BUSINESS REVIEW

1. Market Review

(1) Crude Oil Market

In 2021, as demand for oil in global market gradually recovered and inventories decreased significantly, the supply-and-demand fundamentals in the market continued to improve. Supported by the abundant global liquidity and the larger-than-expected boost by European energy crisis by the end of this year, oil price in the international market had a sharp rise as compared with last year. The annual average spot price of North Sea Brent crude oil was US$70.91 per barrel, representing an increase of 69.7% as compared with last year. The annual average spot price of the West Texas Intermediate (“WTI”) crude oil was US$68.12 per barrel, representing an increase of 73.4% as compared with last year.

Statistics from the National Development and Reform Commission (the “NDRC”) showed that the domestic output of crude oil was 198.98 million tons in 2021, representing an increase of 2.4% as compared with last year.

(2) Refined Products Market

In 2021, the domestic macro-economy remained stable with good momentum for growth, which helped the gradual recovery of demand for refined oil. Together with the stable supply of refined oil in domestic market, the oversupply situation eased. Export quota of refined oil contracted by 36% with net exports of refined oil declining for the first time in the last decade.

Statistics from NDRC and National Bureau of Statistics of China showed that in 2021, 703.55 million tons of crude oil were processed, representing an increase of 4.3% as compared with last year; the apparent consumption of refined oil was 341.48 million tons, representing an increase of 3.2% as compared with last year, among which that of gasoline and diesel oil had an increase of 5.7% and 0.5%, respectively, as compared with last year, respectively. The price trend of domestic refined oil remained basically the same as that of oil price in the international market. The PRC adjusted the domestic prices of gasoline and diesel 21 times. The price of gasoline standard product and that of diesel standard product by RMB1,485 yuan per ton and RMB1,430 yuan per ton accumulatively.

(3) Chemical Products Market

In 2021, the price of the global energy and commodities soared significantly, which led the price of the domestic chemical market to rise as a whole; by the end of the year, as the prices of principal products, such as polyolefins, fell, the profit margin narrowed. The operation of the chemical products market improved generally, and the demand of new materials and new technologies promoted the transformation and upgrading of the industry.

(4) Natural Gas Market

In 2021, affected by the recovery of economy, the control of epidemic and the recovery of oil prices and other factors, the demand for natural gas in the global market recovered strongly. As a result, supply and demand of

 

natural gas market showed regional structural strain. The price of the natural gas remained at the high end. Under the effect of macro-economy, environmental policies, and the strategy of “dual carbon”, the domestic demand of natural gas maintained rapid growth.

Statistics from NDRC showed that in 2021, the output of domestic natural gas was 205.3 billion cubic meters, representing an increase of 8.2% as compared with last year, the import volume of natural gas was 121.36 million tons, representing an increase of 19.9% as compared with last year, and the apparent consumption was 372.6 billion cubic meters, representing an increase of 12.7% as compared with last year.

2. Business Review

(1) Exploration and Production

Domestic Exploration and Development

In 2021, the Group adhered to innovation-driven development in the domestic exploration and development business, vigorously enhanced the exploration and development of oil and gas, and spared no efforts to promote profitable exploration and increase oil and gas reserves and output. We achieved multiple breakthroughs and important discoveries in Ordos, Tarim, Junggar, Sichuan and other key basins, implemented various large-scale reserve areas, thereby significantly improving the reserve replacement rate. We deeply promoted the stable output in the existing

 

oil and gas fields as well as profitable capacity construction in new fields. We continued to maintain the stable output of oil while increasing that of natural gas, as a result of which the proportion of the natural gas output continuously rose. In 2021, the domestic business achieved a crude oil output of 753.4 million barrels, representing an increase of 1.3% as compared with last year, the marketable natural gas output of 4,222.2 billion cubic feet, representing an increase of 5.7% as compared with last year, and the oil and natural gas equivalent output of 1,457.4 million barrels, representing an increase of 3.4% as compared with last year.

We actively developed new energy business, established the Shenzhen Institute for New Energy Research, actively promoted the development of new energy and new industry-related projects and continued to improve the development and utilization capacity of new energy. The Yumen photovoltaic power generation project with 200,000 KW was completed and put into operation, a breakthrough which marked the start of external clean electricity supply. The Beijing-Tianjin-Hebei geothermal heating demonstration base, and a batch of wind and photovoltaic power generation projects and CCUS projects in Jilin and Daqing progressed steadily.

Overseas Oil and Gas

In 2021, the Group’s overseas oil and gas business developed steadily. Important discoveries have been made in various projects such as Niger and Chad. The exploitation of oil and gas was promoted in an orderly manner. Newly-built projects such as PSA in Chad were put into production, and partial interests in Rumaila project

was obtained. A number of low profitability projects were transferred and disposed. As a result, the structure of overseas oil and gas assets was continuously optimized. In 2021, the crude oil output from overseas operations amounted to 134.5 million barrels, representing a decrease of 24.4% as compared with last year, the output of marketable natural gas was 197.8 billion cubic feet, representing a decrease of 12.9% as compared with last year; and the output of oil and gas equivalent was 167.4 million barrels, representing a decrease of 22.4% as compared with last year, accounting for 10.3% of the total oil and natural gas equivalent output of the Group. The large decrease in overseas oil and gas production was mainly due to the impact of increase in international oil prices, the decrease in product sharing of certain overseas projects and the production restriction policies in some resource-rich countries.

In 2021, the Group’s crude oil output amounted to 887.9 million barrels, representing a decrease of 3.7% as compared with last year. The marketable natural gas output reached 4,420.0 billion cubic feet, representing an increase of 4.7% as compared with last year. The oil and natural gas equivalent output amounted to 1,624.8 million barrels, generally the same with that in last year. As at the end of the reporting period, the total area to which the Group had the right of prospecting and mining of oil and natural gas (including coalbed methane) amounted to 263.4 million acres, among which the area of prospecting was 227.0 million acres and the area of mining was 36.4 million acres. The net number of wells in the process of being drilled was 615. The number of multi-completed wells during the reporting period was 7,172.

 

(2) Refining and Chemicals

In 2021, the Group’s refining business adhered to market orientation; production and sales activities were closely connected. The Company actively promoted the reduction of refined business and increase in chemical business, further reduced the yield of refined oil, and continued to optimize the structure of refining products. The diesel-gasoline production ratio dropped to 0.98, and the output of aviation kerosene, lube base oil and paraffin was greatly increased. The Company continuously optimized the allocation of resources and insisted on allocating more crude oil resources to enterprises with good profitability. In 2021, the Group processed 1,225.0 million barrels of crude oil, representing an increase of 4.0% as compared with last year. Among that, 684.0 million barrels of crude oil were from the Group’s exploration and production segment, accounting for 55.8%, which showed good synergic effects. In 2021, the Group produced 108.712 million tons of refined oil, representing an increase of 1.6% as compared with last year.

The chemical business, by closely monitoring market demand and price changes and forecasting market trends, maintained high-load operation of its chemical plants, and increased production and sales of high-value-added chemical products when appropriate. The Company actively promoted the new material business, established the Shanghai Institute for New Materials, strengthened scientific and technological innovation, launched a number of technological research and actively carried out R&D of new chemical products and new materials. The Group also proactively changed the operation philosophy, developed marketing strategies for chemical products on a region-by-region basis, promoted the online operation of “PetroChina e-Chemical”, actively expanded high-end market and end-customer channel of chemical products. In 2021, the volume of chemical products of the Group increased by 6.7% as compared with last year. The output of products, such as ethylene, synthetic resin, synthetic rubber and urea, increased to some extent as compared with last year. The output of functional synthetic resin, high-performance synthetic rubber, special fibers, high-end carbon materials and other new materials increased significantly.

 

The Changqing and Tarim ethane-to-ethylene projects were completed and put into operation, and the construction of Guangdong Petrochemical and other key projects was accelerated.

        

 

(3) Marketing

Domestic Operations

In 2021, the Group’s marketing business enhanced the efforts of marketing, and made every effort to expand the sales and improve the profitability based on ensuring the smooth operation of the industrial chains. It actively innovated the business model, accelerated the promotion and application of direct wholesale APP, flexibly adjusted gasoline and diesel marketing strategies, put into use the first batch of commercial intelligent fuelling robots and continued to improve the quality and efficiency of retailing business. The Group strengthened the development

of gas stations in markets where it has an advantage with high profitability. The number of gas stations in operation reached 22,800. Development of new energy business was accelerated, with the first integrated service demonstration station for oil, gas, hydrogen, electricity and non-oil business completed and put into operation in Beijing. Furthermore, a number of hydrogen refuelling stations, battery-swap stations and photovoltaic stations were put into operation. The Group intensified integration and mutual market promotion of oil and non-oil businesses, promoted the marketing of its own commodities, poverty alleviation commodities and specialty commodities, and the gross profit of non-oil business increased significantly as compared with last year.

 

International Trading Operations

In 2021, the international trading business of the Group focused on domestic and overseas resources and markets, deepened global integration and cooperation, optimized supply chain management, strengthened sales of oil and gas, optimized the pace of refined oil exports, and expanded overseas markets for refining

and chemical products.

In 2021, the sales volume of gasoline, kerosene and diesel of the Group achieved a total of 163.307 million tons, representing an increase of 1.3% as compared with last year, of which the domestic sales of gasoline, kerosene and diesel were 112.493 million tons, representing an increase of 6.2% as compared with last year.

 

(4) Natural Gas and Pipeline

In 2021, the Group’s natural gas and pipeline business, seizing the favourable opportunities of recovery of the demand in markets, vigorously developed wholesale and retail markets as well as direct supply and sales customers, strengthened oil and gas mixing, gas-electricity integration and integration of gas-electricity and new energy, and actively carried out online bidding transactions. The Group continued to optimize the structure of the gas resources, and effectively ensured the safe and stable supply of natural gas. The construction of key projects was promoted in an orderly manner. The Tangshan LNG emergency peak management and guarantee project, the third phase of the Jiangsu LNG

terminal stations and related branch pipelines were completed and put into operation.

In 2021, the Group sold 273.974 billion cubic metres of natural gas, representing an increase of 10.1% as compared with the same period last year. Among that, 194.591 billion cubic metres were sold in domestic market, representing an increase of 12.7% as compared with the same period last year. By the end of 2021, the Group’s domestic oil and gas pipelines measured a total length of 26,076 km, consisting of 17,329 km of natural gas pipelines, 7,340 km of crude oil pipelines and 1,407 km of refined oil pipelines.

 

Operating Expenses Operating expenses for 2021 was RMB2,453,196 million, representing an increase of 32.0% as compared with last year, of which:

Purchases, Services and Other Purchases, services and other for 2021 was RMB1,770,019 million, representing an increase of 39.6% as compared with last year. This was primarily due to the increase of expenses for purchasing oil and gas products and trading expenses, along with the increase in the sales volume of the oil and gas products and the prices of the raw materials.

Employee Compensation Costs Employee compensation costs (including salaries of employees and cost of market-oriented temporary and seasonal contractors, various types of insurance, housing provident fund, training fees and other additional costs ) for 2021 was RMB154,835 million, representing an increase of 4.9% as compared with last year. This was primarily due to the fact that the State introduced temporary preferential policy for social insurance in 2020 in response to the COVID-19, which expired in 2021, and that employee’s compensation in 2021 changed in tandem with the Group’s operating results.

Exploration Expenses Exploration expenses for 2021 was RMB24,248 million, representing an increase of 25.4% as compared with last year. This was primarily due to the fact that the Group strengthened its efforts in terms of exploration and development and vigorously promoted the increase in both reserve and production of oil and gas.

Depreciation, Depletion and Amortisation Depreciation, depletion and amortisation for 2021 was RMB231,269 million, representing an increase of 8.1% as compared with last year. This was primarily due to the combined effect of the increase in assets, the structural change in oil and gas resources and the impairment in assets.

Selling, General and Administrative Expenses Selling, general and administrative expenses for 2021 was RMB57,802 million, representing a decrease of 10.2% as compared with last year. This was primarily due to the fact that the Group further promoted the improvement of quality and profitability, and the decrease in non-production expenses.

 

Taxes other than Income Taxes Taxes other than income taxes for 2021 was RMB228,003 million, representing an increase of 16.4% as compared with last year, among which the consumption tax for 2021 was RMB161,623 million, representing an increase of 11.1% as compared with last year; the resource tax for 2021 was RMB23,723 million, representing an increase of 28.5% as compared with last year; and crude oil special gain levy for 2021 increased by RMB4,477 million as compared with last year to RMB4,655 million.

Other Income, net Other income, net for 2021 was RMB12,980 million, representing a decrease of 74.5% as compared with last year, primarily due to the comprehensive influence of the gains from the transaction of pipeline assets of Kunlun Energy Company Limited (“Kunlun Energy”), a subsidiary of the Group, in 2021 and the gains from the pipeline assets restructuring of the Group in 2020.

Profit from Operations The profit from operations for 2021 was RMB161,153 million, representing an increase of 112.2% as compared with last year.

Net Exchange Gain Net exchange gain for 2021 was RMB538 million, representing an increase of 398.1% as compared with last year. This was primarily due to the impact of fluctuation in exchange rate of US Dollar against Renminbi.

Net Interest Expense Net interest expense for 2021 was RMB16,755 million, representing a decrease of 28.7% as compared with last year, primarily due to the control of the scale of interest-bearing debts, optimization of debt structure, and reduction of cost of debts by the Group.

Profit Before Income Tax Expense Profit before income tax expense for 2021 was RMB158,203 million, representing an increase of 182.1% as compared with last year.

Income Tax Expense The income tax expense for 2021 was RMB43,507 million, representing an increase of 92.6% as compared with last year, which was primarily due to the sharp increase in the Group’s profit before income tax expense over the same period last year.

Profit for the Year Net profit for 2021 was RMB114,696 million, representing an increase of 242.5% as compared with last year.

Profit Attributable to Non-controlling Interests Profit attributable to non-controlling interests for 2021 was RMB22,526 million, representing an increase of 55.6% as compared with last year, which was primarily due to the sharp increase of profits of subsidiaries of the Company with the rise of the prices of oil and gas over the same period last year.

Profit Attributable to Owners of the Company Profit attributable to owners of the Company for 2021 was RMB92,170 million, representing an increase of 385.0% as compared with last year.

(2) Segment Results

 

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Exploration and Production

Revenue The realised revenue of the Exploration and Production segment for 2021 was RMB688,334 million, representing an increase of 29.7% as compared with last year, which was primarily due to the increase in the prices of oil and gas products and the rise in the sales volume of natural gas. In 2021, the crude oil imported under the Exploration and Production segment of the Group amounted to 37.13 million tons, representing a decrease of 4.9% as compared with last year. The revenue from the sales was RMB119,547 million for 2021, representing an increase of 40.5% as compared with last year.

 

The average realised crude oil price of the Group in 2021 was US$65.58 per barrel, representing an increase of 62.6% as compared with last year.

Operating Expenses Operating expenses of the Exploration and Production segment for 2021 was RMB619,882 million, representing an increase of 22.1% as compared with last year, which was primarily due to the increase in procurement expenses and taxes other than income taxes. In 2021, the cost from importing crude oil of the Exploration and Production segment of the Group amounted to RMB119,354 million, representing an increase of 38.2% as compared with last year.

In 2021, the unit oil and gas lifting cost of the Group was US$12.30 per barrel, representing an increase of 10.8% as compared with last year. Excluding the impact of exchange rate of US Dollar against Renminbi, the year-on-year increase rate was 3.6%.

Profit from Operations In 2021, the Exploration and Production segment, by actively adapting to the requirements of “carbon peaking and carbon neutrality” in domestic business, steadily promoted the transformation of oil and gas business to the green and low-carbon track. It continuously optimized the structure of oil and gas products and vigorously strengthened natural gas

 

exploration and development, as a result, the natural gas output increased at a rapid pace with both output and profit rising. In overseas business, the Group also actively carried out follow-up evaluation of the profitability of oil and gas projects, and strived to optimize the asset structure. It continued to strengthen cost management and control and continuously enhanced its ability to create profitability. In 2021, the Exploration and Production segment realised an operating profit of RMB68,452 million, representing an increase of 196.4% as compared with last year.

 

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Refining and Chemicals

Revenue The revenue of the Refining and Chemicals segment for 2021 was RMB974,972 million, representing an increase of 25.8% as compared with last year, primarily due to the rise in the price of the refined and chemical products, and the increase in the sales volume of certain products. In particular, the operating income of the refining business was RMB736,004 million, representing an increase of 23.9% as compared with last year; the operating income of the chemical business was RMB238,968 million, representing an increase of 32.2% as compared with last year.

Operating Expenses Operating expenses of the Refining and Chemicals segment for 2021 was RMB925,232 million, representing an increase of 19.1% as compared with last year, primarily due to the increase in the procurement costs of crude oil and feedstock, as well as the increase in taxes other than income taxes.

In 2021, the cash processing cost of refineries of the Group was RMB166.65 yuan per ton, representing an increase of 1.7% as compared with last year, primarily due to the increase in the price of fuel power.

Profit from Operations In 2021, the Refining and Chemicals segment adhered to market orientation, centralised in profitability, continued optimizing production and operation and improving profitability, and vigorously strengthened its control over costs and expenses. The Refining and Chemicals

segment in 2021 realised operating profits of RMB49,740 million, increasing by RMB51,574 million from last year, which is primarily due to the increase in sales volume and gross profit of the products. Among that, the refining business recorded an operating profit of RMB37,730 million, increasing by RMB50,531 million from last year; while the chemical business realised an operating profit of RMB12,010 million, representing an increase of RMB1,043 million as compared with last year.

 

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Marketing

Revenue The revenue of the Marketing segment for 2021 was RMB2,170,062 million, representing an increase of 44.9% as compared with last year, primarily due to the increase in the price and sales volume of refined oil.

Operating Expenses Operating expenses of the Marketing segment for 2021 was RMB2,156,785 million, representing an increase of 43.7% as compared with last year, primarily due to the increase in the expenditure arising from the external purchase of refined oil.

Profit from Operations In 2021, the Marketing segment, by taking advantage of the gradual recovery of the demand for refined oil in domestic market, vigorously strengthened its efforts in targeted marketing and actively developed retail and end customers. By coordinating both domestic and international market, the Group arranged the wholesale and export of refined oil on a reasonable basis; in addition to optimizing the allocation and distribution of refined oil, the Group also endeavoured to control the marketing expenses. In 2021, the Marketing segment recorded an operating profit of RMB13,277 million, representing an increase of RMB16,183 million, as compared with last year.

 

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Natural Gas and Pipeline

Revenue The revenue of the Natural Gas and Pipeline segment amounted to RMB417,022 million for 2021, representing an increase of 12.5% as compared with last year, primarily due to the increase in both sales volume and price of natural gas.

 

Operating Expenses Operating expenses of the Natural Gas and Pipeline segment amounted to RMB373,057 million for 2021, representing an increase of 25.0% as compared with last year, primarily due to the increase in the expenditure of natural gas purchase.

Profit from Operations In 2021, the Natural Gas and Pipeline segment, by taking advantage of stable growth of domestic economy and market demand recovery, actively developed direct sales and end customers, continuously improved service quality, and strived to increase sales volume. The Group vigorously strengthened control over the natural gas procurement cost and continued to improve sales profitability. The Group successfully completed the closing of the equity transfer in the pipeline assets of Kunlun Energy. The operating profit was RMB43,965 million, representing a decrease of 39.3% as compared with last year, which was primarily due to the decrease of the revenue from the pipeline asset restructuring of 2021

as compared with that of 2020. In 2021, the imported natural gas business of the Group recorded a loss of RMB7,212 million, representing a reduction in loss of RMB6,947 million as compared with last year. The Group will take effective measures to continue its efforts to control the loss of its imported natural gas business.

In 2021, the Group’s international operations (Note) realised a revenue of RMB987,733 million, accounting for 37.8% of the Group’s total revenue. Profit before income tax expenses amounted to RMB8,836 million, accounting for 5.6% of the Group’s profit before taxes. The Group’s international operations maintained a stable development with continuous improvement in its abilities of international operation.

 

Note:

The four operating segments of the Group are Exploration and Production, Refining and Chemicals, Marketing as well as Natural Gas and Pipeline. International operations do not constitute a separate operating segment of the Group. The financial data of international operations are included in the financial data of respective operating segments mentioned above.

 

Total assets amounted to RMB2,502,262 million, representing an increase of 0.6% from that as at the end of 2020, of which:

Current assets amounted to RMB480,838 million, representing a decrease of 1.2% from that as at the end of 2020, primarily due to the decrease in held-for-sale assets resulting from the closing of the transfer of equity in Kunlun Energy pipeline assets.

Non-current assets amounted to RMB2,021,424 million, representing an increase of 1.0% from that as at the end of 2020, primarily due to the increase in the investment in associate companies and joint ventures.

Total liabilities amounted to RMB1,093,393 million, representing a decrease of 2.5% from that as at the end of 2020, of which:

Current liabilities amounted to RMB518,158 million, representing a decrease of 14.4% from that as at the end of 2020, primarily due to the fact that the Group continued to optimize the asset and liability structure, and the decrease in the amount of short-term borrowings.

Non-current liabilities amounted to RMB575,235 million, representing an increase of 11.5% from that as at the end of 2020, primarily due to the increase in long-term borrowings and asset disposal liabilities.

Equity attributable to owners of the Company amounted to RMB1,263,561 million, representing an increase of 4.0% from that as at the end of 2020, primarily due to the increase in retained earnings.

(4) Cash Flows

As at December 31, 2021, the primary source of funds of the Group was cash from operating activities and short-term and long-term borrowings. The funds of the Group were mainly used for operating activities, capital expenditures, repayment of short-term and long-term borrowings as well as distribution of dividends to shareholders of the Company.

 

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Net Cash Flows from Operating Activities

The net cash flows of the Group from operating activities in 2021 amounted to RMB341,469 million, representing a year-on-year increase of 7.2%. This was mainly due to the combined impact from the change in profit and working capital during the reporting period. As at December 31, 2021, the Group had cash and cash equivalents of RMB136,789 million. The cash and cash equivalents were mainly denominated in US Dollar and Renminbi (approximately 36.7% were denominated in US Dollar, approximately 58.5% were denominated in Renminbi, approximately 3.8% were denominated in HK Dollar and approximately 1.0% were denominated in other currencies).

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Net Cash Flows Used for Investing Activities

The net cash flows of the Group used for investing activities in 2021 amounted to RMB213,032 million, representing an increase of 17.1% as compared with last year, which was primarily due to the combined effects of the increase in capital expenditures and pipeline assets restructuring.

 

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Net Cash Flows Used for Financing Activities

The net cash used by the Group for financing activities in 2021 was RMB107,971 million, representing an increase of 8.6% as compared with last year. This was primarily due to the optimization of the Group’s debt structure and the decrease of new long-term and short-term borrowings.

 

 

Of the total borrowings of the Group as at December 31, 2021, approximately 38.7% were fixed-rate borrowings and approximately 61.3% were floating-rate borrowings. Of the borrowings as at December 31, 2021, approximately 70.0% were denominated in Renminbi, approximately 27.9% were denominated in US Dollar, and approximately 2.1% were denominated in other currencies.

As at December 31, 2021, the gearing ratio of the Group (gearing ratio = interest-bearing borrowings/(interest-bearing borrowings + total equity), interest-bearing borrowings include various short-term and long-term borrowings) was

19.5% (21.3% as at December 31, 2020).

 

(5) Capital Expenditures

In 2021, the Group, by adhering to the principle of investing on a rigorous, precise and profitable basis, continued to improve its level of investment management, continuously optimized the investment structure and strived to improve investment profitability. In 2021, the capital expenditures of the Group amounted to RMB251,178 million, representing an increase of 1.9% as compared with last year. The table below sets out the capital expenditures of the Group for 2021 and 2020 and estimated capital expenditure of each business segment for 2022.

 

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Exploration and Production

Capital expenditures for the Exploration and Production segment for 2021 amounted to RMB178,259 million, which were primarily used for the exploration and development with scale benefit and profitability in key domestic basins such as Songliao, Ordos, Junggar, Tarim, Sichuan and Bohai Bay, devoting greater efforts in the exploration of unconventional resources such as shale gas and shale oil, promoting new energy projects such as alternative clean energy projects; and exploration, development and operation of existing projects in overseas cooperation areas such as the Middle East, Central Asia, America and the Asia Pacific region.

It is estimated that the capital expenditures for the Exploration and Production segment for 2022 will be RMB181,200 million, which will be primarily for the continuously exploration and development with scale benefit and profitability in key domestic basins such as Songliao, Ordos, Junggar, Tarim, Sichuan and Bohai Bay, devoting greater efforts in the exploration of unconventional resources such as shale gas and shale oil, promoting new energy projects including clean electricity and CCUS. In adherence to the principle of optimised development, overseas operations will continue to focus on the operation of existing projects in cooperation areas such as the Middle East, Central Asia, America and the Asia Pacific region when seeking opportunities to obtain high-quality new projects.

 

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Refining and Chemicals

Capital expenditures for the Group’s Refining and Chemicals segment for 2021 amounted to RMB54,487 million, which were primarily used for Guangdong Petrochemical integration project of refining and chemicals, Changqing and Tarim ethane-to-ethylene projects, and other expansion and construction of large-scale refining and chemical projects such as ethylene, as well as transformation and upgrading projects related to refining reduction and chemical increase and new materials and new technologies.

It is estimated that the capital expenditures for the Refining and Chemicals segment for 2022 will be RMB44,500 million, which will be used primarily for Guangdong Petrochemical integration project of refining and chemicals, the construction of large-scale refining and chemical projects such as Jilin Petrochemical and Guangxi Petrochemical Ethylene projects, as well as transformation and upgrading projects related to refining reduction and chemical increase and new materials and new technologies.

 

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Marketing

Capital expenditures for the Group’s Marketing segment for 2021 amounted to RMB10,982 million, which were mainly used for the network for the sales of end-products within the domestic refined oil markets, expansion of new energy projects such as hydrogen fuelling stations and the equipment construction of overseas oil and gas storage and sales.

It is estimated that the capital expenditures for the Marketing segment for 2022 will be RMB7,500 million

used primarily for the network expansion for the sales of end-products within the domestic refined oil markets, expansion of new energy projects such as hydrogen refuelling stations and the equipment construction of overseas oil and gas storage and sales.

 

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Natural Gas and Pipeline

Capital expenditures for the Group’s Natural Gas and Pipeline segment for 2021 amounted to RMB6,750 million, which were mainly used for construction of LNG receiving stations, natural gas branch lines, market development projects for urban gas terminals, and new energy collaborative projects such as natural gas power generation.

It is estimated that capital expenditures for the Natural Gas and Pipeline segment for 2022 will be RMB8,000 million, which will be used primarily for construction of LNG receiving stations, natural gas branch lines, market development projects for urban gas terminals, and the integration project of natural gas power generation and new energy, etc.

 

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Head Office and Other

Capital expenditures for the Head Office and Other segment for 2021 were RMB700 million, which were primarily used for improvement of scientific research facilities and construction of the IT system.

It is estimated that the capital expenditures for the Head Office and Other segment of the Group for 2022 will be RMB800 million, which will be used primarily for improvement of research facilities and construction of the IT system.

 

Formulation and implementation of the cash dividend policy of the Company

To safeguard the interests of vast shareholders, it is provided by the Company in the Articles of Association of PetroChina Company Limited (“Articles of Association”) that in the premise that the net profit attributable to owners of the Company and the accumulated undistributed profit for the year are positive, and the Company’s cash flow can satisfy the normal operation and sustainable development of the Company, the amount of cash dividend to be distributed shall not be less than 30% of the net profit attributable to owners of the Company realised in the relevant year. The Company distributes dividends twice a year, with the final dividend to be determined by the general meeting by ordinary resolution and the interim dividend determined by the Board of Directors as authorised by the general meeting by way of ordinary resolution.

Since its listing, the Company has strictly complied with the Articles of Association and relevant regulatory requirements, and made decision on dividend distribution adopting the principle of returns to shareholders. The steady and active dividend distribution policy of

the Company is welcomed by the shareholders. The independent directors of the Company have performed their duties faithfully and diligently, formed opinions on dividend distribution independently and objectively, and played a desirable role. The Company distributed 45% of its net profit attributable to owners of the Company as dividend.

2. Distribution Plan for the Final Dividend for 2021

After overall consideration of the Company’s operating results, financial position and cash flow, etc. and in return for the shareholders, the Board recommends a final cash dividend of RMB0.09622 yuan (inclusive of applicable tax) per share for 2021 to all shareholders. The total amount of cash dividends reaches RMB17.61 billion. The proposed final dividend is subject to shareholders’ review and approval at the forthcoming 2021 annual general meeting to be held on June 9, 2022. The final dividend of H shares will be paid to all shareholders of H shares whose names appear on the register of members of the Company at the close of trading on June 27, 2022. The register of members of H shares will be closed from June 22, 2022 to June 27,

 

2022 (both days inclusive) during which period no transfer of H shares will be registered. In order to qualify for the final dividend, holders of H shares must lodge all transfer documents together with the relevant share certificates at Hong Kong Registrars Limited at or before 4:30 p.m. on June 21, 2022. Holders of A shares whose names appear on the register of members of the Company maintained at China Securities Depository and Clearing Corporation Limited (“CSDC”) at the close of trading on the Shanghai Stock Exchange in the afternoon of June 27, 2022 are eligible for the final dividend. The final dividend of A shares and H shares for 2021 will be paid on or about June 28, 2022 and July 29, 2022, respectively.

In accordance with the relevant provisions of the Articles of Association and relevant laws and regulations, dividends payable to the Company’s shareholders shall be declared in Renminbi. Dividends payable to the holders of A shares shall be paid in Renminbi, and for the A shares of the Company listed on the Shanghai Stock Exchange and invested by the investors through the Hong Kong Stock Exchange, dividends shall be paid in Renminbi to the accounts of the nominal shareholders through CSDC. Save for the H shares of the Company listed on the Hong Kong Stock Exchange and invested by the investors through the Shanghai Stock Exchange and the Shenzhen Stock Exchange (the “H Shares under the Southbound Trading Link”), dividends payable to the holders of H shares shall be paid in Hong Kong Dollar. The applicable exchange rate shall be the average of the medium exchange rate for Renminbi to Hong Kong Dollar as announced by the People’s Bank of China for the week prior to the declaration of the dividends at the annual general meeting to be held on June 9, 2022. Dividends payable to the holders of H Shares under the Southbound Trading Link shall be paid in Renminbi. In accordance with the Agreement on Payment of Cash Dividends on the H Shares under the Southbound Trading Link (《港股通 H股股票現金紅利派發協議》) between the Company and CSDC, CSDC will receive the dividends payable by the Company to holders of the H Shares under the Southbound Trading Link as a nominal holder of the H Shares under

the Southbound Trading Link on behalf of investors and assist the payment of dividends on the H Shares under the Southbound Trading Link to investors thereof.

According to the Law on Corporate Income Tax of the People’s Republic of China (《中華人民共和國企業所得稅法》) and the relevant implementing rules which came into effect on January 1, 2008, amended on February 24, 2017 and December 29, 2018, the Company is required to withhold corporate income tax at the rate of 10% before distributing dividends to non-resident enterprise shareholders whose names appear on the register of members of H shares of the Company. Any H shares registered in the name of non-individual shareholders, including HKSCC Nominees Limited, other nominees, trustees or other groups and organisations will be treated as being held by non-resident enterprise shareholders and therefore will be subject to the withholding of the corporate income tax. Should any holder of H shares wish to change their shareholder status, please consult their agent or trust institution over the relevant procedures. The Company will withhold payment of the corporate income tax strictly in accordance with the relevant laws or requirements of the relevant governmental departments and strictly based on the information registered on the Company’s H share register of members on June 27, 2022.

According to the Notice on Issues Concerning the Collection and Management of Individual Income Tax after the Abolition of Guo Shui Fa [1993] No. 045 (《關於國稅發[1993]045號文件廢止後有關個人所得稅征管問題的通知》promulgated by the State General Administration of Taxation of the PRC (Guo Shui Han [2011] No.348) (國家稅務總局國稅函[2011]348號), the Company is required to withhold and pay the individual income tax for its individual H shareholders and the individual H shareholders are entitled to certain tax preferential treatments according to the tax agreements between those countries where the individual H shareholders are residents and China and the provisions in respect of tax arrangements between the China’s mainland and Hong Kong (Macau). The Company would withhold and pay the individual income tax at the tax

 

rate of 10% on behalf of the individual H shareholders who are Hong Kong residents, Macau residents or residents of those countries having agreements with China for individual income tax rate in respect of dividend of 10%. For individual H shareholders who are residents of those countries having agreements with China for individual income tax rates in respect of dividend of lower than 10%, the Company would make applications on their behalf to seek entitlement of the relevant agreed preferential treatments pursuant to the circular of State Administration of Taxation on Issuing Administrative Measures on Preferential Treatment Entitled by Non-residents Taxpayers under Tax Treaties (SAT Circular [2019] No.35) (《關於發布<非居民納稅人享受協定待遇管理辦法 >的公告》(國家稅務總局公告2019年第 35號)). For individual H shareholders who are residents of those countries having agreements with China for individual income tax rates in respect of dividend of higher than 10% but lower than 20%, the Company would withhold the individual income tax at the agreed-upon effective tax rate. For individual H shareholders who are residents of those countries without any taxation agreements with China or having agreements with China for individual income tax in respect of dividend of 20% or in other situations, the Company would withhold the individual income tax at a tax rate of 20%.

The Company will determine the country of domicile of the individual H shareholders based on the registered address as recorded in the register of members of the Company (the “Registered Address”) on June 27, 2022 and will accordingly withhold and pay the individual income tax. If the country of domicile of an individual H shareholder is not the same as the Registered Address, the individual H shareholder shall notify the share registrar of the Company’s H shares and provide relevant supporting documents on or before 4:30 p.m. June 21, 2022 (address: Hong Kong Registrars Limited, Shops 1712-1716, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong). If the individual H shareholder does not provide the relevant supporting documents to the share registrar of the Company’s H shares within the time period stated above, the Company will determine the country of domicile of the individual H shareholder based on the recorded Registered Address on June 27, 2022.

The Company will not entertain any claims arising from and assume no liability whatsoever in respect of any delay in, or inaccurate determination of, the status of the shareholders of the Company or any disputes over the withholding and payment of tax.

In accordance with the Notice of Ministry of Finance, the State Administration of Taxation, and the China Securities Regulatory Commission on Taxation Policies concerning the Pilot Program of an Interconnection Mechanism for Transactions in the Shanghai and Hong Kong Stock Markets (Cai Shui [2014] No.81) (《財政部、國家稅務總局、證監會關於滬港股票市場交易互聯互通機制試點有關稅收政策的通知》（財稅〔 2014〕81號）) which became effective on November 17, 2014, and the Notice of the Ministry of Finance, the State Administration of Taxation, and the China Securities Regulatory Commission on Taxation Policies concerning the Pilot Program of an Interconnection Mechanism for Transactions in the Shenzhen and Hong Kong Stock Markets (Cai Shui [2016] No. 127) (《財政部、國家稅務總局、證監會關於深港股票市場交易互聯互通機制試點有關稅收政策的通知》（財稅 [2016]127號)), which became effective on December 5, 2016, with regard to the dividends obtained by individual mainland investors from investment in the H shares of the Company listed on the Hong Kong Stock Exchange through the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect, the Company will withhold their individual income tax at the rate of 20% in accordance with the register of individual mainland investors provided by CSDC. As to the withholding tax having been paid abroad, an individual investor may file an application for tax credit with the competent tax authority of CSDC with an effective credit document. With respect to the dividends obtained by mainland securities investment funds from investment in the H shares of the Company listed on the Hong Kong Stock Exchange through the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect, the Company will

 

withhold tax with reference to the provisions concerning the collection of tax on individual investors. The Company will not withhold income tax on dividends obtained by mainland enterprise investors, and mainland enterprise investors shall file their income tax returns and pay tax themselves instead.

With regard to the dividends obtained by the investors (including enterprises and individuals) from investment in the A shares of the Company listed on Shanghai Stock Exchange through the Hong Kong Stock Exchange, the Company will withhold income tax at the rate of 10%, and

file tax withholding returns with the competent tax authority. Where there is any tax resident of a foreign country out of the Hong Kong investors and the rate of income tax on dividends is less than 10%, as provided for in the tax treaty between the country and the PRC, the enterprise or individual may personally, or entrust a withholding agent to, file an application for the tax treatment under the tax treaty with the competent tax authority of the Company. Upon review, the competent tax authority will refund tax based on the difference between the amount of tax having been collected and the amount of tax payable calculated at the tax rate as set out in the tax treaty.