PETROCHINA CO LTD (Form: 20-F, Received: 06/29/2005 17:35:27)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

Commission File Number 1-15006

(Exact name of Registrant as specified in its charter)

PetroChina Company Limited

(Translation of Registrant’s name into English)

The People’s Republic of China

(Jurisdiction of incorporation or organization)

16 Andelu

Dongcheng District, Beijing, 100011

The People’s Republic of China

(Address of principal executive offices)

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


Title of	Name of each exchange
Each class	on which registered

American Depositary Shares, each representing 100 H Shares, par value RMB 1.00 per share*		New York Stock Exchange, Inc.
H Shares, par value RMB 1.00 per share		New York Stock Exchange, Inc.**

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

None

(Title of Class)

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

None

(Title of Class)

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


State-owned shares, par value RMB 1.00 per share	158,241,758,000
H Shares, par value RMB 1.00 per share	17,582,418,000	***

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 X No

Indicate by check mark which financial statement item the Registrant has elected to follow.

Item 17 Item 18 X


	*	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.


***	Include 2,424,087,400 H Shares represented by American Depositary Shares.

Table of Contents


			Page

		Certain Terms and Conventions		3
		Forward-looking Statements		6
Part I	Item 1	Identity of Directors, Senior Management and Advisors		8
	Item 2	Offer Statistics and Expected Timetable		8
	Item 3	Key Information		8
		Exchange Rates		8
		Selected Financial Data		9
		Risk Factors		12
	Item 4	Information on the Company		16
		Introduction		16
		Exploration and Production		23
		Refining and Marketing		34
		Chemicals and Marketing		41
		Natural Gas and Pipeline		45
		Competition		49
		Environmental Matters		50
		Legal Proceedings		51
		Properties		51
		Regulatory Matters		52
	Item 5	Operating and Financial Review and Prospects		59
		General		59
		Operating Results		67
		Liquidity and Capital Resources		76
		Research and Development		84
		Trend Information		85
		Other Information		85
	Item 6	Directors, Senior Management and Employees		89
		Directors, Senior Management and Supervisors		89
		Compensation		95
		Board Practices		96
		Employees		98
		Share Ownership		98
	Item 7	Major Shareholders and Related Party Transactions		99
		Major Shareholders		99
		Related Party Transactions		99
	Item 8	Financial Information		103
	Item 9	The Offer and Listing		103
	Item 10	Additional Information		105
		Memorandum and Articles of Association		107
		Material Contracts		113
		Exchange Controls		113
		Taxation		114
		Significant Differences in Corporate Governance Practices		115
		Documents on Display		116
	Item 11	Quantitative and Qualitative Disclosures About Market Risk		117
	Item 12	Description of Securities Other Than Equity Securities		121
Part II	Item 13	Defaults, Dividend Arrearages and Delinquencies		121
	Item 14	Material Modifications to the Rights to Security Holders		121
	Item 15	Controls and Procedures		121


			Page

	Item 16A	Audit Committee Financial Expert		122
	Item 16B	Code of Ethics		122
	Item 16C	Principal Accountant Fees and Services		122
	Item 16D	Exemptions from Listing Standards for Audit Committees		123
	Item 16E	Purchases of Equity Securities by the Issuer and its Affiliates		123
Part III	Item 17	Financial Statements		123
	Item 18	Financial Statements		123
	Item 19	Exhibits		123
		Consolidated Financial Statements		F-1
EX-1.1 ARTICLES OF ASSOCIATION
EX-4.1 2005 MANAGEMENT PERFORMANCE CONTRACT
EX-4.2 CRUDE OIL MUTUAL SUPPLY AGREEMENT
EX-4.3 CAPITAL CONTRIBUTION AGREEMENT
EX-4.4 TRANSFER AGREEMENT
EX-4.5 SUPPLEMENTARY AGREEMENT, DATED JUNE 9, 2005
EX-8.1 LIST OF MAJOR SUBSIDIARIES
EX-10.1 SIGNIFICANT DIFFERENCES OF GOV'T PRACTICES
EX-12.1 CERTIFICATION OF CEO REQUIRED BY SEC. 302
EX-12.2 CERTIFICATION OF CFO REQUIRED BY SEC. 302
EX-13.1 CERTIFICATION OF CEO REQUIRED BY SEC. 1350
EX-13.2 CERTIFICATION OF CFO REQUIRED BY SEC. 1350
EX-16.1 CODE OF ETHICS FOR SENIOR MANAGEMENT
EX-16.2 CODE OF ETHICS FOR EMPLOYEES

CERTAIN TERMS AND CONVENTIONS

Conventions Which Apply to this Annual Report

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


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

	•	“PetroChina”, “we”, “our”, “our company” and “us” are to:


	—	PetroChina Company Limited, a joint stock company incorporated in the People’s Republic of China with limited liability and its subsidiaries and branch companies, or

	—	the CNPC group’s domestic crude oil and natural gas exploration and production, refining and marketing, chemicals and natural gas businesses that were transferred to us in the restructuring of the CNPC group in 1999.


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

We publish our consolidated financial statements in Renminbi. The audited consolidated financial statements included in this annual report have been prepared as if the operations and businesses transferred to us from CNPC were transferred as of the earliest period presented or from the date of establishment of the relevant unit, whichever is later, and conducted by us throughout the period. In this annual report, IFRS refers to International Financial Reporting Standards.

Conversion Table


1 barrel-of-oil equivalent	= 1 barrel of crude oil	= 6,000 cubic feet of natural gas
1 cubic meter	= 35.315 cubic feet
1 ton of crude oil	= 1 metric ton of crude oil	= 7.389 barrels of crude oil (assuming an API gravity of 34 degrees)

Certain Oil and Gas Terms

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


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

“API gravity”		An indication of the density of crude oil or other liquid hydrocarbons as measured by a system recommended by the American Petroleum Institute (API), measured in degrees. The lower the API gravity, the heavier the compound.

“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.


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

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

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

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

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

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

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

“proved developed reserves”		Reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Additional oil and gas expected to be obtained through the application of fluid injection or other improved recovery techniques for supplementing the natural forces and mechanisms of primary recovery are included as “proved developed reserves” only after testing by a pilot project or after the operation of an installed program has confirmed through production response that increased recovery will be achieved.

“proved reserves”		Estimated quantities of crude oil and natural gas which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, i.e., prices and costs as of the date the estimate is made. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not of escalations based upon future conditions.

“proved undeveloped reserves”		Reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Reserves on undrilled acreage shall be limited to those drilling units offsetting productive units that are reasonably certain of production when drilled. Proved reserves for other undrilled units can be claimed only where it can be demonstrated with certainty that there is

continuity of production from the existing productive formation. Under no circumstances should estimates for proved undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual tests in the area and in the same reservoir.

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

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

“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 are to barrels-of-oil equivalent,

	•	Mcf are to thousand cubic feet, and

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


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

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

	•	development projects;

	•	exploration prospects;

	•	reserves potential;

	•	production of oil and gas and refined and chemical products;

	•	development and drilling potential;

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

	•	the planned development of our natural gas operations;

	•	the planned expansion of our refined product marketing network;

	•	the planned expansion of our natural gas infrastructure;

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

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

	•	our future overall business development and economic performance;

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

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

	•	other prospects of our business and operations.

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

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


	•	fluctuations in crude oil and natural gas prices;

	•	failure to achieve continued exploration success;

	•	failures or delays in achieving production from development projects;

	•	continued availability of capital and financing;

	•	acquisitions and other business opportunities that we may pursue;


	•	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;

	•	impact of the PRC’s entry into the World Trade Organization;

	•	the actions of competitors;

	•	wars and acts of terrorism or sabotage;

	•	changes in policies, laws or regulations of the PRC;

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

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

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

PART I

ITEM 1 — IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not applicable. However, see “Item 6 — Directors, Senior Management and Employees — Directors, Senior Management and Supervisors.”

ITEM 2 — OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3 — KEY INFORMATION

Exchange Rates

Translations of amounts in this annual report from Renminbi into U.S. dollars and vice versa have been made at the rate of RMB 8.2765 to US$1.00, which was the noon buying rate in New York City on December 31, 2004 for cable transfers in Renminbi per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York. You should not construe these translations as representations that the RMB amounts could be converted into U.S. dollar amounts at that rate, or at all.

The noon buying rate in New York City for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York was US$1.00=RMB 8.2765 on June 24, 2005. 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:


	Noon buying rate

	High		Low

	(RMB per US$)
December 2004		8.2767		8.2765
January 2005		8.2765		8.2765
February 2005		8.2765		8.2765
March 2005		8.2765		8.2765
April 2005		8.2765		8.2765
May 2005		8.2765		8.2735
June 2005 (through June 24)		8.2765		8.2765

The following table sets forth the average noon buying rates between Renminbi and U.S. dollars for each of 2000, 2001, 2002, 2003 and 2004, calculated by averaging the noon buying rates on the last day of each month during the relevant year:


		Average noon buying rate

		(RMB per US$)
2000		8.2784
2001		8.2770
2002		8.2772
2003		8.2772
2004		8.2768

Selected Financial Data

Historical Financial Information

You should read the selected historical financial data set forth below in conjunction with the consolidated financial statements of PetroChina and their notes and “Item 5 — Operating and Financial Review and Prospects” included elsewhere in this annual report. In 2002, we retroactively restated our prior years’ consolidated financial statements to reflect the effect as if the operations of CNPC’s refined products marketing enterprises we acquired from CNPC had always been combined since inception as a result of the application of the accounting treatment to the acquisition discussed below. The selected historical income statement and cashflow data for the years ended December 31, 2002, 2003 and 2004 and the selected historical balance sheet data as of December 31, 2003 and 2004 set forth below are derived from our audited consolidated financial statements included elsewhere in this annual report. The selected historical income statement data and cashflow data for the years ended December 31, 2000 and 2001 and the selected historical balance sheet data as of December 31, 2001 and 2002 set forth below are derived from our audited financial statements, not included in this annual report. The selected historical balance sheet data as of December 31, 2000 set forth below are derived from our unaudited financial statements, not included in this annual report. The financial information included in this section may not necessarily reflect our results of operations, financial position and cash flows in the future.

We have prepared our consolidated financial statements in accordance with IFRS. IFRS differ materially from the generally accepted accounting principals in the U.S., or US GAAP. For a discussion of significant differences between IFRS and US GAAP, see Note 35 to our consolidated financial statements included elsewhere in this annual report and “Item 5 — Operating and Financial Review and Prospects — Other Information — US GAAP Reconciliation”.

In accordance with an acquisition agreement between CNPC and us dated September 26, 2002, we acquired from CNPC the assets, liabilities and interests related to CNPC’s refined products marketing enterprises consisting primarily of service stations and related facilities. Under IFRS, the acquisition is a combination of entities under common control since the CNPC’s refined products marketing enterprises and we are under the common control of CNPC. As a result, we have accounted for the acquisition in a manner similar to a uniting of interests, whereby the assets and liabilities of the marketing enterprises acquired are accounted for at historical cost to CNPC with net liabilities of RMB 2,956 million at the effective date. In 2002, our prior years’ consolidated financial statements were restated to give effect to the acquisition in these periods as if the operations of our company and these marketing enterprises had always been combined in these periods. See “Item 5 — Operating and Financial Review and Prospects — General — Acquisitions — Acquisition of Certain Refined Products Marketing Enterprises from CNPC”.


			Year ended December 31,

			2000 ⁽²⁾			2001 ⁽²⁾			2002			2003			2004			2004

			RMB			RMB			RMB			RMB			RMB			US$
			(in millions, except for per share and per ADS data)
Income Statement Data
IFRS
Revenues
	Sales and other operating revenues			245,279			241,320			244,424			303,779			388,633			46,956

Operating expenses
	Purchases, services and other			(64,251	)		(78,529	)		(71,690	)		(90,850	)		(116,353	)		(14,058	)
	Employee compensation costs			(15,129	)		(14,608	)		(16,248	)		(19,542	)		(22,309	)		(2,695	)
	Exploration expenses, including exploratory dry holes			(8,680	)		(7,344	)		(8,095	)		(10,577	)		(11,723	)		(1,416	)
	Depreciation, depletion and amortization			(34,209	)		(33,615	)		(36,782	)		(40,531	)		(46,411	)		(5,608	)
	Selling, general and administrative expenses			(17,621	)		(21,735	)		(22,474	)		(23,930	)		(26,377	)		(3,187	)
	Employee separation costs and shutting down of manufacturing assets			(6,579	)		(487	)		(2,121	)		(2,355	)		(220	)		(27	)
	Taxes other than income taxes			(13,258	)		(13,951	)		(14,613	)		(15,879	)		(18,685	)		(2,258	)
	Revaluation loss of property, plant and equipment			—			—			—			(391	)		—			—
	Other (expenses) income, net			(119	)		88			(60	)		(538	)		31			4

		Total operating expenses		(159,846	)		(170,181	)		(172,083	)		(204,593	)		(242,047	)		(29,245	)

Income from operations				85,433			71,139			72,341			99,186			146,586			17,711

Income from equity affiliates				584			341			268			985			1,824			220
Exchange gain (loss), net				1,172			250			(316	)		(180	)		(73	)		(9	)
Interest income				591			809			463			677			1,107			134
Interest expense				(6,286	)		(4,408	)		(3,516	)		(2,346	)		(2,303	)		(278	)

Income before taxes				81,494			68,131			69,240			98,322			147,141			17,778
Income taxes				(27,014	)		(23,066	)		(22,231	)		(28,072	)		(42,563	)		(5,143	)

Income before minority interests				54,480			45,065			47,009			70,250			104,578			12,635
Income (loss) applicable to minority interests				165			404			(99	)		(636	)		(1,651	)		(199	)

Net income				54,645			45,469			46,910			69,614			102,927			12,436

Basic and diluted net income per share ⁽³⁾				0.32			0.26			0.27			0.40			0.59			0.07
Basic and diluted net income per ADS ⁽⁴⁾				31.84			25.86			26.68			39.59			58.54			7.07
US GAAP
Net income				60,236			50,934			49,837			75,419			108,135			13,065
Basic and diluted net income per share ⁽³⁾				0.35			0.29			0.28			0.43			0.62			0.07
Basic and diluted net income per ADS ⁽⁴⁾				35.10			28.97			28.34			42.89			61.50			7.43


			As of December 31,

			2000 ⁽¹⁾		2001 ⁽²⁾		2002		2003		2004		2004

			RMB		RMB		RMB		RMB		RMB		US$
			(in millions, except for per share and per ADS data)
Balance Sheet Data
IFRS
Assets
Current assets
	Cash and cash equivalents			18,085		11,127		9,977		11,231		11,304		1,366
	Time deposits with maturities over three months			—		3,253		2,612		2,640		1,400		169
	Receivables under resale agreements			5,815		11,505		9,786		24,224		33,217		4,013
	Accounts receivable, less allowance for doubtful accounts			12,786		7,392		6,079		3,263		2,662		322
	Inventories, at net book value			32,499		28,313		28,441		28,872		45,771		5,530
	Prepaid expenses and other current assets			11,913		24,427		18,269		15,944		22,387		2,705

		Total current assets		81,098		86,017		75,164		86,174		116,741		14,105


			As of December 31,

			2000 ⁽¹⁾			2001 ⁽²⁾			2002			2003			2004			2004

			RMB			RMB			RMB			RMB			RMB			US$
			(in millions, except for per share and per ADS data)
Non-current assets
	Property, plant and equipment, less accumulated depreciation, depletion and amortization			341,175			363,367			393,296			427,875			468,519			56,608
	Long-term investments, at net book value			4,948			5,530			5,680			7,410			9,433			1,140
	Prepaid operating lease rentals			3,924			5,383			6,249			7,252			12,248			1,480
	Intangible and other assets			901			2,368			2,760			3,024			2,987			361

	Total non-current assets			350,948			376,648			407,985			445,561			493,187			59,589

		Total assets		432,046			462,665			483,149			531,735			609,928			73,694


Liabilities and shareholders’ equity
Current liabilities
	Short-term debt			41,514			25,323			20,633			28,890			27,276			3,296
	Accounts payable and accrued liabilities			39,550			53,210			57,793			64,180			70,696			8,542
	Income tax payable			9,399			5,672			5,412			12,043			17,484			2,112
	Other taxes payable			7,171			8,762			5,515			8,916			4,633			560

		Total current liabilities		97,634			92,967			89,353			114,029			120,089			14,510

Non-current liabilities
	Long-term debt			53,412			65,546			60,655			41,959			38,458			4,646
	Deferred credits and other long-term obligations			1,196			1,380			1,684			2,000			2,438			294
	Deferred income taxes			3,169			7,030			9,927			11,526			14,340			1,733
		Total non-current liabilities		57,777			73,956			72,266			55,485			55,236			6,673

		Total liabilities		155,411			166,923			161,619			169,514			175,325			21,183

Minority interest				4,989			5,136			4,854			5,608			9,391			1,135
Shareholders’ equity				271,646			290,606			316,676			356,613			425,212			51,376

		Total liabilities and shareholders’ equity		432,046			462,665			483,149			531,735			609,928			73,694

Share capital, issued and outstanding, RMB 1.00 par value
	State-owned shares			158,242			158,242			158,242			158,242			158,242			19,120
	H shares and ADSs			17,582			17,582			17,582			17,582			17,582			2,124
US GAAP
Property, plant and equipment, less accumulated depreciation, depletion and amortization				274,457			304,895			343,093			386,417			434,924			52,549
Total assets				365,328			404,193			432,946			492,784			576,481			69,653
Shareholders’ equity				227,489			251,914			283,464			329,205			403,012			48,693
Other Financial Data
Dividend per share				0.14			0.12			0.12			0.18			0.26			0.03
Dividend per ADS				14.14			11.98			12.00			17.82			26.34			3.18
Capital expenditures				(59,311	)		(59,964	)		(72,766	)		(82,929	)		(95,349	)		(11,520	)
Cash Flow Data
IFRS
Net cash provided by operating activities				102,490			82,854			97,290			137,236			137,299			16,589
Net cash used for investing activities				(59,307	)		(59,906	)		(70,611	)		(96,213	)		(98,533	)		(11,905	)
Net cash used for financing activities				(43,188	)		(29,906	)		(27,829	)		(39,769	)		(38,693	)		(4,675	)


⁽¹⁾	Certain financial data for these periods and as of these dates are derived from our unaudited consolidated financial statements, not included in this annual report, and were retroactively restated in 2002. See the paragraphs preceding these table for a detailed description.

⁽²⁾	Certain financial data for these periods and as of these dates are derived from our audited consolidated financial statements, not included in this annual report, and were retroactively restated in 2002. See the paragraphs preceding these tables for a detailed description.

⁽³⁾	Historical income per share for the years ended December 31, 2001, 2002, 2003 and 2004 has been calculated by dividing the net profit by the number of 175,824 million shares issued and outstanding for the periods presented. Historical income per share for the year ended December 31, 2000 has been calculated by dividing the net profit by the weighted average number of 171,630 million shares issued and outstanding for the period presented.

⁽⁴⁾	Historical income per ADS for the years ended December 31, 2001, 2002, 2003 and 2004 has been calculated by dividing the net profit by the number of 175,824 million shares issued and outstanding for the periods presented, assuming each ADS representing 100 H shares. Historical income per ADS for the year ended December 31, 2000 has been calculated by dividing the net profit by the weighted average number of 171,630 million shares issued and outstanding for the period presented, assuming each ADS representing 100 H shares.

Risk Factors

Our business is subject to various changing competitive, economic and social conditions in the PRC. Such changing conditions entail certain risks, which are described below.


	•	Our operations are affected by the volatility of prices for crude oil and refined products. We and China Petroleum and Chemical Corporation, or Sinopec, set our crude oil median prices monthly based on the Singapore trading prices for crude oil. The PRC government publishes the retail median guidance prices for gasoline and diesel based on the FOB Singapore, Rotterdam and New York gasoline and diesel trading prices. Historically, international prices for crude oil and refined products have fluctuated widely in response to changes in many factors, such as global and regional economic and political developments and global and regional supply and demand for crude oil and refined products. We do not have, and will not have, control over the factors affecting international prices for crude oil and refined products. We expect continued volatility and uncertainty in international prices for crude oil and refined products. Declines in crude oil prices may adversely affect our business, results of operations and financial condition, our capital expenditure plans and the value of our proved reserves.

	•	The crude oil and natural gas reserve data in this annual report are only estimates. The reliability of reserve estimates depend 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, many of which are beyond our control and may prove to be incorrect over time. Results of drilling, testing and production after the date of the estimates may require substantial upward or downward revisions in our reserve data. Our actual production, revenues and expenditures with respect to our reserves may differ materially from these estimates because of these revisions.

	•	Our proved crude oil reserves decreased gradually and modestly from 2001 to 2003 because the decrease in the crude oil reserves in our Daqing and Liaohe oil regions could not be offset by the increase in the crude oil reserves in our oil regions in northwestern China, such as the Xinjiang oil region, the Changqing oil and gas region and the Tarim oil region. Although our proved crude oil reserves increased slightly in 2004 mainly as a result of the increases in the crude oil reserves in our Xinjiang and Changqing oil regions, we cannot assure you that we will be able to increase or maintain our crude oil reserves in the future by our exploration activities in China. We are actively pursuing business opportunities outside China to supplement our domestic resources. For instance, in June 2005, we entered into an agreement to acquire certain overseas crude oil and natural gas assets from CNPC. We cannot assure you, however, that we can successfully locate sufficient alternative sources of crude oil supply or at all due to the complexity of the international political, economic and other conditions. If we fail to obtain sufficient alternative sources of crude oil supply, our results of operations and financial condition may be materially and adversely affected.

	•	The United States Securities and Exchange Commission, as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company in the United States to include a management report on such company’s internal controls over financial reporting in its annual report, which contains management’s assessment of the effectiveness of the company’s internal controls over financial reporting. In addition, an independent registered public accounting firm must attest to and report on management’s assessment of the effectiveness of the company’s internal controls over financial reporting. These requirements will first apply to our annual report on Form 20-F for the fiscal year ending December 31, 2006. Our management may conclude that our internal controls over our financial reporting are not effective. Moreover, even if our management concludes that our internal controls over financial reporting are effective, our independent registered public accounting firm may still be unable to attest to our management’s assessment or may issue a report that concludes that our internal controls over financial reporting are not effective. In

preparation for the implementation of the requirements of Section 404, we are undertaking company-wide documentation of internal controls, performing the system and process evaluation and testing required. During the course of our evaluation, documentation and attestation, we have identified certain deficiencies that could adversely affect our ability to record, process, summarize and report financial data consistent with our management’s assertions in our financial statements. Although we have commenced planing for remedial measures to make necessary improvements, we cannot assure you that we will be able to remedy those identified deficiencies in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. We are also in the process of conducting further evaluation of our internal control over financial reporting and may identify other deficiencies that we may not be able to remedy in time by the deadline for compliance with Section 404. If we fail to achieve and maintain the adequacy of our internal controls, we may not be able to conclude that we have effective internal controls, on an ongoing basis, over financial reporting in accordance with the Sarbanes-Oxley Act. Moreover, effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to help prevent fraud. As a result, our failure to achieve and maintain effective internal controls over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the trading prices of our ADSs or H shares. Furthermore, we have already incurred considerable costs and spent significant management time and other resources in an effort to comply with Section 404 and other requirements of the Sarbanes-Oxley Act. We anticipate that we will continue to incur considerable costs and use significant resources for compliance with Section 404.

• Exploring for, producing and transporting crude oil and natural gas and producing and transporting refined products and chemical products involve many hazards. These hazards may result in:


	—	fires;

	—	explosions;

	—	spills;

	—	blow-outs; and

	—	other unexpected or dangerous conditions causing personal injuries or death, property damage, environmental damage and interruption of operations.


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

	Significant operating hazards and natural disasters may cause partial interruptions to our operations and property and environmental damage that could have an adverse impact on our financial condition.

	Except limited insurance coverage for vehicles and certain assets that we consider to be subject to significant operating risks, we do not carry any other insurance for our property, facilities or equipment in respect of our business operations. We do not currently carry any third party liability insurance against claims relating to personal injury or death, property or environmental damage arising from accidents on our property or relating to our operations. We also do not currently carry any business interruption insurance. The limited insurance coverage of our assets exposes us to substantial risks and will not cover most losses.


	•	CNPC owns approximately 90% of our share capital. This ownership percentage enables CNPC to elect our entire board of directors without the concurrence of any of our other shareholders. Accordingly, CNPC is in a position to:


	—	control our policies, management and affairs;

	—	subject to applicable PRC laws and regulations and provisions of our articles of association, determine 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 requirements of the Listing Rules of the Hong Kong Stock Exchange, 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 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 and supply of material services. The interests of CNPC and its affiliates as providers of these services and products to us may conflict with our interests. Although we have entered into a Comprehensive Products and Services Agreement with CNPC and our transactions with CNPC over the past three years have been conducted on open, fair and competitive commercial terms, we have only limited leverage in negotiating with CNPC and its affiliates over the specific terms of the agreements for the provision of these services and products.

	•	The eastern and southern regions of China have a higher demand for refined products and chemical products than the western and northern regions. Most of our refineries and chemical plants are located in the western and northern regions of China. While we continue to expand the sales of these products in the eastern and southern regions of China, we face strong competition from Sinopec. In addition, we incur relatively higher transportation costs for delivery of our refined products and chemical products to certain areas of these regions from our refineries and chemical plants in western and northern China. As a result, we expect that we will continue to encounter difficulty in increasing our sales of refined products and chemical products in these regions.

	•	We are currently constructing and renovating several natural gas pipelines and plan to construct and renovate other natural gas pipelines. In addition, we may, subject to obtaining requisite licenses from the relevant authority, commence offshore crude oil and natural gas exploration and production activities, which could require substantial capital expenditures and investments. We cannot assure you that the cash generated by our operations will be sufficient to fund these development plans or that our actual future capital expenditures and investments will not significantly exceed our current planned amounts. If either of these conditions arises, we may have to seek external financing to satisfy our capital needs. Under such circumstance, our inability to obtain sufficient funding for our development plans could adversely affect our business, financial condition and results of operations.

	•	We are also subject to a number of risks relating to the PRC and the PRC oil and gas industry. These risks are described as follows:


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

expand our business operations or to maximize our profitability. Our business may also be adversely affected by future changes in certain policies of the PRC government with respect to the oil and gas industry.

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

— We receive most of our revenues in Renminbi. A portion of our Renminbi revenues must be converted into other currencies to meet our foreign currency obligations. The existing foreign exchange limitations under the PRC laws and regulations could affect our ability to obtain foreign exchange through debt financing, or to obtain foreign exchange for capital expenditures.

— Because PRC laws, regulations and legal requirements dealing with economic matters are relatively new and continue to evolve, and because of the limited volume of published judicial interpretations and the non-binding nature of prior court decisions, the interpretation and enforcement of these laws, regulations and legal requirements involve some uncertainty. We have included the Mandatory Provisions and certain additional requirements that are imposed by the Hong Kong Stock Exchange Listing Rules in our Articles of Association for the purpose of reducing the scope of difference between the Hong Kong company law and the PRC Company Law. However, 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 an early stage of development, you may not enjoy shareholders’ protections that you may be entitled to in other jurisdictions.

— In addition to the adverse effect on our revenues, margins and profitability from any future fall in oil and natural gas prices, a prolonged period of low prices or other indicators would lead to a review for impairment of our oil and natural gas properties. This review would reflect management’s view of long-term oil and natural gas prices. Such a review could result in a charge for impairment which could have a significant effect on our results of operations in the period in which it occurs.

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

ITEM 4 — INFORMATION ON THE COMPANY

Introduction

History and Development of the Company


	*Overview of Our Operations*

We are one of the largest companies in China in terms of sales. We are engaged in a broad range of petroleum and natural gas related activities, including:


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

	•	the refining, transportation, storage and marketing of crude oil and petroleum products;

	•	the production and marketing of basic petrochemical products, derivative chemical products and other chemical products; and

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

We are China’s largest producer of crude oil and natural gas. Currently, substantially all of our crude oil and natural gas reserves and production-related assets are located in China. In the year ended December 31, 2004, we had total revenue of RMB 388,633 million (US$46,956 million) and net income of RMB 102,927 million (US$12,436 million).

Our exploration, development and production activities commenced in the early 1950s, when we conducted exploration activities in the Yumen oil region in northwestern China. The discovery of crude oil in 1959 in northeastern China’s Daqing oil region, one of the world’s largest oil regions in terms of proved crude oil reserves, marked the beginning of our large-scale upstream activities. Over the past four decades, we have conducted crude oil and natural gas exploration activities in many regions of China. As of December 31, 2004, we had estimated proved reserves of approximately 10,940.5 million barrels of crude oil and approximately 44,553.6 billion cubic feet of natural gas. We believe that we hold production licenses for a majority of China’s proved crude oil reserves and proved natural gas reserves. In the year ended December 31, 2004, we produced 777.4 million barrels of crude oil and 837.5 billion cubic feet of natural gas for sale, representing an average production of 2.1 million barrels of crude oil and 2.3 billion cubic feet of sales natural gas per day. In 2004, we sold 730.2 million barrels of crude oil and 781.4 billion cubic feet of natural gas. Approximately 82% of the crude oil we sold in the year ended December 31, 2004 was supplied to our refineries.

We commenced limited refining activities in the mid-1950s, when we began producing gasoline and diesel at refineries in the Yumen oil region. We now operate 25 refineries located in eight provinces, three autonomous regions and one municipality. In 2004, our refineries processed approximately 697.8 million barrels of crude oil or an average of 1.9 million barrels per day. In the year ended December 31, 2004, we produced approximately 60.2 million tons of gasoline, diesel and kerosene and sold approximately 67.0 million tons of these products. In the year ended December 31, 2004, approximately 84% of the crude oil processed in our refineries was provided by our exploration and production segment and approximately 15% of the crude oil processed in our refineries was imported. As of December 31, 2004, our retail distribution network consisted of 14,039 service stations that we own and operate, 427 service stations wholly owned by CNPC or jointly owned by CNPC and third parties to which we provide supervisory support and 2,937 franchise service stations.

Our chemicals operations commenced in the early 1950s, when we began producing urea at our first petrochemical plant in Lanzhou in northwestern China. In the early 1960s, we began producing ethylene. We currently produce a wide range of basic and derivative petrochemical products and other chemical products at 12 chemical plants located in five provinces and three autonomous

regions in China. Our other segments supply substantially all of the hydrocarbon feedstock requirements of our chemicals operations.

We are China’s largest natural gas transporter and seller in terms of sales volume. Our natural gas transmission and marketing activities commenced in Sichuan in southwestern China in the 1950s. In 2004, our sales of natural gas totaled 781.4 billion cubic feet, of which 657.3 billion cubic feet was sold through our natural gas and pipeline segment. As of December 31, 2004, we owned and operated regional natural gas pipeline networks consisting of 18,995 kilometers of pipelines, of which 17,868 kilometers were operated by our natural gas and pipeline segment. As of December 31, 2004, we owned and operated a crude oil pipeline network consisting of 9,167 kilometers of pipelines with an average daily throughput of approximately 2.0 million barrels of crude oil. As of December 31, 2004, we also had a refined product pipeline network consisting of 2,460 kilometers of pipelines with an average daily throughput of approximately 28,243 tons of refined products.

We have increased our efforts to pursue attractive business opportunities outside China as part of our business growth strategy to utilize both domestic and international resources to strengthen our competitiveness. In connection with this objective, we established PetroChina International Limited, a wholly owned subsidiary, to focus on international oil and gas exploration and development. In April 2002, we acquired Devon Energy Indonesia Limited from Devon Energy Corporation for a price of RMB 2,068 million (US$250 million). Devon Energy Indonesia Limited holds interests in a number of crude oil and natural gas exploration and production projects in Indonesia, including a 30% interest in an oil and gas production sharing contract relating to the Jabung block located in Sumatra, Indonesia. In April 2003, we acquired a 50% equity interest in Amerada Hess Indonesia Holdings Limited, which holds a 30% interest in the oil and gas production sharing contract relating to the Jabung block, for a price of RMB 679 million (US$82 million). In connection with these acquisitions, we have entered into several take-or-pay agreements with a number of Singaporian customers to supply them with natural gas produced in Indonesia. In the year ended December 31, 2004, our revenue generated from our acquired interests in these crude oil and natural gas exploration and production companies in Indonesia was RMB 994 million (US$120 million). In addition to our reserves in the Jabung block as a result of our acquisition of Devon Energy Indonesia Limited, we had a share of the reserves of approximately 15.2 million barrels of crude oil and approximately 76.5 billion cubic feet of natural gas in the Jabung block, totaling approximately 28.0 million barrel-of-oil equivalent, as of December 31, 2004, as a result of our acquisition of a 50% interest in Amerada Hess Indonesia Holdings Co. Our share of the production in the Jabung block in 2004 derived from our 50% interest in Amerada Hess Indonesia Holdings Co. was approximately 1.07 million barrels of crude oil and approximately 3.67 billion cubic feet of natural gas for sale, totalling approximately 1.68 million barrels-of-oil equivalent.

In June 2005, we entered into a capital contribution agreement with China National Oil and Gas Exploration and Development Corporation, or CNODC, Central Asia Petroleum Company Limited and Zhong You Kan Tan Kai Fa Company Limited, or Newco, to acquire a 50% interest in Newco, one of CNODC’s subsidiaries, for a consideration of RMB 20,741 million (US$2,506 million) which will be paid to Newco as our capital contribution. Under this agreement, CNODC, a wholly owned subsidiary of CNPC, will transfer certain of its overseas oil and natural gas assets to Newco by December 2005. By the completion of the transactions contemplated by this agreement, each of CNODC and us will own a 50% interest in Newco. We will have the right to appoint four of the seven directors of Newco, which will enable us to maintain effective control over Newco. We also entered into a transfer agreement with Newco at the same time to transfer all of our interest in PetroChina International Limited, the operating entity of our oil and natural gas assets in Indonesia, to Newco for a consideration of RMB 579 million (US$70 million).

Upon its completion, the acquisition of Newco through capital contribution will allow us to have a 50% share of the oil and natural gas assets currently held by CNPC and located in ten countries, including, among others, Kazakhstan, Venezuela and Peru. Upon consummation of the transactions

described above, we expect to significantly expand our overseas operations, increase the level of our oil and gas reserves and production volumes effectively and streamline our existing overseas business in Indonesia with the acquired businesses.

We currently expect to complete the acquisition and the transfer by December 2005 and February 2006, respectively, subject to completion of all necessary procedures for transferring the target assets to Newco, applicable government approvals, approval by our minority shareholders and certain other conditions set out in the capital contribution agreement and the transfer agreement. After completion of the acquisition and the transfer, CNODC plans to transfer its 50% interest in Newco to CNPC, which will result in CNPC holding the 50% interest in Newco directly.

In addition, we are currently assessing the feasibility of making further investments in international oil and gas markets.

In the year ended December 31, 2004, we imported approximately 175.1 million barrels of crude oil, as compared to 123.9 million and 72.3 million barrels of crude oil in the years ended December 31, 2003 and 2002, respectively. A substantial portion of our import crude oil in 2004 was processed in our refineries. We plan to continue to increase the import volume of crude oil in the future.


	*Our Corporate Organization and Shareholding Structure*

PetroChina was 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, liabilities and interests of CNPC relating to its exploration and production, refining and marketing, chemicals and natural gas businesses. CNPC retained the assets and liabilities relating to its remaining businesses and operations, including assets and liabilities relating to international exploration and production and refining and pipeline operations. CNPC is our primary provider of a wide range of services and products. On April 7, 2000, PetroChina completed a global offering of H shares and ADSs. Currently, CNPC owns an approximate 90% interest in PetroChina.

The following chart illustrates our corporate organization and our shareholding structure:


⁽¹⁾	Indicates approximate shareholding.

⁽²⁾	Includes subsidiary companies and branches without legal person status.

⁽³⁾	Represents enterprises directly administered and operated by such segment.

⁽⁴⁾	Includes PetroChina Planning & Engineering Institute, PetroChina Exploration & Development Research Institute, PetroChina International Limited, PetroChina International Co., Ltd and PetroChina Refining & Chemicals Technology Research Center.

The following chart illustrates our management structure:


⁽¹⁾	Includes subsidiary companies and branches without legal person status.

⁽²⁾	Represents enterprises directly administered and operated by such segment.

General Information

Our legal name is (PETROCHINA COMPANY LOGO)

, and its English translation is PetroChina Company Limited. Our headquarters are located at 16 Andelu, Dongcheng District, Beijing, China, 100011, and our telephone number at this address is (86-10) 8488-6270. Our website address is www.petrochina.com.cn. The information on our website is not part of this annual report.

Launch of New Logo

Effective December 26, 2004, we began using a new logo “ (PETROCHINA COMPANY LOGO)

” that is jointly owned by us and CNPC. We have filed an application to register the new logo as a trademark with the State Trademark Bureau of the PRC.

Exploration and Production

We are engaged in crude oil and natural gas exploration, development and production in China. Substantially all of our total estimated proved crude oil and natural gas reserves are located in China, principally in northeastern, northern, southwestern and northwestern China. The Songliao basin, located in Heilongjiang and Jilin provinces in northeastern China, including the Daqing and Jilin oil regions, accounted for 48% of our proved crude oil reserves as of December 31, 2004 and 49% of our crude oil production in 2004. We also have significant crude oil reserves and operations in the area around the Bohai Bay. The Bohai Bay basin includes the Liaohe, Dagang, Huabei and Jidong oil regions and accounted for 20% of our proved crude oil reserves as of December 31, 2004 and 22% of our crude oil production in 2004. Our proved natural gas reserves and production are generally concentrated in northwestern and southwestern China, specifically in the Erdos, Tarim and Sichuan basins.

We currently hold exploration licenses covering a total area of approximately 445 million acres and production licenses covering a total area of approximately 15.7 million acres. In 2004, our exploration and production segment had income from operations of RMB 125,571 million (US$15,172 million).

To further develop our crude oil and natural gas businesses, we have applied to the Ministry of Land and Resources for oil and gas exploration and production licenses covering the southern part of the South China Sea to commence offshore crude oil and natural gas exploration and production. We cannot assure you that we will ultimately obtain these licenses or that we will have sufficient capital to fund these activities.

Reserves

Our estimated proved reserves as of December 31, 2004 totaled approximately 10,940.5 million barrels of crude oil and approximately 44,553.6 billion cubic feet of natural gas. As of December 31, 2004, proved developed reserves accounted for 80.0% and 37.7% of our total proved crude oil and natural gas reserves, respectively. Total proved hydrocarbon reserves on a barrels-of-oil equivalent basis increased by 3.4% from approximately 17,764.2 million barrels-of-oil equivalent as of the end of 2003 to approximately 18,366.1 million barrels-of-oil equivalent as of the end of 2004. Natural gas as a percentage of total proved hydrocarbon reserves increased from 38.5% as of December 31, 2003 to 40.4% as of December 31, 2004.

In addition to our reserves in the Jabung block as a result of our acquisition of Devon Energy Indonesia Limited, we had a share of the reserves of approximately 15.2 million barrels of crude oil and approximately 76.5 billion cubic feet of natural gas in the Jabung block, totaling approximately 28.0 million barrel-of-oil equivalent, as of December 31, 2004, as a result of our acquisition of a 50% interest in Amerada Hess Indonesia Holdings Co.

The following table sets forth our estimated proved reserves and proved developed reserves of crude oil and natural gas as of December 31, 2002, 2003 and 2004. We prepared our reserve estimates as of December 31, 2002, 2003 and 2004 on the basis of a report prepared by DeGolyer and MacNaughton, independent engineering consultants, in accordance with Statement of Financial Accounting Standards No. 69, or SFAS No. 69. Our reserve estimates include only crude oil and natural gas which we believe can be reasonably produced within the current terms of our production licenses. See “Regulatory Matters — Exploration Licenses and Production Licenses” for a discussion

of our production licenses. Also see “Item 3 — Key Information — Risk Factors” for a discussion of the uncertainty inherent in the estimation of proved reserves.


		Crude oil			Natural gas ⁽¹⁾			Combined ⁽¹⁾

		(millions of barrels)			(Bcf)			(BOE, in millions)
Proved developed and undeveloped reserves
Reserves as of December 31, 2002			10,937.0			38,816.8			17,406.4
	Revisions of previous estimates		199.2			277.6			245.4
	Extensions and discoveries		475.7			2,853.3			951.3
	Improved recovery		81.2			0			81.2
	Purchased reserves ⁽²⁾		0			0			0
	Production for the year ⁽³⁾		(773.7	)		(878.5	)		(920.1	)
Reserves as of December 31, 2003			10,919.3			41,069.2			17,764.2
	Revisions of previous estimates		147.3			55.7			156.6
	Extensions and discoveries ⁽⁴⁾		542.2			4,405.3			1,276.4
	Purchased reserves		0			0			0
	Improved recovery		109.0			43.0			116.2
	Production for the year ⁽⁵⁾		(777.4	)		(1,019.6	)		(947.3	)
Reserves as of December 31, 2004			10,940.5			44,553.6			18,366.1
Proved developed reserves
	As of December 31, 2002		9,198.1			11,921.2			11,185.0
	As of December 31, 2003 ⁽⁶⁾		8,884.8			13,373.7			11,113.7
	As of December 31, 2004 ⁽⁷⁾		8,748.1			16,787.1			11,546.0


⁽¹⁾	Represents natural gas remaining after field separation for condensate removal and reduction for flared gas.

⁽²⁾	Excludes our share of the purchased reserves of approximately 16.8 million barrels of crude oil and approximately 76.6 billion cubic feet of natural gas in the Jabung block in Indonesia, totaling approximately 29.6 million barrel-of-oil equivalent, as a result of our acquisition of a 50% interest in Amerada Hess Indonesia Holdings Co. in April 2003.

⁽³⁾	Excludes our share of the production of approximately 1.2 million barrels of crude oil and approximately 1.0 billion cubic feet of natural gas in the Jabung block in Indonesia, totaling approximately 1.4 million barrels-of-oil equivalent, as a result of our acquisition of a 50% interest in Amerada Hess Indonesia Holdings Co. in April 2003.

⁽⁴⁾	Excludes our share of the reserve extensions and discoveries of approximately 0.69 million barrels of crude oil and approximately 4.60 billion cubic feet of natural gas in the Jabung block in Indonesia, totaling approximately 1.45 million barrels-of-oil equivalent, as a result of our acquisition of a 50% interest in Amerada Hess Indonesia Holdings Co. in April 2003.

⁽⁵⁾	Excludes our share of the production of approximately 1.07 million barrels of crude oil and approximately 3.67 billion cubic feet of natural gas in the Jabung block in Indonesia, totaling approximately 1.68 million barrels-of-oil equivalent, as a result of our acquisition of a 50% interest in Amerada Hess Indonesia Holdings Co. in April 2003.

⁽⁶⁾	Excludes our share of the proved developed reserves of approximately 4.1 million barrels of crude oil and approximately 21.3 billion cubic feet of natural gas in the Jabung block in Indonesia, totaling approximately 7.7 million barrel-of-oil equivalent, as a result of our acquisition of a 50% interest in Amerada Hess Indonesia Holdings Co. in April 2003.

⁽⁷⁾	Excludes our share of the proved developed reserves of approximately 2.9 million barrels of crude oil and approximately 19.2 billion cubic feet of natural gas in the Jabung block in Indonesia, totalling approximately 6.1 million barrel-of-oil equivalent, as a result of our acquisition of a 50% interest in Amerada Hess Indonesia Holdings Co. in April 2003.

The following tables set forth our crude oil and natural gas proved reserves and proved developed reserves by region as of December 31, 2002, 2003 and 2004.


		As of December 31,

		2002				2003				2004

		Proved				Proved				Proved
		developed				developed				developed
		and		Proved		and		Proved		and		Proved
		undeveloped		developed		undeveloped		developed		undeveloped		developed

		(millions of barrels)
Crude oil reserves
Daqing			5,073.8		4,729.6		4,832.3		4,407.7		4,615.0		4,122.3
Liaohe			1,227.0		1,007.5		1,168.5		965.0		1,123.1		915.1
Xinjiang			1,102.2		912.5		1,186.9		930.9		1,232.1		921.9
Changqing			885.7		623.1		1,063.6		706.9		1,191.6		769.6
Jilin			585.8		377.2		585.9		367.0		643.8		404.4
Dagang			458.4		364.9		452.1		361.0		482.3		402.0
Tarim			522.0		342.6		553.9		342.2		507.6		374.8
Huabei			494.2		350.8		486.1		335.8		510.3		353.9
Qinghai			240.6		192.7		229.7		182.8		226.1		181.2
Tuha			208.7		189.9		206.9		169.2		218.3		168.4
Sichuan			5.5		5.5		7.1		3.9		8.6		5.3
Other regions ⁽¹⁾			133.1		101.9		146.3		112.4		181.7		129.2

	Total		10,937.0		9,198.1		10,919.3		8,884.8		10,940.5		8,748.1


		As of December 31,

		2002				2003				2004

		Proved				Proved				Proved
		developed				developed				developed
		and		Proved		and		Proved		and		Proved
		undeveloped		developed		undeveloped		developed		undeveloped		developed

		(Bcf)
Natural gas reserves ⁽²⁾
Sichuan			7,461.7		4,040.6		8,131.4		4,522.4		8,729.8		4,767.9
Changqing			11,222.6		2,719.5		12,976.3		3,847.6		14,932.7		4,091.3
Xinjiang			1,707.3		1,036.1		1,698.7		1,084.3		1,712.3		1,036.8
Daqing			1,324.8		1,171.9		1,122.9		946.5		1,060.5		879.4
Qinghai			3,416.1		837.2		3,379.7		889.9		4,603.6		1,583.4
Tarim			11,026.0		591.2		11,086.6		528.7		10,897.8		2,934.8
Liaohe			606.6		530.5		571.8		507.5		522.7		455.4
Tuha			621.2		338.4		711.6		430.1		705.3		427.8
Huabei			395.8		237.5		386.0		227.3		375.9		217.5
Dagang			655.4		252.4		609.5		201.9		599.5		186.8
Jilin			174.3		109.9		191.9		134.4		203.9		150.4
Other regions ⁽¹⁾			204.9		55.9		202.8		53.1		209.6		55.6

	Total		38,816.8		11,921.2		41,069.2		13,373.7		44,553.6		16,787.1


⁽¹⁾	Represents the Jidong and Yumen oil regions and our oil and gas fields in Indonesia as a result of our acquisition of Devon Energy Indonesia Limited in April 2002.

⁽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 11 provinces, two municipalities under the direct administration of the central government and three autonomous regions in China. In September 2002, the State Development Planning Commission, the predecessor of the National Development and Reform Commission, approved our proposal to explore, in cooperation with foreign companies, fifteen additional crude oil and natural gas fields with an aggregate area of 75,071 square kilometers located in Qaiddam basin, Erdos basin, Sichuan basin and Xinjiang basin. We believe that we have more extensive experience in the exploration and development of crude oil and natural gas than any of our principal competitors in China. Since early 1950s, we have worked for nearly five decades to develop exploration and recovery technologies and methods tailored to the specific geological conditions in China.

The following table sets forth the number of wells we drilled, or in which we participated, and the results thereof, for the periods indicated.


Year		Daqing		Xinjiang		Liaohe		Changqing		Huabei		Dagang		Sichuan		Others ⁽¹⁾		Total

2002	Net exploratory wells drilled ⁽²⁾		67		84		61		170		67		30		28		149		656
	Crude oil		27		63		28		69		28		21		4		60		300
	Natural gas		1		3		0		10		4		0		7		11		36
	Dry ⁽³⁾		39		18		33		91		35		9		17		78		320
	Net development wells drilled ⁽²⁾		1,988		1,247		603		1,285		246		212		40		955		6,576
	Crude oil		1,975		1,235		583		1,197		238		205		13		926		6,372
	Natural gas		6		7		20		55		2		3		25		22		140
	Dry ⁽³⁾		7		5		0		33		6		4		2		7		64
2003	Net exploratory wells drilled ⁽²⁾		291		170		103		371		82		46		25		287		1,375
	Crude oil		140		115		57		128		49		25		0		99		613
	Natural gas		1		11		2		22		0		0		12		5		53
	Dry ⁽³⁾		150		44		44		221		33		21		13		183		709
	Net development wells drilled ⁽²⁾		2,986		1,363		547		1,677		244		202		61		1,192		8,272
	Crude oil		2,975		1,354		528		1,489		241		199		8		1,173		7,967
	Natural gas		4		4		8		134		0		3		36		17		206
	Dry ⁽³⁾		7		5		11		54		3		0		17		2		99
2004	Net exploratory wells drilled ⁽²⁾		221		153		68		427		96		53		32		355		1,405
	Crude oil		85		85		40		201		49		32		4		172		668
	Natural gas		3		0		0		22		0		0		17		9		51
	Dry ⁽³⁾		133		68		28		204		47		21		11		174		686
	Net development wells drilled ⁽²⁾		2,857		1,440		622		1,675		224		188		76		1,463		8,545
	Crude oil		2,853		1,440		605		1,597		223		184		6		1,387		8,295
	Natural gas		4		0		13		46		1		3		56		73		196
	Dry ⁽³⁾		0		0		4		32		0		1		14		3		54


⁽¹⁾	Represents the Jilin, Tarim, Tuha, Qinghai, Jidong and Yumen 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.


	*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, 2004.


		Acreage ⁽¹⁾ (thousands of acres)

		Productive wells ⁽¹⁾				Developed				Undeveloped

Oil region		Crude oil		Natural gas		Crude oil		Natural gas		Crude oil		Natural gas

Daqing			37,833		145		625.7		41.2		615.4		79.6
Liaohe			16,577		587		167.9		28.2		117.6		11.1
Xinjiang			15,182		70		317.6		39.1		53.4		8.8
Jilin			12,623		42		267.6		19.5		248.2		25.4
Changqing			9,864		514		271.7		632.0		386.6		2,143.0
Huabei			4,833		78		100.1		9.5		101.8		6.6
Dagang			3,181		53		86.4		15.3		75.5		23.5
Tuha			1,142		43		33.6		11.4		19.7		16.5
Tarim			565		79		113.1		72.2		47.3		84.8
Sichuan			396		987		324.0		372.6		8.2		87.9
Other regions ⁽²⁾			2,942		167		65.8		10.9		16.1		25.4

	Total		105,138		2,765		2,373.5		1,251.9		1,689.8		2,512.6


⁽¹⁾	Includes all wells and acreage in which we have an interest. No third parties own any interests in any of our wells or acreage.

⁽²⁾	Represents the Qinghai, Jidong and Yumen oil regions.

Approximately 74.6% of our proved crude oil reserves are concentrated in the Daqing, Liaohe and Xinjiang oil regions and the Changqing oil and gas region, and approximately 87.9% of our proved natural gas reserves are concentrated in the Changqing oil and gas region, the Tarim oil region, the Sichuan gas region and the Qinghai oil region. We believe that the Erdos, Junggar, and Songliao basins and Bohai Bay have the highest potential for increasing our crude oil reserve base through future exploration and development, and that the Erdos, Sichuan and Qaiddam basins have the highest potential for increasing our natural gas reserve base through future exploration and development.

Production

The following table sets forth our historical average net daily crude oil and natural gas production by region and our average sales price for the periods ended December 31, 2002, 2003 and 2004.


	For the year ended
	December 31,
							% of
	2002		2003		2004		2004 total

Crude oil production ⁽¹⁾
(thousands of barrels per day, except percentages or otherwise indicated)
Daqing		1,020.5		985.3		942.0		44.4
Liaohe		259.1		253.6		245.4		11.6
Xinjiang		206.0		217.2		227.1		10.7
Changqing		124.2		142.8		164.6		7.7
Tarim		102.7		107.5		109.9		5.2
Huabei		89.0		88.4		87.6		4.1


		For the year ended
		December 31,
								% of
		2002		2003		2004		2004 total

Jilin			90.4		96.7		102.6		4.8
Dagang			79.2		84.7		97.9		4.6
Tuha			54.1		50.7		48.4		2.3
Other ⁽²⁾			83.8		92.9		98.5		4.6

	Total		2,109.1		2,119.8		2,124.0		100.0	%

Annual production (million barrels)			763.5		773.7		777.4
Average sales price
	(RMB per barrel)		186.08		225.2		280.4
	(US$ per barrel)		22.48		27.2		33.88
Natural gas production ⁽¹⁾⁽³⁾
(millions of cubic feet per day, except percentages or otherwise indicated)
Sichuan			808.2		849.0		905.7		39.6
Changqing			335.7		440.3		651.4		28.5
Daqing			137.7		136.2		135.4		5.9
Qinghai			92.3		122.5		145.5		6.4
Tuha			69.8		82.6		92.2		4.0
Xinjiang			53.3		75.9		95.7		4.2
Liaohe			56.0		57.6		58.7		2.6
Huabei			42.1		45.8		44.2		1.9
Tarim			24.6		34.7		89.2		3.9
Dagang			30.6		27.8		26.5		1.1
Other ⁽⁴⁾			7.2		18.8		43.8		1.9

	Total		1,657.5		1,891.2		2,288.3		100.0	%

Annual production (Bcf)			605.0		690.3		837.5
Average sales price
	(RMB per Mcf)		19.20		19.37		21.11
	(US$ per Mcf)		2.32		2.34		2.55


⁽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 Qinghai, Jidong and Yumen oil regions, the Sichuan gas region and our share of production from the oil and gas fields in Indonesia as a result of our acquisition of Devon Energy Indonesia Limited in April 2002.

⁽³⁾	Represents production of natural gas for sale.

⁽⁴⁾	Represents production from the Jilin, Jidong and Yumen oil regions and our share of production the oil and gas fields in Indonesia as a result of our acquisition of Devon Energy Indonesia Limited in April 2002.

In 2004, we supplied approximately 82.0%, 11.2%, 4.2% and 0.5% of our total crude oil sales to our refineries, Sinopec’s refineries, regional refineries controlled by unrelated third parties in China and companies or entities outside China, respectively. We entered into a crude oil mutual supply framework agreement with Sinopec on December 1, 2004 for the supply of crude oil to each other’s

refineries in 2005. Under this agreement, we agreed in principle to supply 59.1 million barrels of crude oil to Sinopec, and Sinopec agreed in principle to supply to us approximately 10.3 million barrels of crude oil in 2005 at negotiated prices based on the Singapore market FOB prices for crude oil. See “Item 5 — Operating and Financial Review and Prospects — General — Factors Affecting Results of Operations — Crude Oil Prices” for a detailed discussion of the crude oil premium and discount calculation agreement and its supplemental agreement. For the years ended December 31, 2002, 2003 and 2004, the average lifting costs of our crude oil and natural production were US$4.34 per barrel-of-oil equivalent, US$4.39 per barrel-of-oil equivalent and US$4.61 per barrel-of-oil equivalent, respectively.

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. The successful discovery and development of the oil fields in the Daqing oil region marked a critical breakthrough in the history of both our company and the PRC oil and gas industry. In terms of proved hydrocarbon reserves and annual production, the Daqing oil region is the largest oil region in China and one of the most prolific oil and gas properties in the world. We commenced exploration activities in the Daqing oil region in 1955 and discovered oil in the region in 1959. Annual crude oil production volume in the Daqing oil region reached one million barrels per day in 1976 and remained relatively stable until 2002. In 2003 and 2004, our crude oil production volume in the Daqing oil region fell below one million barrels per day to 985.3 thousand barrels per day and 942.0 thousand barrels per day, respectively. As of December 31, 2004, we produced crude oil from 20 fields in the Daqing oil region.

As of December 31, 2004, our proved crude oil reserves in the Daqing oil region were 4,615.0 million barrels, representing 42.2% of our total proved crude oil reserves. The proved crude oil reserves in our Daqing oil region have gradually decreased since 1996 because the crude oil production exceeded the crude oil reserve additions in our Daqing oil region in each year since 1996. As of December 31, 2002, 2003 and 2004, the proved crude oil reserves in our Daqing oil region were 5,073.8 million barrels, 4,832.3 million barrels and 4,615.0 million barrels, respectively. As a result, we decreased the crude oil production in our Daqing oil region over past years, and plan to continue to decrease the crude oil production in our Daqing oil region each year in the next few years. In 2004, our oil fields in the Daqing oil region produced an average of 942.0 thousand barrels of crude oil per day, representing approximately 44.4% of our total daily crude oil production. The crude oil production in our Daqing oil region decreased by 4.1% from 359.6 million barrels in 2003 to 344.8 million barrels in 2004. In 2004, the crude oil reserve-to-production ratio of the Daqing oil region was 13.4 years, similar to that in 2003.

The crude oil we produce in the Daqing oil region has an average API gravity of 35.7 degrees. In 2004, the crude oil we produced in the Daqing oil region had an average water cut of 89.1%, increased from the average water cut of 88.4% in 2003.

Because the crude oil in the Daqing oil region is primarily located in large reservoirs with relatively moderate depths of approximately 900 meters to 1,500 meters and with relatively simple geological structures and most of the crude oil produced at Daqing is medium viscosity oil, lifting costs in the Daqing oil region are relatively low among our oil regions. Crude oil produced using enhanced recovery techniques accounted for 22.6%, 25.1% and 29.9% of our crude oil production from the Daqing oil region in 2002, 2003 and 2004, respectively.

Because our oil fields in the Daqing oil region are relatively mature, the difficulty of extracting crude oil from these fields has increased in recent years and is likely to continue to increase gradually in the future. As a result, our lifting costs at these fields increased by 9.76% from US$3.79 per barrel for the year ended December 31, 2003 to US$4.16 per barrel for the year ended

December 31, 2004. However, we have adopted a number of measures to contain the increase in our lifting costs at these fields. Those measures include:


	•	terminating unprofitable or marginally profitable exploration and production activities;

	•	reducing expenditures on ancillary ground facilities in the outer areas of the Daqing oil region;

	•	increasing preventive maintenance to prolong the useful life of our production facilities; and

	•	applying new technologies to reduce energy consumption.

Although we plan to continue to carry out these measures to contain the increase in our lifting costs, we expect our lifting costs at these fields will continue to increase gradually in the future.

We have an extensive transportation infrastructure network to transport crude oil produced in the Daqing oil region to internal and external customers in northeastern China and beyond. Crude oil pipelines link our oil fields in the Daqing oil region to the port of Dalian and the port of Qinhuangdao in Bohai Bay, providing efficient transportation for selling Daqing crude oil. These crude oil pipelines have an aggregate length of 2,590 kilometers and an aggregate throughput capacity of approximately 900 thousand barrels per day.

Daqing’s crude oil has a low sulfur and high paraffin content. As many refineries in China, particularly those in northeastern China, are configured to refine Daqing crude oil, we have a stable market for the crude oil we produce in the Daqing oil region. In 2004, we refined approximately 75.1% of Daqing crude oil in our own refineries, exported approximately 1.1% and sold the remaining portion to Sinopec or local refineries.


	*Liaohe Oil Region*

The Liaohe oil region is our second largest crude oil producing property and is located in the northern part of the Bohai Bay basin. We began commercial production in the Liaohe oil region in 1971. The Liaohe oil region covers a total area of approximately 580,000 acres. The Liaohe oil region is China’s third largest oil region in terms of production in 2004.

As of December 31, 2004, proved crude oil reserves in the Liaohe oil region were 1,123.1 million barrels, representing 10.3% of our total proved oil reserves. In 2004, our oil fields in the Liaohe oil region produced an average of 245.4 thousand barrels of crude oil per day, representing approximately 11.6% of our total daily crude oil production. In 2004, the crude oil reserve-to-production ratio in the Liaohe oil region was 12.5 years. In 2004, the crude oil we produced in the Liaohe oil region had an average API gravity of 26 degrees and an average water cut of 74.2%. We have proved crude oil reserves in 37 fields in the Liaohe oil region, all of which are currently in production. We produce several varieties of crude oil in the Liaohe oil region, ranging from light crude oil to heavy crude oil and high pour point crude oil.

We have easy access to crude oil pipelines for Liaohe crude oil. The pipelines linking Daqing to Dalian port and Qinhuangdao port pass through the Liaohe oil region. In 2004, we sold about approximately 83.7% of the crude oil we produced at the Liaohe oil region to our own refineries.


	*Xinjiang Oil Region*

The Xinjiang oil region 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 thousand acres. As of December 31, 2004, our proved crude oil reserves in the Xinjiang oil region were 1,232.1 million barrels, representing 11.3% of our total proved crude oil reserves. In 2004, our oil fields in the Xinjiang oil region produced an average of 227.1 thousand barrels of crude oil per day, representing approximately 10.7% of our total crude oil production. In 2004, the crude oil reserve-to-production ratio at the Xinjiang oil region was 14.8 years. In 2004, the

crude oil we produced in the Xinjiang oil region had an average API gravity of 36.8 degrees and an average water cut of 72.6%.


	*Sichuan Gas Region*

The Sichuan gas region is the largest natural gas region in China in terms of annual natural gas production. We began natural gas exploration and production in Sichuan in the 1950s. The Sichuan gas region covers a total area of approximately 2.3 million acres. The natural gas reserve-to-production ratio in the Sichuan gas region was 26.3 years in 2004. As of December 31, 2004, we had 90 natural gas fields under development in the Sichuan gas region.

As of December 31, 2004, our proved natural gas reserves in the Sichuan gas region were 8,729.8 billion cubic feet, representing 19.6% of our total proved natural gas reserves and an increase of 7.4% from 8,131.4 billion cubic feet as of December 31, 2003. In 2004, our natural gas production for sale in the Sichuan gas region reached 331.5 billion cubic feet, representing 39.6% of our total natural gas production for sale and an increase of 7.0% from 309.9 billion cubic feet in 2003.

In 2002, we discovered and proved significant natural gas reserves in Luojiazhai gas field in the Sichuan gas region. As of December 31, 2004, Luojiazhai gas field had a total proved natural gas reserve of 1,143.5 billion cubic feet. Currently, Luojiazhai gas field is the largest gas field in the Sichuan basin. We have developed a broad range of technologies relating to natural gas exploration, production, pipeline systems and marketing activities tailored to local conditions in Sichuan. We intend to continue to increase our natural gas reserves, annual natural gas production and revenues in the Sichuan gas region by adopting advanced technologies.

In November 2002, we obtained approval from the State Development Planning Commission, the predecessor of the National Development and Reform Commission, to construct pipelines to transmit natural gas produced in the Sichuan gas region to major cities in central China. This is known as the Zhong County to Wuhan City natural gas pipeline project. By the end of 2004, we completed the construction and commenced commercial operation of the main line of the Zhong County to Wuhan City natural gas pipeline and its Xiangfan branch pipeline and Huangshi branch pipeline. In addition, we completed the welding of the main part of the Xiangtan branch pipeline and expect to complete the construction and commence the commercial operation of this branch pipeline by the end of June 2005. See “— Natural Gas and Pipeline — Expansion of Our Natural Gas Transmission and Marketing Business” for a discussion of the Zhong County to Wuhan City natural gas pipeline project.


	*Changqing Oil and Gas Region*

The Changqing oil and gas region covers parts of Shaanxi Province and Gansu Province and the Ningxia and Inner Mongolia Autonomous Regions. We commenced operations in the Changqing oil and gas region in 1970. In 2004, we produced 60.3 million barrels of crude oil in the Changqing oil and gas region.

In the early 1990s, we discovered the Changqing gas field, which had total estimated proved natural gas reserves of 14,932.7 billion cubic feet as of December 31, 2004, representing 33.5% of our total proved natural gas reserves. In January 2001, we discovered the Sulige gas field with total proved natural gas reserves of 2,500.2 billion cubic feet. In 2004 we produced 238.4 billion cubic feet of natural gas for sale in the Changqing oil and gas region, representing an increase of 48.4% from 160.7 billion cubic feet in 2003. The establishment of a natural gas pipeline from Shaanxi to Beijing in 1997 has significantly expanded the range of target markets for natural gas produced in the Changqing oil and gas region over the years. In the eight years following the establishment of the pipeline, we significantly increased daily natural gas production for sale in the Changqing oil and gas region. We are constructing an additional natural gas pipeline from Shaanxi to Beijing, which is designed to have an annual throughput capacity of 423.8 billion cubic feet of natural gas upon its

completion, and expect to complete the construction of this pipeline in 2005. See “— Natural Gas and Pipeline — Expansion of Our Natural Gas Transmission and Marketing Business” for a discussion of this additional Shaanxi to Beijing natural gas pipeline project.


	*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 thousand acres. As of December 31, 2004, our proved crude oil reserves in the Tarim oil region were 507.6 million barrels. The Kela 2 natural gas field, which we discovered in 1998 in the Tarim oil and gas region, had estimated proved natural gas reserves of approximately 6,320.5 billion cubic feet as of December 31, 2004. As of December 31, 2004, the proved natural gas reserves in the Tarim oil and gas region reached 10,897.8 billion cubic feet, representing 24.5% of our total proved natural gas reserves. Currently, the Kela 2 natural gas field is the largest natural gas field in China in terms of proved natural gas reserves.

In 2004, we produced 32.6 billion cubic feet of natural gas for sale in the Tarim oil and gas region. We have completed the construction of the pipelines to deliver natural gas in the Tarim oil and gas region to the central and eastern regions of China where there is strong demand for natural gas transmitted through our West to East natural gas pipeline project. See “— Natural Gas and Pipeline — Expansion of Our Natural Gas Transmission and Marketing Business” for a discussion of our West to East natural gas pipeline project. We plan to significantly increase our natural gas production in the Tarim oil and gas region as a result of the commencement of the operation of this West to East natural gas pipeline.

Refining and Marketing

We engage in refining and marketing operations in China through 25 refineries, 22 regional sales and distribution branch companies and one lubricants branch company. These operations include crude oil refining and the transportation, storage and marketing of refined products, including gasoline, diesel, kerosene and lubricant, in wholesale, retail and export markets. In 2004, our refining and marketing segment had income from operations of RMB 11,981 million (US$1,448 million).

The following sets forth the highlights of our refining and marketing segment in 2004:


	•	as of December 31, 2004, our refineries’ annual primary distillation capacity totaled 771.4 million barrels of crude oil per year, or 2,113.5 thousand barrels per day;

	•	we processed 697.8 million barrels of crude oil, or 1.9 million barrels per day;

	•	we produced approximately 60.2 million tons of gasoline, diesel and kerosene and sold approximately 67.0 million tons of these products;

	•	as of December 31, 2004, our retail distribution network consisted of:


	—	14,039 service stations owned and operated by us,

	—	427 service stations wholly owned by CNPC or jointly owned by CNPC and third parties and to which we provide supervisory support, and

	—	2,937 franchise service stations owned and operated by third parties with which we have long-term refined product supply agreements; and


	•	in 2004, our service stations, which are located throughout China, sold approximately 30.2 million tons of gasoline and diesel, representing 46.5% of the total of these products sold through our marketing operations.

Refining

Our refineries are located in eight provinces, three autonomous regions and one municipality in the northeastern, northwestern and northern regions of China.


	*Refined Products*

We produce a wide range of refined products at our refineries. Some of our refined products are consumed internally as feedstocks for our chemical operations. The table below sets forth production volume for our principal refined products for each of the three years ended December 31, 2002, 2003 and 2004.


		Year ended December 31,

Product		2002		2003		2004

		(in thousands of tons)
Diesel			29,229.2		32,778.3		38,185.6
Gasoline			16,646.4		18,255.4		20,049.8
Fuel oil			6,176.8		4,546.1		4,256.8
Naphtha			3,066.0		3,602.8		4,942.8
Asphalt			1,653.5		1,870.5		1,946.8
Kerosene			1,774.7		1,759.3		1,961.8
Lubricants			1,358.9		1,192.5		1,467.8
Paraffin			856.4		984.9		1,140.0

	Total		60,761.9		64,989.8		73,951.4

We generally adjust our product mix to reflect market demand and to focus on the production of high margin products. This has resulted in an overall modest increase in the production of lighter refined products which generally are higher margin products, such as gasoline. Our production volume of lubricants, a high margin product, decreased 12.2% from 1,358.9 thousand tons in 2002 to 1,192.5 thousand tons in 2003, due primarily to the shutting down of inefficient lubricant production facilities in Jilin Petrochemical and Dagang Petrochemical and the maintenance of lubricant production facilities in Daqing Refinery and Daqing Petrochemical. In 2004, we increased our production volume of lubricants to 1,467.8 thousand tons to meet the growing market demands for lubricants. We have decreased our production of low margin products, such as fuel oil.

In recent years, we have made significant capital investments in facility expansions and upgrades to improve product quality to meet evolving market demand and environmental requirements in China. In each of the three years ended December 31, 2002, 2003 and 2004, our capital expenditures for our refining and marketing segment were RMB 10,503 million, RMB 12,650 million, and RMB 17,467 million (US$2,110 million), respectively. These capital expenditures were incurred primarily in connection with our refining facility upgrades and expansion of our refined product retail marketing network and storage infrastructure. We built or renovated 19 refining facilities in 2004, including, among others, the hydrocracking unit at Daqing Petrochemical with a designed annual capacity of 1,200 thousand tons and the delayed coking unit at Karamy Petrochemical with an annual capacity of 1,200 thousand tons. In 2004, we acquired or constructed an aggregate of 2,276 service stations that are owned and operated by us. In addition, we have also focused on enhancing our processing technologies and methods. These efforts have enabled us to improve the quality of refined products at our refineries, particularly that of gasoline and diesel. We believe that our refined products generally meet product specification and environmental protection requirements as set by the PRC government, including the specification limiting the olefin and sulfur content in gasoline.


	*Our Refineries*

Most of our refineries are strategically located close to our crude oil storage facilities, along our crude oil and refined product transmission pipelines and/or railways. These systems provide our refineries with secure supplies of crude oil and facilitate our distribution of refined products to the domestic markets. In each of the three years ended December 31, 2002, 2003 and 2004, our exploration and production operations supplied approximately 94%, 86% and 84% respectively, of the crude oil processed in our refineries.

The table below sets forth certain operating statistics regarding our refineries as of December 31, 2002, 2003 and 2004.


		As of December 31,

		2002		2003		2004

Primary distillation capacity ⁽¹⁾ (thousand barrels per day)
Lanzhou Petrochemical ⁽²⁾			151.8		222.7		212.6
Dalian Petrochemical			212.6		212.6		212.6
Fushun Petrochemical			162.0		162.0		186.2
Daqing Petrochemical			121.5		121.5		121.5
Jinzhou Petrochemical ⁽³⁾			113.3		113.3		127.5
Jinxi Petrochemical			111.3		111.3		131.6
Jilin Petrochemical ⁽⁴⁾			101.2		101.2		107.3
Urumqi Petrochemical			101.2		101.2		101.2
Other refineries			911.1		844.1		913.0

	Total		1,986.0		1,989.9		2,113.5


		As of December 31,

		2002		2003		2004

Refining throughput (thousand barrels per day)
Lanzhou Petrochemical ⁽²⁾			128.6		140.5		166.4
Dalian Petrochemical			136.6		187.7		242.3
Fushun Petrochemical			166.3		172.2		181.7
Daqing Petrochemical			108.2		115.5		119.2
Jinzhou Petrochemical ⁽³⁾			101.3		105.7		120.8
Jinxi Petrochemical			97.2		108.2		123.9
Jilin Petrochemical ⁽⁴⁾			92.3		114.6		129.6
Urumqi Petrochemical			71.7		72.7		81.8
Other refineries			656.7		685.0		740.8

	Total		1,558.9		1,702.1		1,906.5

Conversion equivalent ⁽⁵⁾ (percent)
Lanzhou Petrochemical ⁽²⁾			31.3		41.9		41.9
Dalian Petrochemical			54.3		54.3		54.3
Fushun Petrochemical			66.9		70.7		70.7
Daqing Petrochemical			61.0		61.0		76.7
Jinzhou Petrochemical ⁽³⁾			62.5		72.7		63.5
Jinxi Petrochemical			67.3		70.9		60.0
Jilin Petrochemical ⁽⁴⁾			54.0		69.8		75.5
Urumqi Petrochemical			50.0		50.0		62.0
Average of other refineries			43.7		39.5		62.4


⁽¹⁾	Represents the primary distillation capacity of crude oil and condensate.

⁽²⁾	Includes Lanzhou Refinery, which was merged into Lanzhou Petrochemical in October 2000 as part of our ongoing restructuring.

⁽³⁾	Includes a 19.05% minority interest held by unrelated third parties in Jinzhou Petrochemical Company Limited in the relevant periods.

⁽⁴⁾	Includes Jilin Chemical Industrial Company Limited, in which we held a 67.29% equity interest in the relevant periods. Data regarding the primary distillation capacity, refining throughput and conversion equivalent of Jilin Petrochemical includes a 32.71% minority interest held by unrelated third parties in Jilin Chemical Industrial Company Limited in the relevant periods.

⁽⁵⁾	Stated in fluid catalytic cracking, delayed coking and hydrocracking equivalent/ topping (percentage by weight), based on 100% of balanced distillation capacity.

In each of the three years ended December 31, 2002, 2003 and 2004, the average utilization rate of the primary distillation capacity at our refineries was 79.1%, 85.6% and 93.2%, respectively. The average yield for our four principal refined products (gasoline, kerosene, diesel and lubricants) at our refineries was 63.7%, 64.2% and 65.3% respectively, in the same periods. “Yield” represents the number of tons of a refined product expressed as a percentage of the number of tons of crude oil from which that product is processed. In each of the three years ended December 31, 2002, 2003 and 2004, the yield for all refined products at our refineries was 91.3%, 91.4% and 91.5% respectively.

Dalian Petrochemical, Fushun Petrochemical and Lanzhou Petrochemical were our leading refineries in terms of both primary distillation capacity and throughput in 2004. They are all located close to our major oil fields in the northeast and northwest regions of China and produce a wide

range of refined products. In October 2000, we consolidate Lanzhou Refinery into Lanzhou Petrochemical as part of our ongoing restructuring. Lanzhou Petrochemical has a strategic position in our plan to expand our markets in refined product sales in the southwestern and central regions of China. It is located in the northwestern part of China, providing easy access to markets in the southwestern and central regions in China. In 2002, we increased the primary distillation capacity at Dalian Petrochemical by 34.5 thousand barrels per day. In 2002, 2003 and 2004, we increased the throughput of Dalian Petrochemical by 15.0 thousand barrels per day, 51.1 thousand barrels per day and 54.6 thousand barrels per day, respectively. We expect the throughput of Dalian Petrochemical to continue to increase in the future. As of December 31, 2004, these four refineries had an aggregate primary distillation capacity of 267.5 million barrels per year, or 732.9 thousand barrels per day, representing approximately 34.7% of the total primary distillation capacity of all our refineries as of the same date. In 2004, these four refineries processed an aggregate of 259.7 million barrels of crude oil, or 709.6 thousand barrels per day, representing approximately 37.2% of our total throughput in the same period.

Marketing

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, 2004, our marketing network consisted of:


	•	approximately 790 regional wholesale distribution outlets nationwide. Substantially all of these outlets are located in high demand areas such as economic centers across China, particularly in the coastal areas, along major railways and along the Yangtze River; and

	•	14,039 service stations owned and operated by us, 427 service stations wholly owned by CNPC or jointly owned by CNPC and third parties that exclusively sell refined products produced or supplied by us and to which we provide supervisory support under contractual arrangement, and 2,937 franchise service stations owned and operated by third parties.

In September 2002, we acquired from CNPC all of the assets and liabilities of 686 refined products marketing enterprises. These assets consist primarily of 2,994 service stations and 478 storage facilities located in more than 500 counties in 15 provinces and autonomous regions in the PRC. We believe that the addition of these service stations and storage facilities has provided us with an important platform to further expand and develop our refined product sales and distribution network and develop our retail distribution channels.

In 2004, we sold approximately 64.9 million tons of gasoline and diesel. The PRC government and other institutional customers, including railway, transportation and fishery operators, are our long-term purchasers of the gasoline and diesel that we produce. We sell gasoline and diesel to these customers at the ex-factory median prices published by the PRC government with an 8% floating range. See “— Regulatory Matters — Pricing — Refined Products” for a discussion of refined product pricing. In 2004, sales of gasoline and diesel to these customers accounted for approximately 1% and 10% of our total sales of gasoline and diesel, respectively. The following table

sets forth our refined product sales volumes by principal product category for each of the three years ended December 31, 2002, 2003 and 2004.


		Year ended December 31,

Product		2002		2003		2004

		(in thousands of tons)
Diesel			33,167.1		36,680.7		43,178.3
Gasoline			19,001.3		19,872.5		21,714.2
Fuel oil			4,327.8		5,748.7		5,747.4
Naphtha			4,142.5		4,836.2		5,325.9
Kerosene			1,884.5		1,789.1		2,116.2
Lubricants			1,997.0		1,774.5		1,974.0
Asphalt			1,344.0		1,711.3		2,348.7
Paraffin			868.7		1,055.5		1,138.1

	Total		66,732.9		73,468.5		83,542.8


	*Wholesale Marketing*

We sell refined products both directly and through independent distributors into various wholesale markets, as well as to utility, commercial, petrochemical, aviation, agricultural, fishery and transportation companies in China. We sold approximately 64.9 million tons of gasoline and diesel through our wholesale operations in 2004, including transfers to our retail operations. We sold approximately 1.0 million tons of gasoline and diesel through our wholesale operations to Sinopec in 2004, representing approximately 2% of our total sales of these products in the same period. In 2004, we sold approximately 18.7 million tons of our other principal refined products.

As part of the restructuring of the CNPC group in 1999, we completed the implementation of a plan to consolidate our wholesale operations and reduce distribution layers and the number of wholesale outlets. In 2001, we completed a series of initiatives to change the business scope, adjust the business functions or shut down operations in respect of 558 county level outlets. In addition, we merged 18 municipal level outlets in 2001. In 2002, we continued these initiatives by integrating our markets in Shandong Province and Anhui Province, enhancing our logistics system and shutting down a number of inefficient oil storage facilities. In 2003, we further consolidated our wholesale operations. In 2004, we consolidated our sales operations in the southern and central regions of China, respectively, by establishing a branch company in each area which is fully engaged in sales and marketing. We believe the implementation of this strategy has increased the overall efficiency of our marketing operations.


	*Retail Marketing*

In 2004, we sold approximately 30.2 million tons of gasoline and diesel through our service station network, accounting for 46.5% of the total of these products sold through our marketing operations in the same period. Although sales volumes vary significantly by geographic region, the weighted average sales volume of gasoline and diesel per business day at our service station network in 2002, 2003 and 2004 was 4.8 tons, 4.9 tons and 5.5 tons per service station, respectively.

We sell our refined products to service stations owned and operated by CNPC. These service stations sell exclusively refined products produced or supplied by us in accordance with contractual arrangements between CNPC and us. Under these contractual arrangements, we also provide supervisory support to these service stations.

We currently operate a majority of our service stations under the tradename of “PetroChina”. We intend to gradually adopt our new logo “ (PETROCHINA COMPANY LOGO)

” for all our service stations in the next few years.

Most of the service stations in our service station network are concentrated in the northern, northeastern and northwestern regions of China where we have a dominant wholesale market position. However, the eastern and southern regions of China have a higher demand for gasoline and diesel. We have made significant efforts in recent years to expand our sales and market share in those regions through expanding the number of our service stations and storage facilities in those regions. As part of our expansion initiatives, in 2001, we commenced negotiations with BP Amoco p.l.c. with the purposes of establishing a Sino-foreign equity joint venture to engage in the development and operation of service stations in Guangdong Province. On May 14, 2004, we entered into the Joint Venture Contract and the Articles of Association with BP Global Investments Limited, a subsidiary of BP Amoco p.l.c., to form BP PetroChina Petroleum Company Limited in Guangdong Province. We and BP Global Investments Limited hold 51% and 49% equity interests in BP PetroChina Petroleum Company Limited, respectively. We expect that BP PetroChina Petroleum Company Limited will build, acquire and manage approximately 500 service stations in Guangdong Province within three years from its establishment. As of December 31, 2004, BP PetroChina Petroleum Company Limited owned and operated 395 service stations in the eastern and northern regions of Guangdong Province.

We invested a total of RMB 10,117 million in expanding our service station network in 2004, of which 71% was invested in the eastern and southern regions of China. In 2004, we sold approximately 13,130 thousand tons of gasoline and diesel through our owned and franchised service stations in these regions, as compared to approximately 8,280 thousand tons and approximately 9,916 thousand tons we sold in 2002 and 2003, respectively.

In 2004, we acquired or constructed an aggregate of 2,276 service stations that are owned and operated by us, of which 1,423 are in the eastern and southern regions of China. We plan to further increase our retail market share and improve the efficiency of our retail operations, with a continued focus on the eastern and southern regions of China. We plan to invest approximately RMB 7,300 million in 2005 to expand our service station network by adding approximately 1,500 new service stations.

The following table sets forth the number of the service stations in our marketing network as of December 31, 2004:


Owned and operated by us ⁽¹⁾		14,039
Wholly owned by CNPC or jointly owned by CNPC and third parties ⁽²⁾		427
Franchised		2,937

	Total	17,403


⁽¹⁾	Includes 395 service stations owned and operated by BP PetroChina Petroleum Company Limited.

⁽²⁾	These service stations exclusively sell refined products produced or supplied by us. We also provide supervisory support to these service stations.

In order to improve the efficiency and profitability of our existing service station network, we standardize the interior and exterior of our service stations, our service procedures, staff uniforms and the product quality of all our service stations. We are in the process of promoting the use of pre-paid gasoline/ diesel filling cards at our service stations. We have equipped 620 service stations located in 14 municipalities with facilities that allow customers to purchase gasoline or diesel with their pre-paid filling cards. In addition to selling gasoline and diesel, we have gradually increased the sale of lubricants and other non-fuel products at our service stations.

Chemicals and Marketing

Through 12 chemical plants, we produce basic petrochemical products, derivative petrochemical products, and other chemical products. In 2004, our chemicals and marketing segment had income from operations of RMB 7,655 million (US$925 million).

Our chemical plants are located in five provinces and three autonomous regions in China. Most of our chemical plants are co-located with our refineries and are also connected with the refineries by pipelines, providing additional production flexibility and opportunities for cost competitiveness. Our exploration and production, refining and natural gas operations supply substantially all of the hydrocarbon feedstock requirements for our chemicals operations. We believe that the proximity of our refineries to our chemical plants promotes efficiency in production, secures feedstock supply and minimizes the risk of production interruption. Our production capacity and our market share in China for chemical products allow us to solidify our dominant position in the northern and western regions of China. In addition, our stable customer base in the eastern and southern regions of China provides us with the opportunity to expand our market share in these regions.

Our Chemical Products

The table below sets forth the production volumes of our principal chemical products for each of the three years ended December 31, 2002, 2003 and 2004.


			Year ended December 31,

			2002		2003		2004

			(in thousand tons)
Basic petrochemicals
	Propylene			1,523.9		1,833.7		1,969.1
	Ethylene			1,582.0		1,817.9		1,845.6
	Benzene			558.7		683.8		712.7
Derivative petrochemicals
	Synthetic resin
		Polyethylene		1,014.4		1,208.0		1,309.5
		Polypropylene		759.0		917.1		961.6
		ABS		166.7		208.7		228.1
		Other synthetic resin products		27.3		35.1		27.6
	Synthetic fiber
		Polyacrylic fiber		78.6		83.7		108.1
		Terylene fiber		173.0		116.6		94.3
		Other synthetic fiber products		15.5		11.4		7.4
	Synthetic rubber
		Butadiene styrene rubber		134.9		147.3		190.2
		Other synthetic rubber products		79.1		98.8		95.6
	Intermediates
		Alkylbenzene		175.3		204.7		194.9
Other chemicals
	Urea			3,411.2		3,579.6		3,652.3
	Ammonium nitrate			143.2		46.5		32.0

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. In 2001, we implemented a five-year plan to invest RMB 10,000 million to upgrade our ethylene production facilities at Daqing Petrochemical, Jilin Petrochemical, Liaoyang Petrochemical,

Dushanzi Petrochemical and Lanzhou Petrochemical. As of December 31, 2004, we had invested approximately RMB 4,187 million (US$506 million) for these upgrade projects. Except for the on-going project at Lanzhou Petrochemical, we have completed all of the other upgrading projects we implemented in 2001. As of December 31, 2004, we had a total ethylene production capacity of 1,850 thousand tons per year, as compared to 1,730 thousand tons of ethylene production capacity as of December 31, 2003. In 2004, the production volume of ethylene increased by 1.5% from 1,818 thousand tons in 2003 to 1,846 thousand tons. We are currently conducting further upgrading of our ethylene production facilities. We expect to complete the further upgrading of the ethylene production facilities at Daqing Petrochemical, Lanzhou Petrochemical, Jilin Petrochemical and Liaoyang Petrochemical prior to 2007, and the ethylene production facilities at Dushanzi Petrochemical by 2008. The petrochemical ethylene projects at Fushun Petrochemical and Sichuan Petrochemical are pending for approval of the National Development and Reform Commission. We expect to have a total ethylene production capacity of 2,960 thousand tons per year in 2007.

In 2004, the monthly average capacity utilization rate at our ethylene production facilities was 99.6%. The cost of ethylene production is an important component of our overall chemical production costs. Reduction of energy consumption and raw material loss is a key factor in reducing ethylene production costs. After we implemented a series of measures in 2003 and 2004 to reduce energy consumption, the average energy consumption of our ethylene production facilities decreased from 794.6 kilograms of standard oil per ton in 2002 to 754.1 kilograms in 2003 and 734.3 kilograms in 2004. However, this is still significantly higher than the world average of 500 to 690 kilograms of standard oil per ton. We plan to continue to implement measures to reduce our energy consumption.

In addition, high ethylene percentage loss has also contributed to the relative high cost of our ethylene production. In order to reduce high ethylene percentage loss in our ethylene production, we have implemented a series of measures at our chemical plants in the past two years, such as improving our process management of key units for ethylene production, reducing unplanned temporary interruptions of our chemical facilities and enhancing pyrolysis material composition and production plans. As a result, the average ethylene percentage loss at our chemical plants decreased from 0.83% in 2002 to 0.57% in 2003 and to 0.54% in 2004. We believe that these measures will enable us to continue to reduce the cost of our ethylene production without incurring significant capital expenditures.

We produce a number of synthetic resin products, including polyethylene, polypropylene and ABS. As of December 31, 2004, our production capacities for polyethylene, polypropylene and ABS were 1,212.5 thousand tons, 988.5 thousand tons and 220 thousand tons, respectively. In 2004, we produced 1,309.5 thousand tons, 961.6 thousand tons and 228.1 thousand tons of polyethylene, polypropylene and ABS, respectively. Currently, China imports significant volumes of these products to meet the domestic demand due to an inadequate supply of high-quality domestically produced polyethylene, polypropylene and ABS. We intend to increase the production, and improve the quality, of these products. We are currently building new production facilities with new technology for the production of these products in Daqing Petrochemical, Daqing Refining and Chemical, Jilin Petrochemical, Lanzhou Petrochemical and other branch companies. We experienced a decrease in the production volume of ABS in 2002. This decrease was due primarily to the termination of the lease for a major ABS production line at Daqing Petrochemical Company in 2002. Since 2002, we have implemented a number of measures to upgrade our ABS production facilities at our petrochemical companies in order to replace the lost ABS production capacity at Daqing Petrochemical Company. In 2003, Jilin Petrochemical Company increased its ABS production capacity to 170.0 thousand tons per year by upgrading its ABS production facilities. Primarily as a result of this, the production volume of ABS increased by 25.2% to 208.7 thousand tons in 2003. In 2004, our production volume of ABS was 228.1 thousand tons, representing an increase of 9.3% from 2003. Our production volume of polyethylene and polypropylene in 2004 increased by 8.4% and 4.9%, respectively, as compared with 2003.

Sales and Marketing

Our chemical products are distributed to a number of industries that manufacture components used in a wide range of applications, including automotive, construction, electronics, medical manufacturing, printing, electrical appliances, household products, insulation, packaging, paper, textile, paint, footwear, agriculture and furniture industries.

The following table sets forth the sales volumes of our chemical products by principal product category for each of the three years ended December 31, 2002, 2003 and 2004.


			Year ended December 31,

Product			2002		2003		2004

			(in thousands of tons)
Derivative petrochemicals
	Synthetic resin
		Polyethylene		1,008.3		1,205.0		1,423.6
		Polypropylene		589.2		717.2		793.3
		ABS		210.5		204.5		231.8
	Synthetic fiber
		Terylene fiber		172.2		132.9		103.6
		Polyacrylic fiber		84.9		81.2		115.8
	Synthetic rubber
		Butadiene styrene rubber		136.5		144.7		187.8
	Intermediates
		Alkylbenzene		135.3		110.1		110.9
Other chemicals
	Urea			2,967.5		3,766.8		3,662.8
	Ammonium nitrate			145.5		51.1		32.8

Natural Gas and Pipeline

We are China’s largest natural gas transporter and seller in terms of sales volume, with revenues of RMB 18,255 million (US$2,206 million) and total sales volume of 781.4 billion cubic feet in 2004, of which 657.3 billion cubic feet was sold by our natural gas and pipeline segment. In 2004, our natural gas and pipeline segment had income from operations of RMB 2,535 million (US$306 million). We sell natural gas primarily to fertilizer and chemical companies, commercial users and municipal utilities owned by local governments.

The following table sets forth the length of our natural gas pipelines as of December 31, 2002 2003 and 2004 and the volume of natural gas sold by us in each of the three years ended December 31, 2002, 2003 and 2004.


	As of December 31 or
	year ended December 31,

	2002		2003		2004

Length of natural gas pipelines used by our natural gas segment (km)		12,299		14,017		17,868
Total length of natural gas pipelines (km)		13,391		15,144		18,995
Volume of natural gas sold by our natural gas segment (Bcf)		486.3		543.4		657.3
Total volume of natural gas sold ⁽¹⁾ (Bcf)		588.4		651.0		781.4


⁽¹⁾	Represents the aggregate volume of natural gas sold by our natural gas and pipeline segment and our exploration and production segment, including the sales to our natural gas and pipeline segment by our exploration and production segment.

Currently, natural gas consumption in China represents 2.6% of China’s total primary energy consumption. The PRC government has forecast that natural gas consumption in China will represent 6% of China’s total primary energy consumption in 2010. We believe this growth will provide us with the opportunity to expand our natural gas business.

In addition, we also conduct the operation of crude oil and refined product transmission and storage infrastructure in the natural gas and pipeline segment.

Our Principal Markets for Natural Gas

In 2004, 50.7%, 21.4%, 17.8%, 3.0%, 2.3% and 4.8% of our natural gas sales were to the southwestern, northern, northwestern, northeastern, central, and eastern regions of the PRC, respectively.

Currently, Sichuan Province and Chongqing Municipality in southwest China are two of our principal markets for natural gas. We sold 296.4 billion cubic feet of natural gas to Sichuan Province and Chongqing Municipality in 2004, as compared to 276.2 billion cubic feet in 2003, representing approximately 37.9% of our total natural gas sales in 2004. We supply natural gas to Sichuan Province and Chongqing Municipality from our exploration and production operations in the Sichuan oil region. Our natural gas pipelines in these areas are well developed, consisting of a natural gas transmission network with a total length of approximately 6,644 kilometers. As these areas lack adequate supply of alternative energy resources, such as coal, we believe that we can further expand our natural gas sales as energy demand increases in these areas.

Beijing Municipality, Tianjin Municipality, Hebei Province and Shandong Province in northern China have high energy consumption levels. These areas are also important markets for our natural gas transmission and marketing business. We sold an aggregate of 140.2 billion cubic feet of natural gas to these areas in 2004, as compared to 122.2 billion cubic feet in 2003. Our natural gas sales to Beijing Municipality increased 12.2% from 83.1 billion cubic feet in 2003 to 93.2 billion cubic feet in 2004. We supply natural gas to Beijing Municipality, Tianjin Municipality and Hebei Province primarily from the Changqing oil region through the Shaanxi to Beijing natural gas pipeline, which is one of

our natural gas trunk pipelines, and from the Huabei and Dagang oil regions. Currently, we have 2,046 kilometers of natural gas pipelines in these areas.

Henan Province, Anhui Province, Shanghai Municipality and other provinces and cities in the Yangtze River Delta, Wuhan City and other regions in Hubei Province, Hunan Province, Lanzhou City and other areas in Gansu Province, Qinghai Province and Shanxi Province are also natural gas markets we are developing. In 2004, we completed the construction and commenced commercial operation of the mainlines of the West to East natural gas pipeline and the Zhong County to Wuhan City natural gas pipeline, which link our Xinjiang, Changqing and Sichuan gas fields with these areas.

Each year, we must supply natural gas to customers subject to the government-formulated guidance supply plan first as required by the PRC government. We enter into natural gas supply contracts with those customers on the basis of the amount of natural gas to be supplied according to the guidance supply plan for the following year’s supply.

We have entered into long-term take-or-pay contracts with 16 municipalities and enterprises in Qinghai Province, Gangsu Province, Shanxi Province and Tianjin Municipality, 25 municipalities and enterprises in Hubei Province and Hunan Province, 12 municipalities in Shandong Province and 40 municipalities and enterprises in Henan Province, Anhui Province, Shanghai Municipality and other provinces located in the Yangtze River Delta. Under these take-or-pay contracts, we have agreed in principle to supply natural gas to these customers in the next 20 to 25 years at prices determined based on the ex-factory prices published by the National Development and Reform Commission, formerly the State Development Planning Commission, supplemented by the pipeline transportation tariffs. See “— Regulatory Matters — Pricing — Natural Gas” for a discussion of natural gas pricing.

In 2004, we sold 583 billion cubic feet, or 88.7% of the natural gas sales volume of our natural gas and pipeline segment, to customers not subject to the government-formulated guidance supply plan, such as commercial end users and municipal utilities, representing a 26.4% increase over 2003. We believe that sales volume of our natural gas to customers not subject to the government-formulated guidance supply plan as a percentage of our total sales will continue to increase. See “— Regulatory Matters — Pricing — Natural Gas” for a discussion of the government-formulated guidance supply plan.

Driven by environmental and efficiency concerns, the PRC government is increasingly encouraging industrial and residential use of natural gas to meet primary energy and environmental protection needs. The PRC government has adopted a number of laws and regulations to require municipal governments to increase the use of clean energy, such as natural gas and liquefied petroleum gas, to replace the use of raw coal. Several municipal governments, including that of Beijing, have adopted policies to facilitate natural gas consumption in order to reduce the air pollution level. The PRC government has also adopted a preferential value-added tax rate of 13% for natural gas production as compared to a 17% value-added tax rate for crude oil production.

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

Natural Gas Transmission Infrastructure

As of December 31, 2004, our natural gas and pipeline segment owned and operated approximately 17,868 kilometers of natural gas pipelines in China, which represented the vast majority of China’s onshore natural gas pipelines. Our existing natural gas pipelines form regional natural gas supply networks in southwestern and northern China. Our experience in the design, construction management and operation of our existing natural gas pipelines has enabled us to develop relatively advanced technologies and skills in China in long distance pipeline design, construction and automated operational communications. We believe that we will continue to benefit

from those technologies and skills in the future expansion of our natural gas pipeline networks and their ancillary facilities.

Expansion of Our Natural Gas Transmission and Marketing Business

In September 2001, we completed the construction of a natural gas pipeline from Sebei, Qinghai Province, to Xining City, Qinghai Province and Lanzhou City, Gansu Province, of which the total length of the main line is approximately 930 kilometers. The capital investment for this project was RMB 2,220 million, which was funded by cash generated by our operations.

In March 2002, we completed the construction, and commenced the operation, of a natural gas pipeline from Cangzhou City to Zibo City with a total length of 213.5 kilometers. We own a 70% interest in this project. An unrelated natural gas company in Shandong Province holds the remaining interest in this project.

In October 2004, we completed the construction of the main line of our West to East natural gas pipeline and commenced commercial operation in December 2004. Our West to East natural gas pipeline project is designed to link our natural gas fields in Xinjiang and Changqing with Henan Province, Anhui Province, Shanghai Municipality and other areas in the Yangtze River Delta. The total length of the main line for the West to East natural gas pipeline project is 3,786 kilometers. As of December 31, 2004, we had invested RMB 25,300 million in this project. We are currently constructing and will continue in the next few years the construction of the branch pipelines and connecting pipelines for the West to East natural gas pipeline project, including the pipeline connecting our West to East natural gas pipeline with the second Shaanxi to Beijing natural gas pipeline. This connecting pipeline starts at Qingshan in Jiangsu Province and ends at Anping in Hebei Province with a total length of 910 kilometers. We commenced the construction of this connecting pipeline at the end of 2004 and expect to complete the construction and commence commercial operation by the end of 2005. As of May 31, 2005, we had entered into take-or-pay contracts with 40 subscribers and distributors to supply them with natural gas through the West to East natural gas pipeline. We believe that the successful completion of this natural gas pipeline and associated storage facilities will substantially enhance our ability to capitalize on anticipated growth in demand for natural gas in these regions.

The Zhong County to Wuhan City natural gas pipeline is designed to link the Sichuan gas region with Wuhan City, the other areas in Hubei province and Hunan Province, and has a designed annual throughput capacity of 105.9 billion cubic feet of natural gas. We commenced the construction of the pipeline in August 2003. In December 2004, we completed the construction and commenced commercial operation of the main line of the Zhong County to Wuhan City natural gas pipeline and its Xiangfan branch pipeline and Huangshi branch pipeline. We expect to complete the construction and commence commercial operation of the Xiangtan branch line by the end of June 2005. As of May 31, 2005, we had entered into take-or-pay contracts with 25 municipalities and enterprises in Hubei Province and Hunan Province to supply them with natural gas to be transmitted through the main line and branch lines of the Zhong County to Wuhan City pipeline.

We are in the process of constructing the second natural gas pipeline from Shaanxi to Beijing Municipality with a total length of 860 kilometers. This second Shaanxi to Beijing natural gas pipeline will deliver natural gas from our Changqing oil and gas region to Shaanxi Province, Shanxi Province, Hebei Province and Beijing Municipality with a designed annual throughput capacity of 423.8 billion cubic feet of natural gas. We expect to complete the construction of the second Shaanxi to Beijing natural gas pipeline in 2005.

On July 4, 2002, we, Sinopec and an international investment consortium, which consists of six multinational energy companies including Shell International Gas Limited, OAO Gazprom and ExxonMobil China Gas Pipeline Limited, entered into a West to East Joint Venture Framework Agreement. This agreement contemplates a number of structural and operation principles relating to the West to East project. However, the parties to the agreement failed to, after thorough discussions

among all parties, reach a consensus with respect to the construction and operation of the West to East pipeline project. As a result, all parties agreed to terminate the agreement. Upon the termination of the agreement, we expect to independently construct and operate this pipeline. All of the parties to the agreement hope that they will have other cooperation opportunities in the future.

Crude Oil and Refined Product Transportation and Storage Infrastructure

In order to improve management effectiveness, operating efficiency and safety of our crude oil and refined product transportation and storage businesses, we transferred the pipeline operations and some storage infrastructure related to the pipeline operations for our crude oil and refined products from the refining and marketing segment to the natural gas segment in January 2001, which was then renamed the natural gas and pipeline segment. See “Item 5 — Operating and Financial Review and Prospects — General — Overview”.

We have an extensive network for the transportation, storage and distribution of both crude oil and refined products, which covers many regions of China. Our goal is to exploit and optimize our existing infrastructure to further consolidate our presence as the leading integrated oil and gas company in China.

As of December 31, 2004, our crude oil transportation and storage infrastructure consisted of:


	•	9,167 kilometers of crude oil pipelines with an average daily throughput of approximately 2.0 million barrels; and

	•	crude oil storage facilities with an aggregate storage capacity of approximately 13.9 million cubic meters.

We deliver crude oil to customers through our pipeline and storage facility network, through crude oil storage facilities that we lease from third parties and by ships leased by customers. In 2004, approximately 86.1% of our crude oil production was delivered to our refineries through our crude oil pipeline network. We believe that our crude oil pipeline network is sufficient for our current and anticipated transportation needs. During the past three years, we have not experienced any delays in delivering crude oil due to pipeline capacity constraints.

Our transportation and storage infrastructure also includes:


	•	2,460 kilometers of refined product pipelines with an average daily throughput of approximately 28,243 tons; and

	•	refined product storage facilities with a total storage capacity of approximately 16.6 million cubic meters.

Most of our refineries are located in the northeastern and northwestern regions of China. Our ability to distribute products through our own product distribution infrastructure to the eastern and southern regions will provide us with greater flexibility in supplying refined products to the domestic markets across China. We plan to continue to enhance our product distribution infrastructure in the northeastern, northwestern, northern and southwestern regions where we already have a significant market share, and to expand our product distribution infrastructure in the eastern and southern regions by acquiring and constructing transportation storage facilities and distribution storage facilities in these regions.

In October 2002, we completed the construction, and commenced the operation, of a refined product pipeline from Lanzhou, Gansu Province, to Chengdu, Sichuan Province and Chongqing Municipality. This pipeline connects Lanzhou Petrochemical Company directly with the southwestern region of China. In this region, there is a lack of crude oil resources and refining capacity, which has resulted in the demand for refined products significantly exceeding supply. This pipeline has a total length of 1,250 kilometers and a throughput capacity of five million tons of refined products per year.

Together with the expansion of our service stations, we expect that our pipelines, primary storage and secondary distribution storage facilities will significantly enhance our existing distribution infrastructure for refined products. We believe that our enhanced distribution infrastructure will help us increase the sales of our refined products.

Competition

As an oil and gas company operating in a competitive industry, we compete in each of our business segments in both China and international markets for desirable business prospects and for customers. Our principal competitors in China are Sinopec, including its subsidiary China National Star Petroleum Corporation, or CNSPC, and China National Offshore Oil Corporation, or CNOOC.

Exploration and Production Operations

We are the largest onshore oil and gas company in China in terms of proved crude oil and natural gas reserves as well as crude oil and natural gas production and sales. However, we compete with Sinopec for the acquisition of desirable crude oil and natural gas prospects. We believe that our experience in crude oil and natural gas exploration and production and our advanced exploration technologies that are suitable for diverse geological conditions in China will enable us to maintain our dominant position in discovering and acquiring desirable crude oil and natural gas prospects in China.

Refining and Marketing and Chemicals and Marketing Operations

We compete directly with Sinopec in our refining and marketing and chemicals and marketing operations on the basis of price, quality and customer service. Most of our refineries and chemical plants are located in the northeastern, northwestern and northern regions of China where we have the dominant market share for refined products and chemical products. We also sell our refined products and chemical products in the eastern, southern, southwestern and central-southern regions of China, where our products have a considerable market share. The eastern and southern regions of China, where refined products and chemical products are in higher demand, are important markets for our refined products and chemical products. Sinopec has a strong presence in the eastern and southern regions of China in competition with us, and most of Sinopec’s refineries, chemical plants and distribution networks are located in these regions in close proximity to these markets. We expect that we will continue to face competition from, among other competitors, Sinopec in increasing our refined products and chemical products sales in these regions. See “Item 3 — Key Information — Risk Factors”.

We also face competition from imported refined products and chemical products on the basis of price and quality. As a result of China’s entry into the WTO, we expect that competition from foreign producers of refined products and chemical products may increase as tariff and non-tariff barriers for imported refined products and chemical products will be reduced or eliminated over time, including the opening over time of retail and wholesale markets in China for refined products and chemical products to foreign competition. Our ability to compete with foreign producers of refined products and chemical products will depend on our ability to reduce our production costs and improve the quality of our products. See “Item 3 — Key Information — Risk Factors”.

Natural Gas and Pipeline Operations

We are the largest supplier of natural gas in terms of volume of natural gas supplied. Currently, we face very limited competition in the supply of natural gas in Beijing Municipality, Tianjin Municipality, Hebei Province, Shanghai Municipality, Jiangsu Province, Zhejiang Province, Anhui Province, Henan Province, Hubei Province, Hunan Province and the northwestern regions of China, our existing principal markets for natural gas. Currently, Sinopec has natural gas fields in Sichuan Province and sells natural gas to users in that province. We, therefore, have limited competition from

Sinopec in our markets in Sichuan Province. Further, we intend to expand our markets for natural gas into the coastal regions in eastern China where we may face competition from CNOOC and, to a lesser extent, Sinopec. We believe that our dominant natural gas resources base, our relatively advanced technologies and skills in managing long distance pipelines will enable us to continue to be a dominant player in the natural gas markets in China.

Environmental Matters

Together with other companies in the industries in which we operate, we are subject to numerous national, regional and local environmental laws and regulations concerning our oil and gas exploration and production operations, petroleum and petrochemical products and other activities. In particular, 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 on certain lands lying within protected areas; and

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

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 may be subject to laws and regulations relating to the generation, handling, storage, transportation, disposal and treatment of 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 certain of our operations and products, as it is with other companies engaged in similar businesses. We cannot assure you that material costs and liabilities will not be incurred. However, we do not currently expect any material adverse effect on our financial condition or results of operations as a result of compliance with such laws and regulations. We paid pollutant discharge fees of approximately RMB 113 million and RMB 155 million and RMB 182 million (US$22 million) in 2002, 2003 and 2004, respectively.

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


	•	reducing sulphur levels in heavy fuel oil and diesel fuel;

	•	reducing olefin and benzene content in gasoline and the quantity of emissions and effluents from our refineries and petrochemical plants; and

	•	developing and installing monitoring systems at our facilities and developing environmental impact assessments for major projects.

Our capital expenditures on environmental programs in 2002, 2003 and 2004 were approximately RMB 1,363 million, RMB 1,076 million and RMB 1,345 million (US$163 million), respectively.

On December 23, 2003, a gas blow-out incident occurred at our Luojia No. 16H gas well located in Kaixian County, Chongqing Municipality. The gas blow-out caused the leakage of a large quantity of sulfurated hydrogen, resulting in injuries and death to many residents living in the surrounding areas. The PRC government investigated this gas blow-out and found CNPC, who had provided

drilling services to us for the Luojia No. 16H gas well, liable. This incident has not had, and we do not believe it will have, a material adverse effect on our results of operations and financial condition. Because a number of our production facilities are located in populated areas, we have established a series of preventative measures to improve the safety of our employees and surrounding residents and minimize disruptions or other adverse effects on our business. Theses 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 safety production measures we have adopted previously.

We believe that these preventative measures have helped minimize the possibility of similar incidents resulting 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.

Legal Proceedings

We are not involved in any judicial and arbitral proceedings, the results of which, in the aggregate, would have a material adverse impact on our financial condition.

Properties

Under a restructuring agreement we entered into with CNPC on March 10, 2000 in connection with the restructuring of the CNPC group and the establishment of our company, CNPC undertook to us the following:


	•	CNPC would use its best endeavours to obtain formal land use right certificates to replace the entitlement certificates in relation to the 28,649 parcels of land, which were leased or transferred to us from CNPC, within one year from August, September and October 1999 when the relevant entitlement certificates were issued;

	•	CNPC would complete, within one year from November 5, 1999, the necessary governmental procedures for the requisition of the collectively owned land on which 116 service stations owned by us are located; and

	•	CNPC would obtain individual building ownership certificates in our name for all of the 57,482 buildings transferred to the Company by CNPC, before November 5, 2000.

As of December 31, 2004, CNPC obtained formal land use right certificates for 26,549 of the 28,649 parcels of land and ownership certificates for some buildings. The necessary governmental procedures for the above-mentioned service stations located on collectively owned land have not been completed to date. Our directors confirm that the use of and the conduct of relevant activities at the above-mentioned parcels of land, service stations and buildings are not affected by the fact that the relevant land use right certificates or individual building ownership certificates have not been obtained or the fact that the relevant governmental procedures have not been completed. Our directors believe that this will not have any material adverse effect on our results of operations and financial condition.

We own substantially all of the equipment and production facilities relating to the business activities of all our segments. We hold production licenses covering all of our interests in developed and undeveloped acreage and productive crude oil and natural gas wells. See “— Exploration and Production — Properties”.

Regulatory Matters

Overview

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


	•	The Ministry of Land and Resources has the authority for granting, examining and approving oil and gas exploration and production licenses, the administration of registration and transfer of exploration and production licenses.

	•	The Ministry of Commerce, which was established in March 2003 to consolidate the authorities and functions of the former State Economic and Trade Commission and the former Ministry of Foreign Trade and Economic Cooperation:


	—	sets the import and export volume quotas for crude oil and refined products according to the overall supply and demand for crude oil and refined products in China as well as the WTO requirements for China;

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

	—	examines and approves production sharing contracts and Sino-foreign equity and cooperative joint venture contracts.


	•	The National Development and Reform Commission, which was established in March 2003 to consolidate the authorities and functions of the former State Development Planning Commission and the former State Economic and Trade Commission:


	—	has the industry administration and policy coordination authority over China’s oil and gas industry;

	—	determines mandatory minimum volumes and applicable prices of natural gas to be supplied to certain fertilizer producers;

	—	publishes guidance prices for natural gas and retail median guidance prices for certain refined products, including gasoline and diesel;

	—	approves significant petroleum, natural gas, oil refinery and chemical projects set forth under the Catalogues of Investment Projects Approved by the Central Government; and

	—	approves Sino-foreign equity and cooperative projects exceeding certain capital amounts.

Exploration Licenses and Production Licenses

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

Applicants for exploration licenses must first register with the Ministry of Land and Resources blocks in which they intend to engage in exploration activities. The holder of an exploration license is obligated to make a progressively increasing annual minimum exploration investment relating to the exploration blocks in respect of which the license is issued. Investments range from RMB 2,000 per

square kilometer for the initial year to RMB 5,000 per square kilometer for the second year, and to RMB 10,000 per square kilometer for the third and subsequent years. Additionally, the holder has to pay an annual exploration license fee that starts at RMB 100 per square kilometer for each of the first three years and increases by an additional RMB 100 per square kilometer per year for subsequent years up to a maximum of RMB 500 per square kilometer. The maximum term of an exploration license is seven years, subject to twice renewal upon expiration of the original term, with each renewal being for a two-year term. 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. The progressive exploration and production license has a maximum term of 15 years. Upon the reserves becoming proved for a block, the holder must apply for a full production license in order to begin production. In addition, the holder needs to obtain the right to use that block of land. Generally, the holder of a full production license must obtain a land use rights certificate for industrial land use covering that block of land.

The Ministry of Land and Resources issues production licenses to applicants on the basis of the reserve reports approved by the relevant authorities. Production license holders are required to pay an annual production right usage fee of RMB 1,000 per square kilometer. Administrative rules issued by the State Council provide that the maximum term of a production license is 30 years. However, in accordance with a special approval from the State Council, the Ministry of Land and Resources has issued production licenses effective March 2000 to PetroChina for all of its crude oil and natural gas reservoirs with terms coextensive with the projected productive life of those reservoirs, ranging up to 55 years. Production licenses to be issued to us in the future will be subject to the 30-year maximum unless we obtain additional special approvals from the State Council. Each of our production licenses is renewable upon our application 30 days prior to expiration. Oil and gas price increases may extend the productive life of our crude oil and natural gas reservoirs beyond the current terms of the relevant production licenses.

Among the major PRC oil and gas companies, PetroChina and Sinopec have exploration licenses and production licenses for the exploration and production of onshore crude oil and natural gas in China. CNOOC and Sinopec (through its subsidiary CNSPC) have exploration licenses and production licenses for the exploration and production of offshore crude oil and natural gas in China.

Pricing


	*Crude Oil*

PetroChina and Sinopec set their crude oil median prices each month based on the average Singapore market FOB prices for crude oil of different grades in the previous month. In addition, PetroChina and Sinopec negotiate a premium or discount to reflect transportation costs, the differences in oil quality and market supply and demand. The National Development and Reform Commission will mediate if PetroChina and Sinopec cannot agree on the amount of premium or discount.


	*Refined Products*

Prior to October 2001, PetroChina set its retail prices based on the published retail median guidance prices of gasoline and diesel published by the State Development Planning Commission, the predecessor of the National Development and Reform Commission, with an allowable upward or downward adjustment of up to 5%. Since October 2001, PetroChina has set its retail prices within an 8% floating range of the published retail median guidance prices of gasoline and diesel. These retail median guidance prices of gasoline and diesel vary in each provincial level distribution region. Since October 2001, the National Development and Reform Commission has published the retail median guidance prices of gasoline and diesel from time to time based on the weighted average FOB Singapore, Rotterdam and New York trading prices for diesel and gasoline plus transportation costs

and taxes. Generally, adjustments will be made only if the weighted average prices fluctuate beyond 8% of the previously published retail median guidance price.

PetroChina sets the wholesale prices for its gasoline and diesel on the basis of its retail prices and a discount to its retail prices of at least 5.5% as required by the National Development and Reform Commission.

In addition, the National Development and Reform Commission sets the ex-factory median prices for gasoline and diesel sold to the PRC government and other institutional customers, including airlines and railway operators. These ex-factory median prices are calculated with reference to the average FOB Singapore, Rotterdam and New York trading prices for gasoline and diesel in the previous month. PetroChina may set the prices it charges its customers on the basis of the ex-factory median prices set by the National Development and Reform Commission, which may be adjusted upward or downward up to 8%.


	*Chemical Products*

PetroChina determines the prices of all of its chemical products.


	*Natural Gas*

The price of natural gas has two components:


	•	ex-factory price; and

	•	pipeline transportation tariff.

Prior to January 2002, our natural gas price was comprised of wellhead price, pipeline transportation tariff and purification fee. In January 2002, the State Development Planning Commission, the predecessor of the National Development and Reform Commission, merged the purification fee into the wellhead price to establish a unified natural gas ex-factory price.

Ex-factory prices vary depending on whether or not the natural gas sold is within the government-formulated natural gas supply plan. For natural gas sold within the government-formulated supply plan, the National Development and Reform Commission fixes ex-factory prices according to the nature of the customers. Most of these customers are fertilizer producers.

For natural gas sold above the government-formulated natural gas supply plan, the National Development and Reform Commission publishes the median guidance ex-factory price with permissible upward or downward adjustments of 10% by the natural gas producer.

PetroChina negotiates the actual ex-factory price with commercial natural gas users and municipal governments within the adjustment range.

The National Development and Reform Commission sets the pipeline transportation tariff for the natural gas transported by pipelines constructed prior to 1991. For the natural gas transported by pipelines constructed after 1991, PetroChina submits to the National Development and Reform Commission for examination and approval proposed pipeline transmission tariffs based on the capital investment made in the pipeline, the depreciation period for the pipeline, the ability of end users to pay and PetroChina’s profit margin.

Production and Marketing


	*Crude Oil*

Each year, the National Development and Reform Commission publishes the projected target for the production and sale of crude oil by PetroChina, Sinopec and CNOOC, based on the domestic consumption estimates submitted by domestic producers, including PetroChina, Sinopec and CNOOC, the production capacity of these companies as well as the forecast of international crude

oil prices. The actual production levels are determined by the producers themselves and may vary from the submitted estimates.


	*Refined Products*

Previously, only PetroChina, Sinopec and joint ventures established by the two companies had the right to conduct gasoline and diesel wholesale business. Other companies, including foreign invested companies, were not allowed to engage in wholesale of gasoline and diesel in China’s domestic market. In general, only domestic companies, including Sino-foreign joint venture companies, were permitted to engage in retail of gasoline and diesel. Since January 1, 2005 when Interim Measures on Administration over the Market of Refined Products became effective, all entities meeting certain requirements are allowed to submit applications to the Ministry of Commerce to conduct gasoline and diesel wholesale and retail businesses. See “Item 3 — Key Information — Risk Factors” for a discussion of the likely impact on the distribution of refined products in China after China’s admission to the WTO.


	*Natural Gas*

The National Development and Reform Commission publishes in each year the production targets for natural gas producers based on the annual production target prepared on the basis of consumption estimates submitted by all natural gas producers such as PetroChina. The National Development and Reform Commission also formulates the annual natural gas guidance supply plan, which requires natural gas producers to distribute a specified amount of natural gas to specified fertilizer producers. The actual production levels of natural gas, except the amount supplied to the fertilizer producers, are determined by the natural gas producers.

Foreign Investments


	*Cooperation in Exploration and Production with Foreign Companies*

Currently, only CNPC and Sinopec have the right to cooperate with foreign companies in onshore crude oil and natural gas exploration and production in China. CNOOC and Sinopec (through its subsidiary CNSPC) have the right to cooperate with foreign companies in offshore crude oil and natural gas exploration and production in China.

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

As authorized by the Regulations of the PRC on Exploration of Onshore Petroleum Resources in Cooperation with Foreign Enterprises, CNPC has the right to enter into joint cooperation arrangements with foreign oil and gas companies for onshore crude oil and natural gas exploration and production. PetroChina does not have the capacity to enter into production sharing contracts directly with foreign oil and gas companies under existing PRC law. Accordingly, CNPC will continue to enter into production sharing contracts. After signing a production sharing contract, CNPC will, subject to approval of the Ministry of Commerce, assign to PetroChina most of its commercial and operational rights and obligations under the production sharing contract as required by the Non-competition Agreement between CNPC and PetroChina. See “Item 7 — Major Shareholders and Related Party Transactions — Contract for the Transfer of Rights under Production Sharing Contracts”.


	*Transportation and Refining*

The PRC regulations permit foreign minority ownership in pipeline transportation, oil storage facilities and oil jetties. There is no express general restriction on foreign investment in refineries and

petrochemical facilities. However, construction of new refinery or ethylene facilities, expansion of existing refinery facilities and upgrading of existing ethylene facilities by increasing annual production capacity of more than 200 thousand tons are subject to the approval of relevant government authorities. The production of ethylene with an annual production capacity exceeding 600 thousand tons must be conducted by companies majority-owned by Chinese entities. Furthermore, when appropriate, projects must receive necessary approvals from relevant PRC government agencies. See “Item 3 — Key Information — Risk Factors”.

Import and Export

The import and export of crude oil and the export of refined products is subject to automatic filing and quota control in China. Currently, 25 companies are qualified to import crude oil and 120 companies are qualified to export refined products. The import of refined products was subject to quota and licensing control until the end of 2003. Since January 1, 2004, the import of refined products by state-owned entities has been exempted from import quota, licensing control and is subject to automatic filing control. The Ministry of Commerce sets the annual import and export volumes and quotas for crude oil and refined products by taking into account the supply and demand in China as well as the WTO requirements for China. The Ministry of Commerce is also responsible for issuing import and export licenses for products subject to quotas. Upon receiving quota allocation, refining companies or enterprises can import crude oil through State-authorized import companies. See “Item 3 — Key Information — Risk Factors” for a discussion of the expected opening of domestic markets to foreign competition in China.

The PRC government authorities have granted PetroChina the right to conduct crude oil and refined product import and export business. PetroChina holds quota to import and export crude oil and refined products, and conducts import and export of crude oil and refined products through its affiliates, China National United Oil Corporation and PetroChina International Co., Ltd., which are qualified to import and export crude oil and refined products.

Capital Investment and Financing

Capital investments in exploration and production of crude oil and natural gas made by Chinese oil and gas companies are subject to approval by or filing with relevant government authorities. The development of new oil field with an annual production capacity equal to or exceeding one million tons and new natural gas field with an annual production capacity equal to or exceeding two billion cubic meters is required to be approved by the National Development and Reform Commission. Any other development project of crude oil and natural gas needs to be filed with the National Development and Reform Commission. Oil and gas companies need to obtain approval from the National Development and Reform Commission and the State Administration of Foreign Exchange to borrow from foreign banks and foreign governments in connection with those capital investments.

Taxation, Fees and Royalty

PetroChina is subject to a variety of taxation, fees and royalty. The table below sets forth the various taxation, fees and royalty payable by PetroChina or by Sino-foreign oil and gas exploration and development cooperative projects. Since January 1, 2000, PetroChina and its wholly owned subsidiaries and branch companies have been taxed on a consolidated basis as approved by the Ministry of Finance and the State Taxation Bureau.


Tax item	Tax base	Tax Rate

Corporate income tax	Taxable income	Generally at a rate of 33%. However, our qualified branch companies in the west regions of the PRC are entitled to a rate of 15%. Tax concession or exemption enjoyed by any subsidiary or branch company continues to apply.
Value-added tax	Revenue	13% for liquified natural gas, natural gas, agricultural film and fertilizers and 17% for other items. PetroChina charges value-added tax from its customers at the time of settlement on top of the selling prices of its products on behalf of the taxation authority. The value-added tax paid by PetroChina for purchasing materials to be consumed during the production process and for charges paid for drilling and other engineering services and labor are deducted from output value-added tax payable by PetroChina. 11% of the value-added tax paid in connection with export of gasoline is subject to rebate.
	Sales volume	5% for the Sino-foreign oil and gas exploration and development cooperative projects. However input value-added tax cannot be deducted.
Business tax	Revenue from transportation services	3%
Consumption tax	Aggregate volume sold or self-consumed	RMB 277.6 per ton for gasoline; since January 1, 1999, RMB 388.64 per ton for leaded gasoline. RMB 117.6 per ton for diesel All consumption taxes paid in connection with export of gasoline are subject to a full rebate.
Resource tax	Aggregate volume sold or self-consumed	RMB 8 to 30 per ton for crude oil RMB 2 to 15 per thousand cubic meter for natural gas The actual applicable rate for each oil field may differ depending on the resource differences, volume of the exploration and production activities and costs required for the production at the particular oil field.


Tax item	Tax base	Tax Rate

Compensatory fee for mineral resources	Revenue	1% for crude oil and natural gas
Exploration license fee	Area	RMB 100 to 500 per square kilometer per year
Production license fee	Area	RMB 1,000 per square kilometer per year
Royalty fee ⁽¹⁾	Production volume	Progressive rate of 0–12.5% for crude oil and 0–3% for natural gas


⁽¹⁾	Payable only by Sino-foreign oil and gas exploration and development cooperative projects. The project entity of those cooperative projects is not subject to any other resource tax or fee.

The PRC Highway Law, as amended on October 31, 1999, provides that the PRC government will collect funds for highway maintenance by imposing fuel taxes. The State Council will formulate specific implementation methods and procedures for the imposition of fuel tax. The State Council has not yet announced or published any specific rate, implementation method or procedure for the imposition of the tax.

Environmental Regulations

China has adopted extensive environmental laws and regulations that affect the operation of the oil and gas industry. There are national and local standards applicable to emissions control, discharges to surface and subsurface water, and the generation, handling, storage, transportation, treatment and disposal of waste materials.

The environmental regulations require a company, such as us, to register or file an environmental impact report with the relevant environmental bureau for approval before it undertakes any construction of a new production facility or any major expansion or renovation of an existing production facility. The new facility or the expanded or renovated facility will not be permitted to operate unless the relevant environmental bureau has inspected to its satisfaction that environmental equipment that satisfies the environmental protection requirements has been installed for the facility. A company that wishes to discharge pollutants, whether it is in the form of emission, water or materials, must submit a pollutant discharge declaration statement detailing the amount, type, location and method of treatment. After reviewing the pollutant discharge declaration, the relevant environmental bureau will determine the amount of discharge allowable under the law and will issue a pollutant discharge license for that amount of discharge subject to the payment of discharge fees. If a company discharges more than is permitted in the pollutant discharge license, the relevant environmental bureau can fine the company up to several times the discharge fees payable by the offending company for its allowable discharge, or require the offending company to close its operation to remedy the problem.

ITEM 5 — OPERATING AND FINANCIAL REVIEW AND PROSPECTS

General

You should read the following discussion together with our consolidated financial statements and their notes included elsewhere in this annual report. Our consolidated financial statements have been prepared in accordance with IFRS, which differ in many material respects from US GAAP. Note 35 to our consolidated financial statements included elsewhere in this annual report and the section headed “— Other Information — US GAAP Reconciliation” summarize the significant differences between IFRS and US GAAP as they relate to us.

In accordance with an acquisition agreement between CNPC and us dated September 26, 2002, we acquired from CNPC the assets, liabilities and interests related to CNPC’s refined products marketing enterprises consisting primarily of service stations and related facilities for RMB 3,200 million. Under IFRS, the acquisition is a combination of entities under common control since the CNPC’s refined products marketing enterprises and us are under the common control of CNPC. As a result, we have accounted for the acquisition in a manner similar to a uniting of interests, whereby the assets and liabilities of the marketing enterprises acquired are accounted for at historical cost to CNPC with net liabilities of RMB 2,956 million at the effective date. Our prior years’ consolidated financial statements were restated in 2002 to give effect to the acquisition in such periods as if the operations of our company and these marketing enterprises have always been combined in such periods. The difference between RMB 3,200 million paid and the net liabilities transferred from CNPC has been adjusted against equity. See “— Acquisition of Certain Refined Products Marketing Enterprises from CNPC”.

Overview

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


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

	•	the refining, transportation, storage and marketing of crude oil and petroleum products;

	•	the production and marketing of basic petrochemical products, derivative chemical products and other chemical products; and

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

We are China’s largest producer of crude oil and natural gas and are one of the largest companies in China in terms of sales. In the year ended December 31, 2004, we produced approximately 777.4 million barrels of crude oil and approximately 837.5 billion cubic feet of natural gas for sale. Our refineries also processed approximately 697.8 million barrels of crude oil in the year ended December 31, 2004. In the year ended December 31, 2004, we had total revenue of RMB 388,633 million (US$46,956 million) and net income of RMB 102,927 million (US$12,436 million).

Effective January 1, 2001, our pipeline operations were transferred from the refining and marketing segment to the natural gas segment, which was subsequently renamed as the natural gas and pipeline segment. Accordingly, our results of operations, together with the corresponding assets and liabilities, of certain pipeline operations are reclassified from the refining and marketing segment to the natural gas and pipeline segment to reflect the changes in the manner under which these operations are managed.

Factors Affecting Results of Operations

Our results of operations and the period-to-period comparability of our financial results are affected by a number of external factors, including changes in the prices of crude oil, refined products, natural gas and chemical products, decrease in our crude oil reserves in China and fluctuations in exchange rates and interest rates.


	*Crude Oil Prices*

Our results of operations are substantially affected by crude oil prices. From June 1998 to March 2001, the PRC government published benchmark prices for crude oil in China which were adjusted on a monthly basis to equal Singapore market FOB prices for similar grades of crude oil, supplemented by an amount equal to the customs duty payable on the import of crude oil. Since March 2001, the PRC government has ceased publishing benchmark prices for crude oil in China and we and Sinopec have set our crude oil median prices monthly based on the Singapore market FOB prices for crude oil. Our actual realized crude oil prices include a premium on, or discount from, the median prices which primarily reflects transportation costs, differences in oil quality and market supply and demand conditions.

Prior to September 1, 1999, the premiums and discounts applied to our crude oil sales were largely determined through negotiations between CNPC and Sinopec, our largest customer. Since September 1, 1999, these discounts and premiums have been determined in accordance with a crude oil premium and discount calculation agreement and its supplemental agreement we entered into with Sinopec. These agreements establish premiums and discounts which effect adjustments to the benchmark prices. These agreements do not obligate either party to purchase or sell any crude oil and is thus subject to renegotiation. Under these agreements, the National Development and Reform Commission, formerly the State Development Planning Commission, will mediate if we cannot agree with Sinopec on the premium or discount applicable to a particular crude oil purchase. The table below sets forth the median prices for our principal grades of crude oil in 2002, 2003 and 2004 and the negotiated premiums and discounts applicable to those grades of crude oil since June 2001.


			Median prices for principal grades						Premium/(discount)
			of crude oil (RMB/barrel)						(RMB/barrel)

Grade of			Year 2002		Year 2003		Year 2004		June 2001-		July 2002-		January 2003-		Since
crude oil	Benchmark		average		average		average		June 2002		December 2002		December 2003		January 2004

Daqing		Minas		198.7		240.8		300.7		0.9		0		–0.3		0

Jidong		Minas		198.7		240.8		300.7		0.9		0		–0.3		0

Huabei		Minas		198.7		240.8		300.7		1.6		1.3		1		1.3

Dagang		Cinta		192.6		237.0		290.5		1.7		1.4		1.4		1.4

Tarim		Minas		198.7		240.8		300.7		–30.4		–34.6		–33.7		–34.6

Tuha		Tapis		203.9		247.0		329.2		–25.1		–25.5		–25.5		–25.5

In 2004, the median prices for our principal grades of crude oil and crude oil produced in our Daqing oil region were RMB 295.8 per barrel and RMB 300.7 per barrel, respectively.

Increases or decreases in the price of crude oil in China have a significant effect on the revenue from our exploration and production segment. In the year ended December 31, 2004, our average realized selling price for crude oil was RMB 280 (US$33.88) per barrel, increased by 24.4% from RMB 225 per barrel in the year ended December 31, 2003. As a result, the revenue from our exploration and production segment increased 25.4% from RMB 177,271 million in the year ended December 31, 2003 to RMB 222,305 million (US$26,860 million) in the year ended December 31, 2004. See “Item 4 — Information on the Company — Regulatory Matters — Pricing” for a more detailed discussion of current PRC crude oil pricing regulations.


	*Refined Product Prices*

Until June 5, 1998, the State Development Planning Commission, the predecessor of the National Development and Reform Commission, set wholesale and retail prices for our major refined products (gasoline, diesel and kerosene). However, during the first six months of 1998, due to then prevailing market conditions and increased smuggling of refined products, actual wholesale prices in the refined products market were lower than the wholesale prices set by the PRC government. In

June 1998, the State Development Planning Commission pegged the prices of refined products of gasoline and diesel to the FOB Singapore trading prices, supplemented by transportation costs, customs duties, insurance charges, taxes and retail margins. Prior to October 2001, the State Development Planning Commission published from time to time retail median gasoline and diesel guidance prices for major cities and provinces. Once published, the retail median prices remained unchanged until either we or Sinopec requested an adjustment and demonstrated that the cumulative change of the FOB Singapore gasoline or diesel trading price from the then applicable retail median guidance price exceeded 5%. Since October 2001, the State Development Planning Commission or the National Development and Reform Commission has adjusted such retail median prices from time to time to reflect the FOB Singapore, Rotterdam and New York trading prices for gasoline and diesel, supplemented by transportation costs and taxes. See “Item 4 — Information on the Company — Regulatory Matters — Pricing” for a more detailed discussion of current PRC refined products pricing regulations.

Prior to October 2001, based on the published median gasoline and diesel guidance prices, we and Sinopec set our respective retail prices with an allowable upward or downward adjustment of up to 5% in individual markets. Since October 2001, we and Sinopec have set our retail prices within an 8% floating range of the published median gasoline and diesel guidance prices. We determine the prices of other refined products with reference to the published median guidance prices of gasoline and diesel. Our retail prices may differ from those of Sinopec within a given market. Our average realized selling prices tend to be higher in the western and northern regions of China, where we dominate the market, as compared to our average realized selling prices in the eastern and southern regions, where Sinopec has a stronger presence.

The following table sets forth the retail median prices for 90(#) gasoline and 0(#) diesel published by the State Development Planning Commission or the National Development and Reform Commission from January 2004 to December 2004 when such adjustments were made.


	90(#)
Date	Gasoline		0(#) Diesel

	(RMB/ton)		(RMB/ton)
March 31, 2004		4,032		—
May 18, 2004		—		3,590
August 25, 2004		4,272		3,810


	*Chemical Product Prices*

We determine and set the prices of all chemical products produced by our chemicals business segment.


	*Natural Gas Prices*

Prior to January 2002, our natural gas price was comprised of wellhead price, pipeline transportation tariff and purification fee. Since January 2002, the State Development Planning Commission, the predecessor of the National Development and Reform Commission, has merged the purification fee into the wellhead price to establish a unified natural gas ex-factory price. As a result of the price merger, our natural gas price is comprised of the following two components:


	•	Ex-factory Price. We set our ex-factory price within a 10% floating range of the median ex-factory price published by the National Development and Reform Commission, except for natural gas sold within the PRC government’s natural gas supply plan, which must be sold at prices determined by the National Development and Reform Commission; and

	•	Pipeline Transportation Tariff. The National Development and Reform Commission sets the pipeline transportation tariff for natural gas transported by pipelines constructed prior to 1991. For natural gas transported by pipelines constructed after 1991, we prepare a tariff schedule

based on our actual cost plus a profit margin and submit it to the National Development and Reform Commission for approval.

We sell our natural gas at prices which exceed our production and transportation costs.

The results of operations of these segments will be impacted to the extent that our prices do not vary to reflect increases or decreases in our costs. See “Item 4 — Information on the Company — Regulatory Matters — Pricing” for a further discussion of these pricing controls.


	*Foreign Currency Exposure*

For a discussion of the effect of exchange rate fluctuations on our results of operations, please see “Item 11 — Quantitative and Qualitative Disclosures About Market Risk — Foreign Exchange Rate Risk”.


	*Interest Rate Exposure*

For a discussion of the effect of interest rate changes on our results of operations, please see “Item 11 — Quantitative and Qualitative Disclosures About Market Risk — Interest Rate Risk”.

Critical Accounting Policies

The preparation of our consolidated financial statements requires our management to select and apply significant accounting policies, the application of which may require management to make judgments and estimates that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of our financial statements, and the reported amounts of 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 of Oil and Gas Exploration and Development Activities*

We use 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 seismic costs incurred are expensed prior to the discovery of proved reserves. However, all costs for developmental wells, support equipment and facilities, and mineral interests in oil and gas properties are capitalized. Costs of exploratory wells are capitalized as construction in progress pending determination of whether the wells find proved reserves. The costs of exploratory wells will be further capitalized pending determination of whether the wells find sufficient economically exploitable reserves. For exploratory wells located in regions that do not require substantial capital expenditures before the commencement of production, the evaluation of the economic benefits of the reserves in such wells will be completed within one year following the completion of the exploration drilling. Where such evaluation indicates that no economic benefits can be obtained, the relevant costs of exploratory wells will be converted to dry hole exploration expenses. For exploratory wells that find economically exploitable reserves located in regions that require substantial capital expenditures even before the commencement of production, the costs of such exploratory wells will not be further capitalized until further exploratory work is in progress or a decision is made to commence such explanatory work. Otherwise, the costs of such exploratory wells will be converted to dry hole exploration expenses. We have never capitalized any costs related to our oil and natural assets that incurred prior the proof of relevant reserves.


	*Oil and Gas Reserves*

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

Before estimated oil and gas reserves are designated as “proved”, certain engineering criteria must be met in accordance with industry standards and the regulations of the United States Securities and Exchange Commission. Proved oil and gas reserves are the estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Therefore, these estimates do not include probable or possible reserves. Our proved reserve estimates are updated annually by an independent, qualified and experienced oil and gas reserve engineering firm in the United States. Our oil and gas reserve engineering department has policies and procedures in place to ensure that these estimates are consistent with these authoritative guidelines. Among other factors as required by authoritative guidelines, this estimation takes into account recent information about each field, including production and seismic information, estimated recoverable reserves of each well, and oil and gas prices and operating costs as of the date the estimate is made. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not on escalations based upon future conditions. Therefore, as prices and cost levels change from year to year, the estimate of proved reserves also changes. We have no costs of unproved properties capitalized in oil and gas properties.

Despite the inherent imprecision in these engineering estimates, estimated proved oil and gas reserve quantity has a direct impact on certain amounts reported in the financials statements. In addition to the capitalization of costs related to oil and gas properties on the balance sheet discussed earlier, estimated proved reserves also impact the calculation of depreciation, depletion and amortization expenses of oil and gas properties. The cost of oil and gas properties is amortized at the field level on the unit of production method. Unit of production rates are based on the total oil and gas reserves estimated to be recoverable from existing facilities based on the current terms of our production licenses. Our reserve estimates include only crude oil and natural gas which management believes can be reasonably produced within the current terms of the production licenses that are granted by the Ministry of Land and Resources, ranging from 30 years to 55 years from the effective date of issuance in March 2000, renewable upon application 30 days prior to expiration. Consequently, the impact of changes in estimated proved reserves is reflected prospectively by amortizing the remaining book value of the oil and gas property assets over the expected future production. If proved reserve estimates are revised downward, earnings could be effected by higher depreciation expense or an immediate write-down of the property’s book value had the downward revisions been significant. See “— Property, Plant and Equipment” below. Given our large number of producing properties in our portfolio, and the estimated proved reserves, it is unlikely that any changes in reserve estimates will have a significant effect on prospective charges for depreciation, depletion and amortization expenses.

We did not incur and do not anticipate to incur any material dismantlement, restoration or abandonment cost given the nature of our onshore producing activities and current PRC regulations governing such activities.

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


	*Property, Plant and Equipment*

We record property, plant and equipment, including oil and gas properties, initially at cost less accumulated depreciation, depletion and amortization. Cost represents the purchase price of the asset and other costs incurred to bring the asset into existing use. Subsequent to their initial recognition, property, plant and equipment are carried at revalued amount, being the estimated fair value at the date of the revaluation less accumulated depreciation and impairment losses. Revaluations are performed by independent qualified valuers on a regular basis to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the balance sheet date. Revaluation surpluses pertaining to revalued assets depreciated or disposed of are retained in the revaluation reserve and will not be available to offset against possible future revaluation losses. As disclosed in Note 16 to our consolidated financial statements included elsewhere in this annual report, our property, plant and equipment, excluding oil and gas reserves, were revalued as of June 30, 1999. Subsequently, our refining and chemical production equipment was revalued as of September 30, 2003.

Depreciation, depletion and amortization to write off the cost or valuation of each asset, other than oil and gas properties, to its residual value is calculated using the straight-line method over the estimated useful live of such asset as follows:


Land and buildings		25-50 years
Plant and machinery		10-15 years
Equipment and motor vehicles		3-16 years

We do not provide depreciation for construction in progress until it is completed and ready for use.

The useful lives of non-oil-and-gas properties are estimated at the time these purchases are made after considering future changes, business developments and our strategies. Estimated production lives for oil aid gas properties are also made after considering the specific factors discussed under “— Oil and Gas Reserves” above, Should there be unexpected adverse changes in these circumstances or events, which include, among others, declines in projected operating results and negative industry or economic trends we would be required to assess the need to shorten the useful lives and/or make impairment provisions.

In performing this impairment assessment, we review internal and external sources of information to identify indications of these unexpected adverse changes. The sources utilized to identify indications of impairment are often subjective in nature and require us to use judgment in applying such information to our businesses. Our interpretation of this information has a direct impact on whether an impairment assessment is performed as at any given balance sheet date. Such information is particularly significant as it relates to our oil and gas properties. If an indication of impairment is identified, the recoverable amount of each cash generating unit is estimated, which is the higher of its net selling price and its value in use, which is the estimated net present value of future cash flows to be derived from the continuing use of the asset and from its ultimate disposal. To the extent the carrying amount of a cash generating unit exceeds the recoverable amount, an impairment loss is recognized in the income statement.

Depending on our assessment of the overall materiality of the asset under review and complexity of deriving reasonable estimates of the recoverable value, we may perform such assessment utilizing internal resources or we may engage external advisors to advise us in making this assessment. Regardless of the resources utilized, we are required to make many assumptions in making this assessment, including our utilization of such asset, plans to continue to produce and develop proved and associated probable or possible reserves, the cash flows to be generated based on assumptions for future commodity prices and development costs, appropriate market discount rates and the projected market and regulatory conditions. Changes in any of these assumptions could result in a material change to future estimates of the recoverable value of any asset.


	*Impairment of Accounts Receivable*

Accounts receivables are stated at cost less provision for impairment. Accounts where there are indications that a receivable may be impaired or not collectible, a provision would be recorded based on best estimates to reduce the receivable balance to the amount that is expected to be collected. Factors considered in making a provision include the historical payment and collection experience, debtors’ credit worthiness and appropriate discount rates. The recording of provisions requires the application of judgments about the ultimate resolution of these accounts receivable. As a result, provisions are reviewed at each balance sheet date and adjusted to reflect our current best estimates.


	*Deferred Tax Assets*

We are required to exercise considerable judgment in making provisions for deferred tax under the liability method. Under this method, deferred income tax is provided for temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. Specifically, we must make estimates of projected capital expenditures to be incurred and the resulting incremental timing difference that such capital expenditures would generate for the determination of the amount of temporary difference that will be recovered. We use currently enacted tax rates to determine deferred income tax. If these rates change, we would have to adjust our deferred tax in the period in which these changes happen through the income statement.

The principal temporary differences arise from depreciation on oil and gas properties and equipment and allowances for impairment of receivables, inventories, investments and property, plant and equipment. Deferred tax assets relating to the carry-forward of unused tax losses are recognized to the extent that it is probable that future taxable income will be available against which the unused tax losses can be utilized.


	*Revenue Recognition*

Sales are recognized upon delivery of products and customer acceptance, if any, or performance of services, net of sales taxes and discounts. Revenues are recognized only when we have transferred to the buyer the significant risks and rewards of ownership of the goods, and when the amount of revenue and the costs incurred or to be incurred in respect of the transaction can be measured reliably.

We sell part of the natural gas produced by us under take-or-pay contracts entered into with our customers. Customers who entered into such a take-or-pay contract are required to buy or pay for the minimum amount of natural gas specified in the contract. Revenues from the sale and transportation of natural gas under take-or-pay contracts are recognized under the above accounting policies. Any advance payment for natural gas that has not been consumed will be recorded as deferred revenue until the natural gas has been actually consumed.

We entered into a Crude Oil Mutual Supply Framework Agreement with Sinopec, which can be characterized as a buy/sell contract, and recognized the revenue derived from this agreement in our consolidated statements of income. Since the transactions under the agreement are separately invoiced and settled and cannot be offset with each other, they were not treated as non-monetary transactions as defined in APB Opinion No. 29 “Accounting for Non-monetary transactions”. In February 2005, the U.S. Securities and Exchange Commission issued a letter to the oil and gas industry requesting additional disclosures regarding buy/sell contracts. Accordingly, we have reviewed such transactions and estimated that, if we are required to report the net amount of such buy/sell contracts, our reported amount in the line items of “Sales and other operating revenues” and “Purchase, services and other” for the year ended December 31, 2004 would be reduced by RMB 2,217 million (US$268 million) and RMB 2,217 million (US$268 million), respectively. No change will occur to our net income as a result of this.

In addition to the above significant accounting policies and estimates, in connection with the preparation and reconciliation of our financial statements in accordance with US GAAP, we believe the following additional accounting estimate is also critical.


	*One-time Remedial Payments for Staff Housing*

As disclosed in Note 35(c) to our consolidated financial statements included elsewhere in this annual report, certain of our employees who joined the workforce prior to December 31, 1998 and have housing conditions below local standards are to be reimbursed for such differences. These one-time remedial payments have been borne or are to be borne by our State-owned shareholder, CNPC. Under IFRS, such direct payments to employees or reimbursements will not be recorded in our consolidated income statement. US GAAP contain no such exemption but require this principal shareholder’s action on our behalf to be recorded in the consolidated income statement. During the year ended December 31, 2002, we and CNPC completed the process of estimating the amounts payable to qualified employees at the level of the affected business units as a whole. We have reflected this best available estimate of such payments in determining our net income for the year ended December 31, 2002, under US GAAP. Since this amount is borne by our State-owned shareholder, a corresponding amount has been included as an addition to the other reserves in our shareholders’ equity. This estimate did not significantly change in 2003 and 2004. The estimation process of such payments down to level of the individual employees is still on going. Actual results may differ from these estimates at the time when more information becomes available.

For detailed discussions of significant differences between IFRS and US GAAP, see Note 35 to our consolidated financial statements included elsewhere in this annual report and the section headed “— Other Information — US GAAP Reconciliation” below.

Acquisitions


	*Acquisitions of Overseas Assets*

In April 2002, we acquired Devon Energy Indonesia Limited from Devon Energy Corporation for a price of RMB 2,068 million (US$250 million). Devon Energy Indonesia Limited holds interests in a number of crude oil and natural gas exploration and production project in Indonesia, including a 30% interest in an oil and gas production sharing contract relating to the Jabung block located in Sumatra, Indonesia. In April 2003, we acquired a 50% equity interest in Amerada Hess Indonesia Holdings Limited, which holds a 30% interest in the oil and gas production sharing contract relating to the Jabung block, for a price of RMB 679 million (US$82 million).

In June 2005, we entered into a capital contribution agreement to acquire a 50% interest in Newco, one of CNODC’s subsidiaries, for a consideration of RMB 20,741 million (US$2,506 million) which will be paid to Newco as our capital contribution. Upon consummation of the transaction, we will own a 50% interest in certain overseas oil and gas assets transferred by CNODC to Newco. We expect to complete the acquisition by December 2005, subject to completion of all necessary procedures for transferring the relevant overseas assets of CNODC to Newco, approval by our minority shareholders, applicable government approvals and certain other conditions set out in the capital contribution agreement. We also entered into a transfer agreement to transfer all of our interest in PetroChina International Limited to Newco for a consideration of RMB 579 million (US$70 million). See “Item 4 — Information on the Company — Introduction — History and Development of the Company — Overview of Our Operations.”

Upon completion of the acquisition and transfer, we will obtain control over Newco by having the right to appoint four of the seven directors. Our investment in Newco and the transfer of PetroChina International Limited to Newco will be accounted for in a manner similar to a uniting of interests since these transactions are among entities under common control by CNPC. Our consolidated financial statements will be restated as if operations of PetroChina and Newco had always been combined.

We plan to continue to pursue attractive opportunities outside China as part of our business growth strategy to utilize both domestic and international resources to strengthen our competitiveness. As we continue to implement this strategy, we expect that acquisitions of overseas assets will over time have a material effect on our results of operations and financial condition.


	*Acquisition of Certain Refined Products Marketing Enterprises from CNPC*

Under IFRS, the acquisition is a combination of entities under common control since the CNPC’s refined products marketing enterprises and us are under the common control of CNPC. As a result, we have accounted for the acquisition in a manner similar to a uniting of interests, whereby the assets and liabilities of the marketing enterprises acquired are accounted for at historical cost to CNPC with net liabilities of RMB 2,956 million at the effective date. Our prior years’ consolidated financial statements were restated in 2002 to give effect to the acquisition in these periods as if the operations of our company and these marketing enterprises have always been combined in these periods. The difference between RMB 3,200 million paid and the net liabilities transferred from CNPC has been adjusted against equity.

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 income statement for each of the three years ended December 31, 2002, 2003 and 2004 is summarized in the table below.


	Year ended December 31,

	2002			2003			2004			2004

	in million RMB			in million RMB			in million RMB			in million US$
Total revenues		244,424			303,779			388,633			46,956

Operating expenses		(172,083	)		(204,593	)		(242,047	)		(29,245	)

Income from operations		72,341			99,186			146,586			17,711

Exchange gain (loss), net		(316	)		(180	)		(73	)		(9	)
Interest expense, net		(3,053	)		(1,669	)		(1,196	)		(144	)
Income from equity affiliates		268			985			1,824			220
Income before income taxes		69,240			98,322			147,141			17,778
Taxes		(22,231	)		(28,072	)		(42,563	)		(5,143	)
(Income) loss applicable to minority interests		(99	)		(636	)		(1,651	)		(199	)

Net income		46,910			69,614			102,927			12,436

The table below sets forth our revenues by business segment for each of the three years ended December 31, 2002, 2003 and 2004 as well as the percentage changes in revenues for the periods shown.


							2003						2004
							vs.						vs.
	2002			2003			2002			2004			2003

	(RMB in millions, except percentages)
Sales and other operating revenues
Exploration and production		147,308			177,271			20.3	%		222,305			25.4	%
Refining and marketing		174,621			223,584			28.0			295,598			32.2
Chemicals and marketing		29,661			39,211			32.2			57,179			45.8
Natural gas and pipeline		12,733			15,067			18.3			18,255			21.2
Total		364,323			455,133			24.9	%		593,337			30.4	%

Less intersegment sales		(119,899	)		(151,354	)		(26.2	)		(204,704	)		35.2

Consolidated net sales from operations		244,424			303,779			24.3	%		388,633			27.9	%

The table below sets forth our operating profits by business segment for each of the three years ended December 31, 2002, 2003 and 2004, as well as the percentage changes in operating income for the periods shown. Other income from operations shown below consists of research and development, business services and infrastructure support to our operating business segments.


							2003						2004
							vs.						vs.
	2002			2003			2002			2004			2003

	(RMB in millions, except percentages)
Income (loss) from operations
Exploration and production		72,139			92,370			28.0	%		125,571			35.9	%
Refining and marketing		2,818			5,035			78.7			11,981			138.0
Chemicals and marketing		(3,162	)		1,041			132.9			7,655			635.4
Natural gas and pipeline		1,552			1,922			23.8			2,535			31.9
Other		(1,006	)		(1,182	)		(17.5	)		(1,156	)		(2.2	)

Total		72,341			99,186			37.1	%		146,586			47.8	%

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003


	*Consolidated Results of Operation*


	*Overview*

For the year ended December 31, 2004, our total revenue was RMB 388,633 million (US$46,956 million), representing an increase of 27.9% from the year ended December 31, 2003. Our net income in the year ended December 31, 2004 was RMB 102,927 million (US$12,436 million), increased 47.9% from the year ended December 31, 2003. For the first time since our initial public offering in April 2000, we realized a net income of more than RMB100,000 million. Our basic and diluted earnings per share for the year ended December 31, 2004 was RMB 0.59, representing an increase of 47.9% from RMB 0.40 for the year ended December 31, 2003.

Total Revenue. Total Revenue increased 27.9% from RMB 303,779 million for the year ended December 31, 2003 to 388,633 million (US$46,956 million) for the year ended December 31, 2004. The increase was due primarily to increases in our realized selling prices of crude oil, gasoline, diesel and chemical products, as well as increases in the sales volume of natural gas, refined products and chemical products. The average realized selling price for crude oil increased 24.6%

from US$27.20 per barrel for the year ended December 31, 2003 to US$33.88 per barrel for the year ended December 31, 2004.

Operating Expenses. Operating expenses increased 18.3% from RMB 204,593 million for the year ended December 31, 2003 to RMB 242,047 million (US$29,245 million) for the year ended December 31, 2004. This increase was due primarily to (i) a 28.1% increase in purchases, services and other expenses, (ii) a 14.2% increase in employee compensation costs, (iii) a 10.8% increase in exploration expenses, (iv) a 14.5% increase in depreciation, depletion and amortization and (v) a 17.7% increase in taxes other than income tax.

Purchases, Services and Other Expenses. Purchases, services and other expenses increased 28.1% from RMB 90,850 million for the year ended December 31, 2003 to RMB 116,353 million (US$14,058 million) for the year ended December 31, 2004. This increase was due primarily to increases in our purchase expenses of crude oil, refined products and chemical products associated with increases in the prices and purchase volume of crude oil and refined products as well as increases in the purchase volume of chemical products as we increased our production and sales of these products in 2004. In 2004, we purchased 121.8 million barrels of crude oil, 12.0 million tons of refined products and 990 thousand tons of chemical products, as compared to 89.5 million barrels of crude oil, 9.6 million tons of refined products and 27 thousand tons of chemical products in 2003.

Employee Compensation Costs. Employee compensation costs increased 14.2% from RMB 19,542 million for the year ended December 31, 2003 to RMB 22,309 million (US$2,695 million) for the year ended December 31, 2004. This increase was due primarily to an increase of RMB 2,033 million in salaries and other benefits and an increase of RMB 691 million in employee compensation costs as a result of the expansion of our retail distribution network.

Depreciation, Depletion and Amortization. Depreciation, depletion and amortization increased 14.5% from RMB 40,531 million for the year ended December 31, 2003 to RMB 46,411 million (US$5,608 million) for the year ended December 31, 2004. This increase was due primarily to an increase of RMB 4,530 million in depreciation and depletion relating to the newly acquired assets.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 10.2% from RMB 23,930 million for the year ended December 31, 2003 to RMB 26,377 million (US$3,187 million) for the year ended December 31, 2004. This increase was due primarily to an increase of RMB 1,230 million in transportation expenses a result of our increased sales volume of refined products and an increase of RMB 760 million in repairment expenses.

Exploration Expenses. Exploration expenses increased 10.8% from RMB 10,577 million for the year ended December 31, 2003 to RMB 11,723 million (US$1,416 million) for the year ended December 31, 2004. This increase was due primarily to increased expenditures in exploration activities for the purpose of increasing our crude oil and gas reserves.

Expenses Relating to the Shutting Down of Manufacturing Facilities and Units. Expenses relating to shutting down of manufacturing facilities and units decreased by 90.7% from RMB 2,355 million for the year ended December 31, 2003 to RMB 220 million (US$27 million) for the year ended December 31, 2004. The expenses related to shutting down low efficiency assets in our refining and marketing segment and our chemicals and marketing segment in 2004 amounted to RMB 192 million and RMB 28 million, respectively.

Taxes Other than Income Taxes. Taxes other than income taxes increased 17.7% from RMB 15,879 million for the year ended December 31, 2003 to RMB 18,685 million (US$2,258 million) for the year ended December 31, 2004. This increase was due primarily to an increase of RMB 1,201 million in consumption tax as a result of increased sales volume of gasoline and diesel and an increase of RMB 272 million in resources compensation fees as a result of increased revenues of crude oil.

Income From Operations. As a result of the factors discussed above, income from operations increased 47.8% from RMB 99,186 million for the year ended December 31, 2003 to RMB 146,586 million (US$17,711 million) for the year ended December 31, 2004.

Net Exchange Loss. Net exchange loss decreased 59.4% from RMB 180 million for the year ended December 31, 2003 to RMB 73 million (US$9 million) for the year ended December 31, 2004. This decrease was due primarily to a decrease in the average outstanding balance of foreign exchange borrowings in 2004.

Net Interest Expense. Net interest expense decreased 28.3% from RMB 1,669 million for the year ended December 31, 2003 to RMB 1,196 million (US$144 million) for the year ended December 31, 2004. This decrease was due primarily to a decrease in the average outstanding balance of interest-bearing debts as a result of sufficient cashflow derived from operating activities.

Income Before Income Taxes. Income before income taxes increased 49.7% from RMB 98,322 million for the year ended December 31, 2003 to RMB 147,141 million (US$17,778 million) for the year ended December 31, 2004.

Income Taxes. Income taxes increased 51.6% from RMB 28,072 million for the year ended December 31, 2003 to RMB 42,563 million (US$5,143 million) for the year ended December 31, 2004, due primarily to an increase in income before income taxes.

Net Income. As a result of the factors discussed above, net income increased 47.9% from RMB 69,614 million for the year ended December 31, 2003 to RMB 102,927 million (US$12,436 million) for the year ended December 31, 2004.


	*Exploration and Production*

Sales and Other Operating Revenue. Sales and other operating revenue increased 25.4% from RMB 177,271 million for the year ended December 31, 2003 to RMB 222,305 million (US$26,860 million) for the year ended December 31, 2004. This increase resulted primarily from an increase in the average realized selling price of crude oil and an increase in sales volume of natural gas by our exploration and production segment in 2004. Our average realized selling price of crude oil for the year ended December 31, 2004 was US$33.88 per barrel, representing an increase of 24.6% from US$27.20 per barrel for the year ended December 31, 2003. Our exploration and production segment sold 781.4 billion cubic feet of natural gas in the year ended December 31, 2004, as compared to 651.0 billion cubic feet of natural gas in the year ended December 31, 2003.

Intersegment sales increased 36.8% from RMB 128,963 million for the year ended December 31, 2003 to RMB 176,458 million (US$21,320 million) for the year ended December 31, 2004. This increase resulted primarily from an increase in the average selling price of crude oil and an increase of sales volume of natural gas.

Sales of crude oil to Sinopec decreased 3.8% from RMB 25,008 million for the year ended December 31, 2003 to RMB 24,053 million (US$2,906 million) for the year ended December 31, 2004. This decrease was due primarily to a decrease in our sales volume to Sinopec.

Operating Expenses. Operating expenses increased 13.9% from RMB 84,901 million for the year ended December 31, 2003 to RMB 96,734 million (US$11,688 million) for the year ended December 31, 2004. This increase was due primarily to (i) an increase of RMB 3,057 million in purchase expenses for import of crude oil, (ii) an increase of RMB 1,140 million in exploration expenses as a result of increased expenditures in exploration activities for the purpose of improving recovery of crude oil and gas reserves, (ii) an increase of RMB 2,013 million in depletion and depreciation charges and (iii) an increase of RMB 1,246 million in salaries and other benefits.

Income From Operations. As a result of the factors discussed above, income from operations increased 35.9% from RMB 92,370 million for the year ended December 31, 2003 to RMB 125,571 million (US$15,172 million) for the year ended December 31, 2004.


	*Refining and Marketing*

Sales and Other Operating Revenue. Sales and other operating revenue increased 32.2% from RMB 223,584 million for the year ended December 31, 2003 to RMB 295,598 million (US$35,715 million) for the year ended December 31, 2004. This increase was due primarily to increases in the selling prices and the sales volumes of our principal refined products.

Sales revenue from gasoline increased 28.0% from RMB 60,073 million for the year ended December 31, 2003 to RMB 76,919 million (US$9,294 million) for the year ended December 31, 2004 due primarily to increases in the selling prices and the sales volume of gasoline. The average realized selling price of gasoline increased 17.2% from RMB 3,023 per ton for the year ended December 31, 2003 to RMB 3,542 (US$428.0) per ton for the year ended December 31, 2004. We sold approximately 21.7 million tons of gasoline for the year ended December 31, 2004, representing an increase of 9.3% from approximately 19.9 million tons for the year ended December 31, 2003.

Sales revenue from diesel increased 36.2% from RMB 100,336 million for the year ended December 31, 2003 to RMB 136,649 million (US$16,510 million) for the year ended December 31, 2004 due primarily to increases in the selling prices and the sales volume of diesel. The average realized selling price of diesel increased 15.7% from RMB 2,735 per ton for the year ended December 31, 2003 to RMB 3,165 (US$382.4) per ton for the year ended December 31, 2004. We sold 43.2 million tons of diesel for the year ended December 31, 2004, representing an increase of 17.7% from 36.7 million tons for the year ended December 31, 2003.

Sales revenue from kerosene increased 42.6% from RMB 4,125 million for the year ended December 31, 2003 to RMB 5,881 million (US$711 million) for the year ended December 31, 2004 due primarily to increases in the selling prices and sales volume of kerosene. The average realized selling price of kerosene increased 20.5% from RMB 2,306 per ton for the year ended December 31, 2003 to RMB 2,779 (US$335.8) per ton for the year ended December 31, 2004. The sales volume of kerosene increased 18.4% from approximately 1.8 million tons for the year ended December 31, 2003 to approximately 2.1 million tons for the year ended December 31, 2004.

Intersegment sales revenue increased 29.6% from RMB 16,867 million for the year ended December 31, 2003 to RMB 21,862 million (US$2,641 million) for the year ended December 31, 2004, due primarily to increases in the selling prices and sales volume of our refined products.

Operating Expenses. Operating expenses increased 29.8% from RMB 218,549 million for the year ended December 31, 2003 to RMB 283,617 million (US$34,268 million) for the year ended December 31, 2004. This increase was due primarily to (i) increases in purchase prices and purchase volumes of crude oil and refined products, (ii) an increase in employee salary and benefits and (iii) an increase in sales and administrative expenses. Our purchase expenses of direct materials increased by RMB 58,363 million (US$7,052 million) in 2004, of which RMB 57,629 million (US$6,963 million) was due to the increases in crude oil purchase prices and purchase volume. Salary and benefits increased by RMB 1,130 million (US$137 million) and sales and administrative expenses increased by RMB 1,870 million (US$226 million) in 2004.

Income From Operations. As a result of the factors discussed above, income from operations increased 137.9% from RMB 5,035 million for the year ended December 31, 2003 to RMB 11,981 million (US$1,448 million) for the year ended December 31, 2004.


	*Chemicals and Marketing*

Sales and Other Operating Revenue. Sales and other operating revenue increased 45.8% from RMB 39,211 million for the year ended December 31, 2003 to RMB 57,179 million (US$6,909 million) for the year ended December 31, 2004. This increase was due primarily to increases in the selling prices and sales volumes of chemical products. The average realized selling prices of synthetic resin, synthetic fibres, rubber and urea were RMB 8,257, RMB 11,434, RMB 10,703 and RMB 1,274 per ton, respectively, for the year ended December 31, 2004,

representing increases of 39.1%, 27.6%, 22.3% and 16.6%, respectively, from the year ended December 31, 2003. Our chemicals and marketing segment sold 11,867 thousand tons of chemical products for the year ended December 31, 2004, representing an increase of 9% from the year ended December 31, 2003.

Operating Expenses. Operating expenses increased 29.7% from RMB 38,170 million for the year ended December 31, 2003 to RMB 49,524 million (US$5,984 million) for the year ended December 31, 2004, due primarily to an increase of RMB 7,464 million (US$902 million) in the purchase expenses of direct materials and an increase of RMB 1,080 million (US$130 million) in the sales and administrative expenses.

Income From Operations. As a result of the factors discussed above, income from operations increased by RMB 6,614 million from RMB 1,041 million for the year ended December 31, 2003 to RMB 7,655 million (US$925 million) for the year ended December 31, 2004.


	*Natural Gas and Pipeline*

Sales and Other Operating Revenue. Sales and other operating revenue increased 21.2% from RMB 15,067 million for the year ended December 31, 2003 to RMB 18,255 million (US$2,206 million) for the year ended December 31, 2004, due primarily to increases in natural gas sales revenue and pipeline transmission revenue as a result of increases in the sales volume and the pipeline transmission volume of natural gas. Our natural gas and pipeline segment sold 657.3 billion cubic feet natural gas in the year ended December 31, 2004, representing an increase of 21% from 543.4 billion cubic feet in the year ended December 31 2003, which resulted in an increase in sales revenue of RMB 1,931 million (US$233 million). The increase of RMB 1,055 million (US$127 million) in our income from pipeline transmission of natural gas in 2004 was attributable to an increase in the pipeline transmission volume of natural gas from 520.3 billion cubic feet in 2003 to 616.0 billion cubic feet in 2004.

Operating Expenses. Operating expenses increased 19.6% from RMB 13,145 million for the year ended December 31, 2003 to RMB 15,720 million (US$1,899 million) for the year ended December 31, 2004, due primarily to (i) an increase of RMB 1,402 million (US$169 million) in purchase expenses of natural gas primarily as a result of the increase of 110.4 billion cubic feet in the natural gas purchase volume and (ii) an increase of RMB 1,102 million (US$133 million) in depreciation expenses.

Income From Operations. As a result of the factors discussed above, income from operations increased 31.9% from RMB 1,922 million for the year ended December 31, 2003 to RMB 2,535 million (US$306 million) for the year ended December 31, 2004.

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002


	*Consolidated Results of Operation*


	*Overview*

For the year ended December 31, 2003, our total revenue was RMB 303,779 million, representing an increase of 24.3% from the year ended December 31, 2002. Our net income in the year ended December 31, 2003 was RMB 69,614 million, increased by 48.4% from the year ended December 31, 2002. For the first time since our initial public offering in April 2000, we achieved profitability in each of our exploration and production, refining and marketing, chemicals and marketing, and natural gas and pipeline segments. Our basic and diluted earnings per share for the year ended December 31, 2003 was RMB 0.40, representing an increase of 48.1% from RMB 0.27 for the year ended December 31, 2002.

Total Revenue. Total Revenue increased 24.3% from RMB 244,424 million for the year ended December 31, 2002 to RMB 303,779 million for the year ended December 31, 2003. The increase

was due primarily to increases in our realized selling prices of crude oil, gasoline, diesel and chemical products, as well as increases in the sales volume of refined products, chemical products and natural gas. The average realized selling price for crude oil increased 21.0% from US$22.48 per barrel for the year ended December 31, 2002 to US$27.20 per barrel for the year ended December 31, 2003.

Operating Expenses. Operating expenses increased 18.9% from RMB 172,083 million for the year ended December 31, 2002 to RMB 204,593 million for the year ended December 31, 2003. This increase was due primarily to a 26.7% increase in purchases, services and other expenses, a 20.3% increase in employee compensation costs, a 30.7% increase in exploration expenses, a 11.0% increase in expenses relating to workforce reduction and the shutting down of manufacturing facilities and units and a 10.2% increase in depreciation, depletion and amortization.

Purchases, Services and Other Expenses. Purchases, services and other expenses increased 26.7% from RMB 71,690 million for the year ended December 31, 2002 to RMB 90,850 million for the year ended December 31, 2003. This increase was due primarily to a RMB 14,380 million increase in the cost of refined product raw materials as a result of increases in the prices and purchase volume of crude oil and a RMB 1,490 million increase in the cost of chemicals raw materials as a result of increases in the prices of principal refined products. In 2003, our refining and marketing segment purchased 89.0 million barrels of crude oil, as compared to 39.8 million barrels in 2002. The average realized prices of our gasoline and diesel increased by 17.6% and 14.7%, respectively, in 2003.

Employee Compensation Costs. Employee compensation costs increased 20.3% from RMB 16,248 million for the year ended December 31, 2002 to RMB 19,542 million for the year ended December 31, 2003. This increase resulted primarily from an increase of RMB 2,262 million in salaries and other benefits and an increase of RMB 326 million in employee compensation costs as a result of the expansion of our retail distribution network in 2003.

Exploration Expenses. Exploration expenses increased 30.7% from RMB 8,095 million for the year ended December 31, 2002 to RMB 10,577 million for the year ended December 31, 2003. This increase was due primarily to increased expenditures in exploration activities for the purpose of increasing our oil and gas reserves.

Depreciation, Depletion and Amortization. Depreciation, depletion and amortization increased 10.2% from RMB 36,782 million for the year ended December 31, 2002 to RMB 40,531 million for the year ended December 31, 2003. This increase was due primarily to an increase of RMB 2,420 million in current depreciation, depletion and amortization expenses relating to the newly acquired assets.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 6.5% from RMB 22,474 million for the year ended December 31, 2002 to RMB 23,930 million for the year ended December 31, 2003. This increase was due primarily to an increase of RMB 1,150 million in impairment of accounts receivable.

Expenses Relating to Workforce Reduction and the Shutting Down of Manufacturing Facilities and Units. We did not lay off any employees for the year ended December 31, 2003, but we shut down some low efficiency manufacturing facilities and units of our refining and marketing segment and our chemicals and marketing segment. Consequently, expenses relating to work force reduction and the shutting down of manufacturing facilities and units for the year ended December 31, 2003 consisted only of the costs for shutting down of manufacturing facilities and units of RMB 2,355 million, representing an increase of 11.0% from RMB 2,121 million for the year ended December 31, 2002.

Taxes Other than Income Taxes. Taxes other than income taxes increased 8.7% from RMB 14,613 million for the year ended December 31, 2002 to RMB 15,879 million for the year ended December 31, 2003. This increase was due primarily to an increase of RMB 679 million in

consumption tax and surcharges as a result of increased production volume of gasoline and diesel and an increase of RMB 214 million in resources compensation fees as a result of increased revenues for crude oil and natural gas.

Income From Operations. As a result of the factors discussed above, income from operations increased 37.1% from RMB 72,341 million for the year ended December 31, 2002 to RMB 99,186 million for the year ended December 31, 2003.

Net Exchange Loss. Net exchange loss decreased 43.0% from RMB 316 million for the year ended December 31, 2002 to RMB 180 million for the year ended December 31, 2003. This decrease was due primarily to a decrease in the average proportion of foreign exchange borrowings and an adjustment in the currency mix of foreign exchange borrowings by repaying some of the foreign debts denominated in foreign currencies with relatively high exchange rate risk, such as Euro and British Sterling.

Net Interest Expense. Net interest expense decreased 45.3% from RMB 3,053 million for the year ended December 31, 2002 to RMB 1,669 million for the year ended December 31, 2003. This decrease was due primarily to a decrease in the average proportion of interest-bearing debts and decreases in the average interest rates.

Income Before Income Taxes. Income before income taxes increased 42.0% from RMB 69,240 million for the year ended December 31, 2002 to RMB 98,322 million for the year ended December 31, 2003.

Income Taxes. Income Taxes increased 26.3% from RMB 22,231 million for the year ended December 31, 2002 to RMB 28,072 million for the year ended December 31, 2003, due primarily to an increase in income before income taxes.

Net Income. As a result of the factors discussed above, net income increased 48.4% from RMB 46,910 million for the year ended December 31, 2002 to RMB 69,614 million for the year ended December 31, 2003.


	*Exploration and Production*

Sales and Other Operating Revenue. Sales and other operating revenue increased 20.3% from RMB 147,308 million for the year ended December 31, 2002 to RMB 177,271 million for the year ended December 31, 2003. This increase resulted primarily from an increase in the average realized selling price of crude oil and an increase in sales volume of natural gas by our exploration and production segment in 2003. Our average realized selling price of crude oil for the year ended December 31, 2003 was US$27.20 per barrel, representing an increase of 21.0% from US$22.48 per barrel for the year ended December 31, 2002. Our exploration and production segment sold 651.0 billion cubic feet of natural gas for the year ended December 31, 2003, as compared to 588.4 billion cubic feet of natural gas for the year ended December 31, 2002.

Intersegment sales increased 21.4% from RMB 106,266 million for the year ended December 31, 2002 to RMB 128,963 million for the year ended December 31, 2003. Similarly, this increase resulted primarily from an increase in the average selling price of crude oil and an increase of sales volume of natural gas in 2003.

Sales of crude oil to Sinopec increased 9.8% from RMB 22,778 million for the year ended December 31, 2002 to RMB 25,008 million for the year ended December 31, 2003. This increase was due primarily to an increase in the average selling prices of crude oil.

Operating Expenses. Operating expenses increased 12.9% from RMB 75,169 million for the year ended December 31, 2002 to RMB 84,901 million for the year ended December 31, 2003. This increase was due primarily to (i) an increase of RMB 2,482 million in exploration expenses as a result of increased expenditures in exploration activities for the purpose of improving recovery of oil and gas reserves, (ii) an increase of RMB 2,758 million in depletion of oil and gas property as a

result of newly acquired assets, (iii) an increase of RMB 1,421 million in salaries and other benefits and (iv) an increase of RMB 1,383 million in impairment of receivables.

Income From Operations. As a result of the factors discussed above, income from operations increased 28.0% from RMB 72,139 million for the year ended December 31, 2002 to RMB 92,370 million for the year ended December 31, 2003.


	*Refining and Marketing*

Sales and Other Operating Revenue. Sales and other operating revenue increased 28.0% from RMB 174,621 million for the year ended December 31, 2002 to RMB 223,584 million for the year ended December 31, 2003. This increase was due primarily to increases in the selling prices and the sales volumes of our principal refined products.

Sales revenue from gasoline increased 23.0% from RMB 48,834 million for the year ended December 31, 2002 to RMB 60,073 million for the year ended December 31, 2003 due primarily to increases in the selling prices and the sales volume of gasoline. The average realized selling price of gasoline increased 17.6% from RMB 2,570 per ton for the year ended December 31, 2002 to RMB 3,023 per ton for the year ended December 31, 2003. We sold 19.9 million tons of gasoline for the year ended December 31, 2003, representing an increase of 4.6% from 19.0 million tons for the year ended December 31, 2002.

Sales revenue from diesel increased 26.9% from RMB 79,081 million for the year ended December 31, 2002 to RMB 100,336 million for the year ended December 31, 2003 due primarily to increases in the selling prices and the sales volume of diesel. The average realized selling price of diesel increased 14.7% from RMB 2,384 per ton for the year ended December 31, 2002 to RMB 2,735 per ton for the year ended December 31, 2003. We sold 36.7 million tons of diesel for the year ended December 31, 2003, representing an increase of 10.5% from 33.2 million tons for the year ended December 31, 2002.

Sales revenue from kerosene increased 6.8% from RMB 3,864 million for the year ended December 31, 2002 to RMB 4,125 million for the year ended December 31, 2003 due primarily to increases in the selling price of Kerosene despite a slight decrease of the sales volume of kerosene in 2003. The average realized selling price of kerosene increased 12.5% from RMB 2,050 per ton for the year ended December 31, 2002 to RMB 2,306 per ton for the year ended December 31, 2003.

Intersegment sales revenue increased 68.9% from RMB 9,988 million for the year ended December 31, 2002 to RMB 16,867 million for the year ended December 31, 2003 due primarily to increases in the selling prices and the sales volumes of our principal refined products.

Operating Expenses. Operating expenses increased 27.2% from RMB 171,803 million for the year ended December 31, 2002 to RMB 218,549 million for the year ended December 31, 2003. This increase was due primarily to increases in purchase prices of crude oil and refined products from third parties, as well as an increase in the purchase volume of crude oil from third parties. Our crude oil purchase expenses increased by RMB 36,330 million in 2003, of which RMB 26,480 million was due to the increase in crude oil purchase prices and RMB 9,850 million was due to the increase in crude oil purchase volume. Although our purchase volume of refined products from third parties decreased slightly in 2003, our total purchase expenses of refined products from third parties increased by RMB 1,850 million in the same period due primarily to increases in purchase prices.

Income From Operations. As a result of the factors discussed above, income from operations increased 78.7% from RMB 2,818 million for the year ended December 31, 2002 to RMB 5,035 million for the year ended December 31, 2003.


	*Chemicals and Marketing*

Sales and Other Operating Revenue. Sales and other operating revenue increased 32.2% from RMB 29,661 million for the year ended December 31, 2002 to RMB 39,211 million for the year ended December 31, 2003, due primarily to increases in the selling prices and sales volumes of chemical products. The average realized selling prices of synthetic resin, synthetic fibres, rubber and urea were RMB 5,938, RMB 8,959, RMB 8,753 and RMB 1,093, respectively, for the year ended December 31, 2003, representing increases of 14.1%, 15.4%, 32.5% and 6.7%, respectively, from the year ended December 31, 2002. Our chemicals and marketing segment sold 10,880 thousand tons of chemical products for the year ended December 31, 2003, representing an increase of 18.26% from the year ended December 31, 2002.

Operating Expenses. Operating expenses increased 16.3% from RMB 32,823 million for the year ended December 31, 2002 to RMB 38,170 million for the year ended December 31, 2003, due primarily to an increase of RMB 5,855 million in the purchase expenses of direct materials.

Income (Loss) From Operations. As a result of the factors discussed above, we recorded income from operations of RMB 1,041 million for the year ended December 31, 2003. We recorded a loss of RMB 3,162 million for the year ended December 31, 2002.


	*Natural Gas and Pipeline*

Sales and Other Operating Revenue. Sales and other operating revenue increased 18.3% from RMB 12,733 million for the year ended December 31, 2002 to RMB 15,067 million for the year ended December 31, 2003, due primarily to increases in the sales volume of natural gas and the pipeline transmission prices and volume and the addition of the results of a refined product pipeline. Our natural gas and pipeline segment sold 543.4 billion cubic feet natural gas in the year ended December 31, 2003, representing an increase of 11.7% from 486.3 billion cubic feet in the year ended December 31 2002, which resulted in an increase of RMB 937 million. The increase of RMB 1,241 million in our income from pipeline transmission of natural gas, crude oil and refined products in 2003 was attributable to (i) a RMB 686 million increase due to increases in crude oil and natural gas transmission prices and (ii) a RMB 456 million increase due to the addition of the results of the Lanzhou — Chengdu — Chongqing refined product pipeline.

Operating Expenses. Operating expenses increased 17.6% from RMB 11,181 million for the year ended December 31, 2002 to RMB 13,145 million for the year ended December 31, 2003, due primarily to (i) an increase of RMB 1,402 million in purchase expenses of natural gas primarily as a result of the increase of 1.6 billion cubic feet in the natural gas purchase volume and (ii) an increase of RMB 330 million in depreciation expenses.

Income From Operations. As a result of the factors discussed above, income from operations increased 23.8% from RMB 1,552 million for the year ended December 31, 2002 to RMB 1,922 million for the year ended December 31, 2003.

Liquidity and Capital Resources

Our primary sources of funding include cash generated by operating activities, short-term and long-term borrowings and cash and cash equivalents. Historically, our primary uses of funds were for operating activities, capital expenditures, repayment of short-term and long-term borrowings and distributions of dividends to shareholders. Our payments to CNPC are limited to dividends and payments for services provided to us by CNPC. In the year ended December 31, 2004, we distributed as dividends 45% of our reported net income. We expect that we will continue to distribute as dividends approximately 40% to 50% of our reported net income for all years. 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.

We finance a significant portion of our business operations with short-term borrowings, including short-term debt obtained from PRC State-owned banks. As of December 31, 2004, short-term debt comprised approximately 5.5% of our capital employed as compared to approximately 6.7% as of December 31, 2003. Our ability to obtain adequate financing to satisfy our capital expenditure and debt servicing requirements may be limited by our financial condition and our results of operations and the liquidity of international and domestic capital markets. Prior to accessing international and domestic capital markets, we must obtain approval from various PRC government authorities. In general, we must obtain PRC government approval for any project involving significant capital investment for our refining and marketing, chemicals and marketing and natural gas and pipeline segments. For a more detailed discussion of factors which may affect our ability to satisfy our financing requirements, see “Item 3 — Key Information — Risk Factors”.

We plan to fund the capital and related expenditures described in this annual report principally through cash generated by operating activities, short-term and long-term borrowings and cash and cash equivalents. Net cash generated by operating activities in the year ended December 31, 2004 was RMB 137,299 million (US$16,589 million). As of December 31, 2004, we had cash and cash equivalents of RMB 11,304 million (US$1,366 million). While each of the projects described in this annual report for which significant capital expenditures will be required is important to our future development, we do not believe that failure to implement any one of these projects would have a material adverse effect on our financial condition or results of operations. If the price of crude oil undergoes a steep decline in the future, it is likely that we would delay or reduce the scale of the capital expenditures for our exploration and production segment.

Our shareholders approved at our shareholders’ meeting held on May 28, 2003 the proposed issuances of our corporate bonds in the principal amount of up to RMB 1,500 million and RMB 4,000 million to PRC citizens and enterprises. Upon the grant of PRC government approval, we issued a portion of these corporate bonds in the principal amount of RMB 1,500 million in October 2003. We received RMB 1,500 million in the net proceeds from this issuance. We intend to use the proceeds received from the issuance of these corporate bonds for various crude oil and natural gas exploration projects in a number of our oil and gas regions, as well as for upgrading refining facilities in Daqing Petrochemical and constructing the natural gas pipeline from Zhong County to Wuhan City. However, the issuance of the remaining portion of these corporate bonds will be subject to market conditions. We cannot assure you that we will complete the issuance of the remaining portion of these corporate bonds in accordance with the terms approved by our shareholders. However, we do not believe failure to complete the issuance of the remaining portion of these corporate bonds would have a material adverse effect on our financial condition. In addition, we consider from time to time opportunities to fund our capital needs by accessing into domestic equity capital markets.

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

In addition, we did not have for the year ended December 31, 2004, and do not currently have, any transactions, arrangements or other relationships with unconsolidated entities or other persons that are reasonably likely to materially affect the liquidity or availability of or requirements for our capital resources.

The table below sets forth our cash flows for each of the three years ended December 31, 2002, 2003 and 2004 and our cash equivalents at the end of each period.


	Year ended December 31,

	2002			2003			2004

	(RMB in millions)
Net cash generated by operating activities		97,290			137,236			137,299
Net cash used for investing activities		(70,611	)		(96,213	)		(98,533	)
Net cash provided by (used for) financing activities		(27,829	)		(39,769	)		(38,693	)
Cash and cash equivalents at the end of period		9,977			11,231			11,304

Our cash and cash equivalents increased by RMB 73 million from RMB 11,231 million as of December 31, 2003 to RMB 11,304 million (US$1,366 million) as of December 31, 2004, representing a 0.6% increase over 2003.

Cash Generated by Operating Activities

Our net cash generated by operating activities was RMB 137,299 million (US$16,589 million) for the year ended December 31, 2004, representing an increase of RMB 63 million from RMB 137,236 million for the year ended December 31, 2003, due primarily to an increase of RMB 84,854 million in sales revenue which was partially offset by an increase of RMB 25,503 million in our purchase expenses, a decrease of RMB 24,507 million in working capital deficit and an increase of RMB 14,491 million in income tax expense.

We had a working capital deficit of RMB 27,855 million as of December 31, 2003 and RMB 3,348 million (US$405 million) as of December 31, 2004. This decrease in working capital deficit was due primarily to an increase of RMB 16,899 million in inventory and an increase of RMB 8,993 million in receivables under the resale agreements.

Our net cash generated by operating activities increased 41.1% from RMB 97,290 million for the year ended December 31, 2002 to RMB 137,236 million for the year ended December 31, 2003. This increase was due primarily to an increase of RMB 60,171 million in sales revenue and an increase of RMB 1,370 million in collection of accounts receivable.

We had a working capital deficit of RMB 14,189 million as of December 31, 2002 and RMB 27,855 million as of December 31, 2003. This increase in working capital deficit primarily reflected an increase in long-term borrowings due within a year from RMB 6,143 million as of December 31, 2002 to RMB 19,672 million as of December 31, 2003.

Our notes and other receivables include notes receivable from customers. Other receivables represent advances to employees, non-trade related receivables from other companies, and receivables from government agencies. Allowance for doubtful accounts were primarily related to other receivables which we estimated to be uncollectible. Our notes receivable do not include past due customer amounts and, as a majority portion of our notes receivable are approved by banks, we do not have special arrangements with respect to extended payment terms on notes receivable.

Cash Provided by (Used for) Financing Activities

Our net borrowings as of December 31, 2002, 2003 and 2004 were as follows:


			December 31,

			2002		2003		2004

			(RMB in millions)
Short-term debt (including current portion of long-term debt)				20,633		28,890		27,276
Long-term debt				60,655		41,959		38,458

	Total debt			81,288		70,849		65,734

Less:
	Cash and cash equivalents			9,977		11,231		11,304
	Time deposits with term exceeding three months			2,612		2,640		1,400
	Receivables under resale agreements			9,786		24,224		33,217

		Net debt		58,913		32,754		19,813

See Note 22 to our consolidated financial statements included elsewhere in this annual report for information regarding the maturity profile of debt, currency and interest rate structure.

The debts which were guaranteed by CNPC amounted to RMB 939 million, RMB 853 million and RMB 756 million (US$91 million) as of December 31, 2002, 2003 and 2004, respectively. As of December 31, 2000, we had repaid all short-term debts guaranteed by CNPC. CNPC and we have undertaken to the Hong Kong Stock Exchange that we will continue to, on a best endeavor basis, approach each lender with respect to these guaranteed debts with a view toward obtaining the unconditional release of such guarantees.

Of the total debts outstanding as of December 31, 2004, approximately 27.1% were fixed-rate loans and approximately 72.9% were floating-rate loans. Of the total debts outstanding as of December 31, 2004, approximately 85.1% were denominated in Renminbi, approximately 13.2% were denominated in the U.S. dollar and approximately 1.7% were denominated in other major foreign currencies.

Our debts included short-term and long-term debts owed to China Petroleum Finance Company Limited of RMB 24,702 million, RMB 25,188 million and RMB 23,168 (US$2,799 million) as of December 31, 2002, 2003 and 2004, respectively. The amount of such short-term debts as of December 31, 2002, 2003 and 2004 were RMB 570 million, RMB 610 million and RMB 600 million (US$72 million), respectively. The amount of such long-term debts as of December 31, 2002, 2003 and 2004 were RMB 24,132 million, RMB 24,578 million and RMB 22,568 million (US$2,727 million), respectively. These debts were unsecured with interest bearing at below the prime rate as published by the People’s Bank of China. We also maintain a portion of our deposits at China Petroleum Finance Company Limited at an interest rate of 0.72%.

Our net cash used for financing activities decreased 2.7% from RMB 39,769 million for the year ended December 31, 2003 to RMB 38,693 million (US$4,675 million) for the year ended December 31, 2004. This decrease resulted primarily from the following:


	•	an increase in the repayment of long-term loans leading to an increase of RMB 14,832 million in cash outflow;

	•	an increase in the distribution of dividends leading to an increase of RMB 4,650 million in cash outflow; and

	•	a decrease in new short-term loans leading to a decrease of RMB 1,339 million in cash inflow;

This decrease was offset primarily by the following:


	•	an increase in new long-term loans leading to an increase of RMB 12,791 million in cash inflow; and

	•	a decrease in the repayment of short-term loans leading to a decrease of RMB 8,673 million in cash outflow.

Our net cash used for financing activities increased 42.9% from RMB 27,829 million for the year ended December 31, 2002 to RMB 39,769 million for the year ended December 31, 2003. This increase resulted primarily from the following:


	•	an increase in the distribution of dividends leading to an increase of RMB 12,028 million in cash outflow;

	•	a decrease in new long-term loans leading to a decrease of RMB 7,062 million in cash inflow; and

	•	a decrease in new short-term loans leading to a decrease of RMB 3,600 million in cash inflow;

This increase was offset primarily by the following:


	•	a decrease in the repayment of long-term loans leading to a decrease of RMB 5,993 million in cash outflow; and

	•	a decrease in the repayment of short-term loans leading to a decrease of RMB 4,177 million in cash outflow.

As at December 31, 2004, our loans of RMB 50 million were secured loans (including financing leases and bank loans), of which RMB 29 million of bank loans were secured by our plants and equipment in the aggregate value of RMB 218 million. We consider financing leases as secured debts. As at December 31, 2004, the debts incurred by us by way of financing leases amounted to RMB 21 million. The net book value of the properties, plant and equipment under financing leases was RMB 175 million.

Our debt to equity ratio (calculated by dividing interest-bearing debts by the aggregate of interest-bearing debts and shareholder’s equity) as of December 31, 2004 was 13.4%, as compared to 16.6% as of December 31, 2003.

Capital Expenditures and Investments

Our net cash used for investing activities includes capital expenditures and investments, offset by proceeds from the sale of assets and dividends received. The table below sets forth our capital expenditures and investments (including non dry hole exploration expenses) by business segment for each of the years ended December 31, 2002, 2003 and 2004 as well as those anticipated for the year ending December 31, 2005. Actual capital expenditures and investments for periods after January 1, 2005 may differ materially from the amounts indicated below.


														2005
		2002				2003				2004				anticipated

		(RMB in				(RMB in				(RMB in				(RMB in		%
		millions)		%		millions)		%		millions)		%		millions)
Exploration and production			50,646		65.5		58,599		66.0		66,493		65.0		66,660		64.7
Refining and marketing			10,503		13.6		12,650		14.2		17,467		17.0		14,590		14.2
Chemicals and marketing			3,140		4.0		3,898		4.4		4,319		4.2		8,350		8.1
Natural gas and pipeline			12,912		16.7		13,530		15.2		13,901		13.6		12,400		12.0
Corporate and other			133		0.2		138		0.2		174		0.2		1,000		1.0

	Total		77,334		100.0		88,815		100.0		102,354		100.0		103,000		100.0

Our capital expenditures and investments increased 15.2% from RMB 88,815 million for the year ended December 31, 2003 to RMB 102,354 million (US$12,367 million) for the year ended December 31, 2004. This increase was due primarily to an increase of RMB 7,894 million (US$954 million) in capital expenditures and investments in exploration activities and an increase of RMB 4,817 million (US$582 million) in capital expenditures and investments in constructing our sales network of refined products. Taking into account the exclusion of the investments relating to the non-dry hole exploration expenses, our capital expenditures for the years ended 2002, 2003 and 2004 would have been RMB 72,766 million, RMB 82,929 million and RMB 95,349 million, (US$11,520 million), respectively.

As of December 31, 2004, the capital expenditures contracted for at the balance sheet date but not recognized in our consolidated financial statements were approximately RMB 5,370 million (US$649 million).


	*Exploration & Production*

A majority of our capital expenditures and investments relate to our exploration and production segment. Our capital expenditures and investments for the segment for the year ended December 31, 2004 totaled RMB 66,493 million (US$8,034 million), including RMB 18,313 million for exploration activities and RMB 43,217 million for development activities. Our capital expenditures and investments for the year ended December 31, 2003, totaled RMB 58,599 million, including RMB 15,136 million for exploration activities and RMB 39,587 million for development activities. The increase in our capital expenditures and investments from the year ended December 31, 2003 to the year ended December 31, 2004 was due primarily to increased capital expenditures for crude oil exploration activities in our Daqing, Tarim and Changqing oil regions and increased capital expenditures for natural gas exploration activities in our Tarim, Sichuan and Erdos basins. Taking into account the exclusion of the investments relating to the non-dry hole exploration expenses, the capital expenditures of our exploration and production segment for the years ended December 31, 2002, 2003 and 2004 would have been RMB 46,078 million, RMB 52,713 million and RMB 59,488 million (US$7,188 million), respectively.

Our anticipated capital expenditures and investments for our exploration and production segment for the year ending December 31, 2005 amount to RMB 66,660 million. Approximately RMB 16,460 million is expected to be used for exploration activities and approximately RMB 50,200 million for development activities. We plan to focus our exploration efforts in Erdos, Junggar, Tarim, Songliao, Sichuan and Bohai Bay basins.


	*Refining and Marketing*

Our capital expenditures for our refining and marketing segment for each of the three years ended December 31, 2002, 2003 and 2004 were RMB 10,503 million, RMB 12,650 million and RMB 17,467 (US$2,110 million), respectively. The increase in 2004 is due primarily to an increase in capital expenditures for further expansion of our sales network of refined products.

Our anticipated capital expenditures for our refining and marketing segment for the year ending December 31, 2005 amount to RMB 14,590 million, which include:


	•	approximately RMB 7,340 million for the construction of the sales network of refined products; and

	•	approximately RMB 7,250 million for the construction and expansion of refining facilities.


	*Chemicals and Marketing*

Our capital expenditures for our chemicals and marketing segment for each of the three years ended December 31, 2002, 2003 and 2004 were RMB 3,140 million, RMB 3,898 million and RMB 4,319 million (US$522 million), respectively. The increase in 2004 was due primarily to the

increased capital expenditures for upgrading the ethylene facilities in Daqing Petrochemical, Jilin Petrochemical and Lanzhou Petrochemical.

Our anticipated capital expenditures for our chemicals and marketing segment for the year ending December 31, 2005 amount to RMB 8,350 million, which mainly include capital expenditures for upgrading the ethylene facilities in Daqing Petrochemical, Jilin Petrochemical, Lanzhou Petrochemical and Dushanzi Petrochemical and for the construction of the PTA project at Liaoyang Petrochemical.


	*Natural Gas and Pipeline*

Our capital expenditures for our natural gas and pipeline segment for each of the three years ended December 31, 2002, 2003 and 2004 were RMB 12,912 million, RMB 13,530 million and RMB 13,901 million (US$1,680 million), respectively. The increase in 2004 resulted primarily from increased capital expenditures for the Zhong County to Wuhan natural gas pipeline and the second Shaanxi-Beijing natural gas pipeline.

Our anticipated capital expenditures for our natural gas and pipeline segment for the year ending December 31, 2005 amount to approximately RMB 12,400 million. Of this amount, approximately RMB 7,000 million is expected to be invested in the West to East natural gas pipeline project, the Zhong County to Wuhan natural gas pipeline and the second Shaanxi-Beijing natural gas pipeline and approximately RMB 5,400 million is expected to be invested in natural gas storage infrastructure projects, other natural gas pipelines and the pipelines for the transmission of crude oil and refined products. See “Item 4 — Information on the Company — Natural Gas and Pipeline — Expansion of Our Natural Gas Transmission and Marketing Business” for a more detailed discussion of the expansion plans of our natural gas and pipeline segment.


	*Corporate and Other*

Our non-segment-specific capital expenditures and investments for each of the three years ended December 31, 2002, 2003 and 2004 were RMB 133 million and RMB 138 million and RMB 174 million (US$21 million), respectively. Our non segment-specific capital expenditures and investments related primarily to purchase of non-segment-specific equipment and research and development activities.

Our anticipated non-segment-specific capital expenditures and investments for the year ending December 31, 2005 amount to RMB 1,000 million. These planned capital expenditures and investments mainly include capital expenditures for scientific research and the development of our information system, water and power supply system, transportation system and telecommunication system, which are mutually beneficial to our business segments.

The Restructuring of Our Long-Term Investments

In 2002, we entered into a number of transactions to streamline our long-term investments and to focus our resources on our core business activities. We entered into a share transfer agreement with each of Xian Feitian Science, Industrial and Trading Group Company Limited, or Xi’an Feitian, and Wuhan Luzhou Enterprise (Group) Company Limited, or Wuhan Luzhou, on May 23, 2002. Under the share transfer agreements, we transferred 27% and 8.9% of the state-owned legal person shares in Petroleum Long Champ (Group) Co., Ltd., or Long Champ, to Xi’an Feitian and Wuhan Luzhou, respectively. The share transfer agreements were approved by the Ministry of Finance and became effective on December 31, 2002. We ceased having any interest in Long Champ upon completion of the share transfers.

We entered into a share transfer agreement with China Electronic Information Industrial Group Company, or China Electronic, on July 12, 2002. Under the share transfer agreement, we transferred 51.6% of the state-owned legal person shares in Gansu Tristar Petrochemical (Group) Co., Ltd., or

Tristar, to China Electronic. On July 25, 2002, the Ministry of Finance granted its approval to the transfer of the state-owned legal person shares in Tristar and the share transfer agreement became effective. We ceased having any interest in Tristar upon completion of the share transfer.

We have used the entire proceeds received from the transfer of shares in Long Champ and cash provided by our cash and cash equivalents to purchase Long Champ’s equity interest in three crude oil pipeline transmission enterprises. We have used the entire proceeds received from the transfer of shares in Tristar and cash provided by our cash and cash equivalents to purchase certain Tristar’s refining and chemical assets or businesses. We believe that the purchase of these assets and businesses did not have a material adverse impact on our financial condition or results of operations.

Off-Balance Sheet Arrangements

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

Long-Term Contractual Obligations and Other Commercial Commitments

and Payment Obligations

The tables below set forth certain information in connection with our long-term contractual obligations and other commercial commitments outstanding as of December 31, 2004.


	Payment due by period

			Less than						After
Contractual obligations	Total		1 year		1-3 years		3-5 years		5 years

	(RMB in millions)
Long-term debt		54,445		15,987		24,624		6,467		7,367
Capital lease obligations		21		21		0		0		0
Operating leases		95,451		2,701		4,925		4,790		83,035
Capital commitments		5,370		4,398		972		0		0
Unconditional purchase obligations		5,108.9		3,992.8		726.4		290.3		99.4
Other long-term obligations		0		0		0		0		0
Total contractual cash obligations		160,395.9		27,099.8		31,247.4		11,547.3		90,501.4


	Amount of commitment expiration per period

	Total
	amounts		Less than		1-		3-		Over
Other commercial commitments	committed		1 year		3 years		5 years		5 years

	(RMB in millions)
Lines of credit		0		0		0		0		0
Standby letters of credit		0		0		0		0		0
Guarantees		203		50		3		67		83
Total commercial commitments		203		50		3		67		83

The table below sets forth the estimated annual payments we are obligated to make with respect to our exploration and production licenses to the Ministry of Land and Resources.


Year	Annual payment

	(RMB in millions)
2005		618
2006		681
2007 and thereafter		712

We sell a substantial portion of our natural gas under long-term take-or-pay contracts. Under these contracts, the customers are required to take or pay, and we are obligated to deliver, minimum quantities of natural gas annually.

As of December 31, 2004, our future minimum delivery commitments under such take-or-pay contracts are as follows:


	Quantities

	(billion of cubic feet)
2005		229
2006		443
2007		581
2008		637
2009		701
2010 and thereafter		6,111

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, 2004, we had 22,182 employees engaged in research and development functions.

In 2004, we applied for 221 patents and 159 trademarks in China. We obtained patent rights for 157 patents in the same period.

In each of the three years ended December 31, 2002, 2003 and 2004, our total expenditures for research and development were approximately RMB 1,806 million, RMB 2,411 million and RMB 2,936 million (US$355 million), respectively.

Exploration and Production

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. We have developed effective exploration and production techniques and methods that are suitable for these geological conditions. Our research and development efforts with respect to our exploration and production business focus on:


	•	geological structures of crude oil and natural gas reserves;

	•	oil and gas exploration and development;

	•	oil and gas production and pipeline transportation; and

	•	monitoring of the environment.

Refining and Chemicals

In order to organize and coordinate our research and development activities related to our refining and chemicals businesses, we established PetroChina Refining & Chemicals Technology Research Center in July 2003, which is responsible for developing research strategies and managing and coordinating major research projects. We have established four research and development centers in Daqing Petrochemical, Liaoyang Petrochemical, Lanzhou Petrochemical and Jilin Petrochemical to carry out the research and development of certain of our major refining and chemicals research projects. In order to enhance our competitiveness and develop core technologies, we plan to integrate the resources of our down-stream scientific research and development system in the near future.

Trend Information

Streamlining of Production Facilities

We plan to continue to streamline our production facilities within the next several years to further improve our operating efficiency and competitiveness by consolidating or shutting down some of our production facilities. We do not believe that the implementation of such plans will have a material adverse impact on our financial position, although we believe that it could have a material adverse effect on our results of operations because we would be required under our accounting policies to recognize in our income statement any impairment loss or impairment provision associated with shutting down our production facilities. See “— General — Critical Accounting Policies” and “— General — Factors Affecting Results of Operations” above for a detailed discussion of other trend information.

Other Information

Inflation

Inflation or deflation has not had a significant impact on our results of operations for the year ended December 31, 2004.

Non-Exchange Traded Contracts

We did not engage for the year ended December 31, 2004, and do not currently engage, to a material extent, in any trading activities involving commodity contracts that are accounted for at fair value but for which a lack of market price quotations makes it necessary to apply fair value estimation techniques.

Related Party Transactions

For a discussion of related party transactions, see “Item 7 — Major Shareholders and Related Party Transactions — Related Party Transactions” and Note 32 to our consolidated financial statements included elsewhere in this annual report.

US GAAP Reconciliation

We prepared our consolidated financial statements in accordance with IFRS. This basis of accounting may differ from US GAAP. Such differences involve methods for measuring the amounts shown in the financial statements, as well as additional disclosures required by US GAAP.

A summary of the principal differences and additional disclosures applicable to us is set out below:


	*Revaluation of Property, Plant and Equipment*

As described in Note 16 to our consolidated financial statements, the property, plant and equipment, excluding oil and gas reserves, transferred to us by CNPC were appraised as of June 30, 1999, as required by the relevant PRC regulations, by a firm of independent valuers registered in the PRC, China Enterprise Appraisal. As at September 30, 2003, a revaluation of our refining and chemical production equipment was undertaken by a firm of independent valuers registered in the PRC, China United Assets Appraiser Co., Ltd, on a depreciated replacement cost basis.

The June 1999 revaluation resulted in RMB 80,549 million in excess of the prior carrying value and a revaluation loss of RMB 1,122 million on certain property, plant and equipment.

The September 2003 revaluation resulted in RMB 872 million in excess of the carrying value of certain property, plant and equipment immediately prior to the revaluation and a revaluation loss of RMB 1,257 million.

With respect to the RMB 872 million revaluation gain resulting from the 2003 revaluation, RMB 98 million were related to property, plant and equipment that in 1999 experienced revaluation loss, and were credited to the income statement. The remaining RMB 774 million was credited to the revaluation reserve in the shareholders’ equity.

With respect to the RMB 1,257 million revaluation loss resulting from the 2003 revaluation, RMB 768 million were related to property, plant and equipment that in 1999 experienced revaluation gain. The remaining RMB 489 million were charged to the income statement.

The depreciation charge, which includes impairment charge, on the revaluation surplus was RMB 8,157 million in 2002, RMB 8,053 million in 2003 and RMB 8,170 million in 2004.

The depreciation charge on the revaluation loss was RMB 112 million in 2002, RMB 144 million in 2003 and RMB 830 million in 2004.

The loss on disposal of property, plant and equipment, which includes shut down of manufacturing assets, was RMB 224 million in 2002, RMB 451 million in 2003 and RMB 523 million in 2004.

For purposes of reconciling to the US GAAP financial data, the effect of the revaluation, the related depreciation charges and loss on disposal is reversed. A deferred tax asset relating to the reversal of the effect of revaluation in 1999 is established, together with a corresponding increase in the shareholders’ equity. Under a special approval granted by the Ministry of Finance, the effect of the revaluation in 1999 is available as additional depreciation base for purposes of determining taxable income.


	*Related Party Transactions*

We have disclosed in Note 31 to our consolidated financial statements included elsewhere in this annual report transactions with significant customers and in Notes 13, 15, 21, 22 and 32 to our consolidated financial statements transactions and balances with our immediate parent, CNPC, and related companies. CNPC is owned by the PRC government, which also owns a significant portion of the productive assets in the PRC. IFRS exempts state controlled enterprises from disclosing transactions with other state controlled enterprises. IFRS also excludes from related parties government departments and agencies to the extent that such dealings are in the normal course of business. US GAAP contains no similar exemptions but requires disclosure of material related party transactions. We believe that we have provided meaningful disclosures of related party transactions through the major customer disclosures in Note 31 to our consolidated financial statements included

elsewhere in this annual report and the transactions with the CNPC Group disclosed in Note 32 to our consolidated financial statements. Although the majority of our activities are conducted with the PRC government authorities and its affiliates and other state controlled enterprises, none individually constitutes a major customer or supplier other than those disclosed.


	*One-time Remedial Payments for Staff Housing*

The Ministry of Finance of the PRC issued several public notices and regulations during 2000 and 2001 with respect to the one-time remedial payments for staff housing payable to certain employees who joined the workforce prior to December 31, 1998 and have housing conditions below local standards as determined in accordance with government regulations and guidelines. These Ministry of Finance notices and regulations also provided that the portion of remedial payments attributable to the periods prior to a restructuring of the employer enterprise from a wholly state-owned status to a less than wholly state-owned status is to be borne by the state shareholder of the enterprise.

The restructuring that resulted in our formation took place in November 1999. As such, the one-time remedial housing payments payable to our eligible employees have been born or are to be borne by CNPC, our principal shareholder.

Under IFRS, such direct payments to employees or reimbursements will not be recorded through our consolidated income statement. US GAAP contains no such exemption but requires this principal shareholder’s action on our behalf to be recorded in the consolidated income statement. In the last quarter of year 2002, we and CNPC completed the process of estimating the amount that are payable to our qualified employees. This amount, RMB 2,553 million, was reflected in determining our net income for the year ended December 31, 2002, under US GAAP. Since this amount is borne by CNPC, a corresponding amount has been included as an addition to the other reserves in our shareholders’ equity.


	*Recent US Accounting Pronouncements*

In December 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123 (revised 2004), “Share-Based Payment,” or FAS 123(R), which is a revision of FASB Statement No. 123, “Accounting for Stock-Based Compensation.” FAS 123(R) supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and amends FASB Statement No. 95, “Statement of Cash Flows.” Generally, the approach in FAS 123(R) is similar to the approach described in Statement No. 123. However, FAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. FAS 123(R) is effective as of the start of the first fiscal year commencing after June 15, 2005, and thus, will apply to us beginning in the year ending December 31, 2006. We are evaluating the transition provisions allowed by FAS 123(R) and do not expect the adoption of FAS 123(R) will have a material impact on our financial condition and results of operations.

On November 24, 2004, the FASB issued Statement No. 151, “Inventory Costs”, an amendment of ARB No. 43, Chapter 4 (FAS 151). FAS 151 requires that abnormal amounts of idle capacity and spoilage costs be excluded from the cost of inventory and expensed when incurred. The provisions of FAS 151 are applicable to inventory costs incurred during fiscal years beginning after June 15, 2005. We do not expect the adoption of FAS 151 will have a material impact on our financial condition or results of operations.

On December 15, 2004, the FASB issued Statement No. 153, “Exchanges of Nonmonetary Assets”, an amendment of APB Opinion No. 29 (FAS 153). FAS 153 requires exchanges of productive assets to be accounted for at fair value, rather than at carryover basis, unless (1) neither the asset received nor the asset surrendered has a fair value that is determinable within reasonable limits or (2) the transactions lack commercial substance. FAS 153 is effective for nonmonetary asset

exchanges occurring in fiscal periods beginning after June 15, 2005. We do not expect the adoption of FAS 153 will have a material impact on our financial condition or results of operations.


	*Quantitative Disclosure Relating to US GAAP and IFRS*


	Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

Net income. Net income under US GAAP increased 43.4% from RMB 75,419 million for the year ended December 31, 2003 to RMB 108,135 million (US$13,065 million) for the year ended December 31, 2004. This increase was due primarily to an increase of RMB 33,313 million (US$4,025 million) in the net income under IFRS as discussed in “Item 5 — Operating and Financial Review and Prospects — Operating Results”.

Shareholders’ equity. Shareholders’ equity under US GAAP increased 22.4% from RMB 329,205 million as of December 31, 2003 to RMB 403,012 million (US$48,693 million) as of December 31, 2004. This increase was due primarily to the net income of RMB 108,135 million (US$13,065 million) under US GAAP, which was partially offset by the payment of (i) the final dividend of RMB 13,947 million (US$1,685 million) for the year ended December 31, 2003 and (ii) the interim dividend of RMB 20,381 million (US$2,463 million) for the year ended December 31, 2004.


	Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Net income. Net income under US GAAP increased 51.3% from RMB 49,837 million for the year ended December 31, 2002 to RMB 75,419 million for the year ended December 31, 2003. This increase was due primarily to (i) the increase of RMB 22,704 million in the increase of net income under IFRS as discussed in “Item 5 — Operating and Financial Review and Prospects — Operating Results” and (ii) the decrease in the year ended December 31, 2003 of RMB 2,553 million in one-time remedial payments for staff housing.

Shareholders’ equity. Shareholders’ equity under US GAAP increased 16.1% from RMB 283,464 million as of December 31, 2002 to RMB 329,205 million as of December 31, 2003. This increase was due primarily to the net income under US GAAP for the year ended December 31, 2003 of RMB 75,419 million (US$9,112 million), which was partially offset by the payment of (i) the final dividend for the year ended December 31, 2002 of RMB 12,299 million and (ii) the interim dividend for the year ended December 31, 2003 of RMB 17,379 million.

Environmental Expenses and Capital Expenditures

We paid pollutant discharge fees of approximately RMB 113 million, RMB 155 million and RMB 182 million (US$22 million), respectively, in 2002, 2003 and 2004. Our capital expenditures on environmental programs in 2002, 2003 and 2004 were approximately RMB 1,363 million, RMB 1,076 million and RMB 1,345 million (US$163 million), respectively. There were no material environmental liabilities accrued as of December 31, 2004.

ITEM 6 — DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Directors, Senior Management and Supervisors

Our board of directors consists of thirteen directors, three of whom are independent non-executive directors. The directors are elected at a meeting of our shareholders for a term of three years, renewable upon re-election and re-appointment. The functions and duties conferred on the board of directors include:


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

	•	implementing the resolutions of the shareholders’ meetings;

	•	determining our business plans and investment plans;

	•	formulating our annual budget and final accounts;

	•	formulating our proposals for dividend and bonus distributions and for the increase or reduction of capital; and

	•	exercising other powers, functions and duties as conferred by our articles of association.

Five of the directors are currently affiliated with CNPC or an affiliate of CNPC.

The PRC Company Law requires a joint stock company with limited liability to establish a supervisory committee. This requirement is reflected in our articles of association. The supervisory committee is responsible for monitoring our financial matters and overseeing the actions of our board of directors and our management personnel. The supervisory committee consists of seven supervisors, six of whom are elected, including four shareholders representatives and two independent supervisors, and may be removed, by the shareholders in a general meeting and one of whom is an employees’ representative who is elected by our staff, and may be removed, by our staff. Three of our supervisors are affiliated with CNPC. The term of office of our supervisors is three years, renewable upon re-election and re-appointment. An elected supervisor cannot concurrently hold the position of a director, manager or financial controller. The functions and powers conferred on the supervisory committee include:


	•	attending board meetings;

	•	examining our financial affairs;

	•	examining balance sheets, profit and loss accounts, business reports, dividend distribution proposals and other financial information proposed at shareholders’ general meetings by the directors from time to time; and

	•	overseeing the actions of our board of directors and our senior management personnel in carrying out their duties.

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

Our senior management is elected by and serve at the discretion of our board of directors.

The following table sets forth certain information concerning our current directors, supervisors and executive officers.


Name	Age		Position	Date of election ⁽¹⁾

Chen Geng		58	Chairman of the board of directors		May 18, 2004
Jiang Jiemin		49	Vice Chairman of the board of directors and President		May 18, 2004
Ren Chuanjun		60	Vice Chairman of the board of directors		November 19, 2002
Su Shulin		42	Director and Senior Vice President		November 19, 2002
Duan Wende		53	Director and Vice President		May 18, 2004
Wang Fucheng		54	Director and Vice President		May 28, 2003
Zheng Hu		58	Director		May 28, 2003
Zhou Jiping		52	Director		May 18, 2004
Gong Huazhang		58	Director		November 19, 2002
Zou Haifeng		58	Director		November 19, 2002
Chee-Chen Tung		62	Independent non-executive director		November 19, 2002
Liu Hongru		74	Independent non-executive director		November 19, 2002
Franco Bernabè		56	Independent non-executive director		May 28, 2003
Li Huaiqi		55	Secretary to the board of directors
Wang Guoliang		52	Chief Financial Officer
Liu Baohe		58	Vice President
Jia Chengzao		56	Chief Geologist
Li Kecheng		61	Chairman of Supervisory Committee
Wen Qingshan		46	Supervisor
Sun Xianfeng		52	Supervisor
Xu Fengli		57	Supervisor
Sun Chongren		54	Supervisor
Zhang Youcai		63	Independent supervisor
Wu Zhipan		48	Independent supervisor


⁽¹⁾	For directors only.

Directors

Chen Geng, aged 58, is Chairman of the board of directors of PetroChina and President of CNPC. Mr. Chen is a senior economist. Mr. Chen graduated from Beijing Economics Institute (currently Capital University of Economics and Business), majoring in Labor Economics, and has over 30 years’ experience in China’s oil and gas industry. From October 1983, Mr. Chen was Deputy Director of Changqing Petroleum Exploration Bureau. From April 1985, he was Deputy Director of the Labour Department under the Ministry of Petroleum Industry. From August 1988, he was Director of the Labour Bureau of CNPC. From December 1993, he was Assistant President of CNPC. From September 1997, he was Vice President of CNPC and from March 1998, he was Deputy Director of the State Petroleum and Chemical Industry Bureau. In February 2001, Mr. Chen was appointed as a Vice President of CNPC. He has been a director of PetroChina since June 8, 2001 and was President of PetroChina from December 3, 2002 to May 2004. He was appointed as President of CNPC in April 2004 and Chairman of the board of directors of PetroChina in May 2004.

Jiang Jiemin, aged 49, is a Vice Chairman of the board of directors of PetroChina and President of PetroChina. Mr. Jiang is a senior economist. Mr. Jiang graduated from the University of Shandong in industrial economics management. He has almost 30 years’ experience in China’s oil

and gas industry. Mr. Jiang was a Deputy Director of Shengli Petroleum Administration Bureau from March, 1993 and Director of Qinghai Petroleum Administration Bureau from November 1994. Mr. Jiang was an Assistant President of CNPC and the Head of the Preparation Committee of the Restructuring and Listing of CNPC from February 1999 to November 1999 when he was appointed a director and Vice President of PetroChina. In June 2000, Mr. Jiang became a Vice Governor of Qinghai Province, a position he held until April 2004 when he was appointed as a Vice President of CNPC. Mr. Jiang has been a Vice Chairman and President of PetroChina since May 2004.

Ren Chuanjun, aged 60, is a Vice Chairman of the board of directors of PetroChina. Mr. Ren is a Vice President of CNPC. Mr. Ren is a senior economist. Mr. Ren graduated from Hefei Industry University and has over 30 years’ experience in China’s oil and gas and chemical fibers industries. Mr. Ren became a Deputy General Manager and General Manager of China Yizheng Fiber Industrial United Corporation in 1983. From 1994, he worked as a Vice Minister of China National Textile Council as well as a Vice Chairman of the board of directors of Yizheng Fiber United Corporation and Yizheng Fiber Company Limited. Mr. Ren acted as a Vice President of CNPC from April 1998. Mr. Ren worked as Senior Vice President of PetroChina from November 5, 1999 to November 2002. He has been a director of PetroChina since November 5, 1999 and a Vice Chairman of PetroChina since December 3, 2002.

Su Shulin, aged 42, is a director and Senior Vice President of PetroChina. Mr. Su is a senior engineer. Mr. Su graduated from Daqing Petroleum Institute and received a master’s degree at Harbin Institute of Technology. Mr. Su has many years’ experience in China’s oil and gas industry. Since 1996, Mr. Su had worked as a Director Assistant, Director of the First Oil and Natural Gas Development Department, a Standing Deputy Director and Director of Daqing Petroleum Administration Bureau until November 5, 1999 when he was appointed as a Vice President of PetroChina and General Manger and Chairman of Daqing Oilfield Company, a subsidiary of PetroChina. Mr. Su held his positions as General Manager and Chairman of Daqing Oilfield Company until December 2003. Mr. Su has been a director of PetroChina since November 19, 2002 and Senior Vice President of PetroChina since December 3, 2002.

Duan Wende, aged 53, is a director and a Vice President of PetroChina. Mr. Duan is a senior engineer. He graduated from the University of Nankai, majoring in economics management and pursued post master’s degree studies at the Postgraduate School of the Chinese Academy of Social Sciences in investment economics while working. He has over 30 years’ experience in China’s petrochemical industry. From April 1975 to June 1999, he held a number of positions, including the Deputy Factory Manager of Fushun Factory No. 628 and a chemical fibres factory, Commander of Command Office of Fushun Petrochemical Corporation ethylene project, Deputy Factory Manager of an ethylene petrochemical factory, the Factory Manager of an acrylic fibres petrochemical factory and a detergent factory. From May 1999, Mr. Duan was Deputy Manager of Fushun Petrochemical Corporation and from October 1999, Mr. Duan was Manager of Fushun Petrochemical Branch Company. From October 1999, he was General Manager of Fushun Petrochemical Branch Company. He has been an Assistant President of CNPC since August 2001. He has been a director and Vice President of PetroChina since May 2004 and March 2002, respectively, and a Vice President of CNPC since December 2003.

Wang Fucheng, aged 54, is a director and Vice President of PetroChina. Mr. Wang is a senior economist. Mr. Wang graduated from the Shandong Normal University and has over 30 years’ experience in China’s oil and gas industry. Mr. Wang worked in the Shengli Oil Field, Zhongyuan Oil Field and Liaohe Oil Field. From 1986 to 1999, Mr. Wang worked as Senior Executive of the Shengli Oil Field, Deputy Director of the Liaohe Oil Exploration Bureau, Director of the Liaohe Oil Exploration Bureau and General Manager of the Branch Office of Liaohe Oil Field. Mr. Wang has been a director of PetroChina since June 30, 2000 and a Vice President of PetroChina since July 12, 2000.

Zheng Hu, aged 58, is a director of PetroChina and a Vice President of CNPC. Mr. Zheng is a senior engineer. He graduated from the Beijing Petroleum Institute and has over 30 years’

experience in China’s oil and gas industry. From 1990 to 1992, Mr. Zheng acted as vice director of Beijing Petroleum Managers Training Institute. From 1992 to 1999, Mr. Zheng worked as Deputy General Manager and General Manager of China Petroleum Technology & Development Corporation, as Deputy General Manager and General Manager of China Petroleum Materials and Equipment (Group) Corporation, Director of Personnel and Labour Department of CNPC. He has been a director of PetroChina since June 30, 2000 and a Vice President of CNPC since August 2000.

Zhou Jiping, aged 52, is a director of PetroChina and a Vice President of CNPC. Mr. Zhou is a senior engineer, and holds a master’s degree in marine geologic structure from the Nanhai Marine Research Institute of the China Academy of Sciences. He has over 30 years’ experience in China’s oil and gas industry. Mr. Zhou was the Exploration Manager of the Exploration and Development Department of China National Offshore Oil Corporation, Manager of the Overseas Department of the International Cooperation Bureau of CNPC, President of China National Oil & Gas Exploration and Development Corporation in Vanuatu and President of China National Oil & Gas Exploration and Development Corporation in Papua New Guinea. Mr. Zhou has also worked as Vice Director of the International Exploration and Development Cooperation Bureau of CNPC, Vice President of China National Oil & Gas Exploration and Development Corporation from November 1996. He has been President of China National Oil & Gas Exploration and Development Corporation and concurrently Deputy Director of the International Exploration and Development Cooperation Bureau of CNPC since December 1997, President of China National Oil & Gas Exploration and Development Corporation since October 1998, Assistant to the President of CNPC and concurrently President of China National Oil & Gas Exploration and Development Corporation since August 2001 and Vice President of CNPC since December 2003. Mr. Zhou has been a director of PetroChina since May 2004.

Gong Huazhang, aged 58, is a director of PetroChina. Mr. Gong is General Accountant of CNPC. Mr. Gong is a senior accountant. Mr. Gong graduated from Yangzhou Business School and has over 30 years’ experience in China’s oil and gas industry. Mr. Gong worked as Chief Accountant, Deputy Director and Director of the Finance Bureau of CNPC from 1991. Mr. Gong has been Director of the Finance and Assets Department of CNPC since October 1998 and has been General Accountant of CNPC since February 1999. Mr. Gong has been a director of PetroChina since November 5, 1999.

Zou Haifeng, aged 58 , is a director of PetroChina. Mr. Zou is a Deputy Manager of Jilin Petrochemical Branch Company and the Chairman of the Supervisory Committee of Jilin Chemical Industrial Company Limited. Mr. Zou is a senior engineer. Mr. Zou graduated from Northeastern Industry Institute and has nearly 30 years’ experience in the petrochemical industry. Since 1994, Mr. Zou has been a Deputy Manager of Jilin Petrochemical Group Corporation and a Director and Deputy Manager of Jilin Chemical Industrial Company Limited. Mr. Zou has been a Deputy Manager of Jilin Petrochemical Branch Company, a subsidiary of PetroChina since July, 1999 and a director of PetroChina since November 5, 1999.

Independent Non-executive Directors

Chee-Chen Tung, aged 62, is an independent non-executive director of PetroChina. Mr. Tung is Chairman and Chief Executive Officer of Orient Overseas (International) Limited (OOIL). He was educated at the University of Liverpool, England, where he received his Bachelor of Science degree. He later acquired a Master’s degree in Mechanical Engineering at the Massachusetts Institute of Technology in the United States. Mr. Tung served as Chairman of Hong Kong Shipowner’s Association between 1993 and 1995. From 1999 to 2001, Mr. Tung served as Chairman of the Hong Kong General Chamber of Commerce, an independent non-executive Director of Zhejiang Expressway Company Limited, Bank of China (Hong Kong) Limited, Sing Tao News Corporation Limited, Wing Hang Bank and Cathay Pacific Airways, a member of the Hong Kong Port Development Board. Mr. Tung is also Chairman of the Institute for Shipboard Education Foundation, Chairman of the Court of the International Academics Center of the Hong Kong Polytechnic

University, a member of the Board of Trustees of the University of Pittsburgh, and a member of the Board of Visitors of the School of Foreign Service, Georgetown University. Mr. Tung has been an independent non-executive director of PetroChina since November 5, 1999.

Liu Hongru, aged 74, is an independent non-executive director of PetroChina. Mr. Liu graduated from the Economics Department of the University of Moscow in 1959 with an associate doctor’s degree. Mr. Liu worked as a Vice Governor of the Agricultural Bank of China, a Vice Governor of the People’s Bank of China, a Deputy Director of the State Economic Restructuring Committee and Chairman of China Securities Regulatory Commission. Mr. Liu is currently a Deputy Director of the Economic Committee under the Chinese People’s Political Consultative Conference, and concurrently serves as a Vice President of China Finance and Banking Society, a Vice President of China National Debt Association and Director of Shanghai Finance and Law Research Institute. Mr. Liu is also a professor at each of Beijing University, the Graduate School of People’s Bank of China and the City University of Hong Kong. Mr. Liu also acts as independent non-executive director or non-executive director for other four companies listed in Hong Kong Stock Exchange and has the relevant accounting and financial management expertise required by the Hong Kong Stock Exchange Listing Rules. Mr. Liu served as an independent supervisor of PetroChina from December 1999 to November 2002. Mr. Liu has been an independent non-executive director of PetroChina since November 19, 2002.

Franco Bernabè, aged 56, is an independent non-executive director of PetroChina. Mr. Bernabè is the Chairman of the Franco Bernabe Group and Vice Chairman of H3G. He is also Vice Chairman of Rothschild Europe. He used to serve as the executive president of ENI and Telecom Italia. He also serves as a special representative of the Italian government for the reconstruction of the Balkan region. Mr. Bernabè joined ENI in 1983 to become the assistant to the chairman; in 1986 he became director for development, planning and control; and between 1992 and 1998 was the Chief Executive Officer of ENI. Mr. Bernabè led the restructuring program of the ENI Group, making it one of the world’s most profitable oil companies. Between 1998 and 1999, Mr. Bernabè was the Chief Executive Officer of Telecom Italia. Prior to his joining ENI, Mr. Bernabe was the head of economic studies at FIAT. He was also a senior economist at the OECD Department of Economics and Statistics in Paris. Earlier, he was a professor of economic politics at the School of Industrial Administration, Turin University. Mr. Bernabè has been an independent non-executive director of PetroChina since June 30, 2000.

Secretary to the Board of Directors

Li Huaiqi, aged 55, is the secretary to the board of directors of PetroChina. Mr. Li is a senior economist. He has over 30 years’ experience in China’s oil and gas industry. Mr. Li worked with Daqing, Liaohe, Nanhai and Huabei oil and gas companies. From 1992 to 1996, Mr. Li worked as Deputy Director of Foreign Affairs Bureau and Chairman of the Foreign Service Company of CNPC and as Director of Foreign Affairs Bureau of CNPC. In 1999, Mr. Li was appointed as Director of the International Co-operation Department (Foreign Affairs Bureau) of CNPC. Mr. Li has been the secretary to the board of directors of PetroChina since August 29, 2001.

Other Senior Management Personnel

Wang Guoliang, aged 52, is Chief Financial Officer of PetroChina. Mr. Wang has a master’s degree and is a senior accountant. He graduated from Heilongjiang Business College and Hebei University. He has over 20 years’ experience in China’s oil and gas industry. Mr. Wang worked as a Vice President of CNPC Finance Co., Ltd. from 1995 to 1997 and as a Deputy General Manager and General Accountant of China National Oil & Gas Exploration and Exploitation Corporation from 1998 to November 5, 1999 when he was appointed as Chief Financial Officer of PetroChina. He was also General Manager of PetroChina’s Financial Department from November 1999 to March 2002.

Liu Baohe, aged 58, is a Vice President of PetroChina. Mr. Liu is a senior engineer. Mr. Liu graduated from Beijing Petroleum Institute and has over 30 years’ experience in China’s oil and gas industry. From 1994 to 1997, Mr. Liu worked as Vice Director and Director of the Exploration and Production Bureau of CNPC. Mr. Liu was Director of the Department of Oil and Gas Exploitation of CNPC from 1998 to 1999. From 1999 to August 2001, Mr. Liu worked as Deputy General Manager of the exploration and production segment of PetroChina. From September 2001, Mr. Liu was a Vice President of PetroChina. From September 2001 to December 2002, he was also General Manager of the Exploration and Production Branch Company of PetroChina.

Jia Chengzao, aged 56, is Chief Geologist of PetroChina. Mr. Jia is a doctor degree holder, a senior engineer and a Fellow of China Scientific Institute. He graduated from Nanjing University and has over 25 years’ experience in China’s oil and geological industry. From 1994, Mr. Jia held several senior management positions at Tarim Oil Exploration and Exploitation Headquarters, including Deputy Chief Geologist, Chief Geologist and Deputy Commander. Since 1998, he has been a Vice Director of the Oil Exploration and Exploitation Scientific Research Institute of CNPC. From 1999, Mr. Jia worked as a Deputy General Manager of China Petroleum Tarim Oil Field Branch Company and a Vice Director of China Oil Exploration and Exploitation Research Institute. Mr. Jia has been Chief Geologist of PetroChina since July 2000. Since December 2002, Mr. Jia has also been Director of China Oil Exploration and Exploitation Research Institute.

Supervisors

Li Kecheng, aged 61, is Chairman of PetroChina’s supervisory committee. Mr. Li is a senior engineer. Mr. Li graduated from Beijing Science and Technology University and has over 30 years’ experience in China’s oil and gas industry. From 1986 to 1992, Mr. Li was the head of the Petroleum Pipeline Bureau and a senior executive of the Northeastern Oil Transmission Administration Bureau. Since November 1992, Mr. Li has been taking several senior administrative positions at CNPC. Mr. Li has been Chairman of PetroChina’s supervisory committee since November 5, 1999.

Wen Qingshan, aged 46, is a supervisor of PetroChina. Mr. Wen is a senior accountant. Mr. Wen graduated from Jilin Yanbian University. He served as Deputy Chief Accountant of the Finance and Assets Department of CNPC from November 1998 to May 1999, when he was appointed as a Deputy Director of the Finance and Assets Department of CNPC. Mr. Wen has been Director of the Finance and Assets Department of CNPC since May 2002. Mr. Wen has been a supervisor of PetroChina since November 19, 2002.

Sun Xianfeng, aged 52, is a supervisor of PetroChina. Mr. Sun graduated from Huadong Petroleum Institute in September 1977. Mr. Sun worked as Deputy Director of the Supervisory Bureau of CNPC from November 1996, before being transferred to the Eighth Office of the State Council Compliance Inspectors’ General Office (Supervisory Committee of Central Enterprises Working Commission) as its temporary head in June 1998. He has been Deputy Director of the Audit Department of CNPC since October 2000, and has worked concurrently as Director of the Audit Services Center of CNPC since December 2000. Mr. Sun has been a supervisor of PetroChina since May 2004.

Xu Fengli, aged 57, is a supervisor of PetroChina. Mr. Xu is a senior accountant. Mr. Xu graduated from Xi’an Petroleum Institute in July 1985. Mr. Xu has been Chief Accountant of Fushun Petrochemical Corporation since November 1995, Deputy Director of Finance and Assets Department of CNPC since November 1998, Deputy General Manager of the Finance Department of PetroChina since December 1999 and Director of the Administrative Office of the Supervisory Committee of PetroChina since October 2003. Mr. Xu has been a supervisor of PetroChina since May 2004.

Sun Chongren, aged 54, is a supervisor of PetroChina and an employee representative of PetroChina’s supervisory committee. Mr. Sun graduated from Huadong Petroleum Institute and has 30 years’ experience in China’s oil and gas industry. Mr. Sun has been working at Liaohe Petroleum

Administration Bureau for 30 years. Since 1996, he has been a senior executive and Chairman of the workers’ union of Liaohe Petroleum Administration Bureau. Mr. Sun has been a supervisor of PetroChina since November 5, 1999.

Zhang Youcai, aged 63, is an independent supervisor of PetroChina. Mr. Zhang is a professor. Mr. Zhang graduated from Nanjing Industrial University and has over 30 years’ experience in enterprise management and financing. Mr. Zhang worked as Chief Manager of Nantong Fertilizer Factory, Deputy Director of Nantong Municipal Industrial Bureau, Vice Chairman of Nantong Municipal Development and Planning Committee and Vice Mayor of Nantong city, until his appointment as Mayor of Nantong city in April 1984. Mr. Zhang was a Vice Minister of the Ministry of Finance from December 1989 to July 2002. He also served as General Director of the State Asset Administration Bureau from May 1994 to July 1998. Mr. Zhang has been an independent supervisor of PetroChina since November 19, 2002.

Wu Zhipan, aged 48, is an independent supervisor of PetroChina. Mr. Wu acquired a Doctor in Laws from Beijing University School of Law in 1988, and was a visiting scholar at Harvard Law School from 1991 to 1992. Mr. Wu is a Vice President of Beijing University. He is concurrently an expert consultant of the Supreme People’s Court, an arbitrator on the Arbitrator Panel of the China International Economic and Trade Arbitration Commission and a Director of China and Economic Law Society. Mr. Wu is the author of a number of legal publications and has rich experience in law practice. Mr. Wu has been an independent supervisor of PetroChina since December 3, 1999.

Compensation

Senior Management Compensation System

Our senior management compensation system links our senior management members’ financial interests, including those of our executive directors and our supervisors, with our results of operations and the performance of our shares. All of our senior management members have entered into performance contracts with us. Under this system, the senior management members’ compensation system has three components, namely, fixed salaries, performance bonuses and stock appreciation rights. The variable components in their compensation account for approximately 70% to 75% of our senior management officers’ total potential compensation, including up to 25% forming the performance bonus component and approximately 50% to 70% forming the stock appreciation rights component. Variable compensation rewards are linked to the attainment of specific performance targets, such as net income, return on capital and cost reduction targets. The chart below sets forth the components of the total potential compensation for key officers.


			% Stock
	% Fixed		appreciation		% Performance
	salary		rights		bonus

Chairman		30		70		0
President		25		60		15
Vice President		25		60		15
Department GM		25		50		25

We have granted stock appreciation rights to 300 persons, including members of the board of directors and the supervisory committee, president, vice presidents and departmental managers, general managers and deputy general managers of specialized companies and local subsidiaries. Upon exercise of these stock appreciation rights, members of the senior management will not receive any of our shares, but will, by way of stock appreciation rights, receive a monetary sum that is calculated on the basis of the price of our H shares. In 2004, none of the directors and senior management exercised any of the stock appreciation rights granted to them. Since companies are not permitted to repurchase and hold their own shares for offering stock options under current PRC law, we expect to calculate our book gains and losses on the basis of share prices and in

accordance with stock appreciation rights measures and make cash payment of such compensations.

Directors’ and Supervisors’ Compensation

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

The aggregate amount of salaries, housing allowances, other allowances and benefits in kind paid by us to the five highest paid individuals of PetroChina during the year ended December 31, 2004 was RMB 1,645,118. We paid RMB 39,683 as our contribution to the pension plans in respect of those individuals in the year ended December 31, 2004.

The aggregate amount of salaries or other compensation, housing allowances, other allowances and benefits in kind paid by us to our directors, who hold senior management positions or are otherwise employed by us, during the year ended December 31, 2004 was RMB 1,594,932.

Save as disclosed, no other payments have been paid or are payable, in respect of the year ended December 31, 2004, 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.

In 2004, we paid RMB 43,063 as our contribution to the pension plans in respect of our directors and supervisors, who hold senior management positions or are otherwise employed by us. The aggregate amount of salaries or other compensation, housing allowances, other allowances and benefits in kind paid by us to our supervisors, who hold senior management positions or are otherwise employed by us, during the year ended December 31, 2004 was RMB 417,411.

Board Practices

Our board of directors has four principal committees: an audit committee, an investment and development committee, an evaluation and remuneration committee and a health, safety and environment committee.

Audit Committee

Our audit committee is currently composed of three non-executive independent directors, Mr. Franco Bernabè, Mr. Chee-Chen Tung and Mr. Liu Hongru, and one non-executive director, Mr. Gong Huazhang. Mr. Franco Bernabè serves as the chairman of the committee. Under our audit committee charter, the chairman of the committee must be an independent director and all resolutions of the committee must be approved by independent directors. The audit committee’s major responsibilities include:


	•	supervising the integrity of financial reporting process to ensure fair, transparent and true financial disclosure;

	•	evaluating the effectiveness of the internal control and risk management framework;

	•	inspecting and supervising the effectiveness of the internal audit functions;

	•	reviewing the independent auditing process, evaluating the performance of external auditors annually and raising proposals together with the supervisory committee to the shareholders’ meetings with respect to the retention of external auditors and the compensation of such external auditors;


	•	receiving and dealing with submissions and complaints by employees regarding accounting, internal control or auditing matters.

Investment and Development Committee

The current members of our investment and development committee are Ren Chuanjun, as chairman of the committee, and Su Shulin. The investment and development committee’s major responsibilities include:


	•	studying strategic action plans as proposed by our President and making recommendations to the board of directors;

	•	studying the annual investment budget as proposed by our President and making recommendations to the board of directors; and

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

Evaluation and Remuneration Committee

The current members of our evaluation and remuneration committee are Liu Hongru, as chairman of the committee, Mr. Zheng Hu and Mr. Zou Haifeng. The evaluation and remuneration committee’s major responsibilities include:


	•	managing the performance evaluations for our President and monitoring performance evaluations led by our President for Senior Vice President, Vice Presidents, Chief Financial Officer and other senior management personnel;

	•	studying our incentive plan, compensation plan and stock appreciation rights plan, supervising and evaluating the implementation of these plans and making recommendations for improvements to and perfection of such plans.

Health, Safety and Environment Committee

The current members of our health, safety and environment committee are Duan Wende, as chairman of the committee, Mr. Zhou Jiping and Mr. Wang Fucheng. The health, safety and environment committee’s major responsibilities include:


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

	•	making recommendations to the board of directors and our President for major decisions with respect of health, safety and environmental protection;

	•	inquiring the occurrence of and responsibilities for material accidents and supervising the remedial measures of material accidents.

Employees

As of December 31, 2002, 2003 and 2004, we had 419,598, 417,229 and 424,175 employees, respectively. The table below sets forth the number of our employees by business segment as of December 31, 2004.


		Employees		% of total

Exploration and production			236,591		55.8
Refining and marketing			116,813		27.5
Chemicals and marketing			57,765		13.6
Natural gas and pipeline			10,191		2.4
Other ⁽¹⁾			2,815		0.7

	Total		424,175		100.0	%


⁽¹⁾	Including PetroChina Exploration & Development Research Institute, PetroChina Plan and Design Institute, PetroChina Refining & Chemicals Technology Research Center, and the management of our headquarters and specialized companies.

Our employees participate in various retirement benefit plans organized by municipal and provincial governments whereby we are required to make monthly insurance contributions to these plans at rates ranging from 16% to 22% of the employees’ salary. Expenses incurred by us in connection with the retirement benefit plans were approximately RMB 2,109 million, RMB 2,193 million and RMB 2,476 million (US$299 million), respectively, for the three years ended December 31, 2002, 2003 and 2004, respectively.

In 2004, we have not experienced any strikes, work stoppages, labour disputes or actions which affected the operation of any of our businesses. We consider our relationship with our employees to be good.

Share Ownership

Director Zou Haifeng currently has 3,550 A shares of Jilin Chemical Industrial Stock Company, a subsidiary of PetroChina. Other directors, senior officers and supervisors do not have share ownership in PetroChina or any of PetroChina’s affiliates. We have granted stock appreciation rights relating to our H shares to our directors, senior officers and supervisors. Upon exercise of these stock appreciation rights, members of the senior management will not receive any of our shares, but will, by way of stock appreciation rights, receive a momentary sum which is calculated on the basis of the price of our H shares. Because the relevant PRC laws limit the ownership of the H shares of a company incorporated under the PRC laws to only non-PRC nationals, and companies are not permitted to repurchase and hold their own shares for offering stock appreciation rights under current PRC law, our directors, senior officers and supervisors do not hold our H shares under the stock options granted to them. Instead, we expect to calculate the book gains and losses on the basis of share prices and in accordance with our stock appreciation rights granting criteria to be finalized, and make cash payments of such compensation to our directors, senior officers and supervisors.

ITEM 7 — MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Major Shareholders

Prior to the restructuring of the CNPC group in November 1999, CNPC was one of the largest companies in the PRC in terms of sales. As part of the restructuring of the CNPC group, CNPC transferred to PetroChina substantially all its businesses and assets in China relating to the exploration and production of crude oil and natural gas, refining and marketing, chemicals and natural gas sales and transmission. Since the restructuring of the CNPC group, CNPC has engaged in crude oil and natural gas exploration and production business activities outside the PRC and limited chemicals production and retail of refined products. CNPC’s primary business activities relate to the provision of various services and products to PetroChina.

PetroChina was established on November 5, 1999 with CNPC as its sole promoter. As of December 31, 2004, CNPC owned 158,241,758,000 State-owned shares, representing approximately 90% of the share capital of PetroChina, and, accordingly, CNPC is our controlling shareholder.

The shares held by CNPC are state-owned shares in the share capital of PetroChina. However, CNPC has identical voting rights. Holders of state-owned shares and H shares are deemed to be shareholders of different classes for certain matters which may have effect on their respective interest.

As of December 31, 2004, Warren E. Buffett, Berkshire Hathaway Inc., OBH, Inc., National Indemnity Company, GEICO Corporation and Government Employees Insurance Company, as a group as defined under Rule 13d-1(b)(1)(ii)(J) of the Securities Exchange Act of 1934, as amended, collectively owned 2,347,761,000 H shares, representing approximately 1.3% of the total outstanding share capital of PetroChina, or approximately 13.4% of the H shares of PetroChina.

Related Party Transactions

As CNPC directly owns approximately 90% of our total outstanding share capital, transactions between us and CNPC constitute connected transactions for us under the Listing Rules of the Hong Kong Stock Exchange. The waiver in respect of these connected transactions by Hong Kong Stock Exchange is valid from January 1, 2003 to December 31, 2005.

CNPC and PetroChina are expected to continue to conduct all of the connected transactions referred to in the following agreements:

Comprehensive Products and Services Agreement

CNPC and PetroChina will continue to conduct the transactions contemplated by the Comprehensive Products and Services Agreement which was entered into between CNPC and us on March 10, 2000, under which: (1) we have agreed to provide to CNPC, and (2) CNPC has agreed to provide to us, a range of products and services which may be required from time to time by either party.


	*Products and Services Provided by Us to the CNPC Group*

Under the Comprehensive Products and Services Agreement, we have agreed to provide to CNPC certain products and services, including crude oil, natural gas, refined products, chemical products, and services such as supply of water, electricity, gas and heating, quantifying and measuring services and quality inspection services.


	*Products and Services Provided by the CNPC Group to Us*

CNPC has agreed to supply us a wider range of products and services, including the following categories:


	•	construction and technical services,

	•	production services,

	•	supply of material services,

	•	social services,

	•	ancillary services, and

	•	financial services.

Individual Product and Service Implementation Agreement

We and our affiliates may enter into, from time to time and as required, individual Product and Service Implementation Agreements with CNPC and its affiliates.

As the individual Product and Service Implementation Agreement is only intended to provide for the supply of specific products and services contemplated by the Comprehensive Product and Services Agreement, these agreement does not constitute a new connected transaction.

Land Use Rights Leasing Contract

We and CNPC will continue to perform the Land Use Rights Leasing Contract entered into between CNPC and us on March 10, 2000, under which CNPC has agreed to lease the land use rights of an aggregate of 42,476 parcels of land to us in connection with our business and operations, covering an aggregate area of approximately 1,145 million square meters located throughout the PRC, for a term of 50 years for an annual fee in the amount of RMB 2,000 million. The total amount of the fees payable after ten years from the effective date of the contract may be adjusted (to reflect market conditions at such time of adjustment, including market prices, inflation or deflation and other important factors) by consent reached between CNPC and us. In addition, any governmental, legal or other administrative taxes and fees to be paid in connection with the leased properties will be borne by CNPC. However, we have agreed to share proportionately on a reasonable basis with CNPC any additional amount of such taxes and fees payable as a result of changes in policies of the PRC government after the effective date of this contract.

Buildings Leasing Contract and Supplementary Building Leasing Agreement

We and CNPC will continue to perform the Buildings Leasing Contract entered into between CNPC and us on March 10, 2000, under which CNPC has agreed to lease to us a total of 191 buildings covering an aggregate area of 269,770 square meters.

These 191 buildings were leased to us at a price of RMB 145 per square meter per year, or is, at an aggregate annual fee of RMB 39,116,650, for a term of 20 years. In addition, we have agreed to pay for any governmental, legal or other administrative taxes and maintenance charges to be paid in connection with these 191 buildings.

Subsequent to the execution of this contract, on September 26, 2002, we entered into a Supplemental Buildings Leasing Agreement with CNPC, under which CNPC agreed to lease to us an additional 404 buildings covering an aggregate area of 442,730 square meters.

We entered into this Supplementary Building Leasing Agreement as a result of the expansion of our production and operations. These 404 buildings are mainly used for the crude oil and natural gas exploration activities, the West-East natural gas pipeline project and the construction of the refining and chemical products production base in the northeastern region of the PRC.

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We have agreed to pay approximately RMB 157 million annually for these 404 buildings under the Supplemental Buildings Leasing Agreement. We and CNPC will adjust the area and quantity of the properties leased under the Building Leasing Contract and the Supplemental Buildings Leasing Agreement every three years by taking into account changes in the production and operations of each party as well as in the market price. The Supplemental Buildings Leasing Agreement came into effect on January 1, 2003 and will expire simultaneously with the Building Leasing Contract. However, provisions in the Building Leasing Contract that do not conflict with the Supplemental Buildings Leasing Agreement will remain in full force.

Intellectual Property Licensing Contracts

We and CNPC will continue to perform the three intellectual property licensing contracts, including a Trademark Licensing Contract, a Patent and Know-how Licensing Contract and a Computer Software Licensing Contract entered into between CNPC and us on March 10, 2000. Under these licensing contracts, CNPC has granted us exclusive rights to use certain trademarks (including the “CNPC” trademark), patents, know-how and computer software of CNPC for no consideration. These intellectual property rights relate to the assets and businesses of CNPC that were transferred to us in the restructuring of the CNPC group.

Contract for the Transfer of Rights under Production Sharing Contracts

We and CNPC will continue to perform the Contract for the Transfer of Rights under Production Sharing Contracts dated March 10, 2000. As part of the restructuring, CNPC transferred to us relevant rights and obligations, excluding the rights and obligations relating to CNPC’s supervisory functions, under 23 Production Sharing Contracts entered into by CNPC with a number of international oil and natural gas companies.

Guarantee of Debts Contract

We and CNPC will continue to perform the Guarantee of Debts Contract dated March 10, 2000. As part of the restructuring of the CNPC group, we assumed all of CNPC’s debts relating to the assets transferred to us in the restructuring of the CNPC group.

Under this contract, CNPC has agreed to guarantee certain of our debts totalling approximately RMB 756 million (including principal and interest) as of December 31, 2004 for no consideration.

Deposits with China Petroleum Finance Company Limited

We placed deposits with China Petroleum Finance Company Limited, or CP Finance, a subsidiary of CNPC and a non-bank financial institution approved by the People’s Bank of China, in the amount of RMB 2,861 million, RMB 2,331 million and RMB 1,782 million (US$215 million) as of December 31, 2002, 2003 and 2004, respectively. The deposits yield interest at prevailing saving deposit rates.

Related Party Transactions with CNPC (HK)

As part of the restructuring of the CNPC group and in preparation for our listing on HKSE, and as disclosed in our prospectus dated March 27, 2000, CNPC entered into the Contract for the Transfer of Rights under Production Sharing Contracts with us whereby the relevant rights and obligations (other than the supervisory functions related to CNPC’s role as representative of the PRC government) of CNPC under certain contracts, including the Xinjiang Karamay Oilfield Area Blocks 9(1)-9(5) Petroleum Contract dated July 1, 1996, entered into between CNPC and Hafnium Limited, or the Xinjiang Contract, and the Liaohe Oilfield Leng Jiapu Area Petroleum Contract dated December 30, 1997, entered into between CNPC and Beckbury International Limited, or the Liaohe Contract, were novated to us.

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CNPC (Hong Kong) Limited, or CNPC (HK) is a 57.5% owned subsidiary of CNPC. CNPC is our controlling shareholder which holds approximately 90% of our issued share capital. Upon the effective novation by CNPC to us of its interests in the above petroleum production contracts (i.e., Xinjiang Contract and the Liaohe Contract), certain transactions under these petroleum production sharing contracts constitute connected transactions between CNPC (HK) and us.

Summary of the major terms and conditions of these related party transactions under the Xinjiang Contract and the Liaohe Contract are as follows:


	(1) *Production sharing and development cost apportionment between CNPC (HK) and us* . We and CNPC (HK) share the oil and natural gas produced from the Karamay Oilfield Area Blocks 9(1)-9(5), as to 46% by us and 54% by CNPC (HK), and from the Liaohe Oilfield Leng Jiapu Area, as to 30% by us and 70% by CNPC (HK). CNPC (HK) is responsible for all of the development costs in respect of the Karamay Oilfield Area Blocks 9(1)-9(5). We are responsible for 30% and CNPC (HK) is responsible for 70% of the development costs in respect of the Liaohe Leng Jiapu Oilfield.

	(2) *Provision of assistance by us to CNPC (HK)* . We are have agreed to provide assistance to CNPC (HK) for, among other things: (i) leasing warehouses, terminal facilities, barges, pipelines and land; (ii) obtaining approvals necessary for the petroleum operations; and (iii) obtaining office space, office supplies, transportation and communication facilities. CNPC (HK) has agreed to pay us an annual assistance fee in the amount of US$50,000 for each of the Karamay Oilfield Area Blocks 9(1)-9(5) and the Liaohe Leng Jiapu Oilfield Area. The amount of such fee was determined through negotiations by taking into account the actual circumstances and conditions, including the scope of the projects and the level of demand for such assistance. This fee is accounted for as operating costs and shared by us and CNPC (HK) in accordance with procedures described in the Xinjiang Contract and the Liaohe Contract.

	(3) *Payment of training fees* . In the course of development and operations of each oilfield, CNPC (HK) is obligated to pay us an amount of US$50,000 annually for training of our personnel for each of the Karamay Oilfield Area Blocks 9(1)-9(5) and the Liaohe Leng Jiapu Oilfield Area. The amount of this fee was determined through negotiations by taking into account the actual circumstances and conditions, including the scope of the projects and the level of demand for training.

	(4) *Sale of crude oil by CNPC (HK) to us* . CNPC (HK) has the right to deliver its share of oil production from each of the Karamay Oilfield Area Blocks 9(1)-9(5) and the Liaohe Leng Jiapu Oilfield Area to a destination of its choice, except for destinations which infringe on the political interests of the PRC. However, given the transportation costs and the prevailing oil prices, the purchaser of the oil production attributable to CNPC (HK) from each of the Karamay Oilfield Area Blocks 9(1)-9(5) and the Liaohe Leng Jiapu Oilfield Area is likely to be CNPC or its affiliates, including us, which will purchase oil produced in the Karamay Oilfield Area Blocks 9(1)-9(5) and the Liaohe Leng Jiapu Oilfield Area at the market price. Since the entering into of the petroleum production sharing contracts, CNPC (HK) has sold all of its share of the oil production to CNPC or its affiliates, including us. As far as our board of directors is aware, CNPC (HK) intends to continue with this arrangement. Although there is no contractual obligation on us to purchase oil production from the Karamay Oilfield Area Blocks 9(1)-9(5) and the Liaohe Leng Jiapu Oilfield Area, from a commercial perspective, we intend to continue to make such purchases. The price of various grades of crude oil sold will be determined either with reference to the price approved by the relevant PRC authorities or with reference to the prevailing price in arm’s length transactions of crude oil of a similar quality in the market, adjusted to take into account the terms of transportation, payment and other factors.

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Loans or Guarantees with Related Parties

As of December 31, 2004, we had unsecured short-term and long-term loans from CP Finance in an aggregate amount of RMB 23,168 million (US$2,799 million). The average annual interest rate on these loans is 4.55%.

ITEM 8 — FINANCIAL INFORMATION

Financial Statements

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

Dividend Policy

Our board of directors will declare dividends, if any, in Renminbi with respect to H shares on a per share basis and will pay such dividends in HK dollars. Any final dividend for a financial year shall be subject to shareholders’ approval. The Bank of New York will convert the HK dollar dividend payments and distribute them to holders of ADSs in U.S. dollars, less expenses of conversion. The holders of the 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 directors will take into account factors including the following:


	•	general business conditions;

	•	our financial results;

	•	capital requirements;

	•	contractual restrictions on the payment of dividends by us to our shareholders or by our subsidiaries to us;

	•	our shareholders’ interests;

	•	the effect on our debt ratings; and

	•	other factors our board of directors may deem relevant.

We may only distribute dividends after we have made allowance for:


	•	recovery of losses, if any;

	•	allocations to the statutory common reserve fund;

	•	allocations to the statutory common welfare fund; and

	•	allocations to a discretionary common reserve fund if approved by our shareholders.

The minimum and maximum aggregate allocations to the statutory funds are 15% and 20%, respectively, of our net income determined in accordance with PRC accounting rules. Under PRC law, our distributable earnings will be equal to our net income determined in accordance with PRC accounting rules or IFRS, whichever is lower, less allocations to the statutory and discretionary funds.

Subject to the above and to ensure that our dividend policy is consistent with that of major international oil and gas companies, we currently expect that we will distribute as dividends

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approximately 40% to 50% of our reported net income for all years commencing on or after January 1, 2000. We believe that our dividend policy strikes a balance between two important goals:


	•	providing our shareholders with a competitive return on investment; and

	•	assuring sufficient reinvestment of profits to enable us to achieve our strategic objectives.

An interim dividend of RMB 0.115919 (US$0.0140) per H share (inclusive of applicable tax) for the six months ended June 30, 2004 was paid to our shareholders on October 8, 2004. On May 26, 2005, our shareholders approved the payment of a final dividend of RMB 0.147511 (US$0.0178) per H share (inclusive of applicable tax) for the year ended December 31, 2004. The final dividend was calculated on the basis of 45% of our net income for the year ended December 31, 2004. The final dividend was paid on June 10, 2005.

Significant Changes

None.

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ITEM 9 — THE OFFER AND LISTING

Nature of the Trading Market and Market Price Information

Our ADSs, each representing 100 H shares, par value RMB 1.00 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. Prior to these listings, there was no public market for our equity securities. The New York Stock Exchange and the Hong Kong Stock Exchange are the principal trading markets for our ADSs and H shares, respectively.

As of December 31, 2004, there were 17,582,418,000 H shares issued and outstanding. As of December 31, 2004, there were 185 registered holders of American depositary receipts evidencing 24,240,874 ADSs. The depositary of the ADSs is The Bank of New York.

The high and low closing sale prices of the H shares on the Hong Kong Stock Exchange and of the ADSs on the New York Stock Exchange for each quarterly period since listing in 2000 and for each month in 2005 (through June 24, 2005) are set forth below.


		Price per				Price per
		H share				ADS

		High		Low		High		Low

		(HK$)				(US$)
2000
	Second quarter		1.78		1.11		22.56		14.25
	Third quarter		2.05		1.49		26.19		19.38
	Fourth quarter		1.75		1.30		23.00		15.94
2001
	First quarter		1.48		1.26		18.73		16.55
	Second quarter		1.84		1.35		23.60		17.40
	Third quarter		1.67		1.43		21.15		18.43
	Fourth quarter		1.48		1.29		19.30		16.80
2002
	First quarter		1.62		1.39		21.07		18.03
	Second quarter		1.75		1.52		22.40		19.23
	Third quarter		1.72		1.53		21.72		19.25
	Fourth quarter		1.57		1.44		20.75		18.40
2003
	First quarter		1.70		1.55		21.61		19.10
	Second quarter		2.38		1.62		30.82		20.94
	Third quarter		2.80		2.15		35.89		27.67
	Fourth quarter		4.45		2.60		57.05		33.75
2004
	First quarter		4.85		3.75		63.70		47.53
	Second quarter		4.00		3.20		50.96		41.63
	Third quarter		4.175		3.60		53.76		45.98
	Fourth quarter		4.375		4.075		56.60		52.22

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		Price per				Price per
		H share				ADS

		High		Low		High		Low

		(HK$)				(US$)
2005
	January		4.325		4.025		56.10		51.65
	February		4.925		4.30		62.93		55.40
	March		5.10		4.70		65.36		60.76
	April		5.05		4.675		64.76		59.71
	May		4.975		4.70		64.48		60.21
	June (through June 24, 2005)		5.80		4.95		73.71		64.14

The closing prices per H share and per ADS on June 24, 2005 were HK$ 5.80 and US$ 73.71, respectively.

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ITEM 10 — ADDITIONAL INFORMATION

Memorandum and Articles of Association

Our Articles of Association Currently in Effect

The following is a summary based on the significant provisions of our articles of association currently in effect, which was filed with the Commission as an exhibit to our annual report on Form 20-F for the fiscal year ended December 31, 2001 (File No. 1-15006). We hereby incorporate by reference the relevant exhibit to this annual report.


	*Enforceability of Shareholders’ Rights*

Our articles of association provide that all differences or claims


	•	between a holder of H shares and us;

	•	between a holder of H shares and any of our directors, supervisors, general managers, deputy general managers or other senior officers; or

	•	between a holder of H shares and a holder of State-owned shares, arising from any provision of the articles of association, any right or obligation conferred or imposed by the PRC Company Law or any other relevant law or administrative regulation which concerns our affairs

must, with certain exceptions, be referred to arbitration at either the China International Economic and Trade Arbitration Commission in the PRC or the Hong Kong International Arbitration Center. Our articles of association provide that such arbitration will be final and conclusive.


	*Restrictions on Transferability and the Share Register*

The articles of association provide that PRC investors are not entitled to be registered as holders of H shares.

As provided in the articles of association, we may refuse to register a transfer of H shares unless:


	•	any relevant transfer fee is paid;

	•	the instrument of transfer is accompanied by the share certificates to which it relates, or such other evidence is given as may be reasonably necessary to show the right of the transferor to make the transfer;

	•	the instrument of transfer is in respect of one class of shares only; and

	•	the transfer is conducted in accordance with the laws and administrative regulations of or required by the securities exchanges on which the shares are listed.

We are required to keep a register of our shareholders which shall be comprised of various parts, including one part which is to be maintained in Hong Kong in relation to H shares to be listed on the Hong Kong Stock Exchange.


	*Dividends*

We may distribute dividends twice a year, with the final dividend for any financial year being subject to the approval of the shareholders by way of an ordinary resolution. The articles of association allow for distribution of dividends in the form of cash or shares.

Dividends may only be distributed, however, after allowance has been made for:


	•	recovery of losses, if any;

	•	allocations to the statutory common reserve fund;

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	•	allocations to the statutory common welfare fund; and

	•	allocations to a discretionary common reserve fund if approved by the shareholders.

The minimum and maximum aggregate allocations to the statutory funds are 15% and 20%, respectively, of our net income determined in accordance with PRC accounting rules.

The articles of association require us to appoint on behalf of the holders of H shares a receiving agent which is registered as a trust corporation under the Trustee Ordinance of Hong Kong to receive dividends declared by us in respect of the H shares on behalf of such shareholders. The articles of association require that cash dividends in respect of H shares be declared in Renminbi and paid by us in HK dollars.


	*Voting Rights and Shareholders’ Meetings*

Our board of directors will convene a shareholders’ annual general meeting once every year and within six months’ from the end of the preceding financial year. Our board will convene an extraordinary general meeting within two months of the occurrence of any one of the following events:


	•	where the number of directors is less than the number stipulated in the PRC Company law or two-thirds of the number specified in our articles of association;

	•	where our unrecovered losses reach one-third of the total amount of our share capital;

	•	where shareholders holding 10% or more of our issued and outstanding voting shares request in writing the convening of an extraordinary general meeting; or

	•	where our board deems necessary or our board of supervisors so request.

Meetings of a special class of shareholders must be called in certain enumerated situations when the rights of the holders of such class of shares may be modified or adversely affected, as discussed below. Resolutions proposed by shareholders holding 5% or more of the total number of voting shares will be included in the agenda for the relevant annual general meeting if they are matters which fall within the scope of the functions and powers of shareholders in general meeting.

All shareholders’ meetings must be convened by our board by written notice given to shareholders not less than 45 days before the meeting. Based on the written replies received by us 20 days before a shareholders’ meeting, we will calculate the number of voting shares represented by shareholders who have indicated that they intend to attend the meeting. Where the number of voting shares represented by those shareholders amount to more than one-half of our total voting shares, we may convene the shareholders’ general meeting, regardless of the number of shareholders who actually attend. Otherwise, we will, within five days, inform the shareholders again of the motions to be considered and the date and venue of the meeting by way of public announcement. After the announcement is made, the shareholders’ meeting may be convened. The accidental omission by us to give notice of a meeting to, or the non-receipt of notice of a meeting by, a shareholder will not invalidate the proceedings at that shareholders’ meeting.

Shareholders at meetings have the power, among other things, to approve or reject our profit distribution plans, the annual budget, the financial statements, an increase or decrease in share capital, the issuance of debentures, the merger or liquidation of PetroChina and any amendment to our articles of association. In addition, the rights of a class of shareholders may not be modified or abrogated, unless approved by a special resolution of all shareholders at a general shareholders’ meeting and by a special resolution of shareholders of that class of shares at a separate meeting. Our articles of association enumerate, without limitation, certain amendments which would be deemed to be a modification or abrogation of the rights of a class of shareholders, including increasing or decreasing the number of shares of a class disproportionate to increases or decreases

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of other classes of shares, removing or reducing rights to receive dividends in a particular currency or creating shares with voting or equity rights superior to shares of such class.

Each H share is entitled to one vote on all matters submitted to a vote of our shareholders at all shareholders’ meetings, except for meetings of a special class of shareholders where only holders of shares of the affected class are entitled to vote on the basis of one vote per share of the affected class.

Shareholders are entitled to attend and vote at meetings either in person or by proxy. Proxies must be in writing and deposited at our legal address, or such other place as is specified in the meeting notice, not less than 24 hours before the time for holding the meeting at which the proxy proposes to vote or the time appointed for the passing of the relevant resolutions. When the instrument appointing a proxy is executed by the shareholder’s attorney-in-fact, such proxy when deposited must be accompanied by a notarially certified copy of the relevant power of attorney or other authority under which the proxy was executed.

Except for those actions discussed below which require supermajority votes, resolutions of the shareholders are passed by a simple majority of the voting shares held by shareholders who are present in person or by proxy. Special resolutions must be passed by more than two-thirds of the voting rights represented held by shareholders who are present in person or by proxy.

The following decisions must be adopted by special resolution:


	•	an increase or reduction of our share capital or the issue of shares of any class, warrants and other similar securities;

	•	the issue of our debentures;

	•	our division, merger, dissolution and liquidation;

	•	amendments to our articles of association; and

	•	any other matters considered by the shareholders in a general meeting and which they have resolved by way of an ordinary resolution to be of a nature which may have a material impact on us and should be adopted by special resolution.

All other actions taken by the shareholders, including the appointment and removal of our directors and independent auditors and the declaration of normal dividend payments or stock distributions, will be decided by an ordinary resolution of the shareholders.

In addition, certain amendments to the articles of association require the approval and consent of the relevant PRC authorities.

Any shareholder resolution which is in violation of any laws or regulations of the PRC or the articles of association will be null and void.


	*Board of Directors*

Directors will be elected by shareholders at a general meeting. Because the shares do not have cumulative voting rights, a holder of a majority of our shares is able to elect all of the directors. Directors are elected for a term of three years.

Meetings of the board of directors shall be held at least twice every year and shall be convened by the Chairman of the board of directors, who shall notify all directors 10 days before each meeting.

Our board of directors is accountable to the shareholders in general meetings and exercises the following functions and powers to:


	(a) be responsible for the convening of shareholders’ meetings and reporting on its work to the shareholders at such meetings;

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	(b) implement the resolutions passed by the shareholders in general meetings;

	(c) determine our business plans and investment proposals;

	(d) formulate our annual preliminary and final budgets;

	(e) formulate our profit distribution proposal and loss recovery proposals;

	(f) formulate proposals for the increase or reduction of our registered capital and the issuance of our debentures;

	(g) draw up plans for our merger, division or dissolution;

	(h) decide on our internal management structure;

	(i) appoint or remove our president and to appoint or remove the vice presidents and other senior officers, including the financial controller, based on the recommendation of the general manager, and to decide on their remuneration;

	(j) formulate our basic management system;

	(k) formulate proposals for any amendment of our articles of association; and

	(l) exercise any other powers conferred by the shareholders in general meetings.

Except for items (f), (g) and (k), which require the affirmative vote of more than two-thirds of all of our directors, resolutions on any other items may be approved by the affirmative vote of a simple majority of our directors.

In addition to obligations imposed by laws, administrative regulations or the listing rules of the stock exchanges on which our H shares are listed, the articles of association place on each of our directors, supervisors, president, vice presidents and any other senior officers a duty to each shareholder, in the exercise of our functions and powers entrusted to such person:


	•	not to cause us to exceed the scope of business stipulated in our business license;

	•	to act honestly in our best interests;

	•	not to expropriate our property in any way, including, without limitation, usurpation of opportunities which benefit us; and

	•	not to expropriate the individual rights of shareholders, including, without limitation, rights to distributions and voting rights, save and except according to a restructuring which has been submitted to the shareholders for their approval in accordance with the articles of association.

Our articles of association further place on each of our directors, supervisors, president, vice presidents and senior officers:


	•	a duty, in the exercise of such person’s powers and discharge of such person’s duties, to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances;

	•	a fiduciary obligation, in the exercise of our powers entrusted to him or her, not to place himself or herself in a position where his or her duty to us and his or her interests may conflict; and

	•	a duty not to direct a person or entity related or connected to a director, supervisor, president, vice president or senior officer in certain relationships enumerated in the articles of association to act in a manner which such director, supervisor, president, vice president or senior officer is prohibited from doing.

Subject to compliance with all relevant laws and administrative regulations, the shareholders in a general meeting may by ordinary resolution remove any director before the expiration of his term of

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office. Subject to certain qualifications, a director, supervisor, president, vice president or other senior officer may be relieved of liability for a specific breach of his or her duties by the informed consent of shareholders in a general meeting.


	*Board of Supervisors*

The board of supervisors is composed of seven members appointed to monitor our financial matters:


	•	to verify financial reports and other financial information which have been prepared by the board and which are proposed to be presented at shareholders’ meetings, and

	•	to oversee our directors, president, vice presidents and other senior officers in order to prevent such persons from abusing their authority or infringing upon our interest.

The board of supervisors’ powers are generally limited to investigating and reporting to shareholders and management on our affairs and to calling shareholders’ extraordinary general meetings.

One member of the board of supervisors will be an employee representative appointed by our employees. The remaining members will be appointed by the shareholders in a general meeting. One member of the board of supervisors shall be the chairman. A member of the board of supervisors may not be a director, the president, a vice president or the financial controller. The term of office of each member of the board of supervisors is three years, including the term of office of the chairman of the board of supervisors, both of which terms of office are renewable upon re-election and re-appointment. Reasonable expenses incurred by the board of supervisors in carrying out its duties will be paid by us.

The board of supervisors is accountable, and will report, to the shareholders in the shareholders’ general meetings.


	*Restrictions on Large or Controlling Shareholders*

Our articles of association provide that, in addition to any obligation imposed by laws and administrative regulations or required by the listing rules of the stock exchanges on which our H shares are listed, a controlling shareholder shall not exercise his voting rights in a manner prejudicial to the interests of the shareholders generally or of some part of the shareholders:


	•	to relieve a director or supervisor from his or her duty to act honestly in our best interests;

	•	to approve the expropriation by a director or supervisor of our assets in any way, including, without limitation, opportunities which may benefit us; or

	•	to approve the expropriation by a director or supervisor of the individual rights of other shareholders, including, without limitation, rights to distributions and voting rights, except according to a restructuring of our company which has been submitted for approval by the shareholders in a general meeting in accordance with our articles of association.

A controlling shareholder, however, will not be precluded by our articles of association or any laws and administrative regulations or the listing rules of the stock exchanges on which our H shares are listed from voting on these matters.

A controlling shareholder is defined by our articles of association as any person who acting alone or in concert with others:


	•	is in a position to elect more than one-half of the board of directors;

	•	has the power to exercise, or to control the exercise of, 30% or more of our voting rights;

	•	holds 30% or more of our issued and outstanding shares; or

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	•	has de facto control of us in any other way.

Amended Articles of Association Pending for Approval

In May 2005, our shareholders approved our amended articles of association at the annual general meeting of shareholders, which is subject to approval by the State-owned Assets Supervision and Administration Commission of the PRC, or SASAC, before they become effective. Accordingly, we are still governed by our current articles of association in effect, pending this approval. We expect this approval to be granted in due course.

In this subsection, we describe the significant changes that will come into effect upon the approval of SASAC. In the subsection above, we describe our current articles of association. Both subsections must be read in conjunction in order to understand how we will function after the amended articles of association have been approved. We have filed our amended articles of association with the Commission as an exhibit to this annual report on Form 20-F.

The amended articles of associations increase the minimum frequency of mandatory meetings of the board of directors from twice to four times every year and remove the explicit requirement of notifying all directors 10 days before each meeting.

In addition, the amended articles of associations add, among others, the following provisions:


	*Share Certificates and Register of Shareholders*

The amended articles of associations provide that we will make the following documents available at our Hong Kong representative office for inspection by the public and shareholders free of charge and for copying by shareholders at reasonable charges:


	• a complete duplicate of the register of shareholders;

	• a report showing the status of our issued share capital;

	• the latest audited financial statements, directors’ report, auditors’ report, and supervisors’ Reports;

	• our special resolutions;

	• reports showing the number and nominal value of securities repurchased by us since the end of the last financial year, the aggregate amount paid for such securities and the maximum and the minimum prices paid in respect of each class of securities repurchased;

	• a copy of the latest annual examination report filed with the State Administration of Industry and Commerce of the PRC; and

	• for shareholders only, copies of the shareholder meetings’ minutes.


	*Shareholders’ General Meetings*

The amended articles of associations provide that when any shareholder is required to abstain from voting on any particular resolution or restricted to voting only for or against any particular resolution under the Listing Rules, any votes cast by or on behalf of such shareholder in contravention of such requirement or restriction shall not be counted.


	*Board of Directors*

The amended articles of associations provide that when a director or any of his associates has a material interest in any board resolution, the relevant transaction will be dealt with by conducting a board meeting rather than circulating written board resolution. If an independent non-executive director and its affiliates has no material interests in the transaction, he should be present at such board meeting.

112


	*Secretary of the Board of Directors*

The amended articles of associations impose additional responsibilities upon the secretary of our board of directors, who will


	•	organize board meetings and general meetings; and

	•	circulate minutes of the meetings of the board of directors to all directors for their signature and records within 14 days after the board meeting is held, and make the minutes available for inspection.


	*Financial and Accounting Systems and Profit Distribution*

The amended articles of associations provide that we will not exercise our power to forfeit the unclaimed dividends until after the expiry of the applicable limitation period under the relevant PRC law.

Material Contracts

Incorporated by reference to our Registration Statement on Form F-1 (Registration No. 333-11566) and our annual reports on Form 20-F for the fiscal years ended December 31, 1999 (File No. 1-15006), December 31, 2000 (File No. 1-15006), December 31, 2001 (File No. 1-15006), December 31, 2002 (File No. 1-15006) and December 31, 2003 (File No. 1-15006), to which our material contracts were filed as exhibits. For information regarding certain material contracts, see “Item 7 — Major Shareholders and Related Party Transactions — Related Party Transactions” and the material contracts that we have filed with the Commission as exhibits to this annual report.

Exchange Controls

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


	•	debt service on foreign currency-denominated debt;

	•	purchases of imported equipment and materials; and

	•	payment of any dividends declared in respect of the H shares.

Under the existing foreign exchange regulations in China, we may undertake current account foreign exchange transactions, including the payment of dividends, without prior approval from the State Administration of Foreign Exchange by producing commercial documents evidencing such transactions, provided that they are processed through Chinese banks licensed to engage in foreign exchange transactions. The PRC government has stated publicly that it intends to make the Renminbi freely convertible in the future. However, uncertainty exists as to whether the PRC government may restrict access to foreign currency for current account transactions if foreign currency becomes scarce in the PRC.

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

We have been, and will continue to be, affected by changes in exchange rates in connection with our ability to meet our foreign currency obligations and will be affected by such changes in connection with our ability to pay dividends on the H shares in Hong Kong dollars and on ADSs in US dollars. We believe that we have or will be able to obtain sufficient foreign exchange to continue

113

to satisfy these obligations. We do not engage in any financial contract or other arrangement to hedge our currency exposure.

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

Taxation

The following discussion addresses the main PRC tax consequences of the ownership of H shares or ADSs purchased in connection with the global offering and held by the investor as capital assets.

Dividends and Individual Investors

Under the Provisional Regulations of China Concerning Questions of Taxation on Enterprises Experimenting with the Share System (the “Provisional Regulations”) and other applicable tax laws and regulations, dividends paid by PRC companies on shares experimenting with the share system to individuals are generally subject to a PRC withholding tax of 20%. However, on July 21, 1993, the PRC State Administration of Taxation issued the Notice Concerning the Taxation of Gains on Transfer and Dividends from Shares (Equities) Received by Foreign Investment Enterprises, Foreign Enterprises and Foreign Individuals (the “Tax Notice”). Under the Tax Notice, dividends paid by a PRC company to foreign persons with respect to shares listed on an overseas stock exchange (“Overseas Shares”), including the H shares and ADSs, are not subject to PRC withholding tax for the time being.

The Individual Income Tax Law of the PRC was amended effective January 1, 1994 and states that it supersedes any contradictory prior administrative regulation concerning individual income tax. The amended Individual Income Tax Law can be interpreted as providing that all foreign individuals are subject to the 20% withholding tax on dividends paid by a PRC company on its Overseas Shares unless specifically exempted by the financial authority of the State Council of the PRC. However, in a letter dated July 26, 1994 to the former State Commission for Restructuring the Economic System, the former State Council Securities Committee and the China Securities Regulatory Commission, the PRC State Administration of Taxation restated the exemption. In the event that the letter is withdrawn, a 20% tax may be withheld on dividends paid to you, subject to reduction by an applicable tax treaty between China and the country where you reside. To date, the relevant tax authorities have not collected withholding tax from dividend payments on such shares exempted under the Tax Notice.

Dividends and Foreign Enterprises

According to the Provisional Regulations and other applicable tax laws and regulations, dividends paid by PRC companies to foreign enterprises are ordinarily subject to a PRC withholding tax levied at a flat rate of 20%. However, according to the Tax Notice, a foreign enterprise with no permanent establishment in China receiving dividends paid on Overseas Shares will temporarily not be subject to the 20% withholding tax. If such withholding tax becomes applicable in the future, such rate may still be reduced under relevant tax treaties, if applicable.

Tax Treaties

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


	•	the United States;

114


	•	Australia;

	•	Canada;

	•	France;

	•	Germany;

	•	Japan;

	•	Malaysia;

	•	Singapore;

	•	the United Kingdom; and

	•	the Netherlands.

Under each one of such treaties, the rate of withholding tax imposed by China’s taxation authorities is generally reduced. For example, under the double taxation treaty between China and the United States, China may tax dividends paid by us to an eligible U.S. holder up to a maximum of 10% of their gross amount. Under the treaty, an eligible U.S. holder is a person who, by reason of domicile, residence, place or head office, place of incorporation or any other criterion of similar nature is subject to taxation in the United States, as applicable under the treaty’s “treaty shopping provisions”.

Capital Gains

The Tax Notice provides that gains realized by foreign enterprises upon the sale of Overseas Shares which are not held by entities established by such enterprises in the PRC and gains realized by foreign individuals upon the sale of Overseas Shares are not subject to withholding tax for the time being. However, as far as individuals are concerned, the Individual Income Tax Law of the PRC, as amended on October 31, 1993 and effective on January 1, 1994, provides for a capital gains tax of 20% on individuals. On January 28, 1994, the Provisions for Implementing the Individual Income Tax Law of the PRC was promulgated which 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. On June 20, 1994, February 9, 1996 and March 30, 1998, the Ministry of Finance and the State Administration of Taxation issued notices providing that temporarily no capital gains tax will be imposed on gains from the sale of shares by individuals. However, it is uncertain whether the above exemption for foreign enterprises and foreign individuals will continue to apply or be renewed in the future. If such exemption does not apply or is not renewed, and the Tax Notice is found not to apply, as a holder of H shares or ADSs you may be subject to a 20% tax on capital gains, unless reduced by an applicable double taxation treaty.

Additional PRC Tax Considerations

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.

Significant Differences in Corporate Governance Practices

We have filed a summary of the significant differences in our corporate governance practices for purposes of Section 303A.11 of the New York Stock Exchange Listed Company Manual with the Commission as an exhibit to this annual report on Form 20-F and have disclosed the same on our website, www.petrochina.com.cn , which may be accessed as follows:


	1.	From our main web page, first click on “Investor Relations”.

	2.	Next, click on “Corporate Governance Structure”.

115


	3.	Finally, click on “Significant Differences In Corporate Governance Practices For Purposes Of Section 303A.11 of The New York Stock Exchange Listed Company Manual”.

Documents on Display

You may read and copy documents referred to in this annual report on Form 20-F that have been filed with the U.S. Securities and Exchange Commission at the Commission’s public reference room located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for further information on the public reference rooms and their copy charges.

The Commission allows us to “incorporate by reference” the information we file with the Commission. This means that we can disclose important information to you by referring you to another document filed separately with the Commission. The information incorporated by reference is considered to be part of this annual report on Form 20-F.

116

ITEM 11 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

Interest Rate Risk

Our interest risk exposure arises from changing interest rates. The tables below provide information about our financial instruments including various debt obligations that are sensitive to changes in interest rates. The tables present principal cash flows and related weighted-average interest rates at expected maturity dates. Weighted-average variable rates are based on effective rates as of December 31, 2002, 2003 and 2004. The information is presented in Renminbi equivalents, our reporting currency.

Foreign Exchange Rate Risk

We conduct our business primarily in Renminbi. However, a portion of our RMB revenues are converted into other currencies to meet foreign currency financial instrument obligations and to pay for imported equipment, crude oil and other materials. Foreign currency payments for imported equipment represented 12.2%, 15.5% and 18.6% of our total payments for equipment in 2002, 2003 and 2004 respectively. Foreign currency payments for imported crude oil and other materials represented 7.7%, 10.8% and 9.6% of our total payments for materials in 2002, 2003 and 2004 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 related weighted-average interest rates at expected maturity dates in RMB equivalents, using the exchange rates in effect as of December 31, 2002, 2003 and 2004, respectively.

117

December 31, 2004


																Percentage
		Expected maturity date														to total
																long-term		Fair
		2005		2006		2007		2008		2009		Thereafter		Total		debt (%)		value

		(RMB equivalent in millions, except percentages)
Long term debt
Loan in RMB
	Fixed rate		260		6		4		200		—		1		471		0.86%		457
	Average interest rate		5.30%		0.03%		4.72%		3.60%		—		6.10%
	Variable rate ⁽¹⁾		12,234		6,366		13,718		4,440		100		4,500		41,358		75.97%		41,358
	Average interest rate		5.08%		5.12%		4.85%		5.03%		5.18%		4.62%
Loan in Euro
	Fixed rate		36		35		17		17		17		238		360		0.66%		302
	Average interest rate		5.47%		5.42%		2.13%		2.13%		2.13%		2.01%
	Variable rate		—		—		—		—		—		—		—		—		—
	Average interest rate		—		—		—		—		—		—
Loan in United States Dollar
	Fixed rate		463		406		255		169		103		693		2,089		3.84%		1,863
	Average interest rate		6.38%		6.29%		5.96%		5.48%		4.50%		1.57%
	Variable rate		2,670		1,017		1,055		71		1,318		418		6,549		12.03%		6,549
	Average interest rate		2.78%		3.13%		3.27%		1.65%		3.23%		1.65%
Loan in British Pound
	Fixed rate		154		133		51		—		—		—		338		0.62%		326
	Average interest rate		2.85%		2.85%		2.85%		—		—		—
Loan in Japanese Yen
	Fixed rate		170		167		43		24		9		17		430		0.79%		463
	Average interest rate		4.63%		4.62%		4.84%		4.45%		5.02%		5.02%
	Variable rate		—		—		—		—		—		—		—		—		—
	Average interest rate		—		—		—		—		—		—
Debenture in RMB
	Fixed rate		—		—		1,350		—		—		1,500		2,850		5.23%		2,632
	Average interest rate		—		—		4.50%		—		—		4.11%

Total			15,987		8,130		16,493		4,921		1,547		7,367		54,445		100%		53,950

118

December 31, 2003


																Percentage
		Expected maturity date														to total
																long-term		Fair
		2004		2005		2006		2007		2008		Thereafter		Total		debt (%)		value

		(RMB equivalent in millions, except percentages)
Long term debt
Loan in RMB
	Fixed rate		43		39		5		—		—		3		90		0.15%		88
	Average interest rate		2.06%		4.81%		4.44%		—		—		2.03%
	Variable rate ⁽¹⁾		16,686		12,448		6,366		3,720		3,720		3,000		45,940		74.55%		45,940
	Average interest rate		5.05%		5.08%		5.12%		5.18%		5.10%		4.65%
Loan in Euro
	Fixed rate		43		39		34		16		16		233		381		0.62%		319
	Average interest rate		6.08%		5.47%		5.33%		2.11%		2.11%		2.10%
	Variable rate		—		—		—		—		—		—		—		—		—
	Average interest rate		—		—		—		—		—		—
Loan in United States Dollar
	Fixed rate		596		582		531		349		257		1,152		3,467		5.62%		3,253
	Average interest rate		6.05%		6.03%		5.97%		5.65%		5.34%		3.06%
	Variable rate		1,997		4,754		111		116		121		755		7,854		12.75%		7,854
	Average interest rate		1.16%		1.45%		2.33%		2.36%		2.38%		2.32%
Loan in British Pound
	Fixed rate		143		142		122		47		—		—		454		0.74%		432
	Average interest rate		2.85%		2.85%		2.85%		2.85%		—		—
Loan in Japanese Yen
	Fixed rate		164		162		162		42		23		25		578		0.94%		628
	Average interest rate		4.50%		4.49%		4.49%		4.35%		3.56%		2.68%
	Variable rate		—		—		—		—		—		—		—		—		—
	Average interest rate		—		—		—		—		—		—
Debenture in RMB
	Fixed rate		—		—		—		1,350		—		1,500		2,850		4.63%		2,640
	Average interest rate		—		—		—		4.50%		—		4.11%

Total			19,672		18,166		7,331		5,640		4,137		6,668		61,614		100%		61,154

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December 31, 2002


																Percentage
		Expected maturity date														to total
																long-term		Fair
Long term debt		2003		2004		2005		2006		2007		Thereafter		Total		debt %		value

		(RMB equivalent in millions, except percentages)
Loan in RMB
	Fixed rate		127		80		1		—		1		2		211		0.32%		207
	Average interest rate		4.71%		3.46%		6.94%		—		7.00%		—
	Variable rate ⁽¹⁾		3,798		16,087		13,033		6,366		3,720		6,521		49,525		74.20%		49,525
	Average interest rate		5.18%		5.02%		5.15%		5.20%		5.31%		5.01%
Loan in Euro
	Fixed rate		107		36		30		30		15		201		419		0.63%		328
	Average interest rate		3.74%		5.80%		5.16%		5.16%		2.13%		2.11%
	Variable rate		22		22		—		—		—		—		44		0.07%		44
	Average interest rate		1.99%		2.01%		—		—		—		—
Loan in United States Dollar
	Fixed rate		1,037		873		869		741		496		1,403		5,419		8.12%		5,137
	Average interest rate		6.51%		6.43%		6.43%		6.23%		6.01%		3.39%
	Variable rate		372		2,071		2,018		2,208		185		575		7,429		11.13%		7,429
	Average interest rate		4.31%		1.61%		1.45%		2.08%		3.86%		2.71%
Loan in British Pound
	Fixed rate		216		210		210		209		129		348		1,322		1.98%		1,288
	Average interest rate		3.79%		3.82%		3.82%		3.82%		4.41%		5.17%
Loan in Japanese Yen
	Fixed rate		147		146		146		146		39		51		675		1.01%		743
	Average interest rate		4.59%		4.59%		4.59%		4.59%		4.30%		3.55%
	Variable rate		17		16		15		—		—		—		48		0.07%		48
	Average interest rate		3.61%		3.58%		1.97%		—		—		—
Debenture in RMB
	Fixed rate		300		—		—		—		1,350		—		1,650		2.47%		1,646
	Average interest rate		9.00%		—		—		—		4.50%		—

Total			6,143		19,541		16,322		9,700		5,935		9,101		66,742		100%		66,395

⁽¹⁾

Due to the declining interest rates in recent years in China, the PRC government has implemented a program to adjust interest rates on certain fixed RMB loans periodically to reflect the market rates in effect published by the People’s Bank of China, or the PBOC, from time to time. As a result, these previously fixed RMB loans are categorized as variable rate loans as of December 31, 2002, 2003 and 2004. The newly adjusted rates usually become effective one year after the announcement by the PBOC. The average interest rates on these loans are calculated based on the then effective rates as of December 31, 2002, 2003 and 2004, respectively.

Commodity Price Risk

We are engaged in a broad range of petroleum related activities. The hydrocarbon commodity markets are influenced by global as well as regional supply and demand conditions. The PRC government currently publishes prices for onshore crude oil, gasoline and diesel according to international benchmark prices. A decline in prices of crude oil and refined products could adversely affect our financial performance. We historically have not used commodity derivative instruments to hedge the potential price fluctuations of crude oil and other refined products. Therefore, during 2002, 2003 and 2004, we were exposed to the general price fluctuations of broadly traded oil and gas commodities.

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ITEM 12 — DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

PART II

ITEM 13 — DEFAULTS, DIVIDENDS ARREARAGES AND DELINQUENCIES

None.

ITEM 14 — MATERIAL MODIFICATIONS TO THE RIGHTS

TO SECURITY HOLDERS

None.

ITEM 15 — CONTROLS AND PROCEDURES

Our Chairman, who performs the functions of Chief Executive Officer, and our Chief Financial Officer, after evaluating the effectiveness of PetroChina’s disclosure controls and procedures (as defined in the United States Exchange Act Rules 13a-15(e) and 15d(e)) as of the end of the period covered by this annual report, have concluded that, as of such date, PetroChina’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, except as disclosed in the following paragraphs.

In preparation for certain internal control reporting requirements set forth in Section 404 of the Sarbanes-Oxley Act, we are undertaking company-wide documentation of internal controls, performing the system and process evaluation and testing required (and any necessary remediation) in an effort to comply with such requirements by the effective date for compliance. Our efforts to implement standardized internal control procedures and develop the internal tests necessary to verify the proper application of the internal control procedures and their effectiveness will be a key area of focus for our board of directors, our audit committee and our senior management.

In the course of preparation for the implementation of the requirements of Section 404 of the Sarbanes-Oxley Act, we have identified certain internal control deficiencies that could adversely affect our ability to record, process, summarize and report financial data consistent with our management’s assertions in our financial statements. The significant deficiencies and weakness that we have discovered did not relate to fraud or require any material adjustments to our financial statements. Specifically, the identified areas would require us to: (1) enhance our internal audit function by developing and executing a formal audit plan at the head office and regional company level, enhancing its effectiveness and timely communicating identified deficiencies to management, (2) enhance the security and access control of information systems, and (3) improve the experience and knowledge of our employees.

Following the identification of these issues, we commenced planning for remedial measures to make the necessary improvements as soon as practicable. Our board of directors and audit committee have been advised of these issues. Under the supervision and with the participation of our senior management, including our Chairman and Chief Financial Officer, we are in the process of conducting further evaluation of our internal control over financial reporting. We plan to design enhanced processes and controls to address these and any other issues that might be identified through our review. As we are still in the evaluation process, we may identify other conditions that may result in significant deficiencies or material weaknesses in the future. If we discover such conditions, we will take action to correct them. We are committed to taking appropriate steps for remediation, as needed.

121

There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2004 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 16A — AUDIT COMMITTEE FINANCIAL EXPERT

Our audit committee is composed of three non-executive independent directors, Messrs. Franco Bernabé, Chee-Chen Tung and Liu Hongru, and one non-executive director, Gong Huazhang. See “Item 6 — Directors, Senior Management and Employees — Board Practices — Audit Committee”. Our board of directors has determined that Liu Hongru, our non-executive independent director, is qualified as a “financial expert,” as defined in Item 16A of Form 20-F.

ITEM 16B — CODE OF ETHICS

We have adopted a Code of Ethics that applies to our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, other executives and senior officers and a separate Code of Ethics that applies to all of our employees. We have included these two Codes of Ethics as Exhibit 16.1 and Exhibit 16.2 to this annual report. These two Codes of Ethics are also posted on our website, www.petrochina.com.cn , and may be accessed as follows:


	1.	From our main web page, first click on “Investor Relations”.

	2.	Next, click on “Corporate Governance Structure”.

	3.	Finally, click on “Code of Ethics for Senior Management” or “Code of Ethics for Employees of PetroChina Company Limited”.

ITEM 16C — PRINCIPAL ACCOUNTANT FEES AND SERVICES

PricewaterhouseCoopers has served as PetroChina’s independent public accountants for each of the fiscal years in the three-year period ended December 31, 2004, for which audited financial statements appear in this annual report on Form 20-F. The auditors are elected annually at the annual general meeting of PetroChina.

The offices of PricewaterhouseCoopers are located at Prince’s Building, 22nd Floor, Central, Hong Kong.

The following table presents the aggregate fees for professional audit services and other services rendered by PricewaterhouseCoopers to PetroChina for each of the years ended December 31, 2003 and 2004.


	December 31,

	2003		2003		2004		2004

	RMB		US$		RMB		US$
	(in millions)
Audit fees		44		5		43		5
Audit-related fees		—		—		—		—
Tax fees		—		—		—		—
Other fees		—		—		23		3

Total		44		5		66		8

Audit fees consist of fees billed for the annual audit services and other audit services, which are those services that only the external auditor reasonably can provide, and include the group audit, statutory audits, and assistance with and review of documents filed with the Commission.

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Other fees mainly include fees billed for advisory services in assisting our management to evaluate and improve our internal control procedures over financial reporting as required under Section 404 of the Sarbanes-Oxley Act.


	*Audit Committee Pre-approved Policies and Procedures*

Currently, all non-audit services to be provided by our independent public accountants, PricewaterhouseCoopers, must be approved by our audit committee.

During 2004, services relating to all audit-related fees provided to us by PricewaterhouseCoopers 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

Not applicable.

ITEM 16E — PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND ITS AFFILIATES

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 page F-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

1.1		Articles of Association (as amended) (English translation) ⁽¹⁾
1.2		Articles of Association (as amended and pending for approval of SASAC) (English translation)
4.1		2005 Management Performance Contract (English Translation)
4.2		Crude Oil Mutual Supply Framework Agreement, dated December 1, 2004, between China Petroleum and Chemical Corporation and PetroChina (English translation)
4.3		Capital Contribution Agreement, dated June 9, 2005, among China National Oil and Gas Exploration and Development Corporation, Central Asia Petroleum Company Limited, Zhong You Kan Tan Kai Fa Company Limited and PetroChina (English Translation)
4.4		Transfer Agreement, dated June 9, 2005, between Zhong You Kan Tan Kai Fa Company Limited and PetroChina (English Translation)

123


Exhibit
Number		Description of Exhibits

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


⁽¹⁾	Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2001 (File No. 1-15006) filed with the Commission.

⁽²⁾	Incorporated by reference to our Registration Statement on Form F-1 (File No. 333-11566) filed with the Commission, as declared effective on March 29, 2000.

124

SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.


	PETROCHINA COMPANY LIMITED

	/s/ LI HUAIQI

	Name: Li Huaiqi
	Title: Secretary to Board of Directors

Date: June 29, 2005

125

INDEX OF FINANCIAL STATEMENTS


		Page

PetroChina Company Limited and its Subsidiaries
	Consolidated Financial Statements
	Report of Independent Registered Public Accounting Firm		F-2
	Consolidated Statements of Income for each of the three years in the period ended December 31, 2004		F-3
	Consolidated Balance Sheets as of December 31, 2003 and 2004		F-4
	Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2004		F-5
	Consolidated Statements of Changes in Shareholders’ Equity for each of the three years in the period ended December 31, 2004		F-7
	Notes to the Consolidated Financial Statements		F-8
	Supplementary Petroleum Data (unaudited)		F-57

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of PetroChina Company Limited:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of cash flows and of changes in equity present fairly, in all material respects, the consolidated financial position of PetroChina Company Limited (the “Company”) and its subsidiaries (the “Group”) at December 31, 2003 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with International Financial Reporting Standards. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.

International Financial Reporting Standards vary in certain significant respects from accounting principles generally accepted in the United States. The application of the latter would have affected the determination of consolidated net income for each of the three years in the period ended December 31, 2004 and the determination of consolidated shareholders’ equity at December 31, 2003 and 2004 to the extent summarized in Note 35 to the consolidated financial statements.


	PricewaterhouseCoopers
	Certified Public Accountants

	Hong Kong, June 28, 2005

F-2

PETROCHINA COMPANY LIMITED

CONSOLIDATED STATEMENTS OF INCOME

For the Years Ended December 31, 2002, 2003 and 2004

(Amounts in millions except for per share data)


				Year Ended December 31,

		Note		2002			2003			2004			2004

				RMB			RMB			RMB			US$
REVENUES
	Sales and other operating revenues				244,424			303,779			388,633			46,956

OPERATING EXPENSES
	Purchases, services and other				(71,690	)		(90,850	)		(116,353	)		(14,058	)
	Employee compensation costs		4		(16,248	)		(19,542	)		(22,309	)		(2,695	)
	Exploration expenses, including exploratory dry holes				(8,095	)		(10,577	)		(11,723	)		(1,416	)
	Depreciation, depletion and amortization				(36,782	)		(40,531	)		(46,411	)		(5,608	)
	Selling, general and administrative expenses				(22,474	)		(23,930	)		(26,377	)		(3,187	)
	Shut down of manufacturing assets		5		(2,121	)		(2,355	)		(220	)		(27	)
	Taxes other than income taxes				(14,613	)		(15,879	)		(18,685	)		(2,258	)
	Revaluation loss of property, plant and equipment		16		—			(391	)		—			—
	Other (expense)/income, net				(60	)		(538	)		31			4

TOTAL OPERATING EXPENSES					(172,083	)		(204,593	)		(242,047	)		(29,245	)

INCOME FROM OPERATIONS					72,341			99,186			146,586			17,711

FINANCE COSTS
	Exchange gain				133			53			50			6
	Exchange loss				(449	)		(233	)		(123	)		(15	)
	Interest income				463			677			1,107			134
	Interest expense		6		(3,516	)		(2,346	)		(2,303	)		(278	)

TOTAL FINANCE COSTS					(3,369	)		(1,849	)		(1,269	)		(153	)

INCOME FROM EQUITY AFFILIATES			17		268			985			1,824			220

INCOME BEFORE INCOME TAXES					69,240			98,322			147,141			17,778
INCOME TAXES			7		(22,231	)		(28,072	)		(42,563	)		(5,143	)

INCOME BEFORE MINORITY INTERESTS					47,009			70,250			104,578			12,635
INCOME APPLICABLE TO MINORITY INTERESTS					(99	)		(636	)		(1,651	)		(199	)

NET INCOME					46,910			69,614			102,927			12,436

BASIC AND DILUTED NET INCOME PER SHARE			8		0.27			0.40			0.59			0.07

NUMBER OF SHARES			8		175,824			175,824			175,824			175,824

DIVIDENDS ATTRIBUTABLE TO:
	Interim dividend declared during the year		9		8,811			17,379			20,381			2,463
	Final dividend proposed after the balance sheet date		9		12,299			13,947			25,936			3,134

					21,110			31,326			46,317			5,597

The accompanying notes are an integral part of these financial statements.

F-3

PETROCHINA COMPANY LIMITED

CONSOLIDATED BALANCE SHEETS

As of December 31, 2003 and 2004

(Amounts in millions)


			At December 31,

	Note		2003			2004			2004

			RMB			RMB			US$
ASSETS
Current assets
Cash and cash equivalents		10		11,231			11,304			1,366
Time deposits with maturities over three months				2,640			1,400			169
Receivables under resale agreements		11		24,224			33,217			4,013
Notes receivable		12		2,416			4,824			583
Accounts receivable, less allowance for impairment of receivables		13		3,263			2,662			322
Inventories		14		28,872			45,771			5,530
Prepaid expenses and other current assets		15		13,528			17,563			2,122

TOTAL CURRENT ASSETS				86,174			116,741			14,105
Property, plant and equipment, less accumulated depreciation, depletion and amortization		16		427,875			468,519			56,608
Investments in equity affiliates		17		5,571			7,923			958
Available-for-sale investments		18		1,839			1,510			182
Advance operating lease payments		19		7,252			12,248			1,480
Intangible and other assets		20		3,024			2,987			361

TOTAL ASSETS				531,735			609,928			73,694

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Short-term debt		22		28,890			27,276			3,296
Accounts payable and accrued liabilities		21		64,180			70,696			8,542
Income tax payable				12,043			17,484			2,112
Other taxes payable				8,916			4,633			560

TOTAL CURRENT LIABILITIES				114,029			120,089			14,510
Long-term debt		22		41,959			38,458			4,646
Other long-term obligations				2,000			2,438			294
Deferred income taxes		23		11,526			14,340			1,733

TOTAL LIABILITIES				169,514			175,325			21,183

MINORITY INTERESTS				5,608			9,391			1,135

SHAREHOLDERS’ EQUITY
State-owned shares		24		158,242			158,242			19,120
H shares		24		17,582			17,582			2,124

Share capital, issued and outstanding, RMB 1.00 par value				175,824			175,824			21,244
Retained earnings				89,577			143,624			17,353
Capital reserve		25		(28,557	)		(28,557	)		(3,450	)
Revaluation reserve		25		79,946			79,946			9,660
Statutory common reserve fund		25		26,370			36,071			4,358
Statutory common welfare fund		25		16,653			21,504			2,598
Other reserves		25		(3,200	)		(3,200	)		(387	)

SHAREHOLDERS’ EQUITY				356,613			425,212			51,376

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY				531,735			609,928			73,694

The accompanying notes are an integral part of these financial statements.

F-4

PETROCHINA COMPANY LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2002, 2003 and 2004

(Amounts in millions)


					Year Ended December 31,

			Note		2002			2003			2004			2004

					RMB			RMB			RMB			US$
CASH FLOWS FROM OPERATING ACTIVITIES
	Net income					46,910			69,614			102,927			12,436
	Adjustments for:
		Income applicable to minority interests				99			636			1,651			199
		Income taxes		7		22,231			28,072			42,563			5,143
		Depreciation, depletion and amortization				36,782			40,531			46,411			5,608
		Provision for shut down of manufacturing assets		5		2,121			2,355			220			27
		Dry hole cost				3,527			4,691			4,718			570
		Income from equity affiliates		17		(268	)		(985	)		(1,824	)		(220	)
		Impairment of receivables, net		13, 15		284			1,434			480			58
		Write down in inventories, net		14		(122	)		136			146			17
		Impairment of available-for-sale investments, net		18		4			158			26			3
		Loss on disposal of property, plant and equipment				647			1,048			2,806			339
		Loss on disposal of equity affiliates				—			—			33			4
		Loss on disposal of available-for-sale investments				21			21			6			1
		Loss on disposal of intangible and other assets				17			143			50			6
		Revaluation loss of property, plant and equipment		16		—			391			—			—
		Dividend income		18		(60	)		(69	)		(90	)		(11	)
		Interest income				(463	)		(677	)		(1,107	)		(134	)
		Interest expense		6		3,516			2,346			2,303			278
	Advance payments on long-term operating leases					(1,051	)		(1,584	)		(5,598	)		(676	)
	Changes in working capital:
		— accounts receivable and prepaid expenses and other current assets				4,554			3,612			(5,649	)		(683	)
		— inventories				157			(567	)		(17,045	)		(2,059	)
		— accounts payable and accrued liabilities				2,047			8,738			533			64

CASH GENERATED FROM OPERATIONS						120,953			160,044			173,560			20,970
	Interest received					463			677			1,107			134
	Interest paid					(4,564	)		(3,769	)		(3,405	)		(411	)
	Income taxes paid					(19,562	)		(19,716	)		(33,963	)		(4,104	)

NET CASH PROVIDED BY OPERATING ACTIVITIES						97,290			137,236			137,299			16,589

The accompanying notes are an integral part of these financial statements.

F-5

PETROCHINA COMPANY LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)

For the Years Ended December 31, 2002, 2003 and 2004

(Amounts in millions)


				Year Ended December 31,

		Note		2002			2003			2004			2004

				RMB			RMB			RMB			US$
CASH FLOWS FROM INVESTING ACTIVITIES
	Capital expenditures				(69,739	)		(79,739	)		(90,448	)		(10,928	)
	Acquisition of subsidiaries		30		(2,150	)		—			—			—
	Acquisition of equity affiliates				(1,119	)		(1,044	)		(485	)		(59	)
	Acquisition of available-for-sale investments				(231	)		(722	)		(476	)		(58	)
	Net acquisition of receivables under resale agreements with maturities not greater than three months				(497	)		(10,182	)		(8,049	)		(972	)
	Acquisition of receivables under resale agreements with maturities over three months				(420	)		(4,676	)		(8,301	)		(1,003	)
	Acquisition of intangible assets				(666	)		(473	)		(531	)		(64	)
	Acquisition of other non-current assets				(295	)		(569	)		(280	)		(34	)
	Proceeds from receivables under resale agreements with maturities over three months				2,636			420			7,357			889
	Repayment of capital by equity affiliates				301			336			206			25
	Proceeds from disposal of property, plant and equipment				497			202			778			94
	Proceeds from disposal of equity affiliates				243			23			27			3
	Proceeds from disposal of available-for-sale investments				97			87			83			10
	Proceeds from disposal of intangible and other non-current assets				—			—			37			5
	Dividends received				91			152			309			37
	Decrease/(Increase) in time deposits with maturities over three months				641			(28	)		1,240			150

NET CASH USED FOR INVESTING ACTIVITIES					(70,611	)		(96,213	)		(98,533	)		(11,905	)

CASH FLOWS FROM FINANCING ACTIVITIES
	Repayments of short-term debt				(34,550	)		(30,373	)		(21,700	)		(2,622	)
	Repayments of long-term debt				(13,944	)		(7,951	)		(22,783	)		(2,753	)
	Principal payment on capital lease obligations				(104	)		(66	)		(35	)		(4	)
	Dividends paid to minority interests				(135	)		(85	)		(357	)		(43	)
	Cash payment for acquisition of CNPC marketing enterprises		2		(430	)		(170	)		(1,476	)		(178	)
	Dividends paid		9		(17,650	)		(29,678	)		(34,328	)		(4,148	)
	Increase in short-term debt				28,728			25,128			23,789			2,874
	Increase in long-term debt				9,885			2,823			15,614			1,887
	Capital contribution from minority interests				57			287			2,145			259
	Change in other long-term obligations				304			316			438			53
	Contribution from CNPC to marketing enterprises				10			—			—			—

NET CASH USED FOR FINANCING ACTIVITIES					(27,829	)		(39,769	)		(38,693	)		(4,675	)

	(Decrease)/Increase in cash and cash equivalents				(1,150	)		1,254			73			9
	Cash and cash equivalents at beginning of year		10		11,127			9,977			11,231			1,357

	Cash and cash equivalents at end of year		10		9,977			11,231			11,304			1,366

The accompanying notes are an integral part of these financial statements.

F-6

PETROCHINA COMPANY LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Years Ended December 31, 2002, 2003 and 2004

(Amounts in millions)


	Share
	Capital		Retained			Reserves
	(Note 24)		Earnings			(Note 25)			Total

	RMB		RMB			RMB			RMB
Balance at January 1, 2002		175,824		35,607			79,175			290,606
Net income for the year ended December 31, 2002		—		46,910			—			46,910
Transfer to reserves (Note 25)		—		(5,863	)		5,863			—
Final dividend for 2001 (Note 9)		—		(8,839	)		—			(8,839	)
Interim dividend for 2002 (Note 9)		—		(8,811	)		—			(8,811	)
Contribution from CNPC to marketing enterprises (Note 2)		—		—			10			10
Payment to CNPC for acquisition of marketing enterprises (Note 2)		—		—			(3,200	)		(3,200	)

Balance at December 31, 2002		175,824		59,004			81,848			316,676

Net income for the year ended December 31, 2003		—		69,614			—			69,614
Revaluation surplus of property, plant and equipment, net of tax		—		—			527			527
Revaluation loss offset against previous revaluation surplus of property, plant and equipment, net of tax		—		—			(526	)		(526	)
Transfer to reserves (Note 25)		—		(9,363	)		9,363			—
Final dividend for 2002 (Note 9)		—		(12,299	)		—			(12,299	)
Interim dividend for 2003 (Note 9)		—		(17,379	)		—			(17,379	)

Balance at December 31, 2003		175,824		89,577			91,212			356,613

Net income for the year ended December 31, 2004		—		102,927			—			102,927
Transfer to reserves (Note 25)		—		(14,552	)		14,552			—
Final dividend for 2003 (Note 9)		—		(13,947	)		—			(13,947	)
Interim dividend for 2004 (Note 9)		—		(20,381	)		—			(20,381	)

Balance at December 31, 2004		175,824		143,624			105,764			425,212

Balance at December 31, 2004 in US$		21,244		17,353			12,779			51,376

The accompanying notes are an integral part of these financial statements.

F-7

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in millions except for per share data or unless otherwise stated)


1	ORGANIZATION AND PRINCIPAL ACTIVITIES

PetroChina Company Limited (the “Company”) was established in the People’s Republic of China (the “PRC” or “China”) on November 5, 1999 as a joint stock company with limited liability as a result of a group restructuring (the “Restructuring”) of China National Petroleum Corporation (“CNPC”) in preparation for the listing of the Company’s shares in Hong Kong and in the United States of America. (See Note 24.) The Company and its subsidiaries are collectively referred to as the “Group”.

The Group is principally engaged in (i) the exploration, development and production of crude oil and natural gas, (ii) the refining, transportation, storage and marketing of crude oil and petroleum products, (iii) the production and sale of chemicals, and (iv) the transmission, marketing and sale of natural gas. (See Note 34.)


2	BASIS OF PREPARATION

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”). This basis of accounting differs from the accounting principles generally accepted in the United States of America (“US GAAP”) (Note 35). The statements are prepared on the historical cost convention as modified by the revaluation of certain property, plant and equipment.

The preparation of financial statements in conformity with IFRS 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 financial statements 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 ultimately may differ from those estimates.

In September 2002, the Company acquired from CNPC the assets, liabilities and interests related to CNPC’s refined products marketing enterprises comprising primarily of service stations and related facilities for RMB 3,200. The Company has accounted for the acquisition in a manner similar to a uniting of interests, whereby the assets and liabilities of the marketing enterprises acquired were accounted for at historical cost to CNPC, and the consolidated financial statements were restated in the prior year to give effect to the acquisition with all periods presented as if the operations of the Company and these marketing enterprises had always been combined. The difference between the RMB 3,200 acquisition price and the net liabilities transferred from CNPC was adjusted against equity.

The consolidated financial statements are expressed in Renminbi (“RMB”), the national currency of the PRC. Solely for the convenience of the reader, the December 31, 2004, financial statements have been translated into United States dollars at the noon buying rate in New York City on December 31, 2004, for cable transfers in Renminbi as certified for customs purposes by the Federal Reserve Bank of New York of US$1.00 = RMB 8.2765. No representation is made that the Renminbi amounts could have been, or could be, converted into United States dollars at that rate or at any other certain rate on December 31, 2004, or at any other date.

F-8

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)


3	SUMMARY OF PRINCIPAL ACCOUNTING POLICIES


	*(a) Basis of consolidation*

The consolidated financial statements include the financial statements of the Company and its subsidiaries. Subsidiaries are those entities in which the Group has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies.

Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the net assets of the subsidiary acquired is recorded as goodwill. Intercompany transactions, balances and unrealized gains on transactions between group companies are eliminated; unrealized losses are also eliminated unless cost cannot be recovered. Where necessary, accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the Group.

A listing of the Group’s principal subsidiaries is set out in Note 36.


	*(b) Investments in equity affiliates*

Investments in equity affiliates are accounted for by the equity method. Under this method the Group’s share of the post-acquisition profits or losses of equity affiliates is recognized in the income statement and its share of post-acquisition movements in reserves is recognized in reserves. The cumulative post-acquisition movements are adjusted against the cost of the investment. Equity affiliates are entities in which the Group generally has between 20% and 50% of the voting rights, or over which the Group has significant influence, but which it does not control. Unrealized gains on transactions between the Group and its equity affiliates are eliminated to the extent of the Group’s interest in the equity affiliates; unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The Group’s investment in equity affiliates includes goodwill (net of accumulated amortization) on acquisition. When the Group’s share of losses in an equity affiliate equals or exceeds its interest in the equity affiliate, the Group does not recognize further losses, unless the Group has incurred obligations or made payments on behalf of the equity affiliate.

A listing of the Group’s principal equity affiliates is shown in Note 17.


	*(c) Foreign currencies*

Items included in the financial statements of each entity in the Group are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity. Substantially all assets and operations of the Group are located in the PRC, and the measurement currency is RMB. The Group also owns certain crude oil and natural gas exploration and production operations in Indonesia and the measurement currency for these operations is US dollars. The consolidated financial statements are presented in RMB, which is the measurement currency of the parent and most of the consolidated entities.

F-9

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)

Foreign currency transactions of the Group are accounted for at the exchange rates prevailing at the date of the transactions; gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognized in the consolidated income statement. Monetary assets and liabilities are translated at balance sheet date exchange rates.

Income statement and cash flows of foreign entities are translated into the Group’s reporting currency at average exchange rates for the year and their balance sheets are translated at the exchange rates at year end. Currency translation differences are recognized in shareholders’ equity.

The Group did not enter into any hedge contracts during any of the years presented. No foreign currency exchange gains or losses were capitalized for any years presented.


	*(d) Financial instruments*

Financial instruments carried at the balance sheet date include cash and bank balances, investments, receivables, payables, leases and debts. Where necessary the particular recognition methods adopted are disclosed in the individual policy statements associated with each item.

Derivatives are recognized at fair value with changes in the fair value recognized in the income statement. The Group did not hold any derivative financial instruments for hedging or risk management purpose in any of the years presented.


	*(e) Investments*

The Group classifies its investments into the following categories: trading, held-to-maturity and available-for-sale. Investments that are acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as trading investments and included in current assets; the Group did not hold any investment in this category during the year presented. Investments with fixed maturity that the management has the intent and ability to hold to maturity are classified as held-to-maturity and are included in current assets if their respective maturity dates are twelve months or less from balance sheet date, or in non-current assets if their respective maturity dates are more than twelve months from balance sheet date; during the year the Group did not hold any investment in this category. Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are classified as available-for-sale; these are included in non-current assets unless management has the express intention of holding the investment for less than twelve months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in current assets. Management determines the appropriate classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis.

All purchases and sales of investments are recognized on the effective acquisition or sale date. Cost of purchase includes transaction costs. Available-for-sale investments measured at fair value except there are no quoted market prices in active markets and whose fair values cannot be reliably measured using valuation techniques. Available-for-sale investments carried at cost are subject to review for impairment.


	*(f) Property, plant and equipment*

Property, plant and equipment, including oil and gas properties (Note 3(g)), are initially recorded at cost less accumulated depreciation, depletion and amortization. Cost represents the purchase price of the asset and other costs incurred to bring the asset into existing use. Subsequent to their

F-10

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)

initial recognition, property, plant and equipment are carried at revalued amount. Revaluations are performed by independent qualified valuers on a regular basis.

In the intervening years between independent revaluations, the directors review the carrying values of the property, plant and equipment and adjustment is made where the carrying value differs from fair value. As at September 30, 2003, an exercise was undertaken by independent qualified valuers, resulting in minor adjustments to the carrying values, as described in Note 16. Increases in the carrying amount arising on revaluation are credited to the revaluation reserve. Decreases in valuation of property, plant and equipment are first offset against increases from earlier valuations in respect of the same asset and are thereafter charged to the income statement. All other decreases in valuation are charged to the income statement. Any subsequent increases are credited to the income statement up to the amount previously charged.

Revaluation surpluses pertaining to revalued assets depreciated or disposed of are retained in the revaluation reserve and will not be available for offsetting against possible future revaluation losses.

Depreciation, depletion and amortization to write off the cost or valuation of each asset, other than oil and gas properties, to their residual values over their estimated useful lives is calculated using the straight-line method.

The Group uses the following useful lives for depreciation, depletion and amortization purposes:


Buildings			25-40 years
Plant and machinery			10-15 years
Equipment and motor vehicles			3-16 years

No depreciation is provided for construction in progress until they are completed and ready for use.

Property, plant and equipment, including oil and gas properties (Note 3(g)), are reviewed for possible impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of a cash generating unit exceeds the higher of its net selling price and its value in use, which is the estimated net present value of future cash flows to be derived from the continuing use of the assets in the cash generating unit and from their ultimate disposal.

Gains and losses on disposal of property, plant and equipment are determined by reference to their carrying amount and are taken into account in determining net income.

Interest and other costs on debts to finance the construction of property, plant and equipment are capitalized during the period of time that is required to complete and prepare the property for its intended use. Costs for planned major maintenance activities, primarily related to refinery turnarounds, are expensed as incurred except for costs of components that result in improvements and 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 capitalised. Costs of exploratory wells are capitalised as construction in progress pending determination of whether the wells find proved

F-11

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)

reserves. Proved oil and gas reserves are the estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, i.e., prices and costs as of the date the estimate is made. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not on escalations based upon future conditions. Geological and geophysical costs are expensed when incurred. Costs of exploratory wells are capitalized pending a determination of whether sufficient quantities of potentially economic oil and gas reserves have been discovered. 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 such economic viability is not attained. For wells that found economically viable reserves in areas where a major capital expenditure would be required before production can begin, the related well costs remain capitalized only if additional drilling is under way or firmly planned. Otherwise the well costs are expensed as dry holes. The Group has no costs of unproved properties capitalised in oil and gas properties.

The Ministry of Land and Resources in China issues production licenses to applicants on the basis of the reserve reports approved by relevant authorities. Administrative rules issued by the State Council provide that the maximum term of a production license is 30 years. However, in accordance with a special approval from the State Council, the Ministry of Land and Resources has issued production licenses effective March 2000 to the Group for all of its crude oil and natural gas reservoirs with terms coextensive with the projected production life of those reservoirs, ranging up to 55 years. Production licenses to be issued to the Group in the future will be subject to the 30-year maximum unless additional special approvals can be obtained from the State Council. Each of the Group’s production licenses is renewable upon application by the Group 30 days prior to expiration. Future oil and gas price increases may extend the productive lives of crude oil and natural gas reservoirs beyond the current terms of the relevant production licenses. Payments on such licenses are made annually and are expensed as incurred. The cost of oil and gas properties is amortized at the field level on the unit of production method. Unit of production rates are based on oil and gas reserves estimated to be recoverable from existing facilities based on the current terms of the Group’s production licenses. The Group’s reserve estimates include only crude oil and natural gas which management believes can be reasonably produced within the current terms of these production licenses. The Group did not incur and does not anticipate to incur any material dismantlement, restoration or abandonment cost given the nature of its onshore producing activities and current PRC regulations governing such activities.


	*(h) Intangible assets*

Expenditure on acquired patents, trademarks, technical know-how and licenses is capitalized and amortized using the straight-line method over their useful lives, generally over 10 years. Intangible assets are not revalued. The Group does not have capitalized internally generated intangible assets. 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 asset exceeds its recoverable amount. The impairment loss is recognized in the consolidated income statement. The recoverable amount is measured as the higher of net selling price and value in use which is the present value of estimated future cash flows to be derived from continuing use of the asset and from its ultimate disposal.

F-12

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)

(i) Leases

Leases of property, plant and equipment where the Group assumes substantially all the benefits and risks of ownership are classified as capital leases. Capital leases are capitalized at the inception of the leases at the lower of the fair value of the leased property and the estimated present value of the underlying lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. Property, plant and equipment acquired under capital lease are generally depreciated over the useful life of the asset as the Group usually obtains ownership of such leased assets by the end of the leased term.

Leases of assets under which substantially all of the risks and benefits of ownership are effectively retained by the lessor are classified as operating leases. Payments made under operating leases are expensed on a straight-line basis over the lease term. Payments made to the PRC’s land authorities to secure land use rights are treated as operating leases. Land use rights are generally obtained through advance lump-sum payments and the terms for use range up to 50 years.

(j) Related parties

Related parties are corporations in which CNPC is a major shareholder and is able to control or exercise significant influence.

(k) Inventories

Inventories are oil products, chemical products, and materials and supplies, which are stated at the lower of cost and net realizable value. Cost is 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 interest expense. Net realizable value is the estimate of the selling price in the ordinary course of business, less the cost of completion and selling expenses.

(l) Trade receivables

Trade receivables are carried at original invoice amount less provision made for impairment of these receivables. Such provision for impairment of trade receivables is established if there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, discounted at the market rate of interest for similar borrowers.

(m) Cash and cash equivalents

Cash and cash equivalents are carried in the balance sheet at cost and comprise cash in hand and investments with maturities of three months or less from the time of purchase.

(n) Debts

Debts are recognized initially at the proceeds received, net of transaction costs incurred. In subsequent periods, debts are stated at amortized cost using the effective yield method. Any difference between proceeds (net of transaction costs) and the redemption value is recognized in the income statement over the period of the debts, except for the portion eligible for capitalization.

F-13

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)

(o) Taxation

The Company has obtained approval from the State Administration for Taxation to report taxable income on a consolidated basis.

Deferred income tax is provided, using the liability method, for temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. Currently enacted tax rates are used to determine deferred income tax.

The principal temporary differences arise from depreciation on oil and gas properties and equipment and allowances for impairment of receivables, inventories, investments and property, plant and equipment. Deferred tax assets relating to the carryforward of unused tax losses are recognized to the extent that it is probable that future taxable income will be available against which the unused tax losses can be utilized.

The Group also incurs various other taxes which are not income taxes. “Taxes other than income taxes”, which form part of the operating expenses, primarily comprise consumption tax, resource tax, urban construction tax, education surcharges and business tax.

(p) Revenue recognition

Sales are recognized upon delivery of products and customer acceptance, if any, or performance of services, net of sales 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, and when the amount of revenue and the costs incurred or to be incurred in respect of the transaction can be measured reliably.

The Group markets a portion of its natural gas production under take-or-pay contracts. Customers under the take-or-pay contracts are required to take or pay for the minimum natural gas deliveries specified in the contract clauses. Revenue recognition for natural gas sales and transmission tariff under the take-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.

In November 2004 FASB’s Emerging Issues Task Force (EITF) discussed EITF Issue no. 04-13, “Accounting for Purchases and Sales of Inventory with the Same Counterparty”, in order to consider whether or not “buy/sell” contractual arrangements should be reported net in the Statement of Income and accounted for as non-monetary transactions. There was a further EITF meeting in March 2005 but no consensus was reached on this issue and further discussion is planned.

Buy/sell contractual arrangements in this context are defined as those entered into concurrently or in contemplation of one another with the same counterparty.

The Group entered into buy/sell contracts with Sinopec for crude oil and reported the revenue gross in the Consolidated Statements of Income. Title of the commodity passes to the buyer on delivery, purchases and sales may not necessarily take place at the same time and amounts are separately invoiced and settled; there is no legal right of offset. The Group considers therefore that these are not non-monetary transactions and are then outside the scope of APB Opinion No. 29, “Accounting for Nonmonetary Transactions”. In addition, the guidance provided in EITF No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent”, EITF No. 02-3, “Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities” and EITF No. 03-11, “Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133 and Not Held for

F-14

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)

Trading Purposes as Defined in Issue No. 02-3” has been considered in determining the presentation of the results of the Group’s operations. As a result of a communication to the oil and gas industry issued by the US Securities and Exchange Commission in February 2005 requesting additional disclosures regarding buy/sell contracts, the Group reviewed such contracts and has estimated that, if buy/sell contracts were required to be reported net, both “Sales and other operating revenues” and “Purchase, services and other” for 2004 would be reduced by RMB 2,217 (2003: RMB 1,747; 2002: RMB 963) with no impact on net income.

(q) Provisions

Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made.

(r) Research and development expenses

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. Research and development expenses were RMB 1,806, RMB 2,411 and RMB 2,936 for the years ended December 31, 2002, 2003 and 2004, respectively.

(s) Retirement benefit plans

The Group contributes to various employee retirement benefit plans organized by municipal and provincial governments under which it is required to make monthly contributions to these plans at rates prescribed by the related municipal and provincial governments. The municipal and provincial governments undertake to assume the retirement benefit obligations of existing and future retired employees of the Group. Contributions to these plans are charged to expense as incurred.

(t) Share appreciation rights

Compensation under the share appreciation rights is measured as the amount by which the quoted market price of the Company’s H Shares exceeds the grant price. Compensation is accrued as a charge to compensation expense over the vesting service period. The compensation accrued during a vesting service period is adjusted in subsequent periods for changes, either upward or downward to the grant price, in the quoted market price of the Company’s shares. The amount of compensation and the effect of subsequent changes are included in the employee compensation cost of the income statement; the related liability is included in the salaries and welfare payable.

(u) Reclassification

Certain balances of the prior year have been reclassified to conform with current year presentation, including separate presentation of advance operating lease payments in Note 19.

(v) New accounting developments

In December 2003, the IASB issued amendments to thirteen existing IFRS standards under its “Improvements Project”. The amendments will become effective on January 1, 2005. The Group has not adopted these revised standards and does not expect the adoption of these revised standards would have a material effect on the results of operation and the financial position of the Group.

F-15

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)

In December 2004, the IASB issued IFRS 6 “Exploration for and Evaluation of Mineral Resources”. Adoption of IFRS 6 is required for annual periods beginning on or after January 1, 2006. IFRS 6 permits an entity to develop an accounting policy for exploration and evaluation assets without specifically considering the requirement of paragraph 11 and 12 of IAS 8 and allows an entity to use the accounting policies applied immediately before adopting IFRS 6. IFRS 6 requires entities recognizing exploration and evaluation assets to perform an impairment test on these assets. However, IFRS 6 allows variation in recognition of impairment from that specified in IAS 36 but measures the impairment as set forth in IAS 36 once impairment is identified. The Group’s accounting policies with respect to exploration and evaluation asset are described in Note 3(g) and 3(f). The Group is evaluating the manner and effect of adoption of IFRS 6.

The following standards of IASB also will be effective January 1, 2005-IFRS 2, “Share-based Payment”, IFRS 3, “Business Combination”, IFRS 4, “Insurance Contracts”, and IFRS 5, “Non Current Assets Held for Sale and Discontinued Operations”. The Group is evaluating the manner of adoption of these IFRS and does not expect the adoption of these new standards will have a material effect on the financial condition or results of operations of the Group.


4	EMPLOYEE COMPENSATION COSTS


	Year Ended December 31,

	2002		2003		2004

	RMB		RMB		RMB
Wages and salaries		10,631		12,893		14,926
Social security costs ⁽ⁱ⁾		5,617		6,649		7,383

		16,248		19,542		22,309


	(i)	Social security costs represent contributions to funds for staff welfare organized by the municipal and provincial governments including contribution to the retirement benefit plans (Note 26).

5 SHUT DOWN OF MANUFACTURING ASSETS

During the years ended December 31, 2002, 2003 and 2004, the Group provided RMB 2,121, RMB 2,355 and RMB 220 respectively for the shut down of certain less efficient operating facilities in the refining and chemical manufacturing plants. The charges represented the net book value of the facilities.


	Year Ended December 31,

	2002		2003		2004

	RMB		RMB		RMB
Refining facilities		1,179		1,596		192
Chemical facilities		942		759		28

		2,121		2,355		220

There were no employee termination or relocation costs relating to the shut down of these manufacturing equipment.

F-16

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)

6 INTEREST EXPENSE


		Year Ended December 31,

		2002			2003			2004

		RMB			RMB			RMB
Interest on
	— loans		4,402			3,662			3,306
	— capital leases		10			4			2
Less: amounts capitalized			(896	)		(1,320	)		(1,005	)

			3,516			2,346			2,303

Amounts capitalized are debt costs related to funds borrowed specifically for the purpose of acquiring qualifying assets. Interest rates on such capitalized debts ranged 5.02% to 5.43% in 2002, 5.02% in 2003 and 5.02% in 2004.

7 INCOME TAXES


	Year Ended December 31,

	2002		2003		2004

	RMB		RMB		RMB
Current tax		19,289		26,347		39,404
Deferred income tax (Note 23)		2,897		1,594		2,814
Share of tax of equity affiliates		45		131		345

		22,231		28,072		42,563

In accordance with the relevant PRC income tax rules and regulations, the PRC income tax rate applicable to the Group is principally 33% (2003: 33%; 2002: 33%). Operations of the Group in certain regions in China have qualified for certain tax incentives in the form of reduced income tax rate to 15% through the year 2010 or accelerated depreciation of certain plant and equipment.

The tax on the Group’s income before income taxes differs from the theoretical amount that would arise using the basic tax rate in the PRC applicable to the Group as follows:


	Year Ended December 31,

	2002			2003			2004

	RMB			RMB			RMB
Income before income taxes		69,240			98,322			147,141

Tax calculated at a tax rate of 33%		22,849			32,446			48,556
Prior year tax return adjustment		618			419			27
Effect of preferential tax rate		(2,377	)		(5,190	)		(6,886	)
Utilization of previously unrecognized tax loss of subsidiaries		—			—			(832	)
Income not subject to tax		(93	)		(566	)		(605	)
Expenses not deductible for tax purposes		1,234			963			2,303

Tax charge		22,231			28,072			42,563

F-17

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)

8 BASIC AND DILUTED NET INCOME PER SHARE

Basic and diluted net income per share for the years ended December 31, 2002, 2003 and 2004 have been computed by dividing net income by the number of 175,824 shares issued and outstanding for the respective years.

There are no dilutive potential ordinary shares.

9 DIVIDENDS


	Year Ended December 31,

	2002		2003		2004

	RMB		RMB		RMB
Final dividend for 2001 (Note (i))		8,839		—		—
Interim dividend for 2002 (Note (ii))		8,811		—		—
Final dividend for 2002 (Note (iii))		—		12,299		—
Interim dividend for 2003 (Note (iv))		—		17,379		—
Final dividend for 2003 (Note (v))		—		—		13,947
Interim dividend for 2004 (Note (vi))		—		—		20,381

		17,650		29,678		34,328


(i)	A final dividend in respect of 2001 of RMB 0.050272 per share amounting to a total of RMB 8,839 was paid on June 21, 2002, and was accounted for in shareholders’ equity as an appropriation of retained earnings in the year ended December 31, 2002.

(ii)	An interim dividend in respect of 2002 of RMB 0.050113 per share amounting to RMB 8,811 was paid on October 8, 2002, and was accounted for in shareholders’ equity as an appropriation of retained earnings in the year ended December 31, 2002.

(iii)	A final dividend in respect of 2002 of RMB 0.069951 per share amounting to a total of RMB 12,299 was paid on June 12, 2003, and was accounted for in shareholders’ equity as an appropriation of retained earnings in the year ended December 31, 2003.

(iv)	An interim dividend in respect of 2003 of RMB 0.098841 per share amounting to a total of RMB 17,379 was paid on October 8, 2003, and was accounted for in shareholders’ equity as an appropriation of retained earnings in the year ended December 31, 2003.

(v)	A final dividend in respect of 2003 of RMB 0.079324 per share amounting to a total of RMB 13,947 was paid on June 2, 2004, and was accounted for in shareholders’ equity as an appropriation of retained earnings in the year ended December 31, 2004.

(vi)	As authorized by shareholders in the Annual General Meeting on May 18, 2004, the Board of Directors, in a meeting held on August 26, 2004, resolved to distribute an interim dividend in respect of 2004 of RMB 0.115919 per share amounting to a total of RMB 20,381.The interim dividend was paid on October 8, 2004, and was accounted for in shareholders’ equity as an appropriation of retained earnings in the year ended December 31, 2004.

(vii)	At the meeting on March 16, 2005, the Board of Directors proposed a final dividend in respect of 2004 of RMB 0.147511 per share amounting to a total of RMB 25,936. These financial statements do not reflect this dividend payable, which will be accounted for in shareholders’ equity as an appropriation of retained earnings in the year ended December 31, 2005.

F-18

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)


10	CASH AND CASH EQUIVALENTS


	At December 31,

	2003		2004

	RMB		RMB
Cash at bank and in hand		11,231		11,304

The weighted average effective interest rates on bank deposits were 1.30% and 1.23% for the years ended December 31, 2003 and 2004, respectively.

11 RECEIVABLES UNDER RESALE AGREEMENTS

Securities purchased under agreements to resell (“resale agreements”) are recorded as receivables under resale agreements. The difference between purchase and resell prices is treated as interest income and accrued over the life of resale agreements using the effective yield method.

Resale agreements are accounted for as collateralized financing transactions and are recorded at their contractual amounts plus interest accrued. The underlying collaterals are principally the PRC government bonds.


12	NOTES RECEIVABLE

Notes receivable represent mainly the bills of acceptance issued by banks for sales of goods and products. All notes receivable are due within one year.

13 ACCOUNTS RECEIVABLE


		At December 31,

		2003			2004

		RMB			RMB
Accounts receivable due from third parties			8,263			6,905
Less: Impairment provision			(5,872	)		(4,740	)

			2,391			2,165
Accounts receivable due from related parties
	— Fellow CNPC subsidiaries		592			482
	— Equity affiliates		280			15

			3,263			2,662

Movement in allowance for impairment of receivables are as follows:


	Year Ended December 31,

	2002			2003			2004

	RMB			RMB			RMB
Balance at beginning of year		6,663			6,356			5,872
(Write back)/Provision		(45	)		210			(442	)
Amount written off against provision		(262	)		(694	)		(690	)

Balance at end of year		6,356			5,872			4,740

Amounts due from related parties are interest free, unsecured and repayable in accordance with normal commercial terms.

F-19

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)

14 INVENTORIES


	At December 31,

	2003			2004

	RMB			RMB
Crude oil and other raw materials		9,553			13,895
Work in progress		3,652			5,320
Finished goods		16,367			27,394
Spare parts and consumables		66			59

		29,638			46,668
Less: Write down in inventories		(766	)		(897	)

		28,872			45,771

Movements in allowance for write down in inventories, which relate primarily to oil and chemical products, are as follows:


	Year Ended
	December 31,

	2002			2003			2004

	RMB			RMB			RMB
Balance at beginning of year		800			653			766
(Write back)/Provision		(122	)		136			146
Amount written off against provision		(25	)		(23	)		(15	)

Balance at end of year		653			766			897

Cost of inventory (approximates cost of goods sold) recognized as expense amounted to RMB 112,986, RMB 134,935 and RMB 165,025 for the years ended December 31, 2002, 2003 and 2004, respectively.

Inventories of the Group carried at net realizable value amounted to RMB 2,249 and RMB 3,282 at December 31, 2003 and 2004, respectively.


15	PREPAID EXPENSES AND OTHER CURRENT ASSETS


	At December 31,

	2003			2004

	RMB			RMB
Other receivables		10,173			8,948
Less: Impairment provision		(6,283	)		(7,046	)

		3,890			1,902
Amounts due from CNPC		2,038			3,385
Amounts due from fellow CNPC subsidiaries		2,705			4,397
Advances to suppliers		4,105			7,539
Prepaid expenses		103			230
Other current assets		687			110

		13,528			17,563

F-20

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)

Other receivables consist primarily of taxes other than income taxes refund receivables, subsidies receivable, and receivables for the sale of materials and scrap.

Amounts due from CNPC and fellow CNPC subsidiaries are interest free, unsecured and repayable in accordance with normal commercial terms.

Movements in allowance for impairment of other receivables are as follows:


	Year Ended December 31,

	2002			2003			2004

	RMB			RMB			RMB
Balance at beginning of year		5,074			5,313			6,283
Provision		329			1,224			922
Amount written off against provision		(90	)		(254	)		(159	)

Balance at end of year		5,313			6,283			7,046


16	PROPERTY, PLANT AND EQUIPMENT


Year Ended				Oil and Gas			Plant and			Motor						Construction
December 31, 2003	Buildings			Property			Equipment			Vehicles			Other			in Progress			Total

	RMB			RMB			RMB			RMB			RMB			RMB			RMB
Cost or valuation
At beginning of the year		50,539			337,998			205,921			7,384			5,272			30,594			637,708
Additions		243			289			952			946			73			80,426			82,929
Revaluation surplus		—			—			(1,568	)		—			—			—			(1,568	)
Revaluation loss		—			—			(2,133	)		—			—			—			(2,133	)
Transfers		6,263			43,308			27,834			—			354			(77,759	)		—
Disposals or write off		(1,738	)		(12,785	)		(8,285	)		(537	)		(249	)		—			(23,594	)

At end of the year		55,307			368,810			222,721			7,793			5,450			33,261			693,342

Accumulated depreciation and impairment
At beginning of the year		(10,866	)		(137,653	)		(90,462	)		(3,649	)		(1,783	)		—			(244,413	)
Charge for the year		(1,817	)		(21,060	)		(15,120	)		(731	)		(586	)		—			(39,314	)
Revaluation surplus		—			—			2,440			—			—			—			2,440
Revaluation loss		—			—			876			—			—			—			876
Disposals or write off		1,474			7,871			5,007			416			176			—			14,944

At end of the year		(11,209	)		(150,842	)		(97,259	)		(3,964	)		(2,193	)		—			(265,467	)

Net book value
At end of the year		44,098			217,968			125,462			3,829			3,257			33,261			427,875

Carrying value of the property, plant and equipment had they been stated at cost less accumulated depreciation		39,229			203,025			104,976			3,304			2,622			33,261			386,417

F-21

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)


Year Ended				Oil and Gas			Plant and			Motor						Construction
December 31, 2004	Buildings			Property			Equipment			Vehicles			Other			in Progress			Total

	RMB			RMB			RMB			RMB			RMB			RMB			RMB
Cost or valuation
At beginning of the year		55,307			368,810			222,721			7,793			5,450			33,261			693,342
Additions		940			203			2,130			1,227			76			90,773			95,349
Transfers		9,327			48,240			28,865			—			370			(86,802	)		—
Disposals or write off		(2,142	)		(8,703	)		(5,508	)		(241	)		(61	)		—			(16,655	)

At end of the year		63,432			408,550			248,208			8,779			5,835			37,232			772,036

Accumulated depreciation and impairment
At beginning of the year		(11,209	)		(150,842	)		(97,259	)		(3,964	)		(2,193	)		—			(265,467	)
Charge for the year		(2,049	)		(24,839	)		(16,569	)		(794	)		(610	)		(202	)		(45,063	)
Disposals or write off		843			2,985			2,931			208			46			—			7,013

At end of the year		(12,415	)		(172,696	)		(110,897	)		(4,550	)		(2,757	)		(202	)		(303,517	)

Net book value
At end of the year		51,017			235,854			137,311			4,229			3,078			37,030			468,519

Carrying value of the property, plant and equipment had they been stated at cost less accumulated depreciation		46,520			226,567			118,590			3,711			2,506			37,030			434,924

The following table indicates the changes to the Group’s exploratory well costs for the years ended December 31, 2002, 2003 and 2004.


	Year Ended December 31,

	2002			2003			2004

	RMB			RMB			RMB
Beginning balance at January 1		4,880			3,764			4,255
Additions to capitalized exploratory well costs pending the determination of proved reserves		5,813			9,232			10,908
Reclassified to wells, facilities, and equipment based on the determination of proved reserves		(3,402	)		(4,050	)		(4,756	)
Capitalized exploratory well costs charged to expense		(3,527	)		(4,691	)		(4,718	)

Ending balance at December 31		3,764			4,255			5,689

Number of wells at year end		476			636			782

The following table provides an aging of capitalized exploratory well costs based on the date the drilling was completed.


	At December 31,

	2003		2004

	RMB		RMB
One year or less		3,988		5,278
Over one year		267		411

Balance at December 31		4,255		5,689

F-22

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)

The RMB 411 at December 31, 2004 for capitalized 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.

Buildings owned by the Group are on leased land. The net book values of the buildings owned by the Group analysed by the following categories of lease terms:


	At December 31,

	2003		2004

	RMB		RMB
Short-term lease (less than 10 years)		1,125		335
Medium-term lease (10 to 50 years)		42,973		50,682

		44,098		51,017

Substantially all the buildings of the Group are located in the PRC.

Property, plant and equipment under capital leases at the end of year are as follows:


	At December 31,

	2003			2004

	RMB			RMB
Exploration and Production		—			45
Refining and Marketing		94			94
Chemicals and Marketing		221			110
Accumulated depreciation		(75	)		(74	)

		240			175

Capital leases are principally related to plant and equipment and generally contain purchase options at the end of the lease terms.

Depreciation expenses on property, plant and equipment are as follows:


	Year Ended December 31,

	2002		2003		2004

	RMB		RMB		RMB
Owned assets		36,018		39,293		45,040
Assets under capital lease		27		21		23

The depreciation charge of the Group included RMB 1,753, RMB 1,487 and RMB 3,789 relating to impairment provision for property, plant and equipment held for use for the years ended December 31, 2002, 2003 and 2004, respectively. Of this amount, RMB 1,384, RMB 863 and RMB 798 for the years ended December 31, 2002, 2003 and 2004 respectively was related to the Chemicals and Marketing segment, RMB 369, RMB 624 and RMB 1,398 for the years ended December 31, 2002, 2003 and 2004 respectively was for the Refining and Marketing segment, and RMB Nil, RMB Nil and RMB 1,593 for the years ended December 31, 2002, 2003 and 2004 respectively was for the Exploration and Production segment.

Repair and maintenance costs were RMB 5,060, RMB 4,721 and RMB 6,205 for the years ended December 31, 2002, 2003 and 2004, respectively.

Bank debts are secured on property, plant and equipment at net book value of RMB 152 and RMB 218 at December 31, 2003 and 2004, respectively.

F-23

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)

A valuation of the Group’s property, plant and equipment, excluding oil and gas reserves, was carried out during 1999 by independent valuers. The valuation was based on depreciated replacement costs.

As at September 30, 2003, a revaluation of the Group’s refining and chemical production equipment was undertaken by a firm of independent valuers, China United Assets Appraiser Co., Ltd, in the PRC on a depreciated replacement cost basis.

The June 1999 revaluation resulted in RMB 80,549 in excess of the prior carrying value and a revaluation loss of RMB 1,122 on certain property, plant and equipment.

The September 2003 revaluation resulted in RMB 872 in excess of the carrying value of certain property, plant and equipment immediately prior to the revaluation and a revaluation loss of RMB 1,257.

With respect to the RMB 872 revaluation gain resulting from the 2003 revaluation, RMB 98 were related to property, plant and equipment that in 1999 experienced revaluation loss, and were credited to the income statement. The remaining RMB 774 was credited to the revaluation reserve in the shareholders’ equity.

With respect to the RMB 1,257 revaluation loss resulting from the 2003 revaluation, RMB 768 were related to property, plant and equipment that in 1999 experienced revaluation gain. The remaining RMB 489 were charged to the income statement.


17	INVESTMENTS IN EQUITY AFFILIATES

Principal affiliates accounted for under the equity method are:

Attributable

Country of

Paid-up/

Equity

Incorporation

Registered

Interest

Company Name

and Operations

Capital

Held (%)

Principal Activities

Dalian West Pacific Petrochemical Co., Ltd.

PRC

USD258

28.4

Production and sale of refined and petrochemical products

China Marine Bunker (PetroChina) Co., Ltd.

PRC

RMB 1,000

Supplying bunker oils, marine lubricant and fresh water to foreign trading vessels and coastal vessels, transportation, storage, import and export of oil products

Share of income of equity affiliates included in the statements of income of the Group was RMB 268, RMB 985 and RMB 1,824 for the years ended December 31, 2002, 2003 and 2004, respectively.

F-24

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)

Share of net profit of equity affiliates included in retained earnings of the Group was RMB 584, RMB 1,860 at December 31, 2003 and 2004, respectively. Dividends received and receivable from equity affiliates were RMB 134, RMB 203 at December 31, 2003 and 2004, respectively.


18	AVAILABLE-FOR-SALE INVESTMENTS


	At December 31,

	2003			2004

	RMB			RMB
Unlisted available-for-sale investments		2,652			2,265
Less: Impairment provision		(813	)		(755	)

		1,839			1,510

Available-for-sale investments, comprising principally unlisted equity securities, are classified as non-current assets, unless they are expected to be realized within twelve months of the balance sheet date or unless they will need to be sold to raise operating capital.

Dividend income from available-for-sale investments was RMB 60, RMB 69 and RMB 90 for the years ended December 31, 2002, 2003 and 2004, respectively.

Movements in provision for impairment of available-for-sale investments are as follows:


	Year Ended December 31,

	2002			2003			2004

	RMB			RMB			RMB
Balance at beginning of year		665			660			813
Provision		4			158			26
Amount written off against provision		(9	)		(5	)		(84	)

Balance at end of year		660			813			755


19	ADVANCE OPERATING LEASE PAYMENTS


	At December 31,

	2003		2004

	RMB		RMB
Land use rights		5,544		7,952
Advance lease payments		1,708		4,296

		7,252		12,248

Land use rights have terms up to 50 years. Advance lease payments are principally for use of land sub-leased from entities other than PRC land authorities. These advance operating lease payments are amortized over the related lease periods using the straight line method.

F-25

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)


20	INTANGIBLE AND OTHER ASSETS

Intangible and other assets consist of the following:


	At December 31,

	2003							2004

			Accumulated							Accumulated
	Cost		Amortization			Net		Cost		Amortization			Net

	RMB		RMB			RMB		RMB		RMB			RMB
Patents		1,721		(769	)		952		1,873		(958	)		915
Technical know-how		239		(155	)		84		248		(181	)		67
Other		1,300		(348	)		952		1,421		(395	)		1,026

Intangible assets		3,260		(1,272	)		1,988		3,542		(1,534	)		2,008

Other assets							1,036							979

							3,024							2,987

Amortization on intangible and other assets was RMB 552, RMB 635 and RMB 754 for the years ended December 31, 2002, 2003 and 2004, respectively.

Patents principally represent expenditure incurred in acquiring processes and techniques that are generally protected by relevant government authorities. Technical know-how amounts are attributable to operational technology acquired in connection with purchase of equipment. The technical know-how costs are included as part of the purchase price by contracts and are distinguishable.

Other assets primarily consist of long-term prepaid expenses to service providers.

F-26

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)


21	ACCOUNTS PAYABLE AND ACCRUED LIABILITIES


		At December 31,

		2003		2004

		RMB		RMB
Trade payables			10,150		11,802
Advances from customers			6,861		6,950
Salaries and welfare payable			5,413		5,869
Accrued expenses			5		7
Dividends payable by subsidiaries to minority shareholders			118		38
Interest payable			130		33
Construction fee and equipment cost payables			13,760		17,113
Payable to Sinopec			610		663
Advances from Sinopec			233		42
One-time employee housing remedial payment payable			2,270		1,740
Other payables			10,628		10,986
Amounts due to related parties
	— CNPC		1,531		2,681
	— Fellow CNPC subsidiaries		11,880		12,202
	— Equity affiliates		591		570

			64,180		70,696

Other payables consist primarily of customer deposits.

Amounts due to related parties are interest-free, unsecured and repayable in accordance with normal commercial terms.


22	DEBT

(a) Short-term debt


		At December 31,

		2003		2004

		RMB		RMB
Bank loans
	— secured		114		29
	— unsecured		8,450		10,631
Loans from fellow CNPC subsidiaries			610		600
Other			5		8

			9,179		11,268
Current portion of long-term debt			19,711		16,008

			28,890		27,276

F-27

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)

(b) Long-term debt


		At December 31,

	Interest Rate and Final Maturity	2003	2004

		RMB	RMB
Renminbi-denominated loans:
Bank loans for the development of oil fields and construction of refining plants	Majority variable interest rates ranging from 4.94% to 5.85% per annum as of December 31, 2004, with maturities through 2010	20,327	16,195
Bank loans for working capital	Majority variable interest rate at 4.94% per annum as of December 31, 2004, with maturities through 2007	6,073	6,016
Loans from related parties for the development of oil fields and construction of refining plants	Floating interest rate ranging from 4.46% to 5.18% per annum as of December 31, 2004, with maturities through 2032	15,620	15,610
Working capital loans from related parties	Floating interest rate at 4.39% per annum as of December 31, 2004, with maturity through 2007	4,000	4,000
Working capital loans	Fixed interest rates at 6.32% per annum with no fixed repayment term	10	8
Corporate debenture for the development of oil fields and construction of refining plants	Fixed interest rate at 4.50% per annum with maturities through 2007	1,350	1,350
Corporate debenture for the development of oil and gas properties	Fixed interest rate at 4.11% per annum with maturities through 2013	1,500	1,500
US Dollar-denominated loans:
Bank loans for the development of oil fields and construction of refining plants	Fixed interest rates ranging from free to 8.66% per annum with maturities through 2038	2,881	1,535
Bank loans for the development of oil fields and construction of refining plants	Floating interest rates ranging from 1.65% to 3.43% per annum as of December 31, 2004, with maturities through 2014	1,403	1,609
Bank loans for working capital	Floating interest rate at LIBOR plus 0.60% per annum as of December 31, 2004 with maturities through 2006	—	492
Bank loans for acquisition of overseas oil and gas properties	Floating interest rates ranging from LIBOR plus 0.55% to LIBOR plus 0.60% per annum as of December 31, 2004, with maturities through 2009	1,493	1,490
Loans from related parties for the development of oil fields and construction of refining plants	Floating interest rate at LIBOR minus 0.25% per annum as of December 31, 2004, with maturities through 2005	3,633	1,633
Loans from related parties for acquisition of overseas oil and gas properties	Floating interest rate at LIBOR plus 0.40% per annum as of December 31, 2004, with maturities through 2006	608	608

F-28

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)


		At December 31,

	Interest Rate and Final Maturity	2003	2004

		RMB	RMB
Loans from related parties for working capital	Floating interest rate at LIBOR plus 0.40% per annum as of December 31, 2004, with maturities through 2006	717	717
Loans for the development of oil fields and construction of refining plants	Fixed interest rate at 1.55% per annum with maturities through 2022	586	554
Japanese Yen-denominated loans:
Bank loans for the development of oil fields and construction of refining plants	Fixed interest rates ranging from 4.10% to 5.30% per annum with maturities through 2010	578	430
Euro-denominated loans:
Bank loans for the development of oil fields and construction of refining plants	Fixed interest rates ranging from 2.00% to 8.30% per annum with maturities through 2023	381	360
British Pound-denominated loans:
Bank loans for the development of oil fields and construction of refining plants	Fixed interest rate at 2.85% per annum with maturities through 2007	454	338

		61,614	54,445
Capital lease obligations		56	21

Total long-term debt		61,670	54,466
Less: Current portion of long-term debt		(19,711)	(16,008)

		41,959	38,458

For loans denominated in RMB with floating rates, the rates are re-set annually on the respective anniversary dates based on rates announced by the People’s Bank of China. For loans denominated in currencies other than RMB with floating rates, the rates are re-set quarterly or semi-annually as stipulated in the respective agreements. Other loans represent loans from independent third parties other than banks with interest rates ranging from 1.55% to 6.32% per annum. Interest free loans amounted to RMB 215 and RMB 87 at December 31, 2003 and 2004, respectively. Interest free loans were treated as government assistance and no imputation of interest expense on such loans was recognized in the Group’s consolidated financial statements.

Debts of RMB 853 and RMB 756 were guaranteed by CNPC and its subsidiaries at December 31, 2003 and 2004, respectively.

The Group’s debts include secured liabilities (leases and bank debts) totalling RMB 170 and RMB 50 respectively, at December 31, 2003, and 2004. Bank debts are secured over certain of the Group’s property, plant and equipment (Note 16). Lease liabilities are effectively secured as the rights to the leased assets revert to the lessor in the event of default.

F-29

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)


		At December 31,

		2003			2004

		RMB			RMB
Total debt:
	— at fixed rates		17,024			17,790
	— at variable rates		53,825			47,944

			70,849			65,734

Weighted average effective interest rates:
	— bank loans		4.77	%		4.73	%
	— loans from related parties		4.23	%		4.55	%
	— loans from third parties		1.64	%		1.68	%
	— corporate debentures		4.30	%		4.30	%
	— capital lease obligations		3.22	%		4.78	%

The carrying amounts and fair values of long-term debt (excluding capital lease obligations) are as follows:


	Carrying amounts
	At December 31,

	2003		2004

	RMB		RMB
Bank loans		33,590		28,465
Loans from related parties		24,578		22,568
Corporate debentures		2,850		2,850
Other		596		562

		61,614		54,445


	Fair values
	At December 31,

	2003		2004

	RMB		RMB
Bank loans		33,514		28,346
Loans from related parties		24,578		22,568
Corporate debentures		2,640		2,632
Other		422		404

		61,154		53,950

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 balance sheet dates. Such discount rates ranged from 0.86% to 6.38% per annum as of December 31, 2004 depending on the type of the debt. The carrying amounts of short-term debt and capital lease obligations approximate their fair value.

F-30

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)

Maturities of long-term debt (excluding capital lease obligations) at the dates indicated below are as follows:


	At December 31,

	2003		2004

	RMB		RMB
First year		19,672		15,987
Second year		18,166		8,130
Third year		7,331		16,493
Fourth year		5,640		4,921
Fifth year		4,137		1,547
Thereafter		6,668		7,367

		61,614		54,445

Future minimum payments on capital lease obligations at the dates indicated below are as follows:


	At December 31,

	2003			2004

	RMB			RMB
First year		41			22
Second year		17			—

		58			22
Future finance charges on capital lease obligations		(2	)		(1	)

Present value of capital lease obligations		56			21

The present value of capital lease obligations can be analyzed as follows:
First year		39			21
Second year		17			—

		56			21

23 DEFERRED INCOME TAXES

Deferred income taxes are calculated on temporary differences under the liability method using a principal tax rate of 33%.

The movements in the deferred income tax account are as follows:


		Year Ended December 31,

		2002		2003		2004

		RMB		RMB		RMB
At beginning of year			7,030		9,927		11,526
Income statement charge (Note 7)			2,897		1,594		2,814
Charged to equity
	— net surplus on revaluation		—		5		—

At end of year			9,927		11,526		14,340

F-31

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)

Deferred tax balances are attributable to the following items:


			At December 31,

			2003		2004

			RMB		RMB
Deferred tax assets
	Current
		Provisions, primarily for receivables and inventories		4,015		4,549
		Tax losses of subsidiaries		39		—
	Non current
		Shut down of manufacturing assets and impairment of long-term assets		1,039		2,454
		Other		579		538

Total deferred tax assets				5,672		7,541

Deferred tax liabilities
	Current
		Sales (Note(i))		4,401		4,401
	Non current
		Accelerated tax depreciation		12,519		17,230
		Other		278		250

Total deferred tax liabilities				17,198		21,881

Net deferred tax liabilities				11,526		14,340


(i)	Prior to the formation of the Company in November 1999, certain crude oil sales were exempted from income tax. Upon formation of the Company, such exemption ceased to be available. A portion of the previously exempted items may become taxable at a later date in certain circumstances at the discretion of the tax authorities.

(ii)	There were no material unrecognized tax losses at December 31, 2004.

24 SHARE CAPITAL


		At December 31,

		2003		2004

		RMB		RMB
Registered, issued and fully paid:
	State-owned shares		158,242		158,242
	H shares		17,582		17,582

			175,824		175,824

At its formation in November, 1999, the registered capital of the Company was RMB 160,000 consisting of 160 billion state-owned shares of RMB 1.00 each issued to CNPC in accordance with the restructuring agreement between the Company and CNPC in exchange for certain assets and liabilities.

F-32

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)

On April 7, 2000, the Company completed a global initial public offering (“Global Offering”) pursuant to which 17,582,418,000 shares of RMB 1.00 each, representing 13,447,897,000 H shares and 41,345,210 American Depositary Shares (“ADSs”, each representing 100 H shares), were issued at prices of HK$1.28 per H share and US$16.44 per ADS, respectively, for which the net proceeds to the Company were approximately RMB 20 billion. The shares issued pursuant to the Global Offering rank equally with existing shares. The H shares and ADSs are listed on the Stock Exchange of Hong Kong Limited and the New York Stock Exchange respectively.

The 17,582,418,000 H shares issued by the Company comprise 15,824,176,000 shares offered by the Company, and 1,758,242,000 shares offered by CNPC pursuant to an approval from China Securities Regulatory Commission to convert the state-owned shares owned by CNPC.

Shareholders’ rights are governed by the PRC Company Law that requires an increase in registered capital to be approved by the shareholders in general meeting and the relevant PRC Government and regulatory authorities.

F-33

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)

25 RESERVES


		Year Ended
		December 31,

		2003			2004

		RMB			RMB
Revaluation Reserve
Beginning balance			79,945			79,946
Revaluation surplus of property, plant and equipment (Note e)
	— gross		774			—
	— tax		(247	)		—
Revaluation loss offset against previous revaluation surplus of property, plant and equipment
	— gross		(768	)		—
	— tax		242			—

Ending balance			79,946			79,946
Capital Reserve
Beginning balance			(28,557	)		(28,557	)

Ending balance			(28,557	)		(28,557	)
Statutory Common Reserve Fund (Note a)
Beginning balance			20,128			26,370
Transfer from retained earnings			6,242			9,701

Ending balance			26,370			36,071
Statutory Common Welfare Fund (Note b)
Beginning balance			13,532			16,653
Transfer from retained earnings			3,121			4,851

Ending balance			16,653			21,504
Other Reserves
Beginning balance			(3,200	)		(3,200	)

Ending balance			(3,200	)		(3,200	)

			91,212			105,764


(a)		Pursuant to 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 statutory common reserve fund until the fund aggregates to 50% of the Company’s registered capital. The transfer to this reserve must be made before distribution of dividends to shareholders.

		The statutory common reserve fund shall only be used to make good previous years’ losses, to expand the Company’s production operations, or to increase the capital of the Company. Upon approval by a resolution of shareholders’ general meeting, the Company may convert its statutory common 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 issue is not less than 25% of the registered capital.

F-34

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)


(b)		Pursuant to the PRC regulations and the Company’s Articles of Association, the Company is required to transfer 5% to 10% of its net income, as determined under the PRC accounting regulations, to the statutory common welfare fund. This fund can only be used to provide common facilities, of which the Group retains the titles, and other collective benefits to the Company’s employees. This fund is non-distributable other than in liquidation. The directors have proposed to transfer 5% (2003: 5%) of the net income, as determined under the PRC accounting regulations, for the year ended December 31, 2004 to the statutory common welfare fund.

(c)		The Company’s distributable reserve is the retained earnings computed under the PRC accounting regulations, which amounted to RMB 59,104 and RMB 95,248 as of December 31, 2003 and 2004, respectively. The distributable reserve computed under the PRC accounting regulations at December 31, 2004 has been arrived at after the accrual for the proposed final dividend in respect of year 2004 of RMB 25,936 (Note 9 (vii)).

(d)		As of December 31, 2004, Revaluation surplus relating to depreciation and disposals amounted to approximately RMB 38,064 and RMB 46,757 as of December 31, 2003 and 2004, respectively.

(e)		The revaluation surplus recognized during the formation of the Group in 1999 was partially utilized to offset against the revaluation loss on the same assets arising in 2003 (Note 16). Additional valuation surplus arising in 2003 was credited to the revaluation reserve.


26	PENSIONS

The Group participates in various retirement benefit plans organized by municipal and provincial governments under which it is required to make monthly contributions to these plans at rates ranging from 16% to 22% of the employees’ basic salary for the relevant periods. The Group currently has no additional obligations for the payment of retirement and other post-retirement benefits of employees other than the monthly contributions described above. Expenses incurred by the Group in connection with the retirement benefit plans were RMB 2,109, RMB 2,193 and RMB 2,476 respectively, for the years ended December 31, 2002, 2003 and 2004.


27	FINANCIAL INSTRUMENTS

The Group holds or issues various financial instruments which expose it to credit, interest rate, foreign exchange rate and fair value risks. In addition, the Group’s operations are affected by certain commodity price movements. The Group historically has not used derivative instruments for hedging or trading purposes. Such activities are subject to policies approved by the Group’s senior management. Substantially all of the financial instruments the Group holds is for purposes other than trading. The Group regards an effective market risk system as an important element of the Group’s treasury function and is continuously enhancing its systems. A primary objective is to implement certain methodologies to better measure and monitor risk exposures.


	*(a) Credit risk*

The carrying amounts of accounts receivable included in the balance sheet represent the Group’s maximum exposure to credit risk in relation to its financial assets. No other financial assets carry a significant exposure to credit risk.

The Group has no significant concentration of credit risk. Cash is placed with state-owned banks and financial institutions.

F-35

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)


	*(b) Interest rate risk*

The Group is exposed to the risk arising from changing interest rates. A detailed analysis of the Group’s debts, together with their respective interest rates and maturity dates, are included in Note 22.


*(c)*	*Foreign exchange rate risk*

Renminbi is not a freely convertible currency. Future exchange rates of Renminbi could vary significantly from the current or historical exchange rates as a result of controls that could be imposed by the PRC government. The exchange rates of Renminbi are affected by changes in PRC government policies. The exchange rates of Renminbi are also affected by economic developments and political changes domestically and internationally, and supply and demand for Renminbi. The official exchange rate for the conversion of Renminbi to US Dollars has generally been stable recently. As Renminbi is the measurement currency of the Company and most of its consolidated entities, the fluctuation of exchange rates of Renminbi may have positive or negative impacts on the results of operations of the Group. Because prices for the Group’s crude oil and refined products are set generally with reference to US Dollar-denominated international prices, a devaluation of Renminbi against US Dollar may not have a negative impact on the Group’s revenue, but may increase the cost incurred by the Group to acquire imported materials and equipment as well as the foreign currency-denominated obligations of the Group. On the other hand, an appreciation of Renminbi against US Dollar may decrease the Group’s revenue, but the cost for acquiring imported materials and equipment may be reduced. The results of operations and the financial condition of the Group also may be affected by fluctuations in exchange rates against Renminbi of a number of other foreign currencies other than US Dollar.


*(d)*	*Commodity price risk*

The Group is engaged in a broad range of petroleum related activities. The hydrocarbon commodity markets are influenced by global as well as regional supply and demand conditions. The PRC government currently publishes prices for onshore crude oil, gasoline and diesel according to international benchmark prices. A decline in prices of crude oil and refined products could adversely affect its financial performance. The Group historically has not used commodity derivative instruments to hedge the potential price fluctuations of crude oil and other refined products. Therefore, during 2003 and 2004, the Group was exposed to the general price fluctuations of broadly traded oil and gas commodities.


*(e)*	*Fair values*

The carrying amounts of the following financial assets and financial liabilities approximate their fair value: cash, short-term investments, trade receivables and payables, other receivables and payables, lease obligations, short-term debt and floating rate long-term debt. The fair value of the fixed rate long-term debt is likely to be different from their carrying amounts. As the majority of the debts are at variable rates, the difference between fair value and carrying amounts is likely to be immaterial. Analysis of the fair value and carrying amounts of long-term debt are presented in Note 22.

F-36

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)


28	CONTINGENT LIABILITIES

(a) Bank and other guarantees

At December 31, 2004, the Group had contingent liabilities in respect of bank and other guarantees and other matters arising in the ordinary course of business from which it is anticipated that no material liabilities will arise.


	At December 31,

	2003		2004

	RMB		RMB
Guarantee of debts of equity affiliates		448		203

(b) Environmental liabilities

CNPC and the Group have operated in China for many years. China has adopted extensive environmental laws and regulations that affect the operation of the oil and gas industry. The outcome of environmental liabilities under proposed or future environmental legislation cannot reasonably be estimated at present, and could be material. Under existing legislation, however, management believes that there are no probable liabilities, except for the amounts which have already been reflected in the financial statements, that will have a material adverse effect on the financial position of the Group.

(c) Legal contingencies

The Group is the named defendant in certain insignificant lawsuits as well as the named party in other proceedings arising in the ordinary course of business. While the outcomes of such contingencies, lawsuits or other proceedings cannot be determined at present, management believes that any resulting liabilities will not have a material adverse effect on the financial position of the Group.

(d) Leasing of roads, land and buildings

According to the Restructuring Agreement entered into between the Company and CNPC in 1999 upon the formation of the Company, CNPC has undertaken to the Company the following:


	•	CNPC will use its best endeavors to obtain formal land use right certificates to replace the entitlement certificates in relation to the 28,649 parcels of land which were leased or transferred to the Company from CNPC, within one year from August, September and October 1999 when the relevant entitlement certificates were issued;

	•	CNPC will complete, within one year from November 5, 1999, the necessary governmental procedures for the requisition of the collectively-owned land on which 116 service stations owned by the Company are located; and

	•	CNPC will obtain individual building ownership certificates in the name of the Company for all of the 57,482 buildings transferred to the Company by CNPC, before November 5, 2000.

As at December 31, 2004, CNPC has obtained formal land use right certificates in relation to 26,549 out of the above-mentioned 28,649 parcels of land, some building ownership certificates for the above-mentioned buildings, but has completed none of the necessary governmental procedures for the above-mentioned service stations located on collectively-owned land. The Directors of the Company confirm that the use of and the conduct of relevant activities at the above-mentioned

F-37

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)

parcels of land, service stations and buildings are not affected by the fact that the relevant land use right certificates or individual building ownership certificates have not been obtained or the fact that the relevant governmental procedures have not been completed. In management’s opinion, the outcome of the above events will not have a material adverse effect on the results of operations or the financial position of the Group.

(e) Group insurance

Except for limited insurance coverage for vehicles and certain assets subject to significant operating risks, the Group does not carry any other insurance for property, facilities or equipment with respect to its business operations. In addition, the Group does not carry any third-party liability insurance against claims relating to personal injury, property and environmental damages or business interruption insurance since such insurance coverage is not customary in China. While the effect of under-insurance on future incidents cannot be reasonably assessed at present, management believes that it may have a material impact on the operating results but will not have a material adverse effect on the financial position of the Group.

(f) Cost reduction measures

The Group may further streamline its production facilities within the next several years to further improve the operating efficiency and competitiveness of the Group. Management has not approved all significant actions to be taken to complete such plans. Management does not believe such plans will have a material adverse impact on the Group’s financial position, but may have a material adverse effect on the Group’s results of operations.

(g) Other

In December 2003, a gas blow-out incident occurred at one of the gas wells of the Group. The blow-out caused the leakage of a large quantity of sulfurated hydrogen, causing injuries and death to many residents living in the surrounding area. As a result of an investigation conducted by the PRC government, CNPC, which provided drilling services for the well, was held liable for this blow-out. The incident has not had, and the Company does not believe it will have, a material adverse effect on the results of operations and financial position of the Group.

29 COMMITMENTS

(a) Operating lease commitments

Operating lease commitments of the Group are mainly for leasing of land and buildings and equipment. Leases range from one to fifty years and usually do not contain renewal options. Future

F-38

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)

minimum lease payments as of December 31, 2003 and 2004 under non-cancelable operating leases are as follows:


	At December 31,

	2003		2004

	RMB		RMB
First year		2,552		2,701
Second year		2,433		2,473
Third year		2,409		2,452
Fourth year		2,391		2,434
Fifth year		2,380		2,356
Thereafter		84,776		83,035

		96,941		95,451

Operating lease expenses for land and buildings and equipment were RMB 3,127, RMB 3,573 and RMB 3,873 for the years ended December 31, 2002, 2003 and 2004 respectively.

(b) Capital commitments


		At December 31,

		2003		2004

		RMB		RMB
Capital expenditure contracted for at the balance sheet date but not recognized in the financial statements is as follows:
	Oil and gas properties		896		645
	Plant and equipment		10,055		4,614
	Other		194		111

			11,145		5,370

(c) Long-term natural gas supply commitments

The Group markets a portion of its natural gas production under long-term take-or-pay contracts. Under these contracts, the customers are required to take or pay, and the Group is obligated to deliver, minimum quantities of natural gas annually. The prices for the natural gas are based on those approved by the PRC State Development and Reform Commission at the time of deliveries.

F-39

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)

At December 31, 2004, future minimum delivery commitments under the contracts are as follows:


	Quantities

	(billion of cubic feet)
2005		229
2006		443
2007		581
2008		637
2009		701
2010 and thereafter		6,111

		8,702

(d) Exploration and production licenses

The Company is obligated to make annual payments with respect to its exploration and production licenses to the Ministry of Land and Resources. Payments incurred were approximately RMB 202, RMB 296 and RMB 444 for the years ended December 31, 2002, 2003 and 2004 respectively.

Estimated annual payments for the next five years are as follows:


	RMB

2005		618
2006		681
2007		712
2008		712
2009		712

(e) Dividends

Dividends received from the Company are likely to be one of the principal sources of funding for CNPC. Subject to the relevant provisions of the PRC Company Law and the Articles of Association of the Company, CNPC, as the major shareholder of the Company, may seek to influence the determination of the amount of dividends paid by the Company with a view to satisfying its cash flow requirements including those relating to its obligations to provide supplementary social services to its employees and a limited number of third parties. The Ministry of Finance has committed to provide subsidies to enable CNPC to fund a portion of future operating shortfalls arising out of CNPC’s obligations to provide social services. The directors believe that these subsidies will substantially reduce CNPC’s reliance on dividends from the Company.

30 ACQUISITION

On April 22, 2002 the Group acquired all of the share capital of PetroChina International Indonesia Limited (formerly Devon Energy Indonesia Ltd.) (“Devon”) for RMB 2,068. This company is engaged in the exploration and production of crude oil and natural gas in Indonesia. The acquired business contributed turnover of RMB 632 and operating profit of RMB 132 to the Group for the year ended December 31, 2002.

In addition, the Group increased its equity interests in PetroChina Tarim Oil (Gas) Transportation Limited (“Tashu”) and Jilian (Jilin) Petrochemicals Limited (“Jilian”) respectively by 53.1% in

F-40

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)

November and 35% in December 2002 for a total consideration of RMB 472, and the two entities became the subsidiaries of the Company at the respective dates of acquisitions. The acquired businesses did not contribute significant turnover and operating profit to the Group for the year ended December 31, 2002.

Other than for land and buildings, the fair value of the net assets approximated the book value of the net assets acquired, and no plant closure provisions or other restructuring provisions were required.

The assets and liabilities arising from the acquisitions at the respective dates of acquisitions were as follows:


	Devon			Jilian			Tashu			Total

	RMB			RMB			RMB			RMB
Assets		2,145			1,050			897			4,092
Liabilities		(77	)		(664	)		(262	)		(1,003	)

		2,068			386			635			3,089
Equity interest acquired		100.0%			35.0%			53.1%
Fair value of net assets acquired		2,068			135			337			2,540
Less: Cash and cash equivalents acquired		(64	)		(8	)		(264	)		(336	)
Consideration not yet settled		—			(54	)		—			(54	)

Cash outflow on acquisition		2,004			73			73			2,150

31 MAJOR CUSTOMERS

The Group’s major customers are as follows:


	Year Ended December 31,

	2002				2003				2004

			% to				% to				% to
			Total				Total				Total
	Revenue		Revenue		Revenue		Revenue		Revenue		Revenue

	RMB		%		RMB		%		RMB		%
Sinopec		26,497		11		35,932		12		36,977		9
CNPC		7,772		3		9,323		3		14,516		4

		34,269		14		45,255		15		51,493		13

32 RELATED PARTY TRANSACTIONS

The Group is part of a larger group of companies under CNPC and has extensive transactions and relationships with members of the CNPC group. Because of these relationships, it is possible that the terms of these transactions are not the same as those that would result from transactions among wholly unrelated parties. Related parties refer to corporations in which CNPC is a major shareholder and is able to control or exercise significant influence.

CNPC itself is a state-owned enterprise. In accordance with a specific exemption in IAS 24, “Related Party Disclosure”, the Group does not accumulate or disclose transactions with other state-owned enterprises as related party transactions, other than those with other CNPC group companies and significant customers as described in Note 31.

F-41

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)

The majority of the Group’s business activities are conducted with state-owned enterprises. Sale of certain products to these state-owned enterprises are at state-prescribed prices which are similar to prices to other customers. The Group considers that these sales are activities in the ordinary course of business and has not accumulated or disclosed such related party transactions.

As a result of the restructuring of CNPC to form the Company in 1999, the Company and CNPC entered into a Comprehensive Products and Services Agreement for a range of products and services which may be required and requested by either party; a Land Use Rights Leasing Contract (Note 28(d)) under which CNPC leases 42,476 parcels of land located throughout the PRC to the Company; and a Buildings Leasing Contract under which CNPC leases 191 buildings, located throughout the PRC to the Company.

The term of the Comprehensive Products and Services Agreement is 10 years commencing from November 5, 1999. The products and services to be provided by the CNPC group to the Company under the Comprehensive Products and Services Agreement include construction and technical services, production services, supply of material services, social services, ancillary services, and financial services. The products and services are provided in accordance with (1) state-prescribed prices; or (2) where there is no state-prescribed price, relevant market prices; or (3) where neither (1) nor (2) is applicable, actual cost incurred; or the agreed contractual price, being the actual cost plus a margin of no more than 15% for certain construction and technical services, and 3% for all other types of services.

The Land Use Rights Contract provides for the lease of an aggregate area of approximately 1,145 million square meters of land located throughout the PRC to business units of the Group for a term of 50 years at an annual fee of RMB 2,000. The total fee payable for the lease of all such property may, after the expiration of 10 years, be adjusted by agreement between the Company and CNPC.

Under the Buildings Leasing Contract, 191 buildings covering an aggregate area of 269,770 square meters located throughout the PRC are leased at an aggregate annual fee of RMB 39 for a term of 20 years.

The Company also entered into a Supplemental Buildings Leasing Agreement with CNPC in September 2002 to lease an additional 404 buildings covering approximately 442,730 square meters at an annual rental of RMB 157. The Supplemental Buildings Leasing Agreement will expire at the same time as the Buildings Leasing Agreement.

F-42

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)

In addition to the related party information shown elsewhere in the financial statements, the following is a summary of significant related party transactions entered into in the ordinary course of business between the Group and entities controlled by CNPC during the years indicated below:


		Notes			Year Ended December 31,

					2002		2003		2004

					RMB		RMB		RMB
Sale of goods			(a	)		7,772		9,323		14,516
Fees paid for construction and technical services			(b	)
	— Exploration and development services		(c	)		21,781		25,180		29,030
	— Other construction and technical services		(d	)		16,324		15,688		18,469
Fees for production services			(e	)		15,743		16,042		16,313
Social services charge			(f	)		1,243		1,326		1,289
Ancillary service charges			(g	)		1,713		1,683		1,717
Interest income			(h	)		25		30		25
Interest expense			(i	)		1,086		1,052		1,097
Rental expense			(j	)		1,916		2,001		2,106
Commission expense and other charges			(k	)		936		971		884

Notes:


(a)	Represents sale of crude oil, refined and chemical products conducted principally at market prices.

(b)	Under the Comprehensive Products and Services Agreement entered into between CNPC and the Company, certain construction and technical services provided by CNPC are charged at cost plus an additional cost of no more than 15%, including exploration and development services and oilfield construction services.

(c)	Direct costs for exploration and development services comprise geophysical survey, drilling, well cementing, logging, and well testing.

(d)	The fees paid for other construction and technical services comprise fees for construction of refineries and chemical plants and technical services in connection with oil and gas exploration and production activities such as oilfield construction, technology research, engineering and design, etc.

(e)	The fees paid for production services comprise fees for the repair of machinery, supply of water, electricity and gas, provision of services such as communications, transportation, fire fighting, asset leasing, environmental protection and sanitation, maintenance of roads, manufacture of replacement parts and machinery.

(f)	These represent expenditures for social welfare and support services which are charged at cost.

(g)	Ancillary service charges represent mainly fees for property management, the provision of training centers, guesthouses, canteens, public shower rooms, etc.

(h)	The Group had deposits placed with China Petroleum Finance Company Limited (“CP Finance”), a subsidiary of CNPC and a non-bank financial institution approved by the People’s Bank of China, amounting to RMB 2,861, RMB 2,331 and RMB 1,782 as of December 31, 2002, 2003 and 2004 respectively. The deposits yield interest at prevailing saving deposit rates.

F-43

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)


(i)	The Group had unsecured short-term and long-term loans from CP Finance amounting to RMB 24,702, RMB 25,188 and RMB 23,168 as of December 31, 2002, 2003 and 2004 respectively, included under loans from related parties. The loans were interest bearing at market rates.

(j)	Rental expenses are calculated in accordance with the lease agreements entered into between the Company and CNPC.

(k)	CNPC purchases materials on behalf of the Company and charges commission thereon. The commission is calculated at rates ranging from 1% to 5% of the goods purchased.

(l)	The Group had a 4.73%, 7.5% and 7.5% equity interest in CP Finance at a book value of RMB 94, RMB 299 and RMB 299 as of December 31, 2002, 2003 and 2004 respectively.

33 EMOLUMENTS OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT

Details of the directors’ and supervisors’ emoluments are as follows:


	Year Ended December 31,

	2002		2003		2004

	RMB’000		RMB’000		RMB’000
Fee for directors and supervisors		128		83		120
Salaries, allowances and other benefits		1,042		1,377		2,012
Contribution to retirement benefit scheme		25		34		43

		1,195		1,494		2,175

The emoluments of the directors and supervisors fall within the following bands (including directors and supervisors whose term expired during the year):

Year Ended December 31,

2002

2003

2004

Number

Nil — RMB 1

Fee for directors and supervisors disclosed above included RMB 66 thousand, RMB 62 thousand and RMB 95 thousand respectively, for the year ended December 31, 2002, 2003 and 2004 paid to independent non-executive directors.

None of the directors and supervisors has waived their remuneration during the years indicated above.

The five highest paid individuals in the Group for each of the years indicated above were also directors or supervisors and their emoluments are reflected in the analysis presented above.

The Company has adopted a share option scheme which is a share appreciation right arrangement payable in cash to the recipients upon exercise of the rights which became effective on the initial public offering of the H shares of the Company on April 7, 2000. The directors, supervisors and senior executives of the Company are eligible for the scheme. 87,000,000 units of share appreciation rights were granted to senior executives. 35,000,000 units were granted to the directors and supervisors; of these 35,000,000 units, 33,130,000 units are outstanding, net of subsequent forfeiture of 1,870,000 units by a former independent director.

F-44

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)

The rights can be exercised on or after April 8, 2003, the third anniversary of the grant, up to April 7, 2008. The exercise price is the price as at the initial public offering being HK$1.28 per share or approximately RMB 1.36 per share.

As at December 31, 2004, none of the holders of the stock appreciation rights has exercised the rights. The liability for the units awarded under the scheme has been calculated based on the difference between the exercise price and the market price of the shares and amounted to approximately RMB 406 and RMB 367 at December 31, 2003 and 2004.

34 SEGMENT INFORMATION

The Group is engaged in a broad range of petroleum related activities through its four major business segments: Exploration and Production, Refining and Marketing, Chemicals and Marketing and Natural Gas and Pipeline.

The Exploration and Production segment is engaged in the exploration, development, production and sales of crude oil and natural gas.

The Refining and Marketing segment is engaged in the refining, transportation, storage and marketing of crude oil and petroleum products.

The Chemicals and Marketing segment is engaged in the production and sale of basic petrochemical products, derivative petrochemical products, and other chemical products.

The Natural Gas and Pipeline segment is engaged in the transmission of natural gas, crude oil and refined products, and the sale of natural gas.

In addition to these four major business segments, the Other segment includes the assets, income and expenses relating to cash management, financing activities, the corporate centre, research and development, and other business services to the operating business segments of the Group.

Substantially all assets and operations of the Group are located in the PRC, which is considered as one geographic location in an economic environment with similar risks and returns. In addition to its operations in the PRC in April 2002 the Group acquired all the share capital of Devon Energy Indonesia Ltd., a company engaging in the exploration and production of crude oil and natural gas in Indonesia. In April 2003, the Group acquired for RMB 679 a 50% interest in Amerada Hess Indonesia Holdings Co., which has a 30% interest in one of the oil and gas concessions that the Group acquired in 2002.

The accounting policies of the operating segments are the same as those described in Note 3 — “Summary of Principal Accounting Policies”.

F-45

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)

Operating segment information for the years ended December 31, 2002, 2003 and 2004 is presented below:

Primary reporting format — business segments


	Exploration			Refining			Chemicals			Natural Gas
	and			and			and			and
Year Ended December 31, 2002	Production			Marketing			Marketing			Pipeline			Other			Total

	RMB			RMB			RMB			RMB			RMB			RMB
Sales and other operating revenues (including intersegment)		147,308			174,621			29,661			12,733			—			364,323
Less: Intersegment sales		(106,266	)		(9,988	)		(1,093	)		(2,552	)		—			(119,899	)

Total sales and other operating revenues from external customers		41,042			164,633			28,568			10,181			—			244,424

Depreciation, depletion and amortization		(21,972	)		(7,144	)		(6,336	)		(1,213	)		(117	)		(36,782	)
Segment result		76,943			17,815			(1,217	)		1,796			(462	)		94,875
Other costs		(4,804	)		(14,997	)		(1,945	)		(244	)		(544	)		(22,534	)

Income/(loss) from operations		72,139			2,818			(3,162	)		1,552			(1,006	)		72,341

Finance costs																	(3,369	)
Equity in (loss)/income of affiliates accounted for by equity method		(38	)		12			(8	)		71			231			268

Income before income taxes																	69,240
Income taxes																	(22,231	)
Minority interests																	(99	)

Net income																	46,910

Interest income (including inter-segment)		1,942			1,061			1,136			109			4,499			8,747
Less: Intersegment interest income																	(8,284	)

Interest income from external sources																	463

Interest expense (including intersegment)		(2,979	)		(2,516	)		(1,810	)		(263	)		(4,232	)		(11,800	)
Less: Intersegment interest expense																	8,284

Interest expense to external sources																	(3,516	)

Segment assets		289,277			113,751			64,169			33,740			427,709			928,646
Elimination of intersegment balances																	(449,642	)
Investments in equity affiliates		1,422			1,774			178			6			765			4,145

Total assets																	483,149

F-46

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)

Exploration

Refining

Chemicals

Natural Gas

and

Year Ended December 31, 2002

Production

Marketing

Pipeline

Other

Total

RMB

Segment capital expenditure — for property, plant and equipment

46,078

10,503

3,140

12,912

133

72,766

Segment liabilities

89,663

68,701

44,318

22,488

113,236

338,406

Other liabilities

20,927

Elimination of intersegment balances

(197,714

)

Total liabilities

161,619


	Exploration			Refining			Chemicals			Natural Gas
	and			and			and			and
Year Ended December 31, 2003	Production			Marketing			Marketing			Pipeline			Other			Total

	RMB			RMB			RMB			RMB			RMB			RMB
Sales and other operating revenues (including intersegment)		177,271			223,584			39,211			15,067			—			455,133
Less: Intersegment sales		(128,963	)		(16,867	)		(2,263	)		(3,261	)		—			(151,354	)

Total sales and other operating revenues from external customers		48,308			206,717			36,948			11,806			—			303,779

Depreciation, depletion and amortization		(25,486	)		(7,601	)		(5,795	)		(1,543	)		(106	)		(40,531	)
Segment result		98,819			20,679			2,621			2,248			(713	)		123,654
Other costs		(6,449	)		(15,644	)		(1,580	)		(326	)		(469	)		(24,468	)

Income/(loss) from operations		92,370			5,035			1,041			1,922			(1,182	)		99,186

Finance costs																	(1,849	)
Equity in (loss)/income of affiliates accounted for by equity method		(33	)		104			42			13			859			985

Income before income taxes																	98,322
Income taxes																	(28,072	)
Minority interests																	(636	)

Net income																	69,614

Interest income (including intersegment)		2,222			552			446			117			4,403			7,740
Less: Intersegment interest income																	(7,063	)

Interest income from external sources																	677

Interest expense (including intersegment)		(2,537	)		(1,686	)		(843	)		(356	)		(3,987	)		(9,409	)
Less: Intersegment interest expense																	7,063

Interest expense to external sources																	(2,346	)

F-47

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)


	Exploration		Refining		Chemicals		Natural Gas
	and		and		and		and
Year Ended December 31, 2003	Production		Marketing		Marketing		Pipeline		Other		Total

	RMB		RMB		RMB		RMB		RMB		RMB
Segment assets		310,431		117,652		55,595		46,450		451,949		982,077
Elimination of intersegment balances												(455,913	)
Investments in equity affiliates		1,184		1,889		232		41		2,225		5,571

Total assets												531,735

Segment capital expenditure — for property, plant and equipment		52,713		12,650		3,898		13,530		138		82,929
Segment liabilities		86,050		58,372		17,634		33,535		104,326		299,917
Other liabilities												32,548
Elimination of intersegment balances												(162,951	)

Total liabilities												169,514


	Exploration			Refining			Chemicals			Natural Gas
	and			and			and			and
Year Ended December 31, 2004	Production			Marketing			Marketing			Pipeline			Other			Total

	RMB			RMB			RMB			RMB			RMB			RMB
Sales and other operating revenues (including intersegment)		222,305			295,598			57,179			18,255			—			593,337
Less: Intersegment sales		(176,458	)		(21,862	)		(2,679	)		(3,705	)		—			(204,704	)

Total sales and other operating revenues from external customers		45,847			273,736			54,500			14,550			—			388,633

Depreciation, depletion and amortization		(29,092	)		(8,829	)		(5,741	)		(2,645	)		(104	)		(46,411	)
Segment result		131,448			28,502			11,025			2,475			(518	)		172,932
Other costs		(5,877	)		(16,521	)		(3,370	)		60			(638	)		(26,346	)

Income/(loss) from operations		125,571			11,981			7,655			2,535			(1,156	)		146,586

Finance costs																	(1,269	)
Equity in income of affiliates accounted for by equity method		99			108			214			24			1,379			1,824

Income before income taxes																	147,141
Income taxes																	(42,563	)
Minority interests																	(1,651	)

Net income																	102,927

Interest income (including intersegment)		2,336			891			205			27			4,723			8,182
Less: Intersegment interest income																	(7,075	)

Interest income from external sources																	1,107

F-48

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)


	Exploration			Refining			Chemicals			Natural Gas
	and			and			and			and
Year Ended December 31, 2004	Production			Marketing			Marketing			Pipeline			Other			Total

	RMB			RMB			RMB			RMB			RMB			RMB
Interest expense (including intersegment)		(2,559	)		(1,721	)		(502	)		(693	)		(3,903	)		(9,378	)
Less: Intersegment interest expense																	7,075

Interest expense to external sources																	(2,303	)

Segment assets		339,322			140,405			55,568			61,631			507,164			1,104,090
Elimination of intersegment balances																	(502,085	)
Investments in equity affiliates		1,407			2,832			280			192			3,212			7,923

Total assets																	609,928

Segment capital expenditure — for property, plant and equipment		59,488			17,467			4,319			13,901			174			95,349
Segment liabilities		93,871			73,529			18,484			35,385			99,711			320,980
Other liabilities																	36,470
Elimination of intersegment balances																	(182,125	)

Total liabilities																	175,325


Note (a) —	Intersegment sales are conducted principally at market price.

Note (b) —	Segment result is income from operations before other costs. Other costs include selling, general and administrative expenses and other net (expense)/income.


Note (c) —	Segment results for the years ended December 31, 2002, 2003 and 2004 included impairment provision for property, plant and equipment (Note 16) and shut down of manufacturing assets (Note 5).


Note (d) —	Other liabilities mainly include income tax payable, other taxes payable and deferred taxation.

Note (e) —	Elimination of intersegment balances represents elimination of intersegment current accounts and investments.

Secondary reporting format — geographical segments


									Capital
	Revenue				Total assets				expenditure

Year Ended December 31,	2003		2004		2003		2004		2003		2004

	RMB		RMB		RMB		RMB		RMB		RMB
PRC		302,854		387,639		529,209		606,147		82,275		94,235
Other (Exploration and Production)		925		994		2,526		3,781		654		1,114

		303,779		388,633		531,735		609,928		82,929		95,349

F-49

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)

35 SIGNIFICANT DIFFERENCES BETWEEN IFRS AND US GAAP

The consolidated financial statements have been prepared in accordance with IFRS, which differ in certain material respects from the accounting principles generally accepted in the United States of America (US GAAP). Such differences involve methods for measuring the amounts shown in the financial statements, as well as additional disclosures required by US GAAP.

Effect on net income of significant differences between IFRS and US GAAP is as follows:


		Year Ended December 31,

		2002			2003			2004			2004

		RMB			RMB			RMB			US$
Net income under IFRS			46,910			69,614			102,927			12,436
US GAAP adjustments:
	Reversal of revaluation loss of property, plant and equipment		—			391			—			—
	Depreciation charges on property, plant and equipment revaluation gain		8,157			8,053			8,170			987
	Depreciation charges on property, plant and equipment revaluation loss		(112	)		(144	)		(830	)		(100	)
	Loss on disposal of revalued property, plant and equipment		224			451			523			63
	Income tax effect		(2,729	)		(2,886	)		(2,595	)		(314	)
	Minority interests		(60	)		(60	)		(60	)		(7	)
	One-time remedial payments for staff housing		(2,553	)		—			—			—

Net income under US GAAP			49,837			75,419			108,135			13,065

Basic and diluted net income per share under US GAAP (RMB)			0.28			0.43			0.62			0.07

F-50

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)

Effect on shareholders’ equity of significant differences between IFRS and US GAAP is as follows:


		At December 31,

		2003			2004			2004

		RMB			RMB			US$
Shareholders’ equity under IFRS			356,613			425,212			51,376
US GAAP adjustments:
	Reversal of property, plant and equipment revaluation gain		(80,555	)		(80,555	)		(9,733	)
	Depreciation charges on property, plant and equipment revaluation gain		37,273			45,443			5,490
	Reversal of property, plant and equipment revaluation loss		1,513			1,513			183
	Depreciation charges on property, plant and equipment revaluation loss		(480	)		(1,310	)		(158	)
	Loss on disposal of revalued property, plant and equipment		791			1,314			159
	Deferred tax assets on revaluation		13,686			11,091			1,340
	Minority interests		364			304			36
	Effect on the retained earnings from the one-time remedial payments for staff housing borne by the state shareholder of the Company		(2,553	)		(2,553	)		(308	)
	Effect on the other reserves of the shareholders’ equity from the one-time remedial payments for staff housing borne by the state shareholder of the Company		2,553			2,553			308

Shareholders’ equity under US GAAP			329,205			403,012			48,693

F-51

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)

Changes in shareholders’ equity under US GAAP for each of the years ended December 31, 2002, 2003 and 2004 are as follows:


	Year Ended December 31,

	2002			2003			2004			2004

	RMB			RMB			RMB			US$
Balance at beginning of year		251,914			283,464			329,205			39,776
Net profit for the year		49,837			75,419			108,135			13,065
Contribution from CNPC to marketing enterprises		10			—			—			—
Final dividend for year 2001		(8,839	)		—			—			—
Interim dividend for year 2002		(8,811	)		—			—			—
Final dividend for year 2002		—			(12,299	)		—			—
Interim dividend for year 2003		—			(17,379	)		—			—
Final dividend for year 2003		—			—			(13,947	)		(1,685	)
Interim dividend for year 2004		—			—			(20,381	)		(2,463	)
Payment to CNPC for acquisition of marketing enterprises		(3,200	)		—			—			—
Contribution from CNPC for one-time remedial staffing housing		2,553			—			—			—

Balance at end of year		283,464			329,205			403,012			48,693

In preparing the summary of differences between IFRS and US GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the estimates of revenues and expenses. Accounting estimates have been employed in these financial statements to determine reported amounts, including realizability, useful lives of tangible and intangible assets, income taxes and other areas. Actual results may differ from those estimates.

A summary of the principal differences and additional disclosures applicable to the Group is set out below:

(a) Revaluation of property, plant and equipment


	As described in Note 16, the property, plant and equipment, excluding oil and gas reserves, transferred to the Company by CNPC were appraised as of June 30, 1999, as required by the relevant PRC regulations, by a firm of independent valuers registered in the PRC, China Enterprise Appraisal. As at September 30, 2003, a revaluation of the Group’s refining and chemical production equipment was undertaken by a firm of independent valuers registered in the PRC, China United Assets Appraiser Co., Ltd, on a depreciated replacement cost basis.

	The June 1999 revaluation resulted in RMB 80,549 in excess of the prior carrying value and a revaluation loss of RMB 1,122 on certain property, plant and equipment.

	The September 2003 revaluation resulted in RMB 872 in excess of the carrying value of certain property, plant and equipment immediately prior to the revaluation and a revaluation loss of RMB 1,257.

	With respect to the RMB 872 revaluation gain resulting from the 2003 revaluation, RMB 98 were related to property, plant and equipment that in 1999 experienced revaluation loss, and

F-52

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)


	were credited to the income statement. The remaining RMB 774 was credited to the revaluation reserve in the shareholders’ equity.

	With respect to the RMB 1,257 revaluation loss resulting from the 2003 revaluation, RMB 768 were related to property, plant and equipment that in 1999 experienced revaluation gain. The remaining RMB 489 were charged to the income statement.

	The depreciation charge, which includes impairment charge, on the revaluation surplus from January 1, 2002 to December 31, 2002 was RMB 8,157, from January 1, 2003 to December 31, 2003 was RMB 8,053, and from January 1, 2004 to December 31, 2004 was RMB 8,170.

	The depreciation charge, which includes impairment charge, on the revaluation loss from January 1, 2002 to December 31, 2002 was RMB 112, from January 1, 2003 to December 31, 2003 was RMB 144, and from January 1, 2004 to December 31, 2004 was RMB 830.

	The loss on disposal of revalued property, plant and equipment, which includes shut down of manufacturing assets, from January 1, 2002 to December 31, 2002 was RMB 224, from January 1, 2003 to December 31, 2003 was RMB 451, and from January 1, 2004 to December 31, 2004 was RMB 523.

	For purposes of reconciling to the US GAAP financial data, the effect of the revaluation, the related depreciation charges and loss on disposal is reversed. A deferred tax asset relating to the reversal of the effect of revaluation in 1999 is established, together with a corresponding increase in the shareholders’ equity. Under a special approval granted by the Ministry of Finance, the effect of the revaluation in 1999 is available as additional depreciation base for purposes of determining taxable income.

(b) Related party transactions

The Group has disclosed in Note 31, transactions with significant customers and in Notes 13, 15, 21, 22 and 32 transactions and balances with its immediate parent, CNPC, and related companies. CNPC is owned by the PRC government, which also owns a significant portion of the productive assets in the PRC. IFRS exempts state controlled enterprises from disclosing transactions with other state controlled enterprises. IFRS also excludes from related parties government departments and agencies to the extent that such dealings are in the normal course of business. US GAAP contains no similar exemptions but requires disclosure of material related party transactions. The Group believes that it has provided meaningful disclosures of related party transactions through the major customer disclosures in Note 31 and the transactions with the CNPC Group disclosed in Note 32. Although the majority of the Group’s activities are conducted with the PRC government and its affiliates and other state controlled enterprises, none individually constitutes a major customer or supplier other than those disclosed.

(c) One-time remedial payments for staff housing

The Ministry of Finance of the PRC issued several public notices and regulations during the year ended December 31, 2000 and 2001 with respect to the one-time remedial payments for staff housing payable to certain employees who joined the workforce prior to December 31, 1998 and have housing conditions below local standards as determined in accordance with government regulations and guidelines. These Ministry of Finance notices and regulations also provided that the portion of remedial payments attributable to the periods prior to a restructuring

F-53

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)


	of the employer enterprise from a wholly state-owned status to a less than wholly state-owned status is to be borne by the state shareholder of the enterprise.

	The restructuring that resulted in the formation of the Group took place in November 1999. As such, the one-time remedial housing payments payable to the eligible employees of the Group are to be borne by the state shareholder of the Group.

	Under IFRS, such direct payments to employees or reimbursements will not be recorded through the consolidated income statement of the Group. US GAAP contains no such exemption but requires this principal shareholder’s action on behalf of the Company to be recorded in the consolidated income statement. In the last quarter of year 2002, the Group and CNPC completed the process of estimating the amount payable to qualified employees of the Group. This amount, RMB 2,553, was reflected in determining net income of the Group for the year ended December 31, 2002, under US GAAP. Since this amount is borne by CNPC, a corresponding amount has been included as an addition to the other reserves in the shareholders’ equity of the Group. There are no significant changes in this estimates during 2003 and 2004.

(d) Recent US accounting pronouncements


	In December 2004, the FASB revised FAS No. 123 (FAS 123(R)). FAS 123(R), “Share-based Payment”, requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. Pro forma disclosure is no longer an alternative to financial statement recognition. FAS 123(R) is effective as of the beginning of the Company’s first fiscal year that begins after June 15, 2005. The Group is evaluating the transition provisions allowed by FAS 123(R). The Group does not expect the adoption of FAS 123(R) to have a material impact on the Group’s financial position or operational results.

	On November 24, 2004, the FASB issued Statement No. 151, “Inventory Costs”, an amendment of ARB No. 43, Chapter 4 (FAS 151). FAS 151 requires that abnormal amounts of idle capacity and spoilage costs be excluded from the cost of inventory and expensed when incurred. The provisions of FAS 151 are applicable to inventory costs incurred during fiscal years beginning after June 15, 2005. The Group does not expect the adoption of FAS 151 to have a material impact on the Group’s financial position or results of operation.

	On December 15, 2004, the FASB issued Statement No. 153, “Exchanges of Nonmonetary Assets”, an amendment of APB Opinion No. 29 (FAS 153). FAS 153 requires exchanges of productive assets to be accounted for at fair value, rather than at carryover basis, unless (1) neither the asset received nor the asset surrendered has a fair value that is determinable within reasonable limits or (2) the transactions lack commercial substance. FAS 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Group does not expect the adoption of FAS 153 to have a material impact on the Group’s financial position or results of operation.

F-54

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)

36 PRINCIPAL SUBSIDIARIES

Country

Type of

Attributable

of Incorporation

Paid-up

Legal

Equity

Company Name

and Operations

Capital

Entity

Interest

Principal Activities

RMB

*Daqing Oilfield Company Limited

PRC

47,500

phi

100.00

Exploration, production and the sale of crude oil and natural gas; production and sale of refined products

*Jinzhou Petrochemical Company Limited

PRC

788

psi

80.95

Production and sale of oil and chemical products

*Jilin Chemical Industrial Company Limited

PRC

3,561

psi

67.29

Production and sale of chemical products

Daqing Yu Shu Lin Oilfield Company Limited

PRC

1,272

phi

88.16

Exploration and production of crude oil and natural gas

*Liaohe Jinma Oilfield Company Limited

PRC

1,100

psi

81.82

Exploration, production, transportation and sale of crude oil and natural gas

*PetroChina International Limited

British Virgin Islands

USD 0.9

phi

100.00

Exploration and production of crude oil and natural gas outside of PRC

PetroChina International Indonesia Limited

Bahamas

USD0.005

phi

100.00

Exploration and production of crude oil and natural gas in Indonesia


phi —	Limited liability company.

psi —	Joint stock company with limited liability.


* —	Subsidiaries directly held by the Company as of December 31, 2004.

37 EVENTS AFTER BALANCE SHEET DATE

On March 28, 2005, the Company has entered into an acquisition agreement with CNPC. According to the acquisition agreement, the Company has acquired the petroleum and natural gas-related refinery and petrochemical businesses respectively owned by CNPC’s wholly-owned

F-55

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in millions except for per share data or unless otherwise stated)

subsidiaries, Ningxia Dayuan Refinery and Petrochemical Company Limited and Qingyang Refinery and Petrochemical Company Limited, from CNPC for which the Company paid a cash consideration of RMB 9.14.

The acquisition has been completed on April 1, 2005.

The transaction was accounted for in a manner similar to a uniting of interests, whereby the assets and liabilities of the two entities acquired by the Company were recorded at historical cost to CNPC. The difference between the RMB 9.14 acquisition price and the net liabilities transferred from CNPC was adjusted against equity. Following is a summary of certain summarized financial data at December 31, 2004 and for the year then ended of the businesses acquired from CNPC.


		RMB

Results of operations
	Turnover		4,582
	Net loss		(148	)
Financial position:
	Current assets		822
	Total assets		2,077
	Current liabilities		1,237
	Total liabilities		2,314
	Net liabilities		(237	)

On June 8, 2005, the Board of Directors of the Company approved entering into a purchase agreement whereby the Company will acquire a 50% ownership interest in Zhong You Kan Tan Kai Fa Company Limited (“Newco”). Currently Newco is 100% owned by two wholly-owned subsidiaries of CNPC. The Company’s investment in Newco is expected to be approximately RMB 20,741. Concurrent with the purchase agreement, the Company also agreed in a transfer agreement to sell its wholly-owned subsidiary, PetroChina International Limited, to Newco for a consideration of approximately RMB 579.

The purchase and transfer agreements require approvals by relevant regulatory authorities and the shareholders of the Company.

Upon completion of the purchase and transfer agreements, the Company will obtain control of the operational and financial policies of Newco. Its investment in Newco and the transfer of PetroChina International Limited to Newco will be accounted for in a manner similar to a uniting of interests since these transactions are among entities under common control by CNPC. The consolidated financial statements of the Company will be restated as if the operations of the Company and Newco had always been combined.

38 APPROVAL OF FINANCIAL STATEMENTS

The financial statements were approved by the board of directors on March 16, 2005 and by the shareholders at the annual general meeting held on May 26, 2005.

F-56

PETROCHINA COMPANY LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION

AND PRODUCTION ACTIVITIES (UNAUDITED)

(Amounts in millions unless otherwise stated)

Results of Operations


		Year Ended December 31,

		2002			2003			2004

		RMB			RMB			RMB
Sales and other operating revenues
	Sales to third parties		41,042			48,308			45,847
	Intersegment sales		106,266			128,963			173,223

			147,308			177,271			219,070
Production costs excluding taxes			(29,913	)		(30,691	)		(32,863	)
Exploration expenses			(8,095	)		(10,577	)		(11,723	)
Depreciation, depletion and amortization			(18,302	)		(21,060	)		(24,839	)
Taxes other than income taxes			(5,299	)		(5,524	)		(6,729	)

Income before income taxes			85,699			109,419			142,916
Income taxes			(25,958	)		(32,376	)		(40,014	)

Results of operations from producing activities			59,741			77,043			102,902

Income from equity affiliates’ results of operations from producing activities			132			324			471

Capitalized Costs


	Year Ended December 31,

	2002			2003			2004

	RMB			RMB			RMB
Property costs		—			—			—
Producing assets		236,856			262,638			291,910
Support facilities		101,142			106,172			116,640
Construction-in-progress		7,895			10,485			14,114

Total capitalized costs		345,893			379,295			422,664
Accumulated depreciation, depletion and amortization		(137,653	)		(150,842	)		(172,696	)

Net capitalized costs		208,240			228,453			249,968

Share of equity affiliates’ net capitalized costs		815			1,604			777

F-57

PETROCHINA COMPANY LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION

AND PRODUCTION ACTIVITIES (UNAUDITED) — (Continued)

(Amounts in millions unless otherwise stated)

Costs Incurred in Property Acquisitions, Exploration and Development Activities


	Year Ended December 31,

	2002		2003		2004

	RMB		RMB		RMB
Property acquisition costs		—		—		—
Exploration costs		10,704		15,137		18,160
Development costs		35,558		39,587		43,712

Total		46,262		54,724		61,872

Share of equity affiliates’ costs of property acquisition, exploration, and development		228		592		274

Proved Reserve Estimates

Oil and gas proved reserves cannot be measured exactly. Reserve estimates are based on many factors related to reservoir performance that require evaluation by the engineers interpreting the available data, as well as price and other economic factors. The reliability of these estimates at any point in time depends on both the quality and quantity of the technical and economic data, and the production performance of the reservoirs as well as engineering judgment. Consequently, reserve estimates are subject to revision as additional data become available during the producing life of a reservoir. When a commercial reservoir is discovered, proved reserves are initially determined based on limited data from the first well or wells. Subsequent data may better define the extent of the reservoir and additional production performance, well tests and engineering studies will likely improve the reliability of the reserve estimate. The evolution of technology may also result in the application of improved recovery techniques such as supplemental or enhanced recovery projects, or both, which have the potential to increase reserves beyond those envisioned during the early years of a reservoir’s producing life.

Proved oil and gas reserves are the estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, i.e., prices and costs as of the date the estimate is made. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not on escalations based upon future conditions. Proved developed reserves are those reserves, which can be expected to be recovered through existing wells with existing equipment and operating methods. Proved undeveloped reserves are those reserves, which are expected to be recovered from new wells on undrilled acreage, or from existing wells where relatively major expenditure is required.

F-58

PETROCHINA COMPANY LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION

AND PRODUCTION ACTIVITIES (UNAUDITED) — (Continued)

(Amounts in millions unless otherwise stated)

Oil and gas price increases may extend the productive lives of crude oil and natural gas reservoirs beyond the current terms of the relevant production licenses.

Proved reserve estimates as of December 31, 2002, 2003 and 2004 were based on a report prepared by DeGolyer and MacNaughton, independent engineering consultants. These reserve estimates were prepared for each oil and gas region (as opposed to individual fields within a region) and adjusted for the estimated effects of using prices and costs prevailing at the end of the period. The Company’s reserve estimates include only crude oil and natural gas, which the Company believes can be reasonably produced within the current terms of production licenses.

F-59

PETROCHINA COMPANY LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION

AND PRODUCTION ACTIVITIES (UNAUDITED) — (Continued)

(Amounts in millions unless otherwise stated)

Estimated quantities of net proved oil and condensate and natural gas reserves and of changes in net quantities of proved developed and undeveloped reserves for each of the period indicated are as follows:


				Crude Oil and
				Condensate			Natural Gas

				(millions of			(billions of
				barrels)			cubic feet)
Proved developed and undeveloped
	Reserves at January 1, 2002				10,959			36,103
		Changes resulting from:
			Revisions of previous estimates		349			(225	)
			Improved recovery		31			—
			Extensions and discoveries		330			3,540
			Purchases of Minerals in Place		38			193
			Production		(770	)		(794	)

	Reserves at December 31, 2002				10,937			38,817

		Changes resulting from:
			Revisions of previous estimates		199			278
			Improved recovery		81			—
			Extensions and discoveries		476			2,853
			Production		(774	)		(879	)

	Reserves at December 31, 2003				10,919			41,069

		Changes resulting from:
			Revisions of previous estimates		148			56
			Improved recovery		109			43
			Extensions and discoveries		542			4,405
			Production		(777	)		(1,019	)

	Reserves at December 31, 2004				10,941			44,554

	Proved developed reserves at:
		December 31, 2002			9,198			11,921
		December 31, 2003			8,885			13,374
		December 31, 2004			8,748			16,787
	Proportional interest in proved reserves of equity affiliates
		December 31, 2002			62			2
		December 31, 2003			78			78
		December 31, 2004			78			91

At December 31, 2004, 10,910 million barrels of crude oil and condensate and 44,362 billion cubic feet of natural gas proved developed and undeveloped reserves are located within China, and 31 million barrels of crude oil and condensate and 192 billion cubic feet of natural gas proved developed and undeveloped reserves are located in Indonesia.

F-60

PETROCHINA COMPANY LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION

AND PRODUCTION ACTIVITIES (UNAUDITED) — (Continued)

(Amounts in millions unless otherwise stated)

Standardized Measure

The following disclosures concerning the standardized measure of future cash flows from proved oil and gas reserves are presented in accordance with the US Statement of Financial Accounting Standards No. 69. The amounts shown are based on prices and costs at the end of each period, currently enacted tax rates and a 10 percent annual discount factor. Since prices and costs do not remain static, and no price or cost changes have been considered, the results are not necessarily indicative of the fair market value of estimated proved reserves, but they do provide a common benchmark which may enhance the users’ ability to project future cash flows.

The standardized measure of discounted future net cash flows related to proved oil and gas reserves at the end of each of the three years in the period ended December 31, 2002, 2003 and 2004 is as follows (in millions of RMB):


At December 31, 2002
Future cash inflows	2,710,152
Future production costs	(745,866	)
Future development costs	(73,344	)
Future income tax expense	(562,289	)

Future net cash flows	1,328,653
Discount at 10% for estimated timing of cash flows	(713,267	)

Standardized measure of discounted future net cash flows	615,386

At December 31, 2003
Future cash inflows	2,991,193
Future production costs	(765,111	)
Future development costs	(88,556	)
Future income tax expense	(635,169	)

Future net cash flows	1,502,357
Discount at 10% for estimated timing of cash flows	(807,037	)

Standardized measure of discounted future net cash flows	695,320

At December 31, 2004
Future cash inflows	3,894,766
Future production costs	(865,257	)
Future development costs	(90,938	)
Future income tax expense	(906,035	)

Future net cash flows	2,032,536
Discount at 10% for estimated timing of cash flows	(1,061,260	)

Standardized measure of discounted future net cash flows	971,276

F-61

PETROCHINA COMPANY LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION

AND PRODUCTION ACTIVITIES (UNAUDITED) — (Continued)

(Amounts in millions unless otherwise stated)


Share of equity affiliates’ standardized measure of discounted future net cash flows
	At December 31, 2002	2,612
	At December 31, 2003	3,744
	At December 31, 2004	5,371

Future net cash flows were estimated using period-end prices and costs, and currently enacted tax rates.

Changes in the standardized measure of discounted net cash flows for the Group for each of the three years in the period ended December 31, 2002, 2003 and 2004 are as follows:


		Year Ended December 31,

		2002			2003			2004

		RMB			RMB			RMB
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE CASH FLOWS
	Beginning of year		405,999			615,386			695,320
	Sales and transfers of oil and gas produced, net of production costs		(116,977	)		(146,580	)		(179,478	)
	Net changes in prices and production costs and other		259,016			90,150			355,109
	Extensions, discoveries and improved recovery		53,024			65,150			117,560
	Development costs incurred		(1,983	)		1,730			9,693
	Revisions of previous quantity estimates		17,364			15,520			13,236
	Accretion of discount		60,095			87,580			98,935
	Purchases of minerals in place		2,351			—			—
	Net change in income taxes		(63,503	)		(33,616	)		(139,099	)

	End of year		615,386			695,320			971,276

F-62

EXHIBIT INDEX


Exhibit
Number		Description of Exhibits

1.1		Articles of Association (as amended) (English translation) ⁽¹⁾
1.2		Articles of Association (as amended and pending for approval of SASAC) (English translation)
4.1		2005 Management Performance Contract (English Translation)
4.2		Crude Oil Mutual Supply Framework Agreement, dated December 1, 2004, between China Petroleum and Chemical Corporation and PetroChina (English translation)
4.3		Capital Contribution Agreement, dated June 9, 2005, among China National Oil and Gas Exploration and Development Corporation, Central Asia Petroleum Company Limited, Zhong You Kan Tan Kai Fa Company Limited and PetroChina (English Translation)
4.4		Transfer Agreement, dated June 9, 2005, between Zhong You Kan Tan Kai Fa Company Limited and PetroChina (English Translation)
4.5		Supplementary Agreement to Comprehensive Products and Services Agreement, dated June 9, 2005, between CNPC and PetroChina (English Translation)
4.6		Form of Non-competition Agreement between CNPC and PetroChina (together with English translation) ⁽²⁾
4.7		Form of Comprehensive Products and Services Agreement between CNPC and PetroChina (together with English translation) ⁽²⁾
4.8		Form of Land Use Rights Leasing Contract between CNPC and PetroChina (together with English translation) ⁽²⁾
4.9		Form of Buildings Leasing Contract between CNPC and PetroChina (together with English translation) ⁽²⁾
4.10		Form of Trademark Licensing Contract between CNPC and PetroChina (together with English translation) ⁽²⁾
4.11		Form of Patent and Know-how Licensing Contract between CNPC and PetroChina (together with English translation) ⁽²⁾
4.12		Form of Computer Software Licensing Contract between CNPC and PetroChina (together with English translation) ⁽²⁾
4.13		Form of Contract for Transfer of Rights under Production Sharing Contracts between CNPC and PetroChina (together with English translation) ⁽²⁾
4.14		Form of Guarantee of Debts Contract between CNPC and PetroChina (together with English translation) ⁽²⁾
4.15		Form of Contract for the Supervision of Certain Sales Enterprises between CNPC and PetroChina (together with English translation) ⁽²⁾
4.16		Form of Agreement for Transfer of Rights and Interests under the Crude Oil Premium and Discount Calculation Agreement between China Petrochemical Corporation, CNPC and PetroChina (together with English translation) ⁽²⁾
4.17		Form of Agreement for the Transfer of Rights and Interests under the Retainer Contracts relating to Oil Exploration and Exploitation in Lengjiapu Area, Liaohe Oil Region and No. 9.1-9.5 Areas, Karamay Oil Field (together with English translation) ⁽²⁾
8.1		List of major subsidiaries
10.1		Significant Differences in Corporate Governance Practices for Purposes of Section 303A.11 of the New York Exchange Listed Company Manual
12.1		Certification of Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
12.2		Certification of Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.


Exhibit
Number		Description of Exhibits

13.1		Certification of Chief Executive Officer required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
13.2		Certification of Chief Financial Officer required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
16.1		Code of Ethics for Senior Management
16.2		Code of Ethics for Employees


⁽¹⁾	Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2001 (File No. 1-15006) filed with the Commission.

⁽²⁾	Incorporated by reference to our Registration Statement on Form F-1 (File No. 333-11566) filed with the Commission, as declared effective on March 29, 2000.

EXHIBIT 1.1

ARTICLES OF ASSOCIATION

PETROCHINA COMPANY LIMITED

.
.

ARTICLES OF ASSOCIATION
OF PETROCHINA COMPANY LIMITED

Chapter 1 General Provisions.................................................................... 1
Chapter 2 The Company's Objectives and Scope of Business........................................ 2
Chapter 3 Shares and Registered Capital......................................................... 3
Chapter 4 Reduction of Capital and Redemption of Shares......................................... 6
Chapter 5 Financial Assistance for Acquisition of Shares........................................ 8
Chapter 6 Share Certificates and Register of Shareholders....................................... 9
Chapter 7 Shareholders' Rights and Obligations.................................................. 14
Chapter 8 Shareholders' General Meetings........................................................ 17
Chapter 9 Special Procedures for Voting by a Class of Shareholders.............................. 25
Chapter 10 Board of Directors.................................................................... 27
Chapter 11 Secretary of the Board of Directors................................................... 31
Chapter 12 General Manager....................................................................... 32
Chapter 13 Supervisory Committee................................................................. 33
Chapter 14 Qualifications and Duties of the Directors, Supervisors, General Manager,
Senior Deputy General Managers, Deputy General Managers and Other
Senior Officers of the Company ....................................................... 35
Chapter 15 Financial and Accounting Systems and Profit Distribution.............................. 42
Chapter 16 Appointment of Auditors............................................................... 45
Chapter 17 Insurance............................................................................. 49
Chapter 18 Labour and Personnel Management Systems............................................... 49
Chapter 19 Trade Unions.......................................................................... 49
Chapter 20 Merger and Division of the Company.................................................... 49
Chapter 21 Dissolution and Liquidation........................................................... 50
Chapter 22 Procedures for Amendment of the Company's Articles of Association..................... 53
Chapter 23 Dispute Resolution.................................................................... 54
Chapter 24 Notices .............................................................................. 55
Chapter 25 Supplementary ........................................................................ 56

ARTICLES OF ASSOCIATION OF

PETROCHINA COMPANY LIMITED

(Approved by Shareholders' Special Resolutions on 3 December 1999 Amended by Shareholders' Special Resolutions on 10 March 2000 Amended by Resolutions of the Fifth Meeting of the First Board of Directors on 30 May 2000 Amended by Shareholders' Special Resolutions on 8 June 2001 Amended by Shareholders' Special Resolution on 26 May 2005)

CHAPTER 1: GENERAL PROVISIONS

Article 1. The Company is a joint stock limited company established in accordance with the Company Law of the People's Republic of China (the Company Law), Securities Law of the People's Republic of China, State Council's Special Regulations Regarding the Issue of Shares Overseas and the Listing of Shares Overseas by Companies Limited by Shares (the Special Regulations) and other relevant laws and regulations of the State.

The Company was established by way of promotion with the approval of the State Economic and Trade Commission of the People's Republic of China on 25 October 1999, as evidenced by approval document Guo Jing Mao Qi Gai [1999] no. 1024 of 1999. It is registered with and has obtained a business licence from the State Administration Bureau of Industry and Commerce on 5 November 1999. The Company's business licence number is: 1000001003252.

The promoter of the Company is: China National Petroleum Corporation.

Article 2. The Company's registered Chinese name: [CHINESE CHARACTERS] The Company's registered English name: PetroChina Company Limited.

Article 3. The Company's address : 16 Ande Road

                          Dongcheng District
                          Beijing
                          China
Telephone number       :  010-84886270
Facsimile number       :  010-84886260
Postal code            :  100011

Article 4. The Company's legal representative is the Chairman of the board of directors of the Company.

Article 5. The Company is a joint stock limited company which has perpetual existence.

Article 6. The Company's Articles of Association shall take effect from the date of establishment of the Company.

From the date on which the Company's Articles of Association come into effect, the Company's Articles of Association constitute the legally binding document regulating the Company's organisation and activities, and the rights and obligations between the Company and each shareholder and among the shareholders inter se.

Article 7. The Company's Articles of Association are binding on the Company and its shareholders, directors, supervisors, general manager, senior deputy general managers, deputy general managers, financial controller and other senior officers of the Company; all of whom may, according to the Company's Articles of Association, assert rights in respect of the affairs of the Company.

A shareholder may take action against the Company pursuant to the Company's Articles of Association, and vice versa. A shareholder may also take action against another shareholder, the directors, supervisors, general manager, senior deputy general managers, deputy general managers, financial controller and other senior officers of the Company pursuant to the Company's Articles of Association.

The actions referred to in the preceding paragraph include court proceedings and arbitration proceedings.

Article 8. The Company may invest in other limited liability companies or joint stock limited companies. The Company's liabilities to an invested company shall be limited to the amount of its capital contribution to the invested company.

Upon approval of the companies approving department authorised by the State Council, the Company may, according to its operating and management needs, operate as a holding company as prescribed in clause 2 of Article 12 of the Company Law.

CHAPTER 2: THE COMPANY'S OBJECTIVES AND
SCOPE OF BUSINESS

Article 9. The Company's objectives are:

To comply with the rules of the market; To continue to explore the modes of business operation which are suitable for the Company; To fully utilise

every resource of the Company; To place emphasis on the training of its employees and technological development; To provide the society with products which are competitive; To use its best endeavours to maximise its profits.

Article 10. The Company's scope of business shall be consistent with and subject to the scope of business approved by the authority responsible for the registration of the Company.

The Company's scope of business includes: the exploration, production and sale of onshore oil and natural gas; the production and sale of refined, petrochemical and chemical products; the operation of oil and natural gas pipelines; the research and development for oil exploration and production technology and petrochemical technology; the sale of materials, equipment and machines necessary for production and construction of oil and gas, petrochemicals and pipelines (except those items required to be specifically authorized by the State); the import and export of crude oil and refined oil; the operation of, or to act as agent in, the import and export of various commodities and technologies (except the commodities or technologies which are required to be operated by companies designated by the State or are prohibited to import or export), the operation of processing with imported materials and the "Three Types of Processing plus Compensation Trade"; the operation of contra trade and transit trade; the operation of the oil exploration, development and production business under the overseas co-operation contracts of which China National Petroleum Corporation has assigned its interests.

The Company may, according to the demand and supply in the domestic and international markets, the Company's ability to develop, and the requirements of the Company's business, adjust its scope of business in accordance with the laws .

Subject to and compliance with laws and administrative regulations of the People's Republic of China ("PRC"), the Company has the power to raise and borrow money, which power includes (without limitation) the borrowing of money, the issue of debentures, the charging or mortgaging of part or whole of the Company's interests and to provide guarantees or mortgages for the debts of third parties (including, without limitation, the subsidiaries or associated companies of the Company) in all types of circumstances.

CHAPTER 3: SHARES AND REGISTERED CAPITAL

Article 11. There must, at all times, be ordinary shares in the Company. Subject to the approval of the companies approving department authorised by the State Council, the Company may, according to its requirements, create different classes of shares.

Article 12. The shares issued by the Company shall each have a par value of Renminbi one yuan. "Renminbi" means the legal currency of the PRC.

Article 13. Subject to the approval of the securities authority of the State Council, the Company may issue shares to Domestic Investors and Foreign Investors.

"Foreign Investors" mean those investors who subscribe for the Company's shares and who are located in foreign countries and in the regions of Hong Kong, Macau and Taiwan. "Domestic Investors" mean those investors who subscribe for the Company's shares and who are located within the territory of the PRC.

Article 14. Shares which the Company issues to Domestic Investors for subscription in Renminbi shall be referred to as "Domestic-Invested Shares". Shares which the Company issues to Foreign Investors for subscription in foreign currencies shall be referred to as "Foreign-Invested Shares". Foreign-Invested Shares which are listed overseas are called "Overseas-Listed Foreign-Invested Shares". "Foreign currencies" mean the legal currencies of countries or districts outside the PRC which are recognised by the foreign exchange authority of the State and which can be used to pay the share price to the Company.

Domestic-Invested Shares issued by the Company shall be referred to as "A Shares". Overseas-Listed Foreign-Invested Shares issued by the Company and which are listed in Hong Kong shall be referred to as "H Shares". H Shares as shares which have been admitted for listing on The Stock Exchange of Hong Kong Limited (the "Stock Exchange"), the par value of which is denominated in Renminbi and which are subscribed for and traded in Hong Kong dollars. H Shares can also be listed on a stock exchange in the United States in the form of American Depository Receipts.

Article 15. Subject to the approval of the companies approving department authorised by the State Council, the Company may issue a total of 200,000 million ordinary shares, of which 160,000 million ordinary shares, representing 80% of the total number of ordinary shares which may be issued by the Company, were issued to the promoter of the Company at the time when the Company was established.

Article 16. The Company shall issue 15,824,176,000 common shares after its incorporation. The promoter shall sell 1,758,242,000 shares of the Company held by it. After the issuance and sale of the shares as described above, the share capital structure of the Company comprises 175,824,176,000 common shares, of which 158,241,758,000 common shares, which represent 90% of the Company's share capital, are held by the promoter of the Company, China National Petroleum Corporation in the form of state-owned shares; 17,582,418,000 shares, which represent 10% of the Company's share capital are held by the H shares shareholders.

Article 17. The Company's board of directors may take all necessary action for the issuance of Overseas-Listed Foreign-Invested Shares and Domestic-Invested Shares after proposals for issuance of the same have been approved by the securities authority of the State Council.

The Company may implement its proposal to issue Overseas-Listed Foreign-Invested Shares and Domestic-Invested Shares pursuant to the preceding paragraph within fifteen (15) months from the date of approval by the securities authority of the State Council.

Article 18. Where the total number of shares stated in the proposal for the issuance of shares include Overseas-Listed Foreign-Invested Shares and Domestic-Invested Shares, such shares should be fully subscribed for at their respective offerings. If the shares cannot be fully subscribed for all at once due to special circumstances, the shares may, subject to the approval of the securities authority of the State Council, be issued in separate branches.

Article 19. The registered capital of the Company shall be RMB[-]; if the issued shares are redeemed or new shares are issued, the registered capital of the Company shall be adjusted accordingly, and put on file with the companies approving department authorised by the State Council and the securities regulatory authority of the State Council.

Article 20. The Company may, based on its operating and development needs, authorise the increase of its capital pursuant to the Company's Articles of Association.

The Company may increase its capital in the following ways:

(1) by offering new shares for subscription by unspecified investors;

(2) by issuing new shares to its existing shareholders;

(3) by allotting bonus shares to its existing shareholders;

(4) by any other means which is permitted by law and administrative regulation.

After the Company's increase of share capital by means of the issuance of new shares has been approved in accordance with the provisions of the Company's Articles of Association, the issuance thereof should be made in accordance with the procedures set out in the relevant laws and administrative regulations.

Article 21. Unless otherwise stipulated in the relevant laws or administrative regulations, shares in 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 mortgaged in accordance with the Chinese laws and the Company's Articles of Association. The transfer and transmission of the shares shall be registered in accordance with the relevant regulations.

The Company has the power to sell the shares of a shareholder who is untraceable, if

(a) during a period of 12 years at least three years dividends in respect of the shares in question have become payable and no dividend during that period has been claimed; and

(b) on expiry of the 12 years the issuer gives notice of its intention to sell the shares by way of an advertisement approved by the securities authority of the State Council, and notifies the securities authority of the State Council and other relevant overseas securities regulatory committee of such intention.

CHAPTER 4: REDUCTION OF CAPITAL AND
REPURCHASE OF SHARES

Article 22. According to the provisions of the Company's Articles of Association, the Company may reduce its registered capital.

Article 23. The Company must prepare a balance sheet and an inventory of assets when it reduces its registered capital.

The Company shall notify its creditors within ten (10) days of the date of the Company's resolution for reduction of capital and shall publish an announcement in a newspaper at least three (3) times within thirty (30) days of the date of such resolution. A creditor has the right within thirty (30) days of receipt of the notice from the Company or, in the case of a creditor

who does not receive such notice, within ninety (90) days of the date of the first public announcement, to require the Company to repay its debts or to provide a corresponding guarantee for such debt.

The Company's registered capital may not, after the reduction in capital, be less than the minimum amount prescribed by law.

Article 24. 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 authority of the State, repurchase its issued shares under the following circumstances:

(1) cancellation of shares for the purposes of reducing its capital;

(2) merging with another company that holds shares in the Company;

(3) other circumstances permitted by laws and administrative regulations.

Article 25. The Company may repurchase shares in one of the following ways, with the approval of the relevant governing authority of the State:

(1) by making a general offer for the repurchase of shares to all its shareholders on a pro rata basis;

(2) by repurchasing shares through public dealing on a stock exchange;

(3) by repurchasing shares outside of the stock exchange by means of an off-market agreement.

Article 26. The Company must obtain the 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 of an off-market agreement. The Company may, by obtaining the prior approval of the shareholders in a general meeting (in the same manner), release, vary or waive its rights under an agreement which has been so entered into.

An agreement for the repurchase shares referred to in the preceding paragraph includes (without limitation) an agreement to become liable to repurchase shares or an agreement to have the right to repurchase shares.

The Company may not assign an agreement for the repurchase of its shares or any right contained in such an agreement.

Article 27. Shares which have been legally repurchased by the Company shall be cancelled within the period prescribed by law and administrative regulation, and the Company shall apply to the original companies registration authority for registration of the change in its registered capital and make a public announcement.

The aggregate par value of the cancelled shares shall be deducted from the Company's registered share capital.

Article 28. Unless the Company is in the course of liquidation, it must comply with the following provisions in relation to repurchase of its issued shares:

(1) where the Company repurchases shares at par value, payment shall be made out of book surplus distributable profits of the Company or out of proceeds of a new issue of shares made for that purpose;

(2) where the Company repurchases shares of the Company at a premium to its par value, payment up to the par value may be made out of the book surplus distributable profits of the Company or out of the proceeds of a new issue of shares made for that purpose. Payment of the portion in excess of the par value shall be effected as follows:

(i) if the shares being repurchased were issued at par value, payment shall be made out of the book surplus distributable profits of the Company;

(ii) if the shares being repurchased were issued at a premium to its par value, payment shall be made out of the book surplus distributable profits of the Company or out of the proceeds of a new issue of shares made for that purpose, provided that the amount paid out of the proceeds of the new issue shall not exceed the aggregate amount of premiums received by the Company on the issue of the shares repurchased nor shall it exceed the book value of the Company's capital common reserve fund account (including the premiums on the new issue) at the time of the repurchase;

(3) the Company shall make the following payments out of the Company's distributable profits:

(i) payment for the acquisition of the right to repurchase its own shares;

(ii) payment for variation of any contract for the repurchase of its shares;

(iii) payment for the release of its obligation(s) under any contract for the repurchase of shares;

(4) after the Company's registered capital has been reduced by the aggregate par value of the cancelled shares in accordance with the relevant provisions, the amount deducted from the distributable profits of the Company for payment of the par value of shares which have been repurchased shall be transferred to the Company's capital common reserve fund account.

CHAPTER 5: FINANCIAL ASSISTANCE FOR
ACQUISITION OF SHARES

Article 29. The Company and its subsidiaries shall not, at any time, provide any form of financial assistance to a person who is acquiring or is proposing to acquire shares in the Company. This includes any person who directly or indirectly incurs any obligations as a result of the acquisition of shares in the Company (the "Obligor").

The Company and its subsidiaries shall not, at any time, provide any form of financial assistance to the Obligor for the purposes of reducing or discharging the obligations assumed by such person.

This Article shall not apply to the circumstances specified in Article 31 of this Chapter.

Article 30. For the purposes of this Chapter, "financial assistance" includes (without limitation) the following:

(1) gift;

(2) guarantee (including the assumption of liability by the guarantor or the provision of assets by the guarantor to secure the performance of obligations by the Obligor), compensation (other than compensation in respect of the Company's own default) or release or waiver of any rights;

(3) provision of loan or any other agreement under which the obligations of the Company are to be fulfilled before the obligations of another party, or the change in parties to, or the assignment of rights under, such loan or agreement;

(4) any other form of financial assistance given by the Company when the Company is insolvent or has no net assets or when its net assets would thereby be reduced to a material extent.

For the purposes of this Chapter, "assumption of obligations" includes the assumption of obligations by way of contract or by way of arrangement (irrespective of whether such contract or arrangement is enforceable or not and irrespective of whether such obligation is to be borne solely by the

Obligor or jointly with other persons) or by any other means which results in a change in his financial position.

Article 31. The following actions shall not be deemed to be activities prohibited by Article 29 of this Chapter:

(1) the provision of financial assistance by the Company where the financial assistance is given in good faith in the interests of the Company, and the principal purpose of which is not for the acquisition of shares in the Company, or the giving of the financial assistance is an incidental part of some larger purpose of the Company;

(2) the lawful distribution of the Company's assets by way of dividend;

(3) the allotment of bonus shares as dividends;

(4) a reduction of registered capital, a repurchase of shares of the Company or a reorganisation of the share capital structure of the Company effected in accordance with the Company's Articles of Association;

(5) the lending of money by the Company within its scope of business and in the ordinary course of its business, where the lending of money is part of the scope of business of the Company (provided that the net assets of the Company are not thereby reduced or that, to the extent that the assets are thereby reduced, the financial assistance is provided out of distributable profits);

(6) contributions made by the Company to the employee share ownership schemes (provided that the net assets of the Company are not thereby reduced or that, to the extent that the assets are thereby reduced, the financial assistance is provided out of distributable profits).

CHAPTER 6: SHARE CERTIFICATES AND
REGISTER OF SHAREHOLDERS

Article 32. Share certificates of the Company shall be in registered form.

The share certificate of the Company shall, aside from matters required by the Company Law and the Special Regulations, also contain other matters required to be stated therein by the stock exchange(s) on which the Company's shares are listed.

Article 33. Share certificates of the Company shall be signed by the Chairman of the Company's board of directors. Where the stock exchange(s) on which the Company's shares are listed require other senior officer(s) of the Company to sign on the share certificates, the share certificates shall also be signed by

such senior officer(s). The share certificates shall take effect after being sealed or imprinted with the seal of the Company. The share certificate shall only be sealed with the Company's seal under the authorisation of the board of directors. The signatures of the Chairman of the board of directors or other senior officer(s) of the Company may be printed in mechanical form.

Article 34. The Company shall keep a register of shareholders which shall contain the following particulars:

(1) the name (title) and address (residence), the occupation or nature of each shareholder;

(2) the class and quantity of shares held by each shareholder;

(3) the amount paid-up on or agreed to be paid-up on the shares held by each shareholder;

(4) the share certificate number(s) of the shares held by each shareholder;

(5) the date on which each person was entered in the register as a shareholder;

(6) the date on which any shareholder ceased to be a shareholder.

Unless there is evidence to the contrary, the register of shareholders shall be sufficient evidence of the shareholders' shareholdings in the Company.

Article 35. The Company may, in accordance with the mutual understanding and agreements made between the securities authority of the State Council and overseas securities regulatory organisations, maintain the register of shareholders of Overseas-Listed Foreign-Invested Shares overseas and appoint overseas agent(s) to manage such register of shareholders. The original register of shareholders for holders of H Shares shall be maintained in Hong Kong.

A duplicate register of shareholders for the holders of Overseas-Listed Foreign-Invested Shares shall be maintained at the Company's residence. The appointed overseas agent(s) shall ensure consistency between the original and the duplicate register of shareholders at all times.

If there is any inconsistency between the original and the duplicate register of shareholders for the holders of Overseas-Listed Foreign-Invested Shares, the original register of shareholders shall prevail.

The Company shall make available at its Hong Kong representative office for inspection by the public and shareholders free of charge, and for copying by shareholders at reasonable charges, the following:-

(1) a complete duplicate of the register of members;

(2) a report showing the state of the issued share capital of the Company;

(3) the latest audited Financial Statements and the Directors', Auditors' and Supervisors' Reports;

(4) special resolutions of the Company;

(5) reports showing the number and nominal value of securities repurchased by the Company since the end of the last financial year, the aggregate amount paid for such securities and the maximum and the minimum prices paid in respect of each class of securities repurchased (with a breakdown between domestic shares and foreign shares);

(6) a copy of the latest annual examination report filed with the State Administration of Industry and Commerce; and

(7) for shareholders only, copies of the minutes of meetings of shareholders' meetings.

Article 36. The Company shall have a complete register of shareholders which shall comprise the following parts:

(1) the register of shareholders which is maintained at the Company's residence (other than those share registers which are described in sub-paragraphs (2) and (3) of this Article);

(2) the register of shareholders in respect of the holders of Overseas-Listed Foreign-Invested Shares of the Company which is maintained in the same place as the overseas stock exchange on which the shares are listed; and

(3) the register of shareholders which are maintained in such other place as the board of directors may consider necessary for the purposes of the listing of the Company's shares.

Article 37. Different parts of the register of shareholders shall not overlap. No transfer of any shares registered in any part of the register shall, during the continuance of that registration, be registered in any other part of the register.

Amendments or rectification of the register of shareholders shall be made in accordance with the laws of the place where the register of shareholders is maintained.

Article 38. All Overseas-Listed Foreign-Invested Shares shall be transferred by instrument in writing in any usual or common form or any other form which the directors may approve. The instrument of transfer of any share may be executed by hand without seal. If the shareholder is the recognised clearing house or its nominee defined by the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), the share transfer form may be executed by hand or in mechanically-printed form.

All Overseas-Listed Foreign-Invested Shares listed in Hong Kong which have been fully paid-up may be freely transferred in accordance with the Company's Articles of Association. However, unless such transfer complies with the following requirements, the board of directors may refuse to recognise any instrument of transfer and would not need to provide any reason therefor:

(1) a fee of HK$2.50 per instrument of transfer or such higher amount as the board of directors may from time to time require but lesser than the amount agreed from time to time by the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited ("LISTING RULES") has been paid to the Company for registration of the instrument of transfer and other documents relating to or which will affect the right of ownership of the shares;

(2) the instrument of transfer only relates to Foreign-Listed Foreign-Invested Shares listed in Hong Kong;

(3) the stamp duty which is chargeable on the instrument of transfer has already been paid;

(4) the relevant share certificate(s) and any other evidence which the board of directors may reasonably require to show that the transferor has the right to transfer the shares have been provided;

(5) if it is intended that the shares be transferred to joint owners, the maximum App.3 number of joint owners shall not be more than four (4); 1(3)

(6) the Company does not have any lien on the relevant shares.

If the Company refuses to register any transfer of shares, the Company shall within two (2) months of formal application for the transfer provide the transferor and transferee with a notice of refusal to register such transfer.

The directors, supervisors, general manager, senior deputy general managers, deputy general managers, financial controller and other senior officers of the Company shall report the number of shares which they hold in the Company and may not transfer such shares during their term of office.

Article 39. No change may be made in the register of shareholders as a result of a transfer of shares within thirty (30) days prior to the date of a shareholders' general meeting or within five (5) days before the record date for the Company's distribution of dividends.

Article 40. When the Company needs to determine the rights attaching to shares in the Company for the purposes of convening a shareholders' meeting, for dividend distribution, for liquidation or for any other purpose, the board of directors shall decide on a date for the determination of rights attaching to shares in the Company. The shareholders of the Company shall be such persons who appear in the register of shareholders at the close of such determination date.

Article 41. Any person aggrieved and claiming to be entitled to have his name
(title) entered in or removed from the register of shareholders may apply to a court of competent jurisdiction for rectification of the register.

Article 42. Any person who is a registered shareholder or who claims to be entitled to have his name (title) entered in the register of shareholders in respect of shares in the Company may, if his share certificate (the "original certificate") relating to the shares is lost, apply to the Company for a replacement share certificate in respect of such shares (the "Relevant Shares").

Application by a holder of Domestic-Invested Shares, who has lost his share certificate, for a replacement share certificate shall be dealt with in accordance with Article 150 of the Company Law.

Application by a holder of Overseas-Listed Foreign Shares, who has lost his share certificate, for a replacement share certificate may be dealt with in accordance with the law of the place where the original register of shareholders of holders of Overseas-Listed Foreign-Invested Shares is maintained, the rules of the stock exchange or other relevant regulations.

The issue of a replacement share certificate to a holder of H Shares, who has lost his share certificate, shall comply with the following requirements:

(1) The applicant shall submit an application to the Company in a prescribed form accompanied by a notarial certificate or a statutory declaration (i) stating the grounds upon which the application is made and the circumstances and evidence of the loss; and (ii) declaring that no other

person is entitled to have his name entered in the register of shareholders in respect of the Relevant Shares.

(2) The Company has not received any declaration made by any person other than the applicant declaring that his name shall be entered into the register of shareholders in respect of such shares before it decides to issue a replacement share certificate to the applicant.

(3) The Company shall, if it intends to issue a replacement share certificate, publish a notice of its intention to do so at least once every thirty (30) days within a period of ninety (90) consecutive days in such newspapers as may be prescribed by the board of directors.

(4) The Company shall, prior to publication of its intention to issue a replacement share certificate, deliver to the stock exchange on which its shares are listed, a copy of the notice to be published and may publish the notice upon receipt of confirmation from such stock exchange that the notice has been exhibited in the premises of the stock exchange. Such notice shall be exhibited in the premises of the stock exchange for a period of ninety (90) days.

In the case of an application which is made without the consent of the registered holder of the Relevant Shares, the Company shall deliver by mail to such registered shareholder a copy of the notice to be published.

(5) If, by the expiration of the 90-day period referred to in paragraphs (3) and (4) of this Article, the Company has not have received any challenge from any person in respect of the issuance of the replacement share certificate, it may issue a replacement share certificate to the applicant pursuant to his application.

(6) Where the Company issues a replacement share certificate pursuant to this Article, it shall forthwith cancel the original share certificate and document the cancellation of the original share certificate and issuance of a replacement share certificate in the register of shareholders accordingly.

(7) All expenses relating to the cancellation of an original share certificate and the issuance of a replacement share certificate shall be borne by the applicant and the Company is entitled to refuse to take any action until reasonable security is provided by the applicant therefor.

Article 43. Where the Company issues a replacement share certificate pursuant to the Company's Articles of Association and a bona fide purchaser acquires or becomes the registered owner of such shares, his name (title) shall not be removed from the register of shareholders.

Article 44. The Company shall not be liable for any damages sustained by any person by reason of the cancellation of the original share certificate or the issuance of the replacement share certificate unless the claimant is able to prove that the Company has acted in a deceitful manner.

CHAPTER 7: SHAREHOLDERS' RIGHTS AND
OBLIGATIONS

Article 45. A shareholder of the Company is a person who lawfully holds shares in the Company and whose name (title) is entered in the register of shareholders.

A shareholder shall enjoy rights and assume obligations according to the class and amount of shares held by him; shareholders who hold shares of the same class shall enjoy the same rights and assume the same obligations.

In the case of the joint shareholders, if one of the joint shareholders is deceased, only the other existing shareholders of the joint shareholders shall be deemed as the persons who have the ownership of the relevant shares. But the board of directors has the power to require them to provide a certificate of death as necessary for the purpose of modifying the register of shareholders, or any of the joint shareholders of the shares, only the joint shareholders ranking first in the register of shareholders have the right to accept certificates of the relevant shares, receive notices of the Company, attend and vote at shareholders' general meetings of the Company. Any notice which is delivered to the shareholder shall be considered as all the joint shareholders of the relevant shares who have been delivered.

Article 46. The ordinary shareholders of the Company shall enjoy the following rights:

(1) the right to receive dividends and other distributions in proportion to the number of shares held;

(2) the right to attend or appoint a proxy to attend shareholders' general meetings and to vote thereat;

(3) the right of supervisory management over the Company's business operations and the right to present proposals or to raise queries;

(4) the right to transfer shares in accordance with laws, administrative regulations and provisions of the Company's Articles of Association;

(5) the right to obtain relevant information in accordance with the provisions of the Company's Articles of Association, including:

(i) the right to obtain a copy of the Company's Articles of Association, subject to payment of costs;

(ii) the right to inspect and copy, subject to payment of a reasonable fee:

(a) all parts of the register of shareholders;

(b) personal particulars of each of the Company's directors, supervisors, general manager, senior deputy general managers, deputy general managers, financial controller and other senior officers, including:

(aa) present and former name and alias;

(bb) principal address (place of residence);

(cc) nationality;

(dd) primary and all other part-time occupations and duties;

(ee) identification documents and the numbers thereof;

(d) reports showing the aggregate par value, quantity, highest and lowest price paid in respect of each class of shares repurchased by the Company since the end of the last accounting year and the aggregate amount paid by the Company for this purpose;

(e) minutes of shareholders' general meetings;

(6) in the event of the termination or liquidation of the Company, the right to participate in the distribution of surplus assets of the Company in accordance with the number of shares held;

(7) other rights conferred by laws, administrative regulations and the Company's Articles of Association.

Article 47. The ordinary shareholders of the Company shall assume the following obligations:

(1) to comply with the Company's Articles of Association;

(2) to pay subscription monies according to the number of shares subscribed and the method of subscription;

(3) other obligations imposed by laws, administrative regulations and the Company's Articles of Association.

Article 48. In addition to the obligations imposed by laws and administrative regulations or required by the listing rules of the stock exchange on which the Company's shares are listed, a controlling shareholder (as such term is defined in the following Article) shall not exercise his voting rights in respect of the following matters in a manner prejudicial to the interests of all or part of the shareholders of the Company:

(1) to relieve a director or supervisor of his duty to act honestly in the best interests of the Company;

(2) to approve the expropriation by a director or supervisor (for his own benefit or for the benefit of another person) of the Company's assets in any way, including (without limitation) opportunities which are beneficial to the Company;

(3) to approve the expropriation by a director or supervisor (for his own benefit or for the benefit of another person) of the individual rights of other shareholders, including (without limitation) rights to distributions and voting rights (save pursuant to a restructuring which has been submitted for approval by the shareholders in a general meeting in accordance with the Company's Articles of Association).

Article 49. For the purpose of the foregoing Article, a "controlling shareholder" means a person who satisfies any one of the following conditions:

(1) a person who, acting alone or in concert with others, has the power to elect more than half of the board of directors;

(2) a person who, acting alone or in concert with others, has the power to exercise or to control the exercise of 30 % or more of the voting rights in the Company;

(3) a person who, acting alone or in concert with others, holds 30 % or more of the issued and outstanding shares of the Company;

(4) a person who, acting alone or in concert with others, has de facto control of the Company in any other way.

CHAPTER 8: SHAREHOLDERS' GENERAL
MEETINGS

Article 50. The shareholders' general meeting is the organ of authority of the Company and shall exercise its functions and powers in accordance with law.

Article 51. The shareholders' general meeting shall have the following functions and powers:

(1) to decide on the Company's operational policies and investment plans;

(2) to elect and replace directors and to decide on matters relating to the remuneration of directors;

(3) to elect and replace supervisors who represent the shareholders and to decide on matters relating to the remuneration of supervisors;

(4) to examine and approve the board of directors' reports;

(5) to examine and approve the supervisory committee's reports;

(6) to examine and approve the Company's proposed annual preliminary and final financial budgets;

(7) to examine and approve the Company's profit distribution plans and loss recovery plans;

(8) to decide on the increase or reduction of the Company's registered capital;

(9) to decide on matters such as merger, division, dissolution and liquidation of the Company;

(10) to decide on the issue of debentures by the Company;

(11) to decide on the appointment, dismissal and non-reappointment of the accountants of the Company;

(12) to amend the Company's Articles of Association;

(13) to consider motions raised by shareholders who represent 5 % or more of the total number of voting shares of the Company;

(14) to decide on other matters which, according to law, administrative regulation or the Company's Articles of Association, need to be approved by shareholders in general meetings;

(15) matters which the shareholders in a general meeting may authorise the board of directors to carry out on its behalf or which they may sub-delegate to the board of directors.

Article 52. The Company shall not, without the prior approval of shareholders in a general meeting, enter into any contract with any person (other than a director, supervisor, general manager, senior deputy general manager, deputy general manager, financial controller or other senior officer) pursuant to which such person shall be responsible for the management and administration of the whole or any substantial part of the Company's business.

Article 53. Shareholders' general meetings are divided into annual general meetings and extraordinary general meetings. Shareholders' general meetings shall be convened by the board of directors. Annual general meetings are held once every year and within six
(6) months from the end of the preceding financial year.

The board of directors shall convene an extraordinary general meeting within two (2) months of the occurrence of any one of the following events:

(1) where the number of directors is less than the number stipulated in the Company Law or two-thirds of the number specified in the Company's Articles of Association;

(2) where the unrecovered losses of the Company amount to one-third of the total amount of its share capital;

(3) where shareholder(s) holding 10 % or more of the Company's issued and outstanding voting shares request(s) in writing for the convening of an extraordinary general meeting;

(4) whenever the board of directors deems necessary or the supervisory committee so requests.

Article 54. When the Company convenes a shareholders' general meeting, written notice of the meeting shall be given forty-five (45) days before the date of the meeting to notify all of the shareholders whose names appear in the share register of the matters to be considered and the date and place of the meeting. A shareholder who intends to attend the meeting shall deliver to the Company his written reply concerning his attendance at such meeting twenty (20) days before the date of the meeting.

Article 55. When the Company convenes a shareholders' annual general meeting, shareholder(s) holding 5% or more of the total voting shares of the Company shall have the right to propose new motions in writing, and the Company shall place such proposed motions on the agenda for such annual general meeting if they are matters falling within the functions and powers of shareholders in general meetings.

Article 56. The Company shall, based on the written replies which it receives from the shareholders twenty (20) days before the date of the shareholders' general meeting, calculate the number of voting shares represented by the shareholders who intend to attend the meeting. If the number of voting shares represented by the shareholders who intend to attend the meeting amount to more than one-half of the Company's total voting shares, the Company may hold the meeting; if not, then the Company shall, within five (5) days, notify the shareholders by way of public announcement the matters to be considered at, and the place and date for, the meeting. The Company may then hold the meeting after publication of such announcement.

A shareholders' extraordinary general meeting shall not decide on any matter not stated in the notice for the meeting.

Article 57. A notice of a meeting of the shareholders of the Company shall satisfy the following criterion:

(1) be in writing;

(2) specify the place, date and time of the meeting;

(3) state the matters to be discussed at the meeting;

(4) provide such information and explanation as are necessary for the shareholders to make an informed decision on the proposals put before them. Without limiting the generality of the foregoing, where a proposal is made to amalgamate the Company with another, to repurchase the shares of the Company, to reorganise its share capital, or to restructure the Company in any other way, the terms of the proposed transaction must be provided in detail together with copies of the proposed agreement, if any, and the cause and effect of such proposal must be properly explained;

(5) contain a disclosure of the nature and extent, if any, of the material interests of any director, supervisor, general manager, senior deputy general manager, deputy general manager, financial controller or other senior officer in the proposed transaction and the effect which the proposed transaction will have on them in their capacity as shareholders in so far as it is different from the effect on the interests of shareholders of the same class;

(6) contain the full text of any special resolution to be proposed at the meeting;

(7) contain a conspicuous statement that a shareholder entitled to attend and vote at such meeting is entitled to appoint one (1) or more proxies to attend and vote at such meeting on his behalf and that a proxy need not be a shareholder;

(8) specify the time and place for lodging proxy forms for the relevant meeting.

Article 58. Notice of shareholders' general meetings shall be served on each shareholder (whether or not such shareholder is entitled to vote at the meeting), by personal delivery or prepaid airmail to the address of the shareholder as shown in the register of shareholders. For the holders of Domestic-Invested Shares, notice of the meetings may also be issued by way of public announcement.

The public announcement referred to in the preceding paragraph shall be published in one (1) or more national newspapers designated by the securities authority of the State Council within the interval of forty-five (45) days to fifty (50) days before the date of the meeting; after the publication of such announcement, the holders of Domestic-Invested Shares shall be deemed to have received the notice of the relevant shareholders' general meeting. Such public announcement shall be published in Chinese and English in accordance with Article 182.

Article 59. The accidental omission to give notice of a meeting to, or the failure to receive the notice of a meeting by, any person entitled to receive such notice shall not invalidate the meeting and the resolutions adopted thereat.

Article 60. Any shareholder who is entitled to attend and vote at a general meeting of the Company shall be entitled to appoint one (1) or more persons (whether such person is a shareholder or not) as his proxies to attend and vote on his behalf, and a proxy so appointed shall be entitled to exercise the following rights pursuant to the authorisation from that shareholder:

(1) the shareholders' right to speak at the meeting;

(2) the right to demand or join in demanding a poll;

(3) the right to vote by hand or on a poll, but a proxy of a shareholder who has appointed more than one (1) proxy may only vote on a poll.

If the shareholder is the recognized clearing house defined by the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), such

shareholder is entitled to appoint one or more persons as his proxies to attend on his behalf at a general meeting or at any class meeting, but, if one or more persons have such authority, the letter of authorization shall contain the number and class of the shares in connection with such authorization. Such person can exercise the right on behalf of the recognized clearing house (or its attorney) as if he is the individual shareholder of the Company.

Article 61. The instrument appointing a proxy shall be in writing under the hand of the appointor or his attorney duly authorised in writing, or if the appointor is a legal entity, either under seal or under the hand of a director or a duly authorised attorney. The letter of authorization shall contain the number of the shares to be represented by the attorney. If several persons are authorized as the attorney of the shareholder, the letter of authorization shall specify the number of the shares to be represented by each attorney.

Article 62. The instrument appointing a voting proxy and, if such instrument is signed by a person under a power of attorney or other authority on behalf of the appointor, a notarially certified copy of that power of attorney or other authority shall be deposited at the residence of the Company or at such other place as is specified for that purpose in the notice convening the meeting, not less than twenty-four (24) hours before the time for holding the meeting at which the proxy propose to vote or the time appointed for the passing of the resolution.

If the appointor is a legal person, its legal representative or such person as is authorised by resolution of its board of directors or other governing body may attend any meeting of shareholders of the Company as a representative of the appointor.

Article 63. Any form issued to a shareholder by the directors for use by such shareholder for the appointment of a proxy to attend and vote at meetings of the Company shall be such as to enable the shareholder to freely instruct the proxy to vote in favour of or against the motions, such instructions being given in respect of each individual matter to be voted on at the meeting. Such a form shall contain a statement that, in the absence of specific instructions from the shareholder, the proxy may vote as he thinks fit.

The Company has the right to request a proxy who attends a shareholders' meeting to provide evidence of his or its identity.

If a shareholder which is a legal person appoints its legal representative to attend a meeting on its behalf, the Company has the right to request such legal representative to produce evidence of his or its identity and a notarially certified copy of the resolutions of such shareholder's board of directors in respect of the appointment of the proxy or the power of

attorney executed by such other organisation which has the capacity to appoint the proxy.

Article 64. A vote given in accordance with the terms of a proxy shall be valid notwithstanding the death or loss of capacity of the appointor or revocation of the proxy or the authority under which the proxy was executed, or the transfer of the shares in respect of which the proxy is given, provided that the Company did not receive any written notice in respect of such matters before the commencement of the relevant meeting.

Article 65. Resolutions of shareholders' general meetings shall be divided into ordinary resolutions and special resolutions.

An ordinary resolution must be passed by votes representing more than one-half of the voting rights represented by the shareholders (including proxies) present at the meeting.

A special resolution must be passed by votes representing more than two-thirds of the voting rights represented by the shareholders (including proxies) present at the meeting.

Article 66. A shareholder (including a proxy), when voting at a shareholders' general meeting, may exercise such voting rights as are attached to the number of voting shares which he represents. Each share shall have one (1) vote.

Where any shareholder, under the Listing Rules, is required to abstain from voting on any particular resolution or restricted to voting only for or only against any particular resolution, any votes cast by or on behalf of such shareholder in contravention of such requirement or restriction shall not be counted.

Article 67. 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 the listing rules of any other stock exchanges on which the shares of the Company are listed or demanded by the following persons before or after any vote by a show of hands:

(1) by the chairman of the meeting;

(2) by at least two (2) shareholders present in person or by proxy entitled to vote thereat;

(3) by one (1) or more shareholders present in person or by proxy and representing 10 % or more of all shares carrying the right to vote at the meeting, before or after a vote is carried out by a show of hands.

Unless voting by way of a poll is required under the Listing Rules or the listing rules of any other stock exchanges on which the shares of the Company are listed or so demanded, the chairman may declare that a resolution has been passed on a show of hands and the record of such in the minutes of the meeting shall be conclusive evidence of the fact that such resolution has been passed. There is no need to provide evidence of the number or proportion of votes in favour of or against such resolution.

The demand for a poll may be withdrawn by the person who demands the same.

Article 68. A poll demanded on the election of the chairman of the meeting, or on a question of adjournment of the meeting, shall be taken forthwith. A poll demanded on any other question shall be taken at such time as the chairman of the meeting directs, and any business other than that upon which a poll has been demanded may be proceeded with, pending the taking of the poll. The result of the poll shall be deemed to be a resolution of the meeting at which the poll was demanded.

Article 69. On a poll taken at a meeting, a shareholder (including a proxy) entitled to two (2) or more votes need not cast all his votes in the same way.

Article 70. In the case of an equality of votes, whether on a show of hands or on a poll, the chairman of the meeting at which the show of hands takes place or at which the poll is demanded shall be have a casting vote.

Article 71. The following matters shall be resolved by an ordinary resolution at a shareholders' general meeting:

(1) work reports of the board of directors and the supervisory committee;

(2) profit distribution plans and loss recovery plans formulated by the board of directors;

(3) removal of members of the board of directors and members of the supervisory committee, their remuneration and manner of payment;

(4) annual preliminary and final budgets, balance sheets and profit and loss accounts and other financial statements of the Company;

(5) matters other than those which are required by the laws and administrative regulations or by the Company's Articles of Association to be adopted by special resolution.

Article 72. The following matters shall be resolved by a special resolution at a shareholders' general meeting:

(1) the increase or reduction in share capital and the issue of shares of any class, warrants and other similar securities;

(2) the issue of debentures of the Company;

(3) the division, merger, dissolution and liquidation of the Company;

(4) amendment of the Company's Articles of Association;

(5) any other matters considered by the shareholders in 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.

Article 73. Shareholders who request for the convening of an extraordinary general meeting or a class meeting shall comply with the following procedures:

(1) Two (2) or more shareholders holding in aggregate 10 % or more of the shares carrying the right to vote at the meeting sought to be held shall sign one (1) or more counterpart requisitions stating the object of the meeting and requiring the board of directors to convene a shareholders' extraordinary general meeting or a class meeting thereof. The board of directors shall as soon as possible proceed to convene the extraordinary general meeting of shareholders or a class meeting thereof after receipt of such requisition(s). The amount of shareholdings referred to above shall be calculated as at the date of deposit of the requisition(s).

(2) If the board of directors fails to issue a notice of such a meeting within thirty (30) days from the date of receipt of the requisition(s), the requisitionists may themselves convene such a meeting (in a manner as similar as possible to the manner in which shareholders' meetings are convened by the board of directors) within four (4) months from the date of receipt of the requisition(s) by the board of directors.

Any reasonable expenses incurred by the requisitionists by reason of failure by the board of directors to duly convene a meeting shall be repaid to the requisitionists by the Company and any sum so repaid shall be set-off against sums owed by the Company to the defaulting directors.

Article 74. The Chairman of the board of directors shall convene and chair every shareholders' general meeting. If the Chairman is unable to attend the meeting for any reason, the vice-chairman of the board of directors shall convene and chair the meeting. If both the Chairman and vice-chairman of the board of directors are unable to attend the meeting, then the board of

directors may designate a director to convene and chair the meeting. If no chairman of the meeting has been so designated, shareholders present shall choose one (1) person to act as the chairman of the meeting. If for any reason, the shareholders shall fail to elect a chairman, then the shareholder (including a proxy) holding the largest number of shares carrying the right to vote thereat shall be the chairman of the meeting.

Article 75. The chairman of the meeting shall be responsible for determining whether a resolution has been passed. His decision, which shall be final and conclusive, shall be announced at the meeting and recorded in the minute book.

Article 76. If the chairman of the meeting has any doubt as to the result of a resolution which has been put to vote at a shareholders' meeting, he may have the votes counted. If the chairman of the meeting has not counted the votes, any shareholder who is present in person or by proxy and who objects to the result announced by the chairman of the meeting may, immediately after the declaration of the result, demand that the votes be counted and the chairman of the meeting shall have the votes counted immediately.

Article 77. If votes are counted at a shareholders' general meeting, the result of the count shall be recorded in the minute book.

Article 78. The minutes, shareholders' attendance lists and proxy forms shall be kept at the Company's place of residence.

Article 79. Copies of the minutes of proceedings of any shareholders' meeting shall, during business hours of the Company, be open for inspection by any shareholder without charge. If a shareholder requests for a copy of such minutes from the Company, the Company shall send a copy of such minutes to him within seven (7) days after receipt of reasonable fees therefor.

CHAPTER 9: SPECIAL PROCEDURES FOR VOTING
BY A CLASS OF SHAREHOLDERS

Article 80. Those shareholders who hold different classes of shares are class shareholders.

Class shareholders shall enjoy rights and assume obligations in accordance with laws, administrative regulations and the Company's Articles of Association.

Article 81. 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 in a general meeting and by holders of shares of that class at a separate meeting conducted in accordance with Articles 83 to 87.

Article 82. The following circumstances shall be deemed to be variation or abrogation of the rights attaching to a particular class of shares:

(1) to increase or decrease the number of shares of that class, or to increase or decrease the number of shares of a class having voting or equity rights or privileges equal or superior to those of shares of that class;

(2) to exchange all or part of the shares of that class for shares of another class or to exchange or to create a right to exchange all or part of the shares of another class for shares of that class;

(3) to remove or reduce rights to accrued dividends or rights to cumulative dividends attached to shares of that class;

(4) to reduce or remove preferential rights attached to shares of that class to receive dividends or to the distribution of assets in the event that the Company is liquidated;

(5) to add, remove or reduce conversion privileges, options, voting rights, transfer or pre-emptive rights, or rights to acquire securities of the Company attached to shares of that class;

(6) to remove or reduce rights to receive payment payable by the Company in particular currencies attached to shares of that class;

(7) to create a new class of shares having voting or equity rights or privileges equal or superior to those of the shares of that class;

(8) to restrict the transfer or ownership of shares of that class or to increase the types of restrictions attaching thereto;

(9) to allot and issue rights to subscribe for, or to convert the existing shares into, shares in the Company of that class or another class;

(10) to increase the rights or privileges of shares of another class;

(11) to restructure the Company in such a way so as to result in the disproportionate distribution of obligations between the various classes of shareholders;

(12) to vary or abrogate the provisions of this Chapter.

Article 83. 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 matters concerning sub-paragraphs (2) to (8), (11) and (12) of Article 82, but interested shareholder(s) shall not be entitled to vote at such class meetings.

"(An) interested shareholder(s)", as such term is used in the preceding paragraph, means:

(1) in the case of a repurchase of shares by way of a general offer to all shareholders of the Company or by way of public dealing on a stock exchange pursuant to Article 25, a "controlling shareholder" within the meaning of Article 49;

(2) in the case of a repurchase of shares by an off-market agreement pursuant to Article 25, a holder of the shares to which the proposed agreement relates;

(3) in the case of a restructuring of the Company, a shareholder who assumes a relatively lower proportion of obligation than the obligations imposed on shareholders of that class under the proposed restructuring or who has an interest in the proposed restructuring different from the general interests of the shareholders of that class.

Article 84. Resolutions of a class of shareholders shall be passed by votes representing more than two-thirds of the voting rights of shareholders of that class represented at the relevant meeting who, according to Article 83, are entitled to vote thereat.

Article 85. 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 forty-five (45) days before the date of the class meeting. Such notice shall give such shareholders notice of the matters to be considered at such meeting, the date and the place of the class meeting. A shareholder who intends to attend the class meeting shall deliver his written reply in respect thereof to the Company twenty (20) days before the date of the class meeting.

If the shareholders who intend to attend such class meeting represent more than half of the total number of shares of that class which have the right to vote at such meeting, the Company may hold the class meeting; if not, the Company shall within five (5) days give the shareholders further notice of the matters to be considered, the date and the place of the class meeting by way of public announcement. The Company may then hold the class meeting after such public announcement has been made.

Article 86. Notice of class meetings need only be served on shareholders entitled to vote thereat.

Class meetings shall be conducted in a manner which is as similar as possible to that of shareholders' general meetings. The provisions of the Company's Articles of Association relating to the manner for the conduct of shareholders' general meetings are also applicable to class meetings.

Article 87. Apart from the 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.

The special procedures for approval by a class of shareholders shall not apply in the following circumstances:

(1) where the Company issues, upon the approval by special resolution of its shareholders in a general meeting, either separately or concurrently once every twelve (12) months, not more than 20% of each of its existing issued Domestic-Invested Shares and Overseas-Listed Foreign-Invested Shares; or

(2) where the Company's plan to issue Domestic-Invested Shares and Overseas-Listed Foreign-Invested Shares at the time of its establishment is carried out within fifteen (15) months from the date of approval of the securities authority of the State Council.

CHAPTER 10: BOARD OF DIRECTORS

Article 88. The Company shall have a board of directors. The board of directors shall consist of thirteen (13) directors. The board of directors shall have one (1) Chairman, two (2) Vice-chairman(s) and twelve (10) directors, of which three (3) independent (non-executive) directors.

The board of directors shall have nine (9) outside directors, who shall not hold office within the Company.

Article 89. Directors shall be elected at the shareholders' general meeting each for a term of three (3) years. At the expiry of a director's term, the term is renewable upon re-election.

The period for lodgement of notices in writing to the Company of the intention to propose a person for election as a director and of such person's consent to be elected shall be at least 7 days and which shall commence no earlier than the day after the despatch of the notice of the general meeting convened to consider such election and shall end no later than 7 days prior to the date of such general meeting.

The Chairman and the Vice-chairman shall be elected and removed by more than one-half of all of the members of the board of directors. The term of office of each of the Chairman and the Vice-chairman is three (3) years, which term is renewable upon re-election.

Subject to compliance with all relevant laws and administrative regulations, the shareholders' general meeting may by ordinary resolution remove any director before the expiration of his term of office. However, the director's right to claim for damages which arises out from his removal shall not be affected thereby.

The Directors shall not be required to hold qualifying shares.

Article 90. The board of directors is accountable to the shareholders in general meeting and exercises the following functions and powers:

(1) to be responsible for the convening of the shareholders' general meeting and to report on its work to the shareholders in general meetings;

(2) to implement the resolutions passed by the shareholders in general meetings;

(3) to determine the Company's business plans and investment proposals;

(4) to formulate the Company's annual preliminary and final financial budgets;

(5) to formulate the Company's profit distribution proposal and loss recovery proposal;

(6) to formulate proposals for the increase or reduction of the Company's registered capital and for the issuance of the Company's debentures;

(7) to draw up plans for the merger, division or dissolution of the Company;

(8) to decide on the Company's internal management structure;

(9) to appoint or remove the Company's general manager and to appoint or remove the senior deputy general managers, deputy general managers and other senior officers (including the financial controller(s) of the Company) and, based on the recommendations of the general manager, to decide on their remuneration;

(10) to formulate the Company's basic management system;

(11) to formulate proposals for any amendment of the Company's Articles of Association;

(12) to exercise any other powers conferred by the shareholders in general meetings.

Other than the board of directors' resolutions in respect of the matters specified in sub-paragraphs (6), (7) and (11) of this Article which shall be passed by the affirmative vote of more than two-thirds of all the directors, the board of directors' resolutions in respect of all other matters may be passed by the affirmative vote of a simple majority of the directors.

Article 91. The board of directors shall not, without the prior approval of shareholders in a general meeting, dispose or agree to dispose of any fixed assets of the Company where the aggregate of the amount or value of the consideration for the proposed disposition, and the amount or value of the consideration for any such disposition of any fixed assets of the Company that has been completed in the period of four (4) months immediately preceding the proposed disposition, exceeds 33 % of the value of the Company's fixed assets as shown in the latest balance sheet which was tabled at a shareholders' general meeting.

For the purposes of this Article, "disposition" includes an act involving the transfer of an interest in assets but does not include the usage of fixed assets for the provision of security.

The validity of a disposition by the Company shall not be affected by any breach of the first paragraph of this Article.

Article 92. The Chairman of the board of directors shall exercise the following powers:

(1) to preside over shareholders' general meetings and to convene and preside over meetings of the board of directors;

(2) to check on the implementation of resolutions passed by the board of directors at directors' meetings;

(3) to sign the securities certificates issued by the Company;

(4) to exercise other powers conferred by the board of directors.

When the Chairman is unable to exercise his powers, such powers shall be exercised by the Vice-chairman who has been designated by the Chairman to exercise such powers on his behalf.

Article 93. Meetings of the board of directors shall be held at least four times every year and shall be convened by the Chairman of the board of directors. Where there is an urgent matter, an extraordinary meeting of the board of directors may be held if it is so requested by more than one-third of the directors, the Chairman of the board of directors or the Company's general manager.

Article 94. Notice of meetings and extraordinary meetings of the board of directors shall be delivered in person, by facsimile, by express delivery service or by registered mail. The time limit for the delivery of notice of meetings and extraordinary meetings of the board of directors shall be at least fourteen
(14) days and ten (10) days respectively before the meeting.

Article 95. Notice of a meeting shall be deemed to have been given to any director who attends the meeting without protesting against, before or at its commencement, any lack of notice.

Article 96. Any regular or extraordinary meeting of the board of directors may be held by way of telephone conferencing or similar communication equipment so long as all directors participating in the meeting can clearly hear and communicate with each other. All such directors shall be deemed to be present in person at the meeting.

Article 97. Meetings of the board of directors shall be held only if more than half of the directors (including any alternate director appointed pursuant to Article 98 of the Company's Articles of Association) are present.

Each director shall have one (1) vote. Unless otherwise provided for in the Company's Articles of Association, a resolution of the board of directors must be passed by more than half of all of the directors of the Company. A resolution of the board of directors relating to connected transactions shall be signed by independent (non-executive) directors before coming into effect.

Where there is an equality of votes cast both for and against a resolution, the Chairman of the board of directors shall have a casting vote.

A director shall not vote on any board resolution in which he or any of his associates has a material interest nor shall he be counted in the quorum present at the same board meeting. The relevant transaction shall be dealt with by way of a board meeting and not by way of circulation of written board resolution. If an independent non-executive director (and whose associates) has no material interests in the transaction, he should be present at such board meeting. In this Article, "associate" has the same meaning as defined in the Listing Rules. If any stock exchange where the shares of the Company are listed sets out more stringent rules in relation to the matters in relation to which any director should abstain from voting, the

directors should comply with the more stringent rules.

Article 98. Directors shall attend the meetings of the board of directors in person. Where a director is unable to attend a meeting for any reason, he may by a written power of attorney appoint another director to attend the meeting on his behalf. The power of attorney shall set out the scope of the authorisation.

A Director appointed as a representative of another director to attend the meeting shall exercise the rights of a director within the scope of authority conferred by the appointing director. Where a director is unable to attend a meeting of the board of directors and has not appointed a representative to attend the meeting on his behalf, he shall be deemed to have waived his right to vote at the meeting.

Article 99. In respect of any matter which needs to be determined by the board of directors at an extraordinary meeting of the board of directors and where the board of directors has already sent out written notice of matters to be decided at such meeting and the number of directors who have signified their consent thereto reaches the amount set out in Article 97, a valid resolution shall be deemed to be passed and there is no need to hold a board of directors' meeting.

Article 100. The board of directors shall keep minutes of resolutions passed at meetings of the board of directors. The minutes shall be signed by the directors present at the meeting and the person who recorded the minutes. The directors shall be liable for the resolutions of the board of directors. If a resolution of the board of directors violates the laws, administrative regulations or the Company's Articles of Association and the Company suffers serious losses as a result thereof, the directors who participated in the passing of such resolution are liable to compensate the Company therefor. However, if it can be proven that a director expressly objected to the resolution when the resolution was voted on, and that such objection was recorded in the minutes of the meeting, such director may be released from such liability.

CHAPTER 11: SECRETARY OF THE BOARD
OF DIRECTORS

Article 101. The Company shall have one (1) secretary of the board of directors. The secretary shall be a senior officer of the Company.

Article 102. The secretary of the Company's board of directors shall be a natural person who has the requisite professional knowledge and experience, and shall be appointed by the board of directors. His primary responsibilities are to ensure that:

(1) to organise board meetings and general meetings of the Company, and to ensure that the Company has complete organisation documents and records;

(2) minutes of the meetings of the board of directors shall be circulated to all directors for their signature and records within 14 days after the board meeting is held and be made available for inspection;

(3) the Company prepares and delivers, in accordance with law, those reports and documents required by competent authorities entitled thereto;

(4) the Company's registers of shareholders are properly maintained, and that persons entitled to receive the Company's records and documents are furnished therewith without delay.

Article 103. A director or other senior officer of the Company may also act as the secretary of the board of directors. The certified public accountancy firm which has been appointed by the Company to act as its auditors shall not act as the secretary of the board of directors.

Where the office of secretary is held concurrently by a director, and an act is required to be done by a director and a secretary separately, the person who holds the office of director and secretary may not perform the act in a dual capacity.

CHAPTER 12: GENERAL MANAGER

Article 104. The Company shall have a general manager, senior deputy general managers, deputy general managers, financial controller. The general manager proposed by the Chairman of the board of directors shall be appointed or dismissed by the board of directors. Senior deputy general managers, deputy general managers and financial controller proposed by the general manager shall be appointed or dismissed by the board of the directors. A member of the board of directors may act concurrently as the general manager, senior deputy general managers, deputy general managers, financial controller or other senior officers.

Article 105. The general manager shall be accountable to the board of directors and shall exercise the following functions and powers:

(1) to be in charge of the Company's production, operation and management and to organise the implementation of the resolutions of the board of directors;

(2) to organise the implementation of the Company's annual business plan and investment proposal;

(3) to draft plans for the establishment of the Company's internal management structure;

(4) to draft the Company's basic management system;

(5) to formulate concrete rules and regulations for the Company;

(6) to propose the appointment or dismissal by the board of directors of the Company's senior deputy general managers, deputy general managers, financial controller and other senior officers ;

(7) to appoint or dismiss management personnel other than those required to be appointed or dismissed by the board of directors;

(8) other powers conferred by the Company's Articles of Association and the board of directors.

Article 106. The general manager shall attend meetings of the board of directors. The general manager, who is not a director, does not have any voting rights at board meetings.

Article 107. The general manager and senior deputy general managers, deputy general managers and financial controller performing their functions and powers, shall act honestly and diligently and in accordance with laws, administrative regulations and the Company's Articles of Association.

CHAPTER 13: SUPERVISORY COMMITTEE

Article 108. The Company shall have a supervisory committee.

Article 109. The supervisory committee shall compose of seven (7) supervisors. One of the members of the supervisory committee shall act as the chairman. Each supervisor shall serve for a term of three (3) years, which term is renewable upon re-election and re-appointment.

The election or removal of the chairman of the supervisory committee shall be determined by two-thirds or more of the members of the supervisory committee.

The chairman shall serve for a term of three (3) years, which term is renewable upon re-election and re-appointment.

Article 110. The supervisory committee shall comprise of four (6) supervisors who shall represent the shareholders, and who shall be elected or removed by the shareholders in general meetings, and one (1) supervisor who shall represent the employees of the Company and who shall be elected or removed democratically thereby.

Article 111. The directors, general manager, senior deputy general managers, deputy general managers and financial controller shall not act concurrently as supervisors.

Article 112. Meetings of the supervisory committee shall be held at least once every year, and shall be convened by the chairman of the supervisory committee.

Article 113. The supervisory committee shall be accountable to the shareholders in a general meeting and shall exercise the following functions and powers in accordance with law:

(1) to review the Company's financial position;

(2) to supervise the directors, general manager, senior deputy general managers, deputy general managers, financial controller and other senior officers to ensure that they do not act in contravention of any law, regulation or the Company's Articles of Association;

(3) to demand any director, general manager, senior deputy general manager, deputy general manager, financial controller or any other senior officer who acts in a manner which is harmful to the Company's interest to rectify such behaviour;

(4) 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 to the shareholders' general meetings and to authorise, in the Company's name, publicly certified and practising accountants to assist in the re-examination of such information should any doubt arise in respect thereof;

(5) to propose to convene a shareholders' extraordinary general meeting;

(6) to represent the Company in negotiations with or in bringing actions against a director;

(7) other functions and powers specified in the Company's Articles of Association.

Supervisors shall attend meetings of the board of directors.

Article 114. Meetings of the supervisory committee shall be held only if three (3) or more supervisors are present. Resolutions of the supervisory committee shall be passed by the affirmative vote of more than two-thirds of all of its members.

Article 115. All reasonable fees incurred in respect of the employment of professionals (such as, lawyers, certified public accountants or practising auditors) which are required by the supervisory committee in the exercise of its functions and powers shall be borne by the Company.

Article 116. A supervisor shall carry out his duties honestly and faithfully in accordance with laws, administrative regulations and the Company's Articles of Association.

CHAPTER 14: THE QUALIFICATIONS AND DUTIES OF THE DIRECTORS,
SUPERVISORS, GENERAL MANAGER, SENIOR DEPUTY GENERAL MANAGERS,
DEPUTY GENERAL MANAGERS,
FINANCIAL CONTROLLER AND OTHER SENIOR OFFICERS OF
THE COMPANY

Article 117. A person may not serve as a director, supervisor, general manager, senior deputy general manager, deputy general manager, financial controller or any other senior officer of the Company if any of the following circumstances apply:

(1) a person who does not have or who has limited capacity for civil conduct;

(2) a person who has been sentenced for corruption, bribery, infringement of property or misappropriation of property or other crimes which destroy the social economic order, where less than a term of five (5) years has lapsed since the sentence was served, or a person who has been deprived of his political rights and not more than five (5) years have lapsed since the sentence was served;

(3) a person who is a former director, factory manager or manager of a company or enterprise which has been dissolved or put into liquidation as a result of mismanagement and who was personally liable for the winding up of such company or enterprise, where less than three (3) years have elapsed since the date of completion of the insolvent liquidation of the company or enterprise;

(4) a person who is a former legal representative of a company or enterprise the business licence of which was revoked due to violation of law and who are personally liable therefor, where less than three (3) years have elapsed since the date of the revocation of the business licence;

(5) a person who has a relatively large amount of debts which have become overdue;

(6) a person who is currently under investigation by judicial organs for violation of criminal law;

(7) a person who, according to laws and administrative regulations, cannot act as a leader of an enterprise;

(8) a person other than a natural person;

(9) a person who has been convicted by the competent authority for violation of relevant securities regulations and such conviction involves a finding that such person has acted fraudulently or dishonestly, where not more than five (5) years have lapsed from the date of such conviction.

Article 118. The validity of an act carried out by a director, general manager, senior deputy general manager, deputy general manager, financial controller or other senior officer of the Company on its behalf shall, as against a bona fide third party, shall not be affected by any irregularity in his office, election or any defect in his qualification.

Article 119. In addition to the obligations imposed by laws, administrative regulations or the listing rules of the stock exchange on which shares of the Company are listed, each of the Company's directors, supervisors, general manager, senior deputy general managers, deputy general managers and other senior officers owes a duty to each shareholder, in the exercise of the functions and powers of the Company entrusted to him:

(1) not to cause the Company to exceed the scope of business stipulated in its business licence;

(2) to act honestly and in the best interests of the Company;

(3) not to expropriate the Company's property in any way, including (without limitation) usurpation of opportunities which benefit the Company;

(4) not to expropriate the individual rights of shareholders, including (without limitation) rights to distribution and voting rights, save and except pursuant to a restructuring of the Company which has been submitted to the shareholders for approval in accordance with the Company's Articles of Association.

Article 120. Each of the Company's directors, supervisors, general manager, senior deputy general managers, deputy general managers, financial controller and other senior officers owes a duty, in the exercise of his powers and in the discharge of his duties, to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

Article 121. Each of the Company's directors, supervisors, general manager, senior deputy general managers, deputy general managers, financial controller and other senior officers shall exercise his powers or perform his duties in accordance with the fiduciary principle; and shall not put himself in a position where his duty and his interest may conflict. This principle includes (without limitation) discharging the following obligations:

(1) to act honestly in the best interests of the Company;

(2) to act within the scope of his powers and not to exceed such powers;

(3) to exercise the discretion vested in him personally and not to allow himself to act under the control of another and, unless and to the extent permitted by laws, administrative regulations or with the informed consent of shareholders given in a general meeting, not to delegate the exercise of his discretion;

(4) to treat shareholders of the same class equally and to treat shareholders of different classes fairly;

(5) unless otherwise provided for in the Company's Articles of Association or except with the informed consent of the shareholders given in a general meeting, not to enter into any contract, transaction or arrangement with the Company;

(6) not to use the Company's property for his own benefit, without the informed consent of the shareholders given in a general meeting;

(7) not to exploit his position to accept bribes or other illegal income or expropriate the Company's property in any way, including (without limitation) opportunities which benefit the Company;

(8) not to accept commissions in connection with the Company's transactions, without the informed consent of the shareholders given in a general meeting;

(9) to comply with the Company's Articles of Association, to perform his official duties faithfully, to protect the Company's interests and not to exploit his position and power in the Company to advance his own interests;

(10) not to compete with the Company in any way, save with the informed consent of the shareholders given in a general meeting;

(11) not to misappropriate the Company's funds or to lend such funds to any other person, not to use the Company's assets to set up deposit accounts in his own name or in the any other name or to use such assets to guarantee the debts of a shareholder of the Company or any other personal liabilities;

(12) not to release any confidential information which he has obtained during his term of office, without the informed consent of the shareholders in a general meeting; nor shall he use such information otherwise than for the Company's benefit, save that disclosure of such information to the court or other governmental authorities is permitted if:

(i) disclosure is made under compulsion of law;

(ii) public interests so warrants;

(iii) the interests of the relevant director, supervisor, general manager, senior deputy general manager, deputy general manager or other senior officer so requires;

(13) strictly comply with the relevant laws and regulations and the relevant rules of the stock exchanges on which the shares of the Company are listed in respect of dealings with the securities of the Company.

Article 122. Each director, supervisor, general manager, deputy general manager, financial controller and other senior officer of the Company shall not direct the following persons or institutions ("associates") to act in a manner which he is prohibited from so acting:

(1) the spouse or minor child of the director, supervisor, general manager, senior deputy general manager, deputy general manager, financial controller or other senior officer;

(2) the trustee of the director, supervisor, general manager, senior deputy general manager, deputy general manager, financial controller or other senior officer or of any person described in sub-paragraph (1) above;

(3) the partner of that director, supervisor, general manager, senior deputy general manager, deputy general manager, financial controller or other senior officer or any person referred to in sub-paragraphs (1) and (2) of this Article;

(4) a company in which that director, supervisor, general manager, senior deputy general manager, deputy general manager, financial controller or other senior officer, whether alone or jointly with one (1) or more of the persons referred to in sub-paragraphs (l), (2) and (3) of this Article and other directors, supervisors, general manager, senior deputy general managers, deputy general managers, financial controller and other senior officers, has de facto controlling interest;

(5) the directors, supervisors, general manager, senior deputy general managers, deputy general managers and other senior officers of a company which is being controlled in the manner set out in sub-paragraph (4) above.

Article 123. The fiduciary duties of the directors, supervisors, general manager, senior deputy general managers, deputy general managers, financial controller and other senior officers of the Company do not necessarily cease with the termination of their tenure. The duty of confidentiality in respect of trade secrets of the Company survives the termination of their tenure. Other duties may continue for such period as the principle of fairness may require depending on the amount of time which has lapsed between the termination and the act concerned and the circumstances and the terms under which the relationship between the relevant director, supervisor, general manager, senior deputy general manager, deputy general manager and the senior officer on the on hand and the Company on the other hand was terminated.

Article 124. Subject to Article 48, a director, supervisor, general manager, senior deputy general manager, deputy general manager, financial controller or other senior officer of the Company may be relieved of liability for specific breaches of his duty with the informed consent of the shareholders given at a general meeting.

Article 125. Where a director, supervisor, general manager, senior deputy general manager, deputy general manager, financial controller or other senior officer of the Company is in any way, directly or indirectly, materially interested in a contract, transaction or arrangement or proposed contract, transaction or arrangement with the Company, (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 contract, transaction or arrangement or proposal therefor is otherwise subject to the approval of the board of directors.

Unless the interested director, supervisor, general manager, senior deputy general manager, deputy general manager, financial controller or other

senior officer discloses his interests in accordance with the preceding sub-paragraph of this Article and the contract, transaction or arrangement is approved by the board of directors at a meeting in which the interested director, supervisor, general manager, senior deputy general manager, deputy general manager or other senior officer is not counted as part of the quorum and refrains from voting, a contract, transaction or arrangement in which that director, supervisor, general manager, deputy general manager or other senior officer is materially interested is voidable at the instance of the Company except as against a bona fide party thereto who does not have notice of the breach of duty by the interested director, supervisor, general manager, deputy general manager, financial controller or other senior officer.

For the purposes of this Article, a director, supervisor, general manager, Senior deputy general manager, deputy general manager financial controller or other senior officer of the Company is deemed to be interested in a contract, transaction or arrangement in which his associate is interested.

Article 126. Where a director, supervisor, general manager, senior deputy general manager, deputy general manager, financial controller or other senior officer of the Company 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 contracts, transactions or arrangements which may subsequently be made by the Company, that notice shall be deemed for the purposes of the preceding Article 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 question of entering into the relevant contract, transaction or arrangement is first taken into consideration by the Company.

Article 127. The Company shall not pay taxes for or on behalf of a director, supervisor, general manager, senior deputy general manager, deputy general manager, financial controller or other senior officer in any manner.

Article 128. The Company shall not directly or indirectly make a loan to or provide any guarantee in connection with the making of a loan to a director, supervisor, general manager, deputy general manager, financial controller or other senior officer of the Company or of the Company's holding company or any of their respective associates.

The foregoing prohibition shall not apply to the following circumstances:

(1) the provision by the Company of a loan or a guarantee in connection with the making of a loan to its subsidiary:

(2) the provision by the Company of a loan or a guarantee in connection with the making of a loan or any other funds available to any of its directors, supervisors, general manager, senior deputy general managers, deputy general managers, financial controller and other senior officers to meet expenditure incurred or to be incurred by him for the purposes 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;

(3) if the ordinary course of business of the Company includes the lending of money or the giving of guarantees, the Company may make a loan to or provide a guarantee in connection with the making of a loan to any of the relevant directors, supervisors, general manager, senior deputy general managers, deputy general managers, financial controller and other senior officers or their respective associates in the ordinary course of its business on normal commercial terms.

Article 129. Any person who receives funds from a loan which has been made by the Company acting in breach of the preceding Article shall, irrespective of the terms of the loan, forthwith repay such funds.

Article 130. A guarantee for the repayment of a loan which has been provided by the Company acting in breach of Article 128(1) shall not be enforceable against the Company, save in respect of the following circumstances:

(1) the guarantee was provided in connection with a loan which was made to an associate of any of the directors, supervisors, general manager, senior deputy general managers, deputy general managers, financial controller and other senior officers of the Company or of the Company's holding company and the lender of such funds did not know of the relevant circumstances at the time of the making of the loan; or

(2) the collateral which has been provided by the Company has already been lawfully disposed of by the lender to a bona fide purchaser.

Article 131. For the purposes of the foregoing provisions of this Chapter, a "guarantee" includes an undertaking or property provided to secure the obligor's performance of his obligations.

Article 132. In addition to any rights and remedies provided by the laws and administrative regulations, where a director, supervisor, general manager, senior deputy general manager, deputy general manager, financial controller or other senior officer of the Company breaches the duties which he owes to the Company, the Company has a right:

(1) to demand such director, supervisor, general manager, senior deputy general manager, deputy general manager, financial controller or other senior officer to compensate it for losses sustained by the Company as a result of such breach;

(2) to rescind any contract or transaction which has been entered into between the Company and such director, supervisor, general manager, senior deputy general manager, deputy general manager, financial controller or other senior officer or between the Company and a third party (where such third party knows or should have known that such director, supervisor, general manager, deputy general manager or other senior officer representing the Company has breached his duties owed to the Company);

(3) to demand such director, supervisor, general manager, senior deputy general manager, deputy general manager or other senior officer to account for profits made as result of the breach of his duties;

(4) to recover any monies which should have been received by the Company and which were received by such director, supervisor, general manager, senior deputy general manager, deputy general manager, financial controller or other senior officer instead, including (without limitation) commissions; and

(5) to demand repayment of interest earned or which may have been earned by such director, supervisor, general manager, senior deputy general manager, deputy general manager, financial controller or other senior officer on monies that should have been paid to the Company.

Article 133. The Company shall, with the prior approval of shareholders in a general meeting, enter into a contract in writing with a director or supervisor wherein his emoluments are stipulated. The aforesaid emoluments include:

(1) emoluments in respect of his service as director, supervisor or senior officer of the Company;

(2) emoluments in respect of his service as director, supervisor or senior officer of any subsidiary of the Company;

(3) emoluments in respect of the provision of other services in connection with the management of the affairs of the Company and any of its subsidiaries;

(4) payment by way of compensation for loss of office, or as consideration for or in connection with his retirement from office.

No proceedings may be brought by a director or supervisor against the Company for anything due to him in respect of the matters mentioned in this Article except pursuant to the contract mentioned above.

Article 134. The contract concerning the emoluments between the Company and its directors or supervisors should provide that in the event that the Company is acquired, the Company's directors and supervisors shall, subject to the prior approval of shareholders in a general meeting, have the right to receive compensation or other payment in respect of his loss of office or retirement. For the purposes of this paragraph, the acquisition of the Company includes any of the following:

(1) an offer made by any person to the general body of shareholders;

(2) an offer made by any person with a view to the offeror becoming a "controlling shareholder" within the meaning of Article 49.

If the relevant director or supervisor does not comply with this Article, any sum so received by him shall belong to those persons who have sold their shares as a result of such offer. The expenses incurred in distributing such sum on a pro rata basis amongst such persons shall be borne by the relevant director or supervisor and shall not be paid out of such sum.

CHAPTER 15: FINANCIAL AND ACCOUNTING SYSTEMS AND PROFIT DISTRIBUTION

Article 135. The Company shall establish its financial and accounting systems in accordance with laws, administrative regulations and PRC accounting standards formulated by the finance regulatory department of the State Council.

Article 136. At the end of each fiscal year, the Company shall prepare a financial report which shall be examined and verified in a manner prescribed by law.

Article 137. The board of directors of the Company shall place before the shareholders at every annual general meeting such financial reports which the relevant laws, administrative regulations and directives promulgated by competent regional and central governmental authorities require the Company to prepare.

Article 138. The Company's financial reports shall be made available for shareholders' inspection at the Company twenty (20) days before the date of every shareholders' annual general meeting. Each shareholder shall be entitled to obtain a copy of the financial reports referred to in this Chapter.

The Company shall deliver or send to each shareholder of Overseas-Listed Foreign-Invested Shares by prepaid mail at the address registered in the register of shareholders the said reports not later than twenty-one (21) days before the date of every annual general meeting of the shareholders.

Article 139. The financial statements of the Company shall, in addition to being prepared in accordance with PRC accounting standards and regulations, be prepared in accordance with either international accounting standards, or that of the place outside the PRC where the Company's shares are listed. If there is any material difference between the financial statements prepared respectively in accordance with the two accounting standards, such difference shall be stated in the financial statements. In distributing its after-tax profits, the lower of the two amounts shown in the financial statements shall be adopted.

Article 140. Any interim results or financial information published or disclosed by the Company must also be prepared and presented in accordance with PRC accounting standards and regulations, and also in accordance with either international accounting standards or that of the place overseas where the Company's shares are listed.

Article 141. The Company shall publish its financial reports twice every fiscal year, that is, the interim financial report shall be published within sixty (60) days after the expiration of the first six (6) months of each fiscal year; the annual financial report shall be published within one hundred and twenty (120) days after the expiration of each fiscal year.

Article 142. The Company shall not keep accounts other than those required by law.

Article 143. The Company's after-tax profit shall be allocated in accordance with the following order:

(1) compensation of losses;

(2) allocation of ten percent of its after-tax profit to the statutory common reserve fund;

(3) allocation of five percent to ten percent of its after-tax to the statutory common welfare fund;

(4) allocation to the discretionary common reserve fund upon approval by resolution of the shareholders' general meeting;

(5) payment of dividends in respect of ordinary shares.

The Company shall not allocate dividends or carry out other allocations in

the form of bonuses, before the Company has compensated for its losses and made allocations to the statutory common reserve fund and the statutory common welfare fund.

Article 144. Capital common reserve fund includes the following items:

(1) premium on shares issued at a premium price;

(2) any other income designated for the capital common reserve fund by the regulations of the finance regulatory department of the State Council.

Article 145. The common reserve fund of the Company shall be applied for the following purposes:

(1) to compensate losses;

(2) to expand the Company's production and operation;

(3) to convert the common reserve fund into capital in order to increase its capital. The Company may convert its common reserve fund into capital with the approval of shareholders in a general meeting. When such conversion takes place, the Company shall either distribute new shares in proportion to the existing shareholders' number of shares, or increase the par value of each share, provided, however, that when the statutory common reserve fund is converted to capital, the balance of the statutory common reserve fund may not fall below 25 % of the registered capital.

Article 146. The Company's statutory common welfare fund is used for the collective welfare of the Company's employees.

Article 147. 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 the interim dividends.

Article 148. The Company may distribute dividends in the form of:

(1) cash;

(2) shares.

If any shareholder has not claimed his dividends six years after such dividends has been declared, such shareholder is deemed to forfeit his right to claim such dividends. The Company shall not exercise its power to forfeit the unclaimed dividends until after the expiry of the applicable limitation period.

Article 149. The Company shall calculate, declare and pay dividends and other amounts which are payable to holders of Domestic-Invested Shares in Renminbi. The Company shall calculate and declare dividends and other payments which are payable to holders of Overseas-Listed Foreign-Invested Shares in Renminbi, and shall pay such amounts in the local currency of the place in which such Overseas-Listed Foreign-Invested Shares are listed (if such shares are listed in more than one place, then the currency of the principal place on which such shares are listed as determined by the board of directors).

Article 150. The Company shall pay dividends and other amounts to holders of Foreign-Invested Shares in accordance with the relevant foreign exchange control regulations of the State. If there is no applicable regulation, the applicable exchange rate shall be the average closing rate for the relevant foreign currency announced by the Peoples' Bank of China during the week prior to the announcement of payment of dividend and other amounts.

Article 151. The Company shall appoint receiving agents for holders of the Overseas-Listed Foreign-Invested Shares. Such receiving agents shall receive dividends which have been declared by the Company and all other amounts which the Company should pay to holders of Overseas-Listed Foreign-Invested Shares on such shareholders' behalf.

The receiving agents appointed by the Company shall meet the relevant requirements of the laws of the place at which the stock exchange on which the Company's shares are listed or the relevant regulations of such stock exchange.

The receiving agents appointed for holders of Overseas-Listed Foreign-Invested Shares listed in Hong Kong shall each be a company registered as a trust company under the Trustee Ordinance of Hong Kong.

CHAPTER 16: APPOINTMENT OF AUDITORS

Article 152. The Company shall appoint an independent firm of accountants which is qualified under the relevant regulations of the State to audit the Company's annual report and review the Company's other financial reports.

The first auditors of the Company may be appointed before the first annual general meeting of the Company at the inaugural meeting. Auditors so appointed shall hold office until the conclusion of the first annual general meeting.

If the inaugural meeting does not exercise the powers under the preceding paragraph, those powers shall be exercised by the board of directors.

Article 153. The auditors appointed by the Company shall hold office from the conclusion of the annual general meeting of shareholders at which they were appointed until the conclusion of the next annual general meeting of shareholders.

Article 154. The auditors appointed by the Company shall enjoy the following rights:

(1) a right to review to the books, records and vouchers of the Company at any time, the right to require the directors, general manager, senior deputy general managers, deputy general managers and other senior officers of the Company to supply relevant information and explanations;

(2) a right to require the Company to take all reasonable steps to obtain from its subsidiaries such information and explanation as are necessary for the discharge of its duties;

(3) a right to attend shareholders' general meetings and to receive all notices of, and other communications relating to, any shareholders' general meeting which any shareholder is entitled to receive, and to speak at any shareholders' general meeting in relation to matters concerning its role as the Company's accountancy firm.

Article 155. If there is a vacancy in the position of auditor of the Company, the board of directors may appoint an accountancy firm to fill such vacancy before the convening of the shareholders' general meeting. Any other accountancy firm which has been appointed by the Company may continue to act during the period during which a vacancy arises.

Article 156. The shareholders in a general meeting may by ordinary resolution remove the Company's auditors before the expiration of its term of office, irrespective of the provisions in the contract between the Company and the Company's auditors. However, the accountancy firm's right to claim for damages which arise from its removal shall not be affected thereby.

Article 157. The remuneration of an accountancy firm or the manner in which such firm is to be remunerated shall be determined by the shareholders in a general meeting. The remuneration of an accountancy firm appointed by the board of directors shall be determined by the board of directors.

Article 158. The Company's appointment, removal or non-reappointment of an accountancy firm shall be resolved by the shareholders in a general meeting. Such resolution shall be filed with the securities authority of the State Council.

Where a resolution at a general meeting of shareholders is passed to appoint as auditor a person other than an incumbent auditor, to fill a casual vacancy in the office of auditor, to reappoint as auditor a retiring auditor who was

appointed by the board of directors to fill a casual vacancy or to remove an auditor before the expiration of his term of office, the following provisions shall apply:

(1) A copy of the appointment or removal proposal shall be sent (before notice of meeting is given to the shareholders) to the firm proposed to be appointed or proposing to leave its post or the firm which has left its post in the relevant fiscal year (leaving includes leaving by removal, resignation and retirement).

(2) If the auditor leaving its post makes representations in writing and requests the Company to give the shareholders notice of such representations, the Company shall (unless the representations have been received too late) take the following measures:

(a) in any notice of the resolution given to shareholders, state the fact of the representations having been made; and

(b) attach a copy of the representations to the notice and deliver it to the shareholders in the manner stipulated in the Company's Articles of Association.

(3) If the Company fails to send out the auditor's representations in the manner set out in sub-paragraph (2) above, such auditor may (in addition to his right to be heard) require that the representations be read out at the meeting.

(4) An auditor which is leaving its post shall be entitled to attend the following shareholders' general meetings:

(a) the general meeting at which its term of office would otherwise have expired;

(b) the general meeting at which it is proposed to fill the vacancy caused by its removal; and

and to receive all notices of, and other communications relating to, any such meeting, and to speak at any such meeting which it attends on any part of the business of the meeting which concerns it as former auditor of the Company.

Article 159. Prior notice should be given to the accountancy firm if the Company decides to remove such accountancy firm or not to renew the appointment thereof. Such accountancy firm shall be entitled to make representations at

the shareholders' general meeting. Where the accountancy firm resigns from its position as the Company's auditors, it shall make clear to the shareholders in a general meeting whether there has been any impropriety on the part of the Company.

An accountancy firm may resign its office by depositing at the Company's legal address a resignation notice which shall become effective on the date of such deposit or on such later date as may be stipulated in such notice. Such notice shall contain the following statements:

(1) a statement to the effect that there are no circumstances connected with its resignation which it considers should be brought to the notice of the shareholders or creditors of the Company; or

(2) a statement of any such circumstances.

Where a notice is deposited under the preceding sub-paragraph, the Company shall within fourteen (14) days send a copy of the notice to the relevant governing authority. If the notice contains a statement under the preceding sub-paragraph (2), a copy of such statement shall be placed at the Company for shareholders' inspection. The Company should also send a copy of such statement by prepaid mail to every shareholder of Overseas-Listed Foreign Shares at the address registered in the register of shareholders.

Where the auditor's notice of resignation contains a statement in respect of the above, it may require the board of directors to convene a shareholders' extraordinary general meeting for the purpose of receiving an explanation of the circumstances connected with its resignation.

CHAPTER 17: INSURANCE

Article 160. The different types or items of the Company's insurance shall be decided at a meeting of the board of directors in accordance with the relevant insurance law in China.

CHAPTER 18: LABOUR AND PERSONNEL MANAGEMENT SYSTEMS

Article 161. The Company may at its discretion employ and dismiss employees based on the business development needs of the Company and in accordance with the requirements of the laws and administrative regulations of the State.

Article 162. The Company may formulate its labour and payroll systems and payment methods in accordance with the relevant laws and regulations of the State,

the Company's Articles of Association and the economical benefits of the Company.

Article 163. The Company shall endeavour to improve its employee benefits and to continually improve the working environment and living standards of its employees.

Article 164. The Company shall provide medical, retirement and unemployment insurance for its employees and put in place a labour insurance system, in accordance with the relevant laws and regulations of the State.

CHAPTER 19: TRADE UNIONS

Article 165. The Company's employees may form trade unions, carry on trade union activities and protect their legal rights. The Company shall provide the necessary conditions for such activities.

CHAPTER 20: MERGER AND DIVISION OF THE COMPANY

Article 166. In the event of the merger or division of the Company, a plan shall be presented by the Company's board of directors and shall be approved in accordance with the procedures stipulated in the Company's Articles of Association. The Company shall then go through the relevant approval process. A shareholder who objects to the plan of merger or division shall have the right to demand the Company or the shareholders who consent to the plan of merger or division to acquire such dissenting shareholders' shareholding at a fair price. The contents of the resolution of merger or division of the Company shall constitute special documents which shall be available for inspection by the shareholders of the Company.

Such special documents shall be sent by mail to holders of Overseas-Listed Foreign-Invested Shares.

Article 167. The merger of the Company may take the form of either merger by absorption or merger by the establishment of a new company.

In the event of a merger, the merging parties shall execute a merger agreement and prepare a balance sheet and an inventory of assets. The Company shall notify its creditors within ten
(10) days of the date of the Company's merger resolution and shall publish a public notice in a newspaper at least three
(3) times within thirty (30) days of the date of the Company's merger resolution.

At the time of merger, rights in relation to debtors and indebtedness of each

of the merged parties shall be assumed by the company which survives the merger or the newly established company.

Article 168. Where there is a division of the Company, its assets shall be divided up accordingly.

In the event of division of the Company, the parties to such division shall execute a division agreement and prepare a balance sheet and an inventory of assets. The Company shall notify its creditors within ten (10) days of the date of the Company's division resolution and shall publish a public notice in a newspaper at least three (3) times within thirty
(30) days of the date of the Company's division resolution.

Debts of the Company prior to division shall be assumed by the companies which exist after the division in accordance with the agreement of the parties.

Article 169. The Company shall, in accordance with law, apply for change in its registration with the companies registration authority where a change in any item in its registration arises as a result of any merger or division. Where the Company is dissolved, the Company shall apply for cancellation of its registration in accordance with law. Where a new company is established, the Company shall apply for registration thereof in accordance with law.

CHAPTER 21: DISSOLUTION AND LIQUIDATION

Article 170. The Company shall be dissolved and liquidated upon the occurrence of any of the following events:

(1) a resolution for dissolution is passed by shareholders at a general meeting;

(2) dissolution is necessary due to a merger or division of the Company;

(3) the Company is legally declared insolvent due to its failure to repay debts as they become due; and

(4) the Company is ordered to close down because of its violation of laws and administrative regulations.

Article 171. A liquidation committee shall be set up within fifteen (15) days of the Company being dissolved pursuant to sub-paragraph
(1) of the preceding Article, and the composition of the liquidation committee of the Company shall be determined by an ordinary resolution of shareholders in a general meeting.

Where the Company is dissolved under sub-paragraph (3) of the preceding Article, the People's Court shall in accordance with the provisions of relevant laws organise the shareholders, relevant organisations and relevant professional personnel to establish a liquidation committee to carry out the liquidation.

Where the Company is dissolved under sub-paragraph (4) of the preceding Article, the relevant governing authorities shall organise the shareholders, relevant organisations and professional personnel to establish a liquidation committee to carry out the liquidation.

Article 172. Where the board of directors proposes to liquidate the Company for any reason other than the Company's declaration of its own insolvency, the board shall include a statement in its notice convening a shareholders' general meeting to consider the proposal to the effect that, after making full inquiry into the affairs of the Company, the board of directors is of the opinion that the Company will be able to pay its debts in full within twelve (12) months from the commencement of the liquidation.

Upon the passing of the resolution by the shareholders in a general meeting for the liquidation of the Company, all functions and powers of the board of directors shall cease.

The liquidation committee shall act in accordance with the instructions of the shareholders' general meeting to make a report at least once every year to the shareholders' general meeting on the committee's income and expenses, the business of the Company and the progress of the liquidation; and to present a final report to the shareholders' general meeting on completion of the liquidation.

Article 173. The liquidation committee shall, within ten (10) days of its establishment, send notices to creditors and shall, within sixty (60) days of its establishment, publish a public announcement in a newspaper at least three (3) times.

A creditor shall, within thirty (30) days of receipt of the notice, or for creditors who have not personally received such notice, within ninety (90) days of the date of the first public announcement, report its rights to the liquidation committee. When reporting his rights, the creditor shall provide an explanation of matters which are relevant thereto and shall provide evidential material in respect thereof. The liquidation committee shall register the creditor's rights.

Article 174. During the liquidation period, the liquidation committee shall exercise the following functions and powers:

(1) to sort out the Company's assets and prepare a balance sheet and an inventory of assets respectively;

(2) to send notify the creditors or to publish public announcements;

(3) to dispose of and liquidate any unfinished businesses of the Company;

(4) to pay all outstanding taxes;

(5) to settle claims and debts;

(6) to deal with the surplus assets remaining after the Company's debts have been repaid;

(7) to represent the Company in any civil proceedings.

Article 175. After it has sorted out the Company's assets and after it has prepared the balance sheet and an inventory of assets, the liquidation committee shall formulate a liquidation plan and present it to a shareholders' general meeting or to the relevant governing authority for confirmation.

The company's assets shall be distributed in accordance with law or regulation. If there is no applicable law, such distribution shall be carried out in accordance with a fair and reasonable procedure determined by the liquidation committee.

Any surplus assets of the Company remaining after its debts have been repaid in accordance with the provisions of the preceding paragraph shall be distributed to its shareholders according to the class of shares and the proportion of shares held.

During the liquidation period, the Company shall not commence any new business activities.

Article 176. If after putting the Company's assets in order and preparing a balance sheet and an inventory of assets in connection with the liquidation of the Company, the liquidation committee discovers that the Company's assets are insufficient to repay the Company's debts in full, the liquidation committee shall immediately apply to the People's Court for a declaration of insolvency.

After a Company is declared insolvent by a ruling of the People's Court, the liquidation committee shall transfer all matters arising from the liquidation to the People's Court.

Article 177. Following the completion of the liquidation, the liquidation committee shall

prepare a liquidation report, a statement of income and expenses received and made during the liquidation period and a financial report, which shall be verified by a Chinese registered accountant and submitted to the shareholders' general meeting or the relevant governing authority for confirmation.

The liquidation committee shall, within thirty (30) days after such confirmation, submit the documents referred to in the preceding paragraph to the companies registration authority and apply for cancellation of registration of the Company, and publish a public announcement relating to the termination of the Company.

CHAPTER 22: PROCEDURES FOR AMENDMENT
OF THE COMPANY'S ARTICLES OF ASSOCIATION

Article 178. The Company may amend its Articles of Association in accordance with the requirements of laws, administrative regulations and the Company's Articles of Association.

Article 179. The Company's Articles of Association shall be amended in the following manner:

(1) The Directors shall propose the manner in which the Company's Article of Association shall be amended;

(2) The foregoing proposal shall be furnished to the shareholders in writing and a shareholders' meeting shall be convened;

(3) The amendments shall be approved by votes representing more than two-thirds of the voting rights represented by the shareholders present at the meeting.

Article 180. Amendment of the Company's Articles of Association which involve the contents of the Mandatory Provisions of Overseas-Listed Companies' Articles of Association (signed by the Securities Committee of the State Council and the Economic Reform Committee of the State on 27 August 1994) ("Mandatory Provisions") shall become effective upon receipt of approvals from the securities authority of the State Council and the companies approving department authorised by the State Council. If there is any change relating to the registered particulars of the Company, application shall be made for change in registration in accordance with law.

CHAPTER 23: DISPUTE RESOLUTION

Article 181. The Company shall abide by the following principles for dispute resolution:

(1) Whenever any disputes or claims arise between: holders of the Overseas-Listed Foreign-Invested Shares and the Company; holders of the Overseas-Listed Foreign-Invested Shares and the Company's directors, supervisors, general manager, senior deputy general managers, deputy general managers, financial controller or other senior officers; or holders of the Overseas-Listed Foreign-Invested Shares and holders of

Domestic-Invested Shares, in respect of any rights or obligations arising from these Articles of Association, the Company Law or any rights or obligations conferred or imposed by the Company Law and special regulations (including other relevant laws) or any other relevant laws and administrative regulations concerning the affairs of the Company, such disputes or claims shall be referred by the relevant parties to arbitration.

Where a dispute or claim of rights referred to in the preceding paragraph is referred to arbitration, the entire claim or dispute must be referred to arbitration, and all persons who have a cause of action based on the same facts giving rise to the dispute or claim or whose participation is necessary for the resolution of such dispute or claim, shall, where such person is the Company, the Company's shareholders, directors, supervisors, general manager, senior deputy general managers, deputy general managers, financial controller or other senior officers of the Company, comply with the arbitration.

Disputes in respect of the definition of shareholders and disputes in relation to the register of shareholders need not be resolved by arbitration.

(2) A claimant may elect for arbitration to be carried out at either the China International Economic and Trade Arbitration Commission in accordance with its Rules or the Hong Kong International Arbitration Centre in accordance with its Securities Arbitration Rules. Once a claimant refers a dispute or claim to arbitration, the other party must submit to the arbitral body elected by the claimant.

If a claimant elects for arbitration to be carried out at Hong Kong International Arbitration Centre, any party to the dispute or claim may apply for a hearing to take place in Shenzhen in accordance with the Securities Arbitration Rules of the Hong Kong International Arbitration Centre.

(3) If any disputes or claims of rights are settled by way of arbitration in accordance with sub-paragraph (1) of this Article, the laws of the PRC shall apply, save as otherwise provided in the laws and administrative regulations.

(4) The award of an arbitral body shall be final and conclusive and

binding on all parties.

CHAPTER 24: NOTICE

Article 182. Unless otherwise provided, the Company shall, where it is making a public announcement in the prescribed or approved manner, issue or deliver any notice or announcement in at least one (1) national newspaper which has been appointed by the securities authority of the State Council. And, where possible, to publish such notice or announcement in English and in Chinese on the same day in a major Chinese and a major English newspaper in Hong Kong respectively.

Article 183. Unless otherwise provided in these Articles of Association, notices, information or written statement issued by the Company to holders of Overseas-listed shares shall be personally delivered to the registered address of each of such shareholders, or sent by mail to each of such shareholders.

Notices to be issued to holders of Domestic-invested shares shall have to be released in any one or more newspapers appointed by the securities authority of the State Council, all holders of Domestic-invested shares shall be deemed to have received such notices once they are published.

Article 184. All notices which are to be sent by mail shall be clearly addressed, postage pre-paid, and shall be put in envelopes before being posted by mail. Such letters of notice shall be deemed to have been received by shareholders five (5) days after the date of despatch.

Article 185. Any notices, document, information or written statement from the shareholders or directors to the Company shall be delivered personally or sent by registered mail to the legal address of the Company.

Article 186. Shareholders or directors of the Company who want to prove that certain notices, documents, information or written statements have been sent to the Company shall provide evidential materials showing that such notices, documents, information or written statements have been sent to the Company by normal methods within designated times, and that the mailing address is correct and the postage is fully paid.

CHAPTER 25: SUPPLEMENTARY

Article 187. In these Articles of Association, references to "accountancy firm" shall have the same meaning as "auditors".

Article 188. The Company's Articles of Association are written in Chinese and English.

Both text shall be equally valid. If there is any discrepancy between the two versions, the Chinese version of the Articles of Association shall prevail.

.
.

EXHIBIT 4.1

YEAR 2005 PERFORMANCE CONTRACT WITH MANAGEMENT OF PETROCHINA COMPANY LIMITED

Offeree: Name:JIANG, Jiemin               Offeror: Name: CHEN, Geng                       Term of the Contract: January 1, 2005 to
                                                                                                    December 31, 2005

Title:   President of PetroChina Company  Title:   Chairman of the Board of Directors of
         Limited ("PetroChina")                            PetroChina                     Date of Execution: May 8, 2005

                                     KEY PERFORMANCE
             INDICES                  INDICES (KPI)        WEIGHT (%)    MEASUREMENT         TARGET           ACTUAL PERFORMANCE
-------------------------------  ------------------------  ----------  --------------  -------------------  ----------------------
Profits Indices                  Rate of return of the        35              %                       13.0
                                 invested capital of
                                 PetroChina (ROIC)

                                 Net income of PetroChina     20       In million RMB               67,640
                                 (NI)

                                 Free cash flow of            15
                                 PetroChina (FCF)                      In million RMB               23,320

Operating Indices                Rate of reserves             10              %                        100
                                 replacement

                                 Unit operating cost for       5         US$/barrel                   4.57
                                 crude oil pipelines

                                 Cash processing cost for      5           RMB                       94.88
                                 per ton of oil

                                 Cash marketing cost for       5           RMB         199 (for wholesale)
                                 per ton of oil
                                                                                       150 (for retail)

                                 Gap between the actual        5             %                       +/- 5
                                 capital expenditure and
                                 budget

Indices to Be Put under Control  Quality safety and        accidents involving death < or = 0.05            Comprehensive
                                 environmental protection  persons/million man-hours;                       performance expressed
                                                                                                            in marks to be
                                                           extraordinary quality accidents capturing the    increased by 5 marks
                                                           attention of the public= 0; and                  if achieving the
                                                                                                            target of the index
                                                           extraordinary environmental pollution            put under control, and
                                                           accidents < or = 5.                              to be reduced by 5
                                                                                                            marks if failing to
                                                                                                            achieve the target of
                                                                                                            the index put under
                                                                                                            control.

Signature of Offeree: JIANG Jiemin Signature of Offeror: CHEN Geng

EXHIBIT 4.2

CRUDE OIL MUTUAL SUPPLY
FRAMEWORK AGREEMENT FOR YEAR 2005

BETWEEN

PETROCHINA COMPANY LIMITED

AND

CHINA PETROCHEMICAL CORPORATION

DECEMBER 2004

CRUDE OIL MUTUAL SUPPLY FRAMEWORK AGREEMENT FOR YEAR 2005

PetroChina Company Limited ("PetroChina") and China Petrochemical Corporation ("Sinopec"), following friendly consultations and on the basis of equality, have reached this Agreement (this "Agreement") on mutual supply of crude oil in the year of 2005.

I. QUANTITIES AND VARIETIES OF CRUDE OIL TO BE SUPPLIED HEREUNDER

1. In 2005, PetroChina shall supply Sinopec with 8 million tons of domestic onshore crude oil, including 6 million tons of blended oil produced at the Daqing Oil Region, 1.30 million tons of oil produced at the Jizhong Oil Region, 350 thousand tons of oil produced at the Dagang Oil Region and 350 thousand tons of oil produced at the Changqing Oil Region.

2. In 2005, Sinopec shall supply PetroChina with 1.40 million tons of domestic onshore crude oil, including 500 thousand tons produced at the Shengli Oil Region and 900 thousand tons produced at the Tahe Oil Region.

3. The parties hereto shall, in principle, make available crude oil of the above supply and take delivery thereof on an evenly distributed basis. The quarterly mutual supply of crude oil may be adjusted as necessary by mutual agreement thereon and in light of the availability of crude oil resources, price and the State's macro-economic planning requirements.

II. QUALITY OF CRUDE OIL

Matters with respect to the quality of the crude oil to be supplied hereunder shall be handled pursuant to applicable provisions of SY7513-88 Technical Conditions of Crude Oil at Wellhead.

III. QUARTERLY SUPPLY AGREEMENTS; SALES AND PURCHASE CONTRACTS ON AN ENTERPRISE-BY-ENTERPRISE BASIS

Quarterly supply agreements shall be entered into by and between PetroChina Natural Gas & Pipeline Company and the Production and Management Department of Sinopec. After the quarterly plans have been made known to their respective subsidiaries, PetroChina's regional companies (including its oil fields, refineries and pipeline companies) and Sinopec's subsidiaries (including its oil fields and refineries) will enter into specific sales and purchase contracts. The total quantities and varieties of crude oil to be supplied under such contracts shall be consistent with those specified under the above quarterly supply agreements.

IV. ADDITIONAL PROVISIONS

1. The price of crude oil to be supplied hereunder shall be settled on the basis of the standard crude oil price published by the National Development and Reform Commission each month and the crude oil premium mutually agreed between the parties.

2. Payment of the price of crude oil to be supplied hereunder shall be made on a timely basis and pursuant to principles agreed upon by the parties hereto. In case of any default thereof, the parties hereto shall cooperate with each other in seeking a solution thereto.

3. Where any change occurs to this Agreement in the performance hereof, it shall be resolved by the parties hereto through consultations.

PLANNING DEPARTMENT,                           PRODUCTION MANAGEMENT DEPARTMENT,
PETROCHINA COMPANY LIMITED                     CHINA PETROCHEMICAL CORPORATION

By: /s/ Liu Hongbin                            By: /s/ Zhang Jianhua
  -----------------------------                  -------------------------------
Date: December 1, 2004                         Date: December 1, 2004

EXHIBIT 4.3

CAPITAL CONTRIBUTION AGREEMENT

This Capital Contribution Agreement is entered into this 9th day of June, 2005 in Beijing by and among:

CHINA NATIONAL OIL AND GAS EXPLORATION AND DEVELOPMENT CORPORATION ("CNODC")
ADDRESS: International Investment Building D, Fuchengmen Beidajie, Xicheng District, Beijing
LEGAL REPRESENTATIVE: Wang Dongjin

CENTRAL ASIA PETROLEUM COMPANY LTD. ("CAPC")
ADDRESS: Floor 6, Communication Building, No. 2 Andelibeijie, Dongcheng District, Beijing
LEGAL REPRESENTATIVE: Wu Enlai

PETROCHINA COMPANY LIMITED ("PETROCHINA")
ADDRESS: World Tower,16 Andelu, Dongcheng District, Beijing
LEGAL REPRESENTATIVE: Chen Geng

CHINA PETROLEUM EXPLORATION & DEVELOPMENT COMPANY LIMITED ("CPEDC")
ADDRESS: International Investment Building D, Fuchengmen Beidajie, Xicheng District, Beijing
LEGAL REPRESENTATIVE: Wang Dongjin

WHEREAS:

1. CNODC, a collectively-owned company, was established on 13 May 1987 in Beijing by law and validly existing, in compliance with laws of the People's Republic of China; it is mainly engaged in overseas oil and gas exploration and development.

2. CAPC, a company with limited liabilities, was established on 10 July 1996 in Beijing by law and validly existing, in compliance with laws of the People's Republic of China; 100% of its equity is held by CNODC indirectly.

3. PetroChina, a joint stock company with limited liabilities, was established on 5

November 1999 in Beijing by law and validly existing, in compliance with laws of the People's Republic of China; the shares and American Depositary Shares of PetroChina are listed on the Stock Exchange of Hong Kong Limited and the New York Stock Exchange.

4. CPEDC, a company with limited liabilities, was established by CNODC and CAPC by law on 14 March 2005 in Beijing and validly existing, in compliance with laws of the People's Republic of China; CNODC and CAPC control the company by 95%/5%.

5. CAPC agrees to sign the Equity Transfer Agreement separately with CNODC, to transfer its 5% equity of CPEDC to CNODC.

6. CNODC agrees to transfer the Transferred Assets (see Article 1.9 for the definition) held by CNODC, directly or indirectly, to CPEDC Group for free of charge. CPEDC agrees, when all closing conditions specified in Article 3.1 herein are satisfied or considered as satisfied according to Article 3.2 herein, to make capital increase, and PetroChina also agrees to subscribe for all additional registered capital due to CPEDC's capital increase ("this Transaction"). Upon the completion of this Transaction, PetroChina will hold 50% equity of CPEDC.

NOW, THEREFORE, in consideration of equality and mutual benefit, through friendly negotiation, and as per relevant laws and regulations of the People's Republic of China, the parties agree upon this Transaction as follows:

ARTICLE 1 DEFINITION AND INTERPRETATION

Unless specified otherwise in this agreement, the terms and expressions herein have the following meanings:

1.1. THE AGREEMENT: means the Capital Contribution Agreement and any revision and modification hereto duly agreed and executed by and among the parties hereto in writing from time to time.

1.2. REGISTERED CAPITAL SUBSCRIPTION: means that PetroChina subscribes for the additional registered capital of CPEDC for the purpose of this Transaction, i.e. RMB 50 million, to obtain 50% equity of CPEDC.

1.3. CLOSING: means that PetroChina pays the consideration specified in Article 5 herein when all closing conditions specified in Article 3.1 herein are satisfied or considered as satisfied according to Article 3.2 herein.

1.4. CLOSING DATE: means the date when PetroChina pays the consideration specified in Article 5 herein when all closing conditions specified in Article 3.1 herein are satisfied or considered as satisfied according to Article 3.2 herein.

1.5. BASE DATE: means 31 December 2004.

1.6. RELATED PERIOD: means the period from 1 January 2005 to the Closing Date (including).

1.7. MAJOR PROCEEDINGS: means any pending lawsuit, arbitration, administrative appeal or other legal processes related to Transferred Assets arising before the Closing Date, involving a value of more than US$3 million individually.

1.8. SPECIAL REGIONS: means Sudan, Syria, Iran, Burma, and Iraq.

1.9. TRANSFERRED ASSETS: means all assets and liabilities located in areas other than Special Regions, originally owned by CNODC whether directly or indirectly, and listed in the Appraisal Report. See Exhibit 1 for Transferred Assets-related projects and Exhibit 2 for Transferred Assets-related companies.

1.10. EXAMINING AND APPROVING AUTHORITIES: mean all foreign and domestic governmental examining and approving authorities that are entitled to approve or authorize this Transaction and other actions related thereto.

1.11. APPRAISAL REPORT: means the report made by China Enterprises Appraisals for the assets and liabilities of CPEDC and/or Transferred Assets on Base Date.

1.12. CPEDC GROUP: means CPEDC and its owned companies listed in Transferred Assets.

1.13. CNPC: means China National Petroleum Corporation. It is the controlling parent company of CNODC and PetroChina.

1.14. FORCE MAJEURE: means war, natural disaster and any other unforeseen and inevitable event that cannot be controlled by the parties hereto.

1.15. PREEMPTION RIGHTS: means that once CNODC or its controlling companies sell their owned assets or equities in relation to oil/gas exploration, development, production, pipelines, refining and chemical businesses, or CPEDC issues a notice to CNODC or its controlling companies requesting for purchase of aforesaid assets or equities, as negotiated by the parties, CPEDC is entitled to a preemption, without breaching the governing laws and regulations and any relevant agreements signed by CNODC or its controlling companies.

ARTICLE 2 CAPITAL INCREASE

2.1 Capital Increase: CPEDC and its existing shareholders agree upon the capital increase for CPEDC in accordance with the Agreement, i.e., increasing its registered capital from RMB 50,000,000 to RMB100,000,000, and PetroChina

agrees to subscribe for RMB 50,000,000 of the registered capital of CPEDC at the consideration specified in Article 5.1 herein and obtain 50% of CPEDC's equity interest.

2.2 From the Closing Date, PetroChina will hold 50% of CPEDC's equity. Within 20 working days after the Closing Date, CPEDC shall convene the shareholders' meeting to elect its directors and amend its articles of association, apply to relevant registration authorities for registration changes regarding capital increase, and issue to CNODC and PetroChina respectively the Capital Contribution Certificate reflecting the changed equity structure of CPEDC.

2.3 The parties agree that the Articles of Association of CPEDC after PetroChina completes capital increase to it shall be in the form attached hereto as Exhibit 4, and the parties shall cause the Shareholders' Meeting of CPEDC to approve the form set forth in Exhibit 4.

ARTICLE 3 CLOSING CONDITIONS FOR THIS TRANSACTION

(1) All procedures (including but not limited to obtaining the approval fromor filing with domestic and foreign examining and approving authorities and the consent from third party) regarding transfer of Transferred Assets from CNODC and/or its subsidiaries to CPEDC and/or its subsidiaries have been completed;

(2) All necessary approvals from examining and approving authorities and consent from third party have been obtained for this Transaction;

(3) The Appraisal Report for CPEDC and/or Transferred Assets have been confirmed by CNODC and PetroChina, and all necessary formalities for filing have been completed;

(4) PetroChina has obtained the approval to this Transaction by its duly convened extraordinary shareholders' meeting; and

(5) The representations and warranties given in Exhibit 3 remain correct and free from error, as of the Closing Date.

3.2 If the parties hereof agree, through negotiation, to grant waiver with respect to the conditions set forth in (1) and (5) under Article 3.1 herein when such conditions have not been satisfied, it shall be considered that all such conditions have been satisfied, but the waiver with respect to item (1) shall be subject to

the completion of relevant procedural formalities and conform to the laws and regulations.

3.3 The deliverables to be delivered on the Closing Date are the Transferred Assets for which the closing conditions have been satisfied or considered to be satisfied in accordance with Article 3.2.

3.4 The parties believe and will make all reasonable efforts to ensure that the closing will occur no later than 30 December 2005.

ARTICLE 4 CLOSING

4.1 If, before 10 December 2005, CNODC believes that the closing conditions specified in Article 3.1 herein have been satisfied completely, it shall issue a written notice to PetroChina for requesting the closing and provide the copies of documents/evidences demonstrating that the closing conditions have been satisfied, including but not limited to:

(1) Title certificates for Transferred Assets (including but not limited to equity certificates, registration documents for changes to petroleum contracts);

(2) Confirmation documents by the third party (if necessary);

(3) Approval/ratification documents by examining and approving authorities in countries/regions where the Transferred Assets are located (if necessary);

(4) Approval/ratification/filing documents by examining and approving authorities in the PRC;

(5) Legal opinions on the validity of this Transaction and Transferred Assets issued by Chinese lawyers of CNODC to PetroChina.

4.2 If PetroChina believes that all closing conditions have been satisfied, it shall, within ten (10) days as of its receipt of the above notice from CNODC, reply to CNODC in writing which shall specify the Closing Date; provided that the closing date shall not be later than 30 December 2005.

4.3 If, on or before 10 December 2005, CNODC believes that the closing conditions specified in Article 3.1 herein have not been satisfied completely, it shall issue a written notice to PetroChina, stating such fact. PetroChina shall, within ten (10) working days upon its receipt of such written notice, notify CNODC in writing as to whether such unsatisfied conditions will be waived and confirm whether the closing conditions should be considered as satisfied in accordance with Article 3.2 hereinabove. If it is confirmed that the closing conditions should be considered as satisfied, PetroChina shall also expressly specify the

closing date in such notification; provided that the closing date shall not be later than 30 December 2005.

4.4 At the Closing Date, PetroChina shall make the lump sum payment for the consideration specified in Article 5.1 hereinbelow, in cash, to the account indicated by CPEDC.

4.5 Immediately after CPEDC has received the consideration from Petrochina for all of the additional registered capital subscribed for by PetroChina, the parties shall duly consider PetroChina having become the shareholder of CPEDC and holding 50% of CPEDC's equity. CPEDC shall within ten (10) days after the Closing Date, appoint a qualified auditor to verify the additional registered capital, who shall issue the capital contribution verification report, and CPEDC shall be also responsible for going through procedures necessary for registration change at the competent administration for industry and commerce regarding its capital increase by PetroChina.

ARTICLE 5 CONSIDERATION

5.1 The parties agree hereby, that PetroChina shall pay RMB20,741,250,000.00 (or US$2.5 billion + RMB50.00 million converted on the basis of benchmark exchange rate of US$ vs RMB announced by the People's Bank of China on the base date ) as the consideration for the additional registered capital of CPEDC subscribed by it, and such consideration is based on the fact that all Transferred Assets are injected into CPEDC upon the closing. After capital verification, RMB 50,000,000 of aforesaid consideration will be entered in the registered capital of CPEDC, and the remaining will be entered in the capital surplus of CPEDC.

5.2 With respect to any items among the Transferred Assets that have been approved by the governments in which such items are located and/or agreed by the third party while, for which, the formalities regarding the transfer to CPEDC have not been completed by the Closing Date (but CNODC and PetroChina acknowledge that no legal obstacles exist in the execution of such formalities) , the parties agree that the value of such items will not be deducted from the consideration, instead such items will be delivered along with those projects for which all the relevant formalities have been completed. CNODC also undertakes to complete all the formalities for transfer of such items to CPEDC as soon as possible.

ARTICLE 6 REPRESENTATIONS AND WARRANTIES

6.2. The parties hereby represent and warrant to each other as follows:

(1) Such party is duly established and validly existing in compliance with the laws of the jurisdiction in which it is incorporated, and has obtained all governmental authorizations and approvals required for its business operation;

(2) Such party has obtained all authorizations and approvals specified under relevant laws, regulations and articles, and has the power to sign and perform the Agreement;

(3) The execution of the Agreement and all documents refereed to herein by such party doesn't violate its articles of association, any currently effective law or its obligations under any existing contract or agreement to which it is a party;

(4) such party has never conducted any activity that impairs or would impair the interests of any other party hereto, and will make efforts to prevent any third party from conducting any such activity.

6.3. CNODC's further representations and warranties regarding CPEDC Group, the projects listed in Exhibit 1 as Transferred Assets and other related matters, are attached hereto as Exhibit 3.

6.4. Any representations and warranties herein shall be able to be interpreted severally and independently, and subject to any contrary provisions herein, shall not be limited or restricted by any other provisions herein or under other agreement between the parties or any judgment on aforesaid articles.

6.5. If, from the date when the Agreement is signed to the Closing Date for this Transaction, any party hereto is aware of any information that may have a material adverse impact on the representations and warranties or this Transaction, it shall disclose such information to all the other parties, and take effective actions to minimize such adverse impact.

6.6. The representations and warranties of any party hereto shall constitute preconditions for the other parties to perform the Agreement and the other parties will enter into the Agreement by reliance on such representations and

warranties.

ARTICLE 7 RIGHTS AND OBLIGATIONS OF THE PARTIES

7.1 CNODC and CAPC shall, severally and jointly:

(1) prepare and submit all legal documents that shall be prepared and submitted by CNODC and CAPC as required by the Examining and Approving Authorities, in order to perform the Agreement;

(2) apply to the Examining and Approving Authorities and third parties for, and make efforts to cause them to issue/provide, approval, consent or permission from or filing with such authorities and such third parties required to perform the Agreement;

(3) provide all necessary documents to assist CPEDC in going through related procedures for change of business registration in relevant registration authorities;

(4) after the conclusion of the Agreement, upon its receipt of any notice regarding the progress of the examination and approval procedures with the foreign and domestic authorities required for the transfer of Transferred Assets, CNODC shall notify PetroChina in writing of the information about such notice, as soon as possible;

(5) make efforts to assist PetroChina to prepare and submit all legal documents that shall be prepared and submitted by PetroChina.

7.2 PetroChina shall:

(1) pay the consideration indicated in Article 5.1 in cash to CPEDC, pursuant to the Agreement in a timely manner;

(2) prepare and submit all legal documents that shall be prepared and submitted by it as required by the Examining and Approving Authorities, in order to perform the Agreement;

(3) exert itself to assist CPEDC, CNODC and CAPC to prepare and obtain all legal documents required by the Examining and Approving Authorities;

(4) exert itself to assist CPEDC, CNODC and CAPC to obtain all approval, consent, permission and filing of the government and the third party;

(5) provide all necessary documents and assist CPEDC with procedures for change of business registration in relevant registration authorities;

(6) notify CNODC as soon as possible of the fact that its shareholders' general meeting approves the Agreement by resolution.

7.3 CPEDC shall:

Convene the shareholders' meeting of CPEDC as soon as possible, after the closing of this Transaction, to elect its directors and amend its Articles of Association, apply for change of business registration to relevant registration authorities, and issue to CNODC and PetroChina respectively, the Capital Contribution Certificate reflecting the changed equity structure of CPEDC.

7.4 After the Agreement come into effect, PetroChina shall be entitled to appoint two observers to CPEDC, who shall have the right of information regarding the operations of CPEDC; CNODC and CPEDC shall enable such observers to exercise the aforesaid rights; at the request of such observers, CNODC and CPEDC shall provide them with all documents in relation to the operations of CPEDC.

ARTICLE 8 ARRANGEMENTS IN THE RELATED PERIOD

8.1. The parties hereby agree that, any change of CPEDC's assets and liabilities during the Related Period shall not impact PetroChina's payment of the consideration in the amount for the registered capital subscribed for by it in accordance with the Agreement. All income, expenditure and profit generated during the Related Period shall be attributable to the Transferred Assets and CPEDC Group.

8.2. The parties hereby also agree that, the parties shall, at the Closing Date, clear any expenses advanced and any income received on behalf of Transferred Assets by CNODC during the Related Period, including but not limited to shareholders' loans, borrowings and capital increase, the current accounts and the product sales income and profit gains, etc., during the Related Period. Within 30 days after the Closing Date, such expenses and income shall be settled by CPEDC and CNODC after the qualified auditor reviews and CNODC, PetroChina and CPEDC confirm such amount.

8.3. CPEDC shall not obtain any other assets and liabilities beyond Transferred Assets during the Related Period, without consent of PetroChina.

8.4. From the Effective Date of the Agreement to the Closing Date, unless specified otherwise herein or agreed by PetroChina in writing, or as mandatorily required by law or by examination and approval authorities, CNODC, CAPC and CPEDC shall:

(1) operate the Transferred Assets on in the ordinary course of business;

(2) maintain the Transferred Assets at conditions equivalent to that in the Base Date, except for wear and tear;

(3) not transfer, mortgage or pledge the Transferred Assets, or provide guarantee for any other person with the Transferred Assets;

(4) CPEDC Group shall not sign any agreement, such as loan agreement, that may increase the liabilities, unless it is necessary for normal operation;

(5) not make any revision to any existing contract or agreement that is detrimental to the Transferred Assets;

(6) perform the Agreement after being executed or any other documents in relation to Transferred Assets and its business in a timely manner;

(7) not release anyone from any debts owed to CPEDC Group or waive any claim of CPEDC Group;

(8) not make a compromise, settlement, withdrawal or waiver of rights in any form with respect to any action or arbitration or any other legal proceedings pending, in relation to CPEDC Group;

(9) not issue or plan to issue any additional equity or convertible bonds of CPEDC Group or grant any subscription right or similar rights to the aforesaid equity or convertible bonds, unless otherwise specified in any agreement/contract binding upon CNODC and/or CAPC and/or CPEDC.

ARTICLE 9 LIABILITY FOR BREACH OF CONTRACT

9.1 CNODC, CAPC and/or CPEDC shall be entitled to claim on PetroChina for compensation for any direct loss and damage incurred by them, and any costs and expenses arising from any action or claim incurred by them due to the nonperformance or incomplete performance by PetroChina of any of its obligations under the Agreement or breach of any provision hereof. PetroChina shall not recover such compensation from CPEDC after having paid the same.

9.2 PetroChina shall be entitled to claim on CNODC for compensation for any direct loss and damage incurred by it, and any costs and expenses arising from any action or claim incurred by it due to the nonperformance or incomplete performance by CNODC, CAPC and/or CPEDC of any of their respective obligations under the Agreement or breach of any provision hereof. CNODC shall not recover such compensation from CPEDC after having paid the same.

9.3 Notwithstanding the provisions in Article 9.2 above, if CPEDC fails to fulfill or incompletely fulfills its obligations hereunder after the Closing Date, the other parties shall be entitled to claim on CPEDC for compensation for any direct loss and damage incurred by them, and any costs and expenses arising from any

action or claim incurred by them due thereto.

9.4 Notwithstanding any contrary provisions herein, if CNODC's breach of any of its representations and warranties set forth in Article 6 hereinabove results in any loss and damage to and/or cause any costs and expenses to PetroChina arising from any action or claim due thereto, the amount of loss that PetroChina can recover from CNODC for any individual claim shall be no less than RMB4,000,000 and the accumulative amount of loss that PetroChina can recover from CNODC for any individual claim shall be no less than RMB20,000,000; provided that the total amount of loss that can be recovered by PetroChina from CNODC hereunder shall not exceed 50% of the consideration for this Transaction. In case of any breach by CNODC, CPEDC or CAPC of any of their respective representations or warranties set forth herein, if PetroChina doesn't make any claim with respect thereto within twelve (12) months as of the Closing Date, CNODC shall not assume any compensation therefor.

9.5 Notwithstanding any contrary provisions herein, if PetroChina's breach of any of its representations and warranties set forth in Article 6 hereinabove results in any loss and damage to and/or cause any costs and expenses to CNODC and/or CAPC and/or CPEDC arising from any action or claim due thereto, the amount of loss that CNODC, CAPC or CPEDC can recover from PetroChina for any individual claim shall be no less than RMB4,000,000 and the accumulative amount of loss that CNODC, CAPC or CPEDC can recover from PetroChina for any individual claim shall be no less than RMB20,000,000; provided that the total amount of loss that can be recovered by CNODC, CAPC or CPEDC from PetroChina hereunder shall not exceed 50% of the consideration for this Transaction. In case of any breach by PetroChina of any of its representations or warranties set forth herein, if CNODC, CAPC or CPEDC doesn't make any claim on PetroChina within twelve (12) months as of the Closing Date, PetroChina shall not assume any compensation therefor.

9.6 Any tolerance, grace, preferential treatment granted by any party to any other party or delay of any party to exercise any of its rights hereunder shall not affect, damage or limit any rights or interests that such party shall have under the Agreement and any laws and regulations, nor shall be considered as such party's waiver of any of its rights or interests under the Agreement, nor release the other parties from any of their obligation under the Agreement.

9.7 All rights under the Agreement shall be cumulative and not prejudice any other right or remedy specified in laws.

9.8 Notwithstanding the above agreement, all of the parties agree that, none of the parties hereto shall assume the default responsibility if the Closing of this Transaction fails to occur as a result of the failure to obtain from any of the Examining and Approving Authorities any approval/ratification for any reason, and the parties shall assume their respective costs arising out of or from this Transaction.

ARTICLE 10 FORCE MAJEURE

10.1  None of the parties shall be considered in default if it is unable to
      perform this Agreement due to the occurrence of a force majeure event;
      provided that such party shall make all necessary remedies if practicable
      to mitigate the loss arising from the occurrence of the force majeure
      event.

10.2  Any party who encountered the force majeure event shall notify the other
      parties thereof in writing as soon as possible, and submit a report to the
      other parties, stating the reasons for its inability to perform its
      obligations under the Agreement either in whole or in part and for any
      extension to perform its obligations, within fifteen (15) days after the
      occurrence of the force majeure event and such party shall take all
      actions practicable to mitigate the loss. If any force majeure event
      occurs, any party shall not be responsible for any damage and additional
      expense and loss suffered by the other parties due to the failure to
      perform or any delay in the performance of obligations hereunder. The
      party claiming force majeure shall take proper measures to mitigate or
      remove the impact thereof and try to resume the performance of the
      obligations hereunder affected by force majeure as soon as practicable.

ARTICLE 11 CONFIDENTIALITY

Each party shall treat all details about the Agreement and this Transaction, the interrelationship among the parties and the documents provided to each other hereunder as confidential materials, and without prior written approval by the other parties, shall not disclose any of such materials to any party other than the parties hereto in any way except for the purpose of this Transaction, except for any disclosure to relevant agents, financial institutions and regulatory authorities for the purpose of the Agreement.

ARTICLE 12 GOVERNING LAW

The conclusion, effect, interpretation and performance of and settlement of any dispute arising from the Agreement shall be governed by the laws of the People's Republic of China.

ARTICLE 13 DISPUTE SETTLEMENT

13.1  Any dispute arising out of or from the Agreement shall be settled through
      friendly negotiations between the parties, and may be referred to
      arbitration if it is failed to be resolved through negotiation.

13.2  Such dispute shall be submitted to and resolved by China International
      Economic and Trade Arbitration Commission for arbitration in Beijing in
      accordance with its arbitration rules.

13.3  The award of China International Economic and Trade Arbitration Commission
      shall be final and binding upon all the parties. The arbitration costs
      shall be assumed by the losing party.

13.4  Pending resolution of any dispute, the parties shall continue to perform
      the Agreement other than any matter under dispute.

                                ARTICLE 14 NOTICE

14.1  All communications between the parties regarding the Agreement shall be
      delivered to each party at the following addresses by mail, facsimile,
      telex or in other written form:

      China National Oil and Gas Exploration and Development Corporation
      Central Asia Petroleum Company Ltd.
      China Petroleum Exploration & Development Company Ltd.

           To:            Zhao Ying
           Tel:           010-58551820
           Fax:           010-58551007

      PetroChina Company Limited
           To:            He Jia
           Tel:           010-84886219
           Fax:           010-84882208

14.2 In case of change of the contact person or any other contact information of any

party, such party shall notify the other parties in writing seven (7) days in advance.

ARTICLE 15 ENTIRE AGREEMENT

15.1  The Agreement constitutes the entire and sole agreement among the parties
      regarding this Transaction, and supersedes any other prior understandings,
      arrangements and agreements among the parties regarding this Transaction.

15.2  All of the exhibits hereto shall constitute a valid integral part hereof
      and shall have the equal legal effect as the Agreement.

             ARTICLE 16 EFFECTIVENESS OF AND AMENDMENT TO AGREEMENT

16.1  The Agreement shall be signed by the authorized representatives of all of
      the parties on the date first written above, and shall become effective
      from the date when all of the parties have obtained all necessary internal
      corporate authorizations and approvals required for the execution and
      performance of the Agreement.

16.2  Any amendment and modification to the Agreement shall not be effective
      unless made in accordance with Article 16.1 above.

ARTICLE 17 COUNTERPARTS OF THE AGREEMENT

The Agreement shall be executed in Chinese in fifteen (15) originals, with each party to hold two and the remaining originals to be submitted to the competent industrial and commercial administrative authorities and other relevant governmental departments. Each original of the Agreement shall have the equal legal effect.

ARTICLE 18 MISCELLANEOUS

18.1  CNODC hereby agrees to transfer, the Transferred Assets owned by it either
      directly or indirectly, to CPEDC and/or its subsidiaries without any
      consideration. All of the parties will make best to cause the closing
      conditions for all Transferred Assets to be satisfied before 10 December
      2005.

18.2  Any matter not covered hereunder shall be set forth in a supplementary
      agreement by and among the parties which shall be attached hereto as an
      exhibit. Such supplementary agreement shall not be effective unless made
      in accordance

      with Article 16.1 above.

18.3  After consummation of this Transaction, CNODC will transfer all of its
      equity in CPEDC to CNPC free of consideration, according to CNPC's
      arrangement. PetroChina hereby agrees upon such transfer and also agrees
      to waive its preemption.

18.4  CNODC and CPEDC shall be responsible for any tax and expense arising out
      of or from the transfer of Transferred Assets from CNODC and/or its
      subsidiaries to CPEDC and/or its subsidiaries in accordance with the
      relevant laws and regulations.

18.5  Except as provided in Article 18.4 above, each party shall be solely
      responsible for any tax imposed on it due to its execution and performance
      of the Agreement pursuant to the relevant laws and regulations.

18.6  After the Closing Date, CPEDC will, at the appropriate time, convert part
      of its capital surplus resulted from CNODC's assets transfer to it and
      PetroChina's subscription for its registered capital into its own
      additional capital stock.

18.7  Non-competition

      (1)   Non-competition

            After the Closing Date, CNODC and its controlling enterprises will
            not compete with CPEDC Group in the oil/gas exploration,
            development, production, pipelines, refining and chemical businesses
            in any overseas region other than Special Regions.

(2) Pre-emption Rights

i) After the Closing Date, for any assets other than the Transferred Assets in relation to oil/gas exploration, development, production, pipelines, refining and chemical businesses in any overseas region other than Special Regions, owned by CNODC or its controlling companies, CPEDC shall have Preemption Rights to such assets after PetroChina becomes its shareholder;

ii) After the Closing Date, subject to the consent by CNODC and PetroChina, in case of any adjustment to the Special Regions which makes the countries/regions where the overseas assets in relation to oil/gas exploration, development, production, pipelines, refining and chemicals owned by CNODC or its controlling companies are not covered by the Special Regions any longer, CPEDC shall have Preemption Rights to such assets after PetroChina becomes its shareholder.

18.8 After the Agreement becomes effective till the Closing Date, CNODC shall

disclose any newly obtained information about any relevant overseas
oil/gas exploration, development, production, pipelines, refining and
chemical businesses other than Special Regions, to PetroChina as soon as
possible, after CNODC has indicated any substantial intention for
acquisition, without any breach of CNODC's obligations under any contract
signed by it.

[Signature Page]

China National Oil and Gas Exploration and Development Corporation (seal)

Authorized representative: Wang Dongjin

Central Asia Petroleum Company Ltd. (seal)

Authorized representative: Wu Enlai

PetroChina Company Limited (seal)

Authorized representative: Wang Guoliang

China Petroleum Exploration & Development Company Ltd. (seal)

Authorized representative: Wu Dongshan

Exhibit 1:

PROJECTS OWNED BY CPEDC GROUP AFTER CLOSING OF ALL TRANSFERRED ASSETS

1. Development projects in Caracoles and Intercampo oilfields in Venezuela;

2. Orimulsion project in Venezuela;

3. Block 11 project in Ecuador;

4. Block 1-AB/8 in Peru;

5. Block 6/7 in Peru;

6. 8 projects in Canada;

7. Bilma project in Niger;

8. Tenere project in Niger;

9. Block H project in Chad;

10. ADAR upstream and downstream integration project in Algeria;

11. Block 350 project in Algeria;

12. Block 102a/112 project in Algeria;

13. Akjubin projects (Zhanazhol field/Kenkyak (post-salt) field and (per-salt) field) and Central territory of eastern part in Kazakhstan;

14. Kenkiyak-Atyrau Pipeline project in Kazakstan;

15. North-Buzachi project in Kazakstan;

16. Bars project in Kazakstan;

17. KK project in Azerbaijan;

18. Gobustan project in Azerbaijan;

19. Block 5 project in Oman;

20. Projects in 4 blocks, including Yangpu in Beibuwan Basin, Huangtong-Bailian in Fushan Depression, Jinfeng in Fushan Depression and Huachang in Beibuwan Basin, in Hainan, China.

Exhibit 2:

ORGANIZATIONAL STRUCTURE OF CPEDC GROUP
AFTER THE CLOSING OF ALL TRANSFERRED ASSETS

Exhibit 3:

FURTHER REPRESENTATION AND WARRANTIES OF CNODC

For the purpose of this Transaction, in addition to the existing representations and warranties, CNODC further makes the following representations and warranties in accordance with Article 6.3 in the Agreement. Except for the information disclosed to PetroChina prior to the execution date of the Agreement, to the extent that CNODC knows and it should know as a shareholder of CPEDC Group companies:

1. CORPORATE STATUS AND FORM OF CPEDC GROUP

1.1 Each of the entities of CPEDC Group is duly established and validly existing in compliance with laws in the jurisdiction in which it is incorporated, legally owns its assets, and is not subject to receivership, liquidation, bankruptcy or winding-up nor does there exist any measure or petition for its receivership, liquidation, bankruptcy or winding-up.

1.2 CPEDC Group conducts its businesses legally and has obtained all licenses and approvals required for the conduct of its business, which are all legal and valid. It has not received any notice of an intention to terminate or modify any of the aforesaid licenses and approvals, nor has it been aware of any matter that impedes or affects any extension or renewal of any of such licenses and approvals.

1.3 CPEDC Group doesn't create any mortgage, pledge, lien, restriction, preemption rights, third party interests or encumbrance or security interest in any other form or any other preferential arrangements on any of its assets, nor does there exist any fact that shall be disclosed or any material legal defect.

1.4 CPEDC's existing registered capital is RMB50 million, which have been fully paid up by CNODC and CAPC. As the sole shareholders of CPEDC, CNODC and CAPC hold all of the interests in CPEDC, free from mortgage, pledge, lien, restriction, preemption rights, third party interests, or encumbrance or security interest in any other form, or any other preferential arrangements, or any fact that shall be disclosed, or any material legal defect.

1.5 CPEDC Group complies with its articles of association or other organizational documents in all material aspects. It does not surpass its power or fail to obtain any authorization in the conduct of its business, execution of any contracts, making any undertakings or exercise of any of its rights.

1.6 CPEDC's book of minutes of board meetings and shareholders' meetings of

      CPEDC include the complete and accurate records of all resolutions passed
      by the board and shareholders of CPEDC.

1.7   The execution and performance of the Agreement will not constitute any
      violation or any material breach of any provision of any agreement,
      instrument, law, award, order, permit, license or consent by which CPEDC
      Group is bound.

1.8   CPEDC Group's continued operation of its existing business will not
      conflict with or infringe upon any third party's rights in any way,
      including but not limited to land ownership, land use rights, oilfield
      exploration rights and oilfield exploitation rights.

1.9   CPEDC Group does no have any agreement or obligations with respect to its
      share capital, whether issued or not, or the issue of any share, bond,
      subscription right, stock option or other similar securities.

1.10  CPEDC Group has legal title to all of the assets set forth in the
      Appraisal Report and doesn't allow any creditor's right to be created on
      any of such assets. It has legal use rights to the assets used in the
      operation of its business.

1.11  CPEDC Group or CNODC or CAPC has not taken any action or omission that
      would result in circumstances under which CPEDC Group must or may be
      responsible for:

      (1)   refunding any investment and financial support previously granted by
            any government;

(2) repaying any governmental loan; or

(3) surrendering amount obtained by it under the preferential tax treatment or tax reduction or exemption.

1.12  Neither CPEDC Group nor any of its directors is involved, in any criminal
      act that has a material adverse impact on CPEDC Group's operation.

2.    FINANCIAL STATEMENTS AND ACCOUNTING RECORDS OF CPEDC GROUP

2.1   CPEDC Group's financial statements:

      (1)   are complete and accurate in all aspects, and truly and fairly
            reflect CPEDC Group's assets and liabilities on the Base Date, and
            do not omit any debts or responsibilities;

      (2)   are prepared in compliance with relevant laws and/or International
            Accounting Standards;

      (3)   no material adverse changes have occurred to the financial
            conditions and prospects of the relevant business from the Base Date
            to the effective date of the Agreement;

      (4)   reflect that the fixed assets of CPEDC Group have been depreciated
            at the

depreciated at the depreciation ratio sufficient to reduce the value of such assets to nil not later than the expiration of their service life, after appropriate residual value of such fixed assets is deducted; and

(5) disclose all contingent liabilities, commitments and deferred or advance taxes and make proper provision therefor.

2.2 All book credits of CPEDC Group, whether indicated on the financial statements of CPEDC or accrued since the Base Date, are valid and enforceable, and have been or can be liquidated for their nominal value.

2.3 Except as disclosed in the financial statements of CPEDC Group, as of the execution date hereof, CPEDC Group:

(1) hasn't had any capital expenditure (other than any payment made under any contract that has been executed) or provided guarantee or made other material commitments;

(2) has not made any borrowings except in the ordinary course of business.

2.4 None of the secured borrowing as disclosed in the financial statements of CPEDC Group exceeds the amount thereof as indicated therein, and all of the similar borrowings newly made after the Base Date have been disclosed to PetroChina in a timely manner.

2.5 Since the Base Date, there has no major adverse change to the financial conditions or prospects of the relevant business.

2.6 CPEDC Group's Accounting Records:

(1) With respect to the relevant business and any changes to the relevant business occurred during the period from the Base Date to the execution date of the Agreement, CPEDC Group has established and prepared properly all necessary account books and records, and all such account books and documents that belong to or shall be held by CPEDC are maintained and held by CPEDC.

(2) All accounts, account books, ledgers and all accounting records:

i) have been noted and completed adequately, properly and accurately;

ii) free from material error and deviation; and

iii) record and reflect, truly and fairly, all transactions in relation to relevant businesses.

3. TAXES OF CPEDC GROUP

3.1 All taxes payable by CPEDC Group, including any tax due and advance tax, have been paid.

3.2 All tax returns and related materials to be prepared or filed by CPEDC Group

      for the purpose of any tax have been prepared or filed in time and on a
      proper basis, and are true and accurate when prepared and consistent to
      the fact at the time of filing thereof; any aforesaid will not or may not
      lead to any dispute with any tax authorities.

3.3   CNODC has disclosed to PetroChina in detail of any and all of the
      transactions entered into by CPEDC Group that are subject to approval or
      permission by the competent tax authorities.

3.4   CPEDC Group and/or CAPC and/or CNODC have not taken any action that causes
      CPEDC Group to assume any tax that is otherwise to be assumed by any party
      other than CPEDC Group.

3.5   All remuneration, compensation, retirement or severance payment and other
      amounts paid or payable to all of the current/former employees or
      executives of CPEDC Group and all interests, annuities, patent royalty,
      rent and other annual payment may be deducted before tax or treated in
      other method as approved by tax authorities.

3.6   All documents to which CPEDC Group is a party, or that constitute part of
      ownership of any entity of CPEDC Group to any assets, or in the
      enforcement of which any entity of CPEDC Group has or may have interests,
      and for which stamp tax or similar taxes shall be paid, have been stamped
      or granted with tax exemption.

3.7   The materials submitted by CPEDC Group to relevant governmental
      authorities and departments with respect to import or export of any goods
      are true and accurate at submission; CPEDC Group has complied with all
      ordinances, rules, orders, instructions or conditions regarding import and
      export of goods and all custom affairs; and all duties payable by CPEDC
      Group have been paid in full within the applicable time limit.

3.8   CPEDC Group has reported in full detail its provision of benefits to its
      directors or employees to relevant tax authorities and the services
      provided by any individual to CPEDC Group as required by applicable tax
      laws.

3.9   CPEDC Group has made withholdings and disclosures to the authorities with
      respect to any item for which it is obligated or entitled to make tax
      withholding.

3.10  CNODC agrees to be fully responsible for or compensate for any accrued
      taxation obligations of CPEDC Group that are payable but not paid, except
      for those disclosed in the financial statements of CPEDC, unless otherwise
      provided herein.

3.11  CPEDC Group does not have any tax dispute or suffer from any tax penalty,

and the existing tax preferences enjoyed by CPEDC Group have not ceased or been deprived of. CNODC agrees to be fully responsible for or compensate for any tax penalty incurred during the Related Period.

4. PROCEEDINGS OF CPEDC GROUP

4.1 CPEDC Group has not been involved in any Major Proceedings and there does not exist any fact or situation at present that may involve CPEDC Group in any Major Proceedings, other than the collection of accounts receivable in the ordinary course of business.

4.2 None of the properties of CPEDC Group has been sealed up, frozen or subject to any other enforcement actions by any administrative and/or judicial authority.

5. LABOR RELATIONS OF CPEDC GROUP

CPEDC Group complies with the applicable laws and regulations and all of the responsibilities to its employees under labor contracts in all material aspects, and there is no material labor dispute involving a value/claim exceeding US$1 million individually pending between CPEDC Group and any of its employees.

6. ENVIRONMENTAL PROTECTION

6.1 CPEDC Group complies with the laws and regulations regarding environmental protection in all material aspects.

6.2 CPEDC Group is not threatened with any civil, criminal or administrative claim, investigation, complaint or lawsuit, in relation to environmental protection that may result in a loss of US$3 million or more to CPEDC Group.

7. CONFIDENTIAL INFORMATION AND INTELLECTUAL PROPERTY

7.1 None of the confidential information used by CPEDC Group infringes upon the legal rights of any third party to such confidential information.

7.2 CPEDC Group has legal ownership or use rights to any and all of the intellectual properties used by it and its ownership or use thereof does not infringe upon the intellectual properties of any third party.

8. INSURANCE

8.1 CPEDC Group has taken out insurance for its production and operation in accordance with good commercial practice in international oil industry, and CPEDC Group does not take any action or omission that may lead to the

invalidity of any of its insurance policies.

8.2 All materials provided in order to obtain or renew CPEDC Group's insurance policies are correct, detailed and accurate at the time of provision.

8.3 CPEDC Group has not incurred any loss that is not covered under insurance, or waived any substantial or valuable right, or allowed any insurance to become invalid.

9. ARRANGEMENTS WITH RELATED PERSONS

All pecuniary arrangements between CPEDC Group and any of its directors, senior officers or shareholders have been correctly reflected in the account books of CPEDC Group.

10. ACCURACY OF MATERIALS PROVIDED

All materials provided by CNODC, CAPC and CPEDC for the purpose of this Transaction are true, accurate and free of material omission.

11. FURTHER WARRANTIES

Except the exercise of its rights as a shareholder of CPEDC in accordance with the Articles of Association of CPEDC and relevant laws and regulations, CNODC warrants that:

11.1  After the Closing Date, none of the Transferred Assets will be involved in
      or relate to any assets in Special Regions in any way.

11.2  During the Related Period, CNODC will not transfer any assets in Special
      Regions in any way to CPEDC Group.

11.3  After the Closing Date, CPEDC Group will be completely independent of the
      management of CNODC's assets in Special Regions, including but not limited

to:

(1) setting separate management structure and workflow;

(2) establishing management functions and personnel independent from each other;

(3) being independent in financial matters, such as routine finance and accounts management, capital flows, preparation of financial statements; and

(4) CPEDC Group will not enter into any connected transaction with any assets in Special Regions of CNODC or with the business activities relating thereto.

Exhibit 4:

ARTICLES OF ASSOCIATION
OF CHINA PETROLEUM EXPLORATION & DEVELOPMENT COMPANY LIMITED

In order to meet the requirements of the socialist market economy and improve the productivity, China Petroleum Exploration & Development Company Limited ("the Company") is jointly established by China National Oil and Gas Exploration and Development Corporation ("Party A") and PetroChina Company Limited ("Party B"), in accordance with Company Law of the People's Republic of China ("Company Law") and other relevant laws and regulations. In this regard, these Articles of Association are hereby formulated.

CHAPTER 1 NAME AND ADDRESS OF THE COMPANY

Article 1 Name of the Company: China Petroleum Exploration & Development Company Limited.

Article 2 Address: International Investment Building D, Fuchengmen Beidajie, Xicheng District, Beijing, 100034

CHAPTER 2 OBJECTIVES AND SCOPE OF BUSINESS OF THE COMPANY

Article 3 Scope of business: the development of exploration technologies of oil and gas fields; the investments in crude oil, natural gas and refining & chemical projects; the investments in crude oil, natural gas and oil product pipeline projects; the contracting of oil operations and services; the import and export of goods and technologies; acting as the import and export agent; the consulting service and technical exchange regarding foreign trade; the sale of equipment, apparatuses & instruments and parts as well as mud materials, crude oil, special chemical and petrochemical products for oilfields (excluding hazardous chemicals and Class I precursor chemicals) .

CHAPTER 3 THE COMPANY'S REGISTERED CAPITAL

Article 4 The registered capital of the Company shall be RMB 100,000,000.

Article 5 Any increase or decrease in the registered capital of the Company shall

be subject to the unanimous approval of all of the shareholders of the Company through resolutions adopted at a duly convened shareholders' meeting.

Article 6 If the Company intends to increase its registered capital, the parties to the Company shall have the right to subscribe for such increased registered capital in proportion to the percentage of their respective equity interest in the Company. If either party to the Company is unwilling to exercise its aforesaid right, the other party may subscribe for the portion of the registered capital of the Company that should be subscribed for by such party. In such case, the parties' shareholding in the Company shall be adjusted accordingly.

Article 7 In case the Company intends to reduce its registered capital, it is also required to notify its creditors of its intention, within ten
(10) days, and shall make public announcements on a newspaper at least three times within thirty (30) days, as of its adoption of the shareholders' resolutions therefor. In the event any change to its registered capital, the Company shall carry out procedures for registering such change with the registration authority in accordance with relevant laws.

CHAPTER 4 FORM, AMOUNT AND PERCENTAGE OF SHAREHOLDERS'
CAPITAL CONTRIBUTIONS

Article 8 The form, amount and percentage of shareholders' capital contributions shall be as follows:

                 FORM          AMOUNT            PERCENTAGE(%)
                            (RMB'0000)
PARTY A:         Cash           5000                50%
PARTY B:         Cash           5000                50%

Article 9 The Company, is a limited liability company established in compliance with laws of the People's Republic of China (the "PRC"), and Party A and Party B shall be responsible to the Company to the limit of their respective contributions to the registered capital of the Company as specified in the Capital Contribution Agreement. Party A and Party B

shall share the profit of the Company and be responsible for the risks and losses of the Company in proportion to their respective percentage of contribution to the registered capital of the Company.

Article 10 After both Party A and Party B have paid in full their respective subscribed contributions to the registered capital of the Company as specified above, the Company shall retain an accounting firm registered in the PRC to verify the capital contribution of each party and issue a capital contribution verification report, and on the basis thereof, the Company shall issue the certificate of capital contribution to each of the shareholders. The capital contribution certificate shall set forth the corporate name, date of establishment, name of each shareholder of the Company, amount of contribution to the registered capital of the Company subscribed for by each Party A and Party B, the date of payment of capital contribution, and date of issue of the capital contribution certificate.

CHAPTER 5 SHAREHOLDERS' RIGHTS AND OBLIGATIONS

Article 11 Each shareholder of the Company shall enjoy the following rights:

(1) to attend in person or by proxy shareholders' meetings of the Company and to have and exercise voting rights in proportion to its respective capital contributions;

(2) to understand the Company's operational and financial status;

(3) to elect members of the board and of the supervisory committee;

(4) to receive dividends and transfer the contributions in accordance with relevant laws, regulations and these Articles of Association;

(5) to pre-emption rights to the contribution transferred by the other shareholder;

(6) to subscribe for the increased registered capital of the Company on a priority basis;

(7) to share the residual proprieties of the Company upon its termination;

(8) to have the right to review and audit the minutes of shareholders' meetings and the financial reports of the Company.

Article 12 The shareholders of the Company shall assume the following obligations:

(1) to comply with the Company's Articles of Association;

(2) to pay in full their subscribed capital contributions on time;

(3) to assume limited liabilities for the Company's debts to the limit of their respective subscribed capital contributions to the Company;

(4) not to withdraw their capital contributions after completion of the required procedures for registration of the the Company.

CHAPTER 6 CONDITIONS FOR SHAREHOLDERS' TRANSFER OF CAPITAL CONTRIBUTIONS

Article 13 Shareholders may transfer between themselves all or part of their capital contributions; provided that such transfer shall ensure that the number of shareholders of the Company shall meet the number as specified under the Company Law.

Article 14 Any shareholders' transfer of any capital contribution of the Company shall be subject to consideration and approval by the shareholders' meeting of the Company. Where any shareholder transfers its capital contribution to a person other than a shareholder, the unanimous consent of all shareholders is required. Any shareholder who does not consent to such transfer shall purchase the capital contribution to be transferred, and shall be deemed to have agreed to such transfer if it does not purchase such capital contribution. With respect to any capital contribution that may be transferred by any shareholder upon the consent of all of the shareholders, other shareholders shall have Preemption Rights thereto on the same conditions.

Article 15 When any shareholder of the Company transfers its capital contribution to any third party other than the existing shareholders of the Company, and/or the Company admits new shareholders in any way, the transferor and/or the existing shareholder of the Company shall cause such transferee and/or new shareholder of the Company to accept, comply with and perform all regulations herein, including but not limited to the provisions set forth in Articles 23 to 28 (meaning the provisions hereinbelow regarding the shareholders' authorization to the board for consideration and approval and the composition of the board), unless the aggregate shares of the Company held by Party A and party B after such transfer and/or capital increase are less than 50% (not inclusive) of the Company's registered capital. Such transferee and/or new shareholder shall, commencing from the date on which it becomes a shareholder of

the Company formally, accept, comply with and perform all provisions of these Articles of Association, including but not limited to the provisions set forth in Articles 23 to 28.

Article 16 After the consummation of a shareholder's transfer of its capital contribution in accordance with the law, the Company shall record in its shareholder register the name, domicile and amount of the capital contribution by the transferee.

CHAPTER 7 SHAREHOLDERS' MEETING

Article 17 The shareholders' meeting of the Company shall be composed of all shareholders of the Company. It shall be the Company's highest authority and exercise the functions and powers as follows:

1. to decide on the Company's annual operational policies and investment plans;

2. to elect and replace directors and to decide on matters relating to the remuneration of directors;

3. to elect and replace supervisors and to decide on matters relating to the remuneration of supervisors;

4. to examine and approve the annual report of the board of directors;

5. to examine and approve the annual report of the supervisory committee;

6. to examine and approve the Company's proposed annual financial budget and final accounts;

7. to examine and approve the Company's profit distribution plans (including cash and bonus) and loss recovery plans;

8. to resolve on the increase or decrease of the Company's registered capital;

9. to resolve on the issue of bonds by the Company;

10. to resolve on the transfer by either shareholder of its capital contribution to any person other than shareholders of the Company;

11. to resolve on such issues as the merger, division, change in corporate form, dissolution or liquidation of the Company;

12. to amend the Company's Articles of Association.

Article 18 With respective any matter set forth in items 1, 6, 7 and 9 under Article 17, the board of directors shall first make a proposal and then submit the same to the shareholders' meeting for consideration. All of the

shareholders shall vote in favor of such proposal and the shareholders' meeting shall adopt unanimous resolutions approving such proposal.

Article 19 The shareholders' meeting shall be convened by the board of directors and presided over by Chairman of the board. If the Chairman of the board of directors is unable to perform his/her duties for a particular reason, the vice-chairman or another director designated by the Chairman shall preside over the meeting.

Article 20 Shareholders shall exercise their voting rights at shareholders' meetings in proportion to their respective capital contributions to the Company.

Article 21 Shareholders' meetings may be regular meetings or extraordinary meetings. The Company shall notify all of its shareholders of each shareholders' meeting fifteen (15) days before the date on which such meeting is to be held. Subject to unanimous consent of all shareholders, the above notice period of the shareholders' meeting may be shortened. The regular shareholders' meetings shall be convened once a year. The extraordinary shareholders' meetings cannot be held unless Party A or Party B, three or more board directors or the supervisory committee of the Company shall propose to do so.

Article 22 A shareholders' meeting shall adopt resolutions on the matters submitted to it for consideration. Any resolution of the Company at the shareholders' meeting shall require the approval of the affirmative votes of the shareholders representing more than two-thirds or more of the voting rights of the Company, except as otherwise provided herein. A resolution of the Company at the shareholders' meeting for any increase or decrease of the registered capital, division, merger, dissolution or change in corporate form of the Company, or amendment of these Articles of Association shall require the unanimous approval of all of the shareholders. Minutes shall be made for each shareholders' meeting to record decisions on each matter considered at such meeting, which shall be signed and sealed by the shareholders present at such meeting.

CHAPTER 8 BOARD OF DIRECTORS

Article 23 The Company shall have a board of directors, which shall consist of seven members (including the chairman), three of them shall be elected from the candidates nominated by Party A and four of them shall be elected from the candidates nominated by Party B, all of whom shall be

elected and appointed by the shareholders' meeting. Either shareholder shall cast the affirmative vote on any candidate for director of the Company nominated by the other party and the shareholders' meeting shall unanimously approve the election of such candidates and appoint such candidates as directors of the Company.

Article 24 The term of office of each director is three years, and may be renewable upon re-election at the expiry of his/her term. The term of office of each director shall commence on the date when he/she is elected as director of the Company at a shareholders' meeting. The shareholders' meeting may not without reason remove any director (including the chairman) from office before the expiry of the term of office of such director.

Article 25 Any candidate for director of the Company nominated by Party B may not hold a concurrent post in China National Petroleum Corporation or any of its affiliated companies (excluding Party B or any of its subsidiaries covered in Party B's consolidated financial statements); otherwise, he/she must resign from aforesaid post before the formal appointment as director of the Company by the shareholders' meeting of the Company.

Article 26 Party B hereby undertakes irrevocably that, in no case (including when Party A transfers all of its capital contribution in the Company to a third party), Party B will abandon its seats of directors granted by Article 23 herein, and also undertakes that, when any director nominated by Party B resigns or is dismissed by the board of directors of the Company, Party B shall nominate new candidate for director within a reasonable period and submit such nomination to the shareholders' meeting of the Company for election and appointment. Party A respects and agrees upon Party B's above arrangements.

Article 27 The board of directors of the Company shall have a chairman, who will be elected and appointed by the board of directors.

Article 28 The board of directors shall be responsible to the shareholders' meeting and shall exercise the following powers:

1. to be responsible for convening shareholders' meetings and reporting on its work to the shareholders' meeting;

2. to implement the resolutions of the shareholders' meetings;

3. to decide on the annual operational plan and investment plan of the Company;

4. to formulate the Company's proposed annual financial budget and

final accounts;

5. to formulate plans for profit distribution and recovery of losses;

6. to formulate plans for any increase or decrease of the Company's registered capital;

7. to formulate plans for issuing the corporate bond;

8. to formulate plans for the merger, division, change in corporate form and dissolution of the Company;

9. to decide on the structure of the Company's internal management;

10. to formulate the Company's basic management system;

11. to appoint or dismiss the Company's general manager and pursuant to the general manager's nomination to appoint or dismiss the deputy manager and the chief financial officer of the Company and decide on their respective remunerations;

12. to decide on any external borrowing or guarantee with a value exceeding 10% of the annual budget and not covered under the Company's annual operational plan.

Article 29 The rules for board meetings of the Company shall be as follows:

1. Meetings of the board of directors shall be held at least twice each year and shall be convened and presided over by the Chairman. The Chairman shall convene an extraordinary meeting of the board of directors if it so requested by two or more directors or the supervisory committee or the General Manager.

2. In the case of a regular board meeting, the Chairman shall issue a notice in writing to all directors ten (10) working days prior to the convention of such meeting, stating the date, time, venue and agenda of such meeting. In the case of an extraordinary meeting, the Chairman shall notify all directors in writing of aforesaid items five (5) working days prior to the convention of the meeting.

3. Notice of a meeting shall be deemed to have been given to any director who attends the meeting without protesting against, before or at its commencement, any lack of notice.

4. The board meeting may be held by telephone or any other electronic audiovisual means in which ways the participants can hear and communicate with each other at all times. Any directors or proxies attending a board the meeting by aforesaid means shall be deemed to be present the meeting in person.

5. Where the Chairman is unable to hold, attend or preside over the

meeting for any reason, he/she shall authorize the Vice Chairman or any other director to do so on his/her behalf.

6. Any director who is unable to attend a board meeting may by issuing a power of attorney entrust any other person (who must also be a director of the Company) to participate in the meeting on his/her behalf. The power of attorney shall be submitted to the Chairman or convener of the relevant board meeting at the commencement of such meeting. The proxy so entrusted is entitled to equivalent rights and powers to that of the entrusting director, including vote casting. One proxy may represent one or more directors if so entrusted. Except for his/her own rights and powers as a director, the proxy entrusted may have more than one voting rights.

7. Where a director is unable to attend a meeting of the board of directors and has not appointed a representative to attend such meeting on his/her behalf, he/she shall be deemed to have waived his/her right to vote at such meeting.

8. Each director shall have one (1) vote. The Chairman shall not have a second vote or the power of veto

9. If a director or any other enterprise in which he/she is employed is interested, directly or indirectly, in any existing or potential contract, transaction or arrangement (excluding the employment contract) of the Company, no matter whether related things need to be approved by the board of directors generally, such director shall disclose to the board of directors the nature and extent of such interest as soon as possible.

If a director is interested in any matter as mentioned above to be resolved at the board meeting, such director shall excuse him/herself from such meeting, shall not have any voting right in respect of such matter and shall not be counted in the quorum of such board meeting. When there is dissent as to the existence of such interest, it shall first be discussed whether such director has any interest in such matter before such matter is reviewed, and the aforesaid avoidance procedure shall be carried out if more than two-thirds of directors consider such interest does exist.

10. Detailed minutes shall be kept for each board meeting and signed by all directors and proxies present at such meeting. Such minutes shall

be kept by the Company in the period when the Company survives. All of the shareholders and directors of the Company may review the minutes of board meetings in the office of the Company during normal business hours.

11. The Company shall be responsible for reasonable expenses incurred by directors and proxies in their attendance at board meetings, including travel and accommodation costs. For the purpose of voting at a board meeting, directors may seek the assistance of legal, financial and management professionals when they believe necessary, at the Company's cost.

12. Board meetings shall be conducted in accordance with the procedures stipulated herein and every item on the agenda shall be properly discussed as necessary and set forth in written board resolutions if necessary. All such written records, including any resolutions passed, shall be distributed to all directors for review and approval after each board meeting.

13. Each director shall keep secret all matters discussed at the board meetings, and shall not reveal the information thereof to any third party without the approval of the board of directors, unless required otherwise by laws or regulations.

Article 30 Unless otherwise provided herein, any decisions made by the board of directors on any matters discussed at any board meeting shall require the affirmative votes of more than half of all of the directors, and shall be set forth in meeting minutes which shall be signed by the directors present at such meeting.

Article 31 The directors shall be responsible for all the resolutions of the board of directors. If any resolution of the board of directors violates any law, administrative regulation or the Company's Articles of Association, which results in serious losses to the Company, the directors participating in the adoption of such resolution shall be liable for compensating the Company. However, if it can be proven that a director expressly objected to the resolution when the resolution was voted on, and that such objections were recorded in the minutes of the meeting, such director may be free of liability.

Article 32 The Chairman of the board of directors shall be the legal representative of the Company, and shall be elected and removed by the board of directors, for a term of three (3) years. At the expiry of such term, such

term is renewable if the Chairman is re-elected. Before the expiry of the term, the board of directors shall not remove the Chairman without proper reason.

Article 33 The Chairman of the board of directors shall exercise the following powers:

1. to exercise his/her authority as legal representative of the Company;

2. to preside over shareholders' meetings;

3. to convene and preside over meetings of the board of directors;

4. to check on the implementation of resolutions passed by the board of directors and report to the shareholders' meeting the result of such checking;

5. to sign relevant documents on behalf of the Company;

6. to exercise extraordinary power of decision and disposition on the Company's affairs in event of emergency such as war and ultra serious natural disaster, provided that such decision and disposition shall be in the Company's interests, and shall report to the board of directors and/or the shareholders' meeting after having made such decision and disposition;

7. to exercise other powers conferred by the board of directors.\

When the Chairman is unable to exercise his/her powers, he/she shall designate a Vice Chairman/director to exercise such powers on his/her behalf.

Article 34 The Company shall have one Secretary to the Board, who shall be appointed by the board of directors.

Article 35 The Company may formulate detailed Rules of Procedure of the Board of Directors as required. The Rules of Procedure of the Board of Directors shall not conflict with these Articles of Association and shall be subject to the consideration and approval by the shareholders' meeting.

CHAPTER 9 THE COMPANY'S OPERATION AND MANAGEMENT ORGANIZATIONS

Article 36 The Company shall set up operation and management organizations subordinate to the board of directors to be responsible for the Company's routine operations and managements of the Company. Such organizations shall have one general manager who will be appointed by the board of directors, and several vice general managers who will be nominated by the general manager, appointed by the board of directors

and be responsible to the board of directors. The Company shall have a chief financial officer, who will be nominated by the general manager, appointed by the board of directors and be responsible to the board of directors.

Article 37 The general manager is responsible to the board of directors and exercises the following powers:

1. to be in charge of the company's production, operation and management and direct the implementation of the resolutions of the board of directors;

2. to direct the implementation of the Company's annual operational plan and investment plan;

3. to make plans for the set up of the Company's internal management structure;

4. to formulate the Company's basic management system;

5. to formulate specific rules and regulations for the Company;

6. to propose the appointment or dismissal of the Company's senior management including vice general managers and financial officers;

7. to draft the employee salary, welfare and rewards and punishment systems, and to decide on the appointment and dismissal of the Company's employees;

8. to handle important businesses on behalf of the Company with external parties subject to the authorization of the board of directors;

9. to propose the convention of extraordinary board meetings;

10. other powers conferred by the Company's Articles of Association and the board of directors.

Article 38 General manager shall be present at meetings of the board of directors; provided that if he/she is not a director, he/she shall not have voting right at any board meeting.

Article 39 In exercising their powers, general manager and vice general managers shall not alternate the resolutions of the shareholders' meeting or the board of directors or go beyond their powers.

Article 40 In exercising their powers, general manager and vice general managers shall act honestly and diligently and in accordance with laws, administrative regulations and the Company's Articles of Association.

Article 41 General manager and vice general managers shall serve a term of three (3) years, and may be appointed by the board of directors successively

through re-nomination.

Article 42 The board of directors may remove the general manager and the vice general managers from their position and terminate their term at any time by resolutions.

CHAPTER 10 SUPERVISORY COMMITTEE

Article 43 The Company shall have a supervisory committee. It shall be the permanent supervisory organization and responsible for supervising the board of directors and its members as well as such senior management as general manager, vice general managers and chief financial officer, to prevent them from abusing their positions and infringing the legal interests of any shareholders, the Company or employees of the Company.

Article 44 The supervisory committee shall be made up of representatives of shareholders and a reasonable proportion of representatives from the Company's employees. The Company shall have three supervisors, one of whom shall be selected from the candidates nominated by Party A, one from the candidates nominated by Party B and one from the representatives of employees.

Article 45 The representatives of shareholders in the supervisory committee shall be elected by shareholders' meeting, and the representatives of employees shall be elected by the Company's employees democratically. The supervisory committee shall have a convener who shall be unanimously nominated by all of the supervisors.

Article 46 The term of office of the supervisors is three years. At the expiry of his/her term of office, the supervisor may serve consecutive terms if re-appointed. The directors, general manager, vice general managers and chief financial officer of the Company may not act concurrently as supervisors.

Article 47 The supervisors exercise the following powers:

1. to examine the Company's financial conditions, and to review the Company's accounting books and other accounting materials;

2. to exercise supervision over acts of the directors, general manager, vice general managers and other senior management taken in connection with their performance of their duties which violate laws, regulations or the Company's Articles of Association;

3. to demand remedies from a director, general manager, vice general manager and other senior management when any act of them is detrimental to the Company's interests;

4. to propose the convention of an extraordinary shareholder's meeting;

5. other powers conferred to supervisors in the Company's Articles of Association.

Supervisors shall be present at meetings of the board of directors.

Article 48 Meeting of the supervisory committee shall be held at least once every year. All such meetings shall be convened and presided over by the convener of the meeting. An extraordinary meeting of the supervisory committee may be held if requested by two or more supervisors or the Chairman of the board of directors.

Article 49 The convener shall issue a notice in writing to all supervisors ten
(10) working days prior to the convention of each meeting of the supervisory committee, stating the time, date, venue and agenda of such meeting.

Article 50 Any supervisor who is unable to attend any meeting of the supervisory committee may by issuing a power of attorney, entrust any other person (who must also be a supervisor of the Company) to participate in such meeting on his/her behalf. The power of attorney shall be submitted to the convener of such meeting at the commencement of such meeting.

Article 51 The supervisory committee shall make decisions by voting, one vote for each supervisor. The supervisory committee' decisions shall require the approval of more than half of all of the supervisors.

Article 52 The Company shall be responsible for any reasonable expenses incurred by the supervisory committee in retaining such professionals as legal counsels and accountants in exercising its powers.

Article 53 The supervisory committee shall set forth their decisions on any matters discussed at any of their meetings in meeting minutes, which shall be signed by all supervisors and the clerk present at such meeting. The supervisors are entitled to make in the meeting minutes for any meeting, any illustrative note for their speeches made at such meeting. The minutes of the supervisory committee shall be kept as files of the Company for 15 years.

Article 54 The supervisors shall fulfill their supervision responsibilities honestly in accordance with laws, administrative regulations and the Company's Articles of Association.

Article 55 The Company may formulate detailed Rules of Procedure of the supervisory committee as required. The Rules of Procedure of the supervisory committee shall not conflict with these Articles of Association and shall be subject to consideration and approval by the shareholders' meeting.

CHAPTER 11 FINANCE, ACCOUNTING AND PROFIT DISTRIBUTION

Article 56 The Company shall pay taxes in accordance with laws and regulations of the PRC and withhold and pay the individual income tax payable by its employees.

Article 57 The Company shall establish its financial and accounting systems according to laws and regulations of the PRC and the Company's Articles of Association, and put them into implementation after being approved by its board of directors. Any significant changes to the Company's financial and accounting systems may not be put into implementation until after being approved by the board of directors.

Article 58 At the end of each fiscal year, the Company shall prepare a financial report, which shall be examined and verified in accordance with law. The Company's financial statements shall include the following accounting statements and schedules:

1. balance sheets;

2. profit and loss statement;

3. statement of cash flows;

4. explanation of financial condition;

5. profit distribution statement.

Article 59 The Company shall adopt a calendar year as its fiscal year, which shall commence from 1 January and expire on 31 December of the same calendar year. The first fiscal year of the Company commences from the establishment date of the Company and expires on 31 December of the current year. The last fiscal year of the Company expires on the dissolution date of the Company.

Article 60 The Company shall distribute its after-tax profits among its shareholders in proportion to the shareholders' capital contributions after the Company has made up for losses or made allocations to the statutory common reserve fund and the statutory common welfare fund.

CHAPTER 12 LABOR AND EMPLOYMENT SYSTEM

Article 61 The Company shall recruit and employ its employees in accordance with the rules established by the board of directors, with the supervision and approval of general manager, in light of the qualifications of the candidates.

Article 62 The Company shall sign a labor contract with each employee in accordance with the Labor Law of the People's Republic of China and relevant regulations. Such labor contract shall include provisions regarding employee dismissal, resignation, salary, insurance, welfare, reward, labor disciplines, penalty and other related matters.

Article 63 Employees employed by the Company shall keep secret any information obtained from the Company and shall not disclose such information to any third party without approval of the Company.

Article 64 The standards on qualifications, compensation, social insurances, welfare, travel and accommodation expenses of senior management nominated and recommended by the shareholders shall be determined by the board of directors.

Article 65 The labor and employment system shall be carried out in accordance with relevant PRC laws and regulations and relevant rules of the relevant labor departments under the State Council.

CHAPTER 13 DISSOLUTION AND LIQUIDATION OF THE COMPANY

Article 66 The Company shall have a term of thirty (30) years, commencing on the date when its business license is issued.

Article 67 The Company may be dissolved upon the occurrence of any of the following:

1. pursuant to the provisions of the Company's Articles of Association, the term of the Company has expired or any other event that shall constitute a cause for dissolution has occurred;

2. a resolution for dissolution is passed by a shareholder's meeting of the Company;

3. dissolution is necessary due to a merger or division of the Company;

4. the Company is ordered to close down because of its violation of laws and administrative regulations;

5. the Company goes bankrupt.

Article 68 A liquidation group shall be appointed in accordance with the Company Law upon dissolution of the Company, to carry out liquidation for the Company. After the completion of the liquidation, the liquidation group shall prepare a liquidation report and present it to the shareholders' meeting or to the relevant regulatory authority for confirmation, and apply to the original registration authority of the Company for cancellation of the Company's registration.

CHAPTER 14 MISCELLANEOUS

Article 69 The Company may modify these Articles of Association as necessary or in event of changes to any items registered. The Articles of Association, after being so modified, shall not conflict with any laws or regulations, and the modification shall be subject to the approval by all shareholders unanimously. The Articles of Association, after being so modified, shall be submitted to and filed with the Company's original registration authority. Where such modification involves any change to any registered items of the Company, procedures shall be carried out with the registration authority of the Company for changing such registered items.

Article 70 The board of directors is entitled to interpret the articles of association.

Article 71 These Articles of Association shall be jointly formulated by both shareholders and come into effect upon approval by the shareholders' meeting of the Company. These Articles of Association shall supercede the original articles of association of the Company as of the date of effectiveness hereof.

Article 72 The expression such as "above", "within", "before" and "below" (a specific number) herein shall include the specific number itself, while "less than", "lower than", "beyond" and "over" (a specific number) shall not include the specific number itself.

EXHIBIT 4.4

EQUITY TRANSFER AGREEMENT

This Equity Transfer Agreement is entered into this 9th day of June, 2005 in Beijing by and between:

PETROCHINA COMPANY LIMITED (THE "TRANSFEROR")
ADDRESS: World Tower,16 Andelu, Dongcheng District, Beijing
LEGAL REPRESENTATIVE: Chen Geng

and

CHINA PETROLEUM EXPLORATION & DEVELOPMENT COMPANY LTD. (THE "TRANSFEREE")
ADDRESS: International Investment Building D, Fuchengmen Beidajie, Xicheng District, Beijing
LEGAL REPRESENTATIVE: Wang Dongjin

WHEREAS:

1. The transferor is a joint stock company with limited liabilities established on 5 November 1999 in Beijing by law and validly existing, in compliance with laws of the People's Republic of China;
2. The transferee is a company with limited liability established on 14 March 2005 in Beijing and validly existing, in compliance with laws of the People's Republic of China;
3. PetroChina International Limited ("PCI") is a company registered and established in British Virgin Islands, and the Transferor holds 100% equity of PCI;
4. The Transferor has signed the Capital Contribution Agreement with China National Oil and Gas Exploration and Development Corporation, Central Asia Petroleum Company Ltd. and the Transferee. Under the Capital Contribution Agreement, the Transferor will acquire 50% equity of the Transferee upon the completion of "this Transaction" defined in that agreement; and

5. The Transferor hereby agrees to transfer to the Transferee, and the Transferee hereby also agrees to accept as specified herein, 100% equity of PCI held by the Transferor (this "Equity Transfer"). After the closing of this Equity Transfer, the Transferee will hold 100% equity of PCI.

NOW, THEREFORE, by adhering to the principle of equality and mutual benefit, through friendly negotiation, and in accordance with relevant laws and regulations of the People's Republic of China, the parties hereby reach the following agreement with respect to the above equity transfer:

ARTICLE 1 DEFINITION AND INTERPRETATION

Unless specified otherwise in the agreement, the terms and expressions herein shall have the following meanings:

1.1 THE AGREEMENT: means the Equity Transfer Agreement and any revision and modification hereto duly agreed and executed by and among the parties hereto in writing from time to time;
1.2 EQUITY: means the 100% equity of PCI held and to be transferred by the Transferor to the Transferee, including ownership, profit distribution right, director appointment power, assets allocation right and other rights and interests to which a shareholder is entitled;
1.3 CLOSING: means that the Transferor pays the consideration specified in Article 5 herein when all closing conditions specified in Article 3.1 herein are satisfied or considered as satisfied according to Article 3.2 herein;
1.4 CLOSING DATE: means the date when the Transferor pays the consideration specified in Article 5 herein when all closing conditions specified in Article 3.1 herein are satisfied or considered as satisfied according to Article 3.2 herein.
1.5 BASE DATE: means 31 December 2004.
1.6 RELATED PERIOD: means the period from 1 January 2005 to Closing Date (inclusive).
1.7 MAJOR PROCEEDINGS: means any pending lawsuit, arbitration, administrative appeal or other legal processes related to Transferred Assets arising before the Closing Date, involving a value of more than US$3 million individually;
1.8 EXAMINING AND APPROVING AUTHORITIES: mean all foreign and domestic governmental examining and approving authorities that are entitled to approve or

authorize this Equity Transfer and other actions related thereto;
1.9 APPRAISAL REPORT: means the report made by China Enterprises Appraisals for the assets and liabilities of PCI and/or PCI Group on Base Date.
1.10 PCI GROUP: means PCI and the companies in which PCI has interests, directly or indirectly, and listed in Exhibit 1 hereto.
1.11 FORCE MAJEURE: means war, natural disaster and any other unforeseen and inevitable event that cannot be controlled by the parties hereto.

ARTICLE 2 EQUITY TRANSFER

2.1 The Transferor agrees hereby to transfer, and the Transferee also agrees hereby to accept, the equity in PCI.
2.2 Upon closing of this Equity Transfer, it shall be considered that the Transferee shall hold 100% equity of PCI. Within ten (10) working days after the closing of this Equity Transfer, the Transferor shall cause PCI to hold a shareholders' meeting, elect its directors and modify its Articles of Association according to relevant procedures specified in applicable laws, apply to relevant registration authorities for registration changes regarding the transaction contemplated hereunder and carry out all other procedures as required by applicable laws and regulations.

ARTICLE 3 CLOSING CONDITIONS FOR THIS EQUITY TRANSFER

3.1 The closing herein shall occur on the date agreed by the parties when all preconditions below are satisfied or the parties agree unanimously that any one or partial or all preconditions below are waived.
(1) The Transferor has signed the Capital Contribution Agreement with China National Oil and Gas Exploration and Development Corporation, Central Asia Petroleum Company Ltd. and the Transferee, and "this Transaction" defined in the Capital Contribution Agreement has been completed;
(2) All necessary approvals from examining and approving authorities and consent from third party have been obtained for this Equity Transfer;
(3) The audit report and assets appraisal report for PCI have been approved by both parties, and the necessary filling formalities have been completed;
(4) The Transferor has obtained the approval to this Equity Transfer by its duly convened shareholders' meeting; and

(5) The representations and warranties given in Exhibit 3 remain correct and free from error, as of the Closing Date.
3.2 If the parties hereof agree, through negotiation, to grant waiver with respect to the conditions set forth in (5) under Article 3.1 herein when such conditions have not been satisfied, it shall be considered that all such conditions have been satisfied.
3.3 The parties believe and will make all reasonable efforts to ensure that the closing will occur no later than 28 February 2006.

ARTICLE 4 CLOSING

4.1 If, before 1 February 2006, the Transferor believes that the closing conditions specified in Article 3.1 herein have been satisfied completely, it shall issue a written notice to the Transferee for requesting the closing and provide the copies of documents/evidences demonstrating that the closing conditions have been satisfied, including but not limited to:
(1) Equity ownership certificates;
(2) Confirmation documents by the third party (if necessary);
(3) Approval/ratification documents by examining and approving authorities in countries/regions where the PCI Group is located (if necessary); and
(4) Approval/ratification/filing documents by examining and approving authorities in the PRC.
4.2 If the Transferee believes that all closing conditions have been satisfied, it shall, within ten (10) days as of its receipt of the above notice from the Transferor, reply to the Transferor in writing which shall specify the Closing Date; provided that the closing date shall not be later than 1 February 2006.
4.3 If, on or before 1 February 2006, the Transferor believes that the closing conditions specified in Article 3.1 herein have not been satisfied completely, it shall issue a written notice to the Transferee, stating such fact. The Transferee shall, within ten (10) working days upon such written notice, notify the Transferor in writing as to whether such unsatisfied conditions will be waived and confirm whether the closing conditions should be considered as satisfied in accordance with Article 3.2 hereinabove. If it is confirmed that the closing conditions should be considered as satisfied, the Transferee shall also expressly specify the closing date in such notification; provided that the closing date shall not be later than 28 February 2006.
4.4 At the closing Date, the Transferee shall make the lump sum payment for the

consideration specified in Article 5.1 hereinbelow, in cash, to the account indicated by the Transferor.

ARTICLE 5 CONSIDERATION

5.1. The parties agree hereby, that the Transferee shall pay US$70.00 million as the consideration for this Equity Transfer, which shall be equivalent to RMB579.355 million on the basis of benchmark exchange rate of US$ vs RMB announced by the People's Bank of China on the base date.

ARTICLE 6 REPRESENTATIONS AND WARRANTIES

6.1. The parties undertake to each other that, unless specified otherwise herein, the representations and warranties under the Agreement are true, correct and complete in all material aspects, and also covenant to not impair the truth, correctness and completeness of each representations and warranties by any action or omission.
6.2. The parties hereby represent and warrant to each other as follows:
(1) Such party is duly established and validly existing in compliance with the laws of the jurisdiction in which it is incorporated, and has obtained all governmental authorizations and approvals required for its business operation;
(2) Such party has obtained all authorizations and approvals specified under relevant laws, regulations and articles, and has the power to sign and perform the Agreement;
(3) The execution of the Agreement and all documents refereed to herein by such party doesn't violate its articles of association, any currently effective law or its obligations under any existing contract or agreement to which it is a party;
(4) such party has never conducted any activity that impairs or would impair the interests of the other party hereto, and will make efforts to prevent any third party from conducting any such activity.
6.3. The Transferor's further representations and warranties regarding PCI Group and other related matters are attached hereto as Exhibit 3.
6.4. Any representations and warranties herein shall be able to be interpreted severally and independently, and subject to any contrary provisions herein, shall not be limited or restricted by any other provisions herein or under other agreement between the parties or any judgment on aforesaid articles.

6.5. If, from the date when the Agreement is signed to the Closing Date for this Equity Transfer, either party hereto is aware of any information that may have a material adverse impact on the representations and warranties or this Equity Transfer, it shall disclose such information to the other party, and take effective actions to minimize such adverse impact.
6.6. The representations and warranties of either party hereto shall constitute preconditions for the other party to perform the Agreement and the other party will enter into the Agreement by reliance on such representations and warranties.

ARTICLE 7 RIGHTS AND OBLIGATIONS OF THE PARTIES

7.1. The Transferor shall:
(1) prepare and submit all legal documents that shall be prepared and submitted by the Transferor as required by the Examining and Approving Authorities, in order to perform the Agreement;
(2) apply to the Examining and Approving Authorities and third parties for, and make efforts to cause them to issue/provide, approval, consent or permission from or filing with such authorities and such third parties required to perform the Agreement;
(3) provide all necessary documents to assist PCI in going through related procedures for change of business registration in relevant registration authorities;
(4) make efforts to assist the Transferee to prepare and submit all legal documents that shall be prepared and submitted by the Transferee.
7.2. The Transferee shall:
(1) pay the consideration indicated in Article 5.1 in cash to the Transferor, pursuant to the Agreement in a timely manner;
(2) prepare and submit all legal documents that shall be prepared and submitted by it as required by the Examining and Approving Authorities, in order to perform the Agreement;
(3) exert itself to assist the Transferor and PCI to prepare and obtain all legal documents required by the Examining and Approving Authorities;
(4) exert itself to assist the Transferor and PCI to obtain all approval, consent, permission and filing of the government and the third party; and
(5) provide all necessary documents and assist PCI with procedures for change of business registration in relevant registration authorities.

7.3. After the Agreement come into effect, the Transferee shall be entitled to appoint two observers to PCI, who shall have the right of information regarding the operations of PCI; the Transferor shall enable such observers to exercise the aforesaid rights; at the request of such observers, the Transferor shall provide them with all documents in relation to the operations of PCI.

ARTICLE 8 ARRANGEMENT IN THE RELATED PERIOD

8.1. The parties hereby agree that, any change of PCI's assets and liabilities during the Related Period shall not impact the Transferee's payment of the consideration in the amount specified herein pursuant to the terms and conditions of the Agreement. All income, expenditure and profit generated during the Related Period shall be attributable to PCI Group.
8.2. The parties hereby also agree that, the parties shall, at the Closing Date, clear any expenses advanced and any income received on behalf of PCI Group by the Transferor during the Related Period, including but not limited to shareholders' loans, borrowings and capital increase, the current accounts and the product sales income and profit gains, etc., during the Related Period. Within 30 days after the Closing Date, such expenses and income shall be settled by PCI and the Transferor after the qualified auditor reviews and the Transferor, the Transferee and PCI confirm such amount.
8.3. From the Effective Date of the Agreement to the Closing Date, unless specified otherwise herein or agreed by the Transferee in writing, or as mandatorily required by law or by examination and approval authorities, the Transferor shall cause PCI Group to:
(1) operate PCI Group on in the ordinary course of business;
(2) maintain the assets of PCI Group at conditions equivalent to that in the Base Date, except for wear and tear;
(3) not transfer or mortgage or pledge any assets of PCI Group, or provide guarantee for any other person with any assets of PCI Group;
(4) PCI Group shall not sign any agreement, such as loan agreement, that may increase the liabilities, unless it is necessary for normal operation;
(5) not make any revision to any existing contract or agreement that is detrimental to PCI Group;
(6) perform the Agreement after being executed or any other documents in relation to Transferred Assets and its business in a timely manner;

(7) not release anyone from any debts owed to PCI Group or waive any claim of PCI Group;
(8) not make a compromise, settlement, withdrawal or waiver of rights in any form with respect to any action or arbitration or any other legal proceedings pending, in relation to PCI Group;
(9) not issue or plan to issue any additional equity or convertible bonds of PCI Group or grant any subscription right or similar rights to the aforesaid equity or convertible bonds, unless otherwise specified in any agreement/contract binding upon the Transferor and/or PCI.

ARTICLE 9 LIABILITY FOR BREACH OF CONTRACT

9.1 The Transferee shall be entitled to claim on the Transferor for compensation for any direct loss and damage incurred by it, and any costs and expenses arising from any action or claim incurred by it due to the nonperformance or incomplete performance by the Transferor of any of its obligations under the Agreement or breach of any provision hereof.
9.2 The Transferor shall be entitled to claim on the Transferee for compensation for any direct loss and damage incurred by it, and any costs and expenses arising from any action or claim incurred by it due to the nonperformance or incomplete performance by the Transferee of any of its obligations under the Agreement or breach of any provision hereof.
9.3 Notwithstanding any contrary provisions herein, if the Transferee's breach of any of its representations and warranties set forth in Article 6 hereinabove results in any loss and damage to and/or cause any costs and expenses to the Transferor arising from any action or claim due thereto, the amount of loss that the Transferor can recover from Transferee for any individual claim shall be no less than RMB400,000 and the accumulative amount of loss that Transferor can recover from the Transferee for any individual claim shall be no less than RMB2000,000; provided that the total amount of loss that can be recovered by the Transferor from the Transferee hereunder shall not exceed 50% of the consideration for this Equity Transfer. In case of any breach by the Transferee of any of its representations or warranties set forth herein, if Transferor doesn't make any claim with respect thereto within twelve (12) months as of the Closing Date, the Transferee shall not assume any compensation therefor.

9.4 Notwithstanding any contrary provisions herein, if the Transferor's breach of any of its representations and warranties set forth in Article 6 hereinabove results in any loss and damage to and/or cause any costs and expenses to the Transferee arising from any action or claim due thereto, the amount of loss that the Transferee can recover from Transferee for any individual claim shall be no less than RMB400,000 and the accumulative amount of loss that Transferee can recover from the Transferor for any individual claim shall be no less than RMB2000,000; provided that the total amount of loss that can be recovered by the Transferee from the Transferor hereunder shall not exceed 50% of the consideration for this Equity Transfer. In case of any breach by the Transferor of any of its representations or warranties set forth herein, if Transferee doesn't make any claim with respect thereto within twelve (12) months as of the Closing Date, the Transferor shall not assume any compensation therefor.
9.5 Any tolerance, grace, preferential treatment granted by either party to the other party or delay of either party to exercise any of its rights hereunder shall not affect, damage or limit any rights or interests that such party shall have under the Agreement and any laws and regulations, nor shall be considered as such party's waiver of any of its rights or interests under the Agreement, nor release the other party from any of its obligation under the Agreement.
9.6 All rights under the Agreement shall be cumulative and not prejudice any other right or remedy specified in laws.
9.7 Notwithstanding the above agreement, both parties agree that, none of the parties hereto shall assume the default responsibility if the Closing of this Equity Transfer fails to occur as a result of the failure to obtain from any of the Examining and Approving Authorities any approval/ratification for any reason, and the parties shall assume their respective costs arising out of or from this Equity Transfer.

ARTICLE 10 FORCE MAJEURE

10.1     Neither party shall be considered in default if it is unable to perform
         this Agreement due to the occurrence of a force majeure event; provided
         that such party shall make all necessary remedies if practicable to
         mitigate the loss arising from the occurrence of the force majeure
         event.
10.2     Either party who encountered the force majeure event shall notify the
         other
                                       9

         party thereof in writing as soon as possible, and submit a report
         to the other party, stating the reasons for its inability to perform
         its obligations under the Agreement either in whole or in part and for
         any extension to perform its obligations, within fifteen (15) days
         after the occurrence of the force majeure event and such party shall
         take all actions practicable to mitigate the loss. If any force majeure
         event occurs, none of the parties shall be responsible for any damage
         and additional expense and loss suffered by the other party due to the
         failure to perform or any delay in the performance of obligations
         hereunder. The party claiming force majeure shall take proper measures
         to mitigate or remove the impact thereof and try to resume the
         performance of the obligations hereunder affected by force majeure as
         soon as practicable.

ARTICLE 11 CONFIDENTIALITY

Each party shall treat all details about the Agreement and this Equity Transfer, the interrelationship among the parties and the documents provided to each other hereunder as confidential materials, and without prior written approval by the other party, shall not disclose any of such materials to any party other than the parties hereto in any way except for the purpose of this Equity Transfer, except for any disclosure to relevant agents, financial institutions and regulatory authorities for the purpose of the Agreement.

ARTICLE 12 GOVERNING LAW

The conclusion, effect, interpretation and performance of and settlement of any dispute arising from the Agreement shall be governed by the laws of the People's Republic of China.

ARTICLE 13 DISPUTE SETTLEMENT

13.1     Any dispute arising out of or from the Agreement shall be settled
         through friendly negotiations between the parties, and may be referred
         to arbitration if it is failed to be resolved through negotiation.
13.2     Such dispute shall be submitted to and resolved by China International
         Economic and Trade Arbitration Commission for arbitration in Beijing in

                                       10

         accordance with its arbitration rules.
13.3     The award of China International Economic and Trade Arbitration
         Commission shall be final and binding upon both parties. The
         arbitration costs shall be assumed by the losing party.
13.4     Pending resolution of any dispute, the parties shall continue to
         perform the Agreement other than any matter under dispute.

                                ARTICLE 14 NOTICE

14.1     All communications between the parties regarding the Agreement shall be
         delivered to each party at the following addresses by mail, facsimile,
         telex or in other written form:

         PetroChina Company Limited
              To:      He Jia
              Address: World Tower,16 Andelu, Dongcheng District, Beijing
              Tel:     010-84886219
              Fax:     010-84882208

         China Petroleum Exploration & Development Company Ltd.
              To:      Zhao Ying
              Address: International Investment Building D, Fuchengmen Beidajie,
                       Xicheng District, Beijing
              Tel:     010-58551820
              Fax:     010-58551007

14.2     In case of change of the contact person or any other contact
         information of either party, such party shall notify the other party in
         writing seven (7) days in advance.

                           ARTICLE 15 ENTIRE AGREEMENT

15.1     The Agreement constitutes the entire and sole agreement among the
         parties regarding this Equity Transfer, and supersedes any other prior
         understandings, arrangements and agreements between the parties
         regarding this Equity Transfer.

                                       11

15.2     All of the exhibits hereto shall constitute a valid integral part
         hereof and shall have the equal legal effect as the Agreement.

             ARTICLE 16 EFFECTIVENESS OF AND AMENDMENT TO AGREEMENT

16.1     The Agreement shall be signed by the authorized representatives of both
         parties on the date first written above, and shall become effective
         from the date when both parties have obtained all necessary internal
         corporate authorizations and approvals required for the execution and
         performance of the Agreement.
16.2     Any amendment and modification to the Agreement shall not be effective
         unless made in accordance with Article 16.1 above.

ARTICLE 17 COUNTERPARTS OF THE AGREEMENT

The Agreement shall be executed in Chinese in ten (10) originals, with each party to hold two and the remaining originals to be submitted to the competent governmental authorities. Each original of the Agreement shall have the equal legal effect.

ARTICLE 18 MISCELLANEOUS

18.1     Any matter not covered hereunder shall be set forth in a supplementary
         agreement by and among the parties which shall be attached hereto as an
         exhibit. Such supplementary agreement shall not be effective unless
         made in accordance with Article 16.1 above.
18.2     Each party shall be solely responsible for any tax imposed on it due to
         its execution and performance of the Agreement pursuant to the relevant
         laws and regulations.

[Signature Page]

PetroChina Company Limited (seal)

Authorized representative: Wang Guoliang

China Petroleum Exploration & Development Company Ltd. (seal)

Authorized representative: Wu Dongshan

Exhibit 1:

Organizational Structure of PCI Group

Exhibit 2:

Further Representation and Warranties of the Transferor

For the purpose of this Equity Transfer, in addition to the existing representations and warranties, the Transferor further makes the following representations and warranties in accordance with Article 6.3 in the Agreement. Except for the information disclosed to Transferee prior to the execution date of the Agreement, to the extent that the Transferor knows and it should know as a shareholder of PCI Group companies:

1. CORPORATE STATUS AND FORM OF PCI GROUP

1.1 Each of the entities of PCI Group is duly established and validly existing in compliance with laws in the jurisdiction in which it is incorporated, legally owns its assets, and is not subject to receivership, liquidation, bankruptcy or winding-up nor does there exist any measure or petition for its receivership, liquidation, bankruptcy or winding-up.
1.2 PCI Group conducts its businesses legally and has obtained all licenses and approvals required for the conduct of its business, which are all legal and valid. It has not received any notice of an intention to terminate or modify any of the aforesaid licenses and approvals, nor has it been aware of any matter that impedes or affects any extension or renewal of any of such licenses and approvals.
1.3 PCI Group doesn't create any mortgage, pledge, lien, restriction, preemption rights, third party interests or encumbrance or security interest in any other form or any other preferential arrangements on any of its assets, nor does there exist any fact that shall be disclosed or any material legal defect.
1.4 The Transferor holds all of the interests in PCI Group, free from mortgage, pledge, lien, restriction, preemption rights, third party interests, or encumbrance or security interest in any other form, or any other preferential arrangements, or any fact that shall be disclosed, or any material legal defect.
1.5 PCI Group complies with its articles of association or other organizational documents in all material aspects. It does not surpass its power or fail to obtain any authorization in the conduct of its business, execution of any contracts, making any undertakings or exercise of any of its rights.
1.6 PCI's book of minutes of board meetings and shareholders' meetings of PCI

         include the complete and accurate records of all resolutions passed
         by the board and shareholders of PCI.
1.7      The execution and performance of the Agreement will not constitute any
         violation or any material breach of any provision of any agreement,
         instrument, law, award, order, permit, license or consent by which PCI
         Group is bound.
1.8      PCI Group's continued operation of its existing business will not
         conflict with or infringe upon any third party's rights in any way,
         including but not limited to land ownership, land use rights, oilfield
         exploration rights and oilfield exploitation rights.
1.9      PCI Group does no have any agreement or obligations with respect to its
         share capital, whether issued or not, or the issue of any share, bond,
         subscription right, stock option or other similar securities.
1.10     PCI Group has legal title to all of the assets set forth in the
         Appraisal Report and doesn't allow any creditor's right to be created
         on any of such assets. It has legal use rights to the assets used in
         the operation of its business.
1.11     PCI Group has not taken any action or omission that would result in
         circumstances under which PCI Group must or may be responsible for:
         (1)      refunding any investment and financial support previously
                  granted by any government;
         (2)      repaying any governmental loan; or
         (3)      surrendering amount obtained by it under the preferential tax
                  treatment or tax reduction or exemption.
1.12     Neither PCI Group nor any of its directors is involved, in any criminal
         act that has a material adverse impact on PCI Group's operation.

2.       FINANCIAL STATEMENTS AND ACCOUNTING RECORDS OF PCI GROUP
2.1      PCI Group's financial statements:
         (1)      are complete and accurate in all aspects, and truly and fairly
                  reflect PCI Group's assets and liabilities on the Base Date,
                  and do not omit any debts or responsibilities;
         (2)      are prepared in compliance with relevant laws and/or
                  International Accounting Standards;
         (3)      no material adverse changes have occurred to the financial
                  conditions and prospects of the relevant business from the
                  Base Date to the effective date of the Agreement;

(4) reflect that the fixed assets of PCI Group have been depreciated at the depreciation ratio sufficient to reduce the value of such assets to nil not later than the expiration of their service life, after appropriate residual value of such fixed assets is deducted; and
(5) disclose all contingent liabilities, commitments and deferred or advance taxes and make proper provision therefor.
2.2 All book credits of PCI Group, whether indicated on the financial statements of PCI or accrued since the Base Date, are valid and enforceable, and have been or can be liquidated for their nominal value.
2.3 Except as disclosed in the financial statements of PCI Group, as of the execution date hereof, PCI Group:
(1) hasn't had any capital expenditure (other than any payment made under any contract that has been executed) or provided guarantee or made other material commitments;
(2) has not made any borrowings except in the ordinary course of business.
2.4 None of the secured borrowing as disclosed in the financial statements of PCI Group exceeds the amount thereof as indicated therein, and all of the similar borrowings newly made after the Base Date have been disclosed to the Transferee in a timely manner.
2.5 Since the Base Date, there has no major adverse change to the financial conditions or prospects of the relevant business.
2.6 PCI Group's Accounting Records:
(1) With respect to the relevant business and any changes to the relevant business occurred during the period from the Base Date to the execution date of the Agreement, PCI Group has established and prepared properly all necessary account books and records, and all such account books and documents that belong to or shall be held by PCI are maintained and held by PCI.
(2) All accounts, account books, ledgers and all accounting records:
i) have been noted and completed adequately, properly and accurately;
ii) free from material error and deviation; and
iii) record and reflect, truly and fairly, all transactions in relation to relevant businesses.

3. TAXES OF PCI GROUP

3.1 All taxes payable by PCI Group, including any tax due and advance tax, have been paid.
3.2 All tax returns and related materials to be prepared or filed by PCI Group for the purpose of any tax have been prepared or filed in time and on a proper basis, and are true and accurate when prepared and consistent to the fact at the time of filing thereof; any aforesaid will not or may not lead to any dispute with any tax authorities.
3.3 The Transferor has disclosed to the Transferee in detail of any and all of the transactions entered into by PCI Group that are subject to approval or permission by the competent tax authorities.
3.4 PCI and/or the Transferor have not taken any action that causes PCI Group to assume any tax that is otherwise to be assumed by any party other than PCI Group.
3.5 All remuneration, compensation, retirement or severance payment and other amounts paid or payable to all of the current/former employees or executives of PCI Group and all interests, annuities, patent royalty, rent and other annual payment may be deducted before tax or treated in other method as approved by tax authorities.
3.6 All documents to which PCI Group is a party, or that constitute part of ownership of any entity of PCI Group to any assets, or in the enforcement of which any entity of PCI Group has or may have interests, and for which stamp tax or similar taxes shall be paid, have been stamped or granted with tax exemption.
3.7 The materials submitted by PCI Group to relevant governmental authorities and departments with respect to import or export of any goods are true and accurate at submission; PCI Group has complied with all ordinances, rules, orders, instructions or conditions regarding import and export of goods and all custom affairs; and all duties payable by PCI Group have been paid in full within the applicable time limit.
3.8 PCI Group has reported in full detail its provision of benefits to its directors or employees to relevant tax authorities and the services provided by any individual to PCI Group as required by applicable tax laws.
3.9 PCI Group has made all the withholdings and all the disclosures to the authorities with respect to any item for which it is obligated or entitled to make tax withholding.

3.10     The Transferor agrees to be fully responsible for or compensate for any
         accrued taxation obligations of PCI Group that are payable but not
         paid, except for those disclosed in the financial statements of PCI,
         unless otherwise provided herein.
3.11     PCI Group does not have any tax dispute or suffer from any tax penalty,
         and the existing tax preferences enjoyed by PCI Group have not ceased
         or been deprived of. The Transferor agrees to be fully responsible for
         or compensate for any tax penalty incurred during the Related Period.

4.       PROCEEDINGS OF PCI GROUP
4.1      PCI Group has not been involved in any Major Proceedings and there does
         not exist any fact or situation at present that may involve PCI Group
         in any Major Proceedings, other than the collection of accounts
         receivable in the ordinary course of business.
4.2      None of the properties of PCI Group has been sealed up, frozen or
         subject to any other enforcement actions by any administrative and/or
         judicial authority.

5.       LABOR RELATIONS OF PCI GROUP

PCI Group complies with the applicable laws and regulations and all of the responsibilities to its employees under labor contracts in all material aspects, and there is no material labor dispute involving a value/claim exceeding US$1 million individually pending between PCI Group and any of its employees.

6. ENVIRONMENTAL PROTECTION
6.1 PCI Group complies with the laws and regulations regarding environmental protection in all material aspects.
6.2 PCI Group is not threatened with any civil, criminal or administrative claim, investigation, complaint or lawsuit, in relation to environmental protection that may result in a loss of US$3 million or more to PCI Group.

7. CONFIDENTIAL INFORMATION AND INTELLECTUAL PROPERTY
7.1 None of the confidential information used by PCI Group infringes upon the legal rights of any third party to such confidential information.
7.2 PCI Group has legal ownership or use rights to any and all of the intellectual properties used by it and its ownership or use thereof does not infringe upon

the intellectual properties of any third party.

8. INSURANCE
8.1 PCI Group has taken out insurance for its production and operation in accordance with good commercial practice in international oil industry, and PCI Group does not take any action or omission that may lead to the invalidity of any of its insurance policies.
8.2 All materials provided in order to obtain or renew PCI Group's insurance policies are correct, detailed and accurate at the time of provision.
8.3 PCI Group has not incurred any loss that is not covered under insurance, or waived any substantial or valuable right, or allowed any insurance to become invalid.

9. ARRANGEMENTS WITH RELATED PERSONS All pecuniary arrangements between PCI Group and any of its directors, senior officers or shareholders have been correctly reflected in the account books of PCI Group.

10. ACCURACY OF MATERIALS PROVIDED All materials provided by the Transferor and PCI for the purpose of this Equity Transfer are true, accurate and free of material omission.

EXHIBIT 4.5

SUPPLEMENTARY AGREEMENT TO
COMPREHENSIVE PRODUCTS AND SERVICES AGREEMENT

This Supplementary Agreement to Comprehensive Products and Services Agreement (this "Supplementary Agreement") is executed this 9th day of June, 2005 in Beijing by and between the following two parties through their respective authorized representatives:

(1) China National Petroleum Corporation ("CNPC"), a state-owned enterprise duly established and existing under the laws of the People's Republic of China (the "PRC"), with its enterprise legal person business license number being 1000001001043 and registered address being at Liupukang, Xicheng District, Beijing; and

(2) PetroChina Co., Ltd. ("PetroChina"), a joint stock limited company duly established and existing under the laws of the PRC, with its enterprise legal person business license number being 1000001003252 and registered address being at 16 Andelu, Dongcheng District, Beijing.

WHEREAS,

1. PetroChina is a company incorporated under the laws of the PRC and its H shares and the American Depositary Shares are currently listed and traded on the Stock Exchange of Hong Kong Limited and on the New York Stock Exchange, Inc. respectively. PetroChina shall, therefore, comply with the laws of the PRC and of the jurisdictions in which its shares are listed in the conduct of its operations and other business activities.

2(pound)(R)CNPC and PetroChina executed the Comprehensive Products and Services Agreement dated March 10, 2000 (the "Master Agreement"), whereby, CNPC and PetroChina shall, and shall agree to cause their respective subsidiaries, branches and other controlled entities to, provide relevant products and services to each other pursuant to relevant provisions therein.

3. PetroChina intends to increase registered capital of Zhong You Kan Tan Kai Fa Co., Ltd. (the "Zhong You Kan Tan"), indirectly 100% owned subsidiary of CNPC, so as to acquire 50% of the equity interest in Zhong You Kan Tan. For the purpose thereof, PetroChina and CNPC have agreed to make amendments to the Master Agreement, which shall constitute a supplementary agreement thereto.

4. Both parties hereby agree to, and warrant that they will cause their respective subsidiaries, branches and any other controlled entities to, provide relevant products and services to each other both within and outside of the PRC pursuant to the terms and principles set forth in the Master Agreement and this Supplementary Agreement.

Now, therefore, the parties hereto reach agreement as follows:

-1-

ARTICLE 1

CNPC and PetroChina agree that the Master Agreement shall be amended as follows:

1. "Government-Set-Price" shall mean the price for such type of services as determined in any laws, regulations, decisions, orders or guidelines enacted by any government of the relevant country/region (including but not limited to any central government, federal government, local government, state/league government, and any other instrumentality that rules a certain territory by controlling domestic issues and foreign affairs thereof, in whatever name, structure and form), and any other regulatory authority.

2. "Market Price" shall mean the price determined according to the following order of priority:

(i) the price then charged by independent third parties providing such type of services at arm's length in the region where such type of services is provided; or

(ii) the price then charged by independent third parties providing such type of services at arm's length in the regions/ countries near the region where such type of services is provided.

3. This Supplementary Agreement shall be effective for a term of three (3) years, commencing from the date on which this Supplementary Agreement comes into effect. The Master Agreement shall remain effective during the term hereof and shall expire simultaneously with the expiration of the Supplementary Agreement.

ARTICLE 2

This Supplementary Agreement shall constitute amendments and supplements to the Master Agreement. Any matters not covered hereunder shall be governed by the Master Agreement. In case of any discrepancy between this Supplementary Agreement and the Master Agreement, this Supplementary Agreement shall prevail.

ARTICLE 3

This Supplementary Agreement shall come into effect after being executed by the authorized representatives of both parties hereto and approved by the shareholders' general meeting of PetroChina and PetroChina having become the shareholder of Zhong You Kan Tan.

ARTICLE 4

IN WITNESS WHEREOF, both parties have caused this Supplementary Agreement to be executed at the date written on the first page above.

-2-

CHINA NATIONAL PETROLEUM CORPORATION (company seal)

By: /s/ Zhou Jiping
    ----------------------------

PETROCHINA CO., LTD. (Company)

By: /s/ Wang Guoliang
    ----------------------------

-3-

EXHIBIT 8.1

MAJOR SUBSIDIARIES OF PETROCHINA COMPANY LIMITED

I. WHOLLY-OWNED SUBSIDIARIES

1. Daqing Oilfield Limited Company

2. PetroChina International Limited

3. PetroChina International Indonesia Limited

II. CONTROLLED SUBSIDIARIES

1. Liaohe Jinma Oilfield Company Limited (81.82% owned by us)

2. Daqing Yu Shu Lin Oilfield Company Limited (88.16% owned by us)

3. Jilin Chemical Industrial Company Limited (67.29% owned by us)

4. Jinzhou Petrochemical Limited Company (80.95% owned by us)

EXHIBIT 10.1

SIGNIFICANT DIFFERENCES IN CORPORATE GOVERNANCE PRACTICES
FOR PURPOSES OF SECTION 303A. 11 OF
THE NEW YORK STOCK EXCHANGE LISTED COMPANY MANUAL

On November 4, 2003, the New York Stock Exchange (the "NYSE") adopted new corporate governance rules. Under these rules, we are required to disclose a summary of 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.

We are incorporated under the laws of the People's Republic of China (the "PRC"), with H shares publicly traded on the Hong Kong Stock Exchange (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 securities laws and regulations 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.

BOARD 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 (a "controlled company") is not required to comply with this requirement. Because approximately 90% of our voting power is controlled by China National Petroleum Corporation ("CNPC"), we, as a controlled company, would not be required to comply with the majority of independent directors requirement. In addition, we are not required under the PRC Company Law and the Rules Governing the Listing of Securities on the Stock Exchange Hong Kong Limited (the "HKSE Listing Rules") to have a majority of independent directors on our board of directors. Currently, three of our thirteen directors are independent non-executive directors.

Under the NYSE corporate governance rule 303A.03, the non-executive 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. We are not required under the PRC Company Law and the HKSE Listing Rules to have, and we do not currently have, a nominating/corporate governance committee.

COMPENSATION COMMITTEE

Under the NYSE corporate governance rule 303A.05, a listed company must have a compensation committee composed entirely of independent directors, with a written charter that covers certain minimum specified duties. The compensation committee of a "controlled company" is not required to be composed entirely of independent directors. We are not required under the PRC Company Law to have a compensation committee. Under the Corporate Governance Code of the HKSE Listing Rules, a listed company must have a remuneration committee composed of a majority of independent non-executive directors, with a written terms of references that covers certain minimum specified duties.

We currently do not have a compensation committee composed entirely of independent directors. However, we have an evaluation and remuneration committee including independent non-executive directors. The major responsibilities of our evaluation and remuneration committee include:

- reviewing the current standing of President-appointed Senior Vice President, Vice Presidents, Chief Financial Officer and other senior management personnel and making recommendations for such review to the board of directors;

- managing and conducting performance evaluations for our President and reporting the results of such evaluations to the board of directors;

- monitoring performance evaluations conducted by our President for Senior Vice President, Vice Presidents, Chief Financial Officer and other senior management personnel; and

- studying our incentive plan, compensation plan and stock appreciation rights plan, supervising and evaluating the implementation of these plans and making recommendations for further improvements to such plans.

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, a Manual of Board of Directors and a 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.

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. We adopted our code of business conduct and ethics for senior management on March 23, 2004 and have disclosed the content of this code on our website and in the annual report on Form 20-F for the fiscal year ended December 31, 2003. In addition, we adopted our code of business conduct and ethics for employees on March 2, 2005 and have disclosed the content of this code on our website. We are not required under the PRC Company Law and the HKSE Listing Rules to have, and we do not currently have, a code of business conduct and ethics for directors. However, pursuant to the HKSE Listing Rules, all of our directors must comply with the Model Code for Securities Transactions by Directors of Listed Companies (the "Model Code") as set out in the Listing Rules. The Model Code sets forth required standards with which the directors of a listed company must comply in securities transactions of the listed company.

EXHIBIT 12.1

CERTIFICATION

I, Chen Geng, certify that:

1. I have reviewed this annual report on Form 20-F of PetroChina Company Limited (the "Company");

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4. The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and

5. The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting.

Date: June 29, 2005

                                           /s/ Chen Geng
                                           -------------------------------------
                                           Name:  Chen Geng
                                           Title: Chairman of Board of Directors
                                                  (performing the functions of
                                                  Chief Executive Officer)

EXHIBIT 12.2

CERTIFICATION

I, Wang Guoliang, certify that:

1. I have reviewed this annual report on Form 20-F of PetroChina Company Limited (the "Company");

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting.

Date: June 29, 2005

                                                  /s/ Wang Guoliang
                                                  ------------------------------
                                                  Name:  Wang Guoliang
                                                  Title: Chief Financial Officer

EXHIBIT 13.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of PetroChina Company Limited (the "Company") on Form 20-F for the period ending December 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Chen Geng, hereby certify that to the best of my knowledge:

1. The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: June 29, 2005

                                           /s/  Chen Geng
                                           -------------------------------------
                                           Name:  Chen Geng
                                           Title: Chairman of Board of Directors
                                                  (performing the functions of
                                                  Chief Executive Officer)

EXHIBIT 13.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of PetroChina Company Limited (the "Company") on Form 20-F for the period ending December 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Wang Guoliang, hereby certify that to the best of my knowledge:

1. The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: June 29, 2005

                                                   /s/  Wang Guoliang
                                                   -----------------------------
                                                   Name:   Wang Guoliang
                                                   Title:  Chief Financial Offer

EXHIBIT 16.1

PETROCHINA COMPANY LIMITED

CODE OF ETHICS FOR SENIOR MANAGEMENT

Pursuant to the laws of the People's Republic of China (the "PRC"), the regulatory requirements of the places where the Company is listed and the Articles of Association of PetroChina Company Limited (hereinafter referred to as the "Company"), the Company has adopted the following code of business conduct and ethics for purposes of regulating the business conduct and ethics of the senior management of the Company and protecting the Company's interests.

1. This Code applies to all the management members of the Company, the general managers, deputy general managers and other senior management members of the same level in all departments of the Company's Headquarter, and those in all specialized branches, regional branches and wholly-owned subsidiaries of the Company (hereinafter referred to as the "Senior Management").

The controlled subsidiaries of the Company shall use this Code as a reference in regulating the business conduct of their own senior management.

2. Required Business Conduct and Ethics of the Senior Management

(i) THE SENIOR MANAGEMENT SHALL ACT HONESTLY AND DILIGENTLY IN THE PERFORMANCE OF THEIR DUTIES FOR THE COMPANY. The Senior Management shall establish a concept to achieve honest, innovative, productive and coordinative operation and management, be devoted to their duties and comply with their obligations diligently, use their best endeavors to protect the lawful rights and interests of the Company, and make every effort to improve the management and performance of the Company.

(ii) THE SENIOR MANAGEMENT SHALL BE PROHIBITED FROM ENGAGING IN ANY ACTIVITY THAT MIGHT CREATE A CONFLICT OF INTEREST WITH THE COMPANY. Such activities shall include:

A. Personal Investments. The Senior Management shall not invest in any economic entity that does business with or is a competitor of the Company; however, they may own less than 1% of the outstanding equity securities shares of a publicly traded company. A Senior Management member's spouse, children or children's spouses shall not engage in any productive or operational activities within the territory or of the business scope managed by such Senior Management Member that may affect such Senior Management member's fair and due performance of duties or infringe the interests of the Company in violation of relevant regulations.

B. Corporate Opportunities. The Senior Management are prohibited from (a) taking for themselves personally opportunities that are properly within the scope of the Company's activities; (b) using corporate property, information or position for personal gain; or (c) competing with the Company.

C. Business Affiliations. It is prohibited for any Senior Management member to serve as a director, senior managerial personnel, consultant, employee or in any other capacity in any enterprise that (a) is a competitor of the Company; or (b) directly interferes or has the appearance of interfering with the performance of his/her duties as a Senior Management member.

D. Business Gifts. Acceptance by the Senior Management (or their parents, spouses, children or other family members sharing the same residence with them or any other person with their consent or under their instruction) of gifts of a value that may tend to influence business decisions or compromise independent judgment is prohibited. The exchange of limited non-cash business courtesies by the Senior Management in business activities may be acceptable, however, such exchange shall not improperly influence the decisions of any business partner of the Company.

E. Confidential Information. The Senior Management shall comply with the relevant rules of the Company relating to the protection of trade secrets, and shall not disclose or use any confidential information with respect to the Company without authorization, except as required in the performance of their duties.

F. Acquisitions and Loans of the Company. The Senior Management or their spouses or children shall not acquire any assets of the Company or receive loans or guarantees for loans from the Company in breach of the Articles of Association of the Company.

(iii) COMPLIANCE WITH THE COMPANY'S POLICY ON DISCLOSURE CONTROLS AND PROCEDURES. The Senior Management participating directly or indirectly in the Company's disclosure process shall comply with the Company's Policy on Disclosure Controls and Procedures and internal control rules to promote full, accurate, and timely disclosure in the collection, communication and analysis of information relating to the filing with the Stock Exchange of Hong Kong Limited, the United States Securities and Exchange Commission or other regulatory bodies and press releases.

(iv) COMPLIANCE WITH LAWS, REGULATIONS AND RULES. The Senior Management shall comply with all laws, regulations and regulatory requirements in each jurisdiction in which the Company conducts business.

(v) FAIR DEALING AND INTEGRITY. The Senior Management should deal fairly with the Company's employees, customers and suppliers. The Senior Management should

not take unfair advantage of any of such employees, customers and suppliers through manipulation, concealment or abuse of privileged information, or misrepresentation of material facts. No actions shall be taken by the Senior Management that could undermine the Company's reputation of such fair dealing and integrity in the course of their performance of duties or in external communication.

(vi) ACCOUNTING CONTROLS. The Senior Management shall ensure that all transactions of the Company will be properly approved and implemented and accurately reflected on the books and records of the Company. Falsification of, malpractice or other misconduct with respect to, transactions, records, off-balance sheet arrangements or other business transactions is strictly prohibited.

(vii) PROTECTION AND EFFICIENT USE OF THE COMPANY'S ASSETS. The Senior Management shall ensure that all of the Company's assets should be used for legitimate business purposes, and shall protect the Company's assets and ensure their efficient use.

(viii) REPORTING OF ANY BEHAVIOR IN BREACH OF THIS CODE. The Senior Management shall consult the appropriate personnel of the management and the Disclosure Committee at any time if they have doubt regarding compliance of their behavior with the Code. The Senior Management are required to report to the management and the Disclosure Committee of any violations of PRC laws, regulatory rules of the places where the Company is listed, internal rules of the Company and this Code caused by their own or others' conduct. The Company shall make every effort to ensure the confidentiality of those furnishing such reports and shall not take any retaliation in any form against any person for such reports.

3. The Senior Management shall comply with the basic principle as required in this Code. Any violation of this Code will lead to disciplinary action, up to and including termination of employment pursuant to the Articles of Association and the relevant regulations, in addition to the punishment under the laws of the PRC and the regulatory rules of the places where the Company is listed.

4. A waiver of this Code by the Senior Management can be granted by the Board of Directors and must be disclosed to shareholders of the Company; provided, however that if the laws of the PRC, regulatory rules of the places where the Company is listed and the Articles of Association of the Company require that such waiver shall be subject to the approval of the general meeting of the shareholders, such requirement shall be followed.

5. The Board of Directors of the Company shall have the right to supervise the compliance of this Code by the Senior Management of the Company, and authorize the President of the Company to be responsible for the implementation of this Code and observe the compliance hereof. The Company's management shall evaluate the adequacy and effectiveness of this Code periodically and amend this Code according to the evaluation result or as required by the Board of Directors.

6. This Code shall become effective upon approval by the Board of Directors.

EXHIBIT 16.2

PETROCHINA COMPANY LIMITED

CODE OF ETHICS FOR EMPLOYEES

PetroChina Company Limited (hereinafter referred to as "the Company") develops the Code in accordance with Chinese Law, the supervisory requirements of the places where the Company is listed and the Articles of Association of the Company, in order to standardize the professional conducts and moral characters of the employees of the Company and to protect the Company's interests.

I. The Code is applicable to all staff of each department of Header quarters, special branches, regional branches and wholly-owned subsidiaries of the Company. The Company's holding subsidiaries shall refer to and follow the Code.

II. Ethical professional conducts that all employees of the Company must comply with:

(i) Follow the corporate philosophy and guideline, and fulfill the core operation and management concept of the Company. Employees the Company shall carry on the corporate philosophy of "be patriotic, progressive, realistic and dedicatory", fulfill the core operation and management concept of "be faithful, innovative, productive, harmonious and safe", and comply with the corporate guideline of "Harmonizing Energy and the Environment". They shall be passional for and loyal to their positions, with skillful and professional competence, take their own job responsibilities consciously, stress on working efficiency, and protect the Company's legal interests.

(ii) Not participate in the activities that may create conflicts of interests with the Company, which include:

1. Employees shall not have any opportunity within the Company's business activities privately, and not use the corporate property, information or status for personal benefits.

2. Employees are not allowed to be employed as any title by and in any company or entity that is a competitor of the Company or has or may have conflict of interest with the Company, and not undertake the conducts in competition with the Company.

3. Employees shall not accept any valuable gratuity that may affect their decision-making and disturb their independent judgment, or allow their relatives or any third party to accept this kind of gratuity. Employees may exchange formal non-cash gifts in commercial activities, but shall not affect, unduly, the business communications. It is prohibited to pay or commit to

pay, or offer, give or commit to give any other valuable goods to, any government official for business purpose, in any way. Employees shall comply with the purchase policies of the Company when purchasing things on behalf of the Company, and are not allowed to bribe or receive any return commission or other seductions in business activities.

4. Employees must comply with the relevant provisions of the Company on protecting the business secrets. Employees shall not reveal or use without authorization any confidential information related to the Company.

5. Employees and their relatives shall not acquire the Company's property and accept the loans or loan guarantee provided by the Company in breach of the provisions under the Articles of Association.

(iii) Employees shall be loyal to the Company, be honest and trustworthy. Any cheating and falsification behavior is discouraged for any purpose.

(iv) Employees shall inherit and carry forward the excellent professional and ethical styles of PetroChina, and maintain the good traditions of frank words, deeds and personality, and of strict requirement, rigorous organization, prudent attitude and impartial discipline.

(v) Employees shall comply with all laws and regulations in local areas where the Company conducts business, and follow relevant supervisory rules in places where the Company lists its shares.

(vi) Employees shall treat the clients and suppliers in manner of fair, and employees with authority of management and leadership shall treat all their staff in manner of fair and righteous. Employees shall not undermine the Company's reputation as fair and probity when fulfilling their responsibilities and in external contacts.

(vii) Employees shall keep all business records of the Company correct and clear in strict compliance with relevant rules and regulations in business operations. Any embezzlement, falsification or other bad conducts are absolutely prohibited in business.

(viii) Employees shall build the business consciousness of protecting the Company's assets and guarantee the Company's assets to be used for legal business purposes, protect the Company's assets by law and ensure its effective utilization.

(ix) Employees are entitled and obligated to notify the Supervisory Department of the Company of any breach behavior of him/her and any other people to national laws, internal management regulations of the Company and this Code,

for whom the Company will keep secret, and anyone shall not take revenge upon him/her.

III. Employees shall follow the Code. Any employee in violation of the Code shall be punished by the Supervisory Department and the HR Department of the Company as per relevant stipulations until his/her employment is relieved, except that the case is handled pursuant to national laws and supervisory rules in listing places.

IV. With the authority of the management of the Company, the Supervisory Department is responsible for supervise the employees on their compliance with the Code. The Enterprise Culture Department of the Company is responsible for the execution and interpretation of the Code.

V. The Code shall be effective from the issuing date of the Code.


		continuity of production from the existing productive formation. Under no circumstances should estimates for proved undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual tests in the area and in the same reservoir.

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

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

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


		preparation for the implementation of the requirements of Section 404, we are undertaking company-wide documentation of internal controls, performing the system and process evaluation and testing required. During the course of our evaluation, documentation and attestation, we have identified certain deficiencies that could adversely affect our ability to record, process, summarize and report financial data consistent with our management’s assertions in our financial statements. Although we have commenced planing for remedial measures to make necessary improvements, we cannot assure you that we will be able to remedy those identified deficiencies in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. We are also in the process of conducting further evaluation of our internal control over financial reporting and may identify other deficiencies that we may not be able to remedy in time by the deadline for compliance with Section 404. If we fail to achieve and maintain the adequacy of our internal controls, we may not be able to conclude that we have effective internal controls, on an ongoing basis, over financial reporting in accordance with the Sarbanes-Oxley Act. Moreover, effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to help prevent fraud. As a result, our failure to achieve and maintain effective internal controls over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the trading prices of our ADSs or H shares. Furthermore, we have already incurred considerable costs and spent significant management time and other resources in an effort to comply with Section 404 and other requirements of the Sarbanes-Oxley Act. We anticipate that we will continue to incur considerable costs and use significant resources for compliance with Section 404.

	•	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:


		expand our business operations or to maximize our profitability. Our business may also be adversely affected by future changes in certain policies of the PRC government with respect to the oil and gas industry.

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

	—	We receive most of our revenues in Renminbi. A portion of our Renminbi revenues must be converted into other currencies to meet our foreign currency obligations. The existing foreign exchange limitations under the PRC laws and regulations could affect our ability to obtain foreign exchange through debt financing, or to obtain foreign exchange for capital expenditures.

	—	Because PRC laws, regulations and legal requirements dealing with economic matters are relatively new and continue to evolve, and because of the limited volume of published judicial interpretations and the non-binding nature of prior court decisions, the interpretation and enforcement of these laws, regulations and legal requirements involve some uncertainty. We have included the Mandatory Provisions and certain additional requirements that are imposed by the Hong Kong Stock Exchange Listing Rules in our Articles of Association for the purpose of reducing the scope of difference between the Hong Kong company law and the PRC Company Law. However, 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 an early stage of development, you may not enjoy shareholders’ protections that you may be entitled to in other jurisdictions.

	—	In addition to the adverse effect on our revenues, margins and profitability from any future fall in oil and natural gas prices, a prolonged period of low prices or other indicators would lead to a review for impairment of our oil and natural gas properties. This review would reflect management’s view of long-term oil and natural gas prices. Such a review could result in a charge for impairment which could have a significant effect on our results of operations in the period in which it occurs.