese member firms of the “Big Four” accounting firms, including our independent registered public accounting firm, from, among other things, practicing before the SEC for six months. In February 2014, the initial decision was appealed. While under appeal and in February 2015, the Chinese member firms of “Big Four” accounting firms reached a settlement with the SEC. As part of the settlement, each of the Chinese member firms of “Big Four” accounting firms agreed to settlement terms that include a censure, undertakings to make a payment to the SEC, procedures and undertakings as to future requests for documents by the SEC and possible additional proceedings and remedies should those undertakings not be adhered to.

Had the settlement terms not been adhered to, the Chinese member firms of “Big Four” accounting firms could have been suspended from practicing before the SEC, which could in turn delay the timely filing of our financial statements with the SEC. In addition, it could be difficult for us to timely identify and engage another registered public accounting firm to audit and issue an opinion on our financial statements and our internal control over financial reporting. A delinquency in our filing of the annual report with the SEC may result in the NYSE initiating delisting procedures, which could harm our reputation and have other material adverse effects on our overall growth and prospect.

Risks Related to Pipeline Asset Restructuring

In 2020, we sold our interests in certain branch companies, subsidiaries and associated companies, which together held our major pipeline assets to China Oil & Gas Pipeline Network Corporation (“PipeChina”) in exchange for 29.9% of the equity interests in PipeChina and a cash consideration. In 2021, our subsidiary Kunlun Energy sold its equity interests in two entities holding pipeline assets to PipeChina for a cash consideration. After completion of the transactions, PipeChina will be responsible for operating the pipeline assets and providing us with the pipeline transmission services pursuant to the arrangements under the agreements entered into between us and PipeChina, and we will enjoy the rights as a shareholder of PipeChina according to its articles of association. We cannot assure you that PipeChina can duly perform all the arrangements agreed with us and properly operate, maintain and manage its assets, serve our best interests, or that the dividends received from PipeChina are of a level comparable with that of the historical earnings made by us from our own operation of the pipeline assets. Should PipeChina fail to perform any arrangement agreed with us, or to properly operate, maintain or manage the assets, or to provide us with stable services, or to maintain its profitability, our operational and financial conditions may suffer an adverse effect. In addition, the business model of PipeChina is expected to be able to promote the competition in both the upstream supply market and the downstream sales market in China, which in turn may adversely affect our competitiveness. See “Item 4 — Information on the Company — Acquisitions and Divestments”.

Risks Related to Employee Misconduct

We may not be able to detect or prevent employee misconduct, including misconduct by senior management, and such misconduct may damage our reputation and could adversely affect the trading price of our ordinary shares and ADSs.

We have gradually reinforced and enhanced our internal control and corporate governance policies and procedures in order to strengthen our ability to detect and prevent employee misconduct. We cannot assure you, however, that we will be able to detect or prevent such misconduct in a timely fashion, or at all. If we

 

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fail to prevent employee misconduct, our reputation may be harmed, and the trading price of our ordinary shares and ADSs could be adversely affected.

Risks Related to Cyber Security

Our activities depend heavily on the reliability and security of our information technology (“IT”) systems. Our IT systems may suffer disruptions due to cyber-attack, computer intrusions and viruses, technical failure and disruptions, power and network outages or natural disasters. We have adopted multi-layer technological measures for prevention and detection of cybersecurity problems, and we also train our employees in order to improve their awareness and ability to detect and respond to cybersecurity situations. If our measures prove to be insufficient, the cybersecurity disruptions could damage or destroy assets, compromise business systems, result in proprietary information being altered, lost, or stolen; result in employee, customer, or third-party information or material intellectual property being compromised, cause physical harm to people or the environment, or otherwise disrupt our business operations. We could incur significant costs to remedy the effects of a major cybersecurity disruption in addition to costs in connection with resulting regulatory actions, litigation or reputational harm. As a result, we and our customers, employees, or third parties could be adversely affected, potentially having a material adverse effect on our business and financial conditions.

Item 4 — INFORMATION ON THE COMPANY

Introduction

History and Development of Our Company

Our legal name is “中国石油天然气股份有限公司” and its English translation is PetroChina Company Limited.

We are the largest oil and gas producer and seller occupying a leading position in the oil and gas industry in the PRC and one of the largest companies in the world. We are engaged in a broad range of petroleum and natural gas related activities, mainly including the exploration, development, production and marketing of crude oil and natural gas; the refining of crude oil and petroleum products, as well as the production and marketing of basic petrochemical products, derivative chemical products and other chemical products; the marketing of refined oil products and trading; and the transmission of natural gas, crude oil and refined oil products as well as the sale of natural gas.

Currently, substantially all of our crude oil and natural gas reserves and production-related assets are located in China. Our exploration, development and production activities commenced in the early 1950s. For seven decades, we have conducted crude oil and natural gas exploration activities in many regions of China. We commenced limited refining activities in the mid-1950s. Our chemicals operations commenced in the early 1950s. In the early 1960s, we began producing ethylene. Our natural gas transmission and marketing activities commenced in Sichuan in Southwestern China in the 1950s.

We have increased our efforts to pursue attractive business opportunities outside China as part of our business growth strategy to utilize both domestic and international resources to strengthen our competitiveness. Since 2005, we have acquired interests in various oil and natural gas assets in several countries, which significantly expanded our overseas operations and effectively increased our oil and gas reserves and production volumes. We are currently assessing the feasibility of making further investments in international oil and gas markets. At the same time, we have been maintaining certain proportion of imported crude oil and natural gas in accordance with our needs. In 2020, we imported approximately 679.3 million barrels of crude oil, as compared to 684.9 million barrels and 711.0 million barrels of crude oil in 2018 and 2019, respectively.

 

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We were established as a joint stock company with limited liability under the Company Law of the PRC on November 5, 1999 as part of a restructuring in which CNPC transferred to us most of the assets and liabilities of CNPC relating to its exploration and production, refining and marketing, chemicals and natural gas businesses.

On April 7, 2000, we completed a global offering of H Shares and ADSs. In September 2005, we completed a follow-on offering of over 3 billion H Shares. In October 2007, we issued 4 billion A Shares. The A Shares were listed on the Shanghai Stock Exchange on November 5, 2007. As of December 31, 2020, CNPC beneficially owned 146,882,339,136 A Shares and 291,518,000 H Shares in us, representing approximately 80.41% of our share capital in aggregate. The H Shares held by CNPC were through Fairy King Investments Limited, an overseas wholly owned subsidiary of CNPC.

For a description of our principal subsidiaries, see Note 18 to our consolidated financial statements.

Our headquarters are located at 9 Dongzhimen North Street, Dongcheng District, Beijing, China, 100007, and our telephone number at this address is (86-10) 5998-2622. Our website address is www.petrochina.com.cn. The information on our website is not part of this annual report. Our annual report on form 20-F and other reports filed electronically with the SEC can be found on the SEC’s website www.sec.gov.

Our Corporate Organization Structure

The following chart illustrates our corporate organization structure as of December 31, 2020.

 

LOGO

 

(1)

Indicates approximate shareholding.

(2)

Indicates approximate shareholding, including the 291,518,000 H Shares indirectly held by CNPC as of December 31, 2020 through Fairy King Investments Limited, a wholly owned overseas subsidiary of CNPC, and not including the 5,871,459,673 A Shares transferred to and held in a trust account as collaterals for the exchangeable bonds issued by CNPC.

(3)

Includes PetroChina Exploration & Development Research Institute, PetroChina Planning & Engineering Institute, IT Service Center, PetroChina Petrochemical Research Institute and several other companies.

Acquisitions and Divestments

On July 23, 2020, we entered into a series of agreements with PipeChina, including (i) the Framework Agreement on Transaction of Oil and Gas Pipeline Related Assets, (ii) ten sub-agreements (including the Equity

 

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Acquisition Agreements on PetroChina Pipeline Co., Ltd., and others) and (iii) the Production and Operation Agreement. Pursuant to these agreements, we agreed to sell, and PipeChina agreed to buy, our interests in certain of our subsidiaries, branches, associated companies (“target entities”), which together held our major oil and gas pipelines, certain gas storage facilities, oil storage facilities, LNG terminals and ancillary facilities, and the initial oil and gas inventory contained therein (together, the “target assets”) in exchange for 29.9% of the equity interests in PipeChina and a cash consideration (the “transaction”). The consideration for the transaction was based on the appraised value of the target assets as of December 31, 2019. The final consideration shall be determined based on an audit taking into account such factors as the profit and loss of the target assets during the transitional period, the adjustments for subsequent events after the base date and the value of the initial oil and gas inventory at the time of delivery. PipeChina warranted that after completion of the transactions, the target assets shall remain in normal operations, and the quality of the services provided to us to be no lower than the previous level. Furthermore, PipeChina undertook that it will not take any action or allow any nonaction that may adversely affect our continuous normal use of any target assets in our production or operation.

On September 28, 2020, the transaction was approved at the general meeting of our company by 99.9963% of votes. On September 30, 2020, all the conditions precedent to the closing of the transaction were satisfied, and the ownership, obligations, responsibilities and risk of the target assets were passed from our company to PipeChina at 24:00 on September 30, 2020.

The total assets sold in the transaction amounted to RMB356,447 million and the book value of net assets attributable to the owners of the Company was RMB200,525 million. The total final consideration was RMB247,471 million, including (i) RMB149,500 million that we recognized as long-term equity investment in PipeChina corresponding to the 29.9% equity interests in PipeChina, and (ii) a cash consideration of RMB97,971 million. For this transaction, we recognized pre-tax profit of RMB46,946 million. The difference between the final adjusted amounts and the amounts that we initially annouced reflected the adjustment mainly due to (i) the changes in prices and quantity of the initial oil and gas inventory and (ii) distribution of profits by certain of the target entities in advance of closing of the transaction.

On December 22, 2020, Kunlun Energy Company Limited (“Kunlun Energy”), a subsidiary of our company, entered into an Equity Transfer Agreement with PipeChina, pursuant to which Kunlun Energy agreed to sell and PipeChina agreed to purchase 60% equity interests in PetroChina Beijing Gas Pipeline Co., Ltd. (“Beijing Pipeline”) and 75% equity interests in PetroChina Dalian LNG Co., Ltd. (“Dalian LNG”) held by Kunlun Energy at a base consideration of approximately RMB40,886 million (subject to the adjustments according to the price adjustment mechanism as set out in the agreement), which shall all be settled in cash by PipeChina. This transaction was completed at 24:00 on March 31, 2021, upon which, Kunlun Energy ceased to hold any equity interests in Beijing Pipeline and Dalian LNG.

We believe that the pipeline restructuring transaction will help us focus more on our upstream exploration and development business as well as our downstream distribution business, and can relieve our pressure on capital expenditures, and help us get greater access to the nationwide oil and gas storage and transmission facilities, so to improve our operational efficiency and value creation capabilities.

See also “Item 3 — Key Information — Risks Related to Pipeline Asset Restructuring”. For details, please refer to the English translation of the transaction agreements included as exhibits to this annual report on Form 20-F.

For information on capital expenditures, please see “Item 5 — Operating and Financial Review and Prospects — Liquidity and Capital Resources — Capital Expenditures and Investments.”

 

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Exploration and Production

We engage in crude oil and natural gas exploration, development and production. Substantially all of our total estimated proved crude oil and natural gas reserves are located in China, principally in Northeastern, Northern, Southwestern and Northwestern China. Meanwhile, we have enhanced our overseas cooperation and expanded our strategic presence in five major overseas oil and gas cooperation regions by conducting new project development. In 2020, the crude oil and natural gas produced by us at overseas regions accounted for 19.3%% and 5.4% of our total production of crude oil and natural gas, respectively.

We currently hold exploration and exploitation licenses for oil and gas (including coal seam gas) covering a total area of approximately 272.4 million acres, including the exploration licenses covering a total area of approximately 240.3 million acres and the production licenses covering a total area of approximately 32.1 million acres.

The following table sets forth the financial and operating data of our exploration and production segment for each of the years ended December 31, 2018, 2019 and 2020:

 

     Year Ended December 31,  
     2018      2019      2020  

Revenue (RMB in millions)

     658,712        676,320        530,807  

Profit from operations (RMB in millions)

     73,519        96,097        23,092  

Proved developed and undeveloped reserves

        

Crude oil (million barrels)

     7,640.8        7,253.3        5,206.1  

Natural gas (Bcf)

     76,467.0        76,236.0        76,437.1  

Production

        

Crude oil (million barrels)

     890.3        909.3        921.8  

Natural gas for sale (Bcf)

     3,607.6        3,908.0        4,221.0  

Reserves

As of December 31, 2020, our total estimated proved reserves of crude oil was approximately 5,206.1 million barrels and our total estimated proved reserves of natural gas was approximately 76,437.1 Bcf. As of December 31, 2020, proved developed reserves for crude oil and natural gas accounted for 89.4% and 55.0% of our total proved crude hydrocarbon reserves, respectively. Total proved hydrocarbon reserves, including our overseas crude oil reserves of 831.1 million barrels and overseas natural gas reserves of 1,642.90 Bcf, decreased by 10.1% from approximately 19,959.3 million BOE as of December 31, 2019 to approximately 17,945.6 million BOE as of December 31, 2020, primarily due to the decrease in oil and natural gas prices. Natural gas as a percentage of total proved hydrocarbon reserves increased from 63.7% as of December 31, 2019 to 71.0% as of December 31, 2020.

Approximately 33%, 54% and 54% of our estimated proved reserves as of December 31, 2018, 2019 and 2020, respectively, were assessed by our internal assessment team and audited by our independent engineering consultants. Other information regarding our estimated proved reserves was based on the reserves reports prepared by our independent engineering consultants DeGolyer and MacNaughton, Ryder Scott Company L.P., GLJ Petroleum Consultants and McDaniel & Associates Consultants Ltd. in accordance with the reserves assessment methodology generally adopted in the U.S. The reserves assessments and reports of our company were performed and prepared in compliance with SEC’s oil and gas reserves reporting rules. Our reserves estimates include only crude oil and natural gas which we believe can be reasonably produced within the current terms of our production licenses or within the terms of the licenses which we are reasonably certain to be renewed. See “Regulatory Matters — Exploration Licenses and Production Licenses” for a discussion of our production licenses. Also see “Item 3 — Key Information — Risk Factors — Risks Related to Oil and Gas Reserves” for a discussion of the uncertainty inherent in the estimation of proved reserves.

 

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Internal Controls Over Reserves Estimates

We have appointed a reserves assessment directing team, or the RAD Team. The leader of the RAD Team is our vice president in charge of our upstream business.

We have implemented a practicing professional certification regime to supervise our employees engaged in oil and gas reserves evaluation and auditing functions. We have set up a team of reserves auditors covering our headquarter office and regional companies to perform reserves evaluation and audits. Meanwhile, we have established a special reserves management department in our exploration and production segment. Each of the officers and employees of that department has over 20 years of experience in oil industry and many years of experience in SEC-guided reserves evaluation. All of the members of that department have been recoginized as national-level reserves experts. Each regional company has established a reserves management committee and a multi-disciplinary reserves research office. Mr. Duan Xiaowen from the Reserves Administration Division of our exploration and production branch company, is the person in charge of our reserves estimation. Mr. Duan holds a bachelor’s degree in geology and a master’s degree in business administration. He has many years of work experience in oil and gas exploration and development industry and has been engaged in reserves estimate and management for a long time. Since 2008, Mr. Duan has been involved in the supervision of reserves estimation and management in our company. In 2016, Mr. Duan became the division head primarily responsible for overseeing the preparation of the reserves estimates, estimation technology and management. The reserves research offices of the regional companies are responsible for estimating newly discovered reserves and updating the estimates of existing reserves. The results of our oil and gas reserves assessment are subject to a two-level review by both the regional companies and our exploration and production branch company, with final examination and approval of the RAD Team.

In addition, we commissioned independent assessment firms to independently reassess or audit our annually assessed proved reserves in accordance with relevant SEC rules. We disclose the reserves in accordance with the SEC requirements.

Third-Party Reserves Reports

DeGolyer and MacNaughton, an independent petroleum engineering consulting firm based in the United States, carried out an independent assessment and audit of our reserves in China and certain other countries as of December 31, 2018, 2019 and 2020. Mr. Thomas C. Pence, a senior vice president of DeGolyer and MacNaughton, was responsible for supervising the preparation of our reserves report. Mr. Pence is a Registered Professional Engineer in Texas, a member of the International Society of Petroleum Engineers, and has many years of experience in oil and gas reservoir studies and reserves evaluations.

Ryder Scott Company, L.P. (“Ryder Scott”), an independent petroleum engineering consulting firm based in the United States, carried out an independent assessment of certain of our selected petroleum assets such as in Chad, Iraq and Peru as of December 31, 2018, 2019 and 2020. Mr. Timour Baichev, a vice president of Ryder Scott, was responsible for overseeing the estimate of the reserves, future production and income as stated in the reserves report. Mr. Timour Baichev is a licensed professional engineer and has many years of experience in the petroleum reserves estimation and evaluation.

GLJ Petroleum Consultants (“GLJ”), a petroleum consulting firm based in Canada, carried out an independent assessment of our reserves for certain gas and oil properties in Canada as of December 31, 2018, 2019 and 2020. Ms. Trisha S. MacDonald was the project manager for the evaluation. She is a senior engineer and has many years of experience in oil and gas reservoir studies and reserves evaluations.

McDaniel & Associates Consultants Ltd. (“McDaniel”), a petroleum consulting firm with its headquarters in Canada, carried out an independent assessment of our reserves in Kazakhstan as of December 31, 2018, 2019 and 2020. Mr. Cam T. Boulton, McDaniel’s executive vice president, was responsible for supervising the preparation

 

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of our reserves report. Mr. Boulton is a member of the Association of Professional Engineers and Geoscientists of Alberta. He has many years of experience in oil and gas reservoir studies and reserves evaluations.

None of the above consulting firms or their partners, senior officers or employees has any direct or indirect financial interest in our company and the remunerations to the firms are not in any way contingent upon reported reserves estimates.

For detailed information about our net proved reserves estimates, please refer to the summary reports of reserves filed herewith as exhibits to this annual report on Form 20-F.

 

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The following table sets forth our estimated proved reserves (including proved developed reserves and proved undeveloped reserves), proved developed reserves and proved undeveloped reserves of crude oil and natural gas as of December 31, 2018, 2019 and 2020.

 

     Crude Oil and
Condensate(1)
    Natural Gas(2)     Combined  
     (Million barrels)     (Bcf)     (BOE, in millions)  

Proved developed and undeveloped reserves On a consolidated basis:

      

Reserves as of December 31, 2017

     7,481.3       76,887.6       20,295.9  

Revisions of previous estimates

     334.7       (1,377.9     105.2  

Extensions and discoveries

     427.5       4,564.9       1,188.3  

Improved recovery

     95.9       —         95.9  

Purchased

     191.7       —         191.7  

Production for the year

     (890.3     (3,607.6     (1,491.7

Reserves as of December 31, 2018

     7,640.8       76,467.0       20,385.3  

Revisions of previous estimates

     (49.7     (765.6     (177.1

Extensions and discoveries

     480.6       4,442.6       1,221.0  

Improved recovery

     90.9       —         90.9  

Production for the year

     (909.3     (3,908.0     (1,560.8

Reserves as of December 31, 2019

     7,253.3       76,236.0       19,959.3  

Revisions of previous estimates

     (1,553.1     (595.3     (1,652.2

Extensions and discoveries

     385.2       4,976.1       1,214.6  

Improved recovery

     107.7       —         107.7  

Purchased

     15.0       106.9       32.8  

Sold

     (80.2     (65.6     (91.1

Production for the year

     (921.8     (4,221.0     (1,625.5

Reserves as of December 31, 2020

     5,206.1       76,437.1       17,945.6  

Proved developed reserves

      

As of December 31, 2018

     5,843.1       40,128.2       12,531.1  

Of which: domestic

     5,203.4       38,433.2       11,609.0  

Overseas

     639.7       1,695.0       922.1  

As of December 31, 2019

     5,473.8       39,869.6       12,118.7  

Of which: domestic

     4,840.0       38,376.3       11,236.0  

Overseas

     633.8       1,493.3       882.7  

As of December 31, 2020

     4,653.6       42,076.7       11,666.4  

Of which: domestic

     3,987.0       40,732.3       10,775.8  

Overseas

     666.6       1,344.4       890.6  

Proved undeveloped reserves

      

As of December 31, 2018

     1,797.7       36,338.8       7,854.2  

Of which: domestic

     1,626.4       36,046.9       7,634.2  

Overseas

     171.3       291.9       220.0  

As of December 31, 2019

     1,779.5       36,366.4       7,840.6  

Of which: domestic

     1,659.8       36,156.8       7,686.0  

Overseas

     119.7       209.6       154.6  

As of December 31, 2020

     552.5       34,360.4       6,279.2  

Of which: domestic

     387.9       34,062.0       6,064.9  

Overseas

     164.6       298.4       214.3  

Share of proved developed and undeveloped reserves in associates and joint ventures calculated by the equity method

      

As of December 31, 2018

     321.4       429.4       392.9  

As of December 31, 2019

     287.1       393.6       352.7  

As of December 31, 2020

     195.5       362.7       256.0  

 

(1)

The crude oil and condensate oil reserves as of December 31, 2020 include 88.2 million barrels of NGLs.

(2)

Represents natural gas remaining after field separation for condensate removal and reduction for flared gas.

As of December 31, 2018, 2019 and 2020, our total proved developed and undeveloped reserves on consolidated basis and on equity method, were 20,778 million BOE, 20,312 million BOE, and 18,202 million BOE, including 7,962 million, 7,540 million and 5,402 million barrels of crude oil and condense, and 76,896.4 Bcf, 76,629.6 Bcf and 76,799.8 Bcf of natural gas.

 

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Our proved undeveloped reserves were 6,279.2 million BOE as of December 31, 2020, representing a decrease of 19.9% as compared to 2019. The main changes in our proved undeveloped reserves in 2020 included (i) an increase of 1,214.6 million BOE through extensions and discoveries; (ii) an increase of 107.7 million BOE through improved recovery; (iii) a decrease of 1,263.2 million BOE primarily due to the decrease in oil prices; (iv) the conversion of 1,631.1 million BOE of proved undeveloped reserves into proved developed reserves; and (v) purchase of 10.6 million BOE of proved undeveloped reserves. In 2020, we spent RMB127,576 million on developing proved undeveloped reserves. The overwhelming majority of our proved undeveloped reserves were situated around the oil fields that are currently producing. The majority of our proved undeveloped reserves are already scheduled for development within five years after initial booking.

Some of our proved undeveloped reserves of natural gas are being developed more than five years after their initial disclosure primarily due to the effect of long-term natural gas supply contracts. The sale of natural gas produced from our reserves located in China is subject to our long-term contractual obligations to provide a stable supply of natural gas to customers. We sell all of the natural gas under long-term supply arrangements with customers.

There are mainly two types of long-term supply arrangements. The first is multi-year supply contracts with terms ranging from 20 to 30 years that can be extended upon mutual agreement. The second type is renewable annual contracts. The majority of the natural gas produced in our gas fields in China is put into the nationwide, long-range pipeline system to be sold to customers who have entered into multi-year supply contracts with us in the areas where the long-range pipeline system covers. A small portion of the natural gas produced by our company is put into local pipeline systems to be sold to customers in the areas adjacent to our gas fields. These customers typically have formed de-facto long-term relationships with our company over the years and enter into supply contracts with us before the year end to determine the amount of gas to be purchased for the next year, with such contracts being renewed every year. In general, our supply relationships with customers under the annual contracts have existed for more than ten years.

Mainly as a result of our contractual obligations to ensure a long-term, stable supply of natural gas to customers, we must maintain a relatively large amount of proved undeveloped natural gas reserves and develop them over an extended period of time (in some cases, longer than five years).

The following tables set forth our crude oil and natural gas proved reserves and proved developed reserves by region as of December 31, 2018, 2019 and 2020.

 

     As of December 31,  
     2018      2019      2020  
     Proved
Developed
and
Undeveloped
     Proved
Developed
     Proved
Developed
and
Undeveloped
     Proved
Developed
     Proved
Developed
and
Undeveloped
     Proved
Developed
 
     (Million barrels)  

Crude oil reserves

                 

Daqing

     1,487.4        1,272.5        1,300.9        1,137.4        928.6        881.5  

Changqing

     2,095.2        1,423.6        2,098.7        1,376.2        1,262.5        1,185.8  

Xinjiang

     1,000.0        894.6        975.8        834.3        717.2        677.8  

Other regions(1)

     3,058.2        2,252.4        2,877.9        2,125.9        2,297.8        1,908.5  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     7,640.8        5,843.1        7,253.3        5,473.8        5,206.1        4,653.6  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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     As of December 31,  
     2018      2019      2020  
     Proved
Developed
and
Undeveloped
     Proved
Developed
     Proved
Developed
and
Undeveloped
     Proved
Developed
     Proved
Developed
and
Undeveloped
     Proved
Developed
 
     (Bcf)  

Natural gas reserves(2)

                 

Changqing

     25,425.8        9,406.5        25,589.5        9,362.5        25,969.8        10,700.7  

Tarim

     22,805.9        13,844.9        22,633.8        14,184.2        22,680.6        15,091.9  

Chuanyu

     13,882.7        7,857.5        14,421.5        7,953.2        14,933.6        8,316.5  

Other regions(1)

     14,352.6        9,019.3        13,591.2        8,369.7        12,853.1        7,967.6  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     76,467.0        40,128.2        76,236.0        39,869.6        76,437.1        42,076.7  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Represents other oil regions in China and our overseas oil and gas fields.

(2)

Represents natural gas remaining after field separation for condensate removal and reduction for flared gas.

Exploration and Development

We are currently conducting exploration and development efforts in 12 provinces, two municipalities under the direct administration of the central government and three autonomous regions in China as well as in certain regions in other countries. We believe that we have more extensive experience in the exploration and development of crude oil and natural gas than any of our principal competitors in China.

The following table sets forth the number of wells we drilled, or in which we participated, and the results thereof, in 2018, 2019 and 2020.

 

Year

        Daqing      Xinjiang      Changqing      Others(1)      Total  
2018                  
   Net exploratory wells drilled(2)      231        130        885        532        1,778  
  

Crude oil

     207        100        503        299        1,109  
  

Natural gas

     15        11        65        89        180  
  

Dry(3)

     9        19        317        144        489  
   Net development wells drilled(2)      3,421        1,630        6,233        3,893        15,177  
  

Crude oil

     3,398        1,619        4,086        2,990        12,093  
  

Natural gas

     16        11        2,098        885        3,010  
  

Dry(3)

     7        —          49        18        74  
2019                  
  

Net exploratory wells drilled(2)

     211        157        584        627        1,579  
  

Crude oil

     195        148        359        381        1,083  
  

Natural gas

     2        9        49        109        169  
  

Dry(3)

     14        —          176        137        327  
   Net development wells drilled(2)      3,008        1,274        5,948        4,273        14,503  
  

Crude oil

     2,990        1,270        4,319        3,243        11,822  
  

Natural gas

     12        4        1,586        1,007        2,609  
  

Dry(3)

     6        —          43        23        72  
2020                  
  

Net exploratory wells drilled(2)

     166        151        661        561        1,539  
  

Crude oil

     142        120        380        356        998  
  

Natural gas

     9        9        53        73        144  
  

Dry(3)

     15        22        228        132        397  
   Net development wells drilled(2)      3,264        1,048        4,630        3,121        12,063  
  

Crude oil

     3,240        1,040        3,082        2,406        9,768  
  

Natural gas

     11        8        1,512        701        2,232  
  

Dry(3)

     13        —          36        14        63  

 

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(1)

Represents the Liaohe, Jilin, Huabei, Dagang, Sichuan, Tarim, Tuha, Qinghai, Jidong, Yumen, Zhejiang, Southern and other oil regions.

(2)

“Net” wells refer to the wells after deducting interests of others. No third parties own any interests in any of our wells.

(3)

“Dry” wells are wells with insufficient reserves to sustain commercial production.

We had 363 wells in the process of being drilled and 6,459 wells with multiple completions as of December 31, 2020.

Oil-and-Gas Properties

The following table sets forth our interests in developed and undeveloped acreage by oil region and in productive crude oil and natural gas wells as of December 31, 2020.

 

                   Acreage(1)
(Thousand acres)
 
     Productive Wells(1)      Developed      Undeveloped  

Oil Region

   Crude
Oil
     Natural
Gas
     Crude
Oil
     Natural
Gas
     Crude
Oil
     Natural
Gas
 

Daqing

     75,399        640        1,316.64        107.85        622.71        160.09  

Changqing

     67,747        20,981        1,623.46        6,704.16        968.00        3,194.00  

Xinjiang

     35,692        327        435.17        65.55        297.50        21.24  

Other regions(2)

     76,657        14,914        1,821.57        1,647.62        1,037.78        1,770.04  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     255,495        36,862        5,196.84        8,525.18        2,925.99        5,145.37  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Includes all wells and acreage in which we have an interest. No third parties own any interests in any of our wells or acreage.

(2)

Represents the Liaohe, Jilin, Huabei, Dagang, Southwestern, Tarim, Tuha, Qinghai, Jidong, Yumen, Zhejiang, Southern and other oil regions.

 

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Production

The following table sets forth our historical average net daily crude oil and natural gas production by region and our average sales price for the years ended December 31, 2018, 2019 and 2020.

 

     For the Year Ended
December 31,
     % of
Total
 
     2018      2019      2020  

Crude oil production(1)

           

(thousand barrels per day, except percentages or otherwise indicated)

           

Daqing

     632.6        608.7        595.7        23.7  

Changqing

     480.9        488.8        497.7        19.8  

Xinjiang

     232.2        252.1        262.2        10.4  

Other(2)

     1,093.4        1,141.6        1,162.9        46.1  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     2,439.1        2,491.2        2,518.5        100.0  
  

 

 

    

 

 

    

 

 

    

 

 

 

Annual production (million barrels)

     890.3        909.3        921.8     

Domestic

     733.7        739.7        743.8     

Overseas

     156.6        169.6        178.0     

Average sales price (US$ per barrel)

     68.28        60.96        40.33     

Natural gas production(1)(3)

           

(million cubic feet per day, except percentages or otherwise indicated)

           

Changqing

     3,275.3        3,481.3        3,757.6        32.6  

Tarim

     2,353.4        2,535.2        2,748.0        23.8  

Chuanyu

     1,979.9        2,375.6        2,793.7        24.2  

Other(4)

     2,275.3        2,314.9        2,233.5        19.4  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     9,883.9        10,707.0        11,532.8        100.0  
  

 

 

    

 

 

    

 

 

    

 

 

 

Annual production (Bcf)

     3,607.6        3,908.0        4,221.0     

Domestic

     3,324.7        3,633.0        3,993.8     

Overseas

     282.9        275.0        227.2     

Average realized price (US$ per Mcf)

     5.85        5.39        4.80     

 

(1)

Production volumes for each region include our share of the production from all of our cooperative projects with foreign companies in that region.

(2)

Represents production from the Liaohe, Jilin, Huabei, Dagang, Tarim, Tuha, Qinghai, Jidong, Yumen, Southern and other oil regions and our share of overseas production as a result of our acquisition of overseas assets.

(3)

Represents production of natural gas for sale.

(4)

Represents production from the Daqing, Qinghai, Tuha, Xinjiang, Liaohe, Huabei, Dagang, Jilin, Jidong, Yumen, Zhejiang, Southern and other oil and gas regions and our share of overseas production as a result of our acquisition of overseas assets.

In 2020, we supplied a substantial majority of our total crude oil sales to our own refineries. In addition, we and Sinopec supply crude oil to each other’s refineries to allow supplies to be easily obtained from nearby resources.

 

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The following table sets forth our average sales prices and average lifting costs of crude oil and natural gas of our company on an overall basis and those in China in 2018, 2019 and 2020.

 

     Crude Oil Average
Realized Prices

(RMB/ton)
     Natural Gas
Average Realized Prices
(RMB/Kilostere)
     Average Lifting
Cost

(US$/BOE)
 

2018

        

Overall

     3,338        1,367        12.31  

—China

     3,289        1,338        13.55  

2019

        

Overall

     3,107        1,313        12.11  

—China

     3,097        1,437        13.29  

2020

        

Overall

     2,056        1,170        11.10  

—China

     2,111        1,314        12.19  

Principal Oil and Gas Regions

Daqing Oil Region

The Daqing oil region, our largest oil and gas producing property, is located in the Songliao basin and covers an area of approximately one million acres. In 2018, 2019 and 2020, our average crude oil production volume in the Daqing oil region was 632.6 thousand barrels, 608.7 thousand barrels and 595.7 thousand barrels per day, respectively. As of December 31, 2020, we produced crude oil from 40 fields in the Daqing oil region.

As of December 31, 2020, our proved crude oil reserves in the Daqing oil region were 928.6 million barrels, representing 17.8% of our total proved crude oil reserves. As of December 31, 2018 and 2019, the proved crude oil reserves in Daqing oil region were 1,487.4 million barrels and 1,300.9 million barrels, respectively. As of December 31, 2020, the crude oil reserves-to-production ratio of the Daqing oil region was approximately 4.2 years.

Daqing’s crude oil has low sulfur and high paraffin content. As many refineries in China, particularly those in Northeastern China, are configured to refine Daqing crude oil, we have a stable market for the crude oil we produce in the Daqing oil region.

Changqing Oil and Gas Region

In the early 1990s, we discovered the Changqing oil and gas region, which covers parts of Shaanxi Province, Gansu Province, Ningxia, Inner Mongolia and Shanxi Province. In 2019, we discovered the Qingcheng oilfied in the Changqing oil and gas region. As of December 31, 2020, the proved reserves in the Qingcheng oilfied were 34.6 million barrels. As of December 31, 2020, our proved crude oil reserves in the Changqing oil region were 1,262.5 million barrels, representing 24.2% of our total proved crude oil reserves. In 2020, our crude oil production in the Changqing oil region averaged 497.7 thousand barrels per day, representing approximately 19.8% of our total daily crude oil production.

The Changqing oil and gas region had total proved natural gas reserves of 25,969.8 Bcf as of December 31, 2020, representing 34.0% of our total proved natural gas reserves. In January 2001, we discovered the Sulige gas field in the Changqing oil and gas region, which had total proved natural gas reserves of 14,215.8 Bcf as of December 31, 2020. Sulige gas field is currently the largest gas field in China. In 2020, the Changqing oil and gas region produced 1,375.3 Bcf of natural gas for sale, representing an increase of 8.2% from 1,270.7 Bcf in 2019.

As of December 31, 2020, the crude oil and gas reserves-to-production ratio at the Changqing oil region was approximately 13.6 years.

 

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Xinjiang Oil Region

The Xinjiang oil region is one of our four largest crude oil producing properties and is located in the Junggar basin in Northwestern China. We commenced our operations in the Xinjiang oil region in 1951. The Xinjiang oil region covers a total area of approximately 900,000 acres.

As of December 31, 2020, our proved crude oil reserves in the Xinjiang oil region were 717.2 million barrels, representing 13.8% of our total proved crude oil reserves. In 2020, our oil fields in the Xinjiang oil region produced an average of 262.2 thousand barrels of crude oil per day, representing approximately 10.4% of our total daily crude oil production. As of December 31, 2020, the crude oil reserves-to-production ratio at the Xinjiang oil region was approximately 7.5 years.

Tarim Oil and Gas Region

The Tarim oil and gas region is located in the Tarim basin in Northwestern China with a total area of approximately 590,000 acres. In 1998, we discovered the Kela 2 natural gas field in the Tarim oil and gas region. In 2019, we discovered the Bozi-Dabei gas field in the Tarim oil and gas region. As of December 31, 2020, the proved reserves in the Bozi-Dabei gas field were 4,368.2 Bcf. As of December 31, 2020, the proved natural gas reserves in the Tarim oil and gas region were 22,680.6 Bcf, representing 29.7% of our total proved natural gas reserves.

In 2020, we produced 1,005.8 Bcf of natural gas for sale in the Tarim oil and gas region. We deliver natural gas in the Tarim oil and gas region through gas pipelines to the central and eastern regions of China where there is strong demand for natural gas. As of December 31, 2020, the oil and natural gas reserves-to-production ratio in the Tarim oil and gas region was approximately 19.4 years.

Chuanyu Gas Region

We began natural gas exploration and production in the Chuanyu gas region in the 1950s. The Chuanyu gas region covers a total area of approximately 2.3 million acres. As of December 31, 2020, we had 115 natural gas fields under development in the Chuanyu gas region. In 2019, we discovered the Sichuan shale gas field in the Chuanyu gas region. As of December 31, 2020, the proved reserves in the Sichan shale gas field were 1,556.2 Bcf.

As of December 31, 2020, our proved natural gas reserves in the Chuanyu gas region were 14,933.6 Bcf, representing 19.5% of our total proved natural gas reserves and an increase of 3.6% from 14,421.5 Bcf as of December 31, 2019. In 2020, our natural gas production for sale in the Chuanyu gas region reached 1,022.5 Bcf, representing 24.2% of our total natural gas production for sale. As of December 31, 2020, the natural gas reserves-to-production ratio in the Chuanyu gas region was approximately 14.6 years.

 

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Refining and Chemicals

We now operate 32 enterprises located in nine provinces, four autonomous regions and three municipalities to engage in refining of crude oil and petroleum products, as well as the production and marketing of basic petrochemical products, derivative chemical products and other chemical products.

The comparative data throughout the section of “Refining and Chemical” was presented as if (i) Dalian West Pacific had been consolidated from the earliest year presented. Please refer to “Item 4 — Information on the Company — Acquisitions and Divestments” and Note 40 to our consolidated financial statements in our Form 20-F filed with the SEC on April 29, 2020; and (ii) PetroChina Fuel Oil Company Limited (“Fuel Oil Company”) and PetroChina Lubricant Company (“Lubricant Company”) were transferred from the marketing segment to the refining and chemicals segment from the earliest year presented. See Note 38 to our financial statements included in this Form 20-F. The following table sets forth the financial and operating data of our refining and chemicals segment for each of the years ended December 31, 2018, 2019 and 2020.

 

     Year Ended December 31,  
     2018      2019      2020  

Revenue (RMB in millions)

     1,013,413        1,000,062        774,775  

Profit from operations/(loss) (RMB in millions)

     46,879        16,077        (1,834

Crude oil processed (million barrels)

     1,180.5        1,228.4        1,177.5  

Crude oil primary distillation capacity (million barrels/year)

     1,454.2        1,463.0        1,492.6  

Production of refined oil products (thousand tons)

     111,148        117,791        107,042  

Refining

Refined Products

We produce a wide range of refined products at our refineries. Some of the refined products are for our internal consumption and used as raw materials in our petrochemical operation. The table below sets forth production volumes for our principal refined products for each of the years ended December 31, 2018, 2019 and 2020.

 

     Year Ended December 31,  

Principal Products

   2018      2019      2020  
     (In thousand tons)  

Diesel

     54,311        54,628        50,719  

Gasoline

     45,794        50,430        46,280  

Kerosene

     11,043        12,733        10,043  

Lubricants

     1,600        1,630        1,575  

Fuel oil

     1,937        1,672        4,086  

Naphtha

     11,950        12,829        12,706  

Our Refineries

Most of our refineries are strategically located close to our crude oil production and storage bases along the crude oil and refined product transmission pipelines and railways, which provide our refineries with secure supplies of crude oil and facilitate our distribution of refined products to the domestic markets.

In 2020, facing the excessive oil refining capacity in China, to enhance our competition and efficiency in the refining and chemical business, we scientically arranged the production in the refining and chemicals segment, continuouly optimized product mix, reasonably adjusted the diesel to gasoline ratio, actively increased the production of chemical products while striving to reduce the production of refined oil products, and maintained a high-load operation of our chemicals production facilities in response to market demand, and increased the production of high value-added products.

 

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Table of Contents

In 2018, 2019 and 2020, our exploration and production operations supplied approximately 56.7%, 55.7% and 57.6%, respectively, of the crude oil processed in our refineries.

In 2020, Jilin Petrochemical, Fushun Petrochemical, Lanzhou Petrochemical, Dushanzi Petrochemical, Dalian Petrochemical, Dalian West Pacific, Guangxi Petrochemical, Sichuan Petrochemical and Yunnan Petrochemical were our principal refineries in terms of both primary distillation capacity and refining throughput. The table below sets forth the primary distillation capacity and refining throughput of our principal refineries as of December 31, 2018, 2019 and 2020.

 

     As of December 31,  
     2018      2019      2020  

Primary distillation capacity(1) (thousand barrels per day)

        

Jilin Petrochemical

     198.4        198.4        198.4  

Fushun Petrochemical

     222.7        222.7        222.7  

Lanzhou Petrochemical

     212.6        212.6        212.6  

Dushanzi Petrochemical

     202.4        202.4        202.4  

Dalian Petrochemical

     415.0        415.0        415.0  

Dalian West Pacific

     202.4        202.4        202.4  

Guangxi Petrochemical

     202.4        202.4        202.4  

Sichuan Petrochemical

     202.4        202.4        202.4  

Yunnan Petrochemical

     263.2        263.2        263.2  

Other refineries

     1,862.5        1886.8        1,967.8  
  

 

 

    

 

 

    

 

 

 

Total

     3,984.0        4,008.3        4,089.3  
  

 

 

    

 

 

    

 

 

 

 

(1)

Represents the primary distillation capacity of crude oil and condensate.

 

     As of December 31,  
     2018      2019      2020  

Refining throughput (thousand barrels per day)

        

Jilin Petrochemical

     164.4        186.1        178.8  

Fushun Petrochemical

     175.1        176.4        162.8  

Lanzhou Petrochemical

     187.7        185.2        183.7  

Dushanzi Petrochemical

     147.2        124.9        143.6  

Dalian Petrochemical

     323.0        324.4        269.0  

Dalian West Pacific

     158.0        146.0        166.0  

Guangxi Petrochemical

     186.6        196.5        157.5  

Sichuan Petrochemical

     131.5        177.2        207.3  

Yunnan Petrochemical

     204.4        216.9        154.8  

Other refineries

     1,556.4        1,632.0        1,602.4  
  

 

 

    

 

 

    

 

 

 

Total

     3,234.3        3,365.6        3,225.9  
  

 

 

    

 

 

    

 

 

 

In 2020, the production restructuring and upgrading project of Daqing Petrochemical, the ethylene production capacity recovery project at Lanzhou Petrochemical, and a series of aviation kerosene production increasing projects and low-sulfur marine fuel oil projects were completed and launched. The construction of the key projects such as the refining-chemical integrated project at Guangdong Petrochemical and the projects to produce ethylene with ethane at Tarim and Changqing progressed in an orderly manner.

The table below sets forth the major indicators of the realized productivity of our refineries in each of 2018, 2019 and 2020.

 

     2018      2019      2020  

Average utilization rate of primary distillation capacity (%)

     82.5        85.1        80.0  

Average yield for principal refined products (%)(1)(2)

     70.6        71.8        68.2  

Overall refining yield (%)

     93.7        93.5        93.5  

 

(1)

Principal refined products include gasoline, kerosene, diesel and lubricant.

(2)

“Yield” represents the number of tons of a refined product expressed as a percentage of the number of tons of crude oil from which that product is processed.

 

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Table of Contents

To maintain efficient operations of our facilities and lower production costs, we have endeavored to achieve the most cost-efficient mix of various types of crude oil in our refining process. We purchase a portion of our crude oil requirements from third-party international suppliers located in different countries and regions. In 2020, we purchased crude oil sourced from Russian companies Roseneft and Transneft which are subject to U.S. economic sanctions, and Sudan which was designated as a State Sponser of Terrorism by the U.S. (the U.S. removed Sudan from the list of State Sponsors of Terriorism in December 2020), for use in our refining operations. The revenue generated from our refineries from the crude oil sourced from the Russian companies Rosneft and Transneft, and Sudan accounted for 3.16%, and 0.07% of our total revenue in 2020. See “Item 3 — Key Information — Risk Factors — Risks Related to Outbound Investments and Trading.”

Chemicals

Most of our chemical plants are close to our refineries and are connected to the refineries by pipelines, providing additional production flexibility and opportunities for cost competitiveness. The raw materials required by our chemicals operations are mainly supplied by our own refineries.

Our Chemical Products

The table below sets forth the production volumes of our principal chemical products for each of the years ended December 31, 2018, 2019 and 2020.

 

     Year Ended December 31,  
       2018          2019          2020    
     (In thousand tons)  

Basic petrochemicals

        

Ethylene

     5,569        5,863        6,345  

Derivative petrochemicals

        

Synthetic resin

     9,165        9,580        10,287  

Synthetic fiber raw materials and polymers

     1,388        1,309        1,278  

Synthetic rubber

     869        910        1,001  

Other chemicals

        

Urea

     828        1,208        2,163  

We are one of the major producers of ethylene in China. We use the bulk of the ethylene we produce as a principal feedstock for the production of many chemical products, such as polyethylene. As of December 31, 2020, our annual ethylene production capacity was 6,010 thousand tons. We produce a number of synthetic resin products, including polyethylene, polypropylene and ABS. As of December 31, 2020, our annual production capacities for polyethylene, polypropylene and ABS were 5,060 thousand tons, 4,220 thousand tons and 710 thousand tons, respectively. 

Marketing of Chemicals

Our chemical products are distributed to a number of industries including the automotive, construction, electronics, medical manufacturing, printing, electrical appliances, household products, insulation, packaging, paper, textile, paint, footwear, agriculture and furniture industries.

 

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Table of Contents

The following table sets forth the sales volumes of our chemical products by principal product category for each of the years ended December 31, 2018, 2019 and 2020.

 

     Year Ended December 31,  

Products

   2018      2019      2020  
     (In thousand tons)  

Derivative petrochemicals

  

Synthetic resin

     9,489.1        9,777.8        10,912.8  

Synthetic fiber

     75.8        39.1        25.2  

Synthetic rubber

     899.6        1,011.1        1,098.4  

Intermediates

     10,480.2        11,354.7        12,929.0  

Other chemicals

        

Urea

     732.3        1,561.2        2,596.9  

 

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Table of Contents

Marketing

We engage in the marketing of refined products through 34 regional sales companies including two distribution branch companies and one convenience store chain company, PetroChina uSmile Company Limited, operated under the trade name “uSmile”. These operations include the transportation and storage of the refined products, the wholesale, retail and export of gasoline, diesel, kerosene and other refined products, and non-oil business. In addition, with respect to our international trading sector, we have optimized the import and export resources, focused on synergies, actively expanded into the high-end markets, and maintained growth in trading volume and improved operation results.

The comparative data throughout this section of “Marketing” was presented as if (i) Dalian West Pacific had been consolidated from the earliest year presented (see “Item 4 — Information on the Company — Acquisitions and Divestments” and Note 40 to our consolidated financial statements in our Form 20-F filed on April 29, 2020); and (ii) Fuel Oil Company and Lubricant Company were transferred from the marketing segment to the refining and chemicals segment from the earliest year presented. See Note 38 to our financial statements.

The following table sets forth the financial and operating data of our marketing segment for each of the years ended December 31, 2018, 2019 and 2020:

 

     Year Ended December 31,  
     2018      2019      2020  

Revenue (RMB in millions)

     1,891,743        2,075,044        1,497,533  

Loss from operations (RMB in millions)

     8,628        2,878        2,906  

External sales volume of refined oil products (thousand tons)

     178,648        187,712        161,230  

With respect to our domestic sales business, we market a wide range of refined products, including gasoline, diesel, kerosene and lubricants, through an extensive network of sales personnel and independent distributors and a broad wholesale and retail distribution network across China. Our marketing network consists of:

 

   

Nationwide wholesale distribution outlets. Almost all of these outlets are located in high demand areas across China, particularly in the coastal areas, along major railways and along the Yangtze River. We sell refined products both directly and through distributors to various wholesale markets, as well as to utility, commercial, petrochemical, aviation, agricultural, fishery and transportation companies in China. Our gasoline and diesel sales also include the amount we sold to our retail operations; and

 

   

Service stations owned and operated by us and franchised service stations owned and operated by third parties across China including Hong Kong.

In order to adapt to changes in market condition and customer demand, we enhanced integrated marketing for refined products, fuel cards, non-oil business, lubricants and gas, and enhanced marketing through internet. We optimized our supply chain, upgraded the facilities and services at our gas stations, and enhanced the marketing of our non-oil businesses.

Our international trade business actively played a role in adjusting supply and demand, creating profit through business synergy. We optimized crude oil and natural gas imports, strengthened oil and gas sales, expanded refined oil exports and the high-end market, strengthened terminal network layout and cross-region and cross-city operations, enhanced transactions ability, and effectively managed operational risks.

The PRC government and other institutional customers, including railway, transportation and fishery operators, are long-term purchasers of the gasoline and diesel that we produce. We sell gasoline and diesel to these customers based on the supply prices for special customers prescribed by the PRC government. See “— Regulatory Matters — Pricing — Refined Products” for a discussion of refined product pricing.

 

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The following table sets forth information relating to our sales for each of the years ended December 31, 2018, 2019 and 2020 in the marketing segment:

 

     As of December 31,  
     2018      2019      2020  

Sales volume of gasoline, kerosene and diesel (thousand tons)

     178,648        187,712        161,230  

Of which: Gasoline

     71,125        76,366        66,084  

Kerosene

     20,619        21,183        14,350  

Diesel

     86,904        90,163        80,796  

Domestic sales volume of gasoline, kerosene and diesel

(thousand tons)

     116,356        118,995        105,896  

Of which: gasoline

     52,222        53,546        49,188  

Kerosene

     9,260        8,696        8,331  

Diesel

     54,874        56,753        48,377  

Lubricants (thousand tons)

     1,158        977        1,404  

Market share in domestic refined oil market (%

     36.4        36.7        35.9  

Number of service stations

     21,783        22,365        22,619  

Of which: owned service stations

     20,555        20,955        21,042  

Sales volume per service station (tons/day)

     10.28        10.08        8.48  

Number of convenience stores

     19,709        20,021        20,212  

 

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Natural Gas and Pipeline

We are China’s largest natural gas seller. We sell natural gas primarily to industrial companies, power plants, fertilizer and chemical companies, commercial users and municipal utilities owned by local governments. In addition, we also engage in oil and gas transmission in the natural gas and pipeline segment.

The following table sets forth the financial and operating data of our natural gas and pipeline segment for each of the years ended December 31, 2018, 2019 and 2020:

 

     As of December 31, or Year
Ended December 31,
 
     2018      2019      2020  

Revenue (RMB in millions)

     362,626        391,023        370,771  

Profit from operations (RMB in millions)

     25,515        26,108        72,410  

Total length of natural gas pipelines (km)

     51,751        53,291        22,555  

Total length of crude oil pipeline (km)

     20,048        20,091        7,190  

Total length of refined oil products pipeline (km)

     11,728        13,762        1,406  

Total volume of natural gas sold (Bcf)

     7,654.7        9,149.8        8,784.4  

Our Principal Markets for Natural Gas

We sell our natural gas across China. Our natural gas supply covers all provinces, municipalities under direct administration of the central government, autonomous regions and Hong Kong of China, except Macau and Taiwan. We supply natural gas to Tibet by LNG tanker trucks.

The Bohai Rim is one of our principal markets for natural gas. The natural gas supplied to Bohai Rim is primarily sourced from the Changqing oil and gas region and transmitted through the natural gas pipelines.

The Yangtze River Delta and Southwestern region in China are also our principal markets. We supply natural gas to these regions primarily from our domestic production sites and through long-distance pipelines and by LNG tanker trucks.

In addition, provinces such as Inner Mongolia, and Anhui consume more and more natural gas and have become another significant natural gas market of us.

Driven by environmental and efficiency concerns, the PRC government is increasingly encouraging industrial and residential use of natural gas. The PRC government has adopted a number of laws, regulations and policy goals to encourage the use of clean energy, such as natural gas and liquefied petroleum gas, to reduce carbon emissions and environmental pollution. The PRC government has granted preferential tax rate to natural gas operations. The current value-added tax rate for natural gas is 9%, while the value-added tax rate for crude oil and refined oil products is 13%. In 2017, the PRC government issued a new policy to accelerate the large-scale and high-efficient utilization of natural gas in urban gas, industrial fuel, gas-fired power generation and transportation, and to significantly increase the proportion of use of natural gas in primary energy consumption. The overall goal of the policy is that the proportion of natural gas in the primary energy consumption to reach around 10% by 2020 and 15% by 2030, and the underground gas storage to form an effective working gas volume of over 14.8 billion cubic meters by 2020 and over 35 billion cubic meters by 2030.

We believe that these policies have had a positive effect on the development and consumption of natural gas in our existing or potential markets for natural gas. We believe that these favorable policies will continue to benefit our natural gas business.

 

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Pipeline Business

In 2020, we sold our interests in certain branch companies, subsidiaries and associated companies, which together held our major pipeline assets to PipeChina in exchange for 29.9% of the equity interests in PipeChina and a cash consideration. The assets included our major oil and gas pipelines, certain gas storage facilities, oil storage facilities, LNG terminals and ancillary facilities, and the initial oil and gas inventory contained therein. In 2021, our subsidiary Kunlun Energy sold its equity interests in two entities holding pipeline assets to PipeChina for a cash consideration. Upon completion of the transactions, PipeChina has become the operator of the pipeline assets, providing us and other customers with pipeline transmission services. Pursuant to our agreements with PipeChina, PipeChina warranted that after completion of the transactions, the target assets shall remain in normal operations, and the quality of the services provided to us to be no lower than the previous level. Furthermore, PipeChina undertook that it will not take any action or allow any nonaction that may adversely affect our continuous normal use of any target assets in our production and operation. The pipeline assets retained by us after completion of the transactions mainly consist of the internal pipelines within our oil and gas fields and the pipelines connecting our oilfields to our refineries. As a shareholder of PipeChina, we expect to participate in the corporate governance of PipeChina according to its articles of association and we will coordinate with PipeChina on our requirements and proposals with respect to the pipeline operations according the agreements entered into between PipeChina and us.

See “Item 4 — Information on the Company — Acquisitions and Divestments”.

During the past three years, we have not experienced any delays in delivering natural gas, crude oil and refined products due to pipeline capacity constraints.

Competition

As an oil and gas company operating in a competitive industry, we compete in each of our business segments in both China and international markets for desirable business prospects and for customers. At present, our principal competitors in China are China Petrochemical Corporation, or Sinopec Group, and China National Offshore Oil Corporation, or CNOOC.

Exploration and Production Operations

We are the largest onshore oil and gas company in China in terms of proved crude oil and natural gas reserves as well as crude oil and natural gas production and sales. However, we compete with other domestic oil and gas companies for the acquisition of desirable crude oil and natural gas prospects. Similarly, we face some competition in the development of offshore oil and gas resources. In 2019, the Chinese government lifted the restrictions on foreign investment in oil and gas exploration and development, which had been limited to joint ventures and cooperation, introduced market competition mechanisms in the oil and gas industry to support private enterprises participating in oil and gas exploration and development. These policy changes mean that the barriers to entering the area of oil and gas exploration have been removed, and our exploration and development business may face heightened competition from foreign capital and private enterprises. In addition, the competition of international energy supply has intensified, the crude oil market continues to fluctuate, and price volatility has become frequent. We believe that our experience in crude oil and natural gas exploration and production and our advanced exploration and development technologies that are suitable for the diverse geological conditions in China will enable us to maintain our dominant position in discovering and developing crude oil and natural gas reserves in China.

Refining and Chemicals Operations and Marketing Operations

We compete with our primary competitor Sinopec in our refining and chemicals operations and marketing operations on the basis of price, quality and customer service. Most of our refineries and chemical plants are

 

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located in the Northeastern and Northwestern regions of China where we have the dominant market share for refined products and chemical products. We sell the remainder of our refined products and chemical products to the Eastern, Southern, Southwestern and Central-southern regions of China, where our products have a considerable market share. The Eastern and Southern regions of China, where refined products and chemical products are in higher demand, are important markets for our refined products and chemical products. Sinopec has a strong presence in the Eastern and Southern regions of China in competition with us, and most of Sinopec’s refineries, chemical plants and distribution networks are located in these regions in close proximity to these markets. Moreover, as the newly constructed facilities of CNOOC commenced operation in the same region, large quantity of chemical products have been marketed into that area, which made the competition even intense. We expect that we will continue to face competition in our refined products and chemical products sales in these regions.

In recent years, China has gradually liberalized the restrictions on market access for the refining and chemical industry. The refining and chemical industry led by us and Sinopec has been rapidly transformed into diversified market participants. Some large state-owned enterprises and private enterprises have entered the refining and chemical industry. Local refineries have rapidly emerged, and international refining and chemical companies have recently opened large refineries in China. The restrictions on foreign investment in wholesale and retail chains of refined oil have been further liberalized. In 2019, the Chinese government issued policies to further liberalize market access for private enterprises, encouraging private enterprises to enter the industries of refineries and sales, and to construct storage and transportation infrastructure for refined oil, and encourage qualified enterprises to participate in crude oil imports and refined oil exports. We expect to continue to face strong market competition.

We also face competition from imported refined products and chemical products in terms of price and quality. In recent years, competition from foreign producers of refined products and chemical products has increased as a result of changes in China’s tariff policies toward imported refined products and chemical products. In response, we have sought to reduce our production costs, improve the quality of our products and optimize our product mix.

In addition, we also face competition from alternative energy. Alternative energy is developing rapidly in China, and electric power, liquefied gas, natural gas and biodiesel have increasingly become effective alternatives to refined oil, continually reducing the market for refined oil. Among them, vehicular natural gas is still the main substitute for refined oil. Driven by the national policy and breakthroughs in battery and self-driving technologies, China’s electric vehicle industry has developed rapidly, which has led to a rapid growth in the number of electric cars in China. Electricity is expected to replace vehicular natural gas as the primary alternative energy source for refined oils and will continuously reduce the importance of refined oils as a major energy source. In October 2020, the State Council issued the New Energy Vehicle Industry Development Plan (for 2021-2035), according to which China expects that the share of new energy vehicles out of total vehicle sales in China will rise to 20% by 2025 and pure electric vehicles will account for the majority of vehicle sales by 2035.

Natural Gas and Pipeline Operations

We are the largest natural gas supplier in the PRC in terms of sales volume. Currently, we mainly face competition from Sinopec, CNOOC, coal-based natural gas producers and importers of natural gas and LNG in the supply of natural gas to Beijing, Tianjin, Hebei Province, Shanghai, Jiangsu Province, Anhui Province, Henan Province, Hubei Province, Hunan Province and the Northwestern regions of China, our existing principal markets for natural gas. Currently, Sinopec has natural gas fields in Sichuan Province and Chongqing Municipality and sells natural gas to users in places such as Sichuan Province, Chongqing, Hunan Province, Jiangsu Province, Zhejiang Province and Shanghai. We have also expanded into the coastal regions in Eastern and Southern China where we may face competition from CNOOC and Sinopec. Over the recent years, as the reform of the oil and gas regulatory system has continuously progressed amidst macro-economic changes, the

 

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reshaping of the oil and gas industry has accelerated in China. In addition to us, Sinopec and CNOOC, more and more other companies are exepcted to join the competition in the natural gas resources sector and oil and gas terminal business. In 2020, PipeChina acquired certain major pipeline assets from our company and several other oil and gas companies, making it the largest pipeline operator in China and enabling it to provide market participants with equal access to pipeline resources. This is expected to have a far reaching effect on the competitive landscape of the oil and gas industry in China and is expected to intensify the competition at the upstream resources segment and the downstream sales segment. See “Item 3 — Risk Factors — Risks Related to Government Regulation”, Item 3 — Risk Factors — Risks Related to Pipeline Asset Restructuring”, “Item 4 — Information on the Company — Acquisitions and Divestments”, “Item 4 — Information on the Company — Natural Gas and Pipeline” and “Item 5 — Operating and Financial Review and Prospects — Trend Information”. We believe that our advantages in natural gas resources, production, sales and technologies will enable us continue to be a dominant player in the natural gas markets in China.

See “Item 3 — Key Information — Risk Factors — Risks Related to Competition”.

Environmental Matters

Like other companies in the industries in which we operate, we are subject to numerous national, regional and local environmental laws and regulations promulgated by the governments in those jurisdictions. These laws and regulations concern our oil and gas exploration and production operations, petroleum and petrochemical products and other activities. In particular, some of these laws and regulations:

 

   

require an environmental evaluation report to be submitted and approved prior to the commencement of exploration, production, refining and chemical projects;

 

   

restrict the type, quantities, and concentration of various substances that can be released into the environment in connection with drilling and production activities;

 

   

limit or prohibit drilling activities within protected areas and certain other areas; and

 

   

impose penalties for pollution resulting from oil, natural gas and petrochemical operations, including criminal and civil liabilities for serious pollution.

These laws and regulations may also restrict the emissions into the air and discharges into surface and subsurface water from our gas processing plants, chemical plants, refineries, pipeline systems and other facilities that we own or operate. In addition, our operations are subject to laws and regulations relating to the generation, handling, storage, transportation, disposal and treatment of solid waste materials.

We anticipate that the environmental laws and regulations to which we are subject will become increasingly strict and are therefore likely to have an increasing impact on our operations. It is difficult, however, to predict accurately the effect of future developments in such laws and regulations on our future earnings and operations. Some risk of environmental costs and liabilities is inherent in our operations and products, as it is with other companies engaged in similar businesses. We cannot assure you that material costs and liabilities will not be incurred. However, we do not currently expect any material adverse effect on our financial condition or results of operations as a result of compliance with such laws and regulations. In 2018, 2019 and 2020, we paid a total environmental protection tax of approximately RMB140 million, RMB139 million and RMB143 million, respectively.

To meet future environmental obligations, we are engaged in a continuous program to develop effective environmental protection measures. These measures include:

 

   

building environment-friendly projects;

 

   

reducing sulfur in gasoline and diesel fuel;

 

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reducing olefins and benzene in gasoline, and continuously reducing emissions and effluents from our refineries and petrochemical plants; and

 

   

installing monitoring systems at our pollutant discharge openings.

Our capital expenditures on environmental programs in 2018, 2019 and 2020 were approximately RMB2.70 billion, RMB2.30 billion and RMB2.94 billion, respectively.

Because a number of our production facilities are located in populated areas, we have established a series of preventative measures to improve the safety of our employees and surrounding residents and minimize disruptions or other adverse effects on our business. These measures include:

 

   

providing the residents surrounding our production facilities with printed materials to explain and illustrate safety and protection knowledge and skills; and

 

   

enhancing the implementation of various effective safety production measures we have adopted previously.

We believe that these preventative measures have helped reduce the possibility of incidents that may result in serious casualties and environmental consequences. In addition, the adoption of these preventative measures has not required significant capital expenditures to date, and therefore, will not have a material adverse effect on our results of operations and financial condition.

See “Item 3 — Key Information — Risk Factors — Risks Related to Environmental Protection and Safety” and “Item 3 — Key Information — Risk Factors — Risks Related to Climate Change”.

Properties, Plants and Equipment

We own substantially all of our properties, plants and equipment relating to our business activities. We hold exploration and production licenses covering all of our interests in developed and undeveloped acreage, oil and natural gas wells and relevant facilities.

See the description of our properties, plants and equipment relating to our business activities included elsewhere in this “Item 4 — Information on the Company” and “Item 7 — Major Shareholders and Related Party Transactions — Related Party Transactions”.

Intellectual Property

Our company logo “ LOGO ” is jointly owned by us and CNPC and has been used since December 26, 2004. Together with CNPC, we have applied for trademark registrations of the logo both in China and abroad. We have received 506 International Trademark Registration Certificates for our logo covering more than 50 jurisdictions.

As of December 31, 2020, we owned approximately 20,587 patents in China and other jurisdictions. We were granted 2,784 patents in 2020.

 

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Regulatory Matters

Overview

China’s oil and gas industry is subject to extensive regulation by the PRC government with respect to exploration, production, transmission and marketing of crude oil and natural gas as well as production, transportation and marketing of refined products and chemical products. The following central government authorities exercise control over China’s oil and gas industry:

 

   

The National Energy Administration, or the NEA, is primarily responsible for the formulation of energy development plans and annual directive plans, approving major energy-related projects and facilitating the implementation of sustainable development of energy strategies, coordinating the development and utilization of renewable energies and new energies, and organizing matters relating to energy conservation and comprehensive utilization as well as environmental protection for the energy industries.

 

   

The Ministry of Natural Resources, or the MNR, has the authority to grant, examine and approve mineral resources exploration and production licenses, and to oversee the registration and transfer of exploration and production licenses;

 

   

The Ministry of Commerce, or the MOFCOM,

 

   

sets and grants import and export volume quotas for crude oil and refined products in accordance with the market supply and demand in China as well as WTO requirements for China;

 

   

issues import and export licenses for crude oil and refined products to oil and gas companies that have obtained import and export quotas;

 

   

is responsible for the record-filing of Sino-foreign joint venture contracts, and monitoring the foreign investors’ oil and gas exploration projects in the PRC; and

 

   

is responsible for approving and filing of overseas investment projects by PRC enterprises.

 

   

The National Development and Reform Commission, or the NDRC:

 

   

is responsible for industry administration, industry policy and policy coordination over China’s oil and gas industry;

 

   

publishes guidance prices for natural gas and maximum retail prices for gasoline and diesel;

 

   

formulates the plan for aggregate import and export volume of crude oil and refined products in accordance with the market supply and demand in China;

 

   

approves significant petroleum, natural gas, oil refinery and chemical projects set forth under the Catalogs of Investment Projects Subject to Approval of the Central Government; and

 

   

approves Sino-foreign equity and cooperative projects of certain types.

Exploration Licenses and Production Licenses

The Mineral Resources Law authorizes the MNR to exercise administrative authority over the exploration and production of mineral resources within the PRC. The Mineral Resources Law and its supplementary regulations provide the basic legal framework under which exploration licenses and production licenses are granted. License applicants must be companies approved by the State Council to engage in oil and gas exploration and production activities.

Applicants for exploration licenses must first register the blocks that they intend to engage in exploration activities with the MNR. The holder of an exploration license is obligated to make a progressively increasing annual minimum exploration investment in each corresponding block. Investments range from RMB2,000 per

 

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square kilometer for the initial year to RMB5,000 per square kilometer for the second year, and to RMB10,000 per square kilometer for the third and subsequent years. Additionally, the holder has to pay royalty fees that starts at RMB100 per square kilometer per year for each of the first three years and increases by an additional RMB100 per square kilometer per year for subsequent years up to a maximum of RMB500 per square kilometer per year. The maximum term of an oil and natural gas exploration license is seven years, subject to renewal upon expiration of the original term, with each renewal being up to two years. At the exploration stage, an applicant can also apply for a progressive exploration and production license that allows the holder to test and develop reserves not yet fully proven. Upon the detection and confirmation of the quantity of reserves in a certain block, the holder must apply for a production license based on economic evaluation, market conditions and development planning in order to shift into the production phase in a timely fashion. In addition, the holder needs to obtain the right to use that block of land. Generally, the holder of a full production license must obtain a land use rights certificate for industrial land use covering that block of land.

The MNR issues production licenses to applicants on the basis of the reserves reports approved by the relevant authorities. Production license holders are required to pay a royalty of RMB1,000 per square kilometer per year. Administrative rules issued by the State Council provide that the maximum term of a production license is 30 years, 20 years, or 10 years as applicable to large, medium and small mineral blocks, respectively. In accordance with a special approval from the State Council, the MNR has issued production licenses with terms coextensive with the projected productive life of the assessed proven reserves as discussed above. Each of our production licenses is renewable upon our application 30 days prior to expiration. If oil and gas prices increase, the productive life of our crude oil and natural gas reservoirs may be extended beyond the current terms of the relevant production licenses.

The MNR comprehensively promotes the manner which mining rights are granted through competitive ways, such as bidding, auction or listing, while strictly limites the non-competitive ways.

China has impletemented the regulation of unified licensing of oil and gas exploration and production, pursuant to which, if an oil and gas exploration license holder discovers any oil and gas reservoir available for production, it may commence production immediately after having submitted a report to the local natural resource authorities, and is not required to obtain a separate oil and gas production license. If such oil and gas exploration license holder has since then conducted oil and gas production activities, it is required to enter into a mining rights grant contract and complete the mining rights registration in accordance with applicable laws within five years thereafter.

Among the major PRC oil and gas companies, the exploration licenses and production licenses held by us, Sinopec and CNOOC account for the majority of mining rights in China. Among those companies, we and Sinopec primarily engage in onshore exploration and production, while CNOOC primarily engages in offshore exploration and production. According to the new policies of the Chinese government, private enterprises and foreign-invested enterprises are allowed to obtain exploration licenses.

Pricing

In recent years, the pricing of gasoline, diesel, natural gas and pipeline transmission services, depending on the situation, has either been subject to government guiding prices or goverment set prices, while the pricing of crude oil and other refined oil products is not subject to government regulation.

Gasoline and Diesel

According to the Measures for Administration of Petroleum Products Pricing issued by the NDRC on January 13, 2016, (i) the retail prices and wholesale prices of gasoline and diesel, and the prices for supply of gasoline and oil to special customers such as social wholesale enterprises, railway and other transportation operators are expected to follow government guiding prices, and (ii) the supply prices for supply of gasoline and

 

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diesel to the country’s Strategic Petroleum Reserve and Xinjiang Production and Construction Corps are expected to follow government set prices. The ceiling retail prices of gasoline and diesel are determined on the basis of international crude oil prices, by taking into consideration the average domestic processing cost, tax, reasonable circulation costs and appropriate profit margin. Further, when the international crude oil prices drop to US$40 per barrel or below, the prices of refined oil products in China will be calculated as if the crude oil price were still US$40 per barrel and by taking into consideration a normal processing profit margin. When the international crude oil prices rise to the range between US$40 per barrel (exclusive) and US$80 per barrel (inclusive), the prices of refined oil products in China will be calculated by taking into consideration a normal processing profit margin. When the international crude oil prices surge to more than US$80 per barrel, the processing profit margin used to determine the prices of refined oil products will be reduced until to zero. When the international crude oil prices surge to US$130 per barrel or above, appropriate financial and taxation policies will be adopted to ensure the production and supply of refined oil products but the prices of gasoline and diesel will in principle remain unadjusted or will only be slightly adjusted upwards in principle by adhering to the principle of taking into account the interests of both the producers and the consumers so as to maintain the smooth operation of the national economy. The government would adjust the gasoline and diesel prices every 10 working days in line with fluctuations in international crude oil prices. Refined oil retail enterprises have freedom to set their own specific retail prices as long as their retail prices do not exceed the ceiling prices set by the government. The ceiling supply prices of gasoline and diesel to be supplied to special customers such as railway, transportation and other business operators by domestic refined oil production and marketing enterprises are determined by reducing the ceiling national average retail price by RMB400 per ton. Domestic refined oil production and marketing enterprises may determine the specific supply prices with special customers such as railway, transportation and other business operators through negotiations subject to the ceiling supply prices published by the government. When market retail prices drop, the supply prices set for special customers will be adjusted downward accordingly. The so-called “special customers” means big customers who have for historical reasons established their own independent oil supply system, as identified in a list formulated by the NDRC. The supply prices of gasoline and diesel to be supplied to the country’s Strategic Petroleum Reserve and Xinjiang Production and Construction Corps by domestic refined oil production and marketing enterprises are determined by deducting circulation markup from the ceiling national average retail price.

On March 13, 2020, the NDRC issued the updated version of the Central Pricing Catalog. According to the updated Catalog, in the interim, prices of refined oil products will continue to be determined by the existing pricing mechanism, as adjusted in line with the fluctuations in international oil prices. The updated Catalog indicates that based on the progress of the oil and gas reform, China will fully liberalize the pricing of refined oil products and allow it to be entirely market-based in due course.

Natural Gas

According to the updated Central Pricing Catalog issued by the NDRC on March 13, 2020, the prices of offshore gas, shale gas, coal bed methane, coal gas, LNG, gas supplied directly to certain customers, gas supplied to and resold by gas storage facilities, gas publicly traded on trading platforms, gas imported through pipelines put into operation after 2015, and citygate gas prices in those provinces possessing conditions for determining citygate gas prices through competition should become market based. The prices of other domestically produced onshore pipeline gas and the citygate prices of the gas imported through pipelines put into operation before the end of 2014 should in the interim continue to be determined by the existing pricing mechanism, and will be liberalized and become market-based in due course as the reform to marketize the natural gas sector progresses. Pursuant to the natural gas pricing reform programs issued by the NDRC in recent years, at present, the PRC government regulates natural gas pricing mainly through the citygate benchmark price. Under this regime, gas suppliers and purchasers would determine the specific citygate prices for their transactions through negotiations by using the citygate benchmark prices published by the relevant local governments as the base and then adjusting the base either upwards by no more than 20% or downwards without limit. The NDRC also rolled out seasonal natural gas prices to encourage market-oriented pricing. Natural gas production and marketing enterprises and users are encouraged to proactively trade on natural gas trading platforms. Prices of natural gas

 

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publicly traded on natural gas exchanges such as Shanghai Oil and Gas Exchange and Chongqing Oil and Gas Exchange are entirely driven by market conditions.

Pipeline Transmission Tariff

Pipeline transmission tariffs for crude oil, refined oil and natural gas are set by the government. Cross province transmission tariffs are set by the NDRC and provincial transmission tariffs are set by the provincial level branches of the NDRC.

For those pipelines constructed prior to 1984, which were funded by the government, the transmission tariff is a uniform flat tariff determined based on the principle of minimum profit margin. For those pipelines constructed with the funds of the enterprises after 1984, the tariffs must be submitted to the NDRC for examination and approval on a case by case basis and based on the capital investment made in the pipeline, the operation period for the pipeline and a reasonable profit margin.

On October 9, 2016, the NDRC issued Regulation on Administration of the Pipeline Transmission Tariff for Natural Gas (on trial) and Rules on Supervision and Review of the Costs Used in Setting the Pipeline Transmission Tariff (on trial), which provides that effective January 1, 2017, the pipeline transmission tariff for natural gas shall be reviewed and determined on the principle of “permissible costs plus reasonable margins”, and the rules intended to regulate the tariff charged by companies engaged in cross-province pipeline transmission operation.

On March 27, 2019, the NDRC issued the Notice on Adjusting the Inter-provincial Pipeline Natural Gas Transmission Tariff, which adjusted the transmission tariff for 13 inter-provincial pipelines companies including PetroChina Beijing Natural Gas Pipeline Co., Ltd. and others.

Production and Marketing

Crude Oil

Each year, the NDRC publishes the projected target for the production and process of crude oil in China based on the domestic consumption estimates submitted by domestic producers, including but not limited to us, Sinopec and CNOOC, the production of these companies as well as the forecast of international crude oil prices. The actual production volumes are determined by the producers themselves and may vary from estimates. The MOFCOM and its local branches were previously responsible for supervising and managing the crude oil market. Enterprises that meet certain operating conditions may apply for the permit for crude oil sales and warehousing business. On December 3, 2019, the MOFCOM issued the Notice on Proper Implementation of the Reform to “Streamline Administration, Delegate Power, Strengthen Regulation and Improve Services” in the Administration of Circulation of Refined Petroleum Products. According to the Notice, MOFCOM offices will no longer accept applications for qualifications for crude oil marketing or warehousing business, or for amendment, renewal or cancelation of the certificates of such qualifications, and such certificates shall expire automatically upon expiration and will not be taken back. This means that the operation of crude oil marketing and warehousing business will no longer be subject to MOFCOM approval.

Refined Products

Previously, only we, Sinopec and joint ventures of the two companies had the right to conduct gasoline and diesel wholesale business. Other companies, including foreign invested companies, were not allowed to engage in wholesale of gasoline and diesel in China’s domestic market. In general, only domestic companies, including Sino-foreign joint venture companies, were permitted to engage in retail of gasoline and diesel. Since December 11, 2004, wholly foreign-owned enterprises are permitted to conduct refined oil retail business. Since January 1, 2007, when the Measures on the Administration of the Refined Products Market became effective, all

 

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entities meeting certain requirements are allowed to submit applications to the MOFCOM to conduct refined oil products wholesale, retail and storage businesses. On July 28, 2018, the PRC government removed the restriction that a Chinese partner must hold a majority share in the construction and operation of a retail oil station chain which has more than 30 outlets and sells refined products of different types and brands supplied through multiple channels. On August 27, 2019, the State Council canceled government approval of qualifications for operation of refined oil wholesale warehousing and delegated the approval of refined oil retail qualifications to local municipal governments.

On December 3, 2019, the MOFCOM issued the Notice on Proper Implementation of the Reform to “Streamline Administration, Delegate Power, Strengthen Regulation and Improve Services” in the Administration of Circulation of Refined Petroleum Products. According to the Notice, any market player proposed to engage in the refined petroleum product wholesale and warehousing activities may commence and carry out such activities in accordance with applicable laws and regulations after they meet relevant criteria and obtain relevant qualifications or pass relevant acceptance tests and is not required to obtain operating licenses from MOFCOM. On December 31, 2020, the General Office of the MOFCOM issued the Guidelines for the Administration of the Refined Petroleum Product Circulation Sector. According to the Guidelines, any market player engaged in refined petroleum product wholesale and warehousing business activities shall comply with laws and regualtions and criteria related to enterprise registration, land and resources administration, planning and construction, oil product quality, safety production, environmental protection, firefighting, terrorism-fighting, tax, transportation, meteorology, metering, etc., obtain relevant qualifications or pass relevant acceptance tests, and shall carry out business operation in accordance with laws and regulations. This means that the operation of refined oil marketing and warehousing business will no longer be subject to MOFCOM approval.

Natural Gas

The NDRC determines each year the annual national natural gas production target based on the natural gas production targets submitted by domestic natural gas producers. Domestic natural gas producers determine their annual natural gas production targets on the basis of consumption estimates. The actual production volume of each producer is determined by the producer itself, which may deviate from the production target submitted by it. The NDRC also formulates the annual natural gas supply guideline, which requires natural gas producers to distribute a specified amount of natural gas to the designated key municipalities and key enterprises.

Foreign Investments

Cooperation in Exploration and Production with Foreign Companies

Currently, CNPC is one of the few Chinese companies that have the right to cooperate with foreign companies in onshore crude oil and natural gas exploration and production in China. CNOOC has the right to cooperate with foreign companies in offshore crude oil and natural gas exploration and production in China.

Sino-foreign cooperation projects and foreign parties in onshore oil and gas exploration and production in China are generally selected through open bids and bilateral negotiations. Those projects are generally conducted through production sharing contracts. The MOFCOM must approve those contracts.

As authorized by the Regulations of the PRC on Exploration of Onshore Petroleum Resources in Cooperation with Foreign Enterprises, CNPC has the right to enter into joint cooperation arrangements with foreign oil and gas companies for onshore crude oil and natural gas exploration and production. We do not have the capacity to enter into production sharing contracts directly with foreign oil and gas companies under existing PRC law. Accordingly, CNPC will enter into production sharing contracts. After signing a production sharing contract, CNPC will, subject to approval of the MOFCOM, assign to us most of its commercial and operational rights and obligations under the production sharing contract as required by the Non-competition Agreement between CNPC and us.

 

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In 2019, the Chinese government lifted the restrictions on foreign investment in oil and gas exploration. As a result, foreign companies are allowed to enter the oil and gas exploration and production sector by wholly-owned enterprieses.

Transportation and Refining

Since December 1, 2007, PRC regulations have encouraged foreign investment in the construction and operation of oil and gas pipelines and storage facilities. On March 10, 2015, PRC lifted the restrictions on foreign investment in refineries with a production capacity of below 10 million tons per annum. Furthermore, when appropriate, projects must receive necessary approvals from relevant PRC government agencies. See “Item 3 — Key Information — Risk Factors — Risks Related to Government Regulation.”

The State Further Liberalized Oil And Gas Market Access

On June 30, 2019, the NDRC and the MOFCOM jointly issued Special Management Measures for Foreign Investment Access (Negative List) (2019 Edition), pursuant to which, the restrictions on oil and gas exploration and development that were previously limited to joint ventures and cooperation were lifted.

On December 22, 2019, the Central Committee of the Communist Party of China and the State Council issued the Opinions on Creating a Better Development Environment to Support the Reform and Development of Private Enterprises, which further liberalized market access for private enterprises. It states that in key industries and fields such as power, telecommunications, railways, oil and gas, the state liberalizes competitive businesses and further introduces market competition mechanisms. It encourages private enterprises to enter the industries of oil and gas exploration and development, refining and sales, and construction of infrastructures such as storage, transportation and pipeline transportation of crude oil, natural gas and refined oil. It encourages qualified enterprises to participate in crude oil imports and refined oil exports.

Import and Export

Since January 1, 2002, state-owned trading companies have been allowed to import crude oil under an automatic licensing system. Non-state-owned trading companies have been allowed to import crude oil and refined products subject to quotas. The export of crude oil and refined oil products by both state-owned trading companies and non-state-owned trading companies is subject to quota control. The MOFCOM has granted us the right to conduct crude oil and refined product import and export business.

Capital Investment and Financing

Capital investments in exploration and production of crude oil and natural gas made by Chinese oil and gas companies are subject to approval by or filing with relevant government authorities. The following projects are subject to approval by the NDRC or the competent local authorities:

 

   

facilities for taking delivery of and storing liquefied petroleum gas (excluding accessory projects of oil or gas fields or refineries);

 

   

new facilities for taking delivery of or storing imported liquefied natural gas (including expansion on a different site other than the original facilities);

 

   

oil or gas transmission pipeline networks (excluding gathering and transmission pipeline networks of oil or gas fields);

 

   

new refineries, expansion of existing primary processing refineries;

 

   

new ethylene, paraxylene (PX), diphenylmethane diisocyanate (MDI) projectsand

 

   

new coal-to-olefins projects, new coal to paraxylene (PX) projects, and new coal-to-methanol projects with a capacity of 1 million tons per annum or more.

 

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Taxes, Fees and Royalties

We are subject to a variety of taxes, fees and royalties. The table below sets forth the major taxes, fees and royalty fees payable by us or by Sino-foreign oil and gas exploration and development cooperative projects. Our subsidiaries which have legal person status should report and pay enterprise income tax to the relevant tax authorities based on the applicable laws and regulations.

 

Tax Item

  

Tax Base

  

Tax Rate

Enterprise income tax    Taxable income   

25%; and from January 1, 2021 to December 31, 2030, the corporate income tax on enterprises incorporated in

encouraged industries in the western region of China will be levied at a reduced rate of 15%.

Value-added tax    Revenue   

Prior to July 1, 2017, value added tax rates were 17%, 13%, 11% and 6%, as applicable. In particular, 13% was for liquefied natural gas, natural gas, liquefied petroleum gas, agricultural film and fertilizers and 17% for oil products and other products.

 

Effective July 1, 2017, the rate of 13% was canceled and the applicable rate for natural gas has been changed from 13% to 11%.

 

Effective May 1, 2018, the rate of 17% was changed to 16% and the rate of 11% was changed to 10%.

 

Effective April 1, 2019, the rate of 16% was changed to 13% and the rate of 10% was changed to 9%.

Consumption tax    Aggregate volume sold or self-consumed    RMB1.52 per liter for gasoline, naphtha, solvent naphtha and lubricant and RMB1.2 per liter for diesel, aviation kerosene and fuel oil.
Resource tax    Sales   

6%, exemption or reduction may apply if qualified.

 

From April 1, 2018 to March 31, 2021, shale gas production enjoys a 30% reduction.

Crude oil special gain levy    Sales amount above specific threshold    Five-level progressive tax rates from 20% to 40%, taxable if the crude oil price reaches the threshold of US$65 per barrel.
Environmental protection tax    Air pollution equivalent, water pollution equivalent, solid waste pollution equivalent and noise exceeding the standard decibel   

Effective January 1, 2018, the PRC government started to impose environmental protection tax. Different emissions apply their corresponding tax rates.

 

If a taxpayer’s emission of taxable atmospheric pollutants or water pollutants is less than 30% of the national and local pollutant discharge standards, the environmental protection tax shall be levied at 75%. If the taxpayer’s emission of taxable atmospheric pollutants or water pollutants is less than 50% of the national and local pollutant discharge standards, the environmental protection tax shall be levied at 50%.

Mining right royalty    Area    RMB100 to RMB500 per square kilometer per year for exploration; RMB1,000 per square kilometer per year for production.
Royalty fee(1)    Production volume    Progressive rate of 0-12.5% for crude oil and 0-3% for natural gas.

 

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(1)

It shall be paid in cash and is only applicable to Sino-foreign oil and gas exploration and development cooperative projects in China. However, effective December 1, 2010, the royalty fee payable by new Sino-foreign oil and gas exploration and development cooperative projects in Western regions was replaced by the resource tax, while those cooperative projects under contracts signed before December 1, 2010 continue to be subject to the royalty fee until the contracts expire. Effective November 1, 2011, the royalty fee payable by new Sino-foreign oil and gas exploration and development cooperative projects in the whole country was replaced by the resource tax, while those cooperative projects under contracts signed before November 1, 2011 continue to be subject to the royalty fee until the contracts expire.

Environmental Regulations

We are subject to various PRC national environmental laws and regulations and also environmental regulations promulgated by the local governments in whose jurisdictions we have operations. The PRC government has adopted extensive environmental laws and regulations that affect the operation of the oil and gas industry. There are national and local standards applicable to emissions control, discharges to surface and subsurface water and disposal, generation, handling, storage, transportation, treatment and disposal of solid waste materials, reduction of carbon emission and upgrade of the standards for refined products.

The environmental regulations require a company, such as us, to register or file an environmental impact report with the relevant environmental authority for approval before it undertakes any construction of a new production facility or any major expansion or renovation of an existing production facility. The new facility or the expanded or renovated facility will not be permitted to operate unless the relevant environmental authority has inspected the environmental equipment installed at the facility and decides it satisfies the environmental protection requirements. Companies that need to discharge pollutants, whether in the form of gas, water or solid wastes, must submit application for pollutant discharge permits. The application must state in detail the types of discharge, discharge outlet, types of pollutants, concentration and amount of discharge. After reviewing the application materials, the relevant environmental administrative department will determine to issue a discharge permit to the company, specifying the types of permitted pollutants, the permitted concentration and amount. If a company’s discharges deviated from what were permitted, the relevant administrative department may impose fines on the company or order the company to suspend or close down its operation for resolving the issues. In addition, companies discharging taxable pollutants should declare and pay corresponding environmental protection taxes in accordance with the PRC Environmental Protection Tax Law and its implementing regulations.

In recent years, the Chinese government has endeavored to promote low-carbon policies. It has set a goal of increasing the proportion of non-fossil energy consumption and announced the aim to hit peak emissions before 2030 and realize carbon neutrality by 2060. In order to reduce environmental pollution, the Chinese government has also raised the standards of oil products several times in recent years. After several years of upgrading and renovating our oil refining facilities, we have satisfied the relevant standards on time. In addition, we are also required to comply with relevant laws and regulations regarding management of hazardous chemicals.

Item 4A — UNRESOLVED STAFF COMMENTS

We do not have any unresolved staff comment.

Item 5 — OPERATING AND FINANCIAL REVIEW AND PROSPECTS

General

You should read the following discussion together with our consolidated financial statements and their notes included elsewhere in this annual report. Our consolidated financial statements have been prepared in accordance

 

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with IFRS. The comparative data throughout Item 5 was presented as if (i) Dalian West Pacific had been consolidated from the earliest financial year presented (see “Item 4 — Information on the Company — Acquisitions and Divestments” and Note 40 to our consolidated financial statements in our Form 20-F filed with the SEC on April 29, 2020); and (ii) Fuel Oil Company and Lubricant Company were transfered from the marketing segment to the refining and chemicals segment from the earliest financial year presented (see Note 38 to our financial statements). In addition, we initially applied IFRS 16 on January 1, 2019. According to the adopted transition plan, the comparative data throughout this Item 5 has not been restated. For a detailed description of the changes and impacts of these accounting standards, please refer to Note 3 (ac) to our financial statements.

Overview

We are engaged in a broad range of petroleum and natural gas related activities, including:

 

   

exploration, development, production and sale of crude oil and natural gas;

 

   

refining of crude oil and petroleum products, and production and marketing of primary petrochemical products, derivative chemical products and other chemical products;

 

   

marketing and trading of refined oil products; and

 

   

transmission of natural gas, crude oil and refined oil products as well as sale of natural gas.

We are China’s largest producer of crude oil and natural gas and are one of the largest companies in China in terms of revenue. In 2020, we produced approximately 921.8 million barrels of crude oil and approximately 4,221.0 Bcf of natural gas for sale. Our refineries processed approximately 1,177.5 million barrels of crude oil in 2020. In 2020, our revenue was RMB1,933,836 million and net profit attributable to owners of the Company was RMB19,006 million.

Factors Affecting Results of Operations

Our results of operations and the period-to-period comparability of our financial results are affected by a number of external factors, including changes in the prices, production and sales volume of our principal products, operating costs and the regulatory environment.

Prices of Principal Products

The fluctuations in the prices of crude oil, refined products, chemical products and natural gas have a significant impact on our revenue. In the first half of 2020, due to the impact of the COVID-19 pandemic, the oil output policies implemented by certain oil-producing countries and other factors, the international crude oil price displayed in a “V” shape. A rarely seen drastic drop in oil price and an unprecedented negative oil price was reported in the first half of 2020. Although the crude oil price rose steadily after reaching a low point in late April 2020, the crude oil price was generally at a low level throughout the year. The average spot price of North Sea Brent and WTI crude oil in 2020 was US$41.78 per barrel and US$39.28 per barrel, respectively, representing a decrease of 34.9% and 31.1% over 2019, respectively. As a result, 2020 witnessed a drastic decline in the prices of refined oil products and natural gas. See “Item 4 — Information on the Company — Regulatory Matters — Pricing” for a more detailed discussion of current PRC pricing regulations, “Item 3 — Risk Factors — Risks Related to COVID-19” and “Item 3 — Risk Factors — Risks Related to Pricing and Exchange Rate”.

 

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The table below sets forth the average realized prices of our principal products in 2018, 2019 and 2020.

 

     2018      2019      2020  

Crude oil (US$/barrel)

     68.28        60.96        40.33  

Natural gas (US$/thousand cubic feet)

     5.85        5.39        4.80  

Gasoline (US$/barrel)

     124.88        110.63        94.86  

Kerosene (US$/barrel)

     86.73        78.08        48.67  

Diesel (US$/barrel)

     110.38        102.16        81.59  

Production and Sales Volume for Oil and Gas Products

Our results of operations are also affected by production and sales volumes. Our crude oil and natural gas production volumes depend primarily on the level of the proved developed reserves in the fields in which we have an interest, as well as other factors such as the general macroeconomic environment and market supply and demand conditions, while the sales of crude oil, natural gas, refined oil and chemical products are subject to marketing capabilities and competitive environment.

Operating costs

The general macroeconomic environment and market supply and demand conditions may also affect our operating costs. For example, labor costs and the price index (CPI) in general in the countries where we operate are affected by the global and local macroeconomic environment. Changes in commodity prices may also affect our operating costs, as it would affect our ability to pass on the change in such commodity prices through a change in the prices of our products.

Regulatory Environment

Our operating activities are subject to extensive regulations and control by the PRC government, including the issuance of exploration and production licenses, the imposition of industry-specific taxes or product-specific taxes and levies and the implementation of environmental policies and safety standards. Our results of operations will be affected by any future changes of such regulatory environment.

Pipeline Assets Restructuring

In 2020, we recognized a pre-tax gain of RMB46,946 million from the pipeline assets restructuring transaction. See “Item 4 — Information on the Company — Acquisitions and Divestments”. As a result of the pipeline assets restructuring, we will no longer record revenue and costs (including depreciation and amortization) associated from the disposed target assets. As a shareholder of PipeChina, we apply the equity method to account for the investment in an associate and expect to receive dividends from PipeChina in accordance with their dividend policy. For further details associated with the risks relating to the pipeline asset restructuring, see “Item 3 — Key Information — Risks Related to Pipeline Asset Restructuring”.

Critical Accounting Policies

The preparation of our consolidated financial statements requires our management to select and apply significant accounting policies, the application of which may require management to make judgments and estimates that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. Notwithstanding the presentation of our principal accounting policies in Note 3 to our consolidated financial statements included elsewhere in this annual report, we have identified the accounting policies below as most critical to our business operations and the understanding of our financial condition and results of operations presented in accordance with IFRS. Although these estimates are based on our management’s best knowledge of current events and actions, actual results ultimately may differ from those estimates.

 

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Accounting for Oil and Gas Exploration and Production Activities

We use the successful efforts method of accounting, with specialized accounting rules that are unique to the oil and gas industry, for oil and gas exploration and production activities. Under this method, geological and geophysical costs incurred are expensed when incurred. However, all costs for developmental wells, support equipment and facilities, and proved mineral interests in oil and gas properties are capitalized. Costs of exploratory wells are capitalized as construction in progress pending determination of whether the wells find proved reserves. For exploratory wells located in regions that do not require substantial capital expenditures before the commencement of production, the evaluation of the economic benefits of the reserves in such wells will be completed within one year following the completion of the exploration drilling. Where such evaluation indicates that no economic benefits can be obtained, the relevant costs of exploratory wells will be converted to dry well exploration expenses. The relevant costs will be classified as oil and gas assets and go through impairment review if the evaluation indicates that economic benefits can be obtained. For wells with economically viable reserves in areas where a major capital expenditure would be required before production can begin, the related well costs remain capitalized only if additional drilling is under way or firmly planned. Otherwise the well costs are expensed as dry wells. We have no material costs of unproved properties capitalized in oil and gas properties.

Oil and Gas Reserves

The estimation of the quantities of recoverable oil and gas reserves in oil and gas fields is integral to effective management of our exploration and production operations. Because of the subjective judgments involved in developing and assessing such information, engineering estimates of the quantities of recoverable oil and gas reserves in oil and gas fields are inherently imprecise and represent only approximate amounts.

Before estimated oil and gas reserves are designated as “proved”, certain engineering criteria must be met in accordance with industry standards and the regulations of the SEC. Proved oil and gas reserves are the estimated quantities of crude oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulation before the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether the estimate is a deterministic estimate or probabilistic estimate. Therefore, these estimates do not include probable or possible reserves. Our proved reserves estimates are assessed or audited annually by independent, qualified and experienced oil and gas reserves engineering firms in the United States and Canada. Our oil and gas reserves engineering department has policies and procedures in place to ensure that these estimates are consistent with these authoritative guidelines. Among other factors required by authoritative guidelines, this estimation takes into account recent information about each field, including production and seismic information, estimated recoverable reserves of each well, and oil and gas prices and operating costs as of the date the estimate is made. The price shall be the average price during the 12-month period before the ending date of the period covered by this report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions. The costs shall be that prevailing at the end of the period.

Despite the inherent imprecision in these engineering estimates, estimated proved oil and gas reserves quantity has a direct impact on certain amounts reported in the financial statements. In addition to the capitalization of costs related to oil and gas properties on the balance sheet discussed earlier, estimated proved reserves also impact the calculation of depreciation, depletion and amortization expenses of oil and gas properties. The cost of oil and gas properties is amortized at the field level on the unit of production method. Unit of production rates are based on the total oil and gas reserves estimated to be recoverable from existing facilities based on the current terms of our production licenses. Our reserves estimates include only crude oil and natural gas which the management believes can be reasonably produced within the current terms of the production

 

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licenses that are granted by the Ministry of Natural Resources, ranging from 30 years to 55 years from the effective date of issuance in March 2000, renewable upon application 30 days prior to expiration. Consequently, the impact of changes in estimated proved reserves is reflected prospectively by amortizing the remaining book value of the oil and gas property assets over the expected future production. If proved reserves estimates are revised downward, earnings could be affected by higher depreciation expense or an immediate write-down of the property’s book value had the downward revisions been significant See “— Property, Plant and Equipment” below. Given our large number of producing properties in our portfolio, and the estimated proved reserves, it is unlikely that any changes in reserves estimates will have a significant effect on prospective charges for depreciation, depletion and amortization expenses.

In addition, due to the importance of these estimates in understanding the perceived value and future cash flows of a company’s oil and gas operations, we have also provided supplemental disclosures of “proved” oil and gas reserves estimates prepared in accordance with authoritative guidelines elsewhere in this annual report.

Property, Plant and Equipment

Where it is probable that property, plant and equipment, including oil and gas properties, will generate future economic benefits, their costs are initially recorded in the consolidated statement of financial position as assets. Cost represents the purchase price of the asset and other costs incurred to bring the asset into expected use. Subsequent to their initial recognition, property, plant and equipment are carried at cost less accumulated depreciation, depletion and amortization (including any impairment).

Depreciation, to write off the cost of each asset, other than oil and gas properties, to their residual values over their estimated useful lives is calculated using the straight-line method. The Company uses the following useful lives for depreciation purposes:

 

Buildings and plants

     8-40 years  

Equipment and machinery

     4-30 years  

Motor vehicles

     4-14 years  

Other

     5-12 years  

No depreciation is provided on construction in progress until the assets are completed and ready for use.

The assets’ residual values and useful lives are reviewed, and adjusted as appropriate, at the end of each reporting period.

Property, plant and equipment, including oil and gas properties, are reviewed for possible impairments when events or changes in circumstances indicate that the carrying amount may not be recoverable. Determination as to whether and how much an asset is impaired involves management estimates and judgments such as future crude oil prices, prices of refined products and chemical products, the operation costs, the product mix, production volumes and the oil and gas reserves. Certain estimates and assumptions adopted by the management in the impairment reviews and calculations are formed by the internal professional team (including operations and finance teams) by reference to external institutions’ analysis reports and taking into account current economic conditions. The other estimates and assumptions are consistent with the assumptions used in our business plans.

In forming the relevant estimates and assumptions for impairment tests by our management, our internal professional team (including operations and finance teams) forms a preliminary conclusion by reference to the external institutions’ analysis reports and our historical financial data, and taking into account current economic conditions and our business plans. Then, the preliminary conclusion is reviewed and approved by the management. The approved estimates and assumptions are then utilized by our subsidiaries and branches to perform the impairment tests.

 

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When determining whether there are indications of impairment for oil and gas properties, we consider internal factors, mainly including the decline of production and reserves volumes at the late development stage of certain oil blocks and a significant drop in economic benefits of certain oil blocks resulting from the lower price of crude oil, and external factors, mainly including a significant drop in international prices of crude oil, resulting from the imbalance of supply and demand of crude oil. When an indication of impairment of certain oil blocks is identified, we will perform the impairment tests on the oil blocks. An impairment loss is recognized for the amount by which the carrying amount of the cash-generating unit exceeds the higher of its fair value less costs to sell and its value in use. Value in use is determined by reference to the discounted expected future cash flows to be derived from the cash-generating unit.

The expected medium-to-long-term future international prices of crude oil utilized by us when estimating the expected future cash flows are determined mainly based upon the forecast of the international prices of crude oil made by principal international investment institutions combined with the judgment and analysis of the future trends of international prices of crude oil made by us. We calculated the expected future cash flows of each oil block according to the estimates of future production volume levels per year stated in the oil and gas reserves reports, the estimates of operation costs of oil and gas made by us, and taking into account its future capital expenditure plan. We refer to the weighted average cost of capital of the oil and gas industry when determining the discount rate and makes relevant adjustments according to specific risks in different countries or regions. In the years ended December 31, 2018, 2019 and 2020, the after-tax discount rates adopted by most of our oil and gas regions were in the range of 7.3% -11.5%, 6.4%-15.4% and 5.9%-12.0%, respectively.

Given the broad scope of our property, plant and equipment, the impairment test involves numerous assumptions, which are interrelated to each other to a certain extent. For example, the estimates and judgments with respect to the product mix, production costs and oil and gas reserves may vary along with the changes in crude oil prices. The sensitivity analysis performed after taking into account the interrelationship among all of the estimates and judgments would be neither cost efficient nor time efficient. As a result, the management believes that a sensitivity analysis of relevant assumptions on impairment is not practicable. Favorable changes to some assumptions might have avoided the need to impair any assets or make it necessary to reverse an impairment loss recognized in prior periods, whereas unfavorable changes might have caused an additional unknown number of other assets to become impaired, or resulted in larger impacts on impaired assets.

Our operating results in the following fiscal year may deviate from management’s estimates or judgments. This would require an adjustment to the provision for impairment of the property, plant and equipment disclosed in Note 15 to the consolidated financial statements.

Gains and losses on disposals of property, plant and equipment are determined by reference to their carrying amounts and are recorded in the consolidated profit or loss.

Interest and other costs on borrowings to finance the purchase and construction of property, plant and equipment are capitalized during the period of time that is required to complete and prepare the asset for its intended use. Costs for repairs and maintenance activities are expensed as incurred except for costs of components that result in improvements or betterments which are capitalized as part of property, plant and equipment and depreciated over their useful lives.

Asset Retirement Obligation

Provision is recognized for the future decommissioning and restoration of oil and gas properties. The amounts of the provision recognized 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 lives of oil and gas properties. Changes in any of these estimates will impact the operating results and the financial position of the Company over the remaining economic lives of the oil and gas properties.

 

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Operating Results

The following discussion is based on our historical results of operations. As a result of the factors discussed above, such results of operations may not be indicative of our future operating performance.

Our statement of comprehensive income for each of the years ended December 31, 2018, 2019 and 2020 is summarized in the table below.

 

     Year Ended December 31,  
     2018     2019     2020  
     (RMB in millions)  

Revenue

     2,374,934       2,516,810       1,933,836  

Operating expenses

     (2,251,992     (2,395,048     (1,857,899

Profit from operations

     122,942       121,762       75,937  

Exchange gain, net

     1,120       1       108  

Interest expense, net

     (18,939     (26,778     (23,505

Share of profit of affiliates and joint ventures

     11,647       8,229       3,533  

Profit before income tax expense

     116,770       103,214       56,073  

Income tax expense

     (42,790     (36,199     (22,588

Profit for the year attributable to non-controlling interests

     20,944       21,333       14,479  

Profit for the year attributable to owners of the Company

     53,036       45,682       19,006  

The table below sets forth our revenue by business segment for each of the years ended December 31, 2018, 2019 and 2020 as well as the percentage changes in revenue for the periods shown.

 

     2018     2019     2019
vs.
2018
    2020     2020
vs.
2019
 
     (RMB in millions, except percentages)  

Revenue

          

Exploration and production

     658,712       676,320       2.7     530,807       (21.5 )% 

Refining and chemicals

     1,013,413       1,000,062       (1.3 )%      774,775       (22.5 )% 

Marketing

     1,891,743       2,075,044       9.7     1,497,533       (27.8 )% 

Natural gas and pipeline

     362,626       391,023       7.8     370,771       (5.2 )% 

Headquarters and others

     2,376       3,700       55.7     3,547       (4.1 )% 
  

 

 

   

 

 

     

 

 

   

Total

     3,928,870       4,146,149       5.5     3,177,433       (23.4 )% 

Less: elimination

     (1,553,936     (1,629,339     4.9     (1,243,597     (23.7 )% 
  

 

 

   

 

 

     

 

 

   

Consolidated net sales from operations

     2,374,934       2,516,810       6.0     1,933,836       (23.2 )% 
  

 

 

   

 

 

     

 

 

   

 

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The table below sets forth our operating income by business segment for each of the years ended December 31, 2018, 2019 and 2020, as well as the percentage changes in operating income for the periods shown. Loss from operations for headquarters and others shown below consists of expenses for research and development, business services and infrastructure support to our operating business segments.

 

     2018     2019     2019
vs.
2018
    2020     2020
vs.
2019
 
     (RMB in millions, except percentages)  

Profit/(loss) from operations

          

Exploration and production

     73,519       96,097       30.7     23,092       (76.0 )% 

Refining and chemicals

     46,879       16,077       (65.7 )%      (1,834     (111.4 )% 

Marketing

     (8,628     (2,878     (66.6 )%      (2,906     1.0

Natural gas and pipeline

     25,515       26,108       2.3     72,410       177.3

Headquarters and others

     (14,343     (13,642     (4.9 )%      (14,825     8.7
  

 

 

   

 

 

     

 

 

   

Total

     122,942       121,762       (1.0 )%      75,937       (37.6 )% 
  

 

 

   

 

 

     

 

 

   

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Consolidated Results of Operations

Overview

In 2020, our revenue was RMB1,933,836 million, representing a decrease of 23.2% as compared to 2019. Net profit attributable to owners of the Company was RMB19,006 million, representing a decrease of 58.4% as compared to 2019. Basic earnings per share were RMB0.10, representing a decrease of RMB0.15 as compared to 2019.

Revenue Revenue decreased by 23.2% from RMB2,516,810 million in 2019 to RMB1,933,836 million in 2020. This was primarily due to the decrease in the sales volume and a sharp decrease in selling prices of the majority of our oil and gas products.

The table below sets out external sales volume and average realized prices for our major products in 2019 and 2020 and the respective percentage of change:

 

     Sales Volume
(‘000 ton)
    Average Realized Price
(RMB/ton)
 
     2019      2020      Percentage
of Change
(%)
    2019      2020      Percentage
of Change
(%)
 

Crude oil*

     150,322        158,266        5.3       3,162        2,070        (34.5

Natural gas (hundred million cubic meters, RMB/’000 cubic meter)**

     2,590.91        2,487.45        (4.0     1,313        1,170        (10.9

Gasoline

     76,366        66,084        (13.5     6,487        5,561        (14.3

Diesel

     90,163        80,796        (10.4     5,286        4,221        (20.1

Kerosene

     21,183        14,350        (32.3     4,255        2,652        (37.7

Heavy oil

     18,095        30,253        67.2       3,249        2,313        (28.8

Polyethylene

     4,985        5,659        13.5       7,443        6,725        (9.6

Lubricant

     977        1,404        43.7       8,047        6,426        (20.1

 

*

The sales volumes of crude oil listed above represents all our external sales volume of crude oil.

**

The sales volumes of natural gas listed above represents all our external sales volume of natural gas.

 

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Operating Expenses Operating expenses decreased by 22.4% from RMB2,395,048 million in 2019 to RMB1,857,899 million in 2020, of which:

Purchases, Services and Other Expenses Purchases, services and other expenses decreased by 25.3% from RMB1,697,834 million in 2019 to RMB1,267,797 million in 2020. This was primarily due to the decrease in expenses for purchasing oil and gas products and trading.

Employee Compensation Costs Employee compensation costs (including salaries, insurances, housing provident funds and training fees, etc.) decreased by 4.4% from RMB154,318 million in 2019 to RMB147,604 million in 2020. This was primarily due to our performance-compensation linkage mechanism and that the local governments reduced or exempted certain social insurance fees in 2020.

Exploration Expenses Exploration expenses decreased by 6.9% from RMB20,775 million in 2019 to RMB19,333 million in 2020. This was primarily due to the fact that we optimized our exploration plans responding to the changes in oil prices, and controlled exploration expenses.

Depreciation, Depletion and Amortization Depreciation, depletion and amortization decreased by 5.1% from RMB225,262 million in 2019 to RMB213,875 million in 2020. This was primarily due to the combined effect of the decrease in our oil and gas reserves as a result of the decline in oil prices and the pipeline assets restructuring.

Selling, General and Administrative Expenses Selling, general and administrative expenses decreased by 6.2% from RMB68,596 million in 2019 to RMB64,345 million for 2020. This was primarily attributable to our efforts to further promote the improvement of quality and profitability, and strictly control non-production expenses.

Taxes other than Income Taxes Taxes other than income taxes decreased by 14.3% from RMB228,436 million in 2019 to RMB195,850 million in 2020, among which the consumption tax decreased by 11.8% from RMB164,973 million in 2019 to RMB145,525 million in 2020; the resource tax decreased by 24.3% from RMB24,388 million in 2019 to RMB18,468 million in 2020; and crude oil special gain levy decreased by 76.9% from RMB771 million in 2019 to RMB178 million in 2020.

Other Income, net Other income, net increased by RMB50,732 million from RMB173 million in 2019 to RMB50,905 million in 2020, primarily due to the gain from the pipeline assets restructuring in 2020.

Profit from Operations The profit from operations in 2020 was RMB75,937 million, representing a decrease of 37.6% from RMB121,762 million in 2019.

Net Exchange Gain Net exchange gain in 2020 was RMB108 million, representing an increase of RMB107 million from RMB1 million in 2019, primarily due to the impact of changes in exchange rate of US Dollar against Renminbi.

Net Interest Expense Net interest expense decreased by 12.2% from RMB26,778 million in 2019 to RMB23,505 million in 2020, primarily due to the repayment of interest-bearing debts, optimization of debt structure, and the reduction of cost of debts.

Profit Before Income Tax Expense Profit before income tax expense decreased by 45.7% from RMB103,214 million in 2019 to RMB56,073 million in 2020.

Income Tax Expense The income tax expense decreased by 37.6% from RMB36,199 million in 2019 to RMB22,588 million in 2020, which was primarily due to a sharp decrease in the Company’s profit before income tax expense over the same period 2019.

 

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Profit for the Year Net profit in 2020 decreased by 50.0% to RMB33,485 million from RMB67,015 million in 2019.

Profit Attributable to Non-controlling Interests Profit attributable to non-controlling interests decreased by 32.1% from RMB21,333 million in 2019 to RMB14,479 million in 2020, which was primarily due to a sharp decrease in profits of our subsidiaries over the same period 2019.

Profit Attributable to Owners of the Company Profit attributable to owners of the Company decreased by 58.4% from RMB45,682 million in 2019 to RMB19,006 million in 2020.

Segment Results

Exploration and Production

Revenue Revenue of the exploration and production segment in 2020 was RMB530,807 million, representing a decrease of 21.5% from RMB676,320 million in 2019, which was primarily due to the overall impact from the increase in sales volume and the decrease in prices of oil and gas products including crude oil and natural gas in this segment. In 2020, the oil imported from Russia, Kazakhstan and others by our company amounted to 39.03 million tons, representing a decrease of 2.3% from 39.95 million tons in 2019. The revenue from the sales of imported oil from Russia, Kazakhstan and others was RMB85,080 million in 2020, representing a decrease of 35.4% from RMB131,723 million in 2019. The average realized crude oil price of our company in 2020 was US$40.33 per barrel, representing a decrease of 33.8% from US$60.96 per barrel in 2019.

Operating Expenses Operating expenses of the exploration and production segment decreased by 12.5% from RMB580,223 million in 2019 to RMB507,715 million in 2020, which was primarily due to the decrease in procurement expenses and taxes other than income tax. In 2020, the cost for importing oil from Russia, Kazakhstan and others amounted to RMB86,388 million, representing a decrease of 34.0% from RMB130,941 million in 2019.

In 2020, our unit oil and gas lifting cost was US$11.10 per barrel, representing a decrease of 8.3% from US$12.11 per barrel in 2019.

Profit from Operations In 2020, our domestic business of the exploration and production segment continued with profitable development, optimized the development plan of each block based on the calculation of marginal profit, enhanced integrated administration covering matters in respect of investment, reserves and costs, and strictly controlled the development cost. Our overseas business coordinated the COVID-19 prevention and control with production and operation, took various measures simultaneously to promote the improvement of quality and profitability, and strived to control and reduce investment and costs. In 2020, affected by a sharp decrease in oil and gas prices, our exploration and production segment realized an operating profit of RMB23,092 million, representing a decrease of 76.0% from RMB96,097 million in 2019.

Refining and Chemicals

In 2020, in order to optimize production, operation and management, we transferred Fuel Oil Company and Lubricant Company from the marketing segment to the refining and chemicals segment. Accordingly, the comparative data in respect of the refining and chemicals segment and the marketing segment have been restated, as if the two companies were incorporated in the refining and chemicals segment since the earliest financial year presented. See Note 38 to our financial statements.

Revenue Revenue of the refining and chemicals segment decreased by 22.5% from RMB1,000,062 million in 2019 to RMB774,775 million in 2020, primarily due to the comprehensive impact of various factors, including the decrease in sales volume and prices of refined oil products and the increase in sales volume, but the decrease in prices, of chemical products.

 

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Operating Expenses Operating expenses of the refining and chemicals segment decreased by 21.1% from RMB983,985 million in 2019 to RMB776,609 million in 2020, primarily due to the decrease in procurement costs of crude oil and feedstock, and the decrease in taxes and sales and administrative expenses.

In 2020, the cash processing cost of our refineries was RMB163.90 per ton, decreased by 2.8% from RMB168.64 per ton in 2019, primarily due to the decrease in the cost of power.

(Loss)/Profit from Operations In 2020, the refining and chemicals segment adhered to market orientation, timely adjusted processing load in response to market changes and optimized product mix to use its best endeavor to ensure the safe operation of the industrial chain and maximization of profitability. We also strengthened technology research, and increased the production of high-end and high value-added chemical products to increase the profitability of our chemical business. In the meantime, we strengthened cost control by continuously reducing processing costs. However, affected by the narrowing margins of the refining business, the refining and chemicals segment in 2020 recorded an operating loss of RMB1,834 million as compared to an operating profit of RMB16,077 million in 2019. Among that, the refining operations recorded an operating loss of RMB12,801 million, as compared to an operating profit of RMB12,650 million in 2019, while the chemical operations realized an operating profit of RMB10,967 million, representing an increase of 220.0%, as compared to RMB3,427 million in 2019.

Marketing

In 2020, in order to optimize production, operation and management, we transferred Fuel Oil Company and Lubricant Company from the marketing segment to the refining and chemicals segment. Accordingly, the comparative data in respect of the refining and chemicals segment and the marketing segment have been restated, as if the two companies were incorporated in the refining and chemicals segment since the earliest financial year presented. See Note 38 to our financial statements.

Revenue Revenue of the marketing segment decreased by 27.8% from RMB2,075,044 million in 2019 to RMB1,497,533 million in 2020, primarily due to a decrease in sales volume and decline in price of refined oil products.

Operating Expenses Operating expenses of the marketing segment decreased by 27.8% from RMB2,077,922 million for 2019 to RMB1,500,439 million for 2020, primarily due to the decrease in expenditures for the external purchase of refined oil products.

Loss from Operations In 2020, the marketing segment strived to overcome the adverse impact of the COVID-19 pandemic on market demand by intensifying efforts in market analysis and flexibly adjusted marketing tactics. We used our best endeavor to increase the sales volume and output in key areas and to increase the retail sale of refined products, and strengthened refined marketing and precision marketing to improve the price realization rate. Based on our internal profitability estimation, we strengthened the interaction between the domestic and international markets and optimized the refined oil export plan, which led to an improvement in the overall profitability of the value chain. In 2020, the marketing segment recorded an operating loss of RMB2,906 million, representing an increase in loss of RMB28 million as compared to the operating loss of RMB2,878 million in 2019.

Natural Gas and Pipeline

Revenue Revenue of the natural gas and pipeline segment amounted to RMB370,771 million in 2020, representing a decrease of 5.2% as compared to RMB391,023 million in 2019, primarily due to the comprehensive impact of various factors, including the increase in the sales volume and the decrease in the price of natural gas in this segment.

 

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Operating Expenses Operating expenses of the natural gas and pipeline segment amounted to RMB298,361 million in 2020, representing a decrease of 18.2% as compared to RMB364,915 million in 2019, primarily due to the decrease in expenditures for natural gas purchases.

Profit from Operations In 2020, the natural gas and pipeline segment actively optimized the resource structure, strived for full production and full sales of domestically produced gas, and reduced resource procurement costs. By making targeted marketing and service plans based on the customer needs and developing the profitable markets, we intensively enhanced our sales capability in respect of retail sales to end users. In 2020, benefiting from the gain from the pipeline assets restructuring and quality and profitability enhancement measures, the natural gas and pipeline segment realized an operating profit of RMB72,410 million, representing an increase of 177.3% as compared to RMB26,108 million in 2019.

In 2020, the sale of imported natural gas recorded a net loss of RMB14,159 million, representing a reduction of loss of RMB16,551 million as compared to 2019, demonstrating a remarkable achievement in loss control, primarily due to the comprehensive impact of various factors, including from quality improvement and profitability enhancement measures adopted by us and the sharp decline in the costs of imported natural gas as a result of a decrease in the price of imported gas. We expect to continue to adopt effective measures to control losses arising from sale of imported natural gas.

In 2020, our international operations (please see the note below) realized a revenue of RMB721,015 million, accounting for 37.3% of our total revenue. Profit before income tax expense amounted to RMB8,093 million. Our international operations maintained a stable development while further improving our international operating capability.

Note: Our four operating segments are exploration and production, refining and chemicals, marketing as well as natural gas and pipeline. International operations do not constitute a separate operating segment. The financial data of international operations are included in the financial data of the respective operating segments mentioned above.

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

Consolidated Results of Operations

Overview

In 2019, our revenue was RMB2,516,810 million, representing an increase of 6.0% as compared to 2018. Net profit attributable to owners of the Company was RMB45,682 million, representing a decrease of 13.9% as compared to 2018. Basic earnings per share were RMB0.25, representing a decrease of RMB0.04 as compared to 2018.

Revenue Revenue increased by 6.0% from RMB2,374,934 million in 2018 to RMB2,516,810 million in 2019. This was primarily due to the comprehensive impact of the increase in sales volume, partially offset by a decrease in selling prices of a majority of oil and gas products.

 

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The table below sets out external sales volume and average realized prices for our major products in 2018 and 2019 and the respective percentage of change:

 

     Sales Volume
(‘000 ton)
    Average Realized Price
(RMB/ton)
 
     2018      2019      Percentage
of Change
(%)
    2018      2019      Percentage
of Change
(%)
 

Crude oil*

     110,457        150,322        36.1       3,213        3,162        (1.6

Natural gas (hundred million cubic meters, RMB/’000 cubic meter)**

     2,167.54        2,590.91        19.5       1,367        1,313        (4.0

Gasoline

     71,125        76,366        7.4       7,024        6,487        (7.6

Diesel

     86,904        90,163        3.8       5,478        5,286        (3.5

Kerosene

     20,619        21,183        2.7       4,534        4,255        (6.2

Heavy oil

     19,964        18,095        (9.4     3,335        3,249        (2.6

Polyethylene

     4,644        4,985        7.3       8,816        7,443        (15.6

Lubricant

     1,158        977        (15.6     7,875        8,047        (2.2

 

*

The sales volumes of crude oil listed above represents all our external sales volume of crude oil.

**

The sales volumes of natural gas listed above represents all our external sales volume of natural gas, and the decrease in average realized price of natural gas in 2019 as compared to 2018 was primarily due to a decrease in the average realized price of natural gas in our international trade business.

Operating Expenses Operating expenses increased by 6.4% from RMB2,251,992 million in 2018 to RMB2,395,048 million in 2019, of which:

Purchases, Services and Other Expenses Purchases, services and other expenses increased by 9.3% from RMB1,553,784 million in 2018 to RMB1,697,834 million in 2019. This was primarily due to an increase in our expenses relating to purchase of oil and gas products and other international trading activities.

Employee Compensation Costs Employee compensation costs (including salaries and additional costs such as insurance, housing provident funds and training fees) increased by 6.9% from RMB144,391 million in 2018 to RMB154,318 million in 2019. This was primarily due to the increase in employee remuneration and contribution to social security funds.

Exploration Expenses Exploration expenses increased by 10.9% from RMB18,726 million in 2018 to RMB20,775 million in 2019. This was primarily due to increased exploration efforts to enhance reserves and production.

Depreciation, Depletion and Amortization Depreciation, depletion and amortization decreased by 3.0% from RMB232,276 million in 2018 to RMB225,262 million in 2019. This was primarily due to a combined effect of our provision of asset impairment in order to optimize asset structure and solidify asset quality, and implementation of the new lease standards. As a result of implementation of the new lease standards, we recognized depreciation expenses of RMB14,973 million over the assets that we had right of use in 2019.

Selling, General and Administrative Expenses Selling, general and administrative expenses decreased by 7.9% from RMB74,477 million in 2018 to RMB68,596 million in 2019. This was primarily due to the fact that we strictly controlled non-production expenses in order to continue to implement the plan of broadening sources of income, reducing expenditures and costs, and enhancing profitability, and a decrease of RMB16,682 million in lease expenditures as compared to 2018 as a result of implementation of new lease standards.

Taxes other than Income Taxes Taxes other than income taxes increased by 3.5% from RMB220,677 million for 2018 to RMB228,436 million in 2019, among which the consumption tax increased by

 

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RMB12,479 million from RMB152,494 million in 2018 to RMB164,973 million in 2019; the resource tax increased by RMB49 million from RMB24,339 million in 2018 to RMB24,388 million in 2019; and crude oil special gain levy decreased by RMB3,979 million from RMB4,750 million in 2018 to RMB771 million in 2019.

Other Income/(Expenses), net Net other income in 2019 was RMB173 million, while the net other expenses in 2018 was RMB7,661 million, primarily due to a decrease in net losses from disposal of fixed assets and oil and gas assets.

Profit from Operations The profit from operations in 2019 was RMB121,762 million, representing a decrease of 1.0% from RMB122,942 million in 2018.

Net Exchange Gain Net exchange gain in 2019 was RMB1 million, representing a decrease of 99.9% from RMB1,120 million in 2018. This is primarily due to the changes in exchange rate of the Renminbi against the US Dollar during the period.

Net Interest Expense Net interest expense increased by 41.4% from RMB18,939 million in 2018 to RMB26,778 million in 2019, primarily due to the effects of lease liabilities recognized under the new lease standards and the accrued interest expenses. Excluding the impact of the new lease standards, net interest expenses increased by 1.9% as compared to 2018.

Profit Before Income Tax Expense Profit before income tax expense decreased by 11.6% from RMB116,770 million in 2018 to RMB103,214 million in 2019.

Income Tax Expense The income tax expense decreased by 15.4% from RMB42,790 million in 2018 to RMB36,199 million in 2019, which was primarily due to the decrease in our profit before income tax expense in 2019 as compared to 2018.

Profit for the Year Net profit in 2019 decreased by 9.4% to RMB67,015 million from RMB73,980 million in 2018.

Profit Attributable to Non-controlling Interests Profit attributable to non-controlling interests increased by 1.9% from RMB20,944 million in 2018 to RMB21,333 million in 2019, primarily due to changes in the profit structure our subsidiaries.

Profit Attributable to Owners of the Company Profit attributable to owners of the Company decreased by 13.9% from RMB53,036 million in 2018 to RMB45,682 million in 2019.

Segment Results

Exploration and Production

Revenue Revenue of the exploration and production segment in 2019 was RMB676,320 million, representing an increase of 2.7% from RMB658,712 million in 2018. This increase was primarily due to the increase in the sales volume of oil and gas, partially offset by the decline in the price of crude oil. In 2019, the oil imported from Russia, Kazakhstan and certain other countries amounted to 39.95 million tons, representing an increase of 8.9% over the 36.69 million tons in 2018. The revenue from the sales of imported oil from Russia, Kazakhstan and certain other countries was RMB131,723 million in 2019, representing an increase of 2.7% from RMB128,308 million in 2018. The average realized crude oil price of our company in 2019 was US$60.96 per barrel, representing a decrease of 10.7% from US$68.28 per barrel in 2018.

Operating Expenses Operating expenses of the exploration and production segment decreased by 0.8% from RMB585,193 million in 2018 to RMB580,223 million in 2019. This was primarily due to a decrease in

 

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depreciation, depletion and amortization, and taxes and fees other than income tax, partially offset by an increase in exploration costs. In 2019, The cost for importing oil from Russia, Kazakhstan and certain other countries amounted to RMB130,941 million, representing an increase of 1.8% from RMB128,637 million in 2018. In 2019, the unit oil and gas lifting cost of our company was US$12.11 per barrel, representing a decrease of 1.6% from US$12.31 per barrel in 2018.

Profit from Operations In 2019, our domestic operations adhered to the principle of profit-orientation to promote the increase of reserves and production, realized an increase in crude oil production and a significant increase in natural gas production, strengthened the control of investment costs at the source, refined the management of production and operation costs, and promoted quality improvement and profitability. Our overseas operations, adhered to profitable development, strictly managed early-stage investment projects, optimized the investment structure, and strived to promote sales and maximize revenue. In 2019, the exploration and production segment realized an operating profit of RMB96,097 million, representing an increase of 30.7% from RMB73,519 million in 2018, maintaining its status as a main profit contributor of our company.

Refining and Chemicals

Revenue The revenue of the refining and chemicals segment decreased by 1.3% from RMB1,013,413 million in 2018 to RMB1,000,062 million in 2019, primarily due to a combined effect of the changes in sales volume and prices of refined oil products, and the marketization of internal settlement prices.

Operating Expenses Operating expenses of the refining and chemicals segment increased by 1.8% from RMB966,534 million in 2018 to RMB983,985 million in 2019, primarily due to an increase in the cost of crude oil and feedstock, and an increase in the production costs of auxiliary materials and power.

In 2019, the cash processing cost of refineries of our company was RMB168.64 per ton, remaining basically the same as compared to 2018.

Profit from Operations In 2019, the refining and chemicals segment continued to deepen benchmarking management to facilitate the transition from cost benchmarking to business benchmarking; tap into internal talent and vigorously strengthen management and control over costs and expenses; adhere to the principles of market and profit-orientation, promote the upgrading of refined oil quality and the research and development of high value-added chemical products, optimize product mix and enhance profitability. However, as affected by factors such as excessive domestic refining capacity, narrower margins, a fall in prices of chemical products and the marketization of internal settlement prices which resulted in a fall in prices, the refining and chemicals segment realized an operating profit of RMB16,077 million in 2019, representing a decrease of 65.7% as compared to RMB46,879 million in 2018. Specifically, the refining operations recorded an operating profit of RMB126,50 million, representing a decrease of 67.6% as compared to RMB39,056 million in 2018, while the chemical operations realized an operating profit of RMB3,427 million, representing a decrease of 56.2%, as compared to RMB7,823 million in 2018.

Marketing

Revenue The revenue of the marketing segment increased by 9.7% from RMB1,891,743 million in 2018 to RMB2,075,044 million in 2019, primarily due to an increase in international trading volume of oil and gas products.

Operating Expenses Operating expenses of the marketing segment increased by 9.3% from RMB1,900,371 million in 2018 to RMB2,077,922 million in 2019, primarily due to an increase in the expenditures for purchase of refined oil.

Loss from Operations In 2019, the marketing segment actively responded to the challenges of excessive market resources and intensified competition, deepened the regional precise marketing and integrated marketing

 

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of refined products, fuel cards, non-oil business, and lubricants, accelerated the establishment of new retail models, and strived to pursue quality and profitability. In international trade, it accelerated the development of its global logistics and marketing network and strengthened the synergy between domestic and international resources to enhance profitability. In 2019, due to the strengthening of marketing measures and the marketization of internal settlement, the marketing segment recorded an operating loss of RMB2,878 million, representing a decrease in loss of RMB5,750 million as compared to the operating loss of RMB8,628 million in 2018.

Natural Gas and Pipeline

Revenue The revenue of the natural gas and pipeline segment amounted to RMB391,023 million in 2019, representing an increase of 7.8% as compared to RMB362,626 million in 2018, primarily due to an increase in the sales volume of natural gas.

Operating Expenses Operating expenses of the natural gas and pipeline segment amounted to RMB364,915 million in 2019, representing an increase of 8.2% as compared to RMB337,111 million in 2018, primarily due to the increase in the expenditure of natural gas purchase.

Profit from Operations In 2019, the natural gas and pipeline segment, based on the overall coordinated and effective operation of the industrial chain, deepened our resource management through “tagging”, prioritized the full production and sales of domestic gas, effectively controlled resource costs, continuously optimized resource flows and sales structures, and vigorously promoted online transactions. While consolidating the wholesale market, we actively expanded the end market. In 2019, the natural gas and pipeline segment realized an operating profit of RMB26,108 million, representing an increase of 2.3% as compared to RMB25,515 million in 2018.

In 2019, the natural gas and pipeline segment took active measures to control the loss from imported natural gas. However, as the cost of imported natural gas increased due to the changes in exchange rates, while the increases in the domestic natural gas price were restricted under a nationwide policy environment of reducing taxes and fees, the segment recorded a net loss of RMB30,710 million in sales of imported natural gas, representing an increase of loss of RMB5,803 million as compared to last year. We will endeavor to adopt effective measures to control losses.

In 2019, our international operations realized a revenue of RMB1,040,117 million, accounting for 41.3% of our total revenue. Profit before income tax expenses amounted to RMB18,885 million. Our international operations maintained stable development and further improved our operating ability internationally.

Liquidity and Capital Resources

Our primary sources of funding include cash generated by operating activities and short-term and long-term borrowings, which are expected to be sufficient for our funding requirements for at least the next twelve months. Our primary uses of funds were for operating activities, capital expenditures, repayment of short-term and long-term borrowings and distributions of dividends to shareholders. Our payments to CNPC are limited to dividends and payments for services provided to us by CNPC. For 2020, we have distributed interim dividends of RMB16 billion to our shareholders. Based on an overall consideration of various factors, including our operating performance, financial status, cash flows and income from pipeline assets restructuring, our board of directors recommended the final dividends for 2020 of RMB16 billion, which once approved at our general meeting to be held in June 2021 would result in the aggregate dividends for 2020 to amount to RMB32 billion. See “Item 8 — Financial Information — Dividend Policy” for a discussion of factors which may affect the determination by our board of directors of the appropriate level of dividends.

Our financing ability may be limited by our financial condition, our results of operations and the international and domestic capital markets. Prior to accessing the international and domestic capital markets, we

 

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generally need to obtain approval from the relevant PRC government authorities. In general, we need to obtain PRC government approval for any project involving significant capital investment for our refining and chemicals, marketing and natural gas and pipeline segments. For a more detailed discussion of factors which may affect our ability to satisfy our financing requirements, see “Item 3 — Key Information — Risk Factors — Risks Related to Liquidity”.

We plan to fund the capital and related expenditures described in this annual report principally through cash from operating activities, short-term and long-term borrowings and cash and cash equivalents. Net cash flows from operating activities in the year ended December 31, 2020 was RMB318,575 million. As of December 31, 2020, we had cash and cash equivalents of RMB118,631 million. While each of the projects described in this annual report for which significant capital expenditures will be required is important to our future development, we do not believe that failure to implement any one of these projects would have a material adverse effect on our financial condition or results of operations. If the price of crude oil declines sharply in the future, it is likely that we would delay or reduce the scale of the capital expenditures for each segment.

We currently do not have any outstanding options, warrants or other rights for any person to require us to issue any common stock at a price below its market value. We do not currently intend to issue any such rights or to otherwise issue any common stock for a price below its market value.

In addition, as of December 31, 2020, we did not have any transactions, arrangements or other relationships with unconsolidated entities or other persons that are reasonably likely to materially affect the liquidity or availability of or requirements for our capital resources.

The table below sets forth our net cash flows for each of the years ended December 31, 2018, 2019 and 2020 and the balance of our cash and cash equivalents at the end of each of such years.

 

     Year Ended December 31,  
     2018     2019     2020  
     (RMB in millions)  

Net cash flows from operating activities

     353,256       359,610       318,575  

Net cash flows used for investing activities

     (267,812     (332,948     (181,986

Net cash flows used for financing activities

     (125,703     (27,276     (99,400

Currency translation difference

     2,513       1,069       (4,967

Cash and cash equivalents

     85,954       86,409       118,631  

Our cash and cash equivalents increased by 37.3% from RMB86,409 million as of December 31, 2019 to RMB118,631 million as of December 31, 2020. The cash and cash equivalents were mainly denominated in US Dollar and Renminbi (approximately 55.1% were denominated in US Dollar, approximately 36.2% were denominated in Renminbi, approximately 6.5% were denominated in HK Dollar and approximately 2.2% were denominated in other currencies).

Net Cash Flows from Operating Activities

Our net cash flows from operating activities amounted to RMB318,575 million for the year ended December 31, 2020, representing a decrease of 11.4% from RMB359,610 million in 2019. This was mainly due to the combined impact from the decrease in profit and the change in working capital during the reporting period.

Our net cash flows from operating activities amounted to RMB359,610 million for the year ended December 31, 2019, representing an increase of 1.8% from RMB353,256 million in 2018. This was mainly due to a combined effect of the changes in inventories, receivables, payables and contract obligations during the reporting period.

 

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Net Cash Flows Used for Investing Activities

Our net cash flows used for investing activities in 2020 amounted to RMB181,986 million, representing a decrease of 45.3% from RMB332,948 million in 2019. The decrease was primarily due to the combined effects of reduction of capital expenditures arising from our optimization of investment scale based on changes in oil prices, and the pipeline assets restructuring.

Our net cash flows used for investing activities in 2019 amounted to RMB332,948 million, representing an increase of 24.3% from RMB267,812 million in 2018. The increase was primarily due to an increase in capital expenditures in 2019.

Net Cash Flows Used for Financing Activities

Our net cash used for financing activities in 2020 was RMB99,400 million, representing an increase of 264.4% from RMB27,276 million in 2019. This was primarily due to the increase in repayment of borrowings during the reporting period.

Our net cash flows used for financing activities in 2019 was RMB27,276 million, representing a decrease of 78.3% from RMB125,703 million in 2018. This was primarily due to the changes in long and short-term borrowings during the reporting period.

Our net borrowings as of December 31, 2018, 2019 and 2020 were as follows:

 

     As of December 31,  
     2018      2019      2020  
     (RMB in millions)  

Short-term borrowings (including current portion of long-term borrowings)

     145,150        175,840        117,542  

Long-term borrowings

     269,422        290,882        251,379  
  

 

 

    

 

 

    

 

 

 

Total borrowings

     414,572        466,722        368,921  
  

 

 

    

 

 

    

 

 

 

Less: cash and cash equivalents

     85,954        86,409        118,631  
  

 

 

    

 

 

    

 

 

 

Net borrowings

     328,618        380,313        250,290  
  

 

 

    

 

 

    

 

 

 

The following table sets out the remaining contractual maturity of borrowings as of December 31, 2019 and 2020 according to the earliest contractual maturity dates. The amounts set out below are contractual undiscounted cash flows, including principal and interest:

 

     As of December 31,  
     2019      2020  
     (RMB in million)  

Within 1 year

     188,771        124,777  

Between 1 and 2 years

     30,090        53,526  

Between 2 and 5 years

     253,918        188,012  

After 5 years

     31,576        27,894  
  

 

 

    

 

 

 

Total

     504,355        394,209  
  

 

 

    

 

 

 

Our total borrowings as of December 31, 2020 consisted of approximately 52.1% of fixed-rate loans and approximately 47.9% of floating-rate loans. Of our borrowings as of December 31, 2020, approximately 71.2% were denominated in Renminbi, approximately 26.7% were denominated in US Dollars and approximately 2.1% were denominated in other currencies.

Our total borrowings as of December 31, 2019 consisted of approximately 53.6% of fixed-rate loans and approximately 46.4% of floating-rate loans. Of our borrowings as of December 31, 2019, approximately 76.4%

 

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were denominated in Renminbi, approximately 21.5% were denominated in US Dollars and approximately 2.1% were denominated in other currencies.

Our total borrowings as of December 31, 2018 consisted of approximately 48.6% of fixed-rate loans and approximately 51.4% of floating-rate loans. Of our borrowings as of December 31, 2018, approximately 71.8% were denominated in Renminbi, approximately 25.9% were denominated in US Dollars and approximately 2.3% were denominated in other currencies.

Our debt to capital ratio (calculated by dividing interest-bearing debts by the aggregate of interest-bearing debts and shareholder’s equity; interest-bearing debts including various long and short term borrowings) as of December 31, 2018, 2019 and 2020 was 22.7%, 24.4% and 21.3%.

As of December 31, 2020, the outstanding amount of our debts secured by CNPC and its subsidiaries and other third parties was RMB13,726 million.

Capital Expenditures and Investments

In 2020, we flexibly adjusted and optimized the scale and structure of our investments in response to changes in oil prices, operating profitability and cash flow, and coordinated the promotion of the construction of our key projects. In 2020, our capital expenditures amounted to RMB246,493 million, representing a decrease of 16.9% from RMB296,776 million in 2019.

The table below sets forth our capital expenditures and investments by business segment for each of the years ended December 31, 2018, 2019 and 2020, and the estimated amounts for 2021.

 

     2018      2019      2020      2021 (estimated)  
     (RMB in
millions)
     %      (RMB in
millions)
     %      (RMB in
millions)
     %      (RMB in
millions)
     %  

Exploration and production(1)

     196,109        76.57        230,117        77.54        186,620        75.71        175,200        73.31  

Refining and chemicals

     15,783        6.16        21,823        7.35        21,810        8.85        38,000        15.90  

Marketing

     16,646        6.50        17,074        5.76        16,294        6.61        12,200        5.10  

Natural gas and pipeline

     26,502        10.35        27,004        9.10        21,143        8.58        13,000        5.44  

Headquarters and others

     1,066        0.42        758        0.25        626        0.25        600        0.25  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     256,106        100.00        296,776        100.00        246,493        100.00        239,000        100.00  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

If investments related to geological and geophysical exploration costs are included, the capital expenditures and investments for the exploration and production segment in each of 2018, 2019, 2020, and estimated amount for 2021 would be RMB206,256 million and RMB241,992 million, and RMB1,970,19 million, and RMB186,200 million, respectively.

As of December 31, 2020, the capital commitments contracted but not provided for by us were approximately RMB714 million.

Exploration and Production

A majority of our capital expenditures and investments relate to our exploration and production segment. For the years ended December 31, 2018, 2019 and 2020, the capital expenditures in relation to the exploration and production segment amounted to RMB196,109 million, RMB230,117 and RMB186,620 million, respectively. In 2020, our capital expenditures were primarily used for exploration and development activities in the key basins such as Songliao Basin, Erdos Basin, Tarim Basin, Sichuan Basin and Bohai Bay Basin, enhancing the development of unconventional resources such as shale gas and profitable development from existing projects in joint cooperation areas in the Middle East, Central Asia, America and the Asia Pacific region.

 

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We estimate that our capital expenditures for the exploration and production segment for 2021 will be RMB175,200 million, which is expected to be used primarily for sizable and profitable exploration and development in key basins such as Songliao, Ordos, Tarim, Sichuan and Bohai Bay, enhancing the development of unconventional resources such as shale gas and shale oil, and promotion of new energy projects including clean energy alternatives. In adherence to the principle of optimized development, our overseas operations will continue to focus on the operation of existing projects in joint cooperation areas in the Middle East, Central Asia, America and the Asia Pacific region while seeking new projects of high quality.

Refining and Chemicals

Our capital expenditures for our refining and chemicals segment for each of the years ended December 31, 2018, 2019 and 2020 were RMB15,783 million, RMB21,823 million and RMB21,810 million, respectively. In 2020, our capital expenditures were mainly spent on the construction of large-scale refining and chemicals facilities, including projects such as the refining-chemical integration project at Guangdong Petrochemical, the project in relation to adjustment of product mix at Daqing Petrochemical, the large-scale refining-chemical projects of producing ethylene out of ethane in Tarim and Changqing, and certain other upgrading projects.

It is estimated that the capital expenditures for the refining and chemicals segment for 2021 will be RMB38,000 million, which is expected to be used primarily for the construction of large-scale refining and chemical projects, such as integration project of refining and chemicals at Guangdong Petrochemical, the projects in relation to the ethane to ethylene projects at Tarim and Changqing, and certain transformation and upgrading projects in relation to reduction of refined products, enhancement of chemical products, new materials and new technologies.

Marketing

Our capital expenditures for our marketing segment for each of the years ended December 31, 2018, 2019 and 2020 were RMB16,646 million, RMB17,074 million and RMB16,294 million, respectively. Our capital expenditures for the marketing segment in 2020 were mainly used for the expansion of the end-user sales network within the domestic refined oil market, and the construction of overseas oil and gas centers for storage and transmission and sales facilities.

It is estimated that the capital expenditures for the marketing segment for 2021 will be RMB12,200 million, which is expected to be used primarily for construction and expansion of refined oil sales networks and the construction of the overseas oil and gas centers storage and transmission facilities.

Natural Gas and Pipeline

Our capital expenditures for the natural gas and pipeline segment for each of the three years ended December 31, 2018, 2019 and 2020 were RMB26,502 million, RMB27,004 million and RMB21,143 million, respectively. Our capital expenditures for the natural gas and pipeline segment in 2021 were mainly used for construction of important natural gas trunk line projects such as the China-Russia East Natural Gas Pipeline, Shenzhen LNG storage and transmission facilities for peak regulation, and branch lines and sales terminals.

We estimate that our capital expenditures for the natural gas and pipeline segment for 2021 will be RMB13,000 million, which is expected to be used primarily for the construction of LNG receiving stations, natural gas branch lines, market developments targeted at urban gas market end-users, and new energy collaboration projects such as natural gas power generations.

Headquarters and Others

Our non-segment capital expenditures and investments for each of the years ended December 31, 2018, 2019 and 2020 were RMB1,066 million, RMB758 million and RMB626 million, respectively, which were primarily used for setting up the research test platform and development of our IT system.

 

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We estimate that our capital expenditures for the head office and other segments for 2021 will be RMB600 million, which is expected to be used primarily for the enhancement of research facilities and development of our IT systems.

Off-Balance Sheet Arrangements

As of December 31, 2020, there were no off-balance sheet arrangements that had or were reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Long-Term Contractual Obligations and Other

Commercial Commitments and Payment Obligations

All information that is not historical in nature disclosed under “Item 5 — Operating and Financial Review and Prospects — Long-Term Contractual Obligations and Other Commercial Commitments and Payment Obligations” is deemed to be a forward-looking statement. See “Forward-Looking Statements” for additional information.

The tables below set forth our long-term contractual obligations outstanding as of December 31, 2020.

 

     Payment Due by Period  

Contractual Obligations

   Total      Less Than
1 Year
     1-3 Years      3-5 Years      After
5 Years
 
     (RMB in millions)  

Long-term debt

     326,567        74,743        118,508        107,649        25,667  

Lease obligations

     205,889        11,824        20,667        19,431        153,967  

Capital commitments

     714        530        184        0        0  

Debt-related interest

     26,292        8,237        11,482        4,021        2,552  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     559,462        95,334        150,841        131,101        182,186  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

We are obligated to make annual payment with respect to our exploration and production licenses to the Ministry of Natural Resources. The table below sets forth the estimated amount of the annual payments in the next five years:

 

Year

   Annual Payment  
     (RMB in millions)  

2021

     800  

2022

     800  

2023

     800  

2024

     800  

2025

     800  

Assets Retirement Obligation

Most of the provinces and regions in which our oil and gas exploration and production activities are located have promulgated environmental protection regulations, which set forth specific abandonment and disposal processes for oil and gas exploration and production activities. We have established standard abandonment procedures, including plugging all retired wells, dismantling all retired metering stations and other related facilities and performing site restoration, in response to the issuance of these provincial and regional regulations. As of December 31, 2020, the balance of assets retirement obligation was RMB114,819 million.

 

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Research and Development

We have three research institutions under the supervision of our research and development management department at our headquarters. Except for those branch companies which are engaged in marketing activities, each of our other branch companies has its own research and development management department. Most of our branch companies have their own research institutions. Our research and development management departments are mainly responsible for managing and coordinating the research and development activities conducted by each of the research institutions. As of December 31, 2020, we had 30,083 employees in our research and development departments and institutions.

In each of the years ended December 31, 2018, 2019 and 2020, our total expenditures for research and development (including capitalized expenditures) were approximately RMB21,045 million, RMB21,410 million and RMB22,921 million, respectively.

Exploration and Production

Most of China’s major oil and gas fields are characterized by a broad range of geological conditions, and a majority of China’s oil and gas fields are in continental sedimentary basins with complex structures. Our research and development efforts with respect to our exploration and production business focus on:

 

   

theories and technologies of crude oil and natural gas exploration;

 

   

oil and gas development theories and technologies;

 

   

engineering technologies and equipment;

 

   

theories and technologies for oil and gas storage and transportation; and

 

   

technologies for security, energy conservation and environmental protection.

Refining and Chemicals

Currently, our research and development efforts in the refining and chemicals segment are focusing on the following areas:

 

   

technologies for clean refined oil products;

 

   

technologies for unqualified heavy oil processing;

 

   

refining-chemical integration technologies;

 

   

technologies for production of olefin aromatics;

 

   

technologies for new products of synthetic resin and synthetic rubber;

 

   

new catalyst and catalytic materials; and

 

   

technologies for safety, energy saving and environmental protection.

Trend Information

In 2021, the global economy is expected to recover, thanks to the COVID-19 control measures and vaccination and economic stimuli measures implemented by major economies, although unstably and unevenly. The imbalance between strong supply and weak demand in the global oil market is expected to ease and international oil prices are expected to stabilize and rebound, but it is expected to remain in the low and medium range. China’s overall economic performance is expected to be positive, but it faces risks of resurgence of COVID-19 and uncertainties from the external macro-environment. We will adhere to the new development

 

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concept and implement the requirements for high-quality development by vigorously carrying out the five development strategies regarding innovation, resources, marketization, internationalization, green and low-carbon. We will continue to implement robust corporate governance in accordance with laws and regulations and solidify our foundation for safety and environmental protection. While further implementing reform and innovation and endeavoring to develop our main businesses, we will also actively promote a green and low-carbon transformation and focus on digital transformation and smart development. We will continue to improve the quality and profitability of our operations, and strive to create value for our shareholders.

In respect of the exploration and production business, we will strengthen risk exploration, focusing on six areas, namely marine carbonate rocks, foreland thrust belt, lithologic strata, shale oil and gas, new areas and offshore areas, striving to achieve strategic discoveries and breakthroughs. Emphasizing concentrated exploration in key areas, we will accelerate the implementation of large-scale exploration areas such as Chang 7 shale oil in Ordos and the North Slope of the central Sichuan paleo uplift, and actively prepare for strategic replacement areas or major replacement fields such as the Permian volcanic rocks in West Sichuan Basin and the Kuche Qiulitag structural belt in the Tarim Basin. We will intensify our efforts in profitable exploration by strengthening the administration of mining rights, accelerating the process from exploration to production and innovatively selecting and transferring mining rights, strengthening our operations focused on reserves value and continuously improving the replacement rate of reserves. We will focus on stable and profitable production in existing oil and gas fields, so as to control the decline rate and increase the recovery rate. We will attach importance to the profitable development in new areas, organize the implementation of production capacity construction projects in strict accordance with the design plan, and reach the standards and production targets set out in the objectives of such plan.

In respect of the refining and chemicals business, we will adhere to the concept of “molecular refining”, optimize the allocation of crude oil resources based on the conditions and locations of the equipment, and give preferences to enterprises which are more profitable or equipped for refinery and chemical integrated development. We will adjust our product mix in light of market demands through intensifying our efforts in reducing oil and increasing chemicals production and increasing the output of high value-added oil refinery products such as high-grade gasoline, aviation kerosene, paraffin wax, lubricating oil, asphalt and low-sulfur fuel oil. We will also maintain the operation of chemical facilities under high load and long cycle, accelerate the development of new materials and new products, and increase the proportion of high-end, high value-added and specialized chemical products. As part of deepening our benchmark management, we will continue to improve economic and technical indicators and increase the comprehensive commodity rate. Two projects that use ethane to produce ethylene, namely, Changqing and Tarim, are expected to be completed and launched on schedule, and the construction of key projects in Guangdong Petrochemical are expected to be expedited.

In respect of the marketing business, we will strive to increase our market share and use our best endeavors to expand sales in order to ensure unobstructed marketing channels for our own refineries. In order to comprehensively optimize our marketing strategies, we will accurately study and assess the market and subdivide the market to establish a lattice client development and maintenance system, and formulate marketing plans by region, enterprise and variety. In the meantime, we will adhere to the principle of focusing on retail and enlarge the scale of retailing, endeavor to increase the price realization rate, and achieve an organic alignment between sales volume and profitability. We will develop new networks and optimize existing networks in a refined and differentiated way, while expanding the asset-light network in a diversified manner. To highlight the specialized operation of our non-oil business, we will deploy cross-sector cooperative retail outlets, accelerate the construction of our ecosystem of “people, vehicles and life”, and enhance the customer service capability and profitability.

In respect of the natural gas and pipeline business, we will strengthen our study and research along the entire natural gas industry chain, and coordinate and allocate on a centralized basis domestic and foreign resources to optimize the layout of the natural gas market. For stabilizing the existing markets and exploring new markets, we will strive for all domestically-produced natural gas to be produced and sold as planned. We will also optimize

 

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the scale and pace of natural gas imports, so as to secure a stable market supply and smooth operation of the industry chain. We will expand the terminal market and develop market layouts in advance. We will make efforts in improving the oil and gas synthesis business by accelerating the integrated operation mode of oil and gas terminals. Actively exploring new markets in the field of comprehensive energy utilization, we will strengthen the integration of gas and power, and deepen the cooperation with enterprises operating in power generation, power grid and energy grid sectors. We will use our best endeavors to develop direct sales customers, and focus on and develop new markets such as new urban fuel and power generation projects, with a view to building a multi-energy comprehensive supply and smart gas demonstration area. We will implement differentiated and refined marketing strategies by region, market and phase, use platforms such as the exchange center to promote the sale of shale gas and coalbed gas at market prices, and arrange spot LNG purchases on the principle of profitability, so as to further enhance our ability to enhance profitability.

In respect of the international business, we will optimize the structure of overseas assets, business and regional layout by emphasizing the acquisition of risk exploration projects, operator projects and natural gas projects, putting more effort into joint venture and cooperation and new project development, and striving to increase the contribution of profit by international operations so as to lay a solid foundation for sustainable development. We will focus on promoting risk exploration in Doseo Basin of Chad and rolling exploration in Aktobe Middle Block of Kazakhstan, and expect to make great efforts to solve problems to achieve a stable and increased output in existing oil fields, and flexibly adjust the workload in response to the changes in oil prices and contract models.

Other than as disclosed above and elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the periods covered in this annual report that are reasonably likely to have a material adverse effect on our net revenue, profit, liquidity or capital resources, or that would cause the disclosed financial information to be misleading.

Other Information

Inflation

Inflation or deflation did not have a significant impact on our results of operations for the year ended December 31, 2020.

Related Party Transactions

For a discussion of related party transactions, see “Item 7 — Major Shareholders and Related Party Transactions — Related Party Transactions” and Note 37 to our consolidated financial statements included elsewhere in this annual report.

Recent Developments in IFRS

For a detailed discussion of recent developments in IFRS, see Note 3 to our consolidated financial statements.

Item 6 — DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Directors, Senior Management and Supervisors

As of the date of this report, our board of directors consists of 11 directors, five of whom are independent non-executive directors. Directors are appointed at our general meetings for a three-year term. The directors may

 

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be re-appointed upon the expiration of his/her term of office. The functions and duties conferred on the board of directors include:

 

   

convening shareholders’ meetings and reporting its work to the shareholders’ meeting;

 

   

implementing the resolutions of the shareholders’ meeting;

 

   

determining our business plans and investment programs;

 

   

formulating our annual budget and final accounts;

 

   

formulating our profit distribution and loss recovery proposals;

 

   

formulating proposals for the increase or reduction of our registered capital and the issuance of our debentures or other securities and listings;

 

   

proposing to redeem shares, merge, spin-off, dissolve or otherwise change the form of the company;

 

   

deciding on our internal management structure;

 

   

appointing or dismissing the president of the company, and upon the nomination of the president, appointing or dismissing vice president, or vice president, senior vice president, chief financial officer, or CFO, and other senior management, and determining matters relating to their remuneration;

 

   

formulating our basic management system;

 

   

preparing amendments to our articles of association;

 

   

managing the information disclosures of our company; and

 

   

exercising any other powers and duties conferred by the shareholders at general meetings.

Six of our directors are affiliated with CNPC or its subsidiaries other than us.

The PRC Company Law requires a joint stock company with limited liability to establish a supervisory committee. This requirement is reflected in our articles of association. The supervisory committee is responsible for monitoring our financial matters and overseeing the corporate actions of our board of directors and our senior management personnel. As of the date of this report, the supervisory committee consists of nine supervisors, five of whom were elected, and may be removed, by the shareholders in a general meeting, and four of whom are employees representatives who were elected by our staff, and may be removed, by our staff. The term of office of our supervisors is three years. The supervisors may be re-elected and re-appointed. A supervisor cannot concurrently hold the position of a director, president, senior vice president, vice president or CFO in our company.

The supervisory committee shall be responsible to the shareholders’ meeting and shall exercise the following functions and powers in accordance with law:

 

   

to review the periodic reports prepared by the board of directors and issue written opinions in connection with such review;

 

   

to review our financial condition;

 

   

to oversee the performance of duties by the directors, the president, senior vice presidents, vice presidents, the CFO and other senior officers of the company and to propose the removal of any of the foregoing persons who acts in contravention of any law, regulation, the company’s articles of association or any resolutions of the shareholders’ meeting;

 

   

to demand any director, the president, senior vice president, vice president, the CFO or any other senior officer who acts in a manner which is harmful to the company’s interest to rectify such behavior;

 

   

to check the financial information such as the financial report, business report and plans for distribution of profits to be submitted by the board of directors at the shareholders’ meetings and to authorize, in

 

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the company’s name, publicly certified and practicing auditors to assist in the re-examination of such information should any doubt arise in respect thereof;

 

   

to propose the convening of an extraordinary shareholders’ meeting, and convene and preside over a shareholders’ meeting when the board fails to perform its duties to do so as set forth in the PRC Company Law;

 

   

to submit proposals at the shareholders’ meetings;

 

   

to confer with any director, or initiate legal proceedings on behalf of the company against any director, the president, senior vice president, vice president, the CFO or any other senior officer in accordance with Article 152 of the PRC Company Law;

 

   

to initiate investigations upon being aware of any extraordinary development in the operational conditions of the company;

 

   

together with the audit committee of the board of directors, to review the performance of the outside auditors on a yearly basis, and to propose the engagement, renewal of engagement and termination of engagement of the outside auditors, as well as the service fees with respect to the audit services;

 

   

to oversee the compliance of related party transactions; and

 

   

other functions and powers as set forth in the articles of association of the company.

Supervisors shall attend meetings of the board of directors as observers.

In the event that any action of our directors adversely affects our interests, supervisors shall confer with or initiate legal proceedings against such directors on our behalf. A resolution proposed at any meeting of the supervisory committee shall be adopted only if it is approved by two-thirds or more of our supervisors.

Our senior management is appointed by and serves at the supervision of our board of directors. The board of directors will review, evaluate and supervise the performance of the management and reward or punish the members of the management in accordance with relevant rules and regulations.

 

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The following table sets forth certain information concerning our directors, supervisors and executive officers as of the date of this report:

 

Name(1)

   Age     

Position

  

Time of

Election(2)

Dai Houliang

     57      Chairman of the board of directors    March 2020

Li Fanrong

     57      Vice Chairman and Non-executive Director    March 2020

Duan Liangwei

     53      Non-executive director    June 2017

Liu Yuezhen

     59      Non-executive director    May 2014

Jiao Fangzheng

     58      Non-executive director    June 2019

Huang Yongzhang

     54      Executive director and president    September 2020

Elsie Leung Oi-sie

     81      Independent non-executive director    June 2017

Tokuchi Tatsuhito

     68      Independent non-executive director    June 2017

Simon Henry

     59      Independent non-executive director    June 2017

Cai Jinyong

     61      Independent non-executive director    June 2020

Jiang, Simon X.

     67      Independent non-executive director    June 2020

Lv Bo

     58      Chairman of the supervisory committee   

Zhang Fengshan

     59      Supervisor   

Jiang Lifu

     57      Supervisor   

Lu Yaozhong

     55      Supervisor   

Wang Liang

     58      Supervisor   

Fu Suotang

     58      Employee representative elected supervisor   

Li Jiamin

     57      Employee representative elected supervisor   

Liu Xianhua

     57      Employee representative elected supervisor   

Li Wendong

     56      Employee representative elected supervisor   

Sun Longde

     58      Vice president   

Li Luguang

     58      Vice president   

Tian Jinghui

     58      Vice president   

Chai Shouping

     59      Chief financial officer and secretary to the board of directors   

Ling Xiao

     57      Vice president   

Yang Jigang

     57      Vice president   

 

(1)

The following changes have taken place to our board of directors, supervisors and senior management since our last annual report on Form 20-F:

 

   

On June 11, 2020, Mr. Lin Boqiang and Mr. Zhang Biyi ceased to hold the position of independent director of the Company due to regulatory limitation on term of office.

 

   

On June 11, 2020, Mr. Liu Yuezhen and Mr. Duan Liangwei were re-appointed as directors of the Company; Ms. Elsie Leung Oi-sie, Mr. Tokuchi Tatsuhito and Mr. Simon Henry were re-appointed as independent non-executive directors of the Company. Mr. Cai Jinyong and Mr. Jiang, Simon X. were newly appointed as independent non-executive directors of the Company. Mr. Xu Wenrong, Mr. Zhang Fengshan, Mr. Jiang Lifu, Mr. Lu Yaozhong, and Mr. Wang Liang were re-appointed as supervisors of the Company.

 

   

On June 11, 2020, Mr. Fu Suotang, Mr. Li Jiamin, Mr. Liu Xianhua, and Mr. Li Wendong were re-elected as employee representative elected supervisors by the Company’s employee representatives through election.

 

   

On September 25, 2020, Mr. Wu Enlai resigned as the secretary to the Company’s board of directors due to his age.

 

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On September 28, 2020, Mr. Huang Yongzhang was appointed as a non-executive director of the Company.

 

   

On October 20, 2020, Mr. Lv Bo resigned as director of the Company and Mr. Xu Wenrong resigned as supervisor and the chairman of the supervisory committee of the Company.

 

   

On October 29, 2020, Mr. Chai Shouping was appointed as the secretary to the board of the directors of the Company.

 

   

On November 5, 2020, Mr. Lv Bo was appointed as a supervisor of the Company and on the same day he was appointed as the chairman of the supervisory committee upon being elected by the supervisory committee.

 

   

On March 25, 2021, Mr. Duan Liangwei resigned as the president of the Company and his position in the Company was re-designated as a non-executive director. On the same day, Mr. Huang Yongzhang was appointed as the president and executive director of the Company.

 

(2)

For directors only.

Directors

Dai Houliang, age 57, is the chairman of our company, and concurrently the secretary of the CPC Leadership Group of CNPC and the chairman of CNPC. Mr. Dai is a professor-level senior engineer with a doctorate degree, an alternate member of the 19th CPC Central Committee, and an academician of the Chinese Academy of Engineering. He has extensive work experience in China’s petroleum and petrochemical industry. In December 1997, he was appointed as vice president of Yangzi Petrochemical Corporation, and appointed as a director and vice president of Yangzi Petrochemical Co., Ltd. (“YPC”) in April 1998. In July 2002, he was appointed as the vice chairman, president, and a member of the standing committee of the CPC Committee, of YPC, and a director of Yangzi Petrochemical Corporation. From December 2003, he served as the chairman, president, and a member of the standing committee of the CPC Committee, of YPC and concurrently as the chairman of Yangzi Petrochemical Corporation, and from November 2004 concurrently as the chairman of BASF-YPC Company Limited. From September 2005, he served as the deputy CFO of China Petroleum & Chemical Corporation (“Sinopec”), and from November 2005 as a vice president and deputy CFO of Sinopec, and from May 2006 as a director, senior vice president and CFO of Sinopec. From June 2008, he served concurrently as a member of the CPC Committee of China Petrochemical Corporation (“Sinopec Group”). From May 2016, he served concurrently as the president, a director, and the deputy secretary of the CPC Leadership Group, of Sinopec Group, and from August 2016 as the vice chairman and president of Sinopec, and from May 2018 as the chairman and the president of Sinopec. From July 2018, he served concurrently as the chairman, and the secretary of the CPC Committee, of Sinopec Group. In January 2020, Mr. Dai was appointed as the chairman, and the secretary of the CPC Committee, of CNPC. In March 2020, Mr. Dai was appointed as a director and the chairman of our company.

Li Fanrong, age 57, is the vice chairman of our company, and concurrently a director, president, and deputy secretary of the CPC Leadership Group, of CNPC. He is a professor-level senior engineer with a master’s degree and has extensive work experience in China’s oil and gas industry. He was appointed as a vice president of CNOOC China Limited Shenzhen Branch Company in January 2002 and the general manager of the Development & Production Department of CNOOC Limited in November 2005. He was appointed as the president, and secretary of the CPC Committee, of CNOOC China Limited Shenzhen Branch in February 2007. From January 2009, he served as the assistant president, a member of Management Committee, of China National Offshore Oil General Company (now known as “ China National Offshore Oil Corporation”, “CNOOC”) and the president in CNOOC Energy Technology & Services Limited, and from January 2010 concurrently as the chairman of CNOOC Infrastructure Management Co., Ltd. He served as a member of the CPC Leadership Group, and a vice president, of CNOOC from April 2010, concurrently as the president of CNOOC Limited and the chairman of CNOOC Southeast Asia Limited from September 2010, concurrently as the chief executive officer and president of CNOOC Limited from November 2011, concurrently as the chairman of Nexen Energy ULC from February 2013, and concurrently as the chairman of CNOOC International Limited from May 2015. He worked as a deputy director, and a member of the CPC Leadership Group, of National

 

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Energy Administration from May 2016. Mr. Li has been a director, the president, and a deputy secretary of the CPC Leadership Group, of CNPC since February 2020, and concurrently the vice chairman and a director of our company since March 2020 after being so appointed in March 2020.

Duan Liangwei, age 53, is a director of our company, and a director of CNPC, the deputy secretary of the CPC Leadership Group of CNPC and the secretary of the CPC Committee of CNPC as a unit directly under the CPC Central Committee. Mr. Duan is a professor-level senior engineer and holds a doctorate degree. He has extensive work experience in China’s petrochemical industry. From February 2006, Mr. Duan served as a deputy general manager, the chief safety officer, and a member of the CPC Committee, of Jilin Petrochemical Company. From March 2010, he served concurrently as the secretary of the CPC Committee, and the general manager, of Jilin Fuel Ethanol Company Limited. From September 2011, he served as the general manager, the deputy secretary of the CPC committee, of Dagang Petrochemical Company. From July 2013, he served as the general manager, and the deputy secretary of the CPC Committee, of PetroChina Dalian Petrochemical Company, the manager of Dalian Petrochemical Corporation, and the director of Dalian Regional Companies Coordination Group. He was appointed as a deputy general manager of CNPC in March 2017. Mr. Duan has served concurrently as the chief safety officer of CNPC since April 2017. Mr. Duan was appointed as a director of our company in June 2017 and the president of our company in March 2020. From September 2019, Mr. Duan has served concurrently as a member of the CPC Leadership Group of CNPC. From September 2020, Mr. Duan has served concurrently as a director, and the deputy secretary of the CPC Leadership Group, of CNPC, and from October 2020, the secretary of the CPC Committee of CNPC as a unit directly under the CPC Central Committee.

Liu Yuezhen, age 59, is a director of our company, and concurrently a member of the CPC Leadership Group of CNPC and the chief accountant of CNPC. Mr. Liu is a professor-level senior accountant, holds a master’s degree and has extensive financial and accounting experience. He served as deputy general manager and chief accountant of AVIC Jianghan Aviation Life-saving Appliance Corporation since March 1996. In February 2000, he was promoted to general manager of Jianghan Aviation Life-saving Appliance Corporation and served concurrently as the director of the 610 Research Institute. Mr. Liu served as the chairman of the board of directors and general manager of AVIC Beijing Qingyun Aviation Instruments Co., Ltd. from May 2003 and as the chief accountant, and a member of the CPC Leadership Group, of CASIC (Group) Company from November 2006. He served as the chief accountant, and a member of the CPC Leadership Group, of CASIC (Group) Company from December 2007. Mr. Liu has been a member of the CPC Leadership Group and the chief accountant of CNPC since December 2013. Mr. Liu was appointed as a director of our company in May 2014.

Jiao Fangzheng, age 58, is a director of our company, and concurrently a vice president, and a member of the CPC Leadership Group, of CNPC. Mr. Jiao is a professor-level senior engineer, holds a doctorate degree, and has extensive work experience in China’s petroleum and petrochemical industry. Mr. Jiao served as the chief geologist in Zhongyuan Petroleum Exploration Administration of Sinopec Group from January 1999, as the deputy manager and chief geologist of Sinopec Zhongyuan Oilfield Company, a branch of Sinopec from February 2000, as the deputy director general, and a member of the CPC Committee, of Sinopec Petroleum Exploration & Development Research Institute from July 2000, the deputy director general of Exploration & Production Department from March 2001, as the director general, and deputy secretary of the CPC Committee, of Northwest Petroleum Administration of Sinopec Group and as the general manager of Sinopec Northwest Oilfield Company from June 2004. He served as a vice president of Sinopec from October 2006, concurrently as the director general of Sinopec Petroleum Exploration & Production Department from July 2010, as the deputy general manager, and a member of the CPC Leadership Group, of Sinopec Group from July 2014, concurrently as the chairman of Sinopec Oilfield Service Corporation from September 2014, and concurrently as a director and a senior vice president of Sinopec from May 2015. Mr. Jiao has been a member of the CPC Leadership Group and a vice president of CNPC since June 2018. In June 2019, Mr. Jiao was appointed as a non-executive director of our company.

Huang Yongzhang, age 54, is a director and the president of our company, and concurrently a member of the CPC Leadership Group, and vice president and chief safety officer, of CNPC. Mr. Huang is a professor-level

 

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senior engineer and holds a doctorate degree. He has extensive work experience in China’s petroleum and natural gas industry. He previously served as the vice president of CNPC International (Nile) Ltd., vice president and concurrently as chief safety officer of China National Oil Exploration and Development Corporation, and the executive vice president of CNPC Middle East Corporation. He served as the leader of the coordination group of CNPC Middle East and president of CNPC Middle East Corporation from January 2018. He was appointed as a member of the CPC Leadership Group and vice president of CNPC in April 2020, and a director of our company in September 2020. Mr. Huang has served concurrently as the chief safety officer of CNPC from February 2021. He was appointed as the president of our company in March 2021.

Independent Non-executive Directors

Elsie Leung Oi-sie, age 81, is an independent non-executive director of our company. She is a consultant of Iu, Lai & Li Solicitors & Notaries, and an independent non-executive director of China Life Insurance Company Limited, United Company RUSAL, Plc. and China Resources Power Holdings Co., Ltd. Ms. Leung obtained her LLM degree from the University of Hong Kong, and is an academician of College of International Marriage Law. She holds the practicing qualifications for attorney of Hong Kong and Britain. Ms. Leung was the first Secretary for Justice of the Hong Kong Special Administrative Region, a member of Executive Council of HKSAR and the Deputy Director of Hong Kong Basic Law Committee of the Standing Committee of the National People’s Congress of the PRC. Ms. Leung was appointed as the Justice of the Peace, the Notary Public, and the China-Appointed Attesting Officer, and was awarded a Grand Bauhinia Medal. Ms. Leung was appointed as an independent non-executive director of our company in June 2017.

Tokuchi Tatsuhito, age 68, is an independent non-executive director of our company. He is also the executive director & research fellow of the Center for Industrial Development and Environment Governance (CIDEG), Tsinghua University, the senior fellow of Rebuild Japan Initiative Foundation. He was a former member & expert advisor to the Foreign Advisory Committee of State Administration of Foreign Experts Affairs of the PRC. Mr. Tokuchi graduated from the Department of Chinese Language and Literature, Peking University, and received his master’s degree in East Asian Economy from the Center for East Asian Studies of Stanford University. He previously held such positions as the general manager of Investment Banking Division of Daiwa Securities SMBC Co., Ltd., the president of Daiwa Securities Singapore Limited, the Executive Vice President of Daiwa Securities (Hong Kong) Inc.in charge of investment banking business, a vice president of Daiwa Securities (America) Inc., the vice chairman of Singapore Investment Banking Association, and a deputy general manager, managing director, general manager, and Investment Banking Committee chairman of CITIC Securities Co., Ltd. In 2009, Mr. Tokuchi was awarded the China Friendship Award, China’s award for foreigners. Mr. Tokuchi was appointed as an independent non-executive director of our company in June 2017.

Simon Henry, age 59, is an independent non-executive director of the Company and also a fellow of the UK Chartered Institute of Management Accountants, has experience in areas of finance management, strategic planning, marketing and investor relations. Mr. Simon Henry obtained a first class bachelor’s degree in mathematics from Cambridge University in 1982 and was awarded a master’s degree in 1986 from Cambridge. He joined Royal Dutch Shell in 1982. He worked for 8 years until March 2017 as the CFO and executive director of the board of Royal Dutch Shell. He now serves as a non-executive director and chairman of the audit committee of the board of a non-executive director of Rio Tinto plc. From April 2021, he will join the board of Harbour Energy plc. He also serves as a member of the Defense Board for the UK Government. Mr. Simon Henry was appointed as an independent non-executive director of our company in June 2017.

Cai Jinyong, age 61, is an independent non-executive director of our company. Mr. Cai is concurrently a partner of Global Infrastructure Partners (GIP) and a board member of Aon plc. and Global Foundries. Mr. Cai received bachelor’s degree in science from Peking University and doctorate degree in economics from Boston University. Mr. Cai has over 30 years’ work experience in finance service industry, and has work experience in TPG Group, World Bank Group, Goldman Sachs Group, Inc. and Morgan Stanley. Mr. Cai worked at Central Europe Bureau of the Head Office of the World Bank in charge of energy sectors from 1990 to 1994. From 1994

 

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to 2000, he served in Morgan Stanley and was a team member which established China International Capital Corporation Limited (the first domestic joint venture investment bank in the PRC). From 2000 to 2012, he worked in Goldman Sachs Group, Inc., where he was in charge of the PRC Investment Banking Business. From 2012 to 2016, he served as CEO of International Finance Corporation of the World Bank Group. From 2016 to 2018, he led the infrastructure business in emerging economies at TPG. In June 2020, Mr. Cai was appointed as an independent non-executive director of our company.

Jiang, Simon X., age 67, is an independent non-executive director of our company. Mr. Jiang has been an independent non-executive director of COSCO SHIPPING International (Hong Kong) Co., Ltd. since April 2007. He is the chairman of Cyber City International Limited. Mr. Jiang is also a director of China Foundation for Disabled Persons, and a senior associate at the Judge Business School of Cambridge University of England. He is currently a member of the United Nations Investments Committee. Mr. Jiang received his bachelor’s degree from Beijing Foreign Studies University, master’s degree from Australian National University and M.Phil and Ph.D degree in Economics from Cambridge University of England. Mr. Jiang has extensive investment management experience. Mr. Jiang was the deputy chief of United Nations Joint Staff Pension Fund Investment Management, a trustee of the Cambridge China Development Trust, a director of Zi Corporation, advisory board member of Capital International Inc., and an advisor of TPG Capital of the United States and Rothschild Investment Bank of England. He was a member of the 11th and 12th Sessions of the National Committee of the Chinese People’s Political Consultative Conference, an independent non-executive director of China Oilfield Services Limited, Greenland Hong Kong Holdings Limited, Sinopec Corp., and Nokia Corporation. In June 2020, Mr. Jiang was appointed as an independent non-executive director of our company.

Supervisors

Lv Bo, age 58, is the chairman of the supervisory committee of our company, and concurrently a member of the CPC Leadership Group and a vice president of CNPC. Mr. Lv is a senior economist with a master’s degree. He has extensive work experience in China’s oil and gas industry. In January 2002, Mr. Lv was appointed as director-general of Human Resources Department of CNOOC. He was appointed as the assistant president of CNOOC in November 2006 and a member of the CPC Leadership Group of CNOOC in November 2007, and concurrently as the secretary of the CPC Committee of CNOOC as a unit directly under the CPC Central Committee in October 2008. From April 2010, he served as a vice president, and a member of the CPC Committee, of CNOOC, and from December 2012 concurrently as the chairman of CNOOC Energy Technology & Services Limited, from May 2015 concurrently as the president of CNOOC Party School, and from December 2016 concurrently as the chairman of Offshore Oil Engineering Co. Ltd. and China Oilfield Services Limited. Mr. Lv has been a vice president, and a member of the CPC Leadership Group, of CNPC since November 2019. He was appointed as a director of our company in March 2020. He was appointed as a supervisor of our company in November 2020 and concurrently the chairman of the supervisory committee of our company.

Zhang Fengshan, age 59, is a supervisor and the chief safety officer of our company, and concurrently the general manager of our Quality, Security and Environmental Protection Department. He is concurrently the deputy chief safety officer of CNPC, the general manager of Quality, Security and Environmental Protection Department of CNPC and the director of the Security, Environmental Protection Supervision Center of CNPC. Mr. Zhang is a professor-level senior engineer, holds a master’s degree and has extensive experience in China’s oil and gas industry. He was appointed as a deputy director and a standing member of the CPC Committee of Liaohe Oil Exploration Bureau in July 2000, the safety director of Liaohe Oil Exploration Bureau in May 2002, the director and deputy secretary of the CPC Committee of Liaohe Petroleum Exploration Bureau in August 2004, and the general manager and deputy secretary of the CPC Committee of Great Wall Drilling and Exploration Company Ltd. in February 2008, where he also served as an executive director from July 2008. Mr. Zhang has been the general manager of the Security, Environment, and Energy Conservation Department of our company and of CNPC since June 2012. In July 2014, Mr. Zhang was appointed as the chief safety officer of our company and the deputy chief safety officer of CNPC. In December 2015, Mr. Zhang was appointed as the

 

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director of the Security, Environmental Protection Supervision Center of CNPC. In December 2016, Mr. Zhang was appointed as the general manager of our Quality, Security and Environmental Protection Department and the general manager of the Quality, Security and Environmental Protection Department of CNPC. Mr. Zhang was appointed as a supervisor of our company in May 2014.

Jiang Lifu, age 57, is a supervisor of our company, the general manager of the Reform and Enterprise Management Department of our company, and concurrently the general manager of the Reform and Enterprise Management Department of CNPC. Mr. Jiang is a professor-level senior economist, holds a doctorate degree and has extensive work experience in China’s oil and gas industry. He was appointed as a deputy general manager of our Capital Operation Department in August 2003, a deputy director of CNPC’s Planning Department in May 2005, a deputy general manager of our Planning Department in June 2007 and a deputy director of CNPC’s Planning Department. Since April 2014, Mr. Jiang has been the general manager of the Enterprise Management Department of our company and the general manager of the Enterprise Management Department of CNPC. In April 2015, Mr. Jiang was appointed as the general manager of our Reform and Enterprise Management Department and the general manager of the Reform and Enterprise Management Department of CNPC. Mr. Jiang was appointed as a supervisor of our company in October 2014.

Lu Yaozhong, age 55, is a supervisor of our company, the general manager of our Capital Operation Department, and concurrently the general manager of the Capital Operation Department of CNPC. Mr. Lu is a professor-level senior accountant and holds a master’s degree. He has extensive work experience in China’s oil and gas industry. He served as the chief accountant and a member of the CPC Committee of PetroChina Kazakhstan Company from December 2009 and the chief accountant of Overseas Exploration and Development Branch Company of China National Oil and Gas Exploration and Development Corporation from August 2013. Mr. Lu has served as the general manager of the Capital Operation Department of our company and concurrently the general manager of the Capital Operation Department of CNPC since April 2017. Mr. Lu was appointed as a supervisor of our company in June 2017.

Wang Liang, age 58, is a supervisor of our company, the general manager of our Audit Department, and concurrently the general manager of the Audit Department, and director and deputy secretary of the CPC Committee of the Audit Service Center, of CNPC. Mr. Wang is a professor-level senior accountant and holds a bachelor’s degree. He has extensive work experience in China’s oil and gas industry. He served as a director, chief accountant and member of the CPC Committee of CNPC Offshore Engineering Company Limited from January 2005, a member of the CPC Leadership Group and deputy director of Liaoning Provincial Finance Department from April 2006, the chairman of the board of directors Generali China Insurance Co., Ltd. from April 2007, the chief accountant and a member of the CPC Committee of CNPC Chuanqing Drilling Engineering Company Limited from February 2008, the general manager and deputy secretary of the CPC Committee of CNPC Assets Management Co., Ltd. from October 2009, the chairman of the board of directors, general manager, and deputy secretary of the CPC Committee of Kunlun Trust Co., Ltd. from March 2014, the chairman of the board of directors, secretary of the CPC Committee, secretary of the discipline inspection commission, and chairman of the Labor Union of CNPC Assets Management Co., Ltd. from July 2014, and the secretary of the CPC Committee, secretary of the Discipline Inspection Commission, chairman of the Labor Union and deputy general manager of China Petroleum Finance Co., Ltd. from July 2016. In May 2017, he was appointed as the general manager of our Audit Department, and concurrently the general manager of the Audit Department of CNPC, the director and secretary of the CPC Committee of the Audit Service Center of CNPC. In November 2017, he was appointed as the general manager of our Audit Department, the general manager of the Audit Department of CNPC, the director and deputy secretary of the CPC Committee of the Audit Service Center of CNPC. Mr. Wang was appointed as a supervisor of our company in October 2017.

Fu Suotang, age 58, is a an employee representative elected supervisor of our company. He is also an executive director and the secretary of the CPC Committee of PetroChina Changqing Oilfield Company, and concurrently an executive director and the general manager of Changqing Petroleum Exploration Bureau Co., Ltd. Mr. Fu is a professor-level senior engineer and holds a doctorate degree. He has extensive work experience

 

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in China’s oil and gas industry. He served as the chief geologist and a member of the CPC Committee of PetroChina Qinghai Oilfield Company from April 2007. He served as the general manager and deputy secretary of the CPC Committee of PetroChina Qinghai Oilfield Company and concurrently the director of Qinghai Petroleum Management Bureau from April 2014. In April 2017, he was appointed as the general manager and deputy secretary of the CPC Committee of PetroChina Changqing Oilfield Company and concurrently the director of Changqing Petroleum Exploration Bureau. In April 2018, he was appointed the general manager and the secretary of the CPC Committee of PetroChina Changqing Oilfield Company, and concurrently an executive director and the general manager of Changqing Oilfield Exploration Bureau Co., Ltd. From October 2020, Mr. Fu has served as an executive director and the secretary of the CPC Committee of PetroChina Changqing Oilfield Company and concurrently as an executive director and the general manager of Changqing Oilfield Exploration Bureau Co., Ltd. Mr. Fu was appointed as an employee representative elected supervisor of our company in June 2017.

Li Jiamin, age 57, is an employee representative elected supervisor and the director of the Party and Masses’ Affairs Department of our company, and concurrently the director of the Party and Masses’ Affairs Department, the deputy secretary of the CPC Committee (of CNPC as a unit directly under the CPC Central Committee), and the deputy director of the CPC Leadership Group, of CNPC. Mr. Li is a professor-level senior engineer and holds a master’s degree. He has extensive work experience in China’s oil and petrochemical industry. He was appointed as a deputy general manager, the chief safety officer and a member of the CPC Committee of Lanzhou Petroleum & Chemical Company in August 2004. He was appointed as the general manager and deputy secretary of the CPC Committee of PetroChina Lanzhou Petrochemical Company and the general manager Lanzhou Petroleum & Chemical Company in March 2012. In November 2017, he was appointed the general manager and the secretary of the CPC Committee of PetroChina Lanzhou Petrochemical Company, and the executive director and general manager of Lanzhou Petroleum & Chemical Company. In August 2020, Mr. Li was appointed as the general manager of the Corporate Culture Department of our company, and concurrently the general manager of the Ideological and Political Work Department (and the chief of the CPC Leadership Group Propaganda Department, the general manager of the Corporate Culture Department and the director of the Press Office) of CNPC. From December 2020, Mr. Li has served as the director of the Party and Masses’ Affairs Department of our company, and concurrently as the director of the Party and Masses’ Affairs Department, the deputy secretary of the CPC Committee (of CNPC as a unit directly under the CPC Central Committee), and the deputy director of the CPC Leadership Group, of CNPC. Mr. Li was appointed as an employee representative elected supervisor of our company in May 2014.

Liu Xianhua, age 57, is an employee representative elected supervisor of our company. He is also the general manager and deputy secretary of the CPC Committee of PetroChina Liaoning Marketing Company and the executive director and general manager of CNPC Liaoning Petroleum Marketing Company. Mr. Liu is a professor-level senior economist and holds a master’s degree. He has extensive work experience in China’s oil and petrochemical industry. In May 2005, he was appointed as the general manager and deputy secretary of the CPC Committee of PetroChina Shandong Marketing Company. In March 2012, he was appointed as the general manager and deputy secretary of the CPC Committee of PetroChina Northeast Marketing Company. In December 2015, he was appointed as the general manager and deputy secretary of the CPC Committee of PetroChina Liaoning Marketing Company, and the general manager of CNPC Liaoning Petroleum Corporation. From 2017, he has served as the general manager and deputy secretary of the CPC Committee of PetroChina Liaoning Marketing Company, and concurrently as an executive director and the general manager of CNPC Liaoning Petroleum Marketing Company. Mr. Liu was appointed as an employee representative elected supervisor of our company in May 2016.

Li Wendong, age 56, is an employee representative elected supervisor of our company. He is also the secretary of the CPC Committee, the chairman and general manager of Beijing Natural Gas Pipelines Company. Mr. Li is a professor-level senior engineer and holds a master’s degree. He has extensive work experience in China’s oil and gas industry. In January 2006, he was appointed as a deputy director and a member of the CPC Committee of China Petroleum Pipeline Bureau. In August 2011, he was appointed as the secretary of the CPC

 

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Committee, the secretary of the Discipline Inspection Commission, the chairman of the Labor Union and deputy general manager of PetroChina West Pipelines Company. In November 2013, he was appointed as the general manager, the secretary of the CPC Committee, the secretary of the Discipline Inspection Commission and the chairman of the Labor Union of PetroChina West Pipeline Company, and the general manager of PetroChina West-East Natural Gas Sales Company. Since March 2016, he has served as the general manager and secretary of the CPC Committee of PetroChina West-East Natural Gas Transmission Pipelines Company, and the general manager of PetroChina West-East Natural Gas Sales Company. In April 2018, he was appointed as the general manager and the secretary of the CPC Committee of Beijing Natural Gas Pipelines Company. In October 2018, he was appointed as the chairman, general manager and the secretary of the CPC Committee of Beijing Natural Gas Pipelines Company. Mr. Li was appointed as an employee representative elected supervisor of our company in May 2016.

Other Senior Management

Sun Longde, age 58, is a vice president of our company. He is also an executive director and the secretary of the CPC Committee of Daqing Oilfield Company Ltd., and concurrently an executive director of Daqing Petroleum Administration Bureau Co., Ltd. Mr. Sun is a professor-level senior engineer and holds a doctorate degree. Mr. Sun is an academician of the Chinese Academy of Engineering. He has extensive work experience in China’s oil and geological industry. Mr. Sun was appointed as the manager of Exploration & Development Company of the Shengli Petroleum Administration Bureau in September 1997, the chief geologist and a member of the CPC Committee of Tarim Petroleum Exploration & Development Headquarters in November 1997, a deputy general manager and a member of the CPC Committee of PetroChina Tarim Oilfield Company in September 1999, and the general manager and secretary of the CPC Committee of PetroChina Tarim Oilfield Company in July 2002. He was elected as an academician of the Chinese Academy of Engineering in December 2011. In April 2014, Mr. Sun was appointed as the director of the consultancy center of CNPC. In July 2015, Mr. Sun was appointed as the general manager of our Science and Technology Management Company and the general manager of the Science and Technology Department of CNPC. He was appointed as an executive director and the general manager of Daqing Oilfield Company Ltd., the director of Daqing Petroleum Administration Bureau, and a deputy secretary of the CPC Committee of Daqing Oilfield in March 2016. In October 2018, he was appointed as an executive director and the secretary of the CPC Committee of Daqing Oilfield Company Ltd., and concurrently an executive director of Daqing Petroleum Administration Bureau Co., Ltd. Mr. Sun was appointed as a vice president of our company in June 2007.

Li Luguang, age 58, is a vice president of our company, and concurrently an executive director and the general manager and secretary of the CPC Committee of PetroChina Exploration and Production Company. Mr. Li is a professor-level senior engineer and holds a doctor degree. He has extensive work experience in China’s oil and gas industry. From September 1999, Mr. Li served as the deputy general manager and Party member of PetroChina Southwest Oil and Gas Field Company, and from September 2003, as the general manager and deputy secretary of the CPC Committee of PetroChina Southwest Oil and Gas Field Company. From November 2005, he served as the general manager and secretary of the CPC Committee of PetroChina Southwest Oil and Gas Field Company, and from April 2014, as the assistant to the general manager of CNPC, and from October 2016, concurrently as the general manager and deputy secretary of the CPC Committee of PetroChina Tarim Oilfield Company. From April 2017, Mr. Li served as the general manager and secretary of the CPC Committee of PetroChina Tarim Oilfield Company, and from April 2018, as the general manager and deputy secretary of the CPC Committee of PetroChina Exploration and Production Company. From October 2020, Mr. Li has served as an executive director and the general manager and secretary of the CPC Committee of PetroChina Exploration and Production Company. Mr. Li was appointed as a vice president of our company in June 2018.

Tian Jinghui, age 58, is a vice president of our company, and concurrently the secretary of the CPC Committee and an executive director of PetroChina International Company Ltd., and the chairman of China National United Oil Corporation. Mr. Tian is a professor-level senior economist and holds a master’s degree. He

 

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has extensive experience in China’s oil and gas industry. In May 1998, he was appointed as the chief of the Preparatory Group of PetroChina Northwest Marketing Company. He was appointed as a deputy general manager and member of the CPC Committee of our Refining & Marketing Company from December 1999, a deputy general manager, chief safety officer and member of the CPC Committee of PetroChina Marketing Company from November 2007. In June 2009, he was appointed as the secretary of the CPC Committee and deputy general manager of PetroChina Marketing Company. In August 2013, he was appointed as the general manager and secretary of the CPC Committee of PetroChina Marketing Company. From April 2017, Mr. Tian has served as the general manager and deputy secretary of the CPC Committee of PetroChina Marketing Company, the secretary of the CPC Committee and an executive director of PetroChina International Company Ltd., and the chairman of China National United Oil Corporation. Mr. Tian was appointed as a vice president of our company in November 2015.

Chai Shouping, age 59, is the CFO of our company, the secretary to the board of directors and manager of the Board of Directors Office of our company. Mr. Chai is a professor-level senior accountant and holds a master’s degree. He has extensive work experience in financial operations and management in China’s oil and petrochemical industry. In April 2002, he was appointed as a deputy general manager of the Finance Department of our company. From September 2012, Mr. Chai served as the chief accountant, and a member of the CPC Committee, of China National Oil and Gas Exploration and Development Corporation (overseas exploration and development branch), the deputy general manager and the CFO of CNPC Exploration and Development Company Limited, and the CFO of PetroChina International Investment Company Limited. In March 2013, he was appointed as the general manager of the Finance Department of our company. In January 2017, he was appointed as our CFO. In August 2020, Mr. Chai was appointed to concurrently serve as the secretary to the board of directors, and in October 2020, concurrently as the manager of Board of Directors Office of our company.

Ling Xiao, age 57, is a vice president of our company. Mr. Ling is a professor-level senior engineer and holds a doctorate degree. He has extensive experience in China’s oil industry. In June 2001, Mr. Ling was appointed as a deputy director, and member of the CPC Committee, of Xinjiang Petroleum Administration Bureau, and in August 2004, the chairman of the board of directors and general manager of West Pipeline Co., Ltd. In January 2015, he was appointed as the secretary of the CPC Committee of West Pipeline Co., Ltd., and in March 2009, the general manager, and deputy secretary of the CPC Committee, of PetroChina West Pipeline Company. From November 2013, he served as the general manager, and secretary of the CPC Committee, of West-East Gas Transmission Pipeline Company, and from March 2016, concurrently as the general manager of West-East Gas Transmission Sales Company, the secretary of the CPC Committee and deputy general manager of PetroChina Natural Gas and Pipelines Company and concurrently the deputy general manager of our Natural Gas Sales Company, the secretary of the CPC Committee and deputy general manager of our Natural Gas Sales Company (PetroChina Natural Gas and Pipelines Company), and from September 2016 as the general manager, and secretary of the CPC Committee, of PetroChina Pipelines Co., Ltd. in. From November 2017, Mr. Ling served as the general manager, and deputy secretary of the CPC Committee, of our Natural Gas Sales Company (PetroChina Natural Gas and Pipelines Company), as the chairman of the board of directors, and secretary of the CPC Committee, of PetroChina Pipelines Co., Ltd., and as the chairman of Kunlun Energy Co., Ltd. From October 2018, he served as the secretary of the CPC Committee of the PetroChina Natural Gas Sales Company. He ceased to concurrently serve as the chairman of the board of directors, and secretary of the CPC Committee, of PetroChina Pipelines Co., Ltd and the chairman of Kunlun Energy Co., Ltd. from October 2020. Mr. Ling was appointed as a vice president of our company in December 2017.

Yang Jigang, age 57, is a vice president and the chief engineer of our company, and the secretary of the CPC Committee and the general manager of PetroChina Refinery and Chemical Engineering Company. Mr. Yang is a professor-level senior engineer and holds a master’s degree. He has extensive experience in China’s petroleum and petrochemical industry. From August 1997, Mr. Yang served as the deputy manager of Lanzhou Chemical Industry Corporation, and from November 1998, as the chief engineer of the Oil Refinery and Chemical Engineering Department of CNPC. From September 1999, Mr. Yang served as a member of the

 

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preparatory group for the establishment of our Refining and Chemicals Marketing Company, and from December 1999, as the chief engineer, and member of the CPC Committee, of our Refinery and Marketing Branch Company. From August 2000, Mr. Yang served as a deputy general manager, chief engineer, and member of the CPC Committee, of our Chemical Engineering and Marketing Company, and from May 2005, as the general manager, and deputy secretary of the CPC Committee, of PetroChina Daqing Petrochemical Company. From December 2009, Mr. Yang served as the secretary of the CPC Committee and deputy general manager of our Refinery and Chemical Engineering Company. From November 2017, Mr. Yang has served as the secretary of the CPC Committee and the general manager of PetroChina Refinery and Chemical Engineering Company. Mr. Yang was appointed as a vice president of our company in December 2017. He was appointed as the chief engineer of our company in April 2021.

Compensation

The senior management members’ compensation consists of fixed salaries and variable compensation. The variable compensation, which accounts for approximately 75% of the total compensation package, is linked to the attainment of specific performance targets, such as our income for the year, return on capital and the individual performance evaluation results. All of our senior management members have entered into performance contracts with us.

Our directors and supervisors, who hold senior management positions or are otherwise employed by us and other senior management of our company receive compensation in the form of salaries, insurance and other benefits in kind, including our contribution to the pension plans for them.

The aggregate amount of salaries and other compensation, insurance and other benefits in kind paid by us to our directors, who hold senior management positions or are otherwise employed by us, during the year ended December 31, 2020 was RMB609 thousand which does not include the fees totaling RMB1,768 thousand paid to our independent directors. The aggregate amount of salaries or other compensation, insurance and other benefits in kind paid by us to our supervisors, who hold senior management position or are otherwise employed by us during the year ended December 31, 2020 was RMB4,186 thousand. The aggregate amount of salaries or other compensation, insurance and other benefits in kind paid by us to other senior management during the year ended December 31, 2020 was RMB10,035 thousand.

In 2020, we paid RMB1,338 thousand as our contribution to the pension plans for our directors and supervisors, who hold senior management positions or are otherwise employed by us and other senior management of our company.

Save as disclosed, no other payments have been paid or are payable, with respect to the year ended December 31, 2020, by us or any of our subsidiaries to our directors. In addition, we have no service contracts with our directors that provide for benefits to our directors upon the termination of their employment with us.

For discussions about the compensations of our individual directors and supervisors, please see Note 11 to our consolidated financial statements included elsewhere in this annual report.

Board Practices

Our board of directors has five committees, namely, the nominating committee, the audit committee, the investment and development committee, the evaluation and remuneration committee and the sustainabililty committee.

 

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Nominating Committee

Our nominating committee is composed of Mr. Dai Houliang, as chairman of the committee, and Mr. Cai Jinyong and Mr. Jiang, Simon X., as members. The nominating committee’s major responsibilities include:

 

   

reviewing and discussing the structure, size and composition of the board of directors regularly, and making recommendations on changes to the board to follow the company’s corporate strategy;

 

   

considering the criteria and procedures for selection of directors, president and other senior management, and making recommendations to the board of directors;

 

   

considering the board diversity policy and the training systems for directors and management;

 

   

extensively selecting qualified candidates for directorship and members of senior management, reviewing the qualifications of candidates for directorship and president, and making recommendations;

 

   

reviewing the proposals on candidates nominated by the nominators who have the nominating rights under the Articles of Association;

 

   

reviewing and making assessment on the independence of independent non-executive directors; and

 

   

attending the shareholders’ meeting and answer the investor’s consultation on the work of the nomination committee, as well as the relevant laws, regulations, listing rules and other matters authorized by the board of directors.

Audit Committee

Our audit committee is composed of two independent non-executive directors, Mr. Cai Jinyong and Mr. Jiang, Simon X., and one non-executive director, Mr. Liu Yuezhen. Mr. Cai Jinyong serves as the chairman of the committee. Under our audit committee charter, the chairman of the committee must be an independent director and all resolutions of the committee must be approved by independent directors. The audit committee’s major responsibilities include:

 

   

reviewing and supervising the engagement of external auditors and their performance;

 

   

reviewing and ensuring the completeness of annual reports, interim reports and quarterly reports, if any, and related financial statements and accounts, and reviewing any material opinion contained in the aforesaid statements and reports with respect to financial reporting;

 

   

reporting to the board of directors in writing on the financial reports of the company and related information, having considered the issues raised by external auditors;

 

   

reviewing and scrutinizing the work conducted by the internal audit department in according with the applicable PRC and international rules;

 

   

monitoring the financial reporting system and internal control procedures of the company, as well as checking and assessing matters relating to, among others, the financial operations, internal control and risk management of the company;

 

   

receiving, keeping and dealing with complaints or anonymous reports regarding accounting, internal accounting control or audit matters and ensuring the confidentiality of such complaints or reports;

 

   

reporting regularly to the board of directors with respect to any significant matters which may affect the financial position of the company and its operations and with respect to the self-evaluation of the committee on the performance of their duties; and

 

   

performing other responsibilities as may be required under relevant laws, regulations and the listing rules of the stock exchanges where our shares are listed (as amended from time to time).

 

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Investment and Development Committee

Our investment and development committee is composed of Mr. Li Fanrong, as chairman of the committee, and Mr. Duan Liangwei and Mr. Simon Henry, as members. The investment and development committee’s major responsibilities include:

 

   

studying the long-term development strategies of the company proposed by our president and making recommendations to the board of directors;

 

   

studying the annual investment budget and the adjustment proposal regarding the investment plan as proposed by our president and making recommendations to the board of directors;

 

   

reviewing feasibility studies and preliminary feasibility studies for investment or financing proposals, capital operation projects and asset operation projects of great significance to our company subject to the approval of the board of directors and making recommendations to the board of directors;

 

   

deliberating on other significant matters that may have an effect on the development of our company and making recommendations to the board of directors; and

 

   

addressing issues related to relevant laws, regulations and listing rules and requirements of the stock exchanges on which our shares are listed and handing other matters as delegated by the board of directors.

Evaluation and Remuneration Committee

Our evaluation and remuneration committee is composed of Ms. Elsie Leung Oi-sie, as chairman of the committee, and Mr. Liu Yuezhen and Mr. Tokuchi Tatsuhito, as members. The evaluation and remuneration committee’s major responsibilities include:

 

   

studying the evaluation criteria for directors and senior officers, conducting the evaluations and proposing suggestions;

 

   

studying and evaluating the remuneration policies and plans for directors and senior officers (including the compensation in connection with the removal or retirement of the director and senior officers);

 

   

organizing the evaluation of the performance of our president and reporting the evaluation result to the board of directors, supervising the evaluation of the performance of our senior vice presidents, vice presidents, CFO and other senior management members conducted under the leadership of the president;

 

   

studying our incentive plan and compensation plan, supervising and evaluating the implementation of these plans and making recommendations for improvements to and perfection of such plans; and

 

   

studying the relevant laws, regulations and the listing rules of the stock exchanges where the shares of the company are listed (as amended from time to time) and other matters authorized by the board of directors.

Sustainability Committee

In March 2021, our health, safety and environment committee was renamed to “sustaintability committee”, and was charged with more responsibilities. Our sustaintability committee is composed of Mr. Duan Liangwei, as chairman of the committee, and Mr. Jiao Fangzheng and Mr. Huang Yongzhang, as members. The sustainability committee’s major responsibilities include:

 

   

supervising and managing sustainability related matters (including without limitation, environmental, social and corporate governance) and making recommendations to the board of directors or the president;

 

   

supervising the effective implementation of our health, safety and environmental protection plan;

 

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making recommendations to the board of directors and our president regarding major decisions with respect to health, safety and environmental protection;

 

   

inquiring about the occurrence of and determining the responsibilities for material accidents of the company, and examining and supervising the treatment of such accidents; and

 

   

addressing issues related to relevant laws, regulations and listing rules and requirements of the stock exchanges on which our shares are listed and handing other matters as delegated by the board of directors.

Employees

As of December 31, 2018, 2019 and 2020, we had 476,223, 460,724 and 432,003 employees (not including the temporary employees), respectively. During 2020, we employed 266,050 temporary employees on an average. As of December 31, 2020, we had 260,838 temporary employees. The table below sets forth the number of our employees by business segment as of December 31, 2020.

 

     Employees      % of Total  

Exploration and production

     249,643        57.78  

Refining and chemicals

     132,703        30.72  

Marketing

     39,782        9.21  

Natural gas and pipeline

     4,356        1.01  

Headquarters and others(1)

     5,519        1.28  

Total

     432,003        100.00  
  

 

 

    

 

 

 

 

(1)

Including the numbers of employees of the management of our headquarters, specialized companies, PetroChina Exploration & Development Research Institute, PetroChina Planning & Engineering Institute, Petrochemical Research Institute and other units.

Our employees participate in various basic social insurance plans organized by municipal and provincial governments whereby we are required to make monthly contributions to these plans at certain rates of the employees’ salary as stipulated by relevant local regulations. Expenses incurred by us in connection with the retirement benefit plans were approximately RMB19,432 million and RMB20,196 million, and RMB16,833 million respectively, for the years ended December 31, 2018, 2019 and 2020, respectively.

In 2020, we did not experience any strikes, work stoppages, labor disputes or actions that affected the operation of any of our businesses. Our company maintains good relationship with our employees.

Share Ownership

As of December 31, 2020 our directors, senior officers and supervisors did not have share ownership in us or any of our affiliates.

Item 7 — MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Major Shareholders

We were established on November 5, 1999 with CNPC as its sole promoter. As of March 31, 2021, CNPC beneficially owned 147,173,857,136 shares, which include 291,518,000 H Shares indirectly held by CNPC through Fairy King Investments Limited, an overseas wholly owned subsidiary of CNPC, representing

 

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approximately 80.41% of the share capital of us, and, accordingly, CNPC is our controlling shareholder. The following table sets forth the major shareholders of our A Shares and H Shares as of March 31, 2021:

 

Name of
Shareholders

  

Class of
Shares

  

Number of Shares
Held

  

Capacity

   Percentage of
Such Share in
That Class of the
Issued Shares
Capital (%)
   Percentage in
the Total
Share
Capital (%)

CNPC

   A Shares    146,882,339,136 (long position)    Beneficial Owner    90.71    80.25
   H Shares    291,518,000 (long position)(1)   

Interest of Corporation

Controlled by the

Substantial Shareholder

   1.38    0.16

BlackRock, Inc.(2)

   H Shares    1,256,444,090 (long position)   

Interest of Corporation

Controlled by the

Substantial Shareholder

   5.96    0.69
   622,000 (short position)    0.003    0.0003

 

(1)

Held by Fairy King Investments Limited, an overseas wholly-owned subsidiary of CNPC.

(2)

Blackrock, Inc., through various subsidiaries, had an interest in the H Shares of the Company.

Related Party Transactions

CNPC is a controlling shareholder of our company. We enter into extensive transactions with CNPC and other members of the CNPC group, all of which constitute related party transactions for us. We also continued to carry out existing continuing transactions with other related parties in the year ended December 31, 2020.

Continuing Related Party Transactions

Since 2000, our company has engaged a variety of continuing related party transactions with CNPC. CNPC provides various services to us and our company also provides specific products and services to CNPC. These transactions are governed by several agreements between CNPC and us, including the comprehensive products and services agreement, land lease, building lease, intellectual property licensing contracts and contract for the transfer of rights under Sino-foreign cooperative production sharing contracts, as amended.

1. The comprehensive products and services agreement between CNPC and us

The comprehensive products and services agreement (the “Comprehensive Agreement”) entered into between CNPC and us is updated every three years. The latest Comprehensive Agreement (the “New Comprehensive Agreement”) was signed in 2020, which covers the period from January 1, 2021 to December 31, 2023. The New Comprehensive Agreement revised the previous Comprehensive Agreement mainly as follows: (1) updated the pricing basis for refining products, natural gas, power supply, and gas supply services provided by us to CNPC and jointly-held entities; (2) updated the pricing basis for project design, project supervision, power supply, and gas supply services provided by CNPC to us; and (3) added the sharing services to the services provided by CNPC to us. Other terms and conditions remain unchanged. The New Comprehensive Agreement was approved at the extraordinary general meeting held on November 5, 2020.

Under the New Comprehensive Agreement, we and CNPC will provide the following products and services to each other:

(A) Products and services to be provided by us to CNPC mainly include: refined oil products, chemical products, crude oil, natural gas, water supply, electricity supply, gas supply and heating supply, metering and measuring, and commissioned operations, supply of materials, financial services, and other products and services

 

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that CNPC may request us to provide from time to time for itself to consume, use or sell. In addition, we will provide financial services to jointly held companies, including without limitation, provision of entrusted loans and guarantees.

(B) Products and services to be provided by CNPC to us mainly include:

 

   

construction and technical services, which will be mainly the products and services provided prior to official commencement of commerical operation of relevant projects, including but not limited to exploration technology service, downhole operation service, oilfield construction service, refinery construction service and engineering and design service;

 

   

production services, which will be mainly the products and services provided in light of the requirements for our daily operations after official commencement of commerical operation of relevant projects, including but not limited to crude oil, natural gas, refined oil products, chemical products, water supply, electricity supply, gas supply and communications;

 

   

supply of materials services, which will be mainly materials procurement services provided prior to and after official commencement of commericial operation of relevant projects, including but not limited to procurement of materials, quality inspection, storage of materials and delivery of materials;

 

   

social and ancillary services, including but not limited to security systems, education, hospitals, property management, staff canteens, training centers and guesthouses; and

 

   

financial services, including loans and other financial assistance, deposit services, entrusted loans, settlement services and other financial services.

The general principle of the New Comprehensive Agreement is that all products and services provided by each party shall be of good quality and fair and reasonable price. If a third party provides similar products or services or participates in similar transactions, it shall not be inferior to the conditions provided by the third party for such products or services. The pricing of the products and serivices to be provided under the New Comprehensive Agreement shall be either following government-prescribed price, market price, cost price, or contractual price, depending on the circumstances. The deposit and loan interest rates of financial services shall be subject to the interest rates and relevant charging standards for the same period as published by the people’s Bank of China or relevant financial regulatory agencies, and shall not be inferior to the interest rates, charging standards and other conditions for the party to obtain funds and services from an independent third party. The New Comprehensive Agreement is not exclusive, and the parties may provide to and purchase products and services from third parties. Each party may terminate the performance of on or more products or services by giving at least six months’ written notice. However, if we are unable to easily obtain services that CNPC provides from a third party, CNPC shall not terminate the provision of such services unless it get our written consent.

2. Specific product and service implementation agreements

According to the current arrangements contemplated under the New Comprehensive Agreement, from time to time and when necessary, the parties may enter into implementation agreements for specific products and services. The specific product and service implementation agreements shall not violate the principles, terms and conditions of the New Comprehensive Agreement in any material respect.

Since a specific product and service implementation agreements is only a further elaboration of the products and services as contemplated by the New Comprehensive Agreement, they do not constitute new categories of related party transactions.

3. Land Use Rights Lease Agreement

We entered into a Land Use Rights Lease Agreement with CNPC in March 2000, pursuant to which, CNPC leased to us land use right across China totaling approximately 1,145 million square meters, which were related

 

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to our various operations and businesses, for a term of 50 years at an annual rent of RMB2 billion. The rent may, as at the expiration of 10-year term of the Land Use Rights Lease Agreement, be adjusted to reflect market conditions prevalent at such time of adjustment, including the then prevailing market prices, inflation or deflation (as applicable) and such other relevant factors.

We entered into a supplementary agreement to the Land Use Rights Lease Agreement with CNPC on August 25, 2011, whereby we adjusted the area and the rent to be effective from January 1, 2012. Thereafter, the parties adjusted the area and rent every three years. The latest adjustment happened on August 27, 2020, whereby the parties adjusted the area to 1,142 million square meters and the annual rent to RMB5,673 million (exclusive of taxes) for the three years since January 1, 2021.

All of the amendments and adjustment were approved by the relevant general meetings. The latest adjustment was approved by the extraordinary general meeting of our company on November 5, 2020.

4. Buildings Lease Agreement

We entered into a buildings lease agreement with CNPC in March 2000, pursuant to the lease, CNPC leased buildings across China to us for our business operations. Both parties agreed to adjust the area and rent of leased buildings every three years based on our needs and the changes in the market price. On August 24, 2017, we entered into a new agreemet with CNPC, pursuant to which, the area of the leased building should be 1,152,968 square meters, and the annual rent should be no more than RMB730 million. The agreement took effect on January 1, 2018, with a term of 20 years. The parties may adjust the area of building leased and the rent fees every three years as appropriate by reference to the status of the production and operations and the prevailing market price, but the adjusted rent fees shall not exceed the comparable fair market price. On August 27, 2020, the parties confirmed that effective from January 1, 2021, the area of the leased buildings should be adjusted to 1,287,486.41 square meters and the annual rent be adjusted to no more than RMB713 million. All of the amendments and adjustments were approved by the relevant general meetings. The latest adjustment was approved by the extraordinary general meeting of our company on November 5, 2020.

5. Intellectual Property Licensing Contracts

We and CNPC continue to implement the three intellectual property licensing contracts entered on March 10, 2000, namely the Trademark Licensing Contract, the Patent and Know-how Licensing Contract and the Computer Software Licensing Contract. CNPC has agreed to extend the term of the Computer Software Licensing Contract to the expiry date of the statutory protection period of the relevant software or when such software enters the public domain. Pursuant to these licensing contracts, CNPC has granted us the exclusive right to use certain trademarks, patents, know-how and computer software of CNPC at no cost.

6. Contract for the Transfer of Rights under Sino-Foreign Cooperative Production Sharing Contracts

We and CNPC continue to implement the Contract for the Transfer of Rights under Sino-Foreign Cooperative Production Sharing Contracts dated December 23, 1999. As part of the restructuring to organize our company, CNPC transferred to us relevant rights and obligations under 28 production sharing contracts executed with international oil and natural gas companies, except the rights and obligations relating to CNPC’s supervisory functions.

As of December 31, 2020, a total of 29 projects were being executed by CNPC under the production sharing contracts. CNPC has assigned to us at nil consideration all of its rights and obligations under the production sharing contracts and all the related interests vested in CNPC pursuant to applicable PRC laws and regulations, except the rights and obligations relating to CNPC’s supervisory functions.

Our directors believe that these continuing related party transactions were made in the normal and ordinary course of business for the benefits of our company, and are in the interests of the shareholders as a whole.

 

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7. Caps for the Continuing Related Party Transactions

We and CNPC update the aggregate annual amount proposed for each category of continuing related party transactions every three years based on the historical transactions and transaction amounts for the provision of such category of products and services by us, CNPC and their jointly held companies to each other during the prior periods, and by taking into account the business development of our company, CNPC and the jointly held companies, and the possible magnitude of fluctuation of the prices of crude oil, petrochemical products, natural gas, and other petroleum products and services on international markets and China market, which amount, after being approved by the shareholders at the relevant general meeting, should be adopted as the proposed annual cap for the corresponding category of continuing related party transactions for each of the next three years. The transaction amounts of all the historical continuing related party transactions as described above were all within the corresponding proposed annual caps.

The total annual revenue or expenditures under any of the continuing related party transactions during the period from January 1, 2018 to December 31, 2020 did not exceed the corresponding proposed annual caps set out in the following table:

 

     Proposed Annual Caps  
Category of Products and Services    2018      2019      2020  
     RMB (in millions)  

(i) Products and services provided by us to the CNPC and jointly-held companies

     153,716        153,861        155,390  

(ii) Products and services provided by CNPC to us

        

(a) Construction and technical services

     208,103        203,908        198,537  

(b) Production services

     228,730        220,525        212,833  

(c) Supply of materials services

     35,566        35,344        35,819  

(d) Social and ancillary services

     9,093        9,432        9,731  

(e) Financial Services

        

—Aggregate of the daily highest amount of deposits of our company in CNPC and the total amount of interest received in respect of these deposits

     63,000        63,000        63,000  

—Insurance fees, handling charges for entrusted loans, and fees and charges for settlement services and other intermediary business

     2,417        2,753        3,110  

—Rents and other payments made under financial leasing loans, and fees and charges for settlement services and other intermediary business

     17,804        19,894        21,605  

(iii) Financial services provided by us to the jointly-held companies

     22,291        22,398        22,506  

(iv) Rents for land leases paid by us to CNPC (excluding taxes)

     5,783        5,783        5,783  

(v) Rents for buildings paid by us to CNPC

     730        730        730  

Loans and Guarantees

As of December 31, 2020, we had unsecured short-term and long-term loans from CNPC and its affiliates in an aggregate amount of RMB146,579 million and with an average annual interest rate of 2.93%. The proceeds from the loans were basically used for our working capital. As of December 31, 2020, the total outstanding amount of our debts secured by CNPC and its subsidiaries was RMB12,894 million.

In 2020, we did not provide any guarantee to or for the benefit of CNPC and its subsidiaries. As of December 31, 2020, the total outstanding guarantee we provided to or for the benefit of our subsidiaries, associates and affiliates other than CNPC and its subsidiaries was RMB187,108 million.

For a detailed discussion of continuing related party transactions, please refer to Note 37 to our consolidated financial statements included in this annual report.

 

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One-off Related Party Transactions

1. Kunlun Energy Pipeline Assets Transaction

In 2020, we and PipeChina completed the pipeline assets restructuring transaction. As part of the consideration for the transaction, we received 29.9% equity interests in PipeChina. Pursuant to the arrangements contemplated under the transaction, we appointed two directors to the board of directors of PipeChina, both of whom are incumbent directors and senior officers of our company. After completion of this transaction, our subsidiary, Kunlun Energy, entered into an equity transfer agreement with PipeChina for transfer to PipeChina of Kunlun Energy’s equity interests in its pipeline business, the transaction was completed at 24:00 on March 31, 2021. Due to the fact that we holds equity interests and board seats in PipeChina, the transaction between Kunlun Energy and PipeChina as described above constitute a related party transaction. For details, please see “Item 4 — Information on the Company — Acquisitions and Divestments”.

2. Increase of Capital of CNPC Finance Co., Ltd.

On June 13, 2019, our board of directors passed a resolution on the increase of capital contributions to CNPC Finance Co., Ltd. (“CPF”) by CNPC, CNPC Capital Co., Ltd. (“CNPC Capital”) and us in proportion to the parties’ respective shareholding percentages in CPF. CNPC, CNPC Capital and we currently hold 40%, 28% and 32% equity interests in CPF, respectively. After completion of this transaction, the registered capital of CPF will be increased from RMB8,331,250,000 to RMB20,000,000,000, including (i) RMB8,064,023,100 to be converted out of the capital reserves of CPF into its registered capital, (ii) an additional capital of RMB14,000,000,000 to be subscribed for and contributed by the shareholders in cash in proportion to their then shareholding percentages, of which RMB3,604,726,900 will be recognized as registered capital and the rest shall be recognized as capital reserves. After completion of the transaction, the parties’ shareholding percentages in CPF will remain unchanged. According to the arrangement, we will be required to contribute RMB4,480,000,000 in cash, which will be funded by our retained earnings. This transaction is subject to approval of the relevant governmental authorities.

We expect that this transaction will increase the returns on our investment in CPF and it will provide us with a better position to access efficient funds and financial management services provided by CPF. We expect that this transaction will not affect the continuity of our business and the stability of our management.

In addition, during the reporting period, we had a number of other continuing related party transactions with certain companies such as CNPC Exploration and Development Company Limited. Also see Note 37 to our consolidated financial statements included in this annual report.

The above-mentioned related-party transactions were within the upper limit of the amount of related party transactions as approved at the shareholders’general meeting.

See “Item 3 — Key Information — Risk Factors — Risks Related to Controlling Shareholder”.

Interests of Experts and Counsel

Not applicable.

Item 8 — FINANCIAL INFORMATION

Financial Statements

See pages F-1 to F-79 following Item 19.

 

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Legal Proceedings

We are involved in several legal proceedings concerning matters arising in the ordinary course of our business. We believe, based on currently available information, that these proceedings, individually or in the aggregate, will not have a material adverse effect on our results of operations or financial condition.

Dividend Policy

Our Articles of Association provided that if our net profit attributable to owners of the Company and the accumulated undistributed profit for a year are positive, and our cash flow can satisfy our normal operation and sustainable development, the amount of cash dividend to be distributed shall not be less than 30% of the net profit attributable to owners of the Company realized in that year. We distribute dividends twice a year. Distribution of final dividends needs to be passed at the general meeting by ordinary resolution. The general meeting can, by ordinary resolution, authorize the board of directors to determine the distribution of interim dividends. Since the listing of our ADSs and our shares, we have distributed dividends to the shareholders by strictly complying with the Articles of Association and other relevant regulatory requirements, and adhering to the principle of bringing returns to shareholders, and after an overall consideration of various factors, including our operating performance, financial status, and cash flows.

Our board of directors will declare dividends, if any, in Renminbi on a per share basis and will pay such dividends in Renminbi with respect to A Shares and HK dollars with respect to H Shares. The Bank of New York will convert the HK dollar dividends and distribute them to holders of ADSs in U.S. dollars, less expenses of conversion. The holders of the A Shares and H Shares will share proportionately on a per share basis in all dividends and other distributions declared by our board of directors.

We will take into account factors including the following for declaration of dividends:

 

   

general business conditions;

 

   

our financial results;

 

   

capital requirements;

 

   

contractual restrictions on the payment of dividends by us to our shareholders or by our subsidiaries to us;

 

   

our shareholders’ interests;

 

   

the effect on our debt ratings; and

 

   

other factors our board of directors may deem relevant.

We may only distribute dividends after we have made allowances for:

 

   

recovery of losses, if any;

 

   

allocations to the statutory common reserve fund; and

 

   

allocations to a discretionary common reserve fund if approved by our shareholders.

The allocation to the statutory funds is 10% of profit for the year attributable to owners of the company determined in accordance with PRC accounting rules. Under PRC law, our distributable earnings will be equal to our profit for the year attributable to owners of the company determined in accordance with PRC accounting rules or IFRS, whichever is lower, less allocations to the statutory and discretionary funds.

We believe that our dividend policy strikes a balance between two important goals:

 

   

providing our shareholders with a competitive return on investment; and

 

   

assuring sufficient reinvestment of profits to enable us to achieve our strategic objectives.

 

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In 2020, our operating performance was severely impacted by the COVID-19 pandemic and persistent low oil prices. Despite all the difficulties faced by us, we continue to attach great importance to rewarding our shareholders. After an overall consideration of factors, including our operating performance, financial status, cash flows and income from pipeline assets restructuring, we paid a dividend of RMB16,000 million in aggregate, representing RMB0.08742 per share (inclusive of applicable taxes), for the six months ended June 30, 2020 to our A shareholders and H shareholders (including ADS holders). The board of directors recommended a final dividend of RMB16,000 million in aggregate, representing RMB0.08742 per share (inclusive of applicable taxes) for the second half of 2020. The final dividend for the year ended December 31, 2020 is subject to the approval by the annual general meeting to be held on June 10, 2021, and shall be paid to our shareholders listed on our shareholder register as of the close of business on June 28, 2021. The register of members of H Shares will be closed from June 23, 2021 to June 28, 2021 (both days inclusive) during which period no transfer of H Shares will be registered. The final dividends for A Shares and H Shares (including ADSs) for 2020 will be paid on or about June 29, 2021 and July 30, 2021, respectively.

Significant Changes

None.

Item 9 — THE OFFER AND LISTING

Trading Market Information

Our ADSs, each representing 100 H Shares, par value RMB1.00 per H Share, have been listed and traded on the New York Stock Exchange since April 6, 2000 under the symbol “PTR”. Our H Shares have been listed and traded on the Hong Kong Stock Exchange since April 7, 2000 under the symbol “857”. In September 2005, our company issued an additional 3,196,801,818 H Shares. CNPC also sold 319,680,182 state-owned shares it held concurrently with our company’s issuance of new H Shares in September 2005. In October 2007, we issued 4 billion A Shares and these shares were listed on the Shanghai Stock Exchange on November 5, 2007 under the symbol “601857”. Following the issuance of A Shares, all the domestic shares of our company existing prior to the issuance of A Shares, i.e. the shares held by CNPC (our controlling shareholder) in our company, have been registered with China Securities Depository and Clearing Corporation Limited as tradable A Shares. The New York Stock Exchange, the Hong Kong Stock Exchange and Shanghai Stock Exchange are the principal trading markets for our ADSs, H Shares and A Shares, respectively.

As of December 31, 2020, there were 21,098,900,000 H Shares and 161,922,077,818 A Shares issued and outstanding. As of December 31, 2020, there were 144 registered holders of American depositary receipts evidencing 6,942,871 ADSs. The depositary of the ADSs is the Bank of New York Mellon.

Item 10 — ADDITIONAL INFORMATION

Memorandum and Articles of Association

Our Articles of Association Currently in Effect

On October 26, 2017, the amendment to the Articles of Association of the Company was approved at an extraordinary general meeting. The amendment took effect as of the same day.

The amendment includes, among others, (i) in accordance with the PRC Company Law and the Constitution of the Communist Party of China, an addition of a new Article 5, which reads as follows: “The company shall set up the CPC organizations and working bodies with adequate staff and funds; the CPC organizations shall play the role of the core of leadership and political center of the company”, and an addition of a new Article 105, which

 

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reads as follows: “The board of directors of the company shall take the CPC organization’s advices before it determines such material matters as the orientations of the company’s reform and development, key objectives and tasks and major work arrangements. With respect to appointment of management of the company, the CPC organizations shall consider and provide their comments and suggestions on the candidates nominated by the board of directors or the president, or the CPC organizations may recommend candidates to the board of directors and the president”; (ii) revisions implementing in the Company a cumulative voting system for election of directors and supervisors at general meeting; and (iii) revisions providing that the tenure of re-elected independent directors cannot exceed six years.

On June 11, 2020, the Proposal for the Amendments to the business scope of the Company and the Amendments to the Articles of Association was reviewed and approved at our annual general meeting, and the Articles of Association was amended to reflect the amendments to the business scope. Amendments to the business scope of the Company mainly include:

 

  (i)

amending a description in the business scope reading as “the exploration and production of crude oil and natural gas” to read as “the exploration, exploitation and sales of resources including crude oil, natural gas, coalbed methane, shale gas, shale oil and gas hydrate” and expanding the business scope to include “the exploration, exploitation and utilization of geothermal energy”;

 

  (ii)

expanding the business scope to include “manufacture and sale of food additives; and manufacture and sale of non-woven fabrics”; and

 

  (iii)

expanding the business scope to include “value-added telecommunications services, online platform, online information services, online data services, and online wholesale and retail services”.

The following is a summary based on the significant provisions of our Articles of Association. For details, you should read our amended and restated Articles of Association filed with SEC on June 11, 2020.

Objectives and Purposes

We are a joint stock limited company established in accordance with the PRC Company Law and certain other laws and regulations of the PRC. We are registered with the PRC State Administration for Industry and Commerce with a business license number being 1000001003252. Article 10 of our articles of association provides that our objectives are to comply with the rules of the market, to continuously explore business models which are suitable for the development of the Company, to fully utilize every resource of the Company, to place emphasis on personnel training and technological development, to pr