Form 20-F

20-F 1 d77520d20f.htm FORM 20-F Form 20-F

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 20-F

(Mark One)

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

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

For the fiscal year ended December 31, 2020.

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

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

Date of event requiring this shell company report

For the transition period from to

Commission File Number 1-15006

(Exact name of Registrant as specified in its charter)

PetroChina Company Limited

(Translation of Registrant’s name into English)

The People’s Republic of China

(Jurisdiction of incorporation or organization)

9 Dongzhimen North Street

Dongcheng District, Beijing 100007

The People’s Republic of China,

(Address of principal executive offices)

Chai Shouping

Telephone number: (8610) 59982622

Facsimile number: (8610) 62099557

Email address: zhanghuayi@petrochina.com.cn

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

Wei Fang

Telephone number: (852) 2899 2010

Facsimile number: (852) 2899 2390

Email address: hko@petrochina.com.hk

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

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

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

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

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

H Shares, par value RMB1.00 per share

PTR

New York Stock Exchange, Inc.

New York Stock Exchange, Inc.**

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

None

(Title of Class)

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

None

(Title of Class)

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


A Shares, par value RMB1.00 per share***		161,922,077,818⁽¹⁾
H Shares, par value RMB1.00 per share		21,098,900,000****

⁽¹⁾	Includes 146,882,339,136 A Shares held by CNPC and 15,039,738,682 A Shares held by the public shareholders.

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

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

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

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

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

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

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

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

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

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


☐ U.S. GAAP		☒ International Financial Reporting Standards as issued by the International Accounting Standards Board		☐ Other

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

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

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

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


*		PetroChina’s H Shares are listed and traded on The Stock Exchange of Hong Kong Limited.
**		Not for trading, but only in connection with the registration of American Depository Shares.
***		PetroChina’s A Shares became listed on the Shanghai Stock Exchange on November 5, 2007.
****		Includes 694,287,100 H Shares represented by American Depositary Shares.

Table of Contents


			Page
Certain Terms and Conventions				1
Forward-Looking Statements				5

Part I				7

Item 1	—	Identity of Directors, Senior Management and Advisors		7
Item 2	—	Offer Statistics and Expected Timetable		7
Item 3	—	Key Information		7
		Selected Financial Data		7
		Risk Factors		9
Item 4	—	Information on the Company		19
		Introduction		19
		Exploration and Production		22
		Refining and Chemicals		32
		Marketing		36
		Natural Gas and Pipeline		38
		Competition		39
		Environmental Matters		41
		Properties, Plants and Equipment		42
		Intellectual Property		42
		Regulatory Matters		43
Item 4 A	—	Unresolved Staff Comments		50
Item 5	—	Operating and Financial Review and Prospects		50
		General		50
		Operating Results		56
		Liquidity and Capital Resources		65
		Off-Balance Sheet Arrangements		70
		Long-Term Contractual Obligations and Other Commercial Commitments and Payment Obligations		70
		Research and Development		71
		Trend Information		71
		Other Information		73
Item 6	—	Directors, Senior Management and Employees		73
		Directors, Senior Management and Supervisors		73
		Compensation		85
		Board Practices		85
		Employees		88
		Share Ownership		88
Item 7	—	Major Shareholders and Related Party Transactions		88
		Major Shareholders		88
		Related Party Transactions		89
		Interests of Experts and Counsel		93
Item 8	—	Financial Information		93
		Financial Statements		93
		Legal Proceedings		94
		Dividend Policy		94
		Significant Changes		95
Item 9	—	The Offer and Listing		95
		Trading Market Information		95
Item 10	—	Additional Information		95
		Memorandum and Articles of Association		95
		Material Contracts		100
		Foreign Exchange Controls		101


			Page
		Taxation		101
		Documents on Display		107
Item 11	—	Quantitative and Qualitative Disclosures About Market Risk		108
Item 12	—	Description of Securities Other Than Equity Securities		112

Part II				113

Item 13	—	Defaults, Dividends Arrearages and Delinquencies		113
Item 14	—	Material Modifications to the Rights to Security Holders and Use of Proceeds		113
Item 15	—	Controls and Procedures		113
Item 16 A	—	Audit Committee Financial Expert		115
Item 16 B	—	Code of Ethics		115
Item 16 C	—	Principal Accountant Fees and Services		115
Item 16 D	—	Exemptions from Listing Standards for Audit Committees		116
Item 16 E	—	Purchases of Equity Securities by the Issuer and Affiliated Purchasers		116
Item 16 F	—	Change in Registrant’s Certifying Accountant		116
Item 16 G	—	Corporate Governance		117
Item 16 H	—	Mine Safety Disclosure		119

Part III				119

Item 17	—	Financial Statements		119
Item 18	—	Financial Statements		119
Item 19	—	Exhibits		119

Signature				122
Index of Consolidated Financial Statements				F-1

CERTAIN TERMS AND CONVENTIONS

Conventions Which Apply to this Annual Report

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

•

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

•

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

•

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

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

Conversion Table


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

1 cubic meter	= 35.315 cubic feet

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

Certain Oil and Gas Terms

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

“acreage”

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

“condensate”

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

“crude oil”

Crude oil, including condensate and natural gas liquids.

“developed reserves”

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

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

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

“development cost”

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

“finding cost”

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

“lifting cost”

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

“natural gas liquids”

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

“offshore”

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

“onshore”

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

“primary distillation capacity”

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

“proved reserves”

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

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

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

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

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

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

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

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

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

“reserves-to-production ratio”

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

“natural gas for sale”

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

“undeveloped reserves”

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

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

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

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

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

References to:

•

BOE is to barrels-of-oil equivalent,

•

Mcf is to thousand cubic feet, and

•

Bcf is to billion cubic feet.

FORWARD-LOOKING STATEMENTS

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

•

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

•

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

•

development projects;

•

exploration prospects;

•

reserves potential;

•

production of oil and gas and refined and chemical products;

•

development and drilling potential;

•

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

•

the planned development of our natural gas operations;

•

the planned expansion of our refined product marketing network;

•

the planned expansion of our natural gas infrastructure;

•

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

•

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

•

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

•

our future overall business development and economic performance;

•

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

•

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

•

other prospects of our business and operations.

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

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

•

fluctuations in crude oil and natural gas prices;

•

effects of the COVID-19 pandemic;

•

failure to achieve continued exploration success;

•

failures or delays in achieving production from development projects;

•

continued availability of capital and financing;

•

acquisitions and other business opportunities that we may pursue;

•

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

•

liability for remedial actions under environmental regulations;

•

the actions of competitors;

•

wars and acts of terrorism or sabotage;

•

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

•

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

•

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

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

PART I

Item 1 — IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

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

Item 2 — OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

Item 3 — KEY INFORMATION

Selected Financial Data

Historical Financial Information

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


	As of or for the Year Ended December 31,
	2016⁽⁴⁾			2017⁽⁴⁾			2018⁽⁴⁾			2019⁽⁴⁾			2020
	(RMB in millions, except for per share, per ADS data and percentages)
Consolidated Statement of Comprehensive Income Data
Revenue		1,627,588			2,032,298			2,374,934			2,516,810			1,933,836
Total operating expenses		(1,564,926	)		(1,961,462	)		(2,251,992	)		(2,395,048	)		(1,857,899	)
Profit from operations		62,662			70,836			122,942			121,762			75,937
Profit before income tax expense		46,574			55,691			116,770			103,214			56,073
Income tax expense		(15,919	)		(16,296	)		(42,790	)		(36,199	)		(22,588	)
Profit for the year		30,655			39,395			73,980			67,015			33,485
Attributable to:
Owners of the Company		8,222			23,537			53,036			45,682			19,006
Non-controlling interests		22,433			15,858			20,944			21,333			14,479
Basic and diluted earnings per share attributable to owners of the Company⁽¹⁾		0.04			0.13			0.29			0.25			0.10
Basic and diluted net earnings per ADS⁽²⁾		4.49			12.86			28.98			24.96			10.38
Consolidated Statement of Financial Position Data
Total current assets		385,199			430,294			438,241			466,913			486,767
Total non-current assets		2,019,003			1,983,205			2,002,636			2,265,997			2,001,359
Total assets		2,404,202			2,413,499			2,440,877			2,732,910			2,488,126
Total current liabilities		507,530			588,551			596,430			661,419			605,418
Total non-current liabilities		529,870			446,960			435,556			627,186			516,087
Total liabilities		1,037,400			1,035,511			1,031,986			1,288,605			1,121,505
Equity attributable to owners of the Company		1,187,337			1,192,572			1,213,783			1,230,156			1,215,158
Non-controlling interests		179,465			185,416			195,108			214,149			151,463
Total equity		1,366,802			1,377,988			1,408,891			1,444,305			1,366,621
Other Financial Data
Dividend declared and proposed per share		0.06			0.13			0.18			0.14			0.17
Dividend declared and proposed per ADS		5.93			13.00			17.88			14.37			17.48
Capital expenditures		172,961			219,346			256,106			296,776			246,493
Return on net assets (%)⁽³⁾		0.7			2.0			4.4			3.7			1.6
Consolidated Statement of Cash Flow Data
Net cash flows from operating activities		268,897			368,729			353,256			359,610			318,575
Net cash flows used for investing activities		(176,310	)		(243,790	)		(267,812	)		(332,948	)		(181,986	)
Net cash flows used for financing activities		(70,454	)		(96,746	)		(125,703	)		(27,276	)		(99,400	)

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

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

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

(4)

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

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

Risk Factors

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

Risks Related to Macro Economic Conditions

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

Risks Related to Competition

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

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

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

Risks Related to Outbound Investments and Trading

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

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

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

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

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

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

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

Risks Related to Government Regulation

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

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

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

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

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

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

Risks Relating Financial Reporting Differences

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

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

Risks Related to Controlling Shareholder

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

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control our policies and management affairs;

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

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

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

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

Risks Related to Pricing and Exchange Rate

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

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

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

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

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

Risks Related to Environmental Protection and Safety Production

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

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

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

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

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

Risks Related to COVID-19

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

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

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

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

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

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

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

Risks Related to Climate Change

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

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

Risks Related to Insurance

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

Risks Related to Oil and Gas Reserves

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

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

Risks Related to Liquidity

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

Risks Related to Effectiveness of Internal Control over Financial Reporting

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

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

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

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

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

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

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

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

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

Risks Related to Pipeline Asset Restructuring

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

Risks Related to Employee Misconduct

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

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

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

Risks Related to Cyber Security

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

Item 4 — INFORMATION ON THE COMPANY

Introduction

History and Development of Our Company

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

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

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

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

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

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

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

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

Our Corporate Organization Structure

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

(1)	Indicates approximate shareholding.

(2)

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

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

Acquisitions and Divestments

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

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

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

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

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

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

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

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

Exploration and Production

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

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

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


	Year Ended December 31,
	2018		2019		2020
Revenue (RMB in millions)		658,712		676,320		530,807
Profit from operations (RMB in millions)		73,519		96,097		23,092
Proved developed and undeveloped reserves
Crude oil (million barrels)		7,640.8		7,253.3		5,206.1
Natural gas (Bcf)		76,467.0		76,236.0		76,437.1
Production
Crude oil (million barrels)		890.3		909.3		921.8
Natural gas for sale (Bcf)		3,607.6		3,908.0		4,221.0

Reserves

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

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

Internal Controls Over Reserves Estimates

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

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

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

Third-Party Reserves Reports

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

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

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

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

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

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

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

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


	Crude Oil and Condensate⁽¹⁾			Natural Gas⁽²⁾			Combined
	(Million barrels)			(Bcf)			(BOE, in millions)
Proved developed and undeveloped reserves On a consolidated basis:
Reserves as of December 31, 2017		7,481.3			76,887.6			20,295.9
Revisions of previous estimates		334.7			(1,377.9	)		105.2
Extensions and discoveries		427.5			4,564.9			1,188.3
Improved recovery		95.9			—			95.9
Purchased		191.7			—			191.7
Production for the year		(890.3	)		(3,607.6	)		(1,491.7	)
Reserves as of December 31, 2018		7,640.8			76,467.0			20,385.3
Revisions of previous estimates		(49.7	)		(765.6	)		(177.1	)
Extensions and discoveries		480.6			4,442.6			1,221.0
Improved recovery		90.9			—			90.9
Production for the year		(909.3	)		(3,908.0	)		(1,560.8	)
Reserves as of December 31, 2019		7,253.3			76,236.0			19,959.3
Revisions of previous estimates		(1,553.1	)		(595.3	)		(1,652.2	)
Extensions and discoveries		385.2			4,976.1			1,214.6
Improved recovery		107.7			—			107.7
Purchased		15.0			106.9			32.8
Sold		(80.2	)		(65.6	)		(91.1	)
Production for the year		(921.8	)		(4,221.0	)		(1,625.5	)
Reserves as of December 31, 2020		5,206.1			76,437.1			17,945.6
Proved developed reserves
As of December 31, 2018		5,843.1			40,128.2			12,531.1
Of which: domestic		5,203.4			38,433.2			11,609.0
Overseas		639.7			1,695.0			922.1
As of December 31, 2019		5,473.8			39,869.6			12,118.7
Of which: domestic		4,840.0			38,376.3			11,236.0
Overseas		633.8			1,493.3			882.7
As of December 31, 2020		4,653.6			42,076.7			11,666.4
Of which: domestic		3,987.0			40,732.3			10,775.8
Overseas		666.6			1,344.4			890.6
Proved undeveloped reserves
As of December 31, 2018		1,797.7			36,338.8			7,854.2
Of which: domestic		1,626.4			36,046.9			7,634.2
Overseas		171.3			291.9			220.0
As of December 31, 2019		1,779.5			36,366.4			7,840.6
Of which: domestic		1,659.8			36,156.8			7,686.0
Overseas		119.7			209.6			154.6
As of December 31, 2020		552.5			34,360.4			6,279.2
Of which: domestic		387.9			34,062.0			6,064.9
Overseas		164.6			298.4			214.3
Share of proved developed and undeveloped reserves in associates and joint ventures calculated by the equity method
As of December 31, 2018		321.4			429.4			392.9
As of December 31, 2019		287.1			393.6			352.7
As of December 31, 2020		195.5			362.7			256.0

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

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

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

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

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

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

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

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


	As of December 31,
	2018				2019				2020
	Proved Developed and Undeveloped		Proved Developed		Proved Developed and Undeveloped		Proved Developed		Proved Developed and Undeveloped		Proved Developed
	(Million barrels)
Crude oil reserves
Daqing		1,487.4		1,272.5		1,300.9		1,137.4		928.6		881.5
Changqing		2,095.2		1,423.6		2,098.7		1,376.2		1,262.5		1,185.8
Xinjiang		1,000.0		894.6		975.8		834.3		717.2		677.8
Other regions⁽¹⁾		3,058.2		2,252.4		2,877.9		2,125.9		2,297.8		1,908.5

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


	As of December 31,
	2018				2019				2020
	Proved Developed and Undeveloped		Proved Developed		Proved Developed and Undeveloped		Proved Developed		Proved Developed and Undeveloped		Proved Developed
	(Bcf)
Natural gas reserves⁽²⁾
Changqing		25,425.8		9,406.5		25,589.5		9,362.5		25,969.8		10,700.7
Tarim		22,805.9		13,844.9		22,633.8		14,184.2		22,680.6		15,091.9
Chuanyu		13,882.7		7,857.5		14,421.5		7,953.2		14,933.6		8,316.5
Other regions⁽¹⁾		14,352.6		9,019.3		13,591.2		8,369.7		12,853.1		7,967.6

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

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

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

Exploration and Development

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

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


Year		Daqing		Xinjiang		Changqing		Others⁽¹⁾		Total
2018
	Net exploratory wells drilled⁽²⁾		231		130		885		532		1,778
	Crude oil		207		100		503		299		1,109
	Natural gas		15		11		65		89		180
	Dry⁽³⁾		9		19		317		144		489
	Net development wells drilled⁽²⁾		3,421		1,630		6,233		3,893		15,177
	Crude oil		3,398		1,619		4,086		2,990		12,093
	Natural gas		16		11		2,098		885		3,010
	Dry⁽³⁾		7		—		49		18		74
2019
	Net exploratory wells drilled⁽²⁾		211		157		584		627		1,579
	Crude oil		195		148		359		381		1,083
	Natural gas		2		9		49		109		169
	Dry⁽³⁾		14		—		176		137		327
	Net development wells drilled⁽²⁾		3,008		1,274		5,948		4,273		14,503
	Crude oil		2,990		1,270		4,319		3,243		11,822
	Natural gas		12		4		1,586		1,007		2,609
	Dry⁽³⁾		6		—		43		23		72
2020
	Net exploratory wells drilled⁽²⁾		166		151		661		561		1,539
	Crude oil		142		120		380		356		998
	Natural gas		9		9		53		73		144
	Dry⁽³⁾		15		22		228		132		397
	Net development wells drilled⁽²⁾		3,264		1,048		4,630		3,121		12,063
	Crude oil		3,240		1,040		3,082		2,406		9,768
	Natural gas		11		8		1,512		701		2,232
	Dry⁽³⁾		13		—		36		14		63

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

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

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

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

Oil-and-Gas Properties

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


					Acreage⁽¹⁾ (Thousand acres)
	Productive Wells⁽¹⁾				Developed				Undeveloped
Oil Region	Crude Oil		Natural Gas		Crude Oil		Natural Gas		Crude Oil		Natural Gas
Daqing		75,399		640		1,316.64		107.85		622.71		160.09
Changqing		67,747		20,981		1,623.46		6,704.16		968.00		3,194.00
Xinjiang		35,692		327		435.17		65.55		297.50		21.24
Other regions⁽²⁾		76,657		14,914		1,821.57		1,647.62		1,037.78		1,770.04

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

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

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

Production

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


	For the Year Ended December 31,						% of Total
	2018		2019		2020		% of Total
Crude oil production⁽¹⁾
(thousand barrels per day, except percentages or otherwise indicated)
Daqing		632.6		608.7		595.7		23.7
Changqing		480.9		488.8		497.7		19.8
Xinjiang		232.2		252.1		262.2		10.4
Other⁽²⁾		1,093.4		1,141.6		1,162.9		46.1

Total		2,439.1		2,491.2		2,518.5		100.0

Annual production (million barrels)		890.3		909.3		921.8
Domestic		733.7		739.7		743.8
Overseas		156.6		169.6		178.0
Average sales price (US$ per barrel)		68.28		60.96		40.33

Natural gas production⁽¹⁾⁽³⁾
(million cubic feet per day, except percentages or otherwise indicated)
Changqing		3,275.3		3,481.3		3,757.6		32.6
Tarim		2,353.4		2,535.2		2,748.0		23.8
Chuanyu		1,979.9		2,375.6		2,793.7		24.2
Other⁽⁴⁾		2,275.3		2,314.9		2,233.5		19.4

Total		9,883.9		10,707.0		11,532.8		100.0

Annual production (Bcf)		3,607.6		3,908.0		4,221.0
Domestic		3,324.7		3,633.0		3,993.8
Overseas		282.9		275.0		227.2
Average realized price (US$ per Mcf)		5.85		5.39		4.80

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

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

(3)	Represents production of natural gas for sale.

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

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

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


	Crude Oil Average Realized Prices (RMB/ton)		Natural Gas Average Realized Prices (RMB/Kilostere)		Average Lifting Cost (US$/BOE)
2018
Overall		3,338		1,367		12.31
—China		3,289		1,338		13.55
2019
Overall		3,107		1,313		12.11
—China		3,097		1,437		13.29
2020
Overall		2,056		1,170		11.10
—China		2,111		1,314		12.19

Principal Oil and Gas Regions

Daqing Oil Region

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

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

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

Changqing Oil and Gas Region

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

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

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

Xinjiang Oil Region

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

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

Tarim Oil and Gas Region

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

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

Chuanyu Gas Region

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

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

Refining and Chemicals

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

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


	Year Ended December 31,
	2018		2019		2020
Revenue (RMB in millions)		1,013,413		1,000,062		774,775
Profit from operations/(loss) (RMB in millions)		46,879		16,077		(1,834	)
Crude oil processed (million barrels)		1,180.5		1,228.4		1,177.5
Crude oil primary distillation capacity (million barrels/year)		1,454.2		1,463.0		1,492.6
Production of refined oil products (thousand tons)		111,148		117,791		107,042

Refining

Refined Products

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


	Year Ended December 31,
Principal Products	2018		2019		2020
	(In thousand tons)
Diesel		54,311		54,628		50,719
Gasoline		45,794		50,430		46,280
Kerosene		11,043		12,733		10,043
Lubricants		1,600		1,630		1,575
Fuel oil		1,937		1,672		4,086
Naphtha		11,950		12,829		12,706

Our Refineries

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

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

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

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


	As of December 31,
	2018		2019		2020
Primary distillation capacity⁽¹⁾ (thousand barrels per day)
Jilin Petrochemical		198.4		198.4		198.4
Fushun Petrochemical		222.7		222.7		222.7
Lanzhou Petrochemical		212.6		212.6		212.6
Dushanzi Petrochemical		202.4		202.4		202.4
Dalian Petrochemical		415.0		415.0		415.0
Dalian West Pacific		202.4		202.4		202.4
Guangxi Petrochemical		202.4		202.4		202.4
Sichuan Petrochemical		202.4		202.4		202.4
Yunnan Petrochemical		263.2		263.2		263.2
Other refineries		1,862.5		1886.8		1,967.8

Total		3,984.0		4,008.3		4,089.3

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


	As of December 31,
	2018		2019		2020
Refining throughput (thousand barrels per day)
Jilin Petrochemical		164.4		186.1		178.8
Fushun Petrochemical		175.1		176.4		162.8
Lanzhou Petrochemical		187.7		185.2		183.7
Dushanzi Petrochemical		147.2		124.9		143.6
Dalian Petrochemical		323.0		324.4		269.0
Dalian West Pacific		158.0		146.0		166.0
Guangxi Petrochemical		186.6		196.5		157.5
Sichuan Petrochemical		131.5		177.2		207.3
Yunnan Petrochemical		204.4		216.9		154.8
Other refineries		1,556.4		1,632.0		1,602.4

Total		3,234.3		3,365.6		3,225.9

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

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


	2018		2019		2020
Average utilization rate of primary distillation capacity (%)		82.5		85.1		80.0
Average yield for principal refined products (%)⁽¹⁾⁽²⁾		70.6		71.8		68.2
Overall refining yield (%)		93.7		93.5		93.5

(1)	Principal refined products include gasoline, kerosene, diesel and lubricant.

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

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

Chemicals

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

Our Chemical Products

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


	Year Ended December 31,
	2018		2019		2020
	(In thousand tons)
Basic petrochemicals
Ethylene		5,569		5,863		6,345
Derivative petrochemicals
Synthetic resin		9,165		9,580		10,287
Synthetic fiber raw materials and polymers		1,388		1,309		1,278
Synthetic rubber		869		910		1,001
Other chemicals
Urea		828		1,208		2,163

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

Marketing of Chemicals

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

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


	Year Ended December 31,
Products	2018		2019		2020
	(In thousand tons)
Derivative petrochemicals
Synthetic resin		9,489.1		9,777.8		10,912.8
Synthetic fiber		75.8		39.1		25.2
Synthetic rubber		899.6		1,011.1		1,098.4
Intermediates		10,480.2		11,354.7		12,929.0
Other chemicals
Urea		732.3		1,561.2		2,596.9

Marketing

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

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

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


	Year Ended December 31,
	2018		2019		2020
Revenue (RMB in millions)		1,891,743		2,075,044		1,497,533
Loss from operations (RMB in millions)		8,628		2,878		2,906
External sales volume of refined oil products (thousand tons)		178,648		187,712		161,230

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

•

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

•

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

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

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

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

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


	As of December 31,
	2018		2019		2020
Sales volume of gasoline, kerosene and diesel (thousand tons)		178,648		187,712		161,230
Of which: Gasoline		71,125		76,366		66,084
Kerosene		20,619		21,183		14,350
Diesel		86,904		90,163		80,796
Domestic sales volume of gasoline, kerosene and diesel (thousand tons)		116,356		118,995		105,896
Of which: gasoline		52,222		53,546		49,188
Kerosene		9,260		8,696		8,331
Diesel		54,874		56,753		48,377
Lubricants (thousand tons)		1,158		977		1,404
Market share in domestic refined oil market (%）		36.4		36.7		35.9
Number of service stations		21,783		22,365		22,619
Of which: owned service stations		20,555		20,955		21,042
Sales volume per service station (tons/day)		10.28		10.08		8.48
Number of convenience stores		19,709		20,021		20,212

Natural Gas and Pipeline

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

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


	As of December 31, or Year Ended December 31,
	2018		2019		2020
Revenue (RMB in millions)		362,626		391,023		370,771
Profit from operations (RMB in millions)		25,515		26,108		72,410
Total length of natural gas pipelines (km)		51,751		53,291		22,555
Total length of crude oil pipeline (km)		20,048		20,091		7,190
Total length of refined oil products pipeline (km)		11,728		13,762		1,406
Total volume of natural gas sold (Bcf)		7,654.7		9,149.8		8,784.4

Our Principal Markets for Natural Gas

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

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

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

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

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

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

Pipeline Business

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

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

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

Competition

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

Exploration and Production Operations

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

Refining and Chemicals Operations and Marketing Operations

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

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

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

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

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

Natural Gas and Pipeline Operations

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

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

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

Environmental Matters

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

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

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

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

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

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

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

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

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building environment-friendly projects;

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reducing sulfur in gasoline and diesel fuel;

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

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installing monitoring systems at our pollutant discharge openings.

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

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

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

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

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

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

Properties, Plants and Equipment

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

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

Intellectual Property

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

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

Regulatory Matters

Overview

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

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

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

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The Ministry of Commerce, or the MOFCOM,

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

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

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

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

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The National Development and Reform Commission, or the NDRC:

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

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

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

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

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

Exploration Licenses and Production Licenses

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

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

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

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

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

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

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

Pricing

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

Gasoline and Diesel

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

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

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

Natural Gas

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

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

Pipeline Transmission Tariff

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

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

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

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

Production and Marketing

Crude Oil

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

Refined Products

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

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

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

Natural Gas

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

Foreign Investments

Cooperation in Exploration and Production with Foreign Companies

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

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

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

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

Transportation and Refining

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

The State Further Liberalized Oil And Gas Market Access

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

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

Import and Export

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

Capital Investment and Financing

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

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

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

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

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new refineries, expansion of existing primary processing refineries;

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new ethylene, paraxylene (PX), diphenylmethane diisocyanate (MDI) projects；and

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

Taxes, Fees and Royalties

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


Tax Item	Tax Base	Tax Rate
Enterprise income tax	Taxable income	25%; and from January 1, 2021 to December 31, 2030, the corporate income tax on enterprises incorporated in encouraged industries in the western region of China will be levied at a reduced rate of 15%.

Value-added tax	Revenue	Prior to July 1, 2017, value added tax rates were 17%, 13%, 11% and 6%, as applicable. In particular, 13% was for liquefied natural gas, natural gas, liquefied petroleum gas, agricultural film and fertilizers and 17% for oil products and other products. Effective July 1, 2017, the rate of 13% was canceled and the applicable rate for natural gas has been changed from 13% to 11%. Effective May 1, 2018, the rate of 17% was changed to 16% and the rate of 11% was changed to 10%. Effective April 1, 2019, the rate of 16% was changed to 13% and the rate of 10% was changed to 9%.

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

Resource tax	Sales	6%, exemption or reduction may apply if qualified. From April 1, 2018 to March 31, 2021, shale gas production enjoys a 30% reduction.

Crude oil special gain levy	Sales amount above specific threshold	Five-level progressive tax rates from 20% to 40%, taxable if the crude oil price reaches the threshold of US$65 per barrel.

Environmental protection tax	Air pollution equivalent, water pollution equivalent, solid waste pollution equivalent and noise exceeding the standard decibel	Effective January 1, 2018, the PRC government started to impose environmental protection tax. Different emissions apply their corresponding tax rates. If a taxpayer’s emission of taxable atmospheric pollutants or water pollutants is less than 30% of the national and local pollutant discharge standards, the environmental protection tax shall be levied at 75%. If the taxpayer’s emission of taxable atmospheric pollutants or water pollutants is less than 50% of the national and local pollutant discharge standards, the environmental protection tax shall be levied at 50%.

Mining right royalty	Area	RMB100 to RMB500 per square kilometer per year for exploration; RMB1,000 per square kilometer per year for production.

Royalty fee⁽¹⁾	Production volume	Progressive rate of 0-12.5% for crude oil and 0-3% for natural gas.

(1)

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

Environmental Regulations

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

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

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

Item 4A — UNRESOLVED STAFF COMMENTS

We do not have any unresolved staff comment.

Item 5 — OPERATING AND FINANCIAL REVIEW AND PROSPECTS

General

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

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

Overview

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

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

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

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marketing and trading of refined oil products; and

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

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

Factors Affecting Results of Operations

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

Prices of Principal Products

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

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


	2018		2019		2020
Crude oil (US$/barrel)		68.28		60.96		40.33
Natural gas (US$/thousand cubic feet)		5.85		5.39		4.80
Gasoline (US$/barrel)		124.88		110.63		94.86
Kerosene (US$/barrel)		86.73		78.08		48.67
Diesel (US$/barrel)		110.38		102.16		81.59

Production and Sales Volume for Oil and Gas Products

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

Operating costs

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

Regulatory Environment

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

Pipeline Assets Restructuring

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

Critical Accounting Policies

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

Accounting for Oil and Gas Exploration and Production Activities

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

Oil and Gas Reserves

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

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

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

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

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

Property, Plant and Equipment

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

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


Buildings and plants			8-40 years
Equipment and machinery			4-30 years
Motor vehicles			4-14 years
Other			5-12 years

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

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

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

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

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

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

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

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

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

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

Asset Retirement Obligation

Provision is recognized for the future decommissioning and restoration of oil and gas properties. The amounts of the provision recognized are the present values of the estimated future expenditures. The estimation of the future expenditures is based on current local conditions and requirements, including legal requirements, technology, price level, etc. In addition to these factors, the present values of these estimated future expenditures are also impacted by the estimation of the economic lives of oil and gas properties. Changes in any of these estimates will impact the operating results and the financial position of the Company over the remaining economic lives of the oil and gas properties.

Operating Results

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

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


	Year Ended December 31,
	2018			2019			2020
	(RMB in millions)
Revenue		2,374,934			2,516,810			1,933,836
Operating expenses		(2,251,992	)		(2,395,048	)		(1,857,899	)
Profit from operations		122,942			121,762			75,937
Exchange gain, net		1,120			1			108
Interest expense, net		(18,939	)		(26,778	)		(23,505	)
Share of profit of affiliates and joint ventures		11,647			8,229			3,533
Profit before income tax expense		116,770			103,214			56,073
Income tax expense		(42,790	)		(36,199	)		(22,588	)
Profit for the year attributable to non-controlling interests		20,944			21,333			14,479
Profit for the year attributable to owners of the Company		53,036			45,682			19,006

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


	2018			2019			2019 vs. 2018			2020			2020 vs. 2019
	(RMB in millions, except percentages)
Revenue
Exploration and production		658,712			676,320			2.7	%		530,807			(21.5	)%
Refining and chemicals		1,013,413			1,000,062			(1.3	)%		774,775			(22.5	)%
Marketing		1,891,743			2,075,044			9.7	%		1,497,533			(27.8	)%
Natural gas and pipeline		362,626			391,023			7.8	%		370,771			(5.2	)%
Headquarters and others		2,376			3,700			55.7	%		3,547			(4.1	)%

Total		3,928,870			4,146,149			5.5	%		3,177,433			(23.4	)%
Less: elimination		(1,553,936	)		(1,629,339	)		4.9	%		(1,243,597	)		(23.7	)%

Consolidated net sales from operations		2,374,934			2,516,810			6.0	%		1,933,836			(23.2	)%

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


	2018			2019			2019 vs. 2018			2020			2020 vs. 2019
	(RMB in millions, except percentages)
Profit/(loss) from operations
Exploration and production		73,519			96,097			30.7	%		23,092			(76.0	)%
Refining and chemicals		46,879			16,077			(65.7	)%		(1,834	)		(111.4	)%
Marketing		(8,628	)		(2,878	)		(66.6	)%		(2,906	)		1.0	%
Natural gas and pipeline		25,515			26,108			2.3	%		72,410			177.3	%
Headquarters and others		(14,343	)		(13,642	)		(4.9	)%		(14,825	)		8.7	%

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

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

Consolidated Results of Operations

Overview

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

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

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


	Sales Volume (‘000 ton)							Average Realized Price (RMB/ton)
	2019		2020		Percentage of Change (%)			2019		2020		Percentage of Change (%)
Crude oil*		150,322		158,266		5.3			3,162		2,070		(34.5	)
Natural gas (hundred million cubic meters, RMB/’000 cubic meter)**		2,590.91		2,487.45		(4.0	)		1,313		1,170		(10.9	)
Gasoline		76,366		66,084		(13.5	)		6,487		5,561		(14.3	)
Diesel		90,163		80,796		(10.4	)		5,286		4,221		(20.1	)
Kerosene		21,183		14,350		(32.3	)		4,255		2,652		(37.7	)
Heavy oil		18,095		30,253		67.2			3,249		2,313		(28.8	)
Polyethylene		4,985		5,659		13.5			7,443		6,725		(9.6	)
Lubricant		977		1,404		43.7			8,047		6,426		(20.1	)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Segment Results

Exploration and Production

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

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

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

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

Refining and Chemicals

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

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

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

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

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

Marketing

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

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

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

Natural Gas and Pipeline

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

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

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

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

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

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

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

Consolidated Results of Operations

Overview

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

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

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


	Sales Volume (‘000 ton)							Average Realized Price (RMB/ton)
	2018		2019		Percentage of Change (%)			2018		2019		Percentage of Change (%)
Crude oil*		110,457		150,322		36.1			3,213		3,162		(1.6	)
Natural gas (hundred million cubic meters, RMB/’000 cubic meter)**		2,167.54		2,590.91		19.5			1,367		1,313		(4.0	)
Gasoline		71,125		76,366		7.4			7,024		6,487		(7.6	)
Diesel		86,904		90,163		3.8			5,478		5,286		(3.5	)
Kerosene		20,619		21,183		2.7			4,534		4,255		(6.2	)
Heavy oil		19,964		18,095		(9.4	)		3,335		3,249		(2.6	)
Polyethylene		4,644		4,985		7.3			8,816		7,443		(15.6	)
Lubricant		1,158		977		(15.6	)		7,875		8,047		(2.2	)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Segment Results

Exploration and Production

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

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

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

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

Refining and Chemicals

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

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

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

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

Marketing

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

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

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

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

Natural Gas and Pipeline

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

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

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

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

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

Liquidity and Capital Resources

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

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

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

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

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

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

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


	Year Ended December 31,
	2018			2019			2020
	(RMB in millions)
Net cash flows from operating activities		353,256			359,610			318,575
Net cash flows used for investing activities		(267,812	)		(332,948	)		(181,986	)
Net cash flows used for financing activities		(125,703	)		(27,276	)		(99,400	)
Currency translation difference		2,513			1,069			(4,967	)
Cash and cash equivalents		85,954			86,409			118,631

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

Net Cash Flows from Operating Activities

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

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

Net Cash Flows Used for Investing Activities

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

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

Net Cash Flows Used for Financing Activities

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

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

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


	As of December 31,
	2018		2019		2020
	(RMB in millions)
Short-term borrowings (including current portion of long-term borrowings)		145,150		175,840		117,542
Long-term borrowings		269,422		290,882		251,379

Total borrowings		414,572		466,722		368,921

Less: cash and cash equivalents		85,954		86,409		118,631

Net borrowings		328,618		380,313		250,290

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


	As of December 31,
	2019		2020
	(RMB in million)
Within 1 year		188,771		124,777
Between 1 and 2 years		30,090		53,526
Between 2 and 5 years		253,918		188,012
After 5 years		31,576		27,894

Total		504,355		394,209

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

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

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

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

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

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

Capital Expenditures and Investments

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

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


	2018				2019				2020				2021 (estimated)
	(RMB in millions)		%		(RMB in millions)		%		(RMB in millions)		%		(RMB in millions)		%
Exploration and production⁽¹⁾		196,109		76.57		230,117		77.54		186,620		75.71		175,200		73.31
Refining and chemicals		15,783		6.16		21,823		7.35		21,810		8.85		38,000		15.90
Marketing		16,646		6.50		17,074		5.76		16,294		6.61		12,200		5.10
Natural gas and pipeline		26,502		10.35		27,004		9.10		21,143		8.58		13,000		5.44
Headquarters and others		1,066		0.42		758		0.25		626		0.25		600		0.25

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

(1)

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

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

Exploration and Production

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

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

Refining and Chemicals

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

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

Marketing

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

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

Natural Gas and Pipeline

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

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

Headquarters and Others

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

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

Off-Balance Sheet Arrangements

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

Long-Term Contractual Obligations and Other

Commercial Commitments and Payment Obligations

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

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


	Payment Due by Period
Contractual Obligations	Total		Less Than 1 Year		1-3 Years		3-5 Years		After 5 Years
	(RMB in millions)
Long-term debt		326,567		74,743		118,508		107,649		25,667
Lease obligations		205,889		11,824		20,667		19,431		153,967
Capital commitments		714		530		184		0		0
Debt-related interest		26,292		8,237		11,482		4,021		2,552

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

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


Year	Annual Payment
	(RMB in millions)
2021		800
2022		800
2023		800
2024		800
2025		800

Assets Retirement Obligation

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

Research and Development

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

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

Exploration and Production

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

•

theories and technologies of crude oil and natural gas exploration;

•

oil and gas development theories and technologies;

•

engineering technologies and equipment;

•

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

•

technologies for security, energy conservation and environmental protection.

Refining and Chemicals

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

•

technologies for clean refined oil products;

•

technologies for unqualified heavy oil processing;

•

refining-chemical integration technologies;

•

technologies for production of olefin aromatics;

•

technologies for new products of synthetic resin and synthetic rubber;

•

new catalyst and catalytic materials; and

•

technologies for safety, energy saving and environmental protection.

Trend Information

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

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

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

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

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

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

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

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

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

Other Information

Inflation

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

Related Party Transactions

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

Recent Developments in IFRS

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

Item 6 — DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Directors, Senior Management and Supervisors

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

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

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

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implementing the resolutions of the shareholders’ meeting;

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determining our business plans and investment programs;

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formulating our annual budget and final accounts;

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formulating our profit distribution and loss recovery proposals;

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

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

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deciding on our internal management structure;

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

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formulating our basic management system;

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preparing amendments to our articles of association;

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managing the information disclosures of our company; and

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

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

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

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

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

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to review our financial condition;

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

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

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

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

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

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to submit proposals at the shareholders’ meetings;

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

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

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

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to oversee the compliance of related party transactions; and

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

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

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

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

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


Name⁽¹⁾	Age		Position	Time of Election⁽²⁾
Dai Houliang		57	Chairman of the board of directors	March 2020
Li Fanrong		57	Vice Chairman and Non-executive Director	March 2020
Duan Liangwei		53	Non-executive director	June 2017
Liu Yuezhen		59	Non-executive director	May 2014
Jiao Fangzheng		58	Non-executive director	June 2019
Huang Yongzhang		54	Executive director and president	September 2020
Elsie Leung Oi-sie		81	Independent non-executive director	June 2017
Tokuchi Tatsuhito		68	Independent non-executive director	June 2017
Simon Henry		59	Independent non-executive director	June 2017
Cai Jinyong		61	Independent non-executive director	June 2020
Jiang, Simon X.		67	Independent non-executive director	June 2020
Lv Bo		58	Chairman of the supervisory committee
Zhang Fengshan		59	Supervisor
Jiang Lifu		57	Supervisor
Lu Yaozhong		55	Supervisor
Wang Liang		58	Supervisor
Fu Suotang		58	Employee representative elected supervisor
Li Jiamin		57	Employee representative elected supervisor
Liu Xianhua		57	Employee representative elected supervisor
Li Wendong		56	Employee representative elected supervisor
Sun Longde		58	Vice president
Li Luguang		58	Vice president
Tian Jinghui		58	Vice president
Chai Shouping		59	Chief financial officer and secretary to the board of directors
Ling Xiao		57	Vice president
Yang Jigang		57	Vice president

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

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

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

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

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

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

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

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

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

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

(2)	For directors only.

Directors

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

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

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

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

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

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

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

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

Independent Non-executive Directors

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

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

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

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

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

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

Supervisors

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

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

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

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

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

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

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

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

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

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

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

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

Other Senior Management

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

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

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

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

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

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

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

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

Compensation

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

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

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

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

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

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

Board Practices

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

Nominating Committee

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

Audit Committee

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

Investment and Development Committee

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

•

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

•

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

•

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

•

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

•

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

Evaluation and Remuneration Committee

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

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

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

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

•

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

•

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

Sustainability Committee

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

•

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

•

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

•

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

•

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

•

Employees

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


	Employees		% of Total
Exploration and production		249,643		57.78
Refining and chemicals		132,703		30.72
Marketing		39,782		9.21
Natural gas and pipeline		4,356		1.01
Headquarters and others⁽¹⁾		5,519		1.28
Total		432,003		100.00

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

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

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

Share Ownership

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

Item 7 — MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Major Shareholders

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

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


Name of Shareholders	Class of Shares	Number of Shares Held	Capacity	Percentage of Such Share in That Class of the Issued Shares Capital (%)	Percentage in the Total Share Capital (%)
CNPC	A Shares	146,882,339,136 (long position)	Beneficial Owner	90.71	80.25
CNPC	H Shares	291,518,000 (long position)⁽¹⁾	Interest of Corporation Controlled by the Substantial Shareholder	1.38	0.16
BlackRock, Inc.⁽²⁾	H Shares	1,256,444,090 (long position)	Interest of Corporation Controlled by the Substantial Shareholder	5.96	0.69
BlackRock, Inc.⁽²⁾	H Shares	622,000 (short position)		0.003	0.0003

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

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

Related Party Transactions

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

Continuing Related Party Transactions

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

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

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

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

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

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

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

•

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

•

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

•

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

•

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

•

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

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

2. Specific product and service implementation agreements

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

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

3. Land Use Rights Lease Agreement

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

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

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

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

4. Buildings Lease Agreement

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

5. Intellectual Property Licensing Contracts

We and CNPC continue to implement the three intellectual property licensing contracts entered on March 10, 2000, namely the Trademark Licensing Contract, the Patent and Know-how Licensing Contract and the Computer Software Licensing Contract. CNPC has agreed to extend the term of the Computer Software Licensing Contract to the expiry date of the statutory protection period of the relevant software or when such software enters the public domain. Pursuant to these licensing contracts, CNPC has granted us the exclusive right to use certain trademarks, patents, know-how and computer software of CNPC at no cost.

6. Contract for the Transfer of Rights under Sino-Foreign Cooperative Production Sharing Contracts

We and CNPC continue to implement the Contract for the Transfer of Rights under Sino-Foreign Cooperative Production Sharing Contracts dated December 23, 1999. As part of the restructuring to organize our company, CNPC transferred to us relevant rights and obligations under 28 production sharing contracts executed with international oil and natural gas companies, except the rights and obligations relating to CNPC’s supervisory functions.

As of December 31, 2020, a total of 29 projects were being executed by CNPC under the production sharing contracts. CNPC has assigned to us at nil consideration all of its rights and obligations under the production sharing contracts and all the related interests vested in CNPC pursuant to applicable PRC laws and regulations, except the rights and obligations relating to CNPC’s supervisory functions.

Our directors believe that these continuing related party transactions were made in the normal and ordinary course of business for the benefits of our company, and are in the interests of the shareholders as a whole.

7. Caps for the Continuing Related Party Transactions

We and CNPC update the aggregate annual amount proposed for each category of continuing related party transactions every three years based on the historical transactions and transaction amounts for the provision of such category of products and services by us, CNPC and their jointly held companies to each other during the prior periods, and by taking into account the business development of our company, CNPC and the jointly held companies, and the possible magnitude of fluctuation of the prices of crude oil, petrochemical products, natural gas, and other petroleum products and services on international markets and China market, which amount, after being approved by the shareholders at the relevant general meeting, should be adopted as the proposed annual cap for the corresponding category of continuing related party transactions for each of the next three years. The transaction amounts of all the historical continuing related party transactions as described above were all within the corresponding proposed annual caps.

The total annual revenue or expenditures under any of the continuing related party transactions during the period from January 1, 2018 to December 31, 2020 did not exceed the corresponding proposed annual caps set out in the following table:


	Proposed Annual Caps
Category of Products and Services	2018		2019		2020
	RMB (in millions)
(i) Products and services provided by us to the CNPC and jointly-held companies		153,716		153,861		155,390
(ii) Products and services provided by CNPC to us
(a) Construction and technical services		208,103		203,908		198,537
(b) Production services		228,730		220,525		212,833
(c) Supply of materials services		35,566		35,344		35,819
(d) Social and ancillary services		9,093		9,432		9,731
(e) Financial Services
—Aggregate of the daily highest amount of deposits of our company in CNPC and the total amount of interest received in respect of these deposits		63,000		63,000		63,000
—Insurance fees, handling charges for entrusted loans, and fees and charges for settlement services and other intermediary business		2,417		2,753		3,110
—Rents and other payments made under financial leasing loans, and fees and charges for settlement services and other intermediary business		17,804		19,894		21,605
(iii) Financial services provided by us to the jointly-held companies		22,291		22,398		22,506
(iv) Rents for land leases paid by us to CNPC (excluding taxes)		5,783		5,783		5,783
(v) Rents for buildings paid by us to CNPC		730		730		730

Loans and Guarantees

As of December 31, 2020, we had unsecured short-term and long-term loans from CNPC and its affiliates in an aggregate amount of RMB146,579 million and with an average annual interest rate of 2.93%. The proceeds from the loans were basically used for our working capital. As of December 31, 2020, the total outstanding amount of our debts secured by CNPC and its subsidiaries was RMB12,894 million.

In 2020, we did not provide any guarantee to or for the benefit of CNPC and its subsidiaries. As of December 31, 2020, the total outstanding guarantee we provided to or for the benefit of our subsidiaries, associates and affiliates other than CNPC and its subsidiaries was RMB187,108 million.

For a detailed discussion of continuing related party transactions, please refer to Note 37 to our consolidated financial statements included in this annual report.

One-off Related Party Transactions

1. Kunlun Energy Pipeline Assets Transaction

In 2020, we and PipeChina completed the pipeline assets restructuring transaction. As part of the consideration for the transaction, we received 29.9% equity interests in PipeChina. Pursuant to the arrangements contemplated under the transaction, we appointed two directors to the board of directors of PipeChina, both of whom are incumbent directors and senior officers of our company. After completion of this transaction, our subsidiary, Kunlun Energy, entered into an equity transfer agreement with PipeChina for transfer to PipeChina of Kunlun Energy’s equity interests in its pipeline business, the transaction was completed at 24:00 on March 31, 2021. Due to the fact that we holds equity interests and board seats in PipeChina, the transaction between Kunlun Energy and PipeChina as described above constitute a related party transaction. For details, please see “Item 4 — Information on the Company — Acquisitions and Divestments”.

2. Increase of Capital of CNPC Finance Co., Ltd.

On June 13, 2019, our board of directors passed a resolution on the increase of capital contributions to CNPC Finance Co., Ltd. (“CPF”) by CNPC, CNPC Capital Co., Ltd. (“CNPC Capital”) and us in proportion to the parties’ respective shareholding percentages in CPF. CNPC, CNPC Capital and we currently hold 40%, 28% and 32% equity interests in CPF, respectively. After completion of this transaction, the registered capital of CPF will be increased from RMB8,331,250,000 to RMB20,000,000,000, including (i) RMB8,064,023,100 to be converted out of the capital reserves of CPF into its registered capital, (ii) an additional capital of RMB14,000,000,000 to be subscribed for and contributed by the shareholders in cash in proportion to their then shareholding percentages, of which RMB3,604,726,900 will be recognized as registered capital and the rest shall be recognized as capital reserves. After completion of the transaction, the parties’ shareholding percentages in CPF will remain unchanged. According to the arrangement, we will be required to contribute RMB4,480,000,000 in cash, which will be funded by our retained earnings. This transaction is subject to approval of the relevant governmental authorities.

We expect that this transaction will increase the returns on our investment in CPF and it will provide us with a better position to access efficient funds and financial management services provided by CPF. We expect that this transaction will not affect the continuity of our business and the stability of our management.

In addition, during the reporting period, we had a number of other continuing related party transactions with certain companies such as CNPC Exploration and Development Company Limited. Also see Note 37 to our consolidated financial statements included in this annual report.

The above-mentioned related-party transactions were within the upper limit of the amount of related party transactions as approved at the shareholders’general meeting.

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

Interests of Experts and Counsel

Not applicable.

Item 8 — FINANCIAL INFORMATION

Financial Statements

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

Legal Proceedings

We are involved in several legal proceedings concerning matters arising in the ordinary course of our business. We believe, based on currently available information, that these proceedings, individually or in the aggregate, will not have a material adverse effect on our results of operations or financial condition.

Dividend Policy

Our Articles of Association provided that if our net profit attributable to owners of the Company and the accumulated undistributed profit for a year are positive, and our cash flow can satisfy our normal operation and sustainable development, the amount of cash dividend to be distributed shall not be less than 30% of the net profit attributable to owners of the Company realized in that year. We distribute dividends twice a year. Distribution of final dividends needs to be passed at the general meeting by ordinary resolution. The general meeting can, by ordinary resolution, authorize the board of directors to determine the distribution of interim dividends. Since the listing of our ADSs and our shares, we have distributed dividends to the shareholders by strictly complying with the Articles of Association and other relevant regulatory requirements, and adhering to the principle of bringing returns to shareholders, and after an overall consideration of various factors, including our operating performance, financial status, and cash flows.

Our board of directors will declare dividends, if any, in Renminbi on a per share basis and will pay such dividends in Renminbi with respect to A Shares and HK dollars with respect to H Shares. The Bank of New York will convert the HK dollar dividends and distribute them to holders of ADSs in U.S. dollars, less expenses of conversion. The holders of the A Shares and H Shares will share proportionately on a per share basis in all dividends and other distributions declared by our board of directors.

We will take into account factors including the following for declaration of dividends:

•

general business conditions;

•

our financial results;

•

capital requirements;

•

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

•

our shareholders’ interests;

•

the effect on our debt ratings; and

•

other factors our board of directors may deem relevant.

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

•

recovery of losses, if any;

•

allocations to the statutory common reserve fund; and

•

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

The allocation to the statutory funds is 10% of profit for the year attributable to owners of the company determined in accordance with PRC accounting rules. Under PRC law, our distributable earnings will be equal to our profit for the year attributable to owners of the company determined in accordance with PRC accounting rules or IFRS, whichever is lower, less allocations to the statutory and discretionary funds.

We believe that our dividend policy strikes a balance between two important goals:

•

providing our shareholders with a competitive return on investment; and

•

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

In 2020, our operating performance was severely impacted by the COVID-19 pandemic and persistent low oil prices. Despite all the difficulties faced by us, we continue to attach great importance to rewarding our shareholders. After an overall consideration of factors, including our operating performance, financial status, cash flows and income from pipeline assets restructuring, we paid a dividend of RMB16,000 million in aggregate, representing RMB0.08742 per share (inclusive of applicable taxes), for the six months ended June 30, 2020 to our A shareholders and H shareholders (including ADS holders). The board of directors recommended a final dividend of RMB16,000 million in aggregate, representing RMB0.08742 per share (inclusive of applicable taxes) for the second half of 2020. The final dividend for the year ended December 31, 2020 is subject to the approval by the annual general meeting to be held on June 10, 2021, and shall be paid to our shareholders listed on our shareholder register as of the close of business on June 28, 2021. The register of members of H Shares will be closed from June 23, 2021 to June 28, 2021 (both days inclusive) during which period no transfer of H Shares will be registered. The final dividends for A Shares and H Shares (including ADSs) for 2020 will be paid on or about June 29, 2021 and July 30, 2021, respectively.

Significant Changes

None.

Item 9 — THE OFFER AND LISTING

Trading Market Information

Our ADSs, each representing 100 H Shares, par value RMB1.00 per H Share, have been listed and traded on the New York Stock Exchange since April 6, 2000 under the symbol “PTR”. Our H Shares have been listed and traded on the Hong Kong Stock Exchange since April 7, 2000 under the symbol “857”. In September 2005, our company issued an additional 3,196,801,818 H Shares. CNPC also sold 319,680,182 state-owned shares it held concurrently with our company’s issuance of new H Shares in September 2005. In October 2007, we issued 4 billion A Shares and these shares were listed on the Shanghai Stock Exchange on November 5, 2007 under the symbol “601857”. Following the issuance of A Shares, all the domestic shares of our company existing prior to the issuance of A Shares, i.e. the shares held by CNPC (our controlling shareholder) in our company, have been registered with China Securities Depository and Clearing Corporation Limited as tradable A Shares. The New York Stock Exchange, the Hong Kong Stock Exchange and Shanghai Stock Exchange are the principal trading markets for our ADSs, H Shares and A Shares, respectively.

As of December 31, 2020, there were 21,098,900,000 H Shares and 161,922,077,818 A Shares issued and outstanding. As of December 31, 2020, there were 144 registered holders of American depositary receipts evidencing 6,942,871 ADSs. The depositary of the ADSs is the Bank of New York Mellon.

Item 10 — ADDITIONAL INFORMATION

Memorandum and Articles of Association

Our Articles of Association Currently in Effect

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

The amendment includes, among others, (i) in accordance with the PRC Company Law and the Constitution of the Communist Party of China, an addition of a new Article 5, which reads as follows: “The company shall set up the CPC organizations and working bodies with adequate staff and funds; the CPC organizations shall play the role of the core of leadership and political center of the company”, and an addition of a new Article 105, which

reads as follows: “The board of directors of the company shall take the CPC organization’s advices before it determines such material matters as the orientations of the company’s reform and development, key objectives and tasks and major work arrangements. With respect to appointment of management of the company, the CPC organizations shall consider and provide their comments and suggestions on the candidates nominated by the board of directors or the president, or the CPC organizations may recommend candidates to the board of directors and the president”; (ii) revisions implementing in the Company a cumulative voting system for election of directors and supervisors at general meeting; and (iii) revisions providing that the tenure of re-elected independent directors cannot exceed six years.

On June 11, 2020, the Proposal for the Amendments to the business scope of the Company and the Amendments to the Articles of Association was reviewed and approved at our annual general meeting, and the Articles of Association was amended to reflect the amendments to the business scope. Amendments to the business scope of the Company mainly include:

(i)

amending a description in the business scope reading as “the exploration and production of crude oil and natural gas” to read as “the exploration, exploitation and sales of resources including crude oil, natural gas, coalbed methane, shale gas, shale oil and gas hydrate” and expanding the business scope to include “the exploration, exploitation and utilization of geothermal energy”;

(ii)

expanding the business scope to include “manufacture and sale of food additives; and manufacture and sale of non-woven fabrics”; and

(iii)

expanding the business scope to include “value-added telecommunications services, online platform, online information services, online data services, and online wholesale and retail services”.

The following is a summary based on the significant provisions of our Articles of Association. For details, you should read our amended and restated Articles of Association filed with SEC on June 11, 2020.

Objectives and Purposes

We are a joint stock limited company established in accordance with the PRC Company Law and certain other laws and regulations of the PRC. We are registered with the PRC State Administration for Industry and Commerce with a business license number being 1000001003252. Article 10 of our articles of association provides that our objectives are to comply with the rules of the market, to continuously explore business models which are suitable for the development of the Company, to fully utilize every resource of the Company, to place emphasis on personnel training and technological development, to provide the society with competitive products, and to use its best endeavors to maximize its profits. Article 11 of our articles of association provides that our scope of businesses includes, among other things, the exploration, exploitation and sales of resources including crude oil, natural gas, coalbed methane, shale gas, shale oil and gas hydrate; the exploration, exploitation and utilization of geothermal energy; storage and sale of crude oil and refined oil; production, sale and storage of refined oil, petrochemical and chemical products; import and export; construction and operation of oil and natural gas pipelines; technical development, consultation and service for oil exploration and production, petrochemistry and related engineering; sale of materials, equipment and machines necessary for production and construction of oil and gas, petrochemicals and pipelines construction; the sale and warehousing of lubricating oil, fuel oil, bitumen, chemical fertilizers, auto parts, commodities and agricultural materials, etc.

Directors

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

Where a director is in any way, directly or indirectly, materially interested in a proposal, arrangement or contract (other than his contract of service with the Company), he shall declare the nature and extent of his

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

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

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

Dividends

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

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

Shareholders’ Rights

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

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

Shareholders’ General Meetings

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

A 45-days prior written notice should be given to all of the shareholders whose names appear in the share register. A shareholder who intends to attend the meeting shall deliver to the Company his written reply concerning his attendance at such meeting 20 days before the date of the meeting. Shareholder(s) holding 3% or more of the total voting shares of the Company shall have the right to propose motions in writing to the convener 10 days prior to the date of such meeting. Any shareholder who is entitled to attend and vote at a general meeting shall be entitled to appoint one or more persons as his proxies to attend and vote on his behalf.

A shareholder (including a proxy), when voting at a general meeting, may exercise such voting rights as are attached to the voting shares which he represents, except where the cumulative voting system is adopted for voting on the election of directors and supervisors, each share shall have one vote. The voting on the election of directors and supervisors at the general meeting shall apply the cumulative voting system, which means that each share held by a shareholder shall have the same number of voting rights as the number of directors and supervisors to be elected and the voting rights held by a shareholder can be collectively exercised. At any

shareholders’ general meeting, a resolution shall be decided on a show of hands unless voting by way of a poll is required under the listing rules or demanded by the following persons before or after any vote by a show of hands: (i) the chairman of the meeting; (ii) at least two shareholders present in person or by proxy entitled to vote thereat; (iii) one or more shareholders present in person or by proxy who represent(s), individually or in aggregate, 10% or more of all shares carrying the right to vote at the meeting.

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

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

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

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

passed by affirmative votes representing at least two-thirds of the voting rights represented by the shareholders (including shareholders’ proxies) present at the meeting.

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

In addition to holders of other classes of shares, the holders of the domestic-invested shares and holders of overseas-listed foreign-invested shares shall be deemed to be holders of different classes of shares. Rights conferred on any class of shareholders (“class rights”) may not be varied or abrogated save with the approval of a special resolution of shareholders at a general meeting and by the class shareholders affected at a separate meeting. Article 96 set forth the circumstances which shall be deemed to be variation or abrogation of the rights attaching to a particular class of shares, including but not limited to increasing or decreasing the number of shares of that class, reducing or removing preferential rights attached to shares of that class to receive dividends or the distribution of assets in the event that the Company is liquidated, etc. Shareholders of the affected class, whether or not otherwise having the right to vote at shareholders’ general meetings, have the right to vote at class meetings in respect of certain matters listed in Article 96, but interested shareholder(s) shall not be entitled to vote at such class meetings. Resolutions of a class meeting shall be passed by votes representing two-thirds or more of the voting rights of shareholders of that class present at the relevant meeting who are entitled to vote. Written notice of a class meeting shall be given to all shareholders who are registered as holders of that class in the register of shareholders 45 days before the date of the class meeting. A shareholder who intends to attend the class meeting shall deliver his written reply in respect thereof to the Company 20 days before the date of the class meeting. The special procedures for approval by separate class shareholders shall not apply to the circumstances where the Company issues, upon the approval by a special resolution of its shareholders at a general meeting, either separately or concurrently once every 12 months, not more than 20% of each of its existing issued Domestic-Invested Shares and Overseas-Listed Foreign-Invested Shares.

Share Capital

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

Material Contracts

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

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Foreign Exchange Controls

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

•

debt service on foreign currency-denominated debt;

•

external capital expenditures and equity investment;

•

purchases of imported oil, gas, equipment and materials; and

•

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

Under the existing foreign exchange regulations in China, we may undertake current account foreign exchange transactions, including the payment of dividends, without prior approval from the State Administration of Foreign Exchange by producing commercial documents evidencing such transactions.

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 U.S. dollars. We believe that we have or will be able to obtain sufficient foreign exchange to continue to satisfy these obligations. We engage in hedging transactions with a view to managing exchange rate risk 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 and United States federal income tax consequences of the ownership of H Shares or ADSs purchased held by the investor as capital assets.

PRC Taxation

Dividends and Individual Investors

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

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have tax treaties with China prescribing a tax rate on dividends between 10% and 20%, the PRC company, whose shares are held by such individual H shareholders, shall withhold the individual income tax at the agreed-upon tax rate. For individual H shareholders whose home countries have no tax treaties with China or whose home countries have tax treaties with China prescribing a tax rate on dividends higher than 20%, the PRC company shall withhold the tax at a rate of 20%.

Dividends and Foreign Enterprises

Pursuant to the Enterprise Income Tax Law of the PRC and the implementing rules thereunder, the Circular on Issues Concerning the Withholding of Corporate Income Tax by PRC Resident Enterprises from Dividends Payable to H Share Non-resident Corporate Shareholders, and the Measures for the Administration of the Enjoyment by Non-residents of the Treatments under the Tax Treaties, when paying any of its H share non-resident corporate shareholders any dividends, we withhold the corporate income tax from such dividends at a rate of 10%. For an H share non-resident corporate shareholder whose home country has a tax treaty with China prescribing a tax rate on dividends lower than 10%, such H share non-resident corporate shareholder may, by itself or through an agent or us, make filings with the competent taxation authority for the treatment under the applicable tax treaty and present the documents evidencing that such shareholder is qualified to be a beneficial owner as defined under the applicable tax treaty.

Tax Treaties

If you are a tax resident or citizen of a country that has entered into 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;

•

Australia;

•

Canada;

•

France;

•

Germany;

•

Japan;

•

Malaysia;

•

Singapore;

•

the United Kingdom; and

•

the Netherlands.

Under certain treaties, the rate of withholding tax imposed by China’s taxation authorities may be reduced. Pursuant to the Measures for the Administration of the Enjoyment by Non-residents of the Treatments under Applicable Treaties promulgated by the State Administration of Taxation on October 14, 2019, a non-PRC resident may apply the applicable benefit under tax treaties to him/herself when he/she makes tax filings or upon withholding by third parties and no prior approvals of the taxation authorities are required, if such non-PRC resident decides based on his/her own judgment that he/she is entitled to such benefits.

Capital Gains

The Individual Income Tax Law of the PRC, provides for a capital gains tax of 20% on individuals. The Provisions for Implementing the Individual Income Tax Law of the PRC, provides that the measures to levy individual income tax on the gains realized on the sale of shares will be made in the future by the Ministry of

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

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

Shanghai-Hong Kong Stock Connect

In April 2014, China launched the Shanghai-Hong Kong Stock Connect Program, which is a cross-boundary investment channel that connects the Shanghai Stock Exchange and the Hong Kong Stock Exchange. Under the program, investors in each market are able to trade shares on the other market using their local brokers and clearing agencies. In accordance with the current PRC tax policies, foreign investors are temporarily exempt from income tax on capital gains derived from the trading of A Shares under the program and will be subject to a 10% withholding tax on the dividends received under the program. For a shareholder whose home country has tax treaty with China prescribing a tax rate on dividends lower than 10%, such shareholder may by itself or through an agent or the withholding agent, apply to the competent taxation authority for the treatment under the applicable tax treaty and present the documents evidencing that such shareholder is qualified to be a beneficial owner as defined under the applicable tax treaty.

Additional PRC Tax Considerations

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

United States Federal Income Taxation

The following is a general discussion of the material United States federal income tax consequences of purchasing, owning and disposing of the H Shares or ADSs if you are a U.S. holder, as defined below, and hold the H Shares or ADSs as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended, or the Code. This discussion does not address all of the tax consequences relating to the purchase, ownership and disposition of the H Shares or ADSs, and does not take into account U.S. holders who may be subject to special rules including:

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tax-exempt entities;

•

certain insurance companies;

•

broker-dealers;

•

traders in securities that elect to mark to market;

•

U.S. expatriates;

•

U.S. holders liable for alternative minimum tax;

•

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

•

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

•

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

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

You are a “U.S. holder” if you are:

•

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

•

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

•

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

•

a trust:

•

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

•

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

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

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

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

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

Distributions on the H Shares or ADSs

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

•

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

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•

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

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

Any dividend will not be eligible for the dividends-received deduction generally allowed to United States corporations with respect to dividends received from United States corporations. The amount of any distribution of property other than cash will be the fair market value of such property on the date of such distribution.

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

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

Sale, Exchange or Other Disposition

Upon a sale, exchange or other disposition of the H Shares or ADSs, you will recognize a capital gain or loss for United States federal income tax purposes in an amount equal to the difference between the U.S. dollar value of the amount realized and your tax basis, determined in U.S. dollars, in such H Shares or ADSs. Any gain or loss will generally be United States source gain or loss for foreign tax credit limitation purposes. Capital gain of certain non-corporate U.S. holders, including individuals, is generally taxed at a reduced rate where the property has been held more than one year. Your ability to deduct capital losses is subject to limitations. If any PRC tax is withheld from your gain on a sale, exchange or other disposition of H Shares or ADSs, as discussed under “— PRC Taxation,” such tax would only be creditable against your United States federal income tax liability to the extent that you have foreign source income. However, in the event that such PRC tax is withheld, a U.S. holder that is eligible for the benefits of the Treaty may be able to treat the gain as foreign source income for foreign tax credit satisfaction purposes. You are urged to consult your tax advisors regarding the United States federal income tax consequences if PRC tax is withheld from your gain on the sale, exchange or other disposition of H Shares or ADSs, including the availability of a foreign tax credit under your particular circumstances.

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

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PFIC Rules

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

•

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

•

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

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

We believe that we did not meet either of the PFIC tests in the taxable year that ended December 31, 2020 and believe that we will not meet either of the PFIC tests in the current or subsequent taxable years and therefore will not be treated as a PFIC for such periods. We must make a separate determination after the close of each taxable year as to whether we were a PFIC for that year. Accordingly, there can be no assurance that we will not be a PFIC in the current or subsequent taxable years.

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

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

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

If you own the H Shares or ADSs during any year that we are a PFIC, you must annually file Internal Revenue Service, or IRS, Form 8621(or any other form subsequently specified by the United States Treasury

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Department), subject to certain exceptions based on the value of PFIC stock held. We encourage you to consult your own tax advisor concerning the United States federal income tax consequences of holding the H Shares or ADSs that would arise if we were considered a PFIC.

Backup Withholding and Information Reporting

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

•

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

•

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

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

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

Documents on Display

You may find our annual reports on Form 20-F, the exhibits and other documents filed with the SEC on its website www.sec.gov and our company’s website www.petrochina.com.cn. Upon request, we will provide hardcopies of our annual report on Form 20-F to you free of charge.

The SEC 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. This annual report contains exhibits and schedules. Any statement in this annual report about any of our contracts or other documents is not necessarily complete. If the contract or document is filed or incorporated by reference as an exhibit to this annual report, the contract or document is deemed to modify the description contained in this annual report. You must review the exhibits themselves for a complete description of the contracts or documents.

As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.

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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. We hedge part of the exchange rate risk through hedging instruments. Additionally, our operations are affected by certain commodity price movements. We use derivative instruments such as commodity futures, commodity swaps and commodity options for hedging some price risks efficiently. Substantially all of the financial instruments we hold are for purposes other than trading. We regard an effective market risk management system as an important element of our treasury function and are currently enhancing our systems. A primary objective of our market risk management is to implement certain methodologies to better measure and monitor risk exposures.

The following discussions and tables, which constitute “forward-looking statements” that involve risks and uncertainties, summarize 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, 2018, 2019 and 2020. The information is presented in Renminbi equivalents, our reporting currency.

Foreign Exchange Rate Risk

We conduct our business primarily in Renminbi. However, a portion of our RMB revenues are converted into other currencies to be used in foreign investment and trading, to meet foreign currency financial instrument obligations and to pay for imported oil, gas, equipment and other materials. Foreign currency payments for imported oil and gas represented 24.4%, 23.6% and 21.6% of our total purchases, services and other expenses in 2018, 2019 and 2020, respectively. These are the main foreign exchange payments of the company.

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, 2018, 2019 and 2020, respectively.

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December 31, 2020


	Expected Maturity Date														Percentage to Total Long-Term Borrowings		Fair Value
	2021		2022		2023		2024		2025		Thereafter		Total		Percentage to Total Long-Term Borrowings		Fair Value
	(RMB equivalent in millions, except percentages)
Long term debt
Loans in RMB
Fixed Rate Loan Amount		1,291		16,877		7,657		2,880		13,353		278		42,336		12.96%		40,972
Average Interest Rate		4.01%		4.10%		3.42%		2.89%		4.04%		3.77%		—		—		—
Variable Rate Loan Amount		15,844		15,035		29,828		3,200		1,750		8,603		74,260		22.74%		74,260
Average Interest Rate		3.56%		3.63%		2.60%		3.80%		4.20%		4.03%		—		—		—
Loans in Euro
Fixed Rate Loan Amount		—		—		4		—		—		124		128		0.04%		243
Average Interest Rate		—		—		2.00%		—		—		3.88%		—		—		—
Variable Rate Loan Amount		—		—		—		—		3,812		—		3,812		1.17%		3,812
Average Interest Rate		—		—		—		—		1.18%		—		—		—		—
Loans in United States Dollar
Fixed Rate Loan Amount		11		22		—		—		—		131		164		0.05%		161
Average Interest Rate		1.55%		1.55%		—		—		—		0.05%		—		—		—
Variable Rate Loan Amount		11,597		12,646		9,437		—		29,415		5,513		68,608		21.00%		68,608
Average Interest Rate		4.37%		1.39%		1.33%		—		1.39%		2.16%		—		—		—
Loans in Japanese Yen
Fixed Rate Loan Amount		—		—		—		—		—		18		18		0.01%		13
Average Interest Rate		—		—		—		—		—		1.76%		—		—		—
Variable Rate Loan Amount		—		—		—		—		—		—		—		—		—
Average Interest Rate		—		—		—		—		—		—		—		—		—
Loans in CFA Franc
Fixed Rate Loan Amount		—		2		—		—		—		—		2		—		2
Average Interest Rate		—		2.00%		—		—		—		—		2.00%		—		—
Variable Rate Loan Amount		—		—		—		—		—		—		—		—		—
Average Interest Rate		—		—		—		—		—		—		—		—		—
Debentures in United States Dollar
Fixed Rate Loan Amount		—		—		—		—		—		—		—		—		—
Average Interest Rate		—		—		—		—		—		—		—		—		—
Debentures in RMB
Fixed Rate Loan Amount		31,000		2,000		4,000		—		—		11,000		48,000		14.70%		47,333
Average Interest Rate		3.09%		4.09%		4.88%		—		—		3.84%		—		—		—
Medium Term Notes in RMB
Fixed Rate Loan Amount		15,000		—		21,000		—		50,000		—		86,000		26.34%		85,230
Average Interest Rate		3.45%		—		2.42%		—		3.64%		—		—		—		—
Medium Term Notes in United State Dollar
Fixed Rate Loan Amount		—		—		—		—		3,239		—		3,239		0.99%		3,175
Average Interest Rate		—		—		—		—		3.75%		—		—		—		—
Total		74,743		46,582		71,926		6,080		101,569		25,667		326,567		100.00%		323,809

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December 31, 2019


	Expected Maturity Date														Percentage to Total Long-Term Borrowings		Fair Value
	2020		2021		2022		2023		2024		Thereafter		Total		Percentage to Total Long-Term Borrowings		Fair Value
	(RMB equivalent in millions, except percentages)
Long term debt
Loans in RMB
Fixed Rate Loan Amount		10,537		4,645		33,010		2,855		17,716		10,152		78,915		20.97%		76,027
Average Interest Rate		4.00%		2.79%		4.07%		4.30%		3.17%		4.15%		—		—		—
Variable Rate Loan Amount		2,854		17,515		51,274		315		768		7,839		80,565		21.41%		80,565
Average Interest Rate		4.52%		4.37%		4.12%		5.00%		4.32%		4.11%		—		—		—
Loans in Euro
Fixed Rate Loan Amount		4		1		1		1		—		126		133		0.04%		239
Average Interest Rate		2.00%		2.00%		2.00%		2.00%		—		3.88%		—		—		—
Variable Rate Loan Amount		3,595		—		—		—		—		—		3,595		0.96%		3,595
Average Interest Rate		2.35%		—		—		—		—		—		—		—		—
Loans in United States Dollar
Fixed Rate Loan Amount		36		36		17		9		9		105		212		0.06%		188
Average Interest Rate		0.49%		0.49%		0.36%		0.05%		0.05%		0.05%		—		—		—
Variable Rate Loan Amount		42,838		12,544		14,769		—		—		13		70,164		18.65%		70,164
Average Interest Rate		4.34%		4.38%		4.03%		—		—		5.41%		—		—		—
Loans in Japanese Yen
Fixed Rate Loan Amount		1		—		3		3		3		8		18		0.00%		18
Average Interest Rate		2.30%		—		2.30%		2.30%		2.30%		1.77%		—		—		—
Variable Rate Loan Amount		—		—		—		—		—		—		—		—		—
Average Interest Rate		—		—		—		—		—		—		—		—		—
Loans in Hong Kong Dollar
Variable Rate Loan Amount		6		2		672		—		—		—		680		0.18%		680
Average Interest Rate		2%		2%		3.77%		—		—		—		—		—		—
Debentures in Canadian Dollar
Fixed Rate Loan Amount		—		—		—		—		—		—		—		—		—
Average Interest Rate		—		—		—		—		—		—		—		—		—
Variable Rate Loan Amount		—		—		—		—		—		—		—		—		—
Average Interest Rate		—		—		—		—		—		—		—		—		—
Debentures in United States Dollar
Fixed Rate Loan Amount		—		—		—		—		—		—		—		—		—
Debentures in RMB
Fixed Rate Loan Amount		2,000		—		31,000		—		10,300		6,700		50,000		13.29%		49,622
Average Interest Rate		4.30%		—		3.09%		—		4.10%		3.84%		—		—		—
Medium Term Note in RMB
Fixed Rate Loan Amount		20,000		—		15,000		—		50,000		—		85,000		22.59%		83,894
Average Interest Rate		3.85%		—		3.45%		—		3.64%		—		—		—		—
Medium Term Notes in United State Dollar
Fixed Rate Loan Amount		3,472		—		—		—		—		3,471		6,943		1.85%		6,815
Average Interest Rate		2.88%		—		—		—		—		3.75%		—		—		—
Total		85,343		34,743		145,746		3,183		78,796		28,414		376,225		100.00%		371,807

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December 31, 2018


	Expected Maturity Date														Percentage to Total Long-Term Borrowings		Fair Value
	2019		2020		2021		2022		2023		Thereafter		Total		Percentage to Total Long-Term Borrowings		Fair Value
	(RMB equivalent in millions, except percentages)
Long term debt
Loans in RMB
Fixed Rate Loan Amount		36,351		10,583		1,310		26,585		2,626		20,114		97,569		28.30%		94,272
Average Interest Rate		4.31%		3.99%		4.43%		3.66%		4.30%		4.58%		—		—		—
Variable Rate Loan Amount		32,508		3,091		28,339		165		266		7,624		71,993		20.88%		71,993
Average Interest Rate		3.94%		4.53%		4.08%		4.85%		4.89%		4.11%		—		—		—
Loans in Euro
Fixed Rate Loan Amount		13		—		—		—		—		52		65		0.02%		166
Average Interest Rate		2.00%		—		—		—		—		0.95%		—		—		—
Variable Rate Loan Amount		—		2,354		—		—		—		—		2,354		0.68%		2,354
Average Interest Rate		—		2.35%		—		—		—		—		—		—		—
Loans in United States Dollar
Fixed Rate Loan Amount		36		36		36		17		9		110		244		0.07%		206
Average Interest Rate		1.17%		1.17%		1.17%		0.75%		0.09%		0.04%		—		—		—
Variable Rate Loan Amount		2,483		48,621		12,752		12,890		—		—		76,746		22.26%		76,746
Average Interest Rate		2.58%		4.55%		4.71%		4.04%		—		—		—		—		—
Loans in Japanese Yen
Fixed Rate Loan Amount		8		—		3		3		3		6		23		0.01%		27
Average Interest Rate		2.40%		—		2.30%		2.30%		2.30%		0.36%		—		—		—
Variable Rate Loan Amount		—		—		—		—		—		—		—		—		—
Average Interest Rate		—		—		—		—		—		—		—		—		—
Loans in Hong Kong Dollar
Variable Rate Loan Amount		664		6		2		1		—		—		673		0.20%		673
Average Interest Rate		2.57%		2.00%		2.00%		2.00%		—		—		—		—		—
Debentures in Canadian Dollar
Fixed Rate Loan Amount		—		—		—		—		—		—		—		—		—
Average Interest Rate		—		—		—		—		—		—		—		—		—
Variable Rate Loan Amount		—		—		—		—		—		—		—		—		—
Average Interest Rate		—		—		—		—		—		—		—		—		—
Debentures in United States Dollar
Fixed Rate Loan Amount		—		—		—		—		—		—		—		—		—
Average Interest Rate		—		—		—		—		—		—		—		—		—
Debentures in RMB
Fixed Rate Loan Amount		3,307		2,000		31,000		2,000		8,300		6,700		53,307		15.46%		52,287
Average interest rate		1.63%		4.30%		3.09%		4.90%		4.24%		3.96%		—		—		—
Medium Term Note in RMB
Fixed Rate Loan Amount		—		—		35,000		—		—		—		35,000		10.15%		34,458
Average interest rate		—		—		2.20%		—		—		—		—		—		—
Medium Term Notes in United State Dollar
Fixed Rate Loan Amount		—		3,410		—		—		—		3,408		6,818		1.98%		6,696
Average Interest Rate		—		2.87%		—		—		—		3.76%		—		—		—
Total		75,370		70,101		108,442		41,661		11,204		38,014		344,792		100.00%		339,878

See “Item 3 — Key Information — Risk Factors — Risks Related to Pricing and Exchange Rate”.

Commodity Price Risk

We are engaged in a wide range of petroleum-related activities and purchase certain quantity of oil from the international market to meet our demands. The prices of crude oil and refined products in the international market are affected by various factors such as changes in global and regional politics and economy, the demand and supply of crude oil and refined products, as well as unexpected events and disputes with international repercussions. The domestic crude oil price is determined with reference to the international price of crude oil whereby the domestic refined oil prices adjust with changes in crude oil prices in the international market. We

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use derivative instruments such as commodity futures, commodity swaps and commodity options to hedge some commodity price risks. We have strict internal control requirements with respect to the purpose, types, holding volumes of any derivative instruments as against the inventories, and the transaction process of the derivatives. Any derivative instruments we have are entered into solely for non-trading purposes. We do not expect any material market risks to our financial position, results of operations or liquidity exist as a result of entering into such derivatives. See “Item 3 — Key Information — Risk Factors — Risks Related to Pricing and Exchange Rate”.

Item 12 — DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Fees paid by our ADS holders

The Bank of New York Mellon, the depositary of our ADS program, collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may refuse to deliver ADSs or the deposited shares or provide any distributions until its fees for those services are paid.


Persons Depositing or Withdrawing Shares Must Pay:		For:

$5.00 (or less) per 100 ADSs (or portion thereof)		Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property

		Cancelation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates

$0.05 (or less) per ADS (or portion thereof)		Any cash distribution to ADS holders

$0.05 (or less) per ADS per calendar year		Depositary services

A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs		Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS holders

Registration or transfer fees		Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares

Expenses of the depositary		Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement)

		Converting foreign currency to U.S. dollars

Taxes and other governmental charges the depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes		As necessary

Any charges incurred by the depositary or its agents for servicing the deposited securities		As necessary

Fees and Payments from the Depositary to Us

In the year ended December 31, 2020, we received from the depositary a reimbursement of US$171,635.09, net of withholding tax, for our continuing annual stock exchange listing fees and our expenses incurred in

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connection with investor relationship programs. In addition, the depositary has agreed to reimburse us certain amount per year of the facility, including but not limited to, investor relations expenses or any other American depositary receipts program related expenses. The amount of such reimbursements is subject to certain limits.

PART II

Item 13 — DEFAULTS, DIVIDENDS ARREARAGES AND DELINQUENCIES

None.

Item 14 — MATERIAL MODIFICATIONS TO THE RIGHTS TO SECURITY HOLDERS AND USE OF PROCEEDS

None.

Item 15 — CONTROLS AND PROCEDURES

Evaluation of the Management on Disclosure Controls and Procedures

Our chairman, president and CFO, after evaluating the effectiveness of our 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, our company’s disclosure controls and procedures were effective to ensure that material information required to be disclosed in the reports that we file and furnish under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and regulations and that such information is accumulated and communicated to our company’s management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

Our company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our company’s management, including our principal executive officer and principal financial officer, our company evaluated the effectiveness of its internal control over financial reporting based on criteria established in the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our company’s management has concluded that our internal control over financial reporting was effective as of December 31, 2020.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

The effectiveness of our company’s internal control over financial reporting as of December 31, 2020 has been audited by KPMG Huazhen LLP, our company’s independent registered public accountants, as stated below.

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

PetroChina Company Limited:

Opinion on Internal Control Over Financial Reporting

We have audited PetroChina Company Limited and subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Company as of December 31, 2020 and 2019, the related consolidated statements of comprehensive income, cash flows and changes in equity for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements), and our report dated April 29, 2021 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG Huazhen LLP

Beijing, China

April 29, 2021

Changes in Internal Control over Financial Reporting

During the year ended December 31, 2020, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our company’s internal control over financial reporting.

Item 16A — AUDIT COMMITTEE FINANCIAL EXPERT

Our audit committee is composed of two independent non-executive directors, Cai Jinyong and Mr. Jiang, Simon X., and one non-executive director, Mr. Liu Yuezhen. See “Item 6 — Directors, Senior Management and Employees — Board Practices — Audit Committee”. Mr. Cai Jinyong, our independent non-executive director, has been confirmed as a “financial expert” as defined in Item 16A of Form 20-F.

Item 16B — CODE OF ETHICS

We adopted our code of business conduct and ethics for senior management on March 23, 2004 and our code of business conduct and ethics for employees on March 2, 2005 and have disclosed the content of both codes on our website.

These two Codes of Ethics may be accessed as follows:

1. From our main web page, first click on “Investor Relations”.

2. Next, click on “Corporate Governance Structure”.

3. Finally, click on “Code of Ethics for Senior Management” or “Code of Ethics for Employees of PetroChina Company Limited”.

This 20-F also includes both of the codes as exhibit 11.1 and 11.2.

Item 16C — PRINCIPAL ACCOUNTANT FEES AND SERVICES

KPMG Huazhen LLP (“KPMG Huazhen”) served as our independent accountant for the fiscal years of 2019 and 2020. The office of KPMG Huazhen is located at 8th Floor, KPMG Tower, Oriental Plaza, 1 East Chang An Avenue, Beijing, China.

The following table presents the aggregate fees paid by us (not including our subsidiaries) for professional audit services, tax and other services rendered by KPMG Huazhen to us for each of the years ended December 31, 2019 and 2020, respectively.


	December 31,
	2019		2020
	RMB in millions
Audit fees		53		49
Audit-related fees		—		—
Tax fees		—		—
All other fees		—		—

Total		53		49

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The auditors’ remuneration above represented the annual fees paid by us for the years indicated. The remuneration did not include fees of RMB62 million (2019: RMB60 million) paid by our subsidiaries to KPMG Huazhen and its network firms which primarily included audit fees of RMB52 million (2019: RMB50 million), audit-related fees of RMB6 million (2019: RMB7 million) and tax fees of RMB3 million (2019: RMB2 million), and other service fees of RMB1 million (2019: RMB1 million), respectively.

Audit Committee Pre-approved Policies and Procedures

Currently, all services to be provided by our independent registered public accountant must be pre-approved by our audit committee.

During the year ended December 31, 2020, services relating to all non-audit related fees provided to us by KPMG Huazhen were approved by our audit committee in accordance with the de minimis exception to the pre-approval requirement provided by paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

Item 16D — EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES

We rely on an exemption contained in paragraph (b)(1)(iv)(D) of Rule 10A-3 under the Securities and Exchange Act of 1934, as amended, from the New York Stock Exchange listing requirement that each member of the audit committee of a listed issuer must be independent. Our single non-independent audit committee member, who is a representative of CNPC, is not a voting member, nor the chairman of the audit committee of our board of directors, which qualifies us for the exemption from the independence requirements available under paragraph (b)(1)(iv)(D) of Rule 10A-3. See “Item 6 — Directors, Senior Management and Employees — Board Practice — Audit Committee.” We believe our reliance on this exemption does not have any adverse effect on the ability of our audit committee to act independently.

Item 16E — PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Not applicable.

Item 16F — CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Pursuant to the applicable regulatory requirement of the PRC government in relation to mandatory auditor rotation, on March 25, 2021, our board of directors approved not to re-appoint KPMG Huazhen as our principal accountant, upon completion of their audits of our consolidated financial statements as of and for the year ended December 31, 2020 and the effectiveness of the internal control over financial reporting as of December 31, 2020, and the issuance of their reports thereon. Our board of directors, pursuant to an open selection process and as recommended by the audit committee, resolved to propose to appoint PricewaterhouseCoopers Zhong Tian LLP (“PwC”) as our principal accountant for the year ended December 31, 2021, with effect from being approved at the general meeting to be held on June 10, 2021.

The audit reports of KPMG Huazhen on our consolidated financial statements as of and for the years ended December 31, 2020 and 2019 did not contain any adverse opinion or disclaimer of opinion, nor was qualified or modified as to uncertainties, audit scope or accounting principles, except as follows: KPMG Huazhen’s report on the consolidated financial statements of the Company as of and for the years ended December 31, 2020 and 2019, contained a separate paragraph stating that “As discussed in Note 3(ac)(ii) to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of International Financial Reporting Standard 16 “Leases”.”

During the fiscal years ended December 31, 2020 and 2019 and through April 29, 2021, there were no: (1) disagreements with KPMG Huazhen on any matter of accounting principles or practices, financial statements

116

disclosure, or auditing scope or procedures, which disagreements, if not resolved to their satisfaction, would have caused them to make reference in connection with their opinion to the subject matter of the disagreements; or (2) reportable events (as defined in Item 16F(a)(1)(v) of Form 20-F).

We have provided KPMG Huazhen with the foregoing disclosure and requested KPMG Huazhen to furnish us with a letter addressed to the SEC stating whether they agree with such disclosure, and if not, stating the respects in which they do not agree. A copy of the letter furnished by KPMG Huazhen, dated April 29, 2021, is filed as Exhibit 15.6 to this annual report on Form 20-F.

During the fiscal years ended December 31, 2020 and 2019 and through April 29, 2021, neither we nor anyone on our behalf consulted PwC regarding either (i) the application of accounting principles to a specific completed or proposed transaction or regarding the type of audit opinion that might be rendered on our financial statements, or (ii) any matter that was either the subject of a disagreement (as defined in Item 16F(a)(1)(iv) of Form 20-F) or a reportable event (as defined in Item 16F(a)(1)(v) of Form 20-F) . Also, during the two most recent fiscal years and through April 29, 2021, we have not obtained any written report or oral advice that PwC concluded was an important factor considered by us in reaching a decision as to the accounting, auditing or financial reporting issue.

Item 16G — CORPORATE GOVERNANCE

We are incorporated under the laws of the PRC, with A Shares publicly traded on the Shanghai Stock Exchange, or the SSE, and H Shares publicly traded on the Hong Kong Stock Exchange, or the HKSE, and American Deposit Shares representing H Shares on the NYSE. As a result, our corporate governance framework is subject to the mandatory provisions of the PRC Company Law and the Corporate Governance Rules as well as the securities laws, regulations and the listing rules of Hong Kong and the United States.

The following discussion summarizes the significant differences between our corporate governance practices and those that would apply to a U.S. domestic issuer under the NYSE corporate governance rules.

Director Independence

Under the NYSE corporate governance rule 303A.01, a listed company must have a majority of independent directors on its board of directors. A company of which more than 50% of the voting power is held by an individual, a group or another company, or a controlled company, is not required to comply with this requirement. We are not required under the PRC Company Law and the HKSE Listing Rules to have a majority of independent directors on our board of directors. As of the date of this report, five of our 11 directors were independent non-executive directors.

Under the NYSE corporate governance rule 303A.03, the non-management directors of a listed company must meet at regularly scheduled executive sessions without management. There are no mandatory requirements under the PRC Company Law and the HKSE Listing Rules that a listed company should hold, and we currently do not hold, such executive sessions.

Nominating/Corporate Governance Committee

Under the NYSE corporate governance rule 303A.04, a listed company must have a nominating/corporate governance committee composed entirely of independent directors, with a written charter that covers certain minimum specified duties, but a controlled company is not required to comply with this requirement. The Corporate Governance Code as amended by the Stock Exchange of Hong Kong provides that issuers shall establish a nominating committee, and a majority of which should be independent non-executive directors and the chairman shall be served by an independent non-executive director or the board chairman. We are not required under the PRC Company Law to have a nominating/corporate governance committee. We set up a nominating committee, which consists of the chairman of our board of directors and two independent non-executive directors.

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Compensation Committee

Under the NYSE corporate governance rule 303A.05, a listed company must have a compensation committee composed entirely of independent directors, with a written charter that covers certain minimum specified duties. A controlled company is not required to comply with this requirement. We are not required under the PRC Company Law to have a compensation committee. Under the Corporate Governance Code of the HKSE Listing Rules, a listed company must have a remuneration committee composed of a majority of independent non-executive directors, with a written term of references that covers certain minimum specified duties.

We currently do not have a compensation committee composed entirely of independent directors. However, we have an evaluation and remuneration committee including a majority of independent non-executive directors.

Corporate Governance Guidelines

Under the NYSE corporate governance rule 303A.09, a listed company must adopt and disclose corporate governance guidelines that cover certain minimum specified subjects. We are not required under the PRC Company Law and the HKSE Listing Rules to have, and we do not currently have, formal corporate governance guidelines. However, we have the Articles of Association, the Rules and Procedures of Board of Directors and the Implementation Rules for Compensation of Senior Management that address the following subjects:

•

director qualification standards and responsibilities;

•

key board committee responsibilities;

•

director compensation; and

•

director orientation and continuing education.

In 2009, we formulated the Administrative Measures on Independent Directors, the Administrative Rules on Holding of Company Shares by Directors, Supervisors and Senior Management, the Administrative Measures on Investor’s Relationship and the rules and procedures of the Audit Committee, the Performance Review and Compensation Committee, the Investment and Development Committee, and the Safety and Environmental Protection Committee. All these policies have further enhanced our corporate governance system and can ensure the better performance of duties of directors, supervisors, senior managers and committee members. In 2015, we set up a nominating committee and formulated the Rules of Procedures of the Nominating Committee. In 2017, we revised our articles of association according to relevant regulatory requirements. We added the cumulative voting provisions, and defined the role of the CPC’s core leadership in the articles of association. Our by-laws with respect to general meeting, board of directors and supervisory committee were also amended in line with the amendment to the articles. In 2018, we formulated the Corporate Guarantee Management Measures and revised the Measures for Registration of Insiders of Insider Information. In 2019, we formulated the Procedures of Appointment of Directors.

Code of Business Conduct and Ethics

Under the NYSE corporate governance rule 303A.10, a listed company must adopt and disclose its code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. See “Item 16B – Code of Ethics”. We are not required under the PRC Company Law and the HKSE Listing Rules to have, and we do not currently have, a code of business conduct and ethics for directors. However, pursuant to the HKSE Listing Rules, all of our directors must comply with the Model Code for Securities Transactions by Directors of Listed Companies (the “Model Code”) as set out in the Listing Rules. The Model Code sets forth required standards with which the directors of a listed company must comply in securities transactions of the listed company.

118

CEO Certification Requirements

Under the NYSE corporate governance rule 303A.12(a), each listed company’s CEO must certify to the NYSE each year that he or she is not aware of any violation by the company of NYSE corporate governance listing standards. The PRC Company Law and the HKSE Listing Rules do not have such requirements. Our chairman performs the certification under the rule 303A.12(a).

Item 16H — MINE SAFETY DISCLOSURE

Not applicable.

PART III

Item 17 — FINANCIAL STATEMENTS

We have elected to provide the financial statements and related information specified in Item 18 in lieu of Item 17.

Item 18 — FINANCIAL STATEMENTS

See page F-1 to F-79 following Item 19.

Item 19 — EXHIBITS

(a) See Item 18 for a list of the financial statements as part of this annual report.

(b) Exhibits to this annual report.


Exhibit Number		Description of Exhibits

1.1		Articles of Association (as amended on June 11, 2020) (English translation)⁽⁴⁾

2.1		A description of rights of each class of securities registered under Section 12 of the Securities Exchange Act of 1934⁽³⁾

4.1		Non-competition Agreement between CNPC and PetroChina (English translation)⁽¹⁾

4.2		Trademark Licensing Contract between CNPC and PetroChina (English translation)⁽¹⁾

4.3		Patent and Know-how Licensing Contract between CNPC and PetroChina (English translation)⁽¹⁾

4.4		Computer Software Licensing Contract between CNPC and PetroChina (English translation)⁽¹⁾

4.5		Contract for Transfer of Rights under Production Sharing Contracts between CNPC and PetroChina (English translation)⁽¹⁾

4.6		Contract for the Supervision of Certain Sales Enterprises between CNPC and PetroChina (English translation)⁽¹⁾

4.7*		Comprehensive Products and Services Agreement, dated August 27, 2020, between CNPC and PetroChina (English translation)

4.8*		Letter of Confirmation regarding the Land Use Rights Lease Agreement and Building Lease Agreement, dated August 27, 2020, between CNPC and PetroChina (English translation)

4.9*		Framework Agreement on the Transaction of Oil and Gas Pipeline Related Assets between PipeChina and PetroChina (English Translation)

4.10*		Equity Acquisition Agreement on PetroChina Pipeline Co., Ltd. between PipeChina and PetroChina (English Translation)

119


Exhibit Number		Description of Exhibits

4.11*		Equity Acquisition Agreement on PetroChina Shandong Natural Gas Pipeline Co., Ltd. between PipeChina and PetroChina (English Translation)

4.12*		Equity Acquisition Agreement on PetroChina Shandong Oil Transmission Co., Ltd. between PipeChina and PetroChina (English Translation)

4.13*		Equity Acquisition Agreement on PetroChina Huixin Oil Products Storage and Transmission Co., Ltd. between PipeChina and PetroChina (English Translation)

4.14*		Equity Acquisition Agreement on PetroChina Jilin Gas Pipeline Co., Ltd. between PipeChina and PetroChina (English Translation)

4.15*		Equity Acquisition Agreement on PetroChina Guizhou Natural Gas Pipeline Network Co., Ltd.

4.16*		Equity Acquisition Agreement on Jiangxi Natural Gas Investment Co., Ltd. between PipeChina and PetroChina (English Translation)

4.17*		Equity Acquisition Agreement on Shengang Natural Gas Pipeline Co, Ltd. between PipeChina and PetroChina (English Translation)

4.18*		Disposal Agreement on Relevant Assets of Oil and Gas Pipelines from Guangdong Natural Gas Pipeline Network Co., Ltd. and Others between PipeChina and PetroChina (English Translation)

4.19*		Production and Operation Agreement between PipeChina and PetroChina (English Translation)

4.20*		Equity Transfer Agreement on PetroChina Beijing Gas Pipeline Co., Ltd. and PetroChina Dalian LNG Company Limited between PipeChina and Kunlun Energy (English Translation)

8.1*		List of major subsidiaries

11.1		Code of Ethics for Senior Management⁽²⁾

11.2		Code of Ethics for Employees⁽²⁾

12.1*		Certification of Chairman required by Section 302 of the Sarbanes-Oxley Act of 2002

12.2*		Certification of President required by Section 302 of the Sarbanes-Oxley Act of 2002

12.3*		Certification of CFO required by Section 302 of the Sarbanes-Oxley Act of 2002

13.1*		Certification of Chairman 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 President required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

13.3*		Certification of CFO required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

15.1*		Reserves Report for the year ended on December 31, 2020 prepared by DeGolyer and MacNaughton

15.2*		Reserves Audit Report for the year ended on December 31, 2020 prepared by DeGolyer and MacNaughton

120


Exhibit Number		Description of Exhibits

15.3*		Reserves Report for the year ended on December 31, 2020 prepared by Ryder Scott

15.4*		Reserves Report for the year ended on December 31, 2020 prepared by GLJ Petroleum Consultants

15.5*		Reserves Report for the year ended on December 31, 2020 prepared by McDaniel & Associates Consultants, Ltd.

15.6*		Letter of KPMG Huazhen

101.INS*		XBRL Instance Document

101.SCH*		XBRL Taxonomy Extension Schema Document

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*		XBRL Taxonomy Extension Label Linkbase Document

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

*	To be filed as exhibits to this Form 20-F.

**	To be furnished as exhibits to this Form 20-F.

(1)	Paper filing; incorporated into this annual report 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.

(2)	Incorporated into this annual report by reference to the exhibits to Form 20-F for the fiscal year ended December 31, 2004 (File No. 1-15006) filed with the Commission.

(3)	Incorporated into this annual report by reference to the exhibits to Form 20-F for the fiscal year ended December 31, 2020 (File No. 1-15006) filed with the Commission.

(4)	Incorporated into this annual report by reference to Exhibit 99.2 to Form 6-K (File No. 1-15006) furnished to the Commission on June 12, 2020.

121

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/Chai Shouping

Name: Chai Shouping

Title: Chief Financial Officer and Secretary to Board of Directors

Date: April 29, 2021

122

INDEX OF CONSOLIDATED FINANCIAL STATEMENTS


	Page
PetroChina Company Limited and its Subsidiaries
Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm		F-2

Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018		F-4

Consolidated Statements of Financial Position as of December 31, 2020 and 2019		F-5

Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018		F-6

Consolidated Statements of Changes in Equity for the years ended December 31, 2020, 2019 and 2018		F-8

Notes to the Financial Statements		F-9

Supplementary Information on Oil and Gas Exploration and Production Activities (Unaudited)		F-71

F-1

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

PetroChina Company Limited:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of financial position of PetroChina Company Limited and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of comprehensive income, cash flows and changes in equity for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with International Financial Reporting Standards as issued by International Accounting Standards Board.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated April 29, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 3(ac)(ii) to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of International Financial Reporting Standard 16 “Leases”.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical

F-2

Report of Independent Registered Public Accounting Firm (continued)

audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.


Assessment of impairment of oil and gas properties

The critical audit matter		How the matter was addressed in our audit
As discussed in notes 3(g), 3(h), 5(b) and 15 to the consolidated financial statements, oil and gas properties as included in property, plant and equipment amounted to Renminbi (“RMB”)813,888 million as at December 31, 2020 and the impairment losses recognized for oil and gas properties for the year ended December 31, 2020 were RMB13,908 million. The Company allocates oil and gas properties to separately identifiable cash-generating units (“CGUs”) and reviews these CGUs for possible impairment by considering events or changes in circumstances indicating that their carrying amounts may not be recoverable. Such events and changes in circumstances include the economic impact on these CGUs resulting from lower oil and gas prices, higher production costs and decline in oil and gas reserve volumes as estimated by the reserves specialists in accordance with recognized industry standards. For those CGUs where an impairment indicator is identified, the Company compares the carrying amount of individual CGU with its recoverable amount, which is estimated by calculating the value in use using a discounted cash flow forecast, to determine the impairment loss to be recognized, if any. We identified assessment of impairment of oil and gas properties as a critical audit matter because the recoverable amounts of these CGUs are sensitive to the changes to future selling prices and production costs for crude oil and natural gas; future production profiles; and discount rates and therefore a higher degree of subjective auditor judgment was required to evaluate the Company’s impairment assessment of oil and gas properties.		The primary procedures we performed to address this critical audit matter included the following: • tested certain internal controls over the processes for impairment assessment of oil and gas properties; • evaluated the Company’s identification of CGUs, allocation of assets to the CGUs and identification of impairment indicators; • assessed the competence, capabilities and objectivity of the Company’s reserves specialists and evaluated the methodology adopted by them in estimating the oil and gas reserves against the recognized industry standards; • evaluated the future selling prices for crude oil and natural gas used in the discounted cash flow forecasts by comparing them with the Company’s business plans and forecasts by external analysts; • evaluated the future production costs and future production profiles used in the discounted cash flow forecasts by comparing them with oil and gas reserves reports issued by the reserves specialists; • involved our internal professionals with skills and knowledge on valuation to assist us in assessing the discount rate applied in the discounted cash flow forecasts against a discount rate range that was independently developed using publicly available market data for comparable companies in the same industry; and • compared the actual results for current year with the Company’s forecasts prepared in prior year to assess the Company’s ability to accurately forecast.

/s/ KPMG Huazhen LLP

We have served as the Company’s auditor since 2013.

Beijing, China

April 29, 2021

F-3

PETROCHINA COMPANY LIMITED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Years Ended December 31, 2020, 2019 and 2018

(Amounts in millions, except for the per share data)


	Notes		2020			2019			2018^Note
			RMB			RMB			RMB
REVENUE		6		1,933,836			2,516,810			2,374,934

OPERATING EXPENSES
Purchases, services and other				(1,267,797	)		(1,697,834	)		(1,553,784	)
Employee compensation costs		8		(147,604	)		(154,318	)		(144,391	)
Exploration expenses, including exploratory dry holes				(19,333	)		(20,775	)		(18,726	)
Depreciation, depletion and amortization				(213,875	)		(225,262	)		(232,276	)
Selling, general and administrative expenses				(64,345	)		(68,596	)		(74,477	)
Taxes other than income taxes		9		(195,850	)		(228,436	)		(220,677	)
Other income/(expenses) net		41		50,905			173			(7,661	)

TOTAL OPERATING EXPENSES				(1,857,899	)		(2,395,048	)		(2,251,992	)

PROFIT FROM OPERATIONS				75,937			121,762			122,942

FINANCE COSTS
Exchange gain				14,387			10,017			12,701
Exchange loss				(14,279	)		(10,016	)		(11,581	)
Interest income				3,023			3,631			3,779
Interest expense		10		(26,528	)		(30,409	)		(22,718	)

TOTAL NET FINANCE COSTS				(23,397	)		(26,777	)		(17,819	)

SHARE OF PROFIT OF ASSOCIATES AND JOINT VENTURES				3,533			8,229			11,647

PROFIT BEFORE INCOME TAX EXPENSE		7		56,073			103,214			116,770
INCOME TAX EXPENSE		12		(22,588	)		(36,199	)		(42,790	)

PROFIT FOR THE YEAR				33,485			67,015			73,980

OTHER COMPREHENSIVE INCOME
Item that will not be reclassified to profit or loss
Fair value changes in equity investment measured at fair value through other comprehensive income				113			156			(201	)
Items that are or may be reclassified subsequently to profit or loss
Currency translation differences				(10,802	)		8,357			(2,667	)
Share of the other comprehensive income of associates and joint ventures accounted for using the equity method				(441	)		417			220

OTHER COMPREHENSIVE INCOME, NET OF TAX				(11,130	)		8,930			(2,648	)

TOTAL COMPREHENSIVE INCOME FOR THE YEAR				22,355			75,945			71,332

PROFIT FOR THE YEAR ATTRIBUTABLE TO:
Owners of the Company				19,006			45,682			53,036
Non-controlling interests				14,479			21,333			20,944

			33,485			67,015			73,980

TOTAL COMPREHENSIVE INCOME FOR THE YEAR ATTRIBUTABLE TO:
Owners of the Company				14,634			50,323			48,072
Non-controlling interests				7,721			25,622			23,260

			22,355			75,945			71,332

BASIC AND DILUTED EARNINGS PER SHARE ATTRIBUTABLE TO OWNERS OF THE COMPANY(RMB)		13		0.10			0.25			0.29

The accompanying notes are an integral part of these financial statements.

Note:

The Group has initially applied IFRS 16 at January 1, 2019 using the modified retrospective approach. Under this approach, the comparative information is not restated in this respect (see Note 3(ac)).

F-4

PETROCHINA COMPANY LIMITED

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

As of December 31, 2020 and 2019

(Amounts in millions)


	Notes	2020			2019
		RMB			RMB
NON-CURRENT ASSETS
Property, plant and equipment	15		1,452,091			1,783,224
Investments in associates and joint ventures	16		250,603			102,073
Equity investments measured at fair value through other comprehensive income	17		902			922
Right-of-use assets	42		209,786			254,736
Intangible and other non-current assets	19		67,494			100,663
Deferred tax assets	31		11,364			24,259
Time deposits with maturities over one year			9,119			120

TOTAL NON-CURRENT ASSETS			2,001,359			2,265,997

CURRENT ASSETS
Inventories	20		128,539			181,921
Accounts receivable	21		52,325			64,184
Prepayments and other current assets	22		109,262			103,127
Notes receivable	23		8,076			7,016
Time deposits with maturities over three months but within one year			27,319			24,256
Cash and cash equivalents	24		118,631			86,409
Assets held for sale	25		42,615			—

TOTAL CURRENT ASSETS			486,767			466,913

CURRENT LIABILITIES
Accounts payable and accrued liabilities	26		316,140			328,314
Contract liabilities	27		91,477			82,490
Income taxes payable			3,730			7,564
Other taxes payable			59,994			59,818
Short-term borrowings	28		117,542			175,840
Lease liabilities	42		6,579			7,393
Liabilities directly associated with the assets held for sale	25		9,956			—

TOTAL CURRENT LIABILITIES			605,418			661,419

NET CURRENT LIABILITIES			(118,651	)		(194,506	)

TOTAL ASSETS LESS CURRENT LIABILITIES			1,882,708			2,071,491

EQUITY
EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY:
Share capital	29		183,021			183,021
Retained earnings			727,955			743,124
Reserves	30		304,182			304,011

TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY			1,215,158			1,230,156
NON-CONTROLLING INTERESTS			151,463			214,149

TOTAL EQUITY			1,366,621			1,444,305

NON-CURRENT LIABILITIES
Long-term borrowings	28		251,379			290,882
Asset retirement obligations	32		114,819			137,935
Lease liabilities	42		122,644			164,143
Deferred tax liabilities	31		16,380			21,411
Other long-term obligations			10,865			12,815

TOTAL NON-CURRENT LIABILITIES			516,087			627,186

TOTAL EQUITY AND NON-CURRENT LIABILITIES			1,882,708			2,071,491

The accompanying notes are an integral part of these financial statements.

F-5

PETROCHINA COMPANY LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2020, 2019 and 2018

(Amounts in millions)


	2020			2019			2018^Note
	RMB			RMB			RMB
CASH FLOWS FROM OPERATING ACTIVITIES
Profit for the year		33,485			67,015			73,980
Adjustments for:
Income tax expense		22,588			36,199			42,790
Depreciation, depletion and amortization		213,875			225,262			232,276
Capitalized exploratory costs charged to expense		8,934			8,900			8,579
Safety fund reserve		(1,505	)		(1,318	)		608
Share of profit of associates and joint ventures		(3,533	)		(8,229	)		(11,647	)
Accrual/(reversal) of provision for impairment of receivables, net		343			(1,367	)		15
Write down in inventories, net		8,151			1,260			4,230
Impairment of other non-current assets		—			22			77
Loss on disposal of property, plant and equipment		5,398			9,809			16,761
Gain on disposal of other non-current assets		(1,142	)		(501	)		(501	)
Gain on disposal of subsidiaries		(1,242	)		(49	)		(45	)
Gain on Pipeline restructuring		(46,946	)		—			—
Dividend income		(25	)		(22	)		(52	)
Interest income		(3,023	)		(3,631	)		(3,779	)
Interest expense		26,528			30,409			22,718
Changes in working capital:
Accounts receivable, prepayments and other current assets		14,751			(5,017	)		(9,280	)
Inventories		43,645			(5,624	)		(34,705	)
Accounts payable and accrued liabilities		8,410			27,416			49,127
Contract liabilities		8,987			14,346			892

CASH FLOWS GENERATED FROM OPERATIONS		337,679			394,880			392,044
Income taxes paid		(19,104	)		(35,270	)		(38,788	)

NET CASH FLOWS FROM OPERATING ACTIVITIES		318,575			359,610			353,256

The accompanying notes are an integral part of these financial statements.

F-6

PETROCHINA COMPANY LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

For the Years Ended December 31, 2020, 2019 and 2018

(Amounts in millions)


	2020			2019			2018^Note
	RMB			RMB			RMB
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(248,376	)		(319,686	)		(267,310	)
Acquisition of investments in associates and joint ventures		(2,599	)		(4,326	)		(2,911	)
Acquisition of equity investments measured at fair value through other comprehensive income		—			—			(2	)
Prepayments on long-term leases		(3,048	)		(3,820	)		(3,856	)
Acquisition of intangible assets and other non-current assets		(5,303	)		(3,256	)		(4,668	)
Acquisition of subsidiaries		(1,947	)		(183	)		—
Proceeds from disposal of property, plant and equipment		1,195			1,830			1,616
Proceeds from disposal of other non-current assets		2,224			507			224
Proceeds from Pipeline restructuring		80,621			—			—
Interest received		2,532			2,860			2,963
Dividends received		4,778			4,865			5,438
(Increase)/decrease in time deposits with maturities over three months		(12,063	)		(11,739	)		694

NET CASH FLOWS USED FOR INVESTING ACTIVITIES		(181,986	)		(332,948	)		(267,812	)

CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of short-term borrowings		(797,892	)		(614,525	)		(646,396	)
Repayments of long-term borrowings		(219,770	)		(171,226	)		(123,745	)
Repayments of lease liabilities		(12,794	)		(17,623	)		—
Interest paid		(16,700	)		(16,830	)		(19,392	)
Dividends paid to non-controlling interests		(14,264	)		(14,245	)		(15,207	)
Dividends paid to owners of the Company		(28,078	)		(30,684	)		(27,369	)
Cash paid to acquire non-controlling interests		(2	)		(1,059	)		—
Capital reduction of subsidiaries		(5	)		(182	)		(86	)
Increase in short-term borrowings		751,157			634,896			615,781
Increase in long-term borrowings		238,335			201,562			88,500
Cash contribution from non-controlling interests		613			2,640			2,211

NET CASH FLOWS USED FOR FINANCING ACTIVITIES		(99,400	)		(27,276	)		(125,703	)

TRANSLATION OF FOREIGN CURRENCY		(4,967	)		1,069			2,513

Increase/(decrease) in cash and cash equivalents		32,222			455			(37,746	)
Cash and cash equivalents at beginning of the year		86,409			85,954			123,700

Cash and cash equivalents at end of the year		118,631			86,409			85,954

The accompanying notes are an integral part of these financial statements.

Note:

F-7

PETROCHINA COMPANY LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Years Ended December 31, 2020, 2019 and 2018

(Amounts in millions)


	Attributable to owners of the Company											Non- controlling Interests			Total Equity
	Share Capital		Retained Earnings			Reserves			Subtotal
	RMB		RMB			RMB			RMB			RMB			RMB
Balance at January 1, 2018		183,021		710,973			298,578			1,192,572			185,416			1,377,988
Profit for the year ended December 31, 2018		—		53,036			—			53,036			20,944			73,980
Other comprehensive income for the year ended December 31, 2018		—		—			(4,964	)		(4,964	)		2,316			(2,648	)
Special reserve-safety fund reserve		—		—			465			465			143			608
Transfer to reserves		—		(5,476	)		5,476			—			—			—
Dividends		—		(27,369	)		—			(27,369	)		(15,423	)		(42,792	)
Transaction with non-controlling interests in subsidiaries		—		—			13			13			(24	)		(11	)
Capital contribution from non-controlling interests		—		—			—			—			2,300			2,300
Disposal of subsidiaries		—		—			—			—			(879	)		(879	)
Other		—		(1	)		31			30			315			345

Balance at December 31, 2018		183,021		731,163			299,599			1,213,783			195,108			1,408,891

Balance at January 1, 2019^Note		183,021		731,163			299,599			1,213,783			195,108			1,408,891
Profit for the year ended December 31, 2019		—		45,682			—			45,682			21,333			67,015
Other comprehensive income for the year ended December 31, 2019		—		—			4,641			4,641			4,289			8,930
Special reserve-safety fund reserve		—		—			(1,388	)		(1,388	)		70			(1,318	)
Transfer to reserves		—		(3,037	)		3,037			—			—			—
Dividends		—		(30,684	)		—			(30,684	)		(14,279	)		(44,963	)
Transaction with non-controlling interests in subsidiaries		—		—			(2,007	)		(2,007	)		938			(1,069	)
Capital contribution from non-controlling interests		—		—			120			120			6,647			6,767
Disposal of subsidiaries		—		—			—			—			(50	)		(50	)
Other		—		—			9			9			93			102

Balance at December 31, 2019		183,021		743,124			304,011			1,230,156			214,149			1,444,305

Balance at January 1, 2020		183,021		743,124			304,011			1,230,156			214,149			1,444,305

Profit for the year ended December 31, 2020		—		19,006			—			19,006			14,479			33,485
Other comprehensive income for the year ended December 31, 2020		—		—			(4,372	)		(4,372	)		(6,758	)		(11,130	)
Special reserve-safety fund reserve		—		—			(1,633	)		(1,633	)		128			(1,505	)
Transfer to reserves		—		(6,275	)		6,275			—			—			—
Dividends		—		(28,078	)		—			(28,078	)		(14,827	)		(42,905	)
Transaction with non-controlling interests in subsidiaries		—		—			—			—			(2	)		(2	)
Capital contribution from non-controlling interests		—		—			2			2			823			825
Pipeline restructuring		—		—			—			—			(57,425	)		(57,425	)
Acquisition of subsidiaries		—		—			1			1			1,186			1,187
Disposal of subsidiaries		—		—			—			—			(489	)		(489	)
Other		—		178			(102	)		76			199			275

Balance at December 31, 2020		183,021		727,955			304,182			1,215,158			151,463			1,366,621

The accompanying notes are an integral part of these financial statements.

Note:

F-8

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

(All amounts in millions, except for the per share data and otherwise stated)

1	ORGANIZATION AND PRINCIPAL ACTIVITIES

PetroChina Company Limited (the “Company”) was established as a joint stock company with limited liability on November 5, 1999 by 中国石油天然气集团公司 (China National Petroleum Corporation (“CNPC”)) as the sole proprietor in accordance with the approval Guo Jing Mao Qi Gai [1999] No. 1024 “Reply on the approval of the establishment of PetroChina Company Limited” from the former State Economic and Trade Commission of the People’s Republic of China (“China” or “PRC”). CNPC restructured (“the Restructuring”) and injected its core business and the related assets and liabilities into the Company. 中国石油天然气集团公司 was renamed 中国石油天然气集团有限公司 (CNPC before and after the change of name) on December 19, 2017. CNPC is a wholly state-owned company registered in China. The Company and its subsidiaries are collectively referred to as the “Group”.

The Group is principally engaged in (i) the exploration, development and production and marketing of crude oil and natural gas; (ii) the refining of crude oil and petroleum products, production and marketing of primary petrochemical products, derivative petrochemical products and other chemical products; (iii) the marketing of refined products and trading business; and (iv) the transmission of natural gas, crude oil and refined products and the sale of natural gas (Note 38).

2	BASIS OF PREPARATION

The consolidated financial statements and the statement of financial position of the Company have been prepared in accordance with the International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board (“IASB”). The consolidated financial statements and the statement of financial position of the Company have been prepared under the historical cost convention except as disclosed in the accounting policies below.

The preparation of financial statements in conformity with IFRSs requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the statement of financial position and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current events and actions, actual results may ultimately differ from those estimates. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5.

3	SUMMARY OF PRINCIPAL ACCOUNTING POLICIES

(a) Basis of consolidation

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has right to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

A subsidiary is consolidated from the date on which control is transferred to the Group and is no longer consolidated from the date that control ceases. The Group accounts for business combinations (except for business combination under common control) using the acquisition method when the acquired set of activities and assets meets the definition of a business and control is transferred to the Group. In determining whether a set of activities and assets is a business, the Group assesses whether the set of assets and activities acquired includes, at a minimum, an input and substantive process and whether the acquired set has the ability to produce outputs. The Group has an option to apply a ‘concentration test’ that permits a simplified assessment of whether an acquired set of activities and assets is not a business. The optional concentration test is met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar

F-9

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

identifiable assets. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Contingent liabilities assumed in a business combination are recognized in the acquisition accounting if they are present obligations and their fair value can be measured reliably. On an acquisition-by-acquisition basis, the Group recognizes any non-controlling interests in the acquiree either at fair value or at the non-controlling interests’ proportionate share of the acquiree’s net assets.

The excess of the consideration transferred, the amount of any non-controlling interests in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognized directly in the consolidated statement of comprehensive income.

An acquisition of a business which is a business combination under common control is accounted for in a manner similar to a uniting of interests whereby the assets and liabilities acquired are accounted for at carryover predecessor values to the other party to the business combination with all periods presented as if the operations of the Group and the business acquired have always been combined. The difference between the consideration paid by the Group and the net assets or liabilities of the business acquired is adjusted against equity.

Intercompany transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment. Where necessary, accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the Group.

For purpose of the presentation of the Company’s statement of financial position, investments in subsidiaries are accounted for at cost less impairment.

A listing of the Group’s principal subsidiaries is set out in Note 18.

(b) Investments in associates

Associates are entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for by the equity method of accounting in the consolidated financial statements of the Group and are initially recognized at cost.

Under this method of accounting, the Group’s share of the post-acquisition profits or losses of associates is recognized in profit or loss and its share of post-acquisition movements in other comprehensive income is recognized in other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amounts of the investments. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate.

Unrealized gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates; unrealized losses are also eliminated unless the transaction provides evidence

F-10

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

of an impairment of the asset transferred. The Group’s investment in associates includes goodwill identified on acquisition, net of any accumulated impairment loss and is tested for impairment as part of the overall balance. Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the fair value of net identifiable assets of the acquired associate at the date of acquisition. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group. The gain or loss resulting from a downstream transaction involving assets that constitute a business, as defined in IFRS 3, between the Group and its associate or joint veture is recognized in full in the consolidated financial statement.

A listing of the Group’s principal associates is shown in Note 16.

(c) Investments in joint ventures

Joint ventures are arrangements in which the Group with one or more parties have joint control, whereby the Group has rights to the net assets of the arrangements, rather than rights to their assets and obligations for their liabilities. The Group’s interests in joint ventures are accounted for by the equity method of accounting (Note 3(b)) in the consolidated financial statements.

A listing of the Group’s principal joint ventures is shown in Note 16.

(d) Transactions with non-controlling interests

Transactions with non-controlling interests are treated as transactions with owners in their capacity as owners of the Group. Gains and losses resulting from disposals to non-controlling interests are recorded in equity. The differences between any consideration paid and the relevant share of the carrying value of net assets of the subsidiary acquired resulting from the purchase of non-controlling interests, are recorded in equity.

When the Group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognized in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. The amounts previously recognized in other comprehensive income are reclassified to profit or loss.

If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognized in other comprehensive income are reclassified to profit or loss where appropriate.

(e) Foreign currencies

Items included in the financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). Most assets and operations of the Group are located in the PRC (Note 38), and the functional currency of the Company and most of the consolidated subsidiaries is the Renminbi (“RMB”). The consolidated financial statements are presented in the presentation currency of RMB.

Foreign currency transactions of the Group are accounted for at the exchange rates prevailing at the respective dates of the transactions; monetary assets and liabilities denominated in foreign currencies are

F-11

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

translated at exchange rates at the date of the statement of financial position; gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities are recognized in profit or loss.

For the Group entities that have a functional currency different from the Group’s presentation currency, assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of the statement of financial position. Income and expenses for each statement of comprehensive income presented are translated at the average exchange rates for each period and the resulting exchange differences are recognized in other comprehensive income.

(f) Discontinued operation

A discontinued operation is a component of the Group’s business, the operation and cash flows of which can be clearly distinguished from the rest of the Group and which:

•

represents a separate major line of business of geographic area of operations;

•

is part of a single co-ordinated plan to dispose of a separate major line of business or geographic area of operations; or

•

is a subsidiary acquired exclusively with a view to resale.

Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be classified as held-for-sale.

When an operation is classified as a discontinued operation, the comprehensive statement of profit or loss and other comprehensive income (“OCI”) is re-presented as if the operation had been discontinued from the start of the comparative year.

(g) Property, plant and equipment

Property, plant and equipment, including oil and gas properties (Note 3(h)), are initially recorded in the consolidated statement of financial position at cost if it is probable that they will generate future economic benefits. Cost represents the purchase price of the asset and other costs incurred to bring the asset into intended use. Subsequent to their initial recognition, property, plant and equipment are carried at cost less accumulated depreciation, depletion and amortization (including any impairment).

Depreciation, to write off the cost of each asset, other than oil and gas properties (Note 3(h)), to their residual values over their estimated useful lives is calculated using the straight-line method.

The Group uses the following estimated useful lives, estimated residual value ratios and annual depreciation rates for depreciation purposes:

Estimated useful lives

Estimated residual
value ratio %

Annual depreciation
rate %

Buildings

8 to 40 years

2.4 to 11.9

Equipment and Machinery

4 to 30 years

3 to 5

3.2 to 24.3

Motor Vehicles

4 to 14 years

6.8 to 23.8

Other

5 to 12 years

7.9 to 19.0

F-12

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

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

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

Property, plant and equipment, including oil and gas properties (Note 3(h)) and right-of-use assets (Note 3(m)), are reviewed for possible impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the carrying amount of a cash-generating unit exceeds the higher of its fair value less costs to sell and its value in use. Value in use is the estimated net present value of future cash flows to be derived from the cash-generating unit.

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

Interest and other costs on borrowings to finance the construction of property, plant and equipment, including oil and gas properties (Note 3(h)), are capitalized during the period of time that is required to complete and prepare the asset for its intended use. Costs for repairs and maintenance activities are expensed as incurred except for costs of components that result in improvements or betterments which are capitalized as part of property, plant and equipment and depreciated over their useful lives.

(h) Oil and gas properties

The successful efforts method of accounting is used for oil and gas exploration and production activities. Under this method, all costs for development wells, support equipment and facilities, and proved mineral interests in oil and gas properties are capitalized. Geological and geophysical costs are expensed when incurred. Costs of exploratory wells are capitalized pending determination of whether the wells find proved oil and gas reserves. Proved oil and gas reserves are the estimated quantities of crude oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulation before the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether the estimate is a deterministic estimate or probabilistic estimate. Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average price during the 12-month period before the ending date of the period covered by the proved oil and gas reserve report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period unless prices are defined by contractual arrangements, excluding escalations based upon future conditions. The costs shall be that prevailing at the end of the period.

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. Otherwise, the related well costs are reclassified to oil and gas properties and are subject to impairment review (Note 3(g)). For exploratory wells that are found to have economically viable reserves in areas where major capital expenditure will be required before production can commence, the related well costs remain capitalized only if additional drilling is underway or firmly planned. Otherwise the related well costs are expensed as dry holes. The Group does not have any significant costs of unproved properties capitalized in oil and gas properties.

The Ministry of Natural Resources in China issues production licenses to applicants on the basis of the reserve reports approved by relevant authorities.

F-13

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

The cost of oil and gas properties is amortized at the field level based on the units of production method. Units of production rates are based on oil and gas reserves estimated to be recoverable from existing facilities based on the current terms of the Group’s production licenses.

(i) Intangible assets and goodwill

Expenditures on acquired patents, trademarks, technical know-how and licenses are capitalized at historical cost and amortized using the straight-line method over their estimated useful lives. Intangible assets are not subsequently revalued. The carrying amount of each intangible asset is reviewed and adjusted for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized whenever the carrying amount of an intangible asset exceeds its recoverable amount and is recognized in profit or loss. The recoverable amount is measured as the higher of fair value less costs to sell and value in use. Value in use is the estimated net present value of future cash flows to be derived from the asset.

Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred over the net fair value of identifiable assets, liabilities and contingent liabilities of the acquiree and the amount of any non-controlling interests in the acquiree.

Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. An impairment loss is recognized if the carrying amount of the cash-generating unit containing goodwill exceeds its recoverable amount. Impairment losses are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit, and then to reduce the carrying amounts of the other assets in the cash-generating unit on a pro rata basis. Any impairment is recognized immediately as an expense and is not subsequently reversed.

(j) Assets held for sale

Non-current assets, or disposal groups comprising assets and liabilities, are classified as held-for-sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use.

Such assets, or disposal groups, are generally measured at the lower of their carrying amount and fair value less costs to sell. Any impairment loss on a disposal group is allocated first to goodwill, and then to the remaining assets and liabilities on a pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets, employee benefit assets, investment property or biological assets, which continue to be measured in accordance with the Group’s other accounting policies. Impairment losses on initial classification as held-for-sale and subsequent gains and losses on remeasurement are recognized in profit or loss.

Once classified as held-for-sale, intangible assets and property, plant and equipment are no longer amortized or depreciated, and any equity-accounted investee is no longer equity accounted.

(k) Financial instruments

(a) Recognition and initial measurement

Accounts receivable and debt securities issued are initially recognized when they are originated. All other financial assets and financial liabilities are initially recognized when the Group becomes a party to the contractual provisions of the instrument.

F-14

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

A financial asset (unless it is an accounts receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at Fair value through profit or loss (“FVTPL”), transaction costs that are directly attributable to its acquisition or issue. An accounts receivable without a significant financing component is initially measured at the transaction price.

(b) Classification and subsequent measurement

On initial recognition, a financial asset is classified as measured at: amortized cost; Fair value through other comprehensive income (“FVOCI”) – debt investment; FVOCI – equity investment; or FVTPL.

Financial assets are not reclassified subsequent to their initial recognition unless the Group

changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the

business model.

A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL:

•

it is held within a business model whose objective is to hold assets to collect contractual cashflows; and

•

its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:

•

it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and

•

its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment’s fair value in OCI. This election is made on an investment-by-investment basis.

All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets.

The Group makes an assessment of the objective of the business model in which a financial

asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management.

For the purposes of this assessment whether contractual cash flows are solely payments of principal and interest, “principal” is defined as the fair value of the financial asset on initial recognition. “Interest” is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin.

F-15

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition.

Detailed accounting policies for subsequent measurement of financial assets are set out below:


Financial assets at FVTPL		These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in profit or loss.

Financial assets at amortized cost		These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.

Debt investments at FVOCI		These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.

Equity investments at FVOCI		These assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.

Financial assets

The Group derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.

The Group enters into transactions whereby it transfers assets recognized in its consolidated statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets. In these cases, the transferred assets are not derecognized.

Financial liabilities

The Group derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire. The Group also derecognizes a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value.

F-16

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss.

(d) Offsetting

Financial assets and financial liabilities are offset and the net amount presented in the consolidated statement of financial position when, and only when, the Group currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.

(l) Impairment for financial assets

The Group recognizes loss allowances for expected credit losses (“ECLs”) on:

•

financial assets measured at amortized cost;

•

debt investments measured at FVOCI; and

•

contract assets.

The Group measures loss allowances at an amount equal to lifetime ECLs, except for the financial assets for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition, which are measured as 12-month ECLs. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort.

Loss allowances for accounts receivable are always measured at an amount equal to lifetime ECLs. The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive). ECLs are discounted at the effective interest rate of the financial asset.

At each reporting date, the Group assesses whether financial assets carried at amortized cost and debt securities at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets. Impairment losses on trade and other receivables are presented under ‘Selling, general and administrative expenses’, similar to the presentation under IAS 39.

The gross carrying amount of a financial asset is written off when the Group has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. For customers, the Group individually makes an assessment with respect to the timing and amount of write-off based on whether there is a reasonable expectation of recovery. The Group expects no significant recovery from the amount written off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Group’s procedures for recovery of amounts due.

F-17

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

(m) Leases

The Group has applied IFRS 16“Lease” (“IFRS 16”) using the modified retrospective approach and therefore the comparative information has not been restated and continues to be reported under IAS 17“Lease” (“IAS 17”) and IFRIC 4“Determining Whether an Arrangement Contains a Lease” (“IFRIC 4”). The details of accounting policies under IAS 17 and IFRIC 4 are disclosed separately.

(a) As a lessee

At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of its relative stand-alone prices.

The Group recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right-of-use asset reflects that the Group will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate.

Lease payments included in the measurement of the lease liability comprise the following:

•

fixed payments, including in-substance fixed payments;

•

variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;

•

amounts expected to be payable under a residual value guarantee; and

•

the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early.

The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, if the Group changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment.

F-18

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

The Group present right-of-use assets and lease liabilities separately in the statement of financial position.

The Group has elected not to recognize right-of-use assets and lease liabilities for leases of low-value assets and short-term leases. The Group recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

Payments made to the Ministry of Natural Resources to secure land use rights (excluding mineral properties) are treated as leases.

(b) As a lessor

At inception or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices.

When the Group acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease.

To classify each lease, the Group makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. As part of this assessment, the Group considers certain indicators such as whether the lease is for the major part of the economic life of the asset. There are no significant finance lease for the Group.

If an arrangement contains lease and non-lease components, then the Group applies IFRS 15 to allocate the consideration in the contract.

The Group recognizes lease payments received under operating leases as income on a straight-line basis over the lease term as part of “other revenue”.

Generally, the accounting policies applicable to the Group as a lessor in the comparative period were not different from IFRS 16 except for the classification of the sub-lease entered into during current reporting period that resulted in a finance lease classification.

Policy applicable before January 1, 2019

Leases of property, plant and equipment where the Group assumes substantially all the benefits and risks of ownership are classified as finance leases. The Group has no significant finance leases.

Leases of assets under which a significant portion of the risks and benefits of ownership are effectively retained by the lessors are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessors) are expensed on a straight-line basis over the lease terms. Payments made to the Ministry of Natural Resources to secure land use rights (excluding mineral properties) are treated as operating leases. Land use rights are generally obtained through advance lump-sum payments and the terms of use range up to 50 years.

F-19

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

(n) Inventories

Inventories include oil products, chemical products and materials and supplies which are stated at the lower of cost and net realizable value. Cost is primarily determined by the weighted average cost method. The cost of finished goods comprises raw materials, direct labor, other direct costs and related production overheads, but excludes borrowing costs. Net realizable value is the estimated selling price in the ordinary course of business, less the cost of completion and directly attributable marketing and distribution costs.

(o) Contract costs

Contract costs are either the incremental costs of obtaining a contract with a customer or the costs to fulfil a contract with a customer which are not capitalized as inventory (Note 3(n)), property, plant and equipment (Note 3(g)), oil and gas properties (Note 3(h)) or intangible assets (Note 3(i)).

Incremental costs of obtaining a contract are those costs that the Group incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained. Incremental costs of obtaining a contract are capitalized when incurred if the costs relate to revenue which will be recognized in a future reporting period and the costs are expected to be recovered, unless the expected amortization period is one year or less from the date of initial recognition of the asset, in which case the costs are expensed when incurred. Other costs of obtaining a contract are expensed when incurred.

Costs to fulfil a contract are capitalized if the costs relate directly to an existing contract or to a specifically identifiable anticipated contract; generate or enhance resources that will be used to provide goods or services in the future; and are expected to be recovered.

Capitalized contract costs are stated at cost less accumulated amortization and impairment losses. Impairment losses are recognized to the extent that the carrying amount of the contract cost asset exceeds the net of (i) remaining amount of consideration that the Group expects to receive in exchange for the goods or services to which the asset relates, less (ii) any costs that relate directly to providing those goods or services that have not yet been recognized as expenses.

Amortization of capitalized contract costs is charged to profit or loss when the revenue to which the asset relates is recognized.

(p) Contract assets and contract liabilities

A contract asset is recognized when the Group recognizes revenue before being unconditionally entitled to the consideration under the payment terms set out in the contract. Contract assets are assessed for ECLs in accordance with the policy set out in Note 3(l) and are reclassified to receivables when the right to the consideration has become unconditional (Note 3(q)).

A contract liability is recognized when the customer pays consideration before the Group recognizes the related revenue. A contract liability would also be recognized if the Group has an unconditional right to receive consideration before the Group recognizes the related revenue. In such cases, a corresponding receivable would also be recognized (Note 3(q)).

When the contract includes a significant financing component, the contract balance includes interest accrued under the effective interest method (Note 3(v)).

F-20

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

(q) Accounts receivable

Accounts receivable are recognized when the Group has an unconditional right to receive consideration. A right to receive consideration is unconditional if only the passage of time is required before payment of that consideration is due (Note 3(p)).

Receivables are stated at amortized cost using the effective interest method less allowance for credit losses (Note 3(l)).

(r) Cash and cash equivalents

Cash and cash equivalents comprise cash in hand, deposits held with banks and highly liquid investments with original maturities of three months or less from the time of purchase.

(s) Accounts payable

Accounts payable are recognized initially at fair value and subsequently measured at amortized cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

(t) Borrowings

Borrowings are recognized initially at fair value, net of transaction costs incurred. In subsequent periods, borrowings are stated at amortized cost using the effective interest method.

General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

All other borrowing costs are recognized in profit or loss in the period in which they are incurred.

Borrowings are classified as current liabilities unless the Group has unconditional rights to defer settlements of the liabilities for at least 12 months after the reporting period.

(u) Share capital

Incremental costs directly attributable to the issue of ordinary shares are recognized as a deduction from equity. Income tax relating to transaction costs of an equity transaction is accounted for in accordance with IAS 12 “Income Taxes”.

(v) Interest income and interest expense

Interest income or expense is recognized using the effective interest method.

The “effective interest rate” is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to:

•

the gross carrying amount of the financial asset; or

•

the amortized cost of the financial liability.

F-21

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

In calculating interest income and expense, the effective interest rate is applied to the gross carrying amount of the asset (when the asset is not credit-impaired) or to the amortized cost of the liability. However, for financial assets that have become credit-impaired subsequent to initial recognition, interest income is calculated by applying the effective interest rate to the amortized cost of the financial asset. If the asset is no longer credit-impaired, then the calculation of interest income reverts to the gross basis.

(w) Taxation

Income tax expense comprises current and deferred tax. It is recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

The Group has determined that interest and penalties related to income taxes, including uncertain tax treatments, do not meet the definition of income taxes, and therefore accounted for them under IAS 37 “Provisions, Contingent Liabilities and Contingent Assets”.

(a) Current tax

Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of previous years. The amount of current tax payable or receivable is the best estimate of the tax amount expected to be paid or received that reflects uncertainty related to income taxes, if any. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends.

Current tax assets and liabilities are offset only if certain criteria are met.

(b) Deferred tax

Deferred tax is provided in full, using the liability method, for temporary differences arising between the tax bases of assets and liabilities and their carrying values in the financial statements. However, deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax is determined using tax rates that have been enacted or substantively enacted by the date of the statement of financial position and are expected to apply to the period when the related deferred tax asset is realized or deferred tax liability is settled, and reflects uncertainty related to income taxes, if any.

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

The Group also incurs various other taxes and levies that are not income taxes. “Taxes other than income taxes”, which form part of operating expenses, primarily comprise consumption tax (Note 9), resource tax (Note 9), crude oil special gain levy (Note 9), urban construction tax and education surcharges.

F-22

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

(x) Revenue recognition

Income is classified by the Group as revenue when it arises from the sale of goods, the provision of services in the ordinary course of the Group’s business.

Revenue is recognized when control over a product or service is transferred to the customer at the amount of promised consideration to which the Group is expected to be entitled, excluding those amounts collected on behalf of third parties. Revenue excludes value added tax or other sales taxes and is after deduction of any trade discounts.

Where the contract contains a financing component more than 12 months, interest income is accrued or interest expense is accrued separately under the effective interest method. The Group does not adjust the consideration for any effects of a significant financing component if the period of financing is 12 months or less.

(y) Provisions

Provisions are recognized when the Group has present legal or constructive obligations as a result of past events, it is probable that an outflow of resources will be required to settle the obligations, and reliable estimates of the amounts can be made.

Provision for future decommissioning and restoration is recognized in full on the installation of oil and gas properties. The amount recognized is the present value of the estimated future expenditure determined in accordance with local conditions and requirements. A corresponding addition to the related oil and gas properties of an amount equivalent to the provision is also created. This is subsequently depreciated as part of the costs of the oil and gas properties. Any change in the present value of the estimated expenditure other than due to passage of time which is regarded as interest expense, is reflected as an adjustment to the provision and oil and gas properties. Due to technological progress, legal requirements or changes in the market environment, changes in the provisions caused by changes in the amount of expenditure, estimated time of retirement obligations, discount rate, etc., may occur in fulfilling the retirement obligation. For an increase in provisions, the cost of oil and gas properties will be increased accordingly; for a decrease in provisions, the cost of oil and gas properties will be deducted within the limit of the carrying amount of assets related to decommissioning expenses. If a decrease in the provision exceeds the carrying amount of the oil and gas properties recognized corresponding to the provision, the excess shall be recognized immediately in profit or loss.

Provision for onerous contracts is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognizes any impairment loss on the assets associated with that contract.

(z) Research and development

Research expenditure incurred is recognized as an expense. Costs incurred on development projects are recognized as intangible assets to the extent that such expenditure is expected to generate future economic benefits.

(aa) Retirement benefit plans

The Group contributes to various employee retirement benefit plans organized by PRC municipal and provincial governments under which it is required to make monthly contributions to these plans at prescribed rates for its employees in China. The relevant PRC municipal and provincial governments undertake to assume the retirement benefit obligations of existing and future retired employees of the Group in China. The Group has

F-23

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

similar retirement benefit plans for its employees in its overseas operations. Contributions to these PRC and overseas plans (“defined contribution plan”) are charged to expense as incurred. In addition, the Group joined the corporate annuity plan approved by relevant PRC authorities. Contribution to the annuity plan is charged to expense as incurred. The Group currently has no additional material obligations outstanding for the payment of retirement and other post-retirement benefits of employees in the PRC or overseas other than what described above.

(ab) Related parties

(a)

A person, or a close member of that person’s family, is related to the Group if that person:

(i)

has control or joint control over the Group;

(ii)

has significant influence over the Group; or

(iii)

is a member of the key management personnel of the Group or the Group’s parent.

(b)

An entity is related to the Group if any of the following conditions applies:

(i)

The entity and the Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).

(ii)

One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).

(iii)

Both entities are joint ventures of the same third party.

(iv)

One entity is a joint venture of a third entity and the other entity is an associate of the third entity.

(v)

The entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group.

(vi)

The entity is controlled or jointly controlled by a person identified in (a).

(vii)

A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

(viii)

The entity, or any member of a group of which it is a part, provides key management personnel services to the Group or to the Group’s parent.

Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity.

(ac) Changes in significant accounting policies

(i) New and amended standards adopted by the Group in 2020

The Group has initially adopted Definition of a Business (Amendments to IFRS 3) and early adopted Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28) from 1 January 2020. The details of accounting policies are set out in Note 3(a) and 3(b). A number of other new standards are also effective from 1 January 2020 but they do not have a material effect on the Group’s financial statements.

F-24

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

(ii) New and amended standards adopted by the Group in 2019

The Group initially applied IFRS 16 from January 1, 2019. A number of other new standards are also effective from January 1, 2019 but they do not have a material effect on the Group’s financial statements.

The Group applied IFRS 16 using the modified retrospective approach, under which the cumulative effect of initial application is recognized in retained earnings at January 1, 2019. Accordingly, the comparative information presented for 2018 is not restated. The details of the changes in accounting policies are disclosed below. Additionally, the disclosure requirements in IFRS 16 have not generally been applied to comparative information.

(a) Definition of a lease

Previously, the Group determined at contract inception whether an arrangement was or contained a lease under IFRIC 4. The Group now assesses whether a contract is or contains a lease based on the definition of a lease, as explained in Note 3(m).

On transition to IFRS 16, the Group elected to apply the practical expedient to grandfather the assessment of which transactions are leases. The Group applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed for whether there is a lease under IFRS 16. Therefore, the definition of a lease under IFRS 16 was applied only to contracts entered into or changed on or after January 1, 2019.

(b) As a lessee

As a lessee, the Group leases many assets including land, building and equipment. The Group previously classified leases as operating or finance leases based on its assessment of whether the lease transferred significantly all of the risks and rewards incidental to ownership of the underlying asset to the Group. Under IFRS 16, the Group recognizes right-of-use assets and lease liabilities for most of these leases.

Previously, the Group classified property leases as operating leases under IAS 17. On transition, for these leases, lease liabilities were measured at the present value of the remaining lease payments, discounted at the Group’s incremental borrowing rate as at January 1, 2019. Right-of-use assets are measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments: the Group applied this approach to all other leases.

The Group used a number of practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17. In particular, the Group:

•

did not recognize right-of-use assets and liabilities for leases for which the lease term ends within 12 months of the date of initial application;

•

applied a single discount rate to leases with similar characteristics when measuring lease liabilities;

•

excluded initial direct costs from the measurement of the right-of-use asset at the date of initial application;

•

used hindsight when determining the lease term;

F-25

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

•

relied on the previous assessment for onerous contract provisions as at December 31, 2018 as an alternative to performing an impairment review; and

•

no retrospective adjustment shall be made to the lease changes generated before the beginning of the year when the IFRS 16 is initially applied, and accounting treatment shall be carried out based on the IFRS 16 according to the final arrangement of the lease changes.

When measuring lease liabilities, the Group discounted lease payments using its incremental borrowing rate at January 1, 2019. The weighted-average rate applied by the Group is 4.275%.


	The Group
The total future minimum lease payments of significant operating leases disclosed in the consolidated financial statements as at December 31, 2018		227,935
Present value discounted using the Group’s incremental borrowing rate at January 1, 2019		166,955
Lease liabilities under new leases standard at January 1, 2019		163,196

Difference between the present value and lease liabilities above^Note		3,759

Note:

The difference principally represents the lease payments that will be matured within 12 months after January 1, 2019 or low-value.

(iii) New and amended standards adopted by the Group in 2018

The Group has initially adopted IFRS 15 and IFRS 9 from January 1, 2018. A number of other new standards are effective from January 1, 2018 but they do not have a material effect on the Group’s financial statements.

Due to the transition methods chosen by the Group in applying these standards, comparative information throughout these financial statements has not been restated to reflect the requirements of the new standards.

(a) IFRS 15 “Revenue from contracts with customers”

IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognized. It replaced IAS 18 “Revenue” (“IAS 18”), IAS 11 “Construction Contracts” (“IAS 11”) and related interpretations. Under IFRS 15, revenue is recognized when a customer obtains control of the goods or services. Determing the timing of the transfer of contract – at point time or over time – requires judgment.

The Group has adopted IFRS 15 using the cumulative effect method (without practical expedients), with the effect of initially applying this standard recognized at the date of initial application (i.e. January 1, 2018). Accordingly, the information presented for 2017 has not been restated – i.e. it is presented, as previously reported, under IAS 18, IAS 11 and related interpretations.

There was no material impact on the Group’s statement of comprehensive income and statement of cash flows for the year ended December 31, 2018.

(b) IFRS 9 “Financial Instruments”

IFRS 9 sets out requirements for recognizing and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replaces IAS 39 “Financial Instruments: Recognition and Measurement” (“IAS 39”).

F-26

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

Impacts of the new requirements on the Group’s financial statements are as follow:

Classification and measurement of financial assets and financial liabilities

The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. IFRS 9 eliminates the previous IAS 39 categories of held to maturity, loans and receivables and available for sale. IFRS 9 largely retains the existing requirements in IAS 39 for the classification and measurement of financial liabilities.

As for the classification and measurement of financial instruments, financial assets used to be carried at amortized costs and those at FVTPL shall continue to maintain their existing classification and measurement methods after adopting IFRS 9. As for the non-trading equity instrument investments used to be classified as “Available-for-sale financial assets”, the Group chooses to irrevocably designate them as carried at FVOCI (not to be carried forward into current profit or loss in the future).

Impairment of financial assets

IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with an ‘expected credit loss’ model. The new impairment model applies to financial assets measured at amortized cost, debt investments at FVOCI and contract assets.

Subject to the new standards on financial instruments, the Group has made an assessment on the gap between the original carrying amount and the carrying amount at the date of adoption of the new standards. The adoption of the new standard exerts no material impact on the retained earnings and other comprehensive income as at January 1, 2018.

Transition

Changes in accounting policies resulting from the adoption of IFRS 9 have been applied retrospectively, except the Group has used an exemption not to restate comparative information for prior periods with respect to classification and measurement (including impairment) requirements. There is no differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 are recognized in retained earnings and reserves as at January 1, 2018.

4	FINANCIAL RISK AND CAPITAL MANAGEMENT

4.1 Financial risk factors

The Group’s activities expose it to a variety of financial risks, including market risk, credit risk and liquidity risk.

(a) Market risk

Market risk is the possibility that changes in foreign exchange rates, interest rates and the prices of oil and gas products will adversely affect the value of assets, liabilities and expected future cash flows.

(i) Foreign exchange risk

The Group conducts its domestic business primarily in RMB, but maintains a portion of its assets in other currencies to pay for imported crude oil, imported equipment and other materials and to meet foreign currency

F-27

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

financial liabilities. The Group is exposed to currency risks arising from fluctuations in various foreign currency exchange rates against the RMB. The RMB is not a freely convertible currency and is regulated by the PRC government. Limitations on foreign exchange transactions imposed by the PRC government could cause future exchange rates to vary significantly from current or historical exchange rates.

Additionally, the Group operates internationally and foreign exchange risk arises from future acquisitions and commercial transactions, recognized assets and liabilities and net investments in foreign operations. Certain entities in the Group might use currency derivatives to manage such foreign exchange risk.

(ii) Interest rate risk

The Group has no significant interest rate risk on interest-bearing assets. The Group’s exposure to interest rate risk arises from its borrowings. The Group’s borrowings at floating rates expose the Group to cash flow interest rate risk and its borrowings at fixed rates expose the Group to fair value interest rate risk. However, the exposure to interest rate risk is not material to the Group. A detailed analysis of the Group’s borrowings, together with their respective interest rates and maturity dates, is included in Note 28.

(iii) Price risk

The Group is engaged in a wide range of oil and gas products-related activities. Prices of oil and gas products are affected by a wide range of global and domestic factors which are beyond the control of the Group. The fluctuations in such prices may have favorable or unfavorable impacts on the Group.

The Group uses derivative financial instruments, including commodity futures, commodity swaps and commodity options, to hedge some price risks efficiently.

(b) Credit risk

Credit risk arises from cash and cash equivalents, time deposits with banks and credit exposure to customers with outstanding receivable balances.

A substantial portion of the Group’s cash at bank and time deposits are placed with the major state-owned banks and financial institutions in China and management believes that the credit risk is low.

The Group performs ongoing assessment of the credit quality of its customers and sets appropriate credit limits taking into account the financial position and past history of defaults of customers. The aging analysis of accounts receivable (net of impairment of accounts receivable) is presented in Note 21. The Group measures loss allowance for accounts receivable at an amount equal to lifetime ECLs. The ECLs were calculated based on historical actual credit loss experience. The rates were considered the differences between economic conditions during the period over which the historical data has been collected, current conditions and the Group’s view of economic conditions over the expected lives of the receivables. The Group performed the calculation of ECL rates by the operating segment and geography.

F-28

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

The following table provides information about the exposure to credit risk and ECLs for accounts receivable as at December 31, 2020 and 2019.


	Gross carrying amount		Impairment provision on individual basis		Impairment provision on provision matrix basis					Loss allowance
	Gross carrying amount		Impairment provision on individual basis		Weighted- average loss rate			Impairment provision		Loss allowance
December 31, 2020	RMB		RMB		%			RMB		RMB
Current (not past due)		46,849		—		0.1	%		34		34
Within 1 year past due		5,326		154		0.4	%		19		173
1 to 2 years past due		386		65		6.9	%		22		87
2 to 3 years past due		50		11		25.6	%		10		21
Over 3 years past due		854		342		94.3	%		483		825

Total		53,465		572					568		1,140


	Gross carrying amount		Impairment provision on individual basis		Impairment provision on provision matrix basis					Loss allowance
	Gross carrying amount		Impairment provision on individual basis		Weighted- average loss rate			Impairment provision		Loss allowance
December 31, 2019	RMB		RMB		%			RMB		RMB
Current (not past due)		58,382		3		0.1	%		30		33
Within 1 year past due		5,534		11		0.4	%		24		35
1 to 2 years past due		127		24		10.7	%		11		35
2 to 3 years past due		411		48		45.5	%		165		213
Over 3 years past due		2,161		1,719		89.6	%		396		2,115

Total		66,615		1,805					626		2,431

The carrying amounts of cash and cash equivalents, time deposits placed with banks, accounts receivable, other receivables and notes receivable included in the consolidated statement of financial position represent the Group’s maximum exposure to credit risk. No other financial assets carry a significant exposure to credit risk.

The Group has no significant concentration of credit risk.

(c) Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities.

In managing its liquidity risk, the Group has access to funding at market rates through equity and debt markets, including using undrawn committed borrowing facilities to meet foreseeable borrowing requirements.

Given the low level of gearing and continued access to funding, the Group believes that its liquidity risk is not material.

Analysis of the Group’s borrowings and lease liabilities based on the remaining period at the date of the statement of financial position to the contractual maturity dates is presented in Note 28 and Note 42.

F-29

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

4.2 Capital management

The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, optimize returns for owners and to minimize its cost of capital. In meeting its objectives of managing capital, the Group may issue new shares, adjust its debt levels or the mix between short-term and long-term borrowings.

The Group monitors capital on the basis of the gearing ratio which is calculated as interest-bearing borrowings / (interest-bearing borrowings + total equity), interest-bearing borrowings include short-term and long-term borrowings. The gearing ratio at December 31, 2020 is 21.3% (December 31, 2019: 24.4%).

4.3 Fair value estimation

The methods and assumptions applied in determining the fair value of each class of financial assets and financial liabilities of the Group at December 31, 2020 and 2019 are disclosed in the respective accounting policies.

The carrying amounts of the following financial assets and financial liabilities approximate their fair value as all of them are short-term in nature: cash and cash equivalents, time deposits with maturities over three months but within one year, accounts receivable, other receivables, trade payables, other payables and short-term borrowings. The fair values of fixed rate long-term borrowings are likely to be different from their respective carrying amounts. Analysis of the fair values and carrying amounts of long-term borrowings is presented in Note 28.

The equity investments that are not held for trading and notes receivable are measured at fair value at the end of the reporting period. The fair value of such equity investments are mainly categorized into level 1 of the fair value hierarchy which are based on the unadjusted quoted prices in active markets for identical assets or liabilities as inputs used in the valuation techniques. Notes receivable are short-term bills of acceptance issued by banks, their fair values approximate the face values of the bills.

5	CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

Estimates and judgments are regularly evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The matters described below are considered to be the most critical in understanding the estimates and judgments that are involved in preparing the Group’s consolidated financial statements.

(a) Estimation of oil and gas reserves

Estimates of oil and natural gas reserves are key elements in the Group’s investment decision-making process. They are also an important element in testing for impairment. Changes in proved oil and gas reserves, particularly proved developed reserves, will affect unit-of-production depreciation, depletion and amortization recorded in the Group’s consolidated financial statements for property, plant and equipment related to oil and gas production activities. A reduction in proved developed reserves will increase depreciation, depletion and amortization charges. Proved oil and gas reserves estimates are subject to revision, either upward or downward, based on new information, such as from development drilling and production activities or from changes in economic factors, including product prices, contract terms, evolution of technology or development plans, etc.

F-30

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

(b) Estimation of impairment of property, plant and equipment

Property, plant and equipment, including oil and gas properties, are reviewed for possible impairments when events or changes in circumstances indicate that the carrying amount may not be recoverable. Determination as to whether and how much an asset is impaired involves management estimates and judgments such as the future price of crude oil, natural gas, refined and chemical products, the operation costs, the product mix, production volumes, production profile and the oil and gas reserves. The impairment reviews and calculations are based on assumptions that are consistent with the Group’s business plans taking into account current economic conditions. Favorable changes to some assumptions, may allow the Group to avoid the need to impair any assets or make it necessary to reverse an impairment loss recognized in prior periods, whereas unfavorable changes may cause the assets to become impaired. For example, when the assumed future price and production profile of crude oil used for the expected future cash flows are different from the actual price and production profile of crude respectively experienced in future, the Group may either over or under recognize the impairment losses for certain assets.

(c) Estimation of asset retirement obligations

Provision is recognized for the future decommissioning and restoration of oil and gas properties. The amount of the provision recognized is the present values of the estimated future expenditures. The estimation of the future expenditures is based on current local conditions and requirements, including legal requirements, technology, price levels, etc. In addition to these factors, the present values of these estimated future expenditures are also impacted by the management plan for the decommissioning of oil and gas properties, the estimation of the economic lives of oil and gas properties and estimates of discount rates. The estimations and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future period. Changes in any of these estimates will impact the operating results and the financial position of the Group over the remaining economic lives of the oil and gas properties.

According to changes in the internal and external environment, accounting standards and company asset retirement expense measures and other relevant regulations, oil and gas field companies recalculate their asset retirement obligations of oil and gas properties based on the latest parameters, to more objectively reflect the actual situation of the Company’s asset retirement obligation of oil and gas properties.

(d) Deferred tax assets

According to the requirements of the competent tax authority, the Company paid income taxes of its branches in the Eastern and Western China Regions in aggregate. The tax losses recorded by the branches in the Eastern China Region has given rise to deferred tax assets, which are expected to be recoverable from future taxable profits generated by the branches in the Eastern China Region. Any policy adjustments may increase or decrease the amount of income tax expenses of the Company.

F-31

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

6	REVENUE

Revenue represents revenues from the sale of crude oil, natural gas, refined products and chemical products and from the transmission of crude oil, refined products and natural gas. The revenue information for the year ended December 31, 2020, 2019 and 2018 are as follows:


2020 Type of contract	Exploration and Production			Refining and Chemicals			Marketing			Natural Gas and Pipeline			Head Office and Other			Total
Type of goods and services
Crude oil		333,557			—			447,384			—			—			780,941
Natural gas		118,388			—			173,696			294,297			—			586,381
Refined products		—			616,063			822,192			—			—			1,438,255
Chemical products		—			150,296			30,344			—			—			180,640
Pipeline transportation business		—			—			—			52,273			—			52,273
Non-oil sales in gas stations		—			—			22,360			—			—			22,360
Others		78,631			8,254			1,300			23,800			3,515			115,500
Elimination		(437,670	)		(492,667	)		(276,503	)		(35,437	)		(1,320	)		(1,243,597	)

Revenue from contracts with customers		92,906			281,946			1,220,773			334,933			2,195			1,932,753

Other revenue																	1,083

Total																	1,933,836

Geographical Region
Mainland China		27,028			281,946			554,620			334,933			2,195			1,200,722
Others		65,878			—			666,153			—			—			732,031

Revenue from contracts with customers		92,906			281,946			1,220,773			334,933			2,195			1,932,753

Other revenue																	1,083

Total																	1,933,836

F-32

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)


2019 Type of contract	Exploration and Production			Refining and Chemicals			Marketing		Natural Gas and Pipeline			Head Office and Other			Total
Type of goods and services
Crude oil		476,974			—			623,757		—			—			1,100,731
Natural gas		110,837			—			238,999		291,641			—			641,477
Refined products		—			834,879			1,161,054		—			—			1,995,933
Chemical products		—			156,938			28,348		—			—			185,286
Pipeline transportation business		—			—			—		70,568			—			70,568
Non-oil sales in gas stations		—			—			21,146		—			—			21,146
Others		88,284			8,036			1,513		28,341			3,684			129,858
Elimination		(552,672	)		(702,207	)		(332,164)		(40,652	)		(1,644	)		(1,629,339	)

Revenue from contracts with customers		123,423			297,646			1,742,653		349,898			2,040			2,515,660

Other revenue																1,150

Total																2,516,810

Geographical Region
Mainland China		41,596			297,646			784,379		349,898			2,040			1,475,559
Others		81,827			—			958,274		—			—			1,040,101

Revenue from contracts with customers		123,423			297,646			1,742,653		349,898			2,040			2,515,660

Other revenue																1,150

Total																2,516,810

F-33

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)


2018 Type of Category	Exploration and Production			Refining and Chemicals			Marketing			Natural Gas and Pipeline			Head Office and Other			Total
Type of goods and services
Crude oil		477,512			—			445,567			—			—			923,079
Natural gas		104,927			—			222,387			256,810			—			584,124
Refined products		—			841,535			1,168,549			—			—			2,010,084
Chemical products		—			164,565			30,894			—			—			195,459
Pipeline transportation business		—			—			—			70,068			—			70,068
Non-oil sales in gas stations		—			—			22,274			—			—			22,274
Others		76,044			7,819			1,192			35,545			2,372			122,972
Elimination		(539,295	)		(696,614	)		(281,522	)		(35,899	)		(606	)		(1,553,936	)

Revenue from contracts with customers		119,188			317,305			1,609,341			326,524			1,766			2,374,124

Other revenue																	810

Total																	2,374,934

Geographical Region
Mainland China		30,711			317,305			850,130			326,524			1,766			1,526,436
Others		88,477			—			759,211			—			—			847,688

Revenue from contracts with customers		119,188			317,305			1,609,341			326,524			1,766			2,374,124

Other revenue																	810

Total																	2,374,934

F-34

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

7	PROFIT BEFORE INCOME TAX EXPENSE


	2020		2019		2018
	RMB		RMB		RMB
Items credited and charged in arriving at the profit before income tax expense include:

Credited
Dividend income from equity investments measured at fair value through other comprehensive income		25		22		52
Reversal of provision for impairment of receivables		95		1,630		1,370
Reversal of write down in inventories		186		201		77
Government grants⁽ⁱ⁾		11,236		12,281		11,775
Gain on disposal of investment in subsidiaries		1,242		49		45
Gain on Pipeline restructuring (Note 41)		46,946		—		—

Charged
Amortization of intangible and other assets		5,944		4,992		4,897
Depreciation and impairment losses:
Owned property, plant and equipment		194,015		205,297		222,195
Right-of-use assets⁽ⁱⁱ⁾		13,916		14,973		—
Auditors’ remuneration⁽ⁱⁱⁱ⁾		49		53		53
Cost of inventories recognized as expense		1,527,271		1,981,628		1,820,838
Provision for impairment of receivables		438		263		1,385
Loss on disposal of property, plant and equipment		5,398		9,809		16,761
Total minimum lease payments for leases previously classified as operating lease under IAS 17⁽ⁱⁱ⁾		—		—		20,196
Variable lease payments, low-value and short-term lease payment not included in the measurement of lease liabilities		3,362		3,514		—
Research and development expenses		15,746		15,666		14,093
Write down in inventories		8,337		1,461		4,307

(i)

Comprises proportionate refund of import value-added tax relating to the import of natural gas (including liquefied natural gas) provided by the PRC government and value-added tax refund upon levy for pipeline transportation service over which portion of value-added tax actual tax burden exceeds 3%. This value-added tax refund is applicable from January 1, 2011 to December 31, 2020 and available when the import prices of the natural gas and liquefied natural gas imported under any State-sanctioned pipelines are higher than their prescribed selling prices.

(ii)

The Group has initially applied IFRS 16 under the modified retrospective approach and adjusted the opening balances at January 1, 2019 to recognize right-of-use assets relating to leases which were previously classified as operating leases under IAS 17. The depreciated carrying amount of the finance lease assets which were previously included in property, plant and equipment is also identified as a right-of-use asset. After initial recognition of right-of-use assets at January 1, 2019, the Group as a lessee is required to recognize the depreciation of right-of-use assets, instead of the previous policy of recognizing rental expenses incurred under operating leases on a straight-line basis over the lease term. Under this approach, the comparative information is not restated.

(iii)

The auditors’ remuneration above represents the annual audit fees paid by the Company. This remuneration does not include fees of RMB 62 (2019: RMB 60, 2018: RMB 52) paid by subsidiaries to the Company’s current auditor and its network firms which primarily relates to audit, tax compliance and other advisory services.

F-35

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

8	EMPLOYEE COMPENSATION COSTS


	2020		2019		2018
	RMB		RMB		RMB
Wages, salaries and allowances		98,832		101,815		95,761
Social security costs		48,772		52,503		48,630

		147,604		154,318		144,391

Social security costs mainly represent contributions to plans for staff welfare organized by the PRC municipal and provincial governments and others including contributions to the retirement benefit plans (Note 33).

9	TAXES OTHER THAN INCOME TAXES


	2020		2019		2018
	RMB		RMB		RMB
Consumption tax		145,525		164,973		152,494
Resource tax		18,468		24,388		24,339
Crude oil special gain levy		178		771		4,750
Other		31,679		38,304		39,094

		195,850		228,436		220,677

10	INTEREST EXPENSE


	2020			2019			2018
	RMB			RMB			RMB
Interest on:
Bank loans		1,677			3,094			2,134
Other loans		14,342			15,476			16,313
Lease liabilities		6,297			7,476			—
Accretion expense (Note 32)		5,107			5,525			5,678
Less: Amounts capitalized		(895	)		(1,162	)		(1,407	)

		26,528			30,409			22,718

Amounts capitalized are borrowing costs that are attributable to the construction of qualifying assets. The average interest rate used to capitalize such general borrowing cost was 4.23% per annum for the year ended December 31, 2020 (2019: 4.28% per annum, 2018: 4.28% per annum).

F-36

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

11	EMOLUMENTS OF DIRECTORS AND SUPERVISORS

Details of the emoluments of directors and supervisors for the years ended December 31, 2020, 2019 and 2018 are as follows:


	2020								2019		2018
Name	Fee for directors and supervisors		Salaries, allowances and other benefits		Contribution to retirement benefit scheme		Total		Total		Total
	RMB’000		RMB’000		RMB’000		RMB’000		RMB’000		RMB’000
Chairmen:
Mr. Dai Houliang⁽ⁱ⁾		—		—		—		—		—		—
Mr. Wang Yilin⁽ⁱ⁾		—		—		—		—		—		—

Vice chairmen:
Mr Li Fanrong⁽ⁱ⁾		—		—		—		—		—		—
Mr. Zhang Wei⁽ⁱⁱ⁾		—		—		—		—		—		—
Mr. Zhang Jianhua⁽ⁱⁱⁱ⁾		—		—		—		—		—		633
Mr. Wang Dongjin^(iv)		—		—		—		—		—		409

Executive directors:
Mr Duan Liangwei^(v)		—		609		126		735		—		—
Mr. Hou Qijun^(vi)		—		—		—		—		983		888

		—		609		126		735		983		1,930

Non-executive directors:
Mr. Yu Baocai ^(vii)		—		—		—		—		—		—
Mr. Liu Yuezhen		—		—		—		—		—		—
Mr. Liu Hongbin^(viii)		—		—		—		—		—		—
Mr. Jiao Fangzheng^(ix)		—		—		—		—		—		—
Mr. Huang Yongzhang^(x)		—		—		—		—		—		—
Mr. Qin Weizhong^(xi)		—		—		—		—		—		—
Mr. Lin Boqiang^(xii)		388		—		—		388		386		365
Mr. Zhang Biyi^(xii)		398		—		—		398		386		399
Ms. Elsie Leung Oi-sie		331		—		—		331		319		334
Mr. Tokuchi Tatsuhito		331		—		—		331		351		334
Mr. Simon Henry		320		—		—		320		340		340
Mr Cai Jinyong^(xii)		—		—		—		—		—		—
Mr Jiang Xiaoming^(xii)		—		—		—		—		—		—

		1,768		—		—		1,768		1,782		1,772

F-37

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)


	2020								2019		2018
Name	Fee for directors and supervisors		Salaries, allowances and other benefits		Contribution to retirement benefit scheme		Total		Total		Total
	RMB’000		RMB’000		RMB’000		RMB’000		RMB’000		RMB’000
Supervisors:
Mr. Lv Bo^(xiii)		—		—		—		—		—		—
Mr. Xu Wenrong^(xiii)		—		—		—		—		—		—
Mr. Zhang Fengshan		—		—		—		—		—		—
Mr. Jiang Lifu		—		—		—		—		—		—
Mr. Lu Yaozhong		—		—		—		—		—		—
Mr. Wang Liang		—		—		—		—		—		—
Mr. Fu Suotang		—		1,281		86		1,367		1,155		967
Mr. Li Jiamin		—		911		95		1,006		978		850
Mr. Liu Xianhua		—		900		111		1,011		845		743
Mr. Li Wendong		—		1,094		99		1,193		1,067		960

		—		4,186		391		4,577		4,045		3,520

		1,768		4,795		517		7,080		6,810		7,222

(i)	Mr. Wang Yilin ceased being the chairman from January 19, 2020. Mr. Dai Houliang was elected as the chairman and Mr Li Fanrong was elected as the vice chariman from March 25, 2020.

(ii)	Mr. Zhang Wei was elected as the non-executive director and vice chairman from June 13, 2019 and ceased being the non-executive director and vice chairman from December 9, 2019.

(iii)

Mr. Zhang Jianhua was appointed as executive director and president from June 5, 2018 and ceased being the executive director and president from November 14, 2018.

(iv)	Mr. Wang Dongjin ceased being the executive director and president from April 2, 2018.

(v)	Mr. Duan liangwei was appointed as the president and executive director from March 9, 2020.

(vi)	Mr. Hou Qijun was appointed as the president from March 21, 2019 and ceased being the executive director and president from December 9, 2019.

(vii)

Mr. Yu Baocai ceased being the non-executive director from June 7, 2018.

(viii)

Mr. Liu Hongbin ceased being the non-executive director from December 3, 2019.

(ix)	Mr. Jiao Fangzheng was elected as the non-executive director from June 13, 2019

(x)	Mr. Huang Yongzhang was elected as the non-executive director from September 28, 2020

(xi)	Mr. Qin Weizhong ceased being the non-executive director from April 15, 2019.

(xii)

Mr. Cai Jinyong and Mr Jiang Xiaoming was elected as independent non-executive director from June 11, 2020, and began to perform their duties.The remuneration has not been paid at the end of December 31, 2020. Mr Zhang Biyi and Mr Lin Boqiang ceased being the independent non-executive director from December 31, 2020.

(xiii)

Mr. Xu Wenrong ceased being the Chairman of Supervisory Committee and supervisor and Mr Lv Bo ceased being the non-executive director from October 20, 2020. Mr Lv Bo was elected as the Chairman of Supervisory Committee and supervisor from November 5, 2020.

(xiv)

The emoluments above are all pre-tax amounts.

None of the directors and supervisors has waived their remuneration during the year ended December 31, 2020. (2019: None of the directors and supervisors has waived their remuneration. 2018: None of the directors and supervisors has waived their remuneration)

F-38

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

The five highest paid individuals in the Company for the year ended December 31, 2020 include one supervisor whose emolument are reflected in the analysis shown above and the note; and four senior managements whose allowances and other benefits was RMB 1.550, RMB 1.310, RMB 1.292 and RMB 1.270, respectively, and whose contribution to retirement benefit scheme was RMB 0.116, RMB 0.116, RMB 0.116 and RMB 0.116, respectively.

The five highest paid individuals in the Company for the year ended December 31, 2019 include three supervisors and one director whose emoluments are reflected in the analysis shown above and the note; and one senior management whose allowances and other benefits was RMB 0.940, and whose contribution to retirement benefit scheme was RMB 0.161.

The five highest paid individuals in the Company for the year ended December 31, 2018 include one supervisor whose emoluments are reflected in the analysis shown above and the note; and four senior managements whose allowances and other benefits were RMB 0.912, RMB 0.899, RMB 0.866 and RMB 0.847, respectively, and whose contribution to retirement benefit scheme were RMB 0.148, RMB 0.148, RMB 0.148 and RMB 0.148, respectively.

During 2020, 2019 and 2018, the Company did not incur any severance payment to any director for loss of office or any payment as inducement to any director to join the Company.

12	INCOME TAX EXPENSE


	2020		2019		2018
	RMB		RMB		RMB
Current taxes		14,922		32,714		34,983
Deferred taxes (Note 31)		7,666		3,485		7,807

		22,588		36,199		42,790

In accordance with the relevant PRC income tax rules and regulations, the PRC corporate income tax rate applicable to the Group is principally 25%. In accordance with the Circular jointly issued by the Ministry Of Finance (“MOF”), the General Administration of Customs of the PRC and the SAT on Issues Concerning Tax Policies for In-depth Implementation of Western Development Strategy (Cai Shui [2011] No.58), the corporate income tax for the enterprises engaging in the encouraged industries in the Western China Region is charged at a preferential corporate income tax rate of 15% from January 1, 2011 to December 31, 2020. Certain branches and subsidiaries of the Company in the Western China Region obtained the approval for the use of the preferential corporate income tax rate of 15%. On April 23, 2020, the MOF, the State Administration of Taxation (“SAT”) and National Development and Reform Commission (“NDRC”) issued the Notice on Continuing the Income Tax Policy for Western Development (Notice No.23 of 2020 of the MOF, the SAT, the NDRC), the corporate income tax for the enterprises engaging in the encouraged industries in the Western China Region is charged at a preferential corporate income tax rate of 15% from January 1, 2021 to December 31, 2030.

F-39

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

The tax on the Group’s profit before taxation differs from the theoretical amount that would arise using the corporate income tax rate in the PRC applicable to the Group as follows:


	2020			2019			2018
	RMB			RMB			RMB
Profit before income tax expense		56,073			103,214			116,770

Tax calculated at a tax rate of 25%		14,018			25,804			29,193
Tax return true-up		256			691			554
Effect of income taxes from international operations different from taxes at the PRC statutory tax rate		1,522			6,112			4,414
Effect of preferential tax rate		(1,312	)		(5,529	)		(3,855	)
Tax effect of income not subject to tax		(3,612	)		(3,767	)		(3,278	)
Tax effect of expenses not deductible for tax purposes		5,455			4,479			8,278
Tax effect of temporary differences and losses unrecognized as deferred tax assets		6,261			8,409			7,484

Income tax expense		22,588			36,199			42,790

13	BASIC AND DILUTED EARNINGS PER SHARE

Basic and diluted earnings per share for the years ended December 31, 2020, 2019 and 2018 have been computed by dividing profit for the year attributable to owners of the Company by 183,021 million shares issued and outstanding for the year.

There are no potentially dilutive ordinary shares.

14	DIVIDENDS


	2020		2019		2018
	RMB		RMB		RMB
Interim dividends attributable to owners of the Company for 2020 ^(a)		16,000		—		—
Proposed final dividends attributable to owners of the Company for 2020 ^(b)		16,000		—		—
Interim dividends attributable to owners of the Company for 2019 ^(c)		—		14,212		—
Final dividends attributable to owners of the Company for 2019 ^(d)		—		12,081		—
Interim dividends attributable to owners of the Company for 2018 ^(e)		—		—		16,252
Final dividends attributable to owners of the Company for 2018 ^(f)		—		—		16,472

		32,000		26,293		32,724

(a)	Interim dividends attributable to owners of the Company in respect of 2020 of RMB 0.08742 yuan per share amounting to a total of RMB 16,000. The dividends were paid on September 22, 2020 (A shares) and November 13, 2020 (H shares).

(b)

At the 8^th meeting of the 8^th Board, the Board of Directors proposed final dividends attributable to owners of the Company in respect of 2020 of RMB 0.08742 yuan per share amounting to a total of RMB 16,000. These consolidated financial statements do not reflect this dividend payable as the final dividends were proposed after the reporting period and will be accounted for in equity as an appropriation of retained earnings for the year ended December 31, 2020 when approved at the forthcoming Annual General Meeting.

F-40

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

(c)	Interim dividends attributable to owners of the Company in respect of 2019 of RMB 0.07765 yuan per share amounting to a total of RMB 14,212. The dividends were paid on September 24, 2019 (A shares) and November 1, 2019 (H shares).

(d)	Final dividends attributable to owners of the Company in respect of 2019 of RMB 0.06601 yuan per share amounting to a total of RMB 12,081 and were paid on June 30, 2020 (A shares) and July 31, 2020 (H shares).

(e)	Interim dividends attributable to owners of the Company in respect of 2018 of RMB 0.08880 yuan per share amounting to a total of RMB 16,252. The dividends were paid on September 21, 2018 (A shares) and November 1, 2018 (H shares).

(f)	Final dividends attributable to owners of the Company in respect of 2018 of RMB 0.09 yuan per share amounting to a total of RMB 16,472 and were paid on June 28, 2019 (A shares) and August 2, 2019 (H shares).

15	PROPERTY, PLANT AND EQUIPMENT


Year Ended December 31, 2020	Buildings			Oil and Gas Properties			Equipment and Machinery			Motor Vehicles			Other			Construction in Progress			Total
	RMB			RMB			RMB			RMB			RMB			RMB			RMB
Cost
At beginning of the year		252,174			2,261,203			1,153,616			27,148			36,155			255,302			3,985,598
Additions		3,620			1,044			8,425			1,419			776			188,591			203,875
Transfers		16,827			152,389			23,618			—			12,169			(205,003	)		—
Disposals or write offs		(22,910	)		(39,497	)		(438,169	)		(5,661	)		(3,340	)		(8,934	)		(518,511	)
Currency translation differences		(763	)		(19,214	)		(1,086	)		(49	)		(746	)		(1,074	)		(22,932	)

At end of the year		248,948			2,355,925			746,404			22,857			45,014			228,882			3,648,030

Accumulated depreciation and impairment
At beginning of the year		(107,943	)		(1,429,389	)		(615,770	)		(19,947	)		(23,092	)		(6,233	)		(2,202,374	)
Charge for the year and others		(11,005	)		(136,433	)		(45,912	)		(1,260	)		(10,573	)		—			(205,183	)
Impairment charge		(214	)		(13,908	)		(113	)		—			(837	)		(295	)		(15,367	)
Disposals or write offs or transfers		7,948			24,234			173,196			3,739			2,031			1,012			212,160
Currency translation differences		315			13,459			490			37			534			(10	)		14,825

At end of the year		(110,899	)		(1,542,037	)		(488,109	)		(17,431	)		(31,937	)		(5,526	)		(2,195,939	)

Net book value
At end of the year		138,049			813,888			258,295			5,426			13,077			223,356			1,452,091

F-41

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)


Year Ended December 31, 2019	Buildings			Oil and Gas Properties			Equipment and Machinery			Motor Vehicles			Other			Construction in Progress			Total
	RMB			RMB			RMB			RMB			RMB			RMB			RMB
Cost
At beginning of the year		237,038			2,113,366			1,102,423			27,911			34,080			226,623			3,741,441
Additions		1,330			5,990			6,111			1,325			752			283,170			298,678
Transfers		21,265			174,749			52,449			—			1,234			(249,697	)		—
Disposals or write offs		(7,605	)		(40,253	)		(7,528	)		(2,096	)		(549	)		(8,900	)		(66,931	)
Currency translation differences		146			7,351			161			8			638			4,106			12,410

At end of the year		252,174			2,261,203			1,153,616			27,148			36,155			255,302			3,985,598

Accumulated depreciation and impairment
At beginning of the year		(100,767	)		(1,312,907	)		(570,120	)		(20,276	)		(21,714	)		(6,269	)		(2,032,053	)
Charge for the year and others		(11,402	)		(128,859	)		(50,360	)		(1,386	)		(1,365	)		—			(193,372	)
Impairment charge		(237	)		(11,562	)		(1,159	)		(4	)		(38	)		(419	)		(13,419	)
Disposals or write offs or transfers		4,532			28,241			5,945			1,724			436			491			41,369
Currency translation differences		(69	)		(4,302	)		(76	)		(5	)		(411	)		(36	)		(4,899	)

At end of the year		(107,943	)		(1,429,389	)		(615,770	)		(19,947	)		(23,092	)		(6,233	)		(2,202,374	)

Net book value
At end of the year		144,231			831,814			537,846			7,201			13,063			249,069			1,783,224

The Group’s exploration and production segment determines whether there are any indications of impairment for the oil blocks according to the Group’s guidance of identification of impairment indications for oil and gas properties, performs the impairment tests on those oil blocks with indications of impairment, and reports the results to the Group’s internal professional team (including operation and finance team) for further overall assessment and evaluation. The final results of the impairment tests have been submitted to the Group’s management for review and approval. The Group recorded impairment losses amounting to RMB 13,908 related to oil and gas properties under the exploration and production segment for the year ended December 31, 2020 (2019: RMB 11,562 related to oil and gas properties under the exploration and production segment, 2018: RMB 19,856 and RMB 2,904 related to oil and gas properties and construction in progress respectively under the exploration and production segment) due to the decline of oil and gas reserves, the higher production costs and significant drop in the economic benefits of certain oil blocks at the late stage of production. The carrying amount of those impaired oil and gas properties was written down to their respective recoverable amounts, which were determined based on the present values of the expected future cash flows of the assets. The Group referred to the weighted average cost of capital of the oil and gas industry when determining discount rate, and made relevant adjustments according to specific risks in different countries or regions. In 2020, the after-tax discount rates adopted by most oil fields or blocks of the Group ranged 5.9% to 12% (2019: 6.4% to 15.4%, 2018: 7.3% to 11.5%).

F-42

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

The following table indicates the changes to the Group’s exploratory well costs, which are included in construction in progress, for the years ended December 31, 2020, 2019 and 2018.


	2020			2019			2018
	RMB			RMB			RMB
At beginning of the year		36,101			26,905			22,843
Additions to capitalized exploratory well costs pending the determination of proved reserves		30,104			35,098			28,045
Reclassified to wells, facilities, and equipment based on the determination of proved reserves		(18,464	)		(17,002	)		(15,404	)
Capitalized exploratory well costs charged to expense		(8,934	)		(8,900	)		(8,579	)

At end of the year		38,807			36,101			26,905

The following table provides an aging of capitalized exploratory well costs based on the date the drilling was completed.


	December 31, 2020		December 31, 2019
	RMB		RMB
One year or less		23,428		23,924
Over one year		15,379		12,177

Balance at December 31		38,807		36,101

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 to ascertain economic viability.

F-43

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

16	INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

The summarized financial information of the Group’s principal associates and joint ventures, including the aggregated amounts of assets, liabilities, revenue, profit or loss and the interest held by the Group were as follows:

Name

Country of
Incorporation

Registered
Capital

Principal Activities

Interest Held

Direct %

Indirect %

China Oil & Gas Piping Network Corporation (“PipeChina”)

PRC

500,000

Pipeline transport, storage service, import of equipment, import and export of techniques, science and technology research, research and application of informatization, technology consulting, technology service, technology transfer, promotion of technology

29.90

—

China Petroleum Finance Co., Ltd.

PRC

8,331

Deposits, loans, settlement, lending, bills acceptance discounting, guarantee and other banking business

32.00

—

CNPC Captive Insurance Co., Ltd.

PRC

5,000

Property loss insurance, liability insurance, credit insurance and deposit insurance; as well as the application of the above insurance reinsurance and insurance capital business

49.00

—

China Marine Bunker (PetroChina) Co., Ltd.

PRC

1,000

Oil import and export trade and transportation, sale and storage

—

50.00

Mangistau Investment B.V.

Netherlands

USD 131

million

Engages in investing activities, the principle activities of its main subsidiaries are exploration, development and sale of oil and gas.

—

50.00

Trans-Asia Gas Pipeline Co., Ltd.

PRC

5,000

Main contractor, investment holding, investment management, investment consulting, enterprise management advisory, technology development, promotion and technology consulting

—

50.00

F-44

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

Dividends received or receivable from associates and joint ventures were RMB 4,517 in 2020 (2019: RMB 4,432, 2018: RMB 6,558).

In 2020, investments in associates and joint ventures of RMB 1,687 (2019: RMB 119, 2018: RMB 207) were disposed of, resulting in a loss of RMB 5 (2019: a gain of RMB 238, 2018: a gain of RMB 7).

In 2020, the share of profit and other comprehensive income in all individually immaterial associates and joint ventures accounted for using equity method in aggregate was loss of RMB 2,468 (2019: profit of RMB 2,207, 2018: profit of RMB 8,996) and profit of RMB 3,631 (2019: profit of RMB 2,098, 2018: profit of RMB 480), respectively.

Interest in Associates

Summarized financial information in respect of the Group’s principal associates and reconciliation to carrying amount is as follow:


	PipeChina (Note 41)		China Petroleum Finance Co., Ltd.				CNPC Captive Insurance Co., Ltd.
	December 31, 2020		December 31, 2020		December 31, 2019		December 31, 2020		December 31, 2019
	RMB		RMB		RMB		RMB		RMB
Percentage ownership interest (%)		29.90		32.00		32.00		49.00		49.00
Current assets		74,012		313,741		261,520		11,267		10,823
Non-current assets		655,982		177,344		228,933		2,956		2,618
Current liabilities		55,562		404,201		403,052		4,752		4,752

Non-current liabilities		104,150		12,617		17,234		2,776		2,232

Net assets		570,282		74,267		70,167		6,695		6,457
Group’s share of net assets		151,135		23,765		22,453		3,281		3,164
Goodwill		—		349		349		—		—

Carrying amount of interest in associates		151,135		24,114		22,802		3,281		3,164

Summarized statement of comprehensive income and dividends received by the Group are as follow:


	PipeChina (Note 41)		China Petroleum Finance Co., Ltd.							CNPC Captive Insurance Co., Ltd.
	From Oct 01, 2020 to Dec 31, 2020		2020			2019		2018		2020		2019			2018
	RMB		RMB			RMB		RMB		RMB		RMB			RMB
Revenue		22,766		7,954			9,672		8,520		735		712			706
Profit for the year		6,444		7,819			7,810		7,554		389		349			315
Other comprehensive income		—		(1,603	)		1,356		651		—		(1	)		—

Total comprehensive income		6,444		6,216			9,166		8,205		389		348			315

Group’s share of total comprehensive income		1,532		1,989			2,933		2,626		191		170			154

Dividends received by the Group		—		677			1,268		983		74		62			63

F-45

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

Interest in Joint Ventures

Summarized statement of financial position as included in their own financial statements, adjusted for fair value adjustments and differences in accounting policies in respect of the Group’s principal joint ventures and reconciliation to carrying amount is as follows:


	China Marine Bunker (PetroChina) Co., Ltd.				Mangistau Investment B.V.				Trans-Asia Gas Pipeline Co., Ltd.
	December 31, 2020		December 31, 2019		December 31, 2020		December 31, 2019		December 31, 2020		December 31, 2019
	RMB		RMB		RMB		RMB		RMB		RMB
Percentage ownership interest (%)		50.00		50.00		50.00		50.00		50.00		50.00
Non-current assets		1,685		1,750		10,586		11,980		39,809		43,258
Current assets		7,319		8,666		830		1,211		2,886		2,680
Including: cash and cash equivalents		1,343		1,206		74		292		739		73
Non-current liabilities		158		152		3,008		3,062		2,330		2,355
Including: Non-current financial liabilities		1		5		848		907		2,330		2,100
Current liabilities		5,927		7,349		575		567		235		445
Including: Current financial liabilities excluding trade and other payables		3,267		3,599		—		—		—		—

Net assets		2,919		2,915		7,833		9,562		40,130		43,138

Net assets attributable to owners of the Company		2,672		2,672		7,833		9,562		40,130		43,138
Group’s share of net assets		1,336		1,336		3,917		4,781		20,065		21,569

Carrying amount of interest in joint ventures		1,336		1,336		3,917		4,781		20,065		21,569

F-46

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

Summarized statement of comprehensive income as included in their own financial statements, adjusted for fair value adjustments and differences in accounting policies and dividends received by the Group is as follows:


	China Marine Bunker (PetroChina) Co., Ltd.									Mangistau Investment B.V.									Trans-Asia Gas Pipeline Co., Ltd.
	2020			2019			2018			2020			2019			2018			2020			2019			2018
	RMB			RMB			RMB			RMB			RMB			RMB			RMB			RMB			RMB
Revenue		36,695			42,116			43,924			8,152			15,104			16,085			18			23			14
Depreciation, depletion and amortization		(195	)		(81	)		(90	)		(1,048	)		(883	)		(807	)		(38	)		(37	)		(4	)
Interest income		16			23			18			4			2			5			42			51			59
Interest expense		(60	)		(88	)		(96	)		(160	)		(158	)		(154	)		(58	)		(57	)		(46	)
Income tax expense		(57	)		(92	)		(37	)		(293	)		(925	)		(1,077	)		1			—			10
Net profit		185			142			126			362			2,818			3,324			3,060			4,070			1,931
Total comprehensive income		140			169			151			(650	)		2,978			3,020			(3,007	)		7,940			2,505

Group’s share of total comprehensive income		46			85			76			(325	)		1,489			1,510			(1,504	)		3,970			1,253

Dividends received by the Group		—			—			8			539			1,115			1,650			—			175			—

17	EQUITY INVESTMENTS MEASURED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME


	December 31, 2020		December 31, 2019
	RMB		RMB
China Pacific Insurance (Group) Co.,Ltd.		188		185
Chengdu Huaqi Houpu Holding Co.,Ltd.		228		191
Other items		486		546

		902		922

The above equity investments are planned to be held for a long term by the Group for strategic purpose, the Group designates them as equity investments at fair value through other comprehensive income.

Dividends amounting to RMB 25 were received on these investments during the year ended December 31, 2020 (2019: RMB 22, 2018: RMB 52).

F-47

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

18	SUBSIDIARIES

The principal subsidiaries of the Group are:

Company Name

Country of

Incorporation

Registered

Capital

Type of
Legal
Entity

Attributable

Equity
Interest %

Voting
Rights
%

Principal Activities

Daqing Oilfield Company Limited

PRC

47,500

Limited liability company

100.00

Exploration, production and sale of crude oil and natural gas

CNPC Exploration and Development Company Limited⁽ⁱ⁾

PRC

16,100

Limited liability company

50.00

57.14

Exploration, production and sale of crude oil and natural gas outside the PRC

PetroChina Hong Kong Limited

Hong Kong

HKD

7,592 million

Limited liability company

100.00

Investment holding. The principal activities of its subsidiaries, associates and joint ventures are the exploration, production and sale of crude oil in and outside the PRC as well as natural gas sale and transmission in the PRC

PetroChina International Investment Company Limited

PRC

31,314

Limited liability company

100.00

Investment holding. The

principal activities of its

subsidiaries, associates and joint ventures are the exploration, development

and production of crude

oil, natural gas, oil sands and coalbed methane outside the PRC

PetroChina International Company Limited

PRC

18,096

Limited liability company

100.00

Marketing of refined products and trading of crude oil and petrochemical products, storage, investment in refining, chemical engineering, storage facilities, service station, and transportation facilities and related business in and outside the PRC

PetroChina Sichuan Petrochemical Company Limited

PRC

10,000

Limited liability company

90.00

Production and sale of oil refining, petrochemical and chemical products

F-48

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

(i)	The Company consolidated the financial statements of the entity because it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

Summarized financial information in respect of the Group’s principal subsidiaries with significant non-controlling interests is as follows:


	CNPC Exploration and Development Company Limited				PetroChina Sichuan Petrochemical Company Limited
	December 31, 2020		December 31, 2019		December 31, 2020		December 31, 2019
	RMB		RMB		RMB		RMB
Percentage ownership interest (%)		50.00		50.00		90.00		90.00
Current assets		16,046		20,604		4,278		3,600
Non-current assets		182,392		186,792		26,371		25,904
Current liabilities		21,820		18,911		5,382		4,444
Non-current liabilities		22,566		25,326		486		615

Net assets		154,052		163,159		24,781		24,445

Summarized statement of comprehensive income is as follows:


	CNPC Exploration and Development Company Limited							PetroChina Sichuan Petrochemical Company Limited
	2020			2019		2018		2020		2019		2018
	RMB			RMB		RMB		RMB		RMB		RMB
Revenue		33,312			47,096		45,618		35,319		49,858		39,887
Profit from continuing operations		6,006			14,126		15,563		520		544		735
Total comprehensive income		(6,972	)		17,879		17,577		520		544		735
Profit attributable to non-controlling interests		3,311			8,274		8,844		52		54		74
Dividends paid to non-controlling interests		1,498			1,923		2,038		12		19		—

Summarized statement of cash flows is as follows:


	CNPC Exploration and Development Company Limited									PetroChina Sichuan Petrochemical Company Limited
	2020			2019			2018			2020			2019			2018
	RMB			RMB			RMB			RMB			RMB			RMB
Net cash inflow from operating activities		5,681			17,780			22,467			5,119			3,413			2,236
Net cash (outflow) / inflow from investing activities		(16,187	)		(17,306	)		(33,466	)		(380	)		537			178
Net cash (outflow) / inflow from financing activities		7,410			(1,118	)		7,865			(3,186	)		(4,035	)		(2,332	)
Effect of foreign exchange rate changes on cash and cash equivalents		(776	)		220			(1,350	)		—			—			—

Net (decrease) / increase in cash and cash equivalents		(3,872	)		(424	)		(4,484	)		1,553			(85	)		82
Cash and cash equivalents at the beginning of the year		13,074			13,498			17,982			8			93			11

Cash and cash equivalents at the end of the year		9,202			13,074			13,498			1,561			8			93

F-49

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

19	INTANGIBLE AND OTHER NON-CURRENT ASSETS


	December 31, 2020							December 31, 2019
	Cost		Accumulated amortization, including impairment losses			Net		Cost		Accumulated amortization, including impairment losses			Net
	RMB		RMB			RMB		RMB		RMB			RMB
Patents and technical know-how		7,846		(6,657	)		1,189		7,782		(6,370	)		1,412
Computer software		12,517		(9,528	)		2,989		12,356		(9,116	)		3,240
Goodwill⁽ⁱ⁾		8,161		(36	)		8,125		46,555		(3,747	)		42,808
Other		26,135		(9,797	)		16,338		23,880		(8,949	)		14,931

Intangible assets		54,659		(26,018	)		28,641		90,573		(28,182	)		62,391

Other assets							38,853							38,272

							67,494							100,663

(i)

The impairment of goodwill shall be tested in combination with its related asset groups. The recoverable amount of all cash-generating units has been determined based on value-in-use calculations. These calculations use post-tax cash flow projections based on financial budgets prepared by management. The post-tax discount rates reflect specific risks relating to the cash-generating unit.

For impairment test of the goodwill, the post-tax discount rates ranged 4.9% to 10.5% (2019: 6.5% to 10.5%, 2018: 9.1% to 11.0%) were used by the management, and no impairment loss was charged for the goodwill for the year ended December 31, 2020 (2019: nil, 2018: RMB 38). In September 2020, the Group sold its major oil and gas pipelines to PipeChina, thus losing control of PetroChina United Pipelines Co., Ltd. (Note 41). The related goodwill generated from the acquisition of CNPC pipeline United Co., Ltd. in 2015, with carrying amount of RMB 34,285 (including relevant impairment provision), was derecognized accordingly.

20	INVENTORIES


	December 31, 2020			December 31, 2019
	RMB			RMB
Crude oil and other raw materials		35,855			56,166
Work in progress		12,387			15,159
Finished goods		80,739			112,003
Spare parts and consumables		75			88

		129,056			183,416
Less: Write down in inventories		(517	)		(1,495	)

		128,539			181,921

F-50

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

21	ACCOUNTS RECEIVABLE


	December 31, 2020			December 31, 2019
	RMB			RMB
Accounts receivable		53,465			66,615
Less: Provision for impairment of receivables		(1,140	)		(2,431	)

		52,325			64,184

The aging analysis of accounts receivable (net of impairment of accounts receivable) based on the invoice date (or date of revenue recognition, if earlier), at December 31, 2020 and 2019 is as follows:


	December 31, 2020		December 31, 2019
	RMB		RMB
Within 1 year		51,641		63,392
Between 1 and 2 years		374		419
Between 2 and 3 years		209		267
Over 3 years		101		106

		52,325		64,184

The Group offers its customers credit terms up to 180 days.

Movements in the provision for impairment of accounts receivable are as follows:


	2020			2019			2018
	RMB			RMB			RMB
At beginning of the year		2,431			4,053			4,771
Provision for impairment of accounts receivable		426			226			561
Reversal of provision for impairment of accounts receivable		(76	)		(1,604	)		(1,178	)
Receivables written off as uncollectible		(1,641	)		(244	)		(101	)

At end of the year		1,140			2,431			4,053

F-51

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

22	PREPAYMENTS AND OTHER CURRENT ASSETS


	December 31, 2020			December 31, 2019
	RMB			RMB
Other receivables		21,128			23,072
Advances to suppliers		22,330			17,747

		43,458			40,819
Less: Provision for impairment		(3,378	)		(3,413	)

		40,080			37,406
Value-added tax to be deducted		44,514			48,560
Prepaid expenses		373			360
Prepaid income taxes		5,997			5,649
Other current assets		18,298			11,152

		109,262			103,127

23	NOTES RECEIVABLE

Notes receivable represent mainly bills of acceptance issued by banks for the sale of goods and performance of services. Notes receivable are measured at fair value through other comprehensive income. All notes receivable are due within one year, and their fair values approximate the face values of the bills.

24	CASH AND CASH EQUIVALENTS

The weighted average effective interest rate on bank deposits was 1.69% per annum for the year ended December 31, 2020 (2019: 1.69% per annum, 2018: 1.55% per annum).

25	ASSETS AND LIABILITIES HELD FOR SALE

On 22 December 2020, the subsidiary of the Company, Kunlun Energy Company Limited (Kunlun Energy), and PipeChina entered into the an agreement. Kunlun Energy agreed to transfer the 60% equity interest in PetroChina Beijing Gas Pipeline Co., Ltd (“Beijing Pipeline”) and 75% equity interest in PetroChina Dalian LNG Company Limited (“Dalian LNG”) (Beijing Pipeline and Dalian LNG collectively refer as “Target Companies”) at a base consideration of approximately RMB 40,886 (subject to the adjustments according to the price adjustment mechanism as set out in the agreement), which all will be settled in cash by PipeChina. The estimated completion time of the transaction will be April 2021. Upon completion of the transaction, the Group will cease to hold any equity interests in the Target Companies, thus losing the control of these two companies. The assets and liabilities of the Target. The assets and liabilities of Beijing Pipeline and Dalian LNG are presented as assets held for sale RMB 42,615 and liabilities held for sale RMB 9,956 respectively on 31 December 2020. The assets held for sale mainly including Property, plant and equipment amounted to RMB 41,158, and the liabilities held for sale mainly including long-term and short-term borrowings amounted to RMB 6,500 and accounts payable and other payables amounted to RMB 3,291.

F-52

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

26	ACCOUNTS PAYABLE AND ACCRUED LIABILITIES


	December 31, 2020		December 31, 2019
	RMB		RMB
Trade payables		113,119		148,335
Salaries and welfare payable		8,649		10,169
Dividends payable by subsidiaries to non-controlling shareholders		952		389
Interests payable		4,034		4,719
Construction fee and equipment cost payables		107,199		111,767
Other⁽ⁱ⁾		82,187		52,935

		316,140		328,314

(i)	Other consists primarily of notes payables, insurance payable, etc.

The aging analysis of trade payables at December 31, 2020 and 2019 is as follows:


	December 31, 2020		December 31, 2019
	RMB		RMB
Within 1 year		104,812		136,670
Between 1 and 2 years		1,696		5,472
Between 2 and 3 years		2,342		3,180
Over 3 years		4,269		3,013

		113,119		148,335

27	CONTRACT LIABILITIES

As of December 31, 2020 and December 31, 2019, contract liabilities mainly represented advances from customers related to the sales of natural gas, crude oil and refined oil, etc. The majority of related obligations were expected to be performed and the corresponding revenue will be recognized within one year. Substantially all of contract liabilities at the beginning of the year has been recognized as revenue for the year ended December 31, 2020.

28	BORROWINGS


	December 31, 2020		December 31, 2019
	RMB		RMB
Short-term borrowings excluding current portion of long-term borrowings		42,354		90,497
Current portion of long-term borrowings		75,188		85,343

		117,542		175,840
Long-term borrowings		251,379		290,882

		368,921		466,722

Borrowings of the Group of RMB 13,726 were guaranteed by CNPC, its fellow subsidiaries and a third party at December 31, 2020 (December 31, 2019: RMB 22,313).

F-53

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

The Group’s borrowings include secured liabilities totaling RMB 3,486 at December 31, 2020 (December 31, 2019: RMB 1,983).


	December 31, 2020			December 31, 2019
	RMB			RMB
Total borrowings:
– interest free		110			124
– at fixed rates		192,079			250,297
– at floating rates		176,732			216,301

		368,921			466,722

Weighted average effective interest rates:
– bank loans		2.20	%		3.20	%
– corporate debentures		3.49	%		3.52	%
– medium-term notes		3.32	%		3.63	%
– other loans		3.47	%		3.80	%

The borrowings by major currency at December 31, 2020 and December 31, 2019 are as follows:


	December 31, 2020		December 31, 2019
	RMB		RMB
RMB		262,458		356,704
US Dollar		98,553		100,374
Other currency		7,910		9,644

		368,921		466,722

The fair values of the Group’s long-term borrowings including the current portion of long-term borrowings are RMB 323,809 at December 31, 2020 (December 31, 2019: RMB 371,807). The carrying amounts of short-term borrowings approximate their fair values.

The fair values are based on discounted cash flows using applicable discount rates based upon the prevailing market rates of interest available to the Group for financial instruments with substantially the same terms and characteristics at the dates of the consolidated statement of financial position. Such discount rates ranged from -0.49% to 4.65% per annum as of December 31, 2020 (December 31, 2019: -0.27% to 4.90% per annum) depending on the type of the borrowings.

The following table sets out the borrowings’ remaining contractual maturities at the date of the consolidated statement of financial position, which are based on contractual undiscounted cash flows including principal and interest, and the earliest contractual maturity date:


	December 31, 2020		December 31, 2019
	RMB		RMB
Within 1 year		124,777		188,771
Between 1 and 2 years		53,526		30,090
Between 2 and 5 years		188,012		253,918
After 5 years		27,894		31,576

		394,209		504,355

F-54

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

Reconciliation of movements of borrowings to cash flows arising from financing activities:


	2020			2019
	RMB			RMB
At beginning of the year		466,722			414,572
Changes from financing cash flows:
Increase in borrowings		989,492			836,458
Repayments of borrowings		(1,017,662	)		(785,751	)

Total changes from financing cash flows		(28,170	)		50,707
Exchange adjustments		(6,282	)		1,443
Pipeline restructuring (Note 41)		(56,849	)		—
Reclassified as liabilities held for sale (Note 25)		(6,500	)		—

At end of the year		368,921			466,722

29	SHARE CAPITAL


	December 31, 2020		December 31, 2019
	RMB		RMB
Registered, issued and fully paid:
A shares		161,922		161,922
H shares		21,099		21,099

		183,021		183,021

In accordance with the Restructuring Agreement between CNPC and the Company effective as of November 5, 1999, the Company issued 160 billion state-owned shares in exchange for the assets and liabilities transferred to the Company by CNPC. The 160 billion state-owned shares were the initial registered capital of the Company with a par value of RMB 1.00 yuan per share.

On April 7, 2000, the Company issued 17,582,418,000 shares, represented by 13,447,897,000 H shares and 41,345,210 ADSs (each representing 100 H shares) in a global initial public offering (“Global Offering”) and the trading of the H shares and the ADSs on the Stock Exchange of Hong Kong Limited and the New York Stock Exchange commenced on April 7, 2000 and April 6, 2000, respectively. The H shares and ADSs were issued at prices of HK$ 1.28 per H share and US$ 16.44 per ADS respectively for which the net proceeds to the Company were approximately RMB 20 billion. The shares issued pursuant to the Global Offering rank equally with existing shares.

Pursuant to the approval of the China Securities Regulatory Commission, 1,758,242,000 state-owned shares of the Company owned by CNPC were converted into H shares for sale in the Global Offering.

On September 1, 2005, the Company issued an additional 3,196,801,818 new H shares at HK$ 6.00 per share and net proceeds to the Company amounted to approximately RMB 19,692. CNPC also sold 319,680,182 state-owned shares it held concurrently with PetroChina’s sale of new H shares in September 2005.

On October 31, 2007, the Company issued 4,000,000,000 new A shares at RMB 16.70 yuan per share and net proceeds to the Company amounted to approximately RMB 66,243 and the listing and trading of the A shares on the Shanghai Stock Exchange commenced on November 5, 2007.

F-55

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

Following the issuance of the A shares, all the existing state-owned shares issued before November 5, 2007 held by CNPC have been registered with the China Securities Depository and Clearing Corporation Limited as A shares.

Shareholders’ rights are governed by the Company Law of the PRC that requires an increase in registered capital to be approved by the shareholders in shareholders’ general meetings and the relevant PRC regulatory authorities.

30	RESERVES


	2020			2019
	RMB			RMB
Capital Reserve
Beginning balance		133,308			133,308

Ending balance		133,308			133,308

Statutory Common Reserve Fund^(a)
Beginning balance		197,282			194,245
Transfer from retained earnings		6,275			3,037

Ending balance		203,557			197,282

Special Reserve-Safety Fund Reserve
Beginning balance		12,443			13,831
Safety fund reserve		(1,633	)		(1,388	)

Ending balance		10,810			12,443

Currency Translation Differences^(b)
Beginning balance		(28,939	)		(33,067	)
Currency translation differences		(3,909	)		4,128

Ending balance		(32,848	)		(28,939	)

Other Reserves
Beginning balance		(10,083	)		(8,718	)

Transaction with non-controlling interests		—			(2,007	)
Fair value changes in equity investments measured at fair value through other comprehensive income		(22	)		96
Share of the other comprehensive income of associates and joint ventures accounted for using the equity method		(441	)		417
Other		(99	)		129

Ending balance		(10,645	)		(10,083	)

		304,182			304,011

(a)

Pursuant to the PRC regulations and the Company’s Articles of Association, the Company is required to transfer 10% of its net profit, as determined under the PRC accounting regulations, to a Statutory Common Reserve Fund (“Reserve Fund”). Appropriation to the Reserve Fund may cease when the fund aggregates to 50% of the Company’s registered capital. The transfer to this reserve must be made before distribution of dividends to shareholders.

F-56

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

The Reserve Fund shall only be used to make good previous years’ losses, to expand the Company’s production operations, or to increase the capital of the Company. Upon approval of a resolution of shareholders’ in a general meeting, the Company may convert its Reserve Fund into share capital and issue bonus shares to existing shareholders in proportion to their original shareholdings or to increase the nominal value of each share currently held by them, provided that the balance of the Reserve Fund after such issuance is not less than 25% of the Company’s registered capital.

(b)	The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations.

(c)	According to the relevant PRC regulations, the distributable reserve is the lower of the retained earnings computed under PRC accounting regulations and IFRS. As of December 31, 2020, the Company’s distributable reserve amounted to RMB 619,102 (December 31, 2019: RMB 590,727).

31	DEFERRED TAXATION

The movements in the deferred taxation account are as follows:


	2020			2019			2018
	RMB			RMB			RMB
At beginning of the year		2,848			6,483			14,064
Transfer to profit and loss (Note 12)		(7,666	)		(3,485	)		(7,807	)
(Debit) / credit to other comprehensive income		(198	)		(150	)		226

At end of the year		(5,016	)		2,848			6,483

Deferred tax balances before offset are attributable to the following items:


	December 31, 2020			December 31, 2019
	RMB			RMB
Deferred tax assets:
Receivables and inventories		4,740			6,841
Tax losses		24,646			20,391
Impairment of long-term assets		6,309			9,676
Other		6,622			8,643

Total deferred tax assets		42,317			45,551

Deferred tax liabilities:
Accelerated tax depreciation		24,147			27,646
Other		23,186			15,057

Total deferred tax liabilities		47,333			42,703

Net deferred tax (liabilities)/ assets		(5,016	)		2,848

Tax losses that can be carried forward to future years include deferred tax assets arising from the losses of the branches in the Eastern China Region. The tax expenses of the Company’s branches in the Eastern and Western China Regions were paid in aggregate according to the requirements of the competent tax authority.

F-57

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

Deferred tax balances after offset are listed as follows:


	December 31, 2020		December 31, 2019
	RMB		RMB
Deferred tax assets		11,364		24,259
Deferred tax liabilities		16,380		21,411

32	ASSET RETIREMENT OBLIGATIONS


	2020			2019			2018
	RMB			RMB			RMB
At beginning of the year		137,935			132,780			131,546
Net liabilities incurred, including reassessment⁽ⁱ⁾		(24,059	)		2,026			(2,220	)
Liabilities settled		(3,510	)		(2,427	)		(2,034	)
Accretion expense (Note 10)		5,107			5,525			5,678
Currency translation differences		(654	)		31			(190	)

At end of the year		114,819			137,935			132,780

(i)

In 2020, domestic oil and gas field companies adjusted the discount period with reference to the remaining life corresponding to the proved developed reserves in each block, updated various oil and gas assets retirement standards based on the latest legal requirements, technology and price levels, reviewed the adopted discount rate, and then recalculate and adjust the provision for the asset retirement expense of oil and gas properties at the end of the year. The changes in related accounting estimates and new liabilities provided resulted in a reduction in estimated liabilities of RMB 24,059.

Asset retirement obligations relate to oil and gas properties (Note 15).

33	PENSIONS

The Group participates in various employee retirement benefit plans (Note 3(aa)). Expenses incurred by the Group in connection with the retirement benefit plans for the year ended December 31, 2020 amounted to RMB 16,833 (2019: RMB 20,196, 2018: RMB 19,432).

34	CONTINGENT LIABILITIES

(a) Bank and other guarantees

At December 31, 2020 and 2019, the Group did not guarantee related parties or third parties any significant borrowings or others.

(b) Environmental liabilities

China has adopted extensive environmental laws and regulations that affect the operation of the oil and gas industry. Under existing legislation, however, management believes that there are no probable liabilities, except for the amounts which have already been reflected in the consolidated financial statements, which may have a material adverse effect on the financial position of the Group.

F-58

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

(c) Legal contingencies

During the reporting period, the Group has complied with domestic and overseas laws and regulatory requirements. Notwithstanding certain insignificant lawsuits as well as other proceedings outstanding, management believes that any resulting liabilities will not have a material adverse effect on the financial position of the Group.

(d) Group insurance

The Group has insurance coverage for vehicles and certain assets that are subject to significant operating risks, third-party liability insurance against claims relating to personal injury, property and environmental damages that result from accidents and also employer liabilities insurance. The potential effect on the financial position of the Group of any liabilities resulting from future uninsured incidents cannot be estimated by the Group at present.

35	COMMITMENTS

(a) Capital commitments

At December 31, 2020, the Group’s capital commitments contracted but not provided for mainly relating to property, plant and equipment were RMB 714 (December 31, 2019: RMB 56,856).

The operating lease and capital commitments above are transactions mainly with CNPC and its fellow subsidiaries.

(b) Exploration and production licenses

The Company is obligated to make annual payments with respect to its exploration and production licenses to the Ministry of Natural Resources. Payments incurred were RMB 700 for the year ended December 31, 2020 (2019: RMB 535, 2018: RMB 650).

According to the current policy, estimated annual payments for the next five years are as follows:


	December 31, 2020		December 31, 2019
	RMB		RMB
Within one year		800		800
Between one and two years		800		800
Between two and three years		800		800
Between three and four years		800		800
Between four and five years		800		800

36	MAJOR CUSTOMERS

The Group’s major customers are as follows:


	2020				2019				2018
	Revenue		Percentage of Total revenue		Revenue		Percentage of Total revenue		Revenue		Percentage of Total revenue
	RMB		%		RMB		%		RMB		%
China Petroleum & Chemical Corporation		98,636		5		105,855		4		96,990		4
CNPC and its fellow subsidiaries		63,623		3		99,279		4		83,670		4

		162,259		8		205,134		8		180,660		8

F-59

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

37	RELATED PARTY TRANSACTIONS

CNPC, the controlling shareholder of the Company, is a limited liability company directly controlled by the PRC government.

Related parties include CNPC and its fellow subsidiaries, their associates and joint ventures, other state-owned enterprises and their subsidiaries which the PRC government has control, joint control or significant influence over and enterprises which the Group is able to control, jointly control or exercise significant influence over, key management personnel of the Company and CNPC and their close family members.

(a) Transactions with CNPC and its fellow subsidiaries, associates and joint ventures of the Group

The Group has extensive transactions with other companies in CNPC and its fellow subsidiaries. Due to these relationships, it is possible that the terms of the transactions between the Group and other members of CNPC and its fellow subsidiaries are not the same as those that would result from transactions with other related parties or wholly unrelated parties.

The principal related party transactions with CNPC and its fellow subsidiaries, associates and joint ventures of the Group which were carried out in the ordinary course of business, are as follows:

On August 25, 2011, based on the terms of the Comprehensive Products and Services Agreement amended in 2008, the Company and CNPC entered into a new Comprehensive Products and Services Agreement (“the Comprehensive Products and Services Agreement”) for a period of three years which took effect on January 1, 2012. The Comprehensive Products and Services Agreement provides for a range of products and services which may be required and requested by either party. The products and services to be provided by CNPC and its fellow subsidiaries to the Group under the Comprehensive Products and Services Agreement include construction and technical services, production services, supply of material services, social services, ancillary services and financial services. The products and services required and requested by either party are provided in accordance with (1) government-prescribed prices; or (2) where there is no government-prescribed price, with reference to relevant market prices; or (3) where neither (1) nor (2) is applicable, the actual cost incurred or the agreed contractual price. On the basis of the existing Comprehensive Products and Services Agreement, the Company and CNPC entered into a new Comprehensive Products and Services Agreement on August 24, 2017 for a period of three years which took effect on January 1, 2018. The new Comprehensive Products and Services Agreement has already incorporated the terms of the current Comprehensive Products and Services Agreement which amended in 2014. On the basis of the existing Comprehensive Products and Services Agreement, the Company and CNPC entered into a new Comprehensive Products and Services Agreement on August 27, 2020 for a period of three years which took effect on January 1, 2021. The new Comprehensive Products and Services Agreement has already incorporated the terms of the current Comprehensive Products and Services Agreement which amended in 2017.

On August 25, 2011, based on the Land Use Rights Leasing Contract signed in 2000, the Company and CNPC entered into a Supplemental Land Use Rights Leasing Contract which took effect on January 1, 2012. The Company and CNPC each issued a confirmation letter to the Land Use Rights Leasing Contract on August 24, 2017, which adjusted the rental payable and the area for the leased land parcels. The Company agreed to rent from CNPC parcels of land with an aggregate area of approximately 1,773 million square metres with annual rental payable (exclusive of tax and government charges) adjusted to no more than RMB 5,783 in accordance with the area of leased land parcels and the current situation of the property market. The Land Use Rights Leasing Contract shall remain unchanged, apart from the rental payable and the leased area. The confirmation

F-60

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

letter shall be effective from January 1, 2018. The Company and CNPC each issued a confirmation letter to the Land Use Rights Leasing Contract on August 27, 2020, which adjusted the rental payable and the area for the leased land parcels. The Company agreed to rent from CNPC parcels of land with an aggregate area of approximately 1,142 million square metres with annual rental payable (exclusive of tax and government charges) adjusted to no more than RMB 5,673 in accordance with the area of leased land parcels and the current situation of the property market. The Land Use Rights Leasing Contract shall remain unchanged, apart from the rental payable and the leased area. The confirmation letter shall be effective from January 1, 2021.

On August 25, 2011, based on the Buildings Leasing Contract and Supplemental Building Leasing Agreement, the Company and CNPC entered into a Revised Buildings Leasing Contract which took effect thereafter. On August 24, 2017, based on the Buildings Leasing Contract and Supplemental Building Leasing Agreement, the Company and CNPC entered into a Revised Buildings Leasing Contract which took effect on January 1, 2018. Under this contract, buildings covering an aggregate area of 1,152,968 square meters were leased at annual rental payable approximately RMB 730. The Revised Building Leasing Contract will expire at December 31, 2037. On August 27, 2020, based on the Buildings Leasing Contract and Supplemental Building Leasing Agreement, the Company and CNPC each issued a contract which took effect on January 1, 2021. Under this contract, buildings covering an aggregate area of 1,287,486 square meters were leased at annual rental payable approximately RMB 713. The area and total fee payable for the lease of all such property may, every three years, be adjusted with the Company’s operating needs and by reference to market price which the adjusted prices will not exceed.

•

Sales of goods represent the sale of crude oil, refined products, chemical products and natural gas, etc. The total amount of these transactions amounted to RMB 105,535 for the year ended December 31, 2020 (2019: RMB 122,927, 2018: RMB 105,434).

•

Sales of services principally represent the provision of services in connection with the transportation of crude oil and natural gas, etc. The total amount of these transactions amounted to RMB 8,593 for the year ended December 31, 2020 (2019: RMB 10,055, 2018: RMB 7,938).

•

Purchases of goods and services principally represent construction and technical services, production services, social services, ancillary services and material supply services, etc. The total amount of these transactions amounted to RMB 321,858 for the year ended December 31, 2020 (2019: RMB 388,802, 2018: RMB 364,912).

•

Purchases of assets principally represent the purchases of manufacturing equipment, office equipment and transportation equipment, etc. The total amount of these transactions amounted to RMB 767 for the year ended December 31, 2020 (2019: RMB 1,701, 2018: RMB 1,195).

•

Interest income represents interests from deposits placed with CNPC and its fellow subsidiaries. The total interest income amounted to RMB 381 for the year ended December 31, 2020 (2019: RMB 460, 2018: RMB 535). The balance of deposits at December 31, 2020 was RMB 40,377 (December 31, 2019: RMB 28,304).

•

Purchases of financial service principally represents interest charged on the loans from CNPC and its fellow subsidiaries, insurance fee, etc. The total amount of these transactions amounted to RMB 8,051 for the year ended December 31, 2020 (2019: RMB 8,759, 2018: RMB 11,970).

•

The borrowings from CNPC and its fellow subsidiaries at December 31, 2020 were RMB 96,298 (December 31, 2019: RMB 179,699).

•

Rents and other payments paid to CNPC and its fellow subsidiaries represent (1) the rental expense paid by the Group according to Land Use Rights Leasing Contract and Buildings Leasing Contract;

F-61

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

(2) the payable by the Group (including all rents, leasing service fees and prices for exercising purchase options) for the period according to the leasing agreements entered into by the Group and CNPC and its fellow subsidiaries. The total rents and other payments amounted to RMB 8,294 for the year ended December 31, 2020. (2019: RMB 10,106, 2018: RMB 7,092).

Amounts due from and to CNPC and its fellow subsidiaries, associates and joint ventures of the Group included in the following accounts captions are summarized as follows:


	December 31, 2020		December 31, 2019
	RMB		RMB
Accounts receivable		8,651		12,784
Prepayments and other receivables		24,117		11,441
Other current assets		10,946		11,951
Other non-current assets		15,251		16,242
Accounts payable and accrued liabilities		67,262		61,205
Contract liabilities		2,692		792
Lease liabilities		99,725		139,250
Other non-current liabilities		—		827

(b) Key management compensation


	Year End December 31,
	2020		2019		2018
	RMB’000		RMB’000		RMB’000
Emoluments and other benefits		16,598		13,042		13,385
Contribution to retirement benefit scheme		1,338		1,796		1,781

		17,936		14,838		15,166

(c) Transactions with other state-controlled entities in the PRC

Apart from transactions with CNPC and its fellow subsidiaries, associates and joint ventures of the Group, the Group’s transactions with other state-controlled entities include but is not limited to the following:

•

Sales and purchases of goods and services,

•

Purchases of assets,

•

Lease of assets; and

•

Bank deposits and borrowings

These transactions are conducted in the ordinary course of the Group’s business.

38	SEGMENT INFORMATION

The Group is principally engaged in a broad range of petroleum related products, services and activities. The Group’s operating segments comprise: Exploration and Production, Refining and Chemicals, Marketing, and Natural Gas and Pipeline. On the basis of these operating segments, the management of the Company assesses the segmental operating results and allocates resources. Sales between operating segments are conducted principally at market prices. Additionally, the Group presents geographical information based on entities located in regions with a similar risk profile.

F-62

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

The Exploration and Production segment is engaged in the exploration, development, production and marketing of crude oil and natural gas.

The Refining and Chemicals segment is engaged in the refining of crude oil and petroleum products, production and marketing of primary petrochemical products, derivative petrochemical products and other chemical products.

The Marketing segment is engaged in the marketing of refined products and the trading business.

The Natural Gas and Pipeline segment is engaged in the transmission of natural gas, crude oil and refined products and the sale of natural gas.

The Head Office and Other segment relates to cash management and financing activities, the corporate center, research and development, and other business services supporting the operating business segments of the Group.

In 2020, in order to promote the transformation and upgrading of refining and chemicals business, promote the quality-oriented business development of refined products and lubricating oil production and marketing, promote specialized operation, market-oriented operation, lean management and integrated coordination, the Group transferred PetroChina Fuel Oil Co., Ltd. and PetroChina Lubricant Company from Marking to Refining and Chemicals, and synchronize budget control and performance evaluation indicator accordingly. The comparative data regarding the Refining and Chemicals and the Marketing segment in the same period of 2019 and 2018 are restated, and two companies above are as included in the Refining and Chemicals segment from the earliest reporting period as reported.

The accounting policies of the operating segments are the same as those described in Note 3 – “Summary of Principal Accounting Policies”.

F-63

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

The segment information for the operating segments for the years ended December 31, 2020, 2019 and 2018 are as follows:


	Year Ended December 31, 2020
	Exploration and Production			Refining and Chemicals			Marketing			Natural Gas and Pipeline			Head Office and Other			Total
	RMB			RMB			RMB			RMB			RMB			RMB
Revenue		530,807			774,775			1,497,533			370,771			3,547			3,177,433
Less: elimination		(437,670	)		(492,667	)		(276,503	)		(35,437	)		(1,320	)		(1,243,597	)

Revenue from external customers		93,137			282,108			1,221,030			335,334			2,227			1,933,836

Depreciation, depletion and amortization		(150,849	)		(23,893	)		(17,833	)		(19,475	)		(1,825	)		(213,875	)
Including: Impairment losses of property, plant and equipment		(15,364	)		—			(3	)		—			—			(15,367	)
Profit / (loss) from operations		23,092			(1,834	)		(2,906	)		72,410			(14,825	)		75,937
Finance costs:
Exchange gain																	14,387
Exchange loss																	(14,279	)
Interest income																	3,023
Interest expense																	(26,528	)

Total net finance costs																	(23,397	)

Share of (loss)/profit of associates and joint ventures		(616	)		(24	)		(728	)		2,128			2,773			3,533

Profit before income tax expense																	56,073
Income tax expense																	(22,588	)

Profit for the year																	33,485

Segment assets		1,452,554			432,022			489,984			195,353			1,631,577			4,201,490
Other assets																	17,361
Investments in associates and joint ventures		41,461			1,289			18,239			160,730			28,884			250,603
Elimination of intersegment balances^(a)																	(1,981,328	)

Total assets																	2,488,126

Capital expenditures		186,620			21,810			16,294			21,143			626			246,493
Segment liabilities		658,521			186,332			321,460			192,456			573,340			1,932,109
Other liabilities																	80,104
Elimination of intersegment balances^(a)																	(890,708	)

Total liabilities																	1,121,505

F-64

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)


	Year Ended December 31, 2019
	Exploration and Production			Refining and Chemicals			Marketing			Natural Gas and Pipeline			Head Office and Other			Total
	RMB			RMB			RMB			RMB			RMB			RMB
Revenue		676,320			1,000,062			2,075,044			391,023			3,700			4,146,149
Less: elimination		(552,672	)		(702,207	)		(332,164	)		(40,652	)		(1,644	)		(1,629,339	)

Revenue from external customers		123,648			297,855			1,742,880			350,371			2,056			2,516,810

Depreciation, depletion and amortization		(158,874	)		(25,469	)		(16,657	)		(22,375	)		(1,887	)		(225,262	)
Including: Impairment losses of property, plant and equipment		(11,562	)		(1,444	)		(1	)		(412	)		—			(13,419	)
Profit / (loss) from operations		96,097			16,077			(2,878	)		26,108			(13,642	)		121,762
Finance costs:
Exchange gain																	10,017
Exchange loss																	(10,016	)
Interest income																	3,631
Interest expense																	(30,409	)

Total net finance costs																	(26,777	)

Share of profit of associates and joint ventures		3,513			—			1,460			501			2,755			8,229

Profit before income tax expense																	103,214
Income tax expense																	(36,199	)

Profit for the year																	67,015

Segment assets		1,520,697			404,264			485,085			536,298			1,409,368			4,355,712
Other assets																	29,908
Investments in associates and joint ventures		45,721			1,371			18,810			9,713			26,458			102,073
Elimination of intersegment balances^(a)																	(1,754,783	)

Total assets																	2,732,910

Capital expenditures		230,117			21,823			17,074			27,004			758			296,776
Segment liabilities		720,028			151,051			305,804			277,370			594,000			2,048,253
Other liabilities																	88,793
Elimination of intersegment balances^(a)																	(848,441	)

Total liabilities																	1,288,605

F-65

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)


	Year Ended December 31, 2018
	Exploration and Production			Refining and Chemicals			Marketing			Natural Gas and Pipeline			Head Office and Other			Total
	RMB			RMB			RMB			RMB			RMB			RMB
Revenue		658,712			1,013,413			1,891,743			362,626			2,376			3,928,870
Less: elimination		(539,295	)		(696,614	)		(281,522	)		(35,899	)		(606	)		(1,553,936	)

Revenue from external customers		119,417			316,799			1,610,221			326,727			1,770			2,374,934

Depreciation, depletion and amortization		(169,622	)		(25,750	)		(13,079	)		(21,985	)		(1,840	)		(232,276	)
Including: Impairment losses of property, plant and equipment		(26,002	)		(3,393	)		—			(530	)		—			(29,925	)
Profit / (loss) from operations		73,519			46,879			(8,628	)		25,515			(14,343	)		122,942
Finance costs:
Exchange gain																	12,701
Exchange loss																	(11,581	)
Interest income																	3,779
Interest expense																	(22,718	)

Total net finance costs																	(17,819	)

Share of profit of associates and joint ventures		4,224			92			4,185			496			2,650			11,647

Profit before income tax expense																	116,770
Income tax expense																	(42,790	)

Profit for the year																	73,980

Segment assets		1,227,613			358,316			396,146			519,553			1,371,525			3,873,153
Other assets																	24,759
Investments in associates and joint ventures		39,235			(1,973	)		20,420			7,022			24,658			89,362
Elimination of intersegment balances^(a)																	(1,546,397	)

Total assets																	2,440,877

Capital expenditures		196,109			15,783			16,646			26,502			1,066			256,106
Segment liabilities		466,097			73,200			225,095			158,153			566,129			1,488,674
Other liabilities																	100,303
Elimination of intersegment balances^(a)																	(556,991	)

Total liabilities																	1,031,986

F-66

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

Geographical information


	Revenue						Non-current assets^(b)
	2020		2019		2018		December 31, 2020		December 31, 2019
	RMB		RMB		RMB		RMB		RMB
Mainland China		1,212,821		1,476,693		1,538,315		1,789,349		2,027,428
Other		721,015		1,040,117		836,619		190,625		213,268

		1,933,836		2,516,810		2,374,934		1,979,974		2,240,696

(a)	Elimination of intersegment balances represents elimination of intersegment accounts and investments.

(b)	Non-current assets mainly include non-current assets other than financial instruments and deferred tax assets.

39	APPROVAL OF FINANCIAL STATEMENTS

The financial statements were approved by the Board of Directors on April 29, 2021.

40	BUSINESS COMBINATION INVOLVING ENTITIES UNDER COMMON CONTROL

Business combination involving entities under common control during the period

Name of acquiree

Proportion
of equity
interests
acquired in
business
combination

Basis for business
combination under
common control

Acquisi-tion
Date

Basis for
determina-tion of
acquisition date

From the beginning of
the period to the
acquisition date

2018

Revenue

Net
profit

Net
cash
outflow

Revenue

Net
profit

Dalian West Pacific

56.04

The Company and Dalian West Pacific are under the ultimate control of CNPC before and after the business combination and the control is not temporary

May 31,
2019

Acquisition of actual control

10,763

(53

)

37,385

1,564

Dalian West Pacific was established in December 1990. It principally engages in the manufacturing and sale of petroleum and petrochemical products. Before the acquisition date, the Company holds 28.44% equity of Dalian West Pacific. After the completion of the equity acquisition, the Company holds 84.48% equity of Dalian West Pacific in total.

As the Company and Dalian West Pacific are under the ultimate control of CNPC and the control is not temporary. The acquisition of Dalian West Pacific has been reflected in the accompanying consolidated financial statements as combination of entities under common control. Consequently, Dalian West Pacific has been included in the scope of consolidation during the historical period. The opening balance of the final consolidated financial statements of 2019 and the comparative statements have been adjusted accordingly.

F-67

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

41	TRANSACTION ON PIPELINE RESTRUCTURING

In 2020, the other income, net mainly included the gain on Pipeline restructuring.

On July 23, 2020, the Company entered into the Framework Agreement on Transaction of Oil and Gas Pipeline Relevant Assets and 10 sub-agreements including the Equity Acquisition Agreement on PetroChina Pipeline Co., Ltd., and the Production and Operation Agreement with PipeChina (“Transaction Agreements”) upon approval by sixth meeting of the Board of Directors of the Company in 2020 and forth meeting of the Supervisory Committee of the Company in 2020. The Company sold its major oil and gas pipelines, certain gas storages, LNG terminals and initial oil and gas (including its equity interests) (“Target Assets”) to PipeChina for 29.9% of its equity interests (RMB 149,500) and corresponding cash consideration (the “Pipeline restructuring”).

On September 28, 2020, the Pipeline restructuring was reviewed and approved by the second extraordinary general meeting of the Company in 2020.

On September 30, 2020, all of the conditions precedent set out in the Transaction Agreements have been satisfied. The ownership and risk of the Target Assets has been passed to PipeChina by 24:00 on September 30, 2020.

In this transaction, the equity consideration and cash consideration received by the Company amount to RMB 247,471, and the net assets attributable to the Company on the disposal date amount to RMB 200,525, and the corresponding gain on Pipeline restructuring was RMB 46,946.


	September 30, 2020
	RMB
Current assets		36,573
Non-current Assets		319,874

Total assets		356,447
Current liabilities		36,886
Non-current Liabilities		61,611

Total liabilities		98,497

Net assets		257,950

Net assets attributable to the Company		200,525
Consideration		247,471
Gain on Pipeline restructuring		46,946

F-68

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

42	LEASES

The leases where the Group is a lessee

(a) Right-of-use assets


	January 1, 2020			Addition			Reduction			December 31, 2020
Cost
Land		172,897			19,547			(20,503	)		171,941
Buildings		91,920			6,020			(40,603	)		57,337
Equipment and Machinery		2,934			29			(322	)		2,641
Other		2,068			723			(596	)		2,195

Total		269,819			26,319			(62,024	)		234,114


Accumulated depreciation
Land		(6,595	)		(7,344	)		2,328			(11,611	)
Buildings		(7,369	)		(6,601	)		3,131			(10,839	)
Equipment and Machinery		(718	)		(703	)		255			(1,166	)
Other		(401	)		(426	)		115			(712	)

Total		(15,083	)		(15,074	)		5,829			(24,328	)


Net book value
Land		166,302									160,330
Buildings		84,551									46,498
Equipment and Machinery		2,216									1,475
Other		1,667									1,483

Total		254,736									209,786


	January 1, 2019		Addition			Reduction			December 31, 2019
Cost
Land		153,178		20,471			(752	)		172,897
Buildings		83,552		8,368			—			91,920
Equipment and Machinery		2,295		639			—			2,934
Other		1,617		451			—			2,068

Total		240,642		29,929			(752	)		269,819


Accumulated depreciation
Land		—		(6,696	)		101			(6,595	)
Buildings		—		(7,369	)		—			(7,369	)
Equipment and Machinery		—		(718	)		—			(718	)
Other		—		(401	)		—			(401	)

Total		—		(15,184	)		101			(15,083	)


Net book value
Land		153,178								166,302
Buildings		83,552								84,551
Equipment and Machinery		2,295								2,216
Other		1,617								1,667

Total		240,642								254,736

F-69

PETROCHINA COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

The lease term of the Group’s lease land use right ranges from two to thirty years. The lease underlying assets classified as buildings are mainly the leased gas filling station, oil storage and office building. The lease underlying assets classified as equipment and machinery are mainly drilling equipment, production equipment and other movable equipment.

(b) Lease liabilities


	December 31, 2020			December 31, 2019
	RMB			RMB
Lease liabilities		129,223			171,536
Less: Lease liabilities due within one year		(6,579	)		(7,393	)

		122,644			164,143

Depreciation charged to profit or loss provided on right-of-use assets for the year ended December 31, 2020 was RMB 13,916 (2019:RMB 14,973).

Analysis of the undiscounted cash flow of the lease liability is as follows：


	December31, 2020		December31, 2019
	RMB		RMB
Within 1 year		11,824		14,304
Between 1 and 2 years		10,236		13,569
Between 2 and 5 years		29,862		37,531
Over 5 years		153,967		210,750

		205,889		276,154

F-70

PETROCHINA COMPANY LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION

AND PRODUCTION ACTIVITIES (UNAUDITED)

(All amounts in millions, except for the per share data and otherwise stated)

In accordance with the Accounting Standards Update 2010-03 Extractive Activities – Oil and Gas (Topic 932): Oil and Gas Reserve Estimation and Disclosures (an update of Accounting Standards Codification Topic 932 Extractive Activities – Oil and Gas or “ASC 932”) issued by the Financial Accounting Standards Board and corresponding disclosure requirements of the U.S. Securities and Exchange Commission, this section provides supplemental information on oil and gas exploration and development; and results of operation related to oil and gas producing activities of the Company and its subsidiaries (the “Group”) and also the Group’s investments that are accounted for using the equity method of accounting.

The supplemental information presented below covers the Group’s proved oil and gas reserves estimates, historical cost information pertaining to capitalized costs, costs incurred for property acquisitions, exploration and development activities, result of operations for oil and gas producing activities, standardized measure of estimated discounted future net cash flows and changes in estimated discounted future net cash flows.

The “Other” geographic area includes oil and gas producing activities principally in countries such as Kazakhstan, Venezuela and Indonesia. As the Group does not have significant reserves held through its investments accounted for using the equity method, information presented in relation to these equity method investments is presented in the aggregate.

Proved Oil and Gas Reserve Estimates

Proved oil and gas reserves cannot be measured exactly. Reserve estimates are based on many factors related to reservoir performance that require evaluation by the engineers interpreting the available data, as well as price and other economic factors. The reliability of these estimates at any point in time depends on both the quality and quantity of the technical and economic data, and the production performance of the reservoirs as well as engineering judgment. Consequently, reserve estimates are subject to revision as additional data become available during the producing life of a reservoir. When a commercial reservoir is discovered, proved reserves are initially determined based on limited data from the first well or wells. Subsequent data may better define the extent of the reservoir and additional production performance, well tests and engineering studies will likely improve the reliability of the reserve estimate. The evolution of technology may also result in the application of improved recovery techniques such as supplemental or enhanced recovery projects, or both, which have the potential to increase reserves.

Proved oil and gas reserves are the estimated quantities of crude oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulation before the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether the estimate is a deterministic estimate or probabilistic estimate.

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

F-71

PETROCHINA COMPANY LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION

AND PRODUCTION ACTIVITIES (UNAUDITED) — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

Proved developed oil and gas reserves are proved reserves that can be expected to be recovered:

Through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared with the cost of a new well.

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

Proved undeveloped oil and gas reserves are proved reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.

The taxes, fees and royalty in China are domestic tax schemes and are paid in cash to PRC authorities. The proved reserves includes quantities that are ultimately produced and sold to pay these taxes, fees and royalty.

Proved reserve estimates as of December 31, 2020, 2019 and 2018 were based on reports prepared by DeGolyer and MacNaughton, Gaffney, Cline & Associates, McDaniel & Associates, Ryder Scott and GLJ independent engineering consultants.

F-72

PETROCHINA COMPANY LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION

AND PRODUCTION ACTIVITIES (UNAUDITED) — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

Estimated quantities of net proved crude oil and condensate and natural gas reserves and of changes in net quantities of proved developed and undeveloped reserves for each of the periods indicated are as follows:


	Crude Oil and Condensate			Natural Gas			Total- All products
	(million barrels)			(billion cubic feet)			(million barrels of oil equivalent)
Proved developed and undeveloped reserves
The Group
Reserves at December 31, 2017		7,481			76,888			20,296
Changes resulting from:
Revisions of previous estimates		526			(1,378	)		297
Improved recovery		96			—			96
Extensions and discoveries		428			4,565			1,188
Production		(890	)		(3,608	)		(1,492	)

Reserves at December 31, 2018		7,641			76,467			20,385
Changes resulting from:
Revisions of previous estimates		(50	)		(766	)		(177	)
Improved recovery		91			—			91
Extensions and discoveries		480			4,443			1,221
Production		(909	)		(3,908	)		(1,561	)

Reserves at December 31, 2019		7,253			76,236			19,959

Changes resulting from:
Purchase		15			107			33
Revisions of previous estimates		(1,553	)		(595	)		(1,652	)
Improved recovery		108			—			108
Extensions and discoveries		385			4,976			1,215
Sales		(80	)		(66	)		(91	)
Production		(922	)		(4,221	)		(1,626	)

Reserves at December 31, 2020		5,206			76,437			17,946

Proved developed reserves at:
December 31, 2018		5,843			40,128			12,531
December 31, 2019		5,474			39,870			12,119
December 31, 2020		4,654			42,077			11,667
Proved undeveloped reserves at:
December 31, 2018		1,798			36,339			7,854
December 31, 2019		1,779			36,366			7,840
December 31, 2020		552			34,360			6,279
Equity method investments
Share of proved developed and undeveloped reserves of associates and joint ventures
December 31, 2018		321			429			393
December 31, 2019		287			394			353
December 31, 2020		196			363			256

F-73

PETROCHINA COMPANY LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION

AND PRODUCTION ACTIVITIES (UNAUDITED) — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

At December 31, 2020, total proved developed and undeveloped reserves of the Group and equity method investments is 18,202 million barrels of oil equivalent (December 31, 2019: 20,312 million barrels of oil equivalent, December 31, 2018: 20,778 million barrels of oil equivalent), comprising 5,402 million barrels of crude oil and condensate (December 31, 2019: 7,540 million barrels, December 31, 2018: 7,962 million barrels) and 76,800 billion cubic feet of natural gas (December 31, 2019: 76,630 billion cubic feet, December 31, 2018: 76,896 billion cubic feet).

At December 31, 2020, 4,375 million barrels (December 31, 2019: 6,500 million barrels, December 31, 2018: 6,830 million barrels) of crude oil and condensate and 74,794 billion cubic feet (December 31, 2019: 74,533 billion cubic feet, December 31, 2018: 74,480 billion cubic feet) of natural gas proved developed and undeveloped reserves of the Group are located within Mainland China, and 831 million barrels (December 31, 2019: 753 million barrels, December 31, 2018: 811 million barrels) of crude oil and condensate and 1,643 billion cubic feet (December 31, 2019: 1,703 billion cubic feet, December 31, 2018: 1,987 billion cubic feet) of natural gas proved developed and undeveloped reserves of the Group are located overseas.

Capitalized Costs


	December 31, 2020			December 31, 2019
	RMB			RMB
The Group
Property costs and producing assets		1,890,903			1,820,481
Support facilities		465,022			440,722
Construction-in-progress		150,535			149,068

Total capitalized costs		2,506,460			2,410,271
Accumulated depreciation, depletion and amortization		(1,542,037	)		(1,429,389	)

Net capitalized costs		964,423			980,882

Equity method investments
Share of net capitalized costs of associates and joint ventures		20,465			24,785

Costs Incurred for Property Acquisitions, Exploration and Development Activities


	2020
	Mainland China		Other		Total
	RMB		RMB		RMB
The Group
Property acquisition costs		—		3,712		3,712
Exploration costs		35,862		1,051		36,913
Development costs		129,738		16,420		146,158

Total		165,600		21,183		186,783

Equity method investments
Share of costs of property acquisition, exploration and development of associates and joint ventures		—		1,462		1,462

F-74

PETROCHINA COMPANY LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION

AND PRODUCTION ACTIVITIES (UNAUDITED) — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)


	2019
	Mainland China		Other		Total
	RMB		RMB		RMB
The Group
Exploration costs		41,687		1,972		43,659
Development costs		166,321		21,375		187,696

Total		208,008		23,347		231,355

Equity method investments
Share of costs of property acquisition, exploration and development of associates and joint ventures		—		2,178		2,178


	2018
	Mainland China		Other		Total
	RMB		RMB		RMB
The Group
Exploration costs		33,618		1,546		35,164
Development costs		134,634		25,047		159,681

Total		168,252		26,593		194,845

Equity method investments
Share of costs of property acquisition, exploration and development of associates and joint ventures		—		3,114		3,114

F-75

PETROCHINA COMPANY LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION

AND PRODUCTION ACTIVITIES (UNAUDITED) — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

Results of Operations for Oil and Gas Producing Activities

The results of operations for oil and gas producing activities for the years ended December 31, 2020, 2019 and 2018 are presented below. “Revenue” includes sales to third parties and inter-segment sales (at arm’s-length prices), net of value-added taxes. Resource tax, crude oil special gain levy and other taxes are included in “taxes other than income taxes”. Income taxes are computed using the applicable statutory tax rate, reflecting tax deductions and tax credits for the respective years ended.


	2020
	Mainland China			Other			Total
	RMB			RMB			RMB
The Group
Revenue
Sales to third parties		32,662			30,855			63,517
Inter-segment sales		306,623			12,408			319,031

		339,285			43,263			382,548
Production costs excluding taxes		(124,154	)		(9,605	)		(133,759	)
Exploration expenses		(18,851	)		(482	)		(19,333	)
Depreciation, depletion and amortization		(134,007	)		(15,953	)		(149,960	)
Taxes other than income taxes		(18,865	)		(2,690	)		(21,555	)
Accretion expense		(4,905	)		(202	)		(5,107	)
Income taxes		(9,369	)		(5,340	)		(14,709	)

Results of operations from producing activities		29,134			8,991			38,125

Equity method investments
Share of profit for producing activities of associates and joint ventures		—			(76	)		(76	)

Total of the Group and equity method investments results of operations for producing activities		29,134			8,915			38,049

F-76

PETROCHINA COMPANY LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION

AND PRODUCTION ACTIVITIES (UNAUDITED) — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)


	2019
	Mainland China			Other			Total
	RMB			RMB			RMB
The Group
Revenue
Sales to third parties		44,001			50,611			94,612
Inter-segment sales		379,968			14,956			394,924

		423,969			65,567			489,536
Production costs excluding taxes		(127,900	)		(11,011	)		(138,911	)
Exploration expenses		(19,821	)		(954	)		(20,775	)
Depreciation, depletion and amortization		(115,648	)		(24,792	)		(140,440	)
Taxes other than income taxes		(24,876	)		(5,853	)		(30,729	)
Accretion expense		(5,294	)		(231	)		(5,525	)
Income taxes		(24,085	)		(11,729	)		(35,814	)

Results of operations from producing activities		106,345			10,997			117,342

Equity method investments
Share of profit for producing activities of associates and joint ventures		—			3,253			3,253

Total of the Group and equity method investments results of operations for producing activities		106,345			14,250			120,595


	2018
	Mainland China			Other			Total
	RMB			RMB			RMB
The Group
Revenue
Sales to third parties		46,051			57,975			104,026
Inter-segment sales		381,740			4,542			386,282

		427,791			62,517			490,308
Production costs excluding taxes		(118,979	)		(9,761	)		(128,740	)
Exploration expenses		(17,767	)		(959	)		(18,726	)
Depreciation, depletion and amortization		(120,378	)		(33,008	)		(153,386	)
Taxes other than income taxes		(30,140	)		(6,262	)		(36,402	)
Accretion expense		(5,483	)		(195	)		(5,678	)
Income taxes		(25,991	)		(10,114	)		(36,105	)

Results of operations from producing activities		109,053			2,218			111,271

Equity method investments
Share of profit for producing activities of associates and joint ventures		—			3,867			3,867

Total of the Group and equity method investments results of operations for producing activities		109,053			6,085			115,138

F-77

PETROCHINA COMPANY LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION

AND PRODUCTION ACTIVITIES (UNAUDITED) — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

Standardized Measure of Discounted Future Net Cash Flows

The standardized measure of discounted future net cash flows related to proved oil and gas reserves at December 31, 2020, 2019 and 2018 is based on the prices used in estimating the Group’s proved oil and gas reserves, year-end costs, currently enacted tax rates related to existing proved oil and gas reserves and a 10% annual discount factor. “Future cash inflows” are net of value-added taxes. Corporate income taxes are included in “future income tax expense”. Other taxes are included in “future production costs” as production taxes.

The standardized measure of discounted future net cash flows related to proved oil and gas reserves at December 31, 2020, 2019 and 2018 is as follows:


	RMB
The Group
At December 31, 2020
Future cash inflows		4,366,906
Future production costs		(1,470,460	)
Future development costs		(445,462	)
Future income tax expense		(441,668	)

Future net cash flows		2,009,316
Discount at 10% for estimated timing of cash flows		(947,035	)

Standardized measure of discounted future net cash flows		1,062,281


	RMB
The Group
At December 31, 2019
Future cash inflows		5,872,624
Future production costs		(1,947,039	)
Future development costs		(640,281	)
Future income tax expense		(746,506	)

Future net cash flows		2,538,798
Discount at 10% for estimated timing of cash flows		(1,213,729	)

Standardized measure of discounted future net cash flows		1,325,069


	RMB
The Group
At December 31, 2018
Future cash inflows		6,234,378
Future production costs		(2,087,979	)
Future development costs		(556,893	)
Future income tax expense		(809,594	)

Future net cash flows		2,779,912
Discount at 10% for estimated timing of cash flows		(1,397,846	)

Standardized measure of discounted future net cash flows		1,382,066

F-78

PETROCHINA COMPANY LIMITED

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION

AND PRODUCTION ACTIVITIES (UNAUDITED) — (Continued)

(All amounts in millions, except for the per share data and otherwise stated)

At December 31, 2020, RMB 1,028,640 (December 31, 2019: RMB 1,278,180, December 31, 2018: RMB 1,320,478) of standardized measure of discounted future net cash flows related to proved oil and gas reserves located within mainland China and RMB 33,641 (December 31, 2019: RMB 46,889 , December 31, 2018: RMB 61,588 ) of standardized measure of discounted future net cash flows related to proved oil and gas reserves located overseas.

Share of standardized measure of discounted future net cash flows of associates and joint ventures:


December 31, 2020			8,573
December 31, 2019			20,356
December 31, 2018			24,805

Changes in Standardized Measure of Discounted Future Net Cash Flows

Changes in the standardized measure of discounted net cash flows for the Group for each of the years ended December 31, 2020, 2019 and 2018 are as follows:


	Year Ended December 31,
	2020			2019			2018
	RMB			RMB			RMB
The Group
Beginning of the year		1,325,069			1,382,066			1,024,526
Sales and transfers of oil and gas produced, net of production costs		(215,390	)		(303,222	)		(308,217	)
Net changes in prices and production costs and other		(358,008	)		(87,046	)		510,325
Extensions, discoveries and improved recovery		112,834			134,631			129,824
Development costs incurred		39,238			53,450			39,725
Revisions of previous quantity estimates		(138,772	)		(17,380	)		10,018
Accretion of discount		146,137			149,693			103,225
Net change in income taxes		156,122			12,877			(127,360	)
Net change due to purchases and sales of minerals in place		(4,949	)		—			—

End of the year		1,062,281			1,325,069			1,382,066

F-79