china_20f.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
_______________________
FORM
20-F
(Mark
One)
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£
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REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT
OF 1934
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OR
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S
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
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FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2008
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OR
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£
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
|
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|
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FOR
THE TRANSITION PERIOD FROM _______ TO _______
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OR
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£
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SHELL
COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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|
|
DATE
OF EVENT REQUIRING THIS SHELL COMPANY REPORT
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FOR
THE TRANSACTION PERIOD FORM _______ TO
_______
|
COMMISSION
FILE NUMBER 1-15138
_______________________
中国石油化工股份有限公司
CHINA
PETROLEUM & CHEMICAL CORPORATION
(Exact
name of Registrant as specified in its charter)
_______________________
The
People's Republic of China
(Jurisdiction
of incorporation or organization)
_______________________
22
Chaoyangmen North Street
Chaoyang
District, Beijing, 100728
The
People's Republic of China
(Address
of principal executive offices)
_______________________
Mr.
Chen Ge
22
Chaoyangmen North Street
Chaoyang
District, Beijing, 100728
The
People's Republic of China
Tel: +86
(10) 5996 0028
Fax: +86
(10) 5996 0386
(Name,
Telephone, Email and/or Facsimile number and Address of Company Contact
Person)
_______________________
Securities
registered or to be registered pursuant to Section 12 (b) of the
Act.
|
Title of Each
Class
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Name
of Each Exchange
On Which
Registered
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American
Depositary Shares, each representing
100
H Shares of par value RMB 1.00 per share
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New
York Stock Exchange, Inc.
|
|
|
H
Shares of par value RMB 1.00 per share
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New
York Stock Exchange,
Inc.*
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* Not
for trading, but only in connection with the registration of American Depository
Shares.
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.
Shares
with selling restriction, par value RMB 1.00 per share
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57,087,800,493
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H
Shares, par value RMB 1.00 per share
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16,780,488,000
|
A
Shares, par value RMB 1.00 per share
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12,834,150,507
|
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
If this
report 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.
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) of 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.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer X
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Accelerated
filer __
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Non-accelerated
filer __
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Indicate
by check mark which basis of accounting the registrant has used to prepare the
financial statements included in this filing:
U.S.
GAAP ___
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International
Financial Reporting Standards X
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Other
___
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as
issued by the International Accounting
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|
|
Standards
Board
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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.
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).
Table
of Contents
Page
ITEM
1.
|
IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
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6
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ITEM
2.
|
OFFER
STATISTICS AND EXPECTED TIMETABLE
|
6
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ITEM
3.
|
KEY
INFORMATION
|
6
|
|
|
|
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A.
SELECTED FINANCIAL DATA
|
6
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|
B.
CAPITALIZATION AND INDEBTEDNESS
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8
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|
C.
REASONS FOR THE OFFER AND USE OF PROCEEDS
|
8
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D.
RISK FACTORS
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8
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|
|
|
ITEM
4.
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INFORMATION
ON THE COMPANY
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13
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|
|
|
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A.
HISTORY AND DEVELOPMENT OF THE COMPANY
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13
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B.
BUSINESS OVERVIEW
|
14
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C.
ORGANIZATIONAL STRUCTURE
|
29
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D.
PROPERTY, PLANT AND EQUIPMENT
|
29
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ITEM
4A.
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UNRESOLVED
STAFF COMMENTS
|
30
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ITEM
5.
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OPERATING
AND FINANCIAL REVIEW AND PROSPECTS
|
30
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A.
GENERAL
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30
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B.
CONSOLIDATED RESULTS OF OPERATIONS
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33
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C.
DISCUSSIONS ON RESULTS OF SEGMENT OPERATIONS
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39
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D.
LIQUIDITY AND CAPITAL RESOURCES
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46
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ITEM
6.
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DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES
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49
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A.
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
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49
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B.
COMPENSATION
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56
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C.
BOARD PRACTICE
|
57
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D.
EMPLOYEES
|
58
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E.
SHARE OWNERSHIP
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58
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ITEM
7.
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MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
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58
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|
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A.
MAJOR SHAREHOLDERS
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58
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B.
RELATED PARTY TRANSACTIONS
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59
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C.
INTERESTS OF EXPERTS AND COUNSEL
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59
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ITEM
8.
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FINANCIAL
INFORMATION
|
60
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|
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A.
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
|
60
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|
B.
SIGNIFICANT CHANGES
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60
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ITEM
9.
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THE
OFFER AND LISTING
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60
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A.
OFFER AND LISTING DETAILS
|
60
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ITEM
10.
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ADDITIONAL
INFORMATION
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61
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A.
SHARE CAPITAL
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61
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B.
MEMORANDUM AND ARTICLES OF ASSOCIATION
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61
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C.
MATERIAL CONTRACTS
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69
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D.
EXCHANGE CONTROLS
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69
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E.
TAXATION
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69
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F.
DIVIDENDS AND PAYING AGENTS
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73
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G.
STATEMENT BY EXPERTS
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73
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H.
DOCUMENTS ON DISPLAY
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73
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I.
SUBSIDIARY INFORMATION
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73
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ITEM
11.
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QUALITATIVE
AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
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73
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ITEM
12.
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DESCRIPTION
OF SECURITIES OTHER THAN EQUITY SECURITIES
|
80
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ITEM
13.
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DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES
|
80
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ITEM
14.
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MATERIAL
MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
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80
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A.
MATERIAL MODIFICATIONS TO THE RIGHTS TO SECURITIES HOLDERS
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80
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B.
USE OF PROCEEDS
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80
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ITEM
15.
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CONTROLS
AND PROCEDURES
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80
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ITEM
16.
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RESERVED
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81
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ITEM
16A.
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AUDIT
COMMITTEE FINANCIAL EXPERT
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81
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ITEM
16B.
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CODE
OF ETHICS
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82
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ITEM
16C.
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PRINCIPAL
ACCOUNTANT FEES AND SERVICES
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82
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ITEM
16D.
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EXEMPTIONS
FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
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82
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ITEM
16E.
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PURCHASES
OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
|
82
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ITEM
16F.
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CHANGE
IN REGISTRANT’S CERTIFYING ACCOUNTANT
|
82
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ITEM
16G.
|
COMPARISON
OF NEW YORK STOCK EXCHANGE CORPORATE GOVERNANCE RULES AND CHINA CORPORATE
GOVERNANCE RULES FOR LISTED COMPANIES
|
82
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ITEM
17.
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FINANCIAL
STATEMENTS
|
85
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ITEM
18.
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FINANCIAL
STATEMENTS
|
85
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ITEM
19.
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EXHIBITS
|
85
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CERTAIN
TERMS AND CONVENTIONS
Definitions
Unless the
context otherwise requires, references in this annual report to:
|
·
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"Sinopec
Corp.", "we", "our" and "us" are to China Petroleum & Chemical
Corporation, a PRC joint stock limited company, and its
subsidiaries;
|
|
·
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"Sinopec
Group Company" are to our controlling shareholder, China Petrochemical
Corporation, a PRC limited liability
company;
|
|
·
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"Sinopec
Group" are to the Sinopec Group Company and its subsidiaries other than
Sinopec Corp. and its subsidiaries;
|
|
·
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"China"
or the "PRC" are to the People's Republic of China, excluding for purposes
of this annual report Hong Kong, Macau and
Taiwan;
|
|
·
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"provinces"
are to provinces and to provincial-level autonomous regions and
municipalities in China which are directly under the supervision of the
central PRC government;
|
|
·
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"RMB"
are to Renminbi, the currency of the
PRC;
|
|
·
|
"HK$"
are to Hong Kong dollar, the currency of the Hong Kong Special
Administrative Region of the PRC;
and
|
|
·
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"US$"
are to US dollars, the currency of the United States of
America.
|
Conversion
Conventions
Conversions
of crude oil from tonnes to barrels are made at a rate of one tonne to 7.35
barrels for crude oil we purchase from external sources and one tonne to 7.1
barrels for crude oil we produce, representing the American Petroleum Institute
(“API”) gravity of the respective source of crude oil. Conversions of natural
gas from cubic meters to cubic feet are made at a rate of one cubic meter to
35.31 cubic feet.
Glossary
of Technical Terms
Unless
otherwise indicated in the context, references to:
|
·
|
"billion"
are to a thousand million.
|
|
·
|
"BOE"
are to barrels-of-oil equivalent; natural gas is converted at a ratio of
6,000 cubic feet of natural gas to one
BOE.
|
|
·
|
"primary
distillation capacity" are to the crude oil throughput capacity of a
refinery's crude oil distillation units, calculated by estimating the
number of days in a year that such crude oil distillation units are
expected to operate, excluding downtime for regular maintenance, and
multiplying that number by the amount equal to the units' optimal daily
crude oil throughput.
|
|
·
|
"rated
capacity" are to the output capacity of a given production unit or, where
appropriate, the throughput capacity, calculated by estimating the number
of days in a year that such production unit is expected to operate,
excluding downtime for regular maintenance, and multiplying that number by
an amount equal to the unit's optimal daily output or throughput, as the
case may be.
|
CURRENCIES
AND EXCHANGE RATES
We publish
our financial statements in Renminbi. Unless otherwise indicated, all
translations from Renminbi to US dollars have been made at a rate of RMB 6.8225
to US$1.00, the noon buying rate as certified for customs purposes by the
Federal Reserve Bank of New York on December 31, 2008. We do not represent that
Renminbi or US dollar amounts could be converted into US dollars or Renminbi, as
the case may be, at any particular rate, the rates below or at all. On May 15,
2009, the noon buying rate was RMB 6.8225 to US$1.00.
The
following table sets forth noon buying rate for US dollars in New York City for
cable transfers in Renminbi as certified for customs purposes by the Federal
Reserve Bank of New York for the periods indicated:
|
|
Noon
Buying Rate
|
|
|
|
End |
|
|
Average(1) |
|
|
High |
|
|
Low |
|
|
|
(RMB
per US$1.00)
|
|
2004
|
|
|
8.2765
|
|
|
|
8.2767
|
|
|
|
8.2774
|
|
|
|
8.2764
|
|
2005
|
|
|
8.0702
|
|
|
|
8.1826
|
|
|
|
8.2765
|
|
|
|
8.0702
|
|
2006
|
|
|
7.8041
|
|
|
|
7.9723
|
|
|
|
8.0702
|
|
|
|
7.9723
|
|
2007
|
|
|
7.2946
|
|
|
|
7.5806
|
|
|
|
7.8127
|
|
|
|
7.2946
|
|
2008
|
|
|
6.8225
|
|
|
|
6.9193
|
|
|
|
7.2946
|
|
|
|
6.7800
|
|
November
2008
|
|
|
6.8254
|
|
|
|
6.8281
|
|
|
|
6.8373
|
|
|
|
6.8220
|
|
December
2008
|
|
|
6.8225
|
|
|
|
6.8539
|
|
|
|
6.8842
|
|
|
|
6.8225
|
|
January
2009
|
|
|
6.8392
|
|
|
|
6.8360
|
|
|
|
6.8392
|
|
|
|
6.8225
|
|
February
2009
|
|
|
6.8395
|
|
|
|
6.8363
|
|
|
|
6.8470
|
|
|
|
6.8241
|
|
March
2009
|
|
|
6.8329
|
|
|
|
6.8360
|
|
|
|
6.8438
|
|
|
|
6.8240
|
|
April
2009
|
|
|
6.8180
|
|
|
|
6.8304
|
|
|
|
6.8361
|
|
|
|
6.8180
|
|
May
2009
(up to May 15, 2009) |
|
|
6.8225
|
|
|
|
6.8210
|
|
|
|
6.8248
|
|
|
|
6.8176
|
|
__________
(1)
|
Annual
averages are determined by averaging the rates on the last business day of
each month during the relevant period. Monthly averages are
calculated using the average of the daily rates during the relevant
period.
|
FORWARD-LOOKING
STATEMENTS
This
annual report includes "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. All statements,
other than statements of historical facts, included in this annual report that
address activities, events or developments which we expect or anticipate will or
may occur in the future are hereby identified as forward-looking statements for
the purpose of the safe harbor provided by Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. The words such as
believe, intend, expect, anticipate, project, estimate, predict, plan and
similar expressions are also intended to identify forward-looking statements.
These forward-looking statements address, among others, such issues
as:
|
·
|
amount
and nature of future exploration and
development,
|
|
·
|
future
prices of and demand for our
products,
|
|
·
|
future
earnings and cash flow,
|
|
·
|
development
projects and drilling prospects,
|
|
·
|
future
plans and capital expenditures,
|
|
·
|
estimates
of proved oil and gas reserves,
|
|
·
|
exploration
prospects and reserves potential,
|
|
·
|
expansion
and other development trends of the petroleum and petrochemical
industry,
|
|
·
|
production
forecasts of oil and gas,
|
|
·
|
expected
production or processing capacities, including expected rated capacities
and primary distillation capacities, of units or facilities not yet in
operation,
|
|
·
|
expansion
and growth of our business and operations,
and
|
|
·
|
our
prospective operational and financial
information.
|
These
statements are based on assumptions and analyses made by us in light of our
experience and our perception of historical trends, current conditions and
expected future developments, as well as other factors we believe are
appropriate in particular circumstances. However, whether actual results and
developments will meet our expectations and predictions depends on a number of
risks and uncertainties which could cause actual results to differ materially
from our expectations, including the risks set forth in "Item 3. Key Information
¾ Risk Factors" and
the following:
|
·
|
fluctuations
in crude oil prices,
|
|
·
|
fluctuations
in prices of our products,
|
|
·
|
failures
or delays in achieving production from development
projects,
|
|
·
|
potential
acquisitions and other business
opportunities,
|
|
·
|
general
economic, market and business conditions,
and
|
|
·
|
other
risks and factors beyond our
control.
|
Consequently,
all of the forward-looking statements made in this annual report are qualified
by these cautionary statements and readers are cautioned not to place undue
reliance on these forward-looking statements. These forward-looking
statements should be considered in light of the various important factors set
forth above and elsewhere in this Form 20-F. In addition, we cannot
assure you that the actual results or developments anticipated by us will be
realized or, even if substantially realized, that they will have the expected
effect on us or our business or operations.
ITEM
1.
|
IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND
ADVISORS
|
Not
applicable.
ITEM
2.
|
OFFER
STATISTICS AND EXPECTED TIMETABLE
|
Not
applicable.
A.
SELECTED FINANCIAL DATA
The
selected consolidated income statement data and consolidated cash flow data for
the years ended December 31, 2006, 2007 and 2008, and the selected consolidated
balance sheet data as of December 31, 2007, and 2008 have been derived from, and
should be read in conjunction with, the audited consolidated financial
statements included elsewhere in this annual report. The selected consolidated
income statement data and consolidated cash flow data for the years ended
December 31, 2004 and 2005 and the selected consolidated balance sheet data as
of December 31, 2004, 2005 and 2006 are derived from our audited consolidated
financial statements which are not included elsewhere in this annual report and
the financial statements of the acquired businesses described
below.
We
acquired from Sinopec Group Company the operations of Sinopec Group Tianjin
Petrochemical Company, Sinopec Group Luoyang Petrochemical General Plant,
Zhongyuan Petrochemical Company Limited, Sinopec Group Guangzhou Petrochemical
General Plant and certain catalyst plants (collectively, Petrochemical and
Catalyst Assets) in 2004, the equity interests in Sinopec Hainan Refining and
Chemical Company Limited (Sinopec Hainan) and certain oil and gas production
companies (Oil Production Plants) in 2006, and the equity interests in Zhanjiang
Dongxing Petroleum Company Limited, Sinopec Hangzhou Oil Refinery Plant,
Yangzhou Petrochemical Plant, Jiangsu Taizhou Petrochemical Plant and Sinopec
Qingjiang Petrochemical Company Limited (collectively, Refinery Plants) in
2007. As we and these companies are under the common control of
Sinopec Group Company, our acquisitions are reflected in our consolidated
financial statements as combination of entities under common control in a manner
similar to a pooling-of-interests. Accordingly, the acquired assets
and related liabilities have been accounted for at historical cost and our
consolidated financial statements for periods prior to the combinations have
been restated to include the financial condition and the results of operation of
these companies on a combined basis.
Moreover,
the selected financial data should be read in conjunction with our consolidated
financial statements and “Item 5. Operating and Financial Review and Prospects”
included elsewhere in this annual report. Our consolidated financial statements
are prepared and presented in accordance with International Financial Reporting
Standards, or IFRS.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
Ended December 31,
|
|
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008
|
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB
|
|
|
|
(in
millions, except per share and per ADS data) |
|
Consolidated
Income Statement Data(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenues
|
|
|
617,951
|
|
|
|
817,048
|
|
|
|
1,061,741
|
|
|
|
1,204,843
|
|
|
|
1,452,101
|
|
Other
income
|
|
|
-
|
|
|
|
9,777
|
|
|
|
5,161
|
|
|
|
4,863
|
|
|
|
50,342
|
|
Operating
expenses
|
|
|
(555,003)
|
|
|
|
(758,848)
|
|
|
|
(986,270)
|
|
|
|
(1,123,842)
|
|
|
|
(1,474,320)
|
|
Operating
income
|
|
|
62,948
|
|
|
|
67,977
|
|
|
|
80,632
|
|
|
|
85,864
|
|
|
|
28,123
|
|
Earnings
before income tax
|
|
|
59,386
|
|
|
|
64,525
|
|
|
|
78,542
|
|
|
|
83,464
|
|
|
|
24,317
|
|
Tax
(expense)/benefit
|
|
|
(18,096)
|
|
|
|
(19,872)
|
|
|
|
(23,504)
|
|
|
|
(24,721)
|
|
|
|
1,883
|
|
Net
income attributable to equity shareholders of the Company
|
|
|
35,289
|
|
|
|
41,354
|
|
|
|
53,603
|
|
|
|
56,533
|
|
|
|
29,769
|
|
Basic
earnings per share
|
|
|
0.41
|
|
|
|
0.48
|
|
|
|
0.62
|
|
|
|
0.65
|
|
|
|
0.34
|
|
Basic
earnings per ADS(2)
|
|
|
40.70
|
|
|
|
47.70
|
|
|
|
61.82
|
|
|
|
65.20
|
|
|
|
34.33
|
|
Diluted
earnings per share(2)
|
|
|
0.41
|
|
|
|
0.48
|
|
|
|
0.62
|
|
|
|
0.65
|
|
|
|
0.30
|
|
Diluted
earnings per ADS(2)
|
|
|
40.70
|
|
|
|
47.70
|
|
|
|
61.82
|
|
|
|
65.20
|
|
|
|
30.29
|
|
Cash
dividends declared per share
|
|
|
0.10
|
|
|
|
0.12
|
|
|
|
0.13
|
|
|
|
0.16
|
|
|
|
0.145
|
|
Segment
results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration
and production
|
|
|
26,397
|
|
|
|
48,334
|
|
|
|
63,182
|
|
|
|
48,766
|
|
|
|
66,569
|
|
Refining
|
|
|
4,917
|
|
|
|
(3,695)
|
|
|
|
(25,710)
|
|
|
|
(10,452)
|
|
|
|
(61,538)
|
|
Marketing
and distribution
|
|
|
14,716
|
|
|
|
10,350
|
|
|
|
30,234
|
|
|
|
35,727
|
|
|
|
38,209
|
|
Chemicals
|
|
|
18,843
|
|
|
|
14,186
|
|
|
|
14,458
|
|
|
|
13,306
|
|
|
|
(13,102)
|
|
Corporate
and others
|
|
|
(1,925)
|
|
|
|
(1,198)
|
|
|
|
(1,532)
|
|
|
|
(1,483)
|
|
|
|
(2,015)
|
|
Operating
income
|
|
|
62,948
|
|
|
|
67,977
|
|
|
|
80,632
|
|
|
|
85,864
|
|
|
|
28,123
|
|
|
|
As
of December 31,
|
|
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008
|
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB
|
|
|
|
(in
millions)
|
|
Consolidated
Balance Sheet Data(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
18,817
|
|
|
|
15,088
|
|
|
|
7,063
|
|
|
|
7,696
|
|
|
|
6,948
|
|
Total
current assets
|
|
|
125,862
|
|
|
|
148,984
|
|
|
|
146,490
|
|
|
|
185,116
|
|
|
|
164,311
|
|
Total
non-current assets
|
|
|
355,729
|
|
|
|
396,169
|
|
|
|
464,342
|
|
|
|
547,609
|
|
|
|
603,516
|
|
Total
assets
|
|
|
481,591
|
|
|
|
545,153
|
|
|
|
610,832
|
|
|
|
732,725
|
|
|
|
767,827
|
|
Total
current liabilities
|
|
|
151,361
|
|
|
|
177,706
|
|
|
|
216,372
|
|
|
|
265,355
|
|
|
|
274,537
|
|
Short-term
debts and loans from Sinopec Group Company and its affiliates (including
current portion of long-term debts)
|
|
|
45,231
|
|
|
|
46,674
|
|
|
|
63,480
|
|
|
|
60,494
|
|
|
|
98,483
|
|
Long-term
debts and loans from Sinopec Group Company and its affiliates (excluding
current portion of long-term debts)
|
|
|
95,784
|
|
|
|
103,408
|
|
|
|
100,637
|
|
|
|
120,314
|
|
|
|
127,144
|
|
Equity
attributable to equity shareholders of the Company
|
|
|
195,239
|
|
|
|
226,099
|
|
|
|
264,334
|
|
|
|
307,433
|
|
|
|
328,669
|
|
Capital
employed(³)
|
|
|
349,909
|
|
|
|
392,267
|
|
|
|
443,711
|
|
|
|
505,870
|
|
|
|
568,001
|
|
|
|
Years
Ended December 31,
|
|
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008
|
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB
|
|
|
|
(in
millions)
|
|
Other
Financial Data(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash generated from operating activities
|
|
|
68,076
|
|
|
|
78,663
|
|
|
|
92,507
|
|
|
|
119,594
|
|
|
|
67,712
|
|
Net
cash used in investing
activities
|
|
|
(72,794)
|
|
|
|
(78,113)
|
|
|
|
(103,385)
|
|
|
|
(113,587)
|
|
|
|
(110,158)
|
|
Net
cash generated from/(used in) financing activities
|
|
|
6,250
|
|
|
|
(4,257)
|
|
|
|
2,878
|
|
|
|
(5,310)
|
|
|
|
41,777
|
|
Capital
expenditure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration
and
production
|
|
|
23,199
|
|
|
|
25,479
|
|
|
|
35,198
|
|
|
|
54,498
|
|
|
|
57,646
|
|
Refining
|
|
|
15,789
|
|
|
|
20,270
|
|
|
|
22,587
|
|
|
|
22,763
|
|
|
|
12,491
|
|
Marketing
and
distribution
|
|
|
16,678
|
|
|
|
10,954
|
|
|
|
11,319
|
|
|
|
12,548
|
|
|
|
14,148
|
|
Chemicals
|
|
|
11,025
|
|
|
|
9,386
|
|
|
|
12,629
|
|
|
|
16,184
|
|
|
|
20,622
|
|
Corporate
and
others
|
|
|
1,550
|
|
|
|
1,164
|
|
|
|
2,170
|
|
|
|
3,289
|
|
|
|
2,393
|
|
Total
|
|
|
68,241
|
|
|
|
67,253
|
|
|
|
83,903
|
|
|
|
109,282
|
|
|
|
107,300
|
|
__________
(1)
|
The
acquisitions of Petrochemical and Catalyst Assets in 2004, the
acquisitions of equity interests in Sinopec Hainan and Oil Production
Plants in 2006 and the acquisitions of equity interests in the Refining
Plants in 2007 from Sinopec Group Company are treated as “combination of
entities under common control” which are accounted in a manner similar to
a pooling-of-interests. Accordingly, the acquired assets and
liabilities have been accounted for at historical cost and the
consolidated financial statements for periods prior to the combinations
have been restated to include the financial condition and results of
operation of these acquired companies on a combined basis. The
considerations for these acquisitions were treated as equity
transactions.
|
(2)
|
Basic
earnings per share have been computed by dividing net income attributable
to equity shareholders of the Company by the weighted average number of
shares in issue. For the years ended December 31, 2004, 2005, 2006 and
2007, diluted earnings per share and per ADS are calculated on the same
basis as basic earnings per share and per ADS, respectively, since there
were no dilutive potential ordinary shares during the years. The
calculation of diluted earnings per share for the year ended December 31,
2008 is based on the diluted net income attributable to equity
shareholders of the Company of RMB 26,592 million and the diluted weighted
average number of the shares of 87,789,799,595. Basic and diluted earnings
per ADS have been computed as if all of our issued or potential ordinary
shares, including domestic shares and H shares, are represented by ADSs
during each of the years presented. Each ADS represents 100
shares.
|
(3)
|
Capital
employed is derived by the sum of short-term debts, long-term debts, loans
from Sinopec Group Company and its affiliates and total equity less cash
and cash equivalents.
|
B. CAPITALIZATION
AND INDEBTEDNESS
Not
applicable.
C. REASONS
FOR THE OFFER AND USE OF PROCEEDS
Not
applicable.
D. RISK
FACTORS
Risks
Relating to Our Business Operation
Our
business may be adversely affected by the fluctuation of crude oil and refined
petroleum product prices.
We
currently consume a large amount of crude oil to produce our refined products
and petrochemical products. While we try to adjust the sale price of our
products to track international crude oil price fluctuations, our ability to
pass on the increased cost resulting from crude oil price increases to our
customers is dependent on international and domestic market conditions as well
as the PRC government’s price control over refined petroleum products. For
example, the international crude oil price reached its historically high level
in July 2008, but we were not able to effectively pass the increased cost to our
customers of refined petroleum products. Although the current price-setting
mechanism for refined petroleum products in China allows the PRC government to
adjust price in the PRC market when the average international crude oil price
fluctuates beyond certain levels within a certain time period, the PRC
government still retains discretion as to whether or when to adjust the refined
petroleum products price. The PRC government will exercise certain price
control over refined petroleum products once international crude oil price
experiences sustained growth or becomes significantly volatile. As a result, our
results of operations and financial condition may be materially and adversely
affected by the fluctuation of crude oil and refined petroleum product
prices.
Our
continued business success depends in part on our ability to replace reserves
and develop newly discovered reserves.
Our
ability to achieve our growth objectives is dependent in part on our level of
success in discovering or acquiring additional oil and natural gas reserves and
further exploring our current reserve base. Our exploration and
development
activities for additional reserves also expose us to inherent risks associated
with drilling, including the risk that no economically productive oil or natural
gas reservoirs might be discovered. Exploring for, developing and acquiring
reserves is highly risky and capital intensive. Without reserve additions
through further exploration and development or acquisition activities, our
reserves and production will decline over time, which may materially and
adversely affect our results of operations and financial condition.
We
rely heavily on outside suppliers for crude oil and other raw materials, and we
may even experience disruption of our ability to obtain crude oil and other raw
materials.
We
purchase a significant portion of our crude oil and other feedstock requirements
from outside suppliers located in different countries and areas in the world. In
2008, approximately 74% of
the crude oil required for our refinery business was sourced from international
suppliers, some of which are from countries or regions that are on the sanction
list published and administered by the Office of Foreign Assets Control of the
US Department of Treasury. In addition, our development requires us to source an
increasing amount of crude oil from outside suppliers. We are subject to the
political, geographical and economic risks associated with these countries and
areas. If one or more of our material supply contracts were terminated or
disrupted due to any natural disasters or political events, it is possible that
we would not be able to find sufficient alternative sources of supply in a
timely manner or on commercially reasonable terms. As a result, our business and
financial condition would be materially and adversely affected.
Our
business faces operation risks and natural disasters that may cause significant
property damages, personal injuries and interruption of operations, and we may
not have sufficient insurance coverage for all the financial losses incurred by
us.
Exploring
for, producing and transporting crude oil and natural gas and producing and
transporting refined and petrochemical products involve a number of operating
hazards. Significant operating hazards and natural disasters may
cause interruption to our operations, property or environmental damages as well
as personal injuries, and each of these incidents could have a material adverse
effect on our financial condition and results of operations.
We have
been paying high attention to the safety of our operation and implemented
Health, Safety and Environment Management System within our company with the
view to preventing accident, and reducing personal injuries, property losses and
environment pollution. We also maintain insurance coverage on our property,
plant, equipment and inventory. However, our preventative measures may not be
effective and our insurance coverage may not be sufficient to cover all the
financial losses caused by the operation risks and natural disasters. Losses
incurred or payments required to be made by us due to operating hazards or
natural disasters, which are not fully insured, may have a material adverse
effect on our financial condition and results of operations.
The
oil and natural gas reserves data in this annual report are only estimates, and
our actual production, revenues and expenditures with respect to our reserves
may differ materially from these estimates.
There are
numerous uncertainties inherent in estimating quantities of proved oil and
natural gas reserves, and in the timing of development expenditures and the
projection of future rates of production. The reserve data set forth in this
annual report represent estimates only. Adverse changes in economic conditions
may render it uneconomical to develop certain reserves. Our actual production,
revenues, taxes and fees payable and development and operating expenditures with
respect to our reserves may likely vary from these estimates.
The
reliability of reserves estimates depends on:
|
·
|
the
quality and quantity of technical and economic
data;
|
|
·
|
the
prevailing oil and gas prices applicable to our
production;
|
|
·
|
the
production performance of the
reservoirs;
|
|
·
|
extensive
engineering judgments; and
|
|
·
|
consistency
in the PRC government's oil
policies.
|
In
addition, new drilling, testing and production following the estimates may cause
substantial upward or downward revisions in the estimates.
Our
operations may be adversely affected by the global and domestic economic
conditions.
Our
results of operations are materially affected by economic conditions in China
and elsewhere around the world. Concerns over stability of the global financial
market, inflation, energy costs, geopolitical issues, the availability and cost
of credit and commodities have contributed to unprecedented levels of market
volatility and diminished expectations for the global economy and the markets in
the future. These factors, combined with declining business, consumer confidence
and market demand, have precipitated an economic slowdown or even a recession.
If the current market fluctuation continues and the global economy, particularly
the Chinese economy and other markets where our products are sold, experiences
significant or continuous slowdown or downturn, our business, financial
condition, results of operations would be adversely affected.
Our
operations may be adversely affected by the cyclical nature of the
market.
Most of
our revenues are attributable to sales of refined petroleum products and
petrochemical products, and certain of these businesses and related products
have historically been cyclical and sensitive to a number of factors that are
beyond our control. These factors include the availability and prices of
feedstock and general economic conditions, such as changes in industry capacity
and output levels, cyclical changes in regional and global economic conditions,
prices and availability of substitute products and changes in consumer demand.
With the further reduction of tariffs and other import restrictions in the PRC
on refined petroleum products and petrochemical products, many of our products
have become increasingly subject to the cyclicality of global markets, and
hence, our operations may be adversely affected by the cyclical nature of the
market.
We
face strong competition from domestic and foreign competitors.
Among our
competitors, some are major integrated petroleum and petrochemical companies
within and outside the PRC, which have recently become more significant
participants in the petroleum and petrochemical industry in China. On December
4, 2006, Ministry of Commerce of the PRC promulgated the “Administrative Rules
for Crude Oil Market” and “Administrative Rules for Refined Petroleum Products
Market” to open the wholesale market of crude oil and refined petroleum products
to new market entrants. As a result, we expect to face more competition in both
crude oil and refined petroleum product markets. We believe such trend will
continue. Increased competition may have a material adverse effect on our
financial condition and results of operations.
Our
financing costs are subject to change in interest rates.
Changes in
the interest rate in China, which is subject to governmental control, have
affected and will continue to affect our financing costs and our results of
operations. The People’s Bank of China, or the PBOC, adjusts the benchmark
interest rate according to China’s macroeconomic conditions. In 2008, the PBOC
reduced the benchmark interest rate five times, and the benchmark one-year
lending rate was reduced from 7.47% to 5.31%. There is no assurance that the
PBOC will further reduce the benchmark interest rate or keep it at the current
level. Any increase in the benchmark interest rate by the PBOC will result in an
increase in the financing costs on our debt financing activities, and may
materially and adversely affect our business, financial condition and results of
operations.
Risks
Relating to Our Controlling Shareholder
Related
party transactions.
We have
engaged from time to time and will continue to engage in a variety of
transactions with Sinopec Group, which provides to us a number of services,
including, but not limited to, ancillary supply, engineering, maintenance,
transport, lease of land use right, lease of buildings, as well as educational
and community services. The nature of our transactions with Sinopec Group is
governed by a number of service and other contracts between Sinopec Group and
us. We have established various schemes in those agreements so that these
transactions would be entered into under terms at arm’s length. However, we
cannot assure you that Sinopec Group Company or any of its members would not
take actions that may favor its interests or its other subsidiaries' interests
over ours.
Non-competition.
Sinopec
Group Company has interests in certain businesses, such as oil refining,
petrochemical producing and retail service stations, which compete or are likely
to compete, either directly or indirectly, with our businesses. To avoid the
adverse effects brought by the competition between us and Sinopec Group Company
to the maximum extent possible, we and Sinopec Group Company have entered into a
non-competition agreement whereby Sinopec Group Company has agreed to: refrain
from operating new businesses which compete or could compete with us in any of
our domestic or international markets; grant us an option to purchase Sinopec
Group Company's operations that compete or could compete with our businesses;
operate its sales enterprises and service stations in a manner uniform to our
sales and service operations; and appoint us as sales agent for certain of its
products which compete or could compete with our products. Notwithstanding the
foregoing contractual arrangements, because Sinopec Group Company is our
controlling shareholder, Sinopec Group Company may take actions that may
conflict with our own interests.
Risks
Relating to the PRC
Government
regulations may limit our activities and affect our business
operations.
The PRC
government, though gradually liberalizing its regulations on entry into the
petroleum and petrochemical industry, continues to exercise certain controls
over the petroleum and petrochemical industry in China. These control mechanisms
include granting the licenses to explore and produce crude oil and natural gas,
granting the licenses to market and distribute crude oil and refined petroleum
products, setting the pricing policy for the refined petroleum products,
collecting special gain levies, assessing taxes and fees payable, deciding
import and export quotas and procedures for the oil and gas industry, and
setting safety, environmental and quality standards. As a result, we may face
constraints on our flexibility and ability to expand our business operations or
to maximize our profitability.
Our
business operations may be adversely affected by present or future environmental
regulations.
As an
integrated petroleum and petrochemical company, we are subject to extensive
environmental protection laws and regulations in China. These laws and
regulations permit:
|
·
|
the
imposition of fees for the discharge of waste
substances;
|
|
·
|
the
levy of fines and payments for damages for serious environmental offenses;
and
|
|
·
|
the
government, at its discretion, to close any facility which fails to comply
with orders and require it to correct or stop operations causing
environmental damage.
|
Our
production operations produce substantial amounts of waste water, gas and solid
waste materials. In addition, our production facilities require operating
permits that are subject to renewal, modification and revocation. We have
established a system to treat waste materials to prevent and reduce
pollution.
The PRC
government has moved, and may move further, toward more rigorous enforcement of
applicable laws, and toward the adoption of more stringent environmental
standards, which, in turn, would require us to incur additional expenditures on
environmental matters.
Some
of our development plans require compliance with state policies and regulatory
confirmation and registration.
We are
currently engaged in a number of construction, renovation and expansion
projects. Some of our large construction, renovation and expansion
projects are subject to governmental confirmation and
registration. The timing and cost of completion of these projects
will depend on numerous factors, including when we can receive the required
confirmation and registration from relevant PRC government authorities and the
general economic condition in China. If any of our important projects
required for our future growth are not confirmed or registered, or not confirmed
or registered in a timely manner, our results of operations and financial
condition could be adversely impacted.
Foreign
enterprise holders of H shares may be subject to PRC taxation.
In
accordance with the new Enterprise Income Tax Law and its implementation rules
that became effective on January 1, 2008, dividends derived from the revenues
accumulated from January 1, 2008 and are paid by PRC companies to non-resident
enterprises, which are established under the laws of non-PRC jurisdictions and
have no establishment or place of business in China or whose dividends from
China do not relate to their establishment or place of business in China, 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. Under the notice issued by the State Administration of Taxation of
the PRC on November 6, 2008, we are required to withhold PRC income tax at the
rate of 10% on dividends paid for 2008 and later years payable to our H Share
investors that are “non-resident enterprises”. Accordingly, the investors of our
American Depositary Shares representing our H Shares will be subject to such
withholding of the PRC income tax at the rate of 10%.
Government
control of currency conversion and exchange rate fluctuation may adversely
affect our operations and financial results.
We receive
substantially all of our revenues in Renminbi. A portion of such revenues will
need to be converted into other currencies to meet our foreign currency needs,
which include, among other things:
|
·
|
import
of crude oil and other materials;
|
|
·
|
debt
service on foreign currency-denominated
debt;
|
|
·
|
purchases
of imported equipment;
|
|
·
|
payment
of the principals and interests of bonds issued overseas;
and
|
|
·
|
payment
of any cash dividends declared in respect of the H shares (including
ADS).
|
The
existing foreign exchange regulations have significantly reduced government
foreign exchange controls for transactions under the current account, including
trade and service related foreign exchange transactions and payment of
dividends. Foreign exchange transactions under the capital account,
including principal payments in respect of foreign currency-denominated
obligations, continue to be subject to significant foreign exchange controls and
require the approval of the State Administration of Foreign Exchange. These
limitations could affect our ability to obtain foreign exchange through debt or
equity financing, or to obtain foreign exchange for capital
expenditures. The PRC government has stated publicly that it intends
to make the Renminbi freely convertible in the future. However, we cannot
predict whether the PRC government will continue its existing foreign exchange
policy and when the PRC government will allow free conversion of
Renminbi.
The
exchange rate of the Renminbi against the U.S. dollar and other foreign
currencies fluctuates and is affected by, among other things, the foreign
exchange control policies of the PRC government and the changes in the PRC’s and
international political and economic conditions. On July 21, 2005,
the PRC government introduced 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. From July 21, 2005 to
December 31, 2008, the value of the Renminbi has appreciated by approximately
21% against the U.S. dollar. We purchase a significant portion of the
crude oil from international suppliers, and the purchase price are benchmarked
to US dollar-denominated international prices. Fluctuations in the exchange rate
of the Renminbi against the US dollars and certain other foreign currencies may
materially and adversely affect our financial condition and results of
operations.
Risks
relating to enforcement of shareholder rights; Mandatory
arbitration.
Currently,
the primary sources of shareholder rights are our articles of association, the
PRC Company Law and the Listing Rules of the Hong Kong Stock Exchange, which,
among other things, impose certain standards of conduct, fairness and disclosure
on us, our directors and our controlling shareholder. In general, their
provisions for protection of shareholder's rights and access to information are
different from those applicable to companies incorporated in the United States,
the United Kingdom and other Western countries. In addition, the mechanism for
enforcement of rights under the corporate framework to which we are subject may
also be relatively undeveloped and untested. To our knowledge, there has not
been any published report of judicial enforcement in the PRC by H share
shareholders of their rights under constituent documents of joint stock limited
companies or the PRC Company Law or
in the
application or interpretation of the PRC or Hong Kong regulatory provisions
applicable to PRC joint stock limited companies. We cannot assure you that our
shareholders will enjoy protections that they may be entitled in other
jurisdictions.
China does
not have treaties providing for the reciprocal recognition and enforcement of
judgments of courts with the United States, the United Kingdom or most other
Western countries, and therefore recognition and enforcement in China of
judgments of a court in any of these jurisdictions in relation to any matter not
subject to a binding arbitration provision may not be assured. Our articles of
association as well as the Listing Rules of the Hong Kong Stock Exchange provide
that most disputes between holders of H shares and us, our directors,
supervisors, officers or holders of domestic shares, arising out of the articles
of association or the PRC Company Law concerning the affairs of our company or
with respect to the transfer of our shares, are to be resolved through
arbitration by arbitration organizations in Hong Kong or China, rather than
through a court of law. On June 18, 1999, an arrangement was made between Hong
Kong and the PRC for the mutual enforcement of arbitral awards. This new
arrangement was approved by the Supreme People's Court of the PRC and the Hong
Kong Legislative Council, and became effective on February 1, 2000. So far as we
are aware, no action has been brought in China by any shareholder to enforce an
arbitral award, and we are uncertain as to the outcome of any action brought in
China to enforce an arbitral award granted to shareholders.
ITEM
4.
|
INFORMATION
ON THE COMPANY
|
A. HISTORY
AND DEVELOPMENT OF THE COMPANY
Our legal
and commercial name is China Petroleum & Chemical Corporation. Our head
office is located at 22 Chaoyangmen North Street, Chaoyang District, Beijing
100728, the People's Republic of China, our telephone number is (8610) 5996-0028
and our fax number is (8610) 5996-0386. We have appointed our subsidiary in the
United States, SINOPEC-USA Co., Ltd., 410 Park Avenue, 22nd Fl., New York, NY
10022, USA (telephone number: (212) 759-5085; fax number: (212) 759-6882) as our
agent for service of processes for actions brought under the U.S. securities
laws.
We were
established as a joint stock limited company on February 25, 2000 under the
Company Law of the PRC with Sinopec Group Company as the sole shareholder. Our
principal businesses consist of petroleum and petrochemical businesses
transferred to us by Sinopec Group Company pursuant to a reorganization
agreement. Such businesses include:
|
·
|
exploration
for, development, production and marketing of crude oil and natural
gas;
|
|
·
|
refining
of crude oil and marketing and distribution of refined petroleum products,
including transportation, storage, trading, import and export of petroleum
products; and
|
|
·
|
production
and sales of petrochemical
products.
|
Sinopec
Group Company's continuing activities consist, among other things,
of:
|
·
|
exploring
and developing oil and gas reserves
overseas;
|
|
·
|
operating
certain petrochemical facilities, small capacity refineries and retail
service stations that it retained;
|
|
·
|
providing
geophysical exploration, and well drilling, survey, logging and downhole
operational services;
|
|
·
|
manufacturing
production equipment and providing equipment maintenance
services;
|
|
·
|
providing
construction services;
|
|
·
|
providing
utilities, such as electricity and water;
and
|
|
·
|
providing
other operational services including transportation
services.
|
Sinopec
Group Company transferred the businesses to us either by transferring its equity
holdings in subsidiaries or by transferring their assets and liabilities.
Sinopec Group Company also agreed in the reorganization agreement to transfer to
us its exploration and production licenses and all rights and obligations under
the agreements in connection with its core businesses transferred to us. The
employees relating to these assets were also transferred to us.
In order
to expand our core businesses, prevent competition between us and members of
Sinopec Group and reduce related party transactions, between 2001 and 2007 we
have acquired from Sinopec Group Company Sinopec National Star Petroleum
Company, Sinopec Group Maoming Petrochemical Company, Tahe Oilfield
Petrochemical Factory and Xi'an Petrochemical Main Factory, Petrochemical and
Catalyst Assets, Refinery Plants and certain service stations, Oil Production
Plants, and Sinopec Hainan. We have also sold and disposed of certain auxiliary
assets to third parties. In addition, we have completed the privatization of
Beijing Yanhua Petrochemical Co., Ltd. and Sinopec Zhenhai Refinery and
Chemicals Co., Ltd. and the tender offers for the acquisition of publicly-held
A-shares of four subsidiaries formerly listed on stock exchanges in China,
namely Sinopec Qilu Petrochemical Co., Ltd., Sinopec Yangzi Petrochemical Co.,
Ltd., Sinopec Zhongyuan Petroleum Co., Ltd., and Shengli Oil Field Dynamic Co.,
Ltd.
In 2007,
we also acquired 20 service stations and fuel business in Hong Kong from China
Resources Enterprise, Ltd. We issued HK$ 11.7 billion zero-coupon convertible
bonds, the net proceeds from which were used to repay the foreign currency loans
borrowed from domestic banks in connection with the privatization of the former
Beijing Yanhua Petrochemical Co., Ltd. and Sinopec Zhenhai Refining &
Chemical Co., Ltd.
On
February 20, 2008, we issued bonds with detachable warrants in the amount of RMB
30 billion. The bonds have a 6-year term and 0.8% per annum fixed interest rate.
The 3.03 billion warrants have an exercise ratio of two for one A Share and a
term of two years. The initial exercise price of the warrants is RMB 19.68 per A
Share, subject to further adjustment. The warrants are exercisable within 5
trading days prior to the expiration of the term of the warrants. The bonds and
warrants were listed on Shanghai Stock Exchange on March 4, 2008. The proceeds
from the issuance will be primarily used to fund our Sichuan-to-East China Gas
Project, Tianjin one million tonnes per annum ethylene project, and Zhenhai one
million tonnes per annum ethylene project. We also used a portion of the
proceeds to repay our bank loans. The proceeds from the exercise of warrants was
primarily used to fund our Tianjin one million tonnes per annum ethylene
project, Zhenhai one million tonnes per annum ethylene project, and Wuhan
ethylene project, as well as to repay our bank loans and to fund our working
capital.
On June
26, 2008, we entered into a series of assets acquisition agreements with Shengli
Oilfields Administrative Bureau, Zhongyuan Petroleum Exploration Bureau, Henan
Petroleum Exploration Bureau, Jianghan Oilfield Administrative Bureau, Jiangsu
Petroleum Exploration Bureau and Huadong Petroleum Bureau, each of which is the
wholly-owned entity of Sinopec Group Company, to acquire all their downhole
operation assets. The consideration for the acquisition was RMB1,624 million. We
used our internal resources to fund the acquisition. The acquisition was
completed on June 30, 2008.
On
December 22, 2008, we issued RMB 15 billion debentures with a term of six months
and at a fixed interest rate of 2.30% per annum. The short-term debentures were
sold to institutional investors among Chinese banks on the domestic bond
market.
On March
27, 2009, we entered into agreements with Sinopec Group Company to acquire the
100% equity interests in Sinopec Qingdao Petrochemical Company Limited and
certain other assets relating to our exploration and production, refining and
marketing and distribution operations from Sinopec Group Company. On the same
date, we also entered into agreement with Sinopec Group Company to dispose
certain assets in our chemical segment to Sinopec Group Company. The
consideration for the acquisition is RMB 1,839 million and the consideration for
the disposal is RMB 157 million.
B. BUSINESS
OVERVIEW
Exploration
and Production
Overview
We
currently explore for, develop and produce crude oil and natural gas in a number
of areas across China. As of December 31, 2008, we held 190 production licenses
with an aggregate acreage of 18,096 square kilometers and
with terms
ranging from 10 to 80 years. Our production licenses are renewable upon our
application at least 30 days prior to expiration. During the term of our
production license, we pay an annual production license fee of RMB 1,000 per
square kilometers. Shengli oilfield is the second largest oilfield in China and
accounted for approximately 58% of our total crude oil and natural gas
production in 2008.
As of
December 31, 2008, we held 334 exploration licenses for various blocks in which
we engaged in exploration activities. The maximum term of our exploration
licenses is 7 years and the authorized total acreage under such licenses are
965,000 square kilometers. Our exploration licenses may be renewed upon our
application at least 30 days prior to expiration of the original term with each
renewal for a two-year term. We are obligated to make an annual minimum
exploration investment in each of the exploration blocks which we obtained the
exploration licenses. In addition, we are also obligated to pay an annual
exploration license fee ranging from RMB 100 to RMB 500 per square
kilometer. However, we are entitled under PRC laws and regulations
for reduction and exemption of exploration license fee for exploration in
China’s western region, northeast region and offshore China.
Properties
We
currently operate 16 oil and gas producing fields, each of which consists of
many oil and gas producing blocks and all of which are located in
China.
Shengli
oilfield is our most important producing oil field and the second largest
producing oil field in China. It consists of 70 producing blocks of various
sizes extending over an area of 2,564 square kilometers in northern Shandong
province. Most of Shengli’s blocks are located in the Jiyang trough
with various oil producing levels. In 2008, Shengli field produced 200 million
barrels of crude oil and 27.19 billion cubic feet of natural gas, with an
average daily production of 552 thousand barrels-of-oil equivalent, accounting
for approximately 58% of our total crude oil and natural gas production for the
year.
Oil and Natural
Gas Reserves
Our
estimated proved reserves of crude oil and natural gas as of December 31, 2008
were 4,001 million barrels-of-oil equivalent (including 2,841 million barrels of
crude oil and 6,959 billion cubic feet of natural gas), representing an increase
of 2.5% from 2007. Our estimated proved reserves do not include additional
quantities recoverable beyond the term of the relevant production licenses, or
that may result from extensions of currently proved areas, or from application
of improved recovery processes not yet tested and determined to be
economical.
The
following tables set forth our proved oil and gas reserves and related data as
of and for the years ended December 31, 2006, 2007 and 2008.
|
|
As
of and for the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
Proved
developed and undeveloped reserves (crude oil)
|
|
(in
million barrels)
|
|
Beginning
of year
|
|
|
3,294
|
|
|
|
3,293
|
|
|
|
3,024
|
|
Revisions
of previous estimates
|
|
|
(10)
|
|
|
|
(250)
|
|
|
|
(94)
|
|
Improved
recovery
|
|
|
146
|
|
|
|
125
|
|
|
|
98
|
|
Extensions
and discoveries
|
|
|
148
|
|
|
|
148
|
|
|
|
110
|
|
Production
|
|
|
(285)
|
|
|
|
(292)
|
|
|
|
(297)
|
|
End
of year
|
|
|
3,293
|
|
|
|
3,024
|
|
|
|
2,841
|
|
Proved
developed reserves (crude oil)
|
|
(in
million barrels)
|
|
Beginning
of year
|
|
|
2,870
|
|
|
|
2,903
|
|
|
|
2,651
|
|
End
of year
|
|
|
2,903
|
|
|
|
2,651
|
|
|
|
2,451
|
|
Proved
developed and undeveloped reserves (natural
gas)
|
|
(in
billion cubic feet)
|
|
Beginning
of year
|
|
|
2,952
|
|
|
|
2,856
|
|
|
|
6,331
|
|
Revisions
of previous estimates
|
|
|
(9)
|
|
|
|
222
|
|
|
|
203
|
|
Extensions
and discoveries
|
|
|
170
|
|
|
|
3,536
|
|
|
|
718
|
|
Production
|
|
|
(257)
|
|
|
|
(283)
|
|
|
|
(293)
|
|
End
of year
|
|
|
2,856
|
|
|
|
6,331
|
|
|
|
6,959
|
|
Proved
developed reserves (natural gas)
|
|
(in
billion cubic feet)
|
|
Beginning
of year
|
|
|
1,557
|
|
|
|
1,472
|
|
|
|
1,518
|
|
End
of year
|
|
|
1,472
|
|
|
|
1,518
|
|
|
|
1,571
|
|
The
following tables set forth proved developed and undeveloped crude oil and
natural gas reserves of our primary oil and gas producing fields as of December
31, 2006, 2007 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
million barrels)
|
|
Proved
developed and undeveloped crude oil reserves
|
|
|
|
|
|
|
|
|
|
Shengli
|
|
|
2,352
|
|
|
|
2,231
|
|
|
|
2,151
|
|
Zhongyuan
|
|
|
302
|
|
|
|
235
|
|
|
|
165
|
|
Xibei
|
|
|
288
|
|
|
|
280
|
|
|
|
275
|
|
Henan
|
|
|
136
|
|
|
|
96
|
|
|
|
81
|
|
Jiangsu
|
|
|
91
|
|
|
|
87
|
|
|
|
91
|
|
Others
|
|
|
124
|
|
|
|
95
|
|
|
|
78
|
|
Total
|
|
|
3,293
|
|
|
|
3,024
|
|
|
|
2,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
billion cubic feet)
|
|
Proved
developed and undeveloped natural gas reserves
|
|
|
|
|
|
|
|
|
|
Shengli
|
|
|
313
|
|
|
|
328
|
|
|
|
264
|
|
Zhongyuan
|
|
|
355
|
|
|
|
361
|
|
|
|
189
|
|
Xibei
|
|
|
147
|
|
|
|
198
|
|
|
|
452
|
|
Jiangsu
|
|
|
12
|
|
|
|
10
|
|
|
|
12
|
|
Xinan
|
|
|
807
|
|
|
|
757
|
|
|
|
682
|
|
Huabei
|
|
|
792
|
|
|
|
781
|
|
|
|
709
|
|
Puguang
|
|
|
-
|
|
|
|
3,509
|
|
|
|
4,001
|
|
Others
|
|
|
430
|
|
|
|
387
|
|
|
|
650
|
|
Total
|
|
|
2,856
|
|
|
|
6,331
|
|
|
|
6,959
|
|
Oil
and Natural Gas Production
In 2008,
we produced an average of 945 thousand barrels-of-oil equivalent per day, of
which approximately 85.64% was crude oil and 14.36% was natural
gas.
The
following tables set forth the average daily production of crude oil and natural
gas for the years ended December 31, 2006, 2007 and 2008. The production of
crude oil includes condensed oil.
|
|
For
the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
thousand barrels)
|
|
Average
daily crude oil production
|
|
|
|
|
|
|
|
|
|
Shengli
|
|
|
533
|
|
|
|
539
|
|
|
|
538
|
|
Zhongyuan
|
|
|
60
|
|
|
|
59
|
|
|
|
58
|
|
Xibei
|
|
|
92
|
|
|
|
104
|
|
|
|
116
|
|
Henan
|
|
|
35
|
|
|
|
35
|
|
|
|
35
|
|
Jiangsu
|
|
|
33
|
|
|
|
33
|
|
|
|
33
|
|
Others
|
|
|
28
|
|
|
|
29
|
|
|
|
31
|
|
Total
Production
|
|
|
781
|
|
|
|
799
|
|
|
|
811
|
|
|
|
For
the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
million cubic feet)
|
|
Average
daily natural gas production
|
|
|
|
|
|
|
|
|
|
Shengli
|
|
|
78
|
|
|
|
76
|
|
|
|
74
|
|
Zhongyuan
|
|
|
159
|
|
|
|
143
|
|
|
|
102
|
|
Xibei
|
|
|
84
|
|
|
|
92
|
|
|
|
123
|
|
Henan
|
|
|
8
|
|
|
|
7
|
|
|
|
6
|
|
Jiangsu
|
|
|
6
|
|
|
|
5
|
|
|
|
6
|
|
Xinan
|
|
|
213
|
|
|
|
260
|
|
|
|
261
|
|
Huabei
|
|
|
101
|
|
|
|
140
|
|
|
|
185
|
|
Others
|
|
|
54
|
|
|
|
51
|
|
|
|
44
|
|
Total
Production
|
|
|
703
|
|
|
|
774
|
|
|
|
801
|
|
Lifting
Cost & Realized Prices
The
following table sets forth our average lifting costs per barrel-of-oil
equivalent of crude oil and natural gas produced, average sales prices per
barrel of crude oil and average sales prices per thousand cubic meters of
natural gas for the years ended December 31, 2006, 2007 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
(RMB)
|
|
|
(RMB)
|
|
|
(RMB)
|
|
For
the year ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
Average
petroleum lifting cost per
BOE
|
|
|
88.80
|
|
|
|
92.24
|
|
|
|
83.99
|
|
Average
realized sales price
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
barrel of crude
oil
|
|
|
601.22
|
|
|
|
598.99
|
|
|
|
605.80
|
|
Per
thousand cubic meters of natural
gas
|
|
|
941.47
|
|
|
|
992.15
|
|
|
|
939.48
|
|
For
the year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
petroleum lifting cost per
BOE
|
|
|
84.62
|
|
|
|
87.23
|
|
|
|
80.78
|
|
Average
realized sales price
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
barrel of crude
oil
|
|
|
435.94
|
|
|
|
421.66
|
|
|
|
466.17
|
|
Per
thousand cubic meters of natural
gas
|
|
|
822.83
|
|
|
|
939.92
|
|
|
|
817.72
|
|
For
the year ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
petroleum lifting cost per
BOE
|
|
|
73.31
|
|
|
|
77.16
|
|
|
|
67.34
|
|
Average
realized sales price
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
barrel of crude
oil
|
|
|
449.93
|
|
|
|
443.66
|
|
|
|
463.70
|
|
Per
thousand cubic meters of natural
gas
|
|
|
794.28
|
|
|
|
899.76
|
|
|
|
788.02
|
|
Exploration
and Development Activities
The
following table sets forth the numbers of our exploration and development wells,
including a breakdown of successful or productive wells and dry holes we drilled
during the years ended December 31, 2006, 2007 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the year ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration
|
|
|
|
|
|
|
|
|
|
|
|
|
—
Successful
|
|
|
248
|
|
|
|
128
|
|
|
|
26
|
|
|
|
94
|
|
—
Dry
holes
|
|
|
296
|
|
|
|
105
|
|
|
|
18
|
|
|
|
173
|
|
Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
Productive
|
|
|
3,128
|
|
|
|
1,563
|
|
|
|
141
|
|
|
|
1,424
|
|
—
Dry
holes
|
|
|
24
|
|
|
|
4
|
|
|
|
12
|
|
|
|
8
|
|
For
the year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
Successful
|
|
|
251
|
|
|
|
118
|
|
|
|
16
|
|
|
|
117
|
|
—
Dry
holes
|
|
|
306
|
|
|
|
119
|
|
|
|
24
|
|
|
|
163
|
|
Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
Productive
|
|
|
2,956
|
|
|
|
1,136
|
|
|
|
112
|
|
|
|
1,708
|
|
—
Dry
holes
|
|
|
20
|
|
|
|
2
|
|
|
|
8
|
|
|
|
10
|
|
For
the year ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration
|
|
|
|
|
|
|
|
|
|
|
|
|
—
Successful
|
|
|
226
|
|
|
|
118
|
|
|
|
20
|
|
|
|
88
|
|
—
Dry
holes
|
|
|
269
|
|
|
|
57
|
|
|
|
19
|
|
|
|
193
|
|
Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
Productive
|
|
|
2,620
|
|
|
|
1,125
|
|
|
|
94
|
|
|
|
1,401
|
|
—
Dry
holes
|
|
|
29
|
|
|
|
4
|
|
|
|
10
|
|
|
|
15
|
|
The
following table sets forth the numbers of our development crude oil and natural
gas wells as of December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude
oil development wells
|
|
|
|
|
|
|
|
|
|
—
Total
|
|
|
36,893
|
|
|
|
24,303
|
|
|
|
12,590
|
|
—
Productive
|
|
|
29,485
|
|
|
|
18,889
|
|
|
|
10,596
|
|
Natural
gas development wells
|
|
|
|
|
|
|
|
|
|
|
|
|
—
Total
|
|
|
2,886
|
|
|
|
394
|
|
|
|
2,492
|
|
—
Productive
|
|
|
2,875
|
|
|
|
394
|
|
|
|
2,481
|
|
In 2008,
we continued to increase our production capacity and scale of our reserve
development. We made progress with our key exploration and development projects
in northeastern Sichuan and Tahe. As a result, our crude oil production capacity
increased by 5.80 million tonnes per annum and our natural gas production
capacity increased by 1.33 billion cubic meters per annum in 2008. In addition,
the Sichuan-to-East China Gas Project and the construction of Songnan gas field
have been progressing on schedule.
Refining
Overview
We
processed approximately 169.0 million tonnes of crude oil in 2008, representing
approximately 53% of China's total crude oil throughput. We produce a
full range of refined petroleum products. The following table sets forth our
production of our principal refined petroleum products for the years ended
December 31, 2006, 2007 and 2008.
|
|
For
the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
million tonnes)
|
|
Gasoline
|
|
|
24.5
|
|
|
|
26.0
|
|
|
|
29.1
|
|
Diesel
|
|
|
60.2
|
|
|
|
62.5
|
|
|
|
68.8
|
|
Kerosene
including jet
fuel
|
|
|
6.4
|
|
|
|
8.3
|
|
|
|
8.0
|
|
Light
chemical
feedstock
|
|
|
22.7
|
|
|
|
23.5
|
|
|
|
23.0
|
|
Lubricant
|
|
|
1.1
|
|
|
|
1.3
|
|
|
|
1.2
|
|
Liquefied
petroleum
gas
|
|
|
6.9
|
|
|
|
7.4
|
|
|
|
8.0
|
|
Fuel
oil
|
|
|
6.0
|
|
|
|
7.3
|
|
|
|
4.9
|
|
Gasoline
and diesel are our largest revenue producing products, and are sold mostly
through our marketing and distribution segment through both wholesale and retail
channels. We use most of our production of chemical feedstock as feedstock for
our own chemical operations. Most of our refined petroleum products were sold
domestically to a wide variety of industrial and agricultural customers, and a
small amount are exported.
Refining
Facilities
Currently
we operate 33 refineries in China, all of which are located in our principal
market. As of December 31, 2008, our total primary distillation capacity was
205.5 million tonnes per annum.
The
following table sets forth our total primary distillation capacity per annum and
crude oil throughputs as of and for the years ended December 31, 2006, 2007 and
2008.
|
|
As
of and for the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
Primary
distillation capacity (million tonnes per annum)
|
|
|
178.9
|
|
|
|
189.4
|
|
|
|
205.5
|
|
Crude
oil throughputs (million tonnes)
|
|
|
152.4
|
|
|
|
161.5
|
|
|
|
168.8
|
|
In 2008,
measured by the total output from our refineries, our overall gasoline yield was
17.23%, overall diesel yield was 40.75%, overall kerosene yield was 4.73% and
overall light chemical feedstock yield was 13.62%. Other products include
lubricant, liquefied petroleum gas, solvent, asphalt, petroleum coke, paraffin
and fuel oil. For the years ended December 31, 2006, 2007 and 2008, our overall
yield for all refined petroleum products at our refineries was 93.47%, 93.95%
and 94.07%, respectively.
The
following table sets forth the primary distillation capacity per annum as of,
and refinery throughput for the years ended, December 31, 2006, 2007 and 2008 of
each of our refineries with the primary distillation capacity of 8
million tonnes or more per annum as of December 31, 2008.
|
|
As
of and for the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary
Distillation
Capacity
|
|
|
|
|
|
Primary
Distillation
Capacity
|
|
|
|
|
|
Primary
Distillation
Capacity
|
|
|
|
|
|
|
(in
million tonnes)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zhenhai
|
|
|
20.0
|
|
|
|
17.7
|
|
|
|
20.0
|
|
|
|
18.6
|
|
|
|
20.0
|
|
|
|
19.4
|
|
Shanghai
|
|
|
14.0
|
|
|
|
9.1
|
|
|
|
14.0
|
|
|
|
8.9
|
|
|
|
14.0
|
|
|
|
9.2
|
|
Maoming
|
|
|
13.5
|
|
|
|
14.0
|
|
|
|
13.5
|
|
|
|
13.1
|
|
|
|
13.5
|
|
|
|
13.0
|
|
Guangzhou
|
|
|
13.2
|
|
|
|
7.4
|
|
|
|
13.2
|
|
|
|
10.4
|
|
|
|
13.2
|
|
|
|
11.6
|
|
Jinling
|
|
|
13.0
|
|
|
|
10.8
|
|
|
|
13.0
|
|
|
|
11.5
|
|
|
|
13.0
|
|
|
|
11.2
|
|
Yanshan
|
|
|
8.0
|
|
|
|
8.0
|
|
|
|
13.0
|
|
|
|
8.6
|
|
|
|
13.0
|
|
|
|
10.7
|
|
Gaoqiao
|
|
|
11.0
|
|
|
|
9.3
|
|
|
|
11.0
|
|
|
|
8.1
|
|
|
|
11.0
|
|
|
|
10.2
|
|
Qilu
|
|
|
10.5
|
|
|
|
10.5
|
|
|
|
10.5
|
|
|
|
10.6
|
|
|
|
10.5
|
|
|
|
10.0
|
|
Qingdao(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10.0
|
|
|
|
5.1
|
|
Yangzi
|
|
|
8.0
|
|
|
|
7.9
|
|
|
|
8.0
|
|
|
|
8.2
|
|
|
|
8.0
|
|
|
|
7.5
|
|
Hainan
|
|
|
8.0
|
|
|
|
2.2
|
|
|
|
8.0
|
|
|
|
8.0
|
|
|
|
8.0
|
|
|
|
7.8
|
|
Luoyang
|
|
|
6.5
|
|
|
|
5.2
|
|
|
|
6.5
|
|
|
|
5.2
|
|
|
|
8.0
|
|
|
|
4.8
|
|
Wuhan
|
|
|
5.0
|
|
|
|
4.0
|
|
|
|
5.0
|
|
|
|
4.3
|
|
|
|
8.0
|
|
|
|
4.0
|
|
__________
(1)
|
Qingdao
Refinery Project was completed and commenced operation in May
2008.
|
In 2008,
we revamped or ramped up 581 sets of refining facilities, representing an
increase of 23.9 million tonnes per annum of our primary distillation capacity
of crude oil, including an increase of 16.7 million tones per annum in the
distillation capacity of high-sulfur crude oil, from 2007. In addition, our
hydro-refining capacity and coking capacity increased by 10.13 million tonnes
per annum and 7.7 million tonnes per annum, respectively, in 2008 compared to
2007. The revamping projects for a number of refining facilities to improve
refined petroleum product quality were also progressing as planned.
Sources
of Crude Oil
Crude oil
is our most important raw material. The following table sets forth
the sources of our crude oil supply for the years ended December 31, 2006, 2007
and 2008.
|
|
For
the Years ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
Source
of Supply
|
|
(in
million tonnes)
|
|
Self-supply
|
|
|
30.81
|
|
|
|
30.83
|
|
|
|
30.88
|
|
PetroChina
Company Ltd.
|
|
|
8.81
|
|
|
|
6.89
|
|
|
|
6.13
|
|
CNOOC
Ltd.
|
|
|
6.38
|
|
|
|
7.42
|
|
|
|
7.55
|
|
Import
|
|
|
106.52
|
|
|
|
116.87
|
|
|
|
125.61
|
|
Total
|
|
|
152.52
|
|
|
|
162.01
|
|
|
|
170.17
|
|
Marketing
and Sales of Refined Petroleum Products
Overview
We operate
the largest sales and distribution network for refined petroleum products in
China. In 2008, we distributed and sold in China approximately 122.98 million
tonnes of gasoline, diesel and kerosene including jet fuel, representing a
market share of approximately 60.1% in China. Most of the refined
petroleum products sold by us are produced internally. In 2008, approximately
81% of our gasoline sales volume and approximately 88% of our diesel sales
volumes were produced internally.
The table
below sets forth a summary of key data in the marketing and sales of refined
petroleum products for the year ended December 31, 2006, 2007 and
2008.
|
|
For
the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
Sales
volume of refined petroleum products
(in
million
tonnes)
|
|
|
111.68
|
|
|
|
119.39
|
|
|
|
122.98
|
|
Of
which:
Retail
|
|
|
72.16
|
|
|
|
76.62
|
|
|
|
84.10
|
|
Direct
Sales
|
|
|
18.95
|
|
|
|
20.17
|
|
|
|
19.63
|
|
Wholesale
|
|
|
20.57
|
|
|
|
22.60
|
|
|
|
19.25
|
|
Average annual throughput of
service stations (tonnes per station)
|
|
|
2,577
|
|
|
|
2,694
|
|
|
|
2,935
|
|
Total
number of service stations under Sinopec brand as of December 31 of the
respective year
|
|
|
28,801
|
|
|
|
29,062
|
|
|
|
29,279
|
|
Of
which: Self-operated service stations
|
|
|
28,001
|
|
|
|
28,405
|
|
|
|
28,647
|
|
Franchised
service stations
|
|
|
800
|
|
|
|
657
|
|
|
|
632
|
|
Retail
All of our
retail sales are made through a network of service stations and petroleum shops
operated under the Sinopec brand. Through this unified network we are more able
to implement consistent pricing policies, maintain both product and service
quality standards and more efficiently deploy our retail network.
In 2008,
we sold approximately 84.1 million tonnes of refined petroleum products through
our retail network, representing approximately 64.2% of our total refined
petroleum products sales volume. Our retail market share in 2008 was
approximately 79.8% in our principal market. As of December 31, 2008, our retail
network mainly consists of service stations that are wholly-owned and operated
by us or jointly-owned and operated or leased by us and franchised service
stations that are owned and operated by third parties.
In 2008,
we further improved our refined petroleum products retail networks through
acquisition, construction and renovation of service stations, and added 720 new
service stations into our retail network. We believe we have further
strengthened our leading position in our principal market, and further improved
our brand awareness and customer loyalty.
Direct
Sales
In 2008,
we sold approximately 19.63 million tonnes of refined petroleum products,
including 2.58 million tonnes of gasoline, 16.96 million tonnes of diesel and
0.09 million tonnes of kerosene, through direct sales to commercial customers
such as industrial enterprises, hotels, restaurants and agricultural
producers.
Wholesale
In 2008,
we sold approximately 19.25 million tonnes of refined petroleum products through
wholesale channels, representing approximately 15.7% of our total sales volume
of refined petroleum products. Our wholesale sales include sales to large
commercial or industrial customers and independent distributors as well as sales
to certain long-term customers such as railway, airlines, shipping and public
utilities.
Through
our wholesale centers, we operate 414 storage facilities with a total capacity
of approximately 14.1 million cubic meters, substantially all of which are
wholly-owned by us. Our wholesale centers are connected to our refineries by
railway, waterway and, in some cases, by pipelines. We also own some dedicated
railways, oil wharfs and oil barges, as well as a number of rail tankers and oil
trucks.
Chemicals
Overview
We are the
largest petrochemical producer in China. We produce a full range of
petrochemical products including intermediate petrochemicals, synthetic resins,
synthetic fiber monomers and polymers, synthetic fibers, synthetic rubber and
chemical fertilizers. Synthetic resins, synthetic fibers, synthetic rubber,
chemical fertilizers and some intermediate petrochemicals comprise a significant
majority of our external sales. Synthetic fiber monomers and polymers and
intermediate petrochemicals, on the other hand, are mostly internally consumed
as feedstock for the production of other chemical products. Our chemical
operations are integrated with our refining businesses, which supply a
significant portion of our chemical feedstock such as naphtha. Because of strong
domestic demand, most of our petrochemical products are sold in China’s domestic
market.
In 2008,
our Fujian refinery and ethylene project, Tianjin refinery and ethylene project
and Zhenhai ethylene project progressed smoothly. In addition, our Jinling
para-xylene project, Yangzi butadiene project and the expansion project of
Yanshan isobulylene isoprene rubber have been completed and commenced operation
in 2008.
Products
Intermediate
Petrochemicals
We are the
largest ethylene producer in China. Our rated ethylene capacity was
6.15 million tonnes per annum, which represented 61.5% of China’s total domestic
ethylene capacity, as of December 31, 2008. In 2008, we produced 6.29 million
tonnes of ethylene, representing approximately 61.3% of the total domestic
output. Nearly all of our olefins production is used as feedstock for our
petrochemical operations.
We produce
aromatics mainly in the forms of benzene and para-xylene, which are used
primarily as feedstock for purified terephthalic acid, or PTA, the preferred raw
material for polyester. We are the largest aromatics producer in
China.
Organic
chemicals extracted mainly from olefins and aromatics are intermediate
petrochemicals and are essential raw materials for synthetic resins, synthetic
rubber and synthetic fibers. We are the largest producer of butanol, styrene,
paraxylene, vinyl acetate, phenol and acetone in China.
The
following table sets forth our rated capacity per annum, production volume and
major plants of production as of or for the year ended December 31, 2008 for our
principal intermediate petrochemical products. These operational data include
100% of the rated capacity and production of the two joint ventures, SECCO and
BASF-YPC, which we own 50% each.
|
|
|
|
|
|
|
Major
Plants of Production
|
|
|
(thousand
tonnes per annum)
|
|
|
(thousand
tonnes)
|
|
|
|
|
|
|
|
|
|
|
Ethylene
|
|
|
6,145
|
|
|
|
6,289
|
|
Yanshan,
Shanghai, Yangzi, Qilu, Maoming, Guangzhou, Tianjin, Zhongyuan, SECCO and
BASF-YPC
|
|
|
|
|
|
|
|
|
|
|
Propylene
|
|
|
5,545
|
|
|
|
5,830
|
|
Yanshan,
Shanghai, Yangzi, Qilu, Maoming, Guangzhou, Tianjin, Zhongyuan, SECCO,
BASF-YPC, Gaoqiao, Anqing, Jinan, Jingmen and Wuhan
|
|
|
|
|
|
|
|
|
|
|
Benzene
|
|
|
2,699
|
|
|
|
2,236
|
|
Yanshan,
Shanghai, Yangzi, Qilu,
Guangzhou, Zhenhai, Tianjin, Luoyang, SECCO and
BASF-YPC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Styrene
|
|
|
964
|
|
|
|
983
|
|
Yanshan,
Qilu, Guangzhou, Maoming and SECCO
|
|
|
|
|
|
|
|
|
|
|
Para-xylene
|
|
|
2,768
|
|
|
|
1,932
|
|
Shanghai,
Yangzi, Qilu, Tianjin and Luoyang
|
|
|
|
|
|
|
|
|
|
|
Phenol
|
|
|
350
|
|
|
|
346
|
|
Yanshan
and Gaoqiao
|
Synthetic
Resins
We are the
largest producer of polyethylene, polypropylene and polystyrene and supplier of
major synthetic resins products in China.
The
following table sets forth our rated capacity per annum, production volumes and
major plants of production for each of our principal synthetic resins as of or
for the year ended December 31, 2008. These operational data include 100% of the
rated capacity and production of the two joint ventures, SECCO and BASF-YPC,
which we own 50% each.
|
|
|
|
|
|
|
Major
Plants of Production
|
|
|
(thousand
tonnes
per
annum)
|
|
|
(thousand
tonnes)
|
|
|
|
|
|
|
|
|
|
|
Polyethylene
|
|
|
4,323
|
|
|
|
4,454
|
|
Yanshan,
Shanghai, Yangzi, Qilu, Maoming, Guangzhou, Tianjin, Zhongyuan, SECCO and
BASF-YPC
|
|
|
|
|
|
|
|
|
|
|
Polypropylene
|
|
|
3,672
|
|
|
|
3,897
|
|
Yanshan,
Shanghai, Yangzi, Qilu, Guangzhou, Maoming, Tianjing, Zhongyuan, SECCO,
Wuhan Fenghuang, Jingmen and Fujian
|
|
|
|
|
|
|
|
|
|
|
Polyvinyl
chloride
|
|
|
600
|
|
|
|
575
|
|
Qilu
|
|
|
|
|
|
|
|
|
|
|
Polystyrene
|
|
|
536
|
|
|
|
374
|
|
Yanshan,
Qilu, Maoming, Guangzhou and SECCO
|
|
|
|
|
|
|
|
|
|
|
Acrylonitrile
butadiene styrene
|
|
|
200
|
|
|
|
135
|
|
Gaoqiao
|
Synthetic
Fiber Monomers and Polymers
Our
principal synthetic fiber monomers and polymers are purified teraphthalic acid,
ethylene glycol, acrylonitrile, caprolactam, polyester, polyethylene glycol and
polyamide fiber. Based on our 2008 production, we are the largest producer of
purified teraphthalic acid, ethylene glycol, caprolactam and polyester in
China. Most of our production of synthetic fiber monomers and
polymers are used as feedstock for synthetic fibers.
The
following table sets forth our rated capacity per annum, our production volume
and major plants of production as of or for the year ended December 31, 2008 for
each type of our principal synthetic fiber monomers and polymers. These
operational data include 100% of the rated capacity and production of the two
joint ventures, SECCO and BASF-YPC, which we own 50% each.
|
|
|
|
|
|
|
Major
Plants of Production
|
|
|
(thousand
tonnes per annum)
|
|
|
(thousand
tonnes)
|
|
|
|
|
|
|
|
|
|
|
Purified
teraphthalic acid
|
|
|
3,034
|
|
|
|
2,894
|
|
Shanghai,
Yangzi, Yizheng, Tianjin and
Luoyang
|
Ethylene
glycol
|
|
|
1,413
|
|
|
|
1,057
|
|
Yanshan,
Shanghai, Yangzi, Tianjing, Maoming and BASF-YPC
|
|
|
|
|
|
|
|
|
|
|
Acrylonitrile
|
|
|
510
|
|
|
|
494
|
|
Shanghai,
Anqing, Qilu and SECCO
|
|
|
|
|
|
|
|
|
|
|
Caprolactam
|
|
|
210
|
|
|
|
193
|
|
Shijiazhuang
and Baling
|
|
|
|
|
|
|
|
|
|
|
Polyester
|
|
|
2,713
|
|
|
|
2,511
|
|
Shanghai,
Yizheng, Tianjin and
Luoyang
|
Synthetic
Fibers
We are the
largest producer of polyester and acrylic fibers in China. Our principal
synthetic fiber products are polyester fiber and acrylic fiber.
The
following table sets forth our rated capacity per annum, production volume and
major plants of production for each type of our principal synthetic fibers as of
and for the year ended December 31, 2008.
|
|
|
|
|
|
|
Major
Plants of Production
|
|
|
(thousand
tonnes per annum)
|
|
|
(thousand
tonnes)
|
|
|
|
|
|
|
|
|
|
|
Polyester
fiber
|
|
|
1,461
|
|
|
|
941
|
|
Yizheng,
Shanghai, Tianjin and Luoyang
|
|
|
|
|
|
|
|
|
|
|
Acrylic
fiber
|
|
|
315
|
|
|
|
314
|
|
Shanghai,
Anqing and Qilu
|
Synthetic
Rubbers
Our
principal synthetic rubbers are cis-polybutadiene rubber, styrene butadiene
rubber, or SBR, styrene butadiene-styrene thermoplastic elastomer and
isobutadiene isoprene rubber, or IIR. Based on our 2008 production, we are the
largest producer of SBR and cis-polybutadiene rubber and the only producer of
IIR in China.
The
following table sets forth our rated capacity per annum, production volume and
major plants of production as of or for the year ended December 31, 2008 for
each of our principal synthetic rubbers.
|
|
|
|
|
|
|
Major
Plants of Production
|
|
|
(thousand
tonnes
per
annum)
|
|
|
(thousand
tonnes)
|
|
|
|
|
|
|
|
|
|
|
Cis-polybutadiene
rubber
|
|
|
266
|
|
|
|
290
|
|
Yanshan,
Qilu, Maoming and Gaoqiao
|
|
|
|
|
|
|
|
|
|
|
Styrene
butadiene rubber
|
|
|
365
|
|
|
|
335
|
|
Yanshan,
Qilu, Maoming and Gaoqiao and Yangzi
|
|
|
|
|
|
|
|
|
|
|
Styrene-butadiene-styrene
thermoplastic elastomers
|
|
|
170
|
|
|
|
165
|
|
Yanshan
and Maoming
|
|
|
|
|
|
|
|
|
|
|
Isobulylene
isoprene rubber
|
|
|
30
|
|
|
|
44
|
|
Yanshan
|
Chemical
Fertilizers
We produce
synthetic ammonia and urea. Our synthetic ammonia is used to manufacture urea,
caprolactam and acrylic nitrile.
The
following table sets forth our rated capacity per annum, our production volume
and major plants of production for ammonia and urea as of or for the year ended
December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our
Rated
Capacity
|
|
|
|
Our
Production
|
|
Major Plants of
Operation |
|
|
|
(thousands
of tonnes per annum)
|
|
|
|
(thousands
tonnes)
|
|
|
|
|
|
|
|
|
|
|
|
|
Ammonia
|
|
|
1,935
|
|
|
|
1,087
|
|
Zhenhai,
Jinling, Anqing, Jiujiang, Qilu, Hubei and Baling
|
|
|
|
|
|
|
|
|
|
|
Urea
|
|
|
3,130
|
|
|
|
1,649
|
|
Zhenhai,
Jinling, Anqing, Jiujiang, Qilu, Hubei and
Baling
|
Marketing
and Sales of Petrochemicals
Price and
volume of petrochemical sales are primarily market driven. The southern and
eastern regions in China, where most of our petrochemical plants are located,
constitute the major petrochemical market in China. Our proximity to the major
petrochemical market gives us a geographic advantage over our
competitors.
Our
principal sales and distribution channels consist of direct sales to end-users,
most of which are large- and medium-sized manufacturing enterprises, and sales
to distributors in our national sales network. In 2008, we sold approximately
77% of our petrochemical products directly to end-users and 23% to our
distributors.
We also
provided after-sale services to our customers, including technical support. We
continuously strive to improve our product mix and enhance our product quality
to meet market needs.
Competition
Exploration
and Production
Because
our production of crude oil can only meet approximately 18.1% of our crude oil
requirements, we generally do not compete for crude oil customers. However, we
compete with other market participants for the acquisition of desirable crude
oil and natural gas prospects.
Refining
and Marketing of Refined Petroleum Products
Market
participants compete primarily on the basis of quality of products and service,
efficiency of operations including proximity to customers, awareness of brand
name and price. While we constantly face competition from other market
participants, we believe that we have a competitive advantage in our principal
market over our competitors in most of these aspects.
Chemicals
We compete
with domestic and foreign chemicals producers in the chemicals
market. We believe our proximity to customers has given us
significant geographical advantages. Most of our petrochemical production
facilities are located in the eastern and southern regions in China, an area
which has experienced higher economic growth rates in China in the past two
decades. Proximity of our production facilities to our markets has given us an
advantage over our competitors in terms of easy access to our customers,
resulting in lower transportation costs, more reliable delivery of products and
better service to customers.
Patents
and Trademarks
In 2008,
we were granted 572 patents in China and overseas. As of December 31, 2008, we
owned a total of 4,477 patents in China. We may use certain patents of Sinopec
Group Company under royalty-free licenses. These patents expire from
time to time and cover many products, processes and product uses. We
also have royalty-free licenses from Sinopec Group Company to use certain
Sinopec Group Company's trademarks and brands, including the “Sinopec” brand,
for our products and services. Our trademark licenses from Sinopec Group Company
are for a term of ten years commencing on February 25, 2000, and the licenses
are renewable at our option.
Regulatory
Matters
Overview
China's petroleum and petrochemical
industry has seen significant liberalization in the past ten years. However, the
exploration, production, marketing and distribution of crude oil and natural
gas, as well as the
production,
marketing and distribution of certain refined petroleum products are still
subject to regulation of many government agencies including:
National Development and Reform
Commission ("NDRC")
The NDRC is responsible for formulating
and implementing key policies in respect of petroleum and petrochemical
industry, including:
|
·
|
Formulating
guidance plan for annual production, import and export amount of crude
oil, natural gas and gasoline nationwide based on its forecast on macro
economic conditions in China;
|
|
·
|
Setting
the pricing policy for refined petroleum
products;
|
|
·
|
Approving
certain domestic and overseas resource investment projects which are
subject to NDRC’s approval as required by the Catalogue of Investment
Projects Approved by the Government (2004);
and
|
|
·
|
Approving
foreign investment projects that are in excess of certain investment
limits.
|
The
Ministry of Commerce ("MOFCOM")
MOFCOM is
responsible for examining and approving production sharing contracts,
Sino-foreign equity joint venture contracts and Sino-foreign cooperation joint
venture contracts for oil and gas development within the PRC. It is also
responsible to issue quotas and licenses for import and export of crude oil and
refined oil.
Ministry
of Land and Resources ("MLR")
The MLR is
responsible for issuing the licenses that are required to explore and produce
crude oil and natural gas in China.
Regulation
of Exploration and Production
Exploration
and Production Rights
The PRC
Constitution provides that all mineral and oil resources belong to the state. In
1986, the Standing Committee of the National People's Congress passed the
Mineral Resources Law which authorizes the Ministry of Land and Resources, or
the MLR, to exercise administrative authority over the exploration and
production of the mineral and oil resources within the PRC, including its
territorial waters. The Mineral Resources Law and its supplementary regulations
provide the basic legal framework under which exploration licenses and
production licenses are granted. The MLR has the authority to grant exploration
licenses and production licenses on a competitive bidding or other basis it
considers appropriate. Applicants for these licenses must be companies approved
by the State Council to engage in oil and gas exploration and production
activities. Currently, only we, PetroChina, CNOOC and Yanchang
Petroleum Group Ltd. have received such exploration licenses and production
licenses in oil and gas industry. In addition, pursuant to the Regulation on the
Administration of Geological Survey Qualifications promulgated by the State
Council, which will become effective from July 1, 2008, any entity engaging in
geological survey activities shall obtain a geological survey qualification
certificate. Oil and natural gas survey qualifications, among others, shall be
examined, approved and granted by the MLR.
Applicants
for exploration licenses must first register with the MLR blocks in which they
intend to engage in exploration activities. The holder of an exploration license
is obligated to make an annual minimum exploration investment relating to the
exploration blocks in respect of which the license is issued. Investment ranges
from RMB 2,000 per square kilometer for the initial year to RMB 5,000 for the
second year and to RMB 10,000 for the third and subsequent years. Additionally,
the holder has to pay an annual exploration license fee of RMB 100 per square
kilometer for each of the first three years. Afterwards, the annual fee
increases by an additional RMB 100 per square kilometer per year up to a maximum
of RMB 500 per square kilometer. The maximum term of an exploration license is 7
years. The exploration license may be renewed upon application by the holder at
least 30 days prior to expiration of the original term with each renewal for a
two-year term.
At the
exploration stage, an applicant can also apply for a progressive exploration and
production license that allows the holder to test and develop reserves not yet
fully proved. The progressive exploration and production license
has a
maximum term of 15 years. When the reserves become proved for a block, the
holder must apply for a full production license in order to undertake
production.
The MLR
issues full production licenses to applicants on the basis of the reserve
reports approved by relevant authorities. The maximum term of a full production
license is 30 years unless a special dispensation is given by the State Council.
Due to a special dispensation granted to us by the State Council, the maximum
term of our full production licenses is 80 years. The full production license is
renewable upon application by the holder at least 30 days prior to expiration of
the original term. A holder of the full production license has to pay an annual
full production right usage fee of RMB 1,000 per square kilometer.
All
companies approved by the State Council to engage in oil and gas exploration and
production activities may apply for exploration and production licenses for
onshore and off-shore oil and natural gas resources without geographical
restrictions. We have exploration and production licenses for the
exploration and production of both onshore and offshore crude oil and natural
gas resources in China.
Exploration
and production licenses do not grant the holders the right to enter upon any
land for the purpose of exploration and production. Holders of exploration and
production licenses must separately obtain the right to use the land covered by
the licenses, and if permissible under applicable laws, current owners of the
rights to use such land may transfer or lease the land to the license
holder.
Volume
and Price of Natural Gas
The NDRC
formulates the annual natural gas supply guidelines which require natural gas
producers to distribute specified amount of natural gas to specified fertilizer
producers. The actual production level of natural gas (excluding the amount
supplied to the fertilizer producers) is determined by the natural gas producers
themselves.
The price
of natural gas has two components:
|
·
|
pipeline
transportation fee
|
Since
December 2005, the NDRC simplified the ex-factory price-setting mechanism by
dividing natural gas prices into two tiers and setting a median guidance
ex-factory price for each tier. The price for the first tier may be
set within ±10% of the
guidance price through negotiation between the producers and their customers,
while the price for the second tier may fluctuate up to 10% of the guidance
price with no limitation on the minimum price. In addition, the NDRC
would adjust the guidance prices once per year by up to 8% annually to reflect
the price trends of crude oil and other alternative energies. On November 8,
2007, the NDRC adopted an adjusted pricing policy for natural gas, by increasing
the guidance ex-factory price of the natural gas for industrial applications
other than chemical fertilizers by RMB 400.0 per thousand cubic meters,
deregulating the ex-factory price of the natural gas for LNG producers, fixing
the minimum ratio between the base retail price of natural gas for automobiles
and the base retail price of #90 gasoline at 0.75:1.
Natural
gas producers submit to the NDRC for examination and approval of any proposed
transportation fee for the natural gas transported by pipelines, which was based
on the capital investment made in the pipeline, the depreciation period for the
pipeline and the ability of end users to pay.
Regulation
of Refining and Marketing of Refined Petroleum Products
Volume
and Price Controls on Gasoline, Diesel and Jet Fuel
The PRC
government continues to exercise control over gasoline, diesel and jet fuel
prices.
According
to the Notice on Implementing Reforms on Prices of Refined Products and Tax
promulgated by the State Council on December 18, 2008 and the Measures for
Administration of Petroleum Products Price (Trial) issued by the NDRC on May 7,
2009, the sale price for refined petroleum products in the PRC market shall be
adjusted with reference to international crude oil price fluctuations, subject
to governmental control. The NDRC will set guidance sale prices for certain
refined petroleum products for both wholesale and retail market. As a principle,
maximum retail price for gasoline and diesel in the Chinese market shall be
decided with reference to the international crude oil price plus the average
domestic processing costs, tax levies, reasonable sales and marketing
expenses and appropriate profit. The refined petroleum products price in
the PRC market may be adjusted when the moving average price of international
crude oil price fluctuates beyond 4% within a period of 22 consecutive business
days. If the international crude oil prices experience sustained increase or
radical fluctuation, the price of refined petroleum products, including gasoline
and diesel products, will be controlled by the government to reduce the oil
price fluctuation impact upon the PRC market.
Regulation of
Crude Oil and Refined Petroleum Products Market
On
December 4, 2006, Ministry of Commerce of the PRC promulgated the
“Administrative Rules for Crude Oil Market” and “Administrative Rules for
Refined Petroleum Products Market” to open the wholesale market of
crude oil and refined petroleum products to new market entrants, respectively.
We will face more competition in both crude oil and refined petroleum products
markets. Such increased competition may have a material adverse effect on our
financial conditions and results of operations.
Investment
Under the
State Council's Decision on Investment
System Reform, investments without the use of government funds are only subject
to a licensing system or a registration system, as the case may be. Under the
current system, only significant projects and the projects of restrictive nature
are subject to approval so as to maintain social and public interests, and all
other projects of any investment scale are only subject to a registration
system.
Overseas
investment project falling within the category of resources development
involving investment by any Chinese party of above US$200 million (inclusive)
shall be verified and approved by the State Council, and those involving
investment of above US$30 million (inclusive) shall be verified and approved by
the NDRC. Other overseas investment project shall be verified and approved by
State Council if it involves investment by any Chinese party of above US$50
million (inclusive), or by the NDRC if it involves investment by any Chinese
party of above US$10 million (inclusive). Any overseas investment projects other
than the foregoing shall be filed with the NDRC and/or the MOFCOM if the
investor is an enterprise managed by the central government, or approved by its
local government according to applicable laws and regulations. Overseas
investment projects involving domestic enterprise's establishment or acquisition
of overseas enterprise to acquire ownership, control or management rights of
overseas enterprise (with the exception of financial enterprises) shall be
approved by the MOFCOM or relevant provincial-level commerce authorities
according to applicable laws and regulations.
Pursuant
to the Anti-Monopoly Law of the PRC which became effective on August 1, 2008,
when market concentration by business carriers through merger, acquisition of
control through shares or assets acquisition, or acquisition of control or the
ability to exercise decisive influence over other business carriers by contract
or by other means reaches a threshold of declaration level prescribed by the
State Council, the business carriers shall declare in advance to the
Anti-monopoly Law Enforcement Agency, otherwise, the business carriers shall not
implement such market concentration.
Taxation,
Fees and Royalty
Companies
which operate petroleum and petrochemical businesses in China are subject to a
variety of taxes, fees and royalties.
On March
26, 2006, the PRC government imposed a special oil income levy on revenues
generated from the sale of domestically produced crude oil when the realized
price exceeds US$ 40 per barrel. The special oil income levy has five levels and
is calculated and charged according to the progressive ad valorem rates on the
excess amounts. The levy is calculated on a monthly basis and collected on a
quarterly basis. The applicable rate of the levy is determined based on the
weighted average crude oil sale price of the exploration and production company
of a particular month.
Starting
from January 1, 2008, the general enterprise income tax rate imposed on
entities, other than certain enterprises defined in the new Enterprise Income
Tax Law of the PRC, shall be 25%.
According
to the Notice on Implementing Reforms on Prices of Refined Products and Tax,
starting from January 1, 2009, consumption tax on refined petroleum products
were adjusted. Applicable tax, fees and royalties on refined petroleum products
and other refined products generally payable by us or by other companies in
similar industries are shown below.
Tax
Item
|
Tax
Base
|
Tax
Rate
|
Enterprise
income tax
|
Taxable
income
|
25%
starting from January 1, 2008.
|
|
|
|
Value-added
tax
|
Revenue
|
13%
for liquefied petroleum gas, natural gas, and low density polyethylene for
production of agricultural film and fertilizers and 17% for other items.
We generally charge value-added tax to our customers at the time of
settlement on top of the selling prices of our products on behalf of the
taxation authority. We may directly claim refund from the value-added tax
collected from our customers of any value-added tax that we paid for (i)
purchasing materials consumed during the production process; (ii) charges
paid for drilling and other engineering services; and (iii) labor consumed
during the production process.
|
|
|
|
Business
tax
|
Revenue
from pipeline transportation services
|
3%.
|
|
|
|
Consumption
tax
|
Aggregate
volume sold or self-consumed
|
RMB
1 per liter for gasoline, naphtha, solvent oil and lubricant; RMB 0.8 per
liter for diesel, fuel oil and jet fuel. Prior to December 31, 2010, the
consumption tax paid for imported naphtha for the production of ethylene
and aromatic hydrocarbon will be refunded, and naphtha procured from
domestic sources for the production of ethylene and aromatic hydrocarbon
will remain tax-free. Consumption tax on jet fuel is currently
exempted.
|
|
|
|
Import
tariff
|
CIF
China price
|
5%
for gasoline, 6% for light diesel and 9% for jet kerosene. The actual
applicable tax rate in 2009 for gasoline, diesel and jet kerosene is
1%.
|
|
|
|
Resource
tax
|
Aggregate
volume sold or self-consumed
|
RMB
14 to RMB 30 per tonne for crude oil. RMB 7 to RMB 15 per thousand cubic
meters for natural gas.
|
|
|
|
Compensatory
fee for mineral resources
|
Revenue
of crude oil and natural gas
|
1%.
|
|
|
|
Exploration
license fee
|
Area
|
RMB
100 to 500 per square kilometer per annum.
|
|
|
|
Production
license fee
|
Area
|
RMB
1,000 per square kilometer per annum.
|
|
|
|
Royalty
fee(1)
|
Production
volume
|
Progressive
rate of 0-12.5% for crude oil and 0-3% for natural gas.
|
|
|
|
City
construction tax
|
Total
amount of value-added tax, consumption tax and business
tax
|
1%,
5% and 7%.
|
|
|
|
Education
Surcharge
|
Total
amount of value-added tax, consumption tax and business
tax
|
3%.
|
|
|
|
Special
Oil Income Levy
|
Any
revenue derived from sale of domestically produced crude oil when the
realized crude oil price exceeds US$ 40 per
|
Progressive
rate of 20% to 40% for revenue derived from crude oil with realized price
in excess of US$ 40 per barrel, i.e. 20% for the portion in excess of US$
40 per barrel up to US$ 45 per barrel (inclusive); 25% for the portion in
excess of US$ 45 per barrel up to US$ 50
per
|
|
barrel.
|
barrel
(inclusive); 30% for the portion in excess of US$ 50 per barrel
to US$ 55 per barrel (inclusive); 35% for the portion in excess of US$ 55
per barrel to US$ 60 per barrel (inclusive); and 40% for the portion in
excess of US$ 60 per barrel.
|
__________
(1)
|
Payable
only by Sino-foreign oil and gas exploration and development cooperative
projects, and the project companies of those cooperative projects are not
subject to any other resource taxes or
fees.
|
C. ORGANIZATIONAL
STRUCTURE
For a
description of our relationship with Sinopec Group Company, see "Item 4.
Information on the Company ¾ A. History and Development
of the Company" and "Item 7. Major Shareholders and Related Party Transactions."
For a description of our significant subsidiaries, see Note 33 to our
consolidated financial statements.
D. PROPERTY,
PLANT AND EQUIPMENT
We own
substantially all of our properties, plants and equipment relating to our
business activities. We hold production licenses covering all of our
interests in our developed and undeveloped crude oil and natural gas fields and
productive wells. See "Item 4. Information on the Company ¾ B. Business Overview" for
description of our property, plant and equipment.
Environmental
Matters
We are subject to various
national environmental laws and regulations and also environmental regulations
promulgated by the local governments in whose jurisdictions we have operations.
For example, national regulations promulgated by the central government set
discharge standards for emissions into air and water. They also set forth
schedules of discharge fees for various waste substances. These schedules
usually provide for discharge fee increases for each incremental increase of the
amount of discharge up to a certain level. Above a certain level, the central
regulations permit the local government to order any of our facilities to
cure certain behavior causing environmental damage and subject to the central
government's approval, the local government may also issue orders to close any
of our facilities that fail to comply with the existing regulations. In
addition, the PRC government has set certain environmental protection objective
for the petroleum and chemical industry to reduce energy intensity, chemical
oxygen demand, industrial water consumption and sulfur dioxide emission by
certain level by 2009 compared to 2005. In light of such objective, we have
increased our capital expenditure to promote energy saving and environmental
protection in China.
Each of
our production subsidiaries has implemented a system to control its pollutant
emissions and to oversee compliance with the PRC environmental regulations. We
have a central safety and environmental compliance department to set our
internal environmental requirements and procedures, and to manage and supervise
the environmental protection programs at the various production facilities. Each
production subsidiary has an environmental compliance department which is
responsible for supervising environmental matters at the subsidiary and
implementing our environmental requirements and procedures. These departments
report both to the management of the subsidiary and to the central environmental
compliance department.
Our
production facilities have their own facilities to treat waste water, solid
waste and waste gases on site. Waste water first goes through preliminary
treatment at our own waste water treatment facilities. Thereafter, the water is
sent to nearby waste water treatment centers operated either by us or by Sinopec
Group for further treatment. All solid waste materials generated by our
production facilities are buried at disposal sites or burned in furnaces either
operated by us or by Sinopec Group. Waste gases are generally treated and burned
in furnaces before dissipation and the ash is disposed in accordance with our
solid waste disposal procedures.
Environmental
regulations also require companies to file an environmental impact report to the
environmental bureau for approval before undertaking any construction of a new
production facility or any major expansion or renovation of an existing
production facility. Such an undertaking will not be permitted to operate until
the environmental bureau has performed an inspection and is satisfied that
environmentally sound equipment has been installed for the
facility.
We believe
our environmental protection systems and facilities are adequate for us to
comply with current applicable national and local environmental protection
regulations. The PRC government, however, may impose stricter regulations which
require additional expenditure on compliance with environmental
regulations.
We paid
pollutant discharge fees of approximately RMB 1.6 billion in 2006, RMB 2.1
billion in 2007 and RMB 2.3 billion in 2008.
Insurance
In respect
of our refining, petrochemical production, and marketing and sales operations,
we currently maintain with Sinopec Group Company, under the terms of its Safety
Production Insurance Fund ("SPI Fund"), approximately RMB 418.9 billion of
coverage on our property and plants and approximately RMB 69.6 billion of
coverage on our inventory. In 2008, we paid an insurance premium of
approximately RMB 1.88 billion to Sinopec Group Company for such
coverage. Transportation vehicles and products in transit are not
covered by Sinopec Group Company and we maintain insurance policies for those
assets with insurance companies in the PRC.
The
insurance coverage under SPI Fund applies to all enterprises controlled by
Sinopec Group Company under regulations published by the Ministry of Finance. We
believe that, in the event of a major accident, we will be able to recover most
of our losses from insurance proceeds paid under the SPI Fund or by insurance
companies.
Pursuant
to an approval of the Ministry of Finance, Sinopec Group Company entered into an
agreement with China People's Insurance Company on January 29, 2002 to purchase
a property and casualty policy which would also cover our assets. The policy
provides for an annual maximum cumulative claim amount of RMB 4.0 billion and a
maximum of RMB 2.36 billion per occurrence.
Consistent
with what we believe to be customary practice among PRC enterprises, we do not
currently carry any third party liability insurance to cover claims in respect
of personal injury, environmental damage arising from accidents on our property
or relating to our operations other than on our transportation vehicles. We have
not had a third party liability claim filed against us during the past three
years. We do not carry business interruption insurance, as such coverage is not
customary in the PRC.
ITEM 4A.
|
UNRESOLVED
STAFF COMMENTS
|
None.
ITEM
5.
|
OPERATING
AND FINANCIAL REVIEW AND PROSPECTS
|
A. GENERAL
The
following discussion and analysis should be read in conjunction with our audited
consolidated financial statements. Our consolidated financial statements have
been prepared in accordance with IFRS. Certain financial information presented
in this section is derived from our audited consolidated financial statements.
Unless otherwise indicated, all financial data presented on a consolidated basis
or by segment, are presented net of inter-segment transactions (i.e.,
inter-segment and other intercompany transactions have been
eliminated).
Critical
Accounting Policies
Our
reported consolidated financial condition and consolidated results of operations
are sensitive to accounting methods, assumptions and estimates that underlie the
preparation of our financial statements. We base our assumptions and
estimates on historical experience and on various other assumptions that we
believe to be reasonable and which form the basis for making judgments about
matters that are not readily apparent from other sources. On an
on-going basis, our management evaluates its estimates. Actual
results may differ from those estimates as facts, circumstances and conditions
change.
The
selection of critical accounting policies, the judgments and other uncertainties
affecting application of those policies and the sensitivity of reported results
to changes in conditions and assumptions are factors to be considered when
reviewing our financial statements. Our principal accounting policies
are set forth in Note 2 to the consolidated financial statements. We
believe the following critical accounting policies involve the most significant
judgments and estimates used in the preparation of our financial
statements.
Oil
and gas properties and reserves
The
accounting for our upstream oil and gas activities is subject to special
accounting rules that are unique to the oil and gas business. There
are two methods to account for oil and gas business activities, the successful
efforts method and the full cost method. We have elected to use the
successful efforts method.
The
successful efforts method reflects the volatility that is inherent in exploring
for mineral resources in that costs of unsuccessful exploratory efforts are
charged to expense as they are incurred. These costs primarily
include dry hole costs, seismic costs and other exploratory
costs. Under the full cost method, these costs are capitalized and
written-off (depreciation) over time.
Engineering
estimates of our oil and gas reserves are inherently imprecise and represent
only approximate amounts because of the subjective judgments involved in
developing such information. There are authoritative guidelines
regarding the engineering criteria that have to be met before estimated oil and
gas reserves can be designated as “proved”. Proved and proved
developed reserves estimates are updated at least annually and take into account
recent production and technical information about each field. In
addition, as prices and cost levels change from year to year, the estimate of
proved and proved developed reserves also changes. This change is
considered a change in estimate for accounting purposes and is reflected on a
prospective basis in related depreciation rates.
Future
dismantlement costs for oil and gas properties are estimated with reference to
engineering estimates after taking into consideration the anticipated method of
dismantlement required in accordance with industry practices in similar
geographic area, including estimation of economic life of oil and gas
properties, technology and price level. The present values of these
estimated future dismantlement costs are capitalized as oil and gas properties
with equivalent amounts recognized as provision for dismantlement
costs.
Despite
the inherent imprecision in these engineering estimates, these estimates are
used in determining depreciation expense, impairment expense and future
dismantlement costs, and in disclosing the supplemental standardized measure of
discounted future net cash flows relating to proved oil and gas
properties. Depreciation rates are determined based on estimated
proved developed reserve quantities (the denominator) and capitalized costs of
producing properties (the numerator). Producing properties’
capitalized costs are amortized based on the units of oil or gas
produced. Therefore, assuming all other variables are held constant,
an increase in estimated proved developed reserves decreases our depreciation,
depletion and amortization expense. Also, estimated reserves are
often used to calculate future cash flows from our oil and gas operations, which
serve as an indicator of fair value in determining whether a property is
impaired or not. The larger the estimated reserves, the less likely the property
is impaired. There have been no significant changes to the original
reserve estimates during any of the three years ended December 31, 2006, 2007
and 2008.
Impairment
for long-lived assets
If
circumstances indicate that the net book value of a long-lived asset, including
oil and gas properties, may not be recoverable, the asset may be “impaired”, and
an impairment loss may be recognized. The carrying amounts of
long-lived assets are reviewed periodically in order to assess whether the
recoverable amounts have declined below the carrying amounts. For goodwill, the
recoverable amount is estimated annually. These assets are tested for impairment
whenever events or changes in circumstances indicate that their recorded
carrying amounts may not be recoverable. When such a decline has occurred, the
carrying amount is reduced to recoverable amount. The recoverable amount is the
greater of the net selling price and the value in use. It is
difficult to precisely estimate selling price because quoted market prices for
our assets or cash-generating units are not readily available. In determining
the value in use, expected cash flows generated by the asset or the
cash-generating unit are discounted to their present value, which requires
significant judgment relating to level of sales volume, selling price and amount
of operating costs. We use all readily available information in determining an
amount that is a reasonable approximation of recoverable amount, including
estimates based on reasonable and supportable assumptions and projections of
reserve quantities, sales volume, selling price and amount of operating
costs.
Impairment
losses recognized for each of the three years ended December 31, 2006, 2007 and
2008 in our statement of income on long-lived assets are summarized as
follows:
|
|
Years ended December 31, |
|
|
|
|
2006
|
|
|
|
2007
|
|
|
|
2008
|
|
|
|
|
RMB
|
|
|
|
RMB
|
|
|
|
RMB
|
|
|
|
|
(in
millions) |
|
Exploration
and
production
|
|
|
552
|
|
|
|
481
|
|
|
|
5,991
|
|
Refining
|
|
|
—
|
|
|
|
1,070
|
|
|
|
270
|
|
Marketing
and
distribution
|
|
|
23
|
|
|
|
1,237
|
|
|
|
709
|
|
Chemicals
|
|
|
250
|
|
|
|
318
|
|
|
|
1,511
|
|
Corporate
and
others
|
|
|
—
|
|
|
|
—
|
|
|
|
19
|
|
Total
|
|
|
825
|
|
|
|
3,106
|
|
|
|
8,500
|
|
Depreciation
Property,
plant and equipment (other than oil and gas properties) are depreciated on a
straight-line basis over the estimated useful lives of the assets, after taking
into account the estimated residual value. We review the estimated useful lives
of the assets regularly in order to determine the amount of depreciation expense
to be recorded during any reporting period. The useful lives are based on our
historical experience with similar assets and take into account anticipated
technological changes. The depreciation expense for future periods is adjusted
if there are significant changes from previous estimates. There have
been no changes to the estimated useful lives and residual values during each of
the three years ended December 31, 2006, 2007 and 2008.
Impairment
of accounts receivable for bad and doubtful debts
We
estimate impairment of accounts receivable for bad and doubtful debts resulting
from the inability of our customers to make the required payments. We base our
estimates on the aging of our accounts receivable balance, customer
credit-worthiness, and historical write-off experience. If the financial
condition of our customers were to deteriorate, actual write-offs would be
higher than estimated. The changes in the impairment losses for bad
and doubtful accounts are as follows:
|
|
Years ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
(in
millions)
|
|
Balance
as of January 1
|
|
|
3,151
|
|
|
|
3,345
|
|
|
|
2,882
|
|
Impairment
losses recognized for the year
|
|
|
438
|
|
|
|
295
|
|
|
|
143
|
|
Reversal
of impairment losses
|
|
|
(153)
|
|
|
|
(204)
|
|
|
|
(254)
|
|
Written
off
|
|
|
(91)
|
|
|
|
(554)
|
|
|
|
(390)
|
|
Balance
as of December 31
|
|
|
3,345
|
|
|
|
2,882
|
|
|
|
2,381
|
|
Allowance
for diminution in value of inventories
If the
costs of inventories fall below their net realizable values, an allowance for
diminution in value of inventories is recognized. Net realizable
value represents the estimated selling price in the ordinary course of business,
less the estimated costs of completion and the estimated costs necessary to make
the sale. We base the estimates on all available information,
including the current market prices of the finished goods and raw materials, and
historical operating costs. If the actual selling prices were to be
lower or the costs of completion were to be higher than estimated, the actual
allowance for diminution in value of inventories could be higher than
estimated. Allowance for diminution in value of inventories is
analyzed as follows:
|
|
Years ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
(in
millions)
|
|
Balance
as of January
1
|
|
|
897
|
|
|
|
871
|
|
|
|
4,572
|
|
Allowance
for the
year
|
|
|
419
|
|
|
|
3,962
|
|
|
|
8,527
|
|
Reversal
of allowance on
disposal
|
|
|
(317)
|
|
|
|
(131)
|
|
|
|
(64)
|
|
Written
off
|
|
|
(128)
|
|
|
|
(130)
|
|
|
|
(4,096)
|
|
Balance
as of December
31
|
|
|
871
|
|
|
|
4,572
|
|
|
|
8,939
|
|
Recently
Pronounced International Financial Reporting Standards
Information
relating to the recently pronounced IFRS is presented in Note 36 to the
consolidated financial statements.
Overview
of Our Operations
We are the
largest integrated petroleum and petrochemical company in China and one of the
largest in Asia in terms of operating revenues. We engage in exploring for,
developing and producing crude oil and natural gas, operating refineries and
petrochemical facilities and marketing crude oil, natural gas, refined petroleum
products and petrochemicals. We have reported our consolidated financial results
according to the following four principal business segments and the corporate
and others segment.
|
·
|
Exploration and Production
Segment, which consists of our activities related to exploring for
and developing, producing and selling crude oil and natural
gas;
|
|
·
|
Refining Segment, which
consists of purchasing crude oil from our exploration and production
segment and from third parties, processing of crude oil into refined
petroleum products, selling refined petroleum products principally to our
marketing and distribution segment;
|
|
·
|
Marketing and Distribution
Segment, which consists of purchasing refined petroleum products
from our refining segment and third parties, and marketing, selling and
distributing refined petroleum products by wholesale to large customers
and independent distributors and retail through our retail
network;
|
|
·
|
Chemicals Segment,
which consists of purchasing chemical feedstock principally from the
refining segment and producing, marketing, selling and distributing
chemical products; and
|
|
·
|
Corporate and Others
Segment, which consists principally of trading activities of the
import and export subsidiaries and our research and development
activities.
|
B. CONSOLIDATED
RESULTS OF OPERATIONS
The
following table sets forth certain income and expense items from our
consolidated statements of income for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
(in
billions)
|
|
Operating
revenues
|
|
|
|
|
|
|
|
|
|
Sales
of
goods
|
|
|
1,034.9
|
|
|
|
1,173.9
|
|
|
|
1,420.3
|
|
Other
operating
revenues
|
|
|
26.8
|
|
|
|
30.9
|
|
|
|
31.8
|
|
Total
operating
revenues
|
|
|
1,061.7
|
|
|
|
1,204.8
|
|
|
|
1,452.1
|
|
Other
income
|
|
|
5.2
|
|
|
|
4.9
|
|
|
|
50.3
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
crude oil, products and operating
supplies and expenses
|
|
|
(854.2)
|
|
|
|
(970.9)
|
|
|
|
(1,285.2)
|
|
Selling,
general and administrative expenses
|
|
|
(37.5)
|
|
|
|
(37.9)
|
|
|
|
(46.2)
|
|
Depreciation,
depletion and amortization
|
|
|
(33.6)
|
|
|
|
(43.3)
|
|
|
|
(45.8)
|
|
Exploration
expenses, including dry holes
|
|
|
(8.0)
|
|
|
|
(11.1)
|
|
|
|
(8.3)
|
|
Personnel
expenses
|
|
|
(21.0)
|
|
|
|
(22.7)
|
|
|
|
(23.3)
|
|
Taxes
other than income
tax
|
|
|
(29.3)
|
|
|
|
(34.3)
|
|
|
|
(56.8)
|
|
Other
operating expenses,
net
|
|
|
(2.7)
|
|
|
|
(3.6)
|
|
|
|
(8.8)
|
|
Total
operating
expenses
|
|
|
(986.3)
|
|
|
|
(1,123.8)
|
|
|
|
(1,474.3)
|
|
Operating
income
|
|
|
80.6
|
|
|
|
85.9
|
|
|
|
28.1
|
|
Net
finance
costs
|
|
|
(5.8)
|
|
|
|
(8.1)
|
|
|
|
(4.8)
|
|
Income
from
investments
|
|
|
3.7
|
|
|
|
5.7
|
|
|
|
1.0
|
|
Earnings
before income
tax
|
|
|
78.5
|
|
|
|
83.5
|
|
|
|
24.3
|
|
Tax
(expense)/benefit
|
|
|
(23.5)
|
|
|
|
(24.8)
|
|
|
|
1.9
|
|
Net
income
|
|
|
55.0
|
|
|
|
58.7
|
|
|
|
26.2
|
|
Attributable
to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
shareholders of the
Company
|
|
|
53.6
|
|
|
|
56.5
|
|
|
|
29.8
|
|
Minority
interests
|
|
|
1.4
|
|
|
|
2.2
|
|
|
|
(3.6)
|
|
|
|
|
55.0
|
|
|
|
58.7
|
|
|
|
26.2
|
|
Year
Ended December 31, 2008 Compared with Year Ended December 31, 2007
In 2008,
our sales of goods, other operating revenues and other income were RMB 1,502.4
billion, representing an increase of 24.2% over 2007. Our operating income in
2008 was RMB 28.1 billion, representing a decrease of 67.2% over 2007. This was
primarily due to the losses suffered by our refining segment due to the
distortion of the correlation of domestic refined petroleum product prices and
the international crude oil prices.
Operating
Revenues
In 2008,
our sales of goods and other operating revenues were RMB 1,452.1 billion, of
which sales of goods were RMB 1,420.3 billion, representing an increase of 21.0%
over 2007. The increase was primarily due to the increase in our sales of goods,
which was the result of our increased average realized price and sales volume of
refined oil products and the increase in volume of our trading business. In
2008, our other operating revenues were RMB 31.8 billion, representing an
increase of 2.6% over 2007.
The
following table sets forth our external sales volume, average realized prices
and the respective rates of change from 2007 to 2008 for our major
products:
|
|
|
|
Rate
of Change from
|
|
|
|
|
Rate
of Change from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(RMB)
|
|
(RMB)
|
|
(%)
|
|
|
|
|
|
|
|
|
(%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude
Oil
|
|
|
3,110(1)
|
|
|
4,190(1)
|
|
|
34.7
|
|
|
|
4.43(2)
|
|
|
4.39(2)
|
|
|
(0.8)
|
|
Natural
Gas
|
|
|
811(3)
|
|
|
911(3)
|
|
|
12.3
|
|
|
|
5.82(4)
|
|
|
6.28(4)
|
|
|
8.0
|
|
Gasoline
|
|
|
5,408(1)
|
|
|
6,409(1)
|
|
|
18.5
|
|
|
|
35.18(2)
|
|
|
37.73(2)
|
|
|
7.3
|
|
Diesel
|
|
|
4,724(1)
|
|
|
5,629(1)
|
|
|
19.2
|
|
|
|
76.92(2)
|
|
|
80.23(2)
|
|
|
4.3
|
|
Kerosene
|
|
|
4,728(1)
|
|
|
6,063(1)
|
|
|
28.2
|
|
|
|
7.05(2)
|
|
|
9.22(2)
|
|
|
30.8
|
|
Basic
chemical feedstock
|
|
|
6,200(1)
|
|
|
6,261(1)
|
|
|
1.0
|
|
|
|
10.23(2)
|
|
|
9.64(2)
|
|
|
(5.7)
|
|
Synthetic
Resin
|
|
|
10,203(1)
|
|
|
10,088(1)
|
|
|
(1.1)
|
|
|
|
7.86(2)
|
|
|
7.79(2)
|
|
|
(0.9)
|
|
Synthetic
Fiber
|
|
|
11,605(1)
|
|
|
10,478(1)
|
|
|
(9.7)
|
|
|
|
1.50(2)
|
|
|
1.35(2)
|
|
|
(9.9)
|
|
Synthetic
Rubber
|
|
|
13,738(1)
|
|
|
16,129(1)
|
|
|
17.4
|
|
|
|
0.96(2)
|
|
|
0.97(2)
|
|
|
1.6
|
|
Synthetic
Fiber Monomer and Polymer
|
|
|
9,109(1)
|
|
|
8,224(1)
|
|
|
(9.7)
|
|
|
|
4.05(2)
|
|
|
3.71(2)
|
|
|
(8.5)
|
|
Chemical fertilizer
|
|
|
1,659(1)
|
|
|
1,729(1)
|
|
|
4.2
|
|
|
|
1.57(2)
|
|
|
1.66(2)
|
|
|
5.3
|
|
____________
(3)
|
per
thousand cubic meters
|
Sales
of crude oil and natural gas
Most of
the crude oil and a small portion of natural gas produced by us were internally
used for refining and chemicals production and the remaining were sold to other
customers. In 2008, the total revenue of crude oil, natural gas and other
upstream products that were sold externally amounted to RMB 26.4 billion,
representing an increase of 29.4% over 2007 and accounting for 1.8% of the sales
of goods and other operating revenues. The increase was mainly due to the
increase in the price of crude oil and the expansion of the Company’s natural
gas business.
Sales
of refined petroleum products
Our
refining segment and marketing and distribution segment sell petroleum products
(mainly consisting of gasoline, diesel and kerosene which are referred to as the
refined oil products and other refined petroleum products) to external parties.
In 2008, the external sales revenue of petroleum products by these two segments
were RMB 932.5 billion, accounting for 62.1% of our sales of goods and other
operating revenues, and representing an increase of 20.0% over 2007. This was
primarily the result of the increased selling price of refined petroleum
products, expansion of the sales volume of our petroleum products, and the
optimizing of our sales structure. The sales revenue of gasoline, diesel and
kerosene was RMB 749.3 billion, accounting for 80.4% of the total turnover of
refined petroleum products, and representing an increase of 27.7% over 2007. The
turnover of other refined petroleum products was RMB 183.2 billion, representing
a decrease of 3.5% compared with 2007, and accounting for 19.6% of the total
turnover of the refined petroleum products.
Sales
of chemical products
Our
external sales revenue of chemical products was RMB 207.4 billion, accounting
for 13.8% of our sales of goods and other operating revenues, and representing a
decrease of 4.6% over 2007. This was primarily due to the general decrease in
the selling prices and sales volume of our chemical products (other than
synthetic rubber and chemical fertilizer).
Other
income
In 2008,
we recognized grant income of RMB 50.3 billion compared to RMB 4.9 billion in
2007 for compensation of losses incurred due to the distortion of the
correlation of domestic refined petroleum product prices and the international
crude oil prices, and the measures we took to stabilize the supply in the PRC
refined petroleum product market during the year. There are no
unfulfilled conditions and other contingencies attached to the receipts of the
grant. There is no assurance that we will continue to receive such grant in the
future.
Operating
expenses
In 2008,
our operating expenses were RMB 1,474.3 billion, representing an increase of
31.2% over 2007, among which:
Purchased crude oil, products and
operating supplies and expenses were RMB 1,285.2 billion, representing an
increase of 32.4% over 2007, accounting for 87.2% of the total operating
expenses, of which:
Crude oil
purchase expense was RMB 678.8 billion, representing an increase of 40.3% over
2007. This expense accounted for 46.0% of the total operating expense,
representing an increase of 3 percentage points. With the rapid economic
development in China and the expanded market demand, we increased the amount of
crude oil that was purchased externally. In 2008, the total throughput of crude
oil purchased externally reached 132.48 million tonnes (excluding the amounts
processed for third parties), representing an increase of 6.9%. The average unit
processing cost for crude oil purchased externally was RMB 5,124 per tonne,
representing an increase of 31.3% over 2007.
In 2008,
our other purchasing expenses reached RMB 606.4 billion, accounting for 41.1% of
the total operating expenses, representing an increase of 24.5%. The increase
was mainly due to the increased volume in our trading business and the increased
cost for other outsourcing materials.
Selling, general and administrative
expenses totaled were RMB 46.2 billion, representing an increase of 22.0%
over 2007. This was primarily due to the RMB 3.4 billion increase in products
delivering costs and other miscellaneous charges caused by the increased sales
volume of our refined petroleum products as well as the increased unit
transportation costs.
Depreciation, depletion and
amortization was RMB 45.8 billion, representing an increase of 5.8% over
2007, mainly due to the increased depreciation resulted from our continuous
capital expenditures on property, plant and equipment in recent
years.
Exploration expenses reached
RMB 8.3 billion, representing a decrease of 25.2%. This was mainly due to the
decrease in upstream exploration activities over last year.
Personnel expenses were RMB
23.3 billion, representing an increase of 2.4% over 2007.
Taxes other than income tax
were RMB 56.8 billion, representing an increase of 65.6% over 2007. The
increase was mainly due to the increase of the special oil income levy in the
amount of RMB 21.6 billion as a result of the high crude oil price in 2008, and
the increase of the consumption tax in the amount of RMB 1.2 billion as a result
of the increase in production volume.
Other operating expenses were
RMB 8.8 billion in 2008 compared to RMB 3.6 billion in 2007, that are primarily
due to impairment losses on long-lived assets, which were RMB 8.5
billion in 2008 compared with RMB 3.1 billion in 2007. The impairment losses
were caused by the lower price of crude oil which led to the decrease in
reserves estimated and higher production and development cost in certain field
blocks.
Operating
income
In 2008,
our operating income was RMB 28.1 billion, representing a decrease of 67.2% over
2007.
Net
finance costs
In 2008,
our net finance costs were RMB 4.8 billion, representing a decrease of 41.0%
over 2007. The decrease was mainly attributable to the increase in unrealized
gain on embedded derivative component of convertible bonds by RMB 7.2 billion,
partially offset by the increase in interest expense by RMB 4.0
billion.
Earnings
before income taxes
In 2008,
our earnings before income tax were RMB 24.3 billion, representing a decrease of
70.9% over 2007.
Income
taxes
In 2008,
we recognized an income tax benefit of RMB 1.9 billion compared to income tax
expense of RMB 24.7 billion in 2007. See Note 10 to our consolidated financial
statements for a reconciliation between the actual income tax benefit and the
expected income tax expense at the applicable statutory tax rate.
Net
income attributable to minority interests
In 2008,
loss for the year attributable to the minority interests of the Company was RMB
3.6 billion. This was primarily due to the losses incurred by our subsidiaries
shared by the minority shareholders.
Net
income attributable to equity shareholders of the Company
In 2008,
profit attributable to our equity shareholders was RMB 29.8 billion,
representing a decrease of 47.3% compared with 2007.
Year
Ended December 31, 2007 Compared with Year Ended December 31, 2006
In 2007,
our sales of goods, other operating revenues and other income were RMB 1,209.7
billion, and the operating income was RMB 85.9 billion, representing an increase
of 13.4% and 6.4% over 2006, respectively. By seizing the favorable conditions
provided by the steady growth of China’s domestic economy, we proactively
expanded the market, extended oil and gas resources, optimized crude oil mix for
processing, and increased the production of chemical products and sales volume
of refined oil products. In addition, we reinforced safe production, energy
saving and cost efficiency. As a result of the forgoing factors, we achieved
positive operating results in 2007.
Operating
Revenues
In 2007,
our sales of goods and other operating revenues were RMB 1,204.8 billion, of
which sales of goods was RMB 1,173.9 billion, representing an increase of 13.4%
over 2006. These results were largely attributable to the increase in prices of
domestic petroleum and petrochemical products and our efforts in expanding the
sales volume of our petroleum and petrochemical products. In 2007, our other
operating revenues were RMB 30.9 billion, representing an increase of 15.3% over
2006.
The
following table sets forth our external sales volume, average realized prices
and the respective rates of change from 2006 to 2007 for our major
products:
|
|
|
|
Rate
of Change from
|
|
|
|
|
Rate
of Change from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(RMB)
|
|
(RMB)
|
|
(%)
|
|
|
|
|
|
|
|
(%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude
Oil
|
|
|
3,210(1)
|
|
|
3,110(1)
|
|
|
(3.1)
|
|
|
|
4.03(2)
|
|
|
4.43(2)
|
|
|
10.0
|
|
Natural
Gas
|
|
|
789(3)
|
|
|
811(3)
|
|
|
2.8
|
|
|
|
5.37(4)
|
|
|
5.82(4)
|
|
|
8.4
|
|
Gasoline
|
|
|
5,224(1)
|
|
|
5,408(1)
|
|
|
3.5
|
|
|
|
32.66(2)
|
|
|
35.18(2)
|
|
|
7.7
|
|
Diesel
|
|
|
4,469(1)
|
|
|
4,724(1)
|
|
|
5.7
|
|
|
|
72.96(2)
|
|
|
76.92(2)
|
|
|
5.4
|
|
Kerosene
|
|
|
4,525(1)
|
|
|
4,728(1)
|
|
|
4.5
|
|
|
|
5.46(2)
|
|
|
7.05(2)
|
|
|
29.0
|
|
Basic
chemical Feedstock
|
|
|
5,831(1)
|
|
|
6,200(1)
|
|
|
6.3
|
|
|
|
9.69(2)
|
|
|
10.23(2)
|
|
|
5.5
|
|
Synthetic
Resin
|
|
|
9,897(1)
|
|
|
10,203(1)
|
|
|
3.1
|
|
|
|
7.14(2)
|
|
|
7.86(2)
|
|
|
10.2
|
|
Synthetic
Fiber
|
|
|
11,389(1)
|
|
|
11,605(1)
|
|
|
1.9
|
|
|
|
1.61(2)
|
|
|
1.50(2)
|
|
|
(6.9)
|
|
Synthetic
Rubber
|
|
|
13,928(1)
|
|
|
13,738(1)
|
|
|
(1.4)
|
|
|
|
0.80(2)
|
|
|
0.96(2)
|
|
|
19.8
|
|
Synthetic Fiber Monomer and Polymer
|
|
|
8,821(1)
|
|
|
9,109(1)
|
|
|
3.3
|
|
|
|
3.68(2)
|
|
|
4.05(2)
|
|
|
10.0
|
|
Chemical fertilizer
|
|
|
1,650(1)
|
|
|
1,659(1)
|
|
|
0.5
|
|
|
|
1.65(2)
|
|
|
1.57(2)
|
|
|
(4.7)
|
|
____________
(3)
|
per
thousand cubic meters
|
Sales
of crude oil and natural gas
Most of
the crude oil and a small portion of natural gas produced by us were internally
used for refining and chemicals production and the remaining were sold to other
customers. In 2007, the total revenue of crude oil, natural gas and other
upstream products that were sold externally amounted to RMB 20.4 billion,
representing an increase of 2.5% over 2006, accounting for 1.7% of the sales of
goods and other operating revenues. The increase was mainly due to the increase
in the sales volume of the crude oil and the expansion of our natural gas
business.
Sales
of refined petroleum products
Our
refining segment and marketing and distribution segment sell petroleum products
(mainly consisting of gasoline, diesel and kerosene which are referred to as the
refined oil products and other refined petroleum products) to external parties.
In 2007, the external sales revenue of petroleum products by these two segments
were RMB 776.8 billion, accounting for 64.5% of our sales of goods and other
operating revenues, and representing an increase of 10.5% over 2006. The result
comes from the fact that we took advantage of the high price of petroleum
products, expanded the sales volume of the petroleum products, optimized the
sales structure and expanded the markets of other refined petroleum products.
The sales revenue of gasoline, diesel and kerosene was RMB 586.9 billion,
accounting for 75.6% of the total turnover of refined petroleum products, and
representing an increase of 12.6% over 2006. The turnover of other refined
petroleum products was RMB 189.9 billion, representing an increase of 6.7%
compared with 2006, and accounting for 24.4% of the total turnover of petroleum
products.
Sales
of chemical products
Our
external sales revenue of chemical products was RMB 217.5 billion, accounting
for 18.1% of our sales of goods and other operating revenues, and representing
an increase of 11.0% over 2006. This was mainly attributed to the fact that we
took advantage of the high price level of the chemical products and expanded our
sales volume accordingly.
Other
income
In 2007,
we recognized grant income of RMB 4.9 billion compared to RMB 5.2 billion in
2006 for compensation of losses incurred due to the distortion of the
correlation of domestic refined petroleum product prices and the crude oil
prices, and the measures taken by the Group to stabilize the supply in the PRC
refined petroleum product market during the year. There are no
unfulfilled conditions and other contingencies attached to the receipts of this
grant. There is no assurance that the Group will continue to receive such grant
in the future.
Operating
expenses
In 2007,
our operating expenses were RMB 1,123.8 billion, representing an increase of
13.9% over 2006, among which:
Purchased crude oil, products and
operating supplies and expenses were RMB 970.9 billion, representing an
increase of 13.7% over 2006, accounting for 86.4% of the total operating
expenses, of which:
Crude oil
purchase expense was RMB 483.9 billion, representing an increase of 8.9% over
2006. This expense accounted for 43.1% of the total operating expense,
representing a decrease of 2 percentage points. With the rapid economic
development in China and the expanded market demand, we increased our throughput
of crude oil that was purchased externally. In 2007, the total throughput of
crude oil purchased externally reached 123.98 million tonnes (excluding the
amounts processed for third parties), representing an increase of 4.8%. The
average cost for crude oil purchased externally was RMB 3,903 per tonne,
representing an increase of 3.9% over 2006.
In 2007,
our other purchasing expenses reached RMB 487.0 billion, accounting for 43.3% of
the total operating expenses, representing an increase of 18.9%. The increase
was mainly due to the increased costs of refined oil products and chemical raw
materials purchased externally.
Selling, general and administrative
expenses totaled were RMB 37.9 billion, representing an increase of 0.9%
over 2006.
Depreciation, depletion and
amortization was RMB 43.3 billion, representing an increase of 29.1%,
mainly due to the increased depreciation resulted from our continuous capital
expenditures on property, plant and equipment in recent two years.
Exploration expenses reached
RMB 11.1 billion, representing an increase of 39.1%. The increase was mainly due
to our increased efforts on exploration and forward looking study in the
Southern marine facies blocks in the northeast and the west of Sichuan
Province.
Personnel expenses were RMB
22.7 billion, representing an increase of 8.5%.
Taxes other than income tax
were RMB 34.3 billion, representing an increase of 17.0% over 2006. The
increase was mainly due to the increase of the special oil income levy on crude
oil income in the amount of RMB 2.5 billion, and the increase of the consumption
tax levied on naphtha and other refined petroleum products in the amount of RMB
1.6 billion. In addition, city construction tax and education surcharge
increased by RMB 0.8 billion.
Other operating expenses were
RMB 3.2 billion, representing an increase of 30.1%. The increase was mainly due
to the increase in impairment loss on long-lived assets, which increased by RMB
2.3 billion compared with 2006.
Operating
income
In 2007,
our operating income was RMB 85.9 billion, representing an increase of 6.5% over
2006.
Net
finance costs
In 2007,
our net finance costs were RMB 8.1 billion, representing an increase of 39.4%
over 2006. The increase was mainly attributed to the RMB 3.2 billion unrealized
loss on embedded derivative component of convertible bonds.
Earnings
before income taxes
In 2007,
our earnings before income tax reached RMB 83.5 billion, representing an
increase of 6.3% over 2006.
Income
taxes
In 2007,
our effective income tax rate was 29.6% compared with 29.9 % for 2006. See Note
10 to our consolidated financial statements for a reconciliation between the
actual income tax expense and the expected income tax at applicable statutory
tax rates.
Net
income attributable to minority interests
In 2007,
profit for the year attributable to our minority interests reached RMB 2.2
billion, representing an increase of 57.0%. The increase was mainly due to
increased profit from two of our consolidated subsidiaries Shanghai
Petrochemical Company Limited and Fujian Petrochemical Company
Limited.
Net
income attributable to equity shareholders of the Company
In 2007,
profit attributable to our equity shareholders was RMB 56.5 billion,
representing an increase of 5.5% over 2006.
C. DISCUSSIONS
ON RESULTS OF SEGMENT OPERATIONS
We divide
our operations into four business segments (exploration and production segment,
refining segment, marketing and distribution segment and chemicals segment) and
corporate and others. Unless otherwise specified, the inter-segment transactions
have not been eliminated in the financial data discussed in this section. In
addition, the operating revenue data of each segment have included the
“other operating revenues” of the segment.
The
following table sets forth the operating revenues by each segment, the
contribution of external sales and inter-segment sales as a percentage of
operating revenues before elimination of inter-segment sales, and the
contribution of external sales as a percentage of consolidated operating
revenues (i.e. after elimination of inter-segment sales) for the periods
indicated.
|
|
Years
Ended December 31,
|
|
|
As
a Percentage of
Consolidated
Operating Revenues
Before Elimination of
Inter-segment
Sales
|
|
|
As
a Percentage of
Consolidated
Operating
Revenues
After
Elimination of
Inter-segment
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
(%)
|
|
|
(%)
|
|
|
(%)
|
|
|
(%)
|
|
|
|
(in
billions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration
and Production
External
sales(1)
|
|
|
34.1
|
|
|
|
38.2
|
|
|
|
45.1
|
|
|
|
1.8
|
|
|
|
1.6
|
|
|
|
3.2
|
|
|
|
3.1
|
|
Inter-segment
sales
|
|
|
109.1
|
|
|
|
107.5
|
|
|
|
151.4
|
|
|
|
5.0
|
|
|
|
5.4
|
|
|
|
|
|
|
|
|
|
Total
operating revenue
|
|
|
143.2
|
|
|
|
145.7
|
|
|
|
196.5
|
|
|
|
6.8
|
|
|
|
7.0
|
|
|
|
|
|
|
|
|
|
Refining
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
sales(1)
|
|
|
119.5
|
|
|
|
122.2
|
|
|
|
134.6
|
|
|
|
5.7
|
|
|
|
4.8
|
|
|
|
10.1
|
|
|
|
9.3
|
|
Inter-segment
sales
|
|
|
477.8
|
|
|
|
534.7
|
|
|
|
684.0
|
|
|
|
24.7
|
|
|
|
24.5
|
|
|
|
|
|
|
|
|
|
Total
operating revenue
|
|
|
597.3
|
|
|
|
656.9
|
|
|
|
818.6
|
|
|
|
30.4
|
|
|
|
29.3
|
|
|
|
|
|
|
|
|
|
Marketing
and distribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
sales(1)
|
|
|
588.7
|
|
|
|
660.0
|
|
|
|
804.0
|
|
|
|
30.5
|
|
|
|
28.7
|
|
|
|
54.8
|
|
|
|
55.4
|
|
Inter-segment
sales
|
|
|
4.8
|
|
|
|
2.8
|
|
|
|
3.2
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
Total
operating revenue
|
|
|
593.5
|
|
|
|
662.8
|
|
|
|
807.2
|
|
|
|
30.6
|
|
|
|
28.8
|
|
|
|
|
|
|
|
|
|
Chemicals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
sales(1)
|
|
|
202.6
|
|
|
|
224.7
|
|
|
|
213.6
|
|
|
|
10.4
|
|
|
|
7.6
|
|
|
|
18.7
|
|
|
|
14.7
|
|
Inter-segment
sales
|
|
|
12.3
|
|
|
|
16.0
|
|
|
|
27.5
|
|
|
|
0.7
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
Total
operating revenue
|
|
|
214.9
|
|
|
|
240.7
|
|
|
|
241.1
|
|
|
|
11.1
|
|
|
|
8.6
|
|
|
|
|
|
|
|
Corporate
and others
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
sales(1)
|
|
|
116.8
|
|
|
|
159.7
|
|
|
|
254.8
|
|
|
|
7.4
|
|
|
|
9.1
|
|
|
|
13.2
|
|
|
|
17.5
|
|
Inter-segment
sales
|
|
|
145.3
|
|
|
|
297.1
|
|
|
|
480.0
|
|
|
|
13.7
|
|
|
|
17.2
|
|
|
|
|
|
|
|
|
|
Total
operating revenue
|
|
|
262.1
|
|
|
|
456.8
|
|
|
|
734.8
|
|
|
|
21.1
|
|
|
|
26.3
|
|
|
|
|
|
|
|
|
|
Total
operating revenue before inter-segment eliminations
|
|
|
1,811.0
|
|
|
|
2,162.9
|
|
|
|
2,798.2
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
Elimination
of inter-segment sales
|
|
|
(749.3)
|
|
|
|
(958.1)
|
|
|
|
(1,346.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
operating revenues
|
|
|
1,061.7
|
|
|
|
1,204.8
|
|
|
|
1,452.1
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
|
|
|
100.0
|
|
__________
(1)
|
include
other operating revenues. See Note 32 to the consolidated
financial statements for other operating revenues of each of our operating
segments.
|
The
following table sets forth the operating revenues, operating expenses and
operating income/(loss) by each segment before elimination of the inter-segment
transactions for the periods indicated, and the rate of changes from 2006 to
2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December
31,
|
|
|
Rate
of
Change
from
2007
to 2008
|
|
Exploration
and Production
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
(%)
|
|
|
|
(RMB
in billions)
|
|
|
|
|
Total operating
revenues
|
|
|
143.2
|
|
|
|
145.7
|
|
|
|
196.5
|
|
|
|
34.9
|
|
Total operating
expenses
|
|
|
(80.0)
|
|
|
|
(96.9)
|
|
|
|
(129.9)
|
|
|
|
34.1
|
|
Total operating
income
|
|
|
63.2
|
|
|
|
48.8
|
|
|
|
66.6
|
|
|
|
36.5
|
|
Refining
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
revenues
|
|
|
597.3
|
|
|
|
656.9
|
|
|
|
818.6
|
|
|
|
24.6
|
|
Other income
|
|
|
5.2
|
|
|
|
1.9
|
|
|
|
40.5
|
|
|
|
2,031.6
|
|
Total operating
expenses
|
|
|
(628.2)
|
|
|
|
(669.3)
|
|
|
|
(920.6)
|
|
|
|
37.5
|
|
Total operating
loss
|
|
|
(25.7)
|
|
|
|
(10.5)
|
|
|
|
(61.5)
|
|
|
|
––
|
|
Marketing
and distribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
revenues
|
|
|
593.5
|
|
|
|
662.8
|
|
|
|
807.2
|
|
|
|
21.8
|
|
Other income
|
|
|
––
|
|
|
|
2.9
|
|
|
|
9.8
|
|
|
|
237.9
|
|
Total operating
expenses
|
|
|
(563.3)
|
|
|
|
(630.0)
|
|
|
|
(778.8)
|
|
|
|
23.6
|
|
Total operating
income
|
|
|
30.2
|
|
|
|
35.7
|
|
|
|
38.2
|
|
|
|
7.0
|
|
Chemicals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
revenues
|
|
|
214.9
|
|
|
|
240.7
|
|
|
|
241.1
|
|
|
|
0.2
|
|
Total operating
expenses
|
|
|
(200.5)
|
|
|
|
(227.4)
|
|
|
|
(254.2)
|
|
|
|
11.8
|
|
Total operating
income/(loss)
|
|
|
14.4
|
|
|
|
13.3
|
|
|
|
(13.1)
|
|
|
|
––
|
|
Corporate
and others
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
revenues
|
|
|
262.1
|
|
|
|
456.8
|
|
|
|
734.8
|
|
|
|
60.8
|
|
Total operating
expenses
|
|
|
(263.6)
|
|
|
|
(458.4)
|
|
|
|
(736.8)
|
|
|
|
60.7
|
|
Total operating
loss
|
|
|
(1.5)
|
|
|
|
(1.4)
|
|
|
|
(2.0)
|
|
|
|
––
|
|
Exploration
and Production Segment
Most of
the crude oil and a small portion of the natural gas produced by the exploration
and production segment were used for our refining and chemicals operations. Most
of our natural gas and a small portion of crude oil were sold to other
customers.
Year
Ended December 31, 2008 Compared with Year Ended December 31, 2007
In 2008,
the operating revenues of this segment were RMB 196.5 billion, representing an
increase of 34.9% over 2007. The increase was mainly attributable to the
increase in the sales volume and sales price of crude oil and natural
gas.
In 2008,
this segment sold 39.41 million tonnes of crude oil and 6.9 billion cubic meters
of natural gas, representing an increase of 1.4% and 9.5% respectively over
2007. The average realized price of crude oil was RMB 4,269 per tonne,
representing an increase of 37.9%. The average realized price of natural gas was
RMB 941 per thousand cubic meters, representing an increase of 14.4% over
2007.
In 2008,
the operating expenses of this segment were RMB 129.9 billion, representing an
increase of 34.1% over 2007. The increase was mainly due to the following
reasons:
|
·
|
The
purchased raw materials, products and operating supplies and expenses
increased by RMB 2 billion, which was primarily caused by the increased
price of raw materials and fuels.
|
|
·
|
The
impairment losses increased by RMB 5.4 billion over 2007, attributable to
the lower in price of crude oil which led to the decrease in reserves
estimated and higher production and development cost in certain field
blocks.
|
|
·
|
The
increase in depreciation, depletion and amortization amounted to RMB 3.9
billion was primarily due to the continuous investment in oil and gas
assets.
|
|
·
|
Special
oil income levy increased by RMB 21.6 billion, primarily due to the high
crude oil price in 2008.
|
|
·
|
The
exploration expense decreased by RMB 2.8 billion over 2007, due to the
decrease of upstream exploration activities over last
year.
|
In light
of the high crude oil price in 2008, we developed more marginal oil reserves to
increase oil and gas production. Water and electricity charges associated with
oil and gas production increased due to our development of marginal oil
reserves.
In 2008,
the operating income of the segment was RMB 66.6 billion, representing an
increase of 36.5% over 2007.
Year
Ended December 31, 2007 Compared with Year Ended December 31, 2006
In 2007,
the operating revenue of this segment were RMB 145.7 billion, representing an
increase of 1.7% over 2006. The increase was mainly attributable to the increase
in the sales volume of crude oil and the increase both in the sales volume and
sales price of natural gas.
In 2007,
this segment sold 38.85 million tonnes of crude oil and 6.3 billion cubic meters
of natural gas, representing an increase of 2.4% and 10.2% respectively over
2006. The average realized price of crude oil was RMB 3,095 per tonne,
representing a decrease of 3.1%. The average realized price of natural gas was
RMB 823 per thousand cubic meters, representing an increase of 3.6% over
2006.
In 2007,
the operating expenses of this segment were RMB 96.9 billion, representing an
increase of 21.1% over 2006. The increase was mainly due to the following
reasons:
|
·
|
The
exploration expense (including dry hole cost) increased by RMB 3.1 billion
over 2006. The increase was mainly attributable to the increased efforts
on exploration and forward looking study in the Southern marine facies
blocks in the northeast and the west of Sichuan
Province.
|
|
·
|
The
increase of RMB 5.3 billion in depreciation, depletion and amortization,
which was mainly due to the increase in depreciation and depletion of the
oil and gas assets.
|
|
·
|
Special
oil income levy on crude oil increased by RMB 2.5 billion over
2006.
|
|
·
|
Other
operating expenses increased by RMB 3.6 billion over 2006. The increase
was mainly due to the increase in cost of materials as a result of the
increase in sales of these
materials.
|
In 2007,
the operating income of the segment was RMB 48.8 billion, representing a
decrease of 22.8% over 2006.
Refining
Segment
Business
activities of the refining segment consist of purchasing crude oil from third
parties or from our exploration and production segment, processing crude oil
into refined petroleum products, selling gasoline, diesel and kerosene to the
marketing and distribution segment, selling a portion of chemical feedstock to
our chemicals segment, and selling other refined petroleum products to the
domestic and overseas customers.
Year
Ended December 31, 2008 Compared with Year Ended December 31, 2007
In 2008,
the operating revenues of this segment were RMB 818.6 billion, representing an
increase of 24.6% over 2007. The increase was mainly attributable to the
increase in the price and sales volume of each refined petroleum
products.
The table
below sets forth sales volume and average realized prices by product for 2007
and 2008, as well as the percentage changes in sales volume and average realized
prices for the periods shown.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
2007 to 2008
|
|
|
2007
|
|
|
2008
|
|
|
2007 to 2008
|
|
|
|
(million
tonnes)
|
|
|
(%)
|
|
|
(RMB
per tonne)
|
|
|
(%)
|
|
Gasoline
|
|
|
23.97
|
|
|
|
28.17
|
|
|
|
17.5
|
|
|
|
4,641
|
|
|
|
5,587
|
|
|
|
20.4
|
|
Diesel
|
|
|
61.54
|
|
|
|
67.78
|
|
|
|
10.1
|
|
|
|
4,057
|
|
|
|
4,934
|
|
|
|
21.6
|
|
Chemical
feedstock
|
|
|
25.51
|
|
|
|
23.47
|
|
|
|
(8.0)
|
|
|
|
4,985
|
|
|
|
5,982
|
|
|
|
20.0
|
|
Kerosene
and other refined petroleum products
|
|
|
42.20
|
|
|
|
41.36
|
|
|
|
(2.0)
|
|
|
|
3,884
|
|
|
|
4,388
|
|
|
|
13.0
|
|
In 2008,
the sales revenues of gasoline by the segment were RMB 157.4 billion,
representing an increase of 41.5% over 2007 and accounting for 18.3% of this
segment’s operating revenues. The sales revenues of diesel by the segment were
RMB 334.4 billion, representing an increase of 34.0% over 2007 and accounting
for 38.9% of this segment’s operating revenues. In 2008, the sales revenues of
chemical feedstock by the segment were RMB 140.4 billion, representing an
increase of 10.4% over 2007 and accounting for 16.3% of this segment’s operating
revenues. The sales revenues of refined petroleum products other than gasoline,
diesel and chemical feedstock were RMB 181.5 billion, representing an increase
of 10.7% over 2007 and accounting for 21.1% of this segment’s operating
revenues.
In 2008,
this segment’s operating expenses were RMB 920.6 billion, representing an
increase of 37.5% over 2007. The increase was mainly attributable to the
increase of raw materials prices.
The
average cost of crude oil processed was RMB 5,004 per tonne, representing an
increase of 33.0% over 2007. Refining throughput were 163.26 million tonnes
(excluding the volume processed for third parties), representing an increase of
5.1% over 2007. In 2008, the total costs of crude oil processed were RMB 817
billion, representing an increase of 39.8%, and accounting for 88.7% of the
segment’s operating expenses, up by 1.4 percentage points over
2007.
In 2008,
due to the high international crude oil price and the PRC government’s tight
control over refined petroleum products prices, our refining segment incurred
significant losses. After recognizing the subsidy of RMB 40.5 billion received
by this segment, the operating losses for the segment was RMB 61.5 billion,
representing an increase in loss of RMB 51.1 billion over 2007.
Year
Ended December 31, 2007 Compared with Year Ended December 31, 2006
In 2007,
the operating revenues of this segment were RMB 656.9 billion, representing an
increase of 10.0% over 2006. The increase was mainly attributable to the
increase in the price and sales volume of each refined petroleum
products.
The table
below sets forth sales volume and average realized prices by product for 2006
and 2007, as well as the percentage changes in sales volume and average realized
prices for the periods shown.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
2006 to 2007
|
|
|
2006
|
|
|
2007
|
|
|
2006 to 2007
|
|
|
|
(million
tonnes)
|
|
|
(%)
|
|
|
(RMB
per tonne)
|
|
|
(%)
|
|
Gasoline
|
|
|
22.94
|
|
|
|
23.97
|
|
|
|
4.5
|
|
|
|
4,499
|
|
|
|
4,641
|
|
|
|
3.2
|
|
Diesel
|
|
|
59.71
|
|
|
|
61.54
|
|
|
|
3.1
|
|
|
|
3,873
|
|
|
|
4,057
|
|
|
|
4.8
|
|
Light
Chemical feedstock
|
|
|
25.40
|
|
|
|
25.51
|
|
|
|
0.4
|
|
|
|
4,395
|
|
|
|
4,985
|
|
|
|
13.4
|
|
Other
refined petroleum products
|
|
|
39.68
|
|
|
|
42.20
|
|
|
|
6.4
|
|
|
|
3,690
|
|
|
|
3,884
|
|
|
|
5.3
|
|
In 2007,
the sales revenues of gasoline by the segment were RMB 111.2 billion,
representing an increase of 7.8% over 2006 and accounting for 16.9% of this
segment’s operating revenues.
The sales
revenues of diesel by the segment were RMB 249.6 billion, representing an
increase of 8.0% over 2006 and accounting for 37.9% of this segment’s operating
revenues.
The sales
revenues of chemical feedstock by the segment were RMB 127.2 billion,
representing an increase of 13.9% over 2006 and accounting for 19.3% of this
segment’s operating revenues. The increase in the sales revenues of chemical
feedstock was higher than the increase in the sales revenues of gasoline and
diesel, which was mainly due to the fact that the extent of increase in the
price of the chemical feedstock is greater than the extent of increase in the
price of the gasoline and diesel oil.
In
2007, the sales revenues of refined petroleum products other than gasoline,
diesel and chemical feedstock were RMB 163.9 billion, representing an increase
of 11.9% over 2006 and accounting for 24.9% of this segment’s operating
revenues. In 2007, this segment’s operating expenses were RMB 669.3 billion,
representing an increase of 6.6% over the year of 2006. The increase
was mainly attributable to the increase in refining throughput and crude
oil price as well as the allowance for diminution in value of certain imported
crude oil.
In
2007, the average cost of crude oil processed was RMB 3,762 per tonne,
representing an increase of 2.2% over 2006. Refining throughput were 155.27
million tonnes (excluding the volume processed for third parties), representing
an increase of 4.5% over 2006. In 2007, the total costs of crude oil processed
were RMB 584.2 billion, representing an increase of 6.8%, and accounting for
87.3% of the segment’s operating expenses, up by 0.2 percentage points over
2006. In 2007, due to the high international crude oil prices, and the
government’s tight control over refined oil products’ price, our refinery
segment incurred losses and an allowance for diminution in value of inventories
of RMB 4.0 billion was recorded. This segment incurred an operating loss of RMB
10.5 billion, after the receipt of a cash grant of RMB 1.9
billion, representing a year-on-year loss decrease of RMB 15.2
billion.
Marketing
and Distribution Segment
The
business activities of the marketing and distribution segment include purchasing
refined oil products from our refining segment and third parties, making
wholesale and direct sales to domestic customers, and retail of the refined oil
products through the segment’s retail distribution network, as well as providing
related services.
Year
Ended December 31, 2008 Compared with Year Ended December 31, 2007
In 2008,
the operating revenues of this segment were RMB 807.2 billion, up by 21.8% over
2007. The increase was mainly attributable our adjustment of sales policy and
expansion in sales volume.
In 2008,
the operating revenues from sales of gasoline and diesel were RMB 695.7 billion,
accounting for 85.2% of the operating revenues of this segment. The percentage
of retail in the total sales volume of gasoline and diesel increased to 66.5%
from 63.8% in 2007. The percentage of direct sales in the total sales volume
increased to 21.1% from 17.5% in 2007. The percentage of wholesale volume in the
total sales volume of gasoline and diesel decreased from 18.7% in 2007 to 12.4%
in 2008.
The following table sets forth the
sales volumes, average realized prices and the respective rates of changes of
the four major product categories in 2007 and 2008 in different forms of sales
channels.
|
|
Sales Volume
|
|
|
Rate
of Change
from
|
|
|
|
|
|
Rate
of Change
from
|
|
|
|
2007
|
|
|
2008
|
|
|
2007 to 2008
|
|
|
2007
|
|
|
2008
|
|
|
2007 to 2008
|
|
|
|
(million
tonnes)
|
|
|
(%)
|
|
|
(RMB
per tonne)
|
|
|
(%)
|
|
Gasoline
|
|
|
35.12
|
|
|
|
37.71
|
|
|
|
7.4
|
|
|
|
5,410
|
|
|
|
6,410
|
|
|
|
18.5
|
|
Retail
sale
|
|
|
26.73
|
|
|
|
29.83
|
|
|
|
11.6
|
|
|
|
5,542
|
|
|
|
6,524
|
|
|
|
17.7
|
|
Direct
sale
|
|
|
2.61
|
|
|
|
2.61
|
|
|
|
0.1
|
|
|
|
5,036
|
|
|
|
6,013
|
|
|
|
19.4
|
|
Wholesale
|
|
|
5.79
|
|
|
|
5.27
|
|
|
|
(9.0)
|
|
|
|
4,967
|
|
|
|
5,964
|
|
|
|
20.1
|
|
Diesel
|
|
|
77.29
|
|
|
|
80.65
|
|
|
|
4.3
|
|
|
|
4,723
|
|
|
|
5,629
|
|
|
|
19.2
|
|
Retail
sale
|
|
|
44.99
|
|
|
|
48.89
|
|
|
|
8.7
|
|
|
|
4,832
|
|
|
|
5,704
|
|
|
|
18.0
|
|
Direct
sale
|
|
|
17.03
|
|
|
|
22.31
|
|
|
|
31.0
|
|
|
|
4,742
|
|
|
|
5,561
|
|
|
|
17.3
|
|
Wholesale
|
|
|
15.26
|
|
|
|
9.44
|
|
|
|
(38.1)
|
|
|
|
4,381
|
|
|
|
5,402
|
|
|
|
23.3
|
|
Kerosene
including jet fuel
|
|
|
7.01
|
|
|
|
9.19
|
|
|
|
31.1
|
|
|
|
4,729
|
|
|
|
6,065
|
|
|
|
28.3
|
|
Fuel
Oil
|
|
|
13.16
|
|
|
|
11.46
|
|
|
|
(12.9)
|
|
|
|
2,923
|
|
|
|
3,692
|
|
|
|
26.3
|
|
In 2008,
the subsidy income recognized by the segment was RMB 9.8 billion.
In 2008,
the operating expenses of the segment were RMB 778.8 billion, representing an
increase of 23.6% compared with 2007. The increase was mainly due to the
increase in the purchasing cost of refined oil products.
In 2008,
the operating income of the segment was RMB 38.2 billion, representing an
increase of 6.9% over 2007.
Year
Ended December 31, 2007 Compared with Year Ended December 31, 2006
In 2007,
the operating revenues of this segment were RMB 662.8 billion, up by 11.7% over
2006. The increase was mainly attributable to the improvements in sales mix and
the increased proportion of the retail business and the increased domestic
demand for the refined oil products.
In 2007,
the operating revenues from sales of gasoline and diesel were RMB 555.1 billion,
accounting for 83.4% of the operating revenues of this segment. The percentage
of retail in the total sales volume of gasoline and diesel increased from 63.4%
in 2006 to 63.8% in 2007, representing an increase of 0.4 percentage points. The
percentage of direct sales in the total sales volume increased from 17.0% in
2006 to 17.5% in 2007, representing an increase of 0.5 percentage points. The
percentage of wholesale volume in the total sales volume of gasoline and diesel
decreased from 19.6% in 2006 to 18.7% in 2007, representing a decrease of 0.9
percentage points.
The following table sets forth the
sales volumes, average realized prices and the respective rate of changes of the
four major product categories in 2006 and 2007 in different forms of sales
channels.
|
|
Sales Volume
|
|
|
Rate
of Change
from
|
|
|
|
|
|
Rate
of Change
from
|
|
|
|
2006
|
|
|
2007
|
|
|
2006 to 2007
|
|
|
2006
|
|
|
2007
|
|
|
2006 to 2007
|
|
|
|
(million
tonnes)
|
|
|
(%)
|
|
|
(RMB
per tonne)
|
|
|
(%)
|
|
Gasoline
|
|
|
32.72
|
|
|
|
35.12
|
|
|
|
7.4
|
|
|
|
5,224
|
|
|
|
5,410
|
|
|
|
3.6
|
|
Retail
sale
|
|
|
23.89
|
|
|
|
26.73
|
|
|
|
11.9
|
|
|
|
5,350
|
|
|
|
5,542
|
|
|
|
3.6
|
|
Direct
sale
|
|
|
2.81
|
|
|
|
2.61
|
|
|
|
(7.1)
|
|
|
|
4,922
|
|
|
|
5,036
|
|
|
|
2.3
|
|
Wholesale
|
|
|
6.02
|
|
|
|
5.79
|
|
|
|
(3.9)
|
|
|
|
4,867
|
|
|
|
4,967
|
|
|
|
2.1
|
|
Diesel
|
|
|
73.69
|
|
|
|
77.29
|
|
|
|
4.9
|
|
|
|
4,466
|
|
|
|
4,723
|
|
|
|
5.8
|
|
Retail
sale
|
|
|
43.53
|
|
|
|
44.99
|
|
|
|
3.4
|
|
|
|
4,527
|
|
|
|
4,832
|
|
|
|
6.7
|
|
Direct
sale
|
|
|
15.31
|
|
|
|
17.03
|
|
|
|
11.3
|
|
|
|
4,599
|
|
|
|
4,742
|
|
|
|
3.1
|
|
Wholesale
|
|
|
14.86
|
|
|
|
15.26
|
|
|
|
2.7
|
|
|
|
4,152
|
|
|
|
4,381
|
|
|
|
5.5
|
|
Kerosene
including jet fuel
|
|
|
5.40
|
|
|
|
7.01
|
|
|
|
29.8
|
|
|
|
4,524
|
|
|
|
4,729
|
|
|
|
4.5
|
|
Fuel
Oil
|
|
|
15.07
|
|
|
|
13.16
|
|
|
|
(12.7)
|
|
|
|
2,989
|
|
|
|
2,923
|
|
|
|
(2.2)
|
|
In 2007,
the operating expenses of the segment were RMB 630.0 billion, representing an
increase of 11.8% compared with that of 2006. The increase was mainly due to the
increase in the purchasing cost of refined oil products.
In 2007,
the operating income, after the receipt of a cash grant of RMB 2.9 billion, of
the segment was RMB 35.7 billion, representing an increase of
18.2%.
Chemicals
Segment
The
business activities of the chemicals segment include purchasing chemical
feedstock from our refining segment and third parties, producing, marketing and
distributing petrochemical and inorganic chemical products.
Year
Ended December 31, 2008 Compared with Year Ended December 31, 2007
In 2008,
operating revenues of this segment were RMB 241.1 billion, representing an
increase of 0.2% over the year of 2007.
In 2008,
the sales revenues of our six major categories of chemical products (namely
basic organic chemicals, monomers and polymers for synthetic fiber, synthetic
resin, synthetic fiber, synthetic rubber and chemical fertilizer) totaled
approximately RMB 222.6 billion, representing a decrease of 2.1% over 2007, and
accounting for 92.3% of the operating revenues of this segment.
The following table sets forth the
sales volume, average realized price and the respective rates of changes for
each of these six categories of chemical products of this segment from 2007 to
2008.
|
|
|
Sales Volumes
|
|
|
|
Rate of Change
from
|
|
|
|
Average
Realized Prices
|
|
|
|
Rate
of Change
from
|
|
|
|
|
2007
|
|
|
|
2008
|
|
|
|
2007
to 2008
|
|
|
|
2007
|
|
|
|
2008
|
|
|
|
2007 to 2008
|
|
|
|
|
(million
tonnes)
|
|
|
|
(%)
|
|
|
|
(RMB
per tonne)
|
|
|
|
(%)
|
|
Basic
organic
chemicals
|
|
|
12.89
|
|
|
|
12.59
|
|
|
|
(2.3)
|
|
|
|
5,870
|
|
|
|
6,303
|
|
|
|
7.4
|
|
Synthetic
resins
|
|
|
7.96
|
|
|
|
7.87
|
|
|
|
(1.2)
|
|
|
|
10,163
|
|
|
|
10,075
|
|
|
|
(0.9)
|
|
Synthetic
fiber monomers and
polymers
|
|
|
4.09
|
|
|
|
3.76
|
|
|
|
(8.1)
|
|
|
|
9,116
|
|
|
|
8,237
|
|
|
|
(9.6)
|
|
Synthetic
rubber
|
|
|
0.98
|
|
|
|
0.99
|
|
|
|
1.2
|
|
|
|
13,721
|
|
|
|
16,163
|
|
|
|
17.8
|
|
Synthetic
fiber
|
|
|
1.50
|
|
|
|
1.35
|
|
|
|
(9.9)
|
|
|
|
11,605
|
|
|
|
10,478
|
|
|
|
(9.7)
|
|
Chemical
fertilizer
|
|
|
1.60
|
|
|
|
1.66
|
|
|
|
3.8
|
|
|
|
1,657
|
|
|
|
1,729
|
|
|
|
4.3
|
|
In 2008,
operating expenses of the chemicals segment were RMB 254.2 billion, representing
an increase of 11.8% over 2007. This was primarily due to the increase in the
prices of feedstock and ancillary materials, which, together, contributed to an
increase of RMB 26.2 billion in operating expenses over 2007.
In 2008,
operating loss of the chemicals segment was RMB 13.1 billion, compared to the
operating income of RMB 13.3 billion in 2007.
Year
Ended December 31, 2007 Compared with Year Ended December 31, 2006
In 2007,
operating revenues of this segment were RMB 240.7 billion, representing an
increase of 12.0% over the year of 2006. The increase was primarily due to the
increase in sales volume and prices of major chemical products.
In 2007,
the sales revenues of our six major categories of chemical products (namely
basic organic chemicals, monomers and polymers for synthetic fiber, synthetic
resin, synthetic fiber, synthetic rubber and chemical fertilizer) totaled
approximately RMB 227.3 billion, representing an increase of 12.5% over 2006,
and accounting for 94.4% of the operating revenues of this segment.
The following table sets forth the
sales volume, average realized price and the respective rate of changes for each
of these six categories of chemical products of this segment from 2006 to
2007.
|
|
|
Sales Volumes
|
|
|
|
Rate
of Change
from
|
|
|
|
Average
Realized
Prices
|
|
|
|
Rate of Change
from
|
|
|
|
|
2006
|
|
|
|
2007
|
|
|
|
2006 to
2007 |
|
|
|
2006
|
|
|
|
2007
|
|
|
|
2006 to
2007 |
|
|
|
|
(million
tonnes)
|
|
|
|
(%)
|
|
|
|
(RMB
per tonne)
|
|
|
|
(%)
|
|
Basic
organic
chemicals
|
|
|
11.57
|
|
|
|
12.89
|
|
|
|
11.4
|
|
|
|
5,649
|
|
|
|
5,870
|
|
|
|
3.9
|
|
Synthetic
resins
|
|
|
7.25
|
|
|
|
7.96
|
|
|
|
9.8
|
|
|
|
9,842
|
|
|
|
10,163
|
|
|
|
3.3
|
|
Synthetic
rubber
|
|
|
0.83
|
|
|
|
0.98
|
|
|
|
17.3
|
|
|
|
13,885
|
|
|
|
13,721
|
|
|
|
(1.2)
|
|
Synthetic
fiber
|
|
|
1.61
|
|
|
|
1.50
|
|
|
|
(7.0)
|
|
|
|
11,390
|
|
|
|
11,605
|
|
|
|
1.9
|
|
Synthetic
fiber monomers and polymers
|
|
|
3.71
|
|
|
|
4.09
|
|
|
|
10.2
|
|
|
|
8,814
|
|
|
|
9,116
|
|
|
|
3.4
|
|
Chemical
fertilizer
|
|
|
1.65
|
|
|
|
1.60
|
|
|
|
(3.3)
|
|
|
|
1,660
|
|
|
|
1,657
|
|
|
|
(0.2)
|
|
In 2007,
operating expenses of the chemicals segment were RMB 227.4 billion, representing
an increase of 13.4% over 2006. The increase was primarily due to:
Increase
in the consumption of feedstock and ancillary materials as well as the increase
in their prices, together, contributed to an increase of RMB25.8 billion over
2006.
Because of
increases in production volume of the chemical products, fuel and energy costs
increased by approximately RMB 1.1 billion compared with 2006.
In 2007,
operating income of the chemicals segment was RMB 13.3 billion, representing a
decrease of RMB 1.1 billion over 2006.
Corporate
and others
The
business activities of corporate and others mainly consist of the import and
export operations, international trading, research and development activities of
us and managerial activities of our headquarters.
Year
Ended December 31, 2008 Compared with Year Ended December 31, 2007
In 2008,
the operating revenues generated from corporate and others were RMB 734.8
billion, representing an increase of 60.8% over 2007. The increase was mainly
due to the increase in the trading volume of crude oil and refined oil
products.
In 2008,
the operating expenses of this segment were RMB 736.8 billion, representing an
increase of 60.8% over 2007. This increase was mainly due to the increase in the
purchasing costs of the trading business in line the increase in its operating
revenue.
In 2008,
the operating loss of this segment was RMB 2 billion, compared to the operating
loss of RMB 1.5 billion in 2007.
Year
Ended December 31, 2007 Compared with Year Ended December 31, 2006
In 2007,
the operating revenues generated from corporate and others were RMB 456.8
billion, representing an increase of 74.3% over 2006. The increase was mainly
due to the high crude oil price as well as the trading volume of crude oil and
refined oil products.
In 2007,
the operating expenses of this segment were RMB 458.4 billion, representing an
increase of 73.9% over 2006. This increase was mainly due to the increase in the
purchasing costs of its trading business associated with the increase in its
operating revenue.
In 2007,
the operating loss of this segment was RMB 1.4 billion, representing a decrease
of RMB 100 million compared with 2006.
D. LIQUIDITY
AND CAPITAL RESOURCES
Our
primary sources of funding have been cash provided by our operating activities,
short-term and long-term loans. Our primary uses of cash have been for working
capital, capital expenditures and repayment of short-term and long-term loans.
We arrange and negotiate financing with financial institutions to finance our
capital resource requirement, and maintain a certain level of standby credit
facilities to reduce liquidity risk. We believe that our current cash on hand,
expected cash flows from operations and available standby credit facilities from
financial institutions will be sufficient to meet our working capital
requirements and repay our short term debts and obligations when they become
due.
The
following table sets forth a summary of our consolidated cash flows for the
years ended December 31, 2007 and 2008.
|
|
|
For
the Years Ended
December
31,
|
|
Cash
flow data |
|
|
2007
|
|
|
|
2008
|
|
|
|
|
(RMB
in billions)
|
|
Net
cash generated from operating
activities
|
|
|
119.6
|
|
|
|
67.7
|
|
Net
cash used in investing
activities
|
|
|
(113.6)
|
|
|
|
(110.2)
|
|
Net
cash (used in)/generated from financing activities
|
|
|
(5.3)
|
|
|
|
41.8
|
|
Net
increase/(decrease) in cash and cash equivalents
|
|
|
0.7
|
|
|
|
(0.7)
|
|
In 2008,
net cash generated from operating activities was RMB 67.7 billion, representing
a decrease of 43.4% over 2007. The decrease was mainly due to the lower
profitability in 2008, primarily caused by the losses suffered by our refining
segment due to the distortion of the correlation of domestic refined petroleum
product prices and the international crude oil prices.
Net cash
used in investment activities in 2008 was RMB 110.2 billion, which was mainly
due to the capital expenditure of RMB 99.6 billion and exploratory wells
expenditure of RMB 8.4 billion.
Net cash
from financing activities was RMB 41.8 billion in 2008. This was
mainly due to proceeds of issuance of bonds with detachable warrants, net of
issuance costs, of RMB 29.9 billion, proceeds of issuance of corporate bonds of
RMB 15.0 billion, proceeds from bank and other loans of RMB 1,147.3 billion,
repayments of bank and other loans of RMB 1,125.3 billion, and the dividend paid
of RMB 12.6 billion.
Contractual
Obligations and Commercial Commitments
The
following table sets forth our obligations and commitments to make future
payments under contracts and commercial commitments as of December 31,
2008.
|
|
|
|
|
As
of December 31, 2008
|
|
|
|
|
|
|
Payment
due by period
|
|
|
|
Total
|
|
|
less
than
1 year
|
|
|
1-3 years
|
|
|
4-5 years
|
|
|
After
5 years
|
|
|
|
|
|
|
(RMB
in millions)
|
|
Contractual
obligations(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
|
81,005
|
|
|
|
81,005
|
|
|
|
––
|
|
|
|
––
|
|
|
|
––
|
|
Long-term
debt
|
|
|
173,044
|
|
|
|
23,609
|
|
|
|
21,752
|
|
|
|
22,109
|
|
|
|
105,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
contractual
obligations
|
|
|
254,049
|
|
|
|
104,614
|
|
|
|
21,752
|
|
|
|
22,109
|
|
|
|
105,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
commercial commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
lease
commitments
|
|
|
178,478
|
|
|
|
6,066
|
|
|
|
11,405
|
|
|
|
11,114
|
|
|
|
149,893
|
|
Capital
commitments
|
|
|
168,873
|
|
|
|
120,050
|
|
|
|
48,823
|
|
|
|
––
|
|
|
|
––
|
|
Exploration
and production licenses
|
|
|
951
|
|
|
|
123
|
|
|
|
138
|
|
|
|
39
|
|
|
|
651
|
|
Guarantees(2)
|
|
|
11,404
|
|
|
|
11,404
|
|
|
|
––
|
|
|
|
––
|
|
|
|
––
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
commercial commitments
|
|
|
359,706
|
|
|
|
137,643
|
|
|
|
60,366
|
|
|
|
11,153
|
|
|
|
150,544
|
|
_________
(1)
|
Contractual
obligations include the contractual obligations relating to interest
payments.
|
(2)
|
Guarantee
is not limited by time, therefore specific payment due period is not
applicable. As of December 31, 2008, we have not entered into any
off-balance sheet arrangements other than guarantees given to banks in
respect of banking facilities granted to certain parties. As of December
31, 2008, the maximum amount of potential future payments under the
guarantees was RMB 11,404 million. See Note 29 to the
consolidated financial statements for further information of the
guarantees.
|
Historical
and Planned Capital Expenditure
The
following table sets forth our capital expenditure by segment for the years
ended December 31, 2006, 2007 and 2008 and the capital expenditure in each
segment as a percentage of our total capital expenditure for such
year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMB
|
|
|
Percent
|
|
|
RMB
|
|
|
Percent
|
|
|
RMB
|
|
|
Percent
|
|
|
RMB
|
|
|
Percent
|
|
|
|
(in
billions, except percentage data)
|
|
Exploration
and production
|
|
|
35.2
|
|
|
|
42
|
|
|
|
54.5
|
|
|
|
50
|
|
|
|
57.7
|
|
|
|
54
|
|
|
|
147.4
|
|
|
|
49
|
|
Refining
|
|
|
22.6
|
|
|
|
27
|
|
|
|
22.8
|
|
|
|
21
|
|
|
|
12.5
|
|
|
|
12
|
|
|
|
57.9
|
|
|
|
19
|
|
Marketing
and distribution
|
|
|
11.3
|
|
|
|
13
|
|
|
|
12.5
|
|
|
|
11
|
|
|
|
14.1
|
|
|
|
13
|
|
|
|
37.9
|
|
|
|
13
|
|
Chemicals
|
|
|
12.6
|
|
|
|
15
|
|
|
|
16.2
|
|
|
|
15
|
|
|
|
20.6
|
|
|
|
19
|
|
|
|
49.4
|
|
|
|
16
|
|
Corporate
|
|
|
2.2
|
|
|
|
3
|
|
|
|
3.3
|
|
|
|
3
|
|
|
|
2.4
|
|
|
|
2
|
|
|
|
7.9
|
|
|
|
3
|
|
Total
|
|
|
83.9
|
|
|
|
100
|
|
|
|
109.3
|
|
|
|
100
|
|
|
|
107.3
|
|
|
|
100
|
|
|
|
300.5
|
|
|
|
100
|
|
In 2008,
our total capital expenditure was RMB 107.3 billion, among which,
|
·
|
The
capital expenditure for our exploration and development was RMB 57.7
billion. The exploration and development in Puguang Gas Field,
construction of the purification plant and pipeline and market development
progressed smoothly. We continued to develop the Tahe oil field in 2008.
The newly-added production capacity of crude oil is 5.8 million tonnes per
annum and the newly-added production capacity of natural gas is 1.33
billion cubic meters per annum.
|
|
·
|
The
capital expenditure for our refining segment was RMB 12.5 billion. Qingdao
Refinery and Caofeidian crude oil dock project were completed and
commenced operation in 2008. Currently undergoing projects include the
revamping project in Gaoqiao to improve adaptability for low quality crude
and the projects in Wuhan and Luoyang to upgrade products quality. We also
started the Tahe revamping project to process heavy crude
oil.
|
|
·
|
The
capital expenditure for our marketing and distribution segment was RMB
14.1 billion. We expanded our selling network by constructing, acquiring
or renovating the service stations and storage facilities. We added 720
new service stations into our retail network during
2008.
|
|
·
|
The
capital expenditure for our chemicals segment was RMB 20.6 billion.
Ethylene projects in Fujian, Tianjin and Zhenhai are progressing smoothly.
Jinling paraxylene expansion project, Yangzi butadiene expansion project
and Yanshan butyl rubber expansion project have been completed and
commenced operation.
|
|
·
|
The
capital expenditure for our corporate and others segment amounted to RMB
2.4 billion, which was primarily spent on the information system
improvement.
|
In 2009,
we will continue to focus our investment on profitable and core projects. We
will strictly follow management control policies and procedures regarding the
investment activities, and carefully arrange and manage our constructions
projects. The total planned capital expenditure for 2009 is RMB 111.8 billion,
as indicated below by segment:
|
·
|
Exploration
and development segment: RMB 55.0 billion. We will continue to invest in
Sichuan-East China Gas Project. We will also invest in Tahe and Shengli
oil fields and Puguang and Erdos natural gas fields to expand the
production capacity.
|
|
·
|
Refining
segment: RMB 16.8 billion. We will invest to improve the auxiliary and
supporting functions in our refining segments, such as oil quality upgrade
systems and our transportation, delivery and storage
network.
|
|
·
|
Marketing
and distributing segment: RMB 12.0 billion. We will continue to expand and
upgrade our refined oil products sales network, including construction or
acquisition of oil/gas stations in highway areas or other strategic
locations.
|
|
·
|
Chemical
segment: RMB 26.4 billion. We will invest primarily in our Tianjin
integrated refinery and chemical project and Zhenhai ethylene
project.
|
|
·
|
Corporate
and others segment: RMB 1.6
billion.
|
Consumer
Price Index
According
to the data provided by the National Bureau of Statistics, the consumer price
index in the PRC increased by 5.9% in 2008, compared with 4.8% in 2007 and 1.5%
in 2006. According to China's official analysis, the
inflation
in the PRC during 2008 was due to the rise in food and commodity prices.
Inflation has not had a significant impact on our results of operations in
recent years.
ITEM
6.
|
DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES
|
A. DIRECTORS,
SUPERVISORS AND SENIOR MANAGEMENT
Directors
The table
and discussion below set forth certain information concerning our directors. The
current term for all our directors is three years, which will expire in May
2009.
Name
|
|
Age
|
|
Positions with Sinopec
Corp.
|
|
|
|
|
|
Su
Shulin
|
|
|
47
|
|
Chairman
|
Zhou
Yuan
|
|
|
61
|
|
Vice
Chairman
|
Wang
Tianpu
|
|
|
46
|
|
Director,
President
|
Zhang
Jianhua
|
|
|
44
|
|
Director,
Senior Vice President
|
Wang
Zhigang
|
|
|
51
|
|
Director,
Senior Vice President
|
Dai
Houliang
|
|
|
45
|
|
Director,
Senior Vice President, CFO
|
Liu
Zhongli
|
|
|
74
|
|
Independent
Non-executive Director
|
Shi
Wanpeng
|
|
|
71
|
|
Independent
Non-executive Director
|
Li
Deshui
|
|
|
64
|
|
Independent
Non-executive Director
|
Yao
Zhongmin
|
|
|
56
|
|
Director
|
Fan
Yifei
|
|
|
45
|
|
Director
|
Su Shulin, 47, Chairman of
the Board of Directors of Sinopec Corp. and President of Sinopec Group Company.
He received his Bachelor Degree from Daqing Petroleum Institute in July 1983,
and obtained a Master Degree from Harbin Engineering University in March 1999.
He is a professor level senior engineer. From March 1996 to January 1997, Mr. Su
acted as Assistant to the Director of CNPC Daqing Petroleum Administration
Bureau. From January to November 1997, Mr. Su served as Head of the
No. 1 Oil and Gas Development Department and Assistant to the Director of CNPC
Daqing Petroleum Administration Bureau From November 1997 to January 1999, Mr.
Su was Deputy Director and member of the Party Committee of CNPC Daqing
Petroleum Administration Bureau. From January to September 1999, Mr. Su was
Director and Vice Secretary to the Party Committee of CNPC Daqing Petroleum
Administration Bureau. From September 1999 to August 2000, Mr. Su Shulin was
served as Vice President of PetroChina Company Limited and Chairman, General
Manager and Secretary to the Party Committee of Daqing Oilfield Company Limited
and Vice Secretary to Party Committee of CNPC Daqing Petroleum Administration
Bureau. From August 2000 to March 2001, Mr. Su acted as Deputy General Manager
and member of the Party Committee of China National Petroleum Corporation, Vice
President of PetroChina Company Limited, Chairman, General Manager and Secretary
to the Party Committee of Daqing Oilfield Company Limited as well as Vice
Secretary to the Party Committee of CNPC Daqing Petroleum Administration Bureau.
From March 2001 to December 2002, Mr. Su served as Deputy General Manager and
member of the Party Committee of China National Petroleum Corporation, Vice
President of PetroChina Company Limited and Chairman and General Manager of
Daqing Oilfield Company Limited. From December 2002 to December 2003, Mr. Su
acted as Deputy General Manager and member of the Party Committee of China
National Petroleum Corporation, Director and Senior Vice President of PetroChina
Company Limited as well as Chairman and General Manager of Daqing Oilfield
Company Limited. From December 2003 to September 2006, Mr. Su acted as Deputy
General Manager and member of the Party Committee of China National Petroleum
Corporation, Director and Senior Vice President of PetroChina Company Limited.
From September 2006 to October 2006, Mr. Su was elected as a member of the
Standing Committee of the provincial Party Committee of Liaoning Province. In
October 2006, Mr. Su was appointed as a member of the Standing Committee and
Head of the Organization Department of Liaoning Provincial Committee. In June
2007 he was appointed as President and Secretary of the Party Leadership Group
of Sinopec Group Company. Mr. Su was elected as Director and Chairman on Third
Session of the Board of Directors of Sinopec Corp. in August 2007.
Zhou Yuan, 61, Vice Chairman
of the Board of Directors of Sinopec Corp. and Vice President of the Sinopec
Group Company. Mr. Zhou graduated from East China Petroleum Institute
specializing in petroleum geology in September 1975. He is a senior economist.
He has extensive experience in the management of petroleum and
petrochemical
and government entities. From April 1986 to March 1989, he was the Deputy
Secretary of the Party Committee of Xinjiang Petroleum Administration Bureau
(Kelamayi City) as well as the Secretary of the Party Committee of South
Xinjiang Petroleum Exploration Company. From March 1989 to August 1990, he was
the Vice Commander, Deputy Secretary of the Party Committee and Secretary of the
Disciplinary Committee of Talimu Exploration and Development Headquarter. From
August 1990 to January 1992, he was the Deputy Secretary of the Party Committee
of Xinjiang Petroleum Administration Bureau (Kelamayi City) and the Secretary of
Politics & Law Committee. From January 1992 to December 1993, he served as
Vice Minister of Organization Department of the Party Committee of Xinjiang
Autonomous Region. From December 1993 to January 1998, he served as a member of
the Standing Committee of Discipline Committee and the Deputy Minister of the
Party Committee of the Organisation Department of Xinjiang Autonomous Region.
From January 1998 to August 1999, he was a member of the Standing Committee of
the Disciplinary Committee of the Xinjiang Autonomous Region and the Secretary
of the Party Committee of Yili Autonomous District. From August 1999 to November
1999, he was a member of the Standing Committee of the Party Committee of the
Xinjiang Autonomous Region and the Secretary of the Party Committee of Yili
Autonomous District. From November 1999 to July 2004, he was a member of
Standing Committee of the Party Committee of Xinjiang Autonomous Region and
Minister of the Organization Department of the Party Committee of Xinjiang
Autonomous Region. Since July 2004, he has been the Vice President of Sinopec
Group Company. In March 2008, he was elected as a member of the 11th NPC
Environment and Resources Protection Committee. In October 2008, he was
appointed as Senior Advisor of Sinopec Group Company. Mr. Zhou was elected as
Director and Vice Chairman of the Third Session of the Board of Directors of
Sinopec Corp in May 2006.
Wang Tianpu, 46, Director of
the Board of Directors and President of Sinopec Corp. Mr. Wang graduated from
Qingdao Chemical Institute in July 1985 majoring in basic organic chemistry. He
obtained his MBA degree in Dalian University of Science & Technology in July
1996 and Ph.D. degree in Zhejiang University in August 2003 majoring in chemical
engineering. He is a professor level senior engineer and well-experienced in the
production and management in petrochemical industry. From March 1999 to February
2000, Mr. Wang was Vice President of Qilu Petrochemical Company of Sinopec
Group. From February 2000 to September 2000, he was Vice President of Sinopec
Corp Qilu Company. From September 2000 to August 2001, he was President of
Sinopec Corp Qilu Company. Mr. Wang was Vice President of Sinopec Corp from
August 2001 to April 2003 and was Senior Vice President of Sinopec Corp from
April 2003 to March 2005. Mr. Wang has been President of Sinopec Corp since
March 2005; Mr. Wang was elected as Director of the Third Session of the Board
of Directors of Sinopec Corp. in May 2006 and he is President of Sinopec
Corp.
Zhang Jianhua, 44, Director
of the Board of Directors and Senior Vice President of Sinopec Corp. Mr. Zhang
graduated from East China Chemical Institute in July 1986 majoring in petroleum
refining, and obtained a master’s degree from East China University of Science
and Technology in December 2000 majoring in chemical engineering. He is a
professor level senior engineer. From April 1999 to February 2000, Mr. Zhang was
Vice President of Shanghai Gaoqiao Petrochemical Company of Sinopec Group. From
February 2000 to September 2000, he was Vice President of Sinopec Corp. Shanghai
Gaoqiao Company. He was President of Sinopec Corp. Shanghai Gaoqiao Company from
September 2000 to June 2003. Mr. Zhang served as Vice President of Sinopec Corp.
from April 2003 to March 2005. He was also the Director General of Sinopec
Production & Operation Management Dept. from November 2003 to November 2005.
He has been Senior Vice President of Sinopec Corp. since March 2005; Mr. Zhang
was elected as Director of the Third Session of the Board of Directors of
Sinopec Corp. in May 2006 and has been Senior Vice President of Sinopec
Corp.
Wang Zhigang, 51, Director of
the Board of Directors of Sinopec Corp. and Senior Vice President of Sinopec
Corp. Mr. Wang graduated from East China Petroleum Institute in January 1982,
majoring in oil production, and then obtained a master’s degree from University
of Petroleum in June 2000, majoring in oil and gas development engineering. He
obtained a Ph.D. degree from Geology and Geo-physics Research Institute of the
China Academy of Sciences in September 2003 majoring in geology. He is a
professor level senior engineer. From February 2000 to June 2000, he was Vice
President of Sinopec Shengli Oilfield Company Limited. From June 2000 to
December 2001, Mr. Wang served as Director and President of Sinopec Shengli
Oilfield Company Limited. He was appointed as honorary Deputy Director-General
of the Economic and Trade Committee of Ningxia Hui Autonomous Region from
November 2001 to May 2003. He was Vice President of Sinopec Corp. from April
2003 to March 2005. He was also the Director General of Sinopec Exploration and
Production Dept. since June 2003 to November 2005. He has been Senior Vice
President of Sinopec Corp. since March 2005; Mr. Wang was elected as Director of
the Third Session of the Board of Directors of Sinopec Corp. in May 2006 and has
been Senior Vice President of Sinopec Corp.
Dai Houliang, 45, Director of
the Board of Directors of Sinopec Corp., Senior Vice President and Chief Finance
Officer of Sinopec Corp. Mr. Dai graduated from Jiangsu Chemical Institute in
July 1985, specializing in organic chemical engineering. From September 1997 to
July 1999, he participated in the MBA training program in
Nanjing
University. He is a professor level senior engineer. He was Deputy Manager of
Sinopec Yangzi Petrochemical Company from December 1997 to April 1998. He served
as Director and Deputy General Manager of Sinopec Yangzi Petrochemical Co., Ltd.
from April 1998 to July 2002. He was Vice Chairman and General Manager of
Sinopec Yangzi Petrochemical Co., Ltd. and Director of Sinopec Yangzi
Petrochemical Company from July 2002 to December 2003. He was Chairman and
President of Sinopec Yangzi Petrochemical Co., Ltd. and Chairman of Sinopec
Yangzi Petrochemical Company from December 2003 to September 2005. He also
served as Chairman of BASF-YPC Company Limited from December 2004 to October
2006. He has been the Deputy CFO of Sinopec Corp. from September 2005 to May
2006. Mr. Dai has been Vice President of Sinopec Corp. from November 2005 to May
2006. In May 2006, he was elected as Director of the Third Session of the Board
of Directors, Senior Vice President and CFO of Sinopec Corp.
Liu Zhongli, 74, Independent
Non-Executive Director of Sinopec Corp. He graduated from the training course of
the Training Department of Central Communist Party School (undergraduate course)
in July 1982. He is a senior economist engaging in treasury finance
administration and government work for a long time, and has extensive experience
in macro-economics, financial and treasury administration. He was working in
Commerce Bureau of Heilongjiang Province in 1952 and in Planning Commission of
Heilongjiang Provincial Government in 1963. He had served as Deputy Division
Director of the General Affairs Office of Planning Commission of Heilongjiang
Provincial Government and Deputy Secretary General of Planning Commission of
Heilongjiang Provincial Government since September 1973. He was Deputy Director
General of Planning Commission of Heilongjiang Provincial Government and a
member of Party Committee of Planning Commission of Heilongjiang Provincial
Government from July 1982 to May 1983. From May 1983 to May 1985, he was
Director General of Planning Commission (Planning & Economics Department) of
Heilongjiang Provincial Government and Secretary of Party Committee of Planning
Commission (Planning & Economics Department) of Heilongjiang Provincial
Government. He served as Deputy Governor of Heilongjiang Province from May 1985
to January 1988. He was Vice Minister of the Ministry of Finance and Deputy
Secretary of Party Committee of the Ministry of Finance from February 1988 to
July 1990. He served as Deputy Secretary General of the State Council and Deputy
Secretary of Party Committee of the State Council from July 1990 to September
1992. From September 1992 to March 1998, he was Minister of the Ministry of
Finance and Secretary of Party Committee of the Ministry of Finance and, from
February 1994, concurrently Director-General of State Administration of
Taxation. From March 1998 to November 2000, he was Head of Economic System
Reform Office of the State Council and Secretary of Party Committee of the
Economic System Reform Office of the State Council. From August 2000 to March
2003, he was Chairman of National Council for Social Security Fund and Secretary
of Party Committee of the National Council for Social Security Fund. He has been
a member of the Standing Committee of the Tenth Session of the Chinese People’s
Political Consultative Conference (CPPCC) and Director-General of the Economics
Committee of CPPCC since March 2003. Since October 2004, he has concurrently
been Chairman of the Chinese Institute of Certified Public Accountants. Mr. Liu
was elected as Independent Non-Executive Director of the Third Session of the
Board of Directors of Sinopec Corp. in May 2006.
Shi Wanpeng, 71, Independent
Non-Executive Director of Sinopec Corp., a member of the Standing Committee of
the National Committee of the Tenth session of the Chinese People’s Political
Consultative Conference and Deputy Director of its Economic Committee. Mr. Shi
graduated from Northern Jiaotong University in August 1960 specializing in
railway transportation administration. He is a professor level senior engineer.
He has long been engaged in economic management work, and has extensive
experience in macro-economic management. From January 1983 to January 1987, he
served as Deputy Director of the Transport Bureau of the State Economic
Commission. From January 1987 to May 1988, he was the Director of the Economic
and Technical Co-operation Bureau of the State Economic Commission. From May
1988 to July 1991, he was Director of the Production and Dispatch Bureau of the
State Planning Commission. From July 1991 to July 1992, he served as Deputy
Secretary General of the Production Office of the State Council. From July 1992
to April 1993, he served as Deputy Director of the Economic and Trade Office of
the State Council. From April 1993 to July 1997, he was Vice Minister of the
State Economic and Trade Commission. From July 1997 to March 1998, he was
Chairman (minister level) of the China Textiles Association. From March 1998 to
February 2002, he served as Vice Minister of the State Economic and Trade
Commission. Since January 2003, he has been Chairman of China Packaging
Federation. He has been a member of the Standing Committee of the National
Committee of the Tenth session of the Chinese People’s Political Consultative
Conference and Deputy Director of its Economic Committee since March 2003. Mr.
Shi was elected as Independent Non-executive Director of the Second Session of
the Board of Directors of Sinopec Corp. from April 2003 to May 2006; he was
elected as Independent Non-Executive Director of the Third Session of the Board
of Directors of Sinopec Corp. in May 2006.
Li Deshui, 64, Independent
Non-Executive Director of Sinopec Corp. Mr. Li graduated from university in
1967. He is a senior engineer, researcher, part-time professor of the Economics
School of Peking University and the Economics School of Renmin University of
China. After graduating from university, he was assigned to work
at
Maanshan
Steel Company and has acted as Workshop Section Head and Dispatch Head. In 1977
he worked at the Planning Institute of the Metallurgy Department. In 1984 he
worked at the Raw Materials Bureau of the State Planning Commission. In 1988 he
acted as Deputy Division Director of the First Industrial Planning Division of
the Long-term Planning Department of the State Planning Commission. In 1989 he
was Division Director of the First Industrial Planning Division of the Long-term
Planning Department and Division Director of the First Industrial Planning
Division of the Long-term Planning and Industrial Policy Department. In 1992 he
acted as Deputy Director of the National Economy Comprehensive Department of the
State Planning Commission. In May 1996 he was Director of the National Economy
Comprehensive Department of the State Planning Commission. In November 1996, he
acted as Vice Mayor of Chongqing in Sichuan Province. In March 1997 he acted as
Vice Mayor of Chongqing Municipality. In November 1999 he worked as Deputy
Director of the Research Office of the State Council and a member of the Party
Committee. In April 2002, he served as Secretary of the Party Committee and
Deputy General Manager of China International Engineering Consultancy Company.
In March 2003 he served as Secretary of the Party Committee and Head of the
State Statistics Bureau, a member of the Monetary Policy Committee of the
People’s Bank of China and Chairman of China Statistics Institute. In March
2005, he was elected as Vice Chairman of the Thirty-sixth Statistics Commission
of the United Nations. In March 2005 he served as a member of the Tenth Session
of the Chinese People’s Political Consultative Conference. In April 2006 he
acted as a member of the Economic Commission. In March 2006, he was the
consultant of the State Statistics Bureau. Mr. Li was elected as Independent
Non-Executive Director of the Third Session of the Board of Directors of Sinopec
Corp. in May 2006.
Yao Zhongmin, 56, Director of
Sinopec Corp. Mr. Yao graduated from Dongbei University of Finance &
Economics in September 1977 specializing in Infrastructure Finance & Credit
and graduated as postgraduate from Zhongnan University of Finance &
Economics in December 1996 specializing in Investment Economics with a master’s
degree. He is a senior Economist. Mr. Yao has worked for a long time in
financial investment management related work and has extensive experience in
finance investment management. From May 1985 to June 1989, he was a member of
the Party Committee of China Construction Bank Henan Branch and its
Vice-Chairman. From June 1989 to June 1992, he was leading the work of China
Construction Bank Henan Branch, and was Deputy Secretary of the Party Committee
and Vice Chairman of the bank. From June 1992 to April 1993, he served as
Secretary of the Party Committee and Chairman of China Construction Bank Henan
Branch. He served as Vice Governor of Henan Province from April 1993 to January
1994. From January 1994 to March 1998, he was a member of the Party Committee of
China Development Bank and its Vice Chairman and Chairman of the Disciplinary
Supervision Committee. From March 1998 to June 1998, he was Deputy Secretary of
the Party Committee of China Development Bank and its Vice Chairman and Chairman
of the Disciplinary and Investigation Committee. From June 1998, he was the
Deputy Secretary of the Party Committee of China Development Bank and its
Vice-Chairman. In December 2008, he was reappointed as the Vice Chairman of the
Party Committee of China Development Bank and Chairman of the Disciplinary
Supervision Committee. Mr. Yao was elected as Director of the Third Session of
the Board of Directors of Sinopec Corp. in May 2006.
Fan Yifei, 45, Director of
Sinopec Corp. Mr. Fan graduated from the treasury and finance department of
Renmin University of China in July 1993 and obtained a doctoral degree in
economics; He obtained a master’s degree in international economics from
Columbia University in 2002. He is a senior accountant. From June 1993 to
September 1994, he was the Assistant to the General Manager and Manager of the
Planning and Finance Department of the Trust Investment Company of China
Construction Bank successively. From September 1994 to July 1996, he served as
Vice General Manager of the Capital Planning Department of China Construction
Bank. He was the General Manager of the Finance and Accounting Department of
China Construction Bank from July 1996 to January 1998. He was the General
Manager of the Planning and Finance Department of China Construction Bank from
January 1998 to February 2000. Mr. Fan served as the Assistant to the Governor
of China Construction Bank from February 2000 to June 2005, during which he
enriched his experience by participating in the Three Gorges project, and also
acted as the Assistant to the General Manager of China Changjiang Power Co.,
Ltd. In June 2005, Mr. Fan was appointed as Deputy Governor of China
Construction Bank. Mr. Fan acted as Director of the Second Session of the Board
of Directors of Sinopec Corp. from April 2003 to May 2006; he was elected as
Director of the Third Session of the Board of Directors of Sinopec Corp. in May
2006.
Supervisors
The table
and discussion below set forth certain information concerning our supervisors.
The current term of our supervisors is three years, which will expire in May
2009.
Name |
|
|
Age
|
|
Position with the
Company |
|
|
|
|
|
|
Wang
Zuoran
|
|
|
58
|
|
Chairman
of the Board of Supervisors
|
Zhang
Youcai
|
|
|
67
|
|
Vice
Chairman, Independent Supervisor
|
Kang
Xianzhang
|
|
|
60
|
|
Supervisor
|
Zou
Huiping
|
|
|
48
|
|
Supervisor
|
Li
Yonggui
|
|
|
68
|
|
Independent
Supervisor
|
Su
Wensheng
|
|
|
52
|
|
Employee
Representative Supervisor
|
Zhang
Jitian
|
|
|
61
|
|
Employee
Representative Supervisor
|
Cui
Guoqi
|
|
|
55
|
|
Employee
Representative Supervisor
|
Li
Zhonghua
|
|
|
57
|
|
Employee
Representative
Supervisor
|
Wang Zuoran, 58, Chairman of
the Supervisory Board of Sinopec Corp. Mr. Wang graduated from Shandong Economic
Administration Institute in September 1994 specializing in economic
administration. Mr. Wang is a professor level senior economist and has extensive
experience in the management of petroleum industry. From October 1994 to
February 2000, Mr. Wang served as Deputy Director and Party Secretary of Shengli
Petroleum Administration Bureau. From February 2000 to July 2001, Mr. Wang was
the Assistant to the President of Sinopec Group Company. Mr. Wang has been
Director of Disciplinary Supervision Committee of Sinopec Group Company since
July 2001. Mr. Wang served as Supervisor of the First Session of the Supervisory
Board of Sinopec Corp. from February 2000 to April 2003. From April 2003 to May
2006, Mr. Wang served as Supervisor and Chairman of the Second Session of the
Supervisory Board of Sinopec Corp.; he was elected as Supervisor and Chairman of
the Third Session of the Supervisory Board of Sinopec Corp. in May
2006.
Zhang Youcai, 67, Independent
Supervisor and Vice Chairman of the Supervisory Board of Sinopec Corp. Mr. Zhang
graduated from Nanjing Industrial University in August 1965 majoring in
inorganic chemistry. He is a professor and has long been engaged in business
administration, financial management and government affairs, and has extensive
experience in industrial, economic, financial and accounting management. From
January 1968 to August 1980, he served as a technician, Vice-President, Deputy
Secretary of the Party Committee and President of Nantong Chemical Fertilizer
Plant. From August 1980 to January 1982, he was Deputy Director-General and
member of the Party Committee of the Industrial Bureau of Nantong Region. From
January 1982 to February 1983, he served as Deputy Director - General of
Planning Commission of Nantong Region. From February 1983 to November 1989, he
served as Deputy Mayor, Deputy Secretary of the Party Committee and Mayor of
Nantong City. He was Vice Minister and member of the Party Committee of Ministry
of Finance from December 1989 to July 2002 (from May 1994 to March 1998, he
served concurrently as Director-General of State-owned Assets Administration
Bureau). He has been Chairman of the Chinese Institute of Chief Accountants
since November 2002. He has been a member of the Standing Committee of the Tenth
National People’s Congress (NPC) and Deputy Director of its Financial and
Economic Committee of NPC from March 2003. Mr. Zhang served as an Independent
Non-Executive Director of the Second Session of Board of Directors of Sinopec
Corp. from April 2003 to May 2006; he was elected as Independent Supervisor and
Vice Chairman of the Third Session of the Supervisory Board of Sinopec Corp. in
May 2006.
Kang Xianzhang, 60,
Supervisor of Sinopec Corp. Mr. Kang graduated from the Correspondence Teaching
Department of the Party School of the Beijing Municipal Party Committee in March
1988 specializing in ideology politics (undergraduate course). He also graduated
from the Correspondence Teaching College of the Party School of the Central
Committee of the Communist Party of China in December 1992 specializing in party
and political affairs management (bachelor course). He is a senior political
engineer. From June 1995 to August 1996, he was the Deputy Director of the
Organization Department of the Communist Party Committee of the Tibet Autonomous
Region. From August 1996 to May 1997, he was a senior researcher of the deputy
director level in the Cadre Allocation Bureau of the Organization Department of
the Central Committee of the Communist Party of China. He acted as the Deputy
Secretary of the Communist Party Committee of the Coal Scientific Research
Institute of the Ministry of Coal Industry from May 1997 to October 1998. From
October 1998 to May 1999, he was Supervisor of the deputy director level in the
Discipline Inspection Group and the Supervisory Bureau of Sinopec Group Company,
and acted as a Deputy Director of the Supervisory Bureau of the same company
from May 1999 to March 2001. He was the Deputy Director of the Supervisory
Department of Sinopec Corp. from February 2000 to March 2001. He has been a
Deputy Head of the Discipline Inspection Group of the Leading Party Group and
Director of the Supervisory Bureau of Sinopec Group Company, as well as Director
of the Supervisory Department of Sinopec Corp. from March 2001 to August 2008.
Mr. Kang served as Supervisor of the Second Session of the Supervisory Board of
Sinopec Corp. from April 2003 to May 2006; he was elected as Supervisor of the
Third Session of the Supervisory Board of Sinopec Corp. in May
2006.
Zou Huiping, 48, Supervisor
of Sinopec Corp. Mr. Zou graduated from Jiangxi Institute of Finance and
Economics in July 1986 specializing in trade economics. He is a professor level
senior accountant. From November 1998 to February 2000, he served as Chief
Accountant of Sinopec Group Guangzhou Petrochemical Company. From February 2000
to December 2001, he was Deputy Director General of Financial Assets Department
of Sinopec Group
Company.
From December 2001 to March 2006, he was Deputy Director General of Finance
Planning Department of Sinopec Group Company. In March 2006, he was Director
General of Financial Assets Department of Sinopec Assets Management Co., Ltd.
Since March 2006, he has been Director General of Audit Department of Sinopec
Corp. Mr. Zou was elected as Supervisor of the Third Session of the Supervisory
Board of Sinopec Corp. in May 2006.
Li Yonggui, 68, Independent
Supervisor of Sinopec Corp. Mr. Li graduated from Shandong Institute of Finance
and Economics in July 1965, majoring in treasury finance. He is a senior
economist and CPA, and has long been engaged in tax management with extensive
management experience in taxation. From February 1985 to December 1988, he was
Deputy Director-General of Taxation Bureau of Ministry of Finance. He served as
Chief Economist of State Administration of Taxation from December 1988 to April
1991. From April 1991 to February 1995, he served as Deputy Director-General of
State Administration of Taxation. He was Chief Economist of State Administration
of Taxation from February 1995 to September 2001. Mr. Li has been Chairman of
Chinese Association of Certified Public Taxation Experts since April 2000. He
has served as Vice Chairman of Chinese Association of Certified Accountants
since November 2004. In July 2008, he was appointed as consultant of Chinese
Association of Certified Public Taxation Experts. Mr. Li served as Independent
Supervisor of the Second Session of Supervisory Board of Sinopec Corp. from
April 2003 to May 2006; he was elected as Independent Supervisor of the Third
Session of Supervisory Board of Sinopec Corp. in May 2006.
Su Wensheng, 52, Employee
Representative Supervisor of Sinopec Corp. Mr. Su graduated from the General
Section of Tsinghua University in December 1980 majoring in environmental
engineering. He obtained a master’s degree in management science and engineering
from Petroleum University (Beijing) in June 2000. He is a senior engineer. From
September 1986 to November 1996, he was Deputy Secretary of Party Committee and
Secretary of Disciplinary Committee of Beijing Designing Institute of the former
Sinopec Group Company. From November 1996 to December 1998, he was Secretary of
Party Committee of Beijing Designing Institute. Mr. Su has been Director-General
of Ideology & Politics Department and Deputy Secretary of the Affiliated
Party Committee of Sinopec Group Company since December 1998. He has been
Managing Deputy Secretary of the Party Working Committee of the Western New
Region Exploration Headquarter of Sinopec Group since December 2001. He was
appointed as the Party Secretary and Vice Chairman of Beijing Yanshan
Petrochemical Corporation in October 2007. Mr. Su served as an Employee
Representative Supervisor of the Second Session of Supervisory Board of Sinopec
Corp. from April 2003 to May 2006; he was elected as Employee Representative
Supervisor of the Third Session of Supervisory Board of Sinopec Corp. in May
2006.
Zhang Jitian, 61, Employee
Representative Supervisor of Sinopec Corp. Mr. Zhang graduated from Hohhot
Transportation Institute in July 1968 specializing in road and bridge
construction, and he also graduated from Sinopec Management Institute in July
1986 specializing in enterprise management (undergraduate course). He is a
senior political engineer. From August 1996 to December 1998, he was Deputy
Director of Personnel and Educational Department of the former Sinopec Group
Company; from December 1998 to September 2005, he was Deputy Director of
Personnel and Educational Department of Sinopec Group Company; he has been
Deputy Director (remunerate as Director) of Personnel Department of Sinopec
Corp. from September 2005 to August 2008. Mr. Zhang was elected as Employee
Representative Supervisor of the Third Session of Supervisory Board of Sinopec
Corp. in May 2006.
Cui Guoqi, 55, Employee
Representative Supervisor of Sinopec Corp. Mr. Cui graduated from the
Correspondence Teaching College of Renmin University of China in December 1985
majoring in industrial business management. In January 1997, he obtained a MBA
degree from the Business Management School of Renmin University of China. He is
a professor level senior political engineer. Mr. Cui has served as Director and
Trade Union Chairman of Sinopec Yanshan Petrochemical Company since February
2000. He served as a member of the Executive Committee of All China Federation
of Trade Unions in December 2000, and a member of the Standing Committee of the
National Committee of the Union of Chinese Energy and Chemical Industries since
December 2001. He was Deputy Secretary of Party Committee of Sinopec Yanshan
Petrochemical Company from August 2005 to November 2006. Mr. Cui has been the
Deputy Secretary (remunerate as Secretary) of Party Committee of Sinopec Yanshan
Petrochemical Company since November 2006. He was appointed as President, Deputy
Secretary of Party Committee and Director General of Headquarter Services
Department of Sinopec Baichuan Economical and Trading Company. Mr. Cui served as
Employee Representative Supervisor of the Second Session of Supervisory Board of
Sinopec Corp. from April 2003 to May 2006; he was elected as Employee
Representative Supervisor of the Third Session of Supervisory Board of Sinopec
Corp. in May 2006.
Li Zhonghua, 57, Employee
Representative Supervisor of Sinopec Corp. Mr. Li graduated from the
Correspondence Teaching Department of the Party School of Shengli Oilfield in
June 1996 specializing in party and political affairs management (undergraduate
course). He also graduated from the Correspondence Teaching College of the Party
School of Shandong Provincial Party Committee in December 1998 specializing in
economic management.
He is a
professor level senior political engineer. From March 1995 to January 2004, he
had been Secretary of Party Committee and Vice General Manager of No. 2 Drilling
Company of Shengli Petroleum Administration Bureau; Secretary of Party
Committee, General Manager of Offshore Drilling Company of Shengli Petroleum
Administration Bureau; and Deputy Party Secretary, General Manager of the Yellow
River Drilling Company of Shengli Petroleum Administration Bureau successively.
From January 2004 to November 2004, he was Deputy Chief Engineer, Deputy
Secretary of Party Committee and General Manager of the Yellow River Drilling
Company of Shengli Petroleum Administration Bureau; he has been member of the
Standing Committee of Party Committee and Chairman of the Trade Union of Shengli
Petroleum Administration Bureau since November 2004. He was Deputy Secretary of
Party Committee of Shengli Petroleum Administration Bureau since April 2006. Mr.
Li was elected as Employee Representative Supervisor of the Third Session of
Supervisory Board of Sinopec Corp. in May 2006.
Other
Executive Officers
Name
|
|
Age
|
|
Positions with Sinopec
Corp.
|
|
|
|
|
|
Cai
Xiyou
|
|
|
47
|
|
Senior
Vice President
|
Zhang
Kehua
|
|
|
55
|
|
Vice
President
|
Zhang
Haichao
|
|
|
51
|
|
Vice
President
|
Jiao
Fangzheng
|
|
|
46
|
|
Vice
President
|
Chen
Ge
|
|
|
46
|
|
Secretary
of the Board of
Directors
|
Cai Xiyou, 47, Senior Vice
President of Sinopec Corp. Mr. Cai graduated from Fushun Petroleum Institute in
August 1982 majoring in petroleum refining automation, and obtained a MBA degree
from China Industry and Science Dalian Training Center in October 1990. He is a
senior economist. From June 1995 to May 1996, he was Deputy General Manager of
Jinzhou Petrochemical Company of the former Sinopec Group Company. From May 1996
to December 1998, he was Deputy General Manager of Dalian Western Pacific
Petrochemical Co., Ltd (WEPEC). From December 1998 to June 2001, he was Deputy
General Manager of Sinopec Sales Co., Ltd, and from June 2001 to December 2001,
he was Executive Deputy Manager of Sinopec Sales Co., Ltd. He has been Director
and General Manager of China International United Petrochemical Company Limited
(UNIPEC) from December 2001 to December 2005. He was Vice President of Sinopec
Corp. from April 2003 to November 2005. Mr. Cai has been Senior Vice President
of Sinopec Corp. since November 2005.
Zhang Kehua, 55, Vice
President of Sinopec Corp. Mr. Zhang graduated from Shanghai Chemical
Engineering University in January 1980 majoring in chemical and mechanical
engineering. He is a senior engineer and had his master’s degree from University
of Petroleum majoring in management science and engineering in December 2000. He
was Deputy Manager of No. 3 Construction Company of the former Sinopec Group
Company from February 1994 to April 1996. From April 1996 to December 1998, he
was Deputy Director General (Deputy Manager of Sinopec Engineering
Incorporation) of the Engineering Department of the former Sinopec Group
Company. He was Deputy Director General of the former Engineering Department of
Sinopec Group Company from December 1998 to December 2001 and was Deputy
Director General of Engineering Department of Sinopec Group Company from
December 2001 to September 2002. Mr. Zhang was Director General of Engineering
Department of Sinopec Group Company from September 2002 to October 2004. Mr.
Zhang has served as the Assistant to the President of Sinopec Group Company and
Director General of Engineering Department since October 2004. Mr. Zhang has
been Vice President of Sinopec Corp. since May 2006. From June 2007 to Present,
he has been Director General of Engineering Dept. of Sinopec Corp.
Zhang Haichao, 51, Vice
President of Sinopec Corp. Mr. Zhang graduated from Zhoushan Commercial and
Technical School in December 1979, specializing in oil storage and
transportation. He also graduated from Jilin Petrochemical Institute in July
1985 specializing in recycling of lubricating oil. From January 2001 to June
2002, he participated in the business administration program at Macau Science
& Technology University. He is an economist. He served as Deputy General
Manager of Zhejiang Petroleum Company from March 1998 to September 1999. He
served as General Manager of Zhejiang Petroleum Company from September 1999 to
February 2000, and has served as Manager of Sinopec Zhejiang Petroleum Company
from February 2000 to September 2005. He has been Chairman of Sinopec-BP
Zhejiang Petroleum Sales Co., Ltd. since April 2004. He was Secretary of
the Party Committee, Vice Chairman and Deputy General Manager of
Sinopec Sales Co., Ltd. from October 2004 to November 2005. He was Secretary of
Party Committee, Chairman and General Manager of Sinopec Sales Co., Ltd. from
November 2005 to June 2006. He has been Chairman and General Manager of Sinopec
Sales Co., Ltd. since June 2006. From December 2008, he acted as Chairman and
President of Sinopec Sales Co., Ltd. He served as Employee Representative
Supervisor of the Second Session of the Supervisory Board of Sinopec Corp. from
April 2003 to November 2005. Mr. Zhang has been Vice President of Sinopec Corp.
since November 2005.
Jiao Fangzheng, 46, Vice
President of Sinopec Corp. Mr. Jiao won his bachelor’s degree in petroleum
exploration and won his doctoral degree in natural gas engineering from
Southwest Petroleum Institute respectively in July 1983 and November 2000. Mr.
Jiao is a professor level senior engineer. From January 1999 to February 2000,
he was Chief Geologist of Zhongyuan Petroleum Exploration Bureau of Sinopec
Group Company. He then served as Deputy Manager and Chief Geologist of Zhongyuan
Oilfield Company of Sinopec Group Company from February 2000 to February 2001.
He was Vice President of Sinopec Exploration and Production Research Institute
from July 2000 to March 2001. He then served as Deputy Director General of
Sinopec Oilfield E & P Department from March 2001 to June 2004. Since June
2004, he served as Manager of the Northwest Company of Sinopec Group Company.
Mr. Jiao has served as Vice President of Sinopec Corp. since October
2006.
Chen Ge, 46, Secretary to the
Board of Directors of Sinopec Corp. Mr. Chen graduated from Daqing Petroleum
Institute in July 1983 majoring in petroleum refining, and then obtained his MBA
degree from Dalian University of Science and Technology in July 1996. He is a
senior economist. From July 1983 to February 2000, he worked in Beijing Yanshan
Petrochemical Company. From February 2000 to December 2001, he was Deputy
Director General of the Board Secretariat of Sinopec Corp. Mr. Chen has been
Director General of the Board Secretariat since December 2001. Mr. Chen has been
the Secretary to the Board of Directors of Sinopec Corp. since April
2003.
B. COMPENSATION
Salaries
of Directors, Supervisors and Members of the Senior Management
Our
directors and supervisors who hold working posts with us and other senior
management members receive their remuneration in the form of basic salary and
performance rewards.
The
following table sets forth the compensation on individual basis for our
directors, supervisors and executive officers who receive compensation from us
in 2008.
|
|
Position
with the Company
|
|
Remuneration
paid by the Company in 2007
|
|
|
|
|
(RMB
in thousand)
|
Directors
|
|
|
|
|
Su
Shulin
|
|
Chairman
|
|
─
|
Zhou
Yuan
|
|
Vice
Chairman
|
|
─
|
Wang
Tianpu
|
|
Director,
President
|
|
844
|
Zhang
Jianhua
|
|
Director,
Senior Vice President
|
|
808
|
Wang
Zhigang
|
|
Director,
Senior Vice President
|
|
808
|
Dai
Houliang
|
|
Director,
Senior Vice President, CFO
|
|
808
|
Liu
Zhongli
|
|
Independent
Non-executive Director
|
|
240
|
Shi
Wanpeng
|
|
Independent
Non-executive Director
|
|
240
|
Li
Deshui
|
|
Independent
Non-executive Director
|
|
240
|
Yao
Zhongmin
|
|
Director
|
|
48
|
Fan
Yifei
|
|
Director
|
|
48
|
|
|
|
|
|
Supervisors
|
|
|
|
|
Wang
Zuoran
|
|
Chairman
of Supervisory Committee
|
|
─
|
Zhang
Youcai
|
|
Vice
Chairman, Independent Supervisor
|
|
240
|
Kang
Xianzhang
|
|
Supervisor
|
|
─
|
Zou
Huiping
|
|
Supervisor
|
|
436
|
Li
Yonggui
|
|
Independent
Supervisor
|
|
240
|
Su
Wensheng
|
|
Employee
Representative Supervisor
|
|
428
|
Zhang
Jitian
|
|
Employee
Representative Supervisor
|
|
429
|
Cui
Guoqi
|
|
Employee
Representative Supervisor
|
|
448
|
Li
Zhonghua
|
|
Employee
Representative Supervisor
|
|
424
|
|
|
|
|
|
Other Executive
officers
|
|
|
|
|
Cao
Xiyou
|
|
Senior
Vice President
|
|
808
|
Zhang
Kehua
|
|
Vice
President
|
|
528
|
Zhang
Haichao
|
|
Vice
President
|
|
513
|
Jiao
Fangzheng
|
|
Vice
President
|
|
518
|
Chen
Ge
|
|
Secretary
to the Board of Directors
|
|
438
|
C. BOARD
PRACTICE
We have
three special board committees, namely, the audit committee, the strategy
committee and the remuneration and evaluation committee. The majority of the
members of the strategy committee and the remuneration and evaluation committee,
and all members of the audit committee, are independent directors. In
addition, the audit committee shall have at least one independent director who
is a financial expert.
The main
responsibilities of the audit committee include:
|
·
|
to
propose the appointment or replacement of the independent
auditor;
|
|
·
|
to
oversee the internal auditing system and its
implementation;
|
|
·
|
to
coordinate the communication between the internal auditing department and
the independent auditor;
|
|
·
|
to
examine and approve financial information and it disclosure;
and
|
|
·
|
to
examine the internal control
system.
|
The main
responsibilities of the strategy committee are to conduct research and put
forward proposals on the long-term development strategy and significant
investments.
The main
responsibilities of the remuneration and evaluation committee
include:
|
·
|
to
research on evaluation criteria for directors and the president, to
conduct their evaluations and make necessary suggestions;
and
|
|
·
|
to
research on and review the policies and proposals in respect of the
remuneration of directors, supervisors, president, vice-president, Chief
Financial Officer and secretary of the board of
directors.
|
The
members of our audit committee are Liu Zhongli, Shi Wanpeng and Li Deshui, all
of whom are our Independent Non-executive Directors. Our Board has determined
that Liu Zhongli qualifies as an audit committee financial
expert. The members of our strategy committee are Wang Tianpu, Zhang
Jianhua, Wang Zhigang, Li Deshui, Yao Zhongmin and Fan Yifei. The
members of our remuneration and evaluation committee are Liu Zhongli, Shi
Wanpeng, Li Deshui and Dai Houliang.
Our
directors have entered into directors service contracts with us and under such
contracts, there is no severance pay arrangements for our
directors.
D. EMPLOYEES
As of
December 31, 2006, 2007 and 2008, we had approximately 340,886, 334,377 and
358,304 employees, respectively. The following table sets forth the number of
our employees by our business segments, their scope of work and their education
as of December 31, 2008.
By
Segment
|
|
Number of
Employees
|
|
|
Percentage of Total Number of Employees
(%)
|
|
Exploration
and Production
|
|
|
140,048
|
|
|
|
39.1
|
|
Refining
|
|
|
82,004
|
|
|
|
22.9
|
|
Marketing
and Distribution
|
|
|
58,260
|
|
|
|
16.2
|
|
Chemicals
|
|
|
69,066
|
|
|
|
19.3
|
|
Corporate
and Others
|
|
|
8,926
|
|
|
|
2.5
|
|
Total
|
|
|
358,304
|
|
|
|
100.0
|
|
By
Employee's Scope of Work
|
|
Number of
Employees
|
|
|
Percentage of Total Number of Employees
(%)
|
|
Production
|
|
|
184,800
|
|
|
|
51.6
|
|
Sales
|
|
|
57,651
|
|
|
|
16.1
|
|
Technical
|
|
|
46,936
|
|
|
|
13.1
|
|
Finance
|
|
|
9,957
|
|
|
|
2.8
|
|
Administration
|
|
|
28,664
|
|
|
|
8.0
|
|
Others
|
|
|
30,296
|
|
|
|
8.4
|
|
Total
|
|
|
358,304
|
|
|
|
100.0
|
|
By
Education
|
|
Number of
Employees
|
|
|
Percentage of Total Number of Employees
(%)
|
|
Master's
degree and
above
|
|
|
6,327
|
|
|
|
1.8
|
|
University
|
|
|
67,318
|
|
|
|
18.8
|
|
Tertiary
education
|
|
|
75,274
|
|
|
|
21.0
|
|
Technical/polytechnic
school
|
|
|
33,159
|
|
|
|
9.2
|
|
Secondary,
technical/polytechnic school or below
|
|
|
176,226
|
|
|
|
49.2
|
|
Total
|
|
|
358,304
|
|
|
|
100.0
|
|
We have
trade unions that protect employee rights, organize educational programs, assist
in the fulfillment of economic objectives, encourage employee participation in
management decisions, and assist in mediating disputes between us and individual
employees. We have not been subject to any strikes or other labor disturbances
that have interfered with our operation, and we believe that our relations with
our employees are good.
The total
remuneration of our employees includes salary, performance bonuses and
allowances. Employees also receive certain subsidies in housing, health
services, education and other miscellaneous items.
Since
2001, we have implemented an employee reduction plan by means of retirement,
voluntary resignation and/or redundancy to enhance our efficiency and operating
profit, and by December 31, 2008, a total of 142, 269 employees have
retired.
E. SHARE
OWNERSHIP
Our
directors, supervisors and senior officers do not have share ownership in
us.
ITEM
7.
|
MAJOR
SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS
|
A. MAJOR
SHAREHOLDERS
The
following table sets forth information regarding our 5% or more shareholders as
of May 15, 2009.
|
|
Number
of
Shares
Owned
(in
millions)
|
|
|
Percentage
of Ownership (%)
|
|
Sinopec
Group Company .
|
|
|
65,758.04
|
|
|
|
75.84
|
|
As
of May 15, 2009, 1,018,973,200 H shares were registered in the name of
a nominee of Citibank, N.A., the depositary under our ADS deposit
agreement. Citibank, N.A. has advised us that, as of May 15,
2009, 10,189,732 ADSs, representing 1,018,973,200 H shares, were held of record
by Cede & Co. and 54 other registered shareholders domiciled in and outside
of the United States. We have no further information as to our shares held, or
beneficially owned, by U.S. persons.
B.
RELATED PARTY TRANSACTIONS
Sinopec
Group Company owns 75.84% of our outstanding equity as of May 15, 2009. Sinopec
Group Company will be able to exercise all the rights of a controlling
shareholder, including the election of directors and voting in respect of
amendments to our articles of association. Sinopec Group Company, as our
controlling shareholder, will be subject to certain minority shareholder
protection provisions under our articles of association.
We have
engaged from time to time and will continue to engage in a variety of
transactions with Sinopec Group Company, which provide a number of services to
us, including ancillary supply, transport, educational and community services.
The nature of our transactions with Sinopec Group Company is governed by a
number of service and other contracts between Sinopec Group Company and
us. A discussion of these agreements and arrangements is set forth
under the heading "Item 7 - Major Shareholders and Related Party
Transactions-Related Party Transactions" in our annual report on Form 20-F filed
with the Securities and Exchange Commission on April 17, 2001, and under the
heading “Item 7 - Major Shareholders and Related Party Transactions-Related
Party Transactions” in our annual report on Form 20-F filed with the Securities
and Exchange Commission on April 13, 2007.
On June
26, 2008, we entered into a series of assets acquisition agreements with Shengli
Oilfields Administrative Bureau, Zhongyuan Petroleum Exploration Bureau, Henan
Petroleum Exploration Bureau, Jianghan Oilfield Administrative Bureau, Jiangsu
Petroleum Exploration Bureau and Huadong Petroleum Bureau, each of which is the
wholly-owned entity of Sinopec Group Company, to acquire all the downhole
operation assets in maintenance nature. The consideration for the acquisition is
RMB1,624 million. We used our internal resources to fund the acquisition. The
acquisition was completed on June 30, 2008.
In
addition, on August 22, 2008, we entered into the Memorandum on Adjustment of
Rent of Land Use Rights with Sinopec Group Company. Pursuant to the memorandum,
the annual total rent payable under the original Land Use Rights Leasing
Contract dated June 3, 2000, as amended, was adjusted to approximately RMB 4.2
billion and the area of land use rights subject to leasing shall be revised to
approximately 416.7 million square meters.
Our
aggregate amount of connected transactions actually occurred during 2008 was RMB
318.6 billion, of which, incoming trade whereby we purchased products or
services amounted to RMB 121.5 billion, and outgoing trade whereby we provided
products or services amounted to RMB 197.13 billion (including, RMB 197.0
billion of sales of products and services, RMB 19 million of interest earned,
RMB 78 million of income from agency fee). In 2008, the products and services
provided by Sinopec Group Company (procurement, storage, transportation,
exploration and production services, production-related services) to us were RMB
91.9 billion, representing 6.23% of our operating expenses for year 2008, and a
decrease of 2.47% compared with 2007. The auxiliary and community services
provided by Sinopec Group Company to us were RMB 1.6 billion, representing 0.11%
of the operating expenses, and a decrease by 0.62% compared with 2007. The
product sales from us to Sinopec Group Company amounted to RMB 80.3 billion,
representing 5.53% of our operating revenue. We also paid approximately RMB 368
million as rent in 2008 under the Leasing Agreement for Properties. In 2008, we
paid an insurance premium of approximately RMB 1.4 billion to Sinopec Group
Company under the terms of its SPI Fund. The amount of rental payable by us
to Sinopec Group Company was approximately RMB 4.2 billion in 2008. Please
see Note 30 of our consolidated financial statements included elsewhere in this
annual report for a detailed discussion of our related party
transactions.
C. INTERESTS
OF EXPERTS AND COUNSEL
Not
applicable.
ITEM
8.
|
FINANCIAL
INFORMATION
|
A. CONSOLIDATED
STATEMENTS AND OTHER FINANCIAL INFORMATION
See
F-pages following Item 19.
Legal
Proceedings
We are
involved in certain judicial and arbitral proceedings before Chinese courts or
arbitral bodies concerning matters arising in connection with the conduct of our
businesses. We believe, based on currently available information, that the
results of such proceedings, in the aggregate, will not have a material adverse
effect on our financial condition or results of operations.
Dividend
Distribution Policy
Our board
of directors will determine the payment of dividends, if any, with respect to
our shares on a per share basis. Any final dividend for a financial year shall
be subject to shareholders' approval. The board may declare interim and special
dividends at any time under general authorization by a shareholders' ordinary
resolution. A decision to declare or to pay any dividends in the future, and the
amount of any dividends, will depend on our results of operations, cash flows,
financial condition, the payment by our subsidiaries of cash dividends to us,
future prospects and other factors which our directors may determine are
important.
For
holders of our H shares, cash dividend payments, if any, shall be declared by
our board of directors in Renminbi and paid in HK dollars. The depositary will
convert the HK dollar dividend payments and distribute them to holders of ADSs
in US dollars, less expenses of conversion.
In
addition to cash, dividends may be distributed in the form of shares. Any
distribution of shares, however, must be approved by special resolution of the
shareholders. Dividends in the form of shares will be distributed to the
depositary and, except as otherwise described in the Deposit Agreement, will be
distributed by the depositary in the form of additional ADSs, to holders of
ADSs.
Dividends
may be paid only out of our distributable profits (less allocations to the
statutory surplus reserve funds which are 10% of our net income determined in
accordance with the PRC Accounting Standards for Business Enterprises ("ASBE")
and the discretionary surplus reserve funds) and may be subject to PRC
withholding tax. Our articles of association limit our distributable profits to
the lower of the amount determined in accordance with the ASBE and IFRS. Subject
to the above, we currently expect that we will distribute as dividends up to 40%
of our distributable profits.
In
accordance with the board resolution adopted on March 27, 2009, our board has
proposed dividend of RMB 0.12 per ordinary share for the year ended December 31,
2008. After deducting the interim dividends distribution of RMB 0.03 per
ordinary share, the year end dividend is RMB 0.09 per ordinary share. The total
dividend to be paid amounted to approximately RMB 7.8 billion. The resolution is
subject to the approval by the general shareholders’ meeting.
B. SIGNIFICANT
CHANGES
None.
ITEM
9.
|
THE
OFFER AND LISTING
|
A. OFFER
AND LISTING DETAILS
Not
applicable, except for Item 9A (4) and Item 9C.
Our H
Shares have been listed on the Hong Kong Stock Exchange (Code: 0386), and our
ADSs, each representing 100 H Shares, have been listed on the New York Stock
Exchange and the London Stock Exchange under the symbol "SNP", since we
completed our initial public offering on October 19, 2000. Prior to that time,
there was no public market for our H Shares. The Hong Kong Stock Exchange is the
principal non-U.S. trading market for our H
Shares. Our
publicly traded domestic shares, or A shares, are listed on the Stock Exchange
of Shanghai since August 8, 2001 (Code: 600028).
The
following table sets forth, for the periods indicated, the high and low closing
prices per H Share, as reported on the Stock Exchange of Hong Kong, per ADS, as
reported on the New York Stock Exchange and per A share, as reported on the
Stock Exchange of Shanghai.
|
|
The Stock Exchange of
Hong Kong
|
|
|
The New York
Stock Exchange
|
|
|
The Shanghai Stock
Exchange
|
|
Period
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
Past
6 months
|
|
(HK
dollar per H share)
|
|
|
(US
dollar per ADS)
|
|
|
(RMB
per A share)
|
|
|
May
(up to May 15, 2009) |
|
|
6.50
|
|
|
|
6.00
|
|
|
|
85.82
|
|
|
|
77.87
|
|
|
|
10.84
|
|
|
|
9.98
|
|
|
April
|
|
|
6.19
|
|
|
|
5.15
|
|
|
|
79.77
|
|
|
|
67.45
|
|
|
|
10.06
|
|
|
|
8.78
|
|
|
March
|
|
|
4.99
|
|
|
|
3.65
|
|
|
|
65.13
|
|
|
|
47.08
|
|
|
|
9.09
|
|
|
|
7.95
|
|
|
February
|
|
|
4.64
|
|
|
|
4.05
|
|
|
|
60.86
|
|
|
|
52.23
|
|
|
|
9.27
|
|
|
|
7.83
|
|
2009
|
January
|
|
|
5.26
|
|
|
|
4.17
|
|
|
|
67.7
|
|
|
|
52.41
|
|
|
|
7.94
|
|
|
|
7.06
|
|
|
December
|
|
|
5.43
|
|
|
|
4.64
|
|
|
|
71.13
|
|
|
|
59.48
|
|
|
|
8.87
|
|
|
|
7.02
|
|
2008
|
November
|
|
|
5.15
|
|
|
|
4.25
|
|
|
|
66.53
|
|
|
|
50.87
|
|
|
|
8.42
|
|
|
|
6.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly
Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
First
Quarter
|
|
|
5.26
|
|
|
|
3.65
|
|
|
|
67.70
|
|
|
|
47.08
|
|
|
|
9.27
|
|
|
|
7.06
|
|
2008
|
Fourth
Quarter
|
|
|
6.24
|
|
|
|
3.76
|
|
|
|
78.35
|
|
|
|
50.57
|
|
|
|
10.19
|
|
|
|
6.67
|
|
|
Third
Quarter
|
|
|
8.38
|
|
|
|
5.89
|
|
|
|
110.36
|
|
|
|
73.26
|
|
|
|
11.88
|
|
|
|
8.7
|
|
|
Second
Quarter
|
|
|
8.71
|
|
|
|
6.78
|
|
|
|
112.56
|
|
|
|
86.65
|
|
|
|
13.81
|
|
|
|
9.91
|
|
|
First
Quarter
|
|
|
11.66
|
|
|
|
6.14
|
|
|
|
146.28
|
|
|
|
81.43
|
|
|
|
24.38
|
|
|
|
11.38
|
|
2007
|
Fourth
Quarter
|
|
|
12.96
|
|
|
|
9.18
|
|
|
|
178.83
|
|
|
|
118.19
|
|
|
|
28.49
|
|
|
|
19.23
|
|
|
Third
Quarter
|
|
|
9.71
|
|
|
|
6.93
|
|
|
|
124.90
|
|
|
|
90.00
|
|
|
|
18.99
|
|
|
|
12.33
|
|
|
Second
Quarter
|
|
|
9.18
|
|
|
|
6.63
|
|
|
|
117.44
|
|
|
|
85.78
|
|
|
|
15.20
|
|
|
|
10.04
|
|
|
First
Quarter
|
|
|
7.32
|
|
|
|
5.67
|
|
|
|
92.23
|
|
|
|
72.92
|
|
|
|
11.20
|
|
|
|
8.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual
Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
11.66
|
|
|
|
3.76
|
|
|
|
146.28
|
|
|
|
50.57
|
|
|
|
24.38
|
|
|
|
6.67
|
|
2007
|
|
|
|
12.96
|
|
|
|
5.67
|
|
|
|
178.83
|
|
|
|
72.92
|
|
|
|
28.49
|
|
|
|
8.37
|
|
2006
|
|
|
|
7.20
|
|
|
|
3.775
|
|
|
|
92.64
|
|
|
|
47.40
|
|
|
|
9.15
|
|
|
|
4.58
|
|
2005
|
|
|
|
3.90
|
|
|
|
2.75
|
|
|
|
50.58
|
|
|
|
35.55
|
|
|
|
4.66
|
|
|
|
3.25
|
|
2004
|
|
|
|
3.85
|
|
|
|
2.475
|
|
|
|
49.90
|
|
|
|
32.08
|
|
|
|
5.77
|
|
|
|
4.26
|
|
___________
Source:
Bloomberg
ITEM
10.
|
ADDITIONAL
INFORMATION
|
A. SHARE
CAPITAL
Not
applicable.
B. MEMORANDUM
AND ARTICLES OF ASSOCIATION
The
following is a summary of certain provisions of our articles of association, as
amended, the
Company Law of the PRC (2006) and certain other applicable laws and regulations
of the PRC. You and your advisors should refer to the text of our articles of
association, as amended, and to the texts of applicable laws and regulations for
further information.
Objects
and Purposes
We are a
joint stock limited company established in accordance with the Company Law and
certain other laws and regulations of the PRC. We are registered with the PRC
State Administration of Industry and Commerce with business license number
1000001003298. Article 12 of our articles of association provides that our scope
of businesses includes, among other things, exploration, exploitation, storage,
pipeline transportation, land transportation, water transportation, sales of oil
and natural gas; oil refining; wholesaling and retailing of gasoline, kerosene
and diesel oil(for subsidiaries only); sales of lubricant, liquid gas, fuel oil,
solvent naphtha and asphalt; the production, sales, storage land transportation
and water transportation of ethylene, propylene, butadiene, naphtha, heavy oil,
ethylene glycol, PTA, beta-lactam, dacron, nitrilon, rubber and other chemical
raw materials and products; production of chemical fertilizer; production of
electricity; operation of 24-hour stores; shaped packing foods, retailing of
cigarettes, automobile decorations (for subsidiaries only), automobile cleaning;
production, supervision of manufacturing, installation of oil and petrochemical
machinery and equipment; purchase and sales of oil and petrochemical raw and
auxiliary materials, equipment and parts; technology and information, research,
development, application and consultation of alternative energy products;
self-operation of and acting as agency for the import and export of various
commodities and technologies other than those restricted or prohibited by the
state from import and export; contractor of overseas mechanical, electronics,
petrochemical projects and domestic international bid-inviting projects; export
of equipments and materials required for the aforementioned overseas projects;
dispatch of labor required for the aforementioned overseas
projects.
Directors
Our
directors shall be elected at our shareholders' general meeting. Cumulative
voting shall be adopted for the election of directors if a controlling
shareholder controls 30% or more of our shares. Details of the cumulative voting
mechanism are set forth in Article 57 of the Rules and Procedures for the
Shareholders' General Meetings that is an appendix to, and forms an integral
part of, our articles of association. 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 materially interested, directly or indirectly, in a contract,
transaction or arrangement (including any proposed contract, transaction or
arrangement) with us, he or she shall declare the nature and extent of his or
her interests to the board of directors at the earliest opportunity, whether or
not such contract, transaction or arrangement is otherwise subject to the
approval of the board. A director shall not vote, and shall not be counted in
the quorum of the meeting, on any resolution concerning any contract,
transaction or arrangement where the director owns material rights or interests
therein. A director is deemed to be interested in a contract, transaction or
arrangement in which his associate (as defined by the Listing Rule of the Hong
Kong Stock Exchange) is interested.
Unless the
interested director discloses his interests to the board and the contract,
transaction or arrangement in which the director is materially interested is
approved by the board at a meeting in which the director neither votes nor is
not counted in the quorum, such contract, transaction or arrangement shall be
voidable by us except with respect to a bona fide party thereto who does not
have notice of the director's interests.
We are
prohibited from making loans or providing guarantees to our directors and their
associates except where such loan or guarantee is to meet expenditure
requirement incurred or to be incurred by the director for the purposes of the
company or for the purpose of enabling the director to perform his or her duties
properly.
The board
of directors shall examine and approve the amount of the long-term loans for the
current year in accordance with the annual investment plan as approved by the
shareholders' general meeting. The chairman of the board may make adjustments of
not more than 10% of the total amount of the long-term loans for the current
year as approved by the board of directors. The board of directors shall also
approve the total amount of the working capital loans for the current year.
Within the total amount of the long-term or working capital loans as approved by
the board of directors, the chairman of the board is authorized to approve and
sign on behalf of the company any such loan contract with loan amount over RMB
1.0 billion, and the president of the company is authorized to approve and sign
on behalf of the company any such loan contract with loan amount not exceeding
RMB 1.0 billion.
Matters
relating to the remuneration and liability insurance of our directors shall be
determined by the shareholders' general meeting.
Dividends
A
distribution of final dividends for any financial year is subject to
shareholders’ approval. Except otherwise decided by Shareholders’ meeting, the
board of directors may make decision on the distribution of interim
dividends. Except otherwise provided by law and regulation, the sum
of interim dividends shall not exceed 50 percents of the distributive profit as
set out in the table for semi-year profit. Dividends may be distributed in the
form of cash or shares. A distribution of shares, however, must be approved by
special resolution of the shareholders.
Dividends
may only be distributed after allowance has been made for:
|
·
|
recovery
of losses, if any;
|
|
·
|
allocations
to the statutory surplus reserve fund;
and
|
|
·
|
allocations
to a discretionary surplus reserve fund if approved by the
shareholders.
|
The
allocations to the statutory surplus reserve fund shall be 10% of our after-tax
profits of the current year determined in accordance with ASBE.
The
articles of association require us to appoint on behalf of the holders of H
shares a receiving agent which is registered as a trust corporation under the
Trustee Ordinance of Hong Kong to receive dividends declared by us in respect of
the H shares on behalf of such shareholders. The articles of association require
that cash dividends in respect of H shares be declared in Renminbi and paid by
us in HK dollars. The depositary of our ADSs will convert such proceeds into US
dollars and will remit such converted proceeds to our holders of ADSs. If we
record no profit for the year, we may not normally distribute dividends for the
year.
Dividend
payments may be subject to PRC withholding tax.
Voting
Rights and Shareholders’ Meetings
Our board
of directors shall convene a shareholders’ annual general meeting once every
year and within six months from the end of the preceding financial year. Our
board shall convene an extraordinary general meeting within two months of the
occurrence of any one of the following events:
|
·
|
where
the number of directors is less than the number stipulated in the PRC
Company Law or two-thirds of the number specified in our articles of
association;
|
|
·
|
where
our unrecovered losses reach one-third of the total amount of our share
capital;
|
|
·
|
where
shareholder(s) holding 10% or more of our issued and outstanding voting
shares request(s) in writing the convening of an extraordinary general
meeting;
|
|
·
|
whenever
our board deems necessary or our board of supervisors so requests;
or
|
|
·
|
circumstances
provided in the articles of
association.
|
Meetings
of a special class of shareholders must be called in certain enumerated
situations when the rights of the holders of such class of shares may be
modified or adversely affected as discussed below. Resolutions proposed by the
board of supervisors or shareholder(s) holding 5% or more of the total number of
voting shares shall be included in the agenda for the relevant annual general
meeting if they are matters which fall within the scope of the functions and
powers of shareholders in general meeting.
All
shareholders’ meetings must be convened by our board by written notice given to
shareholders not less than 45 days before the meeting. Based on the written
replies received by us 20 days before a shareholders’ meeting, we shall
calculate the number of voting shares represented by shareholders who have
indicated that they intend to attend the meeting. Where the number of voting
shares represented by those shareholders amount to more than one-half of our
total voting shares, we may convene the shareholders’ general meeting
(regardless of the number of shareholders who actually attend). Otherwise, we
shall, within five days, inform the shareholders again of the
motions
to be
considered and the date and venue of the meeting by way of public announcement.
After the announcement is made, the shareholders’ meeting may be convened. The
accidental omission by us to give notice of a meeting to, or the non-receipt of
notice of a meeting by, a shareholder will not invalidate the proceedings at
that shareholders’ meeting.
Shareholders
at meetings have the power, among other things, to approve or reject our profit
distribution plans, annual budget, financial statements, increase or decrease in
share capital, issuance of debentures, merger or liquidation and any amendment
to our articles of association. Shareholders of the shares which the
Company issues to foreign investors for subscription in foreign currencies
possess the same rights and undertake the same obligations as those of the
shares which the Company issues to domestic investors for subscription in
Renminbi. In addition, the rights of a class of shareholders may not
be modified or abrogated, unless approved by a special resolution of all
shareholders at a general shareholders’ meeting and by a special resolution of
shareholders of that class of shares at a separate meeting. Our articles of
association enumerate, without limitation, certain amendments which would be
deemed to be a modification or abrogation of the rights of a class of
shareholders, including increasing or decreasing the number of shares of a class
disproportionate to increases or decreases of other classes of shares, removing
or reducing rights to receive dividends in a particular currency or creating
shares with voting or equity rights superior to shares of such
class.
Cumulative
voting is adopted for the election of directors. For all other matters, each
share is entitled to one vote on all such matters submitted to a vote of our
shareholders at all shareholders’ meetings, except for meetings of a special
class of shareholders where only holders of shares of the affected class are
entitled to vote on the basis of one vote per share of the affected
class.
Shareholders
are entitled to attend and vote at meetings either in person or by proxy.
Proxies must be in writing and deposited at our legal address, or such other
place as is specified in the meeting notice, not less than 24 hours before the
time for holding the meeting at which the proxy proposes to vote or the time
appointed for the passing of the relevant resolution(s). When the instrument
appointing a proxy is executed by the shareholder’s attorney-in-fact, such proxy
when deposited must be accompanied by a notary certified copy of the relevant
power of attorney or other authority under which the proxy was
executed.
Except for
those actions discussed below which require supermajority votes (‘‘special
resolutions’’), resolutions of the shareholders are passed by a simple majority
of the voting shares held by shareholders who are present in person or by proxy.
Special resolutions must be passed by or more than two-thirds of the voting
rights represented held by shareholders who are present in person or by
proxy.
The
following decisions must be adopted by special resolution:
|
·
|
an
increase or reduction of our share capital or the issue of shares,
including stock distributions, of any class, warrants and other similar
securities;
|
|
·
|
issuance
of debentures;
|
|
·
|
our
division, merger, dissolution and liquidation; (Shareholders who object to
a proposed division or merger are entitled to demand that either we or the
shareholders who approved the merger purchase their shares at a fair
price.)
|
|
·
|
amendments
to our articles of association; and
|
|
·
|
any
other matters considered by the shareholders in a general meeting and
which they have resolved by way of an ordinary resolution to be of a
nature which may have a material impact on us and should be adopted by
special resolution.
|
All other
actions taken by the shareholders, including the appointment and removal of our
directors and supervisors and the declaration of cash dividend payments, will be
decided by an ordinary resolution of the shareholders. The listing agreement
between us and the Hong Kong Stock Exchange (the ‘‘Listing Agreement’’) provided
that we may not permit amendments to certain sections of the articles of
association which have been mandated by the Hong Kong Stock Exchange. These
sections include provisions relating to:
|
·
|
varying
the rights of existing classes of
shares;
|
|
·
|
our
power to purchase our own shares;
|
|
·
|
rights
of minority shareholders; and
|
|
·
|
procedure
on liquidation.
|
In
addition, certain amendments to the articles of association require the approval
and consent of the relevant PRC authorities.
Any
shareholder resolution which is in violation of any laws or administrative
regulations of the PRC will be null and void.
Liquidation
Rights
In the
event of our liquidation, the H shares will rank pari passu with the domestic
ordinary shares, and payment of debts out of our remaining assets shall be made
in the order of priority prescribed by applicable laws and regulations or, if no
such standards exist, in accordance with such procedure as the liquidation
committee which has been appointed either by us or the People’s Court of the PRC
may consider to be fair and reasonable. After payment of debts, we shall
distribute the remaining property to shareholders according to the class and
proportion of their shareholders.
Further
Capital Call
Shareholders
are not liable to make any further contribution to the share capital other than
according to the terms, which were agreed by the subscriber of the relevant
shares at the time of subscription.
Increases
in Share Capital and Preemptive Rights
The
articles of association require the approval by a special resolution of the
shareholders and by special resolution of holders of domestic ordinary shares
and H shares at separate shareholder class meetings be obtained prior to
authorizing, allotting, issuing or granting shares, securities convertible into
shares or options, warrants or similar rights to subscribe for any shares or
such convertible securities. No such approval is required if, but only to the
extent that:
|
·
|
we
issue domestic ordinary shares and/or H shares, either separately or
concurrently, in numbers not exceeding 20% of the number of domestic
ordinary shares and H shares then in issue, respectively, in any 12-month
period, as approved by a special resolution of the shareholders;
or
|
|
·
|
if
our plans for issuing domestic ordinary shares and H shares upon its
establishment are implemented within fifteen months of the date of
approval by the China Securities Regulatory
Commission.
|
New issues
of shares must also be approved by the relevant PRC authorities.
Reduction
of Share Capital and Purchase by Us of Our Shares and General Mandate to
Repurchase Shares
We may
reduce our registered share capital only upon obtaining the approval of the
shareholders by a special resolution and, in certain circumstances, of relevant
PRC authorities. The number of H shares, which may be purchased is subject to
the Hong Kong Takeovers and Share Repurchase Codes.
Restrictions
on Large or Controlling Shareholders
Our
articles of association provide that, in addition to any obligation imposed by
laws and administration regulations or required by the listing rules of the
stock exchanges on which our H shares are listed, a controlling shareholder
shall not exercise his voting rights in a manner prejudicial to the interests of
the shareholders generally or of some part of the shareholders:
|
·
|
to
relieve a director or supervisor from his or her duty to act honestly in
our best interests;
|
|
·
|
to
approve the expropriation by a director or supervisor (for his or her own
benefit or for the benefit of another person) of our assets in any way,
including, without limitation, opportunities which may benefit us;
or
|
|
·
|
to
approve the expropriation by a director or supervisor (for his or her own
benefit or for the benefit of another person) of the individual rights of
other shareholders, including, without limitation, rights to distributions
and voting rights (save according to a restructuring of our company which
has been submitted for approval by the shareholders in a general meeting
in accordance with our articles of
association).
|
A
controlling shareholder, however, will not be precluded by our articles of
association or any laws and administrative regulations or the listing rules of
the stock exchanges on which our H shares are listed from voting on these
matters.
When a
controlling shareholder intends to put forward a new motion on profit
distribution at an annual general meeting, the controlling shareholder shall, at
not less than ten days before the date of the annual general meeting, submit the
motion to the board of directors to enable it to make an announcement, failing
which the shareholder is not entitled to put forward the motion at the annual
general meeting.
A
controlling shareholder is defined by our articles of association as any person
who acting alone or in concert with others:
|
·
|
is
in a position to elect more than one-half of the board of
directors;
|
|
·
|
has
the power to exercise, or to control the exercise of, 30% or more of our
voting rights;
|
|
·
|
holds
30% or more of our issued and outstanding shares;
or
|
|
·
|
has
de facto control of us in any other
way.
|
As of the
date of this annual report, Sinopec Group Company is and will be our only
controlling shareholder.
Disclosure
The
Listing Agreement imposes a requirement on us to keep the Hong Kong Stock
Exchange, our shareholders and other holders of our listed securities informed
as soon as reasonably practicable of any information relating to us and our
subsidiaries, including information on any major new developments which are not
public knowledge, which:
|
·
|
is
necessary to enable them and the public to appraise the position of us and
our subsidiaries;
|
|
·
|
is
necessary to avoid the establishment of a false market in its securities;
and
|
|
·
|
might
be reasonably expected materially to affect market activity in and the
price of its securities.
|
There are
also requirements under the Listing Rules for us to obtain prior shareholders’
approval and/or to disclose to shareholders details of certain acquisitions or
disposals of assets and other transactions (including transactions with
controlling shareholders).
Sources
of Shareholders’ Rights
The PRC’s
legal system is based on written statutes and is a system in which decided legal
cases have little precedent value. The PRC’s legal system is similar to civil
law systems in this regard. In 1979, the PRC began the process of developing its
legal system by undertaking to promulgate a comprehensive system of laws. In
December 1993, the Standing Committee of the 8th National People’s Congress
adopted the PRC Company Law. On October 27, 2005, the PRC Company law was
amended by the Standing Committee of the 10th
National People’s Congress, and
came into
force on January 1, 2006. The amended PRC Company Law enhanced the protection of
shareholders’ rights primarily in the following regards:
|
·
|
Shareholders
holding 10 percent or more of the shares of the company are entitled to
petition the court to dissolve the company if (i) the company is in
serious operational difficulties; (ii) its continuing existence will
seriously prejudice the interests of the shareholders; and (iii) such
difficulties cannot be resolved through any other
means;
|
|
·
|
Shareholders
holding 1 percent or more of the shares of the company for more than 180
consecutive days are entitled to request the board of supervisors (in
terms of directors and senior management) or the board of directors (in
terms of supervisors) to bring legal proceedings, or bring legal
proceedings in their own name on behalf of the company where it is in
emergency and the company will be subject to irreparable loss if not to do
so, against directors, supervisors or senior management who fail to comply
with the laws and regulations or the company’s articles of association in
the course of performing their duties and cause loss to the
company;
|
|
·
|
Shareholders
who oppose the company’s decision on merger or separation are entitled to
request the company to repurchase their shares;
and
|
|
·
|
Shareholders
holding 10 percent or more of the voting rights of the company are
entitled to convene a shareholders’
meeting.
|
Currently,
the primary sources of shareholder rights are our articles of association, as
amended, the PRC Company Law and the Listing Rules of the Hong Kong Stock
Exchange, which, among other things, impose certain standards of conduct,
fairness and disclosure on us, our directors and our controlling shareholder,
i.e., Sinopec Group Company. To facilitate the offering and listing of shares of
PRC companies overseas, and to regulate the behavior of companies whose shares
are listed overseas, the State Council Securities Committee and the State
Commission for Restructuring the Economic System issued on August 27, 1994 the
Mandatory Provisions for articles of association of Company Listing Overseas
(the ‘‘Mandatory Provisions’’). These Mandatory Provisions become entrenched in
that, once they are incorporated into the articles of association of a PRC
company, any amendment to those provisions will only become effective after
approval by the State-owned Assets Supervision and Administration Commission of
the State Council. The Listing Rules require a number of additional provisions
to the Mandatory Provisions to be included in the articles of association of PRC
companies listing H shares on the Hong Kong Stock Exchange (the ‘‘Additional
Provisions’’). The Mandatory Provisions and the Additional Provisions have been
incorporated into our articles of association.
In
addition, upon the listing of and for so long as the H shares are listed on the
Hong Kong Stock Exchange, we will be subject to those relevant ordinances, rules
and regulations applicable to companies listed on the Hong Kong Stock Exchange,
including the Listing Rules of the Hong Kong Stock Exchange, the Securities
(Disclosure of Interests) Ordinance (the ‘‘SDI Ordinance’’), the Securities
(Insider Dealing) Ordinance and the Hong Kong Codes on Takeovers and Mergers and
Share Repurchases (the ‘‘Hong Kong Takeovers and Repurchase
Codes’’).
Unless
otherwise specified, all rights, obligations and protections discussed below
derive from our articles of association and/or the PRC Company Law.
Enforceability
of Shareholders’ Rights
There has
not been any public disclosure in relation to the enforcement by holders of H
shares of their rights under constitutive documents of joint stock limited
companies or the PRC Company Law or in the application or interpretation of the
PRC or Hong Kong regulatory provisions applicable to PRC joint stock limited
companies.
In most
states of the United States, shareholders may sue a corporation
‘‘derivatively’’. A derivative suit involves the commencement by a shareholder
of a corporate cause of action against persons (including corporate officers,
directors or controlling shareholders) who have allegedly wronged the
corporation, where the corporation itself has failed to enforce such claim
against such persons directly. Such action is brought based upon a primary right
of the corporation, but is asserted by a shareholder on behalf of the
corporation. The PRC company law as amended in October 2005 and effective in
January 2006 has also granted shareholders with the rights to bring such
derivative suits.
Our
articles of association provide that all differences or claims:
|
·
|
between
a holder of H shares and us;
|
|
·
|
between
a holder of H shares and any of our directors, supervisors, general
managers, deputy general managers or other senior officers;
or
|
|
·
|
between
a holder of H shares and a holder of domestic ordinary shares, arising
from any provision of our articles of association, any right or obligation
conferred or imposed by the PRC Company Law or any other relevant law or
administrative regulation which concerns our
affairs
|
must, with
certain exceptions, be referred to arbitration at either the China International
Economic and Trade Arbitration Commission in the PRC or the Hong Kong
International Arbitration Center. Our articles of association provide that such
arbitration will be final and conclusive. In June 1999, an arrangement was made
between the People’s Courts of the PRC and the courts of Hong Kong to mutually
enforce arbitration rewards rendered in the PRC and Hong Kong according to their
respective laws. This new arrangement was approved by the Supreme Court of the
PRC and the Hong Kong Legislative Council and became effective on February 1,
2000. We have provided an undertaking to the United States Securities and
Exchange Commission that, at such time, if any, as all applicable laws and
regulations of the PRC and (unless our H shares are no longer listed on the Hong
Kong Stock Exchange) all applicable regulations of the Stock Exchange of Hong
Kong Ltd. shall not prohibit, and to the extent Section 14 under the United
States Securities Act of 1933, as amended, so requires, our board of directors
shall propose an amendment to the articles of association which would permit
shareholders to adjudicate disputes arising between our shareholders and us, our
directors, supervisors or officers by means of judicial
proceedings.
The
holders of H shares will not be able to bring actions on the basis of violations
of the Listing Rules and must rely on the Hong Kong Stock Exchange to enforce
its rules. The SDI Ordinance establishes certain obligations in relation to
disclosure of shareholder interests in Hong Kong listed companies, the violation
of which is subject to prosecution by the Securities and Futures Commission of
Hong Kong. The Hong Kong Takeovers and Repurchase Codes do not have the force of
law and are only standards of commercial conduct considered acceptable for
takeover and merger transactions and share repurchases in Hong Kong as
established by the Securities and Futures Commission and the securities and
futures industry in Hong Kong.
We have
appointed our subsidiary in the U.S., SINOPEC-USA Co., Ltd., 410 Park Avenue,
22nd Fl., New York, NY 10022, USA, as our agent to receive service of process
with respect to any action brought against us in certain courts in New York
under the United States federal and New York State’s securities laws. However,
as the PRC does not have treaties providing for the reciprocal recognition and
enforcement of judgments of courts within the United States, the United Kingdom,
Japan or most other the Organization for Economic Cooperation and Development
countries, administrative actions brought by regulatory authorities, such as the
Commission, and other actions which result in foreign court judgments, could
(assuming such actions are not required by PRC law and the articles of
association to be arbitrated) only be enforced in the PRC on a reciprocal basis
or according to relevant international treaty to which China is a party if such
judgments or rulings do not violate the basic principles of the law of the PRC
or the sovereignty, security and public interest of the society of the PRC, as
determined by a People’s Court of the PRC which has the jurisdiction for
recognition and enforcement of judgments. We have been advised by our PRC
counsel, Haiwen & Partners, that there is certain doubt as to the
enforceability in the PRC of actions to enforce judgments of United States
courts arising out of or based on the ownership of H shares or ADSs, including
judgments arising out of or based on the civil liability provisions of United
States federal or state securities laws.
Restrictions
on Transferability and the Share Register
H shares
may be traded only among investors who are not PRC persons, and may not be sold
to PRC investors. There are no restrictions on the ability of investors who are
not PRC residents to hold H shares.
As
provided in the articles of associations we may refuse to register a transfer of
H shares unless:
|
·
|
any
relevant transfer fee is paid;
|
|
·
|
the
instrument of transfer is only related to H shares listed in Hong
Kong;
|
|
·
|
the
instrument of transfer is accompanied by the share certificates to which
it relates, or such other evidence is given as may be reasonably necessary
to show the right of the transferor to make the
transfer;
|
|
·
|
the
stamp duty which is chargeable on the instrument of transfer has already
been paid;
|
|
·
|
if
it is intended that the shares be transferred to joint owners, the maximum
number of joint owners shall not be more than four (4);
and
|
|
·
|
the
Company does not have any lien on the relevant
shares.
|
We are
required to keep a register of our shareholders which shall be comprised of
various parts, including one part which is to be maintained in Hong Kong in
relation to H shares to be listed on the Hong Kong Stock Exchange. Shareholders
have the right to inspect and, for a nominal charge, to copy the share register.
No transfers of ordinary shares shall be recorded in our share register within
30 days prior to the date of a shareholders’ general meeting or within 5 days
prior to the record date established for the purpose of distributing a
dividend.
We have
appointed HKSCC Registrars Limited to act as the registrar of our H shares. This
registrar maintains our register of holders of H shares at our offices in Hong
Kong and enters transfers of shares in such register upon the presentation of
the documents described above.
C. MATERIAL
CONTRACTS
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 20-F.
D. EXCHANGE
CONTROLS
The
existing foreign exchange regulations have significantly reduced government
foreign exchange controls for transactions under the current account, including
trade and service related foreign exchange transactions and payment of
dividends. We may undertake current account foreign exchange transactions
without prior approval from the State Administration of Foreign Exchange by
producing commercial documents evidencing such transactions, provided that they
are processed through Chinese banks licensed to engage in foreign exchange
transactions. The PRC government has stated publicly that it intends to make the
Renminbi freely convertible in the future. However, we cannot predict whether
the PRC government will continue its existing foreign exchange policy and when
the PRC government will allow free conversion of Renminbi to foreign
currency.
Foreign
exchange transactions under the capital account, including principal payments in
respect of foreign currency-denominated obligations, continue to be subject to
significant foreign exchange controls and require the approval of the State
Administration of Foreign Exchange. These limitations could affect our ability
to obtain foreign exchange through debt or equity financing, or to obtain
foreign exchange for capital expenditures.
On July
21, 2005, the PRC government changed its policy of pegging the value of the
Renminbi to the U.S. dollar. Under the new policy, the Renminbi is
permitted to fluctuate within a band against a basket of certain foreign
currencies. This change in policy resulted initially in an
approximately 2.0% appreciation in the value of the Renminbi against the U.S.
dollar. Since the adoption of this new policy, the value of Renminbi
against the U.S. dollar has fluctuated on a daily basis within narrow ranges,
but overall has further strengthened against the U.S. dollar. On
January 14, 2006, the PBOC authorized the China Foreign Exchange Trade System to
publish the exchange rate of the RMB against the US dollar, the euro, the
Japanese yen, and the HK dollar at 9:15 am of each business day, which would be
the medium exchange rate of RMB for transactions on the interbank spot foreign
exchange market (over-the-counter transactions and automatic price-matching
transactions) as well as transactions over bank counters. We cannot assure that
such exchange rate would not fluctuate greatly. In addition, any significant
revaluation of the Renminbi may have a material adverse effect on our revenues
and financial condition, and the value of, and any dividends payable on, our
ADSs in foreign currency terms. We do not currently and will not plan to hedge
against the risk of exchange rate fluctuation. Information relating to the
exchange risk, exchange rate and hedging activities is presented in “Item 11.
Qualitative and Quantitative Disclosures about Market risk ¾ Foreign Exchange Rate
Risk”.
E. TAXATION
PRC
Taxation
The
following discussion addresses the principal PRC tax consequences of investing
in the H shares or ADSs.
Taxation
of Dividends
Individual
Investors
According
to the PRC Individual Income Tax Law, as amended, dividends paid by Chinese
companies are ordinarily subject to a Chinese withholding tax levied at a flat
rate of 20%. For a foreign individual who has no domicile and does not stay in
the territory of China or who has no domicile but has stayed in the territory of
China for less than one year, the receipt of dividends from a company in China
is normally subject to a withholding tax of 20% unless reduced or exempted by an
applicable tax treaty. However, the Chinese State Administration of Taxation, or
the SAT, the Chinese central government tax authority which succeeded the State
Tax Bureau, issued, on July 21, 1993, the Notice of the Chinese State
Administration of Taxation Concerning the Taxation of Gains on Transfer and
Dividends from Share (Equities) Received by Foreign Investment Enterprises,
Foreign Enterprises and Foreign Individuals, or the Tax Notice, which states
that dividends paid by a Chinese company to individuals with respect to
overseas-listed shares, such as H shares, are temporarily not subject to Chinese
withholding tax.
In a
letter dated July 26, 1994 to the former State Commission for Restructuring the
Economic System, the former State Council Securities Commission and the China
Securities Regulatory Commission, the SAT reiterated the temporary tax exemption
stated in the Tax Notice for dividends received from a Chinese company listed
overseas. In the event that the exemption is withdrawn, a 20% tax may be
withheld on dividends in accordance with the PRC Individual Income Tax Law and
its implementation rules, as amended. The withholding tax may be reduced or
exempted under an applicable double taxation treaty. To date, the relevant tax
authorities have not collected withholding tax from dividend payments on the
shares exempted under the Tax Notice.
Foreign
Enterprises
In
accordance with the new Enterprise Income Tax Law and its implementation rules
that became effective on January 1, 2008, dividends derived from the revenues
accumulated from January 1, 2008 and are paid by PRC companies to non-resident
enterprises, which are established under the laws of non-PRC jurisdictions and
have no establishment or place of business in China or whose dividends from
China do not relate to their establishment or place of business in China, 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. Dividends paid by PRC companies to resident enterprises, including
enterprises established under the laws of non-PRC jurisdictions but whose “de
facto management body” is located in the PRC, are not subject to any PRC
withholding tax, unless the dividends are derived from the publicly traded
shares which have been held continuously by the resident enterprises for less
than twelve months. Dividends, bonuses and other return based on equity
investment that a non-resident enterprise with establishment or place of
business in China receives from a resident enterprise and that have actual
connection with such establishment or place of business are also exempted from
any PRC withholding tax, except of those derived from the publicly traded shares
which have been held continuously by the non-resident enterprises for less than
12 months. According to the Notice on the Issues Concerning Withholding the
Enterprise Income Tax on the Dividends Paid by Chinese Resident Enterprise to H
Share Holders Which Are Overseas Non-resident Enterprises issued by the SAT on
November 6, 2008, Chinese resident enterprises are required to withhold PRC
enterprise income tax at the rate of 10% on dividends paid for 2008 and later
years payable to their respective H Shares holders that are “non-resident
enterprises”.
Tax
Treaties
Holders
resident in countries which have entered into avoidance of double taxation
treaties with the PRC may be entitled to a reduction or exemption of the
withholding tax imposed on the payment of dividends. The PRC currently has
avoidance of double taxation treaties with a number of other countries, which
include Australia, Canada, France, Germany, Japan, Malaysia, the Netherlands,
Singapore, the United Kingdom and the United States.
Under a
tax treaty between United States and China, China may tax dividends paid by
Sinopec Corp. to eligible US Holders up to a maximum of 10% of the gross amount
of such dividend. Under the tax treaty, an eligible US Holder is a person who,
by reason of domicile, residence, place of head office, place of incorporation
or any other criterion of similar nature is liable to tax in the United States,
subject to a detailed "treaty shopping" provision.
Taxation
of Capital Gains
According
to the Tax Notice, gains realized upon the sale of overseas-listed shares issued
by PRC companies by foreign individual investors are not subject to tax on
capital gains.
In
accordance with the new Enterprise Income Tax Law and its implementation rules,
capital gains realized by foreign enterprises which are non-resident enterprises
in China upon the sale of overseas-listed shares 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. The capital gains
realized by resident enterprises, including enterprises established under the
laws of non-PRC jurisdictions but whose “de facto management body” is located in
the PRC, upon the sales of overseas-listed shares are subject to the PRC
enterprise income tax. Before the effectiveness of the new Enterprise Income Tax
Law, gains realized by foreign enterprises that are holders of overseas-listed
shares of a PRC company excluding the shares held through their PRC domestic
establishment or place of business were exempted from the withholding tax
according to the Tax Notice. However, the effectiveness of such exemption
granted by the Tax Notice becomes uncertain in light of the provisions under the
new Enterprise Income Tax Law and its implementation rules.
PRC
Stamp Tax Considerations
Under the
Provisional Regulations of The People's Republic of China Concerning Stamp Tax,
which became effective in October, 1988, PRC stamp tax should not be imposed on
the transfer of shares of H Shares or ADSs of PRC publicly traded
companies..
United
States Federal Income Tax Considerations
The
following is a summary of United States federal income tax considerations that
are anticipated to be material for US Holders (as defined below) who hold H
shares or ADSs. This summary is based upon existing United States federal income
tax law, which is subject to change, possibly with retroactive effect. This
summary does not discuss all aspects of United States federal income taxation
which may be important to particular investors in light of their individual
investment circumstances, such as investors subject to special tax rules
including: financial institutions, insurance companies, broker-dealers,
tax-exempt organizations, non-US Holders, investors who own (directly,
indirectly, or constructively) 10% or more of our voting stock, investors that
will hold H shares or ADSs as part of a straddle, hedge, conversion,
constructive sale, or other integrated transaction for United States federal
income tax purposes, or US Holders that have a functional currency other than
the United States dollar, all of whom may be subject to tax rules that differ
significantly from those summarized below. In addition, this summary does not
discuss any foreign, state, local or alternative minimum tax considerations.
This summary only addresses investors that will hold their H shares or ADSs as
"capital assets" (generally, property held for investment) under the United
States Internal Revenue Code (the "Code"). Each holder is urged to consult its
tax advisor regarding the United States federal, state, local, and foreign
income and other tax considerations of an in vestment in H shares or
ADSs.
For
purposes of this summary, a US Holder is a beneficial owner of H shares or ADSs
that is for United States federal income tax purposes:
|
·
|
an
individual who is a citizen or resident of the United
States;
|
|
·
|
a
corporation created in or organized under the laws of, the United States
or any State or political subdivision
thereof;
|
|
·
|
an
estate the income of which is includible in gross income for United States
federal income tax purposes regardless of its
source;
|
|
·
|
a
trust the administration of which is subject to the primary supervision of
a United States court and which has one or more United States persons who
have the authority to control all substantial decisions of the trust;
or
|
|
·
|
a
trust that has elected to be treated as a United States person under the
Code.
|
If a
partnership (including any entity treated as a partnership for United States
federal income tax purposes) holds H shares or ADSs, the tax treatment of a
partner in such partnership will depend upon the status of the partner and the
activities of the partnership. Partners in a partnership holding our
H shares or ADSs are urged to consult their tax advisors as to the particular
United States federal income tax consequences applicable to them.
A foreign
corporation will be treated as a "passive foreign investment company" (a
"PFIC"), for United States federal income tax purposes, if 75% or more of its
gross income consists of certain types of "passive" income or 50%
or more of
its assets are passive. Sinopec Corp. presently does not believe that it is a
PFIC and does not anticipate becoming a PFIC. This is, however, a factual
determination made on an annual basis and is subject to change. The following
discussion is based on the belief that Sinopec Corp. will not be classified as a
PFIC for United States federal income tax purposes. See the
discussion below under the heading “PFIC Considerations” for a brief summary of
the PFIC rules.
General
For United
States federal income tax purposes, a US Holder of an ADS will be treated as the
owner of the proportionate interest of the H shares held by the depositary that
is represented by an ADS and evidenced by such ADS. Accordingly, no gain or loss
will be recognized upon the exchange of an ADS for the holder's proportionate
interest in the H shares. A US Holder's tax basis in the withdrawn H shares will
be the same as the tax basis in the ADS surrendered therefor, and the holding
period in the withdrawn H shares will include the period during which the holder
held the surrendered ADS.
Dividends
Any cash
distributions paid by Sinopec Corp. out of earnings and profits, as determined
under United States federal income tax principles, will be subject to tax as
dividend income and will be includible in the gross income of a US Holder upon
receipt. 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. A non-corporate recipient of dividend
income will generally be subject to tax on dividend income from a "qualified
foreign corporation" at a maximum U.S. federal tax rate of 15% rather than the
marginal tax rates generally applicable to ordinary income so long as certain
holding period requirements are met. A non-U.S. corporation (other
than a passive foreign investment company) generally will be considered to be a
qualified foreign corporation (i) if it is eligible for the benefits of a
comprehensive tax treaty with the United States which the Secretary of Treasury
of the United States determines is satisfactory for purposes of this provision
and which includes an exchange of information program or (ii) with respect to
any dividend it pays on stock which is readily tradable on an established
securities market in the United States. There is currently a tax
treaty in effect between the United States and the People's Republic of China
which the Secretary of Treasury of the United States determined is satisfactory
for these purposes and Sinopec Group, presently believes that it is eligible for
the benefits of such treaty. Additionally, our ADSs trade on the New
York Stock Exchange, an established securities market in the United
States. Dividends paid in Hong Kong dollars will be includible in
income in a United States dollar amount based on the United States dollar - Hong
Kong dollar exchange rate prevailing at the time of receipt of such dividends by
the depositary, in the case of ADSs, or by the US Holder, in the case of H
shares held directly by such US Holder. Gain or loss, if any,
recognized on a subsequent sale, conversion or other disposition of Hong Kong
dollars generally will be U.S. source income or loss. Dividends
received on H shares or ADSs will not be eligible for the dividends received
deduction allowed to corporations.
Dividends
received on H shares or ADSs will be treated, for United States federal income
tax purposes, as foreign source income. A US Holder may be eligible, subject to
a number of complex limitations, to claim a foreign tax credit in respect of any
foreign withholding taxes imposed on dividends received on H shares or ADSs. US
Holders who do not elect to claim a foreign tax credit for foreign income tax
withheld may instead claim a deduction, for United States federal income tax
purposes, in respect of such withholdings, but only for a year in which the US
Holder elects to do so for all creditable foreign income taxes.
A
distribution of additional shares of Sinopec Corp.'s stock to US Holders with
respect to their H shares or ADSs that is pro rata to all Sinopec Corp.'s
shareholders may not be subject to United States federal income tax. The tax
basis of such additional shares will be determined by allocating the US Holders'
adjusted tax basis in the H shares or ADSs between the H shares or ADSs and the
additional shares, based on their relative fair market values on the date of
distribution.
Sale
or Other Disposition of H shares or ADSs
A US
Holder will recognize capital gain or loss upon the sale or other disposition of
H shares or ADSs in an amount equal to the difference between the amount
realized upon the disposition and the US Holder's adjusted tax basis in such H
shares or ADSs, as each is determined in US dollars. Any capital gain or loss
will be long-term if the H shares or ADSs have been held for more than one year
and may be, under the income tax treaty between the People's Republic of China
and the United States, foreign source gain or loss. The claim of a deduction in
respect of a capital loss, for United States federal income tax purposes, may be
subject to limitations.
PFIC
Considerations
If Sinopec
Corp. were to be classified as a PFIC in any taxable year, a U.S. Holder would
be subject to special rules generally intended to reduce or eliminate any
benefits from the deferral of United States federal income tax that a U.S.
Holder could derive from investing in a foreign company that does not distribute
all of its earnings on a current basis. In such event, a U.S. Holder of the H
shares or ADSs may be subject to tax at ordinary income tax rates on (i) any
gain recognized on the sale of the H shares or ADSs and (ii) any "excess
distribution" paid on the H shares or ADSs (generally, a distribution in excess
of 125% of the average annual distributions paid by Sinopec Corp. in the three
preceding taxable years). In addition, a U.S. Holder may be subject to an
interest charge on such gain or excess distribution.
The above
results may be eliminated if a “mark-to-market” election is available and a US
Holder validly makes such an election. If the election is made, such holder
generally will be required to take into account the difference, if any, between
the fair market value and its adjusted tax basis in H shares or ADSs at the end
of each taxable year as ordinary income or ordinary loss (to the extent of any
net mark-to-market gain previously included in income). In addition, any gain
from a sale or other disposition of H shares or ADSs will be treated as ordinary
income, and any loss will be treated as ordinary loss (to the extent of any net
mark-to-market gain previously included in income).
F. DIVIDENDS
AND PAYING AGENTS
Not
applicable.
G. STATEMENT
BY EXPERTS
Not
applicable.
H. DOCUMENTS
ON DISPLAY
We filed
with the Securities and Exchange Commission in Washington, D.C. a Registration
Statement on Form F-1 (Registration No. 333-12502) under the Securities Act in
connection with the ADSs offered in the global offering. The Registration
Statement 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 as an exhibit to the Registration Statement,
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 contract or documents.
You may
inspect and copy our registration statements, including their exhibits and
schedules, and the reports and other information we file with the Securities and
Exchange Commission in accordance with the Exchange Act at the public reference
facilities maintained by the Securities and Exchange Commission at Judiciary
Plaza, 450 Fifth Street, Room 1024, N.W., Washington, D.C. 20549 and at the
regional offices of the Securities and Exchange Commission located at 233
Broadway, New York, NY 10279 and at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. You may also inspect the registration
statements, including their exhibits and schedules, at the office of the New
York Stock Exchange, Wall Street, New York, New York 10005. Copies of such
material may also be obtained from the Public Reference Section of the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. You may obtain information regarding the Washington
D.C. Public Reference Room by calling the Securities and Exchange Commission at
1-800-SEC-0330 or by contacting the Securities and Exchange Commission over the
internet at its website at http://www.sec.gov.
I.
SUBSIDIARY INFORMATION
Not
applicable.
ITEM
11.
|
QUALITATIVE
AND QUANTITATIVE DISCLOSURES ABOUT MARKET
RISK
|
Our
primary market risk exposures are to fluctuations in exchange rates and interest
rates.
Foreign
Exchange Rate Risk
The
Renminbi is not a freely convertible currency. With the authorization from the
PRC government, the PBOC announced that the PRC government reformed the exchange
rate regime by moving into a managed floating exchange rate regime based on
market supply and demand with reference to a basket of currencies on July 21,
2005. Actions taken by the PRC government could cause future exchange rates to
vary significantly from current or historical exchange rates. Fluctuations in
exchange rates may adversely affect the value, translated or converted into US
dollars or Hong Kong dollars, of our net assets, earnings and any declared
dividends. We cannot give any assurance that any future movements in the
exchange rate of the Renminbi against the US dollar and other foreign currencies
will not adversely affect our results of operations and financial
condition.
The
following presents various market risk information regarding market-sensitive
financial instruments that we held or issued as of December 31, 2008 and 2007.
We conduct our business primarily in Renminbi, which is also our functional and
reporting currency.
The
following tables provide information regarding instruments that are sensitive to
foreign exchange rates as of December 31, 2008 and 2007. For debt obligations,
the table presents cash flows and related weighted average rates by expected
maturity dates.
As of
December 31, 2008:
|
|
Expected
maturity
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
thereafter
|
|
|
Total
|
|
|
Fair value
|
|
|
|
(RMB equivalent in millions, except interest
rates)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
United States dollar
|
|
|
1,259 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,259 |
|
|
|
1,259 |
|
In
Hong Kong dollar
|
|
|
109 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
109 |
|
|
|
109 |
|
In
Japanese yen
|
|
|
5 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5 |
|
|
|
5 |
|
In
Euro
|
|
|
43 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
43 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time
deposits with financial institutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
United States dollar
|
|
|
91 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
91 |
|
|
|
91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debts
in United States dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate
|
|
|
3,074 |
|
|
|
114 |
|
|
|
71 |
|
|
|
57 |
|
|
|
57 |
|
|
|
336 |
|
|
|
3,709 |
|
|
|
3,702 |
|
Average
interest rate
|
|
|
4.0 |
% |
|
|
2.0 |
% |
|
|
1.5 |
% |
|
|
1.4 |
% |
|
|
1.4 |
% |
|
|
1.4 |
% |
|
|
|
|
|
|
|
|
Variable
rate
|
|
|
4,948 |
|
|
|
3 |
|
|
|
3 |
|
|
|
4 |
|
|
|
4 |
|
|
|
7 |
|
|
|
4,969 |
|
|
|
4,969 |
|
Average
interest rate (1)
|
|
|
4.5 |
% |
|
|
4.9 |
% |
|
|
4.9 |
% |
|
|
4.9 |
% |
|
|
4.9 |
% |
|
|
4.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debts
in Japanese yen
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate
|
|
|
110 |
|
|
|
110 |
|
|
|
79 |
|
|
|
79 |
|
|
|
79 |
|
|
|
734 |
|
|
|
1,191 |
|
|
|
1,233 |
|
Average
interest rate
|
|
|
2.6 |
% |
|
|
2.6 |
% |
|
|
2.6 |
% |
|
|
2.6 |
% |
|
|
2.6 |
% |
|
|
2.6 |
% |
|
|
|
|
|
|
|
|
Variable
rate
|
|
|
309 |
|
|
|
207 |
|
|
|
207 |
|
|
|
207 |
|
|
|
- |
|
|
|
- |
|
|
|
930 |
|
|
|
930 |
|
Average
interest rate (1)
|
|
|
2.8 |
% |
|
|
2.9 |
% |
|
|
2.9 |
% |
|
|
2.9 |
% |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debts
in Hong Kong dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
9,870 |
|
|
|
9,870 |
|
|
|
9,870 |
|
Average
interest rate
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4.2 |
% |
|
|
|
|
|
|
|
|
Variable
rate
|
|
|
265 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
265 |
|
|
|
265 |
|
Average
interest rate (1)
|
|
|
0.9 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debts
in Euro
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate
|
|
|
84 |
|
|
|
84 |
|
|
|
29 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
197 |
|
|
|
206 |
|
Average
interest rate
|
|
|
6.6 |
% |
|
|
6.6 |
% |
|
|
6.6 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The
average interest rates for variable rate loans are calculated based on the
rates reported as of December 31,
2008.
|
As of
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
maturity
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
thereafter
|
|
|
Total
|
|
|
Fair value
|
|
|
|
(RMB equivalent in millions,
exceptinterest
rates)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
United States dollar
|
|
|
754 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
754 |
|
|
|
754 |
|
In
Hong Kong dollar
|
|
|
302 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
302 |
|
|
|
302 |
|
In
Japanese yen
|
|
|
11 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
11 |
|
|
|
11 |
|
In
Euro
|
|
|
5 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debts
in United States dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate
|
|
|
7,960 |
|
|
|
179 |
|
|
|
188 |
|
|
|
125 |
|
|
|
63 |
|
|
|
420 |
|
|
|
8,935 |
|
|
|
8,877 |
|
Average
interest rate
|
|
|
5.2 |
% |
|
|
3.1 |
% |
|
|
2.8 |
% |
|
|
2.3 |
% |
|
|
2.0 |
% |
|
|
2.0 |
% |
|
|
|
|
|
|
|
|
Variable
rate
|
|
|
1,518 |
|
|
|
7 |
|
|
|
3 |
|
|
|
3 |
|
|
|
4 |
|
|
|
11 |
|
|
|
1,546 |
|
|
|
1,546 |
|
Average
interest rate (1)
|
|
|
5.0 |
% |
|
|
7.3 |
% |
|
|
7.4 |
% |
|
|
7.2 |
% |
|
|
7.0 |
% |
|
|
6.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debts
in Japanese yen
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate
|
|
|
94 |
|
|
|
93 |
|
|
|
92 |
|
|
|
67 |
|
|
|
67 |
|
|
|
689 |
|
|
|
1,102 |
|
|
|
1,206 |
|
Average
interest rate
|
|
|
2.6 |
% |
|
|
2.6 |
% |
|
|
2.6 |
% |
|
|
2.6 |
% |
|
|
2.6 |
% |
|
|
2.6 |
% |
|
|
|
|
|
|
|
|
Variable
rate
|
|
|
262 |
|
|
|
255 |
|
|
|
176 |
|
|
|
176 |
|
|
|
176 |
|
|
|
- |
|
|
|
1,045 |
|
|
|
1,045 |
|
Average
interest rate (1)
|
|
|
2.7 |
% |
|
|
2.8 |
% |
|
|
2.9 |
% |
|
|
2.9 |
% |
|
|
2.9 |
% |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debts
in Hong Kong dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate
|
|
|
25 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
14,106 |
|
|
|
14,131 |
|
|
|
14,131 |
|
Average
interest rate
|
|
|
5.5 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4.2 |
% |
|
|
|
|
|
|
|
|
Variable
rate
|
|
|
347 |
|
|
|
375 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
722 |
|
|
|
722 |
|
Average
interest rate (1)
|
|
|
3.9 |
% |
|
|
4.0 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debts
in Euro
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate
|
|
|
26 |
|
|
|
26 |
|
|
|
26 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
78 |
|
|
|
81 |
|
Average
interest rate
|
|
|
6.7 |
% |
|
|
6.7 |
% |
|
|
6.7 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The
average interest rates for variable rate loans are calculated based on the
rates reported as of December 31,
2007.
|
Interest
Rate Risk
We are
exposed to interest rate risk resulting from fluctuations in interest rates on
our short- and long-term debts. Upward fluctuations in interest rates increase
the cost of new debt and the interest cost of outstanding floating rate
borrowings.
Our debts
consist of fixed and variable rate debt obligations with original maturities
ranging from 1 to 25 years. Fluctuations in interest rates can lead to
significant fluctuations in the fair values of our debt
obligations.
The
following tables present principal cash flows and related weighted average
interest rates by expected maturity dates of our interest rate sensitive
financial instruments as of December 31, 2008 and 2007.
As of
December 31, 2008:
|
|
Expected
maturity
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
2011 |
|
|
2012
|
|
|
2013
|
|
|
thereafter
|
|
|
Total
|
|
|
Fair value
|
|
|
|
(RMB equivalent in millions, except interest
rates)
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
Renminbi
|
|
|
5,532 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,532 |
|
|
|
5,532 |
|
In
United States dollar
|
|
|
1,259 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,259 |
|
|
|
1,259 |
|
In
Hong Kong dollar
|
|
|
109 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
109 |
|
|
|
109 |
|
In
Japanese yen
|
|
|
5 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5 |
|
|
|
5 |
|
In
Euro
|
|
|
43 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
43 |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time
deposits with financial institutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
Renminbi
|
|
|
661 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
661 |
|
|
|
661 |
|
In
United States dollar
|
|
|
91 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
91 |
|
|
|
91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debts
in Renminbi
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate
|
|
|
78,395 |
|
|
|
1,550 |
|
|
|
382 |
|
|
|
8,580 |
|
|
|
60 |
|
|
|
79,705 |
|
|
|
168,672 |
|
|
|
172,273 |
(1) |
Average
interest rate
|
|
|
3.7 |
% |
|
|
3.0 |
% |
|
|
3.0 |
% |
|
|
2.9 |
% |
|
|
2.5 |
% |
|
|
1.5 |
% |
|
|
|
|
|
|
|
|
Variable
rate
|
|
|
11,300 |
|
|
|
7,923 |
|
|
|
5,034 |
|
|
|
2,974 |
|
|
|
6,139 |
|
|
|
2,454 |
|
|
|
35,824 |
|
|
|
35,824 |
|
Average
interest rate (2)
|
|
|
6.3 |
% |
|
|
6.7 |
% |
|
|
6.7 |
% |
|
|
6.7 |
% |
|
|
6.7 |
% |
|
|
6.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debts
in United States dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate
|
|
|
3,074 |
|
|
|
114 |
|
|
|
71 |
|
|
|
57 |
|
|
|
57 |
|
|
|
336 |
|
|
|
3,709 |
|
|
|
3,702 |
|
Average
interest rate
|
|
|
4.0 |
% |
|
|
2.0 |
% |
|
|
1.5 |
% |
|
|
1.4 |
% |
|
|
1.4 |
% |
|
|
1.4 |
% |
|
|
|
|
|
|
|
|
Variable
rate
|
|
|
4,948 |
|
|
|
3 |
|
|
|
3 |
|
|
|
4 |
|
|
|
4 |
|
|
|
7 |
|
|
|
4,969 |
|
|
|
4,969 |
|
Average
interest rate (2)
|
|
|
4.5 |
% |
|
|
4.9 |
% |
|
|
4.9 |
% |
|
|
4.9 |
% |
|
|
4.9 |
% |
|
|
4.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debts
in Japanese yen
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate
|
|
|
110 |
|
|
|
110 |
|
|
|
79 |
|
|
|
79 |
|
|
|
79 |
|
|
|
734 |
|
|
|
1,191 |
|
|
|
1,233 |
|
Average
interest rate
|
|
|
2.6 |
% |
|
|
2.6 |
% |
|
|
2.6 |
% |
|
|
2.6 |
% |
|
|
2.6 |
% |
|
|
2.6 |
% |
|
|
|
|
|
|
|
|
Variable
rate
|
|
|
309 |
|
|
|
207 |
|
|
|
207 |
|
|
|
207 |
|
|
|
- |
|
|
|
- |
|
|
|
930 |
|
|
|
930 |
|
Average
interest rate (2)
|
|
|
2.8 |
% |
|
|
2.9 |
% |
|
|
2.9 |
% |
|
|
2.9 |
% |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debts
in Hong Kong dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
9,870 |
|
|
|
9,870 |
|
|
|
9,870 |
|
Average
interest rate
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4.2 |
% |
|
|
|
|
|
|
|
|
Variable
rate
|
|
|
265 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
265 |
|
|
|
265 |
|
Average
interest rate (2)
|
|
|
0.9 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debts
in Euro
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate
|
|
|
84 |
|
|
|
84 |
|
|
|
29 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
197 |
|
|
|
206 |
|
Average
interest rate
|
|
|
6.6 |
% |
|
|
6.6 |
% |
|
|
6.6 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Carrying
amounts are used for loans from Sinopec Group Company and its affiliates
as it is not practicable to estimate their fair values because the cost of
obtaining discount and borrowing rates for comparable borrowings would be
excessive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
The
average interest rates for variable rate loans are calculated based on the
rates reported as of December 31,
2008.
|
As of
December 31, 2007:
|
|
Expected
maturity
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
thereafter
|
|
|
Total
|
|
|
Fair value
|
|
|
|
(RMB equivalent in millions, except interest
rates)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
Renminbi
|
|
|
6,624 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6,624 |
|
|
|
6,624 |
|
In
United States dollar
|
|
|
754 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
754 |
|
|
|
754 |
|
In
Hong Kong dollar
|
|
|
302 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
302 |
|
|
|
302 |
|
In
Japanese yen
|
|
|
11 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
11 |
|
|
|
11 |
|
In
Euro
|
|
|
5 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time
deposits with financial institutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
Renminbi
|
|
|
668 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
668 |
|
|
|
668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debts
in Renminbi
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate
|
|
|
49,399 |
|
|
|
7,554 |
|
|
|
3,661 |
|
|
|
82 |
|
|
|
8,580 |
|
|
|
55,915 |
|
|
|
125,191 |
|
|
|
124,322 |
(1) |
Average
interest rate
|
|
|
5.4 |
% |
|
|
5.2 |
% |
|
|
5.0 |
% |
|
|
4.9 |
% |
|
|
4.9 |
% |
|
|
0.4 |
% |
|
|
|
|
|
|
|
|
Variable
rate
|
|
|
863 |
|
|
|
11,115 |
|
|
|
7,201 |
|
|
|
4,001 |
|
|
|
2,101 |
|
|
|
2,777 |
|
|
|
28,058 |
|
|
|
28,058 |
|
Average
interest rate (2)
|
|
|
6.5 |
% |
|
|
6.5 |
% |
|
|
6.8 |
% |
|
|
6.9 |
% |
|
|
7.0 |
% |
|
|
7.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debts
in United States dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate
|
|
|
7,960 |
|
|
|
179 |
|
|
|
188 |
|
|
|
125 |
|
|
|
63 |
|
|
|
420 |
|
|
|
8,935 |
|
|
|
8,877 |
|
Average
interest rate
|
|
|
5.2 |
% |
|
|
3.1 |
% |
|
|
2.8 |
% |
|
|
2.3 |
% |
|
|
2.0 |
% |
|
|
2.0 |
% |
|
|
|
|
|
|
|
|
Variable
rate
|
|
|
1,518 |
|
|
|
7 |
|
|
|
3 |
|
|
|
3 |
|
|
|
4 |
|
|
|
11 |
|
|
|
1,546 |
|
|
|
1,546 |
|
Average
interest rate (2)
|
|
|
5.0 |
% |
|
|
7.3 |
% |
|
|
7.4 |
% |
|
|
7.2 |
% |
|
|
7.0 |
% |
|
|
6.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debts
in Japanese yen
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate
|
|
|
94 |
|
|
|
93 |
|
|
|
92 |
|
|
|
67 |
|
|
|
67 |
|
|
|
689 |
|
|
|
1,102 |
|
|
|
1,206 |
|
Average
interest rate
|
|
|
2.6 |
% |
|
|
2.6 |
% |
|
|
2.6 |
% |
|
|
2.6 |
% |
|
|
2.6 |
% |
|
|
2.6 |
% |
|
|
|
|
|
|
|
|
Variable
rate
|
|
|
262 |
|
|
|
255 |
|
|
|
176 |
|
|
|
176 |
|
|
|
176 |
|
|
|
- |
|
|
|
1,045 |
|
|
|
1,045 |
|
Average
interest rate (2)
|
|
|
2.7 |
% |
|
|
2.8 |
% |
|
|
2.9 |
% |
|
|
2.9 |
% |
|
|
2.9 |
% |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debts
in Hong Kong dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate
|
|
|
25 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
14,106 |
|
|
|
14,131 |
|
|
|
14,131 |
|
Average
interest rate
|
|
|
5.5 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4.2 |
% |
|
|
|
|
|
|
|
|
Variable
rate
|
|
|
347 |
|
|
|
375 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
722 |
|
|
|
722 |
|
Average
interest rate (2)
|
|
|
3.9 |
% |
|
|
4.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debts
in Euro
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate
|
|
|
26 |
|
|
|
26 |
|
|
|
26 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
78 |
|
|
|
81 |
|
Average
interest rate
|
|
|
6.7 |
% |
|
|
6.7 |
% |
|
|
6.7 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Carrying
amounts are used for loans from Sinopec Group Company and its affiliates
as it is not practicable to estimate their fair values because the cost of
obtaining discount and borrowing rates for comparable borrowings would be
excessive.
|
|
|
(2)
|
The
average interest rates for variable rate loans are calculated based on the
rates reported as of December 31, 2007.
|
|
|
ITEM
12.
|
DESCRIPTION
OF SECURITIES OTHER THAN EQUITY
SECURITIES
|
Not
applicable
ITEM
13.
|
DEFAULTS,
DIVIDEND ARREARAGES AND
DELINQUENCIES
|
None.
ITEM
14.
|
MATERIAL
MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
|
A. MATERIAL
MODIFICATIONS TO THE RIGHTS TO SECURITIES HOLDERS
None.
B. USE
OF PROCEEDS
Not
applicable.
ITEM
15.
|
CONTROLS
AND PROCEDURES
|
Disclosure
Controls and Procedures
Our
management, with the participation of our principal executive officer and
principal financial officer, has evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the U.S.
Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December
31, 2008 (the "Evaluation Date"), the end of the fiscal year covered by this
annual report. Based on this evaluation, our principal executive officer and
principal financial officer have concluded that, as of the Evaluation Date, our
disclosure controls and procedures were effective.
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rules 13a-15(f) of the
Securities Exchange Act of 1934). The Company’s internal control over financial
reporting is designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with International Financial Reporting
Standards.
Internal
control over financial reporting cannot provide absolute assurance of achieving
financial reporting objectives because of its inherent limitations. Because of
its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Our
management assessed the effectiveness of our internal control over financial
reporting based upon the criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission as of December 31, 2008. Based on that evaluation, our
management has concluded that our internal control over financial reporting was
effective as of December 31, 2008 based on these criteria.
KPMG, an
independent registered public accounting firm, has audited the consolidated
financial statements included in this annual report on Form 20-F and, as part of
the audit, has issued a report, included herein, on the effectiveness of our
internal control over financial reporting.
Report
of Independent Registered Public Accounting Firm
The Board
of Directors and Shareholders of China Petroleum & Chemical
Corporation:
We have
audited China Petroleum & Chemical Corporation and subsidiaries (the
‘‘Group’’)’s internal control over financial reporting as of December 31, 2008,
based on criteria established in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission. The
Group’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 Group’s internal control over financial reporting
based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit 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.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because of
its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, the Group maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2007, based on criteria
established in Internal Control—Integrated Framework 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), the consolidated balance sheets of the Group as
of December 31, 2007 and 2008, and the related consolidated statements of
income, cash flows and equity for each of the years in the three-year period
ended December 31, 2008, and our report dated March 27, 2009 expressed an
unqualified opinion on those consolidated financial statements.
/S/
KPMG
Hong Kong,
China
March 27,
2009
Changes
in Internal Control over Financial Reporting
During the
year ended December 31, 2008, there have been no changes in our internal control
over financial reporting that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.
ITEM 16A.
|
AUDIT
COMMITTEE FINANCIAL EXPERT
|
The board
of directors has determined that Mr. Liu Zhongli qualifies as an audit committee
financial expert in accordance with the terms of Item 16.A of Form
20-F. Mr. Liu was appointed as an independent non-executive director
and a member of the audit committee of the third board of our company in May
2006. For Mr. Liu’s biographical information, see "Item 6 Directors, Senior
Management and Employees – A. Directors, members of the supervisory committee
and senior management."
As
of the date of this annual report, we do not have, in form, a code of ethics
that applies to our principal executive officer, principal financial officer and
principal accounting officer. Our principal executive officers, Mr.
Su Shulin (Chairman) and Mr. Wang Tianpu (President), and our principal
financial officer, Mr. Dai Houliang (CFO), currently also serve as our directors
and are thus subject to the director service contracts that they have with
us. Under the director service contracts, each of them agrees that he
owes a fiduciary and diligence obligation to our company and that he shall not
engage in any activities in competition with our business or carry any
activities detrimental to the interests of our company. Each of them
also agrees to perform his respective duties as a director and senior officer in
accordance with the Company Law of the PRC, relevant rules and regulations
promulgated by China Securities Regulatory Commission and the Mandatory
Provisions of Articles of Association of Overseas Listed Companies.
ITEM 16C.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The
following table sets forth the aggregate audit fees, audit-related fees, tax
fees of our principal accountants and all other fees billed for products and
services provided by our principal accountants other than the audit fees,
audit-related fees and tax fees for each of the fiscal years 2007 and
2008:
|
|
|
|
|
|
|
|
|
2007
|
|
RMB
85 million
|
|
—
|
|
—
|
|
—
|
2008
|
|
RMB
81 million
|
|
—
|
|
—
|
|
—
|
Before our
principal accountants were engaged by our company or our subsidiaries to render
audit or non-audit services, the engagement has been approved by our audit
committee.
ITEM 16D.
|
EXEMPTIONS
FROM THE LISTING STANDARDS FOR AUDIT
COMMITTEES
|
Not
applicable.
ITEM 16E.
|
PURCHASES
OF EQUITY SECURITIES BY THE
ISSUER AND AFFILIATED PURCHASERS
|
None.
ITEM 16F.
|
CHANGE
IN REGISTRANT’S CERTIFYING
ACCOUNTANT
|
Not
applicable.
ITEM 16G.
|
COMPARISON
OF NEW YORK STOCK EXCHANGE CORPORATE GOVERNANCE RULES AND CHINA CORPORATE
GOVERNANCE RULES FOR LISTED
COMPANIES
|
Under the
amended Corporate Governance Rules of New York Stock Exchange (NYSE), foreign
issuers (including the Company) listed on the NYSE are required to disclose a
summary of the significant differences between their domestic corporate
governance rules and NYSE corporate governance rules that would apply to a U.S.
domestic issuer. A summary of such differences is listed below:
NYSE
corporate governance rules
|
|
Corporate
governance rules applicable to the
domestically
listed companies in China and the
Company’s
governance practices
|
|
|
|
Corporate
governance guidelines
|
|
|
Listed
companies must adopt and disclose corporate governance guidelines,
involving director qualification standards, director compensation,
director continuing education, annual performance evaluation of the board
of directors, etc.
|
|
CSRC
(China Securities Regulatory Commission) has issued the Corporate
Governance Rules, prescribing detailed guidelines on directors of the
listed companies, including director selection, the structure of the board
of directors and director performance evaluation etc. The Company Law of
PRC has specific regulations on the directors’ qualification. Furthermore,
CSRC promulgates the guidelines on the senior management training and
organizes the relevant training.
The
Company has complied with the above mentioned laws or
rules.
|
|
|
|
Director
Independence
|
|
|
|
|
|
A
listed company must have a majority of independent directors on its board
of directors. No director qualifies as “independent’’ unless the board of
directors affirmatively determines that the director has no material
relationship with the listed company (either directly or as a partner,
shareholder or officer of an organization that has a relationship with the
company). In addition, a director must meet certain standards to be deemed
independent. For example, a director is not independent if the director
is, or has been within the last three years, an employee of the listed
company, or if the director has received, during any twelve-month period
within the last three years, more than US$120,000 in direct compensation
from the listed company.
|
|
It
is required in China that any listed company must establish an independent
director system and set forth specific requirements for the qualification
of independent directors. For example, an independent director shall not
hold any other position in the listed company other than being a director
and shall not be influenced by the main shareholders or the controlling
persons of the listed company, or by any other entities or persons with
whom the listed company has a significant relationship.
The
Company has complied with the relevant Chinese corporate governance rules
and has implemented internal rules governing the independence and
responsibilities of independent directors. The Company determines the
independence of independent directors every year.
|
|
|
|
To
empower non-management directors to serve as a more effective check on
management, the non-management directors of each listed company must meet
at regularly scheduled executive sessions without
management. |
|
No
similar requirements. |
|
|
|
Nominating/Corporate
Governance Committee
|
|
|
|
|
|
Listed
companies must have a nominating/corporate governance committee composed
entirely of independent directors.
|
|
It
is stipulated in China that the board of directors of a listed company
may, through the resolution of the shareholders’ meeting, establish a
nominating committee composed entirely of directors, of which the
independent directors shall be the majority and the convener. Up to now,
the Company has not set up any nominating committee.
|
The
nominating/corporate governance committee must have a written charter that
addresses the committee’s purposes and responsibilities which, at minimum,
must be to: search for eligible people for the board of directors, select
and nominate directors for the next session of the shareholders’ annual
meeting, study and propose corporate governance guidelines, supervise the
evaluation of the board of directors and management, and evaluate the
performance of the committee every year.
|
|
Relevant
responsibilities of the nominating/corporate governance committee are
similar to those stipulated by the NYSE rules, but the main
responsibilities do not include the research and recommendation of
corporate governance guidelines, the supervision of the evaluation of the
board of directors and management, or the annual evaluation of the
committee.
|
|
|
|
Compensation
Committee
|
|
|
|
|
|
Listed
companies must have a compensation committee composed entirely of
independent directors.
|
|
It
is stipulated in China that the board of directors of a listed company
should, through the resolution of shareholders’ meeting, have a
compensation and
|
|
|
assessment
committee composed entirely of directors, of whom the independent
directors are the majority and act as the convener.
|
|
|
|
The
written charter of the compensation committee must state, at least, the
following purposes and responsibilities:
(1)
review and approve the corporate goals associated with CEO’s compensation,
evaluate the performance of the CEO in fulfilling these goals, and based
on such evaluation determine and approve the CEO’s compensation
level;
(2)
make recommendations to the board with respect to non-CEO executive
officer compensation, and incentive-compensation and equity-based plans
that are subject to board approval;
(3)
produce a committee report on executive compensation as required by the
SEC to be included in the annual proxy statement or annual report filed
with the SEC.
|
|
It
is stipulated in China that the responsibilities of the compensation
committee are:
(1)
to study evaluation standards on the performance of directors and the
senior management and submit suggestion to the board of
directors;
(2)
to study and review the compensation policies on the directors and the
senior management.
It
is also stipulated that the committee shall produce a report about the
committee’s performance in the annual report.
But
the committee is not required to produce a report on the executive
compensation or make an annual performance evaluation of the
committee.
|
|
|
|
The
charter must also include the requirement for an annual performance
evaluation of the compensation committee. |
|
The
board of directors of the Company has established a compensation and
performance evaluation committee composed mainly of independent directors
who act as the convener, and the committee has established a written
charter complying with the domestic corporate governance
rules. |
|
|
|
Audit
Committee
|
|
|
|
|
|
Listed
companies must have an audit committee that satisfies the requirements of
Rule 10A-3 of Securities Exchange Act of 1934 (the “Exchange Act”). It
must have a minimum of three members, and all audit committee members must
satisfy the requirements for independence set forth in Section 303A.02 of
NYSE Corporate Governance Rules as well as the requirements of Rule 10A-3b
(1) of the Exchange Act.
|
|
It
is stipulated in China that the board of directors of a listed company
should, through the resolution of the shareholders’ meeting, establish an
audit committee composed entirely of directors, of which the independent
directors are the majority and act as the convener, and, at minimum, one
independent director is an accounting professional.
|
|
|
|
The
written charter of the audit committee must specify that the purpose of
the audit committee is to assist the board oversight of the integrity of
financial statements, the company’s compliance with legal and regulatory
requirements, qualifications and independence of independent auditors and
the performance of the listed company’s internal audit function and
independent auditors.
|
|
The
responsibilities of the audit committee are similar to those stipulated by
the NYSE rules. It is also stipulated that the committee shall produce a
report about the committee’s performance in the annual
report.
But
according to the domestic practices, the company is not required to make
an annual performance evaluation of the audit committee, and the audit
committee is not required to prepare an audit report to be included in the
company’s annual proxy statement.
|
|
|
|
The
written charter must also require the audit committee to prepare an audit
committee report as required by the SEC to be included in the listed
company’s annual proxy statement as well as an annual performance
evaluation of the audit committee. |
|
The
Board of Directors of the Company has established an audit committee that
satisfies relevant domestic and overseas requirements and the audit
committee has a written charter. |
|
|
|
Each
listed company must have an internal audit department. |
|
China
has a similar regulatory provision, and the Company has an internal audit
department. |
|
|
|
Shareholders
must be given the opportunity to vote on equity-compensation plans and
material revisions thereto, except for employment incentive plans, certain
awards and plans in the context of mergers and
acquisitions.
|
|
The
relevant regulations of China require the board of directors propose plans
on the amount and types of director compensation for the shareholders’
meeting to approve. The compensation plan of executive officers shall be
approved by the board and announced at the shareholders’ meeting and
disclosed to the public
upon |
|
|
the
approval of the board of directors.
|
|
|
|
Code
of ethics for directors, officers and employees
|
|
|
|
|
|
Listed
companies must adopt and disclose a code of business conduct and ethics
for directors, officers and employees, and promptly disclose any waivers
of the code for directors or executive officers.
|
|
China
does not have such requirement for a code for ethics. But, since the
directors and officers of the Company have all signed the Director Service
Agreement, they are bound by their fiduciary duties to the Company. In
addition, the directors and officers must perform their legal
responsibilities in accordance with the Company Law of PRC, relative
requirements of CSRS and Mandatory Provisions to the Charter of Companies
Listed Overseas. Meanwhile, the Company establishes The Model Code of
Securities Transactions by Corporate Employees and The Rules of The
Company’s Shares Transactions by Corporate Directors, Superiors and Senior
Managements to regulate the above mentioned people when transacting
related securities. In 2008, the Company promulgated the Code for
Employees of the Company as the standards of business conduct and ethics
of the employees.
|
|
|
|
Each
listed company 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 and he or she must promptly notify the NYSE on writing
of any material non-compliance with any applicable provisions of Section
303A.
|
|
No
similar
requirements.
|
ITEM
17.
|
FINANCIAL
STATEMENTS
|
Not
applicable.
ITEM
18.
|
FINANCIAL
STATEMENTS
|
See
F-pages following Item 19.
1
**
|
Articles
of Association of the Registrant, amended and adopted by the shareholders'
meeting on May 24, 2006 (English translation), incorporated by reference
to Exhibit 1 to our Annual Report on Form 20-F filed with the Securities
and Exchange Commission on April 13, 2007 (File Number:
001-15138).
|
1.1
*
|
Amendment
to the Articles of Association of China Petroleum & Chemical
Corporation, adopted by the shareholders’ meeting on May 26, 2008 (English
translation).
|
4.1**
|
Forms
of Director Service Contracts dated May 24, 2006 (English translation),
incorporated by reference to Exhibit 4.1 to our Annual Report on Form 20-F
filed with the Securities and Exchange Commission on April 13,
2007 (File Number:
001-15138).
|
4.2**
|
Forms
of Supervisor Service Contracts dated May 24, 2006 (English translation),
incorporated by reference to Exhibit 4.2 to our Annual Report on Form 20-F
filed with the Securities and Exchange Commission on April 13,
2007 (File Number:
001-15138).
|
4.3**
|
Reorganization
Agreement between China Petrochemical Corporation and China Petroleum
& Chemical Corporation dated June 3, 2000 (including English
translation), incorporated by reference to Exhibit 10.1 to our
Registration Statement on Form F-1 filed with the Securities and Exchange
Commission on October 10, 2000 (File Number:
333-12502).
|
4.4**
|
Agreement
for Mutual Provision of Products and Ancillary Services between China
Petrochemical Corporation and China Petroleum & Chemical Corporation
dated June 3, 2000 (including English translation), incorporated by
reference to Exhibit 10.3 to our Registration Statement on Form F-1 filed
with the Securities and Exchange Commission on October 10, 2000 (File
Number: 333-12502).
|
4.5**
|
Agreement
for Provision of Cultural, Educational, Hygiene and Community Services
between China Petrochemical Corporation and China Petroleum & Chemical
Corporation dated June 3, 2000 (including English translation),
incorporated by reference to Exhibit 10.4 to our Registration Statement on
Form F-1 filed with the Securities and Exchange Commission on October 10,
2000 (File Number: 333-12502).
|
4.6**
|
Trademark
License Agreement between China Petrochemical Corporation and China
Petroleum & Chemical Corporation dated June 3, 2000 (including English
translation), incorporated by reference to Exhibit 10.6 to our
Registration Statement on Form F-1 filed with the Securities and Exchange
Commission on October 10, 2000 (File Number:
333-12502).
|
4.7**
|
Patents
and Proprietary Technology License Contract between China Petrochemical
Corporation and China Petroleum & Chemical Corporation dated June 3,
2000 (including English translation), incorporated by reference to Exhibit
10.7 to our Registration Statement on Form F-1 filed with the Securities
and Exchange Commission on October 10, 2000 (File Number:
333-12502).
|
4.8**
|
Computer
Software License Contract between China Petrochemical Corporation and
China Petroleum & Chemical Corporation dated June 3, 2000 (including
English translation), incorporated by reference to Exhibit 10.8 to our
Registration Statement on Form F-1 filed with the Securities and Exchange
Commission on October 10, 2000 (File Number:
333-12502).
|
4.9**
|
Assets
Swap Contract between China Petrochemical Corporation and China Petroleum
& Chemical Corporation dated June 3, 2000 (including English
translation), incorporated by reference to Exhibit 10.9 to our
Registration Statement on Form F-1 filed with the Securities and Exchange
Commission on October 10, 2000 (File Number:
333-12502).
|
4.10**
|
Land
Use Rights Leasing Contract between China Petrochemical Corporation and
China Petroleum & Chemical Corporation dated June 3, 2000 (including
English translation), incorporated by reference to Exhibit 10.10 to our
Registration Statement on Form F-1 filed with the Securities and Exchange
Commission on October 10, 2000 (File Number:
333-12502).
|
4.12**
|
Property
Leasing Contract between China Petrochemical Corporation and China
Petroleum & Chemical Corporation dated June 3, 2000 (including English
translation), incorporated by reference to Exhibit 10.11 to our
Registration Statement on Form F-1 filed with the Securities and Exchange
Commission on October 10, 2000 (File Number:
333-12502).
|
4.13**
|
Accounts
Collectable Contract between China Petrochemical Corporation and China
Petroleum & Chemical Corporation dated August 16, 2000 (including
English translation), incorporated by reference to Exhibit 10.17 to our
Registration Statement on Form F-1 filed with the Securities and Exchange
Commission on October 10, 2000 (File Number:
333-12502).
|
4.14**
|
Loan
Transfer and Adjustment Contract between China Petrochemical Corporation
and China Petroleum & Chemical Corporation dated August 16, 2000
(including English translation), incorporated by reference to Exhibit
10.18 to our Registration Statement on Form F-1 filed with the Securities
and Exchange Commission on October 10, 2000 (File Number:
333-12502).
|
4.15**
|
Agreement
on Adjustment to Related Party Transactions between China Petrochemical
Corporation and China Petroleum & Chemical Corporation dated June 11,
2001 (English translation), incorporated by reference to Exhibit 4.15 to
our Annual Report on Form 20-F filed with the Securities and Exchange
Commission on April 13, 2007 (File Number:
001-15138).
|
4.16**
|
Land
Use Right Leasing Agreement between China Petrochemical Corporation and
China Petroleum & Chemical Corporation dated August 22, 2003 (English
translation), incorporated by reference to Exhibit 4.16 to our Annual
Report on Form 20-F filed with the Securities and Exchange Commission on
April 13, 2007 (File Number:
001-15138).
|
|
|
|
|
4.17**
|
2004
Agreement on Adjustment to Related Party Transactions between China
Petrochemical Corporation and China Petroleum & Chemical Corporation
dated October 31, 2004 (English translation) , incorporated by reference
to Exhibit 4.17 to our Annual Report on Form 20-F filed with the
Securities and Exchange Commission on April 13, 2007 (File
Number: 001-15138).
|
4.18**
|
Memorandum
on Adjustment of Rent of Land Use Rights between China Petrochemical
Corporation and China Petroleum & Chemical Corporation dated March 31,
2006 (English translation) , incorporated by reference to Exhibit 4.18 to
our Annual Report on Form 20-F filed with the Securities and Exchange
Commission on April 13, 2007 (File Number:
001-15138).
|
4.19**
|
Supplemental
Agreement on Related Party Transactions between China
Petrochemical Corporation and China Petroleum & Chemical Corporation
dated March 31, 2006 (English translation) , incorporated by reference to
Exhibit 4.19 to our Annual Report on Form 20-F filed with the Securities
and Exchange Commission on April 13, 2007 (File Number:
001-15138).
|
4.20*
|
Memorandum
on Adjustment of Rent of Land Use Rights between China Petrochemical
Corporation and China Petroleum & Chemical Corporation dated August
22, 2008 (English Translation).
|
8*
|
A
list of the Registrant's
subsidiaries.
|
12.1*
|
Certification
of Chairman pursuant to Rule
13a-14(a).
|
12.2*
|
Certification
of President pursuant to Rule
13a-14(a).
|
12.3*
|
Certification
of CFO pursuant to Rule 13a-14(a).
|
13*
|
Certification
of CEO and CFO pursuant to 18 U.S.C. §1350, and Rule
13a-14(b).
|
* Filed
herewith.
**
Incorporated by reference.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Page
|
|
|
Report
of independent registered public accounting firm
|
F-2
|
|
|
|
|
Consolidated
statements of income for the years ended December 31, 2006, 2007 and
2008
|
F-3
|
|
|
|
|
Consolidated
balance sheets as of December 31, 2007 and 2008
|
F-4
|
|
|
|
|
Consolidated
statements of equity for the years ended December 31, 2006, 2007 and
2008
|
F-5
|
|
|
|
|
Consolidated
statements of cash flows for the years ended December 31, 2006, 2007 and
2008
|
F-8
|
|
|
|
|
Notes
to consolidated financial statements
|
F-10
|
|
|
|
|
Supplemental
information on oil and gas producing activities
(unaudited)
|
F-62
|
|
|
|
|
|
|
|
|
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board of Directors and Shareholders of
China
Petroleum & Chemical Corporation:
We
have audited the accompanying consolidated balance sheets of China Petroleum
& Chemical Corporation and subsidiaries (the ‘‘Group’’) as of December 31,
2007 and 2008, and the related consolidated statements of income, cash flows and
equity for each of the years in the three-year period ended December 31, 2008.
These consolidated financial statements are the responsibility of the Group’s
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Group as of
December 31, 2007 and 2008, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 2008, in
conformity with International Financial Reporting Standards as issued by the
International Accounting Standards Board.
We
also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of the Group’s
internal control over financial reporting as of December 31, 2008, based on
criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our
report dated March 27, 2009 expressed an unqualified opinion on the
effectiveness of the Group’s internal control over financial
reporting.
KPMG
Hong
Kong, China
March
27, 2009
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
FOR
THE YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008
(Amounts
in millions, except per share data)
|
|
|
|
|
Years
ended December 31,
|
|
|
|
Note
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Operating
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of
goods
|
|
|
|
|
|
1,034,888 |
|
|
|
1,173,869 |
|
|
|
1,420,321 |
|
Other operating
revenues
|
|
|
3
|
|
|
|
26,853 |
|
|
|
30,974 |
|
|
|
31,780 |
|
|
|
|
|
|
|
|
1,061,741 |
|
|
|
1,204,843 |
|
|
|
1,452,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
4
|
|
|
|
5,161 |
|
|
|
4,863 |
|
|
|
50,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased crude oil, products and
operating supplies
and
expenses
|
|
|
|
|
|
|
(854,236 |
) |
|
|
(970,929 |
) |
|
|
(1,285,155 |
) |
Selling, general and
administrative expenses
|
|
|
5
|
|
|
|
(37,514 |
) |
|
|
(37,843 |
) |
|
|
(46,175 |
) |
Depreciation, depletion and
amortization
|
|
|
|
|
|
|
(33,554 |
) |
|
|
(43,315 |
) |
|
|
(45,823 |
) |
Exploration expenses, including
dry holes
|
|
|
|
|
|
|
(7,983 |
) |
|
|
(11,105 |
) |
|
|
(8,310 |
) |
Personnel
expenses
|
|
|
6
|
|
|
|
(20,956 |
) |
|
|
(22,745 |
) |
|
|
(23,285 |
) |
Taxes other than income
tax
|
|
|
7
|
|
|
|
(29,330 |
) |
|
|
(34,304 |
) |
|
|
(56,799 |
) |
Other operating expenses,
net
|
|
|
8
|
|
|
|
(2,697 |
) |
|
|
(3,601 |
) |
|
|
(8,773 |
) |
Total operating
expenses
|
|
|
|
|
|
|
(986,270 |
) |
|
|
(1,123,842 |
) |
|
|
(1,474,320 |
) |
Operating
income
|
|
|
|
|
|
|
80,632 |
|
|
|
85,864 |
|
|
|
28,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance
costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
9
|
|
|
|
(7,101 |
) |
|
|
(7,314 |
) |
|
|
(11,326 |
) |
Interest
income
|
|
|
|
|
|
|
538 |
|
|
|
405 |
|
|
|
445 |
|
Unrealized (loss) / gain on
embedded derivative
component of the Convertible
Bonds
|
|
|
23(f)
|
|
|
|
— |
|
|
|
(3,211 |
) |
|
|
3,947 |
|
Foreign currency exchange
losses
|
|
|
|
|
|
|
(140 |
) |
|
|
(311 |
) |
|
|
(954 |
) |
Foreign currency exchange
gains
|
|
|
|
|
|
|
890 |
|
|
|
2,330 |
|
|
|
3,112 |
|
Net finance
costs
|
|
|
|
|
|
|
(5,813 |
) |
|
|
(8,101 |
) |
|
|
(4,776 |
) |
Investment
income
|
|
|
|
|
|
|
289 |
|
|
|
1,657 |
|
|
|
390 |
|
Income from associates and jointly controlled entities
|
|
|
|
|
|
|
3,434 |
|
|
|
4,044 |
|
|
|
580 |
|
Earnings
before income
tax
|
|
|
|
|
|
|
78,542 |
|
|
|
83,464 |
|
|
|
24,317 |
|
Tax
(expense) /
benefit
|
|
|
10
|
|
|
|
(23,504 |
) |
|
|
(24,721 |
) |
|
|
1,883 |
|
Net
income
|
|
|
|
|
|
|
55,038 |
|
|
|
58,743 |
|
|
|
26,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable
to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity shareholders of the
Company
|
|
|
|
|
|
|
53,603 |
|
|
|
56,533 |
|
|
|
29,769 |
|
Minority
interests
|
|
|
|
|
|
|
1,435 |
|
|
|
2,210 |
|
|
|
(3,569 |
) |
Net
income
|
|
|
|
|
|
|
55,038 |
|
|
|
58,743 |
|
|
|
26,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
11
|
|
|
|
0.62 |
|
|
|
0.65 |
|
|
|
0.34 |
|
Diluted
|
|
|
11
|
|
|
|
0.62 |
|
|
|
0.65 |
|
|
|
0.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of
shares
|
|
|
11
|
|
|
|
86,702 |
|
|
|
86,702 |
|
|
|
86,702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
AS
OF DECEMBER 31, 2007 AND 2008
(Amounts
in millions)
|
|
|
|
|
December
31,
|
|
|
|
Note
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
RMB
|
|
|
RMB
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
|
|
|
|
7,696 |
|
|
|
6,948 |
|
Time deposits with financial
institutions
|
|
|
|
|
|
668 |
|
|
|
752 |
|
Trade accounts receivable,
net
|
|
|
12
|
|
|
|
22,947 |
|
|
|
12,989 |
|
Bills
receivable
|
|
|
|
|
|
|
12,851 |
|
|
|
3,659 |
|
Inventories
|
|
|
13
|
|
|
|
116,032 |
|
|
|
95,255 |
|
Prepaid
expenses and other current
assets
|
|
|
14
|
|
|
|
24,922 |
|
|
|
34,924 |
|
Income tax
receivable
|
|
|
|
|
|
|
— |
|
|
|
9,784 |
|
Total current
assets
|
|
|
|
|
|
|
185,116 |
|
|
|
164,311 |
|
Non-current
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment,
net
|
|
|
15
|
|
|
|
375,142 |
|
|
|
403,265 |
|
Construction in
progress
|
|
|
16
|
|
|
|
95,408 |
|
|
|
121,886 |
|
Goodwill
|
|
|
17
|
|
|
|
15,490 |
|
|
|
14,237 |
|
Interest in
associates
|
|
|
18
|
|
|
|
16,865 |
|
|
|
15,595 |
|
Interest in jointly controlled
entities
|
|
|
19
|
|
|
|
12,723 |
|
|
|
11,781 |
|
Investments
|
|
|
20
|
|
|
|
3,194 |
|
|
|
1,483 |
|
Deferred income tax
assets
|
|
|
22
|
|
|
|
10,439 |
|
|
|
12,810 |
|
Lease
prepayments
|
|
|
|
|
|
|
8,224 |
|
|
|
10,817 |
|
Long-term prepayments and other
assets
|
|
|
21
|
|
|
|
10,124 |
|
|
|
11,642 |
|
Total non-current
assets
|
|
|
|
|
|
|
547,609 |
|
|
|
603,516 |
|
Total
assets
|
|
|
|
|
|
|
732,725 |
|
|
|
767,827 |
|
LIABILITIES
AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
debts
|
|
|
23
|
|
|
|
44,654 |
|
|
|
74,896 |
|
Loans from Sinopec Group Company and its affiliates
|
|
|
23
|
|
|
|
15,840 |
|
|
|
23,587 |
|
Trade accounts
payable
|
|
|
24
|
|
|
|
93,049 |
|
|
|
56,667 |
|
Bills
payable
|
|
|
24
|
|
|
|
12,162 |
|
|
|
17,493 |
|
Accrued expenses and other
payables
|
|
|
25
|
|
|
|
89,171 |
|
|
|
101,878 |
|
Income tax
payable
|
|
|
|
|
|
|
10,479 |
|
|
|
16 |
|
Total current
liabilities
|
|
|
|
|
|
|
265,355 |
|
|
|
274,537 |
|
Non-current
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debts
|
|
|
23
|
|
|
|
83,134 |
|
|
|
90,254 |
|
Loans from Sinopec Group Company and its affiliates
|
|
|
23
|
|
|
|
37,180 |
|
|
|
36,890 |
|
Deferred income tax
liabilities
|
|
|
22
|
|
|
|
5,636 |
|
|
|
5,235 |
|
Other
liabilities
|
|
|
26
|
|
|
|
8,662 |
|
|
|
11,589 |
|
Total non-current
liabilities
|
|
|
|
|
|
|
134,612 |
|
|
|
143,968 |
|
Total
liabilities
|
|
|
|
|
|
|
399,967 |
|
|
|
418,505 |
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
capital
|
|
|
27
|
|
|
|
86,702 |
|
|
|
86,702 |
|
Reserves
|
|
|
28
|
|
|
|
220,731 |
|
|
|
241,967 |
|
Total
equity attributable to equity shareholders of the Company
|
|
|
|
|
|
|
307,433 |
|
|
|
328,669 |
|
Minority
interests
|
|
|
|
|
|
|
25,325 |
|
|
|
20,653 |
|
Total
equity
|
|
|
|
|
|
|
332,758 |
|
|
|
349,322 |
|
Total liabilities and
equity
|
|
|
|
|
|
|
732,725 |
|
|
|
767,827 |
|
See
accompanying notes to consolidated financial statements.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF EQUITY
(Amounts
in millions)
|
|
Share
capital
|
|
|
Capital
reserve
|
|
|
Share
premium
|
|
|
Re-valuation
reserve
|
|
|
Statutory
surplus
reserve
|
|
|
Statutory
public
welfare
fund
|
|
|
Dis-
cretionary
surplus
reserve
|
|
|
Other
reserves
|
|
|
Retained
earnings
|
|
|
Total
equity attributable
to
equity shareholders of
the
Company
|
|
|
Minority
interests
|
|
|
Total
equity
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2006
|
|
|
86,702 |
|
|
|
(19,217 |
) |
|
|
18,072 |
|
|
|
26,342 |
|
|
|
13,514 |
|
|
|
13,514 |
|
|
|
7,000 |
|
|
|
2,785 |
|
|
|
77,387 |
|
|
|
226,099 |
|
|
|
31,174 |
|
|
|
257,273 |
|
Net income recognized
directly in equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain for the change in fair value of available-for-sale financial assets,
net of deferred tax
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
34 |
|
|
|
— |
|
|
|
34 |
|
|
|
— |
|
|
|
34 |
|
Net
income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
53,603 |
|
|
|
53,603 |
|
|
|
1,435 |
|
|
|
55,038 |
|
Total recognized income for the year
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
34 |
|
|
|
53,603 |
|
|
|
53,637 |
|
|
|
1,435 |
|
|
|
55,072 |
|
Final dividend for 2005
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7,803 |
) |
|
|
(7,803 |
) |
|
|
— |
|
|
|
(7,803 |
) |
Interim dividend for 2006
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,468 |
) |
|
|
(3,468 |
) |
|
|
— |
|
|
|
(3,468 |
) |
Appropriation (Note 28 (d) and (f))
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,066 |
|
|
|
— |
|
|
|
20,000 |
|
|
|
— |
|
|
|
(25,066 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Statutory public welfare fund transferred to statutory surplus reserve
(Note 28 (e))
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13,514 |
|
|
|
(13,514 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Revaluation surplus realized
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,590 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,590 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Realization of deferred tax on lease prepayments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7 |
) |
|
|
7 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Transfer from retained earnings to other reserves
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
704 |
|
|
|
(704 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Transfer from other reserves to capital reserve
|
|
|
— |
|
|
|
(2,373 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,373 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Distribution to Sinopec Group Company (Note 28 (g))
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(631 |
) |
|
|
— |
|
|
|
(631 |
) |
|
|
— |
|
|
|
(631 |
) |
Consideration for the Acquisition of Oil Production Plants (Note
1)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,500 |
) |
|
|
— |
|
|
|
(3,500 |
) |
|
|
— |
|
|
|
(3,500 |
) |
Acquisitions of non-controlling interests of subsidiaries
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(9,730 |
) |
|
|
(9,730 |
) |
Contributions from minority interests net
of distributions
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
187 |
|
|
|
187 |
|
Disposal
of a subsidiary
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(743 |
) |
|
|
(743 |
) |
Balance as of December 31, 2006
|
|
|
86,702 |
|
|
|
(21,590 |
) |
|
|
18,072 |
|
|
|
24,752 |
|
|
|
32,094 |
|
|
|
— |
|
|
|
27,000 |
|
|
|
1,758 |
|
|
|
95,546 |
|
|
|
264,334 |
|
|
|
22,323 |
|
|
|
286,657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF EQUITY (CONTINUED)
(Amounts
in millions)
|
|
Share
capital
|
|
|
Capital
reserve
|
|
|
Share
premium
|
|
|
Re-valuation
reserve
|
|
|
Statutory
surplus
reserve
|
|
|
Dis-
cretionary
surplus
reserve
|
|
|
Other
reserves
|
|
|
Retained
earnings
|
|
|
Total
equity attributable
to
equity shareholders of
the
Company
|
|
|
Minority
interests
|
|
|
Total
equity
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Balance as of January 1, 2007
|
|
|
86,702 |
|
|
|
(21,590 |
) |
|
|
18,072 |
|
|
|
24,752 |
|
|
|
32,094 |
|
|
|
27,000 |
|
|
|
1,758 |
|
|
|
95,546 |
|
|
|
264,334 |
|
|
|
22,323 |
|
|
|
286,657 |
|
Net income recognized
directly in equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain for the change in fair value of available-for-sale financial assets,
net of deferred tax (Note 28 (k))
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,892 |
|
|
|
— |
|
|
|
2,892 |
|
|
|
145 |
|
|
|
3,037 |
|
Effect
of change in
tax
rate (Note 22 (ii))
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(54 |
) |
|
|
— |
|
|
|
(54 |
) |
|
|
17 |
|
|
|
(37 |
) |
Net
income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
56,533 |
|
|
|
56,533 |
|
|
|
2,210 |
|
|
|
58,743 |
|
Total recognized income for the year
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,838 |
|
|
|
56,533 |
|
|
|
59,371 |
|
|
|
2,372 |
|
|
|
61,743 |
|
Final
dividend for 2006
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(9,537 |
) |
|
|
(9,537 |
) |
|
|
— |
|
|
|
(9,537 |
) |
Interim dividend for 2007
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,335 |
) |
|
|
(4,335 |
) |
|
|
— |
|
|
|
(4,335 |
) |
Adjustment to statutory surplus reserve (Note 28 (d))
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
235 |
|
|
|
— |
|
|
|
— |
|
|
|
(235 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Appropriation (Note 28 (d))
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,468 |
|
|
|
— |
|
|
|
— |
|
|
|
(5,468 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Revaluation surplus realized
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(638 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
638 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Realization of deferred tax on lease prepayments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7 |
) |
|
|
7 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Transfer from retained earnings to other reserves
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(151 |
) |
|
|
151 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Transfer from other reserves to capital reserve
|
|
|
— |
|
|
|
(1,062 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,062 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Contribution from Sinopec Group Company (Note 28 (g))
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
68 |
|
|
|
— |
|
|
|
68 |
|
|
|
— |
|
|
|
68 |
|
Consideration for the Acquisition of Refinery Plants (Note
1)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,468 |
) |
|
|
— |
|
|
|
(2,468 |
) |
|
|
— |
|
|
|
(2,468 |
) |
Contributions from minority interests net
of distributions
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
630 |
|
|
|
630 |
|
Balance as of December 31, 2007
|
|
|
86,702 |
|
|
|
(22,652 |
) |
|
|
18,072 |
|
|
|
24,114 |
|
|
|
37,797 |
|
|
|
27,000 |
|
|
|
3,100 |
|
|
|
133,300 |
|
|
|
307,433 |
|
|
|
25,325 |
|
|
|
332,758 |
|
See
accompanying notes to consolidated financial statements.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF EQUITY (CONTINUED)
(Amounts
in millions)
|
|
Share
capital
|
|
|
Capital
reserve
|
|
|
Share
premium
|
|
|
Re-valuation
reserve
|
|
|
Statutory
surplus
reserve
|
|
|
Dis-
cretionary
surplus
reserve
|
|
|
Other
reserves
|
|
|
Retained
earnings
|
|
|
Total
equity attributable
to
equity shareholders of
the
Company
|
|
|
Minority
interests
|
|
|
Total
equity
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Balance as of January 1, 2008
|
|
|
86,702 |
|
|
|
(22,652 |
) |
|
|
18,072 |
|
|
|
24,114 |
|
|
|
37,797 |
|
|
|
27,000 |
|
|
|
3,100 |
|
|
|
133,300 |
|
|
|
307,433 |
|
|
|
25,325 |
|
|
|
332,758 |
|
Net loss recognized
directly in equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
loss for the change in fair value of available-for-sale financial assets,
net of deferred tax (Note 28 (k))
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,320 |
) |
|
|
— |
|
|
|
(2,320 |
) |
|
|
(118 |
) |
|
|
(2,438 |
) |
Net
income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
29,769 |
|
|
|
29,769 |
|
|
|
(3,569 |
) |
|
|
26,200 |
|
Total recognized income / (loss) for the year
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,320 |
) |
|
|
29,769 |
|
|
|
27,449 |
|
|
|
(3,687 |
) |
|
|
23,762 |
|
Issuance
of the Bonds with Warrants (Note 23 (g))
|
|
|
— |
|
|
|
6,879 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,879 |
|
|
|
— |
|
|
|
6,879 |
|
Final
dividend for 2007
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(9,971 |
) |
|
|
(9,971 |
) |
|
|
— |
|
|
|
(9,971 |
) |
Interim dividend for 2008
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,601 |
) |
|
|
(2,601 |
) |
|
|
— |
|
|
|
(2,601 |
) |
Adjustment to the statutory surplus reserve
(Note
28 (d))
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,189 |
|
|
|
— |
|
|
|
— |
|
|
|
(1,189 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Appropriation (Note 28 (d) and (f))
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,092 |
|
|
|
20,000 |
|
|
|
— |
|
|
|
(24,092 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Revaluation surplus realized
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(347 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
347 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Realization of deferred tax on lease prepayments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6 |
) |
|
|
6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Acquisitions of non-controlling interests of subsidiaries
|
|
|
— |
|
|
|
(318 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(318 |
) |
|
|
(617 |
) |
|
|
(935 |
) |
Distribution to Sinopec Group Company (Note 28 (b))
|
|
|
— |
|
|
|
(202 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(202 |
) |
|
|
— |
|
|
|
(202 |
) |
Distributions to minority interests net of contributions
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(368 |
) |
|
|
(368 |
) |
Balance as of December 31, 2008
|
|
|
86,702 |
|
|
|
(16,293 |
) |
|
|
18,072 |
|
|
|
23,767 |
|
|
|
43,078 |
|
|
|
47,000 |
|
|
|
774 |
|
|
|
125,569 |
|
|
|
328,669 |
|
|
|
20,653 |
|
|
|
349,322 |
|
See
accompanying notes to consolidated financial statements.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008
(Amounts
in millions)
|
|
|
Years
ended December 31,
|
|
|
Note
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Net
cash generated from operating
activities
|
(a)
|
|
|
92,507 |
|
|
|
119,594 |
|
|
|
67,712 |
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditure
|
|
|
|
(71,278 |
) |
|
|
(99,946 |
) |
|
|
(99,636 |
) |
Exploratory wells
expenditure
|
|
|
|
(7,985 |
) |
|
|
(9,913 |
) |
|
|
(8,380 |
) |
Purchase of investments and investments in associates
|
|
|
|
(3,763 |
) |
|
|
(1,581 |
) |
|
|
(3,089 |
) |
Purchase of subsidiaries, net of cash acquired
|
|
|
|
(1,361 |
) |
|
|
(3,968 |
) |
|
|
— |
|
Proceeds from disposal of investments and investments in associates
|
|
|
|
776 |
|
|
|
1,441 |
|
|
|
1,366 |
|
Proceeds from disposal of property, plant and equipment
|
|
|
|
415 |
|
|
|
413 |
|
|
|
263 |
|
Acquisitions of non-controlling interests of subsidiaries
|
|
|
|
(20,610 |
) |
|
|
— |
|
|
|
(598 |
) |
Purchase of time deposits with financial institutions
|
|
|
|
(916 |
) |
|
|
(3,373 |
) |
|
|
(1,442 |
) |
Proceeds from maturity of time deposits with financial institutions
|
|
|
|
1,337 |
|
|
|
3,340 |
|
|
|
1,358 |
|
Net cash used in investing
activities
|
|
|
|
(103,385 |
) |
|
|
(113,587 |
) |
|
|
(110,158 |
) |
Financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds of issuance of
convertible bonds, net of issuance costs
|
|
|
|
— |
|
|
|
11,368 |
|
|
|
29,850 |
|
Proceeds of issuance of corporate
bonds
|
|
|
|
22,689 |
|
|
|
35,000 |
|
|
|
15,000 |
|
Proceeds from bank and other loans
|
|
|
|
773,842 |
|
|
|
768,039 |
|
|
|
1,147,279 |
|
Repayments of corporate
bonds
|
|
|
|
(21,000 |
) |
|
|
(12,000 |
) |
|
|
(10,000 |
) |
Repayments of bank and other
loans
|
|
|
|
(761,569 |
) |
|
|
(788,793 |
) |
|
|
(1,125,333 |
) |
Distributions to minority
interests
|
|
|
|
(852 |
) |
|
|
(593 |
) |
|
|
(1,404 |
) |
Contributions from minority
interests
|
|
|
|
1,255 |
|
|
|
1,223 |
|
|
|
1,137 |
|
Dividend paid
|
|
|
|
(11,271 |
) |
|
|
(13,872 |
) |
|
|
(12,572 |
) |
Distributions to Sinopec Group
Company
|
|
|
|
(216 |
) |
|
|
(5,682 |
) |
|
|
(2,180 |
) |
Net cash generated from / (used
in) financing activities
|
|
|
|
2,878 |
|
|
|
(5,310 |
) |
|
|
41,777 |
|
Net
(decrease) / increase in cash and cash equivalents
|
|
|
|
(8,000 |
) |
|
|
697 |
|
|
|
(669 |
) |
Cash
and cash equivalents as of January
1
|
|
|
|
15,088 |
|
|
|
7,063 |
|
|
|
7,696 |
|
Effect
of foreign currency exchange rate changes
|
|
|
|
(25 |
) |
|
|
(64 |
) |
|
|
(79 |
) |
Cash
and cash equivalents as of December 31
|
|
|
|
7,063 |
|
|
|
7,696 |
|
|
|
6,948 |
|
See
accompanying notes to consolidated financial statements.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008
(Amounts
in millions)
(a)
|
Reconciliation
of earnings before income tax to net cash generated from operating
activities
|
|
|
Years
ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
|
Earnings
before income
tax
|
|
|
78,542 |
|
|
|
83,464 |
|
|
|
24,317 |
|
Adjustment for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and
amortization
|
|
|
33,554 |
|
|
|
43,315 |
|
|
|
45,823 |
|
Dry hole
costs
|
|
|
3,960 |
|
|
|
6,060 |
|
|
|
4,236 |
|
Income from associates and
jointly controlled entities
|
|
|
(3,434 |
) |
|
|
(4,044 |
) |
|
|
(580 |
) |
Investment
income
|
|
|
(289 |
) |
|
|
(1,657 |
) |
|
|
(390 |
) |
Interest
income
|
|
|
(538 |
) |
|
|
(405 |
) |
|
|
(445 |
) |
Interest
expense
|
|
|
7,101 |
|
|
|
7,314 |
|
|
|
11,326 |
|
Unrealized gain on foreign
currency exchange rate changes and
derivative financial
instruments
|
|
|
(657 |
) |
|
|
(1,463 |
) |
|
|
(2,228 |
) |
Loss / (gain) on disposal of
property, plant and equipment, net
|
|
|
1,647 |
|
|
|
549 |
|
|
|
(248 |
) |
Impairment losses on long-lived
assets
|
|
|
825 |
|
|
|
3,106 |
|
|
|
8,500 |
|
Gain on non-monetary contribution
to a jointly controlled entity
|
|
|
— |
|
|
|
(1,315 |
) |
|
|
— |
|
Unrealized loss / (gain) on
embedded derivative component of the
convertible bonds
|
|
|
— |
|
|
|
3,211 |
|
|
|
(3,947 |
) |
|
|
|
120,711 |
|
|
|
138,135 |
|
|
|
86,364 |
|
(Increase) / decrease in trade
accounts
receivable
|
|
|
(2,187 |
) |
|
|
(6,613 |
) |
|
|
10,817 |
|
(Increase) / decrease in bills
receivable
|
|
|
(1,729 |
) |
|
|
(4,130 |
) |
|
|
9,193 |
|
(Increase) / decrease in
inventories
|
|
|
(2,901 |
) |
|
|
(20,493 |
) |
|
|
20,799 |
|
Decrease / (increase) in prepaid
expenses and other current assets
|
|
|
583 |
|
|
|
(2,536 |
) |
|
|
(10,581 |
) |
Increase in lease
prepayments
|
|
|
(577 |
) |
|
|
(4,128 |
) |
|
|
(2,593 |
) |
(Increase) / decrease in
long-term prepayments and other assets
|
|
|
(1,111 |
) |
|
|
3,288 |
|
|
|
1,928 |
|
(Decrease) / increase in trade
accounts
payable
|
|
|
(1,278 |
) |
|
|
39,176 |
|
|
|
(37,234 |
) |
(Decrease) / increase in bills
payable
|
|
|
(1,511 |
) |
|
|
(9,710 |
) |
|
|
5,331 |
|
Increase in accrued expenses and
other
payables
|
|
|
10,148 |
|
|
|
18,396 |
|
|
|
11,269 |
|
Increase / (decrease) in other
liabilities
|
|
|
36 |
|
|
|
(207 |
) |
|
|
442 |
|
|
|
|
120,184 |
|
|
|
151,178 |
|
|
|
95,735 |
|
Interest
received
|
|
|
541 |
|
|
|
404 |
|
|
|
446 |
|
Interest
paid
|
|
|
(8,525 |
) |
|
|
(6,971 |
) |
|
|
(11,079 |
) |
Investment and dividend income
received
|
|
|
649 |
|
|
|
2,657 |
|
|
|
3,682 |
|
Income tax
paid
|
|
|
(20,342 |
) |
|
|
(27,674 |
) |
|
|
(21,072 |
) |
Net
cash generated from operating
activities
|
|
|
92,507 |
|
|
|
119,594 |
|
|
|
67,712 |
|
See
accompanying notes to consolidated financial statements.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts
in millions, except per share data and except otherwise
stated)
1.
|
PRINCIPAL
ACTIVITIES, ORGANIZATION AND BASIS OF
PRESENTATION
|
Principal
activities
China
Petroleum & Chemical Corporation (the “Company’’) is an energy and chemical
company that, through its subsidiaries (hereinafter collectively referred to as
the “Group’’), engages in oil and gas and chemical operations in the People’s
Republic of China (the “PRC’’). Oil and gas operations consist of exploring for,
developing and producing crude oil and natural gas; transporting crude oil and
natural gas by pipelines; refining crude oil into finished petroleum products;
and marketing crude oil, natural gas and refined petroleum products. Chemical
operations include the manufacture and marketing of a wide range of chemicals
for industrial uses.
Organization
The
Company was established in the PRC on February 25, 2000 as a joint stock limited
company as part of the reorganization (the “Reorganization”) of China
Petrochemical Corporation (‘‘Sinopec Group Company’’), the ultimate holding
company of the Group and a ministry-level enterprise under the direct
supervision of the State Council of the PRC. Prior to the incorporation of the
Company, the oil and gas and chemical operations of the Group were carried on by
oil administration bureau, petrochemical and refining production enterprises and
sales and marketing companies of Sinopec Group Company.
As
part of the Reorganization, certain of Sinopec Group Company’s core oil and gas
and chemical operations and businesses together with the related assets and
liabilities were transferred to the Company. On February 25, 2000, in
consideration for Sinopec Group Company transferring such oil and gas and
chemical operations and businesses and the related assets and liabilities to the
Company, the Company issued 68.8 billion domestic state-owned ordinary shares
with a par value of RMB 1.00 each to Sinopec Group Company. The shares issued to
Sinopec Group Company on February 25, 2000 represented the entire registered and
issued share capital of the Company as of that date. The oil and gas and
chemical operations and businesses transferred to the Company related to (i) the
exploration, development and production of crude oil and natural gas, (ii) the
refining, transportation, storage and marketing of crude oil and petroleum
products, and (iii) the production and sale of chemicals.
Basis
of preparation
Pursuant
to the resolution passed at the Directors’ meeting on October 10, 2006, the
Group acquired equity interests in Sinopec Hainan Refining and Chemical Company
Limited (“Sinopec Hainan”) for cash of RMB 2,990 (hereinafter referred to as the
“Acquisition of Sinopec Hainan”). Sinopec Hainan was previously wholly owned by
Sinopec Group Company.
Pursuant
to the resolution passed at the Directors’ meeting on December 6, 2006, the
Group acquired the equity interests in certain oil and gas production companies
(“Oil Production Plants”) from Sinopec Group Company, for cash of RMB 3,500
(hereinafter referred to as the “Acquisition of Oil Production
Plants”).
Pursuant
to the resolution passed at the Directors’ meeting on December 28, 2007, the
Group acquired the controlling equity interests of Zhanjiang Dongxing
Petrochemical Company Limited, Sinopec Hangzhou Oil Refinery Plant, Yangzhou
Petrochemical Plant, Jiangsu Taizhou Petrochemical Plant and Sinopec Qingjiang
Petrochemical Company Limited (collectively “Refinery Plants”) from Sinopec
Group Company (hereinafter referred to as the “Acquisition of Refinery Plants”).
In accordance with the acquisition agreement with Sinopec Group Company, the
Group paid a cash consideration of RMB 2,468 to Sinopec Group Company during the
year ended December 31, 2007, which is subject to further adjustment, if any,
made by State-owned Assets Supervision and Administration Commission of the
State Council (“SASAC”). During the year ended December 31, 2008, the
consideration was adjusted by SASAC and the Group paid an additional cash
consideration of RMB 96 to Sinopec Group Company.
As
the Group, Sinopec Hainan, Oil Production Plants and Refinery Plants are under
the common control of Sinopec Group Company, the Acquisitions of Sinopec Hainan,
Oil Production Plants and Refinery Plants (collectively the “Acquired Group”)
have been reflected in the accompanying consolidated financial statements as
combination of entities under common control in a manner similar to a
pooling-of-interests. Accordingly, the assets and liabilities of the Acquired
Group have been accounted for at historical cost and the consolidated financial
statements of the Company prior to these acquisitions have been restated to
include the results of operations and the assets and liabilities of the Acquired
Group on a combined basis. The differences between the total consideration paid
over the amount of the net assets of the Acquired Group were accounted for as
equity transactions.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
The
accompanying financial statements have been prepared in accordance with
International Financial Reporting Standards (“IFRS”) as issued by the
International Accounting Standards Board (“IASB”). IFRS includes International
Accounting Standards (“IAS”) and related interpretations. A summary of the
principal accounting policies adopted by the Group are set out in Note
2.
The
IASB has issued certain new and revised IFRS that are first effective or
available for early adoption for the current accounting period of the Group.
There have been no significant changes to the accounting policies applied in
these financial statements for the years presented as a result of these
developments, except for the early adoption of revised IFRS 3 “Business
Combinations” (“revised IFRS 3”) and the amended IAS 27 “Consolidated and
Separate Financial Statements” (“amended IAS 27”). The impact of the
early adoptions of revised IFRS 3 and amended IAS 27, which have been applied
prospectively, is that any changes in the Company’s ownership interests in a
subsidiary on or after January 1, 2008 that do not result in a loss of control
are recognized as equity transactions. The early adoptions of revised IFRS 3 and
amended IAS 27 did not have a significant impact to the Group’s consolidated
financial statements for the year ended December 31, 2008.
The
Group has not adopted any other new standard or interpretation that is not yet
effective for the current accounting period (Note 36).
The
accompanying financial statements are prepared on the historical cost basis as
modified by the revaluation of certain property, plant and equipment (Note 2(f))
and by the remeasurement of available-for-sale securities (Note 2(k)),
derivative financial instruments (Note 2(p)) and derivative component of the
convertible bonds (Note 2(o)) to their fair values.
The
preparation of the financial statements in accordance with IFRS requires
management to make judgments, estimates and assumptions that affect the
application of policies and reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the year.
The estimates and associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making the judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results could differ from those estimates.
The
estimates 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
periods.
Key
assumptions and estimation made by management in the application of IFRS that
have significant effect on the financial statements and have a significant risk
of causing a material adjustment to the carrying amounts of assets and
liabilities in the following financial year are disclosed in Note
35.
2.
|
PRINCIPAL
ACCOUNTING POLICIES
|
(a)
|
Basis
of consolidation
|
The
consolidated financial statements comprise the Company and its subsidiaries, and
the Group’s interest in associates and jointly controlled entities.
Subsidiaries
are those entities controlled by the Group. Control exists when the Group has
the power, directly or indirectly, to govern the financial and operating
policies of an entity so as to obtain benefits from its activities.
The
financial statements of subsidiaries are included in the consolidated financial
statements from the date that control effectively commences until the date that
control effectively ceases.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
Minority
interests at the balance sheet date, being the portion of the net assets of
subsidiaries attributable to equity interests that are not owned by the Company,
whether directly or indirectly through subsidiaries, are presented in the
consolidated balance sheet and consolidated statements of equity within equity,
separately from equity attributable to the equity shareholders of the Company.
Minority interests in the results of the Group are presented on the face of the
consolidated statements of income as an allocation of the total net income or
loss for the period between minority interests and the equity shareholders of
the Company.
The
particulars of the Group’s principal subsidiaries are set out in Note
33.
(ii)
|
Associates
and jointly controlled entities
|
An
associate is an entity, not being a subsidiary, in which the Group exercises
significant influence over its management. Significant influence is the power to
participate in the financial and operating policy decisions of the investee but
is not control or joint control over those policies.
A
jointly controlled entity is an entity which operates under a contractual
arrangement between the Group and other parties, where the
contractual arrangement establishes that the Group and one or more of the other
parties share joint control over the economic activity of the
entity.
Investments
in associates and jointly controlled entities are accounted for in the
consolidated financial statements using the equity method from the date that
significant influence or joint control commences until the date that significant
influence or joint control ceases.
(iii) Transactions
eliminated on consolidation
Inter-company
balances and transactions and any unrealized gains arising from inter-company
transactions are eliminated on consolidation. Unrealized gains
arising from transactions with associates and jointly controlled entities are
eliminated to the extent of the Group’s interest in the
entity. Unrealized losses are eliminated in the same way as
unrealized gains, but only to the extent that there is no evidence of
impairment.
(b)
|
Translation
of foreign currencies
|
The
presentation currency of the Group is Renminbi. Foreign currency transactions
during the year are translated into Renminbi at the applicable rates of exchange
quoted by the People’s Bank of China (‘‘PBOC’’) prevailing on the transaction
dates. Foreign currency monetary assets and liabilities are translated into
Renminbi at the PBOC’s rates at the balance sheet date.
Exchange
differences, other than those capitalized as construction in progress, are
recognized as income or expenses in the “finance costs” section of the
consolidated statements of income.
(c)
|
Cash
and cash equivalents
|
Cash
equivalents consist of time deposits with financial institutions with an initial
term of less than three months when purchased. Cash equivalents are stated at
cost, which approximates fair value.
(d)
|
Trade,
bills and other receivables
|
Trade,
bills and other receivables are initially recognized at fair value and
thereafter stated at amortized cost less impairment losses for bad and doubtful
debts (Note 2(l)). Trade, bills and other receivables are derecognized if the
Group’s contractual rights to the cash flows from these financial assets expire
or if the Group transfers these financial asset to another party without
retaining control or substantially all risks and rewards of the
assets.
Inventories,
other than spare parts and consumables, are stated at the lower of cost and net
realizable value. Cost includes the cost of purchase computed using the weighted
average method and, in the case of work in progress and finished goods, direct
labor and an appropriate proportion of production overheads. Net realizable
value is the estimated selling price in the ordinary course of business, less
the estimated costs of completion and the estimated costs necessary to make the
sale.
Spare
parts and consumables are stated at cost less any provision for
obsolescence.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
(f)
|
Property,
plant and equipment
|
An
item of property, plant and equipment is initially recorded at cost, less
accumulated depreciation and impairment losses (Note 2(l)). The cost of an asset
comprises its purchase price, any directly attributable costs of bringing the
asset to working condition and location for its intended
use. Subsequent to the revaluation, which was based on depreciated
replacement costs, property, plant and equipment are carried at revalued amount,
being the fair value at the date of the revaluation less any subsequent
accumulated depreciation and impairment losses. Revaluations are performed
periodically to ensure that the carrying amount does not differ materially from
that which would be determined using fair value at the balance sheet date. The
Group recognizes in the carrying amount of an item of property, plant and
equipment the cost of replacing part of such an item when that cost is incurred
if it is probable that the future economic benefits embodied with the item will
flow to the Group and the cost of the item can be measured reliably. All other
expenditure is recognized as an expense in the consolidated statements of income
in the year in which it is incurred.
Gains
or losses arising from the retirement or disposal of an item of property, plant
and equipment, other than oil and gas properties, are determined as the
difference between the net disposal proceeds and the carrying amount of the item
and are recognized as income or expense in the consolidated statements of income
on the date of retirement or disposal. On disposal of a revalued asset, the
related revaluation surplus is transferred from the revaluation reserve to
retained earnings.
Depreciation
is provided to write off the cost / revalued amount of items of property, plant
and equipment, other than oil and gas properties, over its estimated useful life
on a straight-line basis, after taking into account its estimated residual
value, as follows:
Buildings
|
15
to 45 years
|
Plant, machinery, equipment, and
others
|
4
to 18 years
|
Oil depots, storage tanks and
service stations
|
8
to 25 years
|
Where
parts of an item of property, plant and equipment have different useful lives,
the cost or valuation of the item is allocated on a reasonable basis between the
parts and each part is depreciated separately. Both the useful life of an asset
and its residual value, if any, are reassessed annually.
(g)
|
Oil
and gas properties
|
The
Group uses the successful efforts method of accounting for its oil and gas
producing activities. Under this method, costs of development wells and the
related support equipment are capitalized. The cost of exploratory wells is
initially capitalized as construction in progress pending determination of
whether the well has found proved reserves. The impairment of exploratory well
costs occurs upon the determination that the well has not found proved reserves.
Exploratory wells that find oil and gas reserves in any area requiring major
capital expenditure are expensed unless the well has found a sufficient quantity
of reserves to justify its completion as a producing well if the required
capital expenditure is made, and drilling of the additional exploratory wells is
under way or firmly planned for the near future. However, in the absence of a
determination of the discovery of proved reserves, exploratory well costs are
not carried as an asset for more than one year following completion of drilling.
If, after one year has passed, a determination of the discovery of proved
reserves cannot be made, the exploratory well costs are impaired and charged to
expense. All other exploration costs, including geological and geophysical
costs, other dry hole costs and annual lease rentals, are expensed as incurred.
Capitalized costs relating to proved properties are amortized at the field level
on a unit-of-production method. The amortization rates are determined based on
oil and gas reserves estimated to be recoverable from existing facilities over
the shorter of the economic lives of crude oil and natural gas reservoirs and
the terms of the relevant production licenses.
Gains
and losses on the disposal of proved oil and gas properties are not recognized
unless the disposal encompasses an entire property. The proceeds on such
disposals are credited to the carrying amounts of oil and gas
properties.
Management
estimates future dismantlement costs for oil and gas properties with reference
to engineering estimates after taking into consideration the anticipated method
of dismantlement required in accordance with the industry practices. These
estimated future dismantlement costs are discounted at a credit-adjusted
risk-free rate and are capitalized as oil and gas properties, which are
subsequently amortized as part of the costs of the oil and gas
properties.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
Lease
prepayments represent land use rights paid to the relevant government
authorities. Land use rights are carried at cost less the accumulated amount
charged to expense and impairment losses (Note 2(l)). The cost of lease
prepayments are charged to expense on a straight-line basis over the respective
periods of the rights.
(i)
|
Construction
in progress
|
Construction
in progress represents buildings, oil and gas properties, various plant and
equipment under construction and pending installation, and is stated at cost
less impairment losses (Note 2(l)). Cost comprises direct costs of construction
as well as interest charges, and foreign exchange differences on related
borrowed funds to the extent that they are regarded as an adjustment to interest
charges, during the periods of construction.
Construction
in progress is transferred to property, plant and equipment when the asset is
substantially ready for its intended use.
No
depreciation is provided in respect of construction in progress.
Goodwill
represents amounts arising on acquisition of subsidiaries, associates or jointly
controlled entities. Goodwill represents the difference between the
cost of acquisition and the fair value of the net identifiable assets
acquired.
Prior
to January 1, 2008, the acquisition of the minority interests (or
non-controlling interests) of a consolidated subsidiary was accounted using the
acquisition method whereby the difference between the cost of acquisition and
the fair value of the net identifiable assets acquired (on a proportionate
share) was recognized as goodwill. From January 1, 2008, any difference between
the amount by which the non-controlling interest is adjusted (such as through an
acquisition of the non-controlling interests) and the cash or other
considerations paid is recognized in equity.
Goodwill
is stated at cost less accumulated impairment losses. Goodwill is allocated to
cash-generating units and is tested annually for impairment (Note 2(l)). In
respect of associates and jointly controlled entities, the carrying amount of
goodwill is included in the carrying amount of the interest in the associates or
jointly controlled entities.
Investment
in available-for-sale financial assets are carried at fair value with any change
in fair value recognized directly in equity. When these investments
are derecognized or impaired, the cumulative gain or loss previously recognized
directly in equity is recognized in the consolidated statements of
income. Investments in equity securities, other than investments in
associates and jointly controlled entities, that do not have a quoted market
price in an active market and whose fair value cannot be reliably measured are
recognized in the balance sheet at cost less impairment losses (Note
2(l)).
(i) Trade
accounts receivable, other receivables and investment in equity securities that
do not have an quoted market price in an active market, other than investments
in associates and jointly controlled entities, are reviewed at each balance
sheet date to determine whether there is objective evidence of
impairment. If any such evidence exists, an impairment loss is
determined and recognized.
The
impairment loss is measured as the difference between the asset’s carrying
amount and the estimated future cash flows, discounted at the current market
rate of return for a similar financial asset where the effect of discounting is
material, and is recognized as an expense in the consolidated statements of
income. Impairment losses for trade and other receivables are
reversed through the consolidated statements of income if in a subsequent period
the amount of the impairment losses decreases. Impairment losses for equity
securities are not reversed.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
(ii)
|
Impairment
of other long-lived assets is accounted for as
follows:
|
The
carrying amounts of other long-lived assets, including property, plant and
equipment, construction in progress, lease prepayment and investments in
associates and jointly controlled entities, are reviewed at each balance sheet
date to identify indicators that the assets may be impaired. These assets are
tested for impairment whenever events or changes in circumstances indicate that
their recorded carrying amounts may not be recoverable. When such a decline has
occurred, the carrying amount is reduced to the recoverable
amount. For goodwill, the recoverable amount is estimated at each
balance sheet date.
The
recoverable amount is the greater of the fair value less costs to sell and the
value in use. In determining the value in use, expected future cash flows
generated by the asset are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of time value of money
and the risks specific to the asset. Where an asset does not generate cash
inflows largely independent of those from other assets, the recoverable amount
is determined for the smallest group of assets that generates cash inflows
independently (i.e. a cash-generating unit).
The
amount of the reduction is recognized as an expense in the consolidated
statements of income unless the asset is carried at revalued amount for which an
impairment loss is recognized directly against any related revaluation reserve
to the extent that the impairment loss does not exceed the amount held in the
revaluation reserve for that same asset. Impairment losses recognized in respect
of cash-generating units are allocated first to reduce the carrying amount of
any goodwill allocated to the cash-generating unit and then, to reduce the
carrying amount of the other assets in the unit on a pro rata basis, except that
the carrying value of an asset will not be reduced below its individual fair
value less costs to sell, or value in use, if determinable.
Management
assesses at each balance sheet date whether there is any indication that an
impairment loss recognized for an asset, except in the case of goodwill, in
prior years may no longer exist. An impairment loss is reversed if there has
been a favorable change in the estimates used to determine the recoverable
amount. A subsequent increase in the recoverable amount of an asset, when the
circumstances and events that led to the write-down or write-off cease to exist,
is recognized as an income unless the asset is carried at revalued amount.
Reversal of an impairment loss on a revalued asset is credited to the
revaluation reserve except for impairment loss which was previously recognized
as an expense in the consolidated statements of income; a reversal of such
impairment loss is recognized as an income. The reversal is reduced by the
amount that would have been recognized as depreciation had the write-down or
write-off not occurred. An impairment loss in respect of goodwill is
not reversed.
(m) Trade,
bills and other payables
Trade,
bills and other payables are initially recognized at fair value and thereafter
stated at amortized cost unless the effect of discounting would be immaterial,
in which case they are stated at cost.
(n) Interest-bearing
borrowings
Interest bearing borrowings are
recognized initially at fair value less attributable transaction
costs. Subsequent to initial recognition, interest-bearing borrowings
are stated at amortized cost with any difference between cost and redemption
value being recognized in the consolidated statements of income over the period
of borrowings using the effective interest method.
(o) Convertible
bonds
(i) Convertible
bonds that contain an equity component
Convertible
bonds that can be converted to equity share capital at the option of the holder,
where the number of shares that would be issued on conversion and the value of
the consideration that would be received at that time do not vary, are accounted
for as compound financial instruments that contain both a liability component
and an equity component.
At
initial recognition, the liability component of the convertible bonds is
measured as the present value of the future interest and principal payments,
discounted at the market rate of interest applicable at the time of initial
recognition to similar liabilities that do not have a conversion option. Any
excess of proceeds over the amount initially recognized as the liability
component is recognized as the equity component. Transaction costs that relate
to the issuance of the convertible bonds are allocated to the liability and
equity components in proportion to the allocation of proceeds.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
The
liability component is subsequently carried at amortized cost. The interest
expense on the liability component is calculated using the effective interest
method. The equity component is recognized in the capital reserve until the bond
is converted or redeemed.
If
the bond is converted, the capital reserve, together with the carrying amount of
the liability component at the time of conversion, is transferred to share
capital and share premium as consideration for the shares issued. If the bond is
redeemed, the capital reserve is transferred to retained earnings.
(ii) Other
convertible bonds
Convertible bonds issued with a cash
settlement option and other embedded derivative features are accounted for as
compound financial instruments that contain a liability component and a
derivative component.
At
initial recognition, the derivative component of the convertible bonds is
measured at fair value. Any excess of proceeds over the amount
initially recognized as the derivative component is recognized as the liability
component. Transaction costs that relate to the issuance of the
convertible bonds are allocated to the liability and derivative components in
proportion to the allocation of proceeds. The portion of the
transaction costs relating to the liability component is recognized initially as
part of the liability. The portion relating to the derivative
component is recognized immediately as an expense in the consolidated statements
of income.
The
derivative component is subsequently remeasured at each balance sheet date and
any gains or losses arising from change in the fair value are recognized in the
consolidated statements of income. The liability component is subsequently
carried at amortized cost until extinguished on conversion or
redemption. The interest expense recognized in the consolidated
statements of income on the liability component is calculated using the
effective interest method. Both the liability and the related
derivative components are presented together for financial statements reporting
purposes.
If the convertible bonds are
converted, the carrying amounts of the derivative and liability components are
transferred to share capital and share premium as consideration for the shares
issued. If the convertible bonds are redeemed, any difference between
the amount paid and the carrying amounts of both components is recognized in the
consolidated statements of income.
(p) Derivative
financial instruments
Derivative financial instruments are
recognized initially at fair value. At each balance sheet date the
fair value is remeasured. The gain or loss on remeasurement of derivative
financial instruments to fair value, except where the derivatives qualify for
cash flow hedge accounting or hedge the net investment in a foreign operation,
is recognized in the consolidated statements of income.
(q) Provisions
and contingent liability
A
provision is recognized for liability of uncertain timing or amount when the
Group has a legal or constructive obligation arising as a result of a past
event, it is probable that an outflow of economic benefits will be required to
settle the obligation and a reliable estimate can be made.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
When
it is not probable that an outflow of economic benefits will be required, or the
amount cannot be estimated reliably, the obligation is disclosed as a contingent
liability, unless the probability of outflow of economic benefits is
remote. Possible obligations, whose existence will only be confirmed
by the occurrence or non-occurrence of one or more future events are also
disclosed as contingent liabilities unless the probability of outflow of
economic benefits is remote.
Provisions
for future dismantlement costs are initially recognized based on the present
value of the future costs expected to be incurred in respect of the Group’s
expected dismantlement and abandonment costs at the end of related oil and gas
exploration and development activities. Any subsequent change in the present
value of the estimated costs, other than the change due to passage of time which
is regarded as interest cost, is reflected as an adjustment to the provision and
oil and gas properties.
A
provision for onerous contracts is recognized when the expected economic
benefits to be derived by the Group from a contract are lower than the
unavoidable cost of meeting its obligations under the contract. The provision 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.
Revenues
associated with the sale of crude oil, natural gas, petroleum and chemical
products and ancillary materials are recorded when the customer accepts the
goods and the significant risks and rewards of ownership and title have been
transferred to the buyer. Revenue from the rendering of services is recognized
in the consolidated statements of income upon performance of the services. No
revenue is recognized if there are significant uncertainties regarding recovery
of the consideration due, the possible return of goods, or when the amount of
revenue and the costs incurred or to be incurred in respect of the transaction
cannot be measured reliably.
Interest
income is recognized on a time apportioned basis that takes into account the
effective yield on the asset.
A
government grant that becomes receivable as compensation for expenses or losses
already incurred with no future related costs is recognized as income in the
period in which it becomes receivable.
Borrowing
costs are expensed in the consolidated statements of income in the period in
which they are incurred, except to the extent that they are capitalized as being
attributable to the construction of an asset which necessarily takes a period of
time to get ready for its intended use.
(t)
|
Repairs
and maintenance expenditure
|
Repairs
and maintenance expenditure is expensed as incurred.
(u)
|
Environmental
expenditures
|
Environmental
expenditures that relate to current ongoing operations or to conditions caused
by past operations are expensed as incurred.
Liabilities
related to future remediation costs are recorded when environmental assessments
and / or cleanups are probable and the costs can be reasonably estimated. As
facts concerning environmental contingencies become known to the Group, the
Group reassesses its position both with respect to accrued liabilities and other
potential exposures.
(v)
|
Research
and development expense
|
Research
and development expenditures are expensed in the period in which they are
incurred. Research and development expense amounted to RMB 2,902, RMB
3,419 and RMB 3,427 for the years ended December 31, 2006, 2007 and 2008,
respectively.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
Operating
lease payments are charged to the consolidated statements of income on a
straight-line basis over the period of the respective leases.
The
contributions payable under the Group’s retirement plans are recognized as an
expense in the consolidated statements of income as incurred and according to
the contribution determined by the plans. Further information is set out in Note
31.
Termination
benefits, such as employee reduction expenses, are recognized when, and only
when, the Group demonstrably commits itself to terminate employment or to
provide benefits as a result of voluntary redundancy by having a detailed formal
plan which is without realistic possibility of withdrawal.
Income
tax comprises current and deferred tax. Current tax is calculated on taxable
income by applying the applicable tax rates. Deferred tax is provided using the
balance sheet liability method on all temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes only to the extent that it is probable that
future taxable income will be available against which the assets can be
utilized. Deferred tax is calculated on the basis of the enacted tax rates that
are expected to apply in the period when the asset is realized or the liability
is settled. The effect on deferred tax of any changes in tax rates is
charged or credited to the consolidated statements of income, except for the
effect of a change in tax rate on the carrying amount of deferred tax assets and
liabilities which were previously charged or credited to equity.
The
tax value of losses expected to be available for utilization against future
taxable income is set off against the deferred tax liability within the same
legal tax unit and jurisdiction to the extent appropriate, and is not available
for set off against the taxable profit of another legal tax unit. The carrying
amount of a deferred tax asset is reviewed at each balance sheet date and is
reduced to the extent that it is no longer probable that the related tax benefit
will be realized.
Dividends
are recognized as a liability in the period in which they are
declared.
A
business segment is a distinguishable component of the Group that is engaged in
providing products or services and is subject to risks and rewards that are
different from those of other segments.
The
segments were determined primarily because the Group manages its exploration and
production, refining, marketing and distribution, chemicals, and corporate and
others businesses separately. The reportable segments are each managed
separately because they manufacture and / or distribute distinct products with
different production processes and due to their distinct operating and gross
margin characteristics. In view of the fact that the Company and its
subsidiaries operate mainly in the PRC, no geographical segment information is
presented.
Management
evaluates the performance and allocates resources to its operating segments on
an operating income basis, without considering the effects of finance costs or
investment income. Corporate administrative costs and assets are not allocated
to the operating segments; instead, operating segments are billed for direct
corporate services. Inter-segment transfer pricing is based on cost plus an
appropriate margin, as specified by the Group’s policy.
Assets
and liabilities dedicated to a particular segment’s operations are included in
that segment’s total assets and liabilities. Assets which benefit more than one
segment or are considered to be corporate assets are not allocated.
‘‘Unallocated assets’’ consists primarily of cash and cash equivalents, time
deposits with financial institutions, investments, deferred tax assets and other
non-current assets. ‘‘Unallocated liabilities’’ consists
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
primarily
of short-term and long-term debts, loans from Sinopec Group Company and its
affiliates, income tax payable and deferred tax liabilities.
Interest
in and share of income from associates and jointly controlled entities are
included in the segments in which the associates and jointly controlled entities
operate.
3.
|
OTHER
OPERATING REVENUES
|
|
|
|
Years ended December
31,
|
|
|
|
|
2006
|
|
|
|
2007
|
|
|
|
2008
|
|
|
|
|
RMB
|
|
|
|
RMB
|
|
|
|
RMB
|
|
Sale
of materials, service and
others
|
|
|
26,469 |
|
|
|
30,604 |
|
|
|
31,289 |
|
Rental
income
|
|
|
384 |
|
|
|
370 |
|
|
|
491 |
|
|
|
|
26,853 |
|
|
|
30,974 |
|
|
|
31,780 |
|
During
the years ended December 31, 2006, 2007 and 2008, the Group recognized grant
income of RMB 5,161, RMB 4,863 and RMB 50,342, respectively. These government
grants were for compensation of losses incurred due to the distortion of the
correlation of domestic refined petroleum product prices and the crude oil
prices, and the measures taken by the Group to stabilize the supply in the PRC
refined petroleum product market during the respective years. There are no
unfulfilled conditions and other contingencies attached to the receipts of these
grants. There is no assurance that the Group will continue to receive such grant
in the future.
5.
|
SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES
|
The
following items are included in selling, general and administrative
expenses:
|
|
Years
ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Operating
lease
charges
|
|
|
6,116 |
|
|
|
5,897 |
|
|
|
6,986 |
|
Impairment
losses
|
|
|
|
|
|
|
|
|
|
|
|
|
- trade accounts
receivable
|
|
|
438 |
|
|
|
295 |
|
|
|
143 |
|
- other
receivables
|
|
|
107 |
|
|
|
143 |
|
|
|
85 |
|
|
|
Years
ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Wages
and
salaries
|
|
|
15,679 |
|
|
|
17,763 |
|
|
|
17,669 |
|
Staff
welfare
|
|
|
2,012 |
|
|
|
885 |
|
|
|
1,271 |
|
Contributions
to retirement schemes (Note
31)
|
|
|
2,394 |
|
|
|
2,806 |
|
|
|
2,861 |
|
Social
security
contributions
|
|
|
871 |
|
|
|
1,291 |
|
|
|
1,484 |
|
|
|
|
20,956 |
|
|
|
22,745 |
|
|
|
23,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.
|
TAXES
OTHER THAN INCOME TAX
|
|
|
Years
ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Consumption
tax
|
|
|
14,718 |
|
|
|
16,324 |
|
|
|
17,524 |
|
Special
oil income
levy
|
|
|
8,747 |
|
|
|
11,208 |
|
|
|
32,823 |
|
City
construction
tax
|
|
|
3,096 |
|
|
|
3,670 |
|
|
|
3,340 |
|
Education
surcharge
|
|
|
1,651 |
|
|
|
1,922 |
|
|
|
1,828 |
|
Resources
tax
|
|
|
854 |
|
|
|
882 |
|
|
|
857 |
|
Business
tax
|
|
|
264 |
|
|
|
298 |
|
|
|
427 |
|
|
|
|
29,330 |
|
|
|
34,304 |
|
|
|
56,799 |
|
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
Consumption
tax is levied on producers of gasoline, diesel, naphtha, fuel oil, jet fuel,
lubricant oil and solvent oil based on a tariff rate applied to the volume of
sales. Special oil income levy is levied on oil exploration and production
entities based on the progressive rates ranging from 20% to 40% on the portion
of the monthly weighted average sales price of the crude oil produced in the PRC
exceeding USD 40 per barrel. City construction tax is levied on an entity based
on its total amount of value-added tax, consumption tax and business
tax.
8.
|
OTHER
OPERATING EXPENSES, NET
|
|
|
Years
ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Fines,
penalties and
compensations
|
|
|
65 |
|
|
|
73 |
|
|
|
105 |
|
Donations
|
|
|
98 |
|
|
|
158 |
|
|
|
104 |
|
Employee
reduction expenses
(i)
|
|
|
236 |
|
|
|
399 |
|
|
|
306 |
|
Loss
/ (gain) on disposal of property, plant and equipment, net
|
|
|
1,647 |
|
|
|
549 |
|
|
|
(248 |
) |
Impairment
losses on long-lived assets
(ii)
|
|
|
825 |
|
|
|
3,106 |
|
|
|
8,500 |
|
Gain
on non-monetary contribution to a jointly controlled entity
(iii)
|
|
|
— |
|
|
|
(1,315 |
) |
|
|
— |
|
Gain
from debt extinguishment
(iv)
|
|
|
(486 |
) |
|
|
— |
|
|
|
— |
|
Others
|
|
|
312 |
|
|
|
631 |
|
|
|
6 |
|
|
|
|
2,697 |
|
|
|
3,601 |
|
|
|
8,773 |
|
Note:
(i)
|
During
the year ended December 31, 2006, in accordance with the Group’s voluntary
employee reduction plan, the Group recorded employee reduction expenses of
RMB 236 in respect of the voluntary termination of approximately 4,000
employees.
|
During
the year ended December 31, 2007, in accordance with the Group’s voluntary
employee reduction plan, the Group recorded employee reduction expenses of RMB
399 in respect of the voluntary termination of approximately 5,000
employees.
During
the year ended December 31, 2008, in accordance with the Group’s voluntary
employee reduction plan, the Group recorded employee reduction expenses of RMB
306 in respect of the voluntary termination of approximately 4,900
employees.
(ii)
|
The
primary factor resulting in the exploration and production (“E&P”)
segment impairment losses of RMB 552, RMB 481 and RMB 5,991 for the years
ended December 31, 2006, 2007 and 2008, respectively, that comprised of
impairment losses of RMB 552, RMB 481 and RMB 4,600 of property, plant and
equipment in the E&P segment (Note 15) for the years ended December
31, 2006, 2007 and 2008, respectively, and RMB 1,391 of goodwill in
respect of Sinopec Zhongyuan (Note 17) for the year ended December 31,
2008, was downward reserves estimation for certain oil fields resulting
from lower oil and gas pricing. The carrying values of these E&P
properties and associated goodwill were written down to respective
recoverable amounts which were determined based on the present values of
the expected future cash flows of the assets. The oil and gas pricing was
a factor used in the determination of the present values of the expected
future cash flows of the assets and had an impact on the recognition of
the asset and goodwill impairment.
|
Impairment
losses recognized on long-lived assets of the refining segment were RMB nil, RMB
1,070 and RMB 270 for the years ended December 31, 2006, 2007 and 2008,
respectively, that comprised of impairment losses of RMB 916 and RMB 270 of
property, plant and equipment for the years ended December 31, 2007 and 2008,
respectively, and an impairment loss of RMB 154 of construction in progress for
the year ended December 31, 2007. Impairment losses recognized on property,
plant and equipment of the chemicals segment were RMB 250, RMB 318 and RMB 1,511
for the years ended December 31, 2006, 2007 and 2008, respectively. These
impairment losses relate to certain refining and chemicals production facilities
that are held for use and a refining construction in progress. The
carrying values of these facilities were written down to their recoverable
amounts that were primarily determined based on the asset held for use model
using the present value of estimated future cash flows of the production
facilities. The primary factor resulting in the impairment losses on
long-lived assets of the refining and chemicals segments was due to the drop in
profit margin caused by the adverse changes in the business
environment.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise stated)
Impairment
losses recognized on long-lived assets of the marketing and distribution segment
of RMB 23, RMB 1,237 and RMB 709 for the years ended December 31, 2006, 2007 and
2008, respectively, that comprised of impairment losses of RMB 23, RMB 1,194 and
RMB 698 of property, plant and equipment for the years ended December 31, 2006,
2007 and 2008, respectively, and impairment losses of RMB 43 and RMB 11 of
construction in progress for the years ended December 31, 2007 and 2008,
respectively, primarily relate to certain service stations and certain
construction in progress that were closed or abandoned during respective
years. In measuring the amounts of impairment charges, the carrying
amounts of these assets were compared to the present value of the expected
future cash flows of the assets, as well as information about sales and
purchases of similar properties in the same geographic area.
(iii)
|
During
the year ended December 31, 2007, the Group contributed certain property,
plant and equipment and construction in progress with carrying amounts of
RMB 1,239 and RMB 601, respectively, in exchange for a 50% equity interest
in a newly set up jointly controlled entity and recognized a gain of RMB
1,315, representing the portion of the difference between the carrying
amount of these assets and their fair value attributable to the equity
interests of the other venturer. The other venturer contributed
the other 50% equity interest in cash representing the fair values of the
property, plant and equipment and construction in progress as determined
by a valuation performed by an independent
valuer.
|
(iv)
|
During
the year ended December 31, 2006, a subsidiary of the Group reached an
agreement with a bank to waive loan principal balance and related interest
payable totaling RMB 486.
|
|
|
Years ended December
31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Interest
expense
incurred
|
|
|
8,595 |
|
|
|
7,927 |
|
|
|
12,465 |
|
Less: Interest expense capitalized*
|
|
|
(1,494 |
) |
|
|
(966 |
) |
|
|
(1,569 |
) |
|
|
|
7,101 |
|
|
|
6,961 |
|
|
|
10,896 |
|
Accretion
expenses (Note
26)
|
|
|
— |
|
|
|
353 |
|
|
|
430 |
|
Interest
expense
|
|
|
7,101 |
|
|
|
7,314 |
|
|
|
11,326 |
|
*
Interest rates per annum at which borrowing costs were
Capitalized for construction in
progress
|
|
3.6%
to 6.1%
|
|
|
3.6%
to 7.1%
|
|
|
3.8%
to 7.1%
|
|
Income
tax in the consolidated statements of income represents:
|
|
Years
ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Current
tax
|
|
|
|
|
|
|
|
|
|
- Provision for the
year
|
|
|
23,980 |
|
|
|
28,628 |
|
|
|
609 |
|
- Under-provision in prior
years
|
|
|
260 |
|
|
|
249 |
|
|
|
216 |
|
Deferred
taxation (Note
22)
|
|
|
(736 |
) |
|
|
(4,156 |
) |
|
|
(2,708 |
) |
|
|
|
23,504 |
|
|
|
24,721 |
|
|
|
(1,883 |
) |
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
Reconciliation
between actual income tax expense / (benefit) and the expected income tax at
applicable statutory tax rates is as follows:
|
|
Years
ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Earnings
before income
tax
|
|
|
78,542 |
|
|
|
83,464 |
|
|
|
24,317 |
|
Expected PRC income tax expense at statutory tax rates of 33%, 33% and
25% in 2006, 2007 and 2008, respectively
|
|
|
25,919 |
|
|
|
27,543 |
|
|
|
6,079 |
|
Tax
effect of differential tax rate
(i)
|
|
|
(2,047 |
) |
|
|
(1,959 |
) |
|
|
1,213 |
|
Tax
effect of non-deductible
expenses
|
|
|
535 |
|
|
|
1,400 |
|
|
|
864 |
|
Tax
effect of non-taxable income
(iii)
|
|
|
(1,438 |
) |
|
|
(3,767 |
) |
|
|
(11,203 |
) |
Tax
effect of tax losses not
recognized
|
|
|
324 |
|
|
|
103 |
|
|
|
948 |
|
Under-provision
in prior
years
|
|
|
260 |
|
|
|
249 |
|
|
|
216 |
|
Tax
credit for domestic equipment
purchases
|
|
|
(49 |
) |
|
|
(500 |
) |
|
|
— |
|
Effect
of change in tax rate on deferred tax
(ii)
|
|
|
— |
|
|
|
1,652 |
|
|
|
— |
|
Actual
income tax expense / (benefit) .
|
|
|
23,504 |
|
|
|
24,721 |
|
|
|
(1,883 |
) |
Substantially
all earnings before income tax and related tax expense / (benefit) is from PRC
sources.
(i)
|
During
the years ended December 31, 2006, 2007 and 2008, the provision for PRC
current income tax is based on statutory rates of 33%, 33% and 25%,
respectively, of the assessable income of the Group as determined in
accordance with the relevant income tax rules and regulations of the PRC,
except for certain entities of the Group, which are taxed at a
preferential rate of 15% or 18%.
|
(ii)
|
On
March 16, 2007, the Fifth Plenary Session of the Tenth National People’s
Congress passed the Corporate Income Tax Law of the People’s Republic of
China (“new tax law”), which took effect on January 1, 2008. According to
the new tax law, a unified corporate income tax rate of 25% is applied to
PRC entities; however certain entities previously taxed at a preferential
rate are subject to a transition period during which their tax rate will
gradually be increased to the unified rate of 25% over a five-year period
starting from January 1, 2008.
|
|
|
|
Based
on the new tax law, the income tax rate applicable to the Group, except
for certain entities of the Group, is reduced from 33% to 25% from January
1, 2008. Based on a tax notice issued by the State Council on December 26,
2007, the applicable tax rates for entities operating in special economic
zones, which were previously taxed at the preferential rate of 15%, are
18%, 20%, 22%, 24% and 25% in 2008, 2009, 2010, 2011 and 2012 onward,
respectively. According to the same notice, the applicable tax rate for
entities operating in the western region of the PRC which were granted a
preferential tax rate of 15% from 2004 to 2010, remains at 15% in 2008,
2009 and 2010 and will be increased to 25% from January 1,
2011. |
|
|
(iii) |
The
tax effect of non-taxable income for the year ended December 31, 2008
primarily related to the grant income. |
11.
|
BASIC
AND DILUTED EARNINGS PER SHARE
|
The
calculation of basic and diluted earnings per share is based on the net income
attributable to ordinary equity shareholders of the Company of RMB 53,603 and
RMB 56,533 for the years ended December 31, 2006 and 2007, respectively, and the
weighted average number of shares of 86,702,439,000 for each of the years ended
December 31, 2006 and 2007. For the year ended December 31, 2007, diluted
earnings per share is calculated on the same basis as basic earnings per share,
since the effect of the Convertible Bonds (Note 23(f)) was anti-dilutive for
that year.
The
calculation of basic earnings per share for the year ended December 31, 2008 is
based on the net income attributable to ordinary equity shareholders of the
Company of RMB 29,769 and the weighted average number of the shares of
86,702,439,000. The calculation of diluted earnings per share for the year ended
December 31, 2008 is based on the net income attributable to ordinary equity
shareholders of the Company of RMB 26,592 and the weighted average number of the
shares of 87,789,799,595 calculated as follows:
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
(i)
Net income attributable to ordinary equity shareholders of the Company
(diluted)
|
|
2008
|
|
|
|
RMB
|
|
|
|
|
|
Net
income attributable to ordinary equity shareholders of the
Company
|
|
|
29,769 |
|
After
tax effect of exchange gain net of interest expense of the Convertible
Bonds
|
|
|
(217 |
) |
After
tax effect of unrealized gain on embedded derivative component of
the Convertible
Bonds
|
|
|
(2,960 |
) |
Net
income attributable to ordinary equity shareholders of the Company
(diluted)
|
|
|
26,592 |
|
(ii) Weighted
average number of shares (diluted)
|
|
2008
|
|
|
|
Number
of
|
|
|
|
shares
|
|
|
|
|
|
Weighted
average number of shares as of December 31
|
|
|
86,702,439,000 |
|
Effect
of conversion of the Convertible Bonds
|
|
|
1,087,360,595 |
|
Weighted
average number of shares (diluted) as of December 31
|
|
|
87,789,799,595 |
|
The calculation of diluted
earnings per share for the year ended December 31, 2008 excludes the effect of
the Warrants (Note 23(g)), since it did not have any dilutive
effect.
12.
|
TRADE
ACCOUNTS RECEIVABLE, NET
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
Amounts
due from third
parties
|
|
|
21,839 |
|
|
|
11,289 |
|
Amounts
due from Sinopec Group Company and its affiliates
|
|
|
2,240 |
|
|
|
2,673 |
|
Amounts
due from associates and jointly controlled
entities
|
|
|
1,750 |
|
|
|
1,408 |
|
|
|
|
25,829 |
|
|
|
15,370 |
|
Less:
Impairment losses for bad and doubtful
debts
|
|
|
(2,882 |
) |
|
|
(2,381 |
) |
|
|
|
22,947 |
|
|
|
12,989 |
|
|
|
|
|
|
|
|
|
|
Impairment
losses for bad and doubtful debts are analyzed as follows:
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Balance
as of January
1
|
|
|
3,151 |
|
|
|
3,345 |
|
|
|
2,882 |
|
Impairment
losses recognized for the
year
|
|
|
438 |
|
|
|
295 |
|
|
|
143 |
|
Reversal
of impairment
losses
|
|
|
(153 |
) |
|
|
(204 |
) |
|
|
(254 |
) |
Written
off
|
|
|
(91 |
) |
|
|
(554 |
) |
|
|
(390 |
) |
Balance
as of December
31
|
|
|
3,345 |
|
|
|
2,882 |
|
|
|
2,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
are generally on a cash term. Credit is generally only available for major
customers with well-established trading records. Amounts due from Sinopec Group
Company and its affiliates are repayable under the same terms.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
|
|
December
31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
Crude
oil and other raw
materials
|
|
|
70,739 |
|
|
|
53,258 |
|
Work
in
progress
|
|
|
11,823 |
|
|
|
10,713 |
|
Finished
goods
|
|
|
35,040 |
|
|
|
35,759 |
|
Spare
parts and
consumables
|
|
|
3,002 |
|
|
|
4,464 |
|
|
|
|
120,604 |
|
|
|
104,194 |
|
Less:
Allowance for diminution in value of
inventories
|
|
|
(4,572 |
) |
|
|
(8,939 |
) |
|
|
|
116,032 |
|
|
|
95,255 |
|
Allowance
for diminution in value of inventories is analyzed as follows:
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Balance
as of January
1
|
|
|
897 |
|
|
|
871 |
|
|
|
4,572 |
|
Allowance
for the
year
|
|
|
419 |
|
|
|
3,962 |
|
|
|
8,527 |
|
Reversal
of allowance on
disposal
|
|
|
(317 |
) |
|
|
(131 |
) |
|
|
(64 |
) |
Written
off
|
|
|
(128 |
) |
|
|
(130 |
) |
|
|
(4,096 |
) |
Balance
as of December
31
|
|
|
871 |
|
|
|
4,572 |
|
|
|
8,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During
the years ended December 31, 2006, 2007 and 2008, the cost of inventories
recognized as an expense in the consolidated statements of income of RMB
887,319, RMB 1,008,384 and RMB 1,327,970, respectively, which includes the
write-down of inventories, that primarily related to the refining and chemicals
segment, of RMB 419, RMB 3,962 and RMB 8,527, respectively, and the reversal of
write-down of inventories made in prior years of RMB 445, RMB 261 and RMB 4,160,
respectively, that mainly was due to the sales of inventories. The
write-down of inventories and the reversal of write-down of inventories were
recorded in purchased crude oil, products and operating supplies and expenses in
the consolidated statements of income.
14.
|
PREPAID
EXPENSES AND OTHER CURRENT ASSETS
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
Advances
to third
parties
|
|
|
1,418 |
|
|
|
1,242 |
|
Amounts
due from Sinopec Group Company and its affiliates
|
|
|
6,719 |
|
|
|
3,896 |
|
Other
receivables
|
|
|
1,597 |
|
|
|
3,566 |
|
Purchase
deposits and other
assets
|
|
|
3,817 |
|
|
|
4,819 |
|
Prepayments
in connection with construction work and equipment
purchases
|
|
|
4,683 |
|
|
|
3,176 |
|
Prepaid
value-added tax and customs
duty
|
|
|
6,325 |
|
|
|
17,457 |
|
Amounts
due from associates and jointly controlled
entities
|
|
|
363 |
|
|
|
654 |
|
Derivative
financial instruments – foreign exchange contracts
|
|
|
— |
|
|
|
114 |
|
|
|
|
24,922 |
|
|
|
34,924 |
|
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
15.
|
PROPERTY,
PLANT AND EQUIPMENT
|
By
segment:
|
|
Exploration
and
production
|
|
|
Refining
|
|
|
Marketing
and
distribution
|
|
|
Chemicals
|
|
|
Corporate
and
others
|
|
|
Total
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Cost
/ valuation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2007
|
|
|
241,364 |
|
|
|
151,956 |
|
|
|
86,108 |
|
|
|
176,717 |
|
|
|
4,869 |
|
|
|
661,014 |
|
Additions
|
|
|
7,367 |
|
|
|
506 |
|
|
|
289 |
|
|
|
269 |
|
|
|
247 |
|
|
|
8,678 |
|
Transferred
from construction in progress
|
|
|
35,851 |
|
|
|
10,768 |
|
|
|
5,726 |
|
|
|
6,244 |
|
|
|
1,316 |
|
|
|
59,905 |
|
Acquisitions
(ii)
|
|
|
— |
|
|
|
— |
|
|
|
2,474 |
|
|
|
— |
|
|
|
— |
|
|
|
2,474 |
|
Reclassification
|
|
|
(7 |
) |
|
|
(78 |
) |
|
|
94 |
|
|
|
(9 |
) |
|
|
— |
|
|
|
— |
|
Contributed
to a jointly controlled
entity (Note 8
(iii))
|
|
|
— |
|
|
|
(4,317 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,317 |
) |
Reclassification
to lease prepayments and
other assets
|
|
|
— |
|
|
|
(322 |
) |
|
|
(1,345 |
) |
|
|
(672 |
) |
|
|
(27 |
) |
|
|
(2,366 |
) |
Disposals
|
|
|
(392 |
) |
|
|
(1,027 |
) |
|
|
(2,191 |
) |
|
|
(1,425 |
) |
|
|
(207 |
) |
|
|
(5,242 |
) |
Balance
as of December 31, 2007
|
|
|
284,183 |
|
|
|
157,486 |
|
|
|
91,155 |
|
|
|
181,124 |
|
|
|
6,198 |
|
|
|
720,146 |
|
Balance
as of January 1, 2008
|
|
|
284,183 |
|
|
|
157,486 |
|
|
|
91,155 |
|
|
|
181,124 |
|
|
|
6,198 |
|
|
|
720,146 |
|
Additions
|
|
|
1,598 |
|
|
|
509 |
|
|
|
588 |
|
|
|
688 |
|
|
|
162 |
|
|
|
3,545 |
|
Transferred
from construction in progress
|
|
|
35,701 |
|
|
|
23,385 |
|
|
|
9,877 |
|
|
|
4,683 |
|
|
|
2,605 |
|
|
|
76,251 |
|
Acquisitions
(ii)
|
|
|
17,943 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
17,943 |
|
Reclassification
|
|
|
(105 |
) |
|
|
(3,603 |
) |
|
|
(250 |
) |
|
|
3,952 |
|
|
|
6 |
|
|
|
— |
|
Reclassification
to lease prepayments and
other assets
|
|
|
— |
|
|
|
(247 |
) |
|
|
(314 |
) |
|
|
(41 |
) |
|
|
(202 |
) |
|
|
(804 |
) |
Disposals
|
|
|
(198 |
) |
|
|
(486 |
) |
|
|
(952 |
) |
|
|
(928 |
) |
|
|
(28 |
) |
|
|
(2,592 |
) |
Balance
as of December 31, 2008
|
|
|
339,122 |
|
|
|
177,044 |
|
|
|
100,104 |
|
|
|
189,478 |
|
|
|
8,741 |
|
|
|
814,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2007
|
|
|
112,050 |
|
|
|
69,257 |
|
|
|
17,154 |
|
|
|
104,959 |
|
|
|
1,837 |
|
|
|
305,257 |
|
Depreciation
charge for the year
|
|
|
18,161 |
|
|
|
8,899 |
|
|
|
5,788 |
|
|
|
8,734 |
|
|
|
634 |
|
|
|
42,216 |
|
Acquisitions
(ii)
|
|
|
— |
|
|
|
— |
|
|
|
916 |
|
|
|
— |
|
|
|
— |
|
|
|
916 |
|
Impairment
losses for the year (Note 8 (ii))
|
|
|
481 |
|
|
|
916 |
|
|
|
1,194 |
|
|
|
318 |
|
|
|
— |
|
|
|
2,909 |
|
Reclassification
|
|
|
131 |
|
|
|
(204 |
) |
|
|
82 |
|
|
|
(9 |
) |
|
|
— |
|
|
|
— |
|
Contributed
to a jointly controlled
entity (Note 8
(iii))
|
|
|
— |
|
|
|
(3,078 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,078 |
) |
Reclassification
to lease prepayments and
other assets
|
|
|
— |
|
|
|
— |
|
|
|
(190 |
) |
|
|
(56 |
) |
|
|
— |
|
|
|
(246 |
) |
Written
back on disposals
|
|
|
(140 |
) |
|
|
(431 |
) |
|
|
(1,142 |
) |
|
|
(1,164 |
) |
|
|
(93 |
) |
|
|
(2,970 |
) |
Balance
as of December 31, 2007
|
|
|
130,683 |
|
|
|
75,359 |
|
|
|
23,802 |
|
|
|
112,782 |
|
|
|
2,378 |
|
|
|
345,004 |
|
Balance
as of January 1, 2008
|
|
|
130,683 |
|
|
|
75,359 |
|
|
|
23,802 |
|
|
|
112,782 |
|
|
|
2,378 |
|
|
|
345,004 |
|
Depreciation
charge for the year
|
|
|
22,040 |
|
|
|
9,412 |
|
|
|
4,610 |
|
|
|
8,234 |
|
|
|
716 |
|
|
|
45,012 |
|
Acquisitions
(ii)
|
|
|
16,401 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16,401 |
|
Impairment
losses for the year (Note 8 (ii))
|
|
|
4,600 |
|
|
|
270 |
|
|
|
698 |
|
|
|
1,511 |
|
|
|
19 |
|
|
|
7,098 |
|
Reclassification
|
|
|
(194 |
) |
|
|
(499 |
) |
|
|
13 |
|
|
|
686 |
|
|
|
(6 |
) |
|
|
— |
|
Reclassification
to lease prepayments and
other assets
|
|
|
— |
|
|
|
— |
|
|
|
(73 |
) |
|
|
(1 |
) |
|
|
(16 |
) |
|
|
(90 |
) |
Written
back on disposals
|
|
|
(182 |
) |
|
|
(421 |
) |
|
|
(766 |
) |
|
|
(809 |
) |
|
|
(23 |
) |
|
|
(2,201 |
) |
Balance
as of December 31, 2008
|
|
|
173,348 |
|
|
|
84,121 |
|
|
|
28,284 |
|
|
|
122,403 |
|
|
|
3,068 |
|
|
|
411,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
book value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2007
|
|
|
129,314 |
|
|
|
82,699 |
|
|
|
68,954 |
|
|
|
71,758 |
|
|
|
3,032 |
|
|
|
355,757 |
|
Balance
as of December 31, 2007
|
|
|
153,500 |
|
|
|
82,127 |
|
|
|
67,353 |
|
|
|
68,342 |
|
|
|
3,820 |
|
|
|
375,142 |
|
Balance
as of December 31, 2008
|
|
|
165,774 |
|
|
|
92,923 |
|
|
|
71,820 |
|
|
|
67,075 |
|
|
|
5,673 |
|
|
|
403,265 |
|
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
By
asset class:
|
|
Buildings
|
|
|
Oil
and
gas
properties
|
|
|
Oil
depots,
storage
tanks
and
service
stations
|
|
|
Plant,
machinery,
equipment
and
others
|
|
|
Total
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Cost
/ valuation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1,
2007
|
|
|
47,379 |
|
|
|
218,693 |
|
|
|
90,249 |
|
|
|
304,693 |
|
|
|
661,014 |
|
Additions
|
|
|
199 |
|
|
|
7,264 |
|
|
|
370 |
|
|
|
845 |
|
|
|
8,678 |
|
Transferred
from construction in progress
|
|
|
684 |
|
|
|
33,423 |
|
|
|
7,289 |
|
|
|
18,509 |
|
|
|
59,905 |
|
Acquisitions
(ii)
|
|
|
1,423 |
|
|
|
— |
|
|
|
949 |
|
|
|
102 |
|
|
|
2,474 |
|
Reclassification
|
|
|
349 |
|
|
|
(7 |
) |
|
|
(446 |
) |
|
|
104 |
|
|
|
— |
|
Contributed
to a jointly controlled entity
(Note 8 (iii))
|
|
|
(749 |
) |
|
|
— |
|
|
|
— |
|
|
|
(3,568 |
) |
|
|
(4,317 |
) |
Reclassification
to lease prepayments and other assets
|
|
|
(1,941 |
) |
|
|
— |
|
|
|
— |
|
|
|
(425 |
) |
|
|
(2,366 |
) |
Disposals
|
|
|
(1,044 |
) |
|
|
— |
|
|
|
(1,411 |
) |
|
|
(2,787 |
) |
|
|
(5,242 |
) |
Balance
as of December 31,
2007
|
|
|
46,300 |
|
|
|
259,373 |
|
|
|
97,000 |
|
|
|
317,473 |
|
|
|
720,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1,
2008
|
|
|
46,300 |
|
|
|
259,373 |
|
|
|
97,000 |
|
|
|
317,473 |
|
|
|
720,146 |
|
Additions
|
|
|
195 |
|
|
|
1,482 |
|
|
|
319 |
|
|
|
1,549 |
|
|
|
3,545 |
|
Transferred
from construction in
progress
|
|
|
5,887 |
|
|
|
32,218 |
|
|
|
12,387 |
|
|
|
25,759 |
|
|
|
76,251 |
|
Acquisitions
(ii)
|
|
|
548 |
|
|
|
— |
|
|
|
— |
|
|
|
17,395 |
|
|
|
17,943 |
|
Reclassification
|
|
|
49 |
|
|
|
(176 |
) |
|
|
363 |
|
|
|
(236 |
) |
|
|
— |
|
Reclassification
to lease prepayments and other assets
|
|
|
(543 |
) |
|
|
— |
|
|
|
(27 |
) |
|
|
(234 |
) |
|
|
(804 |
) |
Disposals
|
|
|
(227 |
) |
|
|
— |
|
|
|
(1,118 |
) |
|
|
(1,247 |
) |
|
|
(2,592 |
) |
Balance
as of December 31,
2008
|
|
|
52,209 |
|
|
|
292,897 |
|
|
|
108,924 |
|
|
|
360,459 |
|
|
|
814,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1,
2007
|
|
|
22,728 |
|
|
|
102,382 |
|
|
|
17,868 |
|
|
|
162,279 |
|
|
|
305,257 |
|
Depreciation
charge for the
year
|
|
|
1,740 |
|
|
|
16,304 |
|
|
|
4,409 |
|
|
|
19,763 |
|
|
|
42,216 |
|
Acquisitions
(ii)
|
|
|
472 |
|
|
|
— |
|
|
|
350 |
|
|
|
94 |
|
|
|
916 |
|
Impairment
losses for the
year
|
|
|
337 |
|
|
|
437 |
|
|
|
961 |
|
|
|
1,174 |
|
|
|
2,909 |
|
Reclassification
|
|
|
736 |
|
|
|
(66 |
) |
|
|
471 |
|
|
|
(1,141 |
) |
|
|
— |
|
Contributed
to a jointly controlled entity
(Note 8
(iii))
|
|
|
(448 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,630 |
) |
|
|
(3,078 |
) |
Reclassification
to lease prepayments and other assets
|
|
|
(245 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
|
|
(246 |
) |
Written
back on
disposals
|
|
|
(333 |
) |
|
|
— |
|
|
|
(756 |
) |
|
|
(1,881 |
) |
|
|
(2,970 |
) |
Balance
as of December 31,
2007
|
|
|
24,987 |
|
|
|
119,057 |
|
|
|
23,303 |
|
|
|
177,657 |
|
|
|
345,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1,
2008
|
|
|
24,987 |
|
|
|
119,057 |
|
|
|
23,303 |
|
|
|
177,657 |
|
|
|
345,004 |
|
Depreciation
charge for the
year
|
|
|
2,025 |
|
|
|
20,254 |
|
|
|
5,044 |
|
|
|
17,689 |
|
|
|
45,012 |
|
Acquisitions
(ii)
|
|
|
236 |
|
|
|
— |
|
|
|
— |
|
|
|
16,165 |
|
|
|
16,401 |
|
Impairment
losses for the
year
|
|
|
522 |
|
|
|
4,530 |
|
|
|
632 |
|
|
|
1,414 |
|
|
|
7,098 |
|
Reclassification
|
|
|
(124 |
) |
|
|
(231 |
) |
|
|
265 |
|
|
|
90 |
|
|
|
— |
|
Reclassification
to lease prepayments and other assets
|
|
|
(76 |
) |
|
|
— |
|
|
|
(6 |
) |
|
|
(8 |
) |
|
|
(90 |
) |
Written
back on
disposals
|
|
|
(169 |
) |
|
|
— |
|
|
|
(991 |
) |
|
|
(1,041 |
) |
|
|
(2,201 |
) |
Balance
as of December 31,
2008
|
|
|
27,401 |
|
|
|
143,610 |
|
|
|
28,247 |
|
|
|
211,966 |
|
|
|
411,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
book value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of 1 January 1,
2007
|
|
|
24,651 |
|
|
|
116,311 |
|
|
|
72,381 |
|
|
|
142,414 |
|
|
|
355,757 |
|
Balance
as of December 31,
2007
|
|
|
21,313 |
|
|
|
140,316 |
|
|
|
73,697 |
|
|
|
139,816 |
|
|
|
375,142 |
|
Balance
as of December 31,
2008
|
|
|
24,808 |
|
|
|
149,287 |
|
|
|
80,677 |
|
|
|
148,493 |
|
|
|
403,265 |
|
Notes:
(i)
|
The
additions to the exploration and production segment and oil and gas
properties of the Group for the years ended December 31, 2007 and 2008
included RMB 7,211 and RMB 1,482, respectively, of the estimated
dismantlement costs for site restoration (Note
26).
|
(ii)
|
During
the year ended December 31, 2007, the Group acquired the entire equity
interests of certain service stations companies incorporated in Hong Kong
(“Hong Kong service stations”). During the year ended December
31, 2008, the Group acquired Downhole Assets from Sinopec Group Company
(Note 30).
|
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
16. CONSTRUCTION
IN PROGRESS
|
|
Exploration
and
production
|
|
|
Refining
|
|
|
Marketing
and
distribution
|
|
|
Chemicals
|
|
|
Corporate
and
others
|
|
|
Total
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2007
|
|
|
16,420 |
|
|
|
15,439 |
|
|
|
10,288 |
|
|
|
7,025 |
|
|
|
3,699 |
|
|
|
52,871 |
|
Additions
|
|
|
60,135 |
|
|
|
22,209 |
|
|
|
10,448 |
|
|
|
16,025 |
|
|
|
2,873 |
|
|
|
111,690 |
|
Dry
hole costs written off
|
|
|
(6,060 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,060 |
) |
Transferred
to property, plant and equipment
|
|
|
(35,851 |
) |
|
|
(10,768 |
) |
|
|
(5,726 |
) |
|
|
(6,244 |
) |
|
|
(1,316 |
) |
|
|
(59,905 |
) |
Reclassification
to lease prepayments and other assets
|
|
|
(203 |
) |
|
|
(144 |
) |
|
|
(1,969 |
) |
|
|
(54 |
) |
|
|
(20 |
) |
|
|
(2,390 |
) |
Impairment
losses for the year (Note 8 (ii))
|
|
|
— |
|
|
|
(154 |
) |
|
|
(43 |
) |
|
|
— |
|
|
|
— |
|
|
|
(197 |
) |
Contributed
to a jointly controlled entity (Note 8 (iii))
|
|
|
— |
|
|
|
(601 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(601 |
) |
Balance
as of December 31, 2007
|
|
|
34,441 |
|
|
|
25,981 |
|
|
|
12,998 |
|
|
|
16,752 |
|
|
|
5,236 |
|
|
|
95,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2008
|
|
|
34,441 |
|
|
|
25,981 |
|
|
|
12,998 |
|
|
|
16,752 |
|
|
|
5,236 |
|
|
|
95,408 |
|
Additions
|
|
|
61,750 |
|
|
|
12,647 |
|
|
|
12,791 |
|
|
|
20,536 |
|
|
|
2,073 |
|
|
|
109,797 |
|
Dry hole costs written off
|
|
|
(4,236 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,236 |
) |
Transferred to property, plant and equipment
|
|
|
(35,701 |
) |
|
|
(23,385 |
) |
|
|
(9,877 |
) |
|
|
(4,683 |
) |
|
|
(2,605 |
) |
|
|
(76,251 |
) |
Reclassification to lease prepayments and other assets
|
|
|
(154 |
) |
|
|
(200 |
) |
|
|
(1,340 |
) |
|
|
(108 |
) |
|
|
(1,019 |
) |
|
|
(2,821 |
) |
Reclassification
|
|
|
97 |
|
|
|
2,846 |
|
|
|
(292 |
) |
|
|
(2,732 |
) |
|
|
81 |
|
|
|
— |
|
Impairment
losses for the year (Note 8 (ii))
|
|
|
— |
|
|
|
— |
|
|
|
(11 |
) |
|
|
— |
|
|
|
— |
|
|
|
(11 |
) |
Balance
as of December 31, 2008
|
|
|
56,197 |
|
|
|
17,889 |
|
|
|
14,269 |
|
|
|
29,765 |
|
|
|
3,766 |
|
|
|
121,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
changes in capitalized cost of exploratory wells included in the Group’s
construction in progress in the E&P segment are analyzed as
follows:
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
At
beginning of year .
|
|
|
3,573 |
|
|
|
4,771 |
|
|
|
6,294 |
|
Additions,
net of amount that were capitalized and subsequently
expensed in the same year,
pending the determination of proved
reserves .
|
|
|
3,241 |
|
|
|
4,874 |
|
|
|
4,613 |
|
Transferred
to oil and gas properties based on the determination of
proved
reserves .
|
|
|
(305 |
) |
|
|
(568 |
) |
|
|
(1,008 |
) |
Dry
hole costs written
off
|
|
|
(1,738 |
) |
|
|
(2,783 |
) |
|
|
(2,066 |
) |
At
end of year .
|
|
|
4,771 |
|
|
|
6,294 |
|
|
|
7,833 |
|
Aging
of capitalized exploratory well costs based on the date the drilling was
completed are analyzed as follows:
|
|
December
31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
One
year or
less
|
|
|
4,393 |
|
|
|
5,701 |
|
|
|
7,113 |
|
Over one year
|
|
|
378 |
|
|
|
593 |
|
|
|
720 |
|
|
|
|
4,771 |
|
|
|
6,294 |
|
|
|
7,833 |
|
Capitalized
exploratory wells costs aged over one year are related to wells for which the
drilling results are being further evaluated or the development plans are being
formulated.
The
geological and geophysical costs paid during the years ended December 31, 2006,
2007 and 2008 amounted to RMB 3,878, RMB 4,640 and RMB 3,789,
respectively.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
17. GOODWILL
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
Cost:
|
|
|
|
|
|
|
Balance
as of January
1
|
|
|
14,325 |
|
|
|
15,490 |
|
Net
additions and exchange
adjustments
|
|
|
1,165 |
|
|
|
138 |
|
Balance
as of December
31
|
|
|
15,490 |
|
|
|
15,628 |
|
|
|
|
|
|
|
|
|
|
Accumulated
impairment losses:
|
|
|
|
|
|
|
|
|
Balance
as of January
1
|
|
|
— |
|
|
|
— |
|
Impairment
losses for the
year
|
|
|
— |
|
|
|
(1,391 |
) |
Balance
as of December
31
|
|
|
— |
|
|
|
(1,391 |
) |
|
|
|
|
|
|
|
|
|
Net
book
value
|
|
|
|
|
|
|
|
|
Balance
as of December
31
|
|
|
15,490 |
|
|
|
14,237 |
|
|
|
|
|
|
|
|
|
|
Impairment
tests for cash-generating units containing goodwill
Goodwill
is allocated to the following Group’s cash-generating units:
|
|
December
31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
Sinopec
Beijing Yanshan Branch (“Sinopec
Yanshan”)
|
|
|
1,157 |
|
|
|
1,157 |
|
Sinopec
Zhenhai Refining and Chemical Branch (“Sinopec Zhenhai”)
|
|
|
3,952 |
|
|
|
3,952 |
|
Sinopec
Qilu Branch (“Sinopec
Qilu”)
|
|
|
2,159 |
|
|
|
2,159 |
|
Sinopec
Yangzi Petrochemical Company Limited (“Sinopec Yangzi”)
|
|
|
2,737 |
|
|
|
2,737 |
|
Sinopec
Zhongyuan Petroleum Company Limited (“Sinopec Zhongyuan”)
|
|
|
1,391 |
|
|
|
— |
|
Sinopec
Shengli Oil Field Dynamic Company Limited (“Dynamic”)
|
|
|
1,361 |
|
|
|
1,361 |
|
Hong
Kong service
stations
|
|
|
1,004 |
|
|
|
924 |
|
Multiple
units without individually significant
goodwill
|
|
|
1,729 |
|
|
|
1,947 |
|
|
|
|
15,490 |
|
|
|
14,237 |
|
Goodwill
represents the excess of the cost of purchase over the fair value of the
underlying assets and liabilities. The recoverable amounts of Sinopec Yanshan,
Sinopec Zhenhai, Sinopec Qilu, Sinopec Yangzi, Sinopec Zhongyuan, Dynamic and
Hong Kong service stations are determined based on value in use calculations.
These calculations use cash flow projections based on financial budgets approved
by management covering a one-year period and pre-tax discount rates primarily
ranging from 13.9% to 16.9% and 10.0% to 12.8% for the years ended December 31,
2007 and 2008, respectively. Cash flows beyond the one-year period are
maintained constant. Management believes any reasonably possible change in the
key assumptions on which these entities’ recoverable amounts are based would not
cause these entities’ carrying amounts to exceed their recoverable
amounts.
Key
assumptions used for the value in use calculations for these entities are the
gross margin and sales volume. Management determined the budgeted gross margin
based on the gross margin achieved in the period immediately before the budget
period and management’s expectation on the future trend of the prices of crude
oil and petrochemical products. The sales volume was based on the production
capacity and / or the sales volume in the period immediately before the budget
period.
During
the year ended December 31, 2008, the carrying amount of a cash-generating unit,
Sinopec Zhongyuan, was determined to be higher than its recoverable amount. The
reduction in recoverable amount was a result of the downward reserves estimation
for the oil fields of this cash-generating unit resulting from lower oil and gas
pricing. The oil and gas pricing was a factor used in the determination of the
present values of the expected future cash flows of this cash-generating
unit. The total impairment losses recognized on the goodwill of
Sinopec Zhongyuan was RMB 1,391 for the year ended December 31,
2008.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
18. INTEREST
IN ASSOCIATES
|
|
December
31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
Share
of net
assets
|
|
|
16,865 |
|
|
|
15,595 |
|
The
Group’s investments in associates are with companies primarily engaged in the
oil and gas, petrochemical, and marketing and distribution operations in the
PRC. These investments are individually and in aggregate not material to the
Group’s financial condition or results of operations for all periods presented.
The principal investments in associates, all of which are incorporated in the
PRC, are as follows:
Name
of company
|
|
Form
of business structure
|
|
Particulars
of issued
and
paid up capital
|
|
Percentage
of equity held by the Company
|
|
|
Percentage
of equity held by the Company’s subsidiaries
|
|
Principal
activities
|
|
|
|
|
|
|
%
|
|
|
%
|
|
|
Sinopec
Finance Company Limited
|
|
Incorporated
|
|
Registered
capital
RMB
6,000,000,000
|
|
|
49.00 |
|
|
|
— |
|
Provision
of non-banking financial services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China
Aviation Oil Supply Company
Limited
|
|
Incorporated
|
|
Registered
capital
RMB
3,800,000,000
|
|
|
— |
|
|
|
29.00 |
|
Marketing
and distribution of refined petroleum products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shanghai Petroleum National Gas
Corporation
|
|
Incorporated
|
|
Registered
capital
RMB
900,000,000
|
|
|
30.00 |
|
|
|
— |
|
Exploration
and production of crude oil and natural gas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shanghai
Chemical Industry Park
Development Company Limited
|
|
Incorporated
|
|
Registered
capital
RMB
2,372,439,000
|
|
|
— |
|
|
|
38.26 |
|
Planning,
development and operation of the Chemical Industry Park in Shanghai, the
PRC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China Shipping & Sinopec Suppliers
Company Limited
|
|
Incorporated
|
|
Registered
capital
RMB
876,660,000
|
|
|
— |
|
|
|
50.00 |
|
Transportation
of petroleum
products
|
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
19. INTEREST
IN JOINTLY CONTROLLED ENTITIES
|
|
December
31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
Share
of net
assets
|
|
|
12,723 |
|
|
|
11,781 |
|
The
Group’s principal interests in jointly controlled entities are primarily engaged
in the refining and chemical operations in the PRC as follows:
Name
of company
|
|
Form
of business structure
|
|
Particulars
of issued and paid up capital
|
|
Percentage
of equity held by the Company
|
|
|
Percentage
of equity held by the Company’s subsidiaries
|
|
Principal
activities
|
|
|
|
|
|
|
%
|
|
|
%
|
|
|
Shanghai
Secco Petrochemical
Company Limited
|
|
Incorporated
|
|
Registered
capital
USD
901,440,964
|
|
|
30.00 |
|
|
|
20.00 |
|
Manufacturing
and distribution of petrochemical products
|
BASF-YPC
Company Limited
|
|
Incorporated
|
|
Registered
capital
RMB
8,793,000,000
|
|
|
30.00 |
|
|
|
10.00 |
|
Manufacturing
and distribution of petrochemical products
|
Fujian
Refining and Petrochemical
Company Limited
|
|
Incorporated
|
|
Registered
capital
USD
1,654,351,000
|
|
|
— |
|
|
|
50.00 |
|
Manufacturing
and distribution of petrochemical
products
|
The
Group’s effective interest share of the jointly controlled entities’ results of
operation, financial condition and cash flows are as follows:
|
|
Years
ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Results
of operation:
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
|
17,323 |
|
|
|
23,085 |
|
|
|
27,417 |
|
Expenses
|
|
|
(14,927 |
) |
|
|
(20,378 |
) |
|
|
(28,371 |
) |
Net
income /
(loss)
|
|
|
2,396 |
|
|
|
2,707 |
|
|
|
(954 |
) |
|
|
December
31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
Financial
condition:
|
|
|
|
|
|
|
Current
assets
|
|
|
6,736 |
|
|
|
6,691 |
|
Non-current assets
|
|
|
22,229 |
|
|
|
28,430 |
|
Current
liabilities
|
|
|
(5,313 |
) |
|
|
(6,413 |
) |
Non-current liabilities
|
|
|
(10,929 |
) |
|
|
(16,927 |
) |
Net
assets
|
|
|
12,723 |
|
|
|
11,781 |
|
|
|
Years
ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Cash
flows:
|
|
|
|
|
|
|
|
|
|
Net
cash generated from / (used in) operating activities
|
|
|
2,452 |
|
|
|
5,079 |
|
|
|
(2,046 |
) |
Net
cash used in investing
activities
|
|
|
(382 |
) |
|
|
(13,238 |
) |
|
|
(5,872 |
) |
Net
cash (used in) / generated from financing activities
|
|
|
(939 |
) |
|
|
7,143 |
|
|
|
7,999 |
|
Net
increase / (decrease) in cash and cash equivalents
|
|
|
1,131 |
|
|
|
(1,016 |
) |
|
|
81 |
|
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
20. INVESTMENTS
|
|
December
31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
Available-for-sale
equity securities, listed and at quoted market price
|
|
|
653 |
|
|
|
154 |
|
Other
investments in equity securities, unlisted and at
cost
|
|
|
2,846 |
|
|
|
1,562 |
|
|
|
|
3,499 |
|
|
|
1,716 |
|
Less:
Impairment losses for
investments
|
|
|
(305 |
) |
|
|
(233 |
) |
|
|
|
3,194 |
|
|
|
1,483 |
|
Unlisted
investments represent the Group’s interests in PRC privately owned enterprises
which are mainly engaged in non-oil and gas activities and
operations.
The
impairment losses relating to investments for the year ended December 31, 2007
and 2008 amounted to RMB 55 and 9, respectively.
21. LONG-TERM
PREPAYMENTS AND OTHER ASSETS
Long-term
prepayments and other assets primarily represent prepaid rental expenses over
one year, computer software, catalysts and operating rights of service
stations.
22. DEFERRED
TAX ASSETS AND LIABILITIES
Deferred
tax assets and deferred tax liabilities are attributable to the items detailed
in the table below:
|
|
Assets
|
|
|
Liabilities
|
|
|
Net
balance
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
and inventories
|
|
|
3,841 |
|
|
|
4,357 |
|
|
|
— |
|
|
|
— |
|
|
|
3,841 |
|
|
|
4,357 |
|
Accruals
|
|
|
2,613 |
|
|
|
261 |
|
|
|
— |
|
|
|
— |
|
|
|
2,613 |
|
|
|
261 |
|
Non-current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment
|
|
|
2,641 |
|
|
|
3,891 |
|
|
|
(1,376 |
) |
|
|
(1,286 |
) |
|
|
1,265 |
|
|
|
2,605 |
|
Accelerated
depreciation
|
|
|
— |
|
|
|
— |
|
|
|
(4,144 |
) |
|
|
(3,716 |
) |
|
|
(4,144 |
) |
|
|
(3,716 |
) |
Tax
value of losses carried forward
|
|
|
176 |
|
|
|
3,915 |
|
|
|
— |
|
|
|
— |
|
|
|
176 |
|
|
|
3,915 |
|
Lease
prepayments
|
|
|
306 |
|
|
|
300 |
|
|
|
— |
|
|
|
— |
|
|
|
306 |
|
|
|
300 |
|
Available-for-sale
financial assets
|
|
|
— |
|
|
|
— |
|
|
|
(116 |
) |
|
|
(52 |
) |
|
|
(116 |
) |
|
|
(52 |
) |
Embedded
derivative component of the
Convertible
Bonds
|
|
|
803 |
|
|
|
— |
|
|
|
— |
|
|
|
(151 |
) |
|
|
803 |
|
|
|
(151 |
) |
Others
|
|
|
59 |
|
|
|
86 |
|
|
|
— |
|
|
|
(30 |
) |
|
|
59 |
|
|
|
56 |
|
Deferred
tax assets / (liabilities)
|
|
|
10,439 |
|
|
|
12,810 |
|
|
|
(5,636 |
) |
|
|
(5,235 |
) |
|
|
4,803 |
|
|
|
7,575 |
|
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
As
of December 31, 2007 and 2008, certain subsidiaries of the Company did not
recognize the tax value of losses carried forward of RMB 3,813 and RMB 7,975,
respectively, because it was not probable that the related tax benefit will be
realized. The tax value of these losses carried forward of RMB 765, RMB 1,443,
RMB 1,366, RMB 639 and RMB 3,762 expire in 2009, 2010, 2011, 2012 and 2013,
respectively.
Based
on management’s assessment of the probability that taxable profit will be
available over the period which the deferred tax assets can be realized or
utilized, deferred tax asset of RMB 103 and 948 were not recognized for the
years ended December 31, 2007 and 2008, respectively. In assessing the
probability, both positive and negative evidence was considered, including
whether it is probable that the operations will have future taxable profits over
the periods which the deferred tax assets are deductible or utilized and whether
the tax losses result from identifiable causes which are unlikely to
recur.
Movements
in deferred tax assets and liabilities are as follows:
|
|
Balance
as of
January
1,
2006
|
|
|
Recognized
in
consolidated
statements
of income
|
|
|
Recognized
in
equity
|
|
|
Balance
as of
December
31,
2006
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables and inventories
|
|
|
3,448 |
|
|
|
84 |
|
|
|
— |
|
|
|
3,532 |
|
Accruals
|
|
|
457 |
|
|
|
408 |
|
|
|
— |
|
|
|
865 |
|
Non-current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and
equipment
|
|
|
18 |
|
|
|
583 |
|
|
|
— |
|
|
|
601 |
|
Accelerated
depreciation
|
|
|
(4,290 |
) |
|
|
(367 |
) |
|
|
— |
|
|
|
(4,657 |
) |
Tax
value of losses carried
forward
|
|
|
130 |
|
|
|
(25 |
) |
|
|
— |
|
|
|
105 |
|
Lease
prepayments
|
|
|
375 |
|
|
|
(24 |
) |
|
|
— |
|
|
|
351 |
|
Available-for-sale
financial assets
(i)
|
|
|
— |
|
|
|
— |
|
|
|
(4 |
) |
|
|
(4 |
) |
Others
|
|
|
(27 |
) |
|
|
77 |
|
|
|
— |
|
|
|
50 |
|
Net
deferred tax
assets
|
|
|
111 |
|
|
|
736 |
|
|
|
(4 |
) |
|
|
843 |
|
|
|
Balance
as of
January
1,
2007
|
|
|
Recognized
in
consolidated
statements
of income
|
|
|
Acquisitions
of
subsidiaries
|
|
|
Recognized
in
equity
|
|
|
Balance
as of
December
31,
2007
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables and inventories
|
|
|
3,532 |
|
|
|
309 |
|
|
|
— |
|
|
|
— |
|
|
|
3,841 |
|
Accruals
|
|
|
865 |
|
|
|
1,748 |
|
|
|
— |
|
|
|
— |
|
|
|
2,613 |
|
Non-current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and
equipment
|
|
|
601 |
|
|
|
711 |
|
|
|
(47 |
) |
|
|
— |
|
|
|
1,265 |
|
Accelerated
depreciation
|
|
|
(4,657 |
) |
|
|
513 |
|
|
|
— |
|
|
|
— |
|
|
|
(4,144 |
) |
Tax
value of losses carried forward
|
|
|
105 |
|
|
|
71 |
|
|
|
— |
|
|
|
— |
|
|
|
176 |
|
Lease
prepayments
(ii)
|
|
|
351 |
|
|
|
(8 |
) |
|
|
— |
|
|
|
(37 |
) |
|
|
306 |
|
Available-for-sale
financial assets (i)
|
|
|
(4 |
) |
|
|
— |
|
|
|
— |
|
|
|
(112 |
) |
|
|
(116 |
) |
Embedded
derivative component of the
Convertible
Bonds
|
|
|
— |
|
|
|
803 |
|
|
|
— |
|
|
|
— |
|
|
|
803 |
|
Others
|
|
|
50 |
|
|
|
9 |
|
|
|
— |
|
|
|
— |
|
|
|
59 |
|
Net
deferred tax
assets
|
|
|
843 |
|
|
|
4,156 |
|
|
|
(47 |
) |
|
|
(149 |
) |
|
|
4,803 |
|
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise stated)
|
|
Balance
as of
January
1,
2008
|
|
|
Recognized
in
consolidated
statements
of income
|
|
|
Recognized
in
equity
|
|
|
Balance
as of
December
31,
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
and
inventories
|
|
|
3,841 |
|
|
|
516 |
|
|
|
— |
|
|
|
4,357 |
|
Accruals
|
|
|
2,613 |
|
|
|
(2,352 |
) |
|
|
— |
|
|
|
261 |
|
Non-current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and
equipment
|
|
|
1,265 |
|
|
|
1,340 |
|
|
|
— |
|
|
|
2,605 |
|
Accelerated
depreciation
|
|
|
(4,144 |
) |
|
|
428 |
|
|
|
— |
|
|
|
(3,716 |
) |
Tax
value of losses carried
forward
|
|
|
176 |
|
|
|
3,739 |
|
|
|
— |
|
|
|
3,915 |
|
Lease
prepayments
|
|
|
306 |
|
|
|
(6 |
) |
|
|
— |
|
|
|
300 |
|
Available-for-sale
financial assets
(i)
|
|
|
(116 |
) |
|
|
— |
|
|
|
64 |
|
|
|
(52 |
) |
Embedded
derivative component of the
Convertible
Bonds
|
|
|
803 |
|
|
|
(954 |
) |
|
|
— |
|
|
|
(151 |
) |
Others
|
|
|
59 |
|
|
|
(3 |
) |
|
|
— |
|
|
|
56 |
|
Net
deferred tax
assets
|
|
|
4,803 |
|
|
|
2,708 |
|
|
|
64 |
|
|
|
7,575 |
|
Notes:
|
|
The
amount recognized in equity represents the deferred tax effect of change
in fair value of available-for-sale financial assets which was recognized
directly in equity.
|
|
|
|
|
(ii) |
The
amount recognized in equity represents the effect of change in tax rate on
deferred tax assets previously recognized directly in equity as a result
of the new tax law. |
23.
|
SHORT-TERM
AND LONG-TERM DEBTS AND LOANS FROM SINOPEC GROUP COMPANY AND ITS
AFFILIATES
|
Short-term
debts represent:
|
|
December
31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
Third
parties’ debts
|
|
|
|
|
|
|
Short-term
bank
loans
|
|
|
21,294 |
|
|
|
40,735 |
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term bank
loans
|
|
|
12,259 |
|
|
|
17,109 |
|
Current
portion of long-term other
loans
|
|
|
1,027 |
|
|
|
2,052 |
|
|
|
|
13,286 |
|
|
|
19,161 |
|
|
|
|
|
|
|
|
|
|
Corporate
bonds
(a)
|
|
|
10,074 |
|
|
|
15,000 |
|
|
|
|
44,654 |
|
|
|
74,896 |
|
Loans
from Sinopec Group Company and its affiliates
|
|
|
|
|
|
|
|
|
Short-term
loans
|
|
|
15,660 |
|
|
|
23,237 |
|
Current
portion of long-term
loans
|
|
|
180 |
|
|
|
350 |
|
|
|
|
15,840 |
|
|
|
23,587 |
|
|
|
|
60,494 |
|
|
|
98,483 |
|
The
Group’s weighted average interest rates on short-term loans were 5.4% and 4.7%
as of December 31, 2007 and 2008, respectively.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise stated)
Long-term
debts comprise:
|
Interest rate and
final maturity
|
|
December
31,
|
|
|
|
|
2007
|
|
|
2008
|
|
|
|
|
RMB
|
|
|
RMB
|
|
Third
parties’ debts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
bank loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Renminbi
denominated
|
Interest
rates ranging from interest free to 7.6% per annum as of December 31, 2008
with maturities through 2018
|
|
|
46,912 |
|
|
|
42,036 |
|
|
|
|
|
|
|
|
|
|
|
Japanese
Yen denominated
|
Interest
rates ranging from 2.6% to 3.0% per annum as of December 31, 2008 with
maturities through 2024
|
|
|
2,147 |
|
|
|
2,121 |
|
|
|
|
|
|
|
|
|
|
|
US
Dollar denominated
|
Interest
rates ranging from interest free to 7.4% per annum as of December 31, 2008
with maturities through 2031
|
|
|
1,189 |
|
|
|
746 |
|
|
|
|
|
|
|
|
|
|
|
Euro
denominated
|
Interest
rate ranging from 6.6% to 6.7% per annum as of December 31, 2008 with
maturities through 2011
|
|
|
78 |
|
|
|
197 |
|
|
|
|
|
|
|
|
|
|
|
Hong
Kong Dollar denominated
|
Floating
rate as of Hong Kong Interbank Offer Rate plus 0.5% per annum as of
December 31, 2007, paid off as of December 31, 2008
|
|
|
375 |
|
|
|
— |
|
|
|
|
|
50,701 |
|
|
|
45,100 |
|
|
|
|
|
|
|
|
|
|
|
Long-term
other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Renminbi
denominated
|
Interest
rates ranging from interest free to 5.2% per annum as of December 31, 2008
with maturities through 2011
|
|
|
3,075 |
|
|
|
2,075 |
|
|
|
|
|
|
|
|
|
|
|
US
Dollar denominated
|
Interest
rates ranging from interest free to 2.0% per annum as of December 31, 2008
with maturities through 2015
|
|
|
38 |
|
|
|
33 |
|
|
|
|
|
3,113 |
|
|
|
2,108 |
|
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
|
Interest rate and
final maturity
|
|
December
31,
|
|
|
|
|
2007
|
|
|
2008
|
|
|
|
|
RMB
|
|
|
RMB
|
|
Corporate
bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Renminbi
denominated
|
Fixed
interest rate at 4.61% per annum as of December 31, 2008 with maturity in
February 2014 (b)
|
|
|
3,500 |
|
|
|
3,500 |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
interest rate at 4.20% per annum as of December 31, 2008 with maturity in
May 2017 (c)
|
|
|
5,000 |
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
interest rate at 5.40% per annum as of December 31, 2008 with maturity in
November 2012 (d)
|
|
|
8,500 |
|
|
|
8,500 |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
interest rate at 5.68% per annum as of December 31, 2008 with maturity in
November 2017 (e)
|
|
|
11,500 |
|
|
|
11,500 |
|
|
|
|
|
28,500 |
|
|
|
28,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
bonds
|
|
|
|
|
|
|
|
|
|
Hong Kong Dollar denominated
|
Zero
coupon convertible bonds with maturity in April 2014 (f)
|
|
|
14,106 |
|
|
|
9,870 |
|
|
|
|
|
|
|
|
|
|
|
Renminbi denominated
|
Bonds
with Warrants with fixed interest rate at 0.8% per annum and maturity in
February 2014 (g)
|
|
|
— |
|
|
|
23,837 |
|
|
|
|
|
14,106 |
|
|
|
33,707 |
|
|
|
|
|
|
|
|
|
|
|
Total
third parties’ long-term debts
|
|
|
96,420 |
|
|
|
109,415 |
|
|
|
|
|
|
|
|
|
|
|
Less:
Current portion
|
|
|
|
(13,286 |
) |
|
|
(19,161 |
) |
|
|
|
|
83,134 |
|
|
|
90,254 |
|
Long-term
loans from Sinopec Group Company and its affiliates
|
|
|
|
|
|
|
|
|
|
|
|
Renminbi
denominated
|
Interest
rates ranging from interest free to 7.3% per annum as of December 31, 2008
with maturities through 2020
|
|
|
37,360 |
|
|
|
37,240 |
|
|
|
|
|
|
|
|
|
|
|
Less:
Current portion
|
|
|
|
(180 |
) |
|
|
(350 |
) |
|
|
|
|
37,180 |
|
|
|
36,890 |
|
|
|
|
|
120,314 |
|
|
|
127,144 |
|
(a)
|
The
Company issued 182-day corporate bonds of face value at RMB 10,000 to
corporate investors in the PRC debenture market on October 22, 2007 at par
value of RMB 100. The effective yield of the 182-day corporate bonds is
4.12% per annum. The Company redeemed the corporate bonds in April
2008.
|
The
Company issued six-month corporate bonds of face value at RMB 15,000 to
corporate investors in the PRC debenture market on December 22, 2008 at par
value of RMB 100. The effective yield of the six-month corporate bonds is 2.3%
per annum. The corporate bonds mature in June 2009.
(b)
|
The
Company issued ten-year corporate bonds of RMB 3,500 to PRC citizens as
well as PRC legal and non-legal persons on February 24, 2004. The ten-year
corporate bond bears a fixed interest rate of 4.61% per annum and interest
is paid annually. These corporate bonds are guaranteed by Sinopec Group
Company.
|
(c)
|
The
Company issued ten-year corporate bonds of RMB 5,000 to corporate
investors in the PRC debenture market on May 10, 2007. The ten-year
corporate bond bears a fixed interest rate of 4.20% per annum and interest
is paid annually. These corporate bonds are guaranteed by Sinopec Group
Company.
|
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
(d)
|
The
Company issued five-year corporate bonds of RMB 8,500 to corporate
investors in the PRC debenture market on November 13, 2007. The five-year
corporate bond bears a fixed interest rate of 5.40% per annum and interest
is paid annually. These corporate bonds are guaranteed by Sinopec Group
Company.
|
(e)
|
The
Company issued ten-year corporate bonds of RMB 11,500 to corporate
investors in the PRC debenture market on November 13, 2007. The ten-year
corporate bond bears a fixed interest rate of 5.68% per annum and interest
is paid annually. These corporate bonds are guaranteed by Sinopec Group
Company.
|
(f)
|
On
April 24, 2007, the Company issued zero coupon convertible bonds due 2014
with an aggregate principal amount of HK$11,700 (the “Convertible
Bonds”). The holders can convert the Convertible Bonds into
shares of the Company from June 4, 2007 onwards at a price of HK$10.76 per
share, subject to adjustment for, amongst other things, subdivision or
consolidation of shares, bonus issues, rights issues, capital
distribution, change of control and other events, which have a dilutive
effect on the issued share capital of the Company (the “Conversion
component”). Unless previously redeemed, converted or purchased
and cancelled, the Convertible Bonds will be redeemed on the maturity date
at 121.069% of the principal amount. The Company has an early
redemption option at any time after April 24, 2011 (subject to certain
criteria) (the “Early Redemption Option”) and a cash settlement option
when the holders exercise their conversion right (the “Cash Settlement
Option”). The holders also have an early redemption option to
require the Company to redeem all or some of the Convertible Bonds as of
April 24, 2011 at an early redemption amount of 111.544% of the principal
amount.
|
As
of December 31, 2007, the carrying amounts of the liability component and the
derivative component, representing the Conversion component, the Early
Redemption Option and the Cash Settlement Option, of the Convertible Bonds, were
RMB 10,159 and RMB 3,947, respectively. No conversion of the Convertible Bonds
has occurred up to December 31, 2007.
As
of December 31, 2008, the carrying amounts of the liability and the derivative
component of the Convertible Bonds were RMB 9,870 and RMB nil, respectively. No
conversion of the Convertible Bonds has occurred up to December 31,
2008.
As
of December 31, 2007 and 2008, the fair value of the derivative components of
the Convertible Bonds was calculated using the Black-Scholes Model. The
following are the major inputs used in the Black-Scholes Model:
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Stock
price of underlying
shares
|
|
HKD
11.78
|
|
|
HKD
4.69
|
|
|
Conversion
price
|
|
HKD
10.76
|
|
|
HKD
10.76
|
|
|
Option
adjusted
spread
|
|
50
basis points
|
|
|
450
basis points
|
|
|
Average
risk free
rate
|
|
|
3.60% |
|
|
|
1.64% |
|
|
Average
expected
life
|
|
4.8
years
|
|
|
3.8
years
|
|
Any
change in the major inputs into the Model will result in changes in the fair
values of the derivative components. The change in the fair value of the
conversion option from April 24, 2007 to December 31, 2007 and from December 31,
2007 to December 31, 2008 resulted in an unrealized loss of RMB 3,211 and an
unrealized gain of RMB 3,947, respectively, which have been recorded in the
“finance costs” section of the consolidated statements of income.
The
initial carrying amount of the liability component is the residual amount, which
is after deducting the allocated issuance cost of the Convertible Bonds relating
to the liability component and the fair value of the derivative component as of
April 24, 2007. Interest expense is calculated using the effective interest
method by applying the effective interest rate of 4.19% to the adjusted
liability component. Should the aforesaid derivative components not been
separated out and the entire Convertible Bonds been considered as the liability
component, the effective interest rate would have been 3.03%.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
(g)
|
On
February 26, 2008, the Company issued bonds with stock warrants due 2014
with an aggregate principal amount of RMB 30,000 in the PRC (the “Bonds
with Warrants”). The Bonds with Warrants, which bear a fixed interest rate
of 0.80% per annum payable annually, were issued at par value of RMB 100.
The Bonds with Warrants are guaranteed by Sinopec Group Company. Every ten
Bonds with Warrants are entitled to warrants to subscribe 50.5 A shares of
the Company during the 5 trading days prior to March 3, 2010 at an initial
exercise price of RMB 19.68 per share (the “Warrants”), subject to
adjustment for, amongst other things, cash dividends, subdivision or
consolidation of shares, bonus issues, rights issues, capital
distribution, change of control and other events which have a dilutive
effect on the issued share capital of the
Company.
|
On
December 31, 2008, the exercise price of the Warrants was adjusted to RMB 19.43
per share as a result of the final dividend in respect of the year ended
December 31, 2007 and the interim dividend in respect of the year ended December
31, 2008 declared and paid during the year ended December 31, 2008.
The
initial recognition of the liability component of the Bond with Warrants is
measured as the present value of the future interest and principal payments,
discounted at the market rate of interest applicable at the time of initial
recognition to similar liabilities that do not have a conversion option (“market
interest rate”). Interest expense is calculated using the effective interest
method by applying the market interest rate of 5.40% to the liability component.
The excess of proceeds from the issuance of the Bonds with Warrants, net of
issuance costs, over the amount initially recognized as the liability component
is recognized as the equity component in capital reserve until either the
Warrants is exercised or expired. Should the equity component not been separated
out and the entire Bonds with Warrants been considered as the liability
component, the effective interest rate would have been 0.80%. The initial
carrying amounts of liability and equity components of the Bonds with Warrants
were RMB 22,971 and RMB 6,879 upon issuance, respectively.
Third
parties’ loans of RMB 87 and RMB 52 as of December 31, 2007 and 2008,
respectively, are secured by certain of the Group’s property, plant and
equipment. The net book value of property, plant and equipment of the
Group pledged as security amounted to RMB 141 and RMB 259 as of December 31,
2007 and 2008, respectively.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise stated)
24. TRADE
ACCOUNTS AND BILLS PAYABLES
|
|
December
31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
Amounts
due to third
parties
|
|
|
87,577 |
|
|
|
52,997 |
|
Amounts
due to Sinopec Group Company and its
affiliates
|
|
|
3,522 |
|
|
|
1,840 |
|
Amounts
due to associates and jointly controlled
entities
|
|
|
1,950 |
|
|
|
1,830 |
|
|
|
|
93,049 |
|
|
|
56,667 |
|
Bills
payable
|
|
|
12,162 |
|
|
|
17,493 |
|
|
|
|
105,211 |
|
|
|
74,160 |
|
25. ACCRUED
EXPENSES AND OTHER PAYABLES
|
|
December
31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
Amounts due to Sinopec Group Company and its affiliates
|
|
|
12,907 |
|
|
|
12,624 |
|
Accrued
expenditures
|
|
|
29,260 |
|
|
|
31,211 |
|
Provision
for onerous contracts for purchases of crude oil (i)
|
|
|
6,700 |
|
|
|
— |
|
Taxes
other than income
tax
|
|
|
8,836 |
|
|
|
21,518 |
|
Receipts
in
advance
|
|
|
23,551 |
|
|
|
27,796 |
|
Advances
from third
parties
|
|
|
1,103 |
|
|
|
1,822 |
|
Others
|
|
|
6,814 |
|
|
|
6,907 |
|
|
|
|
89,171 |
|
|
|
101,878 |
|
Note:
(i)
|
As
of December 31, 2007, the Group entered into certain non-cancellable
purchase commitment contracts of crude oil for delivery in 2008. Due to
the distortion of the correlation of domestic refined petroleum product
prices and the crude oil prices, the Group determined that the economic
benefits to be derived from processing the crude oil under these purchase
contracts would be lower than the unavoidable cost of meeting the Group’s
obligations under these purchase contracts. Consequently, a provision for
onerous contracts of RMB 6,700 was recognized in accordance with the
policy set out in Note 2(p) as of December 31, 2007. The provision for
onerous contracts for purchases of crude oil as of December 31, 2007
approximated the actual losses incurred from these non-cancellable
purchase commitment contracts during the year ended December 31,
2008. As of December 31, 2008, the Group did not recognize such
a provision, as management expected the economic benefits to be derived
from non-cancellable purchase commitment contracts entered into by the
Group as of December 31, 2008 would be higher than the unavoidable costs
of meeting the obligation under these
contracts.
|
26. OTHER
LIABILITIES
Other
liabilities primarily represent provision for future dismantlement costs of oil
and gas properties. As of and before December 31, 2006, the Group did not have
legal obligation nor constructive obligation to take any dismantlement measures
for its retired oil and gas properties. During the year ended December 31, 2007,
due to the rising environmental concern in the PRC, the Group has committed to
the PRC government to establish certain standardized measures for the
dismantlement of its retired oil and gas properties by making reference to the
industry practices and is thereafter constructively obligated to take
dismantlement measures of its retired oil and gas properties. During the years
ended December 31, 2007 and 2008, the Group recognized provisions of RMB 7,211
and RMB 1,482, respectively, utilized RMB 20 and 222,
respectively, and recognized accretion expenses of RMB 353 and RMB
430, respectively, in respect of its obligations for the dismantlement of its
retired oil and gas properties. As of December 31, 2007 and 2008, the amount of
provision in respect of the obligations for the dismantlement of the Group’s
retired oil and gas properties was RMB 7,544 and RMB 9,234,
respectively.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
27. SHARE
CAPITAL
|
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
Registered,
issued and fully paid
|
|
|
|
|
|
|
69,921,951,000
domestic listed A shares of RMB 1.00
each
|
|
|
69,922 |
|
|
|
69,922 |
|
16,780,488,000
overseas listed H shares of RMB 1.00
each
|
|
|
16,780 |
|
|
|
16,780 |
|
|
|
|
86,702 |
|
|
|
86,702 |
|
The
Company was established on February 25, 2000 with a registered capital of 68.8
billion domestic state-owned shares with a par value of RMB 1.00 each. Such
shares were issued to Sinopec Group Company in consideration for the assets and
liabilities of the Predecessor Operations transferred to the Company (Note
1).
Pursuant
to the resolutions passed at an Extraordinary General Meeting held on July 25,
2000 and approvals from relevant government authorities, the Company is
authorized to increase its share capital to a maximum of 88.3 billion shares
with a par value of RMB 1.00 each and offer not more than 19.5 billion shares
with a par value of RMB 1.00 each to investors outside the PRC. Sinopec Group
Company is authorized to offer not more than 3.5 billion shares of its
shareholdings in the Company to investors outside the PRC. The shares sold by
Sinopec Group Company to investors outside the PRC would be converted into H
shares.
In
October 2000, the Company issued 15,102,439,000 H shares with a par value of RMB
1.00 each, representing 12,521,864,000 H shares and 25,805,750 American
Depositary Shares (“ADSs”, each representing 100 H shares), at prices of HK$
1.59 per H share and US$ 20.645 per ADS, respectively, by way of a global
initial public offering to Hong Kong and overseas investors. As part of the
global initial public offering, 1,678,049,000 domestic state-owned ordinary
shares of RMB 1.00 each owned by Sinopec Group Company were converted into H
shares and sold to Hong Kong and overseas investors.
In
July 2001, the Company issued 2.8 billion domestic listed A shares with a par
value of RMB 1.00 each at RMB 4.22 by way of a public offering to natural
persons and institutional investors in the PRC.
On
September 25, 2006, the shareholders of listed A shares accepted the proposal
offered by the shareholders of state-owned A shares whereby the shareholders of
state-owned A shares agreed to transfer 2.8 state-owned A shares to shareholders
of listed A shares for every 10 listed A shares they held, in exchange for the
approval for the listing of all state-owned A shares. In October 2006, the
67,121,951,000 domestic state-owned A shares became listed A
shares.
All
A shares and H shares rank pari passu in all material aspects.
Capital
management
Management
optimizes the structure of the Group’s capital, comprising equity and loans. In
order to maintain or adjust the capital structure of the Group, management may
cause the Group to issue new shares, adjust the capital expenditure plan, sell
assets to reduce debt, or adjust the proportion of short-term and long-term
loans. Management monitors capital on the basis of debt-to-equity ratio, which
is calculated by dividing long-term loans (excluding current portion), including
long-term debts and loans from Sinopec Group Company and its affiliates, by the
total of equity attributable to equity shareholders of the Company and long-term
loans (excluding current portion), and liability-to-asset ratio, which is
calculated by dividing total liabilities by total assets. Management’s strategy
is to make appropriate adjustments according to the Group’s operating and
investment needs and the changes of market conditions, and to maintain the
debt-to-equity ratio and the liability-to-asset ratio of the Group at a range
considered reasonable. The debt-to-equity ratio of the Group was 28.1% and 27.9%
as of December 31, 2007 and 2008, respectively. The liability-to-asset ratio of
the Group was 54.6% and 54.5% as of December 31, 2007 and 2008,
respectively.
The
schedule of the contractual maturities of loans and commitments are disclosed in
Notes 23 and 29, respectively.
There
were no changes in the management’s approach to capital management of the Group
during the year. Neither the Company nor any of its subsidiaries are subject to
externally imposed capital requirements.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
28. RESERVES
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
Capital
reserve (Note (a))
|
|
|
|
|
|
|
Balance
as of January
1
|
|
|
(21,590 |
) |
|
|
(22,652 |
) |
Transfer
from other reserves to capital
reserve
|
|
|
(1,062 |
) |
|
|
— |
|
Issuance
of the Bonds with Warrants (Note
23(g))
|
|
|
— |
|
|
|
6,879 |
|
Acquisition
of non-controlling interests of
subsidiaries
|
|
|
— |
|
|
|
(318 |
) |
Distribution
to Sinopec Group Company (Note
(b))
|
|
|
— |
|
|
|
(202 |
) |
Balance
as of December
31
|
|
|
(22,652 |
) |
|
|
(16,293 |
) |
|
|
|
|
|
|
|
|
|
Share
premium (Note (c))
|
|
|
|
|
|
|
|
|
Balance
as of January 1 / December
31
|
|
|
18,072 |
|
|
|
18,072 |
|
|
|
|
|
|
|
|
|
|
Revaluation
reserve
|
|
|
|
|
|
|
|
|
Balance
as of January
1
|
|
|
24,752 |
|
|
|
24,114 |
|
Revaluation
surplus
realized
|
|
|
(638 |
) |
|
|
(347 |
) |
Balance
as of December
31
|
|
|
24,114 |
|
|
|
23,767 |
|
|
|
|
|
|
|
|
|
|
Statutory
surplus reserve (Note (d))
|
|
|
|
|
|
|
|
|
Balance
as of January
1
|
|
|
32,094 |
|
|
|
37,797 |
|
Adjustment
of statutory surplus
reserve
|
|
|
235 |
|
|
|
1,189 |
|
Appropriation
|
|
|
5,468 |
|
|
|
4,092 |
|
Balance
as of December
31
|
|
|
37,797 |
|
|
|
43,078 |
|
|
|
|
|
|
|
|
|
|
Discretionary
surplus reserve (Note (f))
|
|
|
|
|
|
|
|
|
Balance
as of January
1
|
|
|
27,000 |
|
|
|
27,000 |
|
Appropriation
|
|
|
— |
|
|
|
20,000 |
|
Balance
as of December
31
|
|
|
27,000 |
|
|
|
47,000 |
|
|
|
|
|
|
|
|
|
|
Other
reserves
|
|
|
|
|
|
|
|
|
Balance
as of January
1
|
|
|
1,758 |
|
|
|
3,100 |
|
Unrealized
gain / (loss) for the change in fair value of available-for-sale financial
assets,
net of deferred tax (Note
(k))
|
|
|
2,892 |
|
|
|
(2,320 |
) |
Effect
of change in tax
rate
|
|
|
(54 |
) |
|
___
|
|
Realization
of deferred tax on lease
prepayments
|
|
|
(7 |
) |
|
|
(6 |
) |
Transfer
from retained earnings to other
reserves
|
|
|
(151 |
) |
|
___
|
|
Transfer
from other reserves to capital
reserve
|
|
|
1,062 |
|
|
___
|
|
Contribution
from Sinopec Group Company (Note
(g))
|
|
|
68 |
|
|
___
|
|
Consideration
for Acquisition of Refinery Plants (Note
1)
|
|
|
(2,468 |
) |
|
|
— |
|
Balance
as of December
31
|
|
|
3,100 |
|
|
|
774 |
|
|
|
|
|
|
|
|
|
|
Retained
earnings (Note (h))
|
|
|
|
|
|
|
|
|
Balance
as of January
1
|
|
|
95,546 |
|
|
|
133,300 |
|
Net
income attributable to equity shareholders of the
Company
|
|
|
56,533 |
|
|
|
29,769 |
|
Final
dividend inspect of the previous year, approved and paid during the year
(Note (i))
|
|
|
(9,537 |
) |
|
|
(9,971 |
) |
Interim
dividend (Note
(j))
|
|
|
(4,335 |
) |
|
|
(2,601 |
) |
Adjustment
to the statutory surplus
reserve
|
|
|
(235 |
) |
|
|
(1,189 |
) |
Appropriation
|
|
|
(5,468 |
) |
|
|
(24,092 |
) |
Revaluation
surplus
realized
|
|
|
638 |
|
|
|
347 |
|
Realization
of deferred tax on lease
prepayments
|
|
|
7 |
|
|
|
6 |
|
Transfer
from retained earnings to other
reserves
|
|
|
151 |
|
|
|
— |
|
Balance
as of December
31
|
|
|
133,300 |
|
|
|
125,569 |
|
|
|
|
220,731 |
|
|
|
241,967 |
|
|
|
|
|
|
|
|
|
|
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise stated)
(a)
|
The
capital reserve represents (i) the difference between the total amount of
the par value of shares issued and the amount of the net assets
transferred from Sinopec Group Company in connection with the
Reorganization and (ii) the difference between the considerations paid
over the amount of the net assets of certain entities and related
operations acquired from Sinopec Group Company and (iii) the equity
component of the Bonds with
Warrants.
|
(b)
|
During
the year ended December 31, 2008, the Group paid additional cash
consideration of RMB 96 for the Acquisition of Refinery Plants (Note 1) to
Sinopec Group Company, which was accounted for as an equity transaction.
In addition, the Group acquired certain assets and liabilities, including
the oilfield downhole operation (the “Downhole Assets”), from Sinopec
Group Company. The difference between the consideration paid
over the carrying value of these net assets acquired was RMB 106, which
was accounted for as an equity
transaction.
|
(c)
|
The
application of the share premium account is governed by Sections 168 and
169 of the PRC Company Law.
|
(d)
|
According
to the Company’s Articles of Association, the Company is required to
transfer 10% of its net income in accordance with the PRC accounting
policies adopted by the Group to statutory surplus reserve until the
reserve balance reaches 50% of the registered capital. The transfer to
this reserve must be made before distribution of a dividend to
shareholders. Statutory surplus reserve can be used to make
good previous years’ losses, if any, and may be converted into share
capital by the issue of new shares to shareholders in proportion to their
existing shareholdings or by increasing the par value of the shares
currently held by them, provided that the balance after such issue is not
less than 25% of the registered capital.
|
|
|
|
Before
January 1, 2007, the net income for this purpose was determined in
accordance with the PRC accounting policies complying with Accounting
Standards for Business Enterprises and the Accounting Regulations for
Business Enterprises issued by the Ministry of Finance of the PRC (“MOF”)
before 2006, and RMB 5,066 was transferred to this reserve for the year
ended December 31, 2006. On January 1, 2007, the Group adopted the
accounting policies complying with the new Accounting Standards for
Business Enterprises (“ASBE”) issued by the MOF on February 15, 2006,
which resulted in certain PRC accounting policies being changed and
applied retrospectively. The statutory surplus reserve,
amounting to RMB 235, has been adjusted accordingly. The
adjustment to the statutory surplus reserve was reflected as a movement
for the year ended December 31, 2007. During the year ended December 31,
2007, the Company transferred RMB 5,468, being 10% of the net income
determined in accordance with the PRC accounting policies complying with
ASBE, to this reserve. |
|
|
|
Pursuant
to the requirement in Cai Kuai [2008] No. 11 “Interpretation of ASBE No.
2” issued by the MOF on August 7, 2008, the Group changed certain PRC
accounting policies that were applied retrospectively. The
statutory surplus reserve, amounting to RMB 1,189, has been adjusted
accordingly. The adjustment to statutory surplus reserve was
reflected as a movement for the year ended December 31,
2008. During the year ended December 31, 2008, the Company
transferred RMB 4,092, being 10% of the current year’s net income
determined in accordance with the PRC accounting policies complying with
ASBE, to this reserve. |
(e)
|
Before
January 1, 2006, according to the Company’s Articles of Association, the
Company was required to transfer 5% to 10% of its net income, as
determined in accordance with the PRC accounting policies, to the
statutory public welfare fund. This fund could only be utilized on capital
items for the collective benefits of the Company’s employees such as the
construction of dormitories, canteen and other staff welfare facilities.
The transfer to this fund must be made before distribution of a dividend
to shareholders.
|
|
|
|
According
to the Company Law of the PRC which was revised on October 27, 2005, the
Company is no longer required to make appropriation to the statutory
public welfare fund commencing from January 1, 2006. Pursuant
to the notice “Cai Qi [2006] No. 67” issued by the MOF on March 15, 2006,
the balance of this fund as of December 31, 2005 was transferred to the
statutory surplus reserve. |
(f)
|
The
directors authorized the transfer of RMB 20,000, which was approved by the
shareholders at Annual General Meeting on May 29, 2007, to discretionary
surplus reserve for the year ended December 31, 2006. The directors
authorized the transfer of RMB 20,000, subject to the shareholders’
approval at the Annual
|
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
|
General
Meeting, to discretionary surplus reserve for the year ended December 31,
2008. The usage of the discretionary surplus reserve is similar to that of
statutory surplus reserve. |
|
|
(g)
|
These
represent net assets distributed to / contributed from Sinopec Group
Company for no monetary
consideration.
|
(h)
|
According
to the Company’s Articles of Association, the amount of retained earnings
available for distribution to equity shareholders of the Company is the
lower of the amount determined in accordance with the accounting policies
complying with ASBE and the amount determined in accordance with the
accounting policies complying with IFRS. As of December 31, 2007 and 2008,
the amount of retained earnings available for distribution was RMB 77,805
and RMB 82,147, respectively, being the amount determined in accordance
with the accounting policies complying with IFRS. Final dividend for the
year ended December 31, 2008 of RMB 7,803 proposed after the balance sheet
date has not been recognized as a liability at the balance sheet
date.
|
(i)
|
Pursuant
to the shareholders’ approval at the Annual General Meeting on May 29,
2007, a final dividend of RMB 0.11 per share totaling RMB 9,537 in respect
of the year ended December 31, 2006 was declared and paid on June 29,
2007.
|
Pursuant
to the shareholders’ approval at the Annual General Meeting on May 26, 2008, a
final dividend of RMB 0.115 per share totaling RMB 9,971 in respect of the year
ended December 31, 2007 was declared and paid on June 30, 2008.
(j)
|
Pursuant
to the Company’s Articles of Association and a resolution passed at the
Director’s meeting on August 24, 2007, the directors authorized to declare
an interim dividend for the year ended December 31, 2007 of RMB 0.05 per
share totaling RMB 4,335, which was paid on September 28,
2007.
|
Pursuant
to the Company’s Articles of Association and a resolution passed at the
Directors’ meeting on August 22, 2008, the directors authorized to declare an
interim dividend for the year ended December 31, 2008 of RMB 0.03 per share
totaling RMB 2,601, which was paid on September 19, 2008.
(k)
|
During
the years ended December 31, 2007 and 2008, the unrealized gain / loss for
the change in fair value of available-for-sale financial assets, net of
deferred tax, included the share of the unrealized gain / loss for the
change in fair value of available-for-sale financial assets in an
associate based on the Group’s proportionate interest in this associate,
which amounted to an unrealized gain of RMB 2,711 and an unrealized loss
of RMB 2,206, respectively.
|
29.
|
COMMITMENTS
AND CONTINGENT LIABILITIES
|
Operating
lease commitments
The
Group leases land and buildings, service stations and other equipment through
non-cancellable operating leases. These operating leases do not contain
provisions for contingent lease rentals. None of the rental agreements contain
escalation provisions that may require higher future rental
payments.
As
of December 31, 2007 and 2008, the future minimum lease payments under operating
leases are as follows:
|
|
December
31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
Within
one
year
|
|
|
4,620 |
|
|
|
6,066 |
|
Between
one and two
years
|
|
|
4,497 |
|
|
|
5,750 |
|
Between
two and three
years
|
|
|
4,477 |
|
|
|
5,655 |
|
Between
three and four
years
|
|
|
4,407 |
|
|
|
5,595 |
|
Between
four and five
years
|
|
|
4,465 |
|
|
|
5,519 |
|
Thereafter
|
|
|
119,726 |
|
|
|
149,893 |
|
|
|
|
142,192 |
|
|
|
178,478 |
|
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
Capital
commitments
As
of December 31, 2007 and 2008, capital commitments are as follows:
|
|
December
31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
Authorized
and contracted
for
|
|
|
130,816 |
|
|
|
120,773 |
|
Authorized
but not contracted
for
|
|
|
114,854 |
|
|
|
48,100 |
|
|
|
|
245,670 |
|
|
|
168,873 |
|
These
capital commitments relate to oil and gas exploration and development, refining
and petrochemical production capacity expansion projects and the construction of
service stations and oil depots.
Exploration
and production licenses
Exploration
licenses for exploration activities are registered with the Ministry of Land and
Resources. The maximum term of the Group’s exploration licenses is 7 years, and
may be renewed twice within 30 days prior to expiration of the original term
with each renewal being for a two-year term. The Group is obligated
to make progressive annual minimum exploration investment relating to the
exploration blocks in respect of which the license is issued. The Ministry of
Land and Resources also issues production licenses to the Group on the basis of
the reserve reports approved by relevant authorities. The maximum term of a full
production license is 30 years unless a special dispensation was given by the
State Council. The maximum term of production licenses issued to the Group is 80
years as a special dispensation was given to the Group by the State Council. The
Group’s production license is renewable upon application by the Group 30 days
prior to expiration.
The
Group is required to make payments of exploration license fees and production
right usage fees to the Ministry of Land and Resources annually which are
expensed as incurred. Payments incurred were approximately RMB 236, RMB 303 and
RMB 437 for the years ended December 31, 2006, 2007 and 2008,
respectively.
Estimated
future annual payments are as follows:
|
|
December
31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
Within
one
year
|
|
|
218 |
|
|
|
123 |
|
Between
one and two
years
|
|
|
150 |
|
|
|
118 |
|
Between
two and three
years
|
|
|
66 |
|
|
|
20 |
|
Between
three and four
years
|
|
|
20 |
|
|
|
20 |
|
Between
four and five
years
|
|
|
19 |
|
|
|
19 |
|
Thereafter
|
|
|
656 |
|
|
|
651 |
|
|
|
|
1,129 |
|
|
|
951 |
|
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise stated)
Contingent
liabilities
As
of December 31, 2007 and 2008, guarantees given to banks in respect of banking
facilities granted to the parties below were as follows:
|
|
December
31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
Associates
and jointly controlled
entities
|
|
|
9,812 |
|
|
|
11,404 |
|
Management
monitors the conditions that are subject to the guarantees to identify whether
it is probable that a loss has occurred, and recognize any such losses under
guarantees when those losses are estimable. As of December 31, 2007 and 2008, it
is not probable that the Group will be required to make payments under the
guarantees. Thus no liability has been accrued for the Group’s obligation under
these guarantee arrangements.
Environmental
contingencies
Under
existing legislation, management believes that there are no probable liabilities
that will have a material adverse effect on the financial position or operating
results of the Group. The PRC government, however, has moved, and may move
further towards more rigorous enforcement of applicable laws, and towards the
adoption of more stringent environmental standards. Environmental liabilities
are subject to considerable uncertainties which affect management’s ability to
estimate the ultimate cost of remediation efforts. These uncertainties include
i) the exact nature and extent of the contamination at various sites including,
but not limited to refineries, oil fields, service stations, terminals and land
development areas, whether operating, closed or sold, ii) the extent of required
cleanup efforts, iii) varying costs of alternative remediation strategies, iv)
changes in environmental remediation requirements, and v) the identification of
new remediation sites. The amount of such future cost is indeterminable due to
such factors as the unknown magnitude of possible contamination and the unknown
timing and extent of the corrective actions that may be required. Accordingly,
the outcome of environmental liabilities under proposed or future environmental
legislation cannot reasonably be estimated at present, and could be material.
The Group paid normal routine pollutant discharge fees of approximately RMB
1,594, RMB 2,085 and RMB 2,284 for the years ended December 31, 2006, 2007 and
2008, respectively.
Legal
contingencies
The
Group is a defendant in certain lawsuits as well as the named party in other
proceedings arising in the ordinary course of business. Management has assessed
the likelihood of an unfavourable outcome of such contingencies, lawsuits or
other proceedings and believes that any resulting liabilities will not have a
material adverse effect on the financial position, operating results or cash
flows of the Group.
30. RELATED
PARTY TRANSACTIONS
Parties
are considered to be related to the Group if the Group has the ability, directly
or indirectly, to control or jointly control the party or exercise significant
influence over the party in making financial and operating decisions, or vice
versa, or where the Group and the party are subject to common control. Related
parties may be individuals (being members of key management personnel,
significant shareholders and / or their close family members) or other entities
and include entities which are under the significant influence of related
parties of the Group where those parties are individuals, and post-employment
benefit plans which are for the benefit of employees of the Group or of any
entity that is a related party of the Group.
(a) Transactions
with Sinopec Group Company and its affiliates, associates and jointly controlled
entities
The
Group is part of a larger group of companies under Sinopec Group Company, which
is owned by the PRC government, and has significant transactions and
relationships with Sinopec Group Company and its affiliates. Because of these
relationships, it is possible that the terms of these transactions are not the
same as those that would result from transactions among wholly unrelated
parties.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
The
principal related party transactions with Sinopec Group Company and its
affiliates, associates and jointly controlled entities, which were carried out
in the ordinary course of business, are as follows:
|
|
|
Years
ended December 31,
|
|
|
Note
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Sales
of
goods
|
(i)
|
|
|
138,670 |
|
|
|
144,581 |
|
|
|
197,032 |
|
Purchases
|
(ii)
|
|
|
50,360 |
|
|
|
64,440 |
|
|
|
65,071 |
|
Transportation
and
storage
|
(iii)
|
|
|
1,587 |
|
|
|
1,141 |
|
|
|
1,199 |
|
Exploration
and development
services
|
(iv)
|
|
|
22,048 |
|
|
|
32,121 |
|
|
|
33,034 |
|
Production
related
services
|
(v)
|
|
|
12,508 |
|
|
|
19,238 |
|
|
|
13,768 |
|
Ancillary
and social
services
|
(vi)
|
|
|
1,710 |
|
|
|
1,621 |
|
|
|
1,611 |
|
Operating
lease
charges
|
(vii)
|
|
|
3,826 |
|
|
|
3,967 |
|
|
|
5,446 |
|
Agency
commission
income
|
(viii)
|
|
|
60 |
|
|
|
60 |
|
|
|
78 |
|
Interest
received
|
(ix)
|
|
|
56 |
|
|
|
34 |
|
|
|
19 |
|
Interest
paid
|
(x)
|
|
|
1,302 |
|
|
|
789 |
|
|
|
1,322 |
|
Net
deposits withdrawn / (placed with) from related parties
|
(xi)
|
|
|
4,777 |
|
|
|
356 |
|
|
|
(348 |
) |
Net
loans obtained from related
parties
|
(xii)
|
|
|
2,291 |
|
|
|
6,987 |
|
|
|
7,457 |
|
The
amounts set out in the table above in respect of each of the years in the
three-year period ended December 31, 2008 represent the relevant costs to the
Group and income from related parties as determined by the corresponding
contracts with the related parties.
There
were no guarantees given to banks by the Group in respect of banking facilities
to Sinopec Group Company and its affiliates as of December 31, 2007 and 2008.
Guarantees given to banks by the Group in respect of banking facilities to
associates and jointly controlled entities are disclosed in Note
29.
The
directors of the Company are of the opinion that the above transactions with
related parties were conducted in the ordinary course of business and on normal
commercial terms or in accordance with the agreements governing such
transactions, and this has been confirmed by the independent non-executive
directors.
Notes:
(i)
|
Sales
of goods represent the sale of crude oil, intermediate petrochemical
products, petroleum products and ancillary
materials.
|
(ii)
|
Purchases
represent the purchase of materials and utility supplies directly related
to the Group’s operations such as the procurement of raw and ancillary
materials and related services, supply of water, electricity and
gas.
|
(iii)
|
Transportation
and storage represent the cost for the use of railway, road and marine
transportation services, pipelines, loading, unloading and storage
facilities.
|
(iv)
|
Exploration
and development services comprise direct costs incurred in the exploration
and development such as geophysical, drilling, well testing and well
measurement services.
|
(v)
|
Production
related services represent ancillary services rendered in relation to the
Group’s operations such as equipment repair and general maintenance,
insurance premium, technical research, communications, fire fighting,
security, product quality testing and analysis, information technology,
design and engineering, construction which includes the construction of
oilfield ground facilities, refineries and chemical plants, manufacture of
replacement parts and machinery, installation, project management and
environmental protection.
|
(vi)
|
Ancillary
and social services represent expenditures for social welfare and support
services such as educational facilities, media communication services,
sanitation, accommodation, canteens, property maintenance and management
services.
|
(vii)
|
Operating
lease charges represent the rental paid to Sinopec Group Company for
operating leases in respect of land, buildings and
equipment.
|
(viii)
|
Agency
commission income represents commission earned for acting as an agent in
respect of sales of products and purchase of materials for certain
entities owned by Sinopec Group
Company.
|
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
(ix)
|
Interest
received represents interest received from deposits placed with Sinopec
Finance Company Limited, a finance company controlled by Sinopec Group
Company. The applicable interest rate is determined in accordance with the
prevailing saving deposit rate. The balance of deposits as of December 31,
2007 and 2008 were RMB 338 and RMB 686,
respectively.
|
(x)
|
Interest
paid represents interest charges on the loans and advances obtained from
Sinopec Group Company and its
affiliates.
|
(xi)
|
Deposits
placed with / withdrawn from related parties represent net deposits placed
with / withdrawn from Sinopec Finance Company
Limited.
|
(xii)
|
The
Group obtained or repaid loans from or to Sinopec Group Company and its
affiliates.
|
In
connection with the Reorganization, the Company and Sinopec Group Company
entered into a number of agreements under which 1) Sinopec Group Company will
provide goods and products and a range of ancillary, social and supporting
services to the Group and 2) the Group will sell certain goods to Sinopec Group
Company. The terms of these agreements are summarized as follows:
(a)
|
The
Company has entered into a non-exclusive Agreement for Mutual Provision of
Products and Ancillary Services (“Mutual Provision Agreement”) with
Sinopec Group Company effective from January 1, 2000 in which Sinopec
Group Company has agreed to provide the Group with certain ancillary
production services, construction services, information advisory services,
supply services and other services and products. While each of Sinopec
Group Company and the Company is permitted to terminate the Mutual
Provision Agreement upon at least six months notice, Sinopec Group Company
has agreed not to terminate the agreement if the Group is unable to obtain
comparable services from a third party. The pricing policy for these
services and products provided by Sinopec Group Company to the Group is as
follows:
|
Ÿ the
government-prescribed price;
Ÿ where
there is no government-prescribed price, the government-guidance
price;
|
Ÿ
|
where
there is neither a government-prescribed price nor a government-guidance
price, the market price; or
|
|
Ÿ
|
where
none of the above is applicable, the price to be agreed between the
parties, which shall be based on a reasonable cost incurred in providing
such services plus a profit margin not exceeding
6%.
|
(b)
|
The
Company has entered into a non-exclusive Agreement for Provision of
Cultural and Educational, Health Care and Community Services with Sinopec
Group Company effective from January 1, 2000 in which Sinopec Group
Company has agreed to provide the Group with certain cultural,
educational, health care and community services on the same pricing terms
and termination conditions as agreed to in the above Mutual Provision
Agreement.
|
(c)
|
The
Company has entered into a series of lease agreements with Sinopec Group
Company to lease certain land at a rental of approximately RMB 3,234 and
RMB 4,234 per annum for the years ended December 31, 2007 and 2008,
respectively, and certain buildings at a rental of approximately RMB 568
and RMB 568 per annum for the years ended December 31, 2007 and 2008,
respectively. The Company and Sinopec Group Company can renegotiate the
rental amount every three years for land and every year for buildings,
however such amount cannot exceed the market price as determined by an
independent third party. The Group has the option to terminate these
leases upon six months notice to Sinopec Group
Company.
|
(d)
|
The
Company has entered into agreements with Sinopec Group Company effective
from January 1, 2000 under which the Group has been granted the right to
use certain trademarks, patents, technology and computer software
developed by Sinopec Group Company.
|
(e)
|
The
Company has entered into a service stations franchise agreement with
Sinopec Group Company effective from January 1, 2000 under which its
service stations and retail stores would exclusively sell the refined
products supplied by the Group.
|
Pursuant
to the resolutions passed at the Directors’ meeting held on June 26, 2008, the
Group acquired the Downhole Assets from Sinopec Group Company, primarily
property, plant and equipment, for a cash consideration of RMB 1,624, which
approximated the net carrying value of the assets and liabilities of the
Downhole Assets.
Amounts
due from / to Sinopec Group Company and its affiliates, associates and jointly
controlled entities included in the following accounts caption are summarized as
follows:
|
|
December
31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
Trade
accounts receivable
|
|
|
3,990 |
|
|
|
4,081 |
|
Prepaid
expenses and other current
assets
|
|
|
7,082 |
|
|
|
4,550 |
|
Total
amounts due from Sinopec Group Company and its affiliates, associates
and jointly controlled
entities
|
|
|
11,072 |
|
|
|
8,631 |
|
|
|
|
|
|
|
|
|
|
Trade
accounts
payable
|
|
|
5,472 |
|
|
|
3,670 |
|
Accrued
expenses and other
payables
|
|
|
12,907 |
|
|
|
12,624 |
|
Short-term
loans and current portion of long-term loans from Sinopec Group
Company
and its
affiliates
|
|
|
15,840 |
|
|
|
23,587 |
|
Long-term
loans excluding current portion from Sinopec Group Company and its
affiliates
|
|
|
37,180 |
|
|
|
36,890 |
|
Total
amounts due to Sinopec Group Company and its affiliates, associates
and jointly controlled
entities
|
|
|
71,399 |
|
|
|
76,771 |
|
Amounts
due from / to Sinopec Group Company and its affiliates, associates and jointly
controlled entities, other than short-term loans and long-term loans, bear no
interest, are unsecured and are repayable in accordance with normal commercial
terms. The terms and conditions associated with short-term loans and
long-term loans payable to Sinopec Group Company and its affiliates are set out
in Note 23.
As
of and for the years ended December 31, 2007 and 2008, no individually
significant impairment losses for bad and doubtful debts were recognized in
respect of amounts due from Sinopec Group Company and its affiliates, associates
and jointly controlled entities.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
(b) Key
management personnel emoluments
Key
management personnel are those persons having authority and responsibility for
planning, directing and controlling the activities of the Group, directly or
indirectly, including directors and supervisors of the Group. The key
management personnel compensations are as follows:
|
|
Years
ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB’000
|
|
|
RMB’000
|
|
|
RMB’000
|
|
Short-term
employee
benefits
|
|
|
4,571 |
|
|
|
5,896 |
|
|
|
6,530 |
|
Retirement
scheme
contributions
|
|
|
184 |
|
|
|
184 |
|
|
|
198 |
|
|
|
|
4,755 |
|
|
|
6,080 |
|
|
|
6,728 |
|
Total
emoluments are included in “personnel expenses” as disclosed in Note
6.
(c) Contributions
to defined contribution retirement plans
The
Group participates in various defined contribution retirement plans organized by
municipal and provincial governments for its staff. The details of
the Group’s employee benefits plan are disclosed in Note 31. As of December 31,
2007 and 2008, the accrued contribution to post-employment benefit plans was not
material.
(d) Transactions
with other state-controlled entities in the PRC
The
Group is a state-controlled energy and chemical enterprise and operates in an
economic regime currently dominated by entities directly or indirectly
controlled by the PRC government through its government authorities, agencies,
affiliations and other organizations (collectively referred as “state-controlled
entities”).
Apart
from transactions with Sinopec Group Company and its affiliates, the Group has
transactions with other state-controlled entities include but not limited to the
following:
· sales
and purchase of goods and ancillary materials;
· rendering
and receiving services;
· lease
of assets;
· depositing
and borrowing money; and
· use
of public utilities.
These
transactions are conducted in the ordinary course of the Group’s business on
terms comparable to those with other entities that are not state-controlled. The
Group has established procurement policies, pricing strategy and approval
process for purchases and sales of products and services which do not depend on
whether the counterparties are state-controlled entities or not.
Having
considered the transactions potentially affected by related party relationships,
the Group’s pricing strategy, procurement policies and approval processes, and
the information that would be necessary for an understanding of the potential
effect of the related party relationship on the financial statements, the
directors are of the opinion that the following related party transactions
require disclosure of numeric details:
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise stated)
(i)
|
Transactions
with other state-controlled energy and chemical
companies
|
The
Group’s major domestic suppliers of crude oil and refined petroleum products are
China National Petroleum Corporation and its subsidiaries (“CNPC Group”) and
China National Offshore Oil Corporation and its subsidiaries (“CNOOC Group”),
which are state-controlled entities.
During
the years ended December 31, 2006, 2007 and 2008, the aggregate amount of crude
oil purchased by the Group’s refining segment from CNPC Group and CNOOC Group
and refined petroleum purchased by the Group’s marketing and distribution
segment from CNPC Group was RMB 64,959, RMB 70,341 and RMB 113,612,
respectively.
The
aggregate amounts due from / to CNPC Group and CNOOC Group are summarized as
follows:
|
|
December
31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
Trade
accounts
receivable
|
|
|
326 |
|
|
|
292 |
|
Prepaid
expenses and other current
assets
|
|
|
934 |
|
|
|
113 |
|
Total amounts due from CNPC Group and CNOOC Group
|
|
|
1,260 |
|
|
|
405 |
|
|
|
|
|
|
|
|
|
|
Trade
accounts
payable
|
|
|
3,494 |
|
|
|
2,045 |
|
Accrued expenses and other payables
|
|
|
371 |
|
|
|
433 |
|
Total amounts due to CNPC Group and CNOOC Group
|
|
|
3,865 |
|
|
|
2,478 |
|
(ii)
|
Transactions
with state-controlled banks
|
The
Group deposits its cash with several state-controlled banks in the PRC. The
Group also obtains short-term and long-term loans from these banks in the
ordinary course of business. The interest rates of the bank deposits and loans
are regulated by the PBOC. The Group’s interest income from and interest expense
to these state-controlled banks in the PRC are as follows:
|
|
Years
ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Interest income
|
|
|
466 |
|
|
|
225 |
|
|
|
244 |
|
Interest expense
|
|
|
5,682 |
|
|
|
5,264 |
|
|
|
6,966 |
|
The
amounts of cash deposited at and loans from state-controlled banks in the PRC
are summarized as follows:
|
|
December
31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
Cash and cash equivalents
|
|
|
6,522 |
|
|
|
5,675 |
|
Time deposits with financial institutions
|
|
|
647 |
|
|
|
449 |
|
Total deposits at state-controlled banks in the PRC
|
|
|
7,169 |
|
|
|
6,124 |
|
|
|
|
|
|
|
|
|
|
Short-term loans and current portion of long-term loans
|
|
|
27,813 |
|
|
|
55,841 |
|
Long-term loans excluding current portion of long-term
loans
|
|
|
37,338 |
|
|
|
27,844 |
|
Total loans from state-controlled banks in the PRC
|
|
|
65,151 |
|
|
|
83,685 |
|
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
31. EMPLOYEE
BENEFITS PLAN
As
stipulated by the regulations of the PRC, the Group participates in various
defined contribution retirement plans organized by municipal and provincial
governments for its staff. The Group is required to make contributions to the
retirement plans at rates ranging from 18.0% to 23.0% of the salaries, bonuses
and certain allowances of its staff. A member of the plan is entitled to a
pension equal to a fixed proportion of the salary prevailing at his or her
retirement date. The Group has no other material obligation for the payment of
pension benefits associated with these plans beyond the annual contributions
described above. The Group’s contributions for the years ended December 31,
2006, 2007 and 2008 were RMB 2,394, RMB 2,806 and RMB 2,861,
respectively.
32. SEGMENTAL
REPORTING
The
Group has five operating segments as follows:
|
(i)
|
Exploration
and production, which explores and develops oil fields, produces crude oil
and natural gas and sells such products to the refining segment of the
Group and external customers.
|
|
|
|
|
(ii) |
Refining,
which processes and purifies crude oil, that is sourced from the
exploration and production segment of the Group and external suppliers,
and manufactures and sells petroleum products to the chemicals and
marketing and distribution segments of the Group and external
customers.
|
|
|
|
|
(iii) |
Marketing
and distribution, which owns and operates oil depots and service stations
in the PRC, and distributes and sells refined petroleum products (mainly
gasoline and diesel) in the PRC through wholesale and retail sales
networks.
|
|
|
|
|
(iv) |
Chemicals,
which manufactures and sells petrochemical products, derivative
petrochemical products and other chemical products mainly to external
customers.
|
|
|
|
|
(v) |
Corporate
and others, which largely comprise the trading activities of the import
and export companies of the Group and research and development undertaken
by other subsidiaries.
|
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise stated)
Reportable
information on the Group’s business segments is as follows:
|
|
Years
ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Sales
of goods
|
|
|
|
|
|
|
|
|
|
Exploration
and production
|
|
|
|
|
|
|
|
|
|
External
sales
|
|
|
19,936 |
|
|
|
20,437 |
|
|
|
26,403 |
|
Inter-segment
sales
|
|
|
109,075 |
|
|
|
107,473 |
|
|
|
151,393 |
|
|
|
|
129,011 |
|
|
|
127,910 |
|
|
|
177,796 |
|
Refining
|
|
|
|
|
|
|
|
|
|
|
|
|
External
sales
|
|
|
114,725 |
|
|
|
117,256 |
|
|
|
129,668 |
|
Inter-segment
sales
|
|
|
477,766 |
|
|
|
534,671 |
|
|
|
683,965 |
|
|
|
|
592,491 |
|
|
|
651,927 |
|
|
|
813,633 |
|
Marketing
and distribution
|
|
|
|
|
|
|
|
|
|
|
|
|
External
sales
|
|
|
588,022 |
|
|
|
659,552 |
|
|
|
802,817 |
|
Inter-segment
sales
|
|
|
4,849 |
|
|
|
2,841 |
|
|
|
3,200 |
|
|
|
|
592,871 |
|
|
|
662,393 |
|
|
|
806,017 |
|
Chemicals
|
|
|
|
|
|
|
|
|
|
|
|
|
External
sales
|
|
|
196,024 |
|
|
|
217,452 |
|
|
|
207,396 |
|
Inter-segment
sales
|
|
|
12,299 |
|
|
|
15,990 |
|
|
|
27,481 |
|
|
|
|
208,323 |
|
|
|
233,442 |
|
|
|
234,877 |
|
Corporate
and others
|
|
|
|
|
|
|
|
|
|
|
|
|
External
sales
|
|
|
116,181 |
|
|
|
159,172 |
|
|
|
254,037 |
|
Inter-segment
sales
|
|
|
145,287 |
|
|
|
297,145 |
|
|
|
479,982 |
|
|
|
|
261,468 |
|
|
|
456,317 |
|
|
|
734,019 |
|
Elimination
of inter-segment
sales
|
|
|
(749,276 |
) |
|
|
(958,120 |
) |
|
|
(1,346,021 |
) |
Sales
of
goods
|
|
|
1,034,888 |
|
|
|
1,173,869 |
|
|
|
1,420,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration
and
production
|
|
|
14,155 |
|
|
|
17,757 |
|
|
|
18,705 |
|
Refining
|
|
|
4,750 |
|
|
|
4,996 |
|
|
|
4,948 |
|
Marketing
and
distribution
|
|
|
687 |
|
|
|
461 |
|
|
|
1,181 |
|
Chemicals
|
|
|
6,604 |
|
|
|
7,247 |
|
|
|
6,214 |
|
Corporate
and
others
|
|
|
657 |
|
|
|
513 |
|
|
|
732 |
|
Other
operating
revenues
|
|
|
26,853 |
|
|
|
30,974 |
|
|
|
31,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
|
|
|
|
|
|
|
|
|
|
Refining
|
|
|
5,161 |
|
|
|
1,926 |
|
|
|
40,502 |
|
Marketing
and
distribution
|
|
|
— |
|
|
|
2,937 |
|
|
|
9,840 |
|
Total
other
income
|
|
|
5,161 |
|
|
|
4,863 |
|
|
|
50,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
of goods, other operating revenues and other income
|
|
|
1,066,902 |
|
|
|
1,209,706 |
|
|
|
1,502,443 |
|
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
|
|
Years
ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
Result
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Operating
income / (loss)
|
|
|
|
|
|
|
|
|
|
By
segment
|
|
|
|
|
|
|
|
|
|
- Exploration and
production
|
|
|
63,182 |
|
|
|
48,766 |
|
|
|
66,569 |
|
-
Refining
|
|
|
(25,710 |
) |
|
|
(10,452 |
) |
|
|
(61,538 |
) |
- Marketing and
distribution
|
|
|
30,234 |
|
|
|
35,727 |
|
|
|
38,209 |
|
-
Chemicals
|
|
|
14,458 |
|
|
|
13,306 |
|
|
|
(13,102 |
) |
- Corporate and
others
|
|
|
(1,532 |
) |
|
|
(1,483 |
) |
|
|
(2,015 |
) |
Total
operating income
|
|
|
80,632 |
|
|
|
85,864 |
|
|
|
28,123 |
|
Income
/ (loss) from associates and jointly controlled entities
|
|
|
|
|
|
|
|
|
|
|
|
|
- Exploration and
production
|
|
|
233 |
|
|
|
164 |
|
|
|
216 |
|
-
Refining
|
|
|
149 |
|
|
|
(114 |
) |
|
|
(822 |
) |
- Marketing and
distribution
|
|
|
404 |
|
|
|
519 |
|
|
|
708 |
|
-
Chemicals
|
|
|
2,416 |
|
|
|
2,959 |
|
|
|
(92 |
) |
- Corporate and
others
|
|
|
232 |
|
|
|
516 |
|
|
|
570 |
|
Aggregate income from associates and jointly controlled
entities
|
|
|
3,434 |
|
|
|
4,044 |
|
|
|
580 |
|
Finance
costs
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(7,101 |
) |
|
|
(7,314 |
) |
|
|
(11,326 |
) |
Interest
income
|
|
|
538 |
|
|
|
405 |
|
|
|
445 |
|
Unrealized (loss) / gain on
embedded derivative component of the
Convertible
Bonds
|
|
|
— |
|
|
|
(3,211 |
) |
|
|
3,947 |
|
Foreign currency exchange
loss
|
|
|
(140 |
) |
|
|
(311 |
) |
|
|
(954 |
) |
Foreign currency exchange
gain
|
|
|
890 |
|
|
|
2,330 |
|
|
|
3,112 |
|
Net
finance
costs
|
|
|
(5,813 |
) |
|
|
(8,101 |
) |
|
|
(4,776 |
) |
Investment
income .
|
|
|
289 |
|
|
|
1,657 |
|
|
|
390 |
|
Earning
before income
tax
|
|
|
78,542 |
|
|
|
83,464 |
|
|
|
24,317 |
|
Tax
(expense) /
benefit
|
|
|
(23,504 |
) |
|
|
(24,721 |
) |
|
|
1,883 |
|
Net
income
|
|
|
55,038 |
|
|
|
58,743 |
|
|
|
26,200 |
|
Information
on associates and jointly controlled entities is included in Note 18 and 19.
Additions to long-lived assets by operating segment are included in Notes 15 and
16.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise stated)
|
|
December
31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Segment
assets
|
|
|
|
|
|
|
|
|
|
- Exploration and
production
|
|
|
155,043 |
|
|
|
198,945 |
|
|
|
235,866 |
|
-
Refining
|
|
|
170,888 |
|
|
|
193,956 |
|
|
|
180,270 |
|
- Marketing and
distribution
|
|
|
108,053 |
|
|
|
127,047 |
|
|
|
132,434 |
|
-
Chemicals
|
|
|
108,597 |
|
|
|
120,988 |
|
|
|
121,964 |
|
- Corporate and
others
|
|
|
22,641 |
|
|
|
34,285 |
|
|
|
31,124 |
|
Total
segment
assets
|
|
|
565,222 |
|
|
|
675,221 |
|
|
|
701,658 |
|
Interest
in associates and jointly controlled entities
|
|
|
|
|
|
|
|
|
|
|
|
|
- Exploration and
production
|
|
|
1,063 |
|
|
|
1,080 |
|
|
|
1,779 |
|
-
Refining
|
|
|
1,398 |
|
|
|
3,915 |
|
|
|
5,415 |
|
- Marketing and
distribution
|
|
|
4,692 |
|
|
|
5,355 |
|
|
|
5,630 |
|
-
Chemicals
|
|
|
10,481 |
|
|
|
12,176 |
|
|
|
9,292 |
|
- Corporate and
others
|
|
|
3,500 |
|
|
|
7,062 |
|
|
|
5,260 |
|
Aggregate
interest in associates and jointly controlled entities
|
|
|
21,134 |
|
|
|
29,588 |
|
|
|
27,376 |
|
Unallocated
assets
|
|
|
24,476 |
|
|
|
27,916 |
|
|
|
38,793 |
|
Total
assets
|
|
|
610,832 |
|
|
|
732,725 |
|
|
|
767,827 |
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
- Exploration and
production
|
|
|
30,082 |
|
|
|
45,185 |
|
|
|
62,375 |
|
-
Refining
|
|
|
31,454 |
|
|
|
46,017 |
|
|
|
35,758 |
|
- Marketing and
distribution
|
|
|
27,090 |
|
|
|
31,118 |
|
|
|
37,423 |
|
-
Chemicals
|
|
|
19,142 |
|
|
|
20,786 |
|
|
|
16,220 |
|
- Corporate and
others
|
|
|
35,913 |
|
|
|
51,804 |
|
|
|
32,566 |
|
Total
segment
liabilities
|
|
|
143,681 |
|
|
|
194,910 |
|
|
|
184,342 |
|
Unallocated
liabilities
|
|
|
180,494 |
|
|
|
205,057 |
|
|
|
234,163 |
|
Total
liabilities
|
|
|
324,175 |
|
|
|
399,967 |
|
|
|
418,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
capital expenditure is the total cost incurred during the year to acquire
segment assets that are expected to be used for more than one year.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise stated)
|
|
Years
ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Capital
expenditure
|
|
|
|
|
|
|
|
|
|
Exploration
and
production
|
|
|
35,198 |
|
|
|
54,498 |
|
|
|
57,646 |
|
Refining
|
|
|
22,587 |
|
|
|
22,763 |
|
|
|
12,491 |
|
Marketing
and
distribution
|
|
|
11,319 |
|
|
|
12,548 |
|
|
|
14,148 |
|
Chemicals
|
|
|
12,629 |
|
|
|
16,184 |
|
|
|
20,622 |
|
Corporate
and
others
|
|
|
2,170 |
|
|
|
3,289 |
|
|
|
2,393 |
|
|
|
|
83,903 |
|
|
|
109,282 |
|
|
|
107,300 |
|
Depreciation,
depletion and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration
and
production
|
|
|
12,945 |
|
|
|
18,216 |
|
|
|
22,115 |
|
Refining
|
|
|
8,212 |
|
|
|
9,020 |
|
|
|
9,484 |
|
Marketing
and
distribution
|
|
|
3,452 |
|
|
|
6,032 |
|
|
|
4,946 |
|
Chemicals
|
|
|
8,537 |
|
|
|
8,977 |
|
|
|
8,463 |
|
Corporate
and
others
|
|
|
408 |
|
|
|
1,070 |
|
|
|
815 |
|
|
|
|
33,554 |
|
|
|
43,315 |
|
|
|
45,823 |
|
Impairment losses on long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration
and
production
|
|
|
552 |
|
|
|
481 |
|
|
|
5,991 |
|
Refining
|
|
|
— |
|
|
|
1,070 |
|
|
|
270 |
|
Marketing
and
distribution
|
|
|
23 |
|
|
|
1,237 |
|
|
|
709 |
|
Chemicals
|
|
|
250 |
|
|
|
318 |
|
|
|
1,511 |
|
Corporate
and
others
|
|
|
— |
|
|
|
— |
|
|
|
19 |
|
|
|
|
825 |
|
|
|
3,106 |
|
|
|
8,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
33. PRINCIPAL
SUBSIDIARIES
As
of December 31, 2008, the following list contains the particulars of
subsidiaries which principally affected the results, assets and liabilities of
the Group.
Name
of company
|
|
Particulars
of
issued
capital
|
|
Type
of
legal
entity
|
|
Percentage
of equity
|
|
Principal
activities
|
|
|
|
|
|
|
|
|
|
China
Petrochemical International Company Limited
|
|
RMB
1,663
|
|
Limited
company
|
|
100.00
|
|
Trading
of petrochemical products
|
Sinopec
Sales Company Limited
|
|
RMB
1,700
|
|
Limited
company
|
|
100.00
|
|
Marketing
and distribution of refined petroleum products
|
Sinopec
Yangzi Petrochemical Company Limited
|
|
RMB
16,337
|
|
Limited
company
|
|
100.00
|
|
Manufacturing
of intermediate petrochemical products and petroleum
products
|
Sinopec
Fujian Petrochemical CompanyLimited (i)
|
|
RMB
2,253
|
|
Limited
company
|
|
50.00
|
|
Manufacturing
of plastics, intermediate petrochemical products and petroleum
products
|
Sinopec
Shanghai Petrochemical Company
Limited
|
|
RMB
7,200
|
|
Limited
company
|
|
55.56
|
|
Manufacturing
of synthetic fibres, resin and plastics, intermediate petrochemical
products and petroleum products
|
Sinopec
Kantons Holdings Limited
|
|
HKD
104
|
|
Limited
company
|
|
72.34
|
|
Trading
of crude oil and petroleum products
|
Sinopec
Yizheng Chemical Fibre Company Limited (i)
|
|
RMB
4,000
|
|
Limited
company
|
|
42.00
|
|
Production
and sale of polyester chips and polyester fibres
|
Sinopec
Zhongyuan Petrochemical Company Limited
|
|
RMB
2,400
|
|
Limited
company
|
|
93.51
|
|
Manufacturing
of chemical products
|
Sinopec
Shell (Jiangsu) Petroleum Marketing Company Limited
|
|
RMB
830
|
|
Limited
company
|
|
60.00
|
|
Marketing
and distribution of refined petroleum products
|
BP
Sinopec (Zhejiang) Petroleum Company Limited
|
|
RMB
800
|
|
Limited
company
|
|
60.00
|
|
Marketing
and distribution of refined petroleum products
|
Sinopec
Qingdao Refining and Chemical Company Limited
|
|
RMB
3,400
|
|
Limited
company
|
|
85.00
|
|
Manufacturing
of intermediate petrochemical products and petroleum
products
|
China
International United Petroleum and Chemical Company
Limited
|
|
RMB
3,040
|
|
Limited
company
|
|
100.00
|
|
Trading
of crude oil and petrochemical products
|
Sinopec
Hainan Refining and Chemical Company Limited
|
|
RMB
3,986
|
|
Limited
company
|
|
75.00
|
|
Manufacturing
of intermediate petrochemical products and petroleum
products
|
Sinopec
(Hong Kong) Limited
|
|
HKD
5,477
|
|
Limited
company
|
|
100.00
|
|
Trading
of crude oil and petrochemical products
|
Sinopec
Senmei (Fujian) Petroleum Ltd.
|
|
RMB
1,840
|
|
Limited
company
|
|
55.00
|
|
Marketing
and distribution of refined petroleum
products
|
Except
for Sinopec Kantons Holdings Limited and Sinopec (Hong Kong) Limited, which are
incorporated in Bermuda and Hong Kong respectively, all of the above principal
subsidiaries are incorporated in the PRC.
|
(i)
|
The
Group consolidated the financial statements of the entity because the
Group controlled the board of this entity and had the power to govern its
financial and operating policies.
|
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise stated)
34. FINANCIAL RISK
MANAGEMENT AND FAIR VALUES
Overview
Financial
assets of the Group include cash and cash equivalents, time deposits with
financial institutions, investments, trade accounts receivable, bills
receivable, amounts due from Sinopec Group Company and its affiliates, advances
to third parties, amounts due from associates and jointly controlled entities,
derivative financial instruments and other receivables. Financial liabilities of
the Group include short-term and long-term debts, loans from Sinopec Group
Company and its affiliates, trade accounts payable, bills payable, amounts due
to Sinopec Group Company and its affiliates, and advances from third
parties.
The
Group has exposure to the following risks from its use of financial
instruments:
The
Board of Directors has overall responsibility for the establishment, oversight
of the Group’s risk management framework, and developing and monitoring the
Group’s risk management policies.
The
Group’s risk management policies are established to identify and analyze the
risks faced by the Group, to set appropriate risk limits and controls, and to
monitor risks and adherence to limits. Risk management policies and systems are
reviewed regularly to reflect changes in market conditions and the Group’s
activities. The Group, through its training and management standards and
procedures, aims to develop a disciplined and constructive control environment
in which all employees understand their roles and obligations. Internal audit
department undertakes both regular and ad hoc reviews of risk management
controls and procedures, the results of which are reported to the Group’s audit
committee.
Credit
risk
Credit
risk is the risk of financial loss to the Group if a customer or counterparty to
a financial instrument fails to meet its contractual obligations, and arises
principally from the Group’s deposits placed with financial institutions and
receivables from customers. To limit exposure to credit risk relating to
deposits, the Group primarily places cash deposits only with large financial
institution in the PRC with acceptable credit ratings. The majority of the
Group’s trade accounts receivable relate to sales of petroleum and chemical
products to related parties and third parties operating in the petroleum and
chemical industries. Management performs ongoing credit evaluations of its
customers’ financial condition and generally does not require collateral on
trade accounts receivable. The Group maintains an impairment loss for doubtful
accounts and actual losses have been within management’s expectations. No single
customer accounted for greater than 10% of total trade accounts
receivable. The details of the Group’s credit policy for and
quantitative disclosures in respect of the Group’s exposure on credit risk for
trade receivables are set out in Note 12.
The
carrying amounts of cash and cash equivalents, time deposits with financial
institutions, trade accounts and bills receivables, derivative financial
instruments and other receivables, represent the Group’s maximum exposure to
credit risk in relation to financial assets.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise stated)
Liquidity
risk
Liquidity
risk is the risk that the Group will not be able to meet its financial
obligations as they fall due. The Group’s approach in managing liquidity is to
ensure, as far as possible, that it will always have sufficient liquidity to
meet its liabilities when due, under both normal and stressed conditions,
without incurring unacceptable losses or risking damage to the Group’s
reputation. The Group prepares monthly cash flow budget to ensure that they will
always have sufficient liquidity to meet its financial obligation as they fall
due. The Group arranges and negotiates financing with financial
institutions and maintains a certain level of standby credit facilities to
reduce liquidity risk.
As
of December 31, 2007 and 2008, the Group has standby credit facilities with
several PRC financial institutions which provide the Group to borrow up to RMB
164,500 and RMB 185,000 on an unsecured basis, at a weighted average interest
rate of 5.619% and 4.647% per annum, respectively. As of December 31, 2007 and
2008, the Group’s outstanding borrowings under these facilities were RMB 13,269
and RMB 33,484 and were included in short-term debts, respectively.
The
following table sets out the remaining contractual maturities at the balance
sheet date of the Group’s financial liabilities, which are based on contractual
undiscounted cash flows (including interest payments computed using contractual
rates or, if floating, based on prevailing rates current at the balance sheet
date) and the earliest date the Group would be required to repay:
|
|
December
31, 2007
|
|
|
|
Carrying
amount
|
|
|
Total
contractual
undiscounted
cash
flow
|
|
|
Within
1
year
or on
demand
|
|
|
More
than 1
year
but less
than
2 years
|
|
|
More
than 2
years
but less
than
5
years
|
|
|
More
than 5
years
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Short-term debts
|
|
|
44,654 |
|
|
|
45,869 |
|
|
|
45,869 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Long-term debts
|
|
|
83,134 |
|
|
|
101,886 |
|
|
|
3,906 |
|
|
|
22,708 |
|
|
|
31,643 |
|
|
|
43,629 |
|
Loans
from Sinopec Group Company
and its
affiliates
|
|
|
53,020 |
|
|
|
53,793 |
|
|
|
16,485 |
|
|
|
327 |
|
|
|
1,420 |
|
|
|
35,561 |
|
Trade accounts payable
|
|
|
93,049 |
|
|
|
93,049 |
|
|
|
93,049 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Bills payable
|
|
|
12,162 |
|
|
|
12,233 |
|
|
|
12,233 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Accrued
expenses and other payables
|
|
|
50,084 |
|
|
|
50,084 |
|
|
|
50,084 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
336,103 |
|
|
|
356,914 |
|
|
|
221,626 |
|
|
|
23,035 |
|
|
|
33,063 |
|
|
|
79,190 |
|
|
|
December
31, 2008
|
|
|
|
Carrying
amount
|
|
|
Total
contractual
undiscounted
cash
flow
|
|
|
Within
1
year
or on
demand
|
|
|
More
than 1
year
but less
than
2 years
|
|
|
More
than 2
years
but less
than
5
years
|
|
|
More
than 5
years
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Short-term debts
|
|
|
74,896 |
|
|
|
76,669 |
|
|
|
76,669 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Long-term debts
|
|
|
90,254 |
|
|
|
115,721 |
|
|
|
3,442 |
|
|
|
12,712 |
|
|
|
30,013 |
|
|
|
69,554 |
|
Loans
from Sinopec Group Company
and its
affiliates
|
|
|
60,477 |
|
|
|
61,659 |
|
|
|
24,503 |
|
|
|
509 |
|
|
|
627 |
|
|
|
36,020 |
|
Trade accounts payable
|
|
|
56,667 |
|
|
|
56,667 |
|
|
|
56,667 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Bills payable
|
|
|
17,493 |
|
|
|
17,508 |
|
|
|
17,508 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Accrued expenses and other payables
|
|
|
52,564 |
|
|
|
52,564 |
|
|
|
52,564 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
352,351 |
|
|
|
380,788 |
|
|
|
231,353 |
|
|
|
13,221 |
|
|
|
30,640 |
|
|
|
105,574 |
|
Derivatives
settled gross:
|
|
Forward
exchange contracts
|
|
- outflow
|
|
|
(4,366 |
) |
|
|
(4,415 |
) |
|
|
(4,415 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
- inflow
|
|
|
4,480 |
|
|
|
4,531 |
|
|
|
4,531 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Management
believes that the Group’s current cash on hand, expected cash flows from
operations and available standby credit facilities from financial institutions
will be sufficient to meet the Group’s working capital requirements and repay
its short term debts and obligations when they become due.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
Currency
risk
Currency
risk arises on financial instruments that are denominated in a currency other
than the functional currency in which they are measured. The Group’s
currency risk exposure primarily relates to short-term and long-term debts and
loans from Sinopec Group Company and its affiliates denominated in US dollars,
Japanese Yen and Hong Kong dollars, and the Group entered into a number of
foreign exchange contracts to manage such exposure.
The
changes in the fair value of forward exchange contracts that economically hedge
monetary assets and liabilities in foreign currencies are recognized as finance
costs in the consolidated statements of income. The net fair value of
forward exchange contracts used by the Group as economic hedges of monetary
assets and liabilities in foreign currencies as of December 31, 2007 and 2008
was RMB nil and RMB 114, respectively, recognized.
Included
in derivative financial instruments, short-term and long-term debts and loans
from Sinopec Group Company and its affiliates of the Group are the following
amounts denominated in a currency other than the functional currency of the
entity to which they relate:
|
December
31,
|
Gross exposure arising from loans and borrowings
|
2007
|
|
2008
|
US
Dollars
|
USD (780)
|
|
USD (1,232)
|
Japanese
Yen
|
JPY
(33,494)
|
|
JPY (28,037)
|
Hong
Kong Dollars
|
HKD(15,135)
|
|
HKD (11,192)
|
Notional amounts of forward exchange contracts
|
|
|
|
US
Dollars
|
USD —
|
|
USD 660
|
A
5 percent strengthening of Renminbi against the following currencies as of
December 31 would have increased net income and retained earnings of the Group
by the amounts shown below. This analysis has been determined assuming that the
change in foreign exchange rates had occurred at the balance sheet date and had
been applied to the foreign currency balances to which the Group has significant
exposure as stated above, and that all other variables, in particular interest
rates, remain constant. The analysis is performed on the same basis
for 2007.
|
|
December
31,
|
|
|
|
2007
|
|
|
2008
|
|
US
Dollars
|
|
|
191 |
|
|
|
147 |
|
Japanese
Yen
|
|
|
72 |
|
|
|
80 |
|
Hong
Kong
Dollars
|
|
|
475 |
|
|
|
370 |
|
Other
than the amounts as disclosed above, the amounts of other financial assets and
liabilities of the Group are substantially denominated in the functional
currency of respective entity of the Group.
Interest
rate risk
The
Group’s interest rate risk exposure arises primarily from its short-term and
long-term debts. Debts carrying interest at variable rates and at
fixed rates expose the Group to cash flow interest rate risk and fair value
interest rate risk respectively. The interest rates of short-term and long-term
debts, and loans from Sinopec Group Company and its affiliates of the Group are
disclosed in Note 23.
As
of December 31, 2007 and 2008, it is estimated that a general increase /
decrease of 100 basis points in variable interest rates, with all other
variables held constant, would decrease / increase the Group’s net income and
retained earnings by approximately RMB 154 and RMB 263, respectively. This
sensitivity analysis has been determined assuming that the change in interest
rates had occurred at the balance sheet date and the change was applied to the
Group’s debts outstanding at that date with exposure to cash flow interest rate
risk. The analysis is performed on the same basis for
2007.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
Equity
price risk
The
Group is exposed to equity price risk arising from changes in the Company’s own
share price to the extent that the Company’s own equity instruments underlie the
fair values of derivatives of the Group. As of December 31, 2008, the Group’s
exposure to equity price risk is the derivative embedded in the Convertible
Bonds issued by the Company as disclosed in Note 23(f).
As
of December 31, 2008, it is estimated that an increase of 20% in the Company’s
own share price would decrease the Group’s net income and retained earnings by
approximately RMB 62 while a decrease of 20% in the Company’s own share price
would have no effect to the Group’s net income and retained earnings. The
sensitivity analysis has been determined assuming that the changes in the
Company’s own share price had occurred at the balance sheet date and that all
other variables remain constant.
Fair
values
The
disclosures of the fair value estimates, methods and assumptions, set forth
below for the Group’s financial instruments, are made to comply with the
requirements of IFRS 7 and IAS 39 and should be read in conjunction with the
Group’s consolidated financial statements and related notes. The estimated fair
value amounts have been determined by the Group using market information and
valuation methodologies considered appropriate. However, considerable judgment
is required to interpret market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts the Group could realize in a current market exchange. The use of
different market assumptions and / or estimation methodologies may have a
material effect on the estimated fair value amounts.
The
fair values of the Group’s financial instruments (other than long-term
indebtedness and investment securities) approximate their carrying amounts due
to the short-term maturity of these instruments. The fair values of
long-term indebtedness are estimated by discounting future cash flows using
current market interest rates offered to the Group for debt with substantially
the same characteristics and maturities ranging 5.40% to 6.97% and 3.58% to
5.94% for the years ended December 31, 2007 and 2008, respectively. The
following table presents the carrying amount and fair value of the Group’s
long-term indebtedness other than loans from Sinopec Group Company and its
affiliates as of December 31, 2007 and 2008:
|
|
December
31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
Carrying
amount
|
|
|
96,420 |
|
|
|
109,415 |
|
Fair
value
|
|
|
95,600 |
|
|
|
113,060 |
|
The
Group has not developed an internal valuation model necessary to make the
estimate of the fair value of loans from Sinopec Group Company and its
affiliates as it is not considered practicable to estimate their fair value
because the cost of obtaining discount and borrowing rates for comparable
borrowings would be excessive based on the Reorganization of the Group, its
existing capital structure and the terms of the borrowings.
The
fair value of available-for-sale equity securities, which amounted to RMB 653
and RMB 154 as of December 31, 2007 and 2008, respectively, was based on quoted
market price on PRC stock exchanges. Investments in unquoted equity securities
are individually and in aggregate not material to the Group’s financial
condition or results of operations. There are no listed market prices for such
interests in the PRC and, accordingly, a reasonable estimate of fair value could
not be made without incurring excessive costs. The Group intends to hold these
unquoted equity securities for long term purpose.
35. ACCOUNTING
ESTIMATES AND JUDGMENTS
The
Group’s financial condition and results of operations are sensitive to
accounting methods, assumptions and estimates that underlie the preparation of
the financial statements. Management bases the assumptions and
estimates on historical experience and on various other assumptions that it
believes to be reasonable and which form the basis for making judgments about
matters that are not readily apparent from other sources. On an
on-going basis, management evaluates its estimates. Actual results
may differ from those estimates as facts, circumstances and conditions
change.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
The
selection of critical accounting policies, the judgments and other uncertainties
affecting application of those policies and the sensitivity of reported results
to changes in conditions and assumptions are factors to be considered when
reviewing the financial statements. The principal accounting policies
are set forth in Note 2. Management believes the following critical
accounting policies involve the most significant judgments and estimates used in
the preparation of the financial statements.
Oil
and gas properties and reserves
The
accounting for the exploration and production’s oil and gas activities is
subject to accounting rules that are unique to the oil and gas
industry. There are two methods to account for oil and gas business
activities, the successful efforts method and the full cost
method. The Group has elected to use the successful efforts
method. The successful efforts method reflects the volatility that is
inherent in exploring for mineral resources in that costs of unsuccessful
exploratory efforts are charged to expense as they are
incurred. These costs primarily include dry hole costs, seismic costs
and other exploratory costs. Under the full cost method, these costs
are capitalized and written-off or depreciated over time.
Engineering
estimates of the Group’s oil and gas reserves are inherently imprecise and
represent only approximate amounts because of the subjective judgments involved
in developing such information. There are authoritative guidelines
regarding the engineering criteria that have to be met before estimated oil and
gas reserves can be designated as “proved”. Proved and proved
developed reserves estimates are updated at least annually and take into account
recent production and technical information about each field. In
addition, as prices and cost levels change from year to year, the estimate of
proved and proved developed reserves also changes. This change is
considered a change in estimate for accounting purposes and is reflected on a
prospective basis in related depreciation rates.
Future
dismantlement costs for oil and gas properties are estimated with reference to
engineering estimates after taking into consideration the anticipated method of
dismantlement required in accordance with industry practices in similar
geographic area, including estimation of economic life of oil and gas
properties, technology and price level. The present values of these
estimated future dismantlement costs are capitalized as oil and gas properties
with equivalent amounts recognized as provision for dismantlement
costs.
Despite
the inherent imprecision in these engineering estimates, these estimates are
used in determining depreciation expense, impairment expense and future
dismantlement costs. Depreciation rates are determined based on
estimated proved developed reserve quantities (the denominator) and capitalized
costs of producing properties (the numerator). Producing properties’
capitalized costs are amortized based on the units of oil or gas
produced.
Impairment
for long lived assets
If
circumstances indicate that the net book value of a long-lived asset may not be
recoverable, the asset may be considered “impaired”, and an impairment loss may
be recognized in accordance with IAS 36 “Impairment of Assets”. The
carrying amounts of long-lived assets are reviewed periodically in order to
assess whether the recoverable amounts have declined below the carrying amounts.
These assets are tested for impairment whenever events or changes in
circumstances indicate that their recorded carrying amounts may not be
recoverable. When such a decline has occurred, the carrying amount is reduced to
recoverable amount. For goodwill, the recoverable amount is estimated
annually. The recoverable amount is the greater of the net selling
price and the value in use. It is difficult to precisely estimate
selling price because quoted market prices for the Group’s assets or
cash-generating units are not readily available. In determining the value in
use, expected cash flows generated by the asset or the cash-generating unit are
discounted to their present value, which requires significant judgment relating
to level of sale volume, selling price and amount of operating costs. Management
uses all readily available information in determining an amount that is a
reasonable approximation of recoverable amount, including estimates based on
reasonable and supportable assumptions and projections of sale volume, selling
price and amount of operating costs.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts
in millions, except per share data and except otherwise
stated)
Depreciation
Property,
plant and equipment, other than oil and gas properties, are depreciated on a
straight-line basis over the estimated useful lives of the assets, after taking
into account the estimated residual value. Management reviews the estimated
useful lives of the assets regularly in order to determine the amount of
depreciation expense to be recorded during any reporting period. The useful
lives are based on the Group’s historical experience with similar assets and
take into account anticipated technological changes. The depreciation expense
for future periods is adjusted if there are significant changes from previous
estimates.
Impairment
for bad and doubtful debts
Management
estimates impairment losses for bad and doubtful debts resulting from the
inability of the Group’s customers to make the required payments. Management
bases the estimates on the aging of the accounts receivable balance, customer
credit-worthiness, and historical write-off experience. If the financial
condition of the customers were to deteriorate, actual write-offs would be
higher than estimated.
Allowance
for diminution in value of inventories
If
the costs of inventories fall below their net realizable values, an allowance
for diminution in value of inventories is recognized. Net realizable
value represents the estimated selling price in the ordinary course of business,
less the estimated costs of completion and the estimated costs necessary to make
the sale. Management bases the estimates on all available
information, including the current market prices of the finished goods and raw
materials, and historical operating costs. If the actual selling
prices were to be lower or the costs of completion were to be higher than
estimated, the actual allowance for diminution in value of inventories could be
higher than estimated.
36.
|
POSSIBLE
IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET
EFFECTIVE FOR THE ANNUAL ACCOUNTING PERIOD ENDED DECEMBER 31,
2008
|
Up
to the date of issue of these financial statements, the IASB has issued a number
of amendments, new standards and interpretations which are not yet effective for
the annual accounting period ended December 31, 2008 and which have not been
adopted in these financial statements.
Management is in the process of
making an assessment of what the impact of these amendments, new standards and
new interpretations is expected to be in the period of initial application and
has so far concluded that the adoption of these amendments, new standards and
new interpretations is unlikely to have a significant impact on the Group’s
results of operations and financial position.
37. POST
BALANCE SHEET EVENTS
Pursuant
to the resolution passed at the Directors’ meeting on March 27, 2009, the Group
entered into a number of agreements with Sinopec Group Company and fellow
subsidiaries to acquire the entire equity interests of Sinopec Qingdao
Petrochemical Company Limited and certain assets and related liabilities related
to the exploration and production, the refining, and the marketing and
distribution segments from Sinopec Group Company and fellow subsidiaries for a
total cash consideration of RMB 1,839, and to dispose of certain assets in the
Group’s chemicals segment to a fellow subsidiary for a cash consideration of RMB
157. These transactions are subject to the approval from the relevant PRC
governmental and regulatory bodies.
38. PARENT
AND ULTIMATE HOLDING COMPANY
The
directors consider the parent and ultimate holding company of the Group as of
December 31, 2008 is Sinopec Group Company, a state-owned enterprise established
in the PRC. This entity does not produce financial statements available for
public use.
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL
INFORMATION ON OIL AND GAS PRODUCING
ACTIVITIES
(UNAUDITED)
(All
currency amounts in millions)
The
results of operations for producing activities for the years ended December 31,
2006, 2007 and 2008 are shown above. Revenues include sales to unaffiliated
parties and transfers (essentially at third-party sales prices) to other
segments of the Group. All revenues reported in this table do not include
royalties to others as there were none. In accordance with SFAS No. 69, income
taxes are based on statutory tax rates, reflecting allowable deductions and tax
credits. General corporate overhead and interest income and expense are excluded
from the results of operations.
Table
IV: Reserve quantities information
The
Group’s estimated net proved underground oil and gas reserves and changes
thereto for the years ended December 31, 2006, 2007 and 2008 are shown in the
following table.
Proved
oil and gas reserves are the estimated quantities of crude oil, natural gas, and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions, i.e., prices and costs as of
the date the estimate is made. Prices include consideration of changes in
existing prices provided only by contractual arrangements, but not on
escalations based upon future conditions. Due to the inherent uncertainties and
the limited nature of reservoir data, estimates of underground reserves are
subject to change as additional information becomes available.
Proved
reserves do not include additional quantities recoverable beyond the term of the
relevant production licenses, or that may result from extensions of currently
proved areas, or from application of improved recovery processes not yet tested
and determined to be economical. The Group’s estimated proved
reserves do not include any quantities that are recoverable through application
of tertiary recovery techniques.
Proved
developed reserves are the quantities expected to be recovered through existing
wells with existing equipment and operating methods.
“Net”
reserves exclude royalties and interests owned by others and reflect contractual
arrangements in effect at the time of the estimate.
|
|
Years
ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
Proved
developed and undeveloped reserves (oil) (million barrels)
|
|
|
|
|
|
|
|
|
|
Beginning
of year
|
|
|
3,294 |
|
|
|
3,293 |
|
|
|
3,024 |
|
Revisions
of previous estimates
|
|
|
(10 |
) |
|
|
(250 |
) |
|
|
(94 |
) |
Improved
recovery
|
|
|
146 |
|
|
|
125 |
|
|
|
98 |
|
Extensions
and discoveries
|
|
|
148 |
|
|
|
148 |
|
|
|
110 |
|
Production
|
|
|
(285 |
) |
|
|
(292 |
) |
|
|
(297 |
) |
End
of year
|
|
|
3,293 |
|
|
|
3,024 |
|
|
|
2,841 |
|
Proved
developed reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
of year
|
|
|
2,870 |
|
|
|
2,903 |
|
|
|
2,651 |
|
End
of year
|
|
|
2,903 |
|
|
|
2,651 |
|
|
|
2,451 |
|
Proved
developed and undeveloped reserves (gas) (billion cubic
feet)
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
of year
|
|
|
2,952 |
|
|
|
2,856 |
|
|
|
6,331 |
|
Revisions
of previous estimates
|
|
|
(9 |
) |
|
|
222 |
|
|
|
203 |
|
Extensions
and discoveries
|
|
|
170 |
|
|
|
3,536 |
|
|
|
718 |
|
Production
|
|
|
(257 |
) |
|
|
(283 |
) |
|
|
(293 |
) |
End
of year
|
|
|
2,856 |
|
|
|
6,331 |
|
|
|
6,959 |
|
Proved
developed reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
of year
|
|
|
1,557 |
|
|
|
1,472 |
|
|
|
1,518 |
|
End
of year
|
|
|
1,472 |
|
|
|
1,518 |
|
|
|
1,571 |
|
CHINA
PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL
INFORMATION ON OIL AND GAS PRODUCING
ACTIVITIES
(UNAUDITED) - (Continued)
(All
currency amounts in millions)
Table
V: Standardized measure of discounted future net cash flows
The
standardized measure of discounted future net cash flows, related to the above
proved oil and gas reserves, is calculated in accordance with the requirements
of SFAS No. 69. Estimated future cash inflows from production are computed by
applying year-end prices for oil and gas to year-end quantities of estimated net
proved reserves. Future price changes are limited to those provided by
contractual arrangements in existence at the end of each reporting year. Future
development and production costs are those estimated future expenditures
necessary to develop and produce year-end estimated proved reserves based on
year-end cost indices, assuming continuation of year-end economic conditions.
Estimated future income taxes are calculated by applying appropriate year-end
statutory tax rates to estimated future pre-tax net cash flows, less the tax
basis of related assets. Discounted future net cash flows are calculated using
10% midperiod discount factors. This discounting requires a year-by-year
estimate of when the future expenditure will be incurred and when the reserves
will be produced.
The
information provided does not represent management’s estimate of the Group’s
expected future cash flows or value of proved oil and gas reserves. Estimates of
proved reserve quantities are imprecise and change over time as new information
becomes available. Moreover, probable and possible reserves, which may become
proved in the future, are excluded from the calculations. The arbitrary
valuation prescribed under SFAS No. 69 requires assumptions as to the timing and
amount of future development and production costs. The calculations are made for
the years ended December 31, 2006, 2007 and 2008 and should not be relied upon
as an indication of the Group’s future cash flows or value of its oil and gas
reserves.
|
|
Years
ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Future
cash flows
|
|
|
1,235,524 |
|
|
|
1,835,471 |
|
|
|
977,904 |
|
Future
production costs
|
|
|
(487,895 |
) |
|
|
(799,408 |
) |
|
|
(536,442 |
) |
Future
development costs
|
|
|
(33,523 |
) |
|
|
(68,970 |
) |
|
|
(42,207 |
) |
Future
income tax expenses
|
|
|
(189,465 |
) |
|
|
(196,103 |
) |
|
|
(44,249 |
) |
Undiscounted
future net cash flows
|
|
|
524,641 |
|
|
|
770,990 |
|
|
|
355,006 |
|
10%
annual discount for estimated timing of cash flows
|
|
|
(241,180 |
) |
|
|
(349,987 |
) |
|
|
(113,367 |
) |
Standardized
measure of discounted future net cash flows
|
|
|
283,461 |
|
|
|
421,003 |
|
|
|
241,639 |
|
Table
VI: Changes in the standardized measure of discounted future
net cash flows
|
|
Years
ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and transfers of oil and gas produced, net of production
costs
|
|
|
(92,849 |
) |
|
|
(77,522 |
) |
|
|
(112,424 |
) |
Net
changes in prices and production costs
|
|
|
(114,796 |
) |
|
|
165,191 |
|
|
|
(231,578 |
) |
Net
change due to extensions, discoveries and improved
recoveries
|
|
|
51,445 |
|
|
|
68,788 |
|
|
|
32,011 |
|
Revisions
of previous quantity estimates
|
|
|
(1,207 |
) |
|
|
(46,980 |
) |
|
|
(8,298 |
) |
Previously
estimated development costs incurred during the year
|
|
|
8,516 |
|
|
|
8,783 |
|
|
|
27,578 |
|
Accretion
of discount
|
|
|
30,190 |
|
|
|
23,726 |
|
|
|
36,031 |
|
Net
change in income taxes
|
|
|
43,784 |
|
|
|
(4,716 |
) |
|
|
76,964 |
|
Others
|
|
|
332 |
|
|
|
272 |
|
|
|
352 |
|
Net
change for the year
|
|
|
(74,585 |
) |
|
|
137,542 |
|
|
|
(179,364 |
) |
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.
|
China
Petroleum & Chemical Corporation
|
|
|
|
|
By:
|
/s/
Chen Ge |
|
|
Name:
|
Chen
Ge
|
|
Title:
|
Secretary
to the Board of
Directors
|
Date: May
20, 2009