UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form20-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, 2017.2019.

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

 

  

Date of event requiring this shell company report

For the transition period from                    to                    

Commission File Number1-15006

 

 

LOGOLOGO

(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)

 

 

Wu Enlai

Telephone number: 8610 5998627059982622

Facsimile number: 8610 62099557

Email address: jh_dong@petrochina.com.cnsunbo05@petrochina.com.cn

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

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

 

 

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

 

Title of Each Class

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 151,088,693,528146,882,339,136 A Shares held by CNPC and 10,833,384,29015,039,738,682 A Shares held by the public shareholders.

Indicate by check mark if the registrant is awell-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, and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☐☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule12b-2 of the Exchange Act:

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

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

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b))by the registered public accounting firm that prepared or issued its audit report.    Yes  ☒    No  ☐

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 Rule12b-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 789,355,600 H709,929,100H Shares represented by American Depositary Shares.

 

 

 

Table of Contents

 

        Page 

Certain Terms and Conventions

   1 

Forward-Looking Statements

   5 
   Part I  

Item 1

 —  Identity of Directors, Senior Management and Advisors   7 

Item 2

 —  Offer Statistics and Expected Timetable   7 

Item 3

 —  Key Information   7 
   Exchange Rates7
Average Noon Buying Rates7
Selected Financial Data   8 
   Risk Factors   10 

Item 4

 —  Information on the Company   1719 
   Introduction   1719 
   Exploration and Production   2021 
   Refining and Chemicals   2930 
   Marketing   33 
   Natural Gas and Pipeline   3635 
   Competition   3837 
   Environmental Matters   40
Legal Proceedings4138 
   Properties   4140 
   Intellectual Property   4140 
   Regulatory Matters   4241 

Item 4A4 A

 —  Unresolved Staff Comments   49 

Item 5

 —  Operating and Financial Review and Prospects   49 
   General   49 
   Operating Results   5354 
   Liquidity and Capital Resources   6263 
   Off-Balance Sheet Arrangements   67 
   Long-Term Contractual Obligations and Other Commercial Commitments and Payment Obligations   6768 
   Research and Development   68 
   Trend Information   69 
   Other Information   7172 

Item 6

 —  Directors, Senior Management and Employees   7173 
   Directors, Senior Management and Supervisors   7173 
   Compensation   8284 
   Board Practices   8384 
   Employees   8587 
   Share Ownership   8587 

Item 7

 —  Major Shareholders and Related Party Transactions   8587 
   Major Shareholders   8587 
   Related Party Transactions   8688 
   Interests of Experts and Counsel   8890 

Item 8

 —  Financial Information   8991 
   Financial Statements   8991
Legal Proceedings91 
   Dividend Policy   8991 
   Significant Changes   9092 

Item 9

 —  The Offer and Listing   9092 
   Nature of the Trading Market and Market Price Information   9092 

Item 10

 —  Additional Information   9192 
   Memorandum and Articles of Association   9192
Material Contracts97
Foreign Exchange Controls97 

 

i

        Page 
   Material Contracts92
Foreign Exchange Controls92
Taxation   9298 
   Documents on Display   98104 

Item 11

 —  Quantitative and Qualitative Disclosures aboutAbout Market Risk   99104 

Item 12

 —  Description of Securities other thanOther Than Equity Securities   103109 
   Part II  

Item 13

 —  Defaults, Dividends Arrearages and Delinquencies   103110 

Item 14

 —  Material Modifications to the Rights to Security Holders and Use of Proceeds   103110 

Item 15

 —  Controls and Procedures   104110 

Item 16A16 A

 —  Audit Committee Financial Expert   105112 

Item 16B16 B

 —  Code of Ethics   106112 

Item 16C16 C

 —  Principal Accountant Fees and Services   106112 

Item 16D16 D

 —  Exemptions from Listing Standards for Audit Committees   106113 

Item 16E16 E

 —  Purchases of Equity Securities by the Issuer and Affiliated Purchasers   107113 

Item 16F16 F

 —  Change in Registrant’s Certifying Accountant   107113 

Item 16G16 G

 —  Corporate Governance   107113 

Item 16H16 H

 —  Mine Safety Disclosure   109115 
   Part III  

Item 17

 —  

Financial Statements

   109115 

Item 18

 —  Financial Statements   109115 

Item 19

 —  Exhibits   109115 

 

ii

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 inlong-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

 

1barrel-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.

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

 

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

 

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

 

 (v) Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average price during the12-month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of thefirst-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.

 

“reserve-to-productionreserves-to-production ratio”

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

 

“sales gas”

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

 

“undeveloped reserves”

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

 

“water cut”

For a given oil region, the percentage that water constitutes of all fluids extracted from all wells in that region.

References to:

 

BOE is tobarrels-of-oil equivalent,

 

Mcf is to thousand cubic feet, and

 

Bcf is to billion cubic feet.

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. Theseforward-looking statements are, by their nature, subject to significant risks and uncertainties. Theseforward-looking statements include, without limitation, statements relating to:

 

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

 

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

 

development projects;

 

exploration prospects;

 

reserves potential;

 

production of oil and gas and refined and chemical products;

 

development and drilling potential;

 

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

 

the planned development of our natural gas operations;

 

the planned expansion of our refined product marketing network;

 

the planned expansion of our natural gas infrastructure;

 

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

 

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

 

our future overall business development and economic performance;

 

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

 

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

 

other prospects of our business and operations.

The words “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “seek”, “will” and “would” and similar expressions, as they related to us, are intended to identify a number of theseforward-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. Theforward-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 theforward-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 recentCOVID-19 pandemic;

failure to achieve continued exploration success;

 

failures or delays in achieving production from development projects;

 

continued availability of capital and financing;

 

acquisitions and other business opportunities that we may pursue;

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;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 anyforward-looking statements.

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

Exchange Rates

The following table sets forth the high and low noon buying rates between Renminbi and U.S. dollars for each month during the previous six months and the most recent practicable date:

       Noon Buying Rate(1)     
   High   Low 
   (RMB per US$) 

October 2017

   6.6533    6.5712 

November 2017

   6.6385    6.5967 

December 2017

   6.6210    6.5063 

January 2018

   6.5263    6.2841 

February 2018

   6.3471    6.2649 

March 2018

   6.3565    6.2685 

April 2018 (ending through April 20)

   6.3045    6.2655 

(1)The exchange rates reflect the noon buying rates as set forth in the H.10 statistical release of the Federal Reserve Board. On April 20, 2018, the exchange rate was RMB6.2945 to US$1.00.

Average Noon Buying Rates(1)

The following table sets forth the average noon buying rates between Renminbi and U.S. dollars for each of 2013, 2014, 2015, 2016 and 2017, calculated by averaging the noon buying rates on the last day of each month during the relevant year:

   Average Noon
Buying Rate(1)		 
   (RMB per US$) 

2013

   6.1412 

2014

   6.1701 

2015

   6.2869 

2016

   6.6549 

2017

   6.7350 

(1)The exchange rates reflect the noon buying rates as set forth in the H.10 statistical release of the Federal Reserve Board.

Selected Financial Data

Historical Financial Information

You should read the selected historical financial data set forth below in conjunction with 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, 2015, 20162017, 2018 and 20172019 and the selected consolidated statement of financial position data as of December 31, 20162018 and 20172019 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, 20132015 and 20142016 and the selected consolidated statement of financial position data as of December 31, 2013, 20142015, 2016 and 20152017 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.

 

  As of or for the Year Ended December 31,   As of or for the Year Ended December 31, 
  2013 2014 2015 2016 2017   2015(4) 2016(4) 2017(4) 2018(4) 2019 
  RMB RMB RMB RMB RMB   RMB RMB RMB RMB RMB 
  (In millions, except for per share, per ADS data and percentages)   (In millions, except for per share, per ADS data and percentages) 

Consolidated Statement of Comprehensive Income Data

    

Revenue

   2,258,124  2,282,962  1,725,428  1,616,903  2,015,890    1,736,663  1,627,588  2,032,298  2,374,934  2,516,810 

Total operating expenses

   (2,069,482)  (2,113,129)  (1,646,176)  (1,556,268)  (1,948,168)    (1,657,733)  (1,564,926)  (1,961,462)  (2,251,992)  (2,395,048) 

Profit from operations

   188,642  169,833  79,252  60,635  67,722    78,930  62,662  70,836  122,942  121,762 

Profit before income tax expense

   178,063  156,759  57,815  45,140  53,089    56,815  46,574  55,691  116,770  103,214 

Income tax expense

   (35,789)  (37,731)  (15,726)  (15,768)  (16,296)    (15,726)  (15,919)  (16,296)  (42,790)  (36,199) 

Profit for the year

   142,274  119,028  42,089  29,372  36,793    41,089  30,655  39,395  73,980  67,015 

Attributable to:

            

Owners of the Company

   129,599  107,172  35,517  7,857  22,798    35,234  8,222  23,537  53,036  45,682 

Non-controlling interests

   12,675  11,856  6,572  21,515  13,995    5,855  22,433  15,858  20,944  21,333 

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

   0.71  0.59  0.19  0.04  0.12    0.19  0.04  0.13  0.29  0.25 

Basic and diluted net earnings per ADS(2)

   70.81  58.56  19. 41  4.29  12.46    19.25  4.49  12.86  28.98  24.96 

Consolidated Statement of Financial Position Data

            

Total current assets

   430,953  391,308  349,344  381,665  425,162    353,560  385,199  430,294  438,241  466,913 

Totalnon-current assets

   1,911,157  2,014,165  2,044,500  2,014,986  1,979,450    2,048,512  2,019,003  1,983,205  2,002,636  2,265,997 

Total assets

   2,342,110  2,405,473  2,393,844  2,396,651  2,404,612    2,402,072  2,404,202  2,413,499  2,440,877  2,732,910 

Total current liabilities

   645,489  579,829  471,407  499,263  576,667    479,653  507,530  588,551  596,430  661,419 

Totalnon-current liabilities

   426,686  507,863  578,403  524,653  446,626    585,403  529,870  446,960  435,556  627,186 

Total liabilities

   1,072,175  1,087,692  1,049,810  1,023,916  1,023,293    1,065,056  1,037,400  1,035,511  1,031,986  1,288,605 

Equity attributable to owners of the Company

   1,132,735  1,175,894  1,179,716  1,189,024  1,193,520    1,177,721  1,187,337  1,192,572  1,213,783  1,230,156 

Non-controlling interests

   137,200  141,887  164,318  183,711  187,799    159,295  179,465  185,416  195,108  214,149 

Total equity

   1,269,935  1,317,781  1,344,034  1,372,735  1,381,319    1,337,016  1,366,802  1,377,988  1,408,891  1,444,305 

Other Financial Data

            

Dividend declared and proposed per share

   0.32  0.26  0.09  0.06  0.13    0.09  0.06  0.13  0.18  0.14 

Dividend declared and proposed per ADS

   31.87  26.35  8.73  5.93  13.00    8.73  5.93  13.00  17.88  14.37 

Capital expenditures

   318,696  291,729  202,238  172,386  216,227    203,302  172,961  219,346  256,106  296,776 

Return on net assets (%)(3)

   11.4  9.1  3.0  0.7  1.9    3.0  0.7  2.0  4.4  3.7 

Consolidated Statement of Cash Flow Data

            

Net cash flows from operating activities

   288,529  356,477  261,312  265,179  366,655    261,855  268,897  368,729  353,256  359,610 

Net cash flows used for investing activities

   (266,510)  (290,838)  (215,879)  (175,887)  (243,546)    (217,112)  (176,310)  (243,790)  (267,812)  (332,948) 

Net cash flows used for financing activities

   (12,239)  (44,312)  (45,439)  (67,007)  (94,725)    (44,673)  (70,454)  (96,746)  (125,703)  (27,276) 

 

(1)As of

For the years ended December 31, 2013, 2014, 2015, 2016, 2017, 2018 and 2017,2019, respectively, basic and diluted earnings per share were calculated by dividing the profit attributable to owners of the Company by 183.021 billion,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 restated as if Dalian West Pacific Petrochemical Co., Ltd. was consolidated since the earliest year presented. Please refer to “Item 4 — Information on the Company — Acquisitions and Divestment” and Note 40 to our consolidated financial statements, and (b) We have 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) New Accounting Standards” in our financial statements.

Risk Factors

Our business is primarily subject to various changing competitive, economic and social 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 tomacro-economic trends, oil and gas prices tend to fluctuate along with changes inmacro-economic conditions. We may experience pricing pressure on our refined products in recessionary periods, which would have an adverse effect on our profitability.In 2017, the domestic economy was undergoing transformation and adjustment, which affectedChanges 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 and economic situation may also have a negative impact on third parties with whom we do orbusiness, and may do, business.impact their ability to perform contractual obligations to us. In addition, other factors that affect the macro economy, such as declining population growth rates, conflicts and wars, trade and tariff policies, and major public health events, such as the recentCOVID-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 further diversificationthe intensive reform of the market players in China’s petroleum, refining and petrochemical industry,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 refinery, chemical, sales and oil and gas service sectors.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. 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 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 developing 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, Syria, Myanmar, Russia 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 fornon-U.S. companies, including requiring foreign companies to cease participation in projects in certain sectors of Iran (including the energy sector), and, 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, prohibiting or restricting oil imports from Iran. The SREs expired in May 2019, and the United States announced that no additional waivers would be re-issued. 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. In 2019, our controlling shareholder, CNPC, held indirect interests in certain oil and gas development projects in Iran, namely, (i) the MIS oil fields in which CNPC obtained a 100% interest in 2010, (ii) the North Azadegan oilfield, in which CNPC obtained a 100% interest in 2009 and (iii) the South Pars gas field project. Regarding the South Pars gas field project, CNPC first obtained a 100% interest in 2009. After ceasing participation in the project in 2012, CNPC in July 2017 regained a 30% investment and operating interest in the South Pars gas field project under a new Iran Petroleum Contract (the “IPC”). In November 2018, CNPC took over another shareholder’s interest pursuant to the IPC but the project was on hold. In October 2019, CNPC withdrew from the project. From there-imposition of U.S. sanctions until May 2019, CNPC had been providing minimal support and extraction-related services to the MIS oilfield and the North Azadgan oilfield to recover its investment pursuant to the project agreements and in line with the SRE issued to China. Since May 2019, CNPC has suspended extracting oil from the two oilfields. In 2019 (until May), CNPC transported back to China approximately 1.47 million tons of crude oil that it extracted from the MIS oilfield and the North Azadgan oilfield, of which approximately 0.41 million tons were resold to our company’s refineries. In 2019, crude oil that we processed from the foregoing source accounted for 0.32% of the total oil processed by our refineries and contributed 0.08% of our total revenue.

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, OAO Novatek and Yamal LNG. These sanctions prohibit U.S. persons from transacting in, providing financing for or otherwise dealing in debt issuance by certain of these entities, or restrict exports and transfer of technologies to certain of these entities.

CNPC had certainpre-existing trading and investment relationships with some of these sanctioned Russian entities. 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 and a long-term agreement with Gazprom to import natural gas from Russia in May 2014.2013. 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 agreementagreements to us. In 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, both of which is a subsidiaryare subsidiaries of OAO Novatek, another sanctioned Russian entity. 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 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, 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. In 2017, based on certain pre-existing contract obligations,2019, we purchased refineda small amount of oil product sourced from PdVSAVenezuela for processing and resale, and we sold propane to PetroMar A.V.V., which is a subsidiary of PdVSA. Our revenue generated from such dealings accounted forcontributed approximately 0.3%0.7% of our total revenue in 2017.2019. CNPC has suspended purchases of oil from Venezuela. 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, acquired 40% stake in the CaraboboSinovensa block located in Carabobo, Monagas State, Venezuela. The other 60% stake of the block is held by PdVSA, which also serves as the operator of the block. The block produces and sells heavy oil. We also indirectly hold minority interests in a few other small projects in Venezuela. For the year ended December 31, 2017,2019, the share of profit generated from the Sinovensa block and these other projects accounted for approximately 1.4% of our total profit. CNPC E&D currently does not plan to discontinue the business or dispose of the interest in this block.

We closely monitor the possible impacts of U.S. sanctions including sanctions against these Russianthe countries and Venezuelan entities which have trading or investment relationships with CNPC or us. We do not believewill continue to manage our risk exposure and to endeavor that our activities nor those of CNPC, with these entities are in violation ofdo 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, the U.S. Treasury Department’s Office of Foreign Assets Control, 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. Since November 2018, Kunlun Bank’s settlement business involving Iran has been limited to settlement of humanitarian materials, limited crude oil trade within the framework of applicable SRE exemptions, and other business activities that are not informed us ofsubject to sanctions, and it has ceased business cooperation with the revenue and profit it generated from suchbanks that are subject to secondary sanctions. Beginning in May 2019, Kunlun Bank further ceased involvement in settlement activities in relationrelated to Iran or whether it will discontinue such activities.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

Our operations, like those of other PRC oil and gas companies, are subject to extensive regulations and control by the PRC government. These regulations and control affect many material aspects of our

operations, such as exploration and production licensing,industry-specific andproduct-specific taxes and fees and environmental and safety standards. As a result, we may face significant constraints on our ability to implement our business strategies, to develop or expand our business operations or to maximize our profitability. Our business may also be affected by future changes in certain policies of the PRC government with respect to the oil and gas industry. For example, on March 19, 2019, the PRC government passed theOpinions on Implementation of the Reform of the Operation Mechanism of Oil and Gas Pipeline Network (the “Opinion”). According to the Opinion, the PRC government will carry out reforms of the oil and gas pipeline operation mechanism. An oil and gas pipeline network operator shall be established, which will have diversified investors with state-owned capital holding the majority stake. The Opinion states that the PRC government would form an oil and gas market system with multi-channel suppliers in the upstream, an integrated pipeline network with high efficiency in themiddle-stream, and a fully competitive market in the downstream, to improve the efficiency of oil and gas resource allocation. On May 24, 2019, a number of Chinese government agencies jointly issued theRegulations on the Fair Opening of Oil and Gas Pipeline Network Facilities, pursuant to which, from May 24, 2019, oil and gas pipeline network operators shall providenon-discriminatory services of oil and gas transportation, storage, gasification, loading and unloading, transshipment to users who meet the accessing conditions; without proper reasons, they must not delay the signing of or refuse to sign service contracts with users who meet the accessing conditions, and must not make unreasonable requirements. On December 9, 2019, the Chinese government established the China Oil & Gas Pipeline Network Corporation (the “National Pipeline Network Company”). The National Pipeline Network Company is in discussions with the Company regarding a possible acquisition of certain pipeline assets from the Company. As at the date of this report, no definitive agreement has been reached. There is no assurance that the definitive agreement, if any, will not bring any adverse effect on the development of our natural gas and pipeline business and our operation results.

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 thenon-binding nature of prior court decisions, the interpretation and enforcement of these laws, regulations and legal requirements involve some uncertainty. Because the PRC Company Law is different in certain important aspects from company laws in the United States, Hong Kong and other common law jurisdictions, and because the PRC securities laws and regulations are still at a stage of development, you may not enjoy the shareholders’ protections that you may be entitled to in other jurisdictions.

Risks Related to Controlling Shareholder

As of December 31, 2017,2019, CNPC beneficially owned approximately 82.71%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 declinedfluctuated substantially in response to changes in global and regional economy, politics and supply and demand for crude oil. In 2017, international crude oil prices increased but still remained at a low level in general. 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, since the beginning of March 2020, the international crude oil price has fallen sharply due to a pessimistic outlook on the world economy affected by theCOVID-19 pandemic and oversupply of crude oil in the global market. The decline in international crude oil prices is expected to greatly affect the Company’s upstream business profits and oil and gas import costs, and affect the Company’s downstream business profits through China’s pricing mechanism of refined oil products, thereby adversely affecting the Company’s overall sales revenue and profits. Further, if crude oil prices remain at a low level for a prolonged period, our company haswould 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.

Since 2008, theThe PRC government has gradually improved its refined oil pricing mechanism. 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 ceiling of citygate price range permitted by the PRC government. When the domestic price ceiling set by the government 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 most of our imports of crude oil, equipment and other materials 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 crude oil 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, Chinathe 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, Chinathe 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 environmentenvironmental 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 currentCOVID-19 pandemic, may cause partial interruptions to our operations and property and environmental damage that could have an adverse impact on our financial condition.

Risks Related toCOVID-19

In January 2020, the World Health Organization declared theCOVID-19 outbreak a “Public Health Emergency of International Concern” and on March 11, 2020 it was declared a pandemic. Between January 2020 and the date of this report, theCOVID-19 disease has spread to many countries, with the number of reported cases and related deaths increasing daily and, in many countries, exponentially. Many countries’ governments have imposed increasingly stringent restrictions to help avoid, or slow down, the spreading ofCOVID-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 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 are expected to have 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 are expected to also result in a decrease in demand for oil, thereby also putting pressure on global oil prices.

We continue to monitor developments closely as theCOVID-19 pandemic develops. The impact of theCOVID-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, the geographies impacted, the impact of the pandemic on economic activity in China and globally, and the nature and severity 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 near- andlong-term adverse impact of theCOVID-19 pandemic on the global economy, global financial markets and the Chinese economy, and we are unable to accurately predict the near-term or long-term impact of theCOVID-19 pandemic on our business. To the extent theCOVID-19 pandemic adversely affects 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 marco-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 the emission of greenhouse gas have been executed and become effective. China and some other countries in which we operate have adopted, or are considering the adoption of, regulatory frameworks to reduce greenhouse gas emissions. These include adoption of carbon emission quota and trade regimes, carbon taxes, increased efficiency standards, and incentives or mandates for renewable energies. These requirements may lead to a substantial increase in our expenditures, make our products more expensive, lengthen our project time, reduce the demand for hydrocarbons, and shift hydrocarbon demand toward relatively low carbon sources such as natural gas. Current and pending greenhouse gas regulations may also increase our compliance costs, such as those for monitoring or sequestering emissions. As a result, our results of operations and our strategic investment may be adversely affected.

China is a signatory country to the Paris Agreement which has taken effect since November 2016. China is expected to reach the peak level of carbon emissions by 2030. In 2017, China rolled out the national carbon quota trading system. As a result, a majority of our subsidiaries operating in China will be subject to mandatory requirement with respect to carbon emission quota and trading, which could increase our costs of operations.

Risks Related to Insurance

Due to the fact that oil industry is susceptible to high andindustry-specific risks in nature, the current ordinary commercial insurance cannot cover all the business areas in which we operate. We maintain insurance coverage against some,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 constructing several natural gas and oil pipelines, 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 theSarbanes-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 for the fiscal year endedas of December 31, 20172019 was 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, 2017,2019, 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 theSarbanes-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 ADSs, H Shares or A 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 U.S. Securities and Exchange Commission, or 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. The PCAOB, however, is currently unable to inspect a registered public accounting firm’s audit work relating to a company’s operations in China where the documentation of such audit work is located in China. Accordingly, our independent registered public accounting firm’s audit of our operations in China is not subject to the PCAOB inspection. 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. As part of a continued regulatory focus in the United States on access to audit and other

information currently protected by national law, in particular the PRC’s, in June 2019, a bipartisan group of lawmakers introduced bills in both houses of the U.S. Congress that would require the SEC to maintain a list of issuers for which PCAOB is not able to inspect or investigate an auditor report issued by a foreign public accounting firm. The Ensuring Quality Information and Transparency for Abroad-Based Listings on our Exchanges (EQUITABLE) Act prescribes increased disclosure requirements for these issuers and, beginning in 2025, the delisting from U.S. national securities exchanges such as the New York Stock Exchange of issuers included on the SEC’s list for three consecutive years. Enactment of this legislation or other efforts to increase U.S. regulatory access to audit information could cause investor uncertainty for affected issuers, including us, and the market price of our ADSs could be adversely affected. It is unclear if this proposed legislation would be enacted.

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 to improve their audit quality. Due to the lack of PCAOB 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.

IfHad the settlement terms are not been adhered to, the Chinese member firms of “Big Four” accounting firms may becould 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 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 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. If the integrity of ourOur IT systems were compromisedmay suffer disruptions due to technical failure, cyber attack,cyber-attack, computer intrusions and viruses, technical

failure and disruptions, power orand network outages or natural disasters,disasters. We have adopted multi-layer technological measures for prevention and detection of cybersecurity problems, and we also train our activitiesemployees 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, could sustain serious damage,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 divulged and, in some cases, personal injury, environmental harm and regulatory violations could occur,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 “LOGO 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, 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 andproduction-related assets are located in China. Our exploration, development and production activities commenced in the early 1950s. Over more than six decades, we have conducted crude oil and natural gas exploration activities in many regions of China.

We commenced limited refining activities in themid-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 2017,2019, we imported approximately 572.5711.0 million barrels of crude oil, as compared to 488.6640.6 million barrels and 486.1million684.9 million barrels of crude oil in 20152017 and 2016,2018, respectively.

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 afollow-on offering of over 3 billion H Shares at the price of HK$6.00 per share. In October 2007, we issued 4 billion A Shares at an issue price of RMB16.7 per share. The A Shares were listed on the Shanghai Stock Exchange on November 5, 2007. As of December 31, 2017,2019, CNPC beneficially owned 151,380,211,528 shares in us, which included146,882,339,136 A

Shares and 291,518,000 H Shares indirectlyin 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, representing approximately 82.71% of the share capital of us.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)5998-6223. 5998-2622. Our website address is www.petrochina.com.cn.www.petrochina.com.cn. The information on our website is not part of this annual report.

Our annual report on form20-F and other reports filed electronically with the SEC can be found on the SEC’s websitewww.sec.gov.

Our Corporate Organization Structure

The following chart illustrates our corporate organization structure as of December 31, 2017.2019.

 

 

LOGOLOGO

 

(1)

Indicates approximate shareholding.

(2)

Indicates approximate shareholding, including the 291,518,000 H Shares indirectly held by CNPC as of December 31, 20172019 through Fairy King Investments Limited, a wholly owned overseas subsidiary of CNPC, and not including the 5,881,000,0005,871,476,228 A sharesShares transferred to and held in a trust account as collaterals for the exchangeable bonds issued by CNPC.

(3)

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

Acquisitions and Divestment

On September 27, 2018, we entered into an equity purchase agreement with Total S.A. to acquire the 22.407% equity interest held by Total S.A. in Dalian West Pacific Petrochemical Co., Ltd. (“Dalian West Pacific”). On December 6, 2018, we entered into an equity purchase agreement with each of Sinochem Group Co., Ltd. and Sinochem International Oil (Hong Kong) Co. Ltd., to acquire 8.424% and 25.208% equity interests in Dalian West Pacific, respectively. On May 17, 2019, the transaction was completed. Upon the completion of the transaction, together with our existing equity interest, we held a total equity interest of 84.475% in Dalian West Pacific and it became one of our principal subsidiaries. We have accounted for this transaction as combination of entities under common control and restated our financial statements and certain of our operating data, including volumes of imported crude oil, production capacity of refineries, production and sales volumes of refined and chemical products, average realized prices of refined products, ect., as if Dalian West Pacific was consolidated since the earliest year presented.

For material acquisition and divestment,information on capital expenditures, please see “Item7-Major Shareholders 5 — Operating and Related PartyTransactions-Related Party Transactions”.

LOGOFinancial Review and Prospects — Liquidity and Capital Resources — Capital Expenditures and Investments.”

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 the year ended December 31, 2017,2019, the crude oil and natural gas produced by us at overseas regions accounted for 16.2%18.7% and 7.9%7.0% 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 316.5288.0 million acres, including the exploration licenses covering a total area of approximately 286.8256.9 million acres and the exploitation licenses covering a total area of approximately 29.731.1 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, 2015, 20162017, 2018 and 2017:2019:

 

  Year Ended December 31,   Year Ended December 31, 
  2015   2016   2017   2017   2018   2019 

Revenue (RMB in millions)

   475,412    412,484    505,430    505,430    658,712    676,320 

Profit from operations (RMB in millions)

   33,961    3,148    15,475    15,475    73,519    96,097 

Proved developed and undeveloped reserves

            

Crude oil (million barrels)

   8,521.1    7,437.8    7,481.3    7,481.3    7,640.8    7,253.3 

Natural gas (Bcf)

   77,524.7    78,711.8    76,887.6    76,887.6    76,467.0    76,236.0 

Production

            

Crude oil (million barrels)

   971.9    920.7    887.0    887.0    890.3    909.3 

Natural gas for sale (Bcf)

   3,131.0    3,274.5    3,423.4    3,423.4    3,607.6    3,908.0 

Reserves

Our estimated proved reserves as of December 31, 2017 totaled approximately 7,481.3 million barrels of crude oil and approximately 76,887.6 Bcf of natural gas. As of December 31, 2017,2019, our total estimated proved reserves of crude oil was approximately 7,253.3 million barrels and our total estimated proved reserves of natural gas was approximately 76,236.0 Bcf. As of December 31, 2019, proved developed reserves for crude oil and natural gas accounted for 74.8%75.5% and 51.0%52.3% of our total proved crude oil and natural gas reserves, respectively. Total proved hydrocarbon reserves, including our overseas crude oil reserves of 859.4753.5 million barrels and overseas natural gas reserves of 2,185.51,702.9 Bcf, decreased by 1.3%2.1% from approximately 20,556.420,385.3 million BOE as of December 31, 20162018 to approximately 20,295.919,959.3 million BOE as of December 31, 2017.2019. Natural gas as a percentage of total proved hydrocarbon reserves decreasedincreased from 63.8%62.5% as of December 31, 20162018 to 63.1%63.7% as of December 31, 2017.2019.

We preparedApproximately 54% and 33% of our estimated proved reserves estimates as of December 31, 2015, 20162019 and 2018, respectively, were assessed by our internal assessment team and audited by our independent engineering consultants. The other part of our estimated proved reserves as of December 31, 2018 and 2019 and all of the estimated proved reserves as of 2017 were based on the basis of the reports preparedassessment performed by our independent engineering consultants namelyaccording to the reserves assessment methodology generally adopted in the U.S. Our independent engineering consultants for 2017, 2018 and 2019 were DeGolyer and MacNaughton, Ryder Scott Company L.P., GLJ Petroleum Consultants and McDaniel & Associates Consultants Ltd. 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 can 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.

Our reserves data in 2015, 20162017, 2018 and 20172019 were prepared in accordance with the SEC’s final rules on “Modernization of Oiloil and Gas Reporting”.gas reporting.

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.

In recent years, weWe have been implementingimplemented 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’years of experience in oil industry and over 10 years’many years of experience inSEC-guided reserves evaluation. All of the members of that department have been recognized asnational-level registered qualifications in reserves expertise.experts. Each regional company has established a reserves management committee and amulti-disciplinary reserves research office. Mr. Duan Xiaowen the head offrom the Reserves Administration Division of theour exploration and production segment,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 over 25 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 atwo-level review by both the regional companies and our exploration and production branch company, with final examination and approval by 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 as assessed by independent assessment firms in accordance with the SEC requirements.

Third-Party Reserves ReportReports

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, 2015, 20162017, 2018 and 2017.2019. Mr. Thomas C. Pence, a senior vice president of DeGolyer and MacNaughton, is primarily 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 over 3536 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, West Qurna and Peru as of December 31, 2015, 20162017, 2018 and 2017. Mr. John MacDonald and2019. Mr. Timour Baichev, each a vice president of Ryder Scott, werewas responsible for overseeing the estimate of the reserves, future production and income as stated in the reserves report. Mr. John MacDonald is a licensed professional engineer and has over 33 years of experience in the petroleum reserves estimation and evaluation industry. Mr. Timour Baichev is a licensed professional engineer and has over 3435 years of experience in the petroleum reserves estimation and evaluation industry.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, 2015, 20162017, 2018 and 2017.2019. Ms. Trisha S. MacDonald was the project manager for the evaluation. She is a senior engineer and has over 10 years of relevant experience. Mr. Jodi L. Anhorn, the executive vice president and chief operation officer of GLJ, was the technical supervisor for the evaluation. He is an internationally recognized oil and gas resource evaluation expert and has over 20 years of working experience.

McDaniel & Associates Consultants Ltd., a petroleum consulting firm with its headquarters in Canada, carried out an independent assessment of our reserves held through PetroKazakhstan Inc. as of December 31, 2015, 20162017, 2018 and 2017.2019. Mr. Cam T. Boulton, aan executive vice president of McDaniel & Associates Consultants Ltd., was responsible for supervising the preparation of our reserves report. Mr. Boulton is a member of the Association of Professional Engineers and Geoscientists of Alberta and a member of Society of Petroleum Engineers. He has over 10 years’ experience in oil and gas reservoir evaluation.

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 heretoherewith as exhibits to this annual report on Form20-F.

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, 2015, 20162017, 2018 and 2017.2019.

 

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

Proved developed and undeveloped reserves

    

Reserves as of December 31, 2014

   10,593.4  71,097.5  22,443.0 

Revisions of previous estimates

   (1,662.9)  (206.0)  (1,697.1) 

Extensions and discoveries

   456.9  9,764.2  2,084.3 

Improved recovery

   105.6   —    105.6 

Sold

   —     —     —   

Production for the year

   (971.9)  (3,131.0)  (1,493.9) 

Reserves as of December 31, 2015

   8,521.1  77,524.7  21,441.9 

Revisions of previous estimates

   (810.9)  (863.2)  (954.7) 

Extensions and discoveries

   491.7  4,770.3  1,286.8 

Improved recovery

   93.0   —    93.0 

Bought

   63.6  554.5  156.0 

Production for the year

   (920.7)  (3,274.5)  (1,466.6) 

Proved developed and undeveloped reserves On a consolidated basis:

    

Reserves as of December 31, 2016

   7,437.8  78,711.8  20,556.4    7,437.8  78,711.8  20,556.4 

Revisions of previous estimates

   486.2  (1,750.8)  194.6    486.2  (1,750.8)  194.6 

Extensions and discoveries

   346.3  3,350.0  904.6    346.3  3,350.0  904.6 

Improved recovery

   98.0   —    98.0    98.0   —    98.0 

Bought

   —     —     —   

Purchased

   —     —     —   

Production for the year

   (887.0)  (3,423.4)  (1,457.7)    (887.0)  (3,423.4)  (1,457.7) 

Reserves as of December 31, 2017

   7,481.3  76,887.6  20,295.9    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 

Proved developed reserves

        

As of December 31, 2015

   6,195.8  40,406.1  12,930.2 

As of December 31, 2016

   5,176.3  40,663.8  11,953.5 

As of December 31, 2017

   5,592.9  39,242.6  12,133.2    5,592.9  39,242.6  12,133.2 

Of which: domestic

   5,037.0  37,325.4  11,257.9 

Overseas

   555.9  1,917.2  875.3 

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 

Proved undeveloped reserves

        

As of December 31, 2015

   2,325.3  37,118.6  8,511.7 

As of December 31, 2016

   2,261.5  38,048.0  8,602.9 

As of December 31, 2017

   1,888.4  37,645.0  8,162.7    1,888.4  37,645.0  8,162.7 

Of which: domestic

   1,584.9  37,376.7  7,814.3 

Overseas

   303.5  268.3  348.4 

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 

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

    

As of December 31, 2017

   395.3  372.3  457.3 

As of December 31, 2018

   321.4  429.4  392.9 

As of December 31, 2019

   287.1  393.6  352.7 

 

(1)

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

As of December 31, 2019, our total proved developed and undeveloped reserves on consolidated basis and on equity method, were 20,312 million BOE, including 7,540 million barrels of crude oil and condense, and 76,629.6 bcf of natural gas.

Our proved undeveloped reserves were 8,162.77,840.6 million BOE in 2017.as of December 31, 2019. The main changes in our proved undeveloped reserves in 20172019 included (i) an increase of 904.61,221.0 million BOE through extensions and

discoveries; (ii) an increase of 98.090.9 million BOE through improved recovery; (iii) a decrease of 465.691.3 million BOE due to our optimization adjustment in the investment plans with respect to certain existing proved undeveloped reserves;reserves considering certain new discoveries; and (iv) the conversion of 977.21,234.2 million BOE of proved undeveloped reserves into proved developed reserves. In 2017,2019, we spent RMB107,472RMB 166,115 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 natural gas proved undeveloped reserves of natural gas are being developed more than five years after their initial disclosure primarily due to the effect oflong-term natural gas supply contracts. The sale of natural gas produced from our reserves located in China is subject to ourlong-term contractual obligations to provide a stable supply of natural gas to customers. We sell all of the natural gas through our pipelines and underlong-term supply arrangements with customers.

There are mainly two types oflong-term supply arrangements. The first ismulti-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 from our gas fields in China is put into our nationwide,long-range pipeline system andto be sold to customers who have entered intomulti-year supply contracts with us in the areas where thelong-range pipeline system covers. A small portion of the natural gas produced by our company is put into local or internal pipeline systems andto be sold to customers in the areas adjacent to our gas fields. These customers typically have formedde-factolong-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 along-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, 2015, 20162017, 2018 and 2017.2019.

 

  As of December 31,   As of December 31, 
  2015   2016   2017   2017   2018   2019 
  Proved
Developed
and
Undeveloped		   Proved
Developed		   Proved
Developed
and
Undeveloped		   Proved
Developed		   Proved
Developed
and
Undeveloped		   Proved
Developed		   Proved
Developed
and
Undeveloped		   Proved
Developed		   Proved
Developed
and
Undeveloped		   Proved
Developed		   Proved
Developed
and
Undeveloped		   Proved
Developed		 
  (Million barrels)   (Million barrels) 

Crude oil reserves

                        

Daqing

   1,804.7    1,483.0    1,504.7    1,226.3    1,513.7    1,283.9    1,513.7    1,283.9    1,487.4    1,272.5    1,300.9    1,137.4 

Changqing

   2,186.0    1,600.6    1,917.8    1,319.1    2,049.2    1,413.9    2,049.2    1,413.9    2,095.2    1,423.6    2,098.7    1,376.2 

Xinjiang

   1,040.0    875.6    795.1    730.5    927.3    855.9    927.3    855.9    1,000.0    894.6    975.8    834.3 

Other regions(1)

   3,490.4    2,236.6    3,220.2    1,900.4    2,991.1    2,039.2    2,991.1    2,039.2    3,058.2    2,252.4    2,877.9    2,125.9 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total

   8,521.1    6,195.8    7,437.8    5,176.3    7,481.3    5,592.9    7,481.3    5,592.9    7,640.8    5,843.1    7,253.3    5,473.8 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

   As of December 31, 
   2015   2016   2017 
   Proved
Developed
and
Undeveloped		   Proved
Developed		   Proved
Developed
and
Undeveloped		   Proved
Developed		   Proved
Developed
and
Undeveloped		   Proved
Developed		 
   (Bcf) 

Natural gas reserves(2)

            

Changqing

   25,808.0    10,826.0    25,697.9    9,920.8    25,509.2    9,107.4 

Tarim

   24,270.6    14,303.3    24,019.2    14,336.1    22,918.7    14,054.7 

Chuanyu

   13,399.5    5,833.1    13,905.1    6,982.4    13,838.0    6,756.5 

Other regions(1)

   14,046.6    9,443.7    15,089.6    9,424.5    14,621.7    9,324.0 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   77,524.7    40,406.1    78,711.8    40,663.8    76,887.6    39,242.6 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   As of December 31, 
   2017   2018   2019 
   Proved
Developed
and
Undeveloped		   Proved
Developed		   Proved
Developed
and
Undeveloped		   Proved
Developed		   Proved
Developed
and
Undeveloped		   Proved
Developed		 
   (Bcf) 

Natural gas reserves(2)

            

Changqing

   25,509.2    9,107.4    25,425.8    9,406.5    25,589.5    9,362.5 

Tarim

   22,918.7    14,054.7    22,805.9    13,844.9    22,633.8    14,184.2 

Chuanyu

   13,838.0    6,756.5    13,882.7    7,857.5    14,421.5    7,953.2 

Other regions(1)

   14,621.7    9,324.0    14,352.6    9,019.3    13,591.2    8,369.7 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   76,887.6    39,242.6    76,467.0    40,128.2    76,236.0    39,869.6 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(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, for the periods indicated.

 

Year

   Daqing   Xinjiang   Changqing   Others(1)   Total      Daqing   Xinjiang   Changqing   Others(1)   Total 
2015           
  

Net exploratory wells drilled(2)

 136    123    790    549    1,598 
  

Crude oil

 118    79    414    303    914 
  

Natural gas

 5    6    103    76    190 
  

Dry(3)

 13    38    273    170    494 
  

Net development wells drilled(2)

 3,674    1,359    4,967    3,385    13,385 
  

Crude oil

 3,645    1,339    4,098    2,957    12,039 
  

Natural gas

 22    20    841    392    1,275 
  

Dry(3)

 7    —      28    36    71 
2016           
  

Net exploratory wells drilled(2)

 148    134    955    550    1,787 
  

Crude oil

 127    87    625    353    1,192 
  

Natural gas

 9    1    125    75    210 
  

Dry(3)

 12    46    205    122    385 
  

Net development wells drilled(2)

 3,150    792    5,135    2,194    11,271 
  

Crude oil

 3,129    777    4,526    1,824    10,256 
  

Natural gas

 15    15    551    354    935 
  

Dry(3)

 6    —      58    16    80 
2017                       
  

Net exploratory wells drilled(2)

 217    132    868    608    1,825   Net exploratory wells drilled(2)   217    132    868    608    1,825 
  

Crude oil

 184    69    539    346    1,138   

Crude oil

   184    69    539    346    1,138 
  

Natural gas

 13    11    59    108    191   

Natural gas

   13    11    59    108    191 
  

Dry(3)

 20    52    270    154    496   

Dry(3)

   20    52    270    154    496 
  

Net development wells drilled(2)

 3,205    1,520    6,020    3,731    14,476   Net development wells drilled(2)   3,205    1,520    6,020    3,731    14,476 
  

Crude oil

 3,185    1,504    4,217    2,898    11,804   

Crude oil

   3,185    1,504    4,217    2,898    11,804 
  

Natural gas

 10    13    1,746    820    2,589   

Natural gas

   10    13    1,746    820    2,589 
  

Dry(3)

 10    3    57    13    83   

Dry(3)

   10    3    57    13    83 
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 

 

(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 571885 wells in the process of being drilled and 7,7067,843 wells with multiple completions as of December 31, 2017.2019.

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, 2017.2019.

 

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

Oil Region

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

Daqing

   75,137    328    1,151.91    103.41    796.18    112.28    77,788    650    1,289.15    104.90    637.13    139.29 

Changqing

   61,356    13,074    1,397.48    5,863.47    730.42    1,932.27    66,537    18,620    1,553.13    6,694.83    914.67    2,908.71 

Xinjiang

   32,884    284    390.48    63.44    229.39    18.27    35,171    305    428.70    63.44    289.04    23.47 

Other regions(2)

   73,917    6,027    1,635.40    1,305.08    1,064.25    1,754.88    76,079    6,351    1,735.10    1,606.28    998.61    2,568.13 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total

   243,294    19,713    4,575.27    7,335.40    2,820.24    3,817.70    255,575    25,926    5,006.08    8,469.45    2,839.45    5,639.60 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

 

(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.

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, 2015, 20162017, 2018 and 2017.2019.

 

  For the Year Ended
December 31,		   % of
2017 Total		   For the Year Ended
December 31,		   % of
2019 Total		 
  2015   2016   2017     2017   2018   2019 

Crude oil production(1)

                

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

                

Daqing

   755.8    717.2    668.8    27.5    668.8    632.6    608.7    24.4 

Changqing

   502.0    482.7    479.9    19.7    479.9    480.9    488.8    19.6 

Xinjiang

   238.9    224.7    229.0    9.4    229.0    232.2    252.1    10.1 

Other(2)

   1,166.1    1,090.9    1,052.4    43.4    1,052.4    1,093.4    1,141.6    45.9 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total

   2,662.8    2,515.5    2,430.1    100    2,430.1    2,439.1    2,491.2    100.0 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Annual production (million barrels)

   971.9    920.7    887.0      887.0    890.3    909.3   

Average sales price (US$ per barrel)

   48.35    37.99    50.64      50.64    68.28    60.96   

Natural gas production(1)(3)

                

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

                

Changqing

   3,181.2    3,103.5    3,121.7    33.3    3,121.7    3,275.3    3,481.3    32.5 

Tarim

   2,083.0    2,093.1    2,277.3    24.3    2,277.3    2,353.4    2,535.2    23.7 

Chuanyu

   1,412.5    1,696.1    1,844.1    19.7    1,844.1    1,979.9    2,375.6    22.2 

Other(4)

   1,901.4    2,054.1    2,136.1    22.7    2,136.1    2,275.3    2,314.9    21.6 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total

   8,578.1    8,946.8    9,379.2    100    9,379.2    9,883.9    10,707.0    100.0 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Annual production (Bcf)

   3,131.0    3,274.5    3,423.4      3,423.4    3,607.6    3,908.0   

Average realized price (US$ per Mcf)(5)

   6.23    4.67    5.18      5.18    5.85    5.39   

 

(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 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 and other oil and gas regions and our share of overseas production as a result of our acquisition of overseas assets.

(5)For natural gas citygate price, please refer to “Item 5 — Operating and Financial Review and Prospects — Overview”.

In 2017,2019, we supplied a substantial majority of our total crude oil sales to our own refineries. In addition, we enter into annual crude oil mutualand Sinopec supply framework agreement with Sinopec for supply of crude oil to each other’s refineries. Under the annual agreement for 2018, we agreed in principlerefineries to supply 1.09 million tons of crude oilallow supplies to Sinopec’s refineries and Sinopec agreed in principle to supply 1.57 million tons of crude oil to us in 2018.be easily obtained from nearby resources.

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 2015, 20162017, 2018 and 2017.2019.

 

   Crude Oil Average
Realized Prices
(RMB/ton)		   Natural Gas
Average Realized Prices
(RMB/Kilostere)		   Average Lifting
Cost
(US$/BOE)		 

2015

      

Overall

   2,225    1,371    12.98 

— China

   2,237    1,468    14.26 

2016

      

Overall

   1,865    1,097    11.67 

— China

   1,831    1,146    13.00 

2017

      

Overall

   2,526    1,236    11.53 

— China

   2,494    1,225    12.71 
   Crude Oil Average
Realized Prices
(RMB/ton)		   Natural Gas
Average Realized Prices
(RMB/Kilostere)		   Average Lifting
Cost
(US$/BOE)		 

2017

      

Overall

   2,526    1,235    11.53 

—China

   2,494    1,225    12.71 

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 

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 2015, 20162017, 2018 and 2017,2019, our crude oil production volume in the Daqing oil region was 755.8668.8 thousand barrels, 717.2632.6 thousand barrels and 668.8608.7 thousand barrels per day, respectively. As of December 31, 2017,2019, we produced crude oil from 40 fields in the Daqing oil region.

As of December 31, 2017,2019, our proved crude oil reserves in the Daqing oil region were 1,513.71,300.9 million barrels, representing 20.2%17.9% of our total proved crude oil reserves. As of December 31, 20152017 and 2016,2018, the proved crude oil reserves in our Daqing oil region were 1,804.71,513.7 million barrels and 1,504.71,487.4 million barrels, respectively. In 2017,2019, the crude oilreserve-to-productionreserves-to-production ratio of the Daqing oil region was 6.15.7 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

The Changqing oil and gas region 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, 2017,2019, the proved reserves in the Qingcheng oilfied were 121.1 million barrels. As of December 31, 2019, our proved crude oil reserves in the Changqing oil region were 2,049.22,098.7 million barrels, representing 27.4%28.9% of our total proved crude oil reserves. In 2017,2019, our crude oil production in the Changqing oil region averaged 479.9488.8 thousand barrels per day, representing approximately 19.7%19.6% of our total daily crude oil production. In 2017,2019, the crude oilreserve-to-productionreserves-to-production ratio at the Changqing oil region was 11.711.8 years.

In the early 1990s, we discovered the Changqing oil and gas region, which had total proved natural gas reserves of 25,509.225,589.5 Bcf as of December 31, 2017,2019, representing 33.2%33.6% 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 14,822.614,913.9 Bcf as of December 31, 2017.2019. Sulige gas field is currently the largest gas field in China. In 2017,2019, the Changqing oil and gas region produced 1,139.41,270.7 Bcf of natural gas for sale, representing an increase of 0.3%6.3% from 1,135.91,195.5 Bcf in 2016.2018.

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, 2017,2019, our proved crude oil reserves in the Xinjiang oil region were 927.3975.8 million barrels, representing 12.4%13.5% of our total proved crude oil reserves. In 2017,2019, our oil fields in the Xinjiang oil region produced an average of 229.0252.1 thousand barrels of crude oil per day, representing approximately 9.4%10.1% of our total daily crude oil production. In 2017,2019, the crude oilreserve-to-productionreserves-to-production ratio at the Xinjiang oil region was 11.110.6 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 theBozi-Dabei gas field in the Tarim oil and gas region. As of December 31, 2017,2019, the proved reserves in theBozi-Dabei gas field were 3,937.3 Bcf. As of December 31, 2019, the proved natural gas reserves in the Tarim oil and gas region reached 22,918.7were 22,633.8 Bcf, representing 29.8%29.7% of our total proved natural gas reserves.

In 2017,2019, we produced 831.2925.4 Bcf of natural gas for sale in the Tarim oil and gas region. We have completed the construction of the pipelines to deliver natural gas in the Tarim oil and gas region to the central and Eastern regions of China where there is strong demand for natural gas transmitted through ourWest-East Gas Pipelines. See “— Natural Gas and Pipeline — Natural Gas Transmission Infrastructure” for a discussion of ourWest-East Gas Pipeline.

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. The natural gasreserve-to-productionreserves-to-production ratio in the Chuanyu gas region was approximately 20.616.6 years in 2017.2019. As of December 31, 2017,2019, we had 116115 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, 2019, the proved reserves in the Sichan shale gas field were 1,405.3 Bcf.

As of December 31, 2017,2019, our proved natural gas reserves in the Chuanyu gas region were 13,838.014,421.5 Bcf, representing 18.0%18.9% of our total proved natural gas reserves and a decreasean increase of 0.5%3.9% from 13,905.113,882.7 Bcf as of December 31, 2016.2018. In 2017,2019, our natural gas production for sale in the Chuanyu gas region reached 673.1867.1 Bcf, representing 19.7%22.2% of our total natural gas production for sale.

LOGO

Refining and Chemicals

We now operate 2930 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 for 2017 and 2018 throughout the section of “Refining and Chemical” was restated to reflect our acquisition of the interest in Dalian West Pacific as if it was consolidated from the first financial year presented. Please refer to “Item 4 — Information on the Company — Acquisitions and Divestment”) and Note 40 to our consolidated financial statements.

The following table sets forth the financial and operating data of our refining and chemicals segment for each of the years ended December 31, 2015, 20162017, 2018 and 2017:2019.

 

  Year Ended December 31,   Year Ended December 31, 
  2015   2016   2017   2017   2018   2019 

Revenue (RMB in millions)

   642,428    582,510    707,804    735,486    911,224    902,679 

Profit from operations (RMB in millions)

   4,883    39,026    39,961    43,075    44,701    13,764 

Crude oil processed (million barrels)

   998.1    953.3    1,016.9    1,067.9    1,180.5    1,228.4 

Crude oil primary distillation capacity (million barrels/year)

   1,252.4    1,257.6    1,347.0    1,420.9    1,454.2    1,463.0 

Production of refined oil products (thousand tons)

   91,933    86,022    92,715    97,499    111,148    117,791 

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, 2015, 20162017, 2018 and 2017.2019.

 

  Year Ended December 31,   Year Ended December 31, 

Principal Product

  2015   2016   2017   2017   2018   2019 
  (In thousand tons)   (In thousand tons) 

Diesel

   54,182    46,689    48,241    50,053    54,311    54,628 

Gasoline

   32,258    33,275    37,363    39,074    45,794    50,430 

Kerosene

   5,493    6,058    7,111    8,372    11,043    12,733 

Lubricants

   1,210    1,164    1,636    1,636    1,600    1,630 

Fuel oil

   2,700    2,222    1,880    2,115    1,937    1,672 

Naphtha

   9,748    9,919    10,032    10,242    11,950    12,829 

Our Refineries

Most of our refineries are strategically located close to our crude oil production and storage bases along our 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 2017,2019, facing excessive oil refining capacity in China, to enhance our competition and efficiency in the refining and chemical business, we further optimized ourvigorously promoted the restructuring of refining and chemical products, actively increased the production processes, adjusted ourof chemical products, portfolio and concentrated our resources andwhile striving to reduce the production capacity onof refined oil products, with production of high profit margins.value-added products increasing significantly and jet fuel and high-grade gasoline production achieving double-digit growth. We reduced the diesel-gasoline ratio from 1.401.19 in 20162018 to 1.291.08 in 2017. 2019.

In each of the years ended December 31, 2015, 20162017, 2018 and 2017,2019, our exploration and production operations supplied approximately 69.9%63.8%, 71.8%56.7% and 67.0%55.7%, respectively, of the crude oil processed in our refineries.

The table below sets forth certain operating statistics regarding our refineries as of December 31, 2015, 20162017, 2018 and 2017.2019.

 

  As of December 31,   As of December 31, 
  2015   2016   2017   2017   2018   2019 

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    212.6    212.6    212.6 

Dushanzi Petrochemical

   202.4    202.4    202.4 

Dalian Petrochemical

   415.0    415.0    415.0    415.0    415.0    415.0 

Fushun Petrochemical

   222.7    222.7    222.7 

Dushanzi Petrochemical

   202.4    202.4    202.4 

Dalian West Pacific

   202.4    202.4    202.4 

Guangxi Petrochemical

   202.4    202.4    202.4    202.4    202.4    202.4 

Jilin Petrochemical

   198.4    198.4    198.4 

Sichuan Petrochemical

   202.4    202.4    202.4    202.4    202.4    202.4 

Yunnan Petrochemical(2)

   —      —      263.2 

Yunnan Petrochemical

   263.2    263.2    263.2 

Other refineries

   1,775.4    1,789.6    1,771.4    1,771.4    1,862.5    1886.8 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total

   3,431.3    3,445.5    3,690.5    3,892.9    3,984.0    4,008.3 
  

 

   

 

   

 

   

 

   

 

   

 

 

Refining throughput (thousand barrels per day)

      

Lanzhou Petrochemical

   195.8    166.6    178.3 

Dalian Petrochemical

   280.7    263.5    217.4 

Fushun Petrochemical

   164.0    170.5    158.9 

Dushanzi Petrochemical

   139.8    151.2    149.1 

Guangxi Petrochemical

   130.3    90.9    143.3 

Jilin Petrochemical

   162.0    184.3    181.6 

Sichuan Petrochemical

   152.0    141.0    147.5 

Yunnan Petrochemical(2)

   —      —      81.4 

Other refineries

   1,509.9    1,443.9    1,528.6 
  

 

   

 

   

 

 

Total

   2,734.5    2,611.8    2,786.1 
  

 

   

 

   

 

 

 

(1)

Represents the primary distillation capacity of crude oil and condensate.

(2)Yunnan Petrochemical commenced operations in August 2017.

   As of December 31, 
   2017   2018   2019 

Refining throughput (thousand barrels per day)

      

Jilin Petrochemical

   181.6    164.4    186.1 

Fushun Petrochemical

   158.9    175.1    176.4 

Lanzhou Petrochemical

   178.3    187.7    185.2 

Dushanzi Petrochemical

   149.1    147.2    124.9 

Dalian Petrochemical

   217.4    323.0    324.4 

Dalian West Pacific

   139.6    158.0    146.0 

Guangxi Petrochemical

   143.3    186.6    196.5 

Sichuan Petrochemical

   147.5    131.5    177.2 

Yunnan Petrochemical

   81.4    204.4    216.9 

Other refineries

   1,528.6    1,556.4    1,632.0 
  

 

 

   

 

 

   

 

 

 

Total

   2,925.7    3,234.3    3,365.6 
  

 

 

   

 

 

   

 

 

 

In each of the years ended December 31, 2015, 20162017, 2018 and 2017,2019, the average utilization rate of the primary distillation capacity at our refineries was 84.2%79.1%, 80.3%82.5% and 80.3%85.1%, respectively, and the average yield for our four principal refined products (gasoline, kerosene, diesel and lubricants) at our refineries was 69.0%,67.6%68.6%, 70.6% and 68.6%71.8%, respectively. “Yield” represents the number of tons of a refined product expressed as a percentage of the number of tons of crude oil from which that product is processed. In each of the years ended December 31, 2015, 20162017, 2018 and 2017,2019, the overall refining yield at our refineries was 93.8%,93.5%93.3%, 93.7% and 93.3%93.5%, respectively.

In 2017, Dalian Petrochemical, Yunnan2019, Jilin Petrochemical, Fushun Petrochemical, Lanzhou Petrochemical, Dushanzi Petrochemical, Dalian Petrochemical, Dalian West Pacific, Guangxi Petrochemical, Sichuan Petrochemical and JilinYunnan Petrochemical were our leading refineries in terms of both primary distillation capacity and refining throughput.

To maintain efficient operations of our facilities and lower production costs, we have endeavored to achieve the mostcost-efficient proportions of various types of crude oil in our refining process. We purchase a portion of our crude oil requirements fromthird-party international suppliers located in different countries and regions. In 2017,2019, we purchased crude oil sourced from Rosneft, aIran and Russian companycompanies which isare subject to U.S. economic sanctions, and Sudan which is designated as a State Sponser of Terrorism by the U.S., for use in our refining operations. The revenue generated from our refineryrefineries from the crude oil sourced from the Russian companies Rosneft and Transneft, Iran and Sudan accounted for 2.27%3.2%, 0.08% and 0.1% of our total revenue in 2017, respectively.2019. 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 have beenare 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, 2015, 20162017, 2018 and 2017.2019.

 

  Year Ended December 31,   Year Ended December 31, 
    2015       2016       2017       2017       2018       2019   
  (In thousand tons)   (In thousand tons) 

Basic petrochemicals

            

Propylene

   4,848    5,120    5,322 

Ethylene

   5,032    5,589    5,764    5,764    5,569    5,863 

Benzene

   1,896    1,918    2,209 

Derivative petrochemicals

            

Synthetic resin

   8,215    9,078    9,284    9,404    9,165    9,580 

Other synthetic fiber raw materials and polymer

   1,348    1,410    1,390 

Synthetic fiber raw materials and polymer

   1,390    1,388    1,309 

Synthetic rubber

   713    760    809    809    869    910 

Other chemicals

            

Urea

   2,566    1,900    1,439    1,439    828    1,208 

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, 2017,2019, our annual ethylene production capacity was 5,9106,010 thousand tons. We produce a number of synthetic resin products, including polyethylene, polypropylene and ABS. As of December 31, 2017,2019, our annual production capacities for polyethylene, polypropylene and ABS were 5,062 thousand tons, 4,1204,220 thousand tons and 705 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.

The following table sets forth the sales volumes of our chemical products by principal product category for each of the years ended December 31, 2015, 20162017, 2018 and 2017.2019.

 

   Year Ended December 31, 

Product

  2015   2016   2017 
   (In thousand tons) 

Derivative petrochemicals

  

Synthetic resin

   8,222.3    8,998.4    9,166.0 

Synthetic fiber

   83.7    83.6    76.9 

Synthetic rubber

   764.5    793.7    813.6 

Intermediates

   8,838.3    9,262.4    10,324.6 

Other chemicals

      

Urea

   2,106.1    2,181.8    1,171.8 

In each of the years ended December 31, 2015, 2016 and 2017, our capital expenditures for our refining and chemicals segment amounted to approximately RMB15,725 million, RMB12,847 million and RMB17,705 million, respectively. These capital expenditures were incurred primarily in connection with the construction and expansion of our refining and chemical facilities and the upgrading of our product quality. We believe that our refined products are capable of meeting the product specification and environmental protection requirements as set by the PRC government.

LOGO

   Year Ended December 31, 

Product

  2017   2018   2019 
   (In thousand tons) 

Derivative petrochemicals

  

Synthetic resin

   9,166.0    9,489.1    9,777.8 

Synthetic fiber

   76.9    75.8    39.1 

Synthetic rubber

   813.6    899.6    1,011.1 

Intermediates

   10,324.6    10,480.2    11,354.7 

Other chemicals

      

Urea

   1,171.8    732.3    1,561.2 

Marketing

We engage in the marketing of refined products through 3736 regional sales companies including threetwo distribution branch companies, one lubricant branch company, one fuel oil company 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, and the wholesale, retail and export of gasoline, diesel, kerosene, lubricant, asphalt and other refined products.products, andnon-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 thehigh-end markets, and maintained growth in trading volume and improved operation results.

The following table sets forth the financial and operating data of our marketing segment for each of the years ended December 31, 2015, 20162017, 2018 and 2017:2019:

 

   Year Ended December 31, 
   2015  2016   2017 

Revenue (RMB in millions)

   1,383,426   1,301,616    1,660,456 

(Loss)/profit from operations (RMB in millions)

   (500)   11,048    8,279 

External sales volume of refined oil products (thousand tons)

   160,097   159,107    169,466 
   Year Ended December 31, 
   2017   2018  2019 

Revenue (RMB in millions)

   1,660,456    2,003,105   2,165,391 

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

   8,279    (6,450)   (565) 

External sales volume of refined oil products (thousand tons)*

   170,735    178,648   187,712 

We

*

The comparative data for 2017 and 2018 in the table was restated as if Dalian West Pacific was consolidated since the earliest year presented. Please refer to “Item 4 — Information on the Company — Acquisitions and Divestment” and Note 40 to our consolidated financial statements.

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 system across China. As of December 31, 2017,2019, our marketing network consisted of:

 

Numerous nationwide wholesale distribution outlets. AllAlmost 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; and

 

21,399

22,365 service stations, consisting of 20,35020,955 service stations owned and operated by us and 1,0491,410 franchised service stations owned and operated by third parties.

In addition, we took active stepsin order to adapt to changes in market condition and customer demand, includingwe enhanced integrated marketing offor refined products, fuel cards,non-oil business, lubricants and gas, enhanced internet marketing and carried out various promotion activities. We integrated our WeChat official account and our mobile application, expanded our internet payment services and enhanced marketing through internet. We optimized our supply chain, upgraded the facilities and services at our gas stations, and enhanced the marketing of ournon-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 thehigh-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, arelong-term purchasers of the gasoline and diesel that we produce. We sell gasoline and diesel to these customers atbased on the supply prices for special customers published by the PRC government. See “— Regulatory Matters — Pricing — Refined Products” for a discussion of refined product pricing.

In 2017, 2018 and 2019, our share in China’s refined oil retail market was 37.0%, 36.4% and 36.7%, respectively.

The following table sets forth our sales volumes of diesel, gasoline, kerosene and lubricants for each of the years ended December 31, 2015, 20162017, 2018 and 2017.2019.

 

   Year Ended December 31, 

Product

  2015   2016   2017 
   (In thousand tons) 

Diesel

   84,763    80,168    87,324 

Gasoline

   60,651    62,406    65,293 

Kerosene

   14,683    16,533    16,849 

Lubricants

   1,150    1,122    1,283 
   Year Ended December 31, 

Product

  2017   2018   2019 
   (In thousand tons) 

Diesel

   87,324    86,904    90,163 

Gasoline

   65,293    71,125    76,366 

Kerosene*

   18,118    20,619    21,183 

Lubricants

   1,283    1,158    977 

*

The comparative data for 2017 and 2018 in the table was restated as if Dalian West Pacific was consolidated since the earliest year presented. Please refer to “Item 4 — Information on the Company — Acquisitions and Divestment” and Note 40 to our consolidated financial statements.

Wholesale Marketing

We sell refined products both directly and through independent distributors into various wholesale markets, as well as to utility, commercial, petrochemical, aviation, agricultural, fishery and transportation companies in China. Our gasoline and diesel sales also include the amount we transferred to our retail operations.

Retail Marketing

The weighted average sales volume of gasoline and diesel per business day at our service station network was 10.6 tons, 10.5 tons, 10.3 tons and 10.510.1 tons per service station in 2015, 20162017, 2018 and 2017,2019, respectively.

Capital expenditures for the marketing segment for the years ended December 31, 2015, 2016 and 2017 amounted to RMB7,061 million, RMB7,983 million and RMB10,982 million, respectively, which were used mainly for the construction of sales network facilities including service stations and oil storage tanks.

LOGO

Natural Gas and Pipeline

We are China’s largest natural gas transporter and seller in terms of sales volume. 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 transmit crude oil and refined products 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, 2015, 20162017, 2018 and 2017:2019:

 

   As of December 31 or Year
Ended December 31,		 
   2015   2016   2017 

Revenue (RMB in millions)

   281,778    247,477    295,786 

Profit from operations (RMB in millions)

   51,231    17,885    15,688 

Total length of natural gas pipelines (km)

   48,629    49,420    51,315 

Total length of crude oil pipeline (km)

   18,892    18,872    19,670 

Total length of refined oil products pipeline (km)

   10,091    10,560    11,389 

Total volume of natural gas sold(1) (Bcf)

   5,583.6    6,469.8    6,588.5 

(1)Represents the natural gas sold to third parties.
   As of December 31 or Year
Ended December 31,		 
   2017   2018   2019 

Revenue (RMB in millions)

   295,786    362,626    391,023 

Profit from operations (RMB in millions)

   15,688    25,515    26,108 

Total length of natural gas pipelines (km)

   51,315    51,751    53,291 

Total length of crude oil pipeline (km)

   19,670    20,048    20,091 

Total length of refined oil products pipeline (km)

   11,389    11,728    13,762 

Total volume of natural gas sold (Bcf)

   7,026.2    7,654.7    9,149.8 

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 and autonomous regions of China, other than Macau and Taiwan. We supply natural gas to Tibet by means of 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 Shaanxi to Beijing natural gas pipeline system.

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, to the above, provinces such as Henan,Inner Mogolia, Hubei, Anhui and Hunan,Fujian consume more and more natural gas and have become another significant natural gas market of us.

We are committed to providing approximately 5,547 Bcf of natural gas in 2018. However, the committed quantity of supply may be adjusted by the buyers in light of the actual situation.

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 and regulations to require local governments to increase the use of clean energy, such as natural gas and liquefied petroleum gas, to replace the use of raw coal.reduce carbon emissions and environmental pollution. Several local governments have adopted policies to facilitate an increase in natural gas consumption in order to reduce the air pollution level.pollution. The PRC government has also adopted preferentialvalue-added tax rate for natural gas production. Effective from May 1, 2018, theThe current value-added tax rate for natural gas will be 10%is 9%, as compared to 16%while the value-added tax rate for crude oil.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 many municipalities that are our existing or potential markets for natural gas. We believe that these favorable policies will continue to benefit our natural gas business.

Natural Gas Transmission Infrastructure

As of December 31, 2017,2019, we owned and operated approximately 51,31553,291 kilometers of natural gas pipelines in China. Our natural gas pipelines representChina, representing the vast majority of China’s onshore natural gas pipelines. Our existing natural gas pipelines form a national trunk network for natural gas supply and the regional natural gas supply networks in Northwestern, Southwestern, Northern and central China as well as the Yangtze River Delta.

The Our main natural gas pipelines in operation include the First West-East Gas Pipeline, the Second West-East Gas Pipeline, the Third West-East Gas Pipeline, Zhong County-Wuhan Gas Pipeline, the four Shaanxi-Beijing Gas Pipelines and theWest-EastSebei-Lanzhou Gas Pipelines. In 2019, our main natural gas pipelines under construction included the middle section of the China-Russia East Natural Gas Pipeline, the Fujian-Guangdong branch line of the Third West-East Gas Pipeline and a number of other interconnection projects.

The construction of the FirstWest-EastChina-Russia East Natural Gas Pipeline commenced officially in July 2002 and was completed and put into operation on October 1, 2004. The main line of ourWest-East Gas Pipeline links our natural gas fields in Xinjiang and Changqing with Henan Province, Anhui Province, Jiangsu Province,will extend from Heihe to Shanghai Municipality and other areas in the Yangtze River Delta. It is designed to mainly transmit the natural gas produced at Tarim oil region to Henan, Anhui, Jiangsu, Zhejiang and Shanghai. The FirstWest-East Gas Pipeline includes one main line, three main branch lines and numerous accessory branch lines, and two underground storage facilities, with a total length of 5,778 kilometers, of which the main line has a total length of 3,833 kilometers. The FirstWest-East Gas Pipeline has a designed annual throughput capacity of 600.4 Bcf.

The SecondWest-East Gas Pipeline

In February 2008, we commenced the construction of the SecondWest-East Gas Pipeline. The west section of the SecondWest-East Gas Pipeline was put into operation in December 2009. In June 2011, the east section was put into operation. By the end of 2012, the main line and branch lines as well as the Hong Kong branch line of the Second West-East Gas Pipeline were all completed and put into operation. The SecondWest-East Gas Pipeline includes one main line, eight main branch lines and numerous accessory branch lines and three underground storage facilities, with a total length of 8,601 kilometers. The main line of the SecondWest-East Gas Pipeline has a length of 4,845 kilometers. The western section of the main line extends from Horgos to Zhongwei with a length of 2,3253,691 kilometers and a designed annual throughput capacity of 1,059.5 Bcf.38.0 billion cubic meters. The easterntotal length of the north section of the main line extends from Zhongwei to Guangzhou with aChina-Russia East Natural Gas Pipeline is 715 kilometers, which has been completed and put into operation on December 2, 2019. The total length of 2,520the middle section will be 1,110 kilometers, which is expected to be completed and put into operation by November 2020. The total length of the south section will be 1,446 kilometers, which is expected to be completed and put into operation by June 2025.

In 2018, we started the construction of the Fujian-Guangdong branch line of the Third West-East Gas Pipeline, which has a total length of 575 kilometers and a designed annual throughput capacity of 988.8 Bcf.

The ThirdWest-East Gas Pipeline

The Third West-East Gas Pipeline extends from Horgos to Fuzhou via Zhongwei. It consists of5.8 billion cubic meters. We completed the western section, middle section and the eastern section. The western section extending from Horgos to Zhongwei, with a length of 2,445 kilometers and an annual throughput capacity of 1,059.4 Bcf, was completed in the end of 2014. The eastern section extending from Ji’an to Fuzhou, with a length of 817 kilometers and an annual throughput capacity of 529.7 Bcf, was completed in the end of 2016. The middle section extends from Zhongwei to Ji’an, of which, the Zhongwei-Zaoyang section is 1,218 kilometers long with a designed throughput capacity of 1,059.4 Bcf, which is expected to be completed by 2023, and theZaoyang-Ji’an section is 798 kilometers long with a designed capacity of 882.8 Bcf, which is expected to be completed by 2021. In 2017, the Zhongwei-Jingbian line, as alinking-up line of the middle section, was completed and commenced operations.

In addition, we also operate other natural gas pipelines, such as the Zhong County-Wuhan natural gas pipeline, the four Shaanxi-Beijing natural gas pipelines and Sebei-Lanzhou natural gas pipelines. The construction of the fourth Shaanxi-Beijing Natural Gas Pipeline was completed and commenced operationsGuangzhou-Chaozhou section of the branch line in 2017.December 2019.

Crude Oil Transportation Infrastructure

We have an extensive network for transportation, storage and distribution of crude oil, which covers many regions of China. As of December 31, 2017,2019, we had crude oil pipelines of 19,67020,091 kilometers.

Russia-China Our main crude oil pipelines in operation include the China-Russia Crude Oil Pipeline,

In May 2009, we commenced the construction ofWestern Crude Oil Pipeline, the Russia-China crude oil transmission pipeline (the Mohe-Daqing section) upon the approval of the National Development and Reform Commission, or NDRC. In September 2010, we completed construction of the entire line and put it into commercial production in January 2011. We were the builder and operator of the section crossing the Heilongjiang RiverNortheastern Crude Oil Pipeline and the section which lies in China. This pipeline extends from the Skovorodinooff-takeLanzhou-Chengdu station of Russia’s Far East Pipeline through Galinda at the Russian border, Heilongjiang Province, Inner Mongolia, to Daqing terminal station. This pipeline is 935 kilometers long and has a designed annual transmission capacity of 15 million tons. In February 2016, the second Russia-China oil pipeline from Mohe to Daqing was approved by the NDRC. We commenced the construction of the line in July 2016 and put it into operations in January 2018. The pipeline is 941 kilometers long and has a designed annual transmission capacity of 15 million tons.

In addition, we also operate other crude oil pipelines, including the western crude oil pipeline, the northeastern crude oil pipeline network and the Lanzhou-Chengdu crude oil pipeline.Crude Oil Pipeline.

Refined Product Transportation Infrastructure

As of December 31, 2017,2019, we had refined product pipelines of 11,38913,762 kilometers.

The Our main refined product pipelines in operation include theLanzhou-Zhengzhou-Changsha Refined Oil Pipeline,

We received approval from the NDRC forWestern Refined Oil Pipeline, and commencedtheLanzhou-Chengdu-Chongqing Refined Oil Pipeline. In 2019, we completed the construction of a major part of the Lanzhou-Zhengzhou-Changsha refined oil pipeline in December 2007. The pipeline starts from LanzhouJinzhou-Zhengzhou Refined Oil Pipeline and expect to complete construction and put it into operation by the end of Gansu Province and terminates at Changsha of Hunan Province, with2020. This line has a total length of 3,0271,666.12 kilometers including the lengthand a designed throughput capacity of all the main lines and branch lines. We finished construction and commenced the operation of the section from Lanzhou to Zhengzhou in April 2009 and the section from Zhengzhou to Wuhan in August 2009. The construction of all the main lines and branch lines was completed by October 2013.

In addition, we also operate other refined product pipelines, such as the refined product pipelines for western regions and Lanzhou-Chengdu-Chongqing refined product pipeline.13 million tons per annum.

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.

Reform of the Oil and Gas Pipeline Network Operation Mechanism

On March 19, 2019, the PRC government passed theOpinions on Implementation of the Reform of the Operation Mechanism of Oil and Gas Pipeline Network (the “Opinion”). According to the Opinion, the PRC government will carry out reforms of the oil and gas pipeline operation mechanism. An oil and gas pipeline network operator will be established, which will have diversified investors with state-owned capital holding the majority stake. The Opinion states that the PRC government will form an oil and gas market system with multi-channel suppliers in the upstream, an integrated pipeline network with high efficiency in the middle-stream, and a fully competitive market in the downstream, to improve the efficiency of oil and gas resource allocation. On

May 24, 2019, a number of Chinese government agencies jointly issued theRegulations on the Fair Opening ofOil and Gas PipelineNetwork Facilities, pursuant to which, from May 24, 2019, oil and gas pipeline network operators shall providenon-discriminatory services of oil and gas transportation, storage, gasification, loading and unloading, transshipment to users who meet the accessing conditions; without proper reasons, they must not delay the signing of, or refuse to sign service contracts with users who meet the accessing conditions, and must not impose unreasonable requirements. On December 9, 2019, the Chinese government established China Oil & Gas Pipeline Network Corporation (the “National Pipeline Network Company”). The National Pipeline Network Company is in discussions with the Company regarding a possible acquisition of certain pipeline assets from the Company. As at the date of this report, no definitive agreement has been reached. For this potential transaction, the Company will continue to adhere to the principles of fairness, equality and marketization in order to serve the interests of the shareholders of the Company as a whole. Please refer to “Item 3 — Risk Factors — Risks Related to Government Regulation”

Competition

As an oil and gas company operating in a competitive industry, we compete in each of our business segments in both China and international markets for desirable business prospects and for customers. Our principal competitors in China are China Petroleum and ChemicalPetrochemical 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 the Company’s exploration and development business may face heightened competition from foreign capital and private enterprises. In addition, the gradual developmentcompetition of international energy supply has intensified, thelow-cost shale gas crude oil market continues to fluctuate, and shale oil in the United Statesprice volatility has had a material effect on our business.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 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 andCentral-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.

As a result of China’s recent policies towards diversification of market participants, we also face competition from new market participants. Over the

In recent years, large state-owned enterprises, such as Sinochem GroupChina has gradually liberalized the restrictions on market access for the refining and China North Industries Group Corporation, have entered the refinery sectorchemical industry. The refining and local independent refineries have been growing rapidly. The refinery sector in China, which had long been dominatedchemical industry led by us and Sinopec has been more competitive.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 and the retail and wholesale markets in China for refined products and chemical products have been gradually opened to foreign competition as a result of the changes in China’s tariff policies toward imported refined products and chemical products. For example, sales of chemical products imported from the Middle East increased rapidly in China in recent years. 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 energies. For example,China has become the world’s largest user of new and renewable energy sources. The sharing economy and alternative energy sources are developing rapidly. As the preferential policies towards natural gas, electric car, aspower, hydrogen, and other sources of energy for vehicles have been implemented, alternative eneregies have been evolving iterately resulting in a clean means of transport with “zero pollution and zero emission” has won the favor of the government. The central and local governments have imposed restrictions onoil-powered cars, while encouraged electricity-powered cars. The alternative energy-powered cars, especially electric cars, will continue to grow. Despite the issues such as immature technologies, short range and limited infrastructure with respect to electric cars, with the importance attached by the central governments to the development of electric car batteries and electric car technologies and the focus given by the local government to the construction of electric car charging infrastructure, the advantages of electric cars will be fully demonstratedcontinous slow down in the future. As a result, the impactgrowth rate of the innovation of electric cars on us will become increasingly obvious and the effect of the refined oil being substituted will be even more prominent.consumption.

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 other companies engaged in importimporters 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. The PRC government has published reform policy with an aim to integrate existing pipeline resources for independent operation and intensify market competition. (See “Item 3 — Risk Factors — Risks related to Government Regulation”, “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 dominantadvantages in natural gas resources, base, our relatively advanced automaticproduction, sales and technologies in pipeline transmission and our skills in managing long distance pipelines will enable us to 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 air emissions and discharges to surface and subsurface water resulting from the operation of natural gas processing plants, chemical plants, refineries, pipeline systems and other facilities that we own. In addition, our operations are subject to laws and regulations relating to the generation, handling, storage, transportation, disposal and treatment of solid waste materials.

We anticipate that the environmental laws and regulations to which we are subject will become increasingly strict and are therefore likely to have an increasing impact on our operations. It is difficult, however, to predict accurately the effect of future developments in such laws and regulations on our future earnings and operations. Some risk of environmental costs and liabilities is inherent in our operations and products, as it is with other companies engaged in similar businesses. We cannot assure you that material costs and liabilities will not be incurred. However, we do not currently expect any material adverse effect on our financial condition or results of operations as a result of compliance with such laws and regulations. We paid pollutant discharge fees of approximately RMB347 million, RMB388 million and RMB333 million in 2015, 20162017. In 2018, the PRC government began to charge environmental protection tax instead of pollutant discharge fees. As we have adopted advanced pollution control technologies, some of our enterprises have obtained reductions of environmental protection tax. In 2018 and 2017,2019, we paid a total environmental protection tax of approximately RMB140 and RMB139 million, respectively.

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

 

building environment-friendly projects;

 

reducing sulfur levelscontent in gasoline and diesel fuel;

 

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

 

developing and installing monitoring systems at our pollutant discharge openings and developing environmental impact assessments for construction projects.openings.

Our capital expenditures on environmental programs in 2015, 20162017, 2018 and 20172019 were approximately RMB4.14RMB4.17 billion, RMB3.10RMB2.70 billion and RMB4.17RMB2.30 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 each household in areas surrounding our production facilities with printed materials to explain and illustrate safety and protection knowledge and skills; and

 

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

We believe that these preventative measures have helped 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”.

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.

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 “LOGOLOGO ” 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 with the State Trademark Bureau of the PRC. To date, most of our applications for registration ofLOGOLOGO and our other trademarks have been approved and certain others are either in the process of review or public announcement phase. In addition, together with CNPC, we have applied for international trademark registration for our logo in other jurisdictions. We have received 583506 International Trademark Registration Certificates for our logo covering more than 50 jurisdictions.

As of December 31, 2017,2019, we owned approximately 13,50018,363 patents in China and other jurisdictions. We were granted 2,2922,742 patents in China in 2017.2019.

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 Ministry of Natural Resources, (formerly known as the Ministry of Land and Resources), or the MNR, has the authority to grant, examine and approve oil and gasmineral 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; and

 

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

 

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 certain refined products, including 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 Approved by the Central Government; and

 

approvesSino-foreign equity and cooperative projects of certain types.

Exploration Licenses and Production Licenses

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

Applicants for exploration licenses must first register with the MNR blocks in which they intend to engage in exploration activities. The holder of an exploration license is obligated to make a progressively increasing annual minimum exploration investment in each corresponding block. Investments range from RMB2,000 per 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 an annual exploration licensemining right occupancy fee that starts at RMB100 per square kilometer 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. 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 an annual production right usage fee of RMB1,000 per square kilometer. 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.

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 expected to obtain exploration licenses in the future.

Pricing

Crude Oil

According to theMeasures for Administration of Petroleum Products Price issuedby NDRC on January 13, 2016, crude oil prices shall be determined by the market. We and Sinopec set the crude oil median prices each month based on the average international market FOB prices for crude oil of different grades in the previous month. In addition, PetroChinawe and Sinopec negotiate a premium or discount to reflect transportation costs, the differences in oil quality and the supply and demand.

Refined Products

The prices of our gasoline and diesel products are set by the government.subject to government regulation.

On December 18, 2008, the NDRC issued theNotice on Implementing Price and Tax Reform of Refined Oil,which improved the pricing mechanism for refined oil products. Under the improved mechanism, the domesticex-factory prices of refined oil products are determined on the basis of the relevant international crude oil prices, by taking into consideration the average domestic processing cost, tax and apre-determined profit margin. The prices of diesel and gasoline continue to follow the government guiding prices. The highest retail price set for gasoline and diesel is calculated by using the relevantex-factory price and a determined profit margin for retailing activities.

On March 26, 2013, the NDRC issued theNotice on Further Improvement of Refined Oil Pricing Mechanismand the amended and restatedMeasures for Oil Prices Management (on trial). Under this new system, (i) the price adjustment period was shortened from 22 working days to 10 and the 4% limit on the price adjustment range was eliminated; (ii) the composition of the basket of crudes to which refined oil products prices are linked was adjusted in light of the composition of the imported crudes and changes in crudes trading on the international market; and (iii) the refined oil products pricing mechanism was further enhanced.

In order to promote the oil product quality upgrading, on September 16, 2013, the NDRC issued theCircular regarding Relevant Opinions on the Pricing Policy for Oil Product Quality Upgrading, pursuant to

which the price increase standard for theauto-use gasoline and diesel upgraded to China IV Standard shall be set as RMB290 per ton and RMB370 per ton, respectively, and the price increase standard for theauto-use gasoline and diesel upgraded from China IV to China V Standard shall be set at RMB170 per ton and RMB160 per ton, respectively.

On January 12, 2015, the NDRC issued theNotice on Reducing Domestic Refined Oil Prices, pursuant to which, since January 13, 2015, the price for No. 98 gasoline is to be determined by the production and operation enterprises themselves.

On January 13, 2016, the NDRC issued theNotice on Issues Concerning Further Improving the Pricing Mechanism for Refined Oiland its exhibit Regulation on Oil Pricing, pursuant to which, starting from January 13, 2016, downward adjustment of the refined oil price is subject to a floor of US$40 per barrel. Accordingly, when the international crude oil price drops to US$40 per barrel or below, the refined oil price in China shall not be adjusted downwards and the unadjusted amount shall be allocated to the reserve fund to be used for energy saving, reduction of emission, improving the oil quality and securing a safe supply of refined oil. When the international crude oil price surges to US$130 per barrel or above, appropriate financial and taxation policies shall be adopted to ensure the production and supply of refined oil but the refined oil price shall in principle remain unadjusted or shall only be slightly adjusted upwards. This regulation also liberalized theex-factory price of liquefied petroleum gas.

On December 15, 2016, the Ministry of Finance (“MOF”) and NDRC issuedCirculation on Collection of Risk Reserves for Oil Price Control (the “Rules”), pursuant to which, effective from January 13, 2016, when the price of crude oil in international market drops below the lower limit set by the Chinese government, domestic enterprises which are engaged in production, commissioned processing and import and export of such refined oil products as gasoline and diesel shall make full payment of risk reserves according to sales volumes and the corresponding collection rates. “Sales volumes” refer to the actual sales volumes of such enterprises between the two adjacent window periods of price adjustment. Collection rates for risk reserves are determined with reference to the unadjusted prices of refined oil products. The NDRC and the MOF jointly determine the collection rates on a quarterly basis and notify the collection agencies in writing..writing.

On December 22, 2016, MOF issuedNotice on Proper Collection of Risk Reserves for Oil Price Adjustment in 2016, pursuant to which, if the subsidiaries (limited to listed companies) of CNPC, Sinopec and CNOOC have already recognized the risk reserves accrued as operation revenue, such subsidiaries may opt to have such risk reserves to be paid by their parent companies out of the net profit.

Aviation Kerosene

Theex-factory price of aviation kerosene is determined by the supply and demand parties subject to a limit of the CIF price in the Singapore market.

Chemical Products

We determine the prices of all of our chemical products based on market conditions.

Natural Gas

On June 28, 2013, the NDRC announced the initiation of a program for the adjustment of natural gas prices from July 10, 2013. The program consists of (i) changing the pricing mechanism of natural gas fromex-factory price to citygate price, and no longer differentiating the prices payable by the users in different provinces; (ii) establishment ofestablishing the mechanism linking the citygate price of natural gas to the price of alternative energy with a view to gradually shift to a market-driven pricing mechanism for natural gas; (iii) adopting differential pricing approaches towards the existing usage and the incremental usage so as to establish as soon as practicable a new pricing mechanism for natural gas while reducing the impact that the pricing reform will have on existing gas users.

On August 10, 2014, based on the natural gas price reform roadmap, the NDRC issued price adjustment programs for non-residential use stock natural gas, pursuant to which, effective from September 1, 2014, (i) the natural gas citygate price for non-residential usesuse was increased by RMB400 per thousand cubic meters; (ii) no adjustment will be made to the citygate price for natural gas consumed by residential users; and (iii) further actionsaction will be taken to implement the policy in connection with the liberalization of the sales price of imported liquefied natural gas and theex-factory prices for shale gas, coal-seam gas and coal gas.

On February 26, 2015, the NDRC announced the unification of the prices of domestic natural gas of existing and incremental gas volume starting from April 1, 2015.

On November 18, 2015, the NDRC announced the reduction of the price of natural gas fornon-residential use from November 20, 2015, whereby the citygate price ceiling for non-resident users was decreased by

RMB700/kilostere RMB700 per thousand cubic meters while the preferential policy and price for natural gas used by fertilizer makers remain unchanged. With a view to improve the market-driven pricing mechanism for natural gas, since November 20, 2016, suppliers andnon-residential users can negotiate prices of natural gas up to 20% above the benchmark price fornon-residential uses.use.

On October 15, 2016, the NDRC issuedClarifying the Price Policy for Gas Storage Facilities, which announced that the prices for natural gas purchase and sale to be conducted by and the prices of gas storage services to be provided by the gas storage facilities shall be formed through the operation of market.

On November 5, 2016, NDRC issuedNotice on Enhancing Price Liberalization for Gas Used as Fertilizer Feedstock, pursuant to which, effective from November 10, 2016, prices for gas used as fertilizer feedstock were fully liberalized and subject to negotiations between the vendors and the purchasers. It encourages the trading of the natural gas used by fertilizer makers in the oil and gas exchange centers in order to achieve open and transparent pricing of gas as fertilizer feedstock.

On November 11, 2016, the NDRC issuedNotice on Relevant Issues concerning the Price Policy for Natural Gas Citygate Price in Fujian Province, which expressly liberated the citygate natural gas price in Fujian Province and made Fujian the first province that would implement fully liberated citygate natural gas price.

On August 29, 2017, the NDRC issuedNotice on Reduction of the Benchmark City GateCitygate Price ofNon-residential Natural Gas, which reduced the benchmark city gate price of non-residential natural gas by RMB100 per thousand cubic meters effective from September 1, 2017.

On May 25, 2018, NDRC issuedNotice on Straightening Out the Citygate Price of Natural Gas for Residential Use (the “Notice”), pursuant to which, effective June 10, 2018, prices of natural gas for residential use will no longer be subject to the highest citygate price limit. Instead, the suppliers and users may negotiate prices up to 120% of the reference base rate, which is the same as the base rate fornon-residential use. The citygate price of natural gas for residential use may not be increased until the first anniversary of the Notice. According to the Notice, where there is a significant difference between the price of natural gas for residential use andnon-residential use, any increase in the citygate price for residential use may not exceed RMB350 per thousand cubic meters in the first year, with any remaining price difference to be rolled over into subsequent years. The policy also rolled out seasonal natural gas prices with a view to encourage market-oriented pricing.

On March 27, 2019, NDRC issued theNotice of the NDRC on Adjusting The Citygate Benchmark Price of Natural Gas, pursuant to which, benchmark citygate price of natural gas in each province, autonomous region and municipality was adjusted from April 1, 2019 in light of the adjustment of natural gas value-added tax rate.

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 issuedRulesRegulation on Administration of the Pipeline Transmission Tariff for Natural Gas (on trial) andRules on Supervision and Review of the Costs Used in Setting the Pipeline Transmission Tariff (on trial), which expressly stipulatedprovides that effective January 1, 2017, the pipeline transmission tariff for natural gas shall be reviewed and setdetermined 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 August 29, 2017, the NDRC issued theNotice on Approving the Inter-provincial Natural Gas Pipeline Transmission Tariff”, which published the transmission tariff for 13 inter-provincial pipelines companies including PetroChina Beijing Natural Gas Pipeline Co., Ltd. and others.

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 levelsvolumes are determined by the producers themselves and may vary from the submitted estimates. Since January 1, 2007, whenThe Ministry of Commerce and its local branches are responsible for supervising and managing theMeasures on the Administration of the Refined Products Market promulgated by the MOFCOM became effective, qualified domestic producers are permitted to engage in the sale and storage of crude oil. Foreign companies with the required qualifications are also allowed to establish and invest in enterprises to conduct crude oil market. Enterprises that meet certain operating conditions may apply for the permit for crude oil sales and warehousing business.

Refined Products

Previously, only we, Sinopec and joint ventures established byof 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, includingSino-foreign joint venture companies, were permitted to engage in retail of gasoline and diesel. Since December 11, 2004, whollyforeign-owned enterprises are permitted to conduct refined oil retail business. Since January 1, 2007, when theMeasures on the Administration of the Refined Products Marketbecame effective,, all 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.

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 guidance supply plan,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 continue to 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 theNon-competition Agreement between CNPC and us.

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 issuedSpecial 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 theOpinions 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 bothstate-owned trading companies andnon-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) projects; and

 

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

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%, or 15% for qualified taxpayers in certain western regions of ChinaChina.

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

 

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

 

Since MayEffective April 1, 2016, as a result2019, the rate of 16% was changed to 13% and the reformrate of value-added tax in lieu of business tax, certain sectors such as real estate, engineering construction, financial and other sectors, which previously were subject10% was changed to business tax, have been subject to value-added tax instead.9%.

Tax Item

Tax
Base

Tax
Rate

Consumption tax

  Aggregate volume sold orself-consumed  

RMB1.52 per liter for gasoline, naphtha, solvent naphtha and lubricant and RMB1.2 per liter for diesel, aviation kerosene and fuel oil.

 

Collection of taxes on aviation kerosene continues to be suspended.

Resource tax

  Sales  

6%, exemption or deductionreduction 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 reachreaches the threshold of US$65 per barrel.

Exploration license fee(1)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 occupancy fees

  Area  RMB100 to RMB500 per square kilometer per year

Production license fee(1)

Area for exploration; RMB1,000 per square kilometer per year for production.

Royalty fee(2)(1)

  Production volume  Progressive rate of0-12.5% for crude oil and0-3% for natural gasgas.

 

(1)Effective from April 13, 2017, the exploration license fee and production license fee were renamed to mining right occupancy fees.
(2)

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 from 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 from 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. ChinaThe 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, and the generation, handling, storage, transportation, treatment and disposal of solid waste materials.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. A companyCompanies that wishesneed to discharge pollutants, whether it is in the form of emission,gas, water or materials,solid wastes, must submit aapplication for pollutant discharge declaration statement detailingpermits. The application must state in detail the types of discharge, discharge outlet, types of pollutants, concentration and amount type, location and method of treatment.discharge. After reviewing the pollutant discharge declaration,application materials, the relevant environmental authorityadministrative department will determine the amount of discharge allowable under the law and willto issue a pollutant discharge license for that amount of discharge subjectpermit to the paymentcompany, specifying the types of discharge fees.permitted pollutants, the permitted concentration and amount. If a companycompany’s discharges more than isdeviated from what were permitted, in the pollutant discharge license, the relevant environmental authority can fineadministrative department may impose fines on the company upor 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 promotelow-carbon and emission reduction policies and has set a goal of increasing the proportion ofnon-fossil energy consumption. 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 discharge fees payable by the offending company for its allowable discharge, or require the offending companyrelevant standards on time. In addition, we are also required to close its operation to remedy the problem.comply with relevant laws and regulations regarding management of hazardous chemicals.

Item 4A —4A — UNRESOLVED STAFF COMMENTS

We do not have any unresolved staff comment.

Item 5— OPERATINGAND FINANCIAL REVIEWAND PROSPECTS

General

You should read the following discussion together with our consolidated financial statements and their notes included elsewhere in this annual report. Our consolidated financial statements have been prepared in accordance with IFRS. The comparative data for 2017 and 2018 throughout this Item 5 was restated to reflect our acquisition of the interest in Dalian West Pacific as if it was consolidated since the earliest year presented. Please refer to “Item 4 — Information on the Company — Acquisitions and Divestment” and Note 40 to our consolidated financial statements. In addition, we have 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 for 2017 and 2018 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 (aa) New Accounting Standards” in our financial statements.

Overview

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

 

the

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

 

the

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

 

marketing and trading of refined oil productsproducts; and trading; and

 

the

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

We are China’s largest producer of crude oil and natural gas and are one of the largest companies in China in terms of revenue. In 2017,2019, we produced approximately 887.0909.3 million barrels of crude oil and approximately 3,423.4

3,908.0 Bcf of natural gas for sale. Our refineries processed approximately 1,016.91,228.4 million barrels of crude oil in 2017.2019. In 2017, we had2019, our revenue of RMB2,015,890was RMB2,516,810 million and net profit attributable to owners of the Company of RMB22,798was RMB45,682 million.

Factors Affecting Results of Operations

Our results of operations and theperiod-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. See “Item 4 — Information on the Company — Regulatory Matters — Pricing” for a more detailed discussion of current PRC pricing regulations and “Item 3 — Risk Factors — Risks Related to Pricing and Exchange Rate”.

The table below sets forth the average realized prices of our principal products in 2015, 20162017, 2018 and 2017.2019.

 

   2015   2016   2017 

Crude oil (US$/barrel)

   48.35    37.99    50.64 

Natural gas (US$/thousand cubic feet)(1)

   7.42    5.68    6.27 

Gasoline (US$/barrel)

   112.80    101.41    111.26 

Kerosene (US$/barrel)

   67.77    54.67    66.60 

Diesel (US$/barrel)

   96.39    82.84    90.84 

(1)Natural gas citygate price

   2017   2018   2019 

Crude oil (US$/barrel)

   50.64    68.28    60.96 

Natural gas (US$/thousand cubic feet)

   5.18    5.85    5.39 

Gasoline (US$/barrel)

   111.26    124.88    110.63 

Kerosene (US$/barrel)

   66.57    86.73    78.08 

Diesel (US$/barrel)

   90.84    110.38    102.16 

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 economicmacroeconomic environment and market supply and demand conditions.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 orproduct-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.

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.

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 holewell 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 holes.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 updatedassessed or audited annually by independent, qualified and experienced oil and gas reserves engineering firms in the United States Singapore 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 the12-month period before the ending date of the period covered by this report, determined as an unweighted arithmetic average of thefirst-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions. 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 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 immediatewrite-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 existingexpected 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 thestraight-line method.

The Company uses the following useful lives for depreciation purposes:

 

Buildings and plant

   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 if 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.

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 global 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 generatecash-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 generatecash-generating unit.

The expectedmedium-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 year ended December 31, 20162017, 2018 and 2017,2019, the after-tax discount rates adopted by most of our oil and gas regions were between 7.1% and 10.3%7.6% - 11.0%, 7.3% - 11.5%, and between 7.6% and 11.0%6.4% - 15.4%, 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.

Provision for Asset DecommissioningRetirement 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.

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, 2015, 20162017, 2018 and 20172019 is summarized in the table below.

 

  Year Ended December 31,   Year Ended December 31, 
  2015 2016 2017   2017* 2018* 2019 
  (RMB in millions)   (RMB in millions) 

Revenue

   1,725,428  1,616,903  2,015,890    2,032,298  2,374,934  2,516,810 

Operating expenses

   (1,646,176)  (1,556,268)  (1,948,168)    (1,961,462)  (2,251,992)  (2,395,048) 

Profit from operations

   79,252  60,635  67,722    70,836  122,942  121,762 

Exchange (loss)/gain, net

   (632)  1,257  (1,094)    (1,184)  1,120  1 

Interest expense, net

   (22,309)  (20,857)  (19,507)    (19,929)  (18,939)  (26,778) 

Share of profit of affiliates and joint ventures

   1,504  4,105  5,968    5,968  11,647  8,229 

Profit before income tax expense

   57,815  45,140  53,089    55,691  116,770  103,214 

Income tax expense

   (15,726)  (15,768)  (16,296)    (16,296)  (42,790)  (36,199) 

Profit for the year attributable tonon-controlling interests

   6,572  21,515  13,995    15,858  20,944  21,333 

Profit for the year attributable to owners of the Company

   35,517  7,857  22,798    23,537  53,036  45,682 

*

We have 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 “3 (aa) New Accounting Standards” in our financial statements.

The table below sets forth our revenue by business segment for each of the years ended December 31, 2015, 20162017, 2018 and 20172019 as well as the percentage changes in revenue for the periods shown.

 

  2015 2016 2016
vs.
2015		 2017 2017
vs.
2016		   2017 2018 2018
vs.
2017		 2019 2019
vs.
2018		 
  (RMB in millions, except percentages)   (RMB in millions, except percentages) 

Revenue

            

Exploration and production

   475,412  412,484  (13.2)%  505,430  22.5%    505,430  658,712  30.3%  676,320  2.7% 

Refining and chemicals

   642,428  582,510  (9.3)%  707,804  21.5%    735,486  911,224  23.9%  902,679  (0.9)% 

Marketing

   1,383,426  1,301,616  (5.9)%  1,660,456  27.6%    1,660,456  2,003,105  20.6%  2,165,391  8.1% 

Natural gas and pipeline

   281,778  247,477  (12.2)%  295,786  19.5%    295,786  362,626  22.6%  391,023  7.8% 

Headquarters and others

   2,507  2,197  (12.4)%  2,057  (6.4)%    2,057  2,376  15.5%  3,700  55.7% 
  

 

  

 

   

 

    

 

  

 

   

 

  

Total

   2,785,551  2,546,284  (8.6)%  3,171,533  24.6%    3,199,215  3,938,043  23.1%  4,139,113  5.1% 

Less intersegment sales

   (1,060,123)  (929,381)  (12.3)%  (1,155,643)  24.3%    (1,166,917)  (1,563,109)  34.0%  (1,622,303)  3.8% 
  

 

  

 

   

 

    

 

  

 

   

 

  

Consolidated net sales from operations

   1,725,428  1,616,903  (6.3)%  2,015,890  24.7%    2,032,298  2,374,934  16.9%  2,516,810  6.0% 
  

 

  

 

   

 

    

 

  

 

   

 

  

The table below sets forth our operating income by business segment for each of the years ended December 31, 2015, 20162017, 2018 and 2017,2019, as well as the percentage changes in operating income for the periods shown. Other profitLoss 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.

 

   2015  2016  2016
vs.
2015		  2017  2017
vs.
2016		 
   (RMB in millions, except percentages) 

Profit/(loss) from operations

      

Exploration and production

   33,961   3,148   (90.7)%   15,475   391.6% 

Refining and chemicals

   4,883   39,026   699.2%   39,961   2.4% 

Marketing

   (500)   11,048   —     8,279   (25.1)% 

Natural gas and pipeline

   51,231   17,885   (65.1)%   15,688   (12.3)% 

Headquarters and others

   (10,323)   (10,472)   —     (11,681)   11.5% 
  

 

 

  

 

 

   

 

 

  

Total

   79,252   60,635   (23.5)%   67,722   11.7% 
  

 

 

  

 

 

   

 

 

  

   2017  2018  2018
vs.
2017		  2019  2019
vs.
2018		 
   (RMB in millions, except percentages) 

Profit/(loss) from operations

      

Exploration and production

   15,475   73,519   375.1%   96,097   30.7% 

Refining and chemicals

   43,075   44,701   3.8%   13,764   (69.2)% 

Marketing

   8,279   (6,450)   (177.9)%   (565)   (91.2)% 

Natural gas and pipeline

   15,688   25,515   62.6%   26,108   2.3% 

Headquarters and others

   (11,681)   (14,343)   22.8%   (13,642)   (4.9)% 
  

 

 

  

 

 

   

 

 

  

Total

   70,836   122,942   73.6%   121,762   (1.0)% 
  

 

 

  

 

 

   

 

 

  

Year Ended December 31, 20172019 Compared to Year Ended December 31, 20162018

Consolidated Results of Operations

Overview

In 2017,2019, our revenue was RMB2,015,890RMB2,516,810 million, representing an increase of 24.7%6.0% as compared with 2016.to 2018. Net profit attributable to our owners of the Company was RMB22,798RMB45,682 million, representing an increasea decrease of 190.2%13.9% as compared with 2016.to 2018. Basic earnings per share were RMB0.12,RMB0.25, representing an increasea decrease of RMB0.08RMB0.04 as compared with 2016.to 2018.

RevenueOur revenue Revenue increased by 24.7%6.0% from RMB1,616,903RMB2,374,934 million in 20162018 to RMB2,015,890RMB2,516,810 million in 2017.2019. This increase was primarily due to (i) the increasingcomprehensive impact of the increase in sales volume, partially offset by a decrease in selling prices of thea majority of oil and gas products and (ii) the increase in the sales volume.products.

The table below sets out the external sales volume and average realized prices for our major products in 20162018 and 2017, respectively:2019 and the respective percentage of change:

 

  Sales Volume (‘000 ton) Average Realized Price
(RMB/ton)		   Sales Volume
(‘000 ton)		 Average Realized Price
(RMB/ton)		 
  2016   2017   Percentage
of Change
(%)		 2016   2017   Percentage
of Change
(%)		   2018   2019   Percentage
of Change
(%)		 2018   2019   Percentage
of Change
(%)		 

Crude oil

   100,108    114,930    14.8  1,881    2,392    27.2 

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

   1,832.05    1,865.65    1.8  1,097    1,236    12.7 

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

   62,406    65,293    4.6  5,725    6,386    11.5    71,125    76,366    7.4  7,024    6,487    (7.6) 

Diesel

   80,168    87,324    8.9  4,127    4,600    11.5    86,904    90,163    3.8  5,478    5,286    (3.5) 

Kerosene

   16,533    16,849    1.9  2,869    3,552    23.8    20,619    21,183    2.7  4,534    4,255    (6.2) 

Heavy oil

   22,952    23,395    1.9  1,892    2,380    25.8    19,964    18,095    (9.4)  3,335    3,249    (2.6) 

Polyethylene

   4,764    4,739    (0.5)  7,981    8,559    7.2    4,644    4,985    7.3  8,816    7,443    (15.6) 

Lubricant

   1,122    1,283    14.3  7,424    7,693    3.6    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.

Note: The sales volumes listed in the table above represent all of our external sales volumes.

Operating ExpensesOperating expenses increased by 25.2%6.4% from RMB1,556,268RMB2,251,992 million in 20162018 to RMB1,948,168RMB2,395,048 million in 2017.2019, of which:

Purchases, Services and Other ExpensesPurchases, services and other expenses increased by 34.0%9.3% from RMB959,640RMB1,553,784 million in 20162018 to RMB1,285,716RMB1,697,834 million in 2017.2019. This increase was primarily due to thean increase in the Company’s expenses relating to purchase of oil and gas products.products and other international trading activities.

Employee Compensation CostsEmployee compensation costs (including salaries and additional costs such as insurance, housing provident funds and training fees) were RMB125,384increased by 6.9% from RMB144,391 million in 2017, representing an increase of 6.6% from RMB117,6622018 to RMB154,318 million in 2016.2019. This increase was primarily due to the improvement of our performance-based remuneration system and the increase in our employee salariesremuneration and costs in line with the general increase of employee average salaries in the industry.contribution to social security funds.

Exploration ExpensesExploration expenses increased by 28.6%10.9% from RMB18,576RMB18,726 million in 20162018 to RMB23,884RMB20,775 million in 2017.2019. This increase was primarily due to the fact that, in orderincreased exploration efforts to consolidate the oilenhance reserves and gas resource foundations, we optimized our exploration deployment and increased our investment in oil and gas exploration.production.

Depreciation, Depletion and AmortizationDepreciation, depletion and amortization increaseddecreased by 8.8%3.0% from RMB218,147RMB232,276 million in 20162018 to RMB237,375RMB225,262 million in 2017.2019. This increase was primarily due to (i) our

a combined effect of the Company’s provision made for assetsof asset impairment in order to optimize asset structure and (ii) an increase in depreciationsolidify asset quality, and depletion asimplementation of the new lease standards. As a result of an increaseimplementation of the new lease standards, we recognized depreciation expenses of RMB14,973 million over the assets that we had right of use in the cost of property, plant and equipment.2019.

Selling, General and Administrative ExpensesSelling, general and administrative expenses increaseddecreased by 3.8%7.9% from RMB74,255RMB74,477 million in 20162018 to RMB77,042RMB68,596 million in 2017.2019. This increase was primarily due to the increasesfact that the Company strictlycontrolled non-production expenses in repair expensesorder to continue to implement the plan of broadening sources of income, reducing expenditures and costs, and enhancing profitability, and a decrease of RMB16,682 in lease expensesexpenditures as compared to 2018 as a result of the expansionimplementation of our business.new lease standards.

Taxes other than Income TaxesTaxes other than income taxes increased by 4.4%3.5% from RMB189,608RMB220,677 million for 2018 to RMB228,436 million in 2016 to RMB198,022 million in 2017. In particular,2019, among which the consumption tax increased by RMB2,440RMB12,479 million from RMB140,268RMB152,494 million in 20162018 to RMB142,708RMB164,973 million in 2017; and2019; the resource tax increased by RMB3,528RMB49 million from RMB14,472RMB24,339 million in 20162018 to RMB18,000RMB24,388 million in 2017.2019; and crude oil special gain levy decreased by RMB3,979 million from RMB4,750 million in 2018 to RMB771 million in 2019.

Other Expenses/Income,Income/(Expenses), netNet other expensesin 2017 were RMB745income in 2019 was RMB173 million, as compared towhile the net other income of RMB21,620expenses in 2018 was RMB7,661 million, in 2016. This was primarily due to the combined effects of the following factors: (i) oura decrease in net losses from disposal of certain equity interests in Trans-Asia Gas Pipeline Co., Ltd. (the “Trans-Asia Pipeline”) in 2016 for which we recognized a net gain of RMB24,534 million,fixed assets and (ii) the increase in the VAT refund relating to the importation of naturaloil and gas as recognized in 2017.assets.

Profit from OperationsThe profit from operations in 20172019 was RMB67,722RMB121,762 million, representing an increasea decrease of 11.7%1.0% from RMB60,635RMB122,942 million in 2016.2018.

Net Exchange (Loss)/GainNet exchange lossgain in 20172019 was RMB1,094RMB1 million, as compared to the net exchange gainrepresenting a decrease of RMB1,25799.9% from RMB1,120 million in 2016.2018. This wasis primarily due to the depreciationchanges in exchange rate of the Renminbi against the US Dollar against Renminbi in 2017.during the period.

Net Interest ExpenseNet interest expense decreasedincreased by 6.5%41.4% from RMB20,857RMB18,939 million in 20162018 to RMB19,507RMB26,778 million in 2017,2019, primarily due to a decrease in the average balanceeffects of interest-bearing borrowingslease 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 with 2016 as a result of our active measures to control debts and reduce interest.2018.

Profit Before Income Tax ExpenseProfit before income tax expense increaseddecreased by 17.6%11.6% from RMB45,140RMB116,770 million in 20162018 to RMB53,089RMB103,214 million in 2017.2019.

Income Tax ExpenseThe income tax expense increaseddecreased by 3.3%15.4% from RMB15,768RMB42,790 million in 20162018 to RMB16,296RMB36,199 million in 2017,2019, which was primarily due to the increasedecrease in taxable income.the Company’s profit before income tax expense in 2019 as compared to 2018.

Profit for the YearAs a result of the foregoing, ourNet profit in 2017 increased2019 decreased by 25.3%9.4% to RMB67,015 million from RMB29,372RMB73,980 million in 2016 to RMB36,793 million in 2017.2018.

Profit Attributable toNon-controlling InterestsNet profitProfit attributabletonon-controlling interests interests decreasedincreased by 35.0%1.9% from RMB21,515RMB20,944 million in 20162018 to RMB13,995RMB21,333 million in 2017, which was2019, primarily due to changes in the fact thatprofit structure of the disposal of certain equity interests in Trans-Asia Pipeline in 2016 was attributable tonon-controlling interests.Company’s subsidiaries.

Profit Attributable to Owners of the CompanyThe net profitProfit attributable to owners of the company increasedCompany decreased by 190.2%13.9% from RMB7,857RMB53,036 million in 20162018 to RMB22,798RMB45,682 million in 2017.2019.

Segment Results

Exploration and Production Segment

RevenueRevenue of the exploration and production segment in 2019 was RMB505,430RMB676,320 million, in 2017, representing an increase of 22.5%2.7% from RMB412,484RMB658,712 million in 2016.2018. This increase was primarily due to the

combined effects of (i) the increase in the price of crude oil as partially offset by the decrease in the sales volume of crude oil, and (ii) the increase in the sales volume of naturaloil and gas, partially offset by the decline in the price of crude oil. In 2019, the oil imported from Russia, Kazakhstan and shale gas. Ourcertain 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 the Company in 20172019 was US$50.6460.96 per barrel, representing an increasea decrease of 33.3%10.7% from US$37.9968.28 per barrel in 2016.2018.

Operating ExpensesOperating expenses of the exploration and production segment increaseddecreased by 19.7%0.8% from RMB409,336RMB585,193 million in 20162018 to RMB489,955RMB580,223 million in 2017.2019. This increase was primarily due to the combined effects of (i) realized gains derived from the disposal of certain equity interests in the Trans-Asia Pipeline in 2016, and (ii) the increasea decrease in depreciation, depletion and amortization, and taxes and fees other than income tax, partially offset by an increase in 2017.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.

We enhanced our control over costs and expenses continuously. OurIn 2019, the unit oil and gas lifting cost of the Company was US$11.5312.11 per barrel, in 2017, representing a decrease of 1.2%1.6% from US$11.6712.31 per barrel in 2016.2018.

Profit from OperationsIn 2017,in response2019, our domestic operations adhered to the increasingly complex development situation,principle of profit-orientation to promote the increase of reserves and production, realized an increase in domesticcrude 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, we adhered to profitable development, strictly managed early-stage investment projects, optimized thelow-cost strategy investment structure, and the meticulous management, optimized development plans,strived to promote sales and took multi-measures to save energy and tap the potential synergies so as to raise the profit per single well.maximize revenue. In overseas operations, we devoted major efforts to broadening sources of income and reducing expenditure as well as cutting costs and enhancing efficiency by various means such as optimizing assets and decreasing inventory. In 2017,2019, the exploration and production segment realized an operating profit of RMB15,475RMB96,097 million, representing an increase of RMB12,327 million30.7% from RMB3,148RMB73,519 million in 2016, contributing2018, maintaining its status as a substantial increase inmain profit contributor of the profit level.Company.

Refining and Chemicals Segment

RevenueThe revenue of the refining and chemicals segment increaseddecreased by 21.5%0.9% from RMB582,510RMB911,224 million in 20162018 to RMB707,804RMB902,679 million in 2017. This increase was2019, primarily due to a combined effect of the increasechanges in oil prices and the production of high-profitability products as a result of our optimized product structure. Both the sales volume and priceprices of mostrefined oil products, and the marketization of the refined and chemical products were increased.internal settlement prices.

Operating ExpensesOperating expenses of the refining and chemicals segment increased by 22.9%2.6% from RMB543,484RMB866,523 million in 20162018 to RMB667,843RMB888,915 million in 2017. This increase was2019, primarily due to the combined effects of (i) thean increase in the expenses associated with the purchasecost of crude oil and feedstock, oil from external suppliers; and (ii) impairment provision for some petrochemical assets with higher costs of production and operation in accordance with the accounting standards.

In 2017, we continued to optimize our productions and operations in the refining and chemicals segment. Due to the effects of thean increase in the processing volumeproduction costs of crude oilauxiliary materials and strengthened control over costs and expenses,power.

In 2019, the cash processing cost of our refineries of the Company was RMB169.04RMB168.64 per ton, representing a decrease of RMB10.89 per ton from RMB179.93 per ton in 2016.remaining basically the same as compared to 2018.

Profit from OperationsIn 2017, in our refining and chemicals segment, we focused on the principle of market orientation and benefit, energetically pushed forward the structure optimization, reform and innovation, increased the production of high value-added and market-favorable products, and improved internal profit generating capabilities; intensified control over costs and expenses. These efforts resulted in several economic indicators being better than 2016 and maintaining a dominant position in profit contribution. In 2017, we realized operating profits of RMB39,961 million in2019, 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 structure 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 RMB13,764 million in 2019, representing an increasea decrease of 2.4%69.2% as compared with RMB39,026to RMB44,701 million in 2016. The2018. Specifically, the refining operations recorded an operating profit of RMB32,573RMB10,337 million, representing an increasea decrease of 18.2%72.0% as compared with RMB27,565to RMB36,878 million in 2016 due to2018, while the optimized product structure and the increase in gross profit. Taking advantage of the prosperous cycle of the chemical product market, we increased the sales of high-profitability products. However, as affected by the impairment provision for some petrochemical assets with higher production and operation costs, our chemical operations realized an operating profit of RMB7,388RMB3,427 million, representing a decrease of 35.5%56.2%, as compared with RMB11,461to RMB7,823 million in 2016.2018.

Marketing Segment

RevenueRevenueThe revenue of the marketing segment increased by 27.6%8.1% from RMB1,301,616RMB2,003,105 million in 20162018 to RMB1,660,456RMB2,165,391 million in 2017. This increase was2019, primarily due to the combined effects of (i) thean increase in both sales volume and prices of such products as gasoline and kerosene, and the rise in the price and the decrease in the salesinternational trading volume of diesel;oil and (ii) the increase in revenue derived from trading of oilgas products.

Operating ExpensesOperating expenses of the marketing segment increased by 28.0%7.8% from RMB1,290,568RMB2,009,555 million in 20162018 to RMB1,652,177RMB2,165,956 million in 2017,2019, primarily due to an increase in the expensesexpenditures for purchase of refined oil from external suppliers.oil.

ProfitLoss from OperationsIn 2017, in active response to the unfavourable condition of fiercer competition in the market,2019, the marketing segment aimed for maximizingactively responded to the overall resultschallenges of excessive market resources and intensified competition, deepened the company.regional precise marketing and integrated marketing of refined products, fuelcards, 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 operations, we keptand international resources to enhance profitability. In 2019, due to the strengthening connection between production, sales and inventory management, optimized allocation of resources, enhanced cost and expense control, improved the integration of marketing measures and increased the profit from ournon-oil business. In international trading,marketization of internal settlement, the marketing segment intensified the coordination and cooperation with domestic industrial chain, and optimized the import and export of oil and gas resources. In 2017, the marketing segment realizedrecorded an operating profitloss of RMB8,279RMB565 million, representing a decrease of 25.1%loss of RMB5,885 million as compared with RMB11,048to the operating loss of RMB6,450 million in 2016.2018.

Natural Gas and Pipeline Segment

RevenueRevenue The revenue of the natural gas and pipeline segment amounted to RMB295,786RMB391,023 million in 2017,2019, representing an increase of 19.5%7.8% as compared with RMB247,477to RMB362,626 million in 2016,2018, primarily due to thean increase in the sales volume of natural gas.

Operating ExpensesOperating expenses of the natural gas and pipeline segment amounted to RMB280,098RMB364,915 million in 2017,2019, representing an increase of 22.0%8.2% as compared with RMB229,592to RMB337,111 million in 2016,2018, primarily due to the increase in the expenses for purchasingexpenditure of natural gas.gas purchase.

Profit from OperationsIn 2017, in2019, 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 overcameactively expanded the negative effects of decline in citygate price, optimizedend market. In 2019, the allocation of resources, reduced comprehensive purchase costs, continued to enhance cost control,natural gas and pipeline segment realized an operating profit of RMB15,688RMB26,108 million, representing a decreasean increase of 12.3%2.3% as compared with RMB17,885to RMB25,515 million in 2016. This decrease was primarily2018.

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 effects that (i)changes in exchange rates, while the impairment on goodwill related to

increases in the acquisitiondomestic natural gas price were restricted under a nationwide policy environment of PetroChina United Pipelines Co., Ltd. amounted to RMB3,709 million;reducing taxes and (ii)fees, the sales of imported gassegment recorded a net loss of RMB23,947RMB30,710 million in sales of imported natural gas, representing an increase of loss of RMB9,063RMB5,803 million as compared with 2016.to last year. The Company will endeavor to adopt effective measures to control losses.

In 2017, our2019, the Company’s international operationsrealized a revenue of RMB721,374RMB1,040,117 million, accounting for 35.8%41.3% of the ourCompany’s total revenue. Profit before income tax expenseexpenses amounted to RMB4,543 million, accounting for 8.6% of ourpre-tax profit. OurRMB18,885 million. The Company’s international operations maintained a healthystable development withand further improved internationalits operating ability.ability internationally.

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

Year Ended December 31, 20162018 Compared to Year Ended December 31, 20152017

Consolidated Results of Operations

Overview

In 2016,2018, our revenue was RMB1,616,903RMB2,374,934 million, representing a decreasean increase of 6.3%16.9% as compared with the preceding year. Profitto 2017. Net profit attributable to our owners of the company was RMB7,857RMB53,036 million, representing a decreasean increase of 77.9%

125.3% as compared with the preceding year.to 2017. Basic and diluted earnings per share were RMB0.04,RMB0.29, representing a decreasean increase of RMB0.15RMB0.16 as compared with the preceding year.to 2017.

RevenueRevenue decreasedOur revenue increased by 6.3%16.9% from RMB1,725,428RMB2,032,298 million in 20152017 to RMB1,616,903RMB 2,374,934 million in 2016.2018. This decreaseincrease was primarily due to an increase in the combined effects of (i) the decreasing selling prices of a majority of our oil and gas products, and (ii) the changes in the sales volume of crude oil, natural gas, refined oil and other major products.

The table below sets out the external sales volume and average realized prices for our major products in 20152017 and 2016, respectively:2018 and the respective percentage changes for the periods shown:

 

  Sales Volume (‘000 ton) Average Realized Price
(RMB/ton)		   Sales Volume
(‘000 ton)		 Average Realized Price
(RMB/ton)		 
      2015           2016       Percentage
of Change
(%)		 2015   2016   Percentage
of Change
(%)		   2017   2018   Percentage
of Change
(%)		 2017   2018   Percentage
of Change
(%)		 

Crude oil

   101,620    100,108    (1.5)  2,134    1,881    (11.9) 

Natural gas (hundred million cubic meter, RMB/‘000 cubic meter)

   1,581.10    1,832.05    15.9  1,371    1,097    (20.0) 

Crude oil*

   114,930    110,457    (3.9)  2,392    3,213    34.3 

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

   1,989.59    2,167.54    8.9  1,235    1,367    10.7 

Gasoline

   60,651    62,406    2.9  5,972    5,725    (4.1)    65,293    71,125    8.9  6,386    7,024    10.0 

Diesel

   84,763    80,168    (5.4)  4,503    4,127    (8.3)    87,324    86,904    (0.5)  4,600    5,478    19.1 

Kerosene

   14,683    16,533    12.6  3,334    2,869    (13.9)    18,118    20,619    13.8  3,551    4,534    27.7 

Heavy oil

   15,635    22,952    46.8  2,439    1,892    (22.4)    23,395    19,964    (14.7)  2,380    3,335    40.1 

Polyethylene

   4,270    4,764    11.6  8,202    7,981    (2.7)    4,739    4,644    (2.0)  8,559    8,816    3.0 

Lubricant

   1,150    1,122    (2.4)  8,234    7,424    (9.8)    1,283    1,158    (9.7)  7,693    7,875    2.4 

 

Note:

*  The sales volumes of crude oil listed in the table above represent all of our external sales volumes. The decrease in crude oil sales volume in 2018 as compared to 2017 was primarily due to the decrease in our international trading volume of crude oil.

** The increase in natural gas average realized price in 2018 as compared to 2017 was primarily due to a combined effect of an increase in the entrepot trading price of natural gas and effective measures taken by the Company to optimize the structure of natural gas sales.

Operating ExpensesOperating expenses decreasedincreased by 5.5%14.8% from RMB1,646,176RMB1,961,462 million in 20152017 to RMB1,556,268RMB2,251,992 million in 2016.2018.

Purchases, Services and Other ExpensesPurchases, services and other expenses decreasedincreased by 9.2%20.0% from RMB1,056,795RMB1,295,032 million in 20152017 to RMB959,640RMB1,553,784 million in 2016.2018. This decreaseincrease was primarily due to an increase in expenses relating to the facts that (i) our expenses for purchasingpurchase of oil and gas products declinedand other trading activities as a result of the decreaseincrease in oil and gas prices, and (ii) certain purchase costs decreased as a result of optimization of production and operations.prices.

Employee Compensation CostsEmployee compensation costs (including salaries and additional costs such as insurances,insurance, housing funds and training fees) were RMB117,662RMB144,391 million in 2016,2018, representing a decreasean increase of 0.4%14.9% from RMB118,082RMB125,703 million in 2015.2017. This increase was primarily due to an increase in our employee salaries and costs according to our performance-based remuneration system and in line with the general increase in average employee salaries in the industry.

Exploration Expenses Exploration expenses decreased by 21.6% from RMB23,884 million in 2017 to RMB18,726 million in 2018. This decrease was primarily due to the fact that, we improved our efficiency-based remuneration system and implemented strict control over the total number of employees and labor costs.

Exploration ExpensesExploration expenses amounted to RMB18,576 million and RMB18,380 million in 2016 and 2015, respectively. We continued to optimizeoptimized our exploration deployment and endeavored to discover quality reserves of large scales.resulting in a decrease in dry well expenses.

Depreciation, Depletion and Amortization ExpensesDepreciation, depletion and amortization expenses increaseddecreased by 7.5%2.3% from RMB202,875RMB237,807 million in 20152017 to RMB218,147RMB232,276 million in 2016.2018. This increasedecrease was mainlyprimarily due to (i) thea decrease in proved reservesthe depletion of oil and gas properties as a result of lowan increase in the proved undeveloped reserves and the decrease in depletion ratio caused by the rise of oil and gas prices, and (ii)partially offset by an increase in the rate of depletion and amortization, which resultedasset impairment provision in the increase in depletion and amortization of our oil and gas properties.2018 as compared to 2017.

Selling, General and Administrative ExpensesSelling, general and administrative expenses increaseddecreased by 4.2%4.0% from RMB71,270RMB77,557 million in 20152017 to RMB74,255RMB74,477 million in 2016.2018. This increasedecrease was primarily due to

increased lease expenses as a result of the increase in land-use taxes and the increase in trade volume. We proactively implemented measures for broadening our continuing efforts to broaden our income sources, of income, reducingreduce expenditure and enhancing efficiency. As a result,costs, enhance efficiency, and strictly control ournon-production costs and expenses continued to decrease.related expenses.

Taxes other than Income TaxesTaxes other than income taxes decreasedincreased by 7.9%10.0% from RMB205,884RMB200,704 million in 20152017 to RMB189,608RMB220,677 million in 2016.2018. This decrease was primarily due to (i) a decrease in the consumption tax by RMB9,055 million, from RMB149,323 million in 2015 to RMB140,268 million in 2016, and (ii) a decrease in the resource tax by RMB4,112 million, from RMB18,584 million in 2015 to RMB14,472 million in 2016.

Other Income, netOther net income in 2016 was RMB21,620 million, representing a decrease of RMB5,490 million, from RMB27,110 million in 2015. This decrease was primarily due to the increase in crude oil prices in 2018 as compared to 2017. In particular, (i) we incurred a crude oil special gain levy of RMB4,750 million in 2018 due to the increase in crude oil prices as a special gain levy is payable only if the crude oil price reaches US$65 per barrel or above, while in 2017, no crude oil special gain levy was incurred; (ii) the consumption tax we paid increased by RMB7,521 million from RMB144,973 million in 2017 to RMB152,494 million in 2018; and (iii) the resource tax we paid increased by RMB6,339 million from RMB18,000 million in 2017 to RMB24,339 million in 2018.

Other Expenses, netNet other expenses was RMB7,661 million in 2018, representing an increase of RMB6,886 million from RMB775 million in 2017. This was primarily due to a combined effectseffect of the following factors: (i) an investment gain of RMB22,807 millionincrease in 2015 derivedthe losses from the integration of certain pipeline assets and the gain from the equity disposals of some subsidiaries; (iii) the disposal of certain equity interestsassets, as partially offset by the increase in Trans-Asia Gas Pipeline Co., Ltd., with gain of RMB24,534 million in 2016; and (iii) the VAT refund relating to the importation of natural gas as recognized decreased in 2016 as compared to the preceding year.2018.

Profit from OperationsProfit The profit from operations in 20162018 was RMB60,635RMB122,942 million, representing a decreasean increase of 23.5%73.6% from RMB79,252RMB70,836 million in 2015.2017.

Net Exchange Gain/(Loss)Gain /(Loss)We had a net Net exchange gain of RMB1,257in 2018 was RMB1,120 million, in 2016, while we incurred aas compared to the net exchange loss of RMB632RMB1,184 million in 2015.2017. This change was primarily due to the appreciation of the US dollarDollar against Renminbi as compared to the preceding year.end of 2017.

Net Interest ExpensesExpenseNet interest expensesexpense decreased by 6.5%5.0% from RMB22,309RMB19,929 million in 20152017 to RMB20,857RMB18,939 million in 2016,2018, primarily due to a combined effect of a decrease in the average balance of interest-bearing borrowings, a decrease in interest expenses and an increase in income from deposits as a result of our active measurescompared to control debts and reduce interest.2017.

Profit Before Income Tax ExpenseProfit before income tax expense decreasedincreased by 21.9%109.7% from RMB57,815RMB55,691 million in 20152017 to RMB45,140RMB116,770 million in 2016.2018.

Income Tax ExpenseThe income tax expense in 2016 was RMB15,768 million, compared to RMB15,726increased by 162.6% from RMB16,296 million in 2015,2017 to RMB42,790 million in 2018, which was primarily due to the combined effects of (i) the decreaseincrease in taxable income as a result of the decrease in oil prices, and (ii) the increase in income tax expense as a result of the increase in profits of certain subsidiaries.income.

Profit for the YearAs a result of the foregoing, our profit for the year decreasedin 2018 increased by 30.2%87.8% from RMB42,089RMB39,395 million in 20152017 to RMB29,372RMB73,980 million in 2016.2018.

Profit Attributable toNon-controlling InterestsNet profitProfit attributable tonon-controlling interests increased by RMB14,943 million32.1% from RMB6,572RMB15,858 million in 20152017 to RMB21,515RMB20,944 million in 2016,2018, which was primarily due to the increase in the profits of certain subsidiaries.of our subsidiaries in 2018.

Profit Attributable to Owners of the CompanyThe net profitProfit attributable to owners of the Company decreasedcompany increased by 77.9%125.3% from RMB35,517RMB23,537 million in 20152017 to RMB7,857RMB53,036 million in 2016.2018.

Segment Results

Exploration and Production Segment

RevenueThe realized revenueRevenue of the exploration and production segment was RMB412,484RMB658,712 million in 2016,2018, representing a decreasean increase of 13.2%30.3% from RMB475,412RMB505,430 million in 2015,2017. This increase was primarily due to the combined

effects of (i) the decreaseincrease in the prices of crude oil and natural gas and (ii) the decreaseincrease in the sales volume of crude oil. Thenatural gas. Our average realized crude oil price in 2018 was US$37.9968.28 per barrel, representing an increase of 34.8% from US$50.64 per barrel in 2016, representing a decrease of 21.4% from US$48.35 per barrel in 2015.2017.

Operating ExpensesOperating expenses of the exploration and production segment decreasedincreased by 7.3%19.4% from RMB441,451RMB489,955 million in 20152017 to RMB409,336RMB585,193 million in 2016,2018. This increase was primarily due to the combined effects of the following factors: (i) realized gain derived from the disposal of certain equity interests in the Trans-Asia Pipeline; (ii) a provision made in 2015 for impairment of oil and gas properties; and (iii) an increase in depletionprocurement expenditure resulting from the increase in volume and price of imported oil from Russia and Kazakhstan; (ii) the impairment provision for certain oil and gas assets as a resultwith higher costs of a decreasedevelopment and production made in proved reservesaccordance with the accounting standards; and an(iii) the increase in depletion rate duetaxes other than income taxes as compared to 2017.

In 2018, the oil price drop; and (iv) a decrease in purchase expenses for imported crude oil.

We enhanced our control over costs and expenses continuously. Theunit oil and gas lifting cost was US$11.6712.31 per barrel, representing an increase of 6.8% from US$11.53 per barrel in 2016, representing a decrease2017. Excluding the effect of 10.1%changes in exchange rate, the lifting cost increased by 4.6% from US$12.98 per barrel2017, primarily due to an increase in 2015.power, materials and labor costs in 2018 as compared to 2017.

Profit from OperationsIn 2016,2018, we stressed ourlow-cost development strategy and meticulous management, continued to promote steady output of crude oil, made greater efforts in our exploration and production segment, we adhered to thelow-cost strategy in our domestic operations,main gas areas and optimized our development plans, strengthened the dynamic adjustment of output, focused on the management and control of key elements of production continued to save energy and tap the potential synergies.structure, resulting in a steady increase in gas output. In our overseas operations, we devotedtook advantage of the Belt and Road Initiative, actively promoted the international cooperation in our efforts to broadening sources of income, reducing expenditure, as well as enhancing efficiency by various means such as expanding sales, increasing prices and optimizing investments. In an adverse situation where the prices of crude oil and gas dropped,business, and formulated our development strategy based on project potential and enhanced dynamic control and management of investment. In 2018, the exploration and production segment realized an operating profit of RMB3,148RMB73,519 million, representing a decreasean increase of 90.7%RMB58,044 million from RMB33,961RMB15,475 million in 2015.2017, and returned to its position as a main profit contributor of our company.

Refining and Chemicals Segment

RevenueRevenue The revenue of the refining and chemicals segment decreasedincreased by 9.3%23.9% from RMB642,428RMB735,486 million in 20152017 to RMB582,510RMB911,224 million in 2016,2018. This increase was primarily due to the combined effectsincrease in the prices of (i)refined products and the drop infact that we produced more high-profitability products as a result of our optimized product structure. Both the prices and sales volume of certain refined and chemicalschemical products prices such as diesel, and (ii) the changes in the sales volume as affected by the market.increased.

Operating ExpensesOperating expenses of the refining and chemicals segment decreasedincreased by 14.8%25.1% from RMB637,545RMB692,411 million in 20152017 to RMB543,484RMB866,523 million in 2016,2018. This increase was primarily due to the combined effects of (i) a decreasean increase in the expenses associated with the purchase of crude oil and feedstock oil from external suppliers,suppliers; and (ii) an impairment provision made in accordance with the decreaseaccounting standards for certain facilities scheduled to be deactivated as a result of the regulations to promote the use of ethanol in consumption tax.vehicles.

In 2016,2018, the cash processing cost of our refineries was RMB167.74 per ton, representing an increase of RMB0.15 per ton from RMB167.59 per ton in 2017, primarily due to an increase in power and labor cost as compared to 2017.

Profit from OperationsIn 2018, in our refining and chemicals segment, in response to market demand, we optimized our production and operations underincreased the cost pressureprocessing load of the upgradingfacilities with high efficiency, continued to adjust our product structure, increased production of oil qualityhigh value-added and market-favorable products, and intensified management and control over our costs and expenses, maintaining a good position in profit contribution. In 2018, we realized operating profits of RMB44,701 million in the refining and chemicals segment, and prudently reduced the processing volume of crude oil based on market condition. The cash processing cost of refineries was RMB179.93 per ton in 2016, representing an increase of RMB2.13 per ton from RMB177.80 per ton in 2015.

Profit from OperationsIn 2016, in our refining and chemicals segment, we emphasized the principle of market orientation and benefit, optimized the allocation of resources and the structure of products, enhanced new technology development to improve the efficiency of facilities, increased the production of highly valued-added market-favorable products, and took the initiative to increase profit. We also intensified control over costs and expenses, which led to the improvement in major economic indicators and contributed to our profit under low oil prices. In 2016, in the refining and chemicals segment, we realized operating profits of RMB39,026 million, representing an increase of RMB34,143 million,3.8% as compared with RMB4,883to RMB43,075 million in 2015. Among this, the2017. The refining operations recorded an operating profit of RMB27,565RMB36,878 million, representing an increase of RMB22,8753.3% as compared to RMB35,687 million in profit as compared with RMB4,690 million in 2015, due to the optimization of operation and increase in gross profit. Taking the opportunity of favorable changes in the chemical market, we optimized our2017. Our chemical operations by enhancing the structure of products and increasing the sales of high-profitability products. We recordedrealized an operating profit of RMB11,461RMB7,823 million, representing an increase of RMB11,268 million,5.9%, as compared with RMB193to RMB7,388 million in 2015.2017.

Marketing Segment

RevenueRevenue of the marketing segment decreasedincreased by 5.9%20.6% from RMB1,383,426RMB1,660,456 million in 20152017 to RMB1,301,616RMB2,003,105 million in 2016.2018. This decreaseincrease was primarily due to the combined effects of (i) the decreaseincrease in theboth sales volume and prices of products such as gasoline and kerosene, and the rise in the price of diesel as partially offset by the decrease in the prices and the increase in the sales volume of gasoline and kerosene;diesel; and (ii) the decreaseincrease in revenue derived from tradetrading of oil products.

Operating ExpensesOperating expenses of the marketing segment decreasedincreased by 6.7%21.6% from RMB1,383,926RMB1,652,177 million in 20152017 to RMB1,290,568RMB2,009,555 million in 2016,2018, primarily due to the decreasean increase in the expenses infor purchase of refined oil from external suppliers.

Profit(Loss) /profit from OperationsIn 2016,2018, facing such adverse factors as the slow-downan unfavorable situation of substantial surplus in domestic demand for refined productsresources and the fiercefiercer competition in the market, we aimedour domestic marketing segment adhered to maximize the wholeprinciple of market-orientation and efficiency, adopted active measures to address market competition, maximized efforts to increase our market share and enhance efficiency, and effectively ensured the proper downstream operations of our refineries, so as to realize the value of the Company and continuously improved the quality of marketing and trade and profitability. In domestic operations, we strengthened connection between production and sales and inventory management, optimized logistics and allocation of resources, intensified cost and expense control and increased the profit fromnon-oil businesses.our industrial chain. In international trade, wetrading, the marketing segment intensified the coordination and cooperation with domestic upstream, middle-streamindustrial chains, and downstream businesses, optimized the importationimport and export of oil and gas resourcesresources. In 2018, affected by certain factors including fierce market competition and expanded exports of products processed with importing materials. In 2016, we realized an operatingadverse effect on profit of RMB11,048 millionfrom inventories due to a sharp decrease in ouroil prices in the fourth quarter, the marketing segment representing an increase of RMB11,548 million, as compared withrecorded an operating loss of RMB500RMB6,450 million, representing a decrease of RMB14,729 million as compared to the operating profit of RMB8,279 million in 2015.2017.

Natural Gas and Pipeline Segment

RevenueRevenue of the natural gas and pipeline segment amounted to RMB247,477RMB362,626 million in 2016,2018, representing a decreasean increase of 12.2%22.6% as compared to RMB281,778RMB295,786 million in 2015. This decrease was2017, primarily due to a decrease in the price of nature gas, partially offset by the increase in the revenue derived from pipeline transportation.sales volume of natural gas.

Operating ExpensesOperating expenses of the natural gas and pipeline segment amounted to RMB229,592RMB337,111 million in 2016,2018, representing an increase of 20.4% as compared with RMB230,547to RMB280,098 million in 2015. This slight decrease was2017, primarily due to the decreaseincrease in the expenses offor purchasing natural gas.

Profit from OperationsIn 2016,2018, in the natural gas and pipeline segment, in line with the increased demand for natural gas in the domestic market, we achieved an increase in salesoptimized our marketing strategies, made great efforts to expand into thehigh-end and stability in profitability by optimizinghigh-profitability market, and continued to enhance the allocationvalue of resources, reducing purchase costs, utilizing price leverage to adjust demand and supply and strengthening marketing efforts in high-profitability markets. Weour natural gas business chain. In 2018, we realized an operating profit of RMB17,885RMB25,515 million, representing an increase of 62.6% as compared to RMB15,688 million in this segment, which, after excluding2017.

In 2018, the effectvolume of imported natural gas and liquefied natural gas (LNG) increased substantially. We took active measures to control the income of RMB22,807 million generatedloss arising from the integration of certain pipeline assets in 2015, represented a decrease of RMB10,539 million in operating profit as compared with RMB51,231 million in 2015. In 2016, weimported natural gas, and recorded a net loss of RMB14,884RMB24,907 million in the sale of imported natural gas, and pipeline segment from sales of imported gas, representing a decrease ofan increase in loss of RMB1,415RMB960 million as compared with 2015.to 2017. We will continue to adopt vigorous measures to control losses.

In 2016, we generated a revenue of RMB515,848 million from2018, our international operations representing 31.9%realized revenue of RMB836,619 million, accounting for 35.2% of our total revenue. Profit before income tax expense amounted to RMB32,265 million, including an income of RMB24,534 million derived from disposal of certain equity interest in the Trans-Asia Pipeline. WeRMB4,781 million. Our international operations maintained a healthy development with further improved operating ability in our international operations.ability.

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

Liquidity and Capital Resources

Our primary sources of funding include cash generated by operating activities andshort-term andlong-term borrowings.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 andlong-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 the year ended December 31, 2017,2019, we distributed asdistribute dividends of 45% of our reported income for the yearnet profit attributable to our shareholders together withowners of the Company recorded under IFRS, and additional interim and final special dividends in return to our shareholders. 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 must obtain approval from the relevant PRC government authorities. In general, we must obtain PRC government approval for any project involving significant capital investment for our refining and 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 andlong-term borrowings and cash and cash equivalents. Net cash flows from operating activities in the year ended December 31, 20172019 was RMB366,655RMB359,610 million. As of December 31, 2017,2019, we had cash and cash equivalents of RMB122,777RMB86,409 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 our exploration and productioneach 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, 2017,2019, 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 cash flows for each of the years ended December 31, 2015, 20162017, 2018 and 20172019 and our cash equivalents at the end of each year.

 

  Year Ended December 31,   Year Ended December 31, 
  2015 2016 2017   2017 2018 2019 
  (RMB in millions)   (RMB in millions) 

Net cash flows from operating activities

   261,312  265,179  366,655    368,729  353,256  359,610 

Net cash flows used for investing activities

   (215,879)  (175,887)  (243,546)    (243,790)  (267,812)  (332,948) 

Net cash flows used for financing activities

   (45,439)  (67,007)  (94,725)    (96,746)  (125,703)  (27,276) 

Currency translation difference

   (999)  2,873  (3,538)    (3,551)  2,513  1,069 

Cash and cash equivalents at year end

   72,773  97,931  122,777    123,700  85,954  86,409 

Our cash and cash equivalents increased by 25.4%0.5% from RMB97,931RMB85,954 million as of December 31, 20162018 to RMB122,777RMB86,409 million as of December 31, 2017.2019.

Net Cash Flows from Operating Activities

Our net cash flows from operating activities amounted to RMB366,655RMB359,610 million for the year ended December 31, 2017,2019, representing an increase of 38.3%1.8% from RMB265,179RMB353,256 million for the year ended December 31, 2016.2018. This was mainly due to a combined effect of an increasethe changes in profit and strengthened

management over inventories, receivables, payables and other working capitalcontract obligations during the reporting period. As of December 31, 2017,2019, we had cash and cash equivalents of RMB122,777RMB86,409 million. Our cash and cash equivalents were mainly denominated in Renminbi, US Dollars HK Dollars and other currenciesRenminbi (approximately 57.8% were denominated in Renminbi, approximately 36.4%57.2% were denominated in US Dollars, approximately 4.9%37.6% were denominated in Renminbi, approximately 3.6% were denominated in HK Dollars and approximately 0.9%1.6% were denominated in other currencies).

Our net cash flows from operating activities amounted to RMB265,179RMB353,256 million for the year ended December 31, 2016,2018, representing an increasea decrease of 1.5%4.2% from RMB261,312RMB368,729 million for the year ended December 31, 2015.2017. This was mainly due to a combined effect of a decreasethe changes in profitinventories, receivables and payables and other working capital and the decreaseincrease in tax expensestaxes, employee fees during the reporting period. As of December 31, 2016,2018, we had cash and cash equivalents of RMB97,931RMB85,954 million. Our cash and cash equivalents were mainly denominated in Renminbi and US Dollars HK Dollars and other currencies (approximately 52.6%46.2% were denominated in Renminbi, approximately 49.1% were denominated in US Dollars, approximately 44.3% were denominated in Renminbi, approximately 1.7%2.1% were denominated in HK Dollars and approximately 1.4%2.6% were denominated in other currencies).

Our net cash flows from operating activities amounted to RMB261,312 million for the year ended December 31, 2015, representing a decrease of 26.7% from RMB356,477 million for the year ended December 31, 2014. This was mainly due to a combined effect of a decrease in profit and the change of working capital during the reporting period. As of December 31, 2015, we had cash and cash equivalents of RMB72,773 million. Our cash and cash equivalents were denominated in Renminbi, US Dollars, HK Dollars and other currencies (approximately 52.9% were denominated in Renminbi, approximately 43.3% were denominated in US Dollars, approximately 2.2% were denominated in HK Dollars and approximately 1.6% were denominated in other currencies).

Net Cash Flows Used for Investing Activities

Our net cash flows used for investing activities in 20172019 amounted to RMB243,546RMB332,948 million, representing an increase of 38.5%24.3% from RMB175,887RMB267,812 million in 2016.2018. The increase was primarily due to an increase in capital expenditures in 2019.

Our net cash flows used for investing activities in 2018 amounted to RMB267,812 million, representing an increase of 9.9% from RMB243,790 million in 2017. The increase was primarily due to an increase in capital expenditures as a combined effectresult of the adjustment of our investment plans based on the oil price trend and market change and the increasechanges in capital expenditures in 2017.

Our net cash flows used for investing activities in 2016 amounted to RMB175,887 million, representing a decrease of 18.5% from RMB215,879 million in 2015. The decrease was primarily due to a combined effect of the adjustment of our investment plans based on the oil price trend and market change, a decrease in capital expenditures during the current reporting period and payment of considerations for integration of certain pipelines assets in 2015.

Our net cash flows used for investing activities in 2015 amounted to RMB215,879 million, representing a decrease of 25.8% from RMB290,838 million in 2014. The decrease was primarily due to a combined effect of the adjustment of our investment plans based on the oil price trend and market change, a decrease in capital expenditures during the reporting period and payment of considerations for integration of certain pipelines assets.2018.

Net Cash Flows Used for Financing Activities

Our net cash flows used for financing activities in 20172019 was RMB94,725RMB27,276 million, representing an increasea decrease of 41.4%78.3% from RMB67,007RMB125,703 million in 2016.2018. This was primarily due to a combined effect of (i) our effortsthe changes in optimizing financial arrangementlong and debt structure; (ii) the decrease in amount of debts and financing cost, (iii) the decrease in long-term borrowings in 2017, and (iv) the increase in balance of short-term borrowings as of December 31, 2017.during the reporting period.

Our net cash flows used for financing activities in 20162018 was RMB67,007RMB125,703 million, representing an increase of 47.5%29.9% from RMB45,439RMB96,746 million in 2015.2017. This was primarily due to a combined effect of (i) our efforts in

optimizing financial arrangement and debt structure, and strengthening the management of our interest-bearing borrowings, (ii) the decrease in financing cost, (iii) the decrease in long-term borrowings in 2016, and (iv) the increase in balance of short-termnew borrowings as of December 31, 2016.

Our net cash flows used for financing activities in 2015 was RMB45,439 million, representing an increase of 2.5% from RMB44,312 million in 2014. This was primarily due to a combined effectresult of our efforts in optimizing financial arrangement, strengthening the management of our interest-bearing borrowings, overall arrangement and optimization ofto optimize our debt structure and the increase of repayments of borrowingsreduce our debt in 2015, and the decrease of balance of short-term borrowings as of December 31, 2015.2018.

Our net borrowings as of December 31, 2015, 20162017, 2018 and 20172019 were as follows:

 

  As of December 31,   As of December 31, 
  2015   2016   2017   2017   2018   2019 
  (RMB in millions)   (RMB in millions) 

Short-term borrowings (including current portion oflong-term borrowings)

   106,226    143,384    175,417    184,601    145,150    175,840 

Long-term borrowings

   434,475    372,887    289,858    289,858    269,422    290,882 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total borrowings

   540,701    516,271    465,275    474,459    414,572    466,722 
  

 

   

 

   

 

   

 

   

 

   

 

 

Less:

      

Cash and cash equivalents

   72,773    97,931    122,777 

Less: cash and cash equivalents

   123,700    85,954    86,409 
  

 

   

 

   

 

   

 

   

 

   

 

 

Net borrowings

   467,928    418,340    342,498    350,759    328,618    380,313 
  

 

   

 

   

 

   

 

   

 

   

 

 

The following table sets out the remaining contractual maturity of borrowings as at the respective dates 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, 
   2018   2019 
   

(RMB in million)

 

Within 1 year

   158,782    188,771 

Between 1 and 2 years

   98,939    30,090 

Between 2 and 5 years

   150,837    253,918 

After 5 years

   43,879    31,576 
  

 

 

   

 

 

 

Total

   452,437    504,355 
  

 

 

   

 

 

 

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% 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 total borrowings as of December 31, 2017 consisted of approximately 54.5%54.2% of fixed-rate loans and approximately 45.5%45.8% of floating-rate loans. Of our borrowings as of December 31, 2017, approximately 71.4% were denominated in Renminbi, approximately 26.7% were denominated in US Dollars and approximately 1.9% were denominated in other currencies.

Our total borrowings as of December 31, 2016 consisted of approximately 54.8% of fixed-rate loans and approximately 45.2% of floating-rate loans. Of our borrowings as of December 31, 2016, approximately 72.1%71.7% were denominated in Renminbi, approximately 26.5% were denominated in US Dollars and approximately 1.4% were denominated in other currencies.

Our total borrowings as of December 31, 2015 consisted of approximately 66.3% of fixed-rate loans and approximately 33.7% of floating-rate loans. Of our borrowings as of December 31, 2015, approximately 76.4% were denominated in Renminbi, approximately 22.2% were denominated in US Dollars and approximately 1.4%1.8% were denominated in other currencies.

Our debt to capital ratio (calculated by dividinginterest-bearing debts by the aggregate ofinterest-bearing debts and shareholder’s equity)equity; interest-bearing debts including various long and short term borrowings) as of December 31, 2015, 20162017, 2018 and 20172019 was 28.7%25.5%, 27.3%22.7% and 25.2%24.4%.

As of December 31, 2017,2019, the outstanding amount of our debts secured by CNPC and its subsidiaries and other third parties was RMB45,463RMB22,313 million.

Capital Expenditures and Investments

In 2017,2019, we focused on the principles of quality and profitability for capital expenditures, continued to optimize our investment structure and control our overall capital expenditures, with a focus on the investment in upstream oil and gas projects in order to enhance our sustainable development capability. In 2017,2019, our capital expenditures were RMB216,227RMB296,776 million, representing an increase of 25.4%15.9% from RMB172,386RMB256,106 million in 2016.2018.

The table below sets forth our capital expenditures and investments by business segment for each of the years ended December 31, 2015, 20162017, 2018 and 2017 as well as those anticipated for the year ending December 31,

2018. Actual2019. Our board of directors has approved a total estimated capital expenditures of RBM295,000 million for 2020. Considering the impact ofCOVID-19 and the volatility in international oil prices, we intend to follow the principle of maintaining positive free cash flow, and investmentsdynamically adjust our capital expenditures for periods after January 1, 2018 may differ from the amounts indicated below.2020. Please refer to “Item 3 — Key Information — Risk Factors — Risks Related toCOVID-19”.

 

  2015   2016   2017   2018
Anticipated		   2017   2018   2019 
  (RMB in
millions)		   %   (RMB in
millions)		   %   (RMB in
millions)		   %   (RMB in
millions)		   %   (RMB in
millions)		   %   (RMB in
millions)		   %   (RMB in
millions)		   % 

Exploration and production(1)

   157,822    78.04    130,248    75.56    161,997    74.92    167,600    74.22    161,997    74.87    196,109    76.57    230,117    77.54 

Refining and chemicals

   15,725    7.78    12,847    7.45    17,705    8.19    19,800    8.77    17,859    8.25    15,419    6.02    21,279    7.17 

Marketing

   7,061    3.49    7,983    4.63    10,982    5.08    16,500    7.31    10,982    5.08    17,010    6.64    17,618    5.94 

Natural gas and pipeline

   20,360    10.07    20,340    11.80    24,529    11.34    20,000    8.86    24,529    11.34    26,502    10.35    27,004    9.10 

Headquarters and others

   1,270    0.62    968    0.56    1,014    0.47    1,900    0.84    1,014    0.46    1,066    0.42    758    0.25 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total

   202,238    100.00    172,386    100.00    216,227    100.00    225,800    100.00    216,381    100.00    256,106    100.00    296,776    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 2015, 2016, 2017, and the estimates for the same in 2018, 2019 would be RMB166,594 million, RMB139,135 million, RMB176,426 million, RMB206,256 million and RMB178,600RMB241,992 million, respectively.

As of December 31, 2017,2019, the capital commitments contracted but not provided for by us were approximately RMB70,563RMB56,856 million.

Exploration and Production

A majority of our capital expenditures and investments relate to our exploration and production segment. For each of the three years ended December 31, 2015, 20162017, 2018 and 2017,2019, capital expenditures in relation to the exploration and production segment amounted to RMB157,822RMB161,997 million, RMB130,248RMB196,109 million and RMB161,997 million,RMB230,117, respectively. In 2017,2019, our capital expenditures were primarily used for the exploration projects in our 16 domestic oil and gas fields, construction of production facilities in our oil and gas fields, and the exploration and development projects in our five major overseas oil and gas cooperation regions.

We anticipate that the capital expenditures for our exploration and production segment in 2018 would amount to RMB167,600 million. Domestic exploration activities will be focused onin the key basins such as Songliao Basin, Erdos Basin, Tarim Basin, Sichuan Basin and Bohai Bay Basin. DomesticBasin and for development activities will be focused on maintaining a stable production of crude oil and a growth in the output of natural gas by developing oil and gas fields inof Daqing, Changqing, Liaohe, Xinjiang, Tarim and the Southwest region, and enhancing the development of unconventional resources such as shale gas. Overseas operations will be aimed at continued cooperation with our current partners inwell as for the operation of the existing projects and the development of new projects in the Middle East, Central Asia, the Americas and the Asia-Pacific regions, to ensureand realized an effective growth in our production and profitability.

We anticipate that the capital expenditures for our exploration and production segment in 2020 will be as follows. Domestic exploration activities will continue to be focused on the key basins such as Songliao Basin, Erdos Basin, Tarim Basin, Sichuan Basin and Bohai Bay Basin and we will strengthen the development of our reservesunconventional resources such as shale gas. We will endeavor to achieve an oil and production.gas equivalent output of more than 200 million tons in 2020. Overseas operations will still be aimed at the operation of existing projects in the Middle East, Central Asia, the Americas and the Asia-Pacific regions to endeavor to maintain good quality development and high profitability.

Refining and Chemicals

Our capital expenditures for our refining and chemicals segment for each of the years ended December 31, 2015, 20162017, 2018 and 20172019 were RMB15,725RMB17,859 million, RMB12,847RMB15,419 million and RMB17,705RMB21,279 million, respectively. In 2017,

2019, our capital expenditures were mainly spent on the construction of large-scale refining and chemicals facilities, including projects such as the Yunnan petrochemicalrefining-chemical integration project at Guangdong Petrochemical, the project in relation to adjustment of product structure at Daqing Petrochemical, the large-scale refining-chemical projects of producing ethylene out of ethane in Changqing and Tarim, and certain other oil product quality upgrading projects.

We anticipate that theOur capital expenditures for the refining and chemicals segment in 2018 would amount to RMB19,800 million, which2020 are expected to be used primarily for the construction of large-scale refining and chemical projects, refined oil quality upgrading projects and refining-chemical transformation and upgrading projects, such as the Liaoyang Petrochemical’s optimization and efficiency renovation project for processing

crude oil imported from Russia, Huabei Petrochemical’s project for quality upgrading, technical reformation with respect to safety production and environmental protection, the refining-chemical integration project inat Guangdong Daqing Petrochemical’sPetrochemical, the Jieyang ABS project of Jilin Petrochemical, project in relation to adjustment and upgrading of product structure andat Daqing Petrochemical, the large-scale refining-chemical projectprojects of producing ethylene out of ethane.ethane in Changqing and Tarim, and certain refining-chemical transformation and upgrading projects.

Marketing

Our capital expenditures for our marketing segment for each of the years ended December 31, 2015, 20162017, 2018 and 20172019 were RMB7,061RMB10,982 million, RMB7,983RMB17,010 million and RMB10,982RMB17,618 million, respectively. Our capital expenditures for the marketing segment in 20172019 were mainly used for the construction and expansion of refined oil sales networks, engineering works for safety and environmental protection such as anti-seepage renovation of service stations, storage facilities and otherconstruction of overseas facilities for our sales network.storage, transmission and sale of oil and gas.

We anticipate that theOur capital expenditures for our marketing segment for the year of 2018 will amount to RMB16,500 million, which2020 are expected to be used primarily for the construction and expansion ofhigh-profitability refined oil sales networks and the construction of the overseas oil and gas operation centers.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, 2015, 20162017, 2018 and 20172019 were RMB20,360RMB24,529 million, RMB20,340RMB26,502 million and RMB24,529RMB27,004 million, respectively. Our capital expenditures for the natural gas and pipeline segment in 20172019 were mainly used for construction projects includingof important natural gas trunk lines such as the China-Russia East Natural Gas Pipeline and the Fujian-Guangdong branch line of the Third West-East Gas Pipeline, the Fourth Shaanxi-Beijing Gas Pipeline, the second Sino-Russia Crude Oil PipelineLNG storage and the Jinzhou-Zhengzhou Refined Oil Pipeline.transmission facilities for peak regulation, interconnection lines, branch lines and sales terminals.

We anticipate that ourOur capital expenditures for the natural gas and pipeline segment in 2018 will amount to approximately RMB20,000 million, which2020 are expected to be used primarily for the construction of key natural gas transmissiontrunk line projects such as the China-Russia East Natural Gas Pipeline, Project, Fujian-Guangdong main branch, gasthe Shenzhen LNG storage and LNG equipmenttransmission project for storage and transportation,peak regulation, the natural gas interconnection projects, as well as the construction of gas branches and sales terminals.

Headquarters and Others

Ournon-segment-specificnon-segment capital expenditures and investments for each of the years ended December 31, 2015, 20162017, 2018 and 20172019 were RMB1,270RMB1,014 million, RMB968RMB1,066 million and RMB1,014RMB758 million, respectively, which were primarily used for setting up the research activitiestest platform and development of theour IT system.

Our anticipated capital expenditures for the headquarters and others in 2018 will amount2020 are expected to RMB1,900 million. These planned capital expenditures and investments mainly include capital expendituresbe used for improvement of the scientific research activitiesfacilities and the development of theour IT system.

Off-Balance Sheet Arrangements

As of December 31, 2017,2019, there were nooff-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 ourlong-term contractual obligations outstanding as of December 31, 2017.2019.

 

  Payment Due by Period   Payment Due by Period 

Contractual Obligations

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

Long-term debt

   371,394    81,536    134,829    99,290    55,739    376,225    85,343    180,489    81,979    28,414 

Capital lease obligations

   1,934    235    506    233    960 

Operating leases

   229,384    11,519    18,967    18,066    180,832 

Lease obligations

   276,154    14,304    26,546    24,554    210,750 

Capital commitments

   70,563    12,811    37,057    2,524    18,171    56,856    15,017    41,803    36    —   

Otherlong-term obligations

   —      —      —      —      —   

Debt-related interest

   52,798    11,439    16,657    10,262    14,440    37,634    12,931    16,214    5,310    3,179 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total

   726,073    117,540    208,016    130,375    270,142    746,869    127,595    265,052    111,879    242,343 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

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   Annual Payment 
  (RMB in millions)   (RMB in millions) 

2018

   800 

2019

   800 

2020

   800    800 

2021

   800    800 

2022

   800    800 

2023

   800 

2024

   800 

Assets Retirement Obligation

A numberMost 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, 2017,2019, the balance of assets retirement obligation was RMB131,546RMB137,935 million.

Research and Development

We have a research and development management department, directly under which there are three research institutions. Except for our branch companies which are engaged in marketing activities, each of our branch companies has its own research and development management department. Most of our branch companies have their own research institutions. Our research and development management departments are mainly responsible for managing and coordinating the research and development activities conducted by each of the research institutions. As of December 31, 2017,2019, we had 39,377 employees in our research and development departments and institutions.

In each of the years ended December 31, 2015, 20162017, 2018 and 2017,2019, our total expenditures for research and development (including capitalized expenditures) were approximately RMB19,300RMB 18,601 million, RMB17,565RMB21,045 million and RMB18,601RMB21,410 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 environmentenvironmental 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 environmentenvironmental protection.

Trend Information

In 2018,2020, the global economy is expected to grow stronger although it still faces challenges.running the risk of moving downhill because of, among other things, geopolitical tension, uncertainty of international trade situation, climate change and the spread ofCOVID-19 in various countries around the world. As supply and demand in the global oil market gradually tendseases, international oil prices are expected to be balanced,maintained in the lower range, though likely to take a further downturn. China is set to be affected byCOVID-19 significantly in its economic operation, but the fundamental trend of steady improvement and long-term improvement is not expected to change. The Company will adhere to its resources, marketization, internationalization and innovation strategies, implement new concepts of development, pushing ahead quality-based development, endeavor to reform and undertake breakthrough innovations in key areas, build a solid base for business security and environmental protection, increase its attention on green andlow-carbon development, digital transformation, intelligent development and value creation to comprehensively improve quality and profitability and endeavor to make substantial progress to enhance the capabilities of growth and value creation.

In respect of exploration and production, the Company expects to optimize the deployment of exploration and production, and further consolidate the resource base. The Company expects to continue to increase risk exploration, focusing on target areas such as ancient carbonate rocks, deep and ultra-deep reservoir, unconventional and greenfield target areas, emphasizingin-depth preliminary survey, striving to make technical developments, leading to strategic discoveries and breakthroughs. By targeting spacious basins and pits loaded with oil and gas, and strengthening concentrated exploration, refining exploration and efficient evaluation, the

Company will endeavor to locate recoverable reserves that can be economically producible with scale. The Company will level up trials in oil and gas exploration with a view to profitable development, control the rate of diminishing productivity and increase the recovery ratio, maintaining the overall stability of crude oil production levels and the higher growth for natural gas.

In respect of refining and chemicals, the Company will focus on the high quality development by pushing ahead business restructuring and technical innovation to effect a conversion and upgrading of refining activities. Focusing on market demand, resources will be prioritized to more profitable companies and most efficient processing routes. We expect to also enhance benchmark management and cost control, continuously improving technical and economic performance indicators. According to the technical characteristics of each equipment, we expect to optimize the crude oil resource pool and reduce the cost of raw materials, enhance the competitiveness of our chemical business and vigorously develophigh-end and special and precise chemical products with key projects being pushed ahead in a well-ordered manner.

In respect of marketing, the Company expects to strengthen its marketing capabilities, coordinate resource deployment, to endeavor to ensure adequate supply for upstream production and realize value along the crude oil industrial chain. With a view of being customer-focused and market-oriented, efforts will be focused on market expansion, increasing retail sales volume and enhancing profitability, as well as scientifically organizing well-informed management and implementing innovative marketing strategies and methods, pushing ahead integration of multiple modes of business operations online and offline, improving performance appraisal and incentive schemes to enhance sales and profitability. We will also level up development of high-quality marketing networks in strategic areas, steadily explore the construction and operation of comprehensive supply stations providing oil, gas, power and hydrogen at the same time, enhancing marketing through convenience stores and exploring innovativenon-oil based business models and operation mechanisms.

In respect of natural gas and pipeline, the Company will coordinate resources both domestic and abroad, improve the multiple gas supply system, enhance management on the demand-side and set up a resource allocation mechanism matching demand in the market. We will promote interacting and interconnecting projects and make LNG terminals and gas tanks operate in a more efficient manner, strive hard to make up for deficiencies from gas storage peak shaving in a timely manner and, endeavor to ensure stable supply to the market and smooth operations of our business chains. We will endeavor to develop the city gas market by integration into the provincial pipeline network, and strive to develop the urban gas market. Active changes will be made to marketing methods and we will carry out a “tagging” sales strategy, increase deployment of resources in high-profitability market, accelerate the pace of marketization of gas prices and promote value-added services to effect growing sales and profitability. Construction of such major pipelines for the purpose of increasing interconnection as the middle part of China-Russia East Natural Gas Pipeline and middle part of Third West-East Gas Pipeline will be accelerated and pipeline security management will be upgraded continuously for safe operation.

In respect of international operations, the Company will focus on enhancing profitability, continuously optimizing overseas strategic deployment and asset structure, engaging international petroleum companies in strategic cooperation and taking further steps in developing new projects. We will strengthen onshore exploration, implement progressive high-efficiency exploration and promote deep-water exploration to maximize economically recoverable reservoirs. Existing projects will be operated with high quality. We will keep a close watch on changes in various risks and take effective measures for safe and smooth operations of overseas projects, enhancing the strength and capability of our international business.

Impact ofCOVID-19

Since January 2020, theCOVID-19 pandemic has had a significant impact on the Chinese and global economy, which has significantly impacted the Company. In order to prevent the spread ofCOVID-19, many

governments have adopted strict restrictions, including restrictions on international and local travel, public gatherings and participation in meetings, and the closure of schools, shops, restaurants, and some factories. Some countries have imposed strict curfews. As a result, the market demand for, and the prices of, the Company’s oil and gas products have declined. All of our business segments have been significantly affected, and we face heightened challenges in operation and management along the entire oil and gas industry chain. Please refer to “Item 3 — Key Information — Risk Factors — Risks Related toCOVID-19”. The Company actively responded to theCOVID-19 pandemic and set up a leading group for prevention and control of theCOVID-19 pandemic. The leading group has timely arranged various measures to protect employees’ health and safety, promote production and operation in a safe, stable and orderly manner. The Company will strive to broaden sources of income, reduce expenditure, cut costs, enhance efficiency, optimize debt repayment structure, actively promote price maximization, and accelerate the development of domestic natural gas business, and endeavor to minimize any loss arising from theCOVID-19 pandemic and sustainably develop our business in the long run. As of the date of this report, there is still significant uncertainty about the short-term and long-term adverse effects of theCOVID-19 pandemic on the global and Chinese economy and financial markets, as such, we cannot accurately predict the short-term or long-term impact of theCOVID-19 on us. We will closely monitor any developments and make timely adjustments to our business decisions accordingly.

Volatility of International Crude Oil Prices

Since the beginning of March 2020, the international crude oil price is likelyhas fallen sharply due to remain volatile at a low or medium level. China’spessimistic outlook on the world economy affected by theCOVID-19 pandemic and oversupply of crude oil in the global market. The decline in international crude oil prices is expected to keep growing in a stable manner with an expected GDP growth of approximately 6.5% in 2018. The consumption demand forgreatly affect the Company’s upstream business profits and oil and gas import costs, and affect the Company’s downstream business profits through China’s pricing mechanism of refined oil, thereby adversely affecting the Company’s overall sales revenue and profits. We are actively responding to the risk of crude oil price volatility, and strive to maintain stable and healthy development of production and operation. See “Item 3 — Key Information — Risk Factors — Risks Related to Pricing and Exchange Rate”.

Short-Term Readjustment of Natural Gas Price

On February 22, 2020, the NDRC issued theNotice on Interim Reduction of Gas Cost forNon-resident Use to Support Resumption of Work and Production (the “Notice”), pursuant to which, acting on the PRC government’s guideline in respect of proper coordination ofanti-COVID-19 efforts as well as economic and social development, the cost ofnon-resident use of gas will be lowered in the short term. Starting from the date thereof to June 30, 2020,off-season price policies shall be implemented in advance for the city gate prices of natural gas fornon-resident use, greater price discounts shall be provided to industries, such as chemical fertilizer producers, which are deeply affected by theCOVID-19, and theend-user prices of natural gas shall be timely reduced. The sales revenue and profits of natural gas sales of our Company will be affected to certain extent. However, we will endeavor to optimize our production and operations and push ahead the sustainable development of high quality business.

The Chinese Government Further Liberalizes Oil and Gas Market Access

On June 30, 2019, the NDRC and the MOFCOM issuedSpecial Management Measures for Foreign Investment Access (Negative List) (2019 Edition), pursuant to which, starting from the date thereof, the restrictions on oil and gas exploration and development being limited to joint ventures and cooperation will be lifted. On December 22, 2019, the Central Committee of the Communist Party of China remainsand the State Council issuedOpinions on Creating a growth momentumBetter Development Environment toSupport the Reform and Development of Private Enterprises (“Opinion”). This Opinion intends to further liberalize market access for private enterprises. It aims to liberalize competitive businesses and further introduce market competition mechanisms in the key industries and fields such as a whole. Withpower, telecommunications, railways, oil and natural gas, to support private enterprises to enter the implementationfields of system reformoil and gas exploration and development, refining and sales, and to build

infrastructure such as storage, transportation and pipeline transportation of crude oil, natural gas and refined oil, and to support qualified enterprises to participate in crude oil imports and refined oil exports. These policy changes will intensify competition in the oil and gas sectorindustry in the long run, and the implementationmay adversely affect our business development and operating results.

Reform of the “BeltOil and Road” initiative, sourcesGas Pipeline Network Operation Mechanism

On March 19, 2019, the PRC government passed theOpinions on Implementation of resourcesthe Reform of the Operation Mechanism of Oil and Gas Pipeline Network (the “Opinion”). According to the mannersOpinion, the PRC government will carry out reforms of cooperation in the oil and gas sectorpipeline operation mechanism. An oil and gas pipeline network operator will become more diversified. Meanwhile,be established, which will have diversified investors with state-owned capital holding the majority stake. The Opinion states that the PRC government will form an oil and gas market system with multi-channel suppliers in the upstream, an integrated pipeline network with high efficiency in the middle-stream, and a fully competitive market in the downstream, to improve the efficiency of oil and gas resource allocation. On May 24, 2019, a number of Chinese government agencies jointly issued theRegulations on the Fair Opening of Oil and Gas Pipeline Network Facilities, pursuant to which, from May 24, 2019, oil and gas pipeline network operators shall providenon-discriminatory services of oil and gas transportation, storage, gasification, loading and unloading, transshipment to users who meet the accessing conditions; without proper reasons, they must not delay, refuse to sign service contracts with users who meet the accessing conditions, and must not make unreasonable requirements. On December 9, 2019, the PRC government established the National Pipeline Network Company. The National Pipeline Network Company is in discussions with the newly issued regulation on oil product consumption tax,Company regarding a fairer market environment will be nurtured in China which will facilitate our long-term development. Wepossible acquisition of certain pipeline assets from the Company. As at the date of this report, no definitive agreement has been reached. For this potential transaction, the Company will continue to adhere to our guidelinesthe principles of steady developmentfairness, equality and endeavor to implement our four major strategies with respect to resources, markets, globalization and innovation. We will continue to optimize the structure of our industry chain, improve the value of our oil and gas business chains, and vigorously broaden our source of income, reduce expenditures, cut costs and improve efficiency in an effort to maintain a steady and positive improvement of our operations, and continue to improve our competitiveness and our company value.

With respect to the exploration and production segment, we will focus on efficient exploration and development and make great efforts to increase reserves and production as well as improve profitability. With respect to our oil and gas exploration, we will aim to explore large-scale and high quality reserves, strengthen centralized exploration and fine exploration of the major basins and key series and strata, promote comprehensive exploration of resources including tight oil and gas, shale oil and gas and coalbed methane, and consolidate the resource base. With respect to our oil and gas production, we will, on the basis of stable output of oil and increase of gas, carry out construction of key projects of production capacity, focus on optimization,

arrangement and adjustment of development plans, achieve lean manufacturing driven by innovation and a balance between production and efficiency, advance the unconventional oil and gas businesses such as coalbed methane and shale gas in an orderly manner and endeavor to increase both production and efficiency.

With respect to the refining and chemicals segment, we will, focus on market demand and facility features, make reasonable arrangement for processing workload, continuously optimize resource allocation and product structure,marketization in order to achieveserve the most efficient utilization of resources and maximum of overall value. With respect to the refining business, we will control the diesel-gasoline ratio, increase production of high-profitability and featured products. With respect to the chemical business, we will, considering market cycle, broaden sources of raw materials of fine quality, accelerate the research and development in new products, and improve the proportion of products ofhigh-end, high value-added and high profitability. With respect to the sales of chemical products, we will pay close attention to the market trend, promote integration of production, marketing, research and application, and enhance market cultivation and development so as to increase sales and boost profit. We will implement the transformation and upgrading plan for oil refining and chemical businesses, accelerate structure adjustment and optimization, and continuously improve sustainable development capability and profitability.

With respect to the marketing segment, we will pay close attention to the changesinterests of the market, strengthenshareholders of the interaction between production and marketing, improve marketing network and enhance overall profitability. WeCompany as a whole. However, there is no assurance that the definitive agreement, if any, will improve our strategynot bring any adverse effect on competitiveness, deepen the integrated marketing of refined oil, fuel cards,non-oil business, lubricants and natural gas, promote reconstruction and upgrading of intelligent gas stations, give full play to advantagesdevelopment of our brand “uSmile”, enhance innovation efforts on “Internet + Marketing”, deepen cross-industry cooperation, create an ecosystem of “people, vehicle and life”, and continuously enhance our profitability and market competitiveness.

With respect to the natural gas and pipeline segment, we will devote effortsbusiness and our operation results. Please refer to coordinating resources and market, creating a strategic and value-oriented natural gas business chain. We will carry out overall management of the production, import, storage, transportation and marketing links, give play“Item 3 — Risk Factors — Risks Related to comprehensive peak arrangement capability, form a pipeline network system featuring effective operation, flexible dispatch and stability and safety. We will continue to optimize sales flow, implement flexible sales strategy, track new business growth area of natural gas, carry out orderly market development and enhance the scale and strength of the development of end markets including urban gas. We will continue to push forward the construction of key pipelines and reinforce the construction of natural gas branches and terminal facilities.

With respect to the international operations, we will continue to improve the strategic layout of the five major overseas oil and gas cooperation zones, the four major strategic oil and gas channels and the three major oil and gas operation hubs, further integrate resources and adjust structures, and increase operation efficiency as well as profitability. We will enhance comprehensive assessment and business negotiation of new projects, emphasize the exploration and development of existing key projects and high-profitability projects, and endeavor to increase reserve, output and profit. We will leverage the synergy and cooperation between international trading, production and sales, make overall arrangements for import and export structures as well as domestic and foreign resources, improve the trading channels and marketing network, and improve the capability to allocate resources and profit creation capability.Government Regulation”.

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, 2017.2019.

Related Party Transactions

For a discussion of related party transactions, see “Item 7 — Major Shareholders and Related Party Transactions — Related Party Transactions” and Note 3637 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 consistedconsists of 1311 directors, five of whom wereare independentnon-executive directors. Directors are elected at shareholder meetings for three-year term. The directors may bere-elected andre-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;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 the senior vice president, vice president, chief financial officer 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.

EightSix of the directors are affiliated with CNPC or its subsidiaries.

The PRC Company Law requires a joint stock company with limited liability to establish a supervisory board.committee. This requirement is reflected in our articles of association. The supervisory boardcommittee is responsible for monitoring our financial matters and overseeing the corporate actions of our board of directors and our senior management personnel. AtAs of the enddate of this reporting period,report, the supervisory board consistedcommittee 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. Five of our supervisors are affiliated with CNPC. The term of office of our supervisors is three years. The supervisors may bere-elected andre-appointed. An electedA supervisor cannot concurrently hold the position of a director, managerpresident, senior vice president, vice president or chief financial controller.officer in our company.

The supervisory boardcommittee 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 chief financial officer 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 chief financial officer 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 the company’s name, publicly certified and practicing auditors to assist in there-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 chief financial officer 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 boardcommittee shall be adopted only if it is approved bytwo-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.

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)

Wang YilinDai Houliang

   6156   Chairman of the Board of Directors  June 2015March 2020

Zhang JianhuaLi Fanrong

   5356   Vice-ChairmanVice Chairman andNon-executive Director  October 2016

Yu Baocai

52Non-executive DirectorMay 2011March 2020

Liu Yuezhen

   5658   Non-executive Director  May 2014

Liu HongbinLv Bo

   5457   Non-executive Director  May 2014March 2020

Hou QijunJiao Fangzheng

   51Executive Director and Vice PresidentJune 2017

Duan Liangwei

5057   Non-executive Director  June 20172019

Qin WeizhongDuan Liangwei

   4652   Non-executiveExecutive Director and President  June 2017

Lin Boqiang

   6062   IndependentNon-executive Director  May 2014

Zhang Biyi

   6466   IndependentNon-executive Director  October 2014

Elsie LeungOi-sie

   7880   IndependentNon-executive Director  June 2017

Tokuchi Tatsuhito

   6567   IndependentNon-executive Director  June 2017

Simon Henry

   5658   IndependentNon-executive Director  June 2017

Xu Wenrong

   5658   Chairman of the Board of SupervisorsSupervisory Committee  

Zhang Fengshan

   5658   Supervisor  

Jiang Lifu

   5456   Supervisor  

Lu Yaozhong

   5254   Supervisor  

Wang Liang

   5557   Supervisor  

Fu Suotang

   5557   Supervisor appointed by employees’ representatives  

Li Jiamin

   5456   Supervisor appointed by employees’ representatives  

Liu Xianhua

   5456   Supervisor appointed by employees’ representatives  

Li Wendong

   5355   Supervisor appointed by employees’ representatives  

Sun Longde

   5557   Vice President

Lin Aiguo

59Chief Engineer  

Wu Enlai

   5759   Secretary to the Board of Directors  

Li Luguang

57Vice President

Tian Jinghui

   5557   Vice President  

Chai Shouping

   5658   Chief Financial Officer  

Ling Xiao

   5456   Vice President  

Yang Jigang

   54Vice President

Wang Zhongcai

5856   Vice President  

 

(1)

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

Directors

On June 8, 2017, at13, 2019, Mr. Zhang Wei was appointed as anon-executive director and the annual general meetingvice chairman of the Company, for 2016,and the chairman of the investment and development committee of the Company; and Mr. Wang Yilin, Mr. Wang Dongjin, Mr. Yu Baocai, Mr. Liu Yuezhen,Jiao Fangzheng was appointed as anon-executive director of the Company and a member of the health, safety and environment committee of the Company.

On December 3, 2019, Mr. Liu Hongbin ceased being a director of the Company and a member of the investment and development committee of the Company due to work adjustment.

On December 9, 2019, Mr. Zhang Wei resigned from the position as anon-executive director and the vice chairman of the Company, and ceased being the chairman of the investment and development committee of the Company due to work adjustment; and Mr. Hou Qijun Mr. Duan Liangwei and Mr. Qin Weizhong were electedresigned from the position as the Company’s directors; Mr. Lin Boqiang, Mr. Zhang Biyi, Ms. Elsie LeungOi-sie, Mr. Tokuchi Tatsuhitoexecutive director and Mr. Simon Henry were electedpresident of the Company and the position as independentnon-executivea member of the performance review and

directorscompensation committee, and ceased being as a member of the Company. Mr. Xu Wenrong, Mr. Shen Diancheng, Mr. Zhao Zhengzhang, Mr. Richard H. Matzkihealth, safety and Mr. Chen Zhiwu no longer served as directorsenvironment committee of the Company.

On June 8, 2017, the board of directors electedJanuary 19, 2020, Mr. Wang Yilin stepped down from the position as the chairman of the Company, and eachceased being the chairman of the nomination committee of the Company due to his age.

On March 9, 2020, Mr. Zhang JianhuaDuan Liangwei was appointed as the president of the Company.

On March 25, 2020, Mr. Dai Houliang was elected as a director of the Company and the chairman of the nomination committee of the Company; Mr. Li Fanrong was elected as the vice chairman of the Company and the chairman of the investment and development committee of the Company; and Mr. Wang DongjinLv Bo was elected as anon-executive director of the Company’s vice chairman. Company and a member of the health, safety and environment committee of the Company.

On April 2, 2018,3, 2020, Mr. Wang Dongjin resignedZhongcai stepped down from the positions ofhis position as a vice chairman, director and president of the Company due to position adjustment.

Supervisors

On June 8, 2017, at the annual general meeting of the company for 2016, Mr. Xu Wenrong, Mr. Zhang Fengshan, Mr. Jiang Lifu and Mr. Lu Yaozhong were elected as supervisors of the Company. Each of Mr. Fu Suotang and Mr. Li Jiamin was elected as an employee representative supervisor of the Company. Mr. Guo Jinping, Mr. Li Qingyi, Mr. Jia Yimin, and Mr. Yang Hua no longer served as supervisors of the Company. On June 8, 2017, the supervisory board of the Company elected Mr. Xu Wenrong as the chairman of the supervisory board at its third meeting. On October 26, 2017, Mr. Wang Liang was elected as a supervisor of the Company at the extraordinary general meeting of the Company.

Senior Officers

On June 8, 2017, Mr. Hou Qijun was appointed as a vice president of the Company. Mr. Zhao Zhengzhang and Ms. Wang Lihua no longer served as vice presidents of the Company due to age. On December 28, 2017, Mr. Ling Xiao, Mr. Yang Jigang and Mr. Wang Zhongcai were appointed as vice presidents of the Company. Mr. Huang Weihe, Mr. Xu Fugui and Mr. Lv Gongxun no longer served as vice presidents of the Company due tohis age.

 

(2)

For directors only.

Directors

Wang, Yilin,Dai Houliang, age 61,56, is the chairman of our company, and concurrently the chairman, of CNPC and the secretary of the Communist Party of China (“CPC”) Leadership Group of CNPC. Mr. Wang is a professor-level senior engineer and holds a doctorate degree. He has over 35 years of work experience in China’s oil and gas industry. Mr. Wang was appointed as the standing member of the CPC Committee, deputy director and chief exploration geologist of Xinjiang Petroleum Administration Bureau in June 1996, and the general manager and secretary of the CPC Committee of our Xinjiang Oilfield Company in September 1999. He served as the assistant general manager of CNPC since July 2003. Mr. Wang was appointed as a deputy general manager and a member of the CPC Leadership Group of CNPC in December 2003. From July 2004, he worked concurrently as the chief safety officer of CNPC. He was a director of our company from November 2005 to April 2011. From April 2011, Mr. Wang was the chairman of CNOOC, the secretary of the CPC Leadership Group of CNOOC and the chairman of CNOOC Limited.    He was appointed as the chairman of CNPC and the secretary of the CPC Leadership Group, of CNPCCNPC. Mr. Dai is a professor-level senior engineer with a doctorate degree, an academician of the Chinese Academy of Engineering and has extensive working experience in China’s petroleum and petrochemical industry. In December 1997, he was appointed as vice president of Yangzi Petrochemical Corporation, and as a director and vice president of Yangzi Petrochemical Co., Ltd. in April 2015,1998. In July 2002, he was appointed as the vice chairman, president, and a member of the standing committee of the CPC Committee, of Yangzi Petrochemical Co., Ltd., 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 Yangzi Petrochemical Co., Ltd. and concurrently as the chairman of our company in June 2015.

Zhang, Jianhua, age 53, isYangzi Petrochemical Corporation, and from November 2004 concurrently as the vice chairman of our company,BASF-YPC Company Limited. From September 2005, he served as the deputy chief financial officer of China Petroleum & Chemical Corporation (“Sinopec”), and from November 2005 as a vice president and deputy chief financial officer of Sinopec, and from May 2006 as a director, senior vice president and chief financial officer of Sinopec. In June 2008, he was appointed as a member of the general managerCPC Committee of CNPC,China Petrochemical Corporation (“Sinopec Group”). From May 2016, he served as the president, a director, and the deputy secretary of the CPC Leadership Group, of CNPC. Mr. Zhang is a professor-level senior engineerSinopec Group, and holds a doctorate degree. He has over 30 yearsfrom August 2016 concurrently as the vice chairman and president of work experience in China’s petrochemical industry. HeSinopec, and from May 2018 concurrently as the chairman and the president of Sinopec. In July 2018, he was appointed as a deputy manager of Shanghai Gaoqiao Petrochemical Company of Sinopec Group in April 1999, a deputy manager of Sinopec Shanghai Gaoqiao Company in February 2000,the chairman, and the general manager of Sinopec Shanghai Gaoqiao Company in September 2000. He was appointed as a vice president of China Petroleum & Chemical Corporation, or Sinopec Corp., in April 2003, and concurrently served as the general director of the Production and Operation Management Department of Sinopec Corp. from November 2003. He was appointed as a membersecretary of the CPC Leadership GroupCommittee, of Sinopec Group in February 2005, and a senior vice president of Sinopec Corp in March 2005. He was appointed as a director of Sinopec Corp in May 2006, and concurrentlyGroup. Mr. Dai has served as the chairman, and the secretary of Sinopec (Hong Kong) Limited from June 2007,the CPC Committee, of CNPC since January 2020, and concurrently served

as the chairman of Sinopec Engineering (Group) Co.our company since March 2020.

Li Fanrong, Ltd. from October 2014. He was appointed asage 56, is the vice chairman of our company, and concurrently a director, and the general manager of CNPCpresident, and deputy secretary of the CPC Leadership Group, of CNPCCNPC. He is a professor-level senior engineer with a master’s degree and has extensive working experience in July 2016. In October 2016, Mr. ZhangChina’s oil and gas industry. He was appointed as a directorvice president of CNOOC China Limited Shenzhen Branch Company in January 2002 and vice chairman of our company.

Yu, Baocai, age 52, is a director of our company, a deputythe general manager of CNPCthe 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 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 vice president, and member of the CPC Leadership Group, 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 CNPC.National Energy Administration from May 2016. Mr. Yu isLi has been a senior engineer, holds a master’s degreedirector, the president, and has over 30 years of work experience in China’s oil and petrochemical industry. He was appointed as a deputy general manager and a member of the CPC Committee of PetroChina Daqing Petrochemical Company in September 1999 and was promoted to general manager and deputy secretary of the CPC Committee in December 2001. In September 2003, Mr. Yu was appointed as the secretary of the CPC Committee and the general manager of PetroChina Lanzhou Petrochemical Company, and in September 2008, he was appointed as the deputy general manager and a member of the CPC Leadership Group, of CNPC. Mr. Yu was elected as a representative ofCNPC since February 2020, and concurrently the 10th National People’s Congress of PRC in February 2003 and a representative of the 11th National People’s Congress of PRC in February 2008. In May 2011, Mr. Yu was elected as a directorvice chairman of our company.company since March 2020.

Liu Yuezhen, age 56,58, is a director of our company, and concurrently the chief accountant, and a member of the CPC Leadership Group, of CNPC. Mr. Liu is a researcher-level senior accountant, holds a master’s degree and has over 35 years ofextensive 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 concurrently served 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 the chief accountant, and a member of the CPC Leadership Group, of CNPC since December 2013. HeMr. Liu was electedappointed as a director of our company in May 2014.

Liu, HongbinLv Bo, age 54,57, is a director of our company, and concurrently a vice president and, a member of the CPC Committee, of CNPC. Mr. Lv is a senior economist with a master’s degree and has extensive working 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.

Jiao Fangzheng, age 57,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 working 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 CNPC. Mr. Liu is a senior engineer, holds a bachelor’s degree and has nearly 35 years of work experience in China’s oil and gas industry. He was appointedSinopec Group from July 2014, concurrently as the chief engineerchairman of Tuha Petroleum Exploration & Development Headquarters in June 1995,Sinopec Oilfield Service Corporation from September 2014, and concurrently as a deputy general managerdirector and a member of the CPC Committee of PetroChina Tuha Oilfield Company in July 1999, the commander and deputy secretary of the CPC Committee of Tuha Petroleum Exploration & Development Headquarters in July 2000, the general manager of the Planning Department of our company in March 2002, and the director of the Planning Department of CNPC in September 2005. Mr. Liu was appointed as asenior vice president of our company in June 2007. He was appointed as the general manager and secretary of the CPC Committee of PetroChina Marketing Company in November 2007. In July 2013, he was appointed asSinopec from May 2015. Mr. Jiao has been a deputy general managervice president, and a member of the CPC Leadership Group, of CNPC.CNPC since June 2018. In June 2019, Mr. LiuJiao was appointed as an executiveanon-executive director and general manager of Daqing Oilfield Company Ltd. in August 2013, and he was elected as a director of our company in May 2014.

Hou Qijun, age 51, is a director and vice president of our company, and concurrently the deputy general manager of CNPC. Mr. Hou is a professor-level senior engineer and holds a doctorate degree. He has nearly 30 years of work experience in China’s oil and gas industry. He served as a director, deputy general manager and a member of the CPC Committee of Daqing Oilfield Company Limited since October 2002. He served as the general manager and deputy secretary of the CPC Committee of Jilin Oilfield Company from October 2004, and concurrently an executive director and the general manager of Jilin Petroleum (Group) Company Limited from July 2007. He served as the secretary of the CPC Committee and deputy general manager of PetroChina Natural Gas and Pipelines Company from September 2011, and concurrently a deputy general manager of PetroChina Natural Gas Marketing Company from November 2011. He served concurrently as the director of PetroChina Oil & Gas Pipeline Control Center from March 2012. He served as the general manager of the Planning Department of the company and concurrently the general manager of the Planning Department of CNPC from November 2013. He was appointed as a deputy general manager of CNPC in March 2017. Mr. Hou has served concurrently as the general manager and deputy secretary of the CPC Committee of PetroChina Exploration and

Production Company from April 2017. In June 2017, he was appointed as a director and vice president of our company.

Duan Liangwei, age 50,52, is a director and the president of our company, and concurrently a deputy general manager, and the chief safety officer, and a member of the CPC Leadership Group, of CNPC. Mr. Duan is a professor-level senior engineer and holds a doctorate degree. He has nearly 30 years ofextensive 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 general manager of Jilin Fuel Ethanol Company Limited. From September 2011, he served as the general manager 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 director of CNPC since April 2017. In June 2017, heMr. Duan was appointed as a director of our company.

Qin Weizhong, age 46, is a directorcompany in June 2017 and the president of our company and a deputy general manager of CNPC. Mr. Qin is a senior engineer and holds a doctorate degree. He has over 20 years of work experience in China’s oil and petrochemical industry. From October 2004, he served as a deputy director of the Development & Planning Department of Sinopec Corp. From May 2007, he worked concurrently as a director of New Energy Office of Sinopec Corp. From July 2010, he served as the director and deputy secretary of the CPC Committee of Sinopec Group Jiujiang Petrochemical Plant and the general manager of Sinopec Jiujiang Company. He was appointed as a deputy general manager of CNPC in March 2017. In June 2017, he was appointed as a director of our company.2020.

IndependentNon-executive Directors

Lin Boqiang, age 60,62, is an independentnon-executive director of our company. Mr. Lin holds a doctorate degree in economics from the University of California. He was formerly a senior energy economist at the Asian Development Bank, and is currently working at Xiamen University in such capacity as a Distinguished Professor of the Changjiang Scholars Program at the School of Management, the director of Research Institute for China’s Energy Policy, the director of 2011 Collaborative Innovation Center for Energy Economics and Energy Policy, and a doctoral advisor. Mr. Lin is a member of the National Energy Consultation Committee under the National Energy Commission, a member of the Energy Price Consultation Committee under the National Development and Reform Commission, a guest economic analyst of Xinhua News Agency, a guest commentator of China National Radio, the vice-chairman of China Energy Society, and a member of the Board of Stewards of Future of Energy of the World Economic Forum based in Davos Switzerland. Mr. Lin was elected as an independentnon-executive director of our company in May 2014.

Zhang Biyi, age 64,66, is an independentnon-executive director of our company. Mr. Zhang is a senior accountant. He graduated from the department of finance and banking from Xiamen University in February 1982. He served as the head of the Enterprise Division, assistant to the director, and deputy director of the Finance Bureau at China Ship Industry Corporation. In July 1999, Mr. Zhang was appointed as a deputy general manager of China Shipbuilding Industry Corporation, and he served as deputy general manager and chief accountant of China Shipbuilding Industry Corporation from December 2004 to February 2014. From March 2008 to January 2010, he also served concurrently as the general manager of China Shipbuilding Industry Company Ltd. Mr. Zhang was elected as an independentnon-executive director of our company in October 2014.

Elsie Leung Oi-sie, age 78,80, is an independentnon-executive director of our company. She is a consultant of Iu, Lai & Li Solicitors & Notaries, and anindependent 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, and a member of Executive Council of

HKSAR. 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. In June 2017, sheMs. Leung was appointed as aan independentnon-executive independent director of our company.company in June 2017.

Tokuchi Tatsuhito, age 65,67, is an independentnon-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, and the member & experts adviser 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 highest award for foreigners. In June 2017, heMr. Tokuchi was appointed as aan independentnon-executive independent director of our company.company in June 2017.

Simon Henry, age 56,58, is an independentnon-executive director of our company. He isthe Company and also a fellow of the UK Chartered Institute of Management Accountants, and has rich experience in the 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 byfrom Cambridge. He joined Royal Dutch Shell in 1982. He worked for 8 years until March 2017 as the Chief Finance Officerchief financial officer and an executive director of the Boardboard of Royal Dutch Shell. He now serves as aa non-executive director director and the chairman of the audit committee of the board of directors of Lloyds Banking Group and asaa non-executive director and chairman of the audit committee of the board of Rio Tinto plc. In addition, Mr. Henry is currentlyHe also serves as a member of the Defense Board for the UK Government, and chairs the Defense Board. In June 2017, heAudit and Risk Assurance Committee. Mr. Simon Henry was appointed as aan independentnon-executive independent director of our company.company in June 2017.

Supervisors

Xu Wenrong, age 56,58, is the chairman of the supervisory boardcommittee of our company, and concurrently a deputy secretary of the CPC Leadership Group and deputy general manager of CNPC. Mr. Xu is a professor-level senior engineer and holds a doctorate degree. Mr. Xu has nearly 30 years ofextensive work experience in China’s oil and gas industry. Mr. Xu served as a deputy director of Bureau of Geophysical Prospecting of CNPC from November 1997, the director and deputy secretary of the CPC Committee of the Bureau of Geophysical Prospecting of CNPC from December 1999, and the vice chairman of the board of directors, general manager and deputy secretary of the CPC Committee of BGP Inc. from December 2002. He was appointed as an assistant president of CNPC in January 2004, and from September 2005 Mr. Xu concurrently served as the director general of the Development and Research Department of CNPC, and the chairman of CNPC Services & Engineering Ltd from June 2006. He served as a member of the CPC Leadership Group and chief of the Discipline Inspection Group of China Shipping (Group) Company from May 2011. He was appointed as a director of China Shipping (Group) Company in October 2011. He served concurrently as the principal of China Shipping Party School from December 2011, and the chairman of the Labor Union of China Shipping (Group) Company from January 2012. He served concurrently as the president of China Shipping Management Cadre College from May 2013. He was appointed as a deputy general manager, a member of the CPC Leadership Group and chief of Discipline Inspection Group of China Shipping (Group) Company in February 2014. He served as a deputy general manager and member of the CPC Leadership Group of CNPC from January 2016. He was appointed as a deputy secretary of the CPC Leadership Group and deputy general manager of CNPC in November 2016. Mr. XuHe was appointed as a director of our company in May 2016. In June 2017, heMr. Xu was appointed as a member and the chairman of the board of supervisorssupervisory committee of our company.company in June 2017.

Zhang Fengshan, age 56,58, is a supervisor and the chief safety officer of our company and 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 over 35 years ofextensive 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 in February 2008, the general manager and deputy secretary of the CPC Committee of Great Wall Drilling and Exploration Company Ltd., 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. He was elected to our board of supervisors in May 2014. 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 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 54,56, is a supervisor of our company, the general manager of our Reform and Enterprise Management Department 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 over 20 years ofextensive 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. He was elected as a supervisor of our company in October 2014. 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 elected as a supervisor of our company in October 2014.

Lu Yaozhong, age 52,54, 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 over 30 years ofextensive 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. In June 2017, heMr. Lu was appointed as a supervisor of our company.company in June 2017.

Wang Liang, age 55,57, is a supervisor of our company, the general manager of our Audit Department, and concurrently the general manager of the Audit Department, and the 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 over 35 years ofextensive 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. He has beenIn 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 directorsecretary of the CPC Committee of the Audit Service Center of CNPC since May 2017.CNPC. In OctoberNovember 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.company in October 2017.

Fu Suotang, age 55,57, is an employee representative supervisor of our company. He is also the general manager and the secretary of the CPC Committee of PetroChina Changqing Oilfield Company, and the director and general manager of Changqing Petroleum Exploration Bureau. Mr. Fu is a professor-level senior engineer and holds a doctorate degree. He has over 35 years ofextensive work experience in China’s oil and gas industry. He served as the

chief geologist and 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. He has servedIn 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 sinceBureau. In April 2017. In June 2017,2018, he was appointed the general manager and the secretary of the CPC Committee of PetroChina Changqing Oilfield Company, and concurrently the executive director and general manager of Changqing Oilfield Exploration Bureau. Mr. Fu was appointed as an employee representative supervisor of our company.company in June 2017.

Li Jiamin, age 54,56, is an employee representative supervisor of our company. He is also 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. Mr. Li is a professor-level senior engineer and holds a master’s degree. He has over 30 years ofextensive work experience in China’s oil and petrochemical industry. He was appointed as a deputy general manager, chief security officer and member of the CPC Committee of Lanzhou Petroleum & Chemical Company in August 2004. He was promoted toappointed 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. Mr. Li was appointed as an employee representative supervisor of our company in May 2014.

Liu Xianhua,, age 5456, is an employee representative 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 Corporation.Marketing Company. Mr. Liu is a professor-level senior economist and holds a master’s degree. He has nearly 35 years ofextensive 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. In November 2017, he was appointed 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 was appointed as an employee representative supervisor of our company in May 2016.

Li Wendong,, age 53,55, is an employee representative supervisor of our company. He is also the chairman, general manager and the secretary of the CPC Committee of Beijing Natural Gas Pipelines Company. Mr. Li is a professor-level senior engineer and holds a master’s degree. He has over 35 years ofextensive 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 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 supervisor of our company in May 2016.

Other Senior Management

Sun Longde, age 55,57, is a vice president of our company. He is also an executive director and the general managersecretary of the CPC Committee of Daqing Oilfield Company Ltd., an executive director and the general manager of Daqing Petroleum Administration Bureau Co., Ltd, and a deputy secretary of the CPC Committee of Daqing Oilfield.Ltd. Mr. Sun is a professor-level senior engineer and holds a doctorate degree. He has nearly 35 years ofextensive work experience in China’s oil and geological industry. He 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 has been a vice president of our company since June 2007 and was elected as an academician to 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., an executive director and the general manager of Daqing Petroleum Administration Bureau Co., Ltd. Mr. Sun was appointed as a vice president of our company in June 2007.

Lin, AiguoLi Luguang, age 59,57, is the chief engineera vice president of our company.company, and the general manager and vice Party secretariat of our Exploration and Production Branch. Mr. LinLi is a professor-level senior engineer and holds a bachelor’sdoctor degree. He has over 35 years of workextensive working experience in China’s oil and petrochemicalgas industry. Mr. Lin was appointedHe served as a deputy manager and standing deputy manager of the Shengli Refinery of Qilu Petrochemical Company in July 1993, a deputy general manager and aParty member of Southwest Oil and Gas Field Branch from September 1999, the general manager and vice Party secretariat of Southwest Oil and Gas Field Branch from September 2003, the general manager and Party secretariat of Southwest Oil and Gas Field Branch from November 2005, assistant to the general manager of CNPC from April 2014, concurrently as the general manager and vice secretariat of the CPC Committee of Dalian West Pacific Petrochemical Co. Ltd. in May 1996,Tarim Oilfield Branch from October 2016, and the general manager and secretarysecretariat of the CPC Committee of Dalian West Pacific Petrochemical Co. Ltd. in August 1998, andTarim Oilfield Branch from April 2017, the general manager and secretaryvice Party secretariat of the CPC Committee of our Refining & Marketing Company in December 2002.Exploration and Production Branch from April 2018. Mr. Lin has servedLi was appointed as the chief engineera vice president of our company sincein June 2007 and concurrently as the director and deputy secretary of the CPC Committee of the Petrochemical Research Institute since February 2011.2018.

Tian Jinghui, age 55,57, is a vice president of our company, and an executive director and secretary of the CPC Committee 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 has nearly 35 years ofextensive 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. In November 2015, Mr. Tian was appointed as a vice president of our company. In April 2017, Mr. Tian was appointed as the general manager and deputy secretary of the CPC Committee of PetroChina Marketing Company, an executive director of the board of directors and secretary of the CPC Committee 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 56,58, is the chief financial officer of our company. Mr. Chai is a professor-level senior accountant and holds a master’s degree. He has nearly 30 years ofextensive 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. In September 2012, he was appointed 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 chief financial officer of CNPC Exploration and Development Company Limited and the chief financial officer of PetroChina International Investment Company Limited. In March 2013, he was appointed as the general manager of the

Finance Department of our company. Mr. Chai was appointed as the chief financial officer of our company in January 2017.

Ling Xiao, age 54,56, is a vice president of our company, the general manager, and deputy secretary of the CPC Committee, of our Natural Gas Sales Company (PetroChina Natural Gas Pipelines Company), the chairman of the board of directors, and the secretary of the CPC Committee, of PetroChina Pipelines Co., Ltd., and the chairman of Kunlun Energy Co., Ltd. Mr. Ling is a professor-level senior engineer and holds a doctorate degree. He has over 35 years ofextensive experience in China’s oil industry. He was appointed as a deputy director, and member of the CPC Committee, of Xinjiang Petroleum Administration Bureau in June 2001, the chairman of the board of directors and general manager of West Pipeline Co., Ltd. in August 2004, the secretary of the CPC Committee of West Pipeline Co., Ltd. in January 2015, the general manager, and deputy secretary of the CPC Committee, of PetroChina West Pipeline Company in March 2009, the general manager, and secretary of the CPC Committee, of West-East Gas Transmission Pipeline Company and concurrently the general manager of West-East Gas Transmission Sales Company in November 2013, 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 in March 2016, the secretary of the CPC Committee and deputy general manager of our Natural Gas Sales Company (PetroChina Natural Gas and Pipelines Company) and general manager, and secretary of the CPC Committee, of PetroChina Pipelines Co., Ltd. in September 2016. Mr. Ling was appointed as the general manager, and deputy secretary of the CPC Committee, of our Natural Gas Sales Company (PetroChina Natural Gas and Pipelines Company), and the chairman of the board of directors, and secretary of the CPC Committee, of PetroChina Pipelines Co., Ltd. in November 2017. He2017, the secretary of the CPC Committee of the Natural Gas Sales Company in October 2018. Mr. Ling was appointed as a vice president of our company in December 2017.

Yang Jigang, age 54,56, is a vice president of our company, and the general manager, and the secretary of the CPC Committee, of our Refinery and Chemical Engineering Company. Mr. Yang is a professor-level senior engineer and holds a master’s degree. He has over 30 years ofextensive experience in China’s petroleum and petrochemical industry. He was appointed as the deputy manager of Lanzhou Chemical Industry Corporation in August 1997, the chief engineer of the Oil Refinery and Chemical Engineering Department of CNPC in November 1998, a member of the preparatory group for the establishment of our Refining and Chemicals Marketing Company in September 1999, the chief engineer, and member of the CPC Committee, of our Refinery and Marketing Branch Company in December 1999, a deputy general manager, chief engineer, and member of the CPC Committee, of our Chemical Engineering and Marketing Company in August 2000, the general manager, and deputy secretary of the CPC Committee, of PetroChina Daqing Petrochemical Company in May 2005, the secretary of the CPC Committee and deputy general manager of our Refinery and Chemical Engineering Company in December 2009, and the general manager, and secretary of the CPC Committee, of our Refinery and Chemical Engineering Company in November 2017. He was appointed as a vice president of our company in December 2017.

Wang Zhongcai, age 58, is a vice president of our company, and the chairman of the board of directors, the secretary of the CPC Committee and chairman of the Labor Union of China National Oil and Gas Exploration and Development Company Ltd. Mr. Wang is a professor-level senior engineer and holds a doctorate degree. He has over 35 years of experience in China’s oil industry. He served as the deputy general manager of CNPC International (Kazakhstan) Ltd. and concurrently the chairman of JSC CNPC International Aktobe Petroleum from March 1999, a senior deputy general manager of CNPC International (Kazakhstan) Ltd. and concurrently the general manager of JSC CNPC International Aktobe Petroleum from April 2000, a deputy general manager of China National Oil and Gas Exploration and Development Corporation and concurrently the general manager of CNPC International (Russia) Ltd. from May 2003, a deputy general manager of China National Oil and Gas Exploration and Development Corporation and concurrently the chief of the CNPC Russian Coordination Leading Group from March 2005, a deputy general manager of China National Oil and Gas Exploration and Development Corporation and concurrently the general manager of CNPC International (Kazakhstan) Ltd. and JSC CNPC International Aktobe Petroleum from November 2005, the general manager, secretary of the CPC Committee and the chief of Kazakhstan Coordination Group of CNPC International (Kazakhstan) Ltd. from

September 2008, a senior deputy general manager and a member of the CPC Committee of Overseas Exploration and Development Branch (China National Oil and Gas Exploration and Development Corporation) from December 2009, and the secretary of the CPC Committee, senior deputy general manager and chairman of the Labor Union of Overseas Exploration and Development Branch (China National Oil and Gas Exploration and Development Corporation) from April 2014. Mr. Wang was appointed as the chairman of the board of directors, secretary of the CPC Committee and the chairman of the Labor Union of China National Oil and Gas Exploration and Development Company Ltd. in November 2017. Mr. WangYang was appointed as a vice president of our company in December 2017.

Secretary to the Board of Directors

Wu Enlai, age 57,59, is the secretary to the board of directors of our company. He is a professor-level senior engineer and holds a master’s degree. Mr. Wu has over 35 years ofextensive work experience in China’s oil and petrochemical industry. Mr. Wu was appointed as a deputy director general of Tarim Petrochemical Engineering Construction Headquarters in August 1997, a deputy director general of the Capital Operation Department of CNPC in August 2002 and a deputy general manager of China National Oil and Gas Exploration and Development Corporation in January 2004. He was appointed as the chief of the Preparatory Work Group for PetroChina Guangxi Petrochemical Company in May 2005, and the general manager, secretary of the CPC Committee, secretary of the Discipline Inspection Commission and chairman of the Labor Union of PetroChina Guangxi Petrochemical Company in October 2005, and the head of the Enterprise Coordination Group of our company in Guangxi in

September 2012. Mr. Wu was appointed as the secretary to our board of directors in November 2013. He was appointed as an executive director and the general manager of CNPC Hong Kong (Holding) Ltd. and a director and the chairman of Kunlun Energy Company Ltd. in December 2013. Since 2014, Mr. Wu has served as the vice director of the Council of China Association of Listed Companies. He was named a senior member of Hong Kong Institute of Chartered Secretaries in January 2018. Mr. Wu was appointed as the secretary to our board of directors in November 2013.

Compensation

The senior management members’ compensation has two components, namely, fixed salaries and variable compensation. The variable component, 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 insurance and other benefits in kind paid by us to the five highest paid individuals during the year ended December 31, 2017 was RMB4,095,987. We paid RMB572,959 as our contribution to the pension plans with respect to these individuals in the year ended December 31, 2017.

The aggregate amount of salaries or 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, 20172019 was RMB1,386,770RMB829 thousand which does not include the fees totaling RMB1,159,223RMB1,782 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, 20172019 was RMB2,930,080.RMB3,687 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, 20172019 was RMB6,303,173.RMB6,744 thousand.

In 2017,2019, we paid RMB1,644,562RMB1,796 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, 2017,2019, 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: acommittees, namely, the nominating committee, anthe audit committee, anthe investment and development committee, anthe evaluation and remuneration committee and athe health, safety and environment committee.

Nominating Committee

The current members of ourOur nominating committee areis composed of Mr. Wang Yilin, theDai Houliang, as chairman of the committee, and Mr. Lin Boqiang and Mr. Zhang Biyi.Biyi, 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 independentnon-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 currently composed of twonon-executive independent directors, Mr. Lin Boqiang and Mr. Zhang Biyi, and onenon-executive director, Mr. Liu Yuezhen. Mr. Lin Boqiang 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 theself-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 the shares of the company are listed (as amended from time to time).

Investment and Development Committee

The current members of ourOur investment and development committee areis composed of Mr. Liu HongbinLi Fanrong, as chairman of the committee, and Mr. Duan Liangwei and Mr. Simon Henry.Henry, as members. The investment and development committee’s major responsibilities include:

 

studying the strategies of the company as 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; and

 

reviewing feasibility studies and preliminary feasibility studies for material investment projects subject to the approval of the board of directors and making recommendations to the board of directors.

Evaluation and Remuneration Committee

The current members of ourOur evaluation and remuneration committee areis composed of Ms. Elsie LeungOi-sie, theas chairman of the committee, and Mr. Yu BaocaiLiu Yuezhen and Mr. Tokuchi Tatsuhito.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, chief financial officer 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.

Health, Safety and Environment Committee

The current members of ourOur health, safety and environment committee areis composed of Mr. Zhang Jianhua, theDuan Liangwei, as chairman of the committee, Mr. Hou Qijun, Mr. Duan Liangwei and Mr. Qin Weizhong.Lv Libo and Mr. Jiao Fangzheng, as members. The health, safety and environment committee’s major responsibilities include:

 

supervising the effective implementation of our Health, Safety and Environmental Protection Plan, or the HSE Plan;

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

 

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

Employees

As of December 31, 2015, 20162017, 2018 and 2017,2019, we had 521,566, 508,757494,297, 476,223 and 494,297460,724 employees (not including the temporary employees), respectively. During 2017,2019, we employed 319,407274,174 temporary employees on an average. As of December 31, 2017,2019, we had 318,561272,006 temporary employees. The table below sets forth the number of our employees by business segment as of December 31, 2017.2019.

 

  Employees   % of Total   Employees   % of Total 

Exploration and production

   277,553    56.15    260,220    56.48 

Refining and chemicals

   143,253    28.98    133,735    29.03 

Marketing

   51,863    10.49    45,984    9.98 

Natural gas and pipeline

   15,919    3.22    15,273    3.31 

Headquarters and others(1)

   5,709    1.16    5,512    1.20 
  

 

   

 

 

Total

   494,297    100.00    460,724    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 RMB16,357RMB16,054 million, RMB16,184RMB19,432 million and RMB16,010RMB20,196 million, respectively, for the years ended December 31, 2015, 20162017, 2018 and 2017,2019, respectively.

In 2017,2019, 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, 20172019 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, 2018,2020, CNPC beneficially owned 151,380,211,528147,173,857,136 shares, which include 291,518,000 H sharesShares indirectly held by CNPC through Fairy King Investments Limited, an overseas wholly owned subsidiary of CNPC, representing approximately 82.71%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 as of March 31, 2018:2020:

 

Name of Shareholders

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

CNPC

   A shares    151,088,693,528    93.31    82.55    A shares    146,882,339,136    90.71    80.25 

The following table sets forth the major shareholders of our H sharesShares as of March 31, 2018:2020:

 

Name of Shareholders

  

Number of Shares Held

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

Number of Shares Held

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

CNPC

  291,518,000 (Long Position )(1)   1.38    0.16   291,518,000 (long position )(1)   1.38    0.16 

BlackRock, Inc.(2)

  2,133,602,075 (Long Position)   10.11    1.17   1,667,364,950 (long position)   7.90    0.91 

45,656,400 (Short Position)

   0.22    0.02 

4,092,000 (short position)

   0.02    0.002 

JPMorgan Chase & Co.(3)

  1,166,628,093 (Long Position)   5.52    0.64 

157,271,150 (Short Position)

   0.74    0.09 

608,978,090 (Lending Pool)

   2.88    0.33 

Citigroup Inc.(4)

  1,106,487,132 (Long Position)   5.24    0.6 

37,885,954 (Short Position)

   0.17    0.02 

950,545,797 (Lending Pool)

   4.50    0.52 

Citigroup Inc.(3)

  1,157,880,903 (long position)   5.48    0.63 

99,469,917(short position)

   0.47    0.05 

1,016,840,761(lending pool)

   4.81    0.56 

JPMorgan Chase & Co.(4)

  1,125,790,043 (long position)   5.34    0.62 

256,618,527 (short position)

   1.22    0.14 

280,070,610 (lending pool)

   1.33    0.15 

 

(1)

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

(2)

Blackrock, Inc., through various subsidiaries, had an interest in the H sharesShares of the Company, of which 2,133,602,0751,667,364,950 H sharesShares (long position) and 45,656,4004,092,000 H sharesShares (short position) were held in its capacity as interest of corporation controlled by the substantial shareholder.

(3)JPMorgan Chase & Co., through various subsidiaries, had an interest in the H shares of the Company, of which 437,607,586 H shares (long position) and 157,271,150 H shares (short position) were held in its capacity as beneficial owner, 120,017,317 H shares (long position) were held in its capacity as investment manager, 25,100 H shares (long position) were held in its capacity as trustee, and 608,978,090 H shares (long position) were held in its capacity as approved lending agent. These 1,166,628,093 H shares (long position) included the interests held in its capacity as beneficial owner, investment manager, trustee and approved lending agent.
(4)

Citigroup Inc., through various subsidiaries, had an interest in the H sharesShares of the Company, of which 15,486,7763,448,800 H sharesShares (long position) were held in its capacity as holder of the guaranteed interest of shares, 140,454,559137,591,342 H sharesShares (long position) and 37,885,95499,469,917 H sharesShares (short position) were held in its capacity as interest of corporation controlled by the substantial shareholder, and 950,545,7971,016,840,761 H sharesShares (long position) were held in its capacity as approved lending agent. These 1,106,487,132

(4)

JPMorgan Chase & Co., through various subsidiaries, had an interest in the H sharesShares of the Company, of which 717,482,450 H Shares (long position) includedand 256,618,527 H Shares (short position) were held in its capacity as interest of corporation controlled by the interestssubstantial shareholder, 104,998,017 H Shares (long position) were held in its capacity as investment manager, 23,238,966 (long position) were held in its capacity as holder of the guaranteed interest of shares, corporation controlled by the substantial shareholder andshares,280,070,610 H Shares (long position) were held in its capacity as approved lending agent.

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, 2017.2019.

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 production sharing contracts, as amended.

1. Renewal of theThe comprehensive products and services agreement between CNPC and the Company

The comprehensive products and services agreement entered into between CNPC and us is updated every three years. Given that theThe current comprehensive products and services agreement, signed in August 2014 would expire on December 31, 2017, we and CNPC signedor the new agreement, was signed on August 24, 2017, which covers the period from January 1, 2018 to December 31, 2020. In the new agreement, we added certain categories of products and services provided by our company to CNPC, and partially amended the

pricing basis in accordance with relevant laws and regulations. Other terms and conditions of the agreement remain unchanged. The new agreement was approved at the extraordinary general meeting held on October 26, 2017.

The products and services provided by CNPC to us include (a) engineering and technical services, mainly to be provided before the commercial operation of projects, including but not limited to, exploration technological services, downhole operational services, oilfield construction services, refinery construction services and engineering design services; (b) production services, mainly for our daily operations after the projects commence operations, including but not limited to crude oil, natural gas, refined products, chemical products, supply of water, power and gas, and communication services; (c) materials supply services, which are mainly intermediary services for the procurement of materials provided before and after the official commissioning are granted, including but not limited to purchase of materials, quality inspections, storage and transport of materials; (d) social and life services, including but not limited to security, education, hospitals, property management, staff canteens, training centers and hotels; and (e) financial services, including loans and other financial assistance, deposit services, entrusted loans, settlement services, financial leasing services and others.

The products and services provided by our company to CNPC and the companies jointly-held by CNPC and us include: (a) general products and services, including refined oil products, chemical products, natural gas, crude oil, supply of water, power and gas and heating, metering, and commissioned operations, supply of materials, other products and services that CNPC may request us to provide from time to time for itself to consume, use or sell; and (b) financial services provided by the company to jointly held companies, including provision of entrusted loans, guarantees and other financial services .services.

The general principle of the comprehensive agreement is that the products and services provided are in accordance with the needs of the recipients, and the prices are fair and reasonable. The terms and conditions are not inferior to those of independent third party providers. The pricing of the general agreement follows government pricing, market price, cost price, and agreement price, depending on the circumstances. The comprehensive agreement is not exclusive, and the parties may provide and purchase products and services from other third parties, but all parties are obliged to provide the products and services set forth in the comprehensive agreement and the provisions of the annual plan.

2. Land Use Right Lease

We entered into a land 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 to our various operations and businesses, for a term of 50 years. We may adjust the land use right area and the rent every three years based on our production and operating requirement and the market prices. In 2014, we and CNPC confirmed that since January 1, 2015, the total area of land use right leased by us was adjusted to 1,777.21 million square meters and the rent was adjusted to no more than RMB 4,831.21 million. On August 24, 2017, the parties signed a new confirmation letter, pursuant to which, since January 1, 2018, the total area of land was adjusted to 1,772.65 million square meters and the annual rent was adjusted to no more than RMB5,783 million. Other terms of the lease remain unchanged. The independent valuer, Savills Valuation and Professional Consultancy Co., Ltd.

has, reviewed the confirmation letter and confirmed that the rent as adjusted is fair and reasonable, and such rent is not higher than the market level. The new confirmation letter of the land lease was approved at the extraordinary general meeting held on October 26, 2017.

3. Real Estate Lease

We entered into a real estate lease with CNPC in March 2000, which was amended in September 2002. Pursuant to the lease, CNPC leased 712,500 square meters of real estate across China to us for our business operations. Both parties agreed to adjust the number and rent of leased properties every three years based on the needs of production and operation or changes in the market price of real estate. According to the adjustment in

2014, starting from January 1, 2015, we agreed to lease from CNPC a total of approximately 1,179,585.57 square meters of real estate for a total rent of approximately RMB707.71 million per year. Other terms of the lease remain unchanged. On August 24, 2017, we and CNPC signed a new real estate lease, effective from January 1, 2018, for a term of 20 years. Pursuant to the new agreement, starting from January 1, 2018, the companyCompany agreed to lease a total gross floor area of 1,152,968 square meters from CNPC, and agreed to pay a total annual rent of RMB730 million. The area and rent are to be adjusted every three years and the rent should not be higher than the fair market price. The independent valuer Savills Valuation & Professional Consultants Limited has reviewed the new real estate lease and confirmed that the adjusted rent is fair and reasonable and not higher than the market level. The new real estate lease was approved at the extraordinary general meeting held on October 26, 2017.

Loan and guarantee

As of December 31, 2017,2019, we had unsecuredshort-term andlong-term loans from CNPC and its affiliates in an aggregate amount of RMB237,631 million and with an average annual interest rate of 4.07%. The proceeds from the loans were basically used for our working capital. As of December 31, 2019, the total outstanding amount of our debts secured by CNPC and its subsidiaries was RMB45,182RMB22,313 million.

DuringIn 2019, we did not provide any guarantee to or for the benefit of CNPC and its subsidiaries. As of December 31, 2019, the total outstanding guarantee we provided to or for the benefit of our subsidiaries, associates and affiliates other than CNPC and its subsidiaries was RMB196,661 million.

One-off Related Party Transactions

On June 13, 2019, our board of directors passed a resolution on increase in capital contribution to CNPC Finance Co., Ltd. (“CPF”) by CNPC, CNPC Capital Co., Ltd. (“CNPC Capital”) and us. 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 incremental capital of RMB14,000,000,000 in cash to be contributed by the shareholders proportionate to their existing shareholding ratios, which will include RMB3,604,726,900 to be recognized as registered capital and the rest to be recognized as capital reserves. After completion of the transaction, the shareholding ratios 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 the approval of the relevant governmental agency.

We expect that this transaction will improve the return over 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 carried outhad a number of other continuing related party transactions with certain companies includingsuch as CNPC Exploration and Development Company Limited. AFor a detailed discussion of our relationships and transactions with these parties, is set forthplease refer to Note 37 to our consolidated financial statements included in this annual report, “Item 7 — Major Shareholders and Related Party Transactions — Related Party Transactions” in our annual report on Form20-F filed with the SEC on May 27, 2008, and the6-K filed with the SEC on August 28, 2014, August 24, 2017 and September 8, 2017, respectively.

Loans from Related Parties

AsThe above-mentioned related-party transactions were within the upper limit of December 31, 2017, we had unsecuredshort-term andlong-term loans from CNPC and its affiliates in an aggregatethe amount of RMB216,721 million with an average annual interest rate of 4.02%.

One-off Related Party Transactions

On September 28, 2017, we entered into a share transfer agreement with PetroChina Kunlun Gas Co., Ltd. (“Kunlun Gas”), a wholly-owned subsidiary of Kunlun Energy Co., Ltd., which is controlled by us. Pursuant torelated party transactions as approved at the agreement, we agreed to sell and Kunlun Gas agreed to acquire a 51% stake in CNPC Jingtang LNG Co., Ltd. (“Jingtang”) held by us for a consideration of RMB1,547 million, which shall be adjusted based on the profit and loss during the transition period. The consideration was negotiated and determined by the two parties based on the independent appraiser’s appraisal of the net assets value of Jingtang, and considering the industry’s development prospects and business conditions. Jingtang was established on September 28, 2012 by our company and two third party shareholders. The registered capital of Jingtang before acquisition was RMB2.6 billion. Prior to the acquisition, we were the controlling shareholder of Jingtang in which we held 51% of the shares. Jingtang’s main business includes receipt, storage andre-evaporation of LNG. The transaction was completed by the end of 2017.shareholders’ general meeting.

Interests of Experts and Counsel

Not applicable.

Item 8— FINANCIAL INFORMATION

Financial Statements

See pages F-1 to F-62F-79 following Item 19.

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 our shares got listed on the stock exchanges, we have strictly complied with the Articles of Association and other relevant regulatory requirements, and adhered to the principle of bringing returns to shareholders, we have been distributing 45% of our net profit attributable to owners of the Company as dividends. Since 2016, considering the profit was negatively impacted by the low oil price, we have distributed special dividends in addition to the base dividends of 45% of the net profit attributable to owners of the Company.

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. Any final dividend for a financial year shall be subject to shareholders’ approval. The Bank of New York will convert the HK dollar dividend paymentsdividends 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.

The declaration of dividends is subject to the discretion of our board of directors. Our board of directorsWe will take into account factors including the following: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 our incomeprofit for the year attributable to our shareholdersowners of the company determined in accordance with PRC accounting rules. Under PRC law, our distributable earnings will be equal to our incomeprofit for the year attributable to our shareholdersowners 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.

In 2017,2019, a dividend of RMB0.06926RMB0.07765 per share (inclusive of applicable taxes) for the six months ended June 30, 20172019 was paid to our A shareholders and H shareholders.shareholders (including ADS holders). The board of directors recommended that a final dividend of RMB0.02489RMB0.04243 per share (which is 45% of the net profit attributable to owners of the Company for the second half of 2017)2019) and an additional special final dividend of RMB0.03585RMB0.02358 per share, totaling RMB0.06074RMB0.06601 (inclusive of applicable taxes) should be paid.. The final dividend for the year ended December 31, 20172019 is subject to the approval by the annual general meeting to be held on June 5, 2018,11, 2020, and shall be paid to our shareholders listed on our shareholder register as of the close of business on June 20, 2018.29, 2020. The register of members of H Shares will be closed from June 24, 2020 to June 29, 2020 (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 2019 will be paid on or about June 30, 2020 and July 31, 2020, respectively.

Significant Changes

None.

Item 9— THE OFFER AND LISTING

Nature of the Trading Market and Market Price 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, 2000.2000 under the symbol “857”. In September 2005, our company issued an additional 3,196,801,818 H Shares. CNPC also sold 319,680,182state-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, 2007.2007 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, 2017,2019, there were 21,098,900,000 H Shares and 161,922,077,818 A Shares issued and outstanding. As of December 31, 2017,2019, there were 188156 registered holders of American depositary receipts evidencing 38,586 ADSs and the total ADSs outstanding was 7,893,556.7,099,291 ADSs. The depositary of the ADSs is the Bank of New York.

The high and low closing sale prices of our A Shares on the Shanghai Stock Exchange, of H Shares on the Hong Kong Stock Exchange and of the ADSs on the New York Stock Exchange for each year from 2013 through 2017, for each quarter from 2016 to 2018 (up to the end of the first quarter of 2018), and for each month from October 2017 to April 2018 (through April 23, 2018) are set forth below.

   Price Per H Share   Price Per ADS   Price Per A Share 
   HK$   US$   RMB 
       High           Low           High           Low           High           Low     

Annual Data

            

2013

   11.30    7.86    145.80    101.47    9.40    7.31 

2014

   11.62    7.33    149.48    94.75    10.81    7.47 

2015

   10.64    5.02    136.37    63.90    14.65    8.23 

2016

   6.02    4.18    76.15    54.05    8.35    8.23 

2017

   6.23    4.73    81.36    60.94    8.70    7.39 

Quarterly Data

            

2016

            

First quarter

   5.42    4.18    71.84    54.05    8.35    7.08 

Second quarter

   5.92    4.85    75.86    61.95    7.79    7.12 

Third quarter

   5.50    4.96    70.65    63.87    7.54    7.19 

Fourth quarter

   6.02    5.09    76.15    65.67    8.16    7.22 

2017

            

First quarter

   6.32    5.66    81.36    72.34    8.76    7.85 

Second quarter

   5.70    4.74    73.90    61.28    8.04    7.39 

Third quarter

   5.03    4.73    65.30    60.94    8.19    7.70 

Fourth quarter

   5.58    4.93    71.79    63.33    8.59    7.87 

2018

            

First quarter

   6.48    5.24    82.14    67.10    9.35    7.60 

Monthly Data

            

2017

            

October

   5.09    4.93    65.60    63.33    8.30    7.97 

November

   5.58    5.11    71.79    65.97    8.59    8.08 

December

   5.52    5.13    70.91    65.91    8.22    7.87 

2018

            

January

   6.48    5.50    82.14    71.67    9.33    8.25 

February

   6.33    5.29    78.58    67.94    9.35    7.95 

March

   5.53    5.24    71.25    67.10    8.11    7.60 

April(through April 23 2017)

   5.94    5.31    75.17    67.28    7.75    7.46 

The closing prices per A Share, per H Share and per ADS on April 23, 2018 were RMB7.58, HK$5.82 and US$74.95, respectively.Mellon.

Item 10— ADDITIONAL INFORMATION

Memorandum and Articles of Association

Our Articles of Association Currently in Effect

On October 26, 2017, the company approved the amendment to the Articles of Association of the Company was approved at thean extraordinary general meeting. The amendment took effect as of the same day. The amendment includes, among

others, (i) according to the PRC Company Law and the Constitution of the Communist Party of China, the company shall set up the Party’sCPC organizations and working bodies with adequate staff and funds; the PartyCPC organizations shall play the role of the core of leadership and political center of the company. The board of

directors of the company shall take the PartyCPC 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 PartyCPC organizations shall consider and provide their comments and suggestions on the candidates nominated by the board of directors or the president, or the PartyCPC organizations may recommend candidates to the board of directors and the president; (ii) a cumulative voting system of the companyCompany is implemented for election of directors and supervisors at general meeting; and (iii) the tenure ofre-elected independent directors cannot exceed six years.

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 October 26, 2017.

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 provide the society with competitive products, and to use its best endeavors to maximize its profits. Article 11 of our articles of association provides that our scope of businesses includes, among other things, exploration and production of oil and natural gas; storage and sale of crude oil and refined oil; production, sale and storage of refined oil, petrochemical and chemical products; import and export; construction and operation of oil and natural gas pipelines; technical development, consultation and service for oil exploration and production, petrochemistry and related engineering; sale of materials, equipment and machines necessary for production and construction of oil and gas, petrochemicals and pipelines construction; the sale and warehousing of lubricating oil, fuel oil, bitumen, chemical fertilizers, auto parts, commodities and agricultural materials, etc.

Directors

Our directors shall be elected at our shareholders’ general meeting. Our directors shall be elected for a term of three years and may serve consecutive terms uponre-election, except that independent directors may only serve a maximum of two terms. Our directors are not required to hold any shares in us, and there is no age limit requirement for the retirement ornon-retirement of our directors.

Where a director is in any way, directly or indirectly, materially interested in a proposal, arrangement or contract (other than his contract of service with the Company), he shall declare the nature and extent of his interests to the board of directors at the earliest opportunity, whether or not the proposal, arrangement or contract therefor is subject to the approval of the board of directors. Unless the interested director discloses his interests to the board of directors and the proposal, arrangement or contract is approved by the board of directors at a meeting in which the interested director, is not counted as part of the quorum and abstain from voting, the proposal, arrangement or contract in which that director is materially interested is voidable at the discretion of the Company except as against a bona fide party thereto who does not have knowledge of the breach of duty by the interested director. For this purposes, a director is deemed to be interested a proposal, arrangement or contract in which his associate is interested. Where a director gives to the board of directors a notice in writing stating that, by reason of the facts specified in the notice, he is interested in a proposal, arrangement or contract which may subsequently be entered into by the Company, that notice shall be deemed to be a sufficient declaration of his interests so far as the content stated in such notice is concerned, provided that such notice shall have been given before the date on which the entering into the relevant contract or arrangement is first taken into consideration by the Company.

Matters relating to the remuneration of our directors shall be determined by the shareholders’ general meeting.

We shall not directly or indirectly make a loan to or provide any security for a director, unless the provision by the Company of a loan or a security or any other funds to a director to meet expenditure incurred or to be incurred by him for the sake of the Company or for the purpose of enabling him to perform his duties properly, in accordance with the terms of a service contract approved by the shareholders in a general meeting. If the ordinary business scope of the Company includes the provision of loans and security, the Company may make a loan to or provide a security to a director on normal commercial terms.

Dividends

Dividend shall be paid twice a year. The final dividends of the Company shall be decided by the shareholders by way of an ordinary resolution. The shareholders may by way of an ordinary resolution authorize the board of directors to decide on the interim dividends. The Company may pay any dividends in cash, shares or otherwise in such other way as permitted by laws and regulations. The Company will tend to pay any such dividends in cash over other methods of payment. The Company shall pay cash dividends for the year in which both the net profit attributable to the parent company and the cumulative undistributed profit are positive and so long as the cash flows of the Company may support its normal course of operation and sustainable development. Any such cash dividends shall not be less than 30% of the net profit attributable to the parent company for that year. If the shareholders’ general meeting passes motions in connection with the distribution of cash dividend, allotment of bonus shares, or conversion of capital common reserve fund into share capital, the Company shall implement detailed plans thereof within two months after the conclusion of such shareholders’ general meeting. If a shareholder has not claimed his dividends six years after such dividends has been declared in accordance with the Articles of Association, such shareholder is deemed to forfeit his right to claim such dividends.

When the Company distributes itsafter-tax profits for a given year, it shall allocate 10% of profits to its statutory common reserve fund. The Company shall no longer be required to make allocations to its statutory common reserve fund once the aggregate amount of such reserve reaches 50% or more of its registered capital. If the Company’s statutory common reserve fund is insufficient to make up its losses of the previous years, such losses shall be made up from the profit for the current year before the Company makes allocations to the statutory common reserve fund. The Company may, if so resolved by the shareholders’ meeting, make allocations to the discretionary common reserve fund fromafter-tax profits after making allocations to the statutory common reserve fund from theafter-tax profits. The Company’safter-tax profits remaining after it has made up its losses and made allocations to its common reserve fund shall be distributed in proportion to the shareholdings of its shareholders. If the shareholders’ meeting distributes profits before the Company has made up its losses and made allocations to the statutory common reserve fund, the profits distributed must be returned to the Company.

Shareholders’ Rights

A shareholder of the Company is a person who lawfully holds shares of the Company and whose name (title) is entered in the register of shareholders. Shareholders who hold shares of the same class shall enjoy the same rights. Article 49 set forth the rights of shareholders of ordinary shares such as the right to (i) receive dividends and other distributions in proportion to the number of shares held; (ii) propose, convene, preside over, attend or appoint a proxy to attend shareholders’ general meetings and to vote thereat in accordance with laws; (iii) supervise management over business operations and present proposals or to raise queries; (iv) transfer, donate or pledge shares; (v) obtain financial information and other company information; (vi) participate in the distribution of residual assets of the Company in proportion to the number of shares held, in the event of the termination or liquidation of the Company, etc.

If the content of a resolution of a shareholders’ general meeting or the board of directors violates any laws or administrative regulations, a shareholder has the right to file a petition with the court to invalidate the

resolution. If the procedure for convening or the method of voting at a shareholders’ general meeting or a meeting of the board of directors violates any laws, administrative regulations or the Company’s Articles of Association, or if the contents of a resolution breaches the Company’s Articles of Association, a shareholder may file a petition with the court to revoke the resolution within 60 days from the date on which the resolution was passed. If a director or any other senior officers violated any laws, administrative regulations or the Company’s Articles of Association in the course of performing his or her duties to the Company, and thereby caused the Company to incur a loss, a shareholder or shareholders who individually or jointly hold one per cent (1%) or more of the Company’s shares for more than one hundred and eighty (180) consecutive days may request in writing the supervisory committee to initiate proceedings in the court. If the supervisory committee has violated the laws, administrative regulations or the Articles of Association in the course of performing its duties to the Company, and thereby caused the Company to incur a loss, shareholder(s) may request in writing the board of directors to initiate proceedings in the court in respect thereof. If the supervisory committee or the board of directors refuses to initiate proceedings after receipt of a written request from the shareholder(s) as mentioned in the preceding paragraph, or fails to initiate proceedings within 30 days of the date of receipt of the request, or under urgent circumstances where failure to promptly initiate proceedings would cause irreparable harm to the Company’s interests, the shareholders mentioned in the preceding paragraph are entitled to directly initiate proceedings in the court in their own name in the interests of the Company.

Shareholders’ General Meetings

Shareholders’ general meetings shall be convened by the board of directors. Annual general meetings are held once every year and within 6 months from the end of the preceding financial year. The board of directors shall convene an extraordinary general meeting within 2 months of the occurrence of any one of the events set forth in Article 63.

A45-days prior written notice should be given to all of the shareholders whose names appear in the share register. A shareholder who intends to attend the meeting shall deliver to the Company his written reply concerning his attendance at such meeting 20 days before the date of the meeting. Shareholder(s) holding 3% or more of the total voting shares of the Company shall have the right to propose motions in writing to the convener 10 days prior to the date of such meeting. Any shareholder who is entitled to attend and vote at a general meeting shall be entitled to appoint one or more persons as his proxies to attend and vote on his behalf.

A shareholder (including a proxy), when voting at a general meeting, may exercise such voting rights as are attached to the voting shares which he represents, except where the cumulative voting system is adopted for voting on the election of directors and supervisors, each share shall have one vote. The voting on the election of directors and supervisors at the general meeting shall apply the cumulative voting system, which means that each share held by a shareholder shall have the same number of voting rights as the number of directors and supervisors to be elected and the voting rights held by a shareholder can be collectively exercised. At any shareholders’ general meeting, a resolution shall be decided on a show of hands unless voting by way of a poll is required under the listing rules or demanded by the following persons before or after any vote by a show of hands: (i) the chairman of the meeting; (ii) at least two shareholders present in person or by proxy entitled to vote thereat; (iii) one or more shareholders present in person or by proxy who represent(s), individually or in aggregate, 10% or more of all shares carrying the right to vote at the meeting.

An ordinary resolution must be passed by votesrepresenting one-half or more of the voting rights represented by the shareholders (including proxies) present at the general meeting. The following matters shall be resolved by an ordinary resolution: (i) work reports of the board of directors and the supervisory committee; (ii) annual profit distribution plans and loss recovery plans formulated by the board of directors; (iii) appointment or removal of members of the board of directors and members of the supervisory committee, their remuneration and manner of payment; (iv) annual budgets and final accounts, balance sheets and profit and loss accounts and other financial statements of the Company; (v) matters other than those which are required by the laws, administrative regulations or the Company’s Articles of Association to be adopted by a special resolution.

A special resolution must be passed by votes representingtwo-thirds or more of the voting rights represented by the shareholders (including proxies) present at the general meeting. The following matters shall be resolved by a special resolution: (i) increase or reduction in the share capital of the Company and the issue of shares of any class, warrants and other similar securities by the Company; (ii) issue of debentures of the Company; (iii) division, merger, dissolution and liquidation of the Company; (iv) amendment of the Company’s Articles of Association; (v) acquisition or disposal of major assets in one year or provision of securities for third parties which exceeds 30% of the latest audited total assets of the Company; (vi) stock incentive plans; (vii) any other matters considered by the shareholders at general meeting, and resolved by way of an ordinary resolution, to be of a nature which may have a material impact on the Company and should be adopted by a special resolution in accordance with the laws, administrative regulations and the Company’s Articles of Association.

Where any shareholders request for the convention of an extraordinary general meeting or a class meeting the following procedures shall be followed: (i) shareholders who individually or in aggregate hold not less than 10% of the Company’s shares with voting right shall have the right to request in writing the board of directors to convene an extraordinary general meeting or a class meeting. The board of directors shall, according to the laws, administrative regulations and the Company’s Articles of Association, give written feedback of consenting to or refusing the convening of such extraordinary shareholders’ general meeting within 10 days after it has received the request. If the board of directors consents to convene an extraordinary general meeting or a class meeting, it shall give notice for such shareholders’ general meeting within five days after it has so resolved. The consent of the concerned shareholders shall be obtained if any change is to be made to the request in the notice. If the board of directors refuses to convene an extraordinary general meeting or a class meeting, or it fails to give any feedback within 10 days after it has received the request, the shareholders who individually or in aggregate hold not less 10% of the Company’s shares shall have the right to request in writing the supervisory committee to convene the extraordinary general meeting or class meeting; and (ii) If the supervisory committee consents to convene the extraordinary general meeting or the class meeting, it shall give the notice for such shareholders’ general meeting within five days after it has received the request. The consent of the concerned shareholders shall be obtained if any change is to be made to the request in the notice. If the supervisory committee fails to give notice of convening the shareholders’ general meeting within the provided time limit, the supervisory committee shall be deemed to have failed to convene and preside the shareholders’ general meeting, and the shareholders who individually or in aggregate hold not less than 10% of the Company’s shares for more than 90 consecutive days may at their own discretion convene and preside such a meeting.

The general meeting may authorize the board of directors to carry out matters on their behalf, with clear and specific authorization. For authorization of a matter that requiring an ordinary resolution, an ordinary resolution of the shareholders’ general meeting shall be passed by affirmative votes representing at least 50% of the voting rights represented by the shareholders (including shareholders’ proxies) present at the meeting. For authorization of a matter that requiring a special resolution, a special resolution of the shareholders’ general meeting shall be passed by affirmative votes representing at leasttwo-thirds of the voting rights represented by the shareholders (including shareholders’ proxies) present at the meeting.

Special Procedures for Voting by a Class of Shareholders and Modification of Rights

In addition to holders of other classes of shares, the holders of the domestic-invested shares and holders of overseas-listed foreign-invested shares shall be deemed to be holders of different classes of shares. Rights conferred on any class of shareholders (“class rights”) may not be varied or abrogated save with the approval of a special resolution of shareholders at a general meeting and by the class shareholders affected at a separate meeting. Article 96 set forth the circumstances which shall be deemed to be variation or abrogation of the rights attaching to a particular class of shares, including but not limited to increasing or decreasing the number of shares of that class, reducing or removing preferential rights attached to shares of that class to receive dividends or the distribution of assets in the event that the Company is liquidated, etc. Shareholders of the affected class, whether or not otherwise having the right to vote at shareholders’ general meetings, have the right to vote at class meetings in respect of certain matters listed in Article 96, but interested shareholder(s) shall not be entitled to

vote at such class meetings. Resolutions of a class meeting shall be passed by votesrepresenting two-thirds or more of the voting rights of shareholders of that class present at the relevant meeting who are entitled to vote. Written notice of a class meeting shall be given to all shareholders who are registered as holders of that class in the register of shareholders 45 days before the date of the class meeting. A shareholder who intends to attend the class meeting shall deliver his written reply in respect thereof to the Company 20 days before the date of the class meeting. The special procedures for approval by separate class shareholders shall not apply to the circumstances where the Company issues, upon the approval by a special resolution of its shareholders at a general meeting, either separately or concurrently once every 12 months, not more than 20% of each of its existing issued Domestic-Invested Shares and Overseas-Listed Foreign-Invested Shares.

Share Capital

The Company must have ordinary shares at all times. Subject to the applicable government approvals, the Company may create different classes of shares. Each share of the same class shall carry the same rights and the same benefits. The Company may, based on its operating and development needs, authorize the increase of its capital pursuant to the Articles of Association. The Company may increase its capital by public ornon-public offering of shares; by allotting bonus shares to its existing shareholders; by converting common reserve fund into share capital; by any other means which is stipulated by law and administrative regulation and approved the relevant government authorities. Unless otherwise stipulated in the relevant laws or administrative regulations, shares of the Company shall be freely transferable and are not subject to any lien. Domestic-invested shares and overseas-listed foreign-invested shares shall be purchased, sold, donated, inherited and charged on in accordance with the PRC laws and the Company’s Articles of Association. The Company may not accept its own shares as the subject matter of a pledge. Subject to certain conditions, the Company has the power to sell the shares of a shareholder who is untraceable and retain the payment. According to the procedures provided in the Company’s Articles of Association, the Company may reduce its registered capital. The Company may, in accordance with the procedures set out in the Company’s Articles of Association and with the approval of the relevant governing authorities, repurchase its issued shares under certain circumstances. The repurchase may be made by a general offer, stock exchange,off-market agreement, etc. The Company must obtain prior approval of the shareholders in a general meeting (in the manner stipulated in the Company’s Articles of Association) before it can repurchase shares outside of the stock exchange by means ofan off-market agreement.

Material Contracts

WeIn the two years proceeding the date of this report, we have not entered into any material contracts other than in the ordinary course of business and other than those described under Item“Item 4 — Information on the Company, ItemCompany”, “Item 7 — Major Shareholders and Related Party TransactionsTransactions” or elsewhere in this Form annual report.

Foreign Exchange Controls

The Renminbi currently is not a freely convertible currency. We receive most of our revenues in Renminbi. A portion of our Renminbi revenues must be converted into other currencies to meet our foreign currency obligations, including:

 

debt service on foreigncurrency-denominated debt;

 

external capital expenditures and equity investment;

 

purchases of imported equipment and materials; and

 

payment of any dividends declared with respect to the H Shares.

Under the existing foreign exchange regulations in China, we may undertake current account foreign exchange transactions, including the payment of dividends, without prior approval from the State Administration

of Foreign Exchange by producing commercial documents evidencing such transactions, provided that they are processed through Chinese banks licensed to engage in foreign exchange transactions.

Foreign exchange transactions under the capital account, including principal payments with respect to foreigncurrency-denominated obligations, continue to be subject to limitations and require the prior approval of the State Administration of Foreign Exchange. These limitations could affect our ability to obtain foreign exchange through debt financing, or to obtain foreign exchange for capital expenditures.

We have been, and will continue to be, affected by changes in exchange rates in connection with our ability to meet our foreign currency obligations and will be affected by such changes in connection with our ability to pay dividends on the H Shares in Hong Kong dollars and on ADSs in U.S. dollars. We believe that we have or will be able to obtain sufficient foreign exchange to continue to satisfy these obligations. We do not engage in any financial contract or other arrangement to hedge our currency exposure.

We are not aware of any other PRC laws, decrees or regulations that restrict the export or import of capital or that affect the remittance of dividends, interest or other payments tonon-resident holders.

Taxation

The following discussion addresses the main PRC and United States federal income tax consequences of the ownership of H Shares or ADSs purchased held by the investor as capital assets.

PRC Taxation

Dividends and Individual Investors

Pursuant to the Individual Income Tax Law of the PRC, all foreign individuals are subject to a 20% withholding tax on dividends paid by a PRC company on its shares listed overseas, or Overseas Shares, unless specifically exempt by the financial authority of the State Council of the PRC. However, pursuant to theNotice on the Collection of Individual Income Tax after the Abolishment of Guoshuifa [1993] No. 045, or Circular 348, issued by the State General Administration of Taxation of the PRC on June 28, 2011, foreign individual shareholders holding H shares,Shares, or Individualindividual H Shareholders,shareholders, in a PRC company listed in Hong Kong may be subject to different levels of withholding taxes on dividends based on the tax treaties of their home countries with China. Individual H Shareholders,shareholders, who are residents of Hong Kong or Macau or who enjoy a 10% tax rate on dividends based on the tax treaties of their home countries with China, are subject to a withholding tax rate of 10% with respect to theH-share dividends they receive. For those Individualindividual H Shareholdersshareholders whose home countries have tax treaties with China prescribing a tax rate on dividends lower than 10%, the PRC company, whose shares are held by such Individualindividual H Shareholders, needshareholders, needs to make tax filings on behalf of the Individualindividual H Shareholdersshareholders in order for them to enjoy such tax treatment. For Individualindividual H Shareholdersshareholders whose home countries have tax treaties with China prescribing a tax rate on dividends between 10% and 20%, the PRC company, whose shares are held by such Individualindividual H Shareholders,shareholders, shall withhold the individual income tax at theagreed-upon tax rate. For Individualindividual H Shareholdersshareholders whose home countries have no tax treaties with China or whose home countries have tax treaties with China prescribing a tax rate on dividends higher than 20%, the PRC company shall withhold the tax at a rate of 20%.

Dividends and Foreign Enterprises

Pursuant to theEnterprise Income Tax Law of the PRC and the implementing rules thereunder, theCircular on Issues Concerning the Withholding of Corporate Income Tax by PRC Resident Enterprises from Dividends Payable to H ShareNon-resident Corporate Shareholders, and theMeasures for the Administration of the Enjoyment byNon-residents of the Treatments under the Tax Treaties, when paying any of its H sharenon-resident corporate shareholders any dividends, we withhold the corporate income tax from such dividends at

a rate of 10%. For an H share non-resident corporate shareholder whose home country has a tax treaty with China prescribing a tax rate on dividends lower than 10%, such H sharenon-resident corporate shareholder may, by itself or through an agent or us, make filings with the competent taxation authority for the treatment under the applicable tax treaty and present the documents evidencing that such shareholder is qualified to be a beneficial owner as defined under the applicable tax treaty.

Tax Treaties

If you are a tax resident or citizen of a country that has entered into adouble-taxation treaty with the PRC, you may be entitled to a reduction in the amount of tax withheld, if any, imposed on the payment of dividends. The PRC currently has such treaties with a number of countries, including but not limited to:

 

the United States;

��Australia;

Canada;

 

France;

Australia;

 

Germany;

Canada;

 

Japan;

France;

 

Malaysia;

Germany;

 

Japan;

Malaysia;

Singapore;

the United Kingdom; and

 

the Netherlands.

Under certain treaties, the rate of withholding tax imposed by China’s taxation authorities may be reduced. Pursuant to theMeasures for the Administration of the Enjoyment by Non-residents of the Treatments under theTax Treaties promulgated by the State Administration of Taxation on August 27, 2015,non-PRC residents are entitled to the applicable benefit under tax treaties when they make tax filings or upon withholding by third parties and no prior approvals of the taxation authorities are required.

Capital Gains

TheIndividual Income Tax Law of the PRC, provides for a capital gaingains tax of 20% on individuals. TheProvisions for Implementing the Individual Income Tax Law of the PRC, provides that the measures to levy individual income tax on the gains realized on the sale of shares will be made in the future by the Ministry of Finance and subject to the approval of the State Council. However, the Ministry of Finance has not so far promulgated a specific taxation method to levy tax on the capital gains realized by individual holders of H Shares or ADSs from sale of shares. If in the future such specific taxation method is promulgated, an individual holder of H Shares or ADSs may be subject to a 20% tax on capital gains under theIndividual Income Tax Law of the PRC as amended from time to time, unless exempted or reduced by an applicable double taxation treaty or relevant PRC law or regulation.

Under theEnterprise Income Tax Law of the PRC, capital gains realized by foreign enterprises which arenon-resident enterprises in the PRC upon the sale of Overseas Shares by PRC companies are generally subject to a PRC withholding tax levied at a rate of 10%, unless exempted or reduced pursuant to an applicabledouble-taxation treaty or other exemptions.

Shanghai-Hong Kong Stock Connect

In April 2014, China launched the Shanghai-Hong Kong Stock Connect Program, which is a cross-boundary investment channel that connects the Shanghai Stock Exchange and the Hong Kong Stock Exchange. Under the

program, investors in each market are able to trade shares on the other market using their local brokers and clearing agencies. In accordance with the current PRC tax policies, foreign investors are temporarily exempt from income tax on capital gains derived from the trading ofA-shares A Shares under the program and will be subject to a 10% withholding tax on the dividends received under the program. For a shareholder whose home country has tax treaty with China prescribing a tax rate on dividends lower than 10%, such shareholder may by itself or through an agent or the withholding agent, apply to the competent taxation authority for the treatment under the applicable tax treaty and present the documents evidencing that such shareholder is qualified to be a beneficial owner as defined under the applicable tax treaty.

Additional PRC Tax Considerations

Under the Provisional Regulations of the People’s Republic of China Concerning the Stamp Duty, a stamp duty is not imposed by the PRC on the transfer of shares, such as the H Shares or ADSs, of PRC publicly traded companies that take place outside of China.

United States Federal Income Taxation

The following is a general discussion of the material United States federal income tax consequences of purchasing, owning and disposing of the H Shares or ADSs if you are a U.S. holder, as defined below, and hold the H Shares or ADSs as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended, or the Code. This discussion does not address all of the tax consequences relating to the

purchase, ownership and disposition of the H Shares or ADSs, and does not take into account U.S. holders who may be subject to special rules including:

 

tax-exempt entities;

 

certain insurance companies;

 

broker-dealers;

 

traders in securities that elect to mark to market;

 

U.S. expatriates;

U.S. holders liable for alternative minimum tax;

 

U.S. holders that own (directly, indirectly, or constructively) 10% or more of the voting power or value of our voting stock;equity;

 

U.S. holders that hold the H Shares or ADSs as part of a straddle or a hedging or conversion transaction; or

 

U.S. holders whose functional currency is not the U.S. dollar.

This discussion is based on the Code, its legislative history, final, temporary and proposed United States Treasury regulations promulgated thereunder, published rulings and court decisions as in effect on the date hereof, all of which are subject to change, or changes in interpretation, possibly with retroactive effect. In addition, this discussion is based in part upon representations of the depositary and the assumption that each obligation in the deposit agreement and any related agreements will be performed according to its terms.

You are a “U.S. holder” if you are:

 

a citizen or resident of the United States for United States federal income tax purposes;

 

a corporation, or other entity treated as a corporation for United States federal income tax purposes, created or organized under the laws of the United States, or any state thereof or the District of Columbia;

 

an estate the income of which is subject to United States federal income tax without regard to its source; or

a trust:

 

a trust:

subject to the primary supervision of a United States court and the control of one or more United States persons; or

 

that has elected to be treated as a United States person under applicable United States Treasury regulations.

If a partnership (or other entity treated as a partnership for United States federal income tax purposes) holds the H Shares or ADSs, the tax treatment of a partner generally will depend on the status of the partner and the activities of the partnership. If you are a partner of a partnership that holds the H Shares or ADSs, we urge you to consult your tax advisors regarding the consequences of the purchase, ownership and disposition of the H Shares or ADSs.

This discussion does not address any aspects of United States taxation other than federal income taxation.

We urge you to consult your tax advisors regarding the United States federal, state, local andnon-United States tax consequences of the purchase, ownership and disposition of the H Shares or ADSs.

In general, if you hold American depositary receipts evidencing ADSs, you will be treated as owner of the H Shares represented by the ADSs. The following discussion assumes that we are not a passive foreign investment company, or PFIC, as discussed under “PFIC Rules” below.

Distributions on the H Shares or ADSs

The gross amount of any distribution (without reduction for any PRC tax withheld) we make on the H Shares or ADSs out of our current or accumulated earnings and profits (as determined for United States federal income tax purposes) will be includible in your gross income as dividend income when the distribution is actually or constructively received by you, in the case of the H Shares, or by the depositary in the case of ADSs. Because we do not intend to determine our earnings and profits on the basis of United States federal income tax principles, any distribution paid will generally be treated as a “dividend” for United States federal income tax purposes. Subject to certain limitations, dividends paid tonon-corporate U.S. holders, including individuals, currently are eligible for a reduced rate of taxation if we are deemed to be a “qualified foreign corporation” for United States federal income tax purposes. A qualified foreign corporation includes:

 

a foreign corporation that is eligible for the benefits of a comprehensive income tax treaty with the United States that includes an exchange of information program; or

 

a foreign corporation if its stock with respect to which a dividend is paid (or ADSs backed by such stock) is readily tradable on an established securities market within the United States (as determined for United States federal income tax purposes),

but does not include an otherwise qualified foreign corporation that is a PFIC in the taxable year that the dividend is paid or in the prior taxable year. We believe that we will be a qualified foreign corporation so long as we are not a PFIC and we are considered eligible for the benefits of the Agreement between the Government of the United States of America and the Government of the People’s Republic of China for the Avoidance of Double Taxation and the Prevention of Tax Evasion with Respect to Taxes on Income, or the Treaty. Our status as a qualified foreign corporation, however, may change.

Distributions that exceed our current and accumulated earnings and profits will be treated as a return of capital to you to the extent of your tax basis in the H Shares or ADSs and thereafter as capital gain.gains. Any dividend will not be eligible for thedividends-received deduction generally allowed to United States corporations with respect to dividends received from United States corporations. The amount of any distribution of property other than cash will be the fair market value of such property on the date of such distribution.

If we make a distribution paid in HK dollars, you will be considered to receive the U.S. dollar value of the distribution determined at the spot HK dollar/ U.S. dollar rate on the date such distribution is received by you or by the depositary, regardless of whether you or the depositary convert the distribution into U.S. dollars. Any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend payment is includible in your income to the date you or the depositary convert the distribution into U.S. dollars will be treated as United States source ordinary income or loss for foreign tax credit limitation purposes.

Subject to various limitations, any PRC tax withheld from distributions in accordance with PRC law, as limited by the Treaty, as discussed under “— PRC Taxation,” will be deductible or creditable against your United States federal income tax liability. For foreign tax credit limitation purposes, dividends paid on the H Shares or ADSs will be foreign source income, and will be treated as “passive category income” or, in the case of some U.S. holders, “general category income.” You may not be able to claim a foreign tax credit (and instead may claim a deduction) fornon-United States taxes imposed on dividends paid on the H Shares or ADSs if you (i) have held the H Shares or ADSs for less than a specified minimum period during which you are not protected from risk of loss with respect to such Shares, or (ii) are obligated to make payments related to the dividends (for example, pursuant to a short sale).

Sale, Exchange or Other Disposition

Upon a sale, exchange or other disposition of the H Shares or ADSs, you will recognize a capital gain or loss for United States federal income tax purposes in an amount equal to the difference between the U.S. dollar value of the amount realized and your tax basis, determined in U.S. dollars, in such H Shares or ADSs. Any gain or loss will generally be United States source gain or loss for foreign tax credit limitation purposes. Capital gain of certainnon-corporate U.S. holders, including individuals, is generally taxed at a reduced rate where the

property has been held more than one year. Your ability to deduct capital losses is subject to limitations. If any PRC tax is withheld from your gain on a sale, exchange or other disposition of H Shares or ADSs, as discussed under “— PRC Taxation,” such tax would only be creditable against your United States federal income tax liability to the extent that you have foreign source income. However, in the event that such PRC tax is withheld, a U.S. holder that is eligible for the benefits of the Treaty may be able to treat the gain as foreign source income for foreign tax credit satisfaction purposes. You are urged to consult your tax advisors regarding the United States federal income tax consequences if PRC tax is withheld from your gain on the sale, exchange or other disposition of H Shares or ADSs, including the availability of a foreign tax credit under your particular circumstances.

If you are paid in a currency other than U.S. dollars, any gain or loss resulting from currency exchange fluctuations during the period from the date of the payment resulting from the sale, exchange or other disposition to the date you convert the payment into U.S. dollars will be treated as United States source ordinary income or loss for foreign tax credit limitation purposes.

PFIC Rules

In general, a foreign corporation is a PFIC for United States federal income tax purposes for any taxable year in which, after applying relevantlook-through rules with respect to the income and assets of subsidiaries:

 

75% or more of its gross income consists of passive income, such as dividends, interest, rents and royalties; or

 

50% or more of the average quarterly value of its assets consists of assets that produce, or are held for the production of, passive income.

For this purpose, passive income generally includes dividends, interest, certain types of rents and royalties, annuities, net gains from the sale or exchange of property producing such income, net gains from commodity transactions, net foreign currency gains and net income from notional principal contracts. In addition, cash, cash equivalents, securities held for investment purposes, and certain other similar assets are generally categorized as passive assets.

We believe that we did not meet either of the PFIC tests in the taxable year that ended December 31, 20172019 and believe that we will not meet either of the PFIC tests in the current or subsequent taxable years and therefore will not be treated as a PFIC for such periods. However,We must make a separate determination after the close of each taxable year as to whether we were a PFIC for that year. Accordingly, there can be no assurance that we will not be a PFIC in the current or subsequent taxable years.

If we were a PFIC in any taxable year that you held the H Shares or ADSs, you generally would be subject to special rules with respect to “excess distributions” made by us on the H Shares or ADSs and with respect to gain from your disposition of the H Shares or ADSs. An “excess distribution” generally is defined as the excess of the distributions you receive with respect to the H Shares or ADSs in any taxable year over 125% of the average annual distributions you have received from us during the shorter of the three preceding years or your holding period for the H Shares or ADSs. Generally, you would be required to allocate any excess distribution or gain from the disposition of the H Shares or ADSs ratably over your holding period for the H Shares or ADSs. The portion of the excess distribution or gain allocated to a prior taxable year, other than a year prior to the first year in which we became a PFIC, would be taxed at the highest United States federal income tax rate on ordinary income in effect for such taxable year, and you would be subject to an interest charge on the resulting tax liability, determined as if the tax liability had been due with respect to such particular taxable years. The portion of the excess distribution or gain that is not allocated to prior taxable years, together with the portion allocated to the years prior to the first year in which we became a PFIC, would be included in your gross income for the taxable year of the excess distribution or disposition and taxed as ordinary income.

The foregoing rules with respect to excess distributions and dispositions may be avoided or reduced if you are eligible for and timely make a valid“mark-to-market” election. If your H Shares or ADSs were treated as shares regularly traded on a “qualified exchange” for United States federal income tax purposes and a valid and timelymark-to-market election was made, in calculating your taxable income for each taxable year, you generally would be required to take into account as ordinary income or loss the difference, if any, between the fair market value and the adjusted tax basis of your H Shares or ADSs at the end of your taxable year. However, the amount of loss you would be allowed is limited to the extent of the net amount of previously included income as a result of themark-to-marketmark-to–market election. The New York Stock Exchange on which the ADSs are traded is a qualified exchange for United States federal income tax purposes.

Alternatively, a timely election to treat us as a qualified electing fund under Section 1295 of the Code could be made to avoid the foregoing rules with respect to excess distributions and dispositions. You should be aware, however, that if we become a PFIC, we do not intend to satisfy record keeping requirements that would permit you to make a qualified electing fund election.

If you own the H Shares or ADSs during any year that we are a PFIC, you must annually file Internal Revenue Service, or IRS, Form 8621(or any other form subsequently specified by the United States Treasury Department), subject to certain exceptions based on the value of PFIC stock held. We encourage you to consult your own tax advisor concerning the United States federal income tax consequences of holding the H Shares or ADSs that would arise if we were considered a PFIC.

Backup Withholding and Information Reporting

In general, information reporting requirements will apply to dividends with respect to the H Shares or ADSs or the proceeds of the sale, exchange or other disposition of the H Shares or ADSs paid within the United States, and in some cases, outside of the United States, other than to various exempt recipients, including corporations. In addition, you may, under some circumstances, be subject to “backup withholding” with respect to dividends paid on the H Shares or ADSs or the proceeds of any sale, exchange or other disposition of the H Shares or ADSs, unless you:

 

are a corporation or fall within various other exempt categories, and, when required, demonstrate this fact; or

provide a correct taxpayer identification number on a properly completed IRS FormW-9 or a substitute form, certify that you are exempt from backup withholding and otherwise comply with applicable requirements of the backup withholding rules.

Backup withholding is not an additional tax. Any amount withheld under the backup withholding rules generally will be creditable against your United States federal income tax liability provided that you furnish the required information to the IRS in a timely manner.manner and you may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the IRS in a timely manner and furnishing any required information. If you do not provide a correct taxpayer identification number you may be subject to penalties imposed by the IRS.

CertainIn addition, certain U.S. holders who are individuals that hold certain foreign financial assets (which may include the H Shares or ADSs) may be required to report information relating to such assets, subject to certain exceptions. You should consult your own tax advisors regarding the effect, if any, of this requirement on your ownership and disposition of the H Shares or ADSs.

Documents on Display

You may read and copy documents referred to in this annual report on Form20-F that have been filed with the U.S. Securities and Exchange Commission at the Commission’s public reference room located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the Commission at1-800-SEC-0330 for further information on the public reference rooms and their copy charges. You may also find our annual reports on Form20-F, the exhibits and other documents filed with the SEC on its websitewww.sec.gov.www.sec.gov.

The Commission allows us to “incorporate by reference” the information we file with the Commission. This means that we can disclose important information to you by referring you to another document filed separately with the Commission. The information incorporated by reference is considered to be part of this annual report on Form20-F.

Item 11— QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of business, we hold or issue various financial instruments which expose us to interest rate and foreign exchange rate risks. Additionally, our operations are affected by certain commodity price movements. We historically have not useduse derivative instruments such as commodity futures, commodity swaps and commodity options for hedging or trading purposes. Such activities are subject to policies approved by our senior management.some price risks efficiently. Substantially all of the financial instruments we hold are for purposes other than trading. We regard an effective market risk management system as an important element of our treasury function and are currently enhancing our systems. A primary objective of our market risk management is to implement certain methodologies to better measure and monitor risk exposures.

The following discussions and tables, which constitute“forward-looking statements” that involve risks and uncertainties, summarize ourmarket-sensitive financial instruments including fair value, maturity and contract terms. Such discussions address market risk only and do not present other risks which we face in the normal course of business.

Interest Rate Risk

Our interest risk exposure arises from changing interest rates. The tables below provide information about our financial instruments including various debt obligations that are sensitive to changes in interest rates. The tables present principal cash flows and relatedweighted-average interest rates at expected maturity dates.Weighted-average variable rates are based on effective rates as of December 31, 2015, 20162017, 2018 and 2017.2019. The information is presented in Renminbi equivalents, our reporting currency.

Foreign Exchange Rate Risk

We conduct our business primarily in Renminbi. However, a portion of our RMB revenues are converted into other currencies to be used in foreign investment and trading, to meet foreign currency financial instrument

obligations and to pay for imported oil, gas, equipment and other materials. Foreign currency payments for imported equipment represented 1.9%3.2%, 1.1%3.5% and 3.2%1.4% of our total payments for equipment in 2015, 20162017, 2018 and 2017,2019, respectively. Foreign currency payments for other imported materials represented 0.05%0.01%, 0.02%0.0002% and 0.01%0.09% of our total payments for materials in 2015, 20162017, 2018 and 2017,2019, respectively.

The Renminbi is not a freely convertible currency. Limitation in foreign exchange transactions imposed by the PRC government could cause future exchange rates to vary significantly from current or historical exchange rates.

The tables below provide information about our financial instruments including foreign currency denominated debt instruments that are sensitive to foreign currency exchange rates. The tables below summarize such information by presenting principal cash flows and relatedweighted-average interest rates at expected maturity dates in RMB equivalents, using the exchange rates in effect as of December 31, 2015, 20162017, 2018 and 2017,2019, respectively.

December 31, 20172019

 

 Expected Maturity Date  Percentage
to Total
Long-Term
Borrowings		  Fair
Value		 
  Expected Maturity Date  Percentage
to Total
Long-Term
Borrowings		 Fair
Value		 
 2018 2019 2020 2021 2022 Thereafter Total  2020 2021 2022 2023 2024 Thereafter Total 
 (RMB equivalent in millions, except percentages)  (RMB equivalent in millions, except percentages) 

Long term debt

                

Loans in RMB

                

Fixed Rate Loan Amount

 244  35,999  6,044  13,109  23,083  30,594  109,073  29.37%  92,939  10,537  4,645  33,010  2,855  17,716  10,152  78,915  20.97%  76,027 

Average interest rate

 3.28%  4.33%  4.30%  3.51%  3.86%  4.56%   —     —     —    4.00%  2.79%  4.07%  4.30%  3.17%  4.15%   —   —   — 

Variable Rate Loan Amount

 33,142  6,750  2,802  66  232  6,650  49,642  13.37%  49,642  2,854  17,515  51,274  315  768  7,839  80,565  21.41%  80,565 

Average interest rate

 3.80%  4.03%  4.57%  4.55%  4.74%  3.98%   —     —     —    4.52%  4.37%  4.12%  5.00%  4.32%  4.11%   —   —   — 

Loans in Euro

                  

Fixed Rate Loan Amount

 13  21  8   —     —    49  91  0.02%  113  4  1  1  1   —  126  133  0.04%  239 

Average interest rate

  —     —     —     —     —    4.08%   —     —     —    2.00%  2.00%  2.00%  2.00%   —  3.88%   —   —   — 

Variable Rate Loan Amount

   2,341   —     —     —    2,341  0.63%  2,341  3,595   —   —   —   —   —  3,595  0.96%  3,595 

Average interest rate

  —     —    2.35%   —     —     —     —     —     —    2.35%   —   —   —   —   —   —   —   — 

Loans in United States Dollar

                  

Fixed Rate Loan Amount

 36  36  36  36  18  106  268  0.07%  240  36  36  17  9  9  105  212  0.06%  188 

Average interest rate

 1.11%  1.11%  1.11%  1.11%  0.68%  0.05%   —     —     —    0.49%  0.49%  0.36%  0.05%  0.05%  0.05%   —   —   — 

Variable Rate Loan Amount

 12,084  13,140  38,577  218  14,522  115  78,656  21.18%  78,656  42,838  12,544  14,769   —   —  13  70,164  18.65%  70,164 

Average interest rate

 3.53%  3.68%  3.78%  4.13%  3.62%  4.35%   —     —     —    4.34%  4.38%  4.03%   —   —  5.41%   —   —   — 

Loans in Japanese Yen

                  

Fixed Rate Loan Amount

 17  4  3  3  3  7  37  0.01%  41  1   —  3  3  3  8  18  0.00%  18 

Average interest rate

  —     —     —     —     —     —     —     —     —    2.30%   —  2.30%  2.30%  2.30%  1.77%   —   —   — 

Variable Rate Loan Amount

  —     —     —     —     —     —     —     —     —     —   —   —   —   —   —   —   —   — 

Average interest rate

  —     —     —     —     —     —     —     —     —     —   —   —   —   —   —   —   —   — 

Loans in Hong Kong Dollar

                  

Variable Rate Loan Amount

  —    620   —     —     —     —    620  0.17%  620  6  2  672   —   —   —  680  0.18%  680 

Average interest rate

  —     —     —     —     —     —     —     —     —    2%  2%  3.77%   —   —   —   —   —   — 

Debentures in Canadian Dollar

                  

Fixed Rate Loan Amount

  —     —     —     —     —     —     —     —     —     —   —   —   —   —   —   —   —   — 

Average interest rate

  —     —     —     —     —     —     —     —     —     —   —   —   —   —   —   —   —   — 

Variable Rate Loan Amount

  —     —     —     —     —     —     —     —     —     —   —   —   —   —   —   —   —   — 

Average interest rate

  —     —     —     —     —     —     —     —     —     —   —   —   —   —   —   —   —   — 

Debentures in United States Dollar

                  

Fixed Rate Loan Amount

  —     —     —     —     —     —     —     —     —     —   —   —   —   —   —   —   —   — 

Average interest rate

  —     —     —     —     —     —     —     —     —   

Debentures in RMB

                  

Fixed Rate Loan Amount

 16,000  3,230  2,000  31,000  2,000  15,000  69,230  18.64%  62,631  2,000   —  31,000   —  10,300  6,700  50,000  13.29%  49,622 

Average interest rate

 4.47%  1.61%  4.30%   —    4.90%  4.12%   —     —     —    4.30%   —  3.09%   —  4.10%  3.84%   —   —   — 

Medium term note in RMB

                  

Fixed Rate Loan Amount

 20,000   —    20,000  15,000   —     —    55,000  14.81%  50,333  20,000   —  15,000   —  50,000   —  85,000  22.59%  83,894 

Average interest rate

 4.03%   —    3.85%  3.45%   —     —     —     —     —    3.85%   —  3.45%   —  3.64%   —   —   —   — 

Medium term note in United State Dollar

                  

Fixed Rate Loan Amount

  —     —    3,218   —     —    3,218  6,436  1.73%  6,151  3,472   —   —   —   —  3,471  6,943  1.85%  6,815 

Average interest rate

  —     —    2.89%   —     —    3.76%   —     —     2.88%   —   —   —   —  3.75%   —   —   — 

Total

 81,536  59,800  75,029  59,432  39,858  55,739  371,394  100.00%  343,707  85,343  34,743  145,746  3,183  78,796  28,414  376,225  100.00%  371,807 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

December 31, 20162018

 

 Expected Maturity Date  Percentage
to Total
Long-Term
Borrowings		  Fair
Value		 
  Expected Maturity Date  Percentage
to Total
Long-Term
Borrowings		 Fair
Value		 
 2017 2018 2019 2020 2021 Thereafter Total  2019 2020 2021 2022 2023 Thereafter Total 
 (RMB equivalent in millions, except percentages)      (RMB equivalent in millions, except percentages) 

Long term debt

                

Loans in RMB

                

Fixed Rate Loan Amount

 9,796  245  36,317  10,112  3,110  40,143  99,723  22.45%  97,691  36,351  10,583  1,310  26,585  2,626  20,114  97,569  28.30%  94,272 

Average interest rate

 3.83%  3.27%  4.35%  3.96%  2.09%  4.61%   —     —     —    4.31%  3.99%  4.43%  3.66%  4.30%  4.58%   —   —   — 

Variable Rate Loan Amount

 13,193  33,639  6,634  70  218  31,998  85,752  19.30%  85,752  32,508  3,091  28,339  165  266  7,624  71,993  20.88%  71,993 

Average interest rate

 3.94%  3.81%  4.05%  4.86%  4.89%  3.93%   —     —     —    3.94%  4.53%  4.08%  4.85%  4.89%  4.11%   —   —   — 

Loans in Euro

                  

Fixed Rate Loan Amount

 12  24  24  16  9  6  91  0.02%  106  13   —   —   —   —  52  65  0.02%  166 

Average interest rate

 2.03%  2.67%  2.67%  2.96%  3.72%  3.56%   —     —     —    2.00%   —   —   —   —  0.95%   —   —   — 

Variable Rate Loan Amount

  —     —     —    2,197   —     —    2,197  0.49%  2,197   —  2,354   —   —   —   —  2,354  0.68%  2,354 

Average interest rate

  —     —     —    2.35%   —     —     —     —     —     —  2.35%   —   —   —   —   —   —   — 

Loans in United States Dollar

                  

Fixed Rate Loan Amount

 38  39  38  38  38  130  321  0.07%  297  36  36  36  17  9  110  244  0.07%  206 

Average interest rate

 1.12%  1.09%  1.12%  1.12%  1.12%  0.14%   —     —     —    1.17%  1.17%  1.17%  0.75%  0.09%  0.04%   —   —   — 

Variable Rate Loan Amount

 13,732  20,494  14,684  41,596  779  368  91,653  20.63%  91,653  2,483  48,621  12,752  12,890   —   —  76,746  22.26%  76,746 

Average interest rate

 2.33%  3.13%  3.27%  3.22%  5.66%  3.99%   —     —     —    2.58%  4.55%  4.71%  4.04%   —   —   —   —   — 

Loans in Japanese Yen

                  

Fixed Rate Loan Amount

 14  22  7  4  3  7  57  0.01%  60  8   —  3  3  3  6  23  0.01%  27 

Average interest rate

 2.52%  2.38%  2.46%  2.00%  2.66%  2.26%   —     —     —    2.40%   —  2.30%  2.30%  2.30%  0.36%   —   —   — 

Variable Rate Loan Amount

  —     —     —     —     —     —     —     —     —     —   —   —   —   —   —   —   —   — 

Average interest rate

  —     —     —     —     —     —     —     —     —     —   —   —   —   —   —   —   —   — 

Loans in Hong Kong Dollar

                  

Variable Rate Loan Amount

  —     —    666   —     —     —    666  0.15%  666  664  6  2  1   —   —  673  0.20%  673 

Average interest rate

  —     —    2.27%   —     —     —     —     —     —    2.57%  2.00%  2.00%  2.00%   —   —   —   —   — 

Debentures in Canadian Dollar

                  

Fixed Rate Loan Amount

  —     —     —     —     —     —     —     —     —     —   —   —   —   —   —   —   —   — 

Average interest rate

  —     —     —     —     —     —     —     —     —     —   —   —   —   —   —   —   —   — 

Variable Rate Loan Amount

  —     —     —     —     —     —     —     —     —     —   —   —   —   —   —   —   —   — 

Average interest rate

  —     —     —     —     —     —     —     —     —     —   —   —   —   —   —   —   —   — 

Debentures in United States Dollar

                  

Fixed Rate Loan Amount

  —     —     —     —     —     —     —     —     —     —   —   —   —   —   —   —   —   — 

Average interest rate

  —     —     —     —     —     —     —     —     —     —   —   —   —   —   —   —   —   — 

Debentures in RMB

                  

Fixed Rate Loan Amount

 16,000  16,000  3,350   —    31,000  17,000  83,350  18.76%  81,637  3,307  2,000  31,000  2,000  8,300  6,700  53,307  15.46%  52,287 

Average interest rate

 4.55%  4.47%  1.63%   —    3.09%  4.21%   —     —     —    1.63%  4.30%  3.09%  4.90%  4.24%  3.96%   —   —   — 

Medium term note in RMB

                  

Fixed Rate Loan Amount

 18,630  20,000   —    20,000  15,000   —    73,630  16.57%  71,999   —   —  35,000   —   —   —  35,000  10.15%  34,458 

Average interest rate

 4.21%  4.03%   —    3.85%  3.45%   —     —     —     —     —   —  2.20%   —   —   —   —   —   — 

Medium term note in United State Dollar

                  

Fixed Rate Loan Amount

  —     —     —    3,431   —    3,431  6,862  1.55%  6,747   —  3,410   —   —   —  3,408  6,818  1.98%  6,696 

Average interest rate

  —     —     —    2.88%   —    3.75%   —     —     —     —  2.87%   —   —   —  3.76%   —   —   — 

Total

 71,415  90,463  61,720  77,464  50,157  93,083  444,302  100.00%  438,805  75,370  70,101  108,442  41,661  11,204  38,014  344,792  100.00%  339,878 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

December 31, 20152017

 

  Expected Maturity Date   Percentage
to Total
Long-Term
Borrowings		  Fair
Value		 
    Expected Maturity Date  Percentage
to Total
Long-Term
Borrowings		 Fair
Value		 
  2016 2017 2018 2019 2020 Thereafter Total     2018 2019 2020 2021 2022 Thereafter Total 
  (RMB equivalent in millions, except percentages)        (RMB equivalent in millions, except percentages) 

Long term debt

                  

Loans in RMB

                  

Fixed Rate Loan Amount

   9,294  38,070  20,527  34,512  30,609  71,212  204,224    43.39%  198,074  244  35,999  6,044  13,109  23,083  30,594  109,073  29.06%  92,939 

Average interest rate

   4.03%  3.79%  4.51%  4.31%  3.96%  4.27%   —      —     —    3.28%  4.33%  4.30%  3.51%  3.86%  4.56%   —   —   — 

Variable Rate Loan Amount

   10,471  13,018  33,268  40  45  6,313  63,155    13.42%  63,155  37,142  6,750  2,802  66  232  6,650  53,642  14.29%  53,642 

Average interest rate

   4.40%  3.94%  4.51%  4.90%  4.90%  4.73%   —      —     —    3.44%  4.03%  4.57%  4.55%  4.74%  3.98%   —   —   — 

Loans in Euro

                    

Fixed Rate Loan Amount

   12  22  2,151  23  16  6  2,230    0.47%  2,318  13  21  8   —   —  49  91  0.02%  113 

Average interest rate

   2.12%  2.76%  2.35%  2.64%  2.93%  3.49%   —      —     —     —   —   —   —   —  4.08%   —   —   — 

Variable Rate Loan Amount

   —     —     —     —     —     —     —      —     —      2,341   —   —   —  2,341  0.62%  2,341 

Average interest rate

   —     —     —     —     —     —     —      —     —     —   —  2.35%   —   —   —   —   —   — 

Loans in United States Dollar

                    

Fixed Rate Loan Amount

   36  488  36  36  36  154  786    0.17%  774  36  36  36  36  18  106  268  0.07%  240 

Average interest rate

   1.10%  2.26%  1.10%  1.10%  1.10%  0.37%   —      —     —    1.11%  1.11%  1.11%  1.11%  0.68%  0.05%   —   —   — 

Variable Rate Loan Amount

   15,841  12,845  21,500  11,048  32,136  1,300  94,670    20.12%  94,670  12,084  13,140  38,577  218  14,522  115  78,656  20.95%  78,656 

Average interest rate

   2.29%  2.00%  2.77%  3.11%  2.44%  3.41%   —      —     —    3.53%  3.68%  3.78%  4.13%  3.62%  4.35%   —   —   — 

Loans in Japanese Yen

                    

Fixed Rate Loan Amount

   15  16  16  7  3  8  65    0.01%  68  17  4  3  3  3  7  37  0.01%  41 

Average interest rate

   2.47%  2.46%  2.46%  2.40%  2.30%  2.30%   —      —     —     —   —   —   —   —   —   —   —   — 

Variable Rate Loan Amount

   —     —     —     —     —     —     —      —     —     —   —   —   —   —   —   —   —   — 

Average interest rate

   —     —     —     —     —     —     —      —     —     —   —   —   —   —   —   —   —   — 

Loans in Hong Kong Dollar

         

Variable Rate Loan Amount

  —  620   —   —   —   —  620  0.17%  620 

Average interest rate

  —   —   —   —   —   —   —   —   — 

Debentures in Canadian Dollar

                    

Fixed Rate Loan Amount

   —     —     —     —     —     —     —      —     —     —   —   —   —   —   —   —   —   — 

Average interest rate

   —     —     —     —     —     —     —      —     —     —   —   —   —   —   —   —   —   — 

Variable Rate Loan Amount

   —     —     —     —     —     —     —      —     —     —   —   —   —   —   —   —   —   — 

Average interest rate

   —     —     —     —     —     —     —      —     —     —   —   —   — �� —   —   —   —   — 

Debentures in United States Dollar

                    

Fixed Rate Loan Amount

   —     —     —     —     —     —     —      —     —     —   —   —   —   —   —   —   —   — 

Average interest rate

   —     —     —     —     —     —     —      —     —     —   —   —   —   —   —   —   —   — 

Debentures in RMB

                    

Fixed Rate Loan Amount

   —    16,000  16,000   —     —    8,000  40,000    8.50%  41,430  16,000  3,230  2,000  31,000  2,000  15,000  69,230  18.44%  62,631 

Average interest rate

   —    4.55%  4.47%   —     —    4.93%   —      —     —    4.47%  1.61%  4.30%   —  4.90%  4.12%   —   —   — 

Medium term note in RMB

                    

Fixed Rate Loan Amount

   498  18,630  20,000   —    20,000   —    59,128    12.56%  59,157  20,000   —  20,000  15,000   —   —  55,000  14.65%  50,333 

Average interest rate

   5.63%  4.21%  4.03%   —    3.85%   —     —      —     —    4.03%   —  3.85%  3.45%   —   —   —   —   — 

Medium term note in United State Dollar

                    

Fixed Rate Loan Amount

   —     —     —     —    3,192  3,192  6,384    1.36%  6,202   —   —  3,218   —   —  3,218  6,436  1.71%  6,151 

Average interest rate

   —     —     —     —    2.88%  3.75%   —      —     —     —   —  2.89%   —   —  3.76%   —   —  

Total

   36,167  99,089  113,498  45,666  86,037  90,185  470,642    100.00%  465,848  85,536  59,800  75,029  59,432  39,858  55,739  375,394  100.00%  347,707 
  

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

See “Item 3 — Key Information — Risk Factors — Risks Related to Pricing and Exchange Rate”.

Commodity Price Risk

We are engaged in a wide range ofpetroleum-related activities and purchase certain quantity of oil from the international market to meet our demands. The prices of crude oil and refined products in the international market are affected by various factors such as changes in global and regional politics and economy, the demand and supply of crude oil and refined products, as well as unexpected events and disputes with international repercussions. The domestic crude oil price is determined with reference to the international price of crude oil whereby the prices of domestic refined products were allowed tooil prices adjust morewith changes in line with thecrude oil prices in the international crude oil market. Other than certain subsidiaries of our company, we generally do not use anyWe

use derivative instruments such as commodity futures, commodity swaps and commodity options to evade suchhedge some commodity price risks. We have strict internal control requirements with respect to the purpose, types, holding volumes of any derivative instruments as against the inventories, and the transaction process of the derivatives. Any derivative instruments we have are entered into solely fornon-trading purposes. We do not expect any material market risks to the Company’s financial position, results of operations or liquidity exist as a result of entering into such derivatives. See “Item 3 — Key Information — Risk Factors — Risks Related to Pricing and Exchange Rate”.

Item 12— DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Fees paid by our ADS holders

The Bank of New York Mellon, the depositary of our ADS program, collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may refuse to deliver ADSs or the deposited shares or provide any distributions until its fees for those services are paid.

 

Persons Depositing or Withdrawing Shares Must Pay:

  

For:

$5.00 (or less) per 100 ADSs (or portion thereof)

  Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property
  CancellationCancelation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates

$0.020.5 (or less) per ADS (or portion thereof)

  Any cash distribution to ADS holders

$0.05 (or less) per ADS per calendar year

Depositary services
A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs  Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS holders
Registration or transfer fees  Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares
Expenses of the depositary  Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement)
  Converting foreign currency to U.S. dollars
Taxes and other governmental charges the depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes  As necessary
Any charges incurred by the depositary or its agents for servicing the deposited securities  As necessary

Fees and Payments from the Depositary to Us

In the year ended December 31, 2017,2019, we did not receive anyreceived from the depositary a reimbursement of US$285,431.04, net of withholding tax, for our continuing annual stock exchange listing fees and payments from our depositary.expenses incurred in connection with investor relationship programs. In addition, the depositary has agreed to reimburse us certain amount per year of the facility, including but not limited to, investor relations expenses or any other American depositary receipts program related expenses. The amount of such reimbursements is subject to certain limits.

PART II

Item 13— DEFAULTS, DIVIDENDS ARREARAGES AND DELINQUENCIES

None.

Item 14 — MATERIAL MODIFICATIONS TO THE RIGHTS TO SECURITY HOLDERS AND USE OF PROCEEDS

None.

Item 15— CONTROLS AND PROCEDURES

Evaluation of the Management on Disclosure Controls and Procedures

Our Chairman, who currently performs the function of Chief Executive Officer,president and our Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in the United States Exchange Act Rules13a-15(e) and 15d(e)) as of the end of the period covered by this annual report, have concluded that, as of such date, our company’s disclosure controls and procedures were effective to ensure that material information required to be disclosed in the reports that we file and furnish under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and regulations and that such information is accumulated and communicated to our company’s management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

Our company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules13a-15(f). Under the supervision and with the participation of our company’s management, including our principal executive officer and principal financial officer, our company evaluated the effectiveness of the its internal control over financial reporting based on criteria established in the framework inInternal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our company’s management has concluded that our internal control over financial reporting was effective as of December 31, 2017.2019.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

The effectiveness of our company’s internal control over financial reporting as of December 31, 20172019 has been audited by KPMG Huazhen LLP, our company’s independent registered public accountants, as stated below.

Report of Independent Registered Public Accounting Firm

To the StockholdersShareholders and Board of Directors

PetroChina Company Limited:

Opinion on Internal Control overOver Financial Reporting

We have audited PetroChina Company Limited and subsidiaries’ (the Company)“Company”) internal control over financial reporting as of December 31, 2017,2019, based on criteria established inInternal Control — Integrated

Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2019, based on criteria established inInternal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Company as of December 31, 20172019 and 2016,2018, the related consolidated statements of comprehensive income, cash flows and changes in equity and cash flows for each of the years thenin the three-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements), and our report dated April 27, 201829, 2020 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/KPMG Huazhen LLP

Beijing, China

April 27, 201829, 2020

Changes in Internal Control over Financial Reporting

During the year ended December 31, 2017,2019, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our company’s internal control over financial reporting. On May 14, 2013, the COSO published an updated Internal Control — Integrated Framework (2013) and related illustrative documents. We adopted the new framework in 2014.

Item 16A— AUDIT COMMITTEE FINANCIAL EXPERT

Our audit committee is composed of twonon-executive independent directors, Mr. Lin Boqiang and Mr. Zhang Biyi, and onenon-executive director, Mr. Liu Yuezhen. See “Item 6 — Directors, Senior Management and Employees — Board Practices — Audit Committee”. Mr. Zhang Biyi, ournon-executive independent director has been confirmed as a “financial expert” as defined in Item 16A ofForm  20-F.

Item 16B— CODE OF ETHICS

We adopted our code of business conduct and ethics for senior management on March 23, 2004 and our code of business conduct and ethics for employees on March 2, 2005 and have disclosed the content of both codes on our website.

These two Codes of Ethics may be accessed as follows:

1. From our main web page, first click on “Investor Relations”.

2. Next, click on “Corporate Governance Structure”.

3. Finally, click on “Code of Ethics for Senior Management” or “Code of Ethics for Employees of PetroChina Company Limited”.

This 20-F also includes both of the codes as exhibit 11.1 and 11.2.

Item 16C— PRINCIPAL ACCOUNTANT FEES AND SERVICES

KPMG Huazhen LLP served as our independent accountant for the fiscal years of 20162018 and 2017.2019. The office of KPMG Huazhen LLP is located at 8th Floor, KPMG Tower, Oriental Plaza, 1 East Chang An Avenue, Beijing.Beijing, China.

The following table presents the aggregate fees paid by us (not including our subsidiaries) for professional audit services, tax and other services rendered by KPMG Huazhen LLP to us for each of the years ended December 31, 20162018 and 2017,2019, respectively.

 

  December 31, 
          2016                   2017          December 31, 
  RMB   RMB  2018 2019 
  (In millions)  RMB in millions 

Audit fees

   53    53  53  53 

Audit-related fees

   —      —     —   — 

Tax fees

   —      —     —   — 

All other fees

   —      —     —   — 
  

 

   

 

  

 

  

 

 

Total

   53    53  53  53 
  

 

   

 

  

 

  

 

 

The auditors’ remuneration above represented the annual fees paid by us for the years indicated. The remuneration did not include fees of RMB52RMB60 million (2016: RMB66(2018: RMB52 million) paid by our subsidiaries to KPMG Huazhen LLP and its network firms which primarily included audit fees of RMB40RMB50 million (2016: RMB50(2018: RMB43 million), audit-related fees of RMB8RMB7 million (2016: RMB8(2018: RMB6 million) and tax fees of RMB3RMB2 million (2016: RMB7(2018: RMB2 million), and other service fees of RMB1 million (2016:(2018: RMB1 million), respectively. The decrease in our fees paid in 2017 compared to 2016 was primarily due to the decrease in the audit fees of certain subsidiaries, such as Kunlun Gas and its subsidiaries.

Audit CommitteePre-approved Policies and Procedures

Currently, all audit services to be provided by our independent registered public accountant, KPMG Huazhen LLP, must be approvedpre-approved by our audit committee.

During the year ended December 31, 2017,2019, services relating to all non-audit related fees provided to us by KPMG Huazhen LLP were approved by our audit committee in accordance with the de minimis exception to the pre-approval requirement provided by paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

Item 16D— EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES

We rely on an exemption contained in paragraph (b)(1)(iv)(D) of Rule10A-3 under the Securities and Exchange Act of 1934, as amended, from the New York Stock Exchange listing requirement that each member of

the audit committee of a listed issuer must be independent. Our singlenon-independent audit committee member, who is a representative of CNPC, has only observer status and is not entitled to take any action ata voting member, nor the chairman of the audit committee of our board of directors, which qualifies us for the exemption from the independence requirements available under paragraph (b)(1)(iv)(D) of Rule10A-3. See “Item 6 — Directors, Senior Management and Employees — Board Practice — Audit Committee.” We believe our reliance on this exemption does not have any adverse effect on the ability of our audit committee to act independently.

Item 16E — PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Not applicable.

Item 16F — CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not applicable.

Item 16G — CORPORATE GOVERNANCE

We are incorporated under the laws of the PRC, with A Shares publicly traded on the Shanghai Stock Exchange, or the SSE, and H Shares publicly traded on the Hong Kong Stock Exchange, or the HKSE, and American Deposit Shares representing H Shares on the NYSE. As a result, our corporate governance framework is subject to the mandatory provisions of the PRC Company Law and the Corporate Governance Rules as well as the securities laws, regulations and the listing rules of Hong Kong and the United States.

The following discussion summarizes the significant differences between our corporate governance practices and those that would apply to a U.S. domestic issuer under the NYSE corporate governance rules.

Director Independence

Under the NYSE corporate governance rule 303A.01, a listed company must have a majority of independent directors on its board of directors. A company of which more than 50% of the voting power is held by an individual, a group or another company, or a controlled company, is not required to comply with this requirement. We are not required under the PRC Company Law and the HKSE Listing Rules to have a majority of independent directors on our board of directors. As of the date of this report, four of our 13 directors were independentnon-executive directors.

Under the NYSE corporate governance rule 303A.03, thenon-management directors of a listed company must meet at regularly scheduled executive sessions without management. There are no mandatory requirements under the PRC Company Law and the HKSE Listing Rules that a listed company should hold, and we currently do not hold, such executive sessions.

Nominating/Corporate Governance Committee

Under the NYSE corporate governance rule 303A.04, a listed company must have a nominating/corporate governance committee composed entirely of independent directors, with a written charter that covers certain minimum specified duties, but a controlled company is not required to comply with this requirement. The Corporate Governance Code as amended by the Stock Exchange of Hong Kong provides that issuers shall establish a nominating committee, and a majority of which should be independentnon-executive directors and the chairman shall be served by an independentnon-executive director or the board chairman. We are not required under the PRC Company Law to have a nominating/corporate governance committee. We set up a nominating committee in August 2015, which consists of the chairman of our board of directors and two independent directors.

Compensation Committee

Under the NYSE corporate governance rule 303A.05, a listed company must have a compensation committee composed entirely of independent directors, with a written charter that covers certain minimum specified duties. A controlled company is not required to comply with this requirement. We are not required under the PRC Company Law to have a compensation committee. Under the Corporate Governance Code of the HKSE Listing Rules, a listed company must have a remuneration committee composed of a majority of independentnon-executive directors, with a written term of references that covers certain minimum specified duties.

We currently do not have a compensation committee composed entirely of independent directors. However, we have an evaluation and remuneration committee including a majority of independentnon-executive directors.

Corporate Governance Guidelines

Under the NYSE corporate governance rule 303A.09, a listed company must adopt and disclose corporate governance guidelines that cover certain minimum specified subjects. We are not required under the PRC Company Law and the HKSE Listing Rules to have, and we do not currently have, formal corporate governance guidelines. However, we have the Articles of Association, the Rules and Procedures of Board of Directors and the Trial Implementation Rules for Compensation of Senior Management that address the following subjects:

director qualification standards and responsibilities;

key board committee responsibilities;

director compensation; and

director orientation and continuing education.

In addition, under the HKSE Listing Rules, we are expected to comply with, but may choose to deviate from, certain code provisions in the Corporate Governance Code of the Listing Rules which sets forth the principles and standards of corporate governance for listed companies. Pursuant to the HKSE Listing Rules, if we choose to deviate from any code provisions of the Corporate Governance Code, we must disclose such deviations in our annual report.

In 2009, we formulated the Administrative Measures on Independent Directors, the Administrative Rules on Holding of Company Shares by Directors, Supervisors and Senior Management, the Administrative Measures on Investor’s Relationship and the rules and procedures of the Audit Committee, the Performance Review and Compensation Committee, the Investment and Development Committee, and the Safety and Environmental Protection Committee. All these policies have further enhanced our corporate governance system and can ensure the better performance of duties of directors, supervisors, senior managers and committee members. In 2015, we set up a nominating committee and formulated the Rules of Procedures of the Nominating Committee.

In 2017, we revised our articles of association according to relevant regulatory requirements. We added the cumulative voting provisions, and defined the role of the Party’s core leadership in the articles of association. Ourby-laws with respect to general meeting, board of directors and board of supervisors were also amended in line with the amendment to the articles.

Code of Business Conduct and Ethics

Under the NYSE corporate governance rule 303A.10, a listed company must adopt and disclose its code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. See “Item 16B – Code of Ethics”. We are not required under the PRC Company Law and the HKSE Listing Rules to have, and we do not currently have, a code of business conduct

and ethics for directors. However, pursuant to the HKSE Listing Rules, all of our directors must comply with the Model Code for Securities Transactions by Directors of Listed Companies (the “Model Code”) as set out in the Listing Rules. The Model Code sets forth required standards with which the directors of a listed company must comply in securities transactions of the listed company.

CEO Certification Requirements

Under the NYSE corporate governance rule 303A.12(a), each listed company’s CEO must certify to the NYSE each year that he or she is not aware of any violation by the company of NYSE corporate governance listing standards. Our CEO is not required under the PRC Company Law and the HKSE Listing Rules to submit, and our CEO does not currently submit, such certification. Instead, our chairman, who performs the duties of the CEO, does the certification.

Item 16H — MINE SAFETY DISCLOSURE

Not applicable.

PART III

Item 17 — FINANCIAL STATEMENTS

We have elected to provide the financial statements and related information specified in Item 18 in lieu of Item 17.

Item 18— FINANCIAL STATEMENTS

See pageF-1 to F-62 following Item 19.

Item 19— EXHIBITS

(a) See Item 18 for a list of the financial statements as part of this annual report.

(b) Exhibits to this annual report.

Exhibit

Number

Description of

Exhibits

  1.1Articles of Association (as amended on October  26, 2017) (English translation)(3)
  4.1Non-competition Agreement between CNPC and PetroChina (English translation)(1)
  4.2Trademark Licensing Contract between CNPC and PetroChina (English translation)(1)
  4.3Patent andKnow-how Licensing Contract between CNPC and PetroChina (English translation)(1)
  4.4Computer Software Licensing Contract between CNPC and PetroChina (English translation)(1)
  4.5Contract for Transfer of Rights under Production Sharing Contracts between CNPC and PetroChina (English translation)(1)
  4.6Contract for the Supervision of Certain Sales Enterprises between CNPC and PetroChina (English translation)(1)
  4.7Form of Agreement for the Transfer of Rights and Interests under the Retainer Contracts relating to Oil Exploration and Exploitation in Lengjiapu Area, Liaohe Oil Region and No. 9.1 — 9.5 Areas, Karamay Oil Field (English translation)(1)

Exhibit

Number

Description of

Exhibits

  4.8*Comprehensive Products and Services Agreement, dated August 24, 2017, between CNPC and PetroChina.
  4.9*Land Lease Agreement, dated August 24, 2017, between CNPC and PetroChina
  4.10*Building Lease Agreement, dated August 24, 2017, between CNPC and PetroChina
  4.11*Annual Crude Oil Mutual Supply Framework Agreement, dated January 1, 2018, between China Petroleum and Chemical Corporation and PetroChina (English translation)
  8.1*List of major subsidiaries
11.1Code of Ethics for Senior Management(2)
11.2Code of Ethics for Employees(2)
12.1*Certification of Chief Executive Officer required by Section 302 of theSarbanes-Oxley Act of 2002
12.2*Certification of Chief Financial Officer required by Section 302 of theSarbanes-Oxley Act of 2002
13.1*Certification of Chief Executive Officer required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002
13.2*Certification of Chief Financial Officer required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002
15.1*Reserves Report for the year ended on December 31, 2017 prepared by DeGolyer and MacNaughton
15.2*Reserves Report for the year ended on December 31, 2017 prepared by Ryder Scott
15.3*Reserves Report for the year ended on December 31, 2017 prepared by GLJ Petroleum Consultants
15.4*Reserves Report for the year ended on December 31, 2017 prepared by McDaniel & Associates Consultants, Ltd.
101.INS*XBRL Instance Document
101.SCH*XBRL Taxonomy Extension Schema Document
101.CAL*XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*XBRL Taxonomy Extension Label Linkbase Document
101.PRE*XBRL Taxonomy Extension Presentation Linkbase Document

*To be filed as exhibits to this Form20-F.
(1)Paper filing; incorporated by reference to our Registration Statement on FormF-1 (FileNo. 333-11566) filed with the Commission, as declared effective on March 29, 2000.
(2)Incorporated by reference to our annual report on Form20-F for the fiscal year ended December 31, 2004 (FileNo. 1-15006) filed with the Commission.
(3)Incorporated by reference to our report on Form6-K (FileNo. 1-15006) filed with the Commission on October 26, 2017.

SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing on Form20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

PETROCHINA COMPANY LIMITED
/s/Wu Enlai
Name: Wu Enlai
Title: Secretary to Board of Directors

Date: April 27, 2018

INDEX OF CONSOLIDATED FINANCIAL STATEMENTS

Page

PetroChina Company Limited and its Subsidiaries

Consolidated Financial Statements

Reports of Independent Registered Public Accounting Firms

F-2

Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015

F-4

Consolidated Statements of Financial Position as of December  31, 2017 and 2016

F-5

Consolidated Statements of Cash Flows for the years ended December  31, 2017, 2016 and 2015

F-6

Consolidated Statements of Changes in Equity for the years ended December 31, 2017, 2016 and 2015

F-8

Notes to the Financial Statements

F-9

Supplementary Information on Oil and Gas Exploration and Production Activities (Unaudited)

F-55

Report of Independent Registered Public Accounting Firm

To the StockholdersShareholders and Board of Directors

PetroChina Company Limited:

Opinion on the ConsolidatedInternal Control Over Financial StatementsReporting

We have audited the accompanying consolidated statements of financial position of PetroChina Company Limited and subsidiariessubsidiaries’ (the Company)“Company”) internal control over financial reporting as of December 31, 2017 and 2016,2019, based on criteria established inInternal Control — Integrated

Framework (2013) issued by the related consolidated statementsCommittee of comprehensive income, changes in equity, and cash flows forSponsoring Organizations of the years then ended, and the related notes (collectively, the consolidated financial statements).Treadway Commission. In our opinion, the consolidated financial statements present fairly,Company maintained, in all material respects, theeffective internal control over financial position of the Companyreporting as of December 31, 2017 and 2016, and the results of its operations and its cash flows for the years then ended,2019, based on criteria established in conformity with International Financial Reporting Standards asInternal Control — Integrated Framework (2013) issued by International Accounting Standards Board.the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Company as of December 31, 2019 and 2018, the related consolidated statements of comprehensive income, cash flows and changes in equity for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements), and our report dated April 29, 2020 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting as of December 31, 2017, based on criteria established inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizationsand for its assessment of the Treadway Commission, and our report dated April 27, 2018 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements arereporting, included in the responsibility of the Company’s management.accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these consolidatedthe Company’s internal control over financial statementsreporting based on our audits.audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our auditsaudit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the consolidated financial statements are freerisk that a material weakness exists, and testing and evaluating the design and operating effectiveness of material misstatement, whether due to error or fraud.internal control based on the assessed risk. Our auditsaudit also included performing such other procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosuresas we considered necessary in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.circumstances. We believe that our audits provideaudit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/KPMG Huazhen LLP

We have served as the Company’s auditor since 2013.

Beijing, China

April 27, 201829, 2020

Changes in Internal Control over Financial Reporting

During the year ended December 31, 2019, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our company’s internal control over financial reporting.

Item 16A— AUDIT COMMITTEE FINANCIAL EXPERT

Our audit committee is composed of twonon-executive independent directors, Mr. Lin Boqiang and Mr. Zhang Biyi, and onenon-executive director, Mr. Liu Yuezhen. See “Item 6 — Directors, Senior Management and Employees — Board Practices — Audit Committee”. Mr. Zhang Biyi, ournon-executive independent director has been confirmed as a “financial expert” as defined in Item 16A ofForm  20-F.

Item 16B— CODE OF ETHICS

We adopted our code of business conduct and ethics for senior management on March 23, 2004 and our code of business conduct and ethics for employees on March 2, 2005 and have disclosed the content of both codes on our website.

These two Codes of Ethics may be accessed as follows:

1. From our main web page, first click on “Investor Relations”.

2. Next, click on “Corporate Governance Structure”.

3. Finally, click on “Code of Ethics for Senior Management” or “Code of Ethics for Employees of PetroChina Company Limited”.

This 20-F also includes both of the codes as exhibit 11.1 and 11.2.

Item 16C— PRINCIPAL ACCOUNTANT FEES AND SERVICES

KPMG Huazhen LLP served as our independent accountant for the fiscal years of 2018 and 2019. The office of KPMG Huazhen LLP is located at 8th Floor, KPMG Tower, Oriental Plaza, 1 East Chang An Avenue, Beijing, China.

The following table presents the aggregate fees paid by us (not including our subsidiaries) for professional audit services, tax and other services rendered by KPMG Huazhen LLP to us for each of the years ended December 31, 2018 and 2019, respectively.

  December 31, 
  2018  2019 
  RMB in millions 

Audit fees

  53   53 

Audit-related fees

  —   — 

Tax fees

  —   — 

All other fees

  —   — 
 

 

 

  

 

 

 

Total

  53   53 
 

 

 

  

 

 

 

The auditors’ remuneration above represented the annual fees paid by us for the years indicated. The remuneration did not include fees of RMB60 million (2018: RMB52 million) paid by our subsidiaries to KPMG Huazhen LLP and its network firms which primarily included audit fees of RMB50 million (2018: RMB43 million), audit-related fees of RMB7 million (2018: RMB6 million) and tax fees of RMB2 million (2018: RMB2 million), and other service fees of RMB1 million (2018: RMB1 million), respectively.

Audit CommitteePre-approved Policies and Procedures

Currently, all audit services to be provided by our independent registered public accountant, KPMG Huazhen LLP, must be pre-approved by our audit committee.

During the year ended December 31, 2019, services relating to all non-audit related fees provided to us by KPMG Huazhen LLP were approved by our audit committee in accordance with the de minimis exception to the pre-approval requirement provided by paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

Item 16D— EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES

We rely on an exemption contained in paragraph (b)(1)(iv)(D) of Rule10A-3 under the Securities and Exchange Act of 1934, as amended, from the New York Stock Exchange listing requirement that each member of the audit committee of a listed issuer must be independent. Our singlenon-independent audit committee member, who is a representative of CNPC, is not a voting member, nor the chairman of the audit committee of our board of directors, which qualifies us for the exemption from the independence requirements available under paragraph (b)(1)(iv)(D) of Rule10A-3. See “Item 6 — Directors, Senior Management and Employees — Board Practice — Audit Committee.” We believe our reliance on this exemption does not have any adverse effect on the ability of our audit committee to act independently.

Item 16E — PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Not applicable.

Item 16F — CHANGE IN REGISTRANT’

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

PetroChina Company Limited:

Opinion on Internal Control Over Financial Reporting

We have audited PetroChina Company Limited and subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2019, based on criteria established inInternal Control — Integrated

Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established inInternal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Company as of December 31, 2019 and 2018, the related consolidated statements of comprehensive income, cash flows and changes in equity for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements), and our report dated April 29, 2020 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/KPMG Huazhen LLP

Beijing, China

April 29, 2020

Changes in Internal Control over Financial Reporting

During the year ended December 31, 2019, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our company’s internal control over financial reporting.

Item 16A— AUDIT COMMITTEE FINANCIAL EXPERT

Our audit committee is composed of twonon-executive independent directors, Mr. Lin Boqiang and Mr. Zhang Biyi, and onenon-executive director, Mr. Liu Yuezhen. See “Item 6 — Directors, Senior Management and Employees — Board Practices — Audit Committee”. Mr. Zhang Biyi, ournon-executive independent director has been confirmed as a “financial expert” as defined in Item 16A ofForm  20-F.

Item 16B— CODE OF ETHICS

We adopted our code of business conduct and ethics for senior management on March 23, 2004 and our code of business conduct and ethics for employees on March 2, 2005 and have disclosed the content of both codes on our website.

These two Codes of Ethics may be accessed as follows:

1. From our main web page, first click on “Investor Relations”.

2. Next, click on “Corporate Governance Structure”.

3. Finally, click on “Code of Ethics for Senior Management” or “Code of Ethics for Employees of PetroChina Company Limited”.

This 20-F also includes both of the codes as exhibit 11.1 and 11.2.

Item 16C— PRINCIPAL ACCOUNTANT FEES AND SERVICES

KPMG Huazhen LLP served as our independent accountant for the fiscal years of 2018 and 2019. The office of KPMG Huazhen LLP is located at 8th Floor, KPMG Tower, Oriental Plaza, 1 East Chang An Avenue, Beijing, China.

The following table presents the aggregate fees paid by us (not including our subsidiaries) for professional audit services, tax and other services rendered by KPMG Huazhen LLP to us for each of the years ended December 31, 2018 and 2019, respectively.

  December 31, 
  2018  2019 
  RMB in millions 

Audit fees

  53   53 

Audit-related fees

  —   — 

Tax fees

  —   — 

All other fees

  —   — 
 

 

 

  

 

 

 

Total

  53   53 
 

 

 

  

 

 

 

The auditors’ remuneration above represented the annual fees paid by us for the years indicated. The remuneration did not include fees of RMB60 million (2018: RMB52 million) paid by our subsidiaries to KPMG Huazhen LLP and its network firms which primarily included audit fees of RMB50 million (2018: RMB43 million), audit-related fees of RMB7 million (2018: RMB6 million) and tax fees of RMB2 million (2018: RMB2 million), and other service fees of RMB1 million (2018: RMB1 million), respectively.

Audit CommitteePre-approved Policies and Procedures

Currently, all audit services to be provided by our independent registered public accountant, KPMG Huazhen LLP, must be pre-approved by our audit committee.

During the year ended December 31, 2019, services relating to all non-audit related fees provided to us by KPMG Huazhen LLP were approved by our audit committee in accordance with the de minimis exception to the pre-approval requirement provided by paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

Item 16D— EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES

We rely on an exemption contained in paragraph (b)(1)(iv)(D) of Rule10A-3 under the Securities and Exchange Act of 1934, as amended, from the New York Stock Exchange listing requirement that each member of the audit committee of a listed issuer must be independent. Our singlenon-independent audit committee member, who is a representative of CNPC, is not a voting member, nor the chairman of the audit committee of our board of directors, which qualifies us for the exemption from the independence requirements available under paragraph (b)(1)(iv)(D) of Rule10A-3. See “Item 6 — Directors, Senior Management and Employees — Board Practice — Audit Committee.” We believe our reliance on this exemption does not have any adverse effect on the ability of our audit committee to act independently.

Item 16E — PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Not applicable.

Item 16F — CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not applicable.

Item 16G — CORPORATE GOVERNANCE

We are incorporated under the laws of the PRC, with A Shares publicly traded on the Shanghai Stock Exchange, or the SSE, and H Shares publicly traded on the Hong Kong Stock Exchange, or the HKSE, and American Deposit Shares representing H Shares on the NYSE. As a result, our corporate governance framework is subject to the mandatory provisions of the PRC Company Law and the Corporate Governance Rules as well as the securities laws, regulations and the listing rules of Hong Kong and the United States.

The following discussion summarizes the significant differences between our corporate governance practices and those that would apply to a U.S. domestic issuer under the NYSE corporate governance rules.

Director Independence

Under the NYSE corporate governance rule 303A.01, a listed company must have a majority of independent directors on its board of directors. A company of which more than 50% of the voting power is held by an individual, a group or another company, or a controlled company, is not required to comply with this requirement. We are not required under the PRC Company Law and the HKSE Listing Rules to have a majority of independent directors on our board of directors. As of the date of this report, five of our 11 directors were independentnon-executive directors.

Under the NYSE corporate governance rule 303A.03, thenon-management directors of a listed company must meet at regularly scheduled executive sessions without management. There are no mandatory requirements under the PRC Company Law and the HKSE Listing Rules that a listed company should hold, and we currently do not hold, such executive sessions.

Nominating/Corporate Governance Committee

Under the NYSE corporate governance rule 303A.04, a listed company must have a nominating/corporate governance committee composed entirely of independent directors, with a written charter that covers certain minimum specified duties, but a controlled company is not required to comply with this requirement. The Corporate Governance Code as amended by the Stock Exchange of Hong Kong provides that issuers shall establish a nominating committee, and a majority of which should be independentnon-executive directors and the chairman shall be served by an independentnon-executive director or the board chairman. We are not required under the PRC Company Law to have a nominating/corporate governance committee. We set up a nominating committee in August 2015, which consists of the chairman of our board of directors and two independent directors.

Compensation Committee

Under the NYSE corporate governance rule 303A.05, a listed company must have a compensation committee composed entirely of independent directors, with a written charter that covers certain minimum specified duties. A controlled company is not required to comply with this requirement. We are not required under the PRC Company Law to have a compensation committee. Under the Corporate Governance Code of the HKSE Listing Rules, a listed company must have a remuneration committee composed of a majority of independentnon-executive directors, with a written term of references that covers certain minimum specified duties.

We currently do not have a compensation committee composed entirely of independent directors. However, we have an evaluation and remuneration committee including a majority of independentnon-executive directors.

Corporate Governance Guidelines

Under the NYSE corporate governance rule 303A.09, a listed company must adopt and disclose corporate governance guidelines that cover certain minimum specified subjects. We are not required under the PRC Company Law and the HKSE Listing Rules to have, and we do not currently have, formal corporate governance guidelines. However, we have the Articles of Association, the Rules and Procedures of Board of Directors and the Trial Implementation Rules for Compensation of Senior Management that address the following subjects:

director qualification standards and responsibilities;

key board committee responsibilities;

director compensation; and

director orientation and continuing education.

In 2009, we formulated the Administrative Measures on Independent Directors, the Administrative Rules on Holding of Company Shares by Directors, Supervisors and Senior Management, the Administrative Measures on Investor’s Relationship and the rules and procedures of the Audit Committee, the Performance Review and Compensation Committee, the Investment and Development Committee, and the Safety and Environmental Protection Committee. All these policies have further enhanced our corporate governance system and can ensure the better performance of duties of directors, supervisors, senior managers and committee members. In 2015, we set up a nominating committee and formulated the Rules of Procedures of the Nominating Committee. In 2017, we revised our articles of association according to relevant regulatory requirements. We added the cumulative voting provisions, and defined the role of the CPC’s core leadership in the articles of association. Ourby-laws with respect to general meeting, board of directors and supervisory committee were also amended in line with the amendment to the articles. In 2018, we formulated the Corporate Guarantee Management Measures and revised the Measures for Registration of Insiders of Insider Information. In 2019, we formulated the Procedures of Appointment of Directors.

Code of Business Conduct and Ethics

Under the NYSE corporate governance rule 303A.10, a listed company must adopt and disclose its code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. See “Item 16B — Code of Ethics”. We are not required under the PRC Company Law and the HKSE Listing Rules to have, and we do not currently have, a code of business conduct and ethics for directors. However, pursuant to the HKSE Listing Rules, all of our directors must comply with the Model Code for Securities Transactions by Directors of Listed Companies (the “Model Code”) as set out in the Listing Rules. The Model Code sets forth required standards with which the directors of a listed company must comply in securities transactions of the listed company.

CEO Certification Requirements

Under the NYSE corporate governance rule 303A.12(a), each listed company’s CEO must certify to the NYSE each year that he or she is not aware of any violation by the company of NYSE corporate governance listing standards. The PRC Company Law and the HKSE Listing Rules do not have such requirements. Our chairman performs the certification under the rule 303A.12(a).

Item 16H — MINE SAFETY DISCLOSURE

Not applicable.

PART III

Item 17 — FINANCIAL STATEMENTS

We have elected to provide the financial statements and related information specified in Item 18 in lieu of Item 17.

Item 18— FINANCIAL STATEMENTS

See pageF-1 to F-79 following Item 19.

Item 19— EXHIBITS

(a) See Item 18 for a list of the financial statements as part of this annual report.

(b) Exhibits to this annual report.

Exhibit
Number

Description of
Exhibits

  1.1Articles of Association (as amended on October  26, 2017) (English translation)(3)
  2.1*A description of rights of each class of securities registered under Section 12 of the Securities Exchange Act of 1934
  4.1Non-competition Agreement between CNPC and PetroChina (English translation)(1)
  4.2Trademark Licensing Contract between CNPC and PetroChina (English translation)(1)
  4.3Patent andKnow-how Licensing Contract between CNPC and PetroChina (English translation)(1)
  4.4Computer Software Licensing Contract between CNPC and PetroChina (English translation)(1)
  4.5Contract for Transfer of Rights under Production Sharing Contracts between CNPC and PetroChina (English translation)(1)
  4.6Contract for the Supervision of Certain Sales Enterprises between CNPC and PetroChina (English translation)(1)

Exhibit
Number

Description of
Exhibits

  4.7Comprehensive Products and Services Agreement, dated August 24, 2017, between CNPC and PetroChina(4)
  4.8Land Lease Agreement, dated August 24, 2017, between CNPC and PetroChina(4)
  4.9Building Lease Agreement, dated August 24, 2017, between CNPC and PetroChina(4)
  8.1*List of major subsidiaries
11.1Code of Ethics for Senior Management(2)
11.2Code of Ethics for Employees(2)
12.1*Certification of Chairman required by Section 302 of theSarbanes-Oxley Act of 2002
12.2*Certification of president required by Section 302 of the Sarbanes-Oxley Act of 2002
12.3*Certification of Chief Financial Officer required by Section 302 of theSarbanes-Oxley Act of 2002
13.1*Certification of Chairman required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002
13.2*Certification of president required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.3*Certification of Chief Financial Officer required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002
15.1*Reserves Report for the year ended on December 31, 2019 prepared by DeGolyer and MacNaughton
15.2*Reserves Audit Report for the year ended on December 31, 2019 prepared by DeGolyer and MacNaughton
15.3*Reserves Report for the year ended on December 31, 2019 prepared by Ryder Scott
15.4*Reserves Report for the year ended on December 31, 2019 prepared by GLJ Petroleum Consultants
15.5*Reserves Report for the year ended on December 31, 2019 prepared by McDaniel & Associates Consultants, Ltd.
15.6*Consent Letter of Ryder Scott
101.INS*XBRL Instance Document
101.SCH*XBRL Taxonomy Extension Schema Document
101.CAL*XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*XBRL Taxonomy Extension Label Linkbase Document
101.PRE*XBRL Taxonomy Extension Presentation Linkbase Document

*

To be filed as exhibits to this Form20-F.

(1)

Paper filing; incorporated by reference to our Registration Statement on FormF-1 (FileNo. 333-11566) filed with the Commission, as declared effective on March 29, 2000.

(2)

Incorporated by reference to our annual report on Form20-F for the fiscal year ended December 31, 2004 (FileNo. 1-15006) filed with the Commission.

(3)

Incorporated by reference to our report on Form6-K (FileNo. 1-15006) filed with the Commission on October 26, 2017.

(4)

Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2017 (File No. 1-15006) filed with the Commission.

SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing on Form20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

PETROCHINA COMPANY LIMITED
/s/Wu Enlai
Name: Wu Enlai
Title: Secretary to Board of Directors

Date: April 29, 2020

INDEX OF CONSOLIDATED FINANCIAL STATEMENTS

Page

PetroChina Company Limited and its Subsidiaries

Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

F-2

Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017

F-5

Consolidated Statements of Financial Position as of December  31, 2019 and 2018

F-6

Consolidated Statements of Cash Flows for the years ended December  31, 2019, 2018 and 2017

F-7

Consolidated Statements of Changes in Equity for the years ended December 31, 2019, 2018 and 2017

F-9

Notes to the Financial Statements

F-10

Supplementary Information on Oil and Gas Exploration and Production Activities (Unaudited)

F-71

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

PetroChina Company Limited:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of comprehensive income, changes in equity, and cash flowsfinancial position of PetroChina Company Limited and subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of comprehensive income, cash flows and changes in equity for each of the yearyears in the three-year period ended December 31, 2015. 2019, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019, in conformity with International Financial Reporting Standards as issued by International Accounting Standards Board.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated April 29, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 3(aa)(i) to the consolidated financial statements, the Group has changed its method of accounting for leases as of January 1, 2019 due to the adoption of International Financial Reporting Standard 16 “Leases”.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our auditaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statement presentation.statements. We believe that our audit providesaudits provide a reasonable basis for our opinion.

In our opinion,Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements referredthat were communicated or required to above present fairly,be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in all material respects,any way our opinion on the resultsconsolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Report of the operations and the cash flowsIndependent Registered Public Accounting Firm(continued)

Assessment of impairment of oil and gas properties

The critical audit matter

How the matter was addressed in our audit

As discussed in notes 3(f), 3(g), 5(b) and 15 to the consolidated financial statements, oil and gas properties as included in property, plant and equipment amounted to Renminbi (“RMB”)831,814 million as at December 31, 2019 and the impairment losses recognized for oil and gas properties for the year ended December 31, 2019 were RMB11,562 million.

The Company allocates oil and gas properties to separately identifiable cash-generating units (“CGUs”) and reviews these CGUs for possible impairment by considering events or changes in circumstances indicating that their carrying amounts may not be recoverable. Such events and changes in circumstances include the economic impact on these CGUs resulting from lower oil and gas prices, higher production costs and decline in oil and gas reserve volumes as estimated by the reserves specialists in accordance with recognized industry standards.

For those CGUs where an impairment indicator is identified, the Company compares the carrying amount of individual CGU with its recoverable amount, which is estimated by calculating the value in use using a discounted cash flow forecast, to determine the impairment loss to be recognized, if any.

We identified assessment of impairment of oil and gas properties as a critical audit matter because the recoverable amounts of these CGUs are sensitive to the changes to future selling prices and production costs for crude oil and natural gas; future production profiles; and discount rates and therefore a higher degree of subjective auditor judgment was required to evaluate the Company’s impairment assessment of oil and gas properties.

The primary procedures we performed to address this critical audit matter included the following:

•  tested certain internal controls over the processes for impairment assessment of oil and gas properties;

•  evaluated the Company’s identification of CGUs, allocation of assets to the CGUs and identification of impairment indicators;

•  assessed the competence, capabilities and objectivity of the Company’s reserves specialists and evaluated the methodology adopted by them in estimating the oil and gas reserves against the recognized industry standards;

•  evaluated the future selling prices for crude oil and natural gas used in the discounted cash flow forecasts by comparing them with the Company’s business plans and forecasts by external analysts;

•  evaluated the future production costs and future production profiles used in the discounted cash flow forecasts by comparing them with oil and gas reserves reports issued by the reserves specialists;

•  involved our internal professionals with skills and knowledge on valuation to assist us in assessing the discount rates applied in the discounted cash flow forecasts against a discount rate range that was independently developed using publicly available market data for comparable companies in the same industry; and

•  compared the actual results for the current year with the Company’s forecasts prepared in the prior year to assess the historical accuracy of the Company’s forecasting process.

Report of the Company for the year ended December 31, 2015, in conformity with International Financial Reporting Standards as issued by the InternationalIndependent Registered Public Accounting Standards Board.Firm(continued)

Assessment of impairment of goodwill resulting from the acquisition of PetroChina United Pipelines Company Limited

The critical audit matter

How the matter was addressed in our audit

As discussed in notes 3(h), 5(c) and 20 to the consolidated financial statements, as at December 31, 2019, the carrying amount of the goodwill resulting from the acquisition of PetroChina United Pipelines Company Limited in 2015 (“the Pipeline Goodwill”) was RMB34,285 million.

The Company performs impairment assessment of the Pipeline Goodwill and compares the carrying value of the CGU containing the Pipeline Goodwill with its recoverable amount by calculating the value in use using a discounted cash flow forecast to determine if any impairment is required.

We identified assessment of impairment of the Pipeline Goodwill as a critical audit matter because the recoverable amount of the CGU containing the Pipeline Goodwill is sensitive to the changes to forecast transportation volume, transportation price and operating costs, and discount rate and therefore a higher degree of subjective auditor judgment was required to evaluate the Company’s impairment assessment of Pipeline Goodwill.

The primary procedures we performed to address this critical audit matter included the following:

•  tested certain internal controls over the processes for impairment assessment of the Pipeline Goodwill;

•  evaluated the Company’s identification of CGU to which the Pipeline Goodwill was allocated and the allocation of other assets to that CGU;

•  evaluated the discounted cash flow forecast prepared by the Company by taking into account our understanding and knowledge of the pipeline industry, including comparing the forecast transportation volume with historical data and transportation capacity, comparing forecast operating costs with historical data and relevant budget and comparing the forecast transportation price with relevant government regulations;

•  involved our internal valuation professionals with specialized skills and knowledge to assist us in assessing the discount rate applied in the discounted cash flow forecasts against a discount rate range that was independently developed using publicly available market data for comparable companies in the same industry;

•  compared the forecast transportation volume, transportation price and operating costs included in the discounted cash flow forecast prepared in the prior year with the current year’s performance to assess historical accuracy of the Company’s forecasting process; and

•  evaluated the Company’s sensitivity analyses on the key assumptions adopted in the discounted cash flow forecast, including discount rate, operating costs and transportation volume, and the impact of changes in the key assumptions on the Company’s impairment assessment.

/s/ KPMG Huazhen LLP

Hong Kong,We have served as the Company’s auditor since 2013.

Beijing, China

April 28, 201629, 2020

PETROCHINA COMPANY LIMITED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Years Ended December 31, 2017, 20162019, 2018 and 20152017

(Amounts in millions, except for the per share data)

 

 Notes   2017 2016 2015   Notes   2019 2018Note 2017Note 
     RMB RMB RMB       RMB RMB RMB 

REVENUE

 6    2,015,890  1,616,903  1,725,428    6    2,516,810  2,374,934  2,032,298 
   

 

  

 

  

 

     

 

  

 

  

 

 

OPERATING EXPENSES

           

Purchases, services and other

    (1,285,716)  (959,640)  (1,056,795)      (1,697,834)  (1,553,784)  (1,295,032) 

Employee compensation costs

 8    (125,384)  (117,662)  (118,082)    8    (154,318)  (144,391)  (125,703) 

Exploration expenses, including exploratory dry holes

    (23,884)  (18,576)  (18,380)      (20,775)  (18,726)  (23,884) 

Depreciation, depletion and amortization

    (237,375)  (218,147)  (202,875)      (225,262)  (232,276)  (237,807) 

Selling, general and administrative expenses

    (77,042)  (74,255)  (71,270)      (68,596)  (74,477)  (77,557) 

Taxes other than income taxes

 9    (198,022)  (189,608)  (205,884)    9    (228,436)  (220,677)  (200,704) 

Other (expenses) / income, net

    (745)  21,620  27,110 

Other income/(expenses) net

     173  (7,661)  (775) 
   

 

  

 

  

 

     

 

  

 

  

 

 

TOTAL OPERATING EXPENSES

    (1,948,168)  (1,556,268)  (1,646,176)      (2,395,048)  (2,251,992)  (1,961,462) 
   

 

  

 

  

 

     

 

  

 

  

 

 

PROFIT FROM OPERATIONS

    67,722  60,635  79,252      121,762  122,942  70,836 
   

 

  

 

  

 

     

 

  

 

  

 

 

FINANCE COSTS

           

Exchange gain

    8,217  12,828  9,536      10,017  12,701  8,252 

Exchange loss

    (9,311)  (11,571)  (10,168)      (10,016)  (11,581)  (9,436) 

Interest income

    2,901  2,491  2,019      3,631  3,779  2,912 

Interest expense

 10    (22,408)  (23,348)  (24,328)    10    (30,409)  (22,718)  (22,841) 
   

 

  

 

  

 

     

 

  

 

  

 

 

TOTAL NET FINANCE COSTS

    (20,601)  (19,600)  (22,941)      (26,777)  (17,819)  (21,113) 
   

 

  

 

  

 

     

 

  

 

  

 

 

SHARE OF PROFIT OF ASSOCIATES AND JOINT VENTURES

 16    5,968  4,105  1,504      8,229  11,647  5,968 
   

 

  

 

  

 

     

 

  

 

  

 

 

PROFIT BEFORE INCOME TAX EXPENSE

 7    53,089  45,140  57,815    7    103,214  116,770  55,691 

INCOME TAX EXPENSE

 12    (16,296)  (15,768)  (15,726)    12    (36,199)  (42,790)  (16,296) 
   

 

  

 

  

 

     

 

  

 

  

 

 

PROFIT FOR THE YEAR

    36,793  29,372  42,089      67,015  73,980  39,395 
   

 

  

 

  

 

     

 

  

 

  

 

 

OTHER COMPREHENSIVE INCOME RECLASSIFIABLE TO PROFIT OR LOSS

     

OTHER COMPREHENSIVE INCOME

Item that will not be reclassified to profit or loss

      

Fair value changes in equity investment measured at fair value through other comprehensive income

     156  (201)   —   

Items that are or may be reclassified subsequently to profit or loss

      

Currency translation differences

    (431)  9,404  (20,965)      8,357  (2,667)  (431) 

Fair value (loss)/ gain fromavailable-for-sale financial assets, net of tax

    (608)  (128)  596 

Share of the other comprehensive (loss) / income of associates and joint ventures accounted for using the equity method

    (326)  313  130 

Fair value loss fromavailable-for-sale financial
assets, net of tax

     —     —    (608) 

Share of the other comprehensive income of associates and joint ventures accounted for using the equity method

     417  220  (326) 
   

 

  

 

  

 

     

 

  

 

  

 

 

OTHER COMPREHENSIVE (LOSS) / INCOME, NET OF TAX

    (1,365)  9,589  (20,239) 

OTHER COMPREHENSIVE INCOME, NET OF TAX

     8,930  (2,648)  (1,365) 
   

 

  

 

  

 

     

 

  

 

  

 

 

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

    35,428  38,961  21,850      75,945  71,332  38,030 
   

 

  

 

  

 

     

 

  

 

  

 

 

PROFIT FOR THE YEAR ATTRIBUTABLE TO:

           

Owners of the Company

    22,798  7,857  35,517      45,682  53,036  23,537 

Non-controlling interests

    13,995  21,515  6,572      21,333  20,944  15,858 
   

 

  

 

  

 

     

 

  

 

  

 

 
    36,793  29,372  42,089       67,015 73,980 39,395 
   

 

  

 

  

 

     

 

  

 

  

 

 

TOTAL COMPREHENSIVE INCOME FOR THE YEAR ATTRIBUTABLE TO:

           

Owners of the Company

    23,685  15,814  18,965      50,323  48,072  24,424 

Non-controlling interests

    11,743  23,147  2,885      25,622  23,260  13,606 
   

 

  

 

  

 

     

 

  

 

  

 

 
    35,428  38,961  21,850       75,945 71,332 38,030 
   

 

  

 

  

 

     

 

  

 

  

 

 

BASIC AND DILUTED EARNINGS PER SHARE ATTRIBUTABLE TO OWNERS OF THE COMPANY(RMB)

 13    0.12  0.04  0.19    13    0.25  0.29  0.13 
   

 

  

 

  

 

     

 

  

 

  

 

 

The accompanying notes are an integral part of these financial statements.

Note:

The comparative amounts in the financial statements are presented as if Dalian West Pacific Petrochemical Co., Ltd. (“Dalian West Pacific”) had been consolidated from the beginning of the earliest financial year presented (see Note 40). Furthermore, the Group has initially applied IFRS 16 at January 1, 2019 and IFRS 15 and IFRS 9 at January 1, 2018. Under the transition approaches chosen, the comparative information is not restated in this respect (see Note 3(aa)).

PETROCHINA COMPANY LIMITED

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

As of December 31, 20172019 and 20162018

(Amounts in millions)

 

  Notes   2017 2016   Notes   2019 2018Note 
      RMB RMB       RMB RMB 

NON-CURRENT ASSETS

          

Property, plant and equipment

   15    1,702,813  1,739,545    15    1,783,224  1,709,388 

Investments in associates and joint ventures

   16    81,159  78,967    16    102,073  89,362 

Available-for-sale financial assets

   17    1,917  2,011 

Equity investments measured at fair value through other comprehensive income

   17    922  738 

Advance operating lease payments

   19    73,896  71,353    19    —    78,240 

Right-of-use assets

   41    254,736   —   

Intangible and othernon-current assets

   20    92,941  102,750    20    100,663  98,309 

Deferred tax assets

   30    26,724  20,360    31    24,259  23,498 

Time deposits with maturities over one year

     120  3,101 
    

 

  

 

     

 

  

 

 

TOTALNON-CURRENT ASSETS

     1,979,450  2,014,986      2,265,997  2,002,636 
    

 

  

 

     

 

  

 

 

CURRENT ASSETS

          

Inventories

   21    144,669  146,865    21    181,921  177,577 

Accounts receivable

   22    53,143  47,315    22    64,184  59,522 

Prepayments and other current assets

   23    72,014  77,583    23    103,127  89,345 

Notes receivable

   24    19,215  11,285    24    7,016  16,308 

Time deposits with maturities over three months but within one year

     13,344  686      24,256  9,535 

Cash and cash equivalents

   25    122,777  97,931    25    86,409  85,954 
    

 

  

 

     

 

  

 

 

TOTAL CURRENT ASSETS

     425,162  381,665      466,913  438,241 
    

 

  

 

     

 

  

 

 

CURRENT LIABILITIES

          

Accounts payable and accrued liabilities

   26    343,819  310,680    26    328,314  299,848 

Contract liabilities

   27    82,490  68,144 

Income taxes payable

     9,533  8,743      7,564  5,728 

Other taxes payable

     47,898  36,456      59,818  77,560 

Short-term borrowings

   27    175,417  143,384    28    175,840  145,150 

Lease liabilities

   41    7,393   —   
    

 

  

 

     

 

  

 

 

TOTAL CURRENT LIABILITIES

     576,667  499,263      661,419  596,430 
    

 

  

 

     

 

  

 

 

NET CURRENT LIABILITIES

     (151,505)  (117,598)      (194,506)  (158,189) 
    

 

  

 

     

 

  

 

 

TOTAL ASSETS LESS CURRENT LIABILITIES

     1,827,945  1,897,388      2,071,491  1,844,447 
    

 

  

 

     

 

  

 

 

EQUITY

          

EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY:

          

Share capital

   28    183,021  183,021    29    183,021  183,021 

Retained earnings

     712,437  711,197      743,124  731,163 

Reserves

   29    298,062  294,806    30    304,011  299,599 
    

 

  

 

     

 

  

 

 

TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY

     1,193,520  1,189,024      1,230,156  1,213,783 

NON-CONTROLLING INTERESTS

     187,799  183,711      214,149  195,108 
    

 

  

 

     

 

  

 

 

TOTAL EQUITY

     1,381,319  1,372,735      1,444,305  1,408,891 
    

 

  

 

     

 

  

 

 

NON-CURRENT LIABILITIES

          

Long-term borrowings

   27    289,858  372,887    28    290,882  269,422 

Asset retirement obligations

   31    131,546  125,392    32    137,935  132,780 

Lease liabilities

   41    164,143   —   

Deferred tax liabilities

   30    12,660  13,640    31    21,411  17,015 

Other long-term obligations

     12,562  12,734      12,815  16,339 
    

 

  

 

     

 

  

 

 

TOTALNON-CURRENT LIABILITIES

     446,626  524,653      627,186  435,556 
    

 

  

 

     

 

  

 

 

TOTAL EQUITY ANDNON-CURRENT LIABILITIES

     1,827,945  1,897,388      2,071,491  1,844,447 
    

 

  

 

     

 

  

 

 

The accompanying notes are an integral part of these financial statements.

Note:

The comparative amounts in the financial statements are presented as if the Dalian West Pacific had been consolidated from the beginning of the earliest financial year presented (see Note 40). Furthermore, the Group has initially applied IFRS 16 at January 1, 2019 using the modified retrospective approach. Under this approach chosen, the comparative information is not restated in this respect (see Note 3(aa)).

PETROCHINA COMPANY LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2017, 20162019, 2018 and 20152017

(Amounts in millions)

 

  2017 2016 2015   2019 2018Note 2017Note 
  RMB RMB RMB   RMB RMB RMB 

CASH FLOWS FROM OPERATING ACTIVITIES

      

Profit for the year

   36,793  29,372  42,089    67,015  73,980  39,395 

Adjustments for:

        

Income tax expense

   16,296  15,768  15,726    36,199  42,790  16,296 

Depreciation, depletion and amortization

   237,375  218,147  202,875    225,262  232,276  237,807 

Capitalized exploratory costs charged to expense

   9,455  9,689  9,608    8,900  8,579  9,455 

Safety fund reserve

   327  1,614  1,434    (1,318)  608  327 

Share of profit of associates and joint ventures

   (5,968)  (4,105)  (1,504)    (8,229)  (11,647)  (5,968) 

Provision for impairment of receivables, net

   3,254  1,609  74 

(Reversal)/accrual of provision for impairment of receivables, net

   (1,367)  15  3,254 

Write down in inventories, net

   1,069  2,634  3,335    1,260  4,230  1,069 

Impairment ofavailable-for-sale financial assets

   —    (2)  74 

Impairment of othernon-current assets

   3,784  115   —      22  77  3,784 

Loss on disposal of property, plant and equipment

   4,939  7,972  4,661    9,809  16,761  4,963 

Remeasurement to fair value ofpre-existing interest in acquiree

   —     —    (22,807) 

Gain on disposal of othernon-current assets

   (108)  (37)  (1,476)    (501)  (501)  (108) 

Gain on disposal of subsidiaries

   (613)  (24,674)  (280)    (49)  (45)  (613) 

Dividend income

   —    (60)  (288)    (22)  (52)   —   

Interest income

   (2,901)  (2,491)  (2,019)    (3,631)  (3,779)  (2,912) 

Interest expense

   22,408  23,348  24,328    30,409  22,718  22,841 

Changes in working capital:

        

Accounts receivable, prepaid expenses and other current assets

   (2,779)  5,281  5,581 

Accounts receivable, prepayments and other current assets

   (5,017)  (9,280)  (3,876) 

Inventories

   1,141  (22,638)  36,256    (5,624)  (34,705)  437 

Accounts payable and accrued liabilities

   65,229  16,825  (28,163)    27,416  49,127  65,624 

Contract liabilities

   14,346  892   —   
  

 

  

 

  

 

   

 

  

 

  

 

 

CASH FLOWS GENERATED FROM OPERATIONS

   389,701  278,367  289,504    394,880  392,044  391,775 

Income taxes paid

   (23,046)  (13,188)  (28,192)    (35,270)  (38,788)  (23,046) 
  

 

  

 

  

 

   

 

  

 

  

 

 

NET CASH FLOWS FROM OPERATING ACTIVITIES

   366,655  265,179  261,312    359,610  353,256  368,729 
  

 

  

 

  

 

   

 

  

 

  

 

 

The accompanying notes are an integral part of these financial statements.

PETROCHINA COMPANY LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

For the Years Ended December 31, 2017, 20162019, 2018 and 20152017

(Amounts in millions)

 

  2017 2016 2015   2019 2018Note 2017Note 
  RMB RMB RMB   RMB RMB RMB 

CASH FLOWS FROM INVESTING ACTIVITIES

        

Capital expenditures

   (229,239)  (181,054)  (217,750)    (319,686)  (267,310)  (229,492) 

Acquisition of investments in associates and joint ventures

   (3,901)  (2,008)  (1,637)    (4,326)  (2,911)  (3,901) 

Acquisition of equity investments measured at fair value through other comprehensive income

   —    (2)   —   

Acquisition ofavailable-for-sale financial assets

   (16)  (400)  (625)    —     —    (16) 

Prepayments on long-term operating leases

   (3,928)  (2,586)  (2,524) 

Prepayments on long-term leases

   (3,820)  (3,856)  (3,928) 

Acquisition of intangible assets and othernon-current assets

   (3,837)  (5,781)  (3,586)    (3,256)  (4,668)  (3,839) 

Payments for acquisition of joint venture and subsidiaries

   (1,106)   —    (6,496) 

Acquisition of subsidiaries

   (183)   —     —   

Payments tonon-controlling interests due to acquisition of subsidiaries

   —     —    (1,106) 

Proceeds from disposal of property, plant and equipment

   1,146  2,127  1,923    1,830  1,616  1,146 

Acquisition of subsidiaries

   —     —    (17,855) 

Proceeds from disposal of othernon-current assets

   921  991  16,987    507  224  921 

Interest received

   2,227  2,079  1,585    2,860  2,963  2,238 

Dividends received

   7,181  10,505  9,617    4,865  5,438  7,181 

(Increase) / decrease in time deposits with maturities over three months

   (12,994)  240  4,482 

(Increase)/decrease in time deposits with maturities over three months

   (11,739)  694  (12,994) 
  

 

  

 

  

 

   

 

  

 

  

 

 

NET CASH FLOWS USED FOR INVESTING ACTIVITIES

   (243,546)  (175,887)  (215,879)    (332,948)  (267,812)  (243,790) 
  

 

  

 

  

 

   

 

  

 

  

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

        

Repayments of short-term borrowings

   (578,129)  (458,780)  (530,808)    (614,525)  (646,396)  (585,660) 

Repayments of long-term borrowings

   (195,984)  (285,519)  (250,745)    (171,226)  (123,745)  (198,984) 

Repayments of lease liabilities

   (17,623)   —     —   

Interest paid

   (19,590)  (19,276)  (20,777)    (16,830)  (19,392)  (20,026) 

Dividends paid tonon-controlling interests

   (12,621)  (2,401)  (5,314)    (14,245)  (15,207)  (12,621) 

Dividends paid to owners of the Company

   (19,626)  (8,450)  (29,005)    (30,684)  (27,369)  (19,626) 

Cash paid to acquirenon-controlling interests

   (1,059)   —     —   

Capital reduction of subsidiaries

   (182)  (86)  (17) 

Increase in short-term borrowings

   601,862  460,478  481,762    634,896  615,781  610,808 

Increase in long-term borrowings

   128,390  247,429  311,809    201,562  88,500  128,390 

Capital contribution fromnon-controlling interests

   1,470  940  1,596 

Cash contribution fromnon-controlling interests

   2,640  2,211  1,470 

Decrease in other long-term obligations

   (497)  (1,428)  (3,957)    —     —    (480) 
  

 

  

 

  

 

   

 

  

 

  

 

 

NET CASH FLOWS USED FOR FINANCING ACTIVITIES

   (94,725)  (67,007)  (45,439)    (27,276)  (125,703)  (96,746) 
  

 

  

 

  

 

   

 

  

 

  

 

 

TRANSLATION OF FOREIGN CURRENCY

   (3,538)  2,873  (999)    1,069  2,513  (3,551) 
  

 

  

 

  

 

   

 

  

 

  

 

 

Increase / (decrease) in cash and cash equivalents

   24,846  25,158  (1,005) 

Increase/(decrease) in cash and cash equivalents

   455  (37,746)  24,642 

Cash and cash equivalents at beginning of the year

   97,931  72,773  73,778    85,954  123,700  99,058 
  

 

  

 

  

 

   

 

  

 

  

 

 

Cash and cash equivalents at end of the year

   122,777  97,931  72,773    86,409  85,954  123,700 
  

 

  

 

  

 

   

 

  

 

  

 

 

The accompanying notes are an integral part of these financial statements.

Note:

The comparative amounts in the financial statements are presented as if the Dalian West Pacific had been consolidated from the beginning of the earliest financial year presented (see Note 40). Furthermore, the Group has initially applied IFRS 16 at January 1, 2019 and IFRS 15 and IFRS 9 at January 1, 2018. Under the transition approaches chosen, the comparative information is not restated in this respect (see Note 3(aa)).

PETROCHINA COMPANY LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Years Ended December 31, 2017, 20162019, 2018 and 20152017

(Amounts in millions)

 

 Attributable to Owners of the Company Non-controlling
Interests		  Total
Equity		   Attributable to owners of the Company Non-
controlling
Interests		 Total
Equity		 
 Share
Capital		 Retained
Earnings		 Reserves Subtotal   Share
Capital		   Retained
Earnings		 Reserves Subtotal     
 RMB RMB RMB RMB RMB RMB   RMB   RMB RMB RMB RMB RMB 

Balance at January 1, 2015

 183,021  707,303  285,570  1,175,894  141,887  1,317,781 

Balance at January 1, 2017, as previously reported

   183,021    711,197  294,806  1,189,024  183,711  1,372,735 

Adjusted for the acquisition of Dalian West Pacific (Note 40)

   —      (2,203)  516  (1,687)  (4,246)  (5,933) 
 

 

  

 

  

 

  

 

  

 

  

 

   

 

   

 

  

 

  

 

  

 

  

 

 

Profit for the year ended December 31, 2015

  —    35,517   —    35,517  6,572  42,089 

Other comprehensive loss for the year ended December 31, 2015

  —     —    (16,552)  (16,552)  (3,687)  (20,239) 

Special reserve-safety fund reserve

  —     —    1,303  1,303  131  1,434 

Transfer to reserves

  —    (2,103)  2,103   —     —     —   

Dividends

  —    (29,005)   —    (29,005)  (5,515)  (34,520) 

Acquisition of subsidiaries

  —     —    12,530  12,530  23,755  36,285 

Capital contribution fromnon-controlling interests

  —     —     —     —    2,040  2,040 

Other

  —    43  (14)  29  (865)  (836) 
 

 

  

 

  

 

  

 

  

 

  

 

 

Balance at December 31, 2015

 183,021  711,755  284,940  1,179,716  164,318  1,344,034 
 

 

  

 

  

 

  

 

  

 

  

 

 

Profit for the year ended December 31, 2016

  —    7,857   —    7,857  21,515  29,372 

Other comprehensive income for the year ended December 31, 2016

  —     —    7,957  7,957  1,632  9,589 

Special reserve-safety fund reserve

  —     —    1,540  1,540  74  1,614 

Dividends

  —    (8,450)   —    (8,450)  (4,282)  (12,732) 

Transaction withnon-controlling interests in subsidiaries

  —     —    224  224  (2,061)  (1,837) 

Capital contribution fromnon-controlling interests

  —     —     —     —    1,087  1,087 

Other

  —    35  145  180  1,428  1,608 
 

 

  

 

  

 

  

 

  

 

  

 

 

Balance at December 31, 2016

 183,021  711,197  294,806  1,189,024  183,711  1,372,735 
 

 

  

 

  

 

  

 

  

 

  

 

 

Balance at January 1, 2017, as adjustedNote

   183,021    708,994  295,322  1,187,337  179,465  1,366,802 

Profit for the year ended December 31, 2017

  —    22,798   —    22,798  13,995  36,793    —      23,537   —    23,537  15,858  39,395 

Other comprehensive income / (loss) for the year ended December 31, 2017

  —     —    887  887  (2,252)  (1,365) 

Other comprehensive income for the year ended December 31, 2017

   —      —    887  887  (2,252)  (1,365) 

Special reserve-safety fund reserve

  —     —    178  178  149  327    —      —    178  178  149  327 

Transfer to reserves

  —    (1,929)  1,929   —     —     —      —      (1,929)  1,929   —     —     —   

Dividends

  —    (19,626)   —    (19,626)  (10,404)  (30,030)    —      (19,626)   —    (19,626)  (10,404)  (30,030) 

Transaction withnon-controlling interests in subsidiaries

  —     —    289  289  649  938    —      —    289  289  649  938 

Capital contribution fromnon-controlling interests

  —     —     —     —    2,584  2,584    —      —     —     —    2,584  2,584 

Other

  —    (3)  (27)  (30)  (633)  (663)    —      (3)  (27)  (30)  (633)  (663) 
 

 

  

 

  

 

  

 

  

 

  

 

   

 

   

 

  

 

  

 

  

 

  

 

 

Balance at December 31, 2017

 183,021  712,437  298,062  1,193,520  187,799  1,381,319    183,021    710,973  298,578  1,192,572  185,416  1,377,988 
 

 

  

 

  

 

  

 

  

 

  

 

   

 

   

 

  

 

  

 

  

 

  

 

 

Balance at January 1, 2018

   183,021    710,973  298,578  1,192,572  185,416  1,377,988 

Profit for the year ended December 31, 2018

   —      53,036   —    53,036  20,944  73,980 

Other comprehensive income for the year ended December 31, 2018

   —      —    (4,964)  (4,964)  2,316  (2,648) 

Special reserve-safety fund reserve

   —      —    465  465  143  608 

Transfer to reserves

   —      (5,476)  5,476   —   —     —   

Dividends

   —      (27,369)   —    (27,369)  (15,423)  (42,792) 

Transaction withnon-controlling interests in subsidiaries

   —      —    13  13  (24)  (11) 

Capital contribution fromnon-controlling interests

   —      —     —     —    2,300  2,300 

Disposal of subsidiaries

   —      —     —     —    (879)  (879) 

Other

   —      (1)  31  30  315  345 
  

 

   

 

  

 

  

 

  

 

  

 

 

Balance at December 31, 2018

   183,021    731,163  299,599  1,213,783  195,108  1,408,891 
  

 

   

 

  

 

  

 

  

 

  

 

 

Balance at January 1, 2019

   183,021    731,163  299,599  1,213,783  195,108  1,408,891 
  

 

   

 

  

 

  

 

  

 

  

 

 

Profit for the year ended December 31, 2019

   —      45,682   —    45,682  21,333  67,015 

Other comprehensive income for the year ended December 31, 2019

   —      —    4,641  4,641  4,289  8,930 

Special reserve-safety fund reserve

   —      —    (1,388)  (1,388)  70  (1,318) 

Transfer to reserves

   —      (3,037)  3,037   —     —     —   

Dividends

   —      (30,684)   —    (30,684)  (14,279)  (44,963) 

Transaction withnon-controlling interests in subsidiaries

   —      —    (2,007)  (2,007)  938  (1,069) 

Capital contribution fromnon-controlling interests

   —      —    120  120  6,647  6,767 

Disposal of subsidiaries

   —      —     —     —    (50)  (50) 

Other

   —      —    9  9  93  102 
  

 

   

 

  

 

  

 

  

 

  

 

 

Balance at December 31, 2019

   183,021    743,124  304,011  1,230,156  214,149  1,444,305 
  

 

   

 

  

 

  

 

  

 

  

 

 

The accompanying notes are an integral part of these financial statements.

Note:

The comparative amounts in the financial statements are presented as if the Dalian West Pacific had been consolidated from the beginning of the earliest financial year presented (see Note 40). Furthermore, the Group has initially applied IFRS 16 at January 1, 2019 and IFRS 15 and IFRS 9 at January 1, 2018. Under the transition approaches chosen, the comparative information is not restated in this respect (see Note 3(aa)).

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

(All amounts in millions, except for the per share data and otherwise stated)

 

1ORGANISATION

ORGANIZATION AND PRINCIPAL ACTIVITIES

PetroChina Company Limited (the “Company”) was established as a joint stock company with limited liability on November 5, 1999 by中国石油天然气集团公司(China National Petroleum Corporation (“CNPC”)) as the sole proprietor in accordance with the approval Guo Jing Mao Qi Gai [1999] No. 1024 “Reply on the approval of the establishment of PetroChina Company Limited” from the former State Economic and Trade Commission of the People’s Republic of China (“China” or “PRC”). CNPC restructured (“the Restructuring”) and injected its core business and the related assets and liabilities into the Company. 中国中国石油天然气集团公司 was renamed 中国中国石油天然气集团有限公司 (“CNPC”(CNPC before and after the change of name) on December 19, 2017. CNPC is a wholly state-owned company registered in China. The Company and its subsidiaries are collectively referred to as the “Group”.

The Group is principally engaged in (i) the exploration, development and production and marketing of crude oil and natural gas; (ii) the refining of crude oil and petroleum products, production and marketing of primary petrochemical products, derivative petrochemical products and other chemical products; (iii) the marketing of refined products and trading business; and (iv) the transmission of natural gas, crude oil and refined products and the sale of natural gas (Note 37)38).

 

2

BASIS OF PREPARATION

The consolidated financial statements and the statement of financial position of the Company have been prepared in accordance with the International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board (“IASB”). The consolidated financial statements and the statement of financial position of the Company have been prepared under the historical cost convention except as disclosed in the accounting policies below.

The preparation of financial statements in conformity with IFRSs requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the statement of financial position and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current events and actions, actual results may ultimately differ from those estimates. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5.

 

3

SUMMARY OF PRINCIPAL ACCOUNTING POLICIES

(a) Basis of consolidation

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has right to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

A subsidiary is consolidated from the date on which control is transferred to the Group and is no longer consolidated from the date that control ceases. The acquisition method of accounting is used to account for the acquisition of subsidiaries except for business combinations under common control. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

their fair values at the acquisition date. Contingent liabilities assumed in a business combination are recognized in the acquisition accounting if they are present obligations and their fair value can be measured reliably. On anacquisition-by-acquisition basis, the Group recognizes anynon-controlling interests in the acquiree either at fair value or at thenon-controlling interests’ proportionate share of the acquiree’s net assets.

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

The excess of the consideration transferred, the amount of anynon-controlling interests in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognized directly in the consolidated statement of comprehensive income.

An acquisition of a business which is a business combination under common control is accounted for in a manner similar to a uniting of interests whereby the assets and liabilities acquired are accounted for at carryover predecessor values to the other party to the business combination with all periods presented as if the operations of the Group and the business acquired have always been combined. The difference between the consideration paid by the Group and the net assets or liabilities of the business acquired is adjusted against equity.

Intercompany transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are also eliminated.eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment. Where necessary, accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the Group.

For purpose of the presentation of the Company’s statement of financial position, investments in subsidiaries are accounted for at cost less impairment.

A listing of the Group’s principal subsidiaries is set out in Note 18.

(b) Investments in associates

Associates are entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for by the equity method of accounting in the consolidated financial statements of the Group and are initially recognized at cost.

Under this method of accounting, the Group’s share of the post-acquisition profits or losses of associates is recognized in the consolidated profit or loss and its share of post-acquisition movements in other comprehensive income is recognized in other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amounts of the investments. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate.

Unrealized gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates; unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The Group’s investment in associates includes goodwill identified on acquisition, net of any accumulated impairment loss and is tested for impairment as part of the overall balance. Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the fair value of net identifiable assets of the acquired associate at the date of acquisition. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

A listing of the Group’s principal associates is shown in Note 16.

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

(c) Investments in joint ventures

VenturesJoint ventures are arrangements in which the Group with one or more parties have joint control, whereby the Group has rights to the net assets of the arrangements, rather than rights to their assets and obligations for their liabilities. The Group’s interests in joint ventures are accounted for by the equity method of accounting (Note 3(b)) in the consolidated financial statements.

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

A listing of the Group’s principal joint ventures is shown in Note 16.

(d) Transactions withnon-controlling interests

Transactions withnon-controlling interests are treated as transactions with owners in their capacity as owners of the Group. Gains and losses resulting from disposals tonon-controlling interests are recorded in equity. The differences between any consideration paid and the relevant share of the carrying value of net assets of the subsidiary acquired resulting from the purchase ofnon-controlling interests, are recorded in equity.

When the Group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognized in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean thatThe amounts previously recognized in other comprehensive income are reclassified to profit or loss.

If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognized in other comprehensive income are reclassified to profit or loss where appropriate.

(e) Foreign currencies

Items included in the financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). Most assets and operations of the Group are located in the PRC (Note 37)38), and the functional currency of the Company and most of the consolidated subsidiaries is the Renminbi (“RMB”). The consolidated financial statements are presented in the presentation currency of RMB.

Foreign currency transactions of the Group are accounted for at the exchange rates prevailing at the respective dates of the transactions; monetary assets and liabilities denominated in foreign currencies are translated at exchange rates at the date of the statement of financial position; gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities are recognized in the consolidated profit or loss.

For the Group entities that have a functional currency different from the Group’s presentation currency, assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of the statement of financial position. Income and expenses for each statement of comprehensive income presented are translated at the average exchange rates for each period and the resulting exchange differences are recognized in other comprehensive income.

(f) Property, plant and equipment

Property, plant and equipment, including oil and gas properties (Note 3(g)), are initially recorded in the consolidated statement of financial position at cost where it is probable that they will generate future economic benefits. Cost represents the purchase price of the asset and other costs incurred to bring the asset into existing use. Subsequent to their initial recognition, property, plant and equipment are carried at cost less accumulated depreciation, depletion and amortization (including any impairment).

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

(f) Property, plant and equipment

Property, plant and equipment, including oil and gas properties (Note 3(g)), are initially recorded in the consolidated statement of financial position at cost if it is probable that they will generate future economic benefits. Cost represents the purchase price of the asset and other costs incurred to bring the asset into intended 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 (Note 3(g)), to their residual values over their estimated useful lives is calculated using the straight-line method.

The Group uses the following estimated useful lives, estimated residual value ratios and annual depreciation rates for depreciation purposes:

 

Estimated useful livesEstimated residual
value ratio %		Annual depreciation
rate %

Buildings

 8 -to 40 years52.4 to 11.9

Equipment and machineryMachinery

 4 -to 30 years3 to 53.2 to 24.3

Motor vehiclesVehicles

 4 -to 14 years56.8 to 23.8

Other

 5 -to 12 years57.9 to 19.0

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 if appropriate, at the end of each reporting period.

Property, plant and equipment, including oil and gas properties (Note 3(g)) andright-of-use assets (Note 3(k)), are reviewed for possible impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the carrying amount of a cash generatingcash-generating unit exceeds the higher of its fair value less costs to sell and its value in use. Value in use is the estimated net present value of future cash flows to be derived from the cash generatingcash-generating unit.

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 construction of property, plant and equipment, including oil and gas properties (Note 3(g)), 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.

(g) Oil and gas properties

The successful efforts method of accounting is used for oil and gas exploration and production activities. Under this method, all costs for development wells, support equipment and facilities, and proved mineral interests in oil and gas properties are capitalized. Geological and geophysical costs are expensed when incurred. Costs of exploratory wells are capitalized pending determination of whether the wells find proved oil and gas reserves. 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

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

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. Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average price during the12-month period before the ending date of the period covered by the proved oil and gas reserve report, determined as an unweighted arithmetic average of thefirst-day-of-the-month price for each month within such period unless prices are defined by contractual arrangements, excluding escalations based upon future conditions. The costs shall be that prevailing at the end of the period.

Exploratory wells in areas not requiring major capital expenditures are evaluated for economic viability within one year of completion of drilling. The related well costs are expensed as dry holes if it is determined that

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

such economic viability is not attained. Otherwise, the related well costs are reclassified to oil and gas properties and are subject to impairment review (Note 3(f)). For exploratory wells that are found to have economically viable reserves in areas where major capital expenditure will be required before production can commence, the related well costs remain capitalized only if additional drilling is underway or firmly planned. Otherwise the related well costs are expensed as dry holes. The Group does not have any significant costs of unproved properties capitalized in oil and gas properties.

The Ministry of Land andNatural Resources (Renamed as Department of Natural Resources) in China issues production licenses to applicants on the basis of the reserve reports approved by relevant authorities.

The cost of oil and gas properties is amortized at the field level based on the units of production method. Units of production rates are based on oil and gas reserves estimated to be recoverable from existing facilities based on the current terms of the Group’s production licenses.

(h) Intangible assets and goodwill

Expenditures on acquired patents, trademarks, technicalknow-how and licenses are capitalized at historical cost and amortized using the straight-line method over their estimated useful lives. Intangible assets are not subsequently revalued. The carrying amount of each intangible asset is reviewed annually and adjusted for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized whenever the carrying amount of an intangible asset exceeds its recoverable amount and is recognized in the consolidated profit or loss. The recoverable amount is measured as the higher of fair value less costs to sell and value in use. Value in use is the estimated net present value of future cash flows to be derived from the asset.

Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred over the interest in net fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree and the amount of anynon-controlling interests in the acquiree.

Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. TheAn impairment loss is recognized if the carrying valueamount of the cash-generating unit containing goodwill is comparedexceeds its recoverable amount. Impairment losses are allocated first to reduce the carrying amount of any goodwill allocated to the recoverable amount, which iscash-generating unit, and then to reduce the highercarrying amounts of valuethe other assets in use and the fair value less costs to sell.cash-generating unit on a pro rata basis. Any impairment is recognized immediately as an expense and is not subsequently reversed.

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

(i) Financial instruments

(a) Recognition and initial measurement

Accounts receivable and debt securities issued are initially recognized when they are originated. All other financial assets and financial liabilities are initially recognized when the Group becomes a party to the contractual provisions of the instrument.

A financial asset (unless it is an accounts receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at Fair value through profit or loss (“FVTPL”), transaction costs that are directly attributable to its acquisition or issue. An accounts receivable without a significant financing component is initially measured at the transaction price.

(b) Classification and subsequent measurement

Financial assets – Policy applicable from January 1, 2018

On initial recognition, a financial asset is classified as measured at: amortized cost; Fair value through other comprehensive income (“FVOCI”) – debt investment; FVOCI – equity investment; or FVTPL.

Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.

A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL:

it is held within a business model whose objective is to hold assets to collect contractual cashflows; and

its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:

it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and

its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment’s fair value in other comprehensive income (“OCI”). This election is made on aninvestment-by-investment basis.

All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets.

The Group makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management.

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

For the purposes of this assessment whether contractual cash flows are solely payments of principal and interest, “principal” is defined as the fair value of the financial asset on initial recognition. “Interest” is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin.

In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition.

Detailed accounting policies for subsequent measurement of financial assets are set out below:

Financial assets at FVTPLThese assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in profit or loss.
Financial assets at amortized costThese assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.
Debt investments at FVOCIThese assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.
Equity investments at FVOCIThese assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.

Financial assets – Policy applicable before January 1, 2018

Financial assets are classified into the following categories: financial assets at fair value through profit or loss,held-to-maturity investments, loans and receivables andavailable-for-sale financial assets. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. The Group has principally loans and receivables andavailable-for-sale financial assets and limited financial assets at fair value through profit or loss. The detailed accounting policies for loans and receivables,available-for-sale financial assets and financial assets at fair value through profit or loss held by the Group are set out below:

Classification

(i) Loans and receivables

Loans and receivables arenon-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12

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NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

months after the date of the statement of financial position, which are classified asnon-current assets. The Group’s loans and receivables comprise accounts receivable, notes receivable and other receivables. The recognition methods for loans and receivables are disclosed in the respective policy notes.

(ii)Available-for-sale financial assets

Available-for-sale financial assets arenon-derivatives that are either designated in this category or not classified in any of the other categories; these are included innon-current assets unless management intends to dispose of the investment within 12 months of the date of the statement of financial position. The Group’savailable-for-sale financial assets primarily comprise unquoted equity instruments.

(iii) Financial assets at fair value through profit or loss

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NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term.short-term. Derivatives are also categorized as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if expected to be settled within 12 months; otherwise, they are classified asnon-current.

Recognition and measurement

Regular purchases and sales of financial assets are recognized on the trade-date, the date on which the Group commits to purchase or sell the asset. Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognized at fair value, and transaction costs are expensed in profit or loss. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership.

Available-for-sale financial assets are measured at fair value except where there are no quoted market prices in active markets and the fair values cannot be reliably measured using valuation techniques.Available-for-sale financial assets that do not have quoted market prices in active markets and whose fair value cannot be reliably measured are carried at cost. Changes in the fair value of monetary andnon-monetary securities classified as available for sale are recognized in other comprehensive income.OCI. Financial assets at fair value through profit or loss are subsequently carried at fair value. Gains or losses arising from changes in the fair value of the “financial assets at fair value through profit or loss” category are presented in the statement of comprehensive income within “other income, net” in the period in which they arise.

(c) Derecognition

Financial assets

The Group derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.

The Group enters into transactions whereby it transfers assets recognized in its consolidated statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets. In these cases, the transferred assets are not derecognized.

Financial liabilities

The Group derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire. The Group also derecognizes a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value.

On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including anynon-cash assets transferred or liabilities assumed) is recognized in profit or loss.

(d) Offsetting

Financial assets and financial liabilities are offset and the net amount presented in the consolidated statement of financial position when, and only when, the Group currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.

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NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

(j) Impairment for financial assets

Policy applicable from January 1, 2018

The Group recognizes loss allowances for expected credit losses (“ECLs”) on:

financial assets measured at amortized cost;

debt investments measured at FVOCI; and

contract assets.

The Group measures loss allowances at an amount equal to lifetime ECLs, except for the financial assets for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition, which are measured as12-month ECLs. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort.

Loss allowances for accounts receivable are always measured at an amount equal to lifetime ECLs. The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive). ECLs are discounted at the effective interest rate of the financial asset.

At each reporting date, the Group assesses whether financial assets carried at amortized cost and debt securities at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets. Impairment losses on trade and other receivables are presented under ‘Selling, general and administrative expenses’, similar to the presentation under IAS 39.

The gross carrying amount of a financial asset is written off when the Group has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. For customers, the Group individually makes an assessment with respect to the timing and amount ofwrite-off based on whether there is a reasonable expectation of recovery. The Group expects no significant recovery from the amount written off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Group’s procedures for recovery of amounts due.

Policy applicable before January 1, 2018

The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset is impaired. The amount of the impairment loss is measured as the difference between the carrying amount of theavailable-for-sale financial asset and the present value of the estimated cash flows. For accounts receivable, the provision of impairment is established if there is objective evidence that the Group will not be able to collect amount due according to the original terms of the receivables. The factors the Group considers when assessing whether an accounts receivable is impaired include but are not limited to significant financial

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

difficulties of the customer, probability that the debtor will enter bankruptcy or financial reorganization and default or delinquency in payments. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.

(k) Leases

The Group has applied IFRS 16“Lease” (“IFRS 16”) using the modified retrospective approach and therefore the comparative information has not been restated and continues to be reported under IAS 17“Lease” (“IAS 17”) and IFRIC 4“Determining Whether an Arrangement Contains a Lease” (“IFRIC 4”). The details of accounting policies under IAS 17 and IFRIC 4 are disclosed separately.

(j) LeasesPolicy applicable from January 1, 2019

At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group uses the definition of a lease in IFRS 16. Payments made to the Ministry of Natural Resources to secure land use rights (excluding mineral properties) are treated as leases.

This policy is applied to contracts entered into, on or after January 1, 2019.

(a) As a lessee

At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of its relative stand-alone prices.

The Group recognizes aright-of-use asset and a lease liability at the lease commencement date. Theright-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.

Theright-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of theright-of-use asset reflects that the Group will exercise a purchase option. In that case theright-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, theright-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate.

Lease payments included in the measurement of the lease liability comprise the following:

fixed payments, includingin-substance fixed payments;

variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;

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NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

amounts expected to be payable under a residual value guarantee; and

the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early.

The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, if the Group changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revisedin-substance fixed lease payment.

When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of theright-of-use asset, or is recorded in profit or loss if the carrying amount of theright-of-use asset has been reduced to zero.

The Group presentright-of-use assets and lease liabilities separately in the statement of financial position.

The Group has elected not to recognizeright-of-use assets and lease liabilities for leases oflow-value assets and short-term leases. The Group recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

(b) As a lessor

At inception or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices.

When the Group acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease.

To classify each lease, the Group makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. As part of this assessment, the Group considers certain indicators such as whether the lease is for the major part of the economic life of the asset. There are no significant finance lease for the Group.

If an arrangement contains lease andnon-lease components, then the Group applies IFRS 15 to allocate the consideration in the contract.

The Group recognizes lease payments received under operating leases as income on a straight-line basis over the lease term as part of “other revenue”.

Generally, the accounting policies applicable to the Group as a lessor in the comparative period were not different from IFRS 16 except for the classification of thesub-lease entered into during current reporting period that resulted in a finance lease classification.

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

Policy applicable before January 1, 2019

Leases of property, plant and equipment where the Group assumes substantially all the benefits and risks of ownership are classified as finance leases. The Group has no significant finance leases.

Leases of assets under which a significant portion of the risks and benefits of ownership are effectively retained by the lessors are classified as operating leases. Payments made under operating leases (net of any

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

incentives received from the lessors) are expensed on a straight-line basis over the lease terms. Payments made to the DepartmentMinistry of Natural Resources to secure land use rights (excluding mineral properties) are treated as operating leases. Land use rights are generally obtained through advancelump-sum payments and the terms of use range up to 50 years.

(k)(l) Inventories

Inventories include oil products, chemical products and materials and supplies which are stated at the lower of cost and net realizable value. Cost is primarily determined by the weighted average cost method. The cost of finished goods comprises raw materials, direct labor, other direct costs and related production overheads, but excludes borrowing costs. Net realizable value is the estimated selling price in the ordinary course of business, less the cost of completion and sellingdirectly attributable marketing and distribution costs.

(m) Contract costs

Contract costs are either the incremental costs of obtaining a contract with a customer or the costs to fulfil a contract with a customer which are not capitalized as inventory (Note 3(l)), property, plant and equipment (Note 3(f)), oil and gas properties (Note 3(g)) or intangible assets (Note 3(h)).

Incremental costs of obtaining a contract are those costs that the Group incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained. Incremental costs of obtaining a contract are capitalized when incurred if the costs relate to revenue which will be recognized in a future reporting period and the costs are expected to be recovered, unless the expected amortization period is one year or less from the date of initial recognition of the asset, in which case the costs are expensed when incurred. Other costs of obtaining a contract are expensed when incurred.

Costs to fulfil a contract are capitalized if the costs relate directly to an existing contract or to a specifically identifiable anticipated contract; generate or enhance resources that will be used to provide goods or services in the future; and are expected to be recovered.

Capitalized contract costs are stated at cost less accumulated amortization and impairment losses. Impairment losses are recognized to the extent that the carrying amount of the contract cost asset exceeds the net of (i) remaining amount of consideration that the Group expects to receive in exchange for the goods or services to which the asset relates, less (ii) any costs that relate directly to providing those goods or services that have not yet been recognized as expenses.

(l)Amortization of capitalized contract costs is charged to profit or loss when the revenue to which the asset relates is recognized.

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NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

(n) Contract assets and contract liabilities

A contract asset is recognized when the Group recognizes revenue before being unconditionally entitled to the consideration under the payment terms set out in the contract. Contract assets are assessed for ECLs in accordance with the policy set out in Note 3(j) and are reclassified to receivables when the right to the consideration has become unconditional (Note 3(o)).

A contract liability is recognized when the customer pays consideration before the Group recognizes the related revenue. A contract liability would also be recognized if the Group has an unconditional right to receive consideration before the Group recognizes the related revenue. In such cases, a corresponding receivable would also be recognized (Note 3(o)).

When the contract includes a significant financing component, the contract balance includes interest accrued under the effective interest method (Note 3(t)).

(o) Accounts receivable

Accounts receivable are recognized initially at fair value and subsequently measuredwhen the Group has an unconditional right to receive consideration. A right to receive consideration is unconditional if only the passage of time is required before payment of that consideration is due (Note 3(n)).

Receivables are stated at amortized cost using the effective interest method less provision madeallowance for impairment of these receivables. Such provision for impairment is established if there is objective evidence that the Group will not be able to collect amounts due according to the original terms of the receivables. The factors the Group considers when assessing whether an account receivable is impaired include but are not limited to significant financial difficulties of the customer, probability that the debtor will enter bankruptcy or financial reorganization and default or delinquency in payments. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.credit losses (Note 3(j)).

(m)(p) Cash and cash equivalents

Cash and cash equivalents comprise cash in hand, deposits held with banks and highly liquid investments with original maturities of three months or less from the time of purchase.

(n)(q) Accounts payable

Accounts payable are recognized initially at fair value and subsequently measured at amortized cost usingunless the effective interest method.effect of discounting would be immaterial, in which case they are stated at cost.

(o)(r) Borrowings

Borrowings are recognized initially at fair value, net of transaction costs incurred. In subsequent periods, borrowings are stated at amortized cost using the effective interest method. Any difference between proceeds (net of transaction costs) and the redemption value is recognized in the consolidated profit or loss over the period of the borrowings.

General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

All other borrowing costs are recognized in profit or loss in the period in which they are incurred.

Borrowings are classified as current liabilities unless the Group has unconditional rights to defer settlements of the liabilities for at least 12 months after the reporting period.

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

Borrowings(s) Share capital

Incremental costs directly attributable to the issue of ordinary shares are classifiedrecognized as a deduction from equity. Income tax relating to transaction costs of an equity transaction is accounted for in accordance with IAS 12 “Income Taxes”.

(t) Interest income and interest expense

Interest income or expense is recognized using the effective interest method.

The “effective interest rate” is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to:

the gross carrying amount of the financial asset; or

the amortized cost of the financial liability.

In calculating interest income and expense, the effective interest rate is applied to the gross carrying amount of the asset (when the asset is not credit-impaired) or to the amortized cost of the liability. However, for financial assets that have become credit-impaired subsequent to initial recognition, interest income is calculated by applying the effective interest rate to the amortized cost of the financial asset. If the asset is no longer credit-impaired, then the calculation of interest income reverts to the gross basis.

(u) Taxation

Income tax expense comprises current liabilities unlessand deferred tax. It is recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

The Group has unconditional rightsdetermined that interest and penalties related to defer settlementsincome taxes, including uncertain tax treatments, do not meet the definition of income taxes, and therefore accounted for them under IAS 37 “Provisions, Contingent Liabilities and Contingent Assets”.

(a) Current tax

Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of previous years. The amount of current tax payable or receivable is the best estimate of the liabilities fortax amount expected to be paid or received that reflects uncertainty related to income taxes, if any. It is measured using tax rates enacted or substantively enacted at least 12 months after the reporting period.date. Current tax also includes any tax arising from dividends.

(p) TaxationCurrent tax assets and liabilities are offset only if certain criteria are met.

(b) Deferred tax

Deferred tax is provided in full, using the liability method, for temporary differences arising between the tax bases of assets and liabilities and their carrying values in the financial statements. However, deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax is determined using tax rates that have been enacted or substantively enacted by the date of the statement of financial position and are expected to apply to the period when the related deferred tax asset is realized or deferred tax liability is settled.settled, and reflects uncertainty related to income taxes, if any.

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

The principal temporary differences arise from depreciation on oil and gas properties and equipment and provision for impairment of receivables, inventories, investments and property, plant and equipment. Deferred tax assets relating to the carry forward of unused tax losses and deductible temporary differences are recognized to the extent that it is probable that future taxable income will be available against which the unused tax lossesthey can be utilized.used.

(c) Taxes other than income tax

The Group also incurs various other taxes and levies that are not income taxes. “Taxes other than income taxes”, which form part of operating expenses, primarily comprise consumption tax (Note 9), resource tax (Note 9), crude oil special gain levy (Note 9), urban construction tax and education surcharges and business tax.surcharges.

(q)(v) Revenue recognition

Sales are recognized upon deliveryIncome is classified by the Group as revenue when it arises from the sale of products and customer acceptance or performancegoods, the provision of services net of value added taxes and discounts. Revenues are recognized only when the Group has transferred to the buyer the significant risks and rewards of ownership of the goods in the ordinary course of the Group’s activities, andbusiness.

Revenue is recognized when control over a product or service is transferred to the customer at the amount of revenue andpromised consideration to which the costs incurred orGroup is expected to be incurred in respectentitled, excluding those amounts collected on behalf of third parties. Revenue excludes value added tax or other sales taxes and is after deduction of any trade discounts.

Where the transaction can be measured reliably and collectability ofcontract contains a financing component more than 12 months, interest income is accrued or interest expense is accrued separately under the related receivables is reasonably assured.

effective interest method. The Group marketsdoes not adjust the consideration for any effects of a portionsignificant financing component if the period of its natural gas undertake-or-pay contracts. Customers under thetake-or-pay contracts are required to takefinancing is 12 months or pay for the minimum natural gas deliveries specified in the contract clauses. Revenue recognition for natural gas sales and transmission tariff under thetake-or-pay contracts follows the accounting policies described in this note. Payments received from customers for natural gas not yet taken are recorded as deferred revenues until actual deliveries take place.less.

(r)(w) Provisions

Provisions are recognized when the Group has present legal or constructive obligations as a result of past events, it is probable that an outflow of resources will be required to settle the obligations, and reliable estimates of the amounts can be made.

Provision for future decommissioning and restoration is recognized in full on the installation of oil and gas properties. The amount recognized is the present value of the estimated future expenditure determined in accordance with local conditions and requirements. A corresponding addition to the related oil and gas properties of an amount equivalent to the provision is also created. This is subsequently depreciated as part of the costs of the oil and gas properties. Any change in the present value of the estimated expenditure other than due to passage of time which is regarded as interest expense, is reflected as an adjustment to the provision and oil and gas properties.

Provision for onerous contracts is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognizes any impairment loss on the assets associated with that contract.

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NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

(s)(x) Research and development

Research expenditure incurred is recognized as an expense. Costs incurred on development projects are recognized as intangible assets to the extent that such expenditure is expected to generate future economic benefits.

(t)

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NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

(y) Retirement benefit plans

The Group contributes to various employee retirement benefit plans organizedorganised by PRC municipal and provincial governments under which it is required to make monthly contributions to these plans at prescribed rates for its employees in China. The relevant PRC municipal and provincial governments undertake to assume the retirement benefit obligations of existing and future retired employees of the Group in China. The Group has similar retirement benefit plans for its employees in its overseas operations. Contributions to these PRC and overseas plans (“defined contribution plan”) are charged to expense as incurred. In addition, the Group joined the corporate annuity plan approved by relevant PRC authorities. Contribution to the annuity plan is charged to expense as incurred. The Group currently has no additional material obligations outstanding for the payment of retirement and other post-retirement benefits of employees in the PRC or overseas other than what described above.

(u)(z) Related Partiesparties

(a) A person, or a close member of that person’s family, is related to the Group if that person:

(a)A person, or a close member of that person’s family, is related to the Group if that person:

 

 (i)

has control or joint control over the Group;

 

 (ii)

has significant influence over the Group; or

 

 (iii)

is a member of the key management personnel of the Group or the Group’s parent.

(b) An entity is related to the Group if any of the following conditions applies:

(b)An entity is related to the Group if any of the following conditions applies:

 

 (i)

The entity and the Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).

 

 (ii)

One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).

 

 (iii)

Both entities are joint ventures of the same third party.

 

 (iv)

One entity is a joint venture of a third entity and the other entity is an associate of the third entity.

 

 (v)

The entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group.

 

 (vi)

The entity is controlled or jointly controlled by a person identified in (a).

 

 (vii)

A person identified in (a) (i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

 

 (viii)

The entity, or any member of a group of which it is a part, provides key management personnel services to the Group or to the Group’s parent.

Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity.

(aa) Changes in significant accounting policies

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NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

(v) New accounting developments

(i) New and amended standards adopted by the Group in 2019

There are no IFRSs or IFRIC interpretations that are effective for the first time for the financial year beginning on or afterThe Group initially applied IFRS 16 from January 1, 2017 that would be expected to2019. A number of other new standards are also effective from January 1, 2019 but they do not have a material impact on the Group.

(ii) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group.

IFRS 9Financial Instruments (“IFRS 9”) published in July 2014, replaces the existing guidance in IAS 39Financial Instruments: Recognition and Measurement(“IAS 39”). IFRS 9 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39.

IFRS 9 is effective for annual reporting periods beginning on or after January 1, 2018, on a retrospective basis. The Group plans to use the exemption from restating comparative information and will recognise any transition adjustments against the opening balance of equity at January 1, 2018. The adoption of this standard is expected to have an impacteffect on the Group’s financial assets, but no impact on the Group’s financial liabilities. Under IFRS 9, the Group has designated equity investments classified asavailable-for-sale that are held for long-term strategic purpose as measured at fair value through other comprehensive income. Consequently, all fair value gains and losses will be recorded in other comprehensive income, no impairment losses will be recognised in profit or loss and no gains and losses will be reclassified to profit or loss on disposal.

The new impairment model in IFRS 9 replaces the “incurred loss” model in IAS 39 with an “expected credit loss” model. Under the expected credit loss model, it will no longer be necessary for a loss event to occur before an impairment loss is recognized. Instead, an entity is required to recognize and measure either a 12-month expected credit loss or a lifetime expected credit loss, depending on the asset and the facts and circumstances. The Group expects that the application of the expected credit loss model will result in earlier recognition of credit losses. Based on a preliminary assessment, the Group does not expect material change to the loss allowance for the Group’s loans and receivables.

IFRS 15Revenue from contracts with customers(“IFRS 15”) establishes a comprehensive framework for determining whether, how much and when revenue is recognised and expands disclosure requirements relating to revenue recognition policies and how these relate to the revenue-generating contractual performance obligations. It replaces existing revenue recognition guidance, including IAS 18Revenue, IAS 11Construction Contracts and IFRIC 13Customer Loyalty Programmes.

IFRS 15 is effective for annual reporting periods beginning on or after January 1, 2018, with early adoption permitted. The Group plans to adopt IFRS 15 using the cumulative effect method, with the effect of initially applying this standard recognised at the date of initial application. As a result, the Group will not apply the requirements of IFRS 15 to the comparative period presented. Based on the assessment of existing contracts with customers, the Group does not expect the application of IFRS 15 to have a significant impact on its consolidated financial statements.

IFRS 16Lease (“IFRS 16”) introduces a single,on-balance lease sheet accounting model for lessees. A lessee recognizes aright-of-use asset representing its right to use the underlying asset and a lease liability

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

representing its obligation to make lease payments.The Group applied IFRS 16 replaces existing leases guidance including IAS 17Leases, IFRIC 4Determiningusing the modified retrospective approach, under which the cumulative effect of initial application is recognized in retained earnings at January 1, 2019. Accordingly, the comparative information presented for 2018 is not restated. The details of the changes in accounting policies are disclosed below. Additionally, the disclosure requirements in IFRS 16 have not generally been applied to comparative information.

(a) Definition of a lease

Previously, the Group determined at contract inception whether an Arrangementarrangement was or contained a lease under IFRIC 4. The Group now assesses whether a contract is or contains a Lease,SIC-15Operating Leases—Incentives andSIC-27Evaluatinglease based on the Substance of Transactions Involving the Legal Formdefinition of a Leaselease, as explained in Note 3(k).

On transition to IFRS 16, the Group elected to apply the practical expedient to grandfather the assessment of which transactions are leases. The Group applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed for whether there is effective for annual periods beginninga lease under IFRS 16. Therefore, the definition of a lease under IFRS 16 was applied only to contracts entered into or changed on or after January 1, 2019,2019.

(b) As a lessee

As a lessee, the Group leases many assets including land, building and equipment. The Group previously classified leases as operating or finance leases based on its assessment of whether the lease transferred significantly all of the risks and rewards incidental to ownership of the underlying asset to the Group. Under IFRS 16, the Group recognizesright-of-use assets and lease liabilities for most of these leases.

At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of its relative stand-alone price.

Previously, the Group classified property leases as operating leases under IAS 17. On transition, for these leases, lease liabilities were measured at the present value of the remaining lease payments, discounted at the Group’s incremental borrowing rate as at January 1, 2019.Right-of-use assets are measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments: the Group applied this approach to all other leases.

The Group used a number of practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17. In particular, the Group:

did not recognizeright-of-use assets and liabilities for leases for which the lease term ends within 12 months of the date of initial application;

applied a single discount rate to leases with earlysimilar characteristics when measuring lease liabilities;

excluded initial direct costs from the measurement of theright-of-use asset at the date of initial application;

used hindsight when determining the lease term;

relied on the previous assessment for onerous contract provisions as at December 31, 2018 as an alternative to performing an impairment review; and

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

no retrospective adjustment shall be made to the lease changes generated before the beginning of the year when the IFRS 16 is initially applied, and accounting treatment shall be carried out based on the IFRS 16 according to the final arrangement of the lease changes.

(c) Impact on transition

When measuring lease liabilities, the Group discounted lease payments using its incremental borrowing rate at January 1, 2019. The weighted-average rate applied by the Group is 4.275%.

The Group

The total future minimum lease payments of significant operating leases disclosed in the consolidated financial statements as at December 31, 2018

227,935

Present value discounted using the Group’s incremental borrowing rate at January 1, 2019

166,955

Lease liabilities under new leases standard at January 1, 2019

163,196

Difference between the present value and lease liabilities aboveNote

3,759

Note:

The difference principally represents the lease payments that will be matured within 12 months after January 1, 2019 orlow-value.

The impact of adoption permitted for entities that applynew leases standard on the consolidated statement of financial position are summarized as follows:

   The Group 
  Before
adjustmentNote		   Amount of
adjustment		  Adjusted
amount		 

Property, plant and equipment

   1,709,388    (527)   1,708,861 

Right-of-use assets

   —      240,642   240,642 

Advance operating lease payments

   78,240    (76,374)   1,866 

Prepayments and other current assets

   89,345    (903)   88,442 
    

 

 

  

Total assets

     162,838  
    

 

 

  

Lease liabilities (include liabilities due within one year)

   —      163,196   163,196 

Other long-term obligations

   16,339    (358)   15,981 
    

 

 

  

Total liabilities

     162,838  
    

 

 

  

Note:

The Acquisition of Dalian West Pacific Petrochemical Co., Ltd. (“Dalian West Pacific”) was completed in May 2019, and the Company has adjusted the consolidated financial statements as combination of entities under common control (Note 40).

(ii) New and amended standards adopted by the Group in 2018

The Group has initially adopted IFRS 15 completedand IFRS 9 from January 1, 2018. A number of other new standards are effective from January 1, 2018 but they do not have a material effect on the Group’s financial statements.

Due to the transition methods chosen by the Group in applying these standards, comparative information throughout these financial statements has not been restated to reflect the requirements of the new standards.

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

(a) IFRS 15 “Revenue from contracts with customers”

IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognized. It replaced IAS 18 “Revenue” (“IAS 18”), IAS 11 “Construction Contracts” (“IAS 11”) and related interpretations. Under IFRS 15, revenue is recognized when a customer obtains control of the goods or services. Determing the timing of the transfer of contract – at point time or beforeover time – requires judgment.

The Group has adopted IFRS 15 using the cumulative effect method (without practical expedients), with the effect of initially applying this standard recognized at the date of initial application (i.e. January 1, 2018). Accordingly, the information presented for 2017 has not been restated – i.e. it is presented, as previously reported, under IAS 18, IAS 11 and related interpretations.

The impacts of adopting IFRS 16. The Group has started an initial assessment15 on the Group’s statement of the potential impact on its consolidated financial statements. So far, the most significant impact identified isposition as at December 31, 2018 was that the Group will recognize new assetsadvances from customers for transfer of goods (or rendering of services) is transferred out from “Advances from customers” as previously included in “Accounts payable and liabilities for its operating leases of oil and gas stations and land use rights. In addition, the nature of expenses relatedaccrued liabilities” to the operating leases will change as IFRS 16 replaces the straight-line operating lease expense with a depreciation charge forright-of-use assets and interest expense on lease liabilities. No significant“Contract liabilities”. There was no material impact on the consolidatedGroup’s statement of comprehensive income and statement of cash flows for the year ended December 31, 2018.

(b) IFRS 9 “Financial Instruments”

IFRS 9 sets out requirements for recognizing and measuring financial assets, financial liabilities and some contracts to buy or sellnon-financial items. This standard replaces IAS 39 “Financial Instruments: Recognition and Measurement” (“IAS 39”).

Impacts of the new requirements on the Group’s financial statements are as follow:

Classification and measurement of financial assets and financial liabilities

The classification of financial assets under IFRS 9 is expectedgenerally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. IFRS 9 eliminates the previous IAS 39 categories of held to maturity, loans and receivables and available for sale. IFRS 9 largely retains the existing requirements in IAS 39 for the Group’s finance leases.classification and measurement of financial liabilities.

As for the classification and measurement of financial instruments, financial assets used to be carried at amortized costs and those at FVTPL shall continue to maintain their existing classification and measurement methods after adopting IFRS 9. As for thenon-trading equity instrument investments used to be classified as“Available-for-sale financial assets”, the Group chooses to irrevocably designate them as carried at FVOCI (not to be carried forward into current profit or loss in the future).

Impairment of financial assets

IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with an ‘expected credit loss’ model. The new impairment model applies to financial assets measured at amortized cost, debt investments at FVOCI and contract assets.

Subject to the new standards on financial instruments, the Group has made an assessment on the gap between the original carrying amount and the carrying amount at the date of adoption of the new standards. The adoption of the new standard exerts no material impact on the retained earnings and other comprehensive income as at January 1, 2018.

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

Transition

Changes in accounting policies resulting from the adoption of IFRS 9 have been applied retrospectively, except the Group has used an exemption not to restate comparative information for prior periods with respect to classification and measurement (including impairment) requirements. There is no differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 are recognized in retained earnings and reserves as at January 1, 2018.

 

4

FINANCIAL RISK AND CAPITAL MANAGEMENT

4.1 Financial risk factors

The Group’s activities expose it to a variety of financial risks, including market risk, credit risk and liquidity risk.

(a) Market risk

Market risk is the possibility that changes in foreign exchange rates, interest rates and the prices of oil and gas products will adversely affect the value of assets, liabilities and expected future cash flows.

(i) Foreign exchange risk

The Group conducts its domestic business primarily in RMB, but maintains a portion of its assets in other currencies to pay for imported crude oil, imported equipment and other materials and to meet foreign currency financial liabilities. The Group is exposed to currency risks arising from fluctuations in various foreign currency exchange rates against the RMB. The RMB is not a freely convertible currency and is regulated by the PRC government. Limitations on foreign exchange transactions imposed by the PRC government could cause future exchange rates to vary significantly from current or historical exchange rates.

Additionally, the Group operates internationally and foreign exchange risk arises from future acquisitions and commercial transactions, recognized assets and liabilities and net investments in foreign operations. Certain entities in the Group might use currency derivatives to manage such foreign exchange risk.

(ii) Interest rate risk

The Group has no significant interest rate risk on interest-bearing assets. The Group’s exposure to interest rate risk arises from its borrowings. The Group’s borrowings at floating rates expose the Group to cash flow interest rate risk and its borrowings at fixed rates expose the Group to fair value interest rate risk. However, the exposure to interest rate risk is not material to the Group. A detailed analysis of the Group’s borrowings, together with their respective interest rates and maturity dates, is included in Note 27.28.

(iii) Price risk

The Group is engaged in a wide range of oil and gas products-related activities. Prices of oil and gas products are affected by a wide range of global and domestic factors which are beyond the control of the Group. The fluctuations in such prices may have favorable or unfavorable impacts on the Group.

The Group uses derivative financial instruments, including commodity futures, commodity swaps and commodity options, to hedge some price risks efficiently.

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

The fluctuations in such prices may have favorable or unfavorable impacts on the Group. The Group did not enter into any material hedging of its price risk during the year.

(b) Credit risk

Credit risk arises from cash and cash equivalents, time deposits with banks and credit exposure to customers with outstanding receivable balances.

A substantial portion of the Group’s cash at bank and time deposits are placed with the major state-owned banks and financial institutions in China and management believes that the credit risk is low.

The Group performs ongoing assessment of the credit quality of its customers and sets appropriate credit limits taking into account the financial position and past history of defaults of customers. The Group’s accounts receivable balances over 3 years have been substantially provided for and accounts receivable balances within one year are generally neither past due nor impaired. The aging analysis of accounts receivable (net of impairment of accounts receivable) is presented in Note 22. The Group’sGroup measures loss allowance for accounts receivable balances that are neither past due nor impaired are with customers with no recent historyat an amount equal to lifetime ECLs. The ECLs were calculated based on historical actual credit loss experience. The rates were considered the differences between economic conditions during the period over which the historical data has been collected, current conditions and the Group’s view of default.economic conditions over the expected lives of the receivables. The Group performed the calculation of ECL rates by the operating segment and geography.

The following table provides information about the exposure to credit risk and ECLs for accounts receivable as at December 31, 2019 and 2018.

   Gross
carrying
amount		   Impairment
provision on
individual
basis		   Impairment provision on
provision matrix basis		   Loss
allowance		 
   Weighted-
average
loss rate		  Impairment
provision		 

December 31, 2019

  RMB   RMB   %  RMB   RMB 

Current (not past due)

   58,382    3    0.1%   30    33 

Within 1 year past due

   5,534    11    0.4%   24    35 

1 to 2 years past due

   127    24    10.7%   11    35 

2 to 3 years past due

   411    48    45.5%   165    213 

Over 3 years past due

   2,161    1,719    89.6%   396    2,115 
  

 

 

   

 

 

    

 

 

   

 

 

 

Total

   66,615    1,805     626    2,431 
  

 

 

   

 

 

    

 

 

   

 

 

 

   Gross
carrying
amount		   Impairment
provision on
individual
basis		   Impairment provision on
provision matrix basis		   Loss
allowance		 
   Weighted-
average
loss rate		  Impairment
provision		 

December 31, 2018

  RMB   RMB   %  RMB   RMB 

Current (not past due)

   55,957    50    0.1%   80    130 

Within 1 year past due

   3,082    80    0.3%   9    89 

1 to 2 years past due

   496    52    7.4%   33    85 

2 to 3 years past due

   723    547    35.2%   62    609 

Over 3 years past due

   3,317    2,830    63.7%   310    3,140 
  

 

 

   

 

 

    

 

 

   

 

 

 

Total

   63,575    3,559     494    4,053 
  

 

 

   

 

 

    

 

 

   

 

 

 

The carrying amounts of cash and cash equivalents, time deposits placed with banks, accounts receivable, other receivables and notes receivable included in the consolidated statement of financial position represent the Group’s maximum exposure to credit risk. No other financial assets carry a significant exposure to credit risk.

The Group has no significant concentration of credit risk.

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

(c) Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities.

In managing its liquidity risk, the Group has access to funding at market rates through equity and debt markets, including using undrawn committed borrowing facilities to meet foreseeable borrowing requirements.

Given the low level of gearing and continued access to funding, the Group believes that its liquidity risk is not material.

Analysis of the Group’s financialborrowings and lease liabilities based on the remaining period at the date of the statement of financial position to the contractual maturity dates is presented in Note 27.28 and Note 41.

4.2 Capital management

The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, optimize returns for owners and to minimize its cost of capital. In meeting its objectives of managing capital, the Group may issue new shares, adjust its debt levels or the mix between short-term and long-term borrowings.

The Group monitors capital on the basis of the gearing ratio which is calculated as interest-bearing borrowings / (interest-bearing borrowings + total equity)., interest-bearing borrowings include short-term and long-term borrowings. The gearing ratio at December 31, 20172019 is 25.2%24.4% (December 31, 2016: 27.3%2018: 22.7%).

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

4.3 Fair value estimation

The methods and assumptions applied in determining the fair value of each class of financial assets and financial liabilities of the Group at December 31, 20172019 and 20162018 are disclosed in the respective accounting policies.

The carrying amounts of the following financial assets and financial liabilities approximate their fair value as all of them are short-term in nature: cash and cash equivalents, time deposits with maturities over three months but within one year, accounts receivable, other receivables, trade payables, other payables and short-term borrowings. The fair values of fixed rate long-term borrowings are likely to be different from their respective carrying amounts. Analysis of the fair values and carrying amounts of long-term borrowings is presented in Note 27.28.

The equity investments that are not held for trading and notes receivable are measured at fair value at the end of the reporting period. The fair value of such equity investments are mainly categorized into level 1 of the fair value hierarchy which are based on the unadjusted quoted prices in active markets for identical assets or liabilities as inputs used in the valuation techniques. Notes receivable are short-term bills of acceptance issued by banks, their fair values approximate the face values of the bills.

 

5

CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTSJUDGMENTS

Estimates and judgments are regularly evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

The matters described below are considered to be the most critical in understanding the estimates and judgments that are involved in preparing the Group’s consolidated financial statements.

(a) Estimation of oil and gas reserves

Estimates of oil and natural gas reserves are key elements in the Group’s investment decision-making process. They are also an important element in testing for impairment. Changes in proved oil and gas reserves, particularly proved developed reserves, will affectunit-of-production depreciation, depletion and amortization recorded in the Group’s consolidated financial statements for property, plant and equipment related to oil and gas production activities. A reduction in proved developed reserves will increase depreciation, depletion and amortization charges. Proved oil and gas reserves estimates are subject to revision, either upward or downward, based on new information, such as from development drilling and production activities or from changes in economic factors, including product prices, contract terms, evolution of technology or development plans, etc.

(b) Estimation of impairment of property, plant and equipment

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 the future price of crude oil, natural gas, refined and chemical products, the operation costs, the product mix, production volumes, production profile and the oil and gas reserves. However, theThe impairment reviews and calculations are based on assumptions that are consistent with the Group’s business plans taking into account current economic conditions. Favorable changes to some assumptions, or not updating assumptions previously made, may allow the Group to avoid the need to impair any assets or make it necessary to reverse an impairment loss recognized in prior periods, whereas unfavourableunfavorable changes may cause the assets to become impaired. For example, when the assumed future selling price, production cost and production volumeprofile of crude oil and natural gas used for the expected future cash flows are different from the actual selling price, production cost and production volumeprofile of crude oil and natural gas respectively experienced in future, the Group may either over or under recognize the impairment losses for certain assets.

(c) Estimation of impairment of goodwill

PETROCHINA COMPANY LIMITEDThe recoverable amount cash-generating unit containing goodwill is the greater of its value in use and the fair value less costs to sell. It is difficult to precisely estimate selling price of the Group’s long-lived assets because quoted market prices for such assets may not be readily available. In determining the value in use, expected future cash flows generated by the assets are discounted to their present value, which requires significant judgment relating to forecast sales volume, selling price and operating costs, and discount rate. Management uses all readily available information in determining an amount that is a reasonable approximation of recoverable amount, including estimates based on reasonable and supportable assumptions. Changes to key assumptions can significantly affect the result of the impairment assessment of goodwill.

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

(c)(d) Estimation of asset retirement obligations

Provision is recognized for the future decommissioning and restoration of oil and gas properties. The amount of the provision recognized is 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 levels, 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 and estimates of discount rates. Changes in any of these estimates will impact the operating results and the financial position of the Group over the remaining economic lives of the oil and gas properties.

(d)

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

(e) Deferred tax assets

According to the requirements of the competent tax authority, the Company paid income taxes of its branches in the easternEastern and western regionsWestern China Regions in aggregate. The tax losses recorded by the branches in the eastern regionEastern China Region has given rise to deferred tax assets, which mayare expected to be recoverable from future taxable profits generated by the branches in the eastern region.Eastern China Region. Any policy adjustments may increase or decrease the amount of income tax expenses of the Company.

 

6

REVENUE

Revenue represents revenues from the sale of crude oil, natural gas, refined products and petrochemicalchemical products and from the transmission of crude oil, refined products and natural gas. Analysis ofThe revenue by segment is shown in Note 37.information for the years ended December 31, 2019 and 2018 are as follows:

 

7PROFIT BEFORE INCOME TAX EXPENSE

   2017   2016   2015 
   RMB   RMB   RMB 

Items credited and charged in arriving at the profit before income tax expense include:

      

Credited

      

Dividend income fromavailable-for-sale financial assets

   42    60    288 

Reversal of provision for impairment of receivables

   37    62    99 

Reversal of write down in inventories

   49    75    59 

Government grants(i)

   9,102    8,509    7,906 

Remeasurement to fair value ofpre-existing interest in acquiree

   —      —      22,807 

Gain on disposal of investment in subsidiaries(ii)

   613    24,674    280 

Charged

      

Amortization of intangible and other assets

   4,495    4,896    4,141 

Auditors’ remuneration (iii)

   53    53    53 

Cost of inventories recognized as expense

   1,560,361    1,217,131    1,282,039 

Provision for impairment of receivables

   3,291    1,671    173 

Loss on disposal of property, plant and equipment

   4,939    7,972    4,661 

Operating lease expenses

   20,073    19,027    16,786 

Research and development expenses

   12,323    11,227    11,856 

Write down in inventories

   1,118    2,709    3,394 

2019

Type of contract

  Exploration
and
Production		  Refining
and
Chemicals		  Marketing  Natural Gas
and Pipeline		  Head
Office and
Other		  Total 

Type of goods and services

       

Crude oil

   476,974   —     605,541   —     —     1,082,515 

Natural gas

   110,837   —     238,999   291,641   —     641,477 

Refined products

   —     738,116   1,268,889   —     —     2,007,005 

Chemical products

   —     157,044   28,348   —     —     185,392 

Pipeline transportation business

   —     —     —     70,568   —     70,568 

Non-oil sales in gas stations

   —     —     21,146   —     —     21,146 

Others

   88,284   7,312   2,239   28,341   3,684   129,860 

Intersegment elimination

   (552,672)   (712,178)   (315,157)   (40,652)   (1,644)   (1,622,303) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Revenue from contracts with customers

   123,423   190,294   1,850,005   349,898   2,040   2,515,660 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Other revenue

        1,150 
       

 

 

 

Total

        2,516,810 
       

 

 

 

Geographical Region

       

Mainland China

   41,596   190,294   891,731   349,898   2,040   1,475,559 

Others

   81,827   —     958,274   —     —     1,040,101 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Revenue from contracts with customers

   123,423   190,294   1,850,005   349,898   2,040   2,515,660 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Other revenue

        1,150 
       

 

 

 

Total

        2,516,810 
       

 

 

 

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

 

2018

Type of contract

  Exploration
and
Production		  Refining
and
Chemicals		  Marketing  Natural Gas
and Pipeline		  Head
Office and
Other		  Total 

Type of goods and services

       

Crude oil

   477,512   —     440,560   —     —     918,072 

Natural gas

   104,927   —     222,387   256,810   —     584,124 

Refined products

   —     739,532   1,285,065   —     —     2,024,597 

Chemical products

   —     164,229   30,894   —     —     195,123 

Pipeline transportation business

   —     —     —     70,068   —     70,068 

Non-oil sales in gas stations

   —     —     22,274   —     —     22,274 

Others

   76,044   7,292   1,722   35,545   2,372   122,975 

Intersegment elimination

   (539,295)   (706,559)   (280,750)   (35,899)   (606)   (1,563,109) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Revenue from contracts with customers

   119,188   204,494   1,722,152   326,524   1,766   2,374,124 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Other revenue

        810 
       

 

 

 

Total

        2,374,934 
       

 

 

 

Geographical Region

       

Mainland China

   41,791   204,494   962,950   326,524   1,766   1,537,525 

Others

   77,397   —     759,202   —     —     836,599 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Revenue from contracts with customers

   119,188   204,494   1,722,152   326,524   1,766   2,374,124 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Other revenue

        810 
       

 

 

 

Total

        2,374,934 
       

 

 

 

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

7

PROFIT BEFORE INCOME TAX EXPENSE

   2019   2018   2017 
   RMB   RMB   RMB 

Items credited and charged in arriving at the profit before income tax expense include:

      

Credited

      

Dividend income from equity investments measured at fair value through other comprehensive income

   22    52    —   

Dividend income fromavailable-for-sale financial assets

   —      —      42 

Reversal of provision for impairment of receivables

   1,630    1,370    37 

Reversal of write down in inventories

   201    77    49 

Government grants(i)

   12,281    11,775    9,106 

Gain on disposal of investment in subsidiaries

   49    45    613 

Charged

      

Amortization of intangible and other assets

   4,992    4,897    4,495 

Depreciation and impairment losses:

      

Owned property, plant and equipment

   205,297    222,195    228,227 

Right-of-use assets(ii)

   14,973    —      —   

Auditors’ remuneration(iii)

   53    53    53 

Cost of inventories recognized as expense

   1,981,628    1,820,838    1,569,916 

Provision for impairment of receivables

   263    1,385    3,291 

Loss on disposal of property, plant and equipment

   9,809    16,761    4,963 

Total minimum lease payments for leases previously classified as operating lease under IAS 17(ii)

   —      20,196    20,089 

Variable lease payments,low-value and short-term lease payment not included in the measurement of lease liabilities

   3,514    —      —   

Research and development expenses

   15,666    14,093    12,323 

Write down in inventories

   1,461    4,307    1,118 

(i)

Comprises proportionate refund of import value-added tax relating to the import of natural gas (including liquefied natural gas) provided by the PRC government.government and value-added tax refund upon levy for pipeline transportation service over which portion of value-added tax actual tax burden exceeds 3%. This value-added tax refund is applicable from January 1, 2011 to December 31, 2020 and available when the import prices of the natural gas and liquefied natural gas imported under any State-sanctioned pipelines are higher than their prescribed selling prices.

(ii)On November 24, 2015,

The Group has initially applied IFRS 16 under the Board of Directors approvedmodified retrospective approach and adjusted the sale by CNPC Exploration and Development Co., Ltd. (“CNPC E&D”), oneopening balances at January 1, 2019 to recognizeright-of-use assets relating to leases which were previously classified as operating leases under IAS 17. The depreciated carrying amount of the Company’s wholly-owned subsidiaries,finance lease assets which were previously included in property, plant and equipment is also identified as aright-of-use asset. After initial recognition of its 50%right-of-use assets at January 1, 2019, the Group as a lessee is required to recognize the depreciation of equity interest in Trans-Asia Gas Pipeline Co., Ltd. (“Trans-Asia Pipeline”)right-of-use assets, instead of recognizing rental expenses incurred under operating leases on a straight-line basis over the lease term according to CNIC Corporation Limited. The transaction was completed in the second quarter of 2016 and CNPC E&D lost control over Trans-Asia Pipeline accordingly. The gain recorded as “Other (expenses) / income, net” of RMB 24,534 representsprevious policy. Under this approach, the difference between the sum of total consideration equivalent to RMB 14,671 received from the transaction and the fair value of the remaining equity investment of RMB 14,527, and the net assets of the former subsidiary of RMB 4,034, together with the amounts of RMB 630 recognized previously in other comprehensive loss in relation to Trans-Asia Pipeline reclassified to profit or loss.comparative information is not restated.

(iii)

The auditors’ remuneration above represents the annual audit fees paid by the Company. This remuneration does not include fees of RMB 60 (2018: RMB 52, (2016:2017: RMB 66, 2015: RMB 36)52) paid by subsidiaries to the Company’s current auditor and its network firms which primarily relates to audit, fees of RMB 40 (2016: RMB 50, 2015: RMB 29), audit-related fees of RMB 8 (2016: RMB 8, 2015: RMB 6) and tax fees of RMB 3 (2016: RMB 7, 2015 RMB nil),compliance and other service fees of RMB 1 (2016: RMB 1, 2015: RMB 1).advisory services.

8EMPLOYEE COMPENSATION COSTS

   2017   2016   2015 
   RMB   RMB   RMB 

Wages, salaries and allowances

   82,639    75,461    75,651 

Social security costs

   42,745    42,201    42,431 
  

 

 

   

 

 

   

 

 

 
   125,384    117,662    118,082 
  

 

 

   

 

 

   

 

 

 

Social security costs mainly represent contributions to plans for staff welfare organized by the PRC municipal and provincial governments and others including contributions to the retirement benefit plans (Note 32).

9TAXES OTHER THAN INCOME TAXES

   2017   2016   2015 
   RMB   RMB   RMB 

Consumption tax

   142,708    140,268    149,323 

Resource tax

   18,000    14,472    18,584 

Other

   37,314    34,868    37,977 
  

 

 

   

 

 

   

 

 

 
   198,022    189,608    205,884 
  

 

 

   

 

 

   

 

 

 

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

108INTEREST EXPENSE

EMPLOYEE COMPENSATION COSTS

 

   2017  2016  2015 
   RMB  RMB  RMB 

Interest on

    

Bank loans

   1,569   891   1,259 

Other loans

   17,394   19,910   19,892 

Accretion expense (Note 31)

   5,453   5,126   5,950 

Less: Amounts capitalized

   (2,008)   (2,579)   (2,773) 
  

 

 

  

 

 

  

 

 

 
   22,408  23,348  24,328 
  

 

 

  

 

 

  

 

 

 
   2019   2018   2017 
   RMB   RMB   RMB 

Wages, salaries and allowances

   101,815    95,761    82,835 

Social security costs

   52,503    48,630    42,868 
  

 

 

   

 

 

   

 

 

 
   154,318    144,391    125,703 
  

 

 

   

 

 

   

 

 

 

Social security costs mainly represent contributions to plans for staff welfare organized by the PRC municipal and provincial governments and others including contributions to the retirement benefit plans (Note 33).

9

TAXES OTHER THAN INCOME TAXES

   2019   2018   2017 
   RMB   RMB   RMB 

Consumption tax

   164,973    152,494    144,973 

Resource tax

   24,388    24,339    18,000 

Crude oil special gain levy

   771    4,750    —   

Other

   38,304    39,094    37,731 
  

 

 

   

 

 

   

 

 

 
   228,436    220,677    200,704 
  

 

 

   

 

 

   

 

 

 

10

INTEREST EXPENSE

   2019  2018  2017 
   RMB  RMB  RMB 

Interest on:

    

Bank loans

   3,094   2,134   1,684 

Other loans

   15,476   16,313   17,712 

Lease liabilities

   7,476   —     —   

Accretion expense (Note 32)

   5,525   5,678   5,453 

Less: Amounts capitalized

   (1,162)   (1,407)   (2,008) 
  

 

 

  

 

 

  

 

 

 
   30,409   22,718   22,841 
  

 

 

  

 

 

  

 

 

 

Amounts capitalized are borrowing costs that are attributable to the construction of a qualifying asset. The average interest rate used to capitalize such general borrowing cost was 4.28% per annum for the year ended December 31, 2017 (2016:2019 (2018: 4.28% per annum, 2015:2017: 4.28%-5.76 % per annum).

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

11

EMOLUMENTS OF DIRECTORS AND SUPERVISORS

Details of the emoluments of directors and supervisors for the years ended December 31, 2017, 20162019, 2018 and 20152017 are as follows:

 

   2017   2016   2015 

Name

  Fee for
directors
and
supervisors		   Salaries,
allowances
and other
benefits		   Contribution
to retirement
benefit
scheme		   Total   Total   Total 
   RMB’000   RMB’000   RMB’000   RMB’000   RMB’000   RMB’000 

Chairmen:

            

Mr. Wang Yilin(i)

   —      —      —      —      —      —   

Mr. Zhou Jiping(i)

   —      —      —      —      —      —   

Vice Chairmen:

            

Mr. Zhang Jianhua(ii)

   —      —      —      —      —      —   

Mr. Wang Dongjin(iii)

   —      696    127    823    774    734 

Executive directors:

            

Mr. Zhao Zhengzhang(iv)

   —      118    41    159    759    671 

Mr. Hou Qijun(iv)

   —      572    76    648    —      —   

Non-executive directors:

            

Mr. Yu Baocai

   —      —      —      —      —      —   

Mr. Shen Diancheng(vi)

   —      —      —      —      —      —   

Mr. Liu Yuezhen

   —      —      —      —      —      —   

Mr. Liu Hongbin(v)

   —      —      —      —      679    699 

Mr. Duan Liangwei(vi)

   —      —      —      —      —      —   

Mr. Qin Weizhong(vi)

   —      —      —      —      —      —   

Mr. Chen Zhiwu(vii)

   —      —      —      —      234    220 

Mr. Richard H. Matzke(vii)

   —      —      —      —      241    230 

Mr. Lin Boqiang

   250    —      —      250    281    249 

Mr. Zhang Biyi

   250    —      —      250    278    252 

Ms. Elsie LeungOi-sie(vii)

   220    —      —      220    —      —   

Mr. Tokuchi Tatsuhito(vii)

   226    —      —      226    —      —   

Mr. Simon Henry(vii)

   213    —      —      213    —      —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   1,159    —      —      1,159    1,713    1,650 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Supervisors:

            

Mr. Xu Wenrong(viii)

   —      —      —      —      —      —   

Mr. Guo Jinping(viii)

   —      —      —      —      —      —   

Mr. Zhang Fengshan

   —      —      —      —      —      —   

Mr. Li Qingyi(viii)

   —      —      —      —      —      —   

Mr. Jia Yimin(viii)

   —      —      —      —      —      —   

Mr. Jiang Lifu

   —      —      —      —      —      —   

Mr. Lu Yaozhong(viii)

   —      —      —      —      —      —   

Mr. Wang Liang(x)

   —      —      —      —      —      —   

Mr. Yao Wei(ix)

   —      —      —      —      469    796 

Mr. Liu Hehe(ix)

   —      —      —      —      352    724 

Mr. Yang Hua(viii)

   —      201    49    250    862    838 

Mr. Fu Suotang(viii)

   —      525    46    571    —      —   

Mr. Li Jiamin

   —      745    65    810    707    771 

Mr. Liu Xianhua(ix)

   —      671    62    733    528    —   

Mr. Li Wendong(ix)

   —      788    96    884    670    —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   —      2,930    318    3,248    3,588    3,129 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   1,159    4,316    562    6,037    6,834    6,184 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   2019   2018   2017 

Name

  Fee for
directors
and
supervisors		   Salaries,
allowances
and other
benefits		   Contribution
to retirement
benefit
scheme		   Total   Total   Total 
   RMB’000   RMB’000   RMB’000   RMB’000   RMB’000   RMB’000 

Chairmen:

            

Mr. Dai Houliang(i)

   —      —      —      —      —      —   

Mr. Wang Yilin(i)

   —      —      —      —      —      —   

Vice chairmen:

            

Mr. Zhang Wei(ii)

   —      —      —      —      —      —   

Mr. Zhang Jianhua(iii)

   —      —      —      —      633    —   

Mr. Wang Dongjin(iv)

   —      —      —      —      409    823 

Executive directors:

            

Mr. Zhao Zhengzhang(v)

   —      —      —      —      —      159 

Mr. Hou Qijun(vi)

   —      829    154    983    888    648 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   —      829    154    983    1,930    1,630 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-executive directors:

            

Mr. Yu Baocai(vii)

   —      —      —      —      —      —   

Mr. Shen Diancheng(viii)

   —      —      —      —      —      —   

Mr. Liu Yuezhen

   —      —      —      —      —      —   

Mr. Liu Hongbin(ix)

   —      —      —      —      —      —   

Mr. Jiao Fangzheng(x)

   —      —      —      —      —      —   

Mr. Duan Liangwei(viii)

   —      —      —      —      —      —   

Mr. Qin Weizhong(xi)

   —      —      —      —      —      —   

Mr. Chen Zhiwu(xii)

   —      —      —      —      —      —   

Mr. Richard H. Matzke(xii)

   —      —      —      —      —      —   

Mr. Lin Boqiang

   386    —      —      386    365    250 

Mr. Zhang Biyi

   386    —      —      386    399    250 

Ms. Elsie LeungOi-sie(xii)

   319    —      —      319    334    220 

Mr. Tokuchi Tatsuhito(xii)

   351    —      —      351    334    226 

Mr. Simon Henry(xii)

   340    —      —      340    340    213 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   1,782    —      —      1,782    1,772    1,159 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Supervisors:

            

Mr. Xu Wenrong(xiii)

   —      —      —      —      —      —   

Mr. Guo Jinping(xiii)

   —      —      —      —      —      —   

Mr. Zhang Fengshan

   —      —      —      —      —      —   

Mr. Li Qingyi(xiii)

   —      —      —      —      —      —   

Mr. Jia Yimin(xiii)

   —      —      —      —      —      —   

Mr. Jiang Lifu

   —      —      —      —      —      —   

Mr. Lu Yaozhong(xiii)

   —      —      —      —      —      —   

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

   2019   2018   2017 

Name

  Fee for
directors
and
supervisors		   Salaries,
allowances
and other
benefits		   Contribution
to retirement
benefit
scheme		   Total   Total   Total 
   RMB’000   RMB’000   RMB’000   RMB’000   RMB’000   RMB’000 

Mr. Wang Liang(xiv)

   —      —      —      —      —      —   

Mr. Yao Wei

   —      —      —      —      —      —   

Mr. Liu Hehe

   —      —      —      —      —      —   

Mr. Yang Hua(xiii)

   —      —      —      —      —      250 

Mr. Fu Suotang(xiii)

   —      1,070    85    1,155    967    571 

Mr. Li Jiamin

   —      906    72    978    850    810 

Mr. Liu Xianhua

   —      774    71    845    743    733 

Mr. Li Wendong

   —      937    130    1,067    960    884 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   —      3,687    358    4,045    3,520    3,248 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   1,782    4,516    512    6,810    7,222    6,037 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(i)

Mr. Dai Houliang was elected as the chairman from March 25, 2020. Mr. Wang Yilin ceased being the chairman from January 19, 2020.

(ii)

Mr. Zhang Wei was elected as thenon-executive director and vice chairman from June 13, 2019 and ceased being thenon-executive director and vice chairman from December 9, 2019.

(iii)

Mr. Zhang Jianhua was appointed as executive director and president from June 5, 2018 and ceased being the executive director and president from November 14, 2018.

(iv)

Mr. Wang Dongjin ceased being the executive director and president from April 2, 2018.

(v)

Mr. Zhao Zhengzhang ceased being the executive director from June 8, 2017.

(vi)

Mr. Hou Qijun was elected as the executive director from June 8, 2017, elected as the president from March 21, 2019 and ceased being the executive director and president from December 9, 2019.

(vii)

Mr. Yu Baocai ceased being thenon-executive director from June 7, 2018.

(viii)

Mr. Shen Diancheng ceased being thenon-executive director from June 8, 2017. Mr. Duan Liangwei was elected as thenon-executive directors from June 8, 2017.

(ix)

Mr. Liu Hongbin ceased being thenon-executive director from December 3, 2019.

(x)

Mr. Jiao Fangzheng was elected as thenon-executive director from June 13, 2019.

(xi)

Mr. Qin Weizhong was elected as thenon-executive directors from June 8, 2017 and ceased being thenon-executive director from April 15, 2019.

(xii)

Mr. Chen Zhiwu and Mr. Richard H. Matzke ceased being the independentnon-executive directors from June 8, 2017. Ms. Elsie LeungOi-sie, Mr. Tokuchi Tatsuhito and Mr. Simon Henry were elected as the independentnon-executive directors from June 8, 2017.

(xiii)

Mr. Xu Wenrong ceased being thenon-executive director from June 8, 2017. Mr.Xu Wenrong was elected as the Chairman of the Supervisory Committee and Mr. Lu Yaozhong was elected as the supervisor from June 8, 2017. Mr. Guo Jinping, Mr. Li Qingyi and Mr. Jia Yimin ceased being the supervisors from June 8, 2017. Mr. Yang Hua ceased being the staff supervisor from June 8, 2017. Mr. Fu Suotang was elected as the staff supervisor from June 8, 2017.

(xiv)

Mr. Wang Liang was elected as the supervisor from October 26, 2017.

(xv)

The emoluments above are allpre-tax amounts.

(xvi)

The deferred performance emoluments of RMB 0.33 which the Company paid to the directors attribuatble to the year of 2016 to 2018 in accordance with the relevant regulations of the Chinese Government are not reflected in the 2019 annual remuneration shown above. (2018: RMB 0.17, 2017: RMB nil)

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

(i)Mr. Wang Yilin was elected as the chairman from June 23, 2015, and Mr. Zhou Jiping ceased being the chairman from June 23, 2015.
(ii)Mr. Zhang Jianhua was elected as the vice chairman andnon-executive director from October 28, 2016.
(iii)Mr. Wang Dongjin also serves as the president and executive director.
(iv)Mr. Hou Qijun was elected as the vice president and executive director. Besides, Mr. Zhao Zhengzhang was elected as an executive director from June 23, 2015 and ceased being the executive director from June 8, 2017.
(v)Mr. Liu Hongbin ceased being the vice chairman and was transferred from the executive director to thenon-executive director from October 28, 2016, besides, received no emoluments from the Company since the next day.
(vi)Mr. Shen Diancheng ceased being thenon-executive director, and Mr. Duan Liangwei and Mr. Qin Weizhong were elected as thenon-executive director from June 8, 2017.
(vii)Ms. Elsie LeungOi-sie, Mr. Tokuchi Tatsuhito and Mr. Simon Henry were elected as the independentnon-executive directors, besides, Mr. Chen Zhiwu and Mr. Richard H. Matzke ceased being the independentnon-executive directors from June 8, 2017.
(viii)Mr. Xu Wenrong was elected as annon-executive director from May 25, 2016 and ceased being thenon-executive from June 8, 2017. Mr. Xu Wenrong was elected as the Chairman of the Supervisory Committee and Mr. Lu Yaozhong was elected as the supervisor, besides, Mr. Guo Jinping, Mr. Li Qingyi and Mr. Jia Yimin ceased being the supervisors from June 8, 2017. Mr. Fu Suotang were elected as the staff supervisor, besides, Mr. Yang Hua ceased being the staff supervisor from June 8, 2017.
(ix)Mr. Li Wendong and Mr. Liu Xianhua were elected as the staff supervisors, besides, Mr. Yao Wei and Mr. Liu Hehe ceased being the staff supervisors from May 17, 2016.
(x)Mr. Wang Liang was elected as the supervisor from October 26, 2017.
(xi)The emoluments received by the following person are not reflected in the analysis shown above:
Mr. Liao Yongyuan ceased being thenon-executive director and vice chairman from March 17, 2015, and emoluments received from the Company during the year 2017, 2016 and 2015 were RMB nil, RMB nil, respectively.
(xii)The deferred performance emoluments of RMB 1.64 which the company paid to the directors attributable to the year of 2013 to 2015 in accordance with the relevant regulations of the Chinese Government are not reflected in the 2016 annual remuneration shown above.
(xiii)The emoluments above are allpre-tax amounts.

None of the directors and supervisors has waived their remuneration during the year ended December 31, 2017. (2016:2019. (2018: None of the directors and supervisors has waived their remuneration during the year ended December 31, 2016. 2015:remuneration. 2017: None of the directors and supervisors has waived their remuneration duringremuneration)

The five highest paid individuals in the Company for the year ended December 31, 2015)2019 include three supervisors and one director whose emoluments are reflected in the analysis shown above and the note; and one senior management whose allowances and other benefits was RMB 0.940, and whose contribution to retirement benefit scheme was RMB 0.161.

The five highest paid individuals in the Company for the year ended December 31, 2018 include one supervisor whose emoluments are reflected in the analysis shown above and the note; and four senior managements whose allowances and other benefits were RMB 0.912, RMB 0.899, RMB 0.866 and RMB 0.847, respectively, and whose contribution to retirement benefit scheme were RMB 0.148, RMB 0.148, RMB 0.148 and RMB 0.148, respectively.

The five highest paid individuals in the Company for the year ended December 31, 2017 include two supervisors whose emoluments are reflected in the analysis shown above and the note; and three senior managements whose allowances and other benefits were RMB 0.823, RMB 0.823 and RMB 0.732, respectively, and whose contribution to retirement benefit scheme were RMB 0.127, RMB 0.127 and RMB 0.127, respectively.

The five highest paid individualsDuring 2019, 2018 and 2017, the Company did not incur any severance payment to any director for loss of office or any payment as inducement to any director to join the Company.

12

INCOME TAX EXPENSE

   2019   2018   2017 
   RMB   RMB   RMB 

Current taxes

   32,714    34,983    23,835 

Deferred taxes (Note 31)

   3,485    7,807    (7,539) 
  

 

 

   

 

 

   

 

 

 
   36,199    42,790    16,296 
  

 

 

   

 

 

   

 

 

 

In accordance with the relevant PRC income tax rules and regulations, the PRC corporate income tax rate applicable to the Group is principally 25%. In accordance with the Circular jointly issued by the MOF, the General Administration of Customs of the PRC and the SAT on Issues Concerning Tax Policies forIn-depth Implementation of Western Development Strategy (Cai Shui [2011] No.58), the corporate income tax for the enterprises engaging in the encouraged industries in the Western China Region is charged at a preferential corporate income tax rate of 15% from January 1, 2011 to December 31, 2020. Certain branches and subsidiaries of the Company in the Western China Region obtained the approval for the year ended December 31, 2016 include two supervisors whose emoluments are reflected inuse of the analysis shown above and the note; and three senior managements whose allowances and other benefits were RMB 0.783, RMB 0.783 and RMB 0.775, respectively, and whose contribution to retirement benefit scheme were RMB 0.122, RMB 0.122 and RMB 0.108, respectively.preferential corporate income tax rate of 15%.

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

The five highest paid individuals in the Company for the year ended December 31, 2015 include three supervisors whose emoluments are reflected in the analysis shown above and the note; and two senior managements whose allowances and other benefits were RMB 0.780 and RMB 0.768, respectively, and whose contribution to retirement benefit scheme were RMB 0.130 and RMB 0.132, respectively.

During 2017, 2016 and 2015, the Company did not incur any severance payment to any director for loss of office or any payment as inducement to any director to join the Company.

12INCOME TAX EXPENSE

   2017  2016  2015 
   RMB  RMB  RMB 

Current taxes

   23,835   19,762   18,998 

Deferred taxes (Note 30)

   (7,539)   (3,994)   (3,272) 
  

 

 

  

 

 

  

 

 

 
   16,296   15,768   15,726 
  

 

 

  

 

 

  

 

 

 

In accordance with the relevant PRC income tax rules and regulations, the PRC corporate income tax rate applicable to the Group is principally 25%. Operations of the Group in western regions in China qualified for certain tax incentives in the form of a preferential income tax rate of 15% through the year 2020.

The tax on the Group’s profit before taxation differs from the theoretical amount that would arise using the corporate income tax rate in the PRC applicable to the Group is as follows:

 

  2017 2016 2015   2019 2018 2017 
  RMB RMB RMB   RMB RMB RMB 

Profit before income tax expense

   53,089  45,140  57,815    103,214  116,770  55,691 
  

 

  

 

  

 

   

 

  

 

  

 

 

Tax calculated at a tax rate of 25%

   13,272  11,285  14,454    25,804  29,193  13,923 

Tax returntrue-up

   1,275  1,887  2,008    691  554  1,275 

Effect of income taxes from international operations in excess of taxes at the PRC statutory tax rate

   693  1,797  910 

Effect of income taxes from international operations different from taxes at the PRC statutory tax rate

   6,112  4,414  693 

Effect of preferential tax rate

   (5,058)  (2,418)  (5,436)    (5,529)  (3,855)  (5,058) 

Tax effect of income not subject to tax

   (3,401)  (4,935)  (2,875)    (3,767)  (3,278)  (3,401) 

Tax effect of expenses not deductible for tax purposes

   9,515  8,152  6,665    4,479  8,278  5,018 

Tax effect of temporary differences and losses unrecognized as deferred tax assets

   8,409  7,484  3,846 
  

 

  

 

  

 

   

 

  

 

  

 

 

Income tax expense

   16,296  15,768  15,726    36,199  42,790  16,296 
  

 

  

 

  

 

   

 

  

 

  

 

 

 

13

BASIC AND DILUTED EARNINGS PER SHARE

Basic and diluted earnings per share for the years ended December 31, 2017, 20162019, 2018 and 20152017 have been computed by dividing profit for the year attributable to owners of the Company of RMB 22,798, RMB 7,857 and RMB 35,517 respectively by 183,021 million shares issued and outstanding for the year.

There are no potentially dilutive ordinary shares.

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

14

DIVIDENDS

 

   2017   2016   2015 
   RMB   RMB   RMB 

Interim dividends attributable to owners of the Company for 2017(a)

   12,676    —      —   

Proposed final dividends attributable to owners of the Company for 2017(b)

   11,117    —      —   

Interim dividends attributable to owners of the Company for 2016(c)

   —      3,899    —   

Final dividends attributable to owners of the Company for 2016(d)

   —      6,957    —   

Interim dividends attributable to owners of the Company for 2015(e)

   —      —      11,433 

Final dividends attributable to owners of the Company for 2015(f)

   —      —      4,550 
  

 

 

   

 

 

   

 

 

 
   23,793    10,856    15,983 
  

 

 

   

 

 

   

 

 

 
   2019   2018   2017 
   RMB   RMB   RMB 

Interim dividends attributable to owners of the Company for 2019(a)

   14,212    —      —   

Proposed final dividends attributable to owners of the Company for 2019(b)

   12,081    —      —   

Interim dividends attributable to owners of the Company for 2018(c)

   —      16,252    —   

Final dividends attributable to owners of the Company for 2018(d)

   —      16,472    —   

Interim dividends attributable to owners of the Company for 2017(e)

   —      —      12,676 

Final dividends attributable to owners of the Company for 2017(f)

   —      —      11,117 
  

 

 

   

 

 

   

 

 

 
   26,293    32,724    23,793 
  

 

 

   

 

 

   

 

 

 

 

(a)

Interim dividends attributable to owners of the Company in respect of 20172019 of RMB 0.069260.07765 yuan per share amounting to a total of RMB 12,67614,212. The dividends were paid on September 15, 201724, 2019 (A shares) and October 27, 2017November 1, 2019 (H shares).

(b)

At the 1st3rd meeting of the Board in 2018,2020, the Board of Directors proposed final dividends attributable to owners of the Company in respect of 20172019 of RMB 0.060740.06601 yuan per share amounting to a total of RMB 11,117.12,081. These consolidated financial statements do not reflect this dividend payable as the final dividends were proposed after the reporting period and will be accounted for in equity as an appropriation of retained earnings for the year ended December 31, 20182019 when approved at the forthcoming Annual General Meeting.

(c)Interim dividends attributable to owners of the Company in respect of 2016 of RMB 0.02131 yuan per share amounting to a total of RMB 3,899 were paid on September 21, 2016 (A shares) and October 28, 2016 (H shares).
(d)Final dividends attributable to owners of the Company in respect of 2016 of RMB 0.03801 yuan per share amounting to a total of RMB 6,957 were paid on June 22, 2017 (A shares) and July 27, 2017 (H shares).
(e)Interim dividends attributable to owners of the Company in respect of 2015 of RMB 0.06247 yuan per share amounting to a total of RMB 11,433 were paid on September 18, 2015 (A shares) and October 27, 2015 (H shares).
(f)Final dividends attributable to owners of the Company in respect of 2015 of RMB 0.02486 yuan per share amounting to a total of RMB 4,550 were paid on June 8, 2016 (A shares) and July 14, 2016 (H shares).

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

(c)

Interim dividends attributable to owners of the Company in respect of 2018 of RMB 0.08880 yuan per share amounting to a total of RMB 16,252. The dividends were paid on September 21, 2018 (A shares) and November 1, 2018 (H shares).

(d)

Final dividends attributable to owners of the Company in respect of 2018 of RMB 0.09 yuan per share amounting to a total of RMB 16,472 and were paid on June 28, 2019 (A shares) and August 2, 2019 (H shares).

(e)

Interim dividends attributable to owners of the Company in respect of 2017 of RMB 0.06926 yuan per share amounting to a total of RMB 12,676. The dividends were paid on September 15, 2017 (A shares) and October 27, 2017 (H shares).

(f)

Final dividends attributable to owners of the Company in respect of 2017 of RMB 0.06074 yuan per share amounting to a total of RMB 11,117 and were paid on June 21, 2018 (A shares) and July 26, 2018 (H shares).

15

PROPERTY, PLANT AND EQUIPMENT

 

Year Ended December 31, 2017

 Buildings  Oil
and Gas
Properties		  Equipment
and
Machinery		  Motor
Vehicles		  Other  Construction
in Progress		  Total 
  RMB  RMB  RMB  RMB  RMB  RMB  RMB 

Cost

       

At beginning of the year

  214,710   1,909,213   990,832   29,227   22,268   229,371   3,395,621 

Additions

  1,042   9,193   3,995   824   528   204,159   219,741 

Transfers

  13,913   124,257   75,284   —     10,506   (223,960)   —   

Disposals or write offs

  (3,280)   (21,746)   (11,061)   (1,032)   (441)   (9,455)   (47,015) 

Currency translation differences

  (278)   (9,588)   (1,039)   (29)   (230)   (242)   (11,406) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

At end of the year

  226,107   2,011,329   1,058,011   28,990   32,631   199,873   3,556,941 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Accumulated depreciation and impairment

       

At beginning of the year

  (85,323)   (1,063,500)   (469,475)   (19,467)   (11,971)   (6,340)   (1,656,076) 

Charge for the year and others

  (9,968)   (150,178)   (49,509)   (1,754)   (1,857)   —     (213,266) 

Impairment charge

  (659)   (3,961)   (10,300)   (3)   (2,715)   (309)   (17,947) 

Disposals or write offs or transfers

  2,075   11,426   9,663   921   (1,699)   3,664   26,050 

Currency translation differences

  110   6,472   532   7   12   (22)   7,111 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

At end of the year

  (93,765)   (1,199,741)   (519,089)   (20,296)   (18,230)   (3,007)   (1,854,128) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net book value

       

At end of the year

  132,342   811,588   538,922   8,694   14,401   196,866   1,702,813 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 


Year Ended December 31, 2016

 Buildings Oil
and Gas
Properties		 Equipment
and
Machinery		 Motor
Vehicles		 Other Construction
in Progress		 Total 

Year Ended

December 31, 2019

  Buildings Oil
and Gas
Properties		 Equipment
and
Machinery		 Motor
Vehicles		 Other Construction
in Progress		 Total 
 RMB RMB RMB RMB RMB RMB RMB   RMB RMB RMB RMB RMB RMB RMB 

Cost

               

At beginning of the year

 205,204  1,799,887  953,331  29,586  21,018  236,804  3,245,830    237,038  2,113,366  1,102,423  27,911  34,080  226,623  3,741,441 

Additions

 979  7,995  3,202  624  416  161,336  174,552    1,330  5,990  6,111  1,325  752  283,170  298,678 

Transfers

 10,644  109,171  40,216   —    965  (160,996)   —      21,265  174,749  52,449   —    1,234  (249,697)   —   

Disposals or write offs

 (2,573)  (23,047)  (6,781)  (1,027)  (267)  (9,689)  (43,384)    (7,605)  (40,253)  (7,528)  (2,096)  (549)  (8,900)  (66,931) 

Currency translation differences

 456  15,207  864  44  136  1,916  18,623    146  7,351  161  8  638  4,106  12,410 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

 

At end of the year

 214,710  1,909,213  990,832  29,227  22,268  229,371  3,395,621    252,174  2,261,203  1,153,616  27,148  36,155  255,302  3,985,598 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Accumulated depreciation and impairment

               

At beginning of the year

 (76,904)  (929,554)  (421,315)  (18,619)  (10,740)  (3,793)  (1,460,925)    (100,767)  (1,312,907)  (570,120)  (20,276)  (21,714)  (6,269)  (2,032,053) 

Charge for the year and others

 (9,677)  (141,530)  (47,750)  (1,753)  (1,297)   —    (202,007)    (11,402)  (128,859)  (50,360)  (1,386)  (1,365)   —    (193,372) 

Impairment charge

 (63)  (711)  (5,494)  (1)  (15)  (2,218)  (8,502)    (237)  (11,562)  (1,159)  (4)  (38)  (419)  (13,419) 

Disposals or write offs or transfers

 1,469  15,536  5,501  930  219  6  23,661    4,532  28,241  5,945  1,724  436  491  41,369 

Currency translation differences

 (148)  (7,241)  (417)  (24)  (138)  (335)  (8,303)    (69)  (4,302)  (76)  (5)  (411)  (36)  (4,899) 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

 

At end of the year

 (85,323)  (1,063,500)  (469,475)  (19,467)  (11,971)  (6,340)  (1,656,076)    (107,943)  (1,429,389)  (615,770)  (19,947)  (23,092)  (6,233)  (2,202,374) 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Net book value

               

At end of the year

 129,387  845,713  521,357  9,760  10,297  223,031  1,739,545    144,231  831,814  537,846  7,201  13,063  249,069  1,783,224 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

 

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

Year Ended

December 31, 2018

  Buildings  Oil
and Gas
Properties		  Equipment
and
Machinery		  Motor
Vehicles		  Other  Construction
in Progress		  Total 
   RMB  RMB  RMB  RMB  RMB  RMB  RMB 

Cost

        

At beginning of the year

   227,008   2,011,329   1,068,598   28,990   32,631   199,873   3,568,429 

Additions

   655   10,217   3,586   1,113   649   238,821   255,041 

Transfers

   15,880   146,012   42,324   —     1,539   (205,755)   —   

Disposals or write offs

   (6,415)   (57,281)   (12,458)   (2,184)   (506)   (8,579)   (87,423) 

Currency translation differences

   (90)   3,089   373   (8)   (233)   2,263   5,394 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

At end of the year

   237,038   2,113,366   1,102,423   27,911   34,080   226,623   3,741,441 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Accumulated depreciation and impairment

        

At beginning of the year

   (94,160)   (1,199,741)   (526,441)   (20,296)   (18,230)   (3,007)   (1,861,875) 

Charge for the year and others

   (10,021)   (131,023)   (49,642)   (1,629)   (1,875)   —     (194,190) 

Impairment charge

   (759)   (19,856)   (3,937)   (37)   (2,066)   (3,270)   (29,925) 

Disposals or write offs or transfers

   4,095   42,218   9,952   1,676   358   55   58,354 

Currency translation differences

   78   (4,505)   (52)   10   99   (47)   (4,417) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

At end of the year

   (100,767)   (1,312,907)   (570,120)   (20,276)   (21,714)   (6,269)   (2,032,053) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net book value

        

At end of the year

   136,271   800,459   532,303   7,635   12,366   220,354   1,709,388 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

The impairment charge of the Group for the year ended December 31, 2017 amounted to RMB 17,947 (2016: RMB 8,502 primarily related to certain petrochemical and liquefied natural gas production facilities, 2015: RMB 25,022 primarily related to oil and gas properties) primarily related to certain oil and gas properties and petrochemical production facilities. The impairment of these properties is mainly due to the higher production costs and operating costs and the crude oil price fluctuating at a low level. The carrying amount of these assets has been reduced to the recoverable amount.

When determining whether there are indications of impairment for oil and gas properties, the Group considers factors, mainly including the decline of production and reserve volumes at the late development stage of certain oil blocks and the significant drop in economic benefits of certain oil blocks resulted from the higher production cost. The Group’s subsidiaries or branches under the exploration and production segment will determinedetermines whether there are any indications of impairment for their ownthe oil blocks according to the Group’s guidance of indicationsidentification of impairment indications for oil and gas properties, and performperforms the impairment tests on those oil blocks with indications of impairment, and reportreports the results to the Group’s internal professional team (including operation and finance team) for further overall assessment and evaluation. The final results of the impairment tests will behave been submitted to the Group’s management for review and approval. The Group recorded impairment losses in 2017amounting to RMB 11,562 related to oil and gas properties under the exploration and production segment for the year ended December 31, 2019 (2018: RMB 19,856 and RMB 2,904 related to oil and gas properties and construction in progress respectively under the exploration and production segment, 2017: RMB 3,961 related to oil and gas properties under the exploration and production segment) due to the decline of oil and gas reserves, the higher production costs and significant drop in the economic benefits of certain oil blocks resulted fromat the higher production cost, and recorded impairment loss in 2016 and 2015 related to oil and gas properties and construction in progress under the exploration and production segment due to the fact that the international priceslate stage of crude oil significantly dropped as a result of the global economic downturn. In addition, the oil reserves of certain oil blocks decreased and the production costs of some super heavy oil blocks andultra-low permeability oil blocks were high. The above factors jointly led to lower economic benefits of those oil blocks and the impairment losses for the oil and gas properties.production. The carrying amount of those impaired oil and gas properties was written down to their respective recoverable amounts, which were determined based on the present values of the expected future cash flows of the assets. The Group referred to the weighted average cost of capital of the oil and gas industry when determining discount rate, and made relevant adjustments according to specific risks in different countries or regions. In 2017,2019, theafter-tax discount rates adopted by most oil blocks of the Group ranged from6.4% to 15.4% (2018: 7.3% to 11.5%, 2017: 7.6% to 11.0% (2016: 7.1% to 10.3%, 2015: 7.0% to 10.0%).

The Group performs anrecorded impairment reviewlosses amounting to identify whether there is any indication that an asset may be impaired. When such an indication exists on those oil and gas properties identified, the Group follows the above procedure to estimate the recoverable amount of the assets. If the carrying amount of the oil and gas properties exceeds their recoverable amount, the carrying amount of the oil and gas properties will be written down to its recoverable amount.

The following table indicates the changes to the Group’s exploratory well costs, which are included in construction in progress,RMB 1,159 for the yearsyear ended December 31, 2017, 20162019 (2018: RMB 3,937, 2017: RMB 10,300) mainly related to assets in refining and 2015.chemicals segment and natural gas and pipeline segment. Some of the refinery facilities are out of service due to environmental protection

   2017  2016  2015 
   RMB  RMB  RMB 

At beginning of the year

   21,421   20,177   20,878 

Additions to capitalized exploratory well costs pending the determination of proved reserves

   25,165   21,847   21,698 

Reclassified to wells, facilities, and equipment based on the determination of proved reserves

   (14,288)   (10,914)   (12,791) 

Capitalized exploratory well costs charged to expense

   (9,455)   (9,689)   (9,608) 
  

 

 

  

 

 

  

 

 

 

At end of the year

   22,843   21,421   20,177 
  

 

 

  

 

 

  

 

 

 

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

requirements, technical upgrading and other reasons, and some of the LNG assets in natural gas and pipeline segment have high operating costs and poor efficiency, which leads to the provision for impairment. The carrying amount of these assets has been reduced to the recoverable amount.

The following table indicates the changes to the Group’s exploratory well costs, which are included in construction in progress, for the years ended December 31, 2019, 2018 and 2017.

   2019  2018  2017 
   RMB  RMB  RMB 

At beginning of the year

   26,905   22,843   21,421 

Additions to capitalized exploratory well costs pending the determination of proved reserves

   35,098   28,045   25,165 

Reclassified to wells, facilities, and equipment based on the determination of proved reserves

   (17,002)   (15,404)   (14,288) 

Capitalized exploratory well costs charged to expense

   (8,900)   (8,579)   (9,455) 
  

 

 

  

 

 

  

 

 

 

At end of the year

   36,101   26,905   22,843 
  

 

 

  

 

 

  

 

 

 

The following table provides an aging of capitalized exploratory well costs based on the date the drilling was completed.

 

  December 31,
2017		   December 31,
2016		   December 31, 2019   December 31, 2018 
  RMB   RMB   RMB   RMB 

One year or less

   15,231    13,202    23,924    17,542 

Over one year

   7,612    8,219    12,177    9,363 
  

 

   

 

   

 

   

 

 

Balance at December 31

   22,843    21,421    36,101    26,905 
  

 

   

 

   

 

   

 

 

RMB 7,612 at December 31, 2017 (December 31, 2016: RMB 8,219) of capitalizedCapitalized exploratory well costs over one year are principally related to wells that are under further evaluation of drilling results or pending completion of development planning to ascertain economic viability.

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

16

INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

The summarized financial information of the Group’s principal associates and joint ventures, including the aggregated amounts of assets, liabilities, revenue, profit or loss and the interest held by the Group were as follows:

 

Name

 Country of
Incorporation		  Registered
Capital		  

Principal Activities

 Interest Held 
    Direct%  Indirect% 

Dalian West Pacific Petrochemical Co., Ltd.

  PRC   

USD 258

million

 

 

 

Production and

sale of petroleum and petrochemical products

  28.44   —   

China Petroleum Finance Co., Ltd.(i)

  PRC   8,331  Deposits, loans, settlement, lending, bills acceptance discounting, guarantee and other banking business  32.00   —   

CNPC Captive Insurance Co., Ltd.

  PRC   5,000  Property loss insurance, liability insurance, credit insurance and deposit insurance; as well as the application of the above insurance reinsurance and insurance capital business  49.00   —   

China Marine Bunker (PetroChina) Co., Ltd.

  PRC   1,000  Oil import and export trade and transportation, sale and storage  —     50.00 

Arrow Energy Holdings Pty Ltd.

  Australia   AUD 2  Exploration, development and sale of coal seam gas  —     50.00 

Trans-Asia Gas Pipeline Co.,
Ltd.(ii)

  PRC   5,000  Main contractor, investment holding, investment management, investment consulting, enterprise management advisory, technology development, promotion and technology consulting  —     50.00 

Name

 Country of
Incorporation		  Registered
Capital		   

Principal Activities

 Interest Held 
 Direct %  Indirect % 

PetroIneos Refining Limited

  UK   USD 1,000   Refining  —     49.90 

China Petroleum Finance Co., Ltd.

  PRC   8,331   Deposits, loans, settlement, lending, bills acceptance discounting, guarantee and other banking business  32.00   —   

CNPC Captive Insurance Co., Ltd.

  PRC   5,000   Property loss insurance, liability insurance, credit insurance and deposit insurance; as well as the application of the above insurance reinsurance and insurance capital business  49.00   —   

China Marine Bunker (PetroChina) Co., Ltd.

  PRC   1,000   Oil import and export trade and transportation, sale and storage  —     50.00 

Mangistau Investment B.V.

  Netherlands   EUR 18,000   Engages in investing activities, the principle activities of its main subsidiaries are exploration, exploitation and sale of oil and gas.  —     50.00 

Trans-Asia Gas Pipeline Co., Ltd.

  PRC   5,000   Main contractor, investment holding, investment management, investment consulting, enterprise management advisory, technology development, promotion and technology consulting  —     50.00 

Dividends received or receivable from associates and joint ventures were RMB 4,432 in 2019 (2018: RMB 6,558, 2017: RMB 7,034).

In 2019, investments in associates and joint ventures of RMB 119 (2018: RMB 207, 2017: RMB 96) were disposed of, resulting in a gain of RMB 238 (2018: a gain of RMB 7, 2017: a gain of RMB 6).

In 2019, the share of profit and other comprehensive income in all individually immaterial associates and joint ventures accounted for using equity method in aggregate was profit of RMB 2,207 (2018: profit of RMB 8,996, 2017: profit of RMB 3,235) and RMB 2,098 (2018: profit of RMB 480, 2017: loss of RMB 845), respectively.

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

(i)In August 2016, China National Petroleum Corporation injected RMB 19,471 cash into China Petroleum Finance Co., Ltd. (the “CP Finance”), of which RMB 2,890 and RMB 16,581 were recorded as “Registered Capital” and “Capital Reserve”, respectively. The registered capital of CP Finance was increased from RMB 5,441 to RMB 8,331. The Company’s share was diluted from 49% to 32%, and the Company’s share of net assets was increased RMB 307.
(ii)On November 24, 2015, the board of directors of the Company approved the sale by CNPC Exploration and Development Co., Ltd. (“CNPC E&D”), one of the Company’s subsidiaries, of its 50% equity interest in Trans-Asia Pipeline to CNIC Corporation Limited for a consideration equivalent to RMB 14,671. The transaction closed in the second quarter of 2016.

Dividends received and receivable from associates and joint ventures were RMB 7,034 in 2017 (2016: RMB 10,172, 2015: RMB 9,489).

In 2017, investments in associates and joint ventures of RMB 96 (2016: RMB 101, 2015: RMB 55) were disposed of, resulting in a gain of RMB 6 (2016: a loss of RMB 40, 2015: a gain of RMB 1,258).

In 2017, the share of profit and other comprehensive loss in all individually immaterial associates and joint ventures accounted for using equity method in aggregate was profit of RMB 3,235 (2016: profit of RMB 2,738, 2015: profit of RMB 3,846) and loss of RMB 845 (2016: loss of RMB 204, 2015: income of RMB 1,042), respectively.

Interest in Associates

Summarized financial information in respect of the Group’s principal associates and reconciliation to carrying amount is as follows:follow:

 

  Dalian West Pacific
Petrochemical Co., Ltd.		 China Petroleum Finance Co.,
Ltd.		   CNPC Captive Insurance Co.,
Ltd.		   PetroIneos Refining
Limited		   China Petroleum
Finance Co., Ltd.		   CNPC Captive
Insurance Co., Ltd.		 
  December 31,
2017		 December 31,
2016		 December 31,
2017		   December 31,
2016		   December 31,
2017		   December 31,
2016		   December 31,
2019		   December 31,
2018		   December 31,
2019		   December 31,
2018		   December 31,
2019		   December 31,
2018		 
  RMB RMB RMB   RMB   RMB   RMB   RMB   RMB   RMB   RMB   RMB   RMB 

Percentage ownership interest (%)

   28.44  28.44  32.00    32.00    49.00    49.00    49.90    49.90    32.00    32.00    49.00    49.00 

Current assets

   5,326  3,597  169,389    148,916    9,386    9,192    1,457    1,373    261,520    173,948    10,823    10,493 

Non-current assets

   4,141  4,373  309,481    270,507    2,764    2,166    14,364    14,795    228,933    285,805    2,618    2,928 

Current liabilities

   12,108  8,329  394,064    332,923    6,097    5,594    7,843    7,997    403,052    378,472    6,981    7,184 

Non-current liabilities

   333  5,217  24,977    29,998    1    1    1,457    1,430    17,234    16,317    3    —   
  

 

  

 

  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Net (liabilities) / assets

   (2,974)  (5,576)  59,829    56,502    6,052    5,763 

Net assets

   6,521    6,741    70,167    64,964    6,457    6,237 
  

 

  

 

  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Group’s share of net
assets

   —     —    19,145    18,080    2,965    2,824    3,254    3,364    22,453    20,788    3,164    3,056 

Goodwill

   —     —    349    349    —      —      —      —      349    349    —      —   
  

 

  

 

  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Carrying amount of interest in associates

   —     —    19,494    18,429    2,965    2,824    3,254    3,364    22,802    21,137    3,164    3,056 
  

 

  

 

  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Summarized statement of comprehensive income and dividends received by the Group are as follow:

   PetroIneos Refining
Limited		  China Petroleum
Finance Co., Ltd.		  CNPC Captive
Insurance Co., Ltd.		 
   2019  2018  2017  2019   2018   2017  2019  2018   2017 
   RMB  RMB  RMB  RMB   RMB   RMB  RMB  RMB   RMB 

Revenue

   4,446   4,588   4,472   9,672    8,520    8,520   712   706    654 

(Loss)/profit for the year

   (326)   (120)   699   7,810    7,554    7,286   349   315    364 

Other comprehensive income

   106   325   (384)   1,356    651    (1,395)   (1)   —      1 
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

   

 

 

 

Total comprehensive income

   (220)   205   315   9,166    8,205    5,891   348   315    365 
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

   

 

 

 

Group’s share of total comprehensive income

   (110)   102   157   2,933    2,626    1,885   170   154    179 
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

   

 

 

 

Dividends received by the Group

   —     —     —     1,268    983    815   62   63    27 

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

Summarized statement of comprehensive income is as follows:

   Dalian West Pacific
Petrochemical Co., Ltd.		  China Petroleum
Finance Co., Ltd.		   CNPC Captive Insurance Co.,
Ltd.		 
   2017   2016   2015  2017  2016   2015   2017   2016   2015 
   RMB   RMB   RMB  RMB  RMB   RMB   RMB   RMB   RMB 

Revenue

   27,716    19,029    18,170   8,520   8,555    10,335    654    563    480 

Profit for the year

   2,602    1,475    (984)   7,286   7,524    5,839    364    302    286 

Other comprehensive
(loss) / income

   —      —      —     (1,395)   655    294    1    2    1 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive
income / (loss)

   2,602    1,475    (984)   5,891   8,179    6,133    365    304    287 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Group’s share of total comprehensive income

   —      —      —     1,885   3,628    3,005    179    149    141 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Dividends received by the Group

   —      —      —     815   7,203    631          27          —            —   

Interest in Joint Ventures

Summarized balance sheetstatement of financial position as included in their own financial statements, adjusted for fair value adjustments and differences in accounting policies in respect of the Group’s principal joint ventures and reconciliation to carrying amount is as follows:

 

  China Marine Bunker
(PetroChina) Co., Ltd.		  Arrow Energy
Holdings Pty Ltd.		  Trans-Asia Gas
Pipeline Co., Ltd.		 
  December 31,
2017		  December 31,
2016		  December 31,
2017		  December 31,
2016		  December 31,
2017		  December 31,
2016		 
  RMB  RMB  RMB  RMB  RMB  RMB 

Percentage ownership interest (%)

  50.00   50.00   50.00   50.00   50.00   50.00 

Non-current assets

  1,942   1,974   25,429   32,733   31,527   27,009 

Current assets

  6,449   6,453   540   708   3,957   4,045 

Including: cash and cash equivalents

  1,277   1,461   91   368   3,955   4,025 

Non-current liabilities

  232   749   21,569   25,308   2,100   2,100 

Including:Non-current financial liabilities excluding trade and other payables and provisions

  —     500   17,890   16,304   2,100   2,100 

Current liabilities

  5,309   4,902   583   690   343   414 

Including: Current financial liabilities excluding trade and other payables and provisions

  1,894   1,188   192   316   —     —   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net assets

  2,850   2,776   3,817   7,443   33,041   28,540 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net assets attributable to owners of the Company

  2,630   2,528   3,817   7,443   33,041   28,540 

Group’s share of net assets

  1,315   1,264   1,909   3,722   16,521   14,270 

Elimination of unrealized profit

  —     —     —     —     —     —   

Elimination of transactions

with the Group

  —     —     (52)   (45)   —     —   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Carrying amount of interest in joint ventures

  1,315   1,264   1,857   3,677   16,521   14,270 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

  China Marine Bunker
(PetroChina) Co., Ltd.		  Mangistau Investment B.V.  Trans-Asia Gas
Pipeline Co., Ltd.		 
  December 31,
2019		  December 31,
2018		  December 31,
2019		  December 31,
2018		  December 31,
2019		  December 31,
2018		 
  RMB  RMB  RMB  RMB  RMB  RMB 

Percentage ownership interest (%)

  50.00   50.00   50.00   50.00   50.00   50.00 

Non-current assets

  1,750   1,893   11,980   11,642   43,258   34,584 

Current assets

  8,666   7,313   1,211   780   2,680   3,330 

Including: cash and cash equivalents

  1,206   1,368   292   265   73   81 

Non-current liabilities

  152   152   3,062   2,740   2,355   2,100 

Including:Non-current financial liabilities

  5   20   907   892   2,100   2,100 

Current liabilities

  7,349   6,091   567   868   445   267 

Including: Current financial liabilities excluding trade and other payables

  3,599   3,796   —     —     —     —   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net assets

  2,915   2,963   9,562   8,814   43,138   35,547 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net assets attributable to owners of the Company

  2,672   2,702   9,562   8,814   43,138   35,547 

Group’s share of net assets

  1,336   1,351   4,781   4,407   21,569   17,774 

Carrying amount of interest in joint ventures

  1,336   1,351   4,781   4,407   21,569   17,774 

Summarized statement of comprehensive income as included in their own financial statements, adjusted for fair value adjustments and differences in accounting policies and dividends received by the Group is as follows:

 

   China Marine Bunker
(PetroChina) Co., Ltd.		  Arrow Energy Holdings Pty
Ltd.		  Trans-Asia
Gas Pipeline Co.,
Ltd.		 
   2017  2016  2015  2017  2016  2015  2017  From the closing
date to Dec 31, 2016		 
   RMB  RMB  RMB  RMB  RMB  RMB  RMB  RMB 

Revenue

   31,770   23,336   27,587   1,449   1,135   971   16   84 

Depreciation, depletion and amortization

   (93)   (92)   (88)   (883)   (624)   (484)   (3)   (3) 

Interest income

   12   9   35   2   5   6   65   55 

Interest expense

   (39)   (45)   (56)   (1,300)   (1,307)   (1,189)   (43)   (32) 

Income tax expense

   (44)   (47)   (33)   —     —     —     —     (1) 

Net profit / (loss)

   116   101   93   (5,518)   (3,718)   (10,753)   5,846   88 

Total comprehensive
income / (loss)

   87   171   176   (3,445)   (3,402)   (12,934)   5,736   194 

Total comprehensive
income / (loss) by share

   43   68   67   (1,723)   (1,701)   (6,467)   2,868   97 

Elimination of unrealized profit

   —     —     —     —     —     —     (617)   (354) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Group’s share of total comprehensive income / (loss)

   43   68   67   (1,723)   (1,701)   (6,467)   2,251   (257) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Dividends received by the Group

   —     9   18   —     —     —     —     —   

17AVAILABLE-FOR-SALE FINANCIAL ASSETS

   December 31, 2017  December 31, 2016 
   RMB  RMB 

Available-for-sale financial assets

   2,251   2,348 

Less: Impairment losses

   (334)   (337) 
  

 

 

  

 

 

 
   1,917   2,011 
  

 

 

  

 

 

 

Available-for-sale financial assets comprise principally unlisted equity securities and bonds.

In 2017,available-for-sale financial assets of RMB 12 (2016: RMB 176, 2015: RMB 381) were disposed of, resulting in the realization of a gain of RMB 11 (2016: a gain of RMB 184, 2015: a gain of RMB 177).

   China Marine Bunker
(PetroChina) Co., Ltd.		  Mangistau Investment B.V.  Trans-Asia Gas
Pipeline Co., Ltd.		 
   2019  2018  2017  2019  2018  2017  2019  2018  2017 
   RMB  RMB  RMB  RMB  RMB  RMB  RMB  RMB  RMB 

Revenue

   42,116   43,924   31,770   15,104   16,085   13,192   23   14   16 

Depreciation, depletion and amortization

   (81)   (90)   (93)   (883)   (807)   (808)   (37)   (4)   (3) 

Interest income

   23   18   12   2   5   3   51   59   65 

Interest expense

   (88)   (96)   (39)   (158)   (154)   (122)   (57)   (46)   (43) 

Income tax expense

   (92)   (37)   (44)   (925)   (1,077)   (27)   —     10   —   

Net profit

   142   126   116   2,818   3,324   1,947   4,070   1,931   4,612 

Total comprehensive income

   169   151   87   2,978   3,020   1,852   7,940   2,505   4,502 

Group’s share of total comprehensive income

   85   76   43   1,489   1,510   926   3,970   1,253   2,251 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Dividends received by the Group

   —     8   —     1,115   1,650   2,141   175   —     —   

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

17

EQUITY INVESTMENTS MEASURED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

   December 31, 2019   December 31, 2018 
   RMB   RMB 

China Pacific Insurance (Group) Co., Ltd.

   185    139 

Chengdu Huaqi Houpu Holding Co., Ltd.

   191    114 

Other items

   546    485 
  

 

 

   

 

 

 
   922    738 
  

 

 

   

 

 

 

The above equity investments are planned to be held for a long term by the Group for strategic purpose, the Group designates them as equity investments at fair value through other comprehensive income.

Dividends amounting to RMB 22 were received on these investments during the year ended December 31, 2019 (2018: RMB 52).

18

SUBSIDIARIES

The principal subsidiaries of the Group are:

 

Company Name

  

Country of

Incorporation

  Issued
Capital
RMB		   

Type of
Legal
Entity

  Attributable
Equity
Interest %		   Voting
Rights%		  

Principal Activities

 

Country of

Incorporation

 

Registered

Capital

 

Type of
Legal
Entity

 

Attributable

Equity
Interest %

 

Voting
Rights
%

 

Principal Activities

Daqing Oilfield Company Limited

  PRC   47,500   Limited liability company   100.00   100.00  Exploration, production and sale of crude oil and natural gas PRC 47,500 Limited liability company 100.00 100.00 Exploration, production and sale of crude oil and natural gas

CNPC Exploration and Development Company Limited (i)

  PRC   16,100   Limited liability company   50.00   57.14  Exploration, production and sale of crude oil and natural gas in and outside the PRC PRC 16,100 Limited liability company 50.00 57.14 Exploration, production and sale of crude oil and natural gas outside the PRC

PetroChina Hong Kong Limited

  Hong Kong   
HKD
7,592 million		 
 		  Limited liability company   100.00   100.00  Investment holding. The principal activities of its subsidiaries, associates and joint ventures are the exploration, production and sale of crude oil in and outside the PRC as well as natural gas sale and transmission in the PRC Hong Kong 

HKD

7,592 million

 Limited liability company 100.00 100.00 Investment holding. The principal activities of its subsidiaries, associates and joint ventures are the exploration, production and sale of crude oil in and outside the PRC as well as natural gas sale and transmission in the PRC

PetroChina International Investment Company Limited

  PRC   31,314   Limited liability company   100.00   100.00  

Investment holding. The

principal activities of its

subsidiaries and joint ventures are the exploration, development

and production of crude

oil, natural gas, oil sands and coalbed methane outside the PRC

 PRC 31,314 Limited liability company 100.00 100.00 Investment holding. The principal activities of its subsidiaries, associates and joint ventures are the exploration, development and production of crude oil, natural gas, oil sands and coalbed methane outside the PRC

PetroChina International Company Limited

  PRC   18,096   Limited liability company   100.00   100.00  Marketing of refined products and trading of crude oil and petrochemical products, storage, investment in refining, chemical engineering, storage facilities, service station, and transportation facilities and related business in and outside the PRC

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

Company Name

  

Country of

Incorporation

  Issued
Capital
RMB		   

Type of
Legal
Entity

  Attributable
Equity
Interest %		   Voting
Rights%		  

Principal Activities

 

Country of

Incorporation

 

Registered

Capital

 

Type of
Legal
Entity

 

Attributable

Equity
Interest %

 

Voting
Rights
%

 

Principal Activities

PetroChina International Company Limited

 PRC 18,096 Limited liability company 100.00 100.00 Marketing of refined products and trading of crude oil and petrochemical products, storage, investment in refining, chemical engineering, storage facilities, service station, and transportation facilities and related business in and outside the PRC

PetroChina Pipelines Co., Ltd.

  PRC   80,000   Limited liability company   72.26   72.26  

Oil and gas pipeline

transportation, investment

holding, import and export of goods, agency of import and export, import and export of technology, technology promotion service, professional contractor, main contractor

 PRC 80,000 Limited liability company 72.26 72.26 

Oil and gas pipeline transportation, investment

holding, import and export of goods, agency of import and export, import and export of technology, technology promotion service, professional contractor, main contractor

 

(i)

The Company consolidated the financial statements of the entity because it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

Summarized financial information in respect of the Group’s principal subsidiaries with significantnon-controlling interests is as follows:

 

   CNPC Exploration and
Development Company Limited		   PetroChina Pipelines
Co., Ltd.		 
   December 31,
2017		   December 31,
2016		   December 31,
2017		   December 31,
2016		 
   RMB   RMB   RMB   RMB 

Percentage ownership interest (%)

   50.00    50.00    72.26    72.26 

Current assets

   24,722    26,489    2,882    19,193 

Non-current assets

   133,328    134,510    232,842    235,023 

Current liabilities

   13,273    15,504    6,059    26,186 

Non-current liabilities

   13,211    11,648    8,408    12,344 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net assets

   131,566    133,847    221,257    215,686 
  

 

 

   

 

 

   

 

 

   

 

 

 

Summarized statement of comprehensive income is as follows:

   CNPC Exploration and
Development Company Limited		  PetroChina Pipelines Co.,
Ltd. (note)		 
   2017  2016   2015  2017   2016   2015 
   RMB  RMB   RMB  RMB   RMB   RMB 

Revenue

   37,304   28,196    33,541   43,627    41,794    2,796 

Profit from continuing operations

   3,696   24,153    2,448   17,891    20,420    1,015 

Total comprehensive (loss) / income

   (1,050)   30,391    (7,889)   17,891    20,420    1,015 

Profit attributable tonon-controlling interests

   2,390   12,414    1,292   4,963    5,664    282 

Dividends paid tonon-controlling interests

   1,420   444    775   3,569    —      720 

Note: PetroChina Pipelines Co., Ltd. was established in November 2015.

   CNPC Exploration and
Development Company
Limited		   PetroChina Pipelines
Co., Ltd.		 
   December 31,
2019		   December 31,
2018		   December 31,
2019		   December 31,
2018		 
   RMB   RMB   RMB   RMB 

Percentage ownership interest (%)

   50.00    50.00    72.26    72.26 

Current assets

   20,604    21,463    4,306    4,604 

Non-current assets

   186,792    166,155    228,623    224,163 

Current liabilities

   18,911    14,525    7,631    7,531 

Non-current liabilities

   25,326    25,967    9,616    6,095 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net assets

   163,159    147,126    215,682    215,141 
  

 

 

   

 

 

   

 

 

   

 

 

 

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

Summarized statement of comprehensive income is as follows:

   CNPC Exploration and Development
Company Limited		  PetroChina Pipelines Co., Ltd. 
   2019   2018   2017  2019   2018   2017 
   RMB   RMB   RMB  RMB   RMB   RMB 

Revenue

   47,096    45,618    37,304   43,463    43,062    43,627 

Profit from continuing operations

   14,126    15,563    3,696   18,911    19,436    17,891 

Total comprehensive income

   17,879    17,577    (1,050)   18,911    19,436    17,891 

Profit attributable tonon-controlling interests

   8,274    8,844    2,390   5,246    5,392    4,963 

Dividends paid tonon-controlling interests

   1,923    2,038    1,420   4,852    7,174    3,569 

Summarized statement of cash flows is as follows:

 

   CNPC Exploration and
Development Company Limited		  PetroChina Pipelines Co.,
Ltd. (note)		 
   2017  2016  2015  2017  2016  2015 
   RMB  RMB  RMB  RMB  RMB  RMB 

Net cash inflow from operating activities

   18,545   9,053   8,293   31,160   30,270   2,554 

Net cash (outflow) / inflow from investing activities

   (12,304)   (18,036)   (2,762)   2,869   14,799   (19,434) 

Net cash (outflow) / inflow from financing activities

   (4,296)   (2,248)   (4,284)   (36,190)   (47,624)   21,744 

Effect of foreign exchange rate changes on cash and cash equivalents

   (2,183)   748   586   —     —     —   

Net (decrease) / increase in cash and cash equivalents

   (238)   (10,483)   1,833   (2,161)   (2,555)   4,864 

Cash and cash equivalents at the beginning of the year

   18,220   28,703   26,870   2,309   4,864   —   

Cash and cash equivalents at the end of the year

   17,982   18,220   28,703   148   2,309   4,864 

Note: PetroChina Pipelines Co., Ltd. was established in November 2015.

  CNPC Exploration and
Development Company
Limited		  PetroChina Pipelines
Co., Ltd.		 
  2019  2018  2017  2019  2018  2017 
  RMB  RMB  RMB  RMB  RMB  RMB 

Net cash inflow from operating activities

  17,780   22,467   18,545   30,058   29,701   31,160 

Net cash (outflow) / inflow from investing activities

  (17,306)   (33,466)   (12,304)   (10,764)   (2,701)   2,869 

Net cash (outflow) / inflow from financing activities

  (1,118)   7,865   (4,296)   (18,910)   (25,919)   (36,190) 

Effect of foreign exchange rate changes on cash and cash equivalents

  220   (1,350)   (2,183)   —     —     —   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net (decrease) / increase in cash and cash equivalents

  (424)   (4,484)   (238)   384   1,081   (2,161) 

Cash and cash equivalents at the beginning of the year

  13,498   17,982   18,220   1,229   148   2,309 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Cash and cash equivalents at the end of the year

  13,074   13,498   17,982   1,613   1,229   148 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

19

ADVANCE OPERATING LEASE PAYMENTS

 

   December 31,
2017		   December 31,
2016		 
   RMB   RMB 

Land use rights

   55,095    53,653 

Advance lease payments

   18,801    17,700 
  

 

 

   

 

 

 
   73,896    71,353 
  

 

 

   

 

 

 
December 31, 2018
RMB

Land use rights

58,858

Advance lease payments

19,382

78,240

Advance operating lease payments arewere amortized over the related lease terms using the straight-line method.

20INTANGIBLE AND OTHERNON-CURRENT ASSETS

   December 31, 2017   December 31, 2016 
   Cost   Accumulated
amortization		  Net   Cost   Accumulated
amortization		  Net 
   RMB   RMB  RMB   RMB   RMB  RMB 

Patents and technicalknow-how

   7,476    (5,620)   1,856    7,237    (5,219)   2,018 

Computer software

   10,638    (7,749)   2,889    9,614    (6,790)   2,824 

Goodwill(i)

   45,643    (3,709)   41,934    46,097    —     46,097 

Other

   20,128    (7,207)   12,921    19,134    (6,294)   12,840 
  

 

 

   

 

 

  

 

 

   

 

 

   

 

 

  

 

 

 

Intangible assets

   83,885    (24,285)   59,600    82,082    (18,303)   63,779 
  

 

 

   

 

 

    

 

 

   

 

 

  

Other assets

      33,341       38,971 
     

 

 

      

 

 

 
      92,941       102,750 
     

 

 

      

 

 

 

(i)

Goodwill primarily relates to the acquisition of Singapore Petroleum Company, Petroineos Trading Limited and PetroChina United Pipelines Co., Ltd., completed in 2009, 2011 and 2015, respectively. The

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

recoverable amount of all cash-generating units has been determined based onvalue-in-use calculations. These calculations usepost-tax cash flow projections based on financial budgets approved by management. Thepost-tax discount rates range from 8.9% to 10.5%, and reflect specific risks relating to the cash-generating unit. Based on the estimated recoverable amount, the impairment charge of the Group for the year ended December 31, 2017 amounted to RMB 3,709(2016: RMB Nil) primarily related to goodwill of PetroChina United Pipelines Co., Ltd..

21INVENTORIES

   December 31,
2017		   December 31,
2016		 
   RMB   RMB 

Crude oil and other raw materials

   48,936    55,371 

Work in progress

   12,811    10,336 

Finished goods

   83,908    84,473 

Spare parts and consumables

   170    51 
  

 

 

   

 

 

 
   145,825    150,231 

Less: Write down in inventories

   (1,156)    (3,366) 
  

 

 

   

 

 

 
   144,669    146,865 
  

 

 

   

 

 

 

22ACCOUNTS RECEIVABLE

   December 31,
2017		   December 31,
2016		 
   RMB   RMB 

Accounts receivable

   57,914    49,338 

Less: Provision for impairment of receivables

   (4,771)    (2,023) 
  

 

 

   

 

 

 
   53,143    47,315 
  

 

 

   

 

 

 

The aging analysis “Advance operating lease payments” were reclassified as“Right-of-use assets” upon initial adoption of accounts receivable (net of impairment of accounts receivable) based on the invoice date (or date of revenue recognition, if earlier),IFRS 16 at December 31, 2017 and 2016 is as follows:

   December 31,
2017		   December 31,
2016		 
   RMB   RMB 

Within 1 year

   51,051    43,686 

Between 1 and 2 years

   1,203    2,744 

Between 2 and 3 years

   379    437 

Over 3 years

   510    448 
  

 

 

   

 

 

 
   53,143    47,315 
  

 

 

   

 

 

 

The Group offers its customers credit terms up to 180 days.

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

Movements in the provision for impairment of accounts receivable are as follows:

   2017   2016   2015 
   RMB   RMB   RMB 

At beginning of the year

   2,023    523    516 

Provision for impairment of accounts receivable

   2,813    1,633    32 

Receivables written off as uncollectible

   (58)    (97)    (12) 

Reversal of provision for impairment of accounts receivable

   (7)    (36)    (13) 
  

 

 

   

 

 

   

 

 

 

At end of the year

   4,771    2,023    523 
  

 

 

   

 

 

   

 

 

 

23PREPAYMENTS AND OTHER CURRENT ASSETS

   December 31,
2017		   December 31,
2016		 
   RMB   RMB 

Other receivables

   16,535    13,206 

Advances to suppliers

   10,384    16,505 
  

 

 

   

 

 

 
   26,919    29,711 

Less: Provision for impairment

   (2,824)    (2,386) 
  

 

 

   

 

 

 
   24,095    27,325 

Value-added tax to be deducted

   39,203    36,010 

Prepaid expenses

   951    954 

Prepaid income taxes

   —      5,406 

Other current assets

   7,765    7,888 
  

 

 

   

 

 

 
   72,014    77,583 
  

 

 

   

 

 

 

24NOTES RECEIVABLE

Notes receivable represent mainly bills of acceptance issued by banks for the sale of goods and performance of services. All notes receivable are due within one year.

25CASH AND CASH EQUIVALENTS

The weighted average effective interest rate on bank deposits was 2.18% per annum for the year ended December 31, 2017 (2016: 1.36% per annum, 2015: 1.31% per annum)January 1, 2019 (see Note 3 (aa)).

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

20

INTANGIBLE AND OTHERNON-CURRENT ASSETS

   December 31, 2019   December 31, 2018 
   Cost   Accumulated
amortization,
including
impairment
losses		  Net   Cost   Accumulated
amortization,
including
impairment
losses		  Net 
   RMB   RMB  RMB   RMB   RMB  RMB 

Patents and technicalknow-how

   7,782    (6,370)   1,412    7,674    (6,016)   1,658 

Computer software

   12,356    (9,116)   3,240    11,746    (8,637)   3,109 

Goodwill(i)

   46,555    (3,747)   42,808    46,020    (3,747)   42,273 

Other

   23,880    (8,949)   14,931    21,526    (8,035)   13,491 
  

 

 

   

 

 

  

 

 

   

 

 

   

 

 

  

 

 

 

Intangible assets

   90,573    (28,182)   62,391    86,966    (26,435)   60,531 
  

 

 

   

 

 

    

 

 

   

 

 

  

Other assets

      38,272       37,778 
     

 

 

      

 

 

 
      100,663       98,309 
     

 

 

      

 

 

 

(i)

Goodwill primarily relates to the acquisition of PetroChina United Pipelines Co., Ltd. (“Pipeline Goodwill”) completed in 2015 with carrying amount of RMB 34,285 as at December 31,2019. The impairment test of the Pipeline Goodwill is performed associated with the cash-generating unit of West-East Gas Pipeline. The recoverable amount is determined according to the higher of the cash-generating unit’s fair value less the net amount of disposal expense and the cash-generating unit’s expected present value of future cash flows. The cash flow projection used in the impairment test is based on management’s estimation and judgment of the parameters such as transportation volume, transportation price and operating costs of the West-East Gas Pipeline, and thepost-tax discount rate of 7.2% (2018: 8.9%, 2017: 8.9%) reflecting the specific risks relating to the cash-generating unit. Based on the result of impairment test, no impairment loss was charged for the Pipeline Goodwill for the year ended December 31, 2019 (2018: nil, 2017: RMB 3,709).

For impairment test of the remaining goodwills, thepost-tax discount rates ranged 6.5% to 10.5% (2018: 9.1% to 11.0%, 2017: 9.2% to 10.5%) were used by management, and no impairment loss was charged for the year ended December 31, 2019 (2018: RMB 38, 2017: RMB nil).

21

INVENTORIES

   December 31,
2019		  December 31,
2018		 
   RMB  RMB 

Crude oil and other raw materials

   56,166   58,188 

Work in progress

   15,159   14,241 

Finished goods

   112,003   110,103 

Spare parts and consumables

   88   53 
  

 

 

  

 

 

 
   183,416   182,585 

Less: Write down in inventories

   (1,495)   (5,008) 
  

 

 

  

 

 

 
   181,921   177,577 
  

 

 

  

 

 

 

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

22

ACCOUNTS RECEIVABLE

   December 31,
2019		  December 31,
2018		 
   RMB  RMB 

Accounts receivable

   66,615   63,575 

Less: Provision for impairment of receivables

   (2,431)   (4,053) 
  

 

 

  

 

 

 
   64,184   59,522 
  

 

 

  

 

 

 

The aging analysis of accounts receivable (net of impairment of accounts receivable) based on the invoice date (or date of revenue recognition, if earlier), at December 31, 2019 and 2018 is as follows:

   December 31,
2019		   December 31,
2018		 
   RMB   RMB 

Within 1 year

   63,392    58,392 

Between 1 and 2 years

   419    837 

Between 2 and 3 years

   267    108 

Over 3 years

   106    185 
  

 

 

   

 

 

 
   64,184    59,522 
  

 

 

   

 

 

 

The Group offers its customers credit terms up to 180 days.

Movements in the provision for impairment of accounts receivable are as follows:

   2019  2018  2017 
   RMB  RMB  RMB 

At beginning of the year

   4,053   4,771   2,023 

Provision for impairment of accounts receivable

   226   561   2,813 

Reversal of provision for impairment of accounts receivable

   (1,604)   (1,178)   (7) 

Receivables written off as uncollectible

   (244)   (101)   (58) 
  

 

 

  

 

 

  

 

 

 

At end of the year

   2,431   4,053   4,771 
  

 

 

  

 

 

  

 

 

 

23

PREPAYMENTS AND OTHER CURRENT ASSETS

   December 31,
2019		  December 31,
2018		 
   RMB  RMB 

Other receivables

   23,072   19,206 

Advances to suppliers

   17,747   18,253 
  

 

 

  

 

 

 
   40,819   37,459 

Less: Provision for impairment

   (3,413)   (3,439) 
  

 

 

  

 

 

 
   37,406   34,020 

Value-added tax to be deducted

   48,560   42,153 

Prepaid expenses

   360   1,068 

Prepaid income taxes

   5,649   1,261 

Other current assets

   11,152   10,843 
  

 

 

  

 

 

 
   103,127   89,345 
  

 

 

  

 

 

 

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

24

NOTES RECEIVABLE

Notes receivable represent mainly bills of acceptance issued by banks for the sale of goods and performance of services. Notes receivable are measured at fair value through other comprehensive income. All notes receivable are due within one year, and their fair values approximate the face values of the bills.

25

CASH AND CASH EQUIVALENTS

The weighted average effective interest rate on bank deposits was 1.69% per annum for the year ended December 31, 2019 (2018: 1.55% per annum, 2017: 2.18% per annum).

26

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

  December 31,
2017		   December 31,
2016		   December 31,
2019		   December 31,
2018		 
  RMB   RMB   RMB   RMB 

Trade payables

   103,201    80,606    148,335    123,069 

Advances from customers

   67,176    60,590 

Salaries and welfare payable

   6,955    5,396    10,169    10,189 

Accrued expenses

   213    123 

Dividends payable by subsidiaries tonon-controlling shareholders

   139    2,356    389    355 

Interest payable

   3,910    4,536    4,719    2,978 

Construction fee and equipment cost payables

   121,313    118,011    111,767    123,602 

Loans borrowed from related parties

   —      1,432 

Other

   40,912    37,630 

Other(i)

   52,935    39,655 
  

 

   

 

   

 

   

 

 
   343,819    310,680    328,314    299,848 
  

 

   

 

   

 

   

 

 

Other consists primarily of customer deposits.

(i)

Other consists primarily of notes payables, insurance payable, etc.

The aging analysis of trade payables at December 31, 20172019 and 20162018 is as follows:

 

  December 31,
2017		   December 31,
2016		   December 31,
2019		   December 31,
2018		 
  RMB   RMB   RMB   RMB 

Within 1 year

   94,996    74,450    136,670    113,370 

Between 1 and 2 years

   4,241    3,293    5,472    5,049 

Between 2 and 3 years

   1,894    944    3,180    2,386 

Over 3 years

   2,070    1,919    3,013    2,264 
  

 

   

 

   

 

   

 

 
   103,201    80,606    148,335    123,069 
  

 

   

 

   

 

   

 

 

 

27BORROWINGS

CONTRACT LIABILITIES

   December 31,
2017		   December 31,
2016		 
   RMB   RMB 

Short-term borrowings excluding current portion of long-term borrowings

   93,881    71,969 

Current portion of long-term borrowings

   81,536    71,415 
  

 

 

   

 

 

 
   175,417    143,384 

Long-term borrowings

   289,858    372,887 
  

 

 

   

 

 

 
   465,275    516,271 
  

 

 

   

 

 

 

BorrowingsAs of December 31, 2019, contract liabilities mainly represented advances from customers related to the sales of natural gas, crude oil and refined oil, etc. The majority of related obligations are expected to be performed and the corresponding revenue will be recognized within one year. The primary amount of contract liabilities at the beginning of the Group of RMB 45,463 were guaranteed by CNPC, its fellow subsidiaries and a third party atyear has been recognized as revenue for the year ended December 31, 2017 (December 31, 2016: RMB 65,692).2019.

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

28

BORROWINGS

   December 31,
2019		   December 31,
2018		 
   RMB   RMB 

Short-term borrowings excluding current portion of long-term borrowings

   90,497    69,780 

Current portion of long-term borrowings

   85,343    75,370 
  

 

 

   

 

 

 
   175,840    145,150 

Long-term borrowings

   290,882    269,422 
  

 

 

   

 

 

 
   466,722    414,572 
  

 

 

   

 

 

 

Borrowings of the Group of RMB 22,313 were guaranteed by CNPC, its fellow subsidiaries and a third party at December 31, 2019 (December 31, 2018: RMB 27,685).

The Group’s borrowings include secured liabilities totaling RMB 2,8291,983 at December 31, 20172019 (December 31, 2016:2018: RMB 251)2,460).

 

   December 31,
2017		  December 31,
2016		 
   RMB  RMB 

Total borrowings:

   

— interest free

   130   145 

— at fixed rates

   253,369   282,822 

— at floating rates

   211,776   233,304 
  

 

 

  

 

 

 
   465,275   516,271 
  

 

 

  

 

 

 

Weighted average effective interest rates:

   

— bank loans

   2.42%   1.86% 

— corporate debentures

   3.62%   3.81% 

— medium-term notes

   3.81%   3.86% 

— other loans

   3.87%   3.77% 
   December 31,
2019		  December 31,
2018		 
   RMB  RMB 

Total borrowings:

   

– interest free

   124   129 

– at fixed rates

   250,297   208,876 

– at floating rates

   216,301   205,567 
  

 

 

  

 

 

 
   466,722   414,572 
  

 

 

  

 

 

 

Weighted average effective interest rates:

   

– bank loans

   3.20%   3.43% 

– corporate debentures

   3.52%   3.39% 

– medium-term notes

   3.63%   3.68% 

– other loans

   3.80%   4.07% 

The borrowings by major currencycurrencies at December 31, 20172019 and December 31, 20162018 are as follows:

 

  December 31,
2017		   December 31,
2016		   December 31,
2019		   December 31,
2018		 
  RMB   RMB   RMB   RMB 

RMB

   332,383    372,111    356,704    297,847 

US Dollar

   124,312    136,829    100,374    107,473 

Other currency

   8,580    7,331    9,644    9,252 
  

 

   

 

   

 

   

 

 
   465,275    516,271    466,722    414,572 
  

 

   

 

   

 

   

 

 

The fair values of the Group’s long-term borrowings including the current portion of long-term borrowings are RMB 343,707 (December 31, 2016: RMB 438,805)371,807 at December 31, 2017.2019 (December 31, 2018: RMB 339,878). The carrying amounts of short-term borrowings approximate their fair values.

The fair values are based on discounted cash flows using applicable discount rates based upon the prevailing market rates of interest available to the Group for financial instruments with substantially the same terms and characteristics at the dates of the consolidated statement of financial position. Such discount rates ranged from-0.24% to 6.04% per annum as of December 31, 2017 (December 31, 2016: -0.09% to 4.90% per annum) depending on the type of the borrowings.

The following table sets out the borrowings’ remaining contractual maturities at the date of the statement of financial position, which are based on contractual undiscounted cash flows including principal and interest, and the earliest contractual maturity date:

   December 31,
2017		   December 31,
2016		 
   RMB   RMB 

Within 1 year

   189,050    160,572 

Between 1 and 2 years

   69,159    102,096 

Between 2 and 5 years

   191,879    209,653 

After 5 years

   70,179    106,879 
  

 

 

   

 

 

 
   520,267    579,200 
  

 

 

   

 

 

 

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

-0.27% to 4.90% per annum as of December 31, 2019 (December 31, 2018:-0.18% to 5.43% per annum) depending on the type of the borrowings.

The following table sets out the borrowings’ remaining contractual maturities at the date of the consolidated statement of financial position, which are based on contractual undiscounted cash flows including principal and interest, and the earliest contractual maturity date:

   December 31,
2019		   December 31,
2018		 
   RMB   RMB 

Within 1 year

   188,771    158,782 

Between 1 and 2 years

   30,090    98,939 

Between 2 and 5 years

   253,918    150,837 

After 5 years

   31,576    43,879 
  

 

 

   

 

 

 
   504,355    452,437 
  

 

 

   

 

 

 

Reconciliation of movements of borrowings to cash flows arising from financing activities:

 

   2019  2018 
   RMB  RMB 

At beginning of the year

   414,572   473,955 

Changes from financing cash flows:

   

Increase in borrowings

   836,458   704,281 

Repayments of borrowings

   (785,751)   (770,141) 
  

 

 

  

 

 

 

Total changes from financing cash flows

   50,707   (65,860) 
  

 

 

  

 

 

 

Exchange adjustments

   1,443   6,477 
  

 

 

  

 

 

 

At end of the year

   466,722   414,572 
  

 

 

  

 

 

 

Borrowings
RMB

At 1 January 2017

516,271

Changes from financing cash flows:

Increase in borrowings

730,252

Repayments of borrowings

(773,940) 

Other borrowing costs paid

(173) 
29

SHARE CAPITAL

Total changes from financing cash flows

(43,861) 

Exchange adjustments

(7,135) 

At 31 December 2017

465,275

 

28SHARE CAPITAL

  December 31,
2017		   December 31,
2016		   December 31,
2019		   December 31,
2018		 
  RMB   RMB   RMB   RMB 

Registered, issued and fully paid:

        

A shares

   161,922    161,922    161,922    161,922 

H shares

   21,099    21,099    21,099    21,099 
  

 

   

 

   

 

   

 

 
   183,021    183,021    183,021    183,021 
  

 

   

 

   

 

   

 

 

In accordance with the Restructuring Agreement between CNPC and the Company effective as of November 5, 1999, the Company issued 160 billion state-owned shares in exchange for the assets and liabilities transferred to the Company by CNPC. The 160 billion state-owned shares were the initial registered capital of the Company with a par value of RMB 1.00 yuan per share.

On April 7, 2000, the Company issued 17,582,418,000 shares, represented by 13,447,897,000 H shares and 41,345,210 ADSs (each representing 100 H shares) in a global initial public offering (“Global Offering”) and the trading of the H shares and the ADSs on the Stock Exchange of Hong Kong Limited and the New York Stock Exchange commenced on April 7, 2000 and April 6, 2000, respectively. The H shares and ADSs were issued at

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

prices of HK$ 1.28 per H share and US$ 16.44 per ADS respectively for which the net proceeds to the Company were approximately RMB 20 billion. The shares issued pursuant to the Global Offering rank equally with existing shares.

Pursuant to the approval of the China Securities Regulatory Commission, 1,758,242,000 state-owned shares of the Company owned by CNPC were converted into H shares for sale in the Global Offering.

On September 1, 2005, the Company issued an additional 3,196,801,818 new H shares at HK$ 6.00 per share and net proceeds to the Company amounted to approximately RMB 19,692. CNPC also sold 319,680,182 state-owned shares it held concurrently with PetroChina’s sale of new H shares in September 2005.

On October 31, 2007, the Company issued 4,000,000,000 new A shares at RMB 16.70 yuan per share and net proceeds to the Company amounted to approximately RMB 66,243 and the listing and trading of the A shares on the Shanghai Stock Exchange commenced on November 5, 2007.

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

Following the issuance of the A shares, all the existing state-owned shares issued before November 5, 2007 held by CNPC have been registered with the China Securities Depository and Clearing Corporation Limited as A shares.

Shareholders’ rights are governed by the Company Law of the PRC that requires an increase in registered capital to be approved by the shareholders in shareholders’ general meetings and the relevant PRC regulatory authorities.

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

2930

RESERVES

 

  2017   2016   2019 2018 
  RMB   RMB   RMB RMB 

Capital Reserve

       

Beginning balance

   133,308    133,308    133,308  133,308 
  

 

   

 

   

 

  

 

 

Ending balance

   133,308    133,308    133,308  133,308 

Statutory Common Reserve Fund (a)

       

Beginning balance

   186,840    186,840    194,245  188,769 

Transfer from retained earnings

   1,929    —      3,037  5,476 
  

 

   

 

   

 

  

 

 

Ending balance

   188,769    186,840    197,282  194,245 

Special Reserve-Safety Fund Reserve

       

Beginning balance

   13,188    11,648    13,831  13,366 

Safety fund reserve

   178    1,540    (1,388)  465 
  

 

   

 

   

 

  

 

 

Ending balance

   13,366    13,188    12,443  13,831 

Currency Translation Differences(b)

       

Beginning balance

   (29,294)    (37,066)    (33,067)  (28,045) 

Currency translation differences

   1,249    7,772    4,128  (5,022) 
  

 

   

 

   

 

  

 

 

Ending balance

   (28,045)    (29,294)    (28,939)  (33,067) 

Other Reserves

       

Beginning balance

   (9,236)    (9,790)    (8,718)  (9,336) 

Equity transaction withnon-controlling interests

   289    224 

Acquisition of subsidiaries

   (1)    (259) 

Fair value loss onavailable-for-sale financial assets

   (36)    (128) 

Share of the other comprehensive (loss) / income of associates and joint ventures accounted for using the equity method

   (326)    313 

Adjusted for the acquisition of Dalian West Pacific (Note 40)

   —    516 

Beginning balance, as adjusted

   (8,718)  (8,820) 
  

 

  

 

 

Transaction withnon-controlling interests

   (2,007)  13 

Fair value gain/(loss) from equity investments measured at fair value through other comprehensive income

   96  (162) 

Share of the other comprehensive income of associates and joint ventures accounted for using the equity method

   417  220 

Other

   (26)    404    129  31 
  

 

   

 

   

 

  

 

 

Ending balance

   (9,336)    (9,236)    (10,083)  (8,718) 
  

 

   

 

   

 

  

 

 
   298,062    294,806    304,011  299,599 
  

 

   

 

   

 

  

 

 

 

(a)

Pursuant to the PRC regulations and the Company’s Articles of Association, the Company is required to transfer 10% of its net profit, as determined under the PRC accounting regulations, to a Statutory Common Reserve Fund (“Reserve Fund”). Appropriation to the Reserve Fund may cease when the fund aggregates to 50% of the Company’s registered capital. The transfer to this reserve must be made before distribution of dividends to shareholders.

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

The Reserve Fund shall only be used to make good previous years’ losses, to expand the Company’s production operations, or to increase the capital of the Company. Upon approval of a resolution of shareholders’ in a general meeting, the Company may convert its Reserve Fund into share capital and issue bonus shares to existing shareholders in proportion to their original shareholdings or to increase the nominal value of each share currently held by them, provided that the balance of the Reserve Fund after such issuance is not less than 25% of the Company’s registered capital.

(b)According to the relevant PRC regulations, the distributable reserve is the lower of the retained earnings computed under PRC accounting regulations and IFRS. As of December 31, 2017, the Company’s distributable reserve amounted to RMB 572,252 (December 31, 2016: RMB 574,536).

30DEFERRED TAXATION

Deferred taxation is calculated on temporary differences under the liability method using a principal tax rate of 25%.

The movements in the deferred taxation account are as follows:

   Year Ended December 31, 
   2017   2016   2015 
   RMB   RMB   RMB 

At beginning of the year

   (6,720)    (3,807)    905 

Transfer to profit and loss (Note 12)

   (7,539)    (3,994)    (3,272) 

Credit to other comprehensive income

   195    1,081    (1,449) 

Acquisition of subsidiaries

   —      —      9 
  

 

 

   

 

 

   

 

 

 

At end of the year

   (14,064)    (6,720)    (3,807) 
  

 

 

   

 

 

   

 

 

 

Deferred tax balances before offset are attributable to the following items:

   December 31,
2017		   December 31,
2016		 
   RMB   RMB 

Deferred tax assets:

    

Receivables and inventories

   10,387    7,786 

Tax losses

   27,911    30,438 

Impairment of long-term assets

   9,712    7,551 

Other

   7,613    7,184 
  

 

 

   

 

 

 

Total deferred tax assets

   55,623    52,959 
  

 

 

   

 

 

 

Deferred tax liabilities:

    

Accelerated tax depreciation

   27,539    32,639 

Other

   14,020    13,600 
  

 

 

   

 

 

 

Total deferred tax liabilities

   41,559    46,239 
  

 

 

   

 

 

 

Net deferred tax assets

   14,064    6,720 
  

 

 

   

 

 

 

Tax losses that can be carried forward to future years include deferred tax assets arising from the losses of the branches in the eastern region. The tax expenses of its branches in the eastern and western regions were paid in aggregate according to the requirements of the competent tax authority.

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

(b)

The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations.

(c)

According to the relevant PRC regulations, the distributable reserve is the lower of the retained earnings computed under PRC accounting regulations and IFRS. As of December 31, 2019, the Company’s distributable reserve amounted to RMB 590,727 (December 31, 2018: RMB 594,169).

31

DEFERRED TAXATION

The movements in the deferred taxation account are as follows:

   2019  2018  2017 
   RMB  RMB  RMB 

At beginning of the year

   6,483   14,064   6,720 

Transfer to profit and loss (Note 12)

   (3,485)   (7,807)   7,539 

(Debit) / credit to other comprehensive income

   (150)   226   (195) 
  

 

 

  

 

 

  

 

 

 

At end of the year

   2,848   6,483   14,064 
  

 

 

  

 

 

  

 

 

 

Deferred tax balances before offset are attributable to the following items:

   December 31,
2019		   December 31,
2018		 
   RMB   RMB 

Deferred tax assets:

    

Receivables and inventories

   6,841    8,528 

Tax losses

   20,391    26,027 

Impairment of long-term assets

   9,676    7,838 

Other

   8,643    7,187 
  

 

 

   

 

 

 

Total deferred tax assets

   45,551    49,580 
  

 

 

   

 

 

 

Deferred tax liabilities:

    

Accelerated tax depreciation

   27,646    27,948 

Other

   15,057    15,149 
  

 

 

   

 

 

 

Total deferred tax liabilities

   42,703    43,097 
  

 

 

   

 

 

 

Net deferred tax assets

   2,848    6,483 
  

 

 

   

 

 

 

Tax losses that can be carried forward to future years include deferred tax assets arising from the losses of the branches in the Eastern China Region. The tax expenses of the Company’s branches in the Eastern and Western China Regions were paid in aggregate according to the requirements of the competent tax authority.

Deferred tax balances after offset are listed as follows:

 

  December 31,
2017		   December 31,
2016		   December 31,
2019		   December 31,
2018		 
  RMB   RMB   RMB   RMB 

Deferred tax assets

   26,724    20,360    24,259    23,498 

Deferred tax liabilities

   12,660    13,640    21,411    17,015 

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

3132

ASSET RETIREMENT OBLIGATIONS

 

  2017   2016   2015   2019 2018 2017 
  RMB   RMB   RMB   RMB RMB RMB 

At beginning of the year

   125,392    117,996    109,154    132,780  131,546  125,392 

Liabilities incurred

   2,981    2,942    4,266 

Net liabilities incurred, including reassessment

   2,026  (2,220)  2,981 

Liabilities settled

   (2,012)    (843)    (677)    (2,427)  (2,034)  (2,012) 

Accretion expense (Note 10)

   5,453    5,126    5,950    5,525  5,678  5,453 

Currency translation differences

   (268)    171    (697)    31  (190)  (268) 
  

 

   

 

   

 

   

 

  

 

  

 

 

At end of the year

   131,546    125,392    117,996    137,935  132,780  131,546 
  

 

   

 

   

 

   

 

  

 

  

 

 

Asset retirement obligations relate to oil and gas properties (Note 15).

 

3233

PENSIONS

The Group participates in various employee retirement benefit plans (Note 3(t)3(y)). Expenses incurred by the Group in connection with the retirement benefit plans for the year ended December 31, 20172019 amounted to RMB 16,010 (2016:20,196 (2018: RMB 16,184, 2015:19,432, 2017: RMB 16,357)16,054).

 

3334

CONTINGENT LIABILITIES

(a) Bank and other guarantees

At December 31, 20172019 and 2016,2018, the Group did not guarantee related parties or third parties any significant borrowings or others.

(b) Environmental liabilities

China has adopted extensive environmental laws and regulations that affect the operation of the oil and gas industry. Under existing legislation, however, management believes that there are no probable liabilities, except for the amounts which have already been reflected in the consolidated financial statements, which may have a material adverse effect on the financial position of the Group.

(c) Legal contingencies

During the reporting period, the Group has complied with domestic and overseas significant laws and regulatory requirements. Notwithstanding certain insignificant lawsuits as well as other proceedings outstanding, management believes that any resulting liabilities will not have a material adverse effect on the financial position of the Group.

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

(d) Group insurance

The Group has insurance coverage for vehicles and certain assets that are subject to significant operating risks, third-party liability insurance against claims relating to personal injury, property and environmental damages that result from accidents and also employer liabilities insurance. The potential effect on the financial position of the Group of any liabilities resulting from future uninsured incidents cannot be estimated by the Group at present.

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

3435

COMMITMENTS

(a) Operating lease commitments

Operating lease commitments of the Group are mainly for leasing of land, buildings and equipment. Leases range from 1 to 50 years and usually do not contain renewal options. Future minimum lease payments as of December 31, 2017 and 20162018 undernon-cancellablenon-cancelable operating leases are as follows:

 

   December 31,
2017		   December 31,
2016		 
   RMB   RMB 

No later than 1 year

   11,519    10,108 

Later than 1 year and no later than 5 years

   37,033    30,757 

Later than 5 years

   180,833    148,961 
  

 

 

   

 

 

 
   229,385    189,826 
  

 

 

   

 

 

 
December 31, 2018
RMB

No later than 1 year

12,664

Later than 1 year and no later than 5 years

39,222

Later than 5 years

176,049

227,935

The Group is the lessee in respective of a number of properties, plant and equipment held under leases which were previously classified as operating leases under IAS 17. The Group has initially applied IFRS 16 using the modified retrospective approach. Under this approach, the comparative information is not restated (see Note 3(aa)). From January 1, 2019 onwards future lease payments recognized as lease liabilities in the statement of financial position.

(b) Capital commitments

At December 31, 2017,2019, the Group’s capital commitments contracted but not provided for mainly relating to property, plant and equipment were RMB 70,56356,856 (December 31, 2016:2018: RMB 59,664)41,989).

The operating lease and capital commitments above are transactions mainly with CNPC and its fellow subsidiaries.

(c) Exploration and production licenses

The Company is obligated to make annual payments with respect to its exploration and production licenses to the DepartmentMinistry of Natural Resources. Payments incurred were RMB 609535 for the year ended December 31, 2017 (2016:2019 (2018: RMB 639, 2015:650, 2017: RMB 643)609).

According to the current policy, estimated annual payments for the next five years are as follows:

 

  December 31,
2017		   December 31,
2016		   December 31, 2019   December 31, 2018 
  RMB   RMB   RMB   RMB 

Within one year

   800    800    800    800 

Between one and two years

   800    800    800    800 

Between two and three years

   800    800    800    800 

Between three and four years

   800    800    800    800 

Between four and five years

   800    800    800    800 

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

3536

MAJOR CUSTOMERS

The Group’s major customers are as follows:

 

  2017   2016   2015   2019   2018   2017 
  Revenue   Percentage
of Total
revenue		   Revenue   Percentage
of Total
revenue		   Revenue   Percentage
of Total
revenue		   Revenue   Percentage
of Total
revenue		   Revenue   Percentage
of Total
revenue		   Revenue   Percentage
of Total
revenue		 
  RMB   %   RMB   %   RMB   %   RMB   %   RMB   %   RMB   % 

China Petroleum & Chemical Corporation

   65,767            3    39,481            2    33,482            2    105,855    4    96,990    4    65,767    3 

CNPC and its fellow subsidiaries

   92,173    5    91,094    6    80,045    5    99,279    4    83,670    4    92,173    5 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 
   157,940    8    130,575    8    113,527    7    205,134    8    180,660    8    157,940    8 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

 

3637

RELATED PARTY TRANSACTIONS

CNPC, the controlling shareholder of the Company, is a limited liability company directly controlled by the PRC government.

Related parties include CNPC and its fellow subsidiaries, their associates and joint ventures, other state-owned enterprises and their subsidiaries which the PRC government has control, joint control or significant influence over and enterprises which the Group is able to control, jointly control or exercise significant influence over, key management personnel of the Company and CNPC and their close family members.

(a) Transactions with CNPC and its fellow subsidiaries, associates and joint ventures of the Group

The Group has extensive transactions with other companies in CNPC and its fellow subsidiaries. Due to these relationships, it is possible that the terms of the transactions between the Group and other members of CNPC and its fellow subsidiaries are not the same as those that would result from transactions with other related parties or wholly unrelated parties.

The principal related party transactions with CNPC and its fellow subsidiaries, associates and joint ventures of the Group which were carried out in the ordinary course of business, are as follows:

On August 25, 2011, based on the terms of the Comprehensive Products and Services Agreement amended in 2008, the Company and CNPC entered into a new Comprehensive Products and Services Agreement (“the Comprehensive Products and Services Agreement”) for a period of three years which took effect on January 1, 2012. The Comprehensive Products and Services Agreement provides for a range of products and services which may be required and requested by either party. The products and services to be provided by CNPC and its fellow subsidiaries to the Group under the Comprehensive Products and Services Agreement include construction and technical services, production services, supply of material services, social services, ancillary services and financial services. The products and services required and requested by either party are provided in accordance with (1) government-prescribed prices; or (2) where there is no government-prescribed price, with reference to relevant market prices; or (3) where neither (1) nor (2) is applicable, the actual cost incurred or the agreed contractual price. On the basis of the existing Comprehensive Products and Services Agreement, the Company and CNPC entered into a new Comprehensive Products and Services Agreement on August 28, 2014 for a period of three years which took effect on January 1, 2015. The new Comprehensive Products and Services Agreement

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

has already incorporated the terms of the current Comprehensive Products and Services Agreement which was amended in 2011. On the basis of the existing Comprehensive Products and Services Agreement, the Company and CNPC entered into a new Comprehensive Products and Services Agreement on August 24, 2017 for a period of three years which took effect on January 1, 2018. The new Comprehensive Products and Services Agreement has already incorporated the terms of the current Comprehensive Products and previous Services Agreement which was amended in 2014.Agreement.

Sales of goods represent the sale of crude oil, refined products, chemical products and natural gas, etc. The total amount of these transactions amounted to RMB 113,306 for the year ended December 31, 2017 (2016: RMB 104,034, 2015: RMB 106,304).

Sales of services principally represent the provision of services in connection with the transportation of crude oil and natural gas, etc. The total amount of these transactions amounted to RMB 6,160 for the year ended December 31, 2017 (2016: RMB 5,053, 2015: RMB 6,919).

Purchases of goods and services principally represent construction and technical services, production services, social services, ancillary services and material supply services, etc. The total amount of these transactions amounted to RMB 338,178 for the year ended December 31, 2017 (2016: RMB 292,168, 2015: RMB 322,028).

Purchases of assets principally represent the purchases of manufacturing equipment, office equipment and transportation equipment, etc. The total amount of these transactions amounted to RMB 1,643 for the year ended December 31, 2017 (2016: RMB 1,058, 2015: RMB 1,141).

Amounts due from and to CNPC and its fellow subsidiaries, associates and joint ventures of the Group included in the following accounts captions are summarized as follows:

   December 31,
2017		   December 31,
2016		 
   RMB   RMB 

Accounts receivable

   10,219    6,657 

Prepayments and other receivables

   8,987    9,123 

Other current assets

   5,794    4,486 

Othernon-current assets

   14,848    11,084 

Accounts payable and accrued liabilities

   66,001    64,772 

Othernon-current liabilities

   3,053    3,755 

Interest income represents interest from deposits placed with CNPC and its fellow subsidiaries. The total interest income amounted to RMB 424 for the year ended December 31, 2017 (2016: RMB 224, 2015: RMB 304). The balance of deposits at December 31, 2017 was RMB 25,903 (December 31, 2016: RMB 32,626).

Purchases of financial service principally represents interest charged on the loans from CNPC and its fellow subsidiaries, insurance fee, etc. The total amount of these transactions amounted to RMB 11,021 for the year ended December 31, 2017 (2016: RMB 12,139, 2015: RMB 14,739).

The borrowings from CNPC and its fellow subsidiaries at December 31, 2017 were RMB 208,395 (December 31, 2016: RMB 255,285).

Rents and other payments made under financial leasing represent the payable by the Group (including all rents, leasing service fees and prices for exercising purchase options) for the period according to the financial leasing agreements entered into by the Group and CNPC and its fellow subsidiaries. The total

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

rents and other payments made under financial leasing amounted to RMB 835 for the year ended December 31, 2017 (2016: RMB 819, 2015: RMB 238).

On August 25, 2011, based on the Land Use Rights Leasing Contract signed in 2000, the Company and CNPC entered into a Supplemental Land Use Rights Leasing Contract which took effect on January 1, 2012. The Supplemental Land Use Rights Leasing Contract provides

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the lease of land covering an aggregate area of approximately 1,783 million square meters located throughout the PRC at a maximal annual fee (exclusive of taxper share data and government charges) of RMB 3,892. The Supplemental Land Use Rights Leasing Contract will expire at the same time as the Land Use Rights Leasing Contract. The area and total fee payable for the lease of all such property may be adjusted with the Company’s operating needs and by reference to market price every three years. The Company and CNPC each issued a confirmation letter to the Land Use Rights Leasing Contract on August 28, 2014, which adjusted the rental payable and the area for the leased land parcels. The Company agreed to rent from CNPC parcels of land with an aggregate area of approximately 1,777 million square meters with rental payable (exclusive of tax and government charges) adjusted to no more than RMB 4,831 in accordance with the area of leased land parcels and the current situation of the property market. The Land Use Rights Leasing Contract shall remain unchanged, apart from the rental payable and the leased area. The confirmation letter shall be effective from January 1, 2015. The otherwise stated)

Company and CNPC each issued a confirmation letter to the Land Use Rights Leasing Contract on August 24, 2017, which adjusted the rental payable and the area for the leased land parcels. The Company agreed to rent from CNPC parcels of land with an aggregate area of approximately 1,773 million square meters with annual rental payable (exclusive of tax and government charges) adjusted to no more than RMB 5,783 in accordance with the area of leased land parcels and the current situation of the property market. The Land Use Rights Leasing Contract shall remain unchanged, apart from the rental payable and the leased area. The confirmation letter shall be effective from January 1, 2018.

On August 25, 2011, based on the Buildings Leasing Contract and Supplemental Building Leasing Agreement, the Company and CNPC entered into a Revised Buildings Leasing Contract which took effect thereafter. Under this contract, buildings covering an aggregate area of 734,316 square meters were leased at an average annual fee of RMB 1,049 yuan per square meter. The Revised Building Leasing Contract will expire at the same time as the Building Leasing Agreement. The area and total fee payable for the lease of all such property may, every three years, be adjusted with the Company’s operating needs and by reference to market price which the adjusted prices will not exceed. The Company and CNPC each issued a confirmation letter to the Building Leasing Contract on August 28, 2014, which adjusted the rental payable and the gross floor area for the buildings leased. The Company agreed to lease from CNPC buildings with an aggregate gross floor area of approximately 1,179,586 square meters with rental payable adjusted to approximately RMB 708 in accordance with the gross floor area leased and the current situation of the market. The Building Leasing Contract shall remain unchanged apart from the rental payable and the gross floor area leased. The confirmation letter shall be effective from January 1, 2015. On August 24, 2017, based on the Buildings Leasing Contract and Supplemental Building Leasing Agreement, the Company and CNPC entered into a Revised Buildings Leasing Contract which took effect on January 1, 2018. Under this contract, buildings covering an aggregate area of 1,152,968 square meters were leased at annual rental payable approximately RMB 730. The Revised Building Leasing Contract will expire at DecDecember 31, 2037. The area and total fee payable for the lease of all such property may, every three years, be adjusted with the Company’s operating needs and by reference to market price which the adjusted prices will not exceed.

Sales of goods represent the sale of crude oil, refined products, chemical products and natural gas, etc. The total amount of these transactions amounted to RMB 122,927 for the year ended December 31, 2019 (2018: RMB 105,434, 2017: RMB 113,306).

Sales of services principally represent the provision of services in connection with the transportation of crude oil and natural gas, etc. The total amount of these transactions amounted to RMB 10,055 for the year ended December 31, 2019 (2018: RMB 7,938, 2017: RMB 6,160).

Purchases of goods and services principally represent construction and technical services, production services, social services, ancillary services and material supply services, etc. The total amount of these transactions amounted to RMB 388,802 for the year ended December 31, 2019 (2018: RMB 364,912, 2017: RMB 330,379).

Purchases of assets principally represent the purchases of manufacturing equipment, office equipment and transportation equipment, etc. The total amount of these transactions amounted to RMB 1,701 for the year ended December 31, 2019 (2018: RMB 1,195, 2017: RMB 1,634).

Interest income represents interests from deposits placed with CNPC and its fellow subsidiaries. The total interest income amounted to RMB 460 for the year ended December 31, 2019 (2018: RMB 535, 2017: RMB 425). The balance of deposits at December 31, 2019 was RMB 28,304 (December 31, 2018: RMB 22,532).

Purchases of financial service principally represents interest charged on the loans from CNPC and its fellow subsidiaries, insurance fee, etc. The total amount of these transactions amounted to RMB 8,759 for the year ended December 31, 2019 (2018: RMB 11,970, 2017: RMB 11,294).

The borrowings from CNPC and its fellow subsidiaries at December 31, 2019 were RMB 179,699 (December 31, 2018: RMB 196,161).

Rents and other payments paid to CNPC and its fellow subsidiaries represent (1) the rental expense paid by the Group according to Land Use Rights Leasing Contract and Buildings Leasing Contract; (2) the payable by the Group (including all rents, leasing service fees and prices for exercising purchase options) for the period according to the leasing agreements entered into by the Group and CNPC and its fellow subsidiaries. The total rents and other payments amounted to RMB 10,106 for the year ended December 31, 2019. (2018: RMB 7,092, 2017: RMB 7,351).

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

Amounts due from and to CNPC and its fellow subsidiaries, associates and joint ventures of the Group included in the following accounts captions are summarized as follows:

   December 31,
2019		   December 31,
2018 Note		 
   RMB   RMB 

Accounts receivable

   12,784    11,896 

Prepayments and other receivables

   11,441    11,467 

Other current assets

   11,951    7,852 

Othernon-current assets

   16,242    16,511 

Accounts payable and accrued liabilities

   61,205    64,511 

Contract liabilities

   792    568 

Lease liabilities

   139,250    —   

Othernon-current liabilities

   827    2,296 

Note: The Group has initially applied IFRS 16 at January 1, 2019 using the modified retrospective approach. Under this approach, the comparative information is not restated (see Note 3(aa)).

(b) Key management compensation

 

   Year End December 31, 
   2017   2016   2015 
   RMB’000   RMB’000   RMB’000 

Emoluments and other benefits

   11,779    12,549    11,256 

Contribution to retirement benefit scheme

   1,645    1,712    1,915 
  

 

 

   

 

 

   

 

 

 
   13,424    14,261    13,171 
  

 

 

   

 

 

   

 

 

 

Note:Emoluments set out above for the year ended December 31, 2017 exclude RMB nil paid to key management of the Company of the deferred merit pay in accordance with relevant requirements by the PRC government (2016: RMB 1.64, 2015: RMB nil) .
   Year End December 31, 
   2019   2018   2017 
   RMB’000   RMB’000   RMB’000 

Emoluments and other benefits

   13,042    13,385    11,779 

Contribution to retirement benefit scheme

   1,796    1,781    1,645 
  

 

 

   

 

 

   

 

 

 
   14,838    15,166    13,424 
  

 

 

   

 

 

   

 

 

 

(c) Transactions with other state-controlled entities in the PRC

Apart from transactions with CNPC and its fellow subsidiaries, associates and joint ventures of the Group, the Group’s transactions with other state-controlled entities include but is not limited to the following:

 

Sales and purchases of goods and services,

 

Purchases of assets,

 

Lease of assets; and

 

Bank deposits and borrowings

These transactions are conducted in the ordinary course of the Group’s business.

 

3738

SEGMENT INFORMATION

The Group is principally engaged in a broad range of petroleum related products, services and activities. The Group’s operating segments comprise: Exploration and Production, Refining and Chemicals, Marketing, and Natural Gas and Pipeline. On the basis of these operating segments, the management of the Company assesses the segmental operating results and allocates resources. Sales between operating segments are conducted principally at market prices. Additionally, the Group presents geographical information based on entities located in regions with a similar risk profile.

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

The Exploration and Production segment is engaged in the exploration, development, production and marketing of crude oil and natural gas.

The Refining and Chemicals segment is engaged in the refining of crude oil and petroleum products, production and marketing of primary petrochemical products, derivative petrochemical products and other chemical products.

The Marketing segment is engaged in the marketing of refined products and the trading business.

The Natural Gas and Pipeline segment is engaged in the transmission of natural gas, crude oil and refined products and the sale of natural gas.

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

The Head Office and Other segment relates to cash management and financing activities, the corporate center, research and development, and other business services supporting the operating business segments of the Group.

The accounting policies of the operating segments are the same as those described in Note 3 —– “Summary of Principal Accounting Policies”.

The segment information for the operating segments for the years ended December 31, 2017, 2016 and 2015 are as follows:

   Year Ended December 31, 2017 
   Exploration
and
Production		  Refining
and
Chemicals		  Marketing  Natural
Gas and
Pipeline		  Head
Office and
Other		  Total 
   RMB  RMB  RMB  RMB  RMB  RMB 

Revenue

   505,430   707,804   1,660,456   295,786   2,057   3,171,533 

Less: intersegment sales

   (409,303)   (535,515)   (179,692)   (30,476)   (657)   (1,155,643) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Revenue from external customers

   96,127   172,289   1,480,764   265,310   1,400   2,015,890 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Depreciation, depletion and amortization

   (169,484)   (32,319)   (12,734)   (21,146)   (1,692)   (237,375) 

Including: Impairment losses

of property, plant and equipment

   (6,565)   (10,223)   (7)   (1,150)   (2)   (17,947) 

Profit / (loss) from operations

   15,475   39,961   8,279   15,688   (11,681)   67,722 

Finance costs:

       

Exchange gain

        8,217 

Exchange loss

        (9,311) 

Interest income

        2,901 

Interest expense

        (22,408) 
       

 

 

 

Total net finance costs

        (20,601) 
       

 

 

 

Share of profit / (loss) of associates and joint ventures

   1,716   (89)   1,501   279   2,561   5,968 
       

 

 

 

Profit before income tax expense

        53,089 

Income tax expense

        (16,296) 
       

 

 

 

Profit for the year

        36,793 
       

 

 

 

Segment assets

   1,211,912   318,299   397,813   519,249   1,357,803   3,805,076 

Other assets

        26,724 

Investments in associates and joint ventures

   39,517   1,375   11,938   5,534   22,795   81,159 

Elimination of intersegment balances(a)

        (1,508,347) 
       

 

 

 

Total assets

        2,404,612 
       

 

 

 

Capital expenditures

   161,997   17,705   10,982   24,529   1,014   216,227 

Segment liabilities

   525,085   79,989   199,340   120,244   589,460   1,514,118 

Other liabilities

        70,091 

Elimination of intersegment balances(a)

        (560,916) 
       

 

 

 

Total liabilities

        1,023,293 
       

 

 

 

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

   Year Ended December 31, 2016 
   Exploration
and
Production		  Refining
and
Chemicals		  Marketing  Natural
Gas and
Pipeline		  Head
Office and
Other		  Total 
   RMB  RMB  RMB  RMB  RMB  RMB 

Revenue

   412,484   582,510   1,301,616   247,477   2,197   2,546,284 

Less: intersegment sales

   (335,716)   (438,853)   (126,344)   (27,784)   (684)   (929,381) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Revenue from external customers

   76,768   143,657   1,175,272   219,693   1,513   1,616,903 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Depreciation, depletion and amortization

   (155,192)   (25,475)   (12,891)   (22,743)   (1,846)   (218,147) 

Including: Impairment losses of property, plant and equipment

   (882)   (3,413)   (2)   (4,205)   —     (8,502) 

Profit / (loss) from operations

   3,148   39,026   11,048   17,885   (10,472)   60,635 

Finance costs:

       

Exchange gain

        12,828 

Exchange loss

        (11,571) 

Interest income

        2,491 

Interest expense

        (23,348) 
       

 

 

 

Total net finance costs

        (19,600) 
       

 

 

 

Share of (loss) / profit of associates and joint ventures

   (158)   13   552   204   3,494   4,105 
       

 

 

 

Profit before income tax expense

        45,140 

Income tax expense

        (15,768) 
       

 

 

 

Profit for the year

        29,372 
       

 

 

 

Segment assets

   1,260,009   324,357   384,123   546,485   1,434,141   3,949,115 

Other assets

        25,766 

Investments in associates and joint ventures

   42,398   1,262   10,455   3,305   21,547   78,967 

Elimination of intersegment balances(a)

        (1,657,197) 
       

 

 

 

Total assets

        2,396,651 
       

 

 

 

Capital expenditures

   130,248   12,847   7,983   20,340   968   172,386 

Segment liabilities

   536,284   124,076   183,159   150,855   668,353   1,662,727 

Other liabilities

        58,839 

Elimination of intersegment balances(a)

        (697,650) 
       

 

 

 

Total liabilities

        1,023,916 
       

 

 

 

The segment information for the operating segments for the years ended December 31, 2019, 2018 and 2017 are as follows:

  Year Ended December 31, 2019 
  Exploration
and
Production		  Refining
and
Chemicals		  Marketing  Natural
Gas and
Pipeline		  Head
Office and
Other		  Total 
  RMB  RMB  RMB  RMB  RMB  RMB 

Revenue

  676,320   902,679   2,165,391   391,023   3,700   4,139,113 

Less: intersegment sales

  (552,672)   (712,178)   (315,157)   (40,652)   (1,644)   (1,622,303) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Revenue from external customers

  123,648   190,501   1,850,234   350,371   2,056   2,516,810 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Depreciation, depletion and amortization

  (158,874)   (24,995)   (17,131)   (22,375)   (1,887)   (225,262) 

Including: Impairment losses of property, plant and equipment

  (11,562)   (1,444)   (1)   (412)   —     (13,419) 

Profit / (loss) from operations

  96,097   13,764   (565)   26,108   (13,642)   121,762 

Finance costs:

      

Exchange gain

       10,017 

Exchange loss

       (10,016) 

Interest income

       3,631 

Interest expense

       (30,409) 
      

 

 

 

Total net finance costs

       (26,777) 
      

 

 

 

Share of profit of associates and joint ventures

  3,513   58   1,402   501   2,755   8,229 
      

 

 

 

Profit before income tax expense

       103,214 

Income tax expense

       (36,199) 
      

 

 

 

Profit for the year

       67,015 
      

 

 

 

Segment assets

  1,520,697   365,013   524,321   536,298   1,409,368   4,355,697 

Other assets

       29,908 

Investments in associates and joint ventures

  45,721   1,022   19,159   9,713   26,458   102,073 

Elimination of intersegment balances(a)

       (1,754,768) 
      

 

 

 

Total assets

       2,732,910 
      

 

 

 

Capital expenditures

  230,117   21,279   17,618   27,004   758   296,776 

Segment liabilities

  720,028   132,018   324,822   277,370   594,000   2,048,238 

Other liabilities

       88,793 

Elimination of intersegment balances(a)

       (848,426) 
      

 

 

 

Total liabilities

       1,288,605 
      

 

 

 

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

  Year Ended December 31, 2015  Year Ended December 31, 2018 
  Exploration
and
Production		 Refining
and
Chemicals		 Marketing Natural
Gas and
Pipeline		 Head
Office and
Other		 Total  Exploration
and
Production		 Refining
and
Chemicals		 Marketing Natural
Gas and
Pipeline		 Head
Office and
Other		 Total 
  RMB RMB RMB RMB RMB RMB  RMB RMB RMB RMB RMB RMB 

Revenue

   475,412  642,428  1,383,426  281,778  2,507  2,785,551  658,712  911,224  2,003,105  362,626  2,376  3,938,043 

Less: intersegment sales

   (384,423)  (502,007)  (146,719)  (26,259)  (715)  (1,060,123)  (539,295)  (706,559)  (280,750)  (35,899)  (606)  (1,563,109) 
  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Revenue from external customers

   90,989  140,421  1,236,707  255,519  1,792  1,725,428  119,417  204,665  1,722,355  326,727  1,770  2,374,934 
  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Depreciation, depletion and amortization

   (148,958)  (24,400)  (12,974)  (14,489)  (2,054)  (202,875)  (169,622)  (25,318)  (13,511)  (21,985)  (1,840)  (232,276) 

Including: Impairment losses of property, plant and equipment

   (22,922)  (1,843)  (191)  (66)   —    (25,022)  (26,002)  (3,393)   —    (530)   —    (29,925) 

Profit/ (loss) from operations

   33,961  4,883  (500)  51,231  (10,323)  79,252 

Profit / (loss) from operations

 73,519  44,701  (6,450)  25,515  (14,343)  122,942 

Finance costs:

             

Exchange gain

       9,536       12,701 

Exchange loss

       (10,168)       (11,581) 

Interest income

       2,019       3,779 

Interest expense

       (24,328)       (22,718) 
       

 

       

 

 

Total net finance costs

       (22,941)       (17,819) 
       

 

       

 

 

Share of (loss) / profit of associates and joint ventures

   (5,599)  66  (156)  4,206  2,987  1,504 

Share of profit of associates and joint ventures

 4,224  63  4,214  496  2,650  11,647 
       

 

       

 

 

Profit before income tax expense

       57,815       116,770 

Income tax expense

       (15,726)       (42,790) 
       

 

       

 

 

Profit for the year

       42,089       73,980 
       

 

       

 

 

Segment assets

   1,221,942  311,149  343,721  597,240  1,518,486  3,992,538  1,227,613  324,639  429,854  519,553  1,371,525  3,873,184 

Other assets

       28,043       24,759 

Investments in associates and joint ventures

   32,413  1,249  9,517  3,424  24,373  70,976  39,235  1,010  17,437  7,022  24,658  89,362 

Elimination of intersegment balances (a)

       (1,697,713)       (1,546,428) 
       

 

       

 

 

Total assets

       2,393,844       2,440,877 
       

 

       

 

 

Capital expenditures

   157,822  15,725  7,061  20,360  1,270  202,238  196,109  15,419  17,010  26,502  1,066  256,106 

Segment liabilities

   511,098  114,888  148,556  206,920  727,579  1,709,041  466,097  59,139  239,187  158,153  566,129  1,488,705 

Other liabilities

       47,261       100,303 

Elimination of intersegment balances(a)

       (706,492)       (557,022) 
       

 

       

 

 

Total liabilities

       1,049,810       1,031,986 
       

 

       

 

 

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

  Year Ended December 31, 2017 
  Exploration
and
Production		  Refining
and
Chemicals		  Marketing  Natural
Gas and
Pipeline		  Head
Office and
Other		  Total 
  RMB  RMB  RMB  RMB  RMB  RMB 

Revenue

  505,430   735,486   1,660,456   295,786   2,057   3,199,215 

Less: intersegment sales

  (409,303)   (546,560)   (179,846)   (30,550)   (658)   (1,166,917) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Revenue from external customers

  96,127   188,926   1,480,610   265,236   1,399   2,032,298 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Depreciation, depletion and amortization

  (169,484)   (32,751)   (12,734)   (21,146)   (1,692)   (237,807) 

Including: Impairment losses of property, plant and equipment

  (6,565)   (10,223)   (7)   (1,150)   (2)   (17,947) 

Profit / (loss) from operations

  15,475   43,075   8,279   15,688   (11,681)   70,836 

Finance costs:

      

Exchange gain

       8,252 

Exchange loss

       (9,436) 

Interest income

       2,912 

Interest expense

       (22,841) 
      

 

 

 

Total net finance costs

       (21,113) 
      

 

 

 

Share of profit / (loss) of associates and joint ventures

  1,716   (89)   1,501   279   2,561   5,968 
      

 

 

 

Profit before income tax expense

       55,691 

Income tax expense

       (16,296) 
      

 

 

 

Profit for the year

       39,395 
      

 

 

 

Segment assets

  1,211,912   327,186   397,813   519,249   1,357,803   3,813,963 

Other assets

       26,724 

Investments in associates and joint ventures

  39,517   1,375   11,938   5,534   22,795   81,159 

Elimination of intersegment balances(a)

       (1,508,347) 
      

 

 

 

Total assets

       2,413,499 
      

 

 

 

Capital expenditures

  161,997   17,859   10,982   24,529   1,014   216,381 

Segment liabilities

  525,085   91,632   199,340   120,244   589,460   1,525,761 

Other liabilities

       70,666 

Elimination of intersegment balances(a)

       (560,916) 
      

 

 

 

Total liabilities

       1,035,511 
      

 

 

 

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

Geographical information

 

  Revenue   Non-current assets(b)   Revenue   Non-current assets(b) 

Year Ended December 31,

  2017   2016   2015   2017   2016   2015 
  2019   2018   2017   December 31,
2019		   December 31,
2018(c)		 
  RMB   RMB   RMB   RMB   RMB   RMB   RMB   RMB   RMB   RMB   RMB 

Mainland China

   1,294,516    1,101,055    1,185,189    1,711,605    1,739,351    1,796,288    1,476,693    1,538,315    1,302,695    2,027,428    1,782,624 

Other

   721,374    515,848    540,239    239,204    253,264    228,416    1,040,117    836,619    729,603    213,268    192,675 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 
   2,015,890    1,616,903    1,725,428    1,950,809    1,992,615    2,024,704    2,516,810    2,374,934    2,032,298    2,240,696    1,975,299 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

 

(a)

Elimination of intersegment balances represents elimination of intersegment accounts and investments.

(b)

Non-current assets mainly includenon-current assets other than financial instruments and deferred tax assets.

(c)

The Group has initially applied IFRS 16 at January 1, 2019 using the modified retrospective approach. Under this approach, the comparative information is not restated (see Note 3(aa)).

 

3839

APPROVAL OF FINANCIAL STATEMENTS

The financial statements were approved by the Board of Directors on April 27, 2018.29, 2020.

40

BUSINESS COMBINATION INVOLVING ENTITIES UNDER COMMON CONTROL

Business combination involving entities under common control during the period

Name of acquiree

 Proportion of
equity
interests
acquired in
business
combination		  

Basis for business
combination under
common control

 Acquisition
Date		 Basis for
determination
of acquisition
date		 From the beginning of
the period to the
acquisition date		  2018 
 Revenue  Net
profit		  Net cash
outflow		  Revenue  Net
profit		 

Dalian West Pacific

  56.04%  The Company and Dalian West Pacific are under the ultimate control of CNPC before and after the business combination and the control is not temporary May 31,
2019		 Acquisition
of actual
control		  10,763   1   (53)   37,385   1,564 

Dalian West Pacific was established in December 1990. It principally engages in the manufacturing and sale of petroleum and petrochemical products. Before the acquisition date, the Company holds 28.44% equity of Dalian West Pacific. After the completion of the equity acquisition, the Company holds 84.48% equity of Dalian West Pacific in total.

As the Company and Dalian West Pacific are under the ultimate control of CNPC and the control is not temporary. The acquisition of Dalian West Pacific has been reflected in the accompanying consolidated financial statements as combination of entities under common control. Consequently, Dalian West Pacific has been included in the scope of consolidation during the historical period. The opening balance of the final consolidated financial statements of 2019 and the comparative statements have been adjusted accordingly.

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

The financial position as at December 31, 2018 and results of operation for the years ended December 31, 2017 and 2018 previously reported by the Group have been restated to include the assets and liabilities and the results of operations of Dalian West Pacific on a consolidation basis as set out below:

  The Group, as
previously
reported		  Dalian West
Pacific		  Consolidation
adjustment		  The Group,
as restated		 
  RMB  RMB  RMB  RMB 

Summarized statement of comprehensive income for the year ended December 31, 2017:

    

Revenue

  2,015,890   27,715   (11,307)   2,032,298 

Total operating expenses

  (1,948,168)   (24,601)   11,307   (1,961,462) 

Profit from operations

  67,722   3,114   —     70,836 

Profit for the year

  36,793   2,602   —     39,395 

Profit for the year attributable to owners of the Company

  22,798   2,602   (1,863)   23,537 

Profit for the year attributable tonon-controlling interests

  13,995   —     1,863   15,858 

Basic and diluted earnings per share (RMB Yuan)

  0.12     0.13 

Summarized statement of comprehensive income for the year ended December 31, 2018:

    

Revenue

  2,353,588   37,385   (16,039)   2,374,934 

Total operating expenses

  (2,232,591)   (35,440)   16,039   (2,251,992) 

Profit from operations

  120,997   1,945   —     122,942 

Profit for the year

  72,416   1,564   —     73,980 

Profit for the year attributable to owners of the Company

  52,591   1,564   (1,119)   53,036 

Profit for the year attributable tonon-controlling interests

  19,825   —     1,119   20,944 

Basic and diluted earnings per share (RMB Yuan)

  0.29     0.29 

Summarized financial position as at December 31, 2018:

    

Current assets

  433,128   5,126   (13)   438,241 

Non-current assets

  1,999,138   3,498   —     2,002,636 

Total assets

  2,432,266   8,624   (13)   2,440,877 

Current liabilities

  586,386   10,057   (13)   596,430 

Non-current liabilities

  435,222   334   —     435,556 

Total liabilities

  1,021,608   10,391   (13)   1,031,986 

Non-controlling interests

  196,372   —     (1,264)   195,108 

Total equity attributable to owner of the Company

  1,214,286   (1,767)   1,264   1,213,783 

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

41

LEASES

The leases where the Group is a lessee

(a)Right-of-use assets

   January 1,
2019		   Addition  Reduction  December 31,
2019		 

Cost

      

Land

   153,178    20,471   (752)   172,897 

Buildings

   83,552    8,368   —     91,920 

Equipment and Machinery

   2,295    639   —     2,934 

Other

   1,617    451   —     2,068 
  

 

 

   

 

 

  

 

 

  

 

 

 

Total

   240,642    29,929   (752)   269,819 
  

 

 

   

 

 

  

 

 

  

 

 

 

Accumulated depreciation

      

Land

   —      (6,696)   101   (6,595) 

Buildings

   —      (7,369)   —     (7,369) 

Equipment and Machinery

   —      (718)   —     (718) 

Other

   —      (401)   —     (401) 
  

 

 

   

 

 

  

 

 

  

 

 

 

Total

   —      (15,184)   101   (15,083) 
  

 

 

   

 

 

  

 

 

  

 

 

 

Net book value

      

Land

   153,178      166,302 

Buildings

   83,552      84,551 

Equipment and Machinery

   2,295      2,216 

Other

   1,617      1,667 
  

 

 

     

 

 

 

Total

   240,642      254,736 
  

 

 

     

 

 

 

The Group’s leasing of land principally represents use rights of land, the remaining lease term is from 2 years to 30 years. The Group’s leasing classified as buildings principally represents gas station, gas and gasoline storage and office buildings. The Group’s leasing classified as equipment and machinery principally represents drilling equipment, manufacturing facilities, and other movable equipment.

(b) Lease liabilities

December 31, 2019

Lease liabilities

171,536

Less: Lease liabilities due within one year

(7,393) 

164,143

Depreciation charged to profit or loss provided onright-of-use assets for the year ended December 31, 2019 was RMB 14,973.

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

Analysis of the undiscounted cash flow of the lease liability is as follows:

December 31, 2019
RMB

Within 1 year

14,304

Between 1 and 2 years

13,569

Between 2 and 5 years

37,531

Over 5 years

210,750

276,154

42

EVENTS AFTER THE REPORTING PERIOD

(1)

Impact ofCOVID-19

January 2020 witnessed an outbreak of COVID-19, and China is set to take its toll on the Chinese economy. The Group was also significantly affected by the COVID-19, such that the market demand for, and the prices of, the Company’s oil and gas products have declined, and the operation and management of oil and gas industrial chain became more complicated and difficult. The Group actively set up an anti-COVID-19 steering team to arrange in time for various steps to be taken in response, safeguarding the health of its employees in addition to safe and well-ordered production and operation, broadening sources of income and reducing expenditure as well as cutting costs and enhancing efficiency, controlling the capital expenditures and costs, optimizing debt settlement structure, actively promoting price promotion, and accelerating the development of domestic natural gas business, thus trying to minimize the loss arising therefrom and ensure sustainable business development in the long run. As of the issuance date of these financial statements, there is still significant uncertainty about the short-term and long-term adverse effects of the COVID-19 pandemic on the global and Chinese economy and financial markets, as such, we cannot reasonably estimate the short-term or long-term impact of the COVID-19 on the business operation and financial performance of the Group.

(2)

Short-term readjustment of natural gas price

On February 22, 2020, NDRC issued the Notice on Interim Reduction of Gas Cost forNon-resident Use to Support Resumption of Work and Production (Fa Gai Jia Ge [2020] No. 257) (《關於階段性降低非居民用氣成本支持企業復工複產的通知》（發改價格〔2020〕257號）) (the “Notice”) pursuant to which, to act on the government’s guideline in respect of proper coordination ofanti-COVID-19 efforts as well as economic and social development, the cost ofnon-resident use of gas will be lowered in the short term. Starting from the date thereof to June 30, 2020,off-season price policies shall be implemented in advance for the city gate prices of natural gas fornon-resident use, greater price discounts shall be provided to industries, such as chemical fertilizers, which are deeply affected by theCOVID-19, and theend-user prices of natural gas should reduce timely. The sales revenue and profits of natural gas sales of our Group will be affected to certain extent, however, we will go on optimizing our production and operation and pushing ahead sustainable and high-quality business development.

(3)

The price of international crude oil fell sharply

Since the beginning of March 2020, due to unfavorable outlook of the world economy affected by theCOVID-19 and oversupply of crude oil in the global market, international crude oil prices have fallen sharply. The decline in international crude oil prices has adversely affected the Group’s sales revenue and profits, the Group actively takes measures to deal with the risks of crude oil price fluctuations, and strives to maintain stable and healthy development of production and operations.

PETROCHINA COMPANY LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION

AND PRODUCTION ACTIVITIES (UNAUDITED)

(All amounts in millions, except for the per share data and otherwise stated)

In accordance with the Accounting Standards Update2010-03 Extractive Activities – Oil and Gas (Topic 932): Oil and Gas Reserve Estimation and Disclosures (an update of Accounting Standards Codification Topic 932 Extractive Activities – Oil and Gas or “ASC 932”) issued by the Financial Accounting Standards Board and corresponding disclosure requirements of the U.S. Securities and Exchange Commission, this section provides supplemental information on oil and gas exploration and development; and results of operation related to oil and gas producing activities of the Company and its subsidiaries (the “Group”) and also the Group’s investments that are accounted for using the equity method of accounting.

The supplemental information presented below covers the Group’s proved oil and gas reserves estimates, historical cost information pertaining to capitalized costs, costs incurred for property acquisitions, exploration and development activities, result of operations for oil and gas producing activities, standardized measure of estimated discounted future net cash flows and changes in estimated discounted future net cash flows.

The “Other” geographic area includes oil and gas producing activities principally in countries such as Kazakhstan, Venezuela and Indonesia. As the Group does not have significant reserves held through its investments accounted for using the equity method, information presented in relation to these equity method investments is presented in the aggregate.

Proved Oil and Gas Reserve Estimates

Proved oil and gas reserves cannot be measured exactly. Reserve estimates are based on many factors related to reservoir performance that require evaluation by the engineers interpreting the available data, as well as price and other economic factors. The reliability of these estimates at any point in time depends on both the quality and quantity of the technical and economic data, and the production performance of the reservoirs as well as engineering judgment. Consequently, reserve estimates are subject to revision as additional data become available during the producing life of a reservoir. When a commercial reservoir is discovered, proved reserves are initially determined based on limited data from the first well or wells. Subsequent data may better define the extent of the reservoir and additional production performance, well tests and engineering studies will likely improve the reliability of the reserve estimate. The evolution of technology may also result in the application of improved recovery techniques such as supplemental or enhanced recovery projects, or both, which have the potential to increase reserves.

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.

Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average price during the12-month period before the ending date of the period covered by this report, determined as an unweighted arithmetic average of thefirst-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions. The costs shall be that prevailing at the end of the period.

Proved developed oil and gas reserves are proved reserves that can be expected to be recovered:

a.

Through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared with the cost of a new well.

PETROCHINA COMPANY LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION

AND PRODUCTION ACTIVITIES (UNAUDITED) — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

b.

Proved developed oil and gas reserves are proved reserves that can be expected to be recovered:

a. Through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared with the cost of a new well.

b. Through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.

Proved undeveloped oil and gas reserves are proved reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.

The taxes, fees and royalty in China are domestic tax schemes and are paid in cash to PRC authorities. The proved reserves includes quantities that are ultimately produced and sold to pay these taxes, fees and royalty.

Proved reserve estimates as of December 31, 2017, 20162019, 2018 and 20152017 were based on reports prepared by DeGolyer and MacNaughton, Gaffney, Cline & Associates, McDaniel & Associates, Ryder Scott and GLJ independent engineering consultants.

PETROCHINA COMPANY LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION

AND PRODUCTION ACTIVITIES (UNAUDITED) — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

Estimated quantities of net proved crude oil and condensate and natural gas reserves and of changes in net quantities of proved developed and undeveloped reserves for each of the periods indicated are as follows:

 

   Crude Oil and
Condensate		  Natural
Gas		  Total — All
products		 
   (million
barrels)		  (billion
cubic feet)		  (million
barrels of oil
equivalent)		 

Proved developed and undeveloped reserves

    

The Group

    

Reserves at December 31, 2014

   10,593   71,098   22,443 

Changes resulting from:

    

Revisions of previous estimates

   (1,663)   (206)   (1,697) 

Improved recovery

   106   —     106 

Extensions and discoveries

   457   9,764   2,084 

Production

   (972)   (3,131)   (1,494) 
  

 

 

  

 

 

  

 

 

 

Reserves at December 31, 2015

   8,521   77,525   21,442 

Changes resulting from:

    

Revisions of previous estimates

   (747)   (308)   (799) 

Improved recovery

   93   —     93 

Extensions and discoveries

   492   4,770   1,287 

Production

   (921)   (3,275)   (1,467) 
  

 

 

  

 

 

  

 

 

 

Reserves at December 31, 2016

   7,438   78,712   20,556 

Changes resulting from:

    

Revisions of previous estimates

   486   (1,751)   195 

Improved recovery

   98   —     98 

Extensions and discoveries

   346   3,350   905 

Production

   (887)   (3,423)   (1,458) 
  

 

 

  

 

 

  

 

 

 

Reserves at December 31, 2017

   7,481   76,888   20,296 
  

 

 

  

 

 

  

 

 

 

PETROCHINA COMPANY LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION

AND PRODUCTION ACTIVITIES (UNAUDITED) — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

  Crude Oil and
Condensate		   Natural
Gas		   Total — All
products		   Crude Oil and
Condensate		 Natural Gas Total – All
products		 
  (million
barrels)		   (billion
cubic feet)		   (million
barrels of oil
equivalent)		   (million
barrels)		 (billion cubic
feet)		 (million
barrels of oil
equivalent)		 

Proved developed and undeveloped reserves

    

The Group

    

Reserves at December 31, 2016

   7,438  78,712  20,556 

Changes resulting from:

    

Revisions of previous estimates

   486  (1,751)  195 

Improved recovery

   98   —    98 

Extensions and discoveries

   346  3,350  905 

Production

   (887)  (3,423)  (1,458) 
  

 

  

 

  

 

 

Reserves at December 31, 2017

   7,481  76,888  20,296 

Changes resulting from:

    

Revisions of previous estimates

   526  (1,378)  297 

Improved recovery

   96   —    96 

Extensions and discoveries

   428  4,565  1,188 

Production

   (890)  (3,608)  (1,492) 
  

 

  

 

  

 

 

Reserves at December 31, 2018

   7,641  76,467  20,385 
  

 

  

 

  

 

 

Changes resulting from:

    

Revisions of previous estimates

��  (50)  (766)  (177) 

Improved recovery

   91   —    91 

Extensions and discoveries

   480  4,443  1,221 

Production

   (909)  (3,908)  (1,561) 
  

 

  

 

  

 

 

Reserves at December 31, 2019

   7,253  76,236  19,959 
  

 

  

 

  

 

 

Proved developed reserves at:

          

December 31, 2015

   6,196    40,406    12,930 

December 31, 2016

   5,176    40,664    11,953 

December 31, 2017

   5,593    39,243    12,133    5,593  39,243  12,133 

December 31, 2018

   5,843  40,128  12,531 

December 31, 2019

   5,474  39,870  12,119 

Proved undeveloped reserves at:

          

December 31, 2015

   2,325    37,119    8,512 

December 31, 2016

   2,262    38,048    8,603 

December 31, 2017

   1,888    37,645    8,163    1,888  37,645  8,163 

December 31, 2018

   1,798  36,339  7,854 

December 31, 2019

   1,779  36,366  7,840 

Equity method investments

          

Share of proved developed and undeveloped reserves of associates and joint ventures

          

December 31, 2015

   504    354    563 

December 31, 2016

   504    348    562 

December 31, 2017

   395    372    457    395  372  457 

December 31, 2018

   321  429  393 

December 31, 2019

   287  394  353 

At December 31, 2017,2019, total proved developed and undeveloped reserves of the Group and equity method investments is 20,75320,312 million barrels of oil equivalent (December 31, 2016: 21,1182018: 20,778 million barrels of oil equivalent, December 31, 2015: 22,005 million barrels of oil equivalent), comprising 7,876 million barrels of crude oil and condensate (December 31, 2016: 7,942 million barrels, December 31, 2015: 9,025 million barrels) and 77,260 billion cubic feet of natural gas (December 31, 2016: 79,060 billion cubic feet, December 31, 2015: 77,879 billion cubic feet).

At December 31, 2017, 6,622 million barrels (December 31, 2016: 6,341 million barrels, December 31, 2015: 7,650 million barrels) of crude oil and condensate and 74,702 billion cubic feet (December 31, 2016: 76,245 billion cubic feet, December 31, 2015: 75,858 billion cubic feet) of natural gas proved developed and undeveloped reserves of the Group are located within Mainland China, and 859 million barrels (December 31, 2016: 1,097 million barrels, December 31, 2015: 871 million barrels) of crude oil and condensate and 2,186 billion cubic feet (December 31, 2016: 2,467 billion cubic feet, December 31, 2015: 1,667 billion cubic feet) of natural gas proved developed and undeveloped reserves of the Group are located overseas.

PETROCHINA COMPANY LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION

AND PRODUCTION ACTIVITIES (UNAUDITED) — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

equivalent, December 31, 2017: 20,753 million barrels of oil equivalent), comprising 7,540 million barrels of crude oil and condensate (December 31, 2018: 7,962 million barrels, December 31, 2017: 7,876 million barrels) and 76,630 billion cubic feet of natural gas (December 31, 2018: 76,896 billion cubic feet, December 31, 2017: 77,260 billion cubic feet).

At December 31, 2019, 6,500 million barrels (December 31, 2018: 6,830 million barrels, December 31, 2017: 6,622 million barrels) of crude oil and condensate and 74,533 billion cubic feet (December 31, 2018: 74,480 billion cubic feet, December 31, 2017: 74,702 billion cubic feet) of natural gas proved developed and undeveloped reserves of the Group are located within Mainland China, and 753 million barrels (December 31, 2018: 811 million barrels, December 31, 2017: 859 million barrels) of crude oil and condensate and 1,703 billion cubic feet (December 31, 2018: 1,987 billion cubic feet, December 31, 2017: 2,186 billion cubic feet) of natural gas proved developed and undeveloped reserves of the Group are located overseas.

Capitalized Costs

 

  December 31,
2017		 December 31,
2016		   December 31,
2019		 December 31,
2018		 
  RMB RMB   RMB RMB 

The Group

      

Property costs and producing assets

   1,604,141  1,519,124    1,820,481  1,692,861 

Support facilities

   407,188  390,089    440,722  420,505 

Construction-in-progress

   101,067  100,114    149,068  119,501 
  

 

  

 

   

 

  

 

 

Total capitalized costs

   2,112,396  2,009,327    2,410,271  2,232,867 

Accumulated depreciation, depletion and amortization

   (1,199,741)  (1,063,500)    (1,429,389)  (1,312,907) 
  

 

  

 

   

 

  

 

 

Net capitalized costs

   912,655  945,827    980,882  919,960 
  

 

  

 

   

 

  

 

 

Equity method investments

      

Share of net capitalized costs of associates and joint ventures

   25,837  28,999    24,785  25,963 
  

 

  

 

   

 

  

 

 

Costs Incurred for Property Acquisitions, Exploration and Development Activities

 

  2017   2019 
  Mainland
China		   Other   Total   Mainland
China		   Other   Total 
  RMB   RMB   RMB   RMB   RMB   RMB 

The Group

            

Exploration costs

   31,585    984    32,569    41,687    1,972    43,659 

Development costs

   110,104    18,596    128,700    166,321    21,375    187,696 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total

   141,689    19,580    161,269    208,008    23,347    231,355 
  

 

   

 

   

 

   

 

   

 

   

 

 

Equity method investments

            

Share of costs of property acquisition, exploration and development of associates and joint ventures

   —      2,503    2,503    —      2,178    2,178 
  

 

   

 

   

 

   

 

   

 

   

 

 
  2016 
  Mainland
China		   Other   Total 
  RMB   RMB   RMB 

The Group

      

Exploration costs

   28,413    685    29,098 

Development costs

   83,785    13,870    97,655 
  

 

   

 

   

 

 

Total

   112,198    14,555    126,753 
  

 

   

 

   

 

 

Equity method investments

      

Share of costs of property acquisition, exploration and development of associates and joint ventures

   —      1,990    1,990 
  

 

   

 

   

 

 

PETROCHINA COMPANY LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION

AND PRODUCTION ACTIVITIES (UNAUDITED) — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

  2015   2018 
  Mainland
China		   Other   Total   Mainland
China		   Other   Total 
  RMB   RMB   RMB   RMB   RMB   RMB 

The Group

            

Property acquisition costs

   —      456    456 

Exploration costs

   28,542    1,011    29,553    33,618    1,546    35,164 

Development costs

   100,328    18,611    118,939    134,634    25,047    159,681 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total

   128,870    20,078    148,948    168,252    26,593    194,845 
  

 

   

 

   

 

   

 

   

 

   

 

 

Equity method investments

            

Share of costs of property acquisition, exploration and development of associates and joint ventures

   —      2,798    2,798    —      3,114    3,114 
  

 

   

 

   

 

   

 

   

 

   

 

 

   2017 
   Mainland
China		   Other   Total 
   RMB   RMB   RMB 

The Group

      

Exploration costs

   31,585    984    32,569 

Development costs

   110,104    18,596    128,700 
  

 

 

   

 

 

   

 

 

 

Total

   141,689    19,580    161,269 
  

 

 

   

 

 

   

 

 

 

Equity method investments

      

Share of costs of property acquisition, exploration and development of associates and joint ventures

   —      2,503    2,503 
  

 

 

   

 

 

   

 

 

 

PETROCHINA COMPANY LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION

AND PRODUCTION ACTIVITIES (UNAUDITED) — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

Results of Operations for Oil and Gas Producing Activities

The results of operations for oil and gas producing activities for the years ended December 31, 2017, 20162019, 2018 and 20152017 are presented below. “Revenue” includes sales to third parties and inter-segment sales (atarm’s-length prices), net of value-added taxes. Resource tax, crude oil special gain levy and other taxes are included in “taxes other than income taxes”. Income taxes are computed using the applicable statutory tax rate, reflecting tax deductions and tax credits for the respective years ended.

 

   2019 
   Mainland China  Other  Total 
   RMB  RMB  RMB 

The Group

    

Revenue

    

Sales to third parties

   44,001   50,611   94,612 

Inter-segment sales

   379,968   14,956   394,924 
  

 

 

  

 

 

  

 

 

 
   423,969   65,567   489,536 

Production costs excluding taxes

   (127,900)   (11,011)   (138,911) 

Exploration expenses

   (19,821)   (954)   (20,775) 

Depreciation, depletion and amortization

   (115,648)   (24,792)   (140,440) 

Taxes other than income taxes

   (24,876)   (5,853)   (30,729) 

Accretion expense

   (5,294)   (231)   (5,525) 

Income taxes

   (24,085)   (11,729)   (35,814) 
  

 

 

  

 

 

  

 

 

 

Results of operations from producing activities

   106,345   10,997   117,342 
  

 

 

  

 

 

  

 

 

 

Equity method investments

    

Share of profit for producing activities of associates and joint ventures

   —     3,253   3,253 
  

 

 

  

 

 

  

 

 

 

Total of the Group and equity method investments results of operations for producing activities

   106,345   14,250   120,595 
  

 

 

  

 

 

  

 

 

 

PETROCHINA COMPANY LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION

AND PRODUCTION ACTIVITIES (UNAUDITED) — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

   2018 
   Mainland China  Other  Total 
   RMB  RMB  RMB 

The Group

    

Revenue

    

Sales to third parties

   46,051   57,975   104,026 

Inter-segment sales

   381,740   4,542   386,282 
  

 

 

  

 

 

  

 

 

 
   427,791   62,517   490,308 

Production costs excluding taxes

   (118,979)   (9,761)   (128,740) 

Exploration expenses

   (17,767)   (959)   (18,726) 

Depreciation, depletion and amortization

   (120,378)   (33,008)   (153,386) 

Taxes other than income taxes

   (30,140)   (6,262)   (36,402) 

Accretion expense

   (5,483)   (195)   (5,678) 

Income taxes

   (25,991)   (10,114)   (36,105) 
  

 

 

  

 

 

  

 

 

 

Results of operations from producing activities

   109,053   2,218   111,271 
  

 

 

  

 

 

  

 

 

 

Equity method investments

    

Share of profit for producing activities of associates and joint ventures

   —     3,867   3,867 
  

 

 

  

 

 

  

 

 

 

Total of the Group and equity method investments results of operations for producing activities

   109,053   6,085   115,138 
  

 

 

  

 

 

  

 

 

 

   2017 
   Mainland China  Other  Total 
   RMB  RMB  RMB 

The Group

    

Revenue

    

Sales to third parties

   39,588   39,330   78,918 

Inter-segment sales

   305,336   5,082   310,418 
  

 

 

  

 

 

  

 

 

 
   344,924   44,412   389,336 

Production costs excluding taxes

   (112,182)   (7,830)   (120,012) 

Exploration expenses

   (16,732)   (7,152)   (23,884) 

Depreciation, depletion and amortization

   (135,703)   (18,436)   (154,139) 

Taxes other than income taxes

   (20,624)   (3,534)   (24,158) 

Accretion expense

   (5,212)   (241)   (5,453) 

Income taxes

   (12,098)   (3,667)   (15,765) 
  

 

 

  

 

 

  

 

 

 

Results of operations from producing activities

   42,373   3,552   45,925 
  

 

 

  

 

 

  

 

 

 

Equity method investments

    

Share of profit for producing activities of associates and joint ventures

   —     2,050   2,050 
  

 

 

  

 

 

  

 

 

 

Total of the Group and equity method investments results of operations for producing activities

   42,373   5,602   47,975 
  

 

 

  

 

 

  

 

 

 

PETROCHINA COMPANY LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION

AND PRODUCTION ACTIVITIES (UNAUDITED) — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

   2016 
   Mainland
China		  Other  Total 
   RMB  RMB  RMB 

The Group

    

Revenue

    

Sales to third parties

   32,674   33,033   65,707 

Inter-segment sales

   245,091   2,898   247,989 
  

 

 

  

 

 

  

 

 

 
   277,765   35,931   313,696 

Production costs excluding taxes

   (110,977)   (7,233)   (118,210) 

Exploration expenses

   (17,952)   (624)   (18,576) 

Depreciation, depletion and amortization

   (123,268)   (18,973)   (142,241) 

Taxes other than income taxes

   (16,056)   (3,133)   (19,189) 

Accretion expense

   (4,930)   (196)   (5,126) 

Income taxes

   (2,150)   (1,161)   (3,311) 
  

 

 

  

 

 

  

 

 

 

Results of operations from producing activities

   2,432   4,611   7,043 
  

 

 

  

 

 

  

 

 

 

Equity method investments

    

Share of profit for producing activities of associates and joint ventures

   —     649   649 
  

 

 

  

 

 

  

 

 

 

Total of the Group and equity method investments results of operations for producing activities

   2,432   5,260   7,692 
  

 

 

  

 

 

  

 

 

 

   2015 
   Mainland
China		  Other  Total 
   RMB  RMB  RMB 

The Group

    

Revenue

    

Sales to third parties

   41,980   35,983   77,963 

Inter-segment sales

   292,656   4,696   297,352 
  

 

 

  

 

 

  

 

 

 
   334,636   40,679   375,315 

Production costs excluding taxes

   (114,848)   (9,177)   (124,025) 

Exploration expenses

   (17,045)   (1,335)   (18,380) 

Depreciation, depletion and amortization

   (112,566)   (22,753)   (135,319) 

Taxes other than income taxes

   (23,727)   (5,050)   (28,777) 

Accretion expense

   (5,720)   (230)   (5,950) 

Income taxes

   (15,629)   (1,290)   (16,919) 
  

 

 

  

 

 

  

 

 

 

Results of operations from producing activities

   45,101   844   45,945 
  

 

 

  

 

 

  

 

 

 

Equity method investments

    

Share of profit for producing activities of associates and joint ventures

   —     (4,188)   (4,188) 
  

 

 

  

 

 

  

 

 

 

Total of the Group and equity method investments results of operations for producing activities

   45,101   (3,344)   41,757 
  

 

 

  

 

 

  

 

 

 

Standardized Measure of Discounted Future Net Cash Flows

The standardized measure of discounted future net cash flows related to proved oil and gas reserves at December 31, 2017, 20162019, 2018 and 20152017 is based on the prices used in estimating the Group’s proved oil and gas reserves,year-end costs, currently enacted tax rates related to existing proved oil and gas reserves and a 10% annual discount factor. “Future cash inflows” are net of value-added taxes. Corporate income taxes are included in “future income tax expense”. Other taxes are included in “future production costs” as production taxes.

PETROCHINA COMPANY LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION

AND PRODUCTION ACTIVITIES (UNAUDITED) — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

The standardized measure of discounted future net cash flows related to proved oil and gas reserves at December 31, 2017, 20162019, 2018 and 20152017 is as follows:

RMB

The Group

At December 31, 2019

Future cash inflows

5,872,624

Future production costs

(1,947,039) 

Future development costs

(640,281) 

Future income tax expense

(746,506) 

Future net cash flows

2,538,798

Discount at 10% for estimated timing of cash flows

(1,213,729) 

Standardized measure of discounted future net cash flows

1,325,069

RMB

The Group

At December 31, 2018

Future cash inflows

6,234,378

Future production costs

(2,087,979) 

Future development costs

(556,893) 

Future income tax expense

(809,594) 

Future net cash flows

2,779,912

Discount at 10% for estimated timing of cash flows

(1,397,846) 

Standardized measure of discounted future net cash flows

1,382,066

 

   RMB 

The Group

  

At December 31, 2017

  

Future cash inflows

   5,287,272 

Future production costs

   (1,909,890) 

Future development costs

   (571,125) 

Future income tax expense

   (594,085) 
  

 

 

 

Future net cash flows

   2,212,172 

Discount at 10% for estimated timing of cash flows

   (1,187,646) 
  

 

 

 

Standardized measure of discounted future net cash flows

   1,024,526 
  

 

 

 

RMB

The Group

At December 31, 2016

Future cash inflows

4,585,822

Future production costs

(1,896,044) 

Future development costs

(553,558) 

Future income tax expense

(447,997) 

Future net cash flows

1,688,223

Discount at 10% for estimated timing of cash flows

(931,412) 

Standardized measure of discounted future net cash flows

756,811

RMB

The Group

At December 31, 2015

Future cash inflows

5,443,534

Future production costs

(2,181,423) 

Future development costs

(444,553) 

Future income tax expense

(567,946) 

Future net cash flows

2,249,612

Discount at 10% for estimated timing of cash flows

(1,188,237) 

Standardized measure of discounted future net cash flows

1,061,375

At December 31, 2017, RMB 979,330 (December 31, 2016: RMB 731,206, December 31, 2015: RMB 1,023,933) of standardized measure of discounted future net cash flows related to proved oil and gas reserves located within mainland China and RMB 45,196 (December 31, 2016: RMB 25,605, December 31, 2015: RMB 37,442) of standardized measure of discounted future net cash flows related to proved oil and gas reserves located overseas.

PETROCHINA COMPANY LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION

AND PRODUCTION ACTIVITIES (UNAUDITED) — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

 

At December 31, 2019, RMB 1,278,180 (December 31, 2018: RMB 1,320,478, December 31, 2017: RMB 979,330) of standardized measure of discounted future net cash flows related to proved oil and gas reserves located within mainland China and RMB 46,889 (December 31, 2018: RMB 61,588, December 31, 2017: RMB 45,196) of standardized measure of discounted future net cash flows related to proved oil and gas reserves located overseas.

Share of standardized measure of discounted future net cash flows of associates and joint ventures:

 

December 31, 20172019

   17,34520,356 

December 31, 20162018

   13,55024,805 

December 31, 20152017

   19,71217,345 

Changes in Standardized Measure of Discounted Future Net Cash Flows

Changes in the standardized measure of discounted net cash flows for the Group for each of the years ended December 31, 2017, 20162019, 2018 and 20152017 are as follows:

 

  Year Ended December 31,   Year Ended December 31, 
  2017 2016 2015   2019 2018 2017 
  RMB RMB RMB   RMB RMB RMB 

The Group

        

Beginning of the year

   756,811  1,061,375  1,595,704    1,382,066  1,024,526  756,811 

Sales and transfers of oil and gas produced, net of production costs

   (232,387)  (167,108)  (209,600)    (303,222)  (308,217)  (232,387) 

Net changes in prices and production costs and other

   367,132  (370,257)  (716,150)    (87,046)  510,325  367,132 

Extensions, discoveries and improved recovery

   77,249  81,248  157,220    134,631  129,824  77,249 

Development costs incurred

   38,613  32,918  49,064    53,450  39,725  38,613 

Revisions of previous quantity estimates

   14,555  (61,816)  (121,809)    (17,380)  10,018  14,555 

Accretion of discount

   76,860  113,324  172,090    149,693  103,225  76,860 

Net change in income taxes

   (74,307)  67,127  134,856    12,877  (127,360)  (74,307) 
  

 

  

 

  

 

   

 

  

 

  

 

 

End of the year

   1,024,526  756,811  1,061,375    1,325,069  1,382,066  1,024,526 
  

 

  

 

  

 

   

 

  

 

  

 

 

 

F-62F-79