##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




---

FORM 20-F

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

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002

Commission File Number 1-15006



---

(PETRO CHINA COMPANY LOGO)

(Exact name of Registrant as specified in its
charter)


PetroChina Company Limited

(Translation of Registrants name into
English)




---

The Peoples Republic of China

(Jurisdiction of incorporation or organization)




---

16 Andelu

Dongcheng District, Beijing, 100011


The Peoples Republic of China


(Address of principal executive offices)




---

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

|                                                                                                   |  |                       |                                 | 
|-------------------------------------------------------------------------------------------------- |  | --------------------- | ------------------------------- | 
|Title of                                                                                           |  | Name of each exchange
|Each class                                                                                         |  | on which registered  
|                                                                                                   |  |                      
|American Depositary Shares, each
    representing  100 H Shares, par value RMB 1.00
    per share* |  |                       | New York Stock Exchange, Inc.   | 
|H Shares, par value RMB 1.00 per
    share                                                         |  |                       | New York Stock Exchange, Inc.** | 

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

None

(Title of Class)


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

None

(Title of Class)


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

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

Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) or the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past 90 days.

Yes X  No

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

Item 17  Item 18
X



---



|    |                                                                                                 
|--- | ------------------------------------------------------------------------------------------------
|*   | PetroChinas H Shares are listed and traded
    on The Stock Exchange of Hong Kong Limited.     
|**  | Not for trading, but only in connection with the
    registration of American Depository Shares.
|*** | Include 649,468,500 H Shares represented by
    American Depositary Shares.                     









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TABLE OF CONTENTS



|                                                                                                                                                                  |                                                           |  |  |  |  |  |  | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------- |  |  |  |  |  |  | 
|CERTAIN TERMS AND CONVENTIONS                                                                                                                                    
|                                                                                                                                                                  | Conventions Which Apply to this Annual Report            
|Conversion Table                                                                                                                                                 
|Certain Oil and Gas Terms                                                                                                                                        
|FORWARD-LOOKING STATEMENTS                                                                                                                                       
|PART I                                                                                                                                                           
|ITEM 1 -- IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS                                                                                                  
|ITEM 2 -- OFFER STATISTICS AND EXPECTED TIMETABLE                                                                                                                
|ITEM 3 -- KEY INFORMATION                                                                                                                                        
|                                                                                                                                                                  | Exchange Rates                                           
|                                                                                                                                                                  | Selected Financial Data                                  
|                                                                                                                                                                  | Risk Factors                                             
|ITEM 4 -- INFORMATION ON THE COMPANY                                                                                                                             
|                                                                                                                                                                  | Introduction                                             
|                                                                                                                                                                  | Exploration and Production                               
|                                                                                                                                                                  | Refining and Marketing                                   
|Chemicals and Marketing                                                                                                                                          
|Natural Gas and Pipeline                                                                                                                                         
|                                                                                                                                                                  | Competition                                              
|                                                                                                                                                                  | Environmental Matters                                    
|                                                                                                                                                                  | Legal Proceedings                                        
|                                                                                                                                                                  | Properties                                               
|                                                                                                                                                                  | Regulatory Matters                                       
|ITEM 5 -- OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                                                                                           
|                                                                                                                                                                  | General                                                  
|                                                                                                                                                                  | Operating Results                                        
|                                                                                                                                                                  | Liquidity and Capital Resources                          
|                                                                                                                                                                  | Research and Development                                 
|                                                                                                                                                                  | Trend Information                                        
|                                                                                                                                                                  | Other Information                                        
|ITEM 6 -- DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                                                                                             
|                                                                                                                                                                  | Directors, Senior Management and Supervisors             
|                                                                                                                                                                  | Compensation                                             
|                                                                                                                                                                  | Board Practices                                          
|                                                                                                                                                                  | Employees                                                
|                                                                                                                                                                  | Share Ownership                                          
|ITEM 7 -- MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                                                                                                      
|                                                                                                                                                                  | Major Shareholders                                       
|                                                                                                                                                                  | Related Party Transactions                               
|ITEM 8 -- FINANCIAL INFORMATION                                                                                                                                  
|                                                                                                                                                                  | Financial Statements                                     
|                                                                                                                                                                  | Dividend Policy                                          
|                                                                                                                                                                  | Significant Changes                                      
|ITEM 9 -- THE OFFER AND LISTING                                                                                                                                  
|                                                                                                                                                                  | Nature of the Trading Market and Market Price Information
|ITEM 10 -- ADDITIONAL INFORMATION                                                                                                                                
|                                                                                                                                                                  | Memorandum and Articles of Association                   
|                                                                                                                                                                  | Material Contracts                                       
|                                                                                                                                                                  | Exchange Controls                                        
|                                                                                                                                                                  | Taxation                                                 
|                                                                                                                                                                  | Documents on Display                                     
|                                                                                                                                                                  | Matters Related to Auditors                              
|ITEM 11 -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                                                            
|ITEM 12 -- DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                                                                                                
|PART II                                                                                                                                                          
|ITEM 13 -- DEFAULTS, DIVIDENDS ARREARAGES AND DELINQUENCIES                                                                                                      
|ITEM 14 -- MATERIAL MODIFICATIONS TO THE RIGHTS TO SECURITY HOLDERS                                                                                              
|ITEM 15 -- CONTROLS AND PROCEDURES                                                                                                                               
|ITEM 16 -- [RESERVED]                                                                                                                                            
|PART III                                                                                                                                                         
|ITEM 17 -- FINANCIAL STATEMENTS                                                                                                                                  
|ITEM 18 -- FINANCIAL STATEMENTS                                                                                                                                  
|ITEM 19 -- EXHIBITS                                                                                                                                              
|SIGNATURE                                                                                                                                                        
|INDEX OF FINANCIAL STATEMENTS                                                                                                                                    
|REPORT OF INDEPENDENT ACCOUNTANTS                                                                                                                                
|PETROCHINA COMPANY LIMITED CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31, 2000, 2001 and 2002 (Amounts in millions except for per share data)
|CONSOLIDATED BALANCE SHEETS                                                                                                                                      
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                                                                                                            
|CONSOLIDATED STATEMENTS OF CASH FLOWS -- (Continued)                                                                                                             
|PETROCHINA COMPANY LIMITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY For the Years Ended December 31, 2000, 2001 and 2002 (Amounts in millions) 
|PETROCHINA COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts in millions except per share data or unless otherwise stated)                 
|SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES (UNAUDITED) (Amounts in millions unless otherwise stated)                         
|EXHIBIT INDEX                                                                                                                                                    
|EX-4.1 2003 Performance Contract (Chen Geng)                                                                                                                     
|EX-4.2 2003 Performance Contract ((Su Shulin)                                                                                                                    
|EX-4.3 2003 Performance Contract (Wang Fucheng)                                                                                                                  
|EX-4.4 2003 Performance Contract (Wang Guoliang)                                                                                                                 
|EX-4.5 2003 Performance Contract (Liu Baohe)                                                                                                                     
|EX-4.6 2003 Performance Contract (Duan Wende)                                                                                                                    
|EX-4.7 2003 Performance Contract (Jia Chengzao)                                                                                                                  
|EX-4.8 Crude Oil Mutual Supply Framework Agreement                                                                                                               
|EX-8.1 List of Major Subsidiaries                                                                                                                                
|EX-12(a).1 Certification Pursuant to 18 U.S.C.                                                                                                                   



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Table of Contents

|         |  |         |  |                                                                |  |      |     | 
|-------- |  | ------- |  | -------------------------------------------------------------- |  | ---- | --- | 
|         |  |         |  |                                                                |  | Page
|         |  |         |  |                                                                |  |     
|         |  |         |  | Certain Terms and Conventions                                  |  |      | 2   | 
|         |  |         |  | Forward-looking Statements                                     |  |      | 5   | 
|Part I   |  | Item 1  |  | Identity of Directors, Senior Management and
    Advisors      |  |      | 7   | 
|         |  | Item 2  |  | Offer Statistics and Expected Timetable                        |  |      | 7   | 
|         |  | Item 3  |  | Key Information                                                |  |      | 7   | 
|         |  |         |  | Exchange Rates                                                 |  |      | 7   | 
|         |  |         |  | Selected Financial Data                                        |  |      | 8   | 
|         |  |         |  | Risk Factors                                                   |  |      | 12  | 
|         |  | Item 4  |  | Information on the Company                                     |  |      | 15  | 
|         |  |         |  | Introduction                                                   |  |      | 15  | 
|         |  |         |  | Exploration and Production                                     |  |      | 21  | 
|         |  |         |  | Refining and Marketing                                         |  |      | 31  | 
|         |  |         |  | Chemicals and Marketing                                        |  |      | 39  | 
|         |  |         |  | Natural Gas and Pipeline                                       |  |      | 43  | 
|         |  |         |  | Competition                                                    |  |      | 47  | 
|         |  |         |  | Environmental Matters                                          |  |      | 48  | 
|         |  |         |  | Legal Proceedings                                              |  |      | 49  | 
|         |  |         |  | Properties                                                     |  |      | 49  | 
|         |  |         |  | Regulatory Matters                                             |  |      | 50  | 
|         |  | Item 5  |  | Operating and Financial Review and Prospects                   |  |      | 57  | 
|         |  |         |  | General                                                        |  |      | 57  | 
|         |  |         |  | Operating Results                                              |  |      | 66  | 
|         |  |         |  | Liquidity and Capital
    Resources                            |  |      | 75  | 
|         |  |         |  | Research and Development                                       |  |      | 83  | 
|         |  |         |  | Trend Information                                              |  |      | 84  | 
|         |  |         |  | Other Information                                              |  |      | 85  | 
|         |  | Item 6  |  | Directors, Senior Management and Employees                     |  |      | 88  | 
|         |  |         |  | Directors, Senior
    Management and Supervisors               |  |      | 88  | 
|         |  |         |  | Compensation                                                   |  |      | 94  | 
|         |  |         |  | Board Practices                                                |  |      | 95  | 
|         |  |         |  | Employees                                                      |  |      | 96  | 
|         |  |         |  | Share Ownership                                                |  |      | 97  | 
|         |  | Item 7  |  | Major Shareholders and Related Party Transactions              |  |      | 98  | 
|         |  |         |  | Major Shareholders                                             |  |      | 98  | 
|         |  |         |  | Related Party Transactions                                     |  |      | 98  | 
|         |  | Item 8  |  | Financial Information                                          |  |      | 101 | 
|         |  | Item 9  |  | The Offer and Listing                                          |  |      | 103 | 
|         |  | Item 10 |  | Additional Information                                         |  |      | 103 | 
|         |  |         |  | Memorandum and Articles
    of Association                     |  |      | 103 | 
|         |  |         |  | Material Contracts                                             |  |      | 104 | 
|         |  |         |  | Exchange Controls                                              |  |      | 104 | 
|         |  |         |  | Taxation                                                       |  |      | 104 | 
|         |  |         |  | Documents on Display                                           |  |      | 106 | 
|         |  |         |  | Matters Related to
    Auditors                                |  |      | 106 | 
|         |  | Item 11 |  | Quantitative and Qualitative Disclosures About
    Market Risk |  |      | 107 | 
|         |  | Item 12 |  | Description of Securities Other Than Equity
    Securities     |  |      | 111 | 
|Part II  |  | Item 13 |  | Defaults, Dividend Arrearages and Delinquencies                |  |      | 111 | 
|         |  | Item 14 |  | Material Modifications to the Rights to Security
    Holders   |  |      | 111 | 
|         |  | Item 15 |  | Controls and Procedures                                        |  |      | 111 | 
|         |  | Item 16 |  | [Reserved]                                                     |  |      | 111 | 
|Part III |  | Item 17 |  | Financial Statements                                           |  |      | 111 | 
|         |  | Item 18 |  | Financial Statements                                           |  |      | 112 | 
|         |  | Item 19 |  | Exhibits                                                       |  |      | 112 | 
|         |  |         |  | Consolidated Financial Statements                              |  |      | F-1 | 

1



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CERTAIN TERMS AND CONVENTIONS






Conventions Which Apply to this Annual
Report


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



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



| |   |                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | PetroChina Company Limited, a joint stock company
    incorporated in the Peoples Republic of China with limited
    liability and its subsidiaries and branch companies, or                                                       
|
| |  | the CNPC groups domestic crude oil and
    natural gas exploration and production, refining and marketing,
    chemicals and natural gas businesses that were transferred to us
    in the restructuring of the CNPC group in 1999.



| |   |                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  | PRC or China are to the
    Peoples Republic of China, but do not apply to Hong Kong,
    Macau or Taiwan for purposes of this annual report.

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






Conversion Table


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






Certain Oil and Gas Terms


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



|              |  |                                                                                                                                                                                                                                            
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|acreage     |  | The total area, expressed in acres, over which an
    entity has interests in exploration or production. Net acreage
    is the entitys interest, expressed in acres, in the
    relevant exploration or production area.                 
|             
|API gravity |  | An indication of the density of crude oil or
    other liquid hydrocarbons as measured by a system recommended by
    the American Petroleum Institute (API), measured in degrees. The
    lower the API gravity, the heavier the compound.
|             
|condensate  |  | Light hydrocarbon substances produced with
    natural gas that condense into liquid at normal temperatures and
    pressures associated with surface production equipment.                                                                
|             
|crude oil   |  | Crude oil, including condensate and natural gas
    liquids.                                                                                                                                                                               
|             
|day         |  | When used with respect to production or capacity,
    means the total annual available production or capacity (after
    taking into account scheduled plant shutdowns) divided by 365.                                                    

2



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|                                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|----------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|development cost                  |  | For a given period, costs incurred to obtain
    access to proved reserves and to provide facilities for
    extracting, treating, gathering and storing the oil and gas.                                                                                                                                                                                                                                                                                                                                                                                                       
|                                   
|finding cost                      |  | For a given period, costs incurred in identifying
    areas that may warrant examination and in examining specific
    areas that are considered to have prospects of containing oil
    and gas reserves, including costs of drilling exploratory wells
    and exploratory-type stratigraphic test wells. Finding cost is
    also known as exploration cost.                                                                                                                                                                                                                 
|                                   
|lifting cost                      |  | For a given period, costs incurred to operate and
    maintain wells and related equipment and facilities, including
    applicable operating costs of support equipment and facilities
    and other costs of operating and maintaining those wells and
    related equipment and facilities. Lifting cost is also known as
    production cost.                                                                                                                                                                                                                               
|                                   
|natural gas liquids               |  | Hydrocarbons that can be extracted in liquid form
    together with natural gas production. Ethane and pentanes are
    the predominant components, with other heavier hydrocarbons also
    present in limited quantities.                                                                                                                                                                                                                                                                                                                                                     
|                                   
|offshore                          |  | Areas under water with a depth of five meters or
    greater.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                   
|onshore                           |  | Areas of land and areas under water with a depth
    of less than five meters.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                   
|primary distillation capacity     |  | At a given point in time, the maximum volume of
    crude oil a refinery is able to process in its basic distilling
    units.                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                   
|proved developed reserves         |  | Reserves that can be expected to be recovered
    through existing wells with existing equipment and operating
    methods. Additional oil and gas expected to be obtained through
    the application of fluid injection or other improved recovery
    techniques for supplementing the natural forces and mechanisms
    of primary recovery are included as proved developed
    reserves only after testing by a pilot project or after
    the operation of an installed program has confirmed through
    production response that increased recovery will be achieved.
|                                   
|proved reserves                   |  | Estimated quantities of crude oil and natural gas
    which geological and engineering data demonstrate with
    reasonable certainty to be recoverable in future years from
    known reservoirs under existing economic and operating
    conditions, i.e.,prices and costs as of the date the
    estimate is made. Prices include consideration of changes in
    existing prices provided only by contractual arrangements, but
    not of escalations based upon future conditions.                                                                                       
|                                   
|proved undeveloped 
     reserves |  | Reserves that are expected to be recovered from
    new wells on undrilled acreage, or from existing wells where a
    relatively major expenditure is required for recompletion.
    Reserves on undrilled acreage shall be limited to those drilling
    units offsetting productive units that are reasonably certain of
    production when drilled. Proved reserves for other undrilled
    units can be claimed only where it can be demonstrated with
    certainty that there is                                                                                        

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|                              |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|----------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                              |  | continuity of production from the existing
    productive formation. Under no circumstances should estimates
    for proved undeveloped reserves be attributable to any acreage
    for which an application of fluid injection or other improved
    recovery technique is contemplated, unless such techniques have
    been proved effective by actual tests in the area and in the
    same reservoir.
|                             
|reserve-to-production ratio |  | For any given well, field or country, the ratio
    of proved reserves to annual production of crude oil or, with
    respect to natural gas, to wellhead production excluding flared
    gas.                                                                                                                                                                                                            
|                             
|sales gas                   |  | Marketable production of gas on an as
    sold basis, excluding flared gas, injected gas and gas
    consumed in operations.                                                                                                                                                                                                                                                                            
|                             
|water cut                   |  | For a given oil region, the percentage that water
    constitutes of all fluids extracted from all wells in that
    region.                                                                                                                                                                                                                                                                              

References to:



| |   |                                      
| | - | -------------------------------------
| |  | BOE are to barrels-of-oil equivalent,
|
| |  | Mcf are to thousand cubic feet, and  
|
| |  | Bcf are to billion cubic feet.       

4



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FORWARD-LOOKING STATEMENTS

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



| |   |                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------
| |  | the amount and nature of future exploration,
    development and other capital expenditures;                                                
|
| |  | future prices and demand for crude oil, natural
    gas, refined products and chemical products;                                            
|
| |  | development projects;                                                                                                                       
|
| |  | exploration prospects;                                                                                                                      
|
| |  | reserves potential;                                                                                                                         
|
| |  | production of oil and gas and refined and
    chemical products;                                                                            
|
| |  | development and drilling potential;                                                                                                         
|
| |  | expansion and other development trends of the oil
    and gas industry;                                                                     
|
| |  | the planned development of our natural gas
    operations;                                                                                  
|
| |  | the planned expansion of our refined product
    marketing network;                                                                         
|
| |  | the planned expansion of our natural gas
    infrastructure;                                                                                
|
| |  | our future overall business development and
    economic performance;                                                                       
|
| |  | our anticipated financial and operating
    information regarding, and the future development and economic
    performance of, our business;
|
| |  | our anticipated market risk exposure arising from
    future changes in interest rates, foreign exchange rates and
    commodity prices; and
|
| |  | other prospects of our business and operations.                                                                                             

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

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



| |   |                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | fluctuations in crude oil and natural gas prices;                                                                                                                       
|
| |  | failure to achieve continued exploration success;                                                                                                                       
|
| |  | failures or delays in achieving production from
    development projects;                                                                                               
|
| |  | continued availability of capital and financing;                                                                                                                        
|
| |  | acquisitions and other business opportunities
    that we may pursue;                                                                                                   
|
| |  | general economic, market and business conditions,
    including volatility in interest rates, changes in foreign
    exchange rates and volatility in commodity markets;
|
| |  | liability for remedial actions under
    environmental regulations;                                                                                                     
|
| |  | impact of the PRCs entry into the World
    Trade Organization;                                                                                                        
|
| |  | the actions of competitors;                                                                                                                                             
|
| |  | wars and acts of terrorism or sabotage;                                                                                                                                 
|
| |  | changes in policies, laws or regulations of the
    PRC;                                                                                                                

5



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| |   |                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the other changes in global economic and
    political conditions affecting the production, supply and demand
    and pricing of crude oil, refined products, petrochemical
    products and natural gas; and
|
| |  | the other risk factors discussed in this annual
    report, and other factors beyond our control.                                                                                                            

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

6



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##### Table of Contents






PART I




ITEM 1  IDENTITY OF DIRECTORS,
SENIOR MANAGEMENT AND ADVISORS

Not applicable. However, see
Item 6  Directors, Senior Management and
Employees  Directors, Senior Management and
Supervisors.




ITEM 2  OFFER STATISTICS AND
EXPECTED TIMETABLE

Not applicable.




ITEM 3  KEY INFORMATION




Exchange Rates

Translations of amounts in this annual report
from Renminbi into U.S. dollars and vice versa have been
made at the rate of RMB 8.2800 to US$1.00, which was the noon
buying rate in New York City for cable transfers in
Renminbi per U.S. dollar as certified for customs purposes
by the Federal Reserve Bank of New York on
December 31, 2002. You should not construe these
translations as representations that the RMB amounts could be
converted into U.S. dollar amounts at that rate, or at all.

The noon buying rate in New York City for
cable transfers as certified for customs purposes by the Federal
Reserve Bank of New York was US$1.00=RMB 8.2772 on
June 20, 2003. The following table sets forth the high and
low noon buying rates between Renminbi and U.S. dollars for
each month during the previous six months:

|                            |  |                  |        |     |  |  |        | 
|--------------------------- |  | ---------------- | ------ | --- |  |  | ------ | 
|                            |  |                 
|                            |  | Noon buying rate
|                            |  |                 
|                            |  | High             |        | Low
|                            |  |                  |        |    
|                            |  |                 
|                            |  | (RMB per US$)   
|December 2002               |  |                  | 8.2800 |     |  |  | 8.2771 | 
|January 2003                |  |                  | 8.2800 |     |  |  | 8.2766 | 
|February 2003               |  |                  | 8.2800 |     |  |  | 8.2768 | 
|March 2003                  |  |                  | 8.2776 |     |  |  | 8.2770 | 
|April 2003                  |  |                  | 8.2774 |     |  |  | 8.2769 | 
|May 2003                    |  |                  | 8.2771 |     |  |  | 8.2768 | 
|June 2003 (through June 20) |  |                  | 8.2773 |     |  |  | 8.2768 | 

The following table sets forth the average noon
buying rates between Renminbi and U.S. dollars for each of
1998, 1999, 2000, 2001 and 2002, calculated by averaging the
noon buying rates on the last day of each month during the
relevant year:

|     |  |                          |        | 
|---- |  | ------------------------ | ------ | 
|     |  | Average noon buying rate
|     |  |                         
|     |  | (RMB per US$)           
|1998 |  |                          | 8.3009 | 
|1999 |  |                          | 8.2784 | 
|2000 |  |                          | 8.2784 | 
|2001 |  |                          | 8.2770 | 
|2002 |  |                          | 8.2772 | 

7



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##### Table of Contents






Selected Financial Data

Historical Financial Information

You should read the selected historical financial
data set forth below in conjunction with the consolidated
financial statements of PetroChina and their notes and
Item 5  Operating and Financial Review and
Prospects included elsewhere in this annual report. The
application of the accounting treatment to the acquisition
discussed below requires that our consolidated financial
statements for all relevant periods be retroactively restated to
reflect in these periods the acquisition as if the operations of
CNPCs refined products marketing enterprises we acquired
from CNPC had always been combined since inception. The selected
historical income statement and cashflow data for the years
ended December 31, 2000, 2001 and 2002 and the selected
historical balance sheet data as of December 31, 2001 and
2002 set forth below are derived from our audited consolidated
financial statements, including their notes, included elsewhere
in this annual report. The selected historical income statement
data and cashflow data for the years ended December 31,
1998 and 1999 and the selected historical balance sheet data as
of December 31, 1998, 1999 and 2000 set forth below are
derived from our previously unaudited financial statements, not
included in this annual report. The financial information
included in this section may not necessarily reflect our results
of operations, financial position and cash flows in the future
or what our results of operations, financial position and cash
flows would have been had we been a separate and stand-alone
entity during the relevant periods.

We have prepared our consolidated financial
statements in accordance with IFRS. IFRS differ materially from
the generally accepted accounting principals in the U.S., or
US GAAP. For a discussion of significant differences
between IFRS and US GAAP, see Note 33 to our consolidated
financial statements included elsewhere in this annual report
and Item 5  Operating and Financial Review
and Prospects  Other Information 
US GAAP Reconciliation.

In accordance with an acquisition agreement
between CNPC and us dated September 26, 2002, we acquired
from CNPC the assets, liabilities and interests related to
CNPCs refined products marketing enterprises consisting
primarily of service stations and related facilities. Under
IFRS, the acquisition is a combination of entities under common
control since the CNPCs refined products marketing
enterprises and we are under the common control of CNPC. As a
result, we have accounted for the acquisition in a manner
similar to a uniting of interests, whereby the assets and
liabilities of the marketing enterprises acquired are accounted
for at historical cost to CNPC with net liabilities of
RMB 2,956 million at the effective date. Our
consolidated financial statements as of and for the years ended
December 31, 2000 and 2001 included elsewhere in this
annual report and the selected historical financial data as of
and for the years ended December 31, 1998, 1999, 2000 and
2001 have been restated to give effect to the acquisition in
these periods as if the operations of our company and these
marketing enterprises had always been combined in these periods.

8



---



##### Table of Contents



See Item 5  Operating
and Financial Review and Prospects 
General  Acquisition of Certain Refined Products
Marketing Enterprises from CNPC.


|                                              |                                                                         |                                                      |        |         |          |         |        |         |          |      |        |         |          |   |        |         |          |   |        |         |          |   |       |        |         |  
|--------------------------------------------- | ----------------------------------------------------------------------- | ---------------------------------------------------- | ------ | ------- | -------- | ------- | ------ | ------- | -------- | ---- | ------ | ------- | -------- | - | ------ | ------- | -------- | - | ------ | ------- | -------- | - | ----- | ------ | ------- | -
|                                              |                                                                         |                                                     
|                                              |                                                                         | Year ended December 31,                             
|                                              |                                                                         |                                                     
|                                              |                                                                         | 1998(1)                                              |        | 1999(1) |          | 2000(2) |        | 2001(2) |          | 2002 |        | 2002   
|                                              |                                                                         |                                                      |        |         |          |         |        |         |          |      |        |        
|                                              |                                                                         | RMB                                                  |        | RMB     |          | RMB     |        | RMB     |          | RMB  |        | US$    
|                                              |                                                                         |                                                     
|                                              |                                                                         | (in millions, except for per share and per ADS data)
|Income Statement Data                         |                                                                         |                                                      |        |         |          |         |        |         |          |      |        |         |          |   |        |         |          |   |        |         |          |   |       |       
|IFRS                                          |                                                                         |                                                      |        |         |          |         |        |         |          |      |        |         |          |   |        |         |          |   |        |         |          |   |       |       
|Revenues                                      |                                                                         |                                                      |        |         |          |         |        |         |          |      |        |         |          |   |        |         |          |   |        |         |          |   |       |       
|                                              | Sales and other operating revenues                                      |                                                      |        | 153,448 |          |         |        | 181,671 |          |      |        | 245,279 |          |   |        | 241,320 |          |   |        | 244,424 |          |   |       | 29,520 |        
|                                              |                                                                         |                                                      |        |         |          |         |        |         |          |      |        |         |          |   |        |         |          |   |        |         |          |   |       |       
|Operating expenses                            |                                                                         |                                                      |        |         |          |         |        |         |          |      |        |         |          |   |        |         |          |   |        |         |          |   |       |       
|                                              | Purchases, services and other                                           |                                                      |        | (63,138 | )        |         |        | (65,868 | )        |      |        | (64,251 | )        |   |        | (78,529 | )        |   |        | (71,690 | )        |   |       | (8,658 | )      
|                                              | Employee compensation costs                                             |                                                      |        | (10,430 | )        |         |        | (11,598 | )        |      |        | (15,129 | )        |   |        | (14,608 | )        |   |        | (16,248 | )        |   |       | (1,962 | )      
|                                              | Exploration expenses, including exploratory dry
    holes               |                                                      |        | (5,990  | )        |         |        | (7,344  | )        |      |        | (8,680  | )        |   |        | (7,344  | )        |   |        | (8,095  | )        |   |       | (978   | )      
|                                              | Depreciation, depletion and amortization                                |                                                      |        | (18,081 | )        |         |        | (23,706 | )        |      |        | (34,209 | )        |   |        | (33,615 | )        |   |        | (36,782 | )        |   |       | (4,443 | )      
|                                              | Selling, general and administrative expenses                            |                                                      |        | (10,617 | )        |         |        | (13,447 | )        |      |        | (17,621 | )        |   |        | (21,735 | )        |   |        | (22,474 | )        |   |       | (2,714 | )      
|                                              | Employee separation costs and shutting down of
    manufacturing assets |                                                      |        |        |          |         |        |        |          |      |        | (6,579  | )        |   |        | (487    | )        |   |        | (2,121  | )        |   |       | (256   | )      
|                                              | Revaluation loss                                                        |                                                      |        |        |          |         |        | (1,122  | )        |      |        |        |          |   |        |        |          |   |        |        |          |   |       |       |        
|                                              | Impairment loss on assets to be retained by CNPC                        |                                                      |        | (310    | )        |         |        | (2,007  | )        |      |        |        |          |   |        |        |          |   |        |        |          |   |       |       |        
|                                              | Taxes other than income taxes                                           |                                                      |        | (9,604  | )        |         |        | (10,293 | )        |      |        | (13,258 | )        |   |        | (13,951 | )        |   |        | (14,613 | )        |   |       | (1,765 | )      
|                                              | Other income/(expenses), net                                            |                                                      |        | (294    | )        |         |        | 201     |          |      |        | (119    | )        |   |        | 88      |          |   |        | (60     | )        |   |       | (7     | )      
|                                              |                                                                         |                                                      |        |         |          |         |        |         |          |      |        |         |          |   |        |         |          |   |        |         |          |   |       |       
|                                              |                                                                         | Total operating expenses                             |        |         | (118,464 | )       |        |         | (135,184 | )    |        |         | (159,846 | ) |        |         | (170,181 | ) |        |         | (172,083 | ) |       |        | (20,783 | )
|                                              |                                                                         |                                                      |        |         |          |         |        |         |          |      |        |         |          |   |        |         |          |   |        |         |          |   |       |       
|Income from operations                        |                                                                         |                                                      | 34,984 |         |          |         | 46,487 |         |          |      | 85,433 |         |          |   | 71,139 |         |          |   | 72,341 |         |          |   | 8,737 |       
|                                              | Income from equity affiliates                                           |                                                      |        | 88      |          |         |        | 128     |          |      |        | 584     |          |   |        | 341     |          |   |        | 268     |          |   |       | 32     |        
|                                              | Exchange gain (loss), net                                               |                                                      |        | (1,872  | )        |         |        | (2,233  | )        |      |        | 1,172   |          |   |        | 250     |          |   |        | (316    | )        |   |       | (38    | )      
|                                              | Interest income                                                         |                                                      |        | 1,334   |          |         |        | 638     |          |      |        | 591     |          |   |        | 809     |          |   |        | 463     |          |   |       | 56     |        
|                                              | Interest expense                                                        |                                                      |        | (12,402 | )        |         |        | (9,056  | )        |      |        | (6,286  | )        |   |        | (4,408  | )        |   |        | (3,516  | )        |   |       | (425   | )      
|Income before income taxes                    |                                                                         |                                                      | 22,132 |         |          |         | 35,964 |         |          |      | 81,494 |         |          |   | 68,131 |         |          |   | 69,240 |         |          |   | 8,362 |       
|                                              | Income taxes                                                            |                                                      |        | (7,543  | )        |         |        | (9,414  | )        |      |        | (27,014 | )        |   |        | (23,066 | )        |   |        | (22,231 | )        |   |       | (2,685 | )      
|                                              |                                                                         |                                                      |        |         |          |         |        |         |          |      |        |         |          |   |        |         |          |   |        |         |          |   |       |       
|                                              | Income before minority interests                                        |                                                      |        | 14,589  |          |         |        | 26,550  |          |      |        | 54,480  |          |   |        | 45,065  |          |   |        | 47,009  |          |   |       | 5,677  |        
|                                              |                                                                         | (Income) loss applicable to minority interests       |        |         | 57       |         |        |         | (127     | )    |        |         | 165      |   |        |         | 404      |   |        |         | (99      | ) |       |        | (12     | )
|                                              |                                                                         |                                                      |        |         |          |         |        |         |          |      |        |         |          |   |        |         |          |   |        |         |          |   |       |       
|Net income                                    |                                                                         |                                                      | 14,646 |         |          |         | 26,423 |         |          |      | 54,645 |         |          |   | 45,469 |         |          |   | 46,910 |         |          |   | 5,665 |       
|                                              |                                                                         |                                                      |        |         |          |         |        |         |          |      |        |         |          |   |        |         |          |   |        |         |          |   |       |       
|Basic and diluted net income per
    share(3) |                                                                         |                                                      | 0.09   |         |          |         | 0.17   |         |          |      | 0.32   |         |          |   | 0.26   |         |          |   | 0.27   |         |          |   | 0.03  |       
|                                              |                                                                         |                                                      |        |         |          |         |        |         |          |      |        |         |          |   |        |         |          |   |        |         |          |   |       |       
|Basic and diluted net income per ADS(4)       |                                                                         |                                                      | 9.15   |         |          |         | 16.51  |         |          |      | 31.84  |         |          |   | 25.86  |         |          |   | 26.68  |         |          |   | 3.22  |       
|US GAAP                                       |                                                                         |                                                      |        |         |          |         |        |         |          |      |        |         |          |   |        |         |          |   |        |         |          |   |       |       
|Net income                                    |                                                                         |                                                      | 14,646 |         |          |         | 30,409 |         |          |      | 60,236 |         |          |   | 50,934 |         |          |   | 49,837 |         |          |   | 6,019 |       
|Basic and diluted net income per
    share(3) |                                                                         |                                                      | 0.09   |         |          |         | 0.19   |         |          |      | 0.35   |         |          |   | 0.29   |         |          |   | 0.28   |         |          |   | 0.03  |       
|Basic and diluted net income per ADS(4)       |                                                                         |                                                      | 9.15   |         |          |         | 19.01  |         |          |      | 35.10  |         |          |   | 28.97  |         |          |   | 28.34  |         |          |   | 3.42  |       

|                   |                                                               |                                                      |  |         |        |         |  |         |        |      |  |        |        |  |  |        |        |  |  |        |        |  |  |       |       | 
|------------------ | ------------------------------------------------------------- | ---------------------------------------------------- |  | ------- | ------ | ------- |  | ------- | ------ | ---- |  | ------ | ------ |  |  | ------ | ------ |  |  | ------ | ------ |  |  | ----- | ----- | 
|                   |                                                               |                                                     
|                   |                                                               | As of December 31,                                  
|                   |                                                               |                                                     
|                   |                                                               | 1998(1)                                              |  | 1999(1) |        | 2000(1) |  | 2001(2) |        | 2002 |  | 2002  
|                   |                                                               |                                                      |  |         |        |         |  |         |        |      |  |       
|                   |                                                               | RMB                                                  |  | RMB     |        | RMB     |  | RMB     |        | RMB  |  | US$   
|                   |                                                               |                                                     
|                   |                                                               | (in millions, except for per share and per ADS data)
|Balance Sheet Data |                                                               |                                                      |  |         |        |         |  |         |        |      |  |        |        |  |  |        |        |  |  |        |        |  |  |      
|IFRS               |                                                               |                                                      |  |         |        |         |  |         |        |      |  |        |        |  |  |        |        |  |  |        |        |  |  |      
|Assets             |                                                               |                                                      |  |         |        |         |  |         |        |      |  |        |        |  |  |        |        |  |  |        |        |  |  |      
|Current assets     |                                                               |                                                      |  |         |        |         |  |         |        |      |  |        |        |  |  |        |        |  |  |        |        |  |  |      
|                   | Cash and cash equivalents                                     |                                                      |  | 15,413  |        |         |  | 18,090  |        |      |  | 18,085 |        |  |  | 11,127 |        |  |  | 9,977  |        |  |  | 1,205 |      
|                   | Time deposits with maturities over three months               |                                                      |  |        |        |         |  |        |        |      |  |       |        |  |  | 3,253  |        |  |  | 2,612  |        |  |  | 315   |      
|                   | Short-term investments                                        |                                                      |  | 53      |        |         |  | 1,489   |        |      |  |       |        |  |  |       |        |  |  |       |        |  |  |      |      
|                   | Receivables under resale agreements                           |                                                      |  |        |        |         |  |        |        |      |  | 5,815  |        |  |  | 11,505 |        |  |  | 9,786  |        |  |  | 1,182 |      
|                   | Accounts receivable, less allowance for doubtful
    accounts |                                                      |  | 19,482  |        |         |  | 14,943  |        |      |  | 12,786 |        |  |  | 7,392  |        |  |  | 6,079  |        |  |  | 734   |      
|                   | Inventories, at net book value                                |                                                      |  | 18,423  |        |         |  | 18,396  |        |      |  | 32,499 |        |  |  | 28,313 |        |  |  | 28,441 |        |  |  | 3,435 |      
|                   | Prepaid expenses and other current assets                     |                                                      |  | 20,747  |        |         |  | 29,118  |        |      |  | 11,913 |        |  |  | 24,427 |        |  |  | 18,269 |        |  |  | 2,207 |      
|                   |                                                               |                                                      |  |         |        |         |  |         |        |      |  |        |        |  |  |        |        |  |  |        |        |  |  |      
|                   |                                                               | Total current assets                                 |  |         | 74,118 |         |  |         | 82,036 |      |  |        | 81,098 |  |  |        | 86,017 |  |  |        | 75,164 |  |  |       | 9,078 | 

9



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##### Table of Contents



|                                                                                             |                                                                                              |                                                        |                   |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |        |        |        |        | 
|-------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------- | ------------------------------------------------------ | ----------------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------ | ------ | ------ | ------ | 
|                                                                                             |                                                                                              |                                                       
|                                                                                             |                                                                                              | As of December 31,                                    
|                                                                                             |                                                                                              |                                                       
|                                                                                             |                                                                                              | 1998(1)                                                |                   | 1999(1) |         | 2000(1) |         | 2001(2) |         | 2002    |         | 2002   
|                                                                                             |                                                                                              |                                                        |                   |         |         |         |         |         |         |         |         |        
|                                                                                             |                                                                                              | RMB                                                    |                   | RMB     |         | RMB     |         | RMB     |         | RMB     |         | US$    
|                                                                                             |                                                                                              |                                                       
|                                                                                             |                                                                                              | (in millions, except for per share and per ADS data)  
|Non-current assets                                                                           |                                                                                              |                                                        |                   |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |        |       
|                                                                                             | Net assets to be retained by CNPC                                                            |                                                        |                   | 8,478   |         |         |         |        |         |         |         |        |         |         |         |        |         |         |         |        |         |         |        |       |       
|                                                                                             | Property, plant and equipment, less accumulated
    depreciation, depletion and amortization |                                                        |                   | 231,064 |         |         |         | 327,348 |         |         |         | 343,319 |         |         |         | 366,970 |         |         |         | 397,798 |         |         |        | 48,043 |       
|                                                                                             | Long-term investments, at net book value                                                     |                                                        |                   | 3,708   |         |         |         | 3,845   |         |         |         | 4,948   |         |         |         | 5,530   |         |         |         | 5,680   |         |         |        | 686    |       
|                                                                                             | Intangible and other assets                                                                  |                                                        |                   | 1,835   |         |         |         | 2,017   |         |         |         | 2,681   |         |         |         | 4,148   |         |         |         | 4,507   |         |         |        | 544    |       
|                                                                                             |                                                                                              |                                                        |                   |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |        |       
|                                                                                             | Total non-current assets                                                                     |                                                        |                   | 245,085 |         |         |         | 333,210 |         |         |         | 350,948 |         |         |         | 376,648 |         |         |         | 407,985 |         |         |        | 49,273 |       
|                                                                                             |                                                                                              |                                                        |                   |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |        |       
|                                                                                             |                                                                                              | Total assets                                           |                   |         | 319,203 |         |         |         | 415,246 |         |         |         | 432,046 |         |         |         | 462,665 |         |         |         | 483,149 |         |        |        | 58,351 |       
|                                                                                             |                                                                                              |                                                        |                   |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |        |       
|Liabilities and shareholders
    equity                                                     |                                                                                              |                                                        |                   |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |        |       
|Current liabilities                                                                          |                                                                                              |                                                        |                   |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |        |       
|                                                                                             | Short-term debt                                                                              |                                                        |                   | 65,006  |         |         |         | 62,057  |         |         |         | 41,514  |         |         |         | 25,323  |         |         |         | 20,633  |         |         |        | 2,492  |       
|                                                                                             | Accounts payable and accrued liabilities                                                     |                                                        |                   | 42,087  |         |         |         | 47,707  |         |         |         | 39,550  |         |         |         | 53,210  |         |         |         | 57,793  |         |         |        | 6,980  |       
|                                                                                             | Income and other taxes payable                                                               |                                                        |                   | 3,902   |         |         |         | 4,747   |         |         |         | 16,570  |         |         |         | 14,434  |         |         |         | 10,927  |         |         |        | 1,320  |       
|                                                                                             |                                                                                              |                                                        |                   |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |        |       
|                                                                                             |                                                                                              | Total current liabilities                              |                   |         | 110,995 |         |         |         | 114,511 |         |         |         | 97,634  |         |         |         | 92,967  |         |         |         | 89,353  |         |        |        | 10,792 |       
|Non-current liabilities                                                                      |                                                                                              |                                                        |                   |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |        |       
|                                                                                             | Payable to CNPC                                                                              |                                                        |                   | 8,478   |         |         |         |        |         |         |         |        |         |         |         |        |         |         |         |        |         |         |        |       |       
|                                                                                             | Long-term debt                                                                               |                                                        |                   | 105,432 |         |         |         | 84,512  |         |         |         | 53,412  |         |         |         | 65,546  |         |         |         | 60,655  |         |         |        | 7,325  |       
|                                                                                             | Deferred credits and other long-term obligations                                             |                                                        |                   | 2,133   |         |         |         | 1,155   |         |         |         | 1,196   |         |         |         | 1,380   |         |         |         | 1,684   |         |         |        | 203    |       
|                                                                                             | Deferred income taxes                                                                        |                                                        |                   | 10,381  |         |         |         | 1,182   |         |         |         | 3,169   |         |         |         | 7,030   |         |         |         | 9,927   |         |         |        | 1,199  |       
|                                                                                             |                                                                                              |                                                        |                   |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |        |       
|                                                                                             |                                                                                              | Total non-current liabilities                          |                   |         | 126,424 |         |         |         | 86,849  |         |         |         | 57,777  |         |         |         | 73,956  |         |         |         | 72,266  |         |        |        | 8,727  |       
|                                                                                             |                                                                                              |                                                        | Total liabilities |         |         | 237,419 |         |         |         | 201,360 |         |         |         | 155,411 |         |         |         | 166,923 |         |         |         | 161,619 |        |        |        | 19,519 | 
|Minority interest                                                                            |                                                                                              |                                                        | 3,798             |         |         |         | 4,200   |         |         |         | 4,989   |         |         |         | 5,136   |         |         |         | 4,854   |         |         |         | 586    |       
|Owners/shareholders
    equity(5)                                                          |                                                                                              |                                                        | 77,986            |         |         |         | 209,686 |         |         |         | 271,646 |         |         |         | 290,606 |         |         |         | 316,676 |         |         |         | 38,246 |       
|                                                                                             |                                                                                              |                                                        |                   |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |        |       
|                                                                                             |                                                                                              | Total liabilities and
    owners/shareholders equity |                   |         | 319,203 |         |         |         | 415,246 |         |         |         | 432,046 |         |         |         | 462,665 |         |         |         | 483,149 |         |        |        | 58,351 |       
|                                                                                             |                                                                                              |                                                        |                   |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |        |       
|Share capital, issued and outstanding, RMB 1.00
    par value                                |                                                                                              |                                                        |                   |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |        |       
|                                                                                             | State-owned shares                                                                           |                                                        |                   |        |         |         |         | 160,000 |         |         |         | 158,242 |         |         |         | 158,242 |         |         |         | 158,242 |         |         |        | 19,112 |       
|                                                                                             | H shares and ADSs                                                                            |                                                        |                   |        |         |         |         |        |         |         |         | 17,582  |         |         |         | 17,582  |         |         |         | 17,582  |         |         |        | 2,123  |       
|US GAAP                                                                                      |                                                                                              |                                                        |                   |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |        |       
|Property, plant and equipment, less accumulated
    depreciation, depletion and amortization |                                                                                              |                                                        | 231,064           |         |         |         | 252,196 |         |         |         | 276,601 |         |         |         | 308,498 |         |         |         | 347,595 |         |         |         | 41,980 |       
|Total assets                                                                                 |                                                                                              |                                                        | 319,203           |         |         |         | 340,094 |         |         |         | 365,328 |         |         |         | 404,193 |         |         |         | 432,946 |         |         |         | 52,288 |       
|Owners/shareholders
    equity(5)                                                          |                                                                                              |                                                        | 77,986            |         |         |         | 159,938 |         |         |         | 227,489 |         |         |         | 251,914 |         |         |         | 283,464 |         |         |         | 34,235 |       
|Other Financial Data                                                                         |                                                                                              |                                                        |                   |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |        |       
|IFRS                                                                                         |                                                                                              |                                                        |                   |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |        |       
|Dividend per share                                                                           |                                                                                              |                                                        |                  |         |         |         |        |         |         |         | 0.14    |         |         |         | 0.12    |         |         |         | 0.12    |         |         |         | 0.01   |       
|Dividend per ADS                                                                             |                                                                                              |                                                        |                  |         |         |         |        |         |         |         | 14.14   |         |         |         | 11.98   |         |         |         | 12.00   |         |         |         | 1.45   |       
|                                                                                             |                                                                                              |                                                        |                   |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |         |        |       
|Capital expenditures(6)                                                                      |                                                                                              |                                                        | (43,933           | )       |         |         | (43,310 | )       |         |         | (60,130 | )       |         |         | (61,549 | )       |         |         | (73,726 | )       |         |         | (8,904 | )     
|Net cash provided by operating activities                                                    |                                                                                              |                                                        | 38,068            |         |         |         | 53,658  |         |         |         | 103,309 |         |         |         | 84,439  |         |         |         | 98,341  |         |         |         | 11,877 |       
|Net cash used for investing
    activities(7)                                                |                                                                                              |                                                        | (39,290           | )       |         |         | (40,622 | )       |         |         | (60,126 | )       |         |         | (61,491 | )       |         |         | (71,662 | )       |         |         | (8,655 | )     
|Net cash used for financing
    activities(8)                                                |                                                                                              |                                                        | (55               | )       |         |         | (10,359 | )       |         |         | (43,188 | )       |         |         | (29,906 | )       |         |         | (27,829 | )       |         |         | (3,361 | )     



---

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Certain financial data for these periods and as
    of these dates have been retroactively restated and are derived
    from our previously unaudited consolidated financial statements.
    See the paragraphs preceding these table for a detailed
    description.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(2) | Certain financial data for these periods and as
    of these dates have been retroactively restated. See the
    paragraphs preceding these tables for a detailed description.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(3) | Historical income per share for the year ended
    December 31, 2001 and 2002 has been calculated by dividing
    the net profit by the number of 175,824 million shares
    issued and outstanding for the periods presented. Historical
    income per share for the year ended December 31, 2000 has
    been calculated by dividing the net profit by the weighted
    average number of 171,630 million shares issued and
    outstanding for the period presented. Historical income per
    share for the years ended December 31, 1998 and 1999 has
    been calculated by dividing the net profit by the
    160,000 million shares issued and outstanding upon the
    formation of PetroChina on November 5, 1999 for the periods
    presented.
|   
|(4) | Historical income per ADS for the year ended
    December 31, 2001 and 2002 has been calculated by dividing
    the net profit by the number of 175,824 million shares
    issued and outstanding for the periods presented, assuming each
    ADS representing 100 H shares. Historical income per
    ADS for the year ended December 31, 2000 has been
    calculated by                                                                                                                                                                                                                                                                                                                                                                                

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | dividing the net profit by the weighted average
    number of 171,630 million shares issued and outstanding for
    the period presented, assuming each ADS representing
    100 H shares. Historical income per ADS for the years
    ended December 31, 1998 and 1999 has been calculated by
    dividing the net profit by the 160,000 million shares
    issued and outstanding upon the completion of the global
    offering of our H shares for the periods presented,
    assuming each ADS representing 100 H shares.
|   
|(5) | Prior to our formation on November 5, 1999,
    the financial statements were presented on a carve-out combined
    basis and no direct ownership existed prior to such date among
    all the assets, businesses and operations transferred from CNPC
    to us as part of our formation. Accordingly, owners equity
    was shown in the combined financial statements until
    November 5, 1999.                                                                                                                         
|   
|(6) | Excludes capital expenditures for assets retained
    by CNPC of RMB 1,687 million and
    RMB 111 million in 1998 and 1999, respectively. We did
    not incur such capital expenditures in 2000, 2001 and 2002.                                                                                                                                                                                                                                                                                                             
|   
|(7) | Includes capital expenditures for assets retained
    by CNPC of RMB 1,687 million and
    RMB 111 million in 1998 and 1999, respectively. We did
    not incur such capital expenditures in 2000, 2001 and 2002.                                                                                                                                                                                                                                                                                                             
|   
|(8) | Includes contributions from CNPC for assets
    retained by CNPC of RMB 1,687 million and
    RMB 111 million in 1998 and 1999, respectively. CNPC
    did not make such contributions for such assets in 2000, 2001
    and 2002.                                                                                                                                                                                                                                                                                            

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Risk Factors

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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our operations are affected by the volatility of
    prices for crude oil and refined products. We and China
    Petroleum and Chemical Corporation, or Sinopec, set our crude
    oil median prices monthly based on the Singapore trading prices
    for crude oil. The PRC government publishes the retail median
    guidance prices for gasoline and diesel monthly based on the FOB
    Singapore, Rotterdam and New York gasoline and diesel trading
    prices in the previous month. Historically, international prices
    for crude oil and refined products have fluctuated widely in
    response to changes in many factors, such as global and regional
    economic and political developments and global and regional
    supply and demand for crude oil and refined products. We do not
    have and will not have control over the factors affecting
    international prices for crude oil and refined products. We
    expect continued volatility and uncertainty in international
    prices for crude oil and refined products. Declines in crude oil
    prices may adversely affect our business, results of operations
    and financial condition, our capital expenditure plans and the
    value of our proved reserves.
|
| |  | The crude oil and natural gas reserve data in
    this annual report are only estimates. The reliability of
    reserve estimates depend on a number of factors, assumptions and
    variables, such as the quality and quantity of our technical and
    economic data and the prevailing oil and gas prices applicable
    to our production, many of which are beyond our control and may
    prove to be incorrect over time. Results of drilling, testing
    and production after the date of the estimates may require
    substantial upward or downward revisions in our reserve data.
    Our actual production, revenues and expenditures with respect to
    our reserves may differ materially from these estimates because
    of these revisions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | In part as a result of the PRCs entry into
    the WTO, we expect that the PRC government will eventually lift
    its restrictions that prohibit the direct sale of crude oil and
    natural gas by foreign companies in China or other restrictions
    that limit, or have the effect of limiting, competition by
    foreign companies in the PRC oil and gas industry. We may face
    intensified competition from foreign companies in the future,
    especially in our refining and marketing and chemical
    businesses. This could adversely affect our future profitability.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | CNPC owns approximately 90% of our share capital.
    This ownership percentage enables CNPC to elect our entire board
    of directors without the concurrence of any of our other
    shareholders. Accordingly, CNPC is in a position to:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           



| |   |                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | control our policies, management and affairs;                                                                                                                                                                                                                     
|
| |  | subject to applicable PRC laws and regulations
    and provisions of our articles of association, determine the
    timing and amount of dividend payments and adopt amendments to
    certain of the provisions of our articles of association; and              
|
| |  | otherwise determine the outcome of most corporate
    actions and, subject to the requirements of the Listing Rules of
    the Hong Kong Stock Exchange, cause our company to effect
    corporate transactions without the approval of minority
    shareholders.



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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In addition to its relationship with us as our
    controlling shareholder, CNPC by itself or through its
    affiliates also provides us with certain services and products
    necessary for our business activities, such as construction and
    technical services, production services and supply of material
    services. The interests of CNPC and its affiliates as providers
    of these services and products to us may conflict with our
    interests. Although we have entered into a

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | Comprehensive Products and Services Agreement
    with CNPC and our transactions with CNPC over the past three
    years have been conducted on open, fair and competitive
    commercial terms, we have only limited leverage in negotiating
    with CNPC and its affiliates over the specific terms of the
    agreements for the provision of these services and products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | The eastern and southern regions of China have a
    higher demand for refined products and chemical products than
    the western and northern regions. Most of our refineries and
    chemical plants are located in the western and northern regions
    of China. While we continue to expand the sales of these
    products in the eastern and southern regions of China, we face
    strong competition from Sinopec. In addition, we incur
    relatively higher transportation costs for delivery of our
    refined products and chemical products to certain areas of these
    regions from our refineries and chemical plants in western and
    northern China. As a result, we expect that we will continue to
    encounter difficulty in increasing our sales of refined products
    and chemical products in these regions.
|
| |  | We are currently constructing and renovating
    several natural gas and refined product pipelines and storage
    facilities and plan to construct and renovate other natural gas
    and refined product pipelines and storage facilities. We cannot
    give assurance that the cash generated by our operations will be
    sufficient to fund these development plans or that our actual
    future capital expenditures and investments will not
    significantly exceed our current planned amounts. If either of
    these conditions arises, we may have to seek external financing
    to satisfy our capital needs. Under such circumstance, our
    inability to obtain sufficient funding for our development plans
    could adversely affect our business, financial condition and
    results of operations.                 
|
| |  | We are also subject to a number of risks relating
    to the PRC and the PRC oil and gas industry. These risks are
    described as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our operations, like those of other PRC oil and
    gas companies, are subject to extensive regulations and control
    by the PRC government. These regulations and control affect many
    material aspects of our operations, such as exploration and
    production licensing, industry-specific taxes and fees and
    environmental and safety standards. As a result, we may face
    significant constraints on our ability to implement our business
    strategies, to develop or expand our business operations or to
    maximize our profitability. Our business may also be adversely
    affected by future changes in certain policies of the PRC
    government with respect to the oil and gas industry.
|
| |  | Currently, the PRC government must approve the
    construction and major renovation of significant refining and
    petrochemical facilities as well as the construction of
    significant natural gas and refined product pipelines and
    storage facilities. We presently have several significant
    projects pending approval from the relevant government
    authorities and will need approvals from the relevant government
    authorities in connection with several other significant
    projects. We do not have control over the timing and outcome of
    the final project approvals.                                                                                                                
|
| |  | We receive most of our revenues in Renminbi. A
    portion of our Renminbi revenues must be converted into other
    currencies to meet our foreign currency obligations. The
    existing foreign exchange limitations under the PRC laws and
    regulations could affect our ability to obtain foreign exchange
    through debt financing, or to obtain foreign exchange for
    capital expenditures.                                                                                                                                                                                                                                                                                                                
|
| |  | Because PRC laws, regulations and legal
    requirements dealing with economic matters are relatively new
    and continue to evolve, and because of the limited volume of
    published judicial interpretations and the non-binding nature of
    prior court decisions, the interpretation and enforcement of
    these laws, regulations and legal requirements involve some
    uncertainty. We have included the Mandatory Provisions and
    certain additional requirements that are imposed by the Hong
    Kong Stock Exchange Listing Rules in our Articles of                                                                                                                                                 

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | Association for the purpose of reducing the scope
    of difference between the Hong Kong company law and the PRC
    Company Law. However, because the PRC Company Law is different
    in certain important aspects from company laws in the United
    States, Hong Kong and other common law jurisdictions and because
    the PRC securities laws and regulations are still at an early
    stage of development, you may not enjoy shareholders
    protections that you may be entitled to in other jurisdictions.                        
|
| |  | In addition to the adverse effect on our
    revenues, margins and profitability from any future fall in oil
    and natural gas prices, a prolonged period of low prices or
    other indicators would lead to a review for impairment of our
    oil and natural gas properties. This review would reflect
    managements view of long-term oil and natural gas prices.
    Such a review could result in a charge for impairment which
    could have a significant effect on our results of operations in
    the period in which it occurs.

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

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##### Table of Contents






ITEM 4  INFORMATION ON THE
COMPANY




Introduction

History and Development on the
Company

Overview of
Our Operations

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



| |   |                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------
| |  | the exploration, development, production and sale
    of crude oil and natural gas;                                           
|
| |  | the refining, transportation, storage and
    marketing of crude oil and petroleum products;                                  
|
| |  | the production and sale of basic petrochemical
    products, derivative chemical products and other chemical
    products; and
|
| |  | the transmission of crude oil, refined products
    and natural gas as well as sale of natural gas.                           

We are Chinas largest producer of crude oil
and natural gas. Currently, substantially all of our crude oil
and natural gas reserves and production-related assets are
located in China. In the year ended December 31, 2002, we
had total revenue of RMB 244,424 million (US$29,520
million) and net income of RMB 46,910 million
(US$5,665 million).

Our exploration, development and production
activities commenced in the early 1950s, when we conducted
exploration activities in the Yumen oil region in northwestern
China. The discovery of crude oil in 1959 in northeastern
Chinas Daqing oil region, one of the worlds largest
oil regions in terms of proved crude oil reserves, marked the
beginning of our large-scale upstream activities. Over the past
four decades, we have conducted crude oil and natural gas
exploration activities in many regions of China. As of
December 31, 2002, we had estimated proved reserves of
approximately 10.9 billion barrels of crude oil and
approximately 38.8 trillion cubic feet of natural gas. We
believe that we hold production licenses for the substantial
majority of Chinas proved crude oil reserves and proved
natural gas reserves. In the year ended December 31, 2002,
we produced 769.8 million barrels of crude oil and
605.0 billion cubic feet of natural gas for sale,
representing an average production of 2,109 thousand barrels of
crude oil and 1,658 million cubic feet of sales natural gas
per day. Approximately 73% of the crude oil we sold in the year
ended December 31, 2002 was supplied to our refineries.

We commenced limited refining activities in the
mid-1950s, when we began producing gasoline and diesel at
refineries in the Yumen oil region. We now operate 23 refineries
located in eight provinces, two autonomous regions and one
municipality. In 2002, our refineries processed approximately
569.0 million barrels of crude oil or 1,558.9 thousand
barrels per day. In the year ended December 31, 2002, we
produced approximately 47.7 million tons of gasoline,
diesel and kerosene and sold approximately 54.1 million
tons of these products. Approximately 94% of the crude oil
processed in our refineries in the year ended December 31,
2002 was supplied by our exploration and production operations.
As of December 31, 2002, our retail distribution network
consisted of 10,961 service stations that we own and operate,
317 service stations wholly owned by CNPC or jointly owned by
CNPC and third parties to which we provide supervisory support
and 1,882 franchise service stations.

Our chemicals operations commenced in the early
1950s, when we began producing urea at our first petrochemical
plant in Lanzhou in northwestern China. In the early 1960s, we
began producing ethylene. We currently produce a wide range of
basic and derivative petrochemical products and other chemical
products at 13 chemical plants located in five provinces and
three autonomous regions in China. Our other segments supply
substantially all of the hydrocarbon feedstock requirements of
our chemicals operations.

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We are Chinas largest natural gas
transporter and seller in terms of sales volume. Our natural gas
transmission and marketing activities commenced in Sichuan in
southwestern China in the 1950s. In 2002, our sales of natural
gas totaled 588.4 billion cubic feet, of which
486.3 billion cubic feet was sold through our natural gas
and pipeline segment. As of December 31, 2002, we owned and
operated regional natural gas pipeline networks consisting of
approximately 13,391 kilometers of pipelines, of which
approximately 12,299 kilometers were operated by our natural gas
and pipeline segment. As of December 31, 2002, we owned and
operated a crude oil pipeline network consisting of 9,215
kilometers of pipelines with an average daily throughput of
approximately 2.2 million barrels of crude oil. As of
December 31, 2002, we also had a refined product pipeline
network consisting of approximately 2,276 kilometers of
pipelines with an average daily throughput of approximately
15,397 tons of refined products.

We plan to continue to pursue attractive business
opportunities outside China as part of our business growth
strategy to utilize both domestic and international resources to
strengthen our competitiveness. In connection with this
objective, we established PetroChina International Limited, a
wholly owned subsidiary, to focus on international oil and gas
exploration and development. In April 2002, we acquired Devon
Energy Indonesia Limited from Devon Energy Corporation for a
price of US$249.9 million. Devon Energy Indonesia Limited
holds interests in a number of crude oil and natural gas
exploration and production projects in Indonesia, including a
30% interest in an oil and gas production sharing contract
relating to the Jabung block located in Sumatra, Indonesia. In
April 2003, we acquired a 50% equity interest in Amerada Hess
Indonesia Holdings Limited, which holds a 30% interest in the
oil and gas production sharing contract relating to the Jabung
block, for a price of US$82 million. We used loans and cash
generated by our operations to fund these acquisitions. In
connection with these acquisitions, we have entered into several
take-or-pay agreements with a number of Singapore customers to
supply them with natural gas to be produced in Indonesia. In
addition, we are currently assessing the feasibility of making
further investments in international oil and gas markets.

Our Corporate
Organization and Shareholding Structure

In March 1998, the PRC government approved a
comprehensive restructuring plan for Chinas oil and gas
industry intended to improve the efficiency and competitiveness
of CNPC and Sinopec and to effect the separation of regulatory
and business management functions. A series of asset injections
and exchanges completed in 1998 as part of this plan
substantially increased CNPCs level of vertical
integration.

PetroChina was established as a joint stock
company with limited liability under the Company Law of the PRC
on November 5, 1999 as part of a restructuring in which
CNPC transferred to us most of the assets, liabilities and
interests of CNPC relating to its exploration and production,
refining and marketing, chemicals and natural gas businesses.
CNPC retained the assets and liabilities relating to its
remaining businesses and operations, including assets and
liabilities relating to international exploration and production
and refining and pipeline operations. CNPC is our primary
provider of a wide range of services and products. On
April 7, 2000, PetroChina completed a global offering of
H shares and ADSs. Currently, CNPC owns an approximate 90%
interest in PetroChina.

16



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##### Table of Contents



The following chart sets forth our corporate
organization and our shareholding structure:

(CNPC CORPORATE ORGANIZATION CHART)




|    |                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Indicates approximate shareholding.                                                                                                                                                                                                      
|   
|(2) | Includes subsidiary companies and branches
    without legal person status.                                                                                                                                                              
|   
|(3) | Represents enterprises directly administered by
    such segment.                                                                                                                                                                        
|   
|(4) | Includes PetroChina Planning & Engineering
    Institute, PetroChina Exploration & Development Research
    Institute, PetroChina International Limited, China National
    United Oil Corporation and PetroChina International Co., Ltd.

17



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##### Table of Contents



The following chart sets forth our management
structure:

(CHART)




|    |                                                                               
|--- | ------------------------------------------------------------------------------
|(1) | Includes subsidiary companies and branches
    without legal person status.   
|   
|(2) | Represents enterprises directly administered and
    operated by such segment.

18



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General Information

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

19



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##### Table of Contents





(MAP)

20



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##### Table of Contents






Exploration and Production

We are engaged in crude oil and natural gas
exploration, development and production in China. Substantially
all of our total estimated proved crude oil and natural gas
reserves are located in China, principally in northeastern,
northern, southwestern and northwestern China. The Songliao
basin, located in Heilongjiang and Jilin provinces in
northeastern China, including the Daqing and Jilin oil regions,
accounted for 51.7% of our proved crude oil reserves as of
December 31, 2002 and 52.7% of our crude oil production in
2002. We also have significant crude oil reserves and operations
in the area around the Bohai Bay. The Bohai Bay basin includes
the Liaohe, Dagang, Huabei and Jidong oil regions and accounted
for 20.4% of our proved crude oil reserves as of
December 31, 2002 and 21.0% of our crude oil production in
2002. Our proved natural gas reserves and production are
generally concentrated in northwestern and southwestern China,
specifically in the Erdos, Tarim and Sichuan basins.

We currently hold exploration licenses covering a
total area of approximately 387 million acres and
production licenses covering a total area of approximately
13.9 million acres. We believe that we hold a majority of
Chinas exploration and production acreage. In 2002, our
exploration and production segment had income from operations of
RMB 72,139 million (US$8,712 million).

Reserves

Our estimated proved reserves as of
December 31, 2002 totaled approximately 10.9 billion
barrels of crude oil and approximately 38.8 trillion cubic
feet of natural gas. As of December 31, 2002, proved
developed reserves accounted for 84.1% and 30.7% of our total
proved crude oil and natural gas reserves, respectively. Total
proved hydrocarbon reserves on a barrels-of-oil equivalent basis
increased by 2.5% from approximately 16,976.2 million
barrels-of-oil equivalent as of the end of 2001 to approximately
17,406.4 million barrels-of-oil equivalent as of the end of
2002. Natural gas as a percentage of total proved hydrocarbon
reserves increased from 35.4% as of December 31, 2001 to
37.2% as of December 31, 2002.

The following table sets forth our estimated
proved reserves and proved developed reserves of crude oil and
natural gas as of December 31, 2000, 2001 and 2002. We
prepared our reserve estimates as of December 31, 2000,
2001 and 2002 on the basis of a report prepared by DeGolyer and
MacNaughton, independent engineering consultants, in accordance
with Statement of Financial Accounting Standards No. 69, or
SFAS No. 69. Our reserve estimates include only crude oil
and natural gas which we believe can be reasonably produced
within the current terms of our production licenses. See
Regulatory Matters  Exploration Licenses and
Production Licenses for a discussion

21



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##### Table of Contents



of our production licenses. Also see
Item 3  Key Information  Risk
Factors for a discussion of the uncertainty inherent in
the estimation of proved reserves.


|                                              |                                 |                       |          |                |   |                    |          |          |   |  |          |          |  
|--------------------------------------------- | ------------------------------- | --------------------- | -------- | -------------- | - | ------------------ | -------- | -------- | - |  | -------- | -------- | -
|                                              |                                 | Crude oil             |          | Natural gas(1) |   | Combined          
|                                              |                                 |                       |          |                |   |                   
|                                              |                                 | (millions of barrels) |          | (Bcf)          |   | (BOE, in millions)
|Proved developed and undeveloped
    reserves |                                 |                       |          |                |   |                    |          |          |   |  |          |         
|Reserves as of December 31, 2000              |                                 |                       | 11,031.8 |                |   |                    | 32,532.6 |          |   |  | 16,453.9 |         
|                                              | Revisions of previous estimates |                       |          | 189.6          |   |                    |          | 487.6    |   |  |          | 270.9    |  
|                                              | Extensions and discoveries      |                       |          | 360.4          |   |                    |          | 3,773.4  |   |  |          | 989.3    |  
|                                              | Improved recovery               |                       |          | 140.8          |   |                    |          | 35.8     |   |  |          | 146.7    |  
|                                              | Production for the year         |                       |          | (763.5         | ) |                    |          | (726.8   | ) |  |          | (884.6   | )
|Reserves as of December 31, 2001              |                                 |                       | 10,959.1 |                |   |                    | 36,102.6 |          |   |  | 16,976.2 |         
|                                              | Revisions of previous estimates |                       |          | 348.6          |   |                    |          | (224.2   | ) |  |          | 311.3    |  
|                                              | Extensions and discoveries      |                       |          | 329.7          |   |                    |          | 3,539.5  |   |  |          | 919.6    |  
|                                              | Improved recovery               |                       |          | 30.6           |   |                    |          | 0        |   |  |          | 30.6     |  
|                                              | Purchased reserves              |                       |          | 38.7           |   |                    |          | 192.6    |   |  |          | 70.8     |  
|                                              | Production for the year         |                       |          | (769.8         | ) |                    |          | (793.8   | ) |  |          | (902.1   | )
|Reserves as of December 31, 2002              |                                 |                       | 10,937.0 |                |   |                    | 38,816.8 |          |   |  | 17,406.4 |         
|Proved developed reserves                     |                                 |                       |          |                |   |                    |          |          |   |  |          |         
|                                              | As of December 31, 2000         |                       |          | 9,545.7        |   |                    |          | 12,502.5 |   |  |          | 11,629.4 |  
|                                              | As of December 31, 2001         |                       |          | 9,308.8        |   |                    |          | 12,945.6 |   |  |          | 11,466.4 |  
|                                              | As of December 31, 2002         |                       |          | 9,198.1        |   |                    |          | 11,921.2 |   |  |          | 11,185.0 |  




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

The following tables set forth our crude oil and
natural gas proved reserves and proved developed reserves by
region as of December 31, 2000, 2001 and 2002.

|                   |       |                       |         |           |  |             |         |           |  |             |         |           |  |  |         |         |  |  |         |          |  |  |         |         | 
|------------------ | ----- | --------------------- | ------- | --------- |  | ----------- | ------- | --------- |  | ----------- | ------- | --------- |  |  | ------- | ------- |  |  | ------- | -------- |  |  | ------- | ------- | 
|                   |       |                      
|                   |       | As of December 31,   
|                   |       |                      
|                   |       |                       |         |           |  |            
|                   |       | 2000                  |         | 2001      |  | 2002       
|                   |       |                       |         |           |  |            
|                   |       | Proved                |         |           |  | Proved      |         |           |  | Proved      |         |          
|                   |       | developed             |         |           |  | developed   |         |           |  | developed   |         |          
|                   |       | and                   |         | Proved    |  | and         |         | Proved    |  | and         |         | Proved   
|                   |       | undeveloped           |         | developed |  | undeveloped |         | developed |  | undeveloped |         | developed
|                   |       |                       |         |           |  |             |         |           |  |             |         |          
|                   |       |                      
|                   |       | (millions of barrels)
|Crude oil reserves |       |                       |         |           |  |             |         |           |  |             |         |           |  |  |         |        
|Daqing             |       |                       | 5,682.1 |           |  |             | 5,426.0 |           |  |             | 5,349.8 |           |  |  | 5,029.1 |         |  |  | 5,073.8 |          |  |  | 4,729.6 |        
|Liaohe             |       |                       | 1,223.8 |           |  |             | 999.9   |           |  |             | 1,217.3 |           |  |  | 1,027.4 |         |  |  | 1,227.0 |          |  |  | 1,007.5 |        
|Xinjiang           |       |                       | 1,084.9 |           |  |             | 821.5   |           |  |             | 1,089.9 |           |  |  | 854.4   |         |  |  | 1,102.2 |          |  |  | 912.5   |        
|Changqing          |       |                       | 627.3   |           |  |             | 472.0   |           |  |             | 821.8   |           |  |  | 576.9   |         |  |  | 885.7   |          |  |  | 623.1   |        
|Jilin              |       |                       | 477.6   |           |  |             | 373.7   |           |  |             | 527.0   |           |  |  | 371.7   |         |  |  | 585.8   |          |  |  | 377.2   |        
|Tarim              |       |                       | 466.1   |           |  |             | 300.7   |           |  |             | 495.0   |           |  |  | 298.8   |         |  |  | 522.0   |          |  |  | 342.6   |        
|Huabei             |       |                       | 500.3   |           |  |             | 375.4   |           |  |             | 483.3   |           |  |  | 345.9   |         |  |  | 494.2   |          |  |  | 350.8   |        
|Dagang             |       |                       | 439.4   |           |  |             | 295.8   |           |  |             | 447.2   |           |  |  | 331.9   |         |  |  | 458.4   |          |  |  | 364.9   |        
|Qinghai            |       |                       | 239.5   |           |  |             | 192.4   |           |  |             | 229.9   |           |  |  | 186.6   |         |  |  | 240.6   |          |  |  | 192.7   |        
|Tuha               |       |                       | 196.8   |           |  |             | 194.4   |           |  |             | 199.9   |           |  |  | 188.0   |         |  |  | 208.7   |          |  |  | 189.9   |        
|Sichuan            |       |                       | 8.6     |           |  |             | 8.6     |           |  |             | 5.7     |           |  |  | 5.7     |         |  |  | 5.5     |          |  |  | 5.5     |        
|Other regions(1)   |       |                       | 85.3    |           |  |             | 85.3    |           |  |             | 92.5    |           |  |  | 92.5    |         |  |  | 133.1   |          |  |  | 101.9   |        
|                   |       |                       |         |           |  |             |         |           |  |             |         |           |  |  |         |         |  |  |         |          |  |  |         |        
|                   | Total |                       |         | 11,031.8  |  |             |         | 9,545.7   |  |             |         | 10,959.1  |  |  |         | 9,308.8 |  |  |         | 10,937.0 |  |  |         | 9,198.1 | 
|                   |       |                       |         |           |  |             |         |           |  |             |         |           |  |  |         |         |  |  |         |          |  |  |         |        

22



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##### Table of Contents



|                        |       |                    |          |           |  |             |         |           |  |             |          |           |  |  |         |          |  |  |          |          |  |  |         |          | 
|----------------------- | ----- | ------------------ | -------- | --------- |  | ----------- | ------- | --------- |  | ----------- | -------- | --------- |  |  | ------- | -------- |  |  | -------- | -------- |  |  | ------- | -------- | 
|                        |       |                   
|                        |       | As of December 31,
|                        |       |                   
|                        |       |                    |          |           |  |            
|                        |       | 2000               |          | 2001      |  | 2002       
|                        |       |                    |          |           |  |            
|                        |       | Proved             |          |           |  | Proved      |         |           |  | Proved      |          |          
|                        |       | Developed          |          |           |  | developed   |         |           |  | developed   |          |          
|                        |       | and                |          | Proved    |  | and         |         | Proved    |  | and         |          | Proved   
|                        |       | undeveloped        |          | developed |  | undeveloped |         | developed |  | undeveloped |          | developed
|                        |       |                    |          |           |  |             |         |           |  |             |          |          
|                        |       |                   
|                        |       | (Bcf)             
|Natural gas reserves(1) |       |                    |          |           |  |             |         |           |  |             |          |           |  |  |         |         
|Changqing               |       |                    | 6,798.9  |           |  |             | 2,360.5 |           |  |             | 10,256.6 |           |  |  | 2,864.3 |          |  |  | 11,222.6 |          |  |  | 2,719.5 |         
|Tarim                   |       |                    | 10,007.0 |           |  |             | 481.3   |           |  |             | 10,158.1 |           |  |  | 531.1   |          |  |  | 11,026.0 |          |  |  | 591.2   |         
|Sichuan                 |       |                    | 7,247.4  |           |  |             | 4,917.2 |           |  |             | 7,074.1  |           |  |  | 4,814.8 |          |  |  | 7,461.7  |          |  |  | 4,040.6 |         
|Qinghai                 |       |                    | 2,923.2  |           |  |             | 101.2   |           |  |             | 2,946.8  |           |  |  | 487.0   |          |  |  | 3,416.1  |          |  |  | 837.2   |         
|Xinjiang                |       |                    | 1,421.2  |           |  |             | 1,345.3 |           |  |             | 1,584.8  |           |  |  | 1,293.5 |          |  |  | 1,707.3  |          |  |  | 1,036.1 |         
|Daqing                  |       |                    | 1,617.2  |           |  |             | 1,459.2 |           |  |             | 1,551.7  |           |  |  | 1,374.2 |          |  |  | 1,324.8  |          |  |  | 1,171.9 |         
|Dagang                  |       |                    | 622.5    |           |  |             | 211.5   |           |  |             | 719.9    |           |  |  | 276.6   |          |  |  | 655.4    |          |  |  | 252.4   |         
|Tuha                    |       |                    | 599.4    |           |  |             | 598.7   |           |  |             | 583.1    |           |  |  | 329.3   |          |  |  | 621.2    |          |  |  | 338.4   |         
|Liaohe                  |       |                    | 745.4    |           |  |             | 645.0   |           |  |             | 697.6    |           |  |  | 623.9   |          |  |  | 606.6    |          |  |  | 530.5   |         
|Huabei                  |       |                    | 364.3    |           |  |             | 237.4   |           |  |             | 366.8    |           |  |  | 229.6   |          |  |  | 395.8    |          |  |  | 237.5   |         
|Jilin                   |       |                    | 172.3    |           |  |             | 131.0   |           |  |             | 151.3    |           |  |  | 109.5   |          |  |  | 174.3    |          |  |  | 109.9   |         
|Other regions(2)        |       |                    | 14.0     |           |  |             | 14.0    |           |  |             | 11.9     |           |  |  | 11.9    |          |  |  | 204.9    |          |  |  | 55.9    |         
|                        |       |                    |          |           |  |             |         |           |  |             |          |           |  |  |         |          |  |  |          |          |  |  |         |         
|                        | Total |                    |          | 32,532.8  |  |             |         | 12,502.5  |  |             |          | 36,102.6  |  |  |         | 12,945.6 |  |  |          | 38,816.8 |  |  |         | 11,921.2 | 
|                        |       |                    |          |           |  |             |         |           |  |             |          |           |  |  |         |          |  |  |          |          |  |  |         |         




|    |                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------
|(1) | Represents natural gas remaining after field
    separation for condensate removal and reduction for flared gas.
|   
|(2) | Represents the Jidong and Yumen oil regions and
    our oil and gas fields in Indonesia.                        

Exploration and Development

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

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

|     |  |                                      |  |        |       |          |  |        |       |           |  |        |     |        |  |         |     |           |  |       |     |  |  |  |     |  |  |  |    |  |  |  |     |  |  |  |       | 
|---- |  | ------------------------------------ |  | ------ | ----- | -------- |  | ------ | ----- | --------- |  | ------ | --- | ------ |  | ------- | --- | --------- |  | ----- | --- |  |  |  | --- |  |  |  | -- |  |  |  | --- |  |  |  | ----- | 
|Year |  |                                      |  | Daqing |       | Xinjiang |  | Liaohe |       | Changqing |  | Huabei |     | Dagang |  | Sichuan |     | Others(1) |  | Total
|     |  |                                      |  |        |       |          |  |        |       |           |  |        |     |        |  |         |     |           |  |      
|2000 |  | Net exploratory wells
    drilled(2) |  |        | 93    |          |  |        | 96    |           |  |        | 70  |        |  |         | 157 |           |  |       | 71  |  |  |  | 36  |  |  |  | 38 |  |  |  | 142 |  |  |  | 706   | 
|     |  | Crude oil                            |  |        | 57    |          |  |        | 79    |           |  |        | 45  |        |  |         | 54  |           |  |       | 30  |  |  |  | 19  |  |  |  | 4  |  |  |  | 61  |  |  |  | 349   | 
|     |  | Natural gas                          |  |        | 1     |          |  |        | 3     |           |  |        | 0   |        |  |         | 28  |           |  |       | 4   |  |  |  | 6   |  |  |  | 20 |  |  |  | 12  |  |  |  | 74    | 
|     |  | Dry(3)                               |  |        | 35    |          |  |        | 14    |           |  |        | 25  |        |  |         | 75  |           |  |       | 37  |  |  |  | 11  |  |  |  | 14 |  |  |  | 72  |  |  |  | 283   | 
|     |  | Net development wells
    drilled(2) |  |        | 2,783 |          |  |        | 1,135 |           |  |        | 800 |        |  |         | 614 |           |  |       | 268 |  |  |  | 165 |  |  |  | 41 |  |  |  | 974 |  |  |  | 6,780 | 
|     |  | Crude oil                            |  |        | 2,774 |          |  |        | 1,129 |           |  |        | 792 |        |  |         | 534 |           |  |       | 254 |  |  |  | 159 |  |  |  | 8  |  |  |  | 955 |  |  |  | 6,605 | 
|     |  | Natural gas                          |  |        | 1     |          |  |        | 1     |           |  |        | 8   |        |  |         | 61  |           |  |       | 3   |  |  |  | 2   |  |  |  | 23 |  |  |  | 14  |  |  |  | 113   | 
|     |  | Dry(3)                               |  |        | 8     |          |  |        | 5     |           |  |        | 0   |        |  |         | 19  |           |  |       | 11  |  |  |  | 4   |  |  |  | 10 |  |  |  | 5   |  |  |  | 62    | 

23



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##### Table of Contents



|     |  |                                      |  |        |       |          |  |        |       |           |  |        |     |        |  |         |       |           |  |       |     |  |  |  |     |  |  |  |    |  |  |  |     |  |  |  |       | 
|---- |  | ------------------------------------ |  | ------ | ----- | -------- |  | ------ | ----- | --------- |  | ------ | --- | ------ |  | ------- | ----- | --------- |  | ----- | --- |  |  |  | --- |  |  |  | -- |  |  |  | --- |  |  |  | ----- | 
|Year |  |                                      |  | Daqing |       | Xinjiang |  | Liaohe |       | Changqing |  | Huabei |     | Dagang |  | Sichuan |       | Others(1) |  | Total
|     |  |                                      |  |        |       |          |  |        |       |           |  |        |     |        |  |         |       |           |  |      
|2001 |  | Net exploratory wells
    drilled(2) |  |        | 84    |          |  |        | 71    |           |  |        | 63  |        |  |         | 127   |           |  |       | 68  |  |  |  | 44  |  |  |  | 37 |  |  |  | 169 |  |  |  | 663   | 
|     |  | Crude oil                            |  |        | 33    |          |  |        | 45    |           |  |        | 34  |        |  |         | 55    |           |  |       | 38  |  |  |  | 32  |  |  |  | 4  |  |  |  | 83  |  |  |  | 324   | 
|     |  | Natural gas                          |  |        | 2     |          |  |        | 13    |           |  |        | 0   |        |  |         | 18    |           |  |       | 3   |  |  |  | 0   |  |  |  | 14 |  |  |  | 5   |  |  |  | 55    | 
|     |  | Dry(3)                               |  |        | 49    |          |  |        | 13    |           |  |        | 29  |        |  |         | 54    |           |  |       | 27  |  |  |  | 12  |  |  |  | 19 |  |  |  | 81  |  |  |  | 284   | 
|     |  | Net development wells
    drilled(2) |  |        | 2,406 |          |  |        | 1,140 |           |  |        | 733 |        |  |         | 1,168 |           |  |       | 287 |  |  |  | 208 |  |  |  | 23 |  |  |  | 983 |  |  |  | 6,948 | 
|     |  | Crude oil                            |  |        | 2,392 |          |  |        | 1,130 |           |  |        | 722 |        |  |         | 1,140 |           |  |       | 275 |  |  |  | 204 |  |  |  | 8  |  |  |  | 964 |  |  |  | 6,835 | 
|     |  | Natural gas                          |  |        | 5     |          |  |        | 4     |           |  |        | 11  |        |  |         | 10    |           |  |       | 2   |  |  |  | 1   |  |  |  | 11 |  |  |  | 18  |  |  |  | 62    | 
|     |  | Dry(3)                               |  |        | 9     |          |  |        | 6     |           |  |        | 0   |        |  |         | 18    |           |  |       | 10  |  |  |  | 3   |  |  |  | 4  |  |  |  | 1   |  |  |  | 51    | 
|    
|2002 |  | Net exploratory wells
    drilled(2) |  |        | 67    |          |  |        | 84    |           |  |        | 61  |        |  |         | 170   |           |  |       | 67  |  |  |  | 30  |  |  |  | 28 |  |  |  | 149 |  |  |  | 656   | 
|     |  | Crude oil                            |  |        | 27    |          |  |        | 63    |           |  |        | 28  |        |  |         | 69    |           |  |       | 28  |  |  |  | 21  |  |  |  | 4  |  |  |  | 60  |  |  |  | 300   | 
|     |  | Natural gas                          |  |        | 1     |          |  |        | 3     |           |  |        | 0   |        |  |         | 10    |           |  |       | 4   |  |  |  | 0   |  |  |  | 7  |  |  |  | 11  |  |  |  | 36    | 
|     |  | Dry(3)                               |  |        | 39    |          |  |        | 18    |           |  |        | 33  |        |  |         | 91    |           |  |       | 35  |  |  |  | 9   |  |  |  | 17 |  |  |  | 78  |  |  |  | 320   | 
|     |  | Net development wells
    drilled(2) |  |        | 1,988 |          |  |        | 1,247 |           |  |        | 603 |        |  |         | 1,285 |           |  |       | 246 |  |  |  | 212 |  |  |  | 40 |  |  |  | 955 |  |  |  | 6,576 | 
|     |  | Crude oil                            |  |        | 1,975 |          |  |        | 1,235 |           |  |        | 583 |        |  |         | 1,197 |           |  |       | 238 |  |  |  | 205 |  |  |  | 13 |  |  |  | 926 |  |  |  | 6,372 | 
|     |  | Natural gas                          |  |        | 6     |          |  |        | 7     |           |  |        | 20  |        |  |         | 55    |           |  |       | 2   |  |  |  | 3   |  |  |  | 25 |  |  |  | 22  |  |  |  | 140   | 
|     |  | Dry(3)                               |  |        | 7     |          |  |        | 5     |           |  |        | 0   |        |  |         | 33    |           |  |       | 6   |  |  |  | 4   |  |  |  | 2  |  |  |  | 7   |  |  |  | 64    | 




|    |                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents the Jilin, Tarim, Tuha, Qinghai,
    Jidong and Yumen oil regions and our oil and gas fields in
    Indonesia.          
|   
|(2) | Net wells refer to the wells after
    deducting interests of others. No third parties own any
    interests in any of our wells.
|   
|(3) | Dry wells are wells with insufficient
    reserves to sustain commercial production.                                             

Properties

The following table sets forth our interests in
developed and undeveloped acreage by oil region and in
productive crude oil and natural gas wells as of
December 31, 2002.

|                 |       |                     |        |             |  |                                |     |             |  |           |       |             |  |  |       |         |  |  |       |         |  |  |         |         | 
|---------------- | ----- | ------------------- | ------ | ----------- |  | ------------------------------ | --- | ----------- |  | --------- | ----- | ----------- |  |  | ----- | ------- |  |  | ----- | ------- |  |  | ------- | ------- | 
|                 |       |                     |        |             |  |                               
|                 |       |                     |        |             |  | Acreage(1)(thousands of acres)
|                 |       |                     |        |             |  |                               
|                 |       |                     |        |             |  |                               
|                 |       | Productive wells(1) |        | Developed   |  | Undeveloped                   
|                 |       |                     |        |             |  |                               
|Oil region       |       | Crude oil           |        | Natural gas |  | Crude oil                      |     | Natural gas |  | Crude oil |       | Natural gas
|                 |       |                     |        |             |  |                                |     |             |  |           |       |            
|Daqing           |       |                     | 33,893 |             |  |                                | 117 |             |  |           | 560.1 |             |  |  | 23.7  |         |  |  | 558.4 |         |  |  | 93.7    |        
|Liaohe           |       |                     | 15,656 |             |  |                                | 572 |             |  |           | 153.9 |             |  |  | 27.7  |         |  |  | 120.9 |         |  |  | 12.9    |        
|Xinjiang         |       |                     | 12,951 |             |  |                                | 53  |             |  |           | 262.3 |             |  |  | 34.2  |         |  |  | 74.5  |         |  |  | 12.9    |        
|Jilin            |       |                     | 10,534 |             |  |                                | 28  |             |  |           | 222.6 |             |  |  | 19.5  |         |  |  | 238.2 |         |  |  | 25.3    |        
|Changqing        |       |                     | 7,661  |             |  |                                | 283 |             |  |           | 184.7 |             |  |  | 577.9 |         |  |  | 352.3 |         |  |  | 1,424.8 |        
|Huabei           |       |                     | 4,494  |             |  |                                | 70  |             |  |           | 87.3  |             |  |  | 9.5   |         |  |  | 111.0 |         |  |  | 6.6     |        
|Dagang           |       |                     | 2,853  |             |  |                                | 46  |             |  |           | 79.7  |             |  |  | 14.5  |         |  |  | 88.2  |         |  |  | 23.7    |        
|Tuha             |       |                     | 917    |             |  |                                | 12  |             |  |           | 28.7  |             |  |  | 0.0   |         |  |  | 18.2  |         |  |  | 15.6    |        
|Tarim            |       |                     | 457    |             |  |                                | 54  |             |  |           | 78.5  |             |  |  | 69.9  |         |  |  | 43.5  |         |  |  | 78.2    |        
|Sichuan          |       |                     | 350    |             |  |                                | 888 |             |  |           | 273.7 |             |  |  | 287.8 |         |  |  | 17.6  |         |  |  | 118.1   |        
|Other regions(2) |       |                     | 2,643  |             |  |                                | 112 |             |  |           | 99.5  |             |  |  | 122.3 |         |  |  | 34.9  |         |  |  | 14.6    |        
|                 |       |                     |        |             |  |                                |     |             |  |           |       |             |  |  |       |         |  |  |       |         |  |  |         |        
|                 | Total |                     |        | 92,409      |  |                                |     | 2,235       |  |           |       | 2,031.0     |  |  |       | 1,187.0 |  |  |       | 1,657.7 |  |  |         | 1,826.4 | 
|                 |       |                     |        |             |  |                                |     |             |  |           |       |             |  |  |       |         |  |  |       |         |  |  |         |        




|    |                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes all wells and acreage in which we have
    an interest. No third parties own any interests in any of our
    wells or acreage.
|   
|(2) | Represents the Qinghai, Jidong and Yumen oil
    regions and our oil and gas fields in Indonesia.                                      

Approximately 67.7% of our proved crude oil
reserves are concentrated in the Daqing, Liaohe and Xinjiang oil
regions, and approximately 85.3% of our proved natural gas
reserves are concentrated in the Changqing oil and gas region,
the Tarim oil region, the Sichuan gas region and

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the Qinghai oil region. We believe that the
Erdos, Junggar, Tarim and Songliao basins and Bohai Bay have the
highest potential for increasing our crude oil reserve base
through future exploration and development, and that the Tarim,
Erdos, Sichuan and Qaiddam basins have the highest potential for
increasing our natural gas reserve base through future
exploration and development.


Production

The following table sets forth our historical
average net daily crude oil and natural gas production by region
and our average sales price for the periods ended
December 31, 2000, 2001 and 2002.

|                                                                                |                  |                    |         |        |         |      |         |            |         |  |         |        |         |  |      |  |       |  
|------------------------------------------------------------------------------- | ---------------- | ------------------ | ------- | ------ | ------- | ---- | ------- | ---------- | ------- |  | ------- | ------ | ------- |  | ---- |  | ----- | -
|                                                                                |                  |                    |         |       
|                                                                                |                  | For the year ended |         |       
|                                                                                |                  | December 31,       |         |       
|                                                                                |                  |                    |         | % of  
|                                                                                |                  | 2000               |         | 2001   |         | 2002 |         | 2002 total
|                                                                                |                  |                    |         |        |         |      |         |           
|Crude oil production(1)                                                         |                  |                    |         |        |         |      |         |            |         |  |         |        |         |  |      | 
|(thousands of barrels per day, except percentages
    or otherwise indicated)   |                  |                    |         |        |         |      |         |            |         |  |         |        |         |  |      | 
|Daqing                                                                          |                  |                    | 1,079.0 |        |         |      | 1,048.4 |            |         |  | 1,020.5 |        |         |  | 48.4 | 
|Liaohe                                                                          |                  |                    | 268.7   |        |         |      | 265.6   |            |         |  | 259.1   |        |         |  | 12.3 | 
|Xinjiang                                                                        |                  |                    | 188.5   |        |         |      | 198.4   |            |         |  | 206.0   |        |         |  | 9.8  | 
|Changqing                                                                       |                  |                    | 94.5    |        |         |      | 105.9   |            |         |  | 124.2   |        |         |  | 5.9  | 
|Tarim                                                                           |                  |                    | 89.0    |        |         |      | 96.7    |            |         |  | 102.7   |        |         |  | 4.9  | 
|Huabei                                                                          |                  |                    | 92.7    |        |         |      | 91.6    |            |         |  | 89.0    |        |         |  | 4.2  | 
|Jilin                                                                           |                  |                    | 76.4    |        |         |      | 82.3    |            |         |  | 90.4    |        |         |  | 4.3  | 
|Dagang                                                                          |                  |                    | 80.5    |        |         |      | 79.5    |            |         |  | 79.2    |        |         |  | 3.8  | 
|Tuha                                                                            |                  |                    | 61.5    |        |         |      | 55.0    |            |         |  | 54.1    |        |         |  | 2.6  | 
|Other(2)                                                                        |                  |                    | 65.8    |        |         |      | 68.3    |            |         |  | 83.8    |        |         |  | 4.0  | 
|                                                                                |                  |                    |         |        |         |      |         |            |         |  |         |        |         |  |      | 
|                                                                                |                  | Total              |         |        | 2,096.4 |      |         |            | 2,091.8 |  |         |        | 2,109.1 |  |      |  | 100.0 | %
|                                                                                |                  |                    |         |        |         |      |         |            |         |  |         |        |         |  |      | 
|Annual production (million barrels)                                             |                  |                    | 765.2   |        |         |      | 763.5   |            |         |  | 769.8   |        |         |  |      | 
|Average sales price                                                             |                  |                    |         |        |         |      |         |            |         |  |         |        |         |  |      | 
|                                                                                | (RMB per barrel) |                    |         | 225.23 |         |      |         | 195.37     |         |  |         | 186.08 |         |  |      |  |      
|                                                                                | (US$ per barrel) |                    |         | 27.21  |         |      |         | 23.61      |         |  |         | 22.48  |         |  |      |  |      
|                                                                               
|Natural gas
    production(1)(3)                                                |                  |                    |         |        |         |      |         |            |         |  |         |        |         |  |      | 
|(millions of cubic feet per day, except
    percentages or otherwise indicated) |                  |                    |         |        |         |      |         |            |         |  |         |        |         |  |      | 
|Sichuan                                                                         |                  |                    | 740.2   |        |         |      | 774.6   |            |         |  | 808.2   |        |         |  | 48.8 | 
|Changqing                                                                       |                  |                    | 187.3   |        |         |      | 299.1   |            |         |  | 335.7   |        |         |  | 20.3 | 
|Daqing                                                                          |                  |                    | 142.0   |        |         |      | 137.4   |            |         |  | 137.7   |        |         |  | 8.3  | 
|Tuha                                                                            |                  |                    | 61.5    |        |         |      | 74.0    |            |         |  | 69.8    |        |         |  | 4.2  | 
|Liaohe                                                                          |                  |                    | 64.3    |        |         |      | 64.8    |            |         |  | 56.0    |        |         |  | 3.4  | 
|Xinjiang                                                                        |                  |                    | 56.8    |        |         |      | 51.2    |            |         |  | 53.3    |        |         |  | 3.2  | 
|Qinghai                                                                         |                  |                    | 30.5    |        |         |      | 45.9    |            |         |  | 92.3    |        |         |  | 5.6  | 
|Huabei                                                                          |                  |                    | 32.1    |        |         |      | 36.9    |            |         |  | 42.1    |        |         |  | 2.5  | 
|Dagang                                                                          |                  |                    | 33.7    |        |         |      | 32.6    |            |         |  | 30.6    |        |         |  | 1.8  | 
|Tarim                                                                           |                  |                    | 28.8    |        |         |      | 20.6    |            |         |  | 24.6    |        |         |  | 1.5  | 
|Other(4)                                                                        |                  |                    | 7.2     |        |         |      | 6.7     |            |         |  | 7.2     |        |         |  | 0.4  | 
|                                                                                |                  |                    |         |        |         |      |         |            |         |  |         |        |         |  |      | 
|                                                                                |                  | Total              |         |        | 1,384.4 |      |         |            | 1,543.7 |  |         |        | 1,657.5 |  |      |  | 100.0 | %
|                                                                                |                  |                    |         |        |         |      |         |            |         |  |         |        |         |  |      | 

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|                        |               |                    |       |       |  |      |       |            |  |  |       |       |  |  |  |  | 
|----------------------- | ------------- | ------------------ | ----- | ----- |  | ---- | ----- | ---------- |  |  | ----- | ----- |  |  |  |  | 
|                        |               |                    |       |      
|                        |               | For the year ended |       |      
|                        |               | December 31,       |       |      
|                        |               |                    |       | % of 
|                        |               | 2000               |       | 2001  |  | 2002 |       | 2002 total
|                        |               |                    |       |       |  |      |       |           
|Annual production (Bcf) |               |                    | 505.3 |       |  |      | 563.5 |            |  |  | 605.0 |       |  |  |  | 
|Average sales price     |               |                    |       |       |  |      |       |            |  |  |       |       |  |  |  | 
|                        | (RMB per Mcf) |                    |       | 17.63 |  |      |       | 18.41      |  |  |       | 19.20 |  |  |  |  | 
|                        | (US$ per Mcf) |                    |       | 2.13  |  |      |       | 2.22       |  |  |       | 2.32  |  |  |  |  | 




|    |                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Production volumes for each region include our
    share of the production from all of our cooperative projects
    with foreign companies in that region.
|   
|(2) | Represents production from the Qinghai, Jidong
    and Yumen oil regions, the Sichuan gas region and our oil and
    gas fields in Indonesia.             
|   
|(3) | Represents production of sales gas.                                                                                                                       
|   
|(4) | Represents production from the Jilin, Jidong and
    Yumen oil regions and our oil and gas fields in Indonesia.                                           

In 2002, we supplied approximately 73%, 16%,
7% and 4% of our total crude oil sales to our refineries,
Sinopecs refineries, regional refineries controlled by
unrelated third parties in China and companies or entities
outside China, respectively. We entered into a crude oil mutual
supply framework agreement with Sinopec on December 30,
2002 for the supply of crude oil to each others refineries
in 2003. Under this agreement, we agreed in principle to supply
approximately 110 million barrels of crude oil to Sinopec
in 2003 at negotiated prices based on the Singapore market FOB
prices for crude oil. See Item 5 
Operating and Financial Review and Prospects 
General  Factors Affecting Results of
Operations  Crude Oil Prices for a detailed
discussion of the crude oil premium and discount calculation
agreement and its supplemental agreement.

Principal Oil and Gas Regions

Daqing Oil Region

The Daqing oil region, our largest oil and gas
producing property, is located in the Songliao basin and covers
an area of approximately one million acres. The successful
discovery and development of the oil fields in the Daqing oil
region marked a critical breakthrough in the history of both our
company and the PRC oil and gas industry. In terms of proved
hydrocarbon reserves and annual production, the Daqing oil
region is the largest oil region in China and one of the most
prolific oil and gas properties in the world. We commenced
exploration activities in the Daqing oil region in 1955 and
discovered oil in the region in 1959. Annual crude oil
production volume in the Daqing oil region reached one million
barrels per day in 1976 and has remained relatively stable for
the past 27 years. As of December 31, 2002, we
produced crude oil from 20 fields in the Daqing oil region.

As of December 31, 2002, our proved crude
oil reserves in the Daqing oil region were 5,073.8 million
barrels, representing 46.4% of our total proved crude oil
reserves. The proved crude oil reserves in our Daqing oil region
decreased by 5.2% in 2002, as compared to 5,349.8 million
barrels in 2001, because the crude oil production exceeded the
crude oil reserve additions in 2002 in our Daqing oil region. In
2002, our oil fields in the Daqing oil region produced an
average of 1,020.5 thousand barrels of crude oil per day,
representing approximately 48.4% of our total daily crude oil
production. In 2002, the crude oil reserve-to-production ratio
of the Daqing oil region was 13.6 years. The crude oil we
produce in the Daqing oil region has an average API gravity
of 35.7 degrees. In 2002, the crude oil we produced in the
Daqing oil region had an average water cut of 87.9%, increasing
from 87.4% in 2001.

The major oil reservoirs in the Daqing oil region
are generally evenly spread with relatively moderate depths, and
have simple geological structures. As a consequence of these
factors, our finding and development costs in the Daqing oil
region are the lowest among all oil-producing regions in China.

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Because the crude oil in the Daqing oil region is
primarily located in large reservoirs with relatively moderate
depths of approximately 900 meters to 1,500 meters and most of
the crude oil produced at Daqing is medium viscosity oil,
lifting costs in the Daqing oil region are relatively low among
our oil regions. Crude oil produced using enhanced recovery
techniques accounted for 17.7%, 18.5%, and 22.6% of our crude
oil production from the Daqing oil region in 2000, 2001 and
2002, respectively.

Because our oil fields in the Daqing oil region
are relatively mature, the difficulty of extracting crude oil
from these fields has increased in recent years and is likely to
continue to increase gradually in the future. As a result, we
expect our lifting costs at these fields to increase in future
years. However, we intend to adopt a number of measures to
contain the increase in our lifting costs at these fields. Those
measures include:



| |   |                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------
| |  | terminating unprofitable or marginally profitable
    exploration and production activities;             
|
| |  | reducing expenditures on ancillary ground
    facilities in the outer areas of the Daqing oil region; and
|
| |  | increasing preventive maintenance to prolong the
    useful life of our production facilities.           

We have an extensive transportation
infrastructure network to transport crude oil produced in the
Daqing oil region to internal and external customers in
northeastern China and beyond. Crude oil pipelines link our oil
fields in the Daqing oil region to the port of Dalian and the
port of Qinhuangdao in Bohai Bay, providing efficient
transportation for selling Daqing crude oil. These crude oil
pipelines have an aggregate length of more than
900 kilometers and an aggregate throughput capacity of
approximately 900,000 barrels per day.

Daqings crude oil has a low sulfur and high
paraffin content. As many refineries in China, particularly
those in northeastern China, are configured to refine Daqing
crude oil, we have a stable market for the crude oil we produce
in the Daqing oil region. In 2002, we refined approximately 63%
of Daqing crude oil in our own refineries, exported
approximately 7% and sold the remaining portion to Sinopec
or local refineries.

Liaohe Oil
Region

The Liaohe oil region is our second largest crude
oil producing property and is located in the northern part of
the Bohai Bay basin. We began commercial production in the
Liaohe oil region in 1971. The Liaohe oil region covers a total
area of approximately 580,000 acres. The Liaohe oil region
is Chinas third largest oil region in terms of production
in 2002.

As of December 31, 2002, proved crude oil
reserves in the Liaohe oil region were 1,227.0 million
barrels, representing 11.2% of our total proved oil reserves. In
2002, our oil fields in the Liaohe oil region produced an
average of 259.1 thousand barrels of crude oil per day,
representing approximately 12.3% of our total daily crude oil
production. In 2002, the crude oil reserve-to-production ratio
in the Liaohe oil region was 13.0 years. In 2002, the crude
oil we produced in the Liaohe oil region had an average API
gravity of 26.0 degrees and an average water cut of 72.8%. We
have proved crude oil reserves in 37 fields in the Liaohe
oil region, including 32 fields currently in production. We
produce several varieties of crude oil in the Liaohe oil region,
ranging from light crude oil to heavy crude oil and high pour
point crude oil.

We have easy access to crude oil pipelines for
Liaohe crude oil. The pipelines linking Daqing to Dalian port
and Qinhuangdao port pass through the Liaohe oil region. In
2002, we sold about 79% of the crude oil we produced at the
Liaohe oil region to our own refineries.

Xinjiang Oil
Region

The Xinjiang oil region is located in the Junggar
basin in northwestern China. We commenced our operations in the
Xinjiang oil region in 1951. The Xinjiang oil region covers a
total area of

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approximately 900 thousand acres. As of
December 31, 2002, our proved crude oil reserves in the
Xinjiang oil region were 1,102.2 million barrels,
representing 10.1% of our total proved crude oil reserves. In
2002, our oil fields in the Xinjiang oil region produced an
average of 206.0 thousand barrels of crude oil per day,
representing 9.8% of our total crude oil production. In 2002,
the crude oil reserve-to-production ratio at the Xinjiang oil
region was 14.7 years. In 2002, the crude oil we produced
in the Xinjiang oil region had an average API gravity of
36.8 degrees and an average water cut of 70.4%.


Sichuan Gas
Region

The Sichuan gas region is the largest natural gas
region in China in terms of annual natural gas production. We
began natural gas exploration and production in Sichuan in the
1950s. The Sichuan gas region covers a total area of
approximately 2.3 million acres. The natural gas
reserve-to-production ratio in the Sichuan gas region was
24.1 years in 2002. As of December 31, 2002, we had
90 natural gas fields under development in the Sichuan gas
region.

As of December 31, 2002, our proved natural
gas reserves in the Sichuan gas region were 7,461.7 billion
cubic feet, representing 19.2% of our total proved natural gas
reserves. In 2002, our natural gas production for sale in the
Sichuan gas region reached 295.0 billion cubic feet,
representing 48.8% of our total natural gas production.

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

In November 2002, we obtained approval from the
State Development Planning Commission, the predecessor of the
National Development and Reform Commission, to construct
pipelines to transmit natural gas produced in the Sichuan gas
region to major cities in central China. This is known as the
Zhong County to Wuhan City natural gas pipeline project. See
 Natural Gas and Pipeline  Expansion
of Our Natural Gas Transmission and Marketing Business for
a discussion of the Zhong County to Wuhan City natural gas
pipeline project.

Changqing Oil
and Gas Region

The Changqing oil and gas region covers parts of
Shaanxi Province and Gansu Province and the Ningxia and Inner
Mongolia Autonomous Regions. We commenced operations in the
Changqing oil and gas region in 1970. In 2002, we produced
45.3 million barrels of crude oil in the Changqing oil and
gas region.

In the early 1990s, we discovered the Changqing
gas field, which had total estimated proved natural gas reserves
of 11,222.6 billion cubic feet as of December 31,
2002, representing 28.9% of our total proved natural gas
reserves. In January 2001, we discovered the Sugeli oil field
with total proved natural gas reserves of 2,500.2 billion
cubic feet. In 2002, we produced 122.5 billion cubic feet
of natural gas for sale in the Changqing oil and gas region. The
establishment of a natural gas pipeline from Shaanxi to Beijing
in 1997 has significantly expanded the range of target markets
for natural gas produced in the Changqing oil and gas region
over the years. In the six years following the establishment of
the pipeline, we significantly increased daily natural gas
production for sale in the Changqing oil and gas region. We
intend to build an additional natural gas pipeline from Shaanxi
to Beijing in the next two years. This pipeline is designed to
have an annual throughput capacity of 423.8 billion cubic
feet of natural gas upon its completion. See
 Natural Gas and Pipeline 

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Expansion of Our Natural Gas Transmission and
Marketing Business for a discussion of the additional
Shaanxi to Beijing natural gas pipeline project.


Tarim Oil
Region

The Tarim oil region is located in the Tarim
basin in northwestern China with a total area of approximately
590 thousand acres. As of December 31, 2002, our proved
crude oil reserves in the Tarim oil region were
522.0 million barrels. The Kela 2 natural gas field, which
we discovered in 1998 in the oil region, had estimated proved
natural gas reserves of approximately 6,320 billion cubic
feet as of December 31, 2002. As of December 31, 2002,
the proved natural gas reserves in the Tarim oil region reached
11,026.0 billion cubic feet, representing 28.4% of our
total proved natural gas reserves. Currently, the Kela 2 natural
gas field is the largest natural gas field in China in terms of
proved natural gas reserves.

In 2002, we produced 9.0 billion cubic feet
of natural gas for sale in the Tarim oil region. We are in the
process of constructing pipelines to deliver natural gas in the
Tarim oil region to the central and eastern regions of China
where there is strong demand for natural gas through our West to
East natural gas pipeline project. See  Natural
Gas and Pipeline  Expansion of Our Natural Gas
Transmission and Marketing Business for a discussion of
our West to East natural gas pipeline project. We plan to
significantly increase our natural gas production in the Tarim
oil region after the commencement of the operation of this West
to East natural gas pipeline.

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(MAP)

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Refining and Marketing

We engage in refining and marketing operations in
China through 23 refineries and 19 regional sales and
distribution branch companies and one lubricants branch company.
These operations include crude oil refining and the
transportation, storage and marketing of refined products,
including gasoline, diesel, kerosene and lubricant, in
wholesale, retail and export markets.

The following sets forth the highlights of our
refining and marketing segment in 2002:



| |   |                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | as of December 31, 2002, our
    refineries annual primary distillation capacity totaled
    724.9 million barrels of crude oil per year, or
    1,986.0 thousand barrels per day;
|
| |  | we processed 569.0 million barrels of crude
    oil, or 1,558.9 thousand barrels per day;                                                                                          
|
| |  | we produced approximately 47.7 million tons
    of gasoline, diesel and kerosene and sold approximately
    54.1 million tons of these products;                                   
|
| |  | as of December 31, 2002, our retail
    distribution network consisted of:                                                                                                         



| |   |                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 10,961 service stations owned and operated by us,                                                                                               
|
| |  | 317 service stations wholly owned by CNPC or
    jointly owned by CNPC and third parties and to which we provide
    supervisory support, and   
|
| |  | 1,882 franchise service stations owned and
    operated by third parties with which we have long-term refined
    product supply agreements; and



| |   |                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our service stations are located throughout
    China. In 2002, our service stations sold approximately
    18.8 million tons of gasoline and diesel, representing
    36.0% of the total of these products sold through our marketing
    operations.

Refining

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

Refined Products

We produce a wide range of refined products at
our refineries. Some of our refined products are consumed
internally as feedstocks for our chemical operations. The table
below sets forth production volume for our principal refined
products for each of the three years ended December 31,
2000, 2001 and 2002.

|           |       |                         |          |          |  |      |          |          |  |  |          |          | 
|---------- | ----- | ----------------------- | -------- | -------- |  | ---- | -------- | -------- |  |  | -------- | -------- | 
|           |       |                        
|           |       | Year ended December 31,
|           |       |                        
|Product    |       | 2000                    |          | 2001     |  | 2002
|           |       |                         |          |          |  |     
|           |       |                        
|           |       | (in thousands of tons) 
|Diesel     |       |                         | 25,160.3 |          |  |      | 28,080.9 |          |  |  | 29,229.2 |         
|Gasoline   |       |                         | 15,266.7 |          |  |      | 16,563.4 |          |  |  | 16,646.4 |         
|Fuel oil   |       |                         | 7,283.9  |          |  |      | 6,582.2  |          |  |  | 6,176.8  |         
|Naphtha    |       |                         | 3,673.6  |          |  |      | 3,453.3  |          |  |  | 3,066.0  |         
|Kerosene   |       |                         | 2,277.2  |          |  |      | 1,893.6  |          |  |  | 1,774.7  |         
|Lubricants |       |                         | 1,183.3  |          |  |      | 1,197.2  |          |  |  | 1,358.9  |         
|Asphalt    |       |                         | 1,311.6  |          |  |      | 1,406.8  |          |  |  | 1,653.5  |         
|Paraffin   |       |                         | 932.7    |          |  |      | 857.6    |          |  |  | 856.4    |         
|           |       |                         |          |          |  |      |          |          |  |  |          |         
|           | Total |                         |          | 57,089.3 |  |      |          | 60,035.0 |  |  |          | 60,761.9 | 
|           |       |                         |          |          |  |      |          |          |  |  |          |         

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In the past five years, we have adjusted our
product mix to reflect market demand and to focus on the
production of high margin products. This resulted in an overall
modest increase in the production of lighter refined products
which generally are higher margin products, such as gasoline and
lubricants, in the same periods. At the same time, we have
decreased our production of low margin products, such as fuel
oil.

In recent years, we have made significant capital
investments in facility expansions and upgrades to improve
product quality to meet evolving market demand and environmental
requirements in China. In each of the three years ended
December 31, 2000, 2001 and 2002, our capital expenditures
for our refining and marketing segment were
RMB 13,595 million, RMB 11,416 million and
RMB 11,327 million (US$1,368 million),
respectively. These capital expenditures were incurred primarily
in connection with our refining facility upgrades and expansion
of our refined product retail marketing network and storage
infrastructure. In addition, we have also focused on enhancing
our processing technologies and methods. These efforts have
enabled us to improve the quality of refined products at our
refineries, particularly that of gasoline and diesel. We believe
that our refined products generally meet product specification
and environmental protection requirements as set by the PRC
government. We have upgraded our refineries in response to a new
PRC specification limiting the olefin and sulfur content in
gasoline. All of our refineries are now capable of producing
gasoline meeting this new specification. The PRC government
requires all gasoline to be sold on the PRC market to comply
with this new specification by July 1, 2003. We believe
that we have already met this requirement.

Our Refineries

Most of our refineries are strategically located
close to our crude oil storage facilities, along our crude oil
and refined product transmission pipelines and/or railways.
These systems provide our refineries with secure supplies of
crude oil and facilitate our distribution of refined products to
the domestic markets. In each of the three years ended
December 31, 2000, 2001 and 2002, our exploration and
production operations supplied approximately 93%, 95% and 94%,
respectively, of the crude oil processed in our refineries.

The table below sets forth certain operating
statistics regarding our refineries as of December 31,
2000, 2001 and 2002.

|                                                               |       |                    |       |         |  |      |       |         |  |  |       |         | 
|-------------------------------------------------------------- | ----- | ------------------ | ----- | ------- |  | ---- | ----- | ------- |  |  | ----- | ------- | 
|                                                               |       |                   
|                                                               |       | As of December 31,
|                                                               |       |                   
|                                                               |       | 2000               |       | 2001    |  | 2002
|                                                               |       |                    |       |         |  |     
|Primary distillation
    capacity(1)(thousand barrels per day) |       |                    |       |         |  |      |       |         |  |  |       |        
|Dalian Petrochemical                                           |       |                    | 143.7 |         |  |      | 178.1 |         |  |  | 212.6 |        
|Fushun Petrochemical                                           |       |                    | 162.0 |         |  |      | 162.0 |         |  |  | 162.0 |        
|Lanzhou Petrochemical(2)                                       |       |                    | 151.8 |         |  |      | 151.8 |         |  |  | 151.8 |        
|Daqing Petrochemical                                           |       |                    | 121.5 |         |  |      | 121.5 |         |  |  | 121.5 |        
|Jinzhou Petrochemical(3)                                       |       |                    | 113.3 |         |  |      | 113.3 |         |  |  | 113.3 |        
|Jinxi Petrochemical                                            |       |                    | 111.3 |         |  |      | 111.3 |         |  |  | 111.3 |        
|Jilin Petrochemical(4)                                         |       |                    | 101.2 |         |  |      | 101.2 |         |  |  | 101.2 |        
|Urumqi Petrochemical                                           |       |                    | 101.2 |         |  |      | 101.2 |         |  |  | 101.2 |        
|Other refineries                                               |       |                    | 911.1 |         |  |      | 911.1 |         |  |  | 911.1 |        
|                                                               |       |                    |       |         |  |      |       |         |  |  |       |        
|                                                               | Total |                    |       | 1,917.1 |  |      |       | 1,951.5 |  |  |       | 1,986.0 | 
|                                                               |       |                    |       |         |  |      |       |         |  |  |       |        

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|                                              |       |                    |       |         |  |      |       |         |  |  |       |         | 
|--------------------------------------------- | ----- | ------------------ | ----- | ------- |  | ---- | ----- | ------- |  |  | ----- | ------- | 
|                                              |       |                   
|                                              |       | As of December 31,
|                                              |       |                   
|                                              |       | 2000               |       | 2001    |  | 2002
|                                              |       |                    |       |         |  |     
|Refining throughput(thousand barrels per day) |       |                    |       |         |  |      |       |         |  |  |       |        
|Dalian Petrochemical                          |       |                    | 119.5 |         |  |      | 121.6 |         |  |  | 136.6 |        
|Fushun Petrochemical                          |       |                    | 162.7 |         |  |      | 168.3 |         |  |  | 166.3 |        
|Lanzhou Petrochemical(2)                      |       |                    | 129.7 |         |  |      | 128.8 |         |  |  | 128.6 |        
|Daqing Petrochemical                          |       |                    | 107.4 |         |  |      | 108.9 |         |  |  | 108.2 |        
|Jinzhou Petrochemical(3)                      |       |                    | 90.8  |         |  |      | 93.9  |         |  |  | 101.3 |        
|Jinxi Petrochemical                           |       |                    | 98.9  |         |  |      | 104.1 |         |  |  | 97.2  |        
|Jilin Petrochemical(4)                        |       |                    | 91.1  |         |  |      | 87.9  |         |  |  | 92.3  |        
|Urumqi Petrochemical                          |       |                    | 68.8  |         |  |      | 71.7  |         |  |  | 71.7  |        
|Other refineries                              |       |                    | 628.5 |         |  |      | 667.9 |         |  |  | 656.7 |        
|                                              |       |                    |       |         |  |      |       |         |  |  |       |        
|                                              | Total |                    |       | 1,497.4 |  |      |       | 1,553.1 |  |  |       | 1,558.9 | 
|                                              |       |                    |       |         |  |      |       |         |  |  |       |        
|Conversion
    equivalent(5)(percent)         |       |                    |       |         |  |      |       |         |  |  |       |        
|Dalian Petrochemical                          |       |                    | 46.5  |         |  |      | 37.5  |         |  |  | 54.3  |        
|Fushun Petrochemical                          |       |                    | 96.0  |         |  |      | 78.6  |         |  |  | 66.9  |        
|Lanzhou Petrochemical(2)                      |       |                    | 38.7  |         |  |      | 31.3  |         |  |  | 31.3  |        
|Daqing Petrochemical                          |       |                    | 79.4  |         |  |      | 72.7  |         |  |  | 61.0  |        
|Jinzhou Petrochemical(3)                      |       |                    | 63.6  |         |  |      | 63.4  |         |  |  | 62.5  |        
|Jinxi Petrochemical                           |       |                    | 70.9  |         |  |      | 69.1  |         |  |  | 67.3  |        
|Jilin Petrochemical(4)                        |       |                    | 45.6  |         |  |      | 47.6  |         |  |  | 54.0  |        
|Urumqi Petrochemical                          |       |                    | 52.0  |         |  |      | 48.0  |         |  |  | 50.0  |        
|Average of other refineries                   |       |                    | 47.5  |         |  |      | 43.9  |         |  |  | 43.7  |        




|    |                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents the primary distillation capacity of
    crude oil and condensate.                                                                                                                                                                                                                                                                                                                                  
|   
|(2) | Includes Lanzhou Refinery, which was merged into
    Lanzhou Petrochemical in October 2000 as part at our ongoing
    restructuring.                                                                                                                                                                                                                                                                           
|   
|(3) | Includes a 19.05% minority interest held by
    unrelated third parties in Jinzhou Petrochemical Company Limited
    in the relevant periods.                                                                                                                                                                                                                                                                  
|   
|(4) | Includes Jilin Chemical Industrial Company
    Limited, in which we held a 67.29% equity interest in the
    relevant periods. Data regarding the primary distillation
    capacity, refining throughput and conversion equivalent of Jilin
    Petrochemical includes a 32.71% minority interest held by
    unrelated third parties in Jilin Chemical Industrial Company
    Limited in the relevant periods.
|   
|(5) | Stated in fluid catalytic cracking, delayed
    coking and hydrocracking equivalent/ topping (percentage by
    weight), based on 100% of balanced distillation capacity.                                                                                                                                                                                                                                      

In each of the three years ended
December 31, 2000, 2001 and 2002, the average utilization
rate of the primary distillation capacity at our refineries was
78.1%, 80.3% and 79.1%, respectively. We plan to increase the
utilization rate of the primary distillation capacity at our
refineries by means of shutting down inefficient refining units
and facilities. The average yield for our four principal refined
products (gasoline, kerosene, diesel and lubricants) at our
refineries was 58.9%, 62.2% and 63.7%, respectively, in the same
periods. Yield represents the number of tons of a
refined product expressed as a percentage of the number of tons
of crude oil from which that product was processed. In each of
the three years ended December 31, 2000, 2001 and 2002, the
yield for all refined products at our refineries was
approximately 91%.

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Dalian Petrochemical, Fushun Petrochemical,
Lanzhou Petrochemical and Daqing Petrochemical were our leading
refineries in terms of both primary distillation capacity and
throughput in 2002. They are all located close to our major oil
fields in the northeast and northwest regions of China and
produce a wide range of refined products. In October 2000,
Lanzhou Refinery was consolidated into Lanzhou Petrochemical as
part of our ongoing restructuring. Lanzhou Petrochemical has a
strategic position in our plan to expand our markets in refined
product sales in the southwestern and central regions of China.
It is located in the northwestern part of China, providing easy
access to markets in southwestern and central regions in China.
In 2002, we increased the primary distillation capacity at
Dalian Petrochemical by 34.5 thousand barrels per day. We
expect its throughput to continue to increase in the future. As
of December 31, 2002, these four refineries had an
aggregate primary distillation capacity of 236.4 million
barrels per year or 647.9 thousand barrels per day,
representing approximately 32.6% of the total primary
distillation capacity of all our refineries. In 2002, these four
refineries processed 197.0 million barrels of crude oil or
539.7 thousand barrels per day in the aggregate,
representing approximately 34.6% of our total throughput.

Marketing

We market a wide range of refined products,
including gasoline, diesel, kerosene and lubricants, through an
extensive network of sales personnel and independent
distributors and a broad wholesale and retail distribution
system across China. As of December 31, 2002, our marketing
network consisted of:



| |   |                                                                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | approximately 780 regional wholesale distribution
    outlets nationwide. Substantially all of these outlets are
    located in high demand areas such as economic centers across
    China, particularly in the coastal areas, along major railways
    and along the Yangtze River; and                                                                                        
|
| |  | 10,961 service stations owned and operated by us,
    317 service stations wholly owned by CNPC or jointly owned by
    CNPC and third parties that exclusively sell refined products
    produced or supplied by us and to which we provide supervisory
    support under contractual arrangement, and 1,882 franchise
    service stations owned and operated by third parties.

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

In 2002, we sold approximately 52.2 million
tons of gasoline and diesel. The PRC government and other
institutional customers, including railway, transportation and
fishery operators, are our long-term purchasers of the gasoline
and diesel that we produce. We sell gasoline and diesel to those
customers at the ex-factory median prices published by the PRC
government with an 8% floating range on the ex-factory median
prices. See  Regulatory Matters 
Pricing  Refined Products for a discussion of
refined product pricing. Sales of gasoline and diesel to those
customers accounted for approximately 4% and 14% of our total
sales of gasoline and diesel,

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respectively, in 2002. The following table sets
forth our refined product sales volumes by principal product
category for each of the three years ended December 31,
2000, 2001 and 2002.


|           |       |                         |          |          |  |         |          |          |  |  |          |          | 
|---------- | ----- | ----------------------- | -------- | -------- |  | ------- | -------- | -------- |  |  | -------- | -------- | 
|           |       |                        
|           |       | Year ended December 31,
|           |       |                        
|Product    |       | 2000(1)                 |          | 2001(1)  |  | 2002(1)
|           |       |                         |          |          |  |        
|           |       |                        
|           |       | (in thousands of tons) 
|Diesel     |       |                         | 26,652.4 |          |  |         | 31,548.4 |          |  |  | 33,167.1 |         
|Gasoline   |       |                         | 15,649.4 |          |  |         | 18,170.2 |          |  |  | 19,001.3 |         
|Fuel oil   |       |                         | 5,059.2  |          |  |         | 4,785.0  |          |  |  | 4,327.8  |         
|Naphtha    |       |                         | 3,734.8  |          |  |         | 4,333.2  |          |  |  | 4,142.5  |         
|Kerosene   |       |                         | 2,296.3  |          |  |         | 1,931.7  |          |  |  | 1,884.5  |         
|Lubricants |       |                         | 1,668.7  |          |  |         | 1,979.4  |          |  |  | 1,997.0  |         
|Asphalt    |       |                         | 936.6    |          |  |         | 921.9    |          |  |  | 1,344.0  |         
|Paraffin   |       |                         | 906.8    |          |  |         | 806.5    |          |  |  | 868.7    |         
|           |       |                         |          |          |  |         |          |          |  |  |          |         
|           | Total |                         |          | 56,904.2 |  |         |          | 64,476.3 |  |  |          | 66,732.9 | 
|           |       |                         |          |          |  |         |          |          |  |  |          |         



---



|    |                                                                                                 
|--- | ------------------------------------------------------------------------------------------------
|(1) | Includes sales volume of the 2,994 service
    stations we acquired from CNPC in September 2002.

Wholesale
Marketing

We sell refined products both directly and
through independent distributors into various wholesale markets,
as well as the utility, commercial, petrochemical, aviation,
agricultural, fishery and transportation companies in China. We
sold approximately 52.2 million tons of gasoline and diesel
through our wholesale operations in 2002, including transfers to
our retail operations. We sold approximately 1.6 million
tons of gasoline and diesel through our wholesale operations to
Sinopec in 2002, representing approximately 3.1% of our total
sales of these products in that period. In 2002, we sold
approximately 14.6 million tons of our other principal
refined products.

Until 1998, the refined product distribution
system in China was divided on a geographic basis into
provincial, municipal and county levels. Our wholesale
distribution system was established on the basis of this
three-tier system. As a result, our wholesale distribution
structure created inefficiencies in our marketing operations. In
addition, the unnecessary distribution layers increased
distribution costs. As part of the restructuring of the CNPC
group in 1999, we completed the implementation of a plan to
consolidate our wholesale operations and reduce distribution
layers and the number of wholesale outlets. In 2001, we
completed a series of initiatives to change the business scope,
adjust business functions or shut down operations in respect of
558 county level outlets. In addition, we merged 18 municipal
level outlets in 2001. In 2002, we continued these initiatives
by integrating our markets in Shandong Province and Anhui
Province, enhancing our logistics system and shutting down a
number of inefficient oil storage facilities. We expect that the
implementation of this plan will continue to increase the
overall efficiency of our marketing operations.

Retail
Marketing

In 2002, we sold approximately 18.8 million
tons of gasoline and diesel through our service station network,
accounting for 36.0% of the total of these products sold through
our marketing operations. Average daily sales volumes of
gasoline and diesel at our service station network were
approximately 2.7 tons, 3.6 tons and 3.9 tons per service
station for the years ended December 31, 2000, 2001 and
2002, respectively, although these numbers vary significantly by
geographic region. The weighted average sales volume of gasoline
and diesel per business day at our service station network in
2002 was 4.8 tons per service station.

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

We operate a majority of our service stations
under the tradename of PetroChina. We are still in
the process of gradually converting the tradename for the
existing service stations in our service station network that
still use the tradename of CNPC to
PetroChina. We intend to use PetroChina
as the tradename for the service stations to be acquired or
constructed by us in the future.

Most of the service stations in our service
station network are concentrated in the northern, northeastern
and northwestern regions of China where we have a dominant
wholesale market position. However, the eastern and southern
regions of China have a higher demand for gasoline and diesel.
In 2002, we sold approximately 8,280 thousand tons of gasoline
and diesel through our owned and franchised service stations in
those regions, as compared to approximately 6,630 thousand tons
we sold in 2001. We intend to continue to expand our sales and
market share in those regions through expanding the number of
our service stations and storage facilities in those regions. As
part of this expansion strategy, we established a Sino-foreign
equity joint venture with BP Amoco p.l.c. in 2001 to engage
in the development and operation of service stations in
Guangdong Province and Fujian Province in eastern China. We hold
a 51% equity interest in the joint venture and BP Amoco p.l.c.
holds a 49% equity interest in the joint venture. The joint
venture operated 293 service stations as of December 31,
2002.

In 2002, we expanded our retail distribution
channel through the acquisition from CNPC of 2,994 service
stations and 478 storage facilities located in more than 500
counties in 15 provinces and autonomous regions in the PRC. The
CNPC enterprises that operated these service stations and
storage facilities suffered operating losses in the past two
years due primarily to the lack of funds, decreases in sales and
high operating costs. Through operational restructuring and
business integration, we have improved the profitability of
these service stations and storage facilities without incurring
material capital expenditures.

In addition to the 2,994 service stations we
acquired from CNPC, we also acquired or constructed in 2002 an
additional 1,443 service stations that are owned and operated by
us. We plan to further increase our retail market share and
improve the efficiency of our retail operations. We currently
plan to invest approximately RMB 7,957 million for the
period between 2003 to 2005 to expand our service station
network by way of acquisition, joint ventures, new construction
and franchising from or with CNPC or other third parties. We
invested RMB 6,030 million in expanding our service
station network in 2002. We currently intend to add 3,400 new
service stations, including 1,580 franchised service stations,
into our service station network between 2003 to 2005.

The following table sets forth the number of the
service stations in our marketing network as of
December 31, 2002:

|                                                                       |       |  |        |        | 
|---------------------------------------------------------------------- | ----- |  | ------ | ------ | 
|Owned and operated by us(1)                                            |       |  | 10,961 |       
|Wholly owned by CNPC or jointly owned by CNPC and
    third parties(2) |       |  | 317    |       
|Franchised                                                             |       |  | 1,882  |       
|                                                                       |       |  |        |       
|                                                                       | Total |  |        | 13,160 | 
|                                                                       |       |  |        |       



---



|    |                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes 293 service stations operated by the
    joint venture established by BP Amoco p.l.c. and us.                                                     
|   
|(2) | These service stations exclusively sell refined
    products produced or supplied by us. We also provide supervisory
    support to these service stations.

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In order to improve the efficiency and
profitability of our existing service station network, we
standardize the interior and exterior of our service stations,
our service procedures, staff uniforms and the product quality
of all our service stations. We are in the process of promoting
the use of pre-paid gasoline/ diesel filling cards at our
service stations. We have equipped 343 service stations located
in 12 municipalities with facilities that allow customers to
purchase gasoline or diesel with their pre-paid filling cards.
In addition to selling gasoline and diesel, we have gradually
increased the sale of lubricants and other non-fuel products at
our service stations.

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(MAP)



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Chemicals and Marketing

Through 13 chemical plants, we produce basic
petrochemical products, derivative petrochemical products, and
other chemical products. In the year ended December 31,
2002, our loss from operations of our chemicals segment was
RMB 3,162 million (US$382 million).

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

Our Chemical Products

The table below sets forth the production volumes
of our principal chemical products for each of the three years
ended December 31, 2000, 2001 and 2002.

|                          |                  |                                 |  |         |       |      |  |         |         |  |  |         |         | 
|------------------------- | ---------------- | ------------------------------- |  | ------- | ----- | ---- |  | ------- | ------- |  |  | ------- | ------- | 
|                          |                  |                                
|                          |                  | Year ended December 31,        
|                          |                  |                                
|                          |                  | 2000                            |  | 2001    |       | 2002
|                          |                  |                                 |  |         |       |     
|                          |                  |                                
|                          |                  | (in thousands of tons)         
|Basic petrochemicals      |                  |                                 |  |         |       |      |  |         |         |  |  |        
|                          | Ethylene         |                                 |  | 1,495.3 |       |      |  | 1,571.2 |         |  |  | 1,582.0 |        
|                          | Propylene        |                                 |  | 1,127.1 |       |      |  | 1,177.4 |         |  |  | 1,523.9 |        
|                          | Benzene          |                                 |  | 200.6   |       |      |  | 215.7   |         |  |  | 558.7   |        
|Derivative petrochemicals |                  |                                 |  |         |       |      |  |         |         |  |  |        
|                          | Polyolefin       |                                 |  |         |       |      |  |         |         |  |  |         |        
|                          |                  | Polyethylene                    |  |         | 970.0 |      |  |         | 1,028.5 |  |  |         | 1,014.4 | 
|                          |                  | Polypropylene                   |  |         | 508.4 |      |  |         | 622.4   |  |  |         | 759.0   | 
|                          |                  | ABS                             |  |         | 117.5 |      |  |         | 201.5   |  |  |         | 166.7   | 
|                          |                  | Other polyolefin products       |  |         | 250.3 |      |  |         | 221.5   |  |  |         | 24.7    | 
|                          | Synthetic fiber  |                                 |  |         |       |      |  |         |         |  |  |         |        
|                          |                  | Terylene fiber                  |  |         | 175.0 |      |  |         | 177.5   |  |  |         | 173.0   | 
|                          |                  | Polyacrylic fiber               |  |         | 79.7  |      |  |         | 81.2    |  |  |         | 78.6    | 
|                          |                  | Other synthetic fiber products  |  |         | 47.0  |      |  |         | 70.2    |  |  |         | 15.5    | 
|                          | Synthetic rubber |                                 |  |         |       |      |  |         |         |  |  |         |        
|                          |                  | Butadiene styrene rubber        |  |         | 125.5 |      |  |         | 128.0   |  |  |         | 134.9   | 
|                          |                  | Other synthetic rubber products |  |         | 96.8  |      |  |         | 115.0   |  |  |         | 79.1    | 
|                          | Intermediates    |                                 |  |         |       |      |  |         |         |  |  |         |        
|                          |                  | Alkylbenzene                    |  |         | 133.4 |      |  |         | 130.0   |  |  |         | 175.3   | 
|Other chemicals           |                  |                                 |  |         |       |      |  |         |         |  |  |        
|                          | Urea             |                                 |  | 3,113.2 |       |      |  | 3,068.1 |         |  |  | 3,411.2 |        
|                          | Ammonium nitrate |                                 |  | 297.0   |       |      |  | 129.2   |         |  |  | 143.2   |        

We are one of the major producers of ethylene in
China. We use the bulk of the ethylene we produce as a principal
feedstock for the production of many chemical products, such as
polyethylene. As of December 31, 2002, we had a total
ethylene production capacity of 1,655 thousand tons per
year. In 2001, we implemented a five-year plan to invest

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RMB 11,000 million
(US$1,329 million) to upgrade our ethylene production
facilities at Daqing Petrochemical Company, Jilin Petrochemical
Company, Fushun Petrochemical Company, Liaoyang Petrochemical
Company, Dushanzi Petrochemical Company and Lanzhou
Petrochemical Company. Once these upgrade projects are
completed, we expect our total annual ethylene production
capacity to reach 2,600 thousand tons. As of December 31,
2002, we had invested approximately RMB 2,724 million
(US$329 million) for these upgrade projects.


In 2002, the monthly average capacity utilization
rate at our ethylene production facilities was 100.9%. The cost
of ethylene production is an important component of our overall
chemical production costs. Reduction of energy consumption and
raw material loss is a key factor in reducing ethylene
production costs. After we implemented a series of measures in
2002 to reduce energy consumption, the average energy
consumption of our ethylene production facilities decreased from
817.2 kilograms of standard oil per ton in 2001 to 794.6
kilograms in 2002. However, this is still significantly higher
than the world average of 500 to 690 kilograms of standard oil
per ton. We plan to continue to implement measures to reduce our
energy consumption.

In addition, high ethylene percentage loss has
also contributed to the relative high cost of our ethylene
production. In order to reduce high ethylene percentage loss in
our ethylene production, we have implemented a series of
measures at our chemical plants in the past two years, such as
improving our process management of key units for ethylene
production, reducing unplanned temporary interruptions of our
chemical facilities and enhancing pyrolysis material composition
and production plans. As a result, the average ethylene
percentage loss at our chemical plants decreased from 1.04% in
2001 to 0.83% in 2002. We believe that these measures will
enable us to continue to reduce the cost of our ethylene
production without significant capital expenditure.

We produce a number of polyolefin products,
including polyethylene, polypropylene and ABS. As of
December 31, 2002, our production capacities for
polyethylene, polypropylene and ABS were 1,055 thousand tons,
948.5 thousand tons and 200 thousand tons, respectively. In
2002, we produced 1,014.4 thousand tons, 759.0 thousand tons and
166.7 thousand tons of polyethylene, polypropylene and ABS,
respectively. Currently, China imports significant volumes of
these products to meet the domestic demand due to an inadequate
supply of high-quality domestically produced polyethylene,
polypropylene and ABS. We intend to increase the production and
improve the quality of these products. We are currently building
new production facilities with new technology for the production
of these products in Daqing Petrochemical Company, Daqing
Refining and Chemical Company, Lanzhou Petrochemical Company and
other branch companies. The production volume of ABS decreased
17% from 201.5 thousand tons in 2001 to 166.7 thousand
tons in 2002. This decrease was due primarily to the termination
of the lease for a major ABS production line at Daqing
Petrochemical Company in 2002. Since then, we have implemented a
number of measures to upgrade our ABS production facilities at
our petrochemical companies in order to replace the lost ABS
production capacity at Daqing Petrochemical Company. As a
result, we expect our production of ABS to increase in 2003.

Sales and Marketing

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

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The following table sets forth the sales volumes
of our chemical products by principal product category for each
of the three years ended December 31, 2000, 2001 and 2002.

|                          |                  |                          |  |         |       |      |  |         |         |  |  |         |         | 
|------------------------- | ---------------- | ------------------------ |  | ------- | ----- | ---- |  | ------- | ------- |  |  | ------- | ------- | 
|                          |                  |                         
|                          |                  | Year ended December 31, 
|                          |                  |                         
|Product                   |                  | 2000                     |  | 2001    |       | 2002
|                          |                  |                          |  |         |       |     
|                          |                  |                         
|                          |                  | (in thousands of tons)  
|Basic petrochemicals      |                  |                          |  |         |       |      |  |         |         |  |  |        
|                          | Benzene(1)       |                          |  | 185.3   |       |      |  |        |         |  |  |        |        
|                          | Propylene(1)     |                          |  | 147.4   |       |      |  |        |         |  |  |        |        
|Derivative petrochemicals |                  |                          |  |         |       |      |  |         |         |  |  |        
|                          | Polyolefin       |                          |  |         |       |      |  |         |         |  |  |         |        
|                          |                  | Polyolefin Polyethylene  |  |         | 994.0 |      |  |         | 1,016.2 |  |  |         | 1,008.3 | 
|                          |                  | Polypropylene            |  |         | 490.0 |      |  |         | 597.8   |  |  |         | 589.2   | 
|                          |                  | ABS                      |  |         | 118.0 |      |  |         | 174.5   |  |  |         | 210.5   | 
|                          | Synthetic fiber  |                          |  |         |       |      |  |         |         |  |  |         |        
|                          |                  | Terylene fiber           |  |         | 169.3 |      |  |         | 183.4   |  |  |         | 172.2   | 
|                          |                  | Polyacrylic fiber        |  |         | 67.0  |      |  |         | 105.6   |  |  |         | 84.9    | 
|                          | Synthetic rubber |                          |  |         |       |      |  |         |         |  |  |         |        
|                          |                  | Butadiene styrene rubber |  |         | 128.8 |      |  |         | 128.5   |  |  |         | 136.5   | 
|                          | Intermediates    |                          |  |         |       |      |  |         |         |  |  |         |        
|                          |                  | Alkylbenzene             |  |         | 131.4 |      |  |         | 115.8   |  |  |         | 135.3   | 
|Other chemicals           |                  |                          |  |         |       |      |  |         |         |  |  |        
|                          | Urea             |                          |  | 3,143.9 |       |      |  | 3,419.7 |         |  |  | 2,967.5 |        
|                          | Ammonium nitrate |                          |  | 338.6   |       |      |  | 168.1   |         |  |  | 145.5   |        




|    |                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Since 2001, we used substantially all of the
    propylene and benzene we produced as feedstock for the
    production of our other chemical products.

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(OUT NATURAL GAS AND PIPELINE SEGMENT MAP)

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Natural Gas and Pipeline

We are Chinas largest natural gas
transporter and seller in terms of sales volume, with revenues
of RMB 12,733 million (US$1,538 million) and total
sales volume of 588.4 billion cubic feet in 2002, of which
486.3 billion cubic feet was sold by our natural gas
segment. We sell natural gas primarily to fertilizer and
chemical companies, commercial users and municipal utilities
owned by local governments.

The following table sets forth the length of our
natural gas pipelines and the volumes of natural gas sold by us
as of December 31, 2000, 2001 and 2002 or in each of the
three years ended December 31, 2000, 2001 and 2002.

|                                                                         |  |                           |        |      |  |      |        |  |  |  |        | 
|------------------------------------------------------------------------ |  | ------------------------- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                                                                         |  |                          
|                                                                         |  | As of December 31 or year
|                                                                         |  | ended December 31,       
|                                                                         |  |                          
|                                                                         |  | 2000                      |        | 2001 |  | 2002
|                                                                         |  |                           |        |      |  |     
|Length of natural gas pipelines used by our
    natural gas segment (km) |  |                           | 10,525 |      |  |      | 11,826 |  |  |  | 12,299 | 
|Total length of natural gas pipelines (km)                               |  |                           | 11,617 |      |  |      | 12,918 |  |  |  | 13,391 | 
|Volume of natural gas sold by our natural gas
    segment (Bcf)          |  |                           | 391.0  |      |  |      | 442.2  |  |  |  | 486.3  | 
|Total volume of natural gas
    sold(1)(Bcf)                             |  |                           | 480.5  |      |  |      | 529.8  |  |  |  | 588.4  | 




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

Currently, natural gas consumption in China
represents 2.5% of Chinas total primary energy
consumption. The PRC government has forecast that natural gas
consumption in China will represent 7.9% of Chinas total
primary energy consumption in 2010. We believe this growth will
provide us with the opportunity to expand our natural gas
business.

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

Our Principal Markets for Natural
Gas

In 2002, 60.7%, 20.4%, 14.9% and 4.0% of our
natural gas sales were to the southwestern, northern,
northwestern and northeastern regions of the PRC, respectively.

Currently, Sichuan Province and Chongqing
Municipality in southwest China are two of our principal markets
for natural gas. We sold 262.6 billion cubic feet of
natural gas to Sichuan Province and Chongqing Municipality in
2002, representing approximately 44.6% of our total natural gas
sales. We supply natural gas to Sichuan Province and Chongqing
Municipality from our exploration and production operations in
the Sichuan oil region. Our natural gas pipelines in these areas
are well developed, consisting of a natural gas transmission
network with a total length of approximately 6,469 kilometers.
As these areas lack adequate supply of alternative energy
resources, such as coal, we believe that we can further expand
our natural gas sales as energy demand increases in these areas.

Beijing, Tianjin, Hebei Province and Shandong
Province in northern China also have high energy consumption
levels. These areas are also important markets for our natural
gas transmission and marketing business. We sold
97.7 billion cubic feet of natural gas to these areas in
2002. Our natural gas sales to Beijing increased 18.4% from
59.4 billion cubic feet in 2001 to 70.3 billion cubic
feet in 2002. We supply natural gas to Beijing, Tianjin and
Hebei Province primarily from the Changqing oil region through
the Shaanxi to Beijing natural gas pipeline, which is one of our
natural gas trunk pipelines, and from the Huabei and Dagang oil
regions. We have approximately 1,741 kilometers of natural gas
pipelines in these areas.

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Henan Province, Anhui Province, Shanghai and
other provinces and cities in the Yangtze River Delta, Wuhan
City and other regions in Hubei Province, Hunan Province,
Lanzhou City and other areas in Gansu Province, Qinghai Province
and Shanxi Province are also natural gas markets we are
developing. We have commenced the construction of several
pipelines linking our natural gas fields to those regions. We
believe that upon completion of the construction of those
pipelines, we will be able to increase our market share in those
regions.

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

We have entered into long-term take-or-pay
contracts with 11 municipalities and enterprises in Qinghai
Province and Gangsu Province, 27 municipalities and enterprises
in Hubei Province and Hunan Province and 8 municipalities
in Shandong Province. Under these take-or-pay contracts, we have
agreed in principle to supply natural gas to these customers in
the next 20 to 25 years at prices determined based on the
ex-factory prices published by the National Development and
Reform Commission, formerly the State Development Planning
Commission, supplemented by the pipeline transportation tariffs.
See  Regulatory Matters 
Pricing  Natural Gas for a discussion of
natural gas pricing.

In 2002, we sold 401.5 billion cubic feet,
or 82.6% of the natural gas sales volume of our natural gas and
pipeline segment, to customers not subject to the
government-formulated guidance supply plan, such as commercial
end users and municipal utilities, representing a 19.2% increase
over 2001. We believe that sales volume of our natural gas to
customers not subject to the government-formulated guidance
supply plan as a percentage of our total sales will continue to
increase. See  Regulatory Matters 
Pricing  Natural Gas for a discussion of the
government- formulated guidance supply plan.

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

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

Natural Gas Transmission
Infrastructure

As of December 31, 2002, our natural gas and
pipeline segment owned and operated approximately 12,299
kilometers of natural gas pipelines in China, which represented
the vast majority of Chinas onshore natural gas pipelines.
Since 1990, the length of our natural gas pipelines has grown at
a compound annual rate of 5.7%. Our existing natural gas
pipelines form regional natural gas supply networks in
southwestern and northern China. Our experience in the design,
construction management and operation of our existing natural
gas pipelines has enabled us to develop relatively advanced
technologies and skills in China in long distance pipeline
design, construction and automated operational communications.
We believe that we will continue to benefit from those
technologies and skills in the future expansion of our natural
gas pipeline networks and their ancillary facilities.

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Expansion of Our Natural Gas Transmission and
Marketing Business

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

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

We plan to construct natural gas pipelines
transporting natural gas produced in our natural gas fields in
western and southwestern regions to large potential markets for
natural gas in Wuhan City, other areas in Hubei Province, Hunan
Province, Henan Province, Anhui Province, Shanghai and other
areas in the Yangtze River Delta. These projects are known as
the Zhong County to Wuhan City natural gas pipeline project and
the West to East natural gas pipeline project. In November 2002,
the State Development Planning Commission, the predecessor of
the National Development and Reform Commission, approved the
feasibility study report for the Zhong County to Wuhan City
natural gas pipeline project. This project is designed to link
the Sichuan gas region with Hubei Province and Hunan Province
with a designed annual throughput capacity of 105.9 billion
cubic feet of natural gas. We expect to start the construction
of the pipeline in 2003 upon obtaining the construction
commencement approval from the National Development and Reform
Commission. As of May 31, 2003, we have entered into
take-or-pay contracts with 27 municipalities and enterprises in
Hubei Province and Hunan Province to provide natural gas to be
delivered through this pipeline.

Our West to East natural gas pipeline project
will link our natural gas fields in Xinjiang and Changqing with
Henan Province, Anhui Province, Shanghai and other areas in the
Yangtze River Delta. The total length of the main line for the
West to East natural gas pipeline project is expected to be
approximately 3,800 kilometers. In December 2001, the State
Development Planning Commission approved the feasibility study
report for the West to East natural gas pipeline project. We
have entered into non-binding letters of intent with
45 subscribers and distributors for the purchase of natural
gas to be supplied to them through the West to East natural gas
pipeline project. As of December 31, 2002, we had invested
RMB 10,493 million in this project, accounting for 24% of
the total expected investment of the project. We expect to
commence the operation of the eastern part of the pipeline from
Jingbian to Shanghai in January 2004, and the western part from
Lunnan to Jingbian in January 2005. We believe that the
successful completion of these natural gas pipeline and storage
facilities will substantially enhance our ability to capitalize
on anticipated growth in demand for natural gas in these regions.

In addition, we plan to build an additional
natural gas pipeline from Shaanxi to Beijing with a total length
of 860 kilometers. This second line of the Shaanxi to Beijing
natural gas pipeline will deliver natural gas from our Changqing
oil and gas region to Shaanxi Province, Shanxi Province, Hebei
Province and Beijing with a designed annual throughput capacity
of 423.8 billion cubic feet of natural gas.

We plan to develop certain of our natural gas
pipeline and storage projects, including the West to East
natural gas pipeline project, jointly with foreign natural gas
companies to attract foreign capital and learn advanced
technologies and management skills from them. We believe that
these projects will assist us in developing our existing natural
gas resources and expanding our natural gas markets.

On July 4, 2002, we, Sinopec and an
international investment consortium, which consists of six
multinational energy companies including Shell International Gas
Limited, OAO Gazprom and ExxonMobil China Gas Pipeline Limited,
entered into a West to East Joint Venture Framework

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Agreement. This agreement contemplates a number
of structural and operation principles relating to the West to
East project, including:




| |   |                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------
| |  | to adopt a production sharing contract model for
    oil and gas exploration and production;                                                  
|
| |  | to establish a co-operative pipeline joint
    venture for a term of 45 years;                                                                
|
| |  | to establish an equity joint venture natural gas
    sales company for a term of 45 years; and                                                
|
| |  | to have shareholding interests of 50%, 45%, and
    5% for us, the foreign party and Sinopec, respectively, in the
    pipeline joint venture.

Currently, we are negotiating relevant agreements
relating to the establishment of the joint ventures for this
project.

Crude Oil and Refined Product Transportation
and Storage Infrastructure

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

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

As of December 31, 2002, our crude oil
transportation and storage infrastructure consisted of:



| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | 9,215 kilometers of crude oil pipelines with an
    average daily throughput of approximately 2.2 million
    barrels; and
|
| |  | crude oil storage facilities with an aggregate
    storage capacity of approximately 14.0 million cubic meters.           

We deliver crude oil to customers through our
pipeline and storage facility network, through crude oil storage
facilities that we lease from third parties and by ships leased
by customers. In 2002, approximately 67.3% of our crude oil
production was delivered to our refineries through our crude oil
pipeline network. We believe that our crude oil pipeline network
is sufficient for our current and anticipated transportation
needs. During the past six years, we have not experienced any
delays in our ability to deliver crude oil due to pipeline
capacity constraints.

Our transportation and storage infrastructure
also includes:



| |   |                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------
| |  | 2,276 kilometers of refined product pipelines
    with an average daily throughput of approximately 15,397 tons;
    and
|
| |  | refined product storage facilities with a total
    storage capacity of approximately 15.2 million cubic meters.        

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

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

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




Competition

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

Exploration and Production
Operations

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

Refining and Marketing and Chemicals and
Marketing Operations

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

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

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Natural Gas and Pipeline Operations

We are the largest supplier of natural gas in
terms of volume of natural gas supplied. Currently, we face very
limited competition in the supply of natural gas in Beijing,
Tianjin, Hebei Province and the northwestern regions of China,
our existing principal markets for natural gas. Currently,
Sinopec has natural gas fields in Sichuan Province and sells
natural gas to users in that province. We, therefore, have
limited competition from Sinopec in our markets in Sichuan
Province. Further, we intend to expand our markets for natural
gas into the coastal regions in eastern China where we may face
competition from CNOOC and, to a lesser extent, Sinopec. We
believe that our dominant natural gas resources base, our
relatively advanced technologies and skills in managing long
distance pipelines will enable us to continue to be a dominant
player in the natural gas markets in China.




Environmental Matters

Together with other companies in the industries
in which we operate, we are subject to numerous national,
regional and local environmental laws and regulations concerning
our oil and gas exploration and production operations, petroleum
and petrochemical products and other activities. In particular,
these laws and regulations:



| |   |                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | require an environmental evaluation report to be
    submitted and approved prior to the commencement of exploration,
    production, refining and chemical projects;          
|
| |  | restrict the type, quantities, and concentration
    of various substances that can be released into the environment
    in connection with drilling and production activities;
|
| |  | limit or prohibit drilling activities on certain
    lands lying within protected areas; and                                                                                   
|
| |  | impose criminal and civil liabilities for
    pollution resulting from oil, natural gas and petrochemical
    operations.                                                      

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

We anticipate that the environmental laws and
regulations to which we are subject will become increasingly
strict and are therefore likely to have an increasing impact on
our operations. It is impossible, however, to predict accurately
the effect of future developments in such laws and regulations
on our future earnings and operations. Some risk of
environmental costs and liabilities is inherent in certain of
our operations and products, as it is with other companies
engaged in similar businesses, and there can be no assurance
that material costs and liabilities will not be incurred.
However, we do not currently expect any material adverse effect
on our financial condition or results of operations as a result
of compliance with such laws and regulations. We paid pollutant
discharge fees of approximately RMB 85 million,
RMB 113 million and RMB113 million
(US$14 million) in 2000, 2001 and 2002, respectively.

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



| |   |                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | reducing sulphur levels in heavy fuel oil and
    diesel fuel;                                                                                       
|
| |  | reducing olefin and benzene content in gasoline
    and the quantity of emissions and effluents from our refineries
    and petrochemical plants; and
|
| |  | developing and installing monitoring systems at
    our facilities and developing environmental impact assessments
    for major projects.           

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Our capital expenditures on environmental
programs in 2000, 2001 and 2002 totaled approximately
RMB 1,151 million, RMB 1,205 million and
RMB 1,363 million (US$165 million), respectively.




Legal Proceedings

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




Properties

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



| |   |                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | CNPC will use its best endeavours to obtain
    formal land use right certificates to replace the entitlement
    certificates in relation to the 28,649 parcels of land, which
    were leased or transferred to us from CNPC, within one year from
    August, September and October 1999 when the relevant entitlement
    certificates were issued;
|
| |  | CNPC will complete, within one year from
    November 5, 1999, the necessary governmental procedures for
    the requisition of the collectively owned land on which 116
    service stations owned by us are located; and                                                                                                                             
|
| |  | CNPC will obtain individual building ownership
    certificates in our name for all of the 57,482 buildings
    transferred to the Company by CNPC, before November 5, 2000.                                                                                                                                                                           

As of December 31, 2002, CNPC obtained
formal land use right certificates for 22,670 of the 28,649
parcels of land and some of the building ownership certificates.
The necessary governmental procedures for the above-mentioned
service stations located on collectively owned land have not
been completed to date. Our directors confirm that the use of
and the conduct of relevant activities at the above-mentioned
parcels of land, service stations and buildings are not affected
by the fact that the relevant land use right certificates or
individual building ownership certificates have not been
obtained or the fact that the relevant governmental procedures
have not been completed. Our directors believe that these will
not have any material adverse effect on our results of
operations and financial condition.

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

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Regulatory Matters

Overview

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



| |   |                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Ministry of Land and Resources has the
    authority for granting, examining and approving oil and gas
    exploration and production licenses, the administration of
    registration and transfer of exploration and production licenses.
|
| |  | The Ministry of Commerce, which was established
    in March 2003 to consolidate the authorities and functions of
    the former State Economic and Trade Commission and the former
    Ministry of Foreign Trade and Economic Cooperation:    



| |   |                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | has the industry administration and policy
    coordination authority over Chinas oil and gas industry;                                                                                                 
|
| |  | sets import and export quotas for crude oil and
    refined products on the basis of overall supply and demand for
    crude oil and refined products in China as well as WTO
    requirements for China;
|
| |  | issues import and export licenses for crude oil
    and refined products to oil and gas companies that have obtained
    import and export quotas; and                                                   
|
| |  | examines and approves production sharing
    contracts and Sino-foreign equity and cooperative joint venture
    contracts.                                                                              



| |   |                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The National Development and Reform Commission,
    which was established in March 2003 to replace the former State
    Development Planning Commission:



| |   |                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------
| |  | determines mandatory minimum volumes and
    applicable prices of natural gas to be supplied to certain
    fertilizer producers;               
|
| |  | publishes guidance prices for natural gas and
    retail median guidance prices for certain refined products,
    including gasoline and diesel;
|
| |  | approves investment and finance projects
    exceeding certain capital expenditure amounts; and                                                 
|
| |  | approves Sino-foreign equity and cooperative
    projects exceeding certain capital amounts.                                                    

Exploration Licenses and Production
Licenses

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

Applicants for exploration licenses must first
register with the Ministry of Land and Resources blocks in which
they intend to engage in exploration activities. The holder of
an exploration license is obligated to make a progressively
increasing annual minimum exploration investment relating to the
exploration blocks in respect of which the license is issued.
Investments range from RMB 2,000 per square kilometer for
the initial year to RMB 10,000 per square kilometer for the
third and subsequent

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years. Additionally, the holder has to pay an
annual exploration license fee that starts at RMB 100 per
square kilometer for each of the first three years and increases
by an additional RMB 100 per square kilometer per year for
subsequent years up to a maximum of RMB 500 per square
kilometer. The maximum term of an exploration license is seven
years, subject to renewal upon expiration of the original term,
with each renewal being for a two-year term. At the exploration
stage, an applicant can also apply for a progressive exploration
and production license that allows the holder to test and
develop reserves not yet fully proven. The progressive
exploration and production license has a maximum term of
15 years. Upon the reserves becoming proved for a block,
the holder must apply for a full production license in order to
begin production. In addition, the holder needs to obtain the
right to use that block of land. Generally, the holder of a full
production license must either obtain a land use rights
certificate for industrial land use covering that block of land
or lease such land from the relevant land administrative
authorities.


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

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

Pricing

Crude Oil

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

Refined Products

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

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

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

Chemical Products

PetroChina determines the prices of all of its
chemical products.

Natural Gas

The price of natural gas has two components:



| |   |                                
| | - | -------------------------------
| |  | ex-factory price; and          
|
| |  | pipeline transportation tariff.

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

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

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

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

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

Production and Marketing

Crude Oil

Each year, the National Development and Reform
Commission publishes the projected target for the production and
sale of crude oil by PetroChina, Sinopec and CNOOC, based on the
domestic consumption estimates submitted by domestic producers,
including PetroChina, Sinopec and CNOOC, the production capacity
of these companies as well as the forecast of international
crude oil prices. The actual production levels are determined by
the producers themselves and may vary from the submitted
estimates.

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Refined Products

Currently, only PetroChina, Sinopec and joint
ventures established by the two companies have the right to
conduct gasoline and diesel wholesale business. Other companies,
including foreign invested companies, may not engage in
wholesale of gasoline and diesel in Chinas domestic
market. In general, only domestic companies, including
Sino-foreign joint venture companies, are permitted to engage in
retail of gasoline and diesel. See Item 3 
Key Information  Risk Factors for a discussion
of the likely impact on the distribution of refined products in
China after Chinas admission to the WTO.

Natural Gas

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

Foreign Investments

Cooperation in Exploration and
Production with Foreign Companies

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

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

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

Transportation and
Refining

The PRC regulations permit foreign minority
ownership in pipeline transportation, oil storage facilities and
oil jetties. There is no express general restriction on foreign
investment in refineries and petrochemical facilities. However,
the construction of refineries with an annual capacity of five
million tons or less must receive special approval and the
production of ethylene and PVC resins with annual production
capacity exceeding 600,000 tons must be conducted by
companies majority-owned by Chinese persons. Furthermore, when
appropriate, projects must receive necessary approvals from
relevant PRC government agencies. See
Item 3  Key Information  Risk
Factors.

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Import and Export

The import and export of crude oil and refined
products is subject to quota and licensing control in China.
Currently, there are eighteen companies licensed to import crude
oil, four licensed to import gasoline, diesel and kerosene and
three licensed to export crude oil and refined products. The
Ministry of Commerce sets import and export quotas for crude oil
and refined products by taking into account the supply and
demand in China as well as the WTO requirements for China. The
Ministry of Commerce is also responsible for issuing import and
export licenses for products subject to quotas. Upon receiving
quota allocation, refining companies or enterprises can import
crude oil through State-authorized import companies. See
Item 3  Key Information  Risk
Factors for a discussion of the expected opening of
domestic markets to foreign competition in China.

The PRC government authorities have granted
PetroChina the right to conduct crude oil and refined product
import and export business. PetroChina holds quota to import and
export crude oil and refined products, and conducts import and
export of crude oil and refined products through its affiliate,
China National United Oil Corporation which holds relevant
import and export licenses.

Capital Investment and Financing

Capital investments in exploration and production
of crude oil and natural gas made by Chinese oil and gas
companies are not subject to government approval. However, oil
and gas companies must obtain prior approval from the relevant
government authorities for capital investments in other
projects. They must obtain prior approval from the National
Development and Reform Commission for capital investments in any
projects if the amount of capital involved exceeds RMB
50 million. Oil and gas companies need to obtain approval
from the National Development and Reform Commission and the
State Administration of Foreign Exchange to borrow from foreign
banks and foreign governments in connection with those capital
investments.

Taxation, Fees and Royalty

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

|                     |  |                |  |                                                                                                                                                                                                                                          
|-------------------- |  | -------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Tax item             |  | Tax base       |  | Tax rate                                                                                                                                                                                                                                 
|                     |  |                |  |                                                                                                                                                                                                                                          
|Corporate income tax |  | Taxable income |  | Generally at a rate of 33%. However, our
    qualified branch companies in the west regions of the PRC are
    entitled to a rate of 15%. Tax concession or exemption enjoyed
    by any subsidiary or branch company continues to apply.

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|                                           |  |                                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------------------------------------------ |  | -------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Tax item                                   |  | Tax base                               |  | Tax rate                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                           |  |                                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Value-added tax                            |  | Revenue                                |  | 13% for liquified natural gas, natural gas,
    agricultural film and fertilizers and 17% for other items.
    PetroChina charges value-added tax from its customers at the
    time of settlement on top of the selling prices of its products
    on behalf of the taxation authority. The value-added tax paid by
    PetroChina for purchasing materials to be consumed during the
    production process and for charges paid for drilling and other
    engineering services and labor are deducted from value-added tax
    payable by PetroChina. 13% of the value-added tax paid in
    connection with export of crude oil and diesel is subject to a
    full rebate.
|                                           |  | Sales volume                           |  | 5% for the Sino-foreign oil and gas exploration
    and development cooperative projects, but input value-added tax
    cannot be deducted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Business tax                               |  | Revenue from transportation services   |  | 3%                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Consumption tax                            |  | Aggregate volume sold or self-consumed |  | RMB 277.6 per ton for gasoline
    RMB 117.6 per ton for diesel
    All consumption taxes paid in connection with export of gasoline
    and diesel are subject to a full rebate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Resource tax                               |  | Aggregate volume sold or self-consumed |  | RMB 8 to 30 per ton for crude oil
    RMB 2 to 15 per thousand cubic meter for natural gas
    The actual applicable rate for each oil field may differ
    depending on the resource differences, volume of the exploration
    and production activities and costs required for the production
    at the particular oil field.                                                                                                                                                                                                                                                                                                                                               
|Compensatory fee for mineral
    resources |  | Revenue                                |  | 1% for crude oil and natural gas                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Exploration license fee                    |  | Area                                   |  | RMB 100 to 500 per square kilometer per year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Production license fee                     |  | Area                                   |  | RMB 1,000 per square kilometer per year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Royalty fee(1)                             |  | Production volume                      |  | Progressive rate of 012.5% for crude oil
    and 03% for natural gas                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          




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

The PRC Highway Law, as amended on
October 31, 1999, provides that the PRC government shall
collect funds for highway maintenance by imposing fuel taxes.
The State Council will formulate

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specific implementation methods and procedures
for the imposition of fuel tax. The State Council has not yet
announced or published any specific rate, implementation method
or procedure for the imposition of the tax.


Environmental Regulations

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

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

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ITEM 5  OPERATING AND FINANCIAL
REVIEW AND PROSPECTS






General


You should read the following discussion together
with our consolidated financial statements and their notes
included elsewhere in this annual report. Our consolidated
financial statements have been prepared in accordance with IFRS,
which differ in many material respects from US GAAP.
Note 33 to our consolidated financial statements included
elsewhere in this annual report and the section headed
 Other Information  US GAAP
Reconciliation summarize the significant differences
between IFRS and US GAAP as they relate to us.

Our consolidated financial statements and
operating data present, and the discussion and analysis in this
annual report pertain to, the results of operations of the
businesses transferred to us by CNPC and are based on the
historical financial information of CNPC. Specifically, in
connection with the 1998 restructuring of Chinas oil and
gas industry, CNPC transferred to Sinopec six crude oil and
natural gas production enterprises located in the eastern and
coastal regions of China and Sinopec transferred to CNPC 15
refineries and petrochemical plants located in the northeastern,
northern and western regions of China. In addition, local
governments in the northeastern, northern and western regions of
China transferred to CNPC 15 provincial and municipal
petroleum distribution companies. Our financial and operating
information gives effect to these transactions for all periods
presented. A significant portion of revenues generated prior to
the asset transfer represented sales from our exploration and
production segment to Sinopec.

In addition, in accordance with an acquisition
agreement between CNPC and us dated September 26, 2002, we
acquired from CNPC the assets, liabilities and interests related
to CNPCs refined products marketing enterprises consisting
primarily of service stations and related facilities for
RMB 3,200 million. Under IFRS, the acquisition is a
combination of entities under common control since the
CNPCs refined products marketing enterprises and us are
under the common control of CNPC. As a result, we have accounted
for the acquisition in a manner similar to a uniting of
interests, whereby the assets and liabilities of the marketing
enterprises acquired are accounted for at historical cost to
CNPC with net liabilities of RMB 2,956 million at the
effective date. Our consolidated financial statements as of and
for the years ended December 31, 2000 and 2001 included
elsewhere in this annual report have been restated to give
effect to the acquisition in these periods as if the operations
of our company and these marketing enterprises have always been
combined in these periods. The difference between
RMB 3,200 million paid and the net liabilities
transferred from CNPC has been adjusted against equity. See
 Acquisition of Certain Refined Products
Marketing Enterprises from CNPC.

Overview

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



| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | the exploration, development, production and sale
    of crude oil and natural gas;                                       
|
| |  | the refining, transportation, storage and
    marketing of crude oil and petroleum products;                              
|
| |  | the production and sale of basic petroleum
    products, derivative chemical products and other chemical
    products; and
|
| |  | the transmission of crude oil, refined products
    and natural gas as well as sale of natural gas.                       

We are Chinas largest producer of crude oil
and natural gas and are one of the largest companies in China in
terms of sales. In the year ended December 31, 2002, we
produced approximately 769.8 million barrels of crude oil
and approximately 605.0 billion cubic feet of natural gas
for sale. Our refineries also processed approximately
569.0 million barrels of crude oil in the year ended
December 31, 2002. In the year ended December 31,
2002, we had total revenue of RMB 244,424 million
(US$29,520 million) and net income of
RMB 46,910 million (US$5,665 million).

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

Critical Accounting Policies

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

Oil and Gas
Accounting

We use successful efforts method of accounting,
with specialized accounting rules that are unique to the oil and
gas industry, for oil and gas exploration and production
activities. Under this method, geological and seismic costs
incurred are expensed prior to the discovery of proved reserves.
However, all costs for developmental wells, support equipment
and facilities, and mineral interests in oil and gas properties
are capitalized. Costs of exploratory wells are capitalized as
construction in progress pending determination of whether the
wells find proved reserves.

Oil and Gas
Reserves

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

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

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

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

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

Property, Plant and
Equipment

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

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

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

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

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

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

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

Impairment of Accounts
Receivable

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

Deferred Tax
Assets

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

The principal temporary differences arise from
depreciation on oil and gas properties and equipment and
allowances for impairment of receivables, inventories,
investments and property, plant and equipment. Deferred tax
assets relating to the carry-forward of unused tax losses are
recognized

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to the extent that it is probable that future
taxable income will be available against which the unused tax
losses can be utilized.


Revenue
Recognition

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

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

One-time
Remedial Payments for Staff Housing

As disclosed in Note 4 to our consolidated
financial statements included elsewhere in this annual report,
certain of our employees who joined the workforce prior to
December 31, 1998 and have housing conditions below local
standards are to be reimbursed for such differences. These
one-time remedial payments are to be borne by our State-owned
shareholder, CNPC. Under IFRS, such direct payments to employees
or reimbursements will not be recorded in our consolidated
income statement. US GAAP contain no such exemption but require
this principal shareholders action on our behalf to be
recorded in the consolidated income statement. During the year
ended December 31, 2002, we and CNPC have completed the
process of estimating the amounts payable to qualified employees
at the level of the affected business units as a whole. We have
reflected this best available estimate of such payments in
determining our net income for the year ended December 31,
2002, under US GAAP. Since this amount is borne by our
State-owned shareholder, a corresponding amount has been
included as an addition to the other reserves in our
shareholders equity. The estimation process of such
payments down to level of the individual employees is still on
going. Actual results may differ from these estimates at the
time when more information becomes available.

For detailed discussions of significant
differences between IFRS and US GAAP, see Note 33 to
our consolidated financial statements included elsewhere in this
annual report and the section headed  Other
Information  US GAAP Reconciliation below.

Factors Affecting Results of
Operations

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

Crude Oil
Prices

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

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Prior to September 1, 1999, the premiums and
discounts applied to our crude oil sales were largely determined
through negotiations between CNPC and Sinopec, our largest
customer. Since September 1, 1999, these discounts and
premiums have been determined in accordance with a crude oil
premium and discount calculation agreement and its supplemental
agreement we entered into with Sinopec. These agreements
establish premiums and discounts which effect adjustments to the
benchmark prices. These agreements do not obligate either party
to purchase or sell any crude oil and is thus subject to
renegotiation. Under these agreements, the National Development
and Reform Commission, formerly the State Development Planning
Commission, will mediate if we cannot agree with Sinopec on the
premium or discount applicable to a particular crude oil
purchase. The table below sets forth the median prices for our
principal grades of crude oil in 2000, 2001 and 2002 and the
negotiated premiums and discounts applicable to those grades of
crude oil since July 2000.

|          |  |           |       |                                    |  |                    |       |           |  |            |       |               |  |              |       |  |  |  |                |   |  |  |                |   |  |  |                |  
|--------- |  | --------- | ----- | ---------------------------------- |  | ------------------ | ----- | --------- |  | ---------- | ----- | ------------- |  | ------------ | ----- |  |  |  | -------------- | - |  |  | -------------- | - |  |  | -------------- | -
|          |  |           |       |                                    |  |                   
|          |  |           |       | Median prices for principal grades |  | Premium/(discount)
|          |  |           |       | of crude oil (RMB/barrel)          |  | (RMB/barrel)      
|          |  |           |       |                                    |  |                   
|Grade of  |  |           |       | Year 2000                          |  | Year 2001          |       | Year 2002 |  | July 2000- |       | July 2001-    |  | Since       
|crude oil |  | Benchmark |       | average                            |  | average            |       | average   |  | June 2001  |       | December 2002 |  | January 2002
|          |  |           |       |                                    |  |                    |       |           |  |            |       |               |  |             
|Daqing    |  |           | Minas |                                    |  |                    | 240.3 |           |  |            | 209.0 |               |  |              | 198.7 |  |  |  | (3.8)  0      |   |  |  | 0  2.8        |   |  |  | 0  5.6        |  
|Jidong    |  |           | Minas |                                    |  |                    | 240.3 |           |  |            | 209.0 |               |  |              | 198.7 |  |  |  | (3.8)  0      |   |  |  | 0  2.8        |   |  |  | 0  5.6        |  
|Huabei    |  |           | Minas |                                    |  |                    | 240.3 |           |  |            | 209.0 |               |  |              | 198.7 |  |  |  | (3.8)  0      |   |  |  | 0  2.8        |   |  |  | 1.4  6.9      |  
|Dagang    |  |           | Cinta |                                    |  |                    | 232.2 |           |  |            | 199.3 |               |  |              | 192.6 |  |  |  | (3.8)  0      |   |  |  | 0  3.0        |   |  |  | 1.4  5.6      |  
|Tarim     |  |           | Minas |                                    |  |                    | 240.3 |           |  |            | 209.0 |               |  |              | 198.7 |  |  |  | (26.4)  (22.6 | ) |  |  | (29.4)  (22.6 | ) |  |  | (34.8          | )
|Tuha      |  |           | Tapis |                                    |  |                    | 262.2 |           |  |            | 233.8 |               |  |              | 203.9 |  |  |  | (31.0)  (27.2 | ) |  |  | (27.2)  (25.0 | ) |  |  | (27.2)  (21.5 | )

In 2002, the median prices for our principal
grades of crude oil and crude oil produced in our Daqing oil
region were RMB 195.0 per barrel and RMB 198.7 per
barrel, respectively.

Increases or decreases in the price of crude oil
in China have a significant impact on the revenue from our
exploration and production segment. In the year ended
December 31, 2002, our average realized selling price for
crude oil was RMB 186.1 (US$22.48) per barrel, as compared
to RMB 195.4 (US$23.61) per barrel in the year ended
December 31, 2001. As a result, the revenue from our
exploration and production segment decreased 0.7% from
RMB 148,277 million in the year ended December 31,
2001 to RMB 147,308 million (US$17,791 million) in the
year ended December 31, 2002. See
Item 4  Information on the
Company  Regulatory Matters  Pricing
for a more detailed discussion of current PRC crude oil pricing
regulations.

Refined
Product Prices

Until June 5, 1998, the State Development
Planning Commission, the predecessor of the National Development
and Reform Commission, set wholesale and retail prices for our
major refined products (gasoline, diesel and kerosene). However,
during the first six months of 1998, due to then prevailing
market conditions and increased smuggling of refined products,
actual wholesale prices in the refined products market were
lower than the wholesale prices set by the PRC government. In
June 1998, the State Development Planning Commission pegged the
prices of refined products of gasoline and diesel to the FOB
Singapore trading prices, supplemented by transportation costs,
customs duties, insurance charges, taxes and retail margins.
Prior to October 2001, the State Development Planning Commission
published from time to time retail median gasoline and diesel
guidance prices for major cities and provinces. Once published,
the retail median prices remained unchanged until either we or
Sinopec requested an adjustment and demonstrated that the
cumulative change of the FOB Singapore gasoline or diesel
trading price from the then applicable retail median guidance
price exceeded 5%. Since October 2001, the State Development
Planning Commission or the National Development and Reform
Commission has adjusted such retail median prices from time to
time to reflect the FOB Singapore, Rotterdam and New York
trading prices for gasoline and diesel, supplemented by
transportation costs and taxes. See
Item 4  Information on the
Company  Regulatory Matters  Pricing
for a more detailed discussion of current PRC refined products
pricing regulations.

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

The following table sets forth the retail median
prices for 90(#) gasoline and 0(#) diesel published by the State
Development Planning Commission from January 2002 to December
2002 when such adjustments were made.

|                        |  |           |       |             |  |  |       | 
|----------------------- |  | --------- | ----- | ----------- |  |  | ----- | 
|                        |  | 90(#)     |       |            
|                        |  | Gasoline  |       | 0(#) Diesel
|                        |  |           |       |            
|                        |  | (RMB/ton) |       | (RMB/ton)  
|January  February 2002 |  |           | 2,712 |             |  |  | 2,420 | 
|March 2002              |  |           | 2,842 |             |  |  | 2,550 | 
|April 2002              |  |           | 3,102 |             |  |  | 2,790 | 
|May  September 2002    |  |           | 3,342 |             |  |  | 3,030 | 
|October  December 2002 |  |           | 3,542 |             |  |  | 3,220 | 

Chemical
Product Prices

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

Natural Gas
Prices

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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Ex-factory Price.We
    set our ex-factory price within a 10% floating range of the
    median ex-factory price published by the National Development
    and Reform Commission, except for natural gas sold within the
    PRC governments natural gas supply plan, which must be
    sold at prices determined by the National Development and Reform
    Commission; and                                                               
|
| |  | Pipeline Transportation Tariff.The National Development and Reform
    Commission sets the pipeline transportation tariff for natural
    gas transported by pipelines constructed prior to 1991. For
    natural gas transported by pipelines constructed after 1991, we
    prepare a tariff schedule based on our actual cost plus a profit
    margin and submit it to the National Development and Reform
    Commission for approval.

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

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

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Foreign
Currency Exposure

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

Interest Rate
Exposure

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

The Restructuring of the CNPC Group

Effective as of November 5, 1999, CNPC
transferred to us its domestic assets and operations relating to:



| |   |                                                                                             
| | - | --------------------------------------------------------------------------------------------
| |  | the exploration, development and production of
    crude oil and natural gas;               
|
| |  | the refining, transportation, storage and
    marketing of crude oil and petroleum products;
|
| |  | the production and sale of chemicals; and                                                   
|
| |  | the transmission, marketing and sale of natural
    gas.                                    

CNPC retained the remaining assets and
operations. As part of this restructuring, we have made
arrangements with CNPC for the provision to us of certain
essential products and services. In addition, we have effected
transactions to transfer a portion of the debt obligations of
the subsidiaries of our predecessor to CNPC, resulting in a
decrease in debt of RMB 30,500 million, primarily long-term
debt, and a corresponding increase in owners equity as of
September 30, 1999.

In addition, as part of this restructuring and
our formation, a valuation of the contributed fixed assets on
the asset class level by business segment, excluding oil and gas
reserves, was carried out as of June 30, 1999 as required
by the applicable PRC regulations. The revaluation was performed
in order to determine the fair value of such contributed fixed
assets and establish amounts for share capital and capital
reserve.

Acquisition of Certain Refined Products
Marketing Enterprises from CNPC

In accordance with an acquisition agreement
between CNPC and us dated September 26, 2002, we acquired
from CNPC the assets, liabilities and interests related to
CNPCs refined products marketing enterprises consisting
primarily of service stations and related facilities for
RMB 3,200 million. The acquisition price was determined on
the basis of independent valuation and appraisals of the assets
and liabilities of these marketing enterprises under applicable
rules and regulations promulgated in the PRC. Of the
RMB 3,200 million in purchase price, RMB 430 million
was paid in cash, RMB 1,124 million was set off against
receivables from CNPC, and the remaining balance of
RMB 1,646 million was included as payables to CNPC at
December 31, 2002.

Under IFRS, the acquisition is a combination of
entities under common control since the CNPCs refined
products marketing enterprises and us are under the common
control of CNPC. As a result, we have accounted for the
acquisition in a manner similar to a uniting of interests,
whereby the assets and liabilities of the marketing enterprises
acquired are accounted for at historical cost to CNPC with net
liabilities of RMB 2,956 million at the effective date. Our
consolidated financial statements as of and for the years ended
December 31, 2000 and 2001 included elsewhere in this
annual report have been restated to give effect to the
acquisition in these periods as if the operations of our company
and these marketing enterprises have always been combined in
these periods. The difference between RMB 3,200 million
paid and the net liabilities transferred from CNPC has been
adjusted against equity.

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The following table sets forth the summarized
results of operations for the years ended December 31, 2000
and 2001 and the financial position as at December 31, 2001
for the separate entities and on a consolidated basis:

|                                         |                                        |                   |  |             |  |              |  |        |   |  |  |         | 
|---------------------------------------- | -------------------------------------- | ----------------- |  | ----------- |  | ------------ |  | ------ | - |  |  | ------- | 
|                                         |                                        |                   |  | Marketing   |  |             
|                                         |                                        | PetroChina        |  | enterprises |  | Consolidated
|                                         |                                        |                   |  |             |  |             
|                                         |                                        |                  
|                                         |                                        | (RMB in millions)
|Results of operations of 2000:           |                                        |                   |  |             |  |              |  |        |   |  |  |        
|                                         | Revenues                               |                   |  | 241,992     |  |              |  | 16,079 |   |  |  | 245,279 | 
|                                         | Net income/(loss)                      |                   |  | 55,231      |  |              |  | (586   | ) |  |  | 54,645  | 
|                                         | Basic and diluted net income per share |                   |  | 0.32        |  |              |  | 0      |   |  |  | 0.32    | 
|Results of operations of 2001:           |                                        |                   |  |             |  |              |  |        |   |  |  |        
|                                         | Revenues                               |                   |  | 238,893     |  |              |  | 12,354 |   |  |  | 241,320 | 
|                                         | Net income/(loss)                      |                   |  | 46,808      |  |              |  | (1,339 | ) |  |  | 45,469  | 
|                                         | Basic and diluted net income per share |                   |  | 0.27        |  |              |  | (0.01  | ) |  |  | 0.26    | 
|Financial position at December 31, 2001: |                                        |                   |  |             |  |              |  |        |   |  |  |        
|                                         | Current assets                         |                   |  | 86,412      |  |              |  | 981    |   |  |  | 86,017  | 
|                                         | Total assets                           |                   |  | 460,874     |  |              |  | 3,167  |   |  |  | 462,665 | 
|                                         | Current liabilities                    |                   |  | 88,748      |  |              |  | 5,595  |   |  |  | 92,967  | 
|                                         | Total liabilities                      |                   |  | 162,616     |  |              |  | 5,683  |   |  |  | 166,923 | 
|                                         | Net assets/(liabilities)               |                   |  | 293,122     |  |              |  | (2,516 | ) |  |  | 290,606 | 

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Operating Results

The following discussion is based on our
historical results of operations. As a result of the factors
discussed above, such results of operations may not be
indicative of our future operating performance. In addition, our
operating results discussed below reflect our restated results
of operations to give effect to the acquisition in 2002 of the
assets, liabilities and interests related to CNPCs refined
products marketing enterprises in all periods presented as if
the operations of our company and these marketing enterprises
have always been combined.

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

|                                               |  |                         |          |      |  |      |          |      |  |  |          |   |  |  |         |  
|---------------------------------------------- |  | ----------------------- | -------- | ---- |  | ---- | -------- | ---- |  |  | -------- | - |  |  | ------- | -
|                                               |  |                        
|                                               |  | Year ended December 31,
|                                               |  |                        
|                                               |  | 2000                    |          | 2001 |  | 2002 |          | 2002
|                                               |  |                         |          |      |  |      |          |     
|                                               |  | RMB                     |          | RMB  |  | RMB  |          | US$ 
|                                               |  |                        
|                                               |  | (in millions)          
|Total revenues                                 |  |                         | 245,279  |      |  |      | 241,320  |      |  |  | 244,424  |   |  |  | 29,520  |  
|Operating expenses                             |  |                         | (159,846 | )    |  |      | (170,181 | )    |  |  | (172,083 | ) |  |  | (20,783 | )
|                                               |  |                         |          |      |  |      |          |      |  |  |          |   |  |  |         |  
|Income from operations                         |  |                         | 85,433   |      |  |      | 71,139   |      |  |  | 72,341   |   |  |  | 8,737   |  
|Exchange gain (loss), net                      |  |                         | 1,172    |      |  |      | 250      |      |  |  | (316     | ) |  |  | (38     | )
|Interest expense, net                          |  |                         | (5,695   | )    |  |      | (3,599   | )    |  |  | (3,053   | ) |  |  | (369    | )
|Income from equity affiliates                  |  |                         | 584      |      |  |      | 341      |      |  |  | 268      |   |  |  | 32      |  
|                                               |  |                         |          |      |  |      |          |      |  |  |          |   |  |  |         |  
|Income before income taxes                     |  |                         | 81,494   |      |  |      | 68,131   |      |  |  | 69,240   |   |  |  | 8,362   |  
|Income taxes                                   |  |                         | (27,014  | )    |  |      | (23,066  | )    |  |  | (22,231  | ) |  |  | (2,685  | )
|(Income) loss applicable to minority interests |  |                         | 165      |      |  |      | 404      |      |  |  | (99      | ) |  |  | (12     | )
|                                               |  |                         |          |      |  |      |          |      |  |  |          |   |  |  |         |  
|Net income                                     |  |                         | 54,645   |      |  |      | 45,469   |      |  |  | 46,910   |   |  |  | 5,665   |  
|                                               |  |                         |          |      |  |      |          |      |  |  |          |   |  |  |         |  

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

|                                       |  |                                       |          |      |  |      |          |      |  |      |       |     |  |  |          |   |  |  |      |   
|-------------------------------------- |  | ------------------------------------- | -------- | ---- |  | ---- | -------- | ---- |  | ---- | ----- | --- |  |  | -------- | - |  |  | ---- | --
|                                       |  |                                       |          |      |  | 2001 |          |      |  | 2002
|                                       |  |                                       |          |      |  | vs.  |          |      |  | vs. 
|                                       |  | 2000                                  |          | 2001 |  | 2000 |          | 2002 |  | 2001
|                                       |  |                                       |          |      |  |      |          |      |  |     
|                                       |  |                                      
|                                       |  | (RMB in millions, except percentages)
|Sales and other operating revenues     |  |                                       |          |      |  |      |          |      |  |      |       |     |  |  |          |   |  |  |      |   
|Exploration and production             |  |                                       | 170,928  |      |  |      | 148,277  |      |  |      | (13.3 | )%  |  |  | 147,308  |   |  |  | (0.7 | )%
|Refining and marketing(1)              |  |                                       | 164,435  | (2)  |  |      | 171,961  |      |  |      | 4.6   | (2) |  |  | 174,621  |   |  |  | 1.5  |   
|Chemicals and marketing                |  |                                       | 33,364   |      |  |      | 31,776   |      |  |      | (4.8  | )   |  |  | 29,661   |   |  |  | (6.7 | ) 
|Natural gas and pipeline(1)            |  |                                       | 7,163    | (3)  |  |      | 11,321   |      |  |      | 58.0  | (3) |  |  | 12,733   |   |  |  | 12.5 |   
|Other                                  |  |                                       |         |      |  |      |         |      |  |      |      |     |  |  |         |   |  |  |     |   
|                                       |  |                                       |          |      |  |      |          |      |  |      |       |     |  |  |          |   |  |  |      |   
|Total                                  |  |                                       | 375,890  |      |  |      | 363,335  |      |  |      | (3.3  | )%  |  |  | 364,323  |   |  |  | 0.3  | % 
|                                       |  |                                       |          |      |  |      |          |      |  |      |       |     |  |  |          |   |  |  |      |   
|Less intersegment sales                |  |                                       | (130,611 | )    |  |      | (122,015 | )    |  |      | (6.6  | )   |  |  | (119,899 | ) |  |  | (1.7 | ) 
|                                       |  |                                       |          |      |  |      |          |      |  |      |       |     |  |  |          |   |  |  |      |   
|Consolidated net sales from operations |  |                                       | 245,279  |      |  |      | 241,320  |      |  |      | (1.6  | )%  |  |  | 244,424  |   |  |  | 1.3  | % 
|                                       |  |                                       |          |      |  |      |          |      |  |      |       |     |  |  |          |   |  |  |      |   




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Effective January 1, 2001, our results of
    operations, together with the corresponding assets and
    liabilities, of certain pipeline operations are reclassified
    from the refining and marketing segment to the natural gas and
    pipeline segment to reflect the changes in the manner under
    which these operations are managed. The results of operations,
    together with the corresponding assets and liabilities, of these
    pipeline operations were included in the refining and marketing
    segment in the segment information for the year ended
    December 31, 2000.

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | The sales and other operating revenue of our
    pipeline operations for the year ended December 31, 2000
    was RMB 2,506 million (US$303 million). Taking
    into account the exclusion of the pipeline operations in 2000,
    the sales and other operating revenue for our refining and
    marketing segment would have increased 6.2% from
    RMB 161,929 million for the year ended
    December 31, 2000 to RMB 171,961 million for the
    year ended December 31, 2001.
|   
|(3) | The sales and other operating revenue of our
    pipeline operations for the year ended December 31, 2000
    was RMB 2,506 million (US$303 million). Taking
    into account the inclusion of the pipeline operations in 2000,
    the sales and other operating revenue for our natural gas and
    pipeline segment would have increased 17.1% from
    RMB 9,669 million for the year ended December 31,
    2000 to RMB 11,321 million for the year ended
    December 31, 2001.

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

|                              |  |                                       |        |       |  |      |        |      |  |      |          |     |  |  |        |   |  |  |       |   
|----------------------------- |  | ------------------------------------- | ------ | ----- |  | ---- | ------ | ---- |  | ---- | -------- | --- |  |  | ------ | - |  |  | ----- | --
|                              |  |                                       |        |       |  | 2001 |        |      |  | 2002
|                              |  |                                       |        |       |  | vs.  |        |      |  | vs. 
|                              |  | 2000                                  |        | 2001  |  | 2000 |        | 2002 |  | 2001
|                              |  |                                       |        |       |  |      |        |      |  |     
|                              |  |                                      
|                              |  | (RMB in millions, except percentages)
|Income (loss) from operations |  |                                       |        |       |  |      |        |      |  |      |          |     |  |  |        |   |  |  |       |   
|Exploration and production    |  |                                       | 95,143 |       |  |      | 76,932 |      |  |      | (19.1    | )%  |  |  | 72,139 |   |  |  | (6.2  | )%
|Refining and marketing(1)     |  |                                       | (9,068 | ) (2) |  |      | (3,324 | )    |  |      | 63.3     | (2) |  |  | 2,818  |   |  |  | 184.8 |   
|Chemicals and marketing       |  |                                       | 70     |       |  |      | (2,374 | )    |  |      | (3,491.4 | )   |  |  | (3,162 | ) |  |  | (33.2 | ) 
|Natural gas and pipeline(1)   |  |                                       | 14     | (3)   |  |      | 722    |      |  |      | 5,057.1  | (3) |  |  | 1,552  |   |  |  | 115.0 |   
|Other                         |  |                                       | (726   | )     |  |      | (817   | )    |  |      | (12.5    | )   |  |  | (1,006 | ) |  |  | (23.1 | ) 
|                              |  |                                       |        |       |  |      |        |      |  |      |          |     |  |  |        |   |  |  |       |   
|Total                         |  |                                       | 85,433 |       |  |      | 71,139 |      |  |      | (16.7    | )%  |  |  | 72,341 |   |  |  | 1.7   | % 
|                              |  |                                       |        |       |  |      |        |      |  |      |          |     |  |  |        |   |  |  |       |   




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Effective January 1, 2001, our results of
    operations, together with the corresponding assets and
    liabilities, of certain pipeline operations are reclassified
    from the refining and marketing segment to the natural gas and
    pipeline segment to reflect the changes in the manner under
    which these operations are managed. The results of operations,
    together with the corresponding assets and liabilities, of these
    pipeline operations were included in the refining and marketing
    segment in the segment information for the year ended
    December 31, 2000.
|   
|(2) | The income from operations of our pipeline
    operations for the year ended December 31, 2000 was
    RMB 29 million (US$4 million). Taking into
    account the exclusion of the pipeline operations in 2000, the
    loss from operations for our refining and marketing segment
    would have decreased 63.5% from RMB 9,097 million for
    the year ended December 31, 2000 to
    RMB 3,324 million for the year ended December 31,
    2001.                                                                                                                                                
|   
|(3) | The income from operations of our pipeline
    operations for the year ended December 31, 2000 was
    RMB 29 million (US$4 million). Taking into
    account the inclusion of the pipeline operations in 2000, the
    income from operations for our natural gas and pipeline segment
    would have increased 1,579.1% from RMB 43 million for
    the year ended December 31, 2000 to
    RMB 722 million for the year ended December 31,
    2001.                                                                                                                                              

Year Ended December 31, 2002 Compared to
Year Ended December 31, 2001

Consolidated Results of
Operation

Total
Revenue.Total Revenue increased
1.3% from RMB 241,320 million for the year ended
December 31, 2001 to RMB 244,424 million
(US$29,520 million) for the year ended December 31,
2002. This increase was due primarily to an increase in sales
volume of products such as crude oil, natural gas, gasoline and
diesel and an increase in the comprehensive selling price of
natural gas,

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which was partially offset by a decrease in our
average realized selling prices of crude oil, gasoline and
diesel. The sales volume of our crude oil, natural gas, gasoline
and diesel increased by 2.6%, 11.1%, 4.6% and 5.1%,
respectively, in 2002.


Operating
Expenses.Operating expenses
increased 1.1% from RMB 170,181 million for the year
ended December 31, 2001 to RMB 172,083 million
(US$20,783 million) for the year ended December 31,
2002. This increase was due primarily to increases in
exploration expenses of 10.2%, employee compensation costs of
11.2% and depreciation, depletion and amortization of 9.4%. In
addition, the increase in operating expenses was also caused by
expenses we incurred of RMB 2,121 million in 2002 in
connection with the shutting down of certain inefficient
manufacturing assets. We did not incur similar expenses in 2001.
These operating expense increases were offset in part by a
decrease in purchases, services and other expenses of 8.7% and a
reduction in various other costs resulting from the effective
implementation of our cost reduction measures and our
streamlined management.

Purchases, Services and Other
Expenses.Purchases, services and
other expenses decreased 8.7% from RMB 78,529 million
for the year ended December 31, 2001 to
RMB 71,690 million (US$8,658 million) for the
year ended December 31, 2002. This decrease was due
primarily to a 6.4% decrease in the cost of refined products raw
materials as a result of a decline in the price of crude oil and
a decrease in the cost of chemicals raw materials due to price
declines.

Employee Compensation
Costs.Employee compensation costs
increased 11.2% from RMB 14,608 million for the year
ended December 31, 2001 to RMB 16,248 million
(US$1,962 million) for the year ended December 31,
2002. This increase was due primarily to (i) an increase of
RMB 1,021 million in bonuses for meeting or exceeding cost
reduction and production targets and (ii) an increase of
RMB 119 million in employee compensation costs as a result
of increased labor for the expansion of the selling and
retailing network for the refining and marketing segment.

Depreciation, Depletion and
Amortization.Depreciation, depletion
and amortization increased 9.4% from
RMB 33,615 million for the year ended
December 31, 2001 to RMB 36,782 million
(US$4,443 million) for the year ended December 31,
2002. This increase was due primarily to an increase of
RMB 494 million in current depreciation, depletion and
amortization expenses relating to the newly acquired assets and
an increase of RMB 1,753 million in the impairment
provision for inefficient plants and equipment held for use by
our chemicals and marketing segment and our refining and
marketing segment.

Selling, General and Administrative
Expenses.Selling, general and
administrative expenses increased 3.4% from
RMB 21,735 million for the year ended
December 31, 2001 to RMB 22,474 million
(US$2,714 million) for the year ended December 31,
2002. The increase was due primarily to an increase of
RMB 691 million in our transportation costs resulting from
increased sales volume in refined products and increased
selling, general and administrative expenses resulting from an
increase in maintenance expenses associated with upgrading of
our service stations.

Expenses Relating to Workforce Reduction and
the Shutting Down of Manufacturing Facilities and
Units.Expenses relating to workforce
reduction and the shutting down of manufacturing facilities and
units for the year ended December 31, 2001, consisted only
of the work force reduction of RMB 487 million
(US$59 million). We did not lay off any employees for the
year ended December 31, 2002, but shut down some
manufacturing facilities and units of the refining and marketing
segment and the chemicals and marketing segment. Consequently,
expenses relating to work force reduction and the shutting down
of manufacturing facilities and units for the year ended
December 31, 2002, consisted only of the costs for shutting
down of manufacturing assets of RMB 2,121 million
(US$256 million).

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Taxes Other than Income
Taxes.Taxes other than income taxes
increased 4.7% from RMB 13,951 million for the
year ended December 31, 2001 to
RMB 14,613 million (US$1,765 million) for the
year ended December 31, 2002. This increase was due
primarily to an increase in consumption tax resulting from an
increase in the sales volume of gasoline and diesel and an
increase in urban construction and education surcharges as a
result of increases in VAT and consumption tax in 2002.

Income From
Operations.As a result of the
factors discussed above, income from operations increased 1.7%
from RMB 71,139 million for the year ended
December 31, 2001 to RMB 72,341 million
(US$8,737 million) for the year ended December 31,
2002.

Net Exchange Gain
(Loss).Net exchange gain (loss)
decreased from a net gain of RMB 250 million for the
year ended December 31, 2001 to a net loss of
RMB 316 million (US$38 million) for the year
ended December 31, 2002. This decrease was due primarily to
an increase in exchange rate loss for borrowings in foreign
currencies as a result of a relatively large appreciation of
foreign exchange rates in 2002, particularly with respect to the
Japanese Yen, British Sterling and Euro.

Net Interest
Expense.Net interest expense
decreased 15.2% from RMB 3,599 million for the year
ended December 31, 2001 to RMB 3,053 million
(US$369 million) for the year ended December 31, 2002.
This decrease was due primarily to the decline of market
interest rates as well as a decrease in the average outstanding
balance of debts in 2002.

Income Before Income
Taxes.Income before income taxes
increased 1.6% from RMB 68,131 million for the year
ended December 31, 2001 to RMB 69,240 million
(US$8,362 million) for the year ended December 31,
2002.

Income Taxes.Income Taxes decreased 3.6% from RMB 23,066 million
for the year ended December 31, 2001 to
RMB 22,231 million (US$2,685 million) for the
year ended December 31, 2002. This decrease was due
primarily to the tax reductions of RMB 2,377 million
enjoyed by us in 2002 under the preferential tax treatment
policy promulgated by the Chinese government in order to
encourage development of western Chinas economy which,
however, was offset in part by an increase of RMB 511
million in expenses other than tax deductible expenses and the
tax settlement for previous years.

Net Income.As a result of the factors discussed above, net income increased
3.2% from RMB 45,469 million for the year ended
December 31, 2001 to RMB 46,910 million
(US$5,665 million) for the year ended December 31,
2002.



| |                           
| | --------------------------
| | Exploration and Production

Sales and Other Operating
Revenue.Sales and other operating
revenue decreased 0.7% from RMB 148,277 million for
the year ended December 31, 2001 to
RMB 147,308 million (US$17,791 million) for the
year ended December 31, 2002. This decrease was due
primarily to a decrease in the average realized price of our
crude oil from US$23.61 per barrel for the year ended
December 31, 2001 to US$22.48 per barrel for the year ended
December 31, 2002, which, however, was offset in part by
the increase in sales revenue resulting from the inclusion into
this segment of the small refineries in Tarim, Changqing and
Xinan oil fields or gas fields in 2002.

Intersegment sales decreased 4.0% from
RMB 110,738 million for the year ended
December 31, 2001 to RMB 106,266 million
(US$12,834 million) for the year ended December 31,
2002. This decrease was due primarily to a 4.5% decrease in the
price and a 2.3% decrease in sales volume of crude oil sold to
our other business segments.

Sales of crude oil to Sinopec increased 6.9% from
RMB 21,299 million for the year ended
December 31, 2001 to RMB 22,778 million
(US$2,751 million) for the year ended December 31,

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2002. This increase was due primarily to an
increase in the sales volume to Sinopec and was offset in part
by the decrease of our average realized selling price of our
crude oil sold to Sinopec.


Operating Expenses.Operating expenses increased 5.4% from
RMB 71,345 million for the year ended
December 31, 2001 to RMB 75,169 million
(US$9,078 million) for the year ended December 31,
2002. This increase was due primarily to (i) increases in
purchases, services and other expenses by
RMB 1,091 million and exploration expenses by
RMB 752 million as a result of the inclusion of the
small refineries in Tarim, Changqing and Xinan oil fields or gas
fields into this segment for administrative purposes in 2002 and
(ii) an increase in employee compensation costs by 13.1% as
a result of increases in bonuses for meeting or exceeding cost
reduction and production targets.

Income From
Operations.As a result of the factors
discussed above, income from operations decreased 6.2% from
RMB 76,932 million for the year ended
December 31, 2001 to RMB 72,139 million
(US$8,712 million) for the year ended December 31,
2002.



| |                       
| | ----------------------
| | Refining and Marketing

Sales and Other Operating
Revenue.Sales and other operating
revenue increased 1.5% from RMB 171,961 million for
the year ended December 31, 2001 to
RMB 174,621 million (US$21,089 million) for the
year ended December 31, 2002. This increase was due
primarily to an increase in the sales volume of principal
refined products such as gasoline by 4.6%, diesel by 5.1% and
lubricant oil by 1.0% in 2002, which was offset in part by
decreases in the average realized selling prices of gasoline,
diesel and kerosene and a decrease in the sales volume of
kerosene in 2002.

Sales revenue from gasoline increased 3.7% from
RMB 47,079 million for the year ended
December 31, 2001 to RMB 48,834 million
(US$5,898 million) for the year ended December 31,
2002. This increase was due primarily to a 4.6% increase in the
sales volume of gasoline from 18.2 million tons for the
year ended December 31, 2001 to 19.0 million tons for
the year ended December 31, 2002. The average realized
selling price of gasoline decreased 0.8% from RMB 2,591 per
ton for the year ended December 31, 2001 to RMB 2,570
(US$310.39) per ton for the year ended December 31, 2002.

Sales revenue from diesel increased 3.3% from
RMB 76,534 million for the year ended
December 31, 2001 to RMB 79,081 million
(US$9,551 million) for the year ended December 31,
2002. This increase was due primarily to a 5.1% increase in the
sales volume of diesel from 31.6 million tons for the year
ended December 31, 2001 to 33.2 million tons for the
year ended December 31, 2002. The average realized selling
price of diesel decreased 1.7%, from RMB 2,426 per ton in
the year ended December 31, 2001 to RMB 2,384
(US$287.92) per ton for the year ended December 31, 2002.

Sales revenue from kerosene decreased 12.6% from
RMB 4,423 million for the year ended December 31,
2001 to RMB 3,864 million (US$467 million) for the
year ended December 31, 2002. This decrease was due
primarily to a decrease in sales volume of kerosene from
1.93 million tons for the year ended December 31, 2001
to 1.88 million tons for the year ended December 31,
2002. The average realized selling price of kerosene decreased
10.5%, from RMB 2,290 per ton in the year ended
December 31, 2001 to RMB 2,050 (US$247.58) per ton for
the year ended December 31, 2002.

Intersegment sales revenue increased 18.4% from
RMB 8,436 million for the year ended December 31,
2001 to RMB 9,988 million (US$1,206 million) for
the year ended December 31, 2002. This increase was due
primarily to a 43.2% increase in the sales volume of naphtha and
liquefied gas to our other segments in 2002.

Operating Expenses.Operating expenses decreased 2.0% from
RMB 175,285 million for the year ended
December 31, 2001 to RMB 171,803 million
(US$20,749 million) for the year ended

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December 31, 2002. This decrease was due
primarily to (i) the decline of raw material purchase
prices, (ii) a 1.5% decrease in processing volume as a
result of the exclusion from this segment of the small
refineries in Tarim, Changqing and Xinan oil fields or gas
fields for administrative purposes in 2002 and (iii) the
decline of processing losses and maintenance expenses arising
from management improvements in production, operations and
equipment management as well as the active implementation of
technical renovations and energy-savings measures for
installations. The effect of these declines and decreases on
operating expenses was partially offset by an increase in 2002
of RMB 369 million (US$45 million) in the impairment
provision for inefficient plants and equipment held for use by
our refining and marketing segment.


Income (Loss) From
Operations.As a result of the factors
discussed above, income (loss) from operations increased from a
loss of RMB 3,324 million for the year ended
December 31, 2001 to a gain of RMB 2,818 million
(US$340 million) for the year ended December 31, 2002.



| |                        
| | -----------------------
| | Chemicals and Marketing

Sales and Other Operating
Revenue.Sales and other operating
revenue decreased 6.7% from RMB 31,776 million for the
year ended December 31, 2001 to
RMB 29,661 million (US$3,582 million) for the
year ended December 31, 2002. This decrease was due
primarily to a 12.7% decrease in the sales volume of chemical
products.

Operating Expenses.Operating expenses decreased 3.9% from
RMB 34,150 million for the year ended
December 31, 2001 to RMB 32,823 million
(US$3,964 million) for the year ended December 31,
2002. This decrease was due primarily to (i) an 11.9%
decrease in purchases, services and other expenses as a result
of the decrease in sales volume, (ii) a reduction of costs
resulting from the effective implementation of various cost
reduction and efficiency improvement measures as well as
streamlined management and (iii) a 21.9% decrease in
selling and administrative expenses as a result of a decrease in
the provision for impairment of receivables in 2002 as compared
to 2001. The effect of such decreases and reduction on operating
expenses was partially offset by an increase in 2002 of
RMB 1,384 million (US$167 million) in the impairment
provision for inefficient plants and equipment held for use by
our chemicals and marketing segment.

Income (Loss) From
Operations.As a result of the factors
discussed above, loss from operations increased 33.2% from
RMB 2,374 million for the year ended December 31,
2001 to RMB 3,162 million (US$382 million) for
the year ended December 31, 2002.



| |                         
| | ------------------------
| | Natural Gas and Pipeline

Sales and Other Operating
Revenue.Sales and other operating
revenue increased 12.5% from RMB 11,321 million for
the year ended December 31, 2001 to
RMB 12,733 million (US$1,538 million) for the
year ended December 31, 2002. This increase was due
primarily to increases in the price at which we sold natural gas
and a 10.0% increase in the sales volume of our natural gas as a
result of our efforts in optimizing our natural gas sales
structure in 2002.

Operating Expenses.Operating expenses increased 5.5% from
RMB 10,599 million for the year ended
December 31, 2001 to RMB 11,181 million
(US$1,350 million) for the year ended December 31,
2002. This increase was due primarily to an 8.4% increase in the
costs of purchasing natural gas resulting from an increase in
the sales volume of natural gas, which was partially offset by a
decrease of 1.5% in the price at which we purchased natural gas
from our exploration and production segment.

Income From
Operations.As a result of the factors
discussed above, income from operations increased 115.0% from
RMB 722 million for the year ended December 31,
2001 to RMB 1,552 million (US$187 million) for
the year ended December 31, 2002.

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Year Ended December 31, 2001 Compared to
Year Ended December 31, 2000

Consolidated Results of
Operation

Total Revenue.Total revenue decreased 1.6% from
RMB 245,279 million for the year ended
December 31, 2000 to RMB 241,320 million for the
year ended December 31, 2001. This decrease reflected the
decrease in revenues in our exploration and production segment
and chemicals and marketing segment as a result of a decrease in
the sales volume and decline in the average realized selling
price of crude oil, and a decrease in the selling prices of
chemical products.

Operating Expenses.Operating expenses increased 6.5%
from RMB 159,846 million for the year ended
December 31, 2000 to RMB 170,181 million for the
year ended December 31, 2001. This increase was due
primarily to the increases in purchases, services and other
expenses, selling, general and administrative expenses as well
as taxes other than income taxes.

Purchases, Services and Other Expenses.Purchases, services and other expenses
increased 22.2% from RMB 64,251 million for the year
ended December 31, 2000 to RMB 78,529 million for
the year ended December 31, 2001. This increase was due
primarily to an increase in the purchase of direct materials as
a result of an increase in the sales volume of refined products.

Employee Compensation Costs.Employee compensation costs decreased
3.4% from RMB 15,129 million for the year ended
December 31, 2000 to RMB 14,608 million for the
year ended December 31, 2001. This decrease was due
primarily to the reduction in the number of employees.

Depreciation, Depletion and Amortization.Depreciation, depletion and
amortization decreased 1.7% from RMB 34,209 million
for the year ended December 31, 2000 to
RMB 33,615 million for the year ended
December 31, 2001. This decrease was due primarily to the
fact that our refining enterprises disposed of a number of
installations in 2000, resulting in a decrease in the base value
of the provision for depreciation in 2001.

Selling, General and Administrative Expenses.Selling, general and administrative
expenses increased 23.3% from RMB 17,621 million for
the year ended December 31, 2000 to
RMB 21,735 million for the year ended
December 31, 2001. This increase was due primarily to the
higher transportation costs resulting from an increased sales
volume in the refining and marketing segment, the expansion and
extension of the sales and distribution network, and the
expansion of our markets and changes in the marketing methods
and structures of the chemicals and marketing segment.

Expenses Relating to Workforce Reduction and
the Shutting Down of Manufacturing Facilities and
Units.Expenses relating to our
workforce reduction and the shutting down of manufacturing
facilities and units decreased 92.6%. For the year ended
December 31, 2000, the expenses relating to our workforce
reduction and the shutting down of certain inefficient
manufacturing facilities and units were RMB 4,215 million
and RMB 2,364 million, respectively. We did not incur any
costs for the shutting down of manufacturing facilities and
units in 2001, with the costs for this period comprising only
workforce reduction expenses of RMB 487 million.

Taxes Other than Income Taxes.Taxes other than income taxes
increased 5.2% from RMB 13,258 million for the year ended
December 31, 2000 to RMB 13,951 million for the year
ended December 31, 2001. This increase was due primarily to
an increase in consumption tax and other relevant taxes
resulting from an increased sales volume in the refining and
marketing segment.

Income From Operations.As a result of the factors
discussed above, income from operations decreased 16.7% from
RMB 85,433 million for the year ended December 31,
2000 to RMB 71,139 million for the year ended
December 31, 2001.

Net Exchange Gain.Net exchange gain decreased 78.7%
from RMB 1,172 million for the year ended December 31,
2000 to RMB 250 million for the year ended
December 31, 2001.

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This decrease was due primarily to a
substantial decrease in the balance of loans denominated in
currencies which had been affected to a greater extent by
fluctuations in exchange rates, such as the Japanese Yen and
Euro.


Net Interest Expense.Net interest expense decreased
36.8% from RMB 5,695 million for the year ended
December 31, 2000 to RMB 3,599 million for the year
ended December 31, 2001. This decrease was due primarily to
our reinforcement of the centralization of capital management
and a decrease in the average balance of debts as well as a
decrease in the average interest rate.

Income Before Income Taxes.Income before income taxes
decreased 16.4% from RMB 81,494 million for the year ended
December 31, 2000 to RMB 68,131 million for the year
ended December 31, 2001.

Income Taxes.Income taxes decreased 14.6% from
RMB 27,014 million for the year ended December 31,
2000 to RMB 23,066 million for the year ended
December 31, 2001 due primarily to an decrease in income
before income taxes.

Net Income.As a result of the factors
discussed above, net income decreased 16.8% from RMB 54,645
million for the year ended December 31, 2000 to
RMB 45,469 million for the year ended December 31,
2001.

Exploration and
Production

Sales and Other Operating Revenue.Sales and other operating revenue
decreased 13.3% from RMB 170,928 million for the year ended
December 31, 2000 to RMB 148,277 million for the year
ended December 31, 2001. This decrease was due primarily to
a decrease in our sales volume of crude oil (not including
condensate) and a decline in its average realized selling price.
As our oil prices are directly linked to the international oil
prices, the decline of international oil prices has resulted in
a decrease of 13.2% in the average realized selling price of our
crude oil from US$27.21 per barrel as at December 31, 2000
to US$23.61 per barrel as at December 31, 2001.

Intersegment sales decreased 8.7% from
RMB 121,265 million for the year ended December 31,
2000 to RMB 110,738 million for the year ended
December 31, 2001. This decrease was due primarily to a
decline in the price at which crude oil was sold to other
business segments in 2001 as compared with 2000.

Sales of crude oil to Sinopec decreased 32.7%
from RMB 31,637 million for the year ended
December 31, 2000 to RMB 21,299 million for the year
ended December 31, 2001, primarily due to a decrease in the
sales volume and the average realized selling price of crude oil
sold to Sinopec.

Operating Expenses.Operating expenses decreased 5.9% from
RMB 75,785 million for the year ended December 31,
2000 to RMB 71,345 million for the year ended
December 31, 2001. This decrease was due primarily to our
continued implementation of cost reduction measures resulting in
decreases in purchases, services and other expenses and
decreases in expenses relating to workforce reduction and
exploration expenses.

Income From Operations.As a result of the factors discussed
above, income from operations decreased 19.1% from
RMB 95,143 million for the year ended December 31,
2000 to RMB 76,932 million for the year ended
December 31, 2001.

Refining and
Marketing

Sales and Other Operating Revenue.Sales and other operating revenue
increased 4.6% from RMB 164,435 million for the year ended
December 31, 2000 to RMB 171,961 million for the year
ended December 31, 2001. The increase was due primarily to
an increase in the sales volume of principal refined products
such as gasoline and diesel. The sales and other operating
revenue of our pipeline transmission business for the year ended
December 31, 2000 was RMB 2,506 million. Taking into
account the exclusion of the pipeline transmission business in
2000, the sales and other

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operating revenue for our refining and marketing
segment would have increased 6.2% from RMB 161,929 million
for the year ended December 31, 2000 to RMB 171,961
million for the year ended December 31, 2001.


Sales revenue from gasoline increased 7.0% from
RMB 43,984 million for the year ended December 31,
2000 to RMB 47,079 million for the year ended
December 31, 2001. This increase was due primarily to an
increase in the sales volume of gasoline. The average realized
selling price of gasoline decreased 7.8%, from RMB 2,811
per ton for the year ended December 31, 2000 to
RMB 2,591 per ton for the year ended December 31, 2001.

Sales revenue from diesel increased 13.7% from
RMB 67,283 million for the year ended December 31,
2000 to RMB 76,534 million for the year ended
December 31, 2001. This increase was due primarily to an
increase in the sales volume. The average realized selling price
of diesel decreased 3.9%, from RMB 2,524 per ton for the
year ended December 31, 2000 to RMB 2,426 per ton for
the year ended December 31, 2001.

Sales revenue from kerosene decreased 18.8% from
RMB 5,447 million for the year ended December 31, 2000
to RMB 4,423 million for the year ended December 31,
2001. This decrease was due primarily to a decrease in the price
and sales volume of kerosene.

Intersegment sales increased 3.2% from
RMB 8,176 million for the year ended December 31, 2000
to RMB 8,436 million for the year ended December 31,
2001. This increase was due primarily to an increase in the
sales volume to other segments.

Sales of refined products to Sinopec decreased
4.1% from RMB 4,950 million for the year ended
December 31, 2000 to RMB 4,747 million for the year
ended December 31, 2001. This decrease was due primarily to
a decrease in the sales volume of diesel and the average selling
price of kerosene sold to Sinopec. We expect sales to Sinopec to
continue to decline in future periods as a percentage of our
total sales of refined products as we continue to expand our
marketing network.

Operating Expenses.Operating expenses increased 1.0% from
RMB 173,503 million for the year ended December 31,
2000 to RMB 175,285 million for the year ended
December 31, 2001. This increase was due primarily to an
increase in the output and sales volume of refined products. The
operating expenses of our pipeline transmission business for the
year ended December 31, 2000 were RMB 2,477 million.
Taking into account the exclusion of the pipeline transmission
business in 2000, the operating expenses for our refining and
marketing segment would have increased 2.5% from
RMB 171,025 million for the year ended December 31,
2000 to RMB 175,285 million for the year ended
December 31, 2001.

Income (Loss) From Operations.As a result of the factors discussed
above, loss from operations decreased 63.3% from RMB 9,068
million for the year ended December 31, 2000 to
RMB 3,324 million for the year ended December 31, 2001.

Chemicals and
Marketing

Sales and Other Operating Revenue.Sales and other operating revenue
decreased 4.8% from RMB 33,364 million for the year ended
December 31, 2000 to RMB 31,776 million for the year
ended December 31, 2001. This decrease was due primarily to
a decrease in the prices of principal chemical products as a
result of the downturn in the market of chemical products,
despite an increase in the sales volume of chemical products.

Operating Expenses.Operating expenses increased 2.6% from
RMB 33,294 million for the year ended December 31,
2000 to RMB 34,150 million for the year ended
December 31, 2001. This increase resulted primarily from
the increase in purchases, services and other expenses due to an
increase in the sales volume and inventory-related changes.
Operating expenses also increased due to higher sales and
administrative expenses as a result of increased losses related
to bad debts.

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Income From Operations.As a result of the factors discussed
above, we recorded a loss of RMB 2,374 million for the year
ended December 31, 2001, as compared to a gain of
RMB 70 million for the year ended December 31, 2000.

Natural Gas and
Pipeline

Sales and Other Operating Revenue.Sales and other operating revenue
increased 58.0% from RMB 7,163 million for the year ended
December 31, 2000 to RMB 11,321 million for the year
ended December 31, 2001. This increase was due primarily to
an increase in the selling price and sales volume of natural gas
and the transfer of pipeline transmission business from the
refining and marketing segment to the natural gas and pipeline
segment. The sales volume of natural gas increased 13.1% from
391.0 billion cubic feet in 2000 to 442.2 billion
cubic feet in 2001. The sales and other operating revenue of our
pipeline transmission business for the year ended
December 31, 2000 was RMB 2,506 million. Taking into
account the inclusion of the pipeline transmission business in
2000, the sales and other operating revenue for our natural gas
and pipeline segment would have increased 17.1% from
RMB 9,669 million for the year ended December 31, 2000
to RMB 11,321 million for the year ended December 31,
2001.

Operating Expenses.Operating expenses increased 48.3%
from RMB 7,149 million for the year ended December 31,
2000 to RMB 10,599 million for the year ended
December 31, 2001. This increase was due primarily to an
increase in the sales volume of natural gas resulting in an
increase in natural gas purchased and an increase in the
transmission costs for crude oil caused by the transfer of the
pipeline transmission business from the refining and marketing
segment. The operating expenses of our pipeline transmission
business for the year ended December 31, 2000 were
RMB 2,477 million. Taking into account the exclusion of the
pipeline transmission business in 2000, the operating expenses
for our natural gas and pipeline segment would have increased
10.1% from RMB 9,626 million for the year ended
December 31, 2000 to RMB 10,599 million for the year
ended December 31, 2001.

Income From Operations.As a result of the factors discussed
above, income from operations increased 5,057.1% from
RMB 14 million for the year ended December 31, 2000 to
RMB 722 million for the year ended December 31, 2001.




Liquidity and Capital Resources

Our primary sources of funding are cash provided
by operating activities, short-term and long-term borrowings,
cash and cash equivalents. Historically, our primary uses of
funds were for capital expenditures, repayment of short-term and
long-term borrowings and distributions of dividends to
shareholders. Our payments to CNPC are limited to dividends and
payments for services provided to us by CNPC. In the year ended
December 31, 2002, we distributed as dividends 45% of our
reported net income. We expect that we will continue to
distribute as dividends approximately 40% to 50% of our reported
net income for all years. See Item 8 Financial
Information  Dividend Policy for a discussion
of factors which may affect the determination by our board of
directors of the appropriate level of dividends.

In accordance with the restructuring agreement we
entered into with CNPC in connection with the restructuring of
the CNPC group, we distributed RMB 2,640 million to
CNPC in June 2000 in respect of our net income during the period
from October 1, 1999 to November 4, 1999. We do not
believe that this distribution had a material impact on our
liquidity or our ability to fund planned capital expenditures.
This distribution was made in respect of a period prior to our
formation and was therefore not determined in accordance with
our dividend policy as described in
Item 8  Financial Information 
Dividend Policy.

Our shareholders approved at our
shareholders meeting held on May 28, 2003 the
proposed issuance of our corporate bonds in the principal amount
of up to RMB 5,500 million to PRC citizens

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and enterprises. We intend to use the proceeds
received from the issuance of these corporate bonds for various
crude oil and natural gas exploration projects in a number of
our oil and gas regions as well as for upgrading refining
facilities in Daqing Petrochemical and constructing the natural
gas pipeline from Zhong County to Wuhan city. We have obtained
approval from the PRC government in connection with the issuance
of a portion of these corporate bonds. However, the issuance of
these corporate bonds will be subject to market conditions. We
cannot assure you that we will complete the issuance of these
corporate bonds in accordance with the terms approved by our
shareholders or at all.


In the year ended December 31, 2001, we
reduced our workforce by 19,800 employees. We had provided for
expenses in the aggregate amount of RMB 1,035 million
in the year ended December 31, 2000 for the reduction of
13,900 employees and incurred expenses in the aggregate amount
of RMB 487 million in the year ended December 31,
2001 in connection with the reduction of additional 6,020
employees. We believe that our workforce reduction will have a
positive effect on our financial condition and results of
operations in the long run.

We finance a significant portion of our business
operations with short-term borrowings, including short-term debt
obtained from the PRC State-owned banks. As of December 31,
2002, short-term debt comprised approximately 5% of our capital
employed as compared to approximately 7% as of December 31,
2001. Our ability to obtain adequate financing to satisfy our
capital expenditure and debt servicing requirements may be
limited by our financial condition and our results of operations
and the liquidity of international and domestic capital markets.
Prior to accessing international capital markets, we must obtain
approval from various PRC government authorities. In general, we
must obtain PRC government approval for any project involving
significant capital investment for our refining and marketing,
chemicals and marketing and natural gas and pipeline segments.
For a more detailed discussion of factors which may affect our
ability to satisfy our financing requirements, see
Item 3  Key Information  Risk
Factors.

We plan to fund the capital and related
expenditures described in this annual report principally through
cash provided by operating activities, short-term and long-term
debt and cash and cash equivalents. Net cash provided by
operating activities in the year ended December 31, 2002
was RMB 98,341 million. As of December 31, 2002,
we had cash and cash equivalents of RMB 9,977 million.
While each of the projects described in this annual report for
which significant capital expenditures will be required is
important to our future development, we do not believe that the
failure to implement any one of these projects would have a
material adverse impact on our financial condition or results of
operations. If the price of crude oil undergoes a steep decline
in the future, it is likely that we would delay or reduce the
scale of the capital expenditures for our exploration and
development segment.

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

In addition, we did not have for the year ended
December 31, 2002, and do not currently have, any
transactions, arrangements and other relationships with
unconsolidated entities or other persons that are reasonably
likely to affect materially liquidity or the availability of or
requirements for our capital resources.

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The table below sets forth our cash flows for
each of the three years ended December 31, 2000, 2001 and
2002 and our cash equivalents at the end of each period.

|                                                         |  |                         |         |      |  |      |         |   |  |  |         |  
|-------------------------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | - |  |  | ------- | -
|                                                         |  |                        
|                                                         |  | Year ended December 31,
|                                                         |  |                        
|                                                         |  | 2000                    |         | 2001 |  | 2002
|                                                         |  |                         |         |      |  |     
|                                                         |  |                        
|                                                         |  | (RMB in millions)      
|Net cash provided by operating activities                |  |                         | 103,309 |      |  |      | 84,439  |   |  |  | 98,341  |  
|Net cash used for investing activities                   |  |                         | (60,126 | )    |  |      | (61,491 | ) |  |  | (71,662 | )
|Net cash provided by (used for) financing
    activities |  |                         | (43,188 | )    |  |      | (29,906 | ) |  |  | (27,829 | )
|Cash and cash equivalents at the end of period           |  |                         | 18,085  |      |  |      | 11,127  |   |  |  | 9,977   |  

Our cash and cash equivalents decreased by
RMB 1,150 million from RMB 11,127 million as
of December 31, 2001 to RMB 9,977 million
(US$1,205 million) as of December 31, 2002,
representing a 10.3% decrease over 2001.

Cash Provided by Operating
Activities

Our net cash provided by operating activities
increased 16.5% from RMB 84,439 million for the year
ended December 31, 2001 to RMB 98,341 million
(US$11,877 million) for the year ended December 31,
2002. This increase was due primarily to the increase in income
from operations and a significant amount of cash inflow to
working capital resulting from a shortened collection period of
receivables imposed by us.

We had a working capital deficit of
RMB 6,950 million as of December 31, 2001 and
RMB 14,189 million (US$1,714 million) as of
December 31, 2002. The increase in our working capital
deficit was primarily because the reduction rate of our current
assets was higher than the reduction rate of our current
liabilities. As part of our efforts to increase the collection
of receivables, accounts receivables and other receivables were
reduced significantly, thereby reducing our current assets. The
reduction of current liabilities was due primarily to
(i) our continuous efforts to strengthen the centralized
management of funds and debts and (ii) a reduction of the
current liabilities by repaying a portion of short-term
borrowings.

We have continued to implement our centralized
cash management system. This system has the following principal
components:



| |   |                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------
| |  | requiring our subsidiaries and branches to remit
    their sales revenues to bank accounts designated by our
    headquarters;
|
| |  | utilizing excess bank deposits to reduce bank
    borrowings; and                                                             
|
| |  | centralizing and simplifying internal clearing
    and settlement procedures.                                                 

The implementation of this centralized cash
management system has maintained our short receivable collection
cycle.

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

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Cash Provided by (Used for) Financing
Activities

Our net borrowings as of December 31, 2000,
2001 and 2002 were as follows:

|                                                                  |                                                |                   |        |        |        |      |        |        |        |  |        |        |        | 
|----------------------------------------------------------------- | ---------------------------------------------- | ----------------- | ------ | ------ | ------ | ---- | ------ | ------ | ------ |  | ------ | ------ | ------ | 
|                                                                  |                                                |                  
|                                                                  |                                                | December 31,     
|                                                                  |                                                |                  
|                                                                  |                                                | 2000              |        | 2001   |        | 2002
|                                                                  |                                                |                   |        |        |        |     
|                                                                  |                                                |                  
|                                                                  |                                                | (RMB in millions)
|Short-term debt (including current portion of
    long-term debt) |                                                |                   | 41,514 |        |        |      | 25,323 |        |        |  | 20,633 |       
|Long-term debt                                                    |                                                |                   | 53,412 |        |        |      | 65,546 |        |        |  | 60,655 |       
|                                                                  |                                                |                   |        |        |        |      |        |        |        |  |        |       
|                                                                  | Total debt                                     |                   |        | 94,926 |        |      |        | 90,869 |        |  |        | 81,288 |       
|Less:                                                             |                                                |                   |        |        |        |      |        |        |        |  |        |       
|                                                                  | Cash and cash equivalents                      |                   |        | 18,085 |        |      |        | 11,127 |        |  |        | 9,977  |       
|                                                                  | Time deposits with term exceeding three months |                   |        |       |        |      |        | 3,253  |        |  |        | 2,612  |       
|                                                                  | Receivables under resale agreements            |                   |        | 5,815  |        |      |        | 11,505 |        |  |        | 9,786  |       
|                                                                  |                                                |                   |        |        |        |      |        |        |        |  |        |       
|                                                                  |                                                | Net debt          |        |        | 71,026 |      |        |        | 64,984 |  |        |        | 58,913 | 
|                                                                  |                                                |                   |        |        |        |      |        |        |        |  |        |       

See Note 20 to our consolidated financial
statements for information regarding the maturity profile of
debt, currency and interest rate structure.

The debts which were guaranteed by CNPC amounted
to RMB 17,712 million, RMB 1,697 million and
RMB 939 million for the three years ended
December 31, 2000, 2001 and 2002, respectively. As of
December 31, 2000, we had repaid all short-term debts
guaranteed by CNPC. CNPC and ourselves have undertaken to the
Hong Kong Stock Exchange that we will continue to, on a best
endeavor basis, approach each lender with respect to these
guaranteed debts with a view toward obtaining the unconditional
release of such guarantees.

Of the total debts outstanding as of
December 31, 2002, approximately 29.6% were fixed-rate
loans and 70.4% were floating-rate loans. Of the total debts
outstanding as of December 31, 2002, approximately 81.0%
were denominated in Renminbi, approximately 16.0% were
denominated in the U.S. dollar and approximately 3.0% were
denominated in other major foreign currencies.

The amount of short-term debts owed to related
parties as of December 31, 2000, 2001 and 2002 were
RMB 14,269 million, RMB 1,268 million and
RMB 570 million, respectively. The amount of long-term
debts owed to related parties as of December 31, 2000, 2001
and 2002 were RMB 9,652 million, RMB 20,753 and
RMB 24,132 million, respectively.

Our debts included short-term and long-term debts
owed to China Petroleum Finance Company Limited of
RMB 23,896 million, RMB 22,021 million and
RMB 24,702 million as of December 31, 2000, 2001
and 2002, respectively. These debts were unsecured with interest
bearing at below the prime rate as published by the
Peoples Bank of China. We also maintain a significant
portion of our deposits at China Petroleum Finance Company
Limited.

Our net cash used for financing activities for
the year ended December 31, 2002 decreased 7.0% over the
year ended December 31, 2001. This decrease resulted
primarily from the following:



| |   |                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------
| |  | an increase in new short-term loans leading to an
    increase of RMB 3,779 million in cash inflow;                
|
| |  | a decrease in the repayment of short-term loans
    leading to a decrease of RMB 1,852 million in cash
    outflow;
|
| |  | a decrease in the distribution of dividends
    leading to a decrease of RMB 9,049 million in cash
    outflow;    

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This decrease was offset by the following:



| |   |                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an increase in the repayment of long-term loans
    leading to an increase of RMB 252 million in cash
    outflow;                                                                                                             
|
| |  | a decrease in new long-term loans leading to a
    decrease of RMB 11,370 million in cash inflow;                                                                                                                              
|
| |  | a sum of RMB 430 million cash payment
    made in 2002 as part of the purchase price for the acquisition
    of refined products marketing enterprises from CNPC leading to
    an increase of RMB 430 million in cash outflow.

Our net cash used for financing activities for
the year ended December 31, 2001 decreased 30.8% over the
year ended December 31, 2000. This decrease resulted
primarily from the following:



| |   |                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------
| |  | a decrease in the repayment of long-term loans,
    leading to a decrease of RMB 71,779 million in cash
    outflow;   
|
| |  | a distribution of RMB 2,640 million was
    made to CNPC in 2000 whereas no such distribution was made in
    2001; and
|
| |  | a decrease in the repayment of short-term loans,
    leading to a decrease of RMB 1,985 million in cash
    outflow.   

This decrease was offset by the following:



| |   |                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a decrease in new short-term and long-term loans,
    leading to a decrease of RMB 26,152 million in cash
    inflow;                                                                    
|
| |  | new shares were issued in 2000 whereas no new
    shares were issued in 2001, leading to a decrease of
    RMB 20,336 million in cash inflow in the year ended
    December 31, 2001; and
|
| |  | an increase in the distribution of dividends
    leading to an increase of RMB 16,318 million in cash
    outflow.                                                                       

As at December 31, 2002, our loans of RMB
398 million were secured loans (including financing leases
and bank loans), of which RMB 276 million in banks loans
were secured by our plants and equipment in the aggregate value
of RMB 426 million. We consider financing leases as secured
debts. As at December 31, 2002, the debts incurred by us by
way of financing leases amounted to RMB 122 million. The
net book value of the properties, plant and equipment under
financing leases was RMB 399 million.

Our debt to equity ratio(calculated by dividing
interest-bearing debts by the aggregate of interest-bearing
debts and shareholders equity) as of December 31,
2002 was 20.4%, as compared to 23.8% as of December 31,
2001.

Long-Term Contractual Obligations and Other
Commercial Commitments and Payment Obligations

The tables below set forth certain information in
connection with our long-term contractual obligations and other
commercial commitments outstanding at December 31, 2002.

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|                                   |  |                       |         |           |  |       |        |       |  |         |        |  |  |  |        |  |  |  |        | 
|---------------------------------- |  | --------------------- | ------- | --------- |  | ----- | ------ | ----- |  | ------- | ------ |  |  |  | ------ |  |  |  | ------ | 
|                                   |  |                      
|                                   |  | Payment due by period
|                                   |  |                      
|                                   |  |                       |         | Less than |  | 1-3   |        | 3-5   |  | After  
|Contractual obligations            |  | Total                 |         | 1 year    |  | years |        | years |  | 5 years
|                                   |  |                       |         |           |  |       |        |       |  |        
|                                   |  |                      
|                                   |  | (RMB in millions)    
|Long-term debt                     |  |                       | 66,742  |           |  |       | 6,143  |       |  |         | 35,863 |  |  |  | 15,635 |  |  |  | 9,101  | 
|Capital lease obligations          |  |                       | 122     |           |  |       | 66     |       |  |         | 56     |  |  |  |       |  |  |  |       | 
|Operating leases                   |  |                       | 98,099  |           |  |       | 2,403  |       |  |         | 4,520  |  |  |  | 4,494  |  |  |  | 86,682 | 
|Capital commitments                |  |                       | 3,276   |           |  |       | 3,276  |       |  |         | 0      |  |  |  | 0      |  |  |  | 0      | 
|                                   |  |                       |         |           |  |       |        |       |  |         |        |  |  |  |        |  |  |  |        | 
|Total contractual cash obligations |  |                       | 168,239 |           |  |       | 11,888 |       |  |         | 40,439 |  |  |  | 20,129 |  |  |  | 95,783 | 
|                                   |  |                       |         |           |  |       |        |       |  |         |        |  |  |  |        |  |  |  |        | 

|                             |  |                   |        |                                            |  |       |        |       |  |         |     |  |  |  |    |  |  |  |    | 
|---------------------------- |  | ----------------- | ------ | ------------------------------------------ |  | ----- | ------ | ----- |  | ------- | --- |  |  |  | -- |  |  |  | -- | 
|                             |  |                   |        |                                           
|                             |  |                   |        | Amount of commitment expiration per period
|                             |  | Total             |        |                                           
|Other commercial             |  | amounts           |        | Less than                                  |  | 1-3   |        | 3-5   |  | Over   
|commitments                  |  | committed         |        | 1 year                                     |  | years |        | years |  | 5 years
|                             |  |                   |        |                                            |  |       |        |       |  |        
|                             |  |                  
|                             |  | (RMB in millions)
|Lines of credit              |  |                   | 60,200 |                                            |  |       | 60,200 |       |  |         | 0   |  |  |  | 0  |  |  |  | 0  | 
|Standby letters of credit    |  |                   | 128    |                                            |  |       | 125    |       |  |         | 3   |  |  |  | 0  |  |  |  | 0  | 
|Guarantees                   |  |                   | 926    |                                            |  |       | 267    |       |  |         | 586 |  |  |  | 32 |  |  |  | 41 | 
|                             |  |                   |        |                                            |  |       |        |       |  |         |     |  |  |  |    |  |  |  |    | 
|Total commercial commitments |  |                   | 61,254 |                                            |  |       | 60,592 |       |  |         | 589 |  |  |  | 32 |  |  |  | 41 | 
|                             |  |                   |        |                                            |  |       |        |       |  |         |     |  |  |  |    |  |  |  |    | 

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

|                    |  |                   |     | 
|------------------- |  | ----------------- | --- | 
|Year                |  | Annual payment   
|                    |  |                  
|                    |  | (RMB in millions)
|2003                |  |                   | 382 | 
|2004                |  |                   | 515 | 
|2005                |  |                   | 618 | 
|2006                |  |                   | 681 | 
|2007 and thereafter |  |                   | 840 | 

Capital Expenditures and Investments

Our net cash used for investing activities
includes capital expenditures and investments, offset by
proceeds from the sale of assets and dividends received. The
table below sets forth our capital expenditures and investments
(including non dry hole exploration expenses) by business
segment for each of the years ended December 31, 2000, 2001
and 2002 as well as those anticipated for the year ended
December 31, 2003. Actual capital expenditures and
investments for periods after January 1, 2003 may
differ materially from the amounts indicated below.

|                           |       |           |        |        |  |           |      |             |  |           |        |        |  |           |      |       |  |  |        |        |  |  |      |       |  |  |        |        |  |  |      |       | 
|-------------------------- | ----- | --------- | ------ | ------ |  | --------- | ---- | ----------- |  | --------- | ------ | ------ |  | --------- | ---- | ----- |  |  | ------ | ------ |  |  | ---- | ----- |  |  | ------ | ------ |  |  | ---- | ----- | 
|                           |       |           |        |        |  |           |      |             |  |           |        |        |  |          
|                           |       |           |        |        |  |           |      | 2003       
|                           |       | 2000      |        | 2001   |  | 2002      |      | anticipated
|                           |       |           |        |        |  |           |      |            
|                           |       | (RMB in   |        |        |  | (RMB in   |      |             |  | (RMB in   |        |        |  | (RMB in   |      |      
|                           |       | millions) |        | %      |  | millions) |      | %           |  | millions) |        | %      |  | millions) |      | %    
|Exploration and production |       |           | 42,968 |        |  |           | 66.6 |             |  |           | 45,115 |        |  |           | 68.9 |       |  |  | 50,646 |        |  |  | 64.7 |       |  |  | 49,100 |        |  |  | 60.0 |      
|Refining and marketing     |       |           | 13,595 |        |  |           | 21.1 |             |  |           | 11,416 |        |  |           | 17.4 |       |  |  | 11,327 |        |  |  | 14.5 |       |  |  | 9,463  |        |  |  | 11.6 |      
|Chemicals and marketing    |       |           | 4,104  |        |  |           | 6.4  |             |  |           | 4,062  |        |  |           | 6.2  |       |  |  | 3,175  |        |  |  | 4.1  |       |  |  | 5,737  |        |  |  | 7.0  |      
|Natural gas and pipeline   |       |           | 3,214  |        |  |           | 5.0  |             |  |           | 4,557  |        |  |           | 7.0  |       |  |  | 13,013 |        |  |  | 16.6 |       |  |  | 17,000 |        |  |  | 20.7 |      
|Corporate and other        |       |           | 563    |        |  |           | 0.9  |             |  |           | 321    |        |  |           | 0.5  |       |  |  | 133    |        |  |  | 0.2  |       |  |  | 600    |        |  |  | 0.7  |      
|                           |       |           |        |        |  |           |      |             |  |           |        |        |  |           |      |       |  |  |        |        |  |  |      |       |  |  |        |        |  |  |      |      
|                           | Total |           |        | 64,444 |  |           |      | 100.0       |  |           |        | 65,471 |  |           |      | 100.0 |  |  |        | 78,294 |  |  |      | 100.0 |  |  |        | 81,900 |  |  |      | 100.0 | 
|                           |       |           |        |        |  |           |      |             |  |           |        |        |  |           |      |       |  |  |        |        |  |  |      |       |  |  |        |        |  |  |      |      

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Our capital expenditures and investments
increased 19.6% from RMB 65,471 million for the year ended
December 31, 2001 to RMB 78,294 million
(US$9,456 million) for the year ended December 31,
2002. This increase was due primarily to an increase of RMB
7,985 million in capital expenditure for our West to East
natural gas pipeline project, the construction of which has
commenced, an increase of RMB 1,952 million in capital
expenditure for expanding our overseas oil exploration and
development business and an increase in capital expenditure for
our investments in domestic exploration of oil and gas. Taking
into account the exclusion of the investments relating to the
non dry hole exploration expenses, our capital expenditures for
the years ended 2000, 2001 and 2002 would have been RMB
60,130 million, RMB 61,549 million and RMB
73,726 million (US$8,904 million), respectively.

As of December 31, 2002, the capital
expenditures contracted for at the balance sheet date but not
recognized in our consolidated financial statements were RMB
3,276 million (US$396 million).

On July 4, 2002, we entered into a Joint
Venture Framework Agreement with a group of international energy
companies, or the International Consortium, to form a pipeline
contractual joint venture for the development, construction and
operation of the West to East natural gas pipelines.

The International Consortium includes six
international energy companies, including Shell International
Gas Limited, or Shell, OAO Gazprom, or Gazprom, and ExxonMobil
China Gas Pipeline Limited, or ExxonMobil. Shell, Gazprom and
ExxonMobil lead the International Consortium and will hold equal
interest in the pipeline contractual joint venture.

We, the International Consortium and Sinopec will
hold 50%, 45% and 5%, respectively, of the equity interests in
the pipeline contractual joint venture. The term of the
cooperation for the West to East natural gas pipeline project is
45 years.

We expect that a total amount of RMB
27,300 million will be required for the development and
production of natural gas fields to provide natural gas to the
West to East gas pipelines for 45 years. We and the
International Consortium will be responsible for financing the
development and production of natural gas fields based on our
respective interests in each of the upstream projects. We
anticipate that the pipeline joint venture will require a total
investment of approximately RMB 43,500 million, 35% of
which is expected to be provided by us, Sinopec and the
International Consortium in the form of equity capital in
proportion to our respective interests in the pipeline joint
venture, and 65% of which is expected to be provided by way of
debt financing. Our equity investment in the pipeline joint
venture is estimated at approximately RMB 7,600 million. At
present, the total amount of investment in a sales joint venture
to be established in connection with the West to East natural
gas pipeline project has not yet been determined.

Our expected total equity investment in the
upstream projects and the pipeline contractual joint venture is
approximately RMB 22,600 million.

We believe that the West to East natural gas
pipeline project is strategically important to us in terms of
enhancing our corporate value, economic efficiency and
competitiveness.

Exploration &
Production

A majority of our capital expenditures and
investments relate to our exploration and production segment.
Our capital expenditures and investments for the year ended
December 31, 2002 totaled RMB 50,646 million
(US$6,117 million), including RMB 10,704 million for
exploration activities and RMB 35,558 million for
development activities. Our capital expenditures and investments
for the year ended December 31, 2001, totaled RMB
45,115 million, including RMB 10,146 million for
exploration activities and RMB 29,444 million for
development activities. This increase in our capital
expenditures from the year ended December 31, 2001 to the
year ended December 31, 2002 was due primarily to increases
in capital expenditures for expanding our overseas exploration
and development business and for upstream development projects
in relation to the West to East natural gas pipeline project and
increases in expenses for development activities resulting from
an appropriate increase in the

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crude oil production capacity in light of higher
oil prices. Taking into account the exclusion of the investments
relating to the non-dry hole exploration expenses, the capital
expenditures of our exploration and production segment for the
years ended December 31, 2000, 2001 and 2002 would have
been RMB 38,654 million, RMB 41,193 million and RMB
46,078 million (US$5,565 million), respectively.


Our anticipated capital expenditures and
investments for our exploration and production segment for the
year ended December 31, 2003 amount to RMB
49,100 million. Approximately RMB 12,429 million is
expected to be used for exploration activities and approximately
RMB 34,371 million for development activities. We plan to
focus our natural gas exploration efforts in the Tarim basin and
our crude oil exploration efforts in the Erdos, Junggar and
Songliao basins.

Refining and
Marketing

Our capital expenditures and investments for our
refining and marketing segment for each of the three years ended
December 31, 2000, 2001 and 2002 were RMB
13,595 million, RMB 11,416 million and RMB
11,327 million (US$1,368 million), respectively. The
capital expenditures for our refining and marketing segment for
the year ended December 31, 2002 were basically maintained
at the same level as the capital expenditures for our refining
and marketing segment for the year ended December 31, 2001.

Our anticipated capital expenditures and
investments for our refining and marketing segment for the year
ended December 31, 2003 amount to RMB 9,463 million,
which include:



| |   |                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------
| |  | approximately RMB 4,800 million for the
    construction and expansion of refining facilities; and  
|
| |  | approximately RMB 4,663 million for the
    construction of service stations and storage facilities.

Chemicals and
Marketing

Our capital expenditures and investments for our
chemicals and marketing segment for each of the three years
ended December 31, 2000, 2001 and 2002 were RMB 4,104
million, RMB 4,062 million and RMB 3,175 million
(US$383 million), respectively. In the five years ended
December 31, 2001, we have significantly decreased our
capital expenditures and investments in our chemicals and
marketing segment as we moved to a more rigorous return-based
evaluation system for our capital expenditures and investments,
which led to a stricter control over and a decrease in capital
expenditure for the chemicals and marketing segment.

Our anticipated capital expenditures and
investments for our chemicals and marketing segment for the year
ended December 31, 2003 amount to RMB 5,737 million,
which include the capital expenditures and investments for
expanding the capacity and transforming Daqing
Petrochemicals ethylene installations.

Natural Gas and
Pipeline

Our capital expenditures and investments for our
natural gas and pipeline segment for each of the three years
ended December 31, 2000, 2001 and 2002 were RMB 3,214
million, RMB 4,557 million and RMB 13,013 million
(US$1,572 million). The increase in our capital
expenditures in this segment from the year ended
December 31, 2000 to the year ended December 31, 2001
was due primarily to an increase in capital expenditures
resulting from the commencement of the experimental phase of the
West to East natural gas pipeline project.

Our anticipated capital expenditures and
investments for our natural gas and pipeline segment for the
year ended December 31, 2003 amount to RMB 17,000
million (US$2,053 million). Of this amount, approximately
RMB 14,000 million is expected to be invested in the West
to East natural gas pipeline project and RMB 1,600 million
for the Zhong County to Wuhan and the second Shaanxi-Beijing
natural gas pipelines. We currently expect to invest
approximately RMB 900 million

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in natural gas storage infrastructure projects
and other natural gas pipelines and approximately RMB 500
million in the pipelines for the transmission of crude oil and
refined products. See Item 4  Information
on the Company  Natural Gas and Pipeline 
Expansion of Our Natural Gas Transmission and Marketing
Business for a more detailed discussion of the expansion
plans of our natural gas segment.


Corporate and
Other

Our non-segment-specific capital expenditures and
investments for each of the three years ended December 31,
2000, 2001 and 2002 were RMB 563 million and RMB 321
million and RMB 133 million (US$16 million),
respectively. Our non segment-specific capital expenditures and
investments related primarily to purchase of
non-segment-specific equipment and research and development
activities.

Our anticipated non-segment-specific capital
expenditures and investments for the year ended
December 31, 2002 amount to RMB 600 million. These
planned capital expenditures and investments relate primarily to
the construction work of various segments for their mutual
benefits.

The Restructuring of Our Long-Term
Investments

In 2002, we entered into a number of transactions
to streamline our long-term investments and to focus our
resources on our core business activities. We entered into a
share transfer agreement with each of Xian Feitian Science,
Industrial and Trading Group Company Limited, or Xian
Feitian, and Wuhan Luzhou Enterprise (Group) Company Limited, or
Wuhan Luzhou, on May 23, 2002. Under the share transfer
agreements, we transferred 27% and 8.90% of the state-owned
legal person shares in Petroleum Long Champ (Group) Co., Ltd.,
or Long Champ, to Xian Feitian and Wuhan Luzhou,
respectively. The share transfer agreements were approved by the
Ministry of Finance and became effective on December 31,
2002. We ceased having any interest in Long Champ upon
completion of the share transfers.

We entered into a share transfer agreement with
China Electronic Information Industrial Group Company, or China
Electronic, on July 12, 2002. Under the share transfer
agreement, we transferred 51.60% of the state-owned legal person
shares in Gansu Tristar Petrochemical (Group) Co., Ltd., or
Tristar, to China Electronic. On July 25, 2002, the
Ministry of Finance granted its approval to the transfer of the
state-owned legal person shares in Tristar and the share
transfer agreement became effective. We ceased having any
interest in Tristar upon completion of the share transfer.

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




Research and Development

We have a research and development management
department, directly under which there are two research
institutions. Except for our subsidiaries and branch companies
in our marketing operation, each of our subsidiaries and branch
companies has its own research and development department and
technology centers. Our research and development department is
responsible for coordinating research and development activities
conducted by the research institutions and the relevant
departments and technology centers of our subsidiaries and
branch companies. These departments and technology centers of
our subsidiaries and branch companies focus on developing
specific technology for their respective subsidiaries or branch
companies independently or in

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cooperation with our research and development
department. As of December 31, 2002, we had 22,192
employees engaged in research and development functions.


In each of the three years ended
December 31, 2000, 2001 and 2002, our total expenditures
for research and development were approximately RMB 1,751
million, RMB 1,896 million and RMB 1,806 million
(US$218 million), respectively.

Exploration and Production

Chinas major oil and gas fields are
characterized by a broad range of geological conditions, and a
majority of Chinas oil and gas fields are in sedimentary
basins with continental formation. We have developed effective
exploration and production techniques and methods that are
suitable for these geological conditions. Our research and
development efforts with respect to our exploration and
production business focus on:



| |   |                                                                 
| | - | ----------------------------------------------------------------
| |  | geological structures of crude oil and natural
    gas reserves;
|
| |  | oil and gas exploration and development;                        
|
| |  | oil and gas production and pipeline
    transportation; and     
|
| |  | monitoring of the environment.                                  

Refining and Marketing

Our refining technology centers carry out
research and development for new products and improvements to
manufacturing processes, particularly through the evaluation of
catalysts. Our research and development efforts in respect of
our refining business focus on:



| |   |                                                              
| | - | -------------------------------------------------------------
| |  | research and development of advanced refining
    techniques;
|
| |  | the implementation of new refining technologies;
    and     
|
| |  | research and development of catalysts and
    additives.     

Chemicals

We attempt to ensure that our chemical products
are competitive through research and development in the
application of new products, new technologies and new
techniques. We have concentrated our research and development
efforts in the areas of applications and products in order to
increase our competitiveness in the market. Currently, we are in
the process of establishing four research and development
centers in Daqing, Liaoyang, Lanzhou and Jilin.




Trend Information

We plan to further streamline our production
facilities within the next several years to further improve our
operating efficiency and competitiveness by consolidating or
shutting down some of our production facilities. Our management
has not approved all significant actions to be taken to
implement such plans. We do not believe that the implementation
of such plans will have a material adverse impact on our
financial position, although we believe that it could have a
material adverse effect on our results of operations because we
would be required under our accounting policies to recognize in
our income statement any impairment loss or impairment provision
associated with shutting down our production facilities.

See  General 
Critical Accounting Policies and
 General  Factors Affecting Results
of Operations above for a detailed discussion of other
trend information.

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Other Information

Inflation

Inflation or deflation has not had a significant
impact on our results of operations for the year ended
December 31, 2002.

Non-Exchange Traded Contracts

We did not engage for the year ended
December 31, 2002, and do not currently engage, to a
material extent, in any trading activities involving commodity
contracts that are accounted for at fair value but for which a
lack of market price quotations necessitates the use of fair
value estimation techniques.

Related Party Transactions

For a discussion of related party transactions,
see Item 7  Major Shareholders and Related
Party Transactions  Related Party Transactions
and Note 30 to our consolidated financial statements
included elsewhere in this annual report.

US GAAP Reconciliation

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

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

Revaluation
of Fixed Assets

As described in Note 16 to our consolidated
financial statements, the fixed assets, excluding oil and gas
reserves, transferred to us by CNPC were appraised as of
June 30, 1999, as required by the relevant PRC regulations,
by a firm of independent valuers registered in the PRC, China
Enterprise Appraisal. The revaluation of the fixed assets
transferred resulted in RMB 80,549 million in excess
of the prior carrying value and a revaluation loss of
RMB 1,122 million on certain fixed asset items. The
depreciation charge on the revaluation surplus from
January 1, 2000 to December 31, 2000 was
RMB 8,483 million, from January 1, 2001 to
December 31, 2001 was RMB 8,305 million, and from
January 1, 2002 to December 31, 2002 was
RMB 8,157 million (US$985 million).

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

Related
Party Transactions

We have disclosed in Note 29 to our
consolidated financial statements transactions with significant
customers and in Notes 13, 15, 19, 20 and 30 to our
consolidated financial statements transactions and balances with
its immediate parent, CNPC, and related companies. CNPC is owned
by the PRC government, which also owns a significant portion of
the productive assets in the PRC. IFRS exempt state controlled
enterprises from disclosing transactions with other state
controlled enterprises. IFRS also exclude from related parties
government departments and agencies to the extent that such
dealings are in the normal course of business. US GAAP contain
no similar exemptions but require disclosure of material related
party transactions. We believe that we have

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provided meaningful disclosures of related party
transactions through the major customer disclosures in
Note 29 to our consolidated financial statements and the
transactions with the CNPC Group disclosed in Note 30 to
our consolidated financial statements. Although the majority of
our activities are with PRC government authorities and
affiliates and other state controlled enterprises, none of these
entities individually constituted a major customer or supplier
other than those disclosed.


One-time
Remedial Payments for Staff Housing

As disclosed in Note 4 to our consolidated
financial statements, certain of our employees who joined the
workforce prior to December 31, 1998 and have housing
conditions below local standards are to be reimbursed for such
differences. These one-time remedial payments are to be borne by
our State-owned shareholder, CNPC. Under IFRS, such direct
payments to employees or reimbursements will not be recorded
through our consolidated income statement. US GAAP contain no
such exemption but require this principal shareholders
action on our behalf to be recorded in the consolidated income
statement. During the year ended December 31, 2002, we and
CNPC completed the process of estimating the amounts payable to
our qualified employees. An amount of
RMB 2,553 million has been reflected as such payments
in determining our net income for the year ended
December 31, 2002, under US GAAP. Since this amount is
borne by our State-owned shareholder, a corresponding amount has
been included as an addition to the other reserves in our
shareholders equity.

Recent
US Accounting Pronouncements

In August 2001, FASB issued Statement of
Financial Accounting Standards No. 143 (FAS 143),
Accounting for Asset Retirement Obligations.
FAS 143 establishes accounting standards for the
recognition and measurement of a liability for an asset
retirement obligation and the associated asset retirement cost.
FAS 143 is effective for financial statements issued for
fiscal years beginning after June 15, 2002. We are
currently evaluating the effect of the adoption by us of
FAS 143.

In June 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities (FAS 146). This Standard requires
companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of
commitment to an exit or disposal plan. Examples of costs
covered by the standard include lease termination costs and
certain employee severance costs that are associated with a
restructuring, discontinued operations, plant closing, or other
exit or disposal activity. Previous accounting guidance was
provided by EITF Issue No. 94-3, Liability
Recognition for Certain Costs, Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring). SFAS No. 146 replaces
EITF 94-3 and is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002. We
have begun complying with FAS 146 in 2003.

FASB issued Interpretation (FIN) 45,
Guarantor  Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, in November 2002. FIN 45
elaborates on the disclosures to be made by a guarantor about
its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. The initial
recognition and initial measurement provisions under FIN 45
are applicable prospectively to guarantees issued or modified
after December 31, 2002. The adoption of the disclosure
requirements that are effective for the year ended
December 31, 2002, did not have a material effect on our
consolidated financial statements.

FASB issued in January 2003, FIN 46,
Consolidation of Variable Interest Entities.
FIN 46 provides guidance on the identification of and
financial reporting for entities over which control is achieved
through means other than voting rights. This interpretation
requires existing unconsolidated variable interest entities to
be consolidated by their primary beneficiaries if the entities
do not effectively disperse risks among parties involved. The
interpretation applies immediately to variable

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interest entities created after January 31,
2003, and to variable interest entities in which an enterprise
obtains an interest after that date. It applies in the first
fiscal year or interim period beginning after June 15,
2003, to variable interest entities in which an enterprise holds
a variable interest that it acquired before February 1,
2003. We have not yet completed our assessment of the accounting
effects of this new accounting interpretation upon adoption.


Information Technology Systems

Our information technology systems were largely
developed for use by individual departments, subsidiaries,
branches, plants or oilfields on a stand-alone basis and are in
need of further development. As a result, our information
technology system lacked integrated application systems to
process and control different categories of technical, operating
and financial data.

In 2000, we retained PricewaterhouseCoopers
Consultant (Shanghai) Limited, a former affiliate of
PricewaterhouseCoopers, our independent accountants, to assist
us in formulating our information technology system strategic
plan. This strategic plan covers development strategies in the
areas of the construction of our information technology
infrastructure, upstream and downstream professional application
system, enterprise resource planning, management information
system, corporate structure system and electronic business
system. From 2001 to the sale by PricewaterhouseCoopers of
PricewaterhouseCoopers Consultant (Shanghai) Limited to
International Business Machines Corporation in 2002, we retained
PricewaterhouseCoopers Consultant (Shanghai) Limited again to
assist us in upgrading such strategic plan.

In June 2000, we began to use our newly upgraded
financial information management system after the satisfactory
evaluation of this system by independent system experts. The
implementation of this system has improved the level of
integration of our information technology systems to ensure the
timeliness, completeness and reliability of our consolidated
financial and operating data. The implementation of this new
financial management information system has assisted us in:



| |   |                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | implementing stricter internal control processes,
    and ensuring the timeliness, completeness, and reliability of
    financial data on an IFRS basis; and                               
|
| |  | producing relevant key performance indicator
    data, giving our management timely access to financial and
    non-financial information, and improving our information sharing
    level.

On June 12, 2001, we established a joint
venture with CNPC, Hutchison Whampoa Limited and other investors
to operate a business to business online trading platform for
oil and gas products. The total registered capital of this joint
venture is US$15 million. We, CNPC and Hutchison Whampoa
Limited each owns a 44%, 26% and 26% interest in this joint
venture, respectively. The joint ventures e-commerce
website www.energyahead.com was launched on
July 6, 2001 and offers a neutral and collaborative
transaction platform that is intended to serve PRC and
international petrochemical enterprises.

Environmental Expenses and Capital
Expenditures

We paid pollutant discharge fees of approximately
RMB 85 million and RMB 113 million and
RMB 113 million (US$14 million), respectively, in
2000, 2001 and 2002. Our capital expenditures on environmental
programs in 2000, 2001 and 2002 were approximately
RMB 1,151 million, RMB 1,205 million and
RMB 1,363 million (US$165 million), respectively.
There were no material environmental liabilities accrued as of
December 31, 2002.

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ITEM 6  DIRECTORS, SENIOR
MANAGEMENT AND EMPLOYEES






Directors, Senior Management and
Supervisors


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



| |   |                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------
| |  | convening shareholders meetings and
    reporting its work to the shareholders meetings;                          
|
| |  | implementing the resolutions of the
    shareholders meetings;                                                     
|
| |  | determining our business plans and investment
    plans;                                                            
|
| |  | formulating our annual budget and final accounts;                                                                   
|
| |  | formulating our proposals for dividend and bonus
    distributions and for the increase or reduction of capital; and
|
| |  | exercising other powers, functions and duties as
    conferred by our articles of association.                      

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

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



| |   |                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | attending board meetings;                                                                                                                                                                                                           
|
| |  | examining our financial affairs;                                                                                                                                                                                                    
|
| |  | examining balance sheets, profit and loss
    accounts, business reports, dividend distribution proposals and
    other financial information proposed at shareholders
    general meetings by the directors from time to time; and
|
| |  | overseeing the actions of our board of directors
    and our senior management personnel in carrying out their duties.                                                                                                              

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

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

|               |  |     |    |          |  |                                         |  |  |                   | 
|-------------- |  | --- | -- | -------- |  | --------------------------------------- |  |  | ----------------- | 
|Name           |  | Age |    | Position |  | Date of election(1)                    
|               |  |     |    |          |  |                                        
|Ma Fucai       |  |     | 56 |          |  | Chairman of the board of directors      |  |  | November 19, 2002 | 
|Wu Yaowen      |  |     | 59 |          |  | Vice Chairman of the board of directors |  |  | November 19, 2002 | 
|Ren Chuanjun   |  |     | 58 |          |  | Vice Chairman of the board of directors |  |  | November 19, 2002 | 
|Chen Geng      |  |     | 56 |          |  | Director and President                  |  |  | June 8, 2001      | 
|Su Shulin      |  |     | 40 |          |  | Director and Senior Vice President      |  |  | November 19, 2002 | 
|Wang Fucheng   |  |     | 52 |          |  | Director and Vice President             |  |  | May 28, 2003      | 
|Zheng Hu       |  |     | 56 |          |  | Director                                |  |  | May 28, 2003      | 
|Gong Huazhang  |  |     | 56 |          |  | Director                                |  |  | November 19, 2002 | 
|Zou Haifeng    |  |     | 56 |          |  | Director                                |  |  | November 19, 2002 | 
|Chee-Chen Tung |  |     | 60 |          |  | Independent non-executive director      |  |  | November 19, 2002 | 
|Liu Hongru     |  |     | 72 |          |  | Independent non-executive director      |  |  | November 19, 2002 | 
|Franco Bernabè |  |     | 54 |          |  | Independent non-executive director      |  |  | May 28, 2003      | 
|Li Huaiqi      |  |     | 53 |          |  | Secretary to the board of directors     |  |  |                   | 
|Wang Guoliang  |  |     | 50 |          |  | Chief Financial Officer                 |  |  |                   | 
|Liu Baohe      |  |     | 56 |          |  | Vice President                          |  |  |                   | 
|Duan Wende     |  |     | 51 |          |  | Vice President                          |  |  |                   | 
|Jia Chengzao   |  |     | 54 |          |  | Chief Geologist                         |  |  |                   | 
|Li Kecheng     |  |     | 59 |          |  | Chairman of Supervisory Committee       |  |  |                   | 
|Chen Weizhong  |  |     | 58 |          |  | Supervisor                              |  |  |                   | 
|Wen Qingshan   |  |     | 44 |          |  | Supervisor                              |  |  |                   | 
|Bai Xinhe      |  |     | 59 |          |  | Supervisor                              |  |  |                   | 
|Sun Chongren   |  |     | 52 |          |  | Supervisor                              |  |  |                   | 
|Zhang Youcai   |  |     | 61 |          |  | Independent supervisor                  |  |  |                   | 
|Wu Zhipan      |  |     | 46 |          |  | Independent supervisor                  |  |  |                   | 




|    |                    
|--- | -------------------
|(1) | For directors only.

Directors

Ma Fucai,aged 56, is Chairman of the board of directors of PetroChina.
Mr. Ma is also President of CNPC. Mr. Ma is a senior
engineer. Mr. Ma graduated from Beijing Petroleum Institute
and has over 30 years experience in Chinas oil
and gas industry. From February 1990 to December 1996,
Mr. Ma worked as a Deputy Director, Standing Deputy
Director and Director of Shengli Petroleum Administration
Bureau, a subsidiary of CNPC. He worked as an Assistant
President of CNPC from November 1996 to December 1996 and Vice
President of CNPC from December 1996 to April 1998 as well as
Director of Daqing Petroleum Administration Bureau from June
1997 to November 1998. Mr. Ma has been President of CNPC
since April 1998 and Chairman of the board of directors of
PetroChina since November 5, 1999.

Wu Yaowen,aged 59, is a Vice Chairman of the board of directors of
PetroChina. Mr. Wu is a Vice President of CNPC. Mr. Wu
is a senior engineer. Mr. Wu graduated from Beijing
Petroleum Institute, and has over 30 years experience
in Chinas oil and gas industry. From 1983 to 1986,
Mr. Wu worked as a Vice President of the Nanhuanghai Oil
Company under the Ministry of Petroleum Industry. From 1986 to
1988, Mr. Wu was the Director of Qinghai Petroleum
Administration Bureau. From 1988 to 1994, Mr. Wu worked as
a chief petroleum engineer of the Ministry of Energy, Head of
the Energy Industry Department and Vice Director of the
Preparatory

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Committee of the Communications and Energy
Department under the State Planning Committee. He was appointed
Director of International Cooperation Bureau of CNPC in May
1994, an Assistant President in March 1996 and a Vice President
in December 1996. He has been a Vice President of CNPC since
April 1998, and a director of PetroChina since November 5,
1999. Mr. Wu was elected as a Vice Chairman of PetroChina
on December 3, 2002.


Ren Chuanjun,aged 58, is a Vice Chairman of the board of directors of
PetroChina. Mr. Ren is a Vice President of CNPC.
Mr. Ren is a senior economist. Mr. Ren graduated from
Hefei Industry University and has over 30 years
experience in Chinas oil and gas and chemical fibers
industries. Mr. Ren became a Deputy General Manager and
General Manager of China Yizheng Fiber Industrial United
Corporation in 1983. From 1994, he worked as a Vice Minister of
China National Textile Council as well as a Vice Chairman of the
board of directors of Yizheng Fiber United Corporation and
Yizheng Fiber Company Limited. Mr. Ren acted as a Vice
President of CNPC from April 1998. Mr. Ren worked as Senior
Vice President of PetroChina from November 5, 1999 to
November 2002. He has been a director of PetroChina since
November 5, 1999. Mr. Ren was elected as a Vice
Chairman of PetroChina on December 3, 2002.

Chen Geng,aged 56, is a director and President of PetroChina.
Mr. Chen is a senior economist. Mr. Chen graduated
from Beijing Economics Institute (currently named Capital
University of Economics and Business) and has over
30 years experience in Chinas oil and gas
industry. From 1983 to 2001, Mr. Chen was Deputy Director
of Changqing Petroleum Exploration Bureau, Deputy Director of
the Labour Department under the Ministry of Petroleum Industry,
Director of the Labour Bureau of CNPC, Assistant President of
CNPC, Vice President of CNPC and Deputy Director of the State
Petroleum and Chemical Industry Bureau. He has been a director
of PetroChina since June 8, 2001. Mr. Chen was
appointed President of PetroChina on December 3, 2002.

Su Shulin,aged 40, is a director and Senior Vice President of PetroChina.
Mr. Su is a senior engineer. Mr. Su graduated from
Daqing Petroleum Institute and received a masters degree
at Harbin Institute of Technology. Mr. Su has many
years experience in Chinas oil and gas industry.
Since 1996, Mr. Su had worked as a Director Assistant,
Director of the First Oil and Natural Gas Development
Department, a Standing Deputy Director and Director of Daqing
Petroleum Administration Bureau until November 5, 1999 when
he was appointed to a Vice President of PetroChina and General
Manger and Chairman of Daqing Oilfield Company, a subsidiary of
PetroChina. Mr. Su was elected a director of PetroChina on
November 19, 2002 and appointed Senior Vice President of
PetroChina on December 3, 2002.

Wang Fucheng,aged 52, is a director and Vice President of PetroChina.
Mr. Wang is a senior economist. Mr. Wang graduated
from the Shandong Teachers University and has over
30 years experience in Chinas oil and gas
industry. Mr. Wang worked in the Shengli Oil Field,
Zhongyuan Oil Field and Liaohe Oil Field. From 1986 to 1999,
Mr. Wang worked as Senior Executive of the Shengli Oil
Field, Deputy Director of the Liaohe Oil Exploration Bureau,
Director of the Liaohe Oil Exploration Bureau and General
Manager of the Branch Office of Liaohe Oil Field. Mr. Wang
has been a director of PetroChina since June 30, 2000 and a
Vice President of PetroChina since July 12, 2000.

Zheng Hu,aged 56, is a director of PetroChina and a Vice President of
CNPC. Mr. Zheng is a senior engineer. He graduated from the
Beijing Petroleum Institute in 1970 and has over
30 years experience in Chinas oil and gas
industry. From 1990 to 1992, Mr. Zheng acted as vice
director of Beijing Petroleum Managers Training Institute. From
1992 to 1999, Mr. Zheng worked as Deputy General Manager
and General Manager of China Petroleum Technology &
Development Corporation, as Deputy General Manager and General
Manager of China Petroleum Materials and Equipment (Group)
Corporation, and as Director of Personnel and Labour Department
of CNPC. He has been a Director of PetroChina since
June 30, 2000.

Gong
Huazhang,aged 56, is a director
of PetroChina. Mr. Gong is General Accountant of CNPC.
Mr. Gong is a senior accountant. Mr. Gong graduated
from Yangzhou Business School and has over 30 years
experience in Chinas oil and gas industry. Mr. Gong
worked as Chief

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Accountant, Deputy Director and Director of the
Finance Bureau of CNPC from 1991. Mr. Gong has been
Director of the Finance and Assets Department of CNPC since
October 1998 and has been General Accountant of CNPC since
February 1999. Mr. Gong has been a director of PetroChina
since November 5, 1999.


Zou Haifeng,aged 56, is a director of PetroChina. Mr. Zou is a
Deputy Manager of Jilin Petrochemical Branch Company and the
Chairman of the Supervisory Committee of Jilin Chemical
Industrial Company Limited. Mr. Zou is a senior engineer.
Mr. Zou graduated from Northeastern Industry Institute and
has nearly 30 years experience in the petrochemical
industry. Since 1994, Mr. Zou has been a Deputy Manager of
Jilin Petrochemical Group Corporation and a Director and Deputy
Manager of Jilin Chemical Industrial Company Limited.
Mr. Zou has been a Deputy Manager of Jilin Petrochemical
Branch Company, a subsidiary of PetroChina since 1999 and a
director of PetroChina since November 5, 1999.

Independent Non-executive Directors

Chee-Chen
Tung,aged 60, is an independent
non-executive director of PetroChina. Mr. Tung is Chairman
and Chief Executive Officer of Orient Overseas (International)
Limited (OOIL). He was educated at the University of Liverpool,
England, where he received his Bachelor of Science degree. He
later acquired a Masters degree in Mechanical Engineering
at the Massachusetts Institute of Technology in the United
States. Mr. Tung served as Chairman of Hong Kong
Shipowners Association between 1993 and 1995. From 1999 to
2001, Mr. Tung served as Chairman of the Hong Kong General
Chamber of Commerce, an independent non-executive Director of
Zhejiang Expressway Company Limited and an independent
non-executive director of Cathay Pacific Airways, a member of
the Port Development Board, a Council member of Hong Kong Trade
Development Council and an International Councillor of Center
for Strategic & International Studies. Mr. Tung is
also Chairman of the Hong Kong-America Center, Chairman of the
Institute for Shipboard Education Foundation, Chairman of the
Court and a member of the Council of the Hong Kong Polytechnic
University, a member of the Board of Trustees of the University
of Pittsburgh, and a member of the Board of Visitors of the
School of Foreign Service, Georgetown University. Mr. Tung
has been an independent non-executive director of PetroChina
since November 5, 1999.

Liu Hongru,aged 72, is an independent non-executive director of PetroChina.
Mr. Liu graduated from the Economics Department of the
University of Moscow in 1959 with an associate doctors
degree. Mr. Liu worked as a Vice Governor of the
Agricultural Bank of China, a Vice Governor of the Peoples
Bank of China, a Deputy Director of the State Economic
Restructuring Committee and Chairman of China Securities
Regulatory Commission. Mr. Liu is currently a Deputy
Director of the Economic Committee under the Chinese
Peoples Political Consultative Conference, and
concurrently serves as a Vice President of China Finance and
Banking Society, a Vice President of China National Debt
Association and Director of Shanghai Finance and Law Research
Institute. Mr. Liu is also a professor at each of Beijing
University, the Graduate School of Peoples Bank of China
and the City University of Hong Kong. Mr. Liu served as an
independent supervisor of PetroChina from December 3, 1999
to November 19, 2002 when he was elected as an independent
non-executive director of PetroChina.

Franco
Bernabè,aged 54, is an
independent non-executive director of PetroChina.
Mr. Bernabè is the Chairman of the Franco Bernabè
Group and Vice Chairman of H3G, a mobile telephone company which
owns a third generation mobile licence in Italy. He is also
Chairman of Kelyan, an internet professional services company of
the Franco Bernabè Group. Mr. Bernabè is a member
of the board of FIAT and the TNT Post Group. He serves in the
Executive Committee of Confindustria, the Italian Confederation
of Industry, in the Board of the Peres Centre for Peace and in
the International Board of the World Economic Forum. He also
serves as a special representative of the Italian government for
the reconstruction of the Balkan region. Mr. Bernabè
joined ENI in 1983 to become the assistant to the chairman; in
1986 he became director for development, planning and control;
and between 1992 and 1998 was the Chief Executive Officer of
ENI. Mr. Bernabè led the

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restructuring program of the ENI Group, making it
one of the worlds most profitable oil companies. Between
1998 and 1999, Mr. Bernabè was the Chief Executive
Officer of Telecom Italia. Prior to his joining ENI,
Mr. Bernabè was the head of economic studies at FIAT.
He was also a senior economist at the OECD Department of
Economics and Statistics in Paris. Earlier, he was a professor
of economic politics at the School of Industrial Administration,
Turin University. Mr. Bernabè has been an independent
non-executive director of PetroChina since June 30, 2000.


Secretary to the Board of Directors

Li Huaiqi,aged 53, is the secretary to the board of directors of
PetroChina. Mr. Li is a senior economist. He has over
30 years experience in Chinas oil and gas
industry. Mr. Li worked with Daqing, Liaohe, Nanhai and
Huabei oil and gas companies. From 1992 to 1996, Mr. Li
worked as Deputy Director of Foreign Affairs Bureau and Chairman
of the Foreign Service Company of CNPC and as Director of
Foreign Affairs Bureau of CNPC. In 1999, Mr. Li was
appointed as Director of the International Co-operation
Department (Foreign Affairs Bureau) of CNPC. Mr. Li has
been the secretary to the board of directors of PetroChina since
August 29, 2001.

Other Senior Management Personnel

Wang
Guoliang,aged 50, is Chief
Financial Officer of PetroChina. Mr. Wang has a
masters degree and is a senior accountant. He graduated
from Heilongjiang Business College. He has over
20 years experience in Chinas oil and gas
industry. Mr. Wang worked as a Vice President of
CNPC Finance Co., Ltd. from 1995 to 1997 and as a
Deputy General Manager and General Accountant of China National
Oil & Gas Exploration and Exploitation Corporation from
1998 to November 5, 1999 when he was appointed as Chief
Financial Officer of PetroChina.

Liu Baohe,aged 56, is a Vice President of PetroChina. Mr. Liu is
a senior engineer of professor grade. Mr. Liu graduated
from Beijing Petroleum Institute and has over
30 years experience in Chinas oil and gas
industry. From 1994 to 1997, Mr. Liu worked as Vice
Director and Director of the Exploration and Production Bureau
of CNPC. Mr. Liu was Director of the Department of Oil and
Gas Exploitation of CNPC from 1998 to 1999. From 1999 to August
2001, Mr. Liu worked as Deputy General Manager of the
exploration and production segment of PetroChina. In September
2001, Mr. Liu was appointed a Vice President and General
Manager of the Exploration and Production Branch Company of
PetroChina. In December 2002, Mr. Liu was re-appointed a
Vice President of PetroChina.

Duan Wende,aged 51, is a Vice President of PetroChina. Mr. Duan
is a senior engineer. Mr. Duan graduated from the graduate
school of Chinese Academy of Social Sciences with a
masters degree in investment economy. He has over
30 years experience in Chinas oil and chemical
industry. From 1975 to August 2001, Mr. Duan was a Deputy
Factory Manager of Fushun Factory No. 628 and a chemical
fiber factory, the Commander of Command Division of Fushun
Ethylene Project, a Deputy Factory Manager of an ethylene
factory, the Factory Manager of an acrylic fiber factory and a
detergent factory, a Deputy Manager and Manager of Fushun
Petrochemical Corporation, and General Manager of Fushun
Petrochemical Branch Company. From 1997 to 2001, Mr. Duan
worked as Deputy Manager, Manager and General Manger of
PetroChina Fushun Petrochemical Branch. He has been Assistant to
President of CNPC since August 2001 and Vice President of
PetroChina since March 2002.

Jia Chengzao,aged 54, is Chief Geologist of PetroChina. Mr. Jia is
a doctor degree holder and a senior engineer. He graduated from
Nanjing University and has over 25 years experience
in Chinas oil and geological industry. From 1994 to 1999,
Mr. Jia held several senior management positions at Tarim
Oil Exploration and Exploitation Headquarters, including Deputy
Chief Geologist, Chief Geologist and Deputy Commander. Since
1998, he has been a Vice Director of the Oil Exploration and
Exploitation Scientific Research Institute of CNPC. From 1999,
Mr. Jia worked as a Deputy General Manager of China
Petroleum Tarim Oil Field Branch Company and a Vice Director

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of China Oil Exploration and Exploitation
Research Institute. Mr. Jia has been Chief Geologist of
PetroChina since July 2000.


Supervisors

Li Kecheng,aged 59, is Chairman of PetroChinas supervisory
committee. Mr. Li is a senior engineer. Mr. Li
graduated from Beijing Science and Technology University and has
over 30 years experience in Chinas oil and gas
industry. From 1986 to 1992, Mr. Li was the head of the
Petroleum Pipeline Bureau and a senior executive of the
Northeastern Oil Transmission Administration Bureau. Since
November 1992, Mr. Li has been taking several senior
administrative positions at CNPC. Mr. Li has been Chairman
of PetroChinas supervisory committee since
November 5, 1999.

Chen
Weizhong,aged 58, is a supervisor
of PetroChina. Mr. Chen is a senior auditor. Mr. Chen
graduated from Anhui Finance and Trade Institute and has over
30 years experience in Chinas oil and gas
industry. He was a Deputy Director of the Auditing Office of
CNPC from 1993 to 1998 and a Deputy Director of the Auditing
Bureau of CNPC. Mr. Chen was a Deputy Director of the
Auditing Department of CNPC from October 1998 and has been the
Director of the Auditing Department since October 2000.
Mr. Chen has been a supervisor of PetroChina since
November 5, 1999.

Wen Qingshan,aged 44, is a supervisor of PetroChina. Mr. Wen is a senior
accountant. Mr. Wen graduated from Jilin Yanbian
University. He served as Deputy Chief Accountant of the Finance
and Assets Department of CNPC from November 1998 to May 1999,
when he was appointed as a Deputy Director of the Finance and
Assets Department of CNPC. Mr. Wen has been Director of the
Finance and Assets Department of CNPC since May 2002.
Mr. Wen was appointed as a supervisor of PetroChina on
November 19, 2002.

Bai Xinhe,aged 59, is a supervisor and director of the office of the
supervisory committee of PetroChina. Mr. Bai is a senior
auditor. Mr. Bai graduated from Central Finance Institute
and has over 30 years experience in Chinas oil
and gas industry. Mr. Bai was Chief Auditor of the Auditing
Department of CNPC from August 1988 to December 1998.
Mr. Bai worked as the Deputy General Manager and General
Manager of the Auditing Department of PetroChina from January
1999 to December 2001, during which period he was also
concurrently the head of the office of the Supervisory Committee
of PetroChina. Mr. Bai has been Director of the office of
the Supervisory Committee of PetroChina since December 2001.
Mr. Bai has been a supervisor of PetroChina since
November 5, 1999.

Sun Chongren,aged 52, is a supervisor of PetroChina and an employee
representative of PetroChinas supervisory committee.
Mr. Sun graduated from Huadong Petroleum Institute and has
30 years experience in Chinas oil and gas
industry. Mr. Sun has been working at Liaohe Petroleum
Administration Bureau for 30 years. Since 1996, he has been
a senior executive and Chairman of the workers union of
Liaohe Petroleum Administration Bureau. Mr. Sun has been a
supervisor of PetroChina since November 5, 1999.

Zhang Youcai,aged 61, is an independent supervisor of PetroChina.
Mr. Zhang is a professor. Mr. Zhang graduated from
Nanjing Industrial University and has over 30 years
experience in enterprise management and financing.
Mr. Zhang worked as Chief Manager of Nantong Fertilizer
Factory, Deputy Director of Nantong Municipal Industrial Bureau,
Vice Chairman of Nantong Municipal Development and Planning
Committee and Vice Mayor of Nantong city, until his appointment
as Mayor of Nantong city in April 1984. Mr. Zhang was a
Vice Minister of the Ministry of Finance from December 1989 to
July 2002. He also served as General Director of the State Asset
Administration Bureau from May 1994 to July 1998. Mr. Zhang
was appointed as an independent supervisor of PetroChina on
November 19, 2002.

Wu Zhipan,aged 46, is an independent supervisor of PetroChina. Mr. Wu
acquired a Doctor in Laws from Beijing University School of Law
in 1988, and was a visiting scholar at Harvard Law

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





Compensation

Senior Management Compensation
System

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

|               |  |         |    |              |  |               |    |  |  |  |    | 
|-------------- |  | ------- | -- | ------------ |  | ------------- | -- |  |  |  | -- | 
|               |  |         |    | % Stock      |  |              
|               |  | % Basic |    | appreciation |  | % Performance
|               |  | salary  |    | rights       |  | bonus        
|               |  |         |    |              |  |              
|Chairman       |  |         | 30 |              |  |               | 70 |  |  |  | 0  | 
|President      |  |         | 25 |              |  |               | 60 |  |  |  | 15 | 
|Vice President |  |         | 25 |              |  |               | 60 |  |  |  | 15 | 
|Department GM  |  |         | 25 |              |  |               | 50 |  |  |  | 25 | 

We have granted stock appreciation rights to
300 persons, including members of the board of directors
and the supervisory committee, president, vice presidents and
departmental managers, general managers and deputy general
managers of specialized companies and local subsidiaries. Upon
exercise of these stock appreciation rights, members of the
senior management will not receive any of our shares, but will,
by way of stock appreciation rights, receive a monetary sum that
is calculated on the basis of the price of our H shares. In
2002, none of the directors and senior management exercised any
of the stock appreciation rights granted to them. Since
companies are not permitted to repurchase and hold their own
shares for offering stock options under current PRC law, we
expect to calculate our book gains and losses on the basis of
share prices and in accordance with stock appreciation rights
measures and make cash payment of such compensations.

Directors and Supervisors
Compensation

We were incorporated on November 5, 1999.
Our directors and supervisors, who hold senior management
positions or are otherwise employed by us, receive compensation
in the form of salaries, housing allowances, other allowances
and benefits in kind, including our contribution to the pension
plans for these directors and supervisors.

The aggregate amount of salaries, housing
allowances, other allowances and benefits in kind paid by us to
the five highest paid individuals of PetroChina during the year
ended December 31, 2002 was RMB 853,594. We paid
RMB 7,964 as our contribution to the pension plans in
respect of those individuals in the year ended December 31,
2002.

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The aggregate amount of salaries or other
compensation, housing allowances, other allowances and benefits
in kind paid by us to our directors, who hold senior management
positions or are otherwise employed by us, during the year ended
December 31, 2002 was RMB 766,646.

Save as disclosed, no other payments have been
paid or are payable, in respect of the year ended
December 31, 2002, by us or any of our subsidiaries to our
directors. In addition, we have no obligation for the payment of
any benefits to our directors upon the termination of their
employment with us.

In 2002, we paid RMB 25,219 as our
contribution to the pension plans in respect of our directors
and supervisors, who hold senior management positions or are
otherwise employed by us. The aggregate amount of salaries or
other compensation, housing allowances, other allowances and
benefits in kind paid by us to our supervisors, who hold senior
management positions or are otherwise employed by us, during the
year ended December 31, 2002 was RMB 275,465.




Board Practices

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

Audit Committee

The current members of our audit committee are
Mr. Franco Bernabè, as chairman of the committee,
Mr. Gong Huazhang and Mr. Zou Haifeng. The audit
committees major responsibilities include:



| |   |                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | supervise the compliance and effectiveness of
    material financial policies, financial reporting processes,
    significant rules and systems in place and substantial operating
    activities;
|
| |  | review audit plans, critical accounting policies,
    and audit reports compiled by our internal audit department and
    carry out any audit initiatives proposed by the board of
    directors; 
|
| |  | review, observe and question our external
    auditors work; and                                                                                                                                 
|
| |  | monitor related party transactions and ensure
    that all such transactions are in compliance with our stated
    policies and other applicable laws and regulations.                            

Evaluation and Remuneration
Committee

The current members of our evaluation and
remuneration committee are Mr. Liu Hongru, as chairman of
the committee, Mr. Chee-Chen Tung and Mr. Zheng Hu.
The evaluation and remuneration committees major
responsibilities include:



| |   |                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | review the current standing of
    President-appointed Senior Vice President, Vice Presidents,
    Chief Financial Officer and other senior management personnel
    and make recommendations for such review to the board of
    directors;
|
| |  | manage and conduct performance evaluations for
    our President and report the results of such evaluations to the
    board of directors;                                                                                                  
|
| |  | monitor performance evaluations conducted by our
    President for Senior Vice President, Vice Presidents, Chief
    Financial Officer and other senior management personnel; and                                                           
|
| |  | study our incentive plan, compensation plan and
    stock appreciation rights plan, supervise and evaluate the
    implementation of these plans and make recommendations for
    further improvements to such plans.                       

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Investment and Development Committee

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



| |   |                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | study strategic action plans as proposed by our
    President and make recommendations to the board of directors;                                                                                           
|
| |  | study the annual investment budget as proposed by
    our President and make recommendations to the board of
    directors; and                                                                             
|
| |  | review preliminary feasibility studies and
    feasibility studies for material investment projects requiring
    approval of the board of directors and make recommendations to
    the board of directors.

Health, Safety and Environment
Committee

The current members of our health, safety and
environment committee are Mr. Wu Yaowen, as chairman of the
committee, and Mr. Wang Fucheng. The health, safety and
environment committees major responsibilities include:



| |   |                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | supervise the implementation of our health,
    safety and environment plan;                                                                                                                                                                            
|
| |  | make recommendations and proposals to the board
    of directors or our President regarding significant issues
    affecting us in the areas of health, safety or the environment;
    and                                                              
|
| |  | investigate any major accidents relating to us,
    our property or our employees or other affiliates and supervise
    the conduct and progress of those involved in the investigation,
    clean-up or other efforts relating to such major accidents.




Employees

As of December 31, 2000, 2001 and 2002, we
had 441,612, 422,554 and 419,598 employees, respectively. The
table below sets forth the number of our employees by business
segment as of December 31, 2002.

|                           |       |           |         |            |  |  |      |        | 
|-------------------------- | ----- | --------- | ------- | ---------- |  |  | ---- | ------ | 
|                           |       | Employees |         | % of total
|                           |       |           |         |           
|Exploration and production |       |           | 233,885 |            |  |  | 55.7 |       
|Refining and marketing     |       |           | 113,355 |            |  |  | 27.0 |       
|Chemicals and marketing    |       |           | 59,292  |            |  |  | 14.1 |       
|Natural gas and pipeline   |       |           | 10,332  |            |  |  | 2.5  |       
|Other(1)                   |       |           | 2,734   |            |  |  | 0.7  |       
|                           |       |           |         |            |  |  |      |       
|                           | Total |           |         | 419,598    |  |  |      | 100.0% | 
|                           |       |           |         |            |  |  |      |       




|    |                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Including headquarters management, PetroChina
    Planning & Engineering Institute and PetroChina Exploration
    & Development Research Institute.

Our employees participate in various retirement
benefit plans organized by municipal and provincial governments
whereby we are required to make monthly insurance contributions
to these plans at rates ranging from 16% to 22% of the
employees salary. Expenses incurred by us in connection
with the retirement benefit plans were approximately
RMB 1,907 million, RMB 1,893 million and
RMB 2,109 million, respectively, for the three years ended
December 31, 2000, 2001 and 2002, respectively.

Between March and April of 2002, certain of our
ex-employees, who had been laid off in the past few years as
part of our employee reduction plan, participated in protests
organized by laid off

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workers in Daqing City to demand increases in
social insurance benefits. Our production activities were not
interrupted or affected in any way by these protests. We do not
have any additional legal, administrative or contractual
severance obligations to these ex-employees other than what were
voluntarily agreed upon between each of these ex-employees and
us in the severance agreements. Except for these protests, we
have not experienced any strikes, work stoppages, labour
disputes or actions which affected the operation of any of our
businesses. We consider our relationship with our employees to
be good.





Share Ownership

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

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ITEM 7  MAJOR SHAREHOLDERS AND
RELATED PARTY TRANSACTIONS






Major Shareholders


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

PetroChina was established on November 5,
1999 with CNPC as its sole promoter. As of December 31,
2002, CNPC owned 158,241,758,000 State-owned shares,
representing approximately 90% of the share capital of
PetroChina, and, accordingly, CNPC is our controlling
shareholder.

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

As of December 31, 2002, Brandes Investment
Partners, LLC, a limited liability company established under
Delaware laws, owned 372,247 ADSs and 851,813,032 H shares,
representing 5.1% of the H shares of PetroChina. As of
December 31, 2002, BP Investments China Limited owned
3,516,484,000 H shares, representing 2% of the total outstanding
share capital of PetroChina, or 20% of the H shares of
PetroChina.




Related Party Transactions

We enter into the following transactions with
CNPC and other members of the CNPC group. All of these
transactions constitute connected transactions for us under the
Listing Rules of the Hong Kong Stock Exchange.

Comprehensive Products and Services
Agreement

We entered into a Comprehensive Products and
Services Agreement with CNPC for the provision by us to the CNPC
group and by the CNPC group to us of a range of products and
services which may be required and requested from time to time
by either party and/or its subsidiary companies and affiliates.

Products and Services Provided
by Us to the CNPC Group

Under the Comprehensive Products and Services
Agreement, a limited range of products and services are to be
provided by us to the CNPC group including those relating to
refined products, chemical products, natural gas, crude oil,
supply of water, electricity, gas, heating, quantifying and
measuring, quality inspection and other products and services as
may be requested by the CNPC group for its own consumption, use
or sale from time to time.

Products and Services Provided
by the CNPC Group to Us

The products and services provided by the CNPC
group to us are more numerous, both in terms of quantity and
variety, than those provided by us to the CNPC group. They have
therefore been grouped together and categorized according to the
following types of products and services:



| |   |                                     
| | - | ------------------------------------
| |  | construction and technical services,
|
| |  | production services,                

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| |   |                             
| | - | ----------------------------
| |  | supply of material services,
|
| |  | social services,            
|
| |  | ancillary services, and     
|
| |  | financial services.         

We envisage that from time to time and as
required, individual Product and Service Implementation
Agreements will be entered into between the relevant service
companies and affiliates of the CNPC group or us, as
appropriate, providing the relevant products or services and the
relevant members of the CNPC group or us, as appropriate,
requiring such products or services.

Land Use Rights Leasing Contract

We entered into a Land Use Rights Leasing
Contract with CNPC under which CNPC has leased a total of 42,476
parcels of land in connection with and for the purposes of all
aspects of our business and operations covering an aggregate
area of approximately 1,145 million square meters located
throughout the PRC to members of PetroChina for a term of
50 years at an annual fee of RMB 2,000 million. The
total fee payable for the lease of all such property may, after
the expiration of 10 years from the date of the land use
rights leasing contract, be adjusted (to reflect market
conditions prevailing at such time of adjustment, including
current market prices, inflation or deflation and such other
pertinent factors as may be reasonably considered in negotiating
and agreeing to any such adjustment) by agreement between CNPC
and us. In addition, any governmental, legal or other
administrative taxes and fees required to be paid in connection
with the leased properties will be borne by CNPC. However, both
parties will share proportionately on a reasonable basis any
additional amount of such taxes payable and fees payable as a
result of changes in policies of the PRC government after the
date of the contract.

Buildings Leasing Contract

We entered into the Buildings Leasing Contract
with CNPC under which CNPC has leased a total of 191 buildings
covering an aggregate area of 269,770 square meters located
throughout the PRC to us.

191 buildings were leased at a price of
RMB 145 per square meter per year, that is, at an aggregate
annual fee of RMB 39,116,650, for a term of 20 years.
We are responsible for the payment of any governmental, legal or
other administrative taxes and maintenance charge required to be
paid in connection with those buildings.

Supplemental Buildings Leasing
Agreement

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

We pay RMB 157,439,540 annually for the
additional 404 buildings. We are responsible for the payment of
any governmental, legal or other administrative taxes and
maintenance charge required to be paid in connection with those
buildings. This Supplemental Buildings Leasing Agreement will
expire at the same time as the above-mentioned Buildings Leasing
Contract.

Intellectual Property Licensing
Contracts

We entered into three Intellectual Property
Licensing Agreements with CNPC, including a Trademark Licensing
Contract, a Patent and Know-how Licensing Contract and a
Computer Software Licensing Contract. In these Licensing
Contracts, CNPC has granted us exclusive rights to use certain
trademarks (including the CNPC trademark), patents,
know-hows of CNPC and computer software of CNPC (as more
particularly detailed in those three contracts) at no cost.

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These intellectual property rights relate to
the assets and businesses of CNPC that were transferred to us in
the restructuring of the CNPC group.


Contract for the Transfer of Rights Under
Production Sharing Contracts

Immediately prior to the restructuring of the
CNPC group, CNPC had 23 production sharing contracts with a
number of international oil companies. As part of the
restructuring of the CNPC group, CNPC transferred to us most of
its commercial and operational rights and obligations under
those contracts, except the rights and obligations relating to
CNPCs supervisory functions, under the Contract for the
Transfer of Rights under Production Sharing Contracts.

Guarantee of Debts Contract

As part of the restructuring of the CNPC group,
all of CNPCs debts relating to assets transferred to us in
the restructuring of the CNPC group were also transferred to,
and assumed by, us.

We entered into a Guarantee of Debts Contract
with CNPC, under which CNPC has agreed to guarantee certain of
our debts totalling approximately RMB 63,889 million
(including principal and interest) as of September 30, 1999
at no cost to us. As of December 31, 2002, bank loans
guaranteed by CNPC and its subsidiaries were RMB 939
million.

Loans or Guarantees to Related
Parties

As of May 14, 2003, the aggregate
outstanding loans or guarantees made by PetroChina for the
benefit of related parties was RMB 965 million, the largest
outstanding amount of which was RMB 840 million. The
average interest rate on these loans is 5.4%.

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ITEM 8  FINANCIAL
INFORMATION






Financial Statements


See pages F-1 to F-59 following Item 19.




Dividend Policy

Our board of directors will declare dividends, if
any, in Renminbi with respect to H shares on a per share basis
and will pay such dividends in HK dollars. Any final dividend
for a financial year shall be subject to shareholders
approval. The Bank of New York will convert the HK dollar
dividend payments and distribute them to holders of ADSs in
U.S. dollars, less expenses of conversion. The holders of
the H shares will share proportionately on a per share basis in
all dividends and other distributions declared by our board of
directors.

The declaration of dividends is subject to the
discretion of our board of directors. Our board of directors
will take into account factors including the following:



| |   |                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------
| |  | general business conditions;                                                                                    
|
| |  | our financial results;                                                                                          
|
| |  | capital requirements;                                                                                           
|
| |  | contractual restrictions on the payment of
    dividends by us to our shareholders or by our subsidiaries to us;
|
| |  | our shareholders interests;                                                                                    
|
| |  | the effect on our debt ratings; and                                                                             
|
| |  | other factors our board of directors may deem
    relevant.                                                     

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



| |   |                                                                                        
| | - | ---------------------------------------------------------------------------------------
| |  | recovery of losses, if any;                                                            
|
| |  | allocations to the statutory common reserve fund;                                      
|
| |  | allocations to the statutory common welfare fund;
    and                              
|
| |  | allocations to a discretionary common reserve
    fund if approved by our shareholders.

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

Subject to the above and to ensure that our
dividend policy is consistent with that of major international
oil and gas companies, we currently expect that we will
distribute as dividends approximately 40% to 50% of our reported
net income for all years commencing on or after January 1,
2000. We believe that our dividend policy strikes a balance
between two important goals:



| |   |                                                                                                  
| | - | -------------------------------------------------------------------------------------------------
| |  | providing our shareholders with a competitive
    return on investment; and                      
|
| |  | assuring sufficient reinvestment of profits to
    enable us to achieve our strategic objectives.

An interim dividend of RMB 0.050113
(US$0.006052) per H share (inclusive of applicable tax) for the
six months ended June 30, 2002 was paid to our shareholders
on October 8, 2002. On May 28, 2003, our shareholders
approved the payment of a final dividend of RMB 0.069951
(US$0.008448) per H share (inclusive of applicable tax) for
the year ended December 31, 2002.

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The final dividend was calculated on the
basis of 45% of our net income for the year ended
December 31, 2002. The final dividend was paid on
June 12, 2003.





Significant Changes

None.

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ITEM 9  THE OFFER AND
LISTING






Nature of the Trading Market and Market Price
Information


Our ADSs, each representing 100 H shares,
par value RMB 1.00 per H share, have been listed and
traded on the New York Stock Exchange since April 6, 2000
under the symbol PTR. Our H shares have been
listed and traded on the Hong Kong Stock Exchange since
April 7, 2000. Prior to these listings, there was no public
market for our equity securities. The New York Stock Exchange
and the Hong Kong Stock Exchange are the principal trading
markets for our ADSs and H shares, respectively.

As of December 31, 2002, there were
17,582,418,000 H shares issued and outstanding. As of
December 31, 2002, there were 48 registered holders of
American depositary receipts evidencing 6,494,685 ADSs. The
depositary of the ADSs is The Bank of New York.

The high and low closing sale prices of the
H shares on the Hong Kong Stock Exchange and of the ADSs on
the New York Stock Exchange for each quarterly period since
listing in 2000 and for each month in 2003 (through
June 20, 2003) are set forth below.

|     |                        |           |  |           |  |      |  |      |  |  |  |       |  |  |  |       | 
|---- | ---------------------- | --------- |  | --------- |  | ---- |  | ---- |  |  |  | ----- |  |  |  | ----- | 
|     |                        |           |  |          
|     |                        | Price per |  | Price per
|     |                        | H share   |  | ADS      
|     |                        |           |  |          
|     |                        | High      |  | Low       |  | High |  | Low 
|     |                        |           |  |           |  |      |  |     
|     |                        |           |  |          
|     |                        | (HK$)     |  | (US$)    
|2000 |                        |           |  |           |  |      |  |      |  |  |  |       |  |  |  |      
|     | Second quarter         |           |  | 1.78      |  |      |  | 1.11 |  |  |  | 22.56 |  |  |  | 14.25 | 
|     | Third quarter          |           |  | 2.05      |  |      |  | 1.49 |  |  |  | 26.19 |  |  |  | 19.38 | 
|     | Fourth quarter         |           |  | 1.75      |  |      |  | 1.30 |  |  |  | 23.00 |  |  |  | 15.94 | 
|2001 |                        |           |  |           |  |      |  |      |  |  |  |       |  |  |  |      
|     | First quarter          |           |  | 1.48      |  |      |  | 1.26 |  |  |  | 18.73 |  |  |  | 16.55 | 
|     | Second quarter         |           |  | 1.84      |  |      |  | 1.35 |  |  |  | 23.60 |  |  |  | 17.40 | 
|     | Third quarter          |           |  | 1.67      |  |      |  | 1.43 |  |  |  | 21.15 |  |  |  | 18.43 | 
|     | Fourth quarter         |           |  | 1.48      |  |      |  | 1.29 |  |  |  | 19.30 |  |  |  | 16.80 | 
|2002 |                        |           |  |           |  |      |  |      |  |  |  |       |  |  |  |      
|     | First quarter          |           |  | 1.62      |  |      |  | 1.39 |  |  |  | 21.07 |  |  |  | 18.03 | 
|     | Second quarter         |           |  | 1.75      |  |      |  | 1.52 |  |  |  | 22.40 |  |  |  | 19.23 | 
|     | Third quarter          |           |  | 1.72      |  |      |  | 1.53 |  |  |  | 21.72 |  |  |  | 19.25 | 
|     | Fourth quarter         |           |  | 1.57      |  |      |  | 1.44 |  |  |  | 20.75 |  |  |  | 18.40 | 
|2003 |                        |           |  |           |  |      |  |      |  |  |  |       |  |  |  |      
|     | January                |           |  | 1.65      |  |      |  | 1.55 |  |  |  | 21.20 |  |  |  | 19.10 | 
|     | February               |           |  | 1.70      |  |      |  | 1.61 |  |  |  | 21.61 |  |  |  | 20.72 | 
|     | March                  |           |  | 1.68      |  |      |  | 1.60 |  |  |  | 21.39 |  |  |  | 20.41 | 
|     | April                  |           |  | 1.78      |  |      |  | 1.62 |  |  |  | 23.35 |  |  |  | 20.94 | 
|     | May                    |           |  | 2.08      |  |      |  | 1.77 |  |  |  | 26.10 |  |  |  | 22.85 | 
|     | June (through June 20) |           |  | 2.28      |  |      |  | 1.96 |  |  |  | 29.20 |  |  |  | 25.65 | 

The closing prices per H share and per ADS
on June 20, 2003 were HK$2.22 and US$28.75, respectively.




ITEM 10  ADDITIONAL
INFORMATION






Memorandum and Articles of
Association


We filed our articles of association with the
Commission as an exhibit to the Registration Statement on
Form F-1 (Registration No. 333-11566) under the
Securities Act, as declared effective on March 29, 2000, in
connection with the global offering. A summary of our articles
of association is contained in that Registration Statement. We
hereby incorporate by reference the section Description of
Share Capital from that Registration Statement. We also
filed our amended articles of association with the Commission as
an exhibit to our Annual Report on Form 20-F for the fiscal

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year ended December 31, 2001
(File No. 1-15006). We hereby incorporate by reference
the relevant exhibit to that Annual Report.





Material Contracts

Incorporated by reference to our Registration
Statement on Form F-1 (Registration No. 333-11566) and
our Annual Reports on Form 20-F for the fiscal years ended
December 31, 1999 (File No. 1-15006),
December 31, 2000 (File No. 1-15006) and
December 31, 2001 (File No. 1-15006), to which our
material contracts were filed as exhibits. For information
regarding certain material contracts, see
Item 7  Major Shareholders and Related
Party Transactions  Related Party Transactions
and the material contracts that we have filed with the
Commission as exhibits to this annual report.




Exchange Controls

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



| |   |                                                                  
| | - | -----------------------------------------------------------------
| |  | debt service on foreign currency-denominated debt;               
|
| |  | purchases of imported equipment and materials; and               
|
| |  | payment of any dividends declared in respect of
    the H shares.

Under the existing foreign exchange regulations
in China, we may undertake current account foreign exchange
transactions, including the payment of dividends, without prior
approval from the State Administration of Foreign Exchange by
producing commercial documents evidencing such transactions,
provided that they are processed through Chinese banks licensed
to engage in foreign exchange transactions. The PRC government
has stated publicly that it intends to make the Renminbi freely
convertible in the future. However, uncertainty exists as to
whether the PRC government may restrict access to foreign
currency for current account transactions if foreign currency
becomes scarce in the PRC.

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

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

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




Taxation

The following discussion addresses the main PRC
tax consequences of the ownership of H shares or ADSs
purchased in connection with the global offering and held by the
investor as capital assets.

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Dividends and Individual Investors

Under the Provisional Regulations of China
Concerning Questions of Taxation on Enterprises Experimenting
with the Share System (the Provisional Regulations)
and other applicable tax laws and regulations, dividends paid by
PRC companies on shares experimenting with the share system to
individuals are generally subject to a PRC withholding tax of
20%. However, on July 21, 1993, the PRC State
Administration of Taxation issued the Notice Concerning the
Taxation of Gains on Transfer and Dividends from Shares
(Equities) Received by Foreign Investment Enterprises, Foreign
Enterprises and Foreign Individuals (the Tax
Notice). Under the Tax Notice, dividends paid by a PRC
company to foreign persons with respect to shares listed on an
overseas stock exchange (Overseas Shares), including
the H shares and ADSs, are not subject to PRC withholding
tax for the time being.

The Individual Income Tax Law of the PRC was
amended effective January 1, 1994 and states that it
supersedes any contradictory prior administrative regulation
concerning individual income tax. The amended Individual Income
Tax Law can be interpreted as providing that all foreign
individuals are subject to the 20% withholding tax on dividends
paid by a PRC company on its Overseas Shares unless specifically
exempted by the financial authority of the State Council of the
PRC. However, in a letter dated July 26, 1994 to the State
Commission for Restructuring the Economic System, the State
Council Securities Committee and the China Securities Regulatory
Commission, the PRC State Administration of Taxation restated
the exemption. In the event that the letter is withdrawn, a 20%
tax may be withheld on dividends paid to you, subject to
reduction by an applicable tax treaty between China and the
country where you reside. To date, the relevant tax authorities
have not collected withholding tax from dividend payments on
such shares exempted under the Tax Notice.

Dividends and Foreign Enterprises

According to the Provisional Regulations and
other applicable tax laws and regulations, dividends paid by PRC
companies to foreign enterprises are ordinarily subject to a PRC
withholding tax levied at a flat rate of 20%. However, according
to the Tax Notice, a foreign enterprise with no permanent
establishment in China receiving dividends paid on Overseas
Shares will temporarily not be subject to the 20% withholding
tax. If such withholding tax becomes applicable in the future,
such rate may still be reduced under relevant tax treaties, if
applicable.

Tax Treaties

If you are a resident or citizen of a country
that has entered into a double-taxation treaty with the PRC, you
may be entitled to a reduction in the amount of tax withheld, if
any, imposed on the payment of dividends. The PRC currently has
such treaties with a number of countries, including:



| |   |                        
| | - | -----------------------
| |  | the United States;     
|
| |  | Australia;             
|
| |  | Canada;                
|
| |  | France;                
|
| |  | Germany;               
|
| |  | Japan;                 
|
| |  | Malaysia;              
|
| |  | Singapore;             
|
| |  | the United Kingdom; and
|
| |  | the Netherlands.       

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Under each one of such treaties, the rate of
withholding tax imposed by Chinas taxation authorities is
generally reduced. For example, under the double taxation treaty
between China and the United States, China may tax dividends
paid by us to an eligible U.S. holder up to a maximum of
10% of their gross amount. Under the treaty, an eligible
U.S. holder is a person who, by reason of domicile,
residence, place or head office, place of incorporation or any
other criterion of similar nature is subject to taxation in the
United States, as applicable under the treatys
treaty shopping provisions.

Capital Gains

The Tax Notice provides that gains realized by
foreign enterprises upon the sale of Overseas Shares which are
not held by entities established by such enterprises in the PRC
and gains realized by foreign individuals upon the sale of
Overseas Shares are not subject to withholding tax for the time
being. However, as far as individuals are concerned, the
Individual Income Tax Law of the PRC, as amended on
October 31, 1993 and effective on January 1, 1994,
provides for a capital gains tax of 20% on individuals. On
January 28, 1994, the Provisions for Implementing the
Individual Income Tax Law of the PRC was promulgated which
provides that the measures to levy individual income tax on the
gains realized on the sale of shares will be made in the future
by the Ministry of Finance and subject to the approval of the
State Council. On June 20, 1994, February 9, 1996 and
March 30, 1998, the Ministry of Finance and the State
Administration of Taxation issued notices providing that
temporarily no capital gains tax will be imposed on gains from
the sale of shares by individuals. However, it is uncertain
whether the above exemption for foreign enterprises and foreign
individuals will continue to apply or be renewed in the future.
If such exemption does not apply or is not renewed, and the Tax
Notice is found not to apply, as a holder of H shares or ADSs
you may be subject to a 20% tax on capital gains, unless reduced
by an applicable double taxation treaty.

Additional PRC Tax Considerations

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




Documents on Display

You may read and copy documents referred to in
this annual report on Form 20-F that have been filed with
the U.S. Securities and Exchange Commission at the
Commissions public reference room located at
450 Fifth Street, NW, Washington, D.C. 20549.
Please call the Commission at 1-800-SEC-0330 for further
information on the public reference rooms and their copy charges.

The Commission allows us to incorporate by
reference the information we file with the Commission.
This means that we can disclose important information to you by
referring you to another document filed separately with the
Commission. The information incorporated by reference is
considered to be part of this annual report on Form 20-F.




Matters Related to Auditors

PricewaterhouseCoopers has served as
PetroChinas independent public accountants for each of the
fiscal years in the three-year period ended December 31,
2002. The auditors are elected annually at the annual general
meeting of PetroChina.

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The following table presents the aggregate fees
for professional audit services and other services rendered by
PricewaterhouseCoopers to PetroChina for each of the years ended
December 31, 2000, 2001 and 2002.

|               |       |               |    |      |  |      |    |      |  |  |    |    |  |  |   |    | 
|-------------- | ----- | ------------- | -- | ---- |  | ---- | -- | ---- |  |  | -- | -- |  |  | - | -- | 
|               |       | 2000          |    | 2001 |  | 2002 |    | 2002
|               |       |               |    |      |  |      |    |     
|               |       | RMB           |    | RMB  |  | RMB  |    | US$ 
|               |       |              
|               |       | (in millions)
|Audit fees     |       |               | 33 |      |  |      | 48 |      |  |  | 75 |    |  |  | 9 |   
|All other fees |       |               | 22 |      |  |      | 17 |      |  |  | 6  |    |  |  | 1 |   
|               |       |               |    |      |  |      |    |      |  |  |    |    |  |  |   |   
|               | Total |               |    | 55   |  |      |    | 65   |  |  |    | 81 |  |  |   | 10 | 
|               |       |               |    |      |  |      |    |      |  |  |    |    |  |  |   |   




ITEM 11  QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

Interest Rate Risk

Our major market risk exposure arises from
changing interest rates. The tables below provide information
about our financial instruments including various debt
obligations that are sensitive to changes in interest rates. The
tables present principal cash flows and related weighted-average
interest rates at expected maturity dates. Weighted-average
variable rates are based on effective rates as of
December 31, 2000, 2001 and 2002. The information is
presented in Renminbi equivalents, our reporting currency.

Foreign Exchange Rate Risk

We conduct our business primarily in RMB.
However, a portion of our RMB revenues are converted into other
currencies to meet foreign currency financial instrument
obligations and to pay for imported equipment and materials.
Foreign currency payments for imported equipment represented
9.3%, 9.7% and 12.2% of our total payments for equipment in
2000, 2001 and 2002, respectively. Foreign currency payments for
imported materials represented 7.4%, 9.9% and 7.7% of our total
payments for materials in 2000, 2001 and 2002, respectively.

The Renminbi is not a freely convertible
currency. Limitation in foreign exchange transactions imposed by
the PRC government could cause future exchange rates to vary
significantly from current or historical exchange rates. The
tables below provide information about our financial instruments
including foreign currency denominated debt instruments that are
sensitive to foreign currency exchange rates. The tables below
summarize such information by presenting principal cash flows
and related weighted-average interest rates at expected maturity
dates in RMB equivalents, using the exchange rates in effect as
of December 31, 2000, 2001 and 2002, respectively.

107



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December 31, 2002

|                             |                       |                                                  |       |       |   |            |        |        |   |      |        |            |   |       |       |       |   |       |       |       |   |  |       |       |   |  |        |        |  |  |     |       |   |  |        |        | 
|---------------------------- | --------------------- | ------------------------------------------------ | ----- | ----- | - | ---------- | ------ | ------ | - | ---- | ------ | ---------- | - | ----- | ----- | ----- | - | ----- | ----- | ----- | - |  | ----- | ----- | - |  | ------ | ------ |  |  | --- | ----- | - |  | ------ | ------ | 
|                             |                       |                                                  |       |       |   | Percentage |        |       
|                             |                       | Expected maturity date                           |       |       |   | to total   |        |       
|                             |                       |                                                  |       |       |   | long-term  |        | Fair  
|Long term debt               |                       | 2003                                             |       | 2004  |   | 2005       |        | 2006   |   | 2007 |        | thereafter |   | Total |       | debt  |   | value
|                             |                       |                                                  |       |       |   |            |        |        |   |      |        |            |   |       |       |       |   |      
|                             |                       |                                                  |       |       |   |            |        |       
|                             |                       | (RMB equivalent in millions, except percentages) |       |       |   | (%)        |        |       
|Loan in RMB                  |                       |                                                  |       |       |   |            |        |        |   |      |        |            |   |       |       |       |   |       |       |       |   |  |       |       |   |  |        |        |  |  |     |       |   |  |        |       
|                             | Fixed rate            |                                                  |       | 127   |   |            |        | 80     |   |      |        | 1          |   |       |       |      |   |       |       | 1     |   |  |       | 2     |   |  |        | 211    |  |  |     | 0.32  | % |  |        | 207    | 
|                             | Average interest rate |                                                  |       | 4.71  | % |            |        | 3.46   | % |      |        | 6.94       | % |       |       |      |   |       |       | 7.00  | % |  |       |      |   |  |        |        |  |  |     |       |   |  |        |        | 
|                             | Variable rate(1)      |                                                  |       | 3,798 |   |            |        | 16,087 |   |      |        | 13,033     |   |       |       | 6,366 |   |       |       | 3,720 |   |  |       | 6,520 |   |  |        | 49,525 |  |  |     | 74.20 | % |  |        | 49,525 | 
|                             | Average interest rate |                                                  |       | 5.18  | % |            |        | 5.02   | % |      |        | 5.15       | % |       |       | 5.20  | % |       |       | 5.31  | % |  |       | 5.01  | % |  |        |        |  |  |     |       |   |  |        |        | 
|                            
|Loan in Euro                 |                       |                                                  |       |       |   |            |        |        |   |      |        |            |   |       |       |       |   |       |       |       |   |  |       |       |   |  |        |        |  |  |     |       |   |  |        |       
|                             | Fixed rate            |                                                  |       | 107   |   |            |        | 36     |   |      |        | 30         |   |       |       | 30    |   |       |       | 15    |   |  |       | 201   |   |  |        | 419    |  |  |     | 0.63  | % |  |        | 328    | 
|                             | Average interest rate |                                                  |       | 3.74  | % |            |        | 5.80   | % |      |        | 5.16       | % |       |       | 5.16  | % |       |       | 2.13  | % |  |       | 2.11  | % |  |        |        |  |  |     |       |   |  |        |        | 
|                             | Variable rate         |                                                  |       | 22    |   |            |        | 22     |   |      |        |           |   |       |       |      |   |       |       |      |   |  |       |      |   |  |        | 44     |  |  |     | 0.07  | % |  |        | 44     | 
|                             | Average interest rate |                                                  |       | 1.99  | % |            |        | 2.01   | % |      |        |           |   |       |       |      |   |       |       |      |   |  |       |      |   |  |        |        |  |  |     |       |   |  |        |        | 
|                            
|Loan in United States Dollar |                       |                                                  |       |       |   |            |        |        |   |      |        |            |   |       |       |       |   |       |       |       |   |  |       |       |   |  |        |        |  |  |     |       |   |  |        |       
|                             | Fixed rate            |                                                  |       | 1,037 |   |            |        | 873    |   |      |        | 869        |   |       |       | 741   |   |       |       | 496   |   |  |       | 1,403 |   |  |        | 5,419  |  |  |     | 8.12  | % |  |        | 5,136  | 
|                             | Average interest rate |                                                  |       | 6.51  | % |            |        | 6.43   | % |      |        | 6.43       | % |       |       | 6.23  | % |       |       | 6.01  | % |  |       | 3.39  | % |  |        |        |  |  |     |       |   |  |        |        | 
|                             | Variable rate         |                                                  |       | 372   |   |            |        | 2,071  |   |      |        | 2,018      |   |       |       | 2,208 |   |       |       | 185   |   |  |       | 575   |   |  |        | 7,429  |  |  |     | 11.13 | % |  |        | 7,429  | 
|                             | Average interest rate |                                                  |       | 4.31  | % |            |        | 1.61   | % |      |        | 1.45       | % |       |       | 2.08  | % |       |       | 3.86  | % |  |       | 2.71  | % |  |        |        |  |  |     |       |   |  |        |        | 
|                            
|Loan in British Pound        |                       |                                                  |       |       |   |            |        |        |   |      |        |            |   |       |       |       |   |       |       |       |   |  |       |       |   |  |        |        |  |  |     |       |   |  |        |       
|                             | Fixed rate            |                                                  |       | 216   |   |            |        | 210    |   |      |        | 210        |   |       |       | 210   |   |       |       | 129   |   |  |       | 349   |   |  |        | 1,322  |  |  |     | 1.98  | % |  |        | 1,288  | 
|                             | Average interest rate |                                                  |       | 3.79  | % |            |        | 3.82   | % |      |        | 3.82       | % |       |       | 3.82  | % |       |       | 4.41  | % |  |       | 5.17  | % |  |        |        |  |  |     |       |   |  |        |        | 
|                            
|Loan in Japanese Yen         |                       |                                                  |       |       |   |            |        |        |   |      |        |            |   |       |       |       |   |       |       |       |   |  |       |       |   |  |        |        |  |  |     |       |   |  |        |       
|                             | Fixed rate            |                                                  |       | 147   |   |            |        | 146    |   |      |        | 146        |   |       |       | 146   |   |       |       | 39    |   |  |       | 51    |   |  |        | 675    |  |  |     | 1.01  | % |  |        | 743    | 
|                             | Average interest rate |                                                  |       | 4.59  | % |            |        | 4.59   | % |      |        | 4.59       | % |       |       | 4.59  | % |       |       | 4.30  | % |  |       | 3.55  | % |  |        |        |  |  |     |       |   |  |        |        | 
|                             | Variable rate         |                                                  |       | 17    |   |            |        | 16     |   |      |        | 15         |   |       |       |      |   |       |       |      |   |  |       |      |   |  |        | 48     |  |  |     | 0.07  | % |  |        | 48     | 
|                             | Average interest rate |                                                  |       | 3.61  | % |            |        | 3.58   | % |      |        | 1.97       | % |       |       |      |   |       |       |      |   |  |       |      |   |  |        |        |  |  |     |       |   |  |        |        | 
|                            
|Debenture in RMB             |                       |                                                  |       |       |   |            |        |        |   |      |        |            |   |       |       |       |   |       |       |       |   |  |       |       |   |  |        |        |  |  |     |       |   |  |        |       
|                             | Fixed rate            |                                                  |       | 300   |   |            |        |       |   |      |        |           |   |       |       |      |   |       |       | 1350  |   |  |       |      |   |  |        | 1,650  |  |  |     | 2.47  | % |  |        | 1,646  | 
|                             | Average interest rate |                                                  |       | 9.00  | % |            |        |       |   |      |        |           |   |       |       |      |   |       |       | 4.50  | % |  |       |      |   |  |        |        |  |  |     |       |   |  |        |        | 
|                            
|Total                        |                       |                                                  | 6,143 |       |   |            | 19,541 |        |   |      | 16,322 |            |   |       | 9,700 |       |   |       | 5,935 |       |   |  | 9,101 |       |   |  | 66,742 |        |  |  | 100 | %     |   |  | 66,395 |       

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December 31, 2001

|                             |                       |                                                  |       |       |   |            |       |       |   |      |        |            |   |       |        |       |   |       |       |       |   |  |        |       |   |  |        |        |  |  |     |       |   |  |        |        | 
|---------------------------- | --------------------- | ------------------------------------------------ | ----- | ----- | - | ---------- | ----- | ----- | - | ---- | ------ | ---------- | - | ----- | ------ | ----- | - | ----- | ----- | ----- | - |  | ------ | ----- | - |  | ------ | ------ |  |  | --- | ----- | - |  | ------ | ------ | 
|                             |                       |                                                  |       |       |   | Percentage |       |      
|                             |                       | Expected maturity date                           |       |       |   | to total   |       |      
|                             |                       |                                                  |       |       |   | long-term  |       | Fair 
|Long term debt               |                       | 2002                                             |       | 2003  |   | 2004       |       | 2005  |   | 2006 |        | Thereafter |   | Total |        | debt  |   | value
|                             |                       |                                                  |       |       |   |            |       |       |   |      |        |            |   |       |        |       |   |      
|                             |                       |                                                  |       |       |   | (%)        |       |      
|                             |                       | (RMB equivalent in millions, except percentages) |       |       |   |            |       |      
|Loan in RMB                  |                       |                                                  |       |       |   |            |       |       |   |      |        |            |   |       |        |       |   |       |       |       |   |  |        |       |   |  |        |        |  |  |     |       |   |  |        |       
|                             | Fixed rate            |                                                  |       | 1,642 |   |            |       | 760   |   |      |        | 536        |   |       |        | 812   |   |       |       | 210   |   |  |        | 334   |   |  |        | 4,294  |  |  |     | 6.09  | % |  |        | 4,263  | 
|                             | Average interest rate |                                                  |       | 5.90  | % |            |       | 5.67  | % |      |        | 5.63       | % |       |        | 5.82  | % |       |       | 5.94  | % |  |        | 5.95  | % |  |        |        |  |  |     |       |   |  |        |        | 
|                             | Variable rate(1)      |                                                  |       | 1,389 |   |            |       | 3,220 |   |      |        | 18,136     |   |       |        | 9,768 |   |       |       | 6,366 |   |  |        | 7,742 |   |  |        | 46,621 |  |  |     | 66.14 | % |  |        | 46,621 | 
|                             | Average interest rate |                                                  |       | 5.70  | % |            |       | 5.94  | % |      |        | 5.50       | % |       |        | 5.72  | % |       |       | 5.70  | % |  |        | 5.63  | % |  |        |        |  |  |     |       |   |  |        |        | 
|                            
|Loan in Euro                 |                       |                                                  |       |       |   |            |       |       |   |      |        |            |   |       |        |       |   |       |       |       |   |  |        |       |   |  |        |        |  |  |     |       |   |  |        |       
|                             | Fixed rate            |                                                  |       | 119   |   |            |       | 79    |   |      |        | 22         |   |       |        | 17    |   |       |       | 71    |   |  |        | 446   |   |  |        | 754    |  |  |     | 1.07  | % |  |        | 724    | 
|                             | Average interest rate |                                                  |       | 3.94  | % |            |       | 3.81  | % |      |        | 7.18       | % |       |        | 6.70  | % |       |       | 3.34  | % |  |        | 4.92  | % |  |        |        |  |  |     |       |   |  |        |        | 
|                             | Variable rate         |                                                  |       |      |   |            |       | 19    |   |      |        | 19         |   |       |        |      |   |       |       |      |   |  |        |      |   |  |        | 38     |  |  |     | 0.05  | % |  |        | 38     | 
|                             | Average interest rate |                                                  |       |      |   |            |       | 5.31  | % |      |        | 5.31       | % |       |        |      |   |       |       |      |   |  |        |      |   |  |        |        |  |  |     |       |   |  |        |        | 
|                            
|Loan in United States Dollar |                       |                                                  |       |       |   |            |       |       |   |      |        |            |   |       |        |       |   |       |       |       |   |  |        |       |   |  |        |        |  |  |     |       |   |  |        |       
|                             | Fixed rate            |                                                  |       | 1,044 |   |            |       | 1,071 |   |      |        | 930        |   |       |        | 927   |   |       |       | 798   |   |  |        | 3,572 |   |  |        | 8,342  |  |  |     | 11.83 | % |  |        | 8,422  | 
|                             | Average interest rate |                                                  |       | 6.67  | % |            |       | 6.59  | % |      |        | 6.58       | % |       |        | 6.58  | % |       |       | 6.43  | % |  |        | 6.05  | % |  |        |        |  |  |     |       |   |  |        |        | 
|                             | Variable rate         |                                                  |       | 535   |   |            |       | 398   |   |      |        | 2,078      |   |       |        | 1,998 |   |       |       | 169   |   |  |        | 1,308 |   |  |        | 6,486  |  |  |     | 9.20  | % |  |        | 6,486  | 
|                             | Average interest rate |                                                  |       | 4.20  | % |            |       | 4.51  | % |      |        | 2.16       | % |       |        | 2.09  | % |       |       | 6.08  | % |  |        | 5.83  | % |  |        |        |  |  |     |       |   |  |        |        | 
|                            
|Loan in British Pound        |                       |                                                  |       |       |   |            |       |       |   |      |        |            |   |       |        |       |   |       |       |       |   |  |        |       |   |  |        |        |  |  |     |       |   |  |        |       
|                             | Fixed rate            |                                                  |       | 195   |   |            |       | 195   |   |      |        | 195        |   |       |        | 195   |   |       |       | 179   |   |  |        | 432   |   |  |        | 1,391  |  |  |     | 1.97  | % |  |        | 1,320  | 
|                             | Average interest rate |                                                  |       | 3.79  | % |            |       | 3.79  | % |      |        | 3.79       | % |       |        | 3.79  | % |       |       | 3.87  | % |  |        | 4.97  | % |  |        |        |  |  |     |       |   |  |        |        | 
|                            
|Loan in Japanese Yen         |                       |                                                  |       |       |   |            |       |       |   |      |        |            |   |       |        |       |   |       |       |       |   |  |        |       |   |  |        |        |  |  |     |       |   |  |        |       
|                             | Fixed rate            |                                                  |       | 133   |   |            |       | 133   |   |      |        | 133        |   |       |        | 133   |   |       |       | 133   |   |  |        | 71    |   |  |        | 736    |  |  |     | 1.05  | % |  |        | 827    | 
|                             | Average interest rate |                                                  |       | 4.70  | % |            |       | 4.70  | % |      |        | 4.70       | % |       |        | 4.70  | % |       |       | 4.70  | % |  |        | 4.56  | % |  |        |        |  |  |     |       |   |  |        |        | 
|                             | Variable rate         |                                                  |       | 12    |   |            |       | 15    |   |      |        | 15         |   |       |        | 14    |   |       |       |      |   |  |        | 125   |   |  |        | 181    |  |  |     | 0.26  | % |  |        | 181    | 
|                             | Average interest rate |                                                  |       | 5.17  | % |            |       | 1.88  | % |      |        | 1.88       | % |       |        | 1.88  | % |       |       |      |   |  |        | 5.17  | % |  |        |        |  |  |     |       |   |  |        |        | 
|                            
|Debenture in RMB             |                       |                                                  |       |       |   |            |       |       |   |      |        |            |   |       |        |       |   |       |       |       |   |  |        |       |   |  |        |        |  |  |     |       |   |  |        |       
|                             | Fixed rate            |                                                  |       |      |   |            |       | 300   |   |      |        |           |   |       |        |      |   |       |       |      |   |  |        | 1,350 |   |  |        | 1,650  |  |  |     | 2.34  | % |  |        | 1,604  | 
|                             | Average interest rate |                                                  |       |      |   |            |       | 9.00  | % |      |        |           |   |       |        |      |   |       |       |      |   |  |        | 4.50  | % |  |        |        |  |  |     |       |   |  |        |        | 
|                            
|Total                        |                       |                                                  | 5,069 |       |   |            | 6,190 |       |   |      | 22,064 |            |   |       | 13,864 |       |   |       | 7,926 |       |   |  | 15,380 |       |   |  | 70,493 |        |  |  | 100 | %     |   |  | 70,486 |       

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December 31, 2000

|                             |                       |                                                  |       |       |   |            |       |       |   |      |       |            |   |       |       |       |   |       |        |       |   |  |        |        |   |  |        |        |  |  |     |       |   |  |        |        | 
|---------------------------- | --------------------- | ------------------------------------------------ | ----- | ----- | - | ---------- | ----- | ----- | - | ---- | ----- | ---------- | - | ----- | ----- | ----- | - | ----- | ------ | ----- | - |  | ------ | ------ | - |  | ------ | ------ |  |  | --- | ----- | - |  | ------ | ------ | 
|                             |                       |                                                  |       |       |   | Percentage |       |      
|                             |                       | Expected maturity date                           |       |       |   | to total   |       |      
|                             |                       |                                                  |       |       |   | long-term  |       | Fair 
|Long term debt               |                       | 2001                                             |       | 2002  |   | 2003       |       | 2004  |   | 2005 |       | Thereafter |   | Total |       | debt  |   | value
|                             |                       |                                                  |       |       |   |            |       |       |   |      |       |            |   |       |       |       |   |      
|                             |                       |                                                  |       |       |   | (%)        |       |      
|                             |                       | (RMB equivalent in millions, except percentages) |       |       |   |            |       |      
|Loan in RMB                  |                       |                                                  |       |       |   |            |       |       |   |      |       |            |   |       |       |       |   |       |        |       |   |  |        |        |   |  |        |        |  |  |     |       |   |  |        |       
|                             | Fixed rate            |                                                  |       | 832   |   |            |       | 1,373 |   |      |       | 165        |   |       |       | 106   |   |       |        | 60    |   |  |        | 3      |   |  |        | 2,539  |  |  |     | 4.03  | % |  |        | 2,519  | 
|                             | Average interest rate |                                                  |       | 5.71  | % |            |       | 5.88  | % |      |       | 4.98       | % |       |       | 3.39  | % |       |        | 5.89  | % |  |        | 7.40   | % |  |        |        |  |  |     |       |   |  |        |        | 
|                             | Variable rate(1)      |                                                  |       | 2,298 |   |            |       | 1,894 |   |      |       | 4,082      |   |       |       | 7,564 |   |       |        | 7,997 |   |  |        | 12,151 |   |  |        | 35,986 |  |  |     | 57.18 | % |  |        | 35,986 | 
|                             | Average interest rate |                                                  |       | 5.94  | % |            |       | 5.80  | % |      |       | 5.98       | % |       |       | 5.75  | % |       |        | 5.84  | % |  |        | 5.73   | % |  |        |        |  |  |     |       |   |  |        |        | 
|                            
|Loan in Deutsche Mark        |                       |                                                  |       |       |   |            |       |       |   |      |       |            |   |       |       |       |   |       |        |       |   |  |        |        |   |  |        |        |  |  |     |       |   |  |        |       
|                             | Fixed rate            |                                                  |       | 53    |   |            |       | 53    |   |      |       | 53         |   |       |       | 53    |   |       |        | 24    |   |  |        | 33     |   |  |        | 269    |  |  |     | 0.43  | % |  |        | 292    | 
|                             | Average interest rate |                                                  |       | 8.34  | % |            |       | 8.34  | % |      |       | 8.34       | % |       |       | 8.34  | % |       |        | 8.38  | % |  |        | 8.39   | % |  |        |        |  |  |     |       |   |  |        |        | 
|                            
|Loan in United States Dollar |                       |                                                  |       |       |   |            |       |       |   |      |       |            |   |       |       |       |   |       |        |       |   |  |        |        |   |  |        |        |  |  |     |       |   |  |        |       
|                             | Fixed rate            |                                                  |       | 852   |   |            |       | 723   |   |      |       | 716        |   |       |       | 587   |   |       |        | 724   |   |  |        | 3,695  |   |  |        | 7,297  |  |  |     | 11.60 | % |  |        | 7,109  | 
|                             | Average interest rate |                                                  |       | 6.92  | % |            |       | 6.73  | % |      |       | 6.92       | % |       |       | 6.89  | % |       |        | 7.22  | % |  |        | 6.09   | % |  |        |        |  |  |     |       |   |  |        |        | 
|                             | Variable rate         |                                                  |       | 4,518 |   |            |       | 579   |   |      |       | 556        |   |       |       | 1,174 |   |       |        | 1,158 |   |  |        | 2,783  |   |  |        | 10,768 |  |  |     | 17.11 | % |  |        | 10,768 | 
|                             | Average interest rate |                                                  |       | 6.69  | % |            |       | 6.63  | % |      |       | 6.98       | % |       |       | 6.35  | % |       |        | 6.34  | % |  |        | 6.58   | % |  |        |        |  |  |     |       |   |  |        |        | 
|                            
|Loan in French Franc         |                       |                                                  |       |       |   |            |       |       |   |      |       |            |   |       |       |       |   |       |        |       |   |  |        |        |   |  |        |        |  |  |     |       |   |  |        |       
|                             | Fixed rate            |                                                  |       | 46    |   |            |       | 17    |   |      |       | 17         |   |       |       | 11    |   |       |        | 5     |   |  |        | 521    |   |  |        | 617    |  |  |     | 0.98  | % |  |        | 578    | 
|                             | Average interest rate |                                                  |       | 5.65  | % |            |       | 6.76  | % |      |       | 6.76       | % |       |       | 5.79  | % |       |        | 2.30  | % |  |        | 4.65   | % |  |        |        |  |  |     |       |   |  |        |        | 
|                            
|Loan in British Pound        |                       |                                                  |       |       |   |            |       |       |   |      |       |            |   |       |       |       |   |       |        |       |   |  |        |        |   |  |        |        |  |  |     |       |   |  |        |       
|                             | Fixed rate            |                                                  |       | 201   |   |            |       | 201   |   |      |       | 201        |   |       |       | 201   |   |       |        | 201   |   |  |        | 629    |   |  |        | 1,634  |  |  |     | 2.60  | % |  |        | 1,465  | 
|                             | Average interest rate |                                                  |       | 3.79  | % |            |       | 3.79  | % |      |       | 3.79       | % |       |       | 3.79  | % |       |        | 3.79  | % |  |        | 4.65   | % |  |        |        |  |  |     |       |   |  |        |        | 
|                            
|Loan in Japanese Yen         |                       |                                                  |       |       |   |            |       |       |   |      |       |            |   |       |       |       |   |       |        |       |   |  |        |        |   |  |        |        |  |  |     |       |   |  |        |       
|                             | Fixed rate            |                                                  |       | 122   |   |            |       | 104   |   |      |       | 104        |   |       |       | 104   |   |       |        | 104   |   |  |        | 506    |   |  |        | 1,044  |  |  |     | 1.66  | % |  |        | 1,205  | 
|                             | Average interest rate |                                                  |       | 4.67  | % |            |       | 4.53  | % |      |       | 4.53       | % |       |       | 4.53  | % |       |        | 4.53  | % |  |        | 4.50   | % |  |        |        |  |  |     |       |   |  |        |        | 
|                             | Variable rate         |                                                  |       | 12    |   |            |       |      |   |      |       | 8          |   |       |       | 8     |   |       |        | 16    |   |  |        | 145    |   |  |        | 189    |  |  |     | 0.30  | % |  |        | 189    | 
|                             | Average interest rate |                                                  |       | 5.17  | % |            |       |      |   |      |       | 2.38       | % |       |       | 2.38  | % |       |        | 2.38  | % |  |        | 5.17   | % |  |        |        |  |  |     |       |   |  |        |        | 
|                            
|Loan in Spanish Peso         |                       |                                                  |       |       |   |            |       |       |   |      |       |            |   |       |       |       |   |       |        |       |   |  |        |        |   |  |        |        |  |  |     |       |   |  |        |       
|                             | Fixed rate            |                                                  |       | 79    |   |            |       | 67    |   |      |       | 56         |   |       |       |      |   |       |        |      |   |  |        |       |   |  |        | 202    |  |  |     | 0.32  | % |  |        | 193    | 
|                             | Average interest rate |                                                  |       | 3.31  | % |            |       | 2.57  | % |      |       | 1.50       | % |       |       |      |   |       |        |      |   |  |        |       |   |  |        |        |  |  |     |       |   |  |        |        | 
|                            
|Debenture in RMB             |                       |                                                  |       |       |   |            |       |       |   |      |       |            |   |       |       |       |   |       |        |       |   |  |        |        |   |  |        |        |  |  |     |       |   |  |        |       
|                             | Fixed rate            |                                                  |       | 735   |   |            |       |      |   |      |       | 300        |   |       |       |      |   |       |        |      |   |  |        | 1,350  |   |  |        | 2,385  |  |  |     | 3.79  | % |  |        | 2,388  | 
|                             | Average interest rate |                                                  |       | 7.81  | % |            |       |      |   |      |       | 9.00       | % |       |       |      |   |       |        |      |   |  |        | 4.50   | % |  |        |        |  |  |     |       |   |  |        |        | 
|                            
|Total                        |                       |                                                  | 9,748 |       |   |            | 5,011 |       |   |      | 6,258 |            |   |       | 9,808 |       |   |       | 10,289 |       |   |  | 21,816 |        |   |  | 62,930 |        |  |  | 100 | %     |   |  | 62,692 |       




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Due to the declining interest rates in recent
    years in China, the government has implemented a program to
    adjust interest rates on certain fixed RMB loans periodically to
    reflect the market rates in effect published by the
    Peoples Bank of China (the central bank) from
    time to time. As a result, these previously fixed RMB loans are
    categorized as variable rate loans as of December 31, 2000,
    2001 and 2002. The newly adjusted rates usually become effective
    one year after the announcement by the central bank. The average
    interest rates on these loans are calculated based on the then
    effective rates as of December 31, 2000, 2001 and 2002,
    respectively.

110



---



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Commodity Price Risk

We are engaged in a broad range of petroleum
related activities. The hydrocarbon commodity markets are
influenced by global as well as regional supply and demand
conditions. The PRC government currently publishes prices for
onshore crude oil, gasoline and diesel according to
international benchmark prices. A decline in prices of crude oil
and refined products could adversely affect our financial
performance. We historically have not used commodity derivative
instruments to hedge the potential price fluctuations of crude
oil and other refined products. Therefore, during 2000, 2001 and
2002, we were exposed to the general price fluctuations of
broadly traded oil and gas commodities.




ITEM 12  DESCRIPTION OF SECURITIES
OTHER THAN EQUITY SECURITIES

Not applicable.




PART II




ITEM 13  DEFAULTS, DIVIDENDS
ARREARAGES AND DELINQUENCIES

None.




ITEM 14  MATERIAL MODIFICATIONS TO
THE RIGHTS

TO SECURITY HOLDERS


None.




ITEM 15  CONTROLS AND
PROCEDURES

Our Chairman, who performs the functions of Chief
Executive Officer, and our Chief Financial Officer, after
evaluating the effectiveness of PetroChinas disclosure
controls and procedures (as defined in the United States
Exchange Act Rules 13a-14(c)) within 90 days of the
date of this annual report, have concluded that, as of such
date, PetroChinas disclosure controls and procedures were
effective to ensure that material information relating to
PetroChina was made known to them by others within PetroChina
particularly during the period in which this annual report was
being presented.

There were no significant changes in
PetroChinas internal controls or in other factors that
could significantly affect these controls subsequent to the date
of our Chairman and our Chief Financial Officer completed their
evaluation, nor were there any significant deficiencies or
material weaknesses in PetroChinas internal controls
requiring corrective actions.




ITEM 16  [RESERVED]




PART III




ITEM 17  FINANCIAL
STATEMENTS

We have elected to provide the financial
statements and related information specified in Item 18 in
lieu of Item 17.

111



---



##### Table of Contents






ITEM 18  FINANCIAL
STATEMENTS

See page F-1 to F-59 following Item 19.




ITEM 19  EXHIBITS

(a) See Item 18 for a list of the
financial statements as part of this annual report.

(b) Exhibits to this annual report.

|        |         |                         |  |                                                                                                                                                      
|------- | ------- | ----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |                        
|Number  |         | Description of Exhibits
|        |         |                        
|        | 1.1     |                         |  | Articles of Association (as amended) (English
    translation). (1)                                                                                  
|        | 4.1     |                         |  | 2003 Performance Contract between Chen Geng and
    PetroChina (English translation).                                                                
|        | 4.2     |                         |  | 2003 Performance Contract between Su Shulin and
    PetroChina (English translation).                                                                
|        | 4.3     |                         |  | 2003 Performance Contract between Wang Fucheng
    and PetroChina (English translation).                                                             
|        | 4.4     |                         |  | 2003 Performance Contract between Wang Guoliang
    and PetroChina (English translation).                                                            
|        | 4.5     |                         |  | 2003 Performance Contract between Liu Baohe and
    PetroChina (English translation).                                                                
|        | 4.6     |                         |  | 2003 Performance Contract between Duan Wende and
    PetroChina (English translation).                                                               
|        | 4.7     |                         |  | 2003 Performance Contract between Jia Chengzao
    and PetroChina (English translation).                                                             
|        | 4.8     |                         |  | Crude Oil Mutual Supply Framework Agreement,
    December 30, 2002, between China Petrochemical Corporation
    and PetroChina (English translation).
|        | 8.1     |                         |  | List of major subsidiaries.                                                                                                                          
|        | 12(a).1 |                         |  | Certification pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.                      




|    |                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to our Annual Report on
    Form 20-F for the fiscal year ended December 31, 2001
    (File No. 1-15006) filed with the U.S. Securities and
    Exchange Commission.

112



---



##### Table of Contents






SIGNATURE

The registrant hereby certifies that it meets all
of the requirements for filing on Form 20-F and that it has
duly caused and authorized the undersigned to sign this annual
report on its behalf.



| |                           
| | --------------------------
| | PETROCHINA COMPANY LIMITED
|
| | /s/ LI HUAIQI             
| |                           
| | Name: Li Huaiqi           
| | Title:   Secretary        

Date: June 25, 2003


113



---



##### Table of Contents



CERTIFICATION

I, Ma Fucai, certify that:



|   |                                                                                                                                                                                                                                                                                                                                             
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | I have reviewed this annual report on
    Form 20-F of PetroChina;                                                                                                                                                                                                                                                                          
|  
|2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|  
|3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this annual report;                       
|  
|4. | The registrants other certifying officer
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                           



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;
|
| | b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) | presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



|   |                                                                                                                                                                                                                                                              
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|5. | The registrants other certifying officer
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent function):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



|   |                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|6. | The registrants other certifying officer
    and I have indicated in this annual report whether or not there
    were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.

Date: June 25, 2003



| |                                      
| | -------------------------------------
| | /s/ MA FUCAI                         
| |                                      
| | Chairman (performing the functions of
| | Chief Executive Officer)             

114



---



##### Table of Contents



CERTIFICATION

I, Wang Guoliang, certify that:



|   |                                                                                                                                                                                                                                                                                                                                             
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | I have reviewed this annual report on
    Form 20-F of PetroChina;                                                                                                                                                                                                                                                                          
|  
|2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|  
|3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this annual report;                       
|  
|4. | The registrants other certifying officer
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                           



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;
|
| | b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) | presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



|   |                                                                                                                                                                                                                                                              
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|5. | The registrants other certifying officer
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent function):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



|   |                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|6. | The registrants other certifying officer
    and I have indicated in this annual report whether or not there
    were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.

Date: June 25, 2003



| |                        
| | -----------------------
| | /s/ WANG GUOLIANG      
| |                        
| | Chief Financial Officer

115



---



##### Table of Contents






INDEX OF FINANCIAL STATEMENTS

|                                                    |                                                                                                                                      |      |  |      | 
|--------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------ | ---- |  | ---- | 
|                                                    |                                                                                                                                      | Page
|                                                    |                                                                                                                                      |     
|PetroChina Company Limited and its
    Subsidiaries |                                                                                                                                      |      |  |     
|                                                    | Consolidated Financial Statements                                                                                                    |      |  |      | 
|                                                    | Report of Independent Accountants                                                                                                    |      |  | F-2  | 
|                                                    | Consolidated Statements of Income for each of the
    three years in the period ended December 31, 2002                              |      |  | F-3  | 
|                                                    | Consolidated Balance Sheets as of
    December 31, 2001 and 2002                                                                     |      |  | F-4  | 
|                                                    | Consolidated Statements of Cash Flows for each of
    the three years in the period ended December 31, 2002                          |      |  | F-5  | 
|                                                    | Consolidated Statements of Changes in
    Shareholders Equity for each of the three years in the
    period ended December 31, 2002 |      |  | F-7  | 
|                                                    | Notes to the Consolidated Financial Statements                                                                                       |      |  | F-8  | 
|                                                    | Supplementary Petroleum Data
    (unaudited)                                                                                         |      |  | F-53 | 

F-1



---



##### Table of Contents






REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
PetroChina Company Limited:

In our opinion, the accompanying consolidated
balance sheets and the related consolidated statements of
income, of cash flows and of changes in equity present fairly,
in all material respects, the consolidated financial position of
PetroChina Company Limited (the Company) and its
subsidiaries (the Group) at December 31, 2001
and 2002, and the results of their operations and their cash
flows for each of the three years in the period ended
December 31, 2002, in conformity with International
Financial Reporting Standards. These financial statements are
the responsibility of the Companys management; our
responsibility is to express an opinion on these financial
statements based on our audits. The consolidated financial
statements give retroactive effect to the acquisition of certain
refined products marketing enterprises from the parent of the
Company in a transaction accounted for as a uniting of
interests, as described in Note 2 to the consolidated
financial statements. We conducted our audits of these
statements in accordance with auditing standards generally
accepted in the United States of America which require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed
above.

International Financial Reporting Standards vary
in certain significant respects from accounting principles
generally accepted in the United States. The application of the
latter would have affected the determination of consolidated net
income for each of the three years in the period ended
December 31, 2002 and the determination of consolidated
shareholders equity at December 31, 2001 and 2002 to
the extent summarized in Note 33 to the consolidated
financial statements.



| |                             
| | ----------------------------
| | PricewaterhouseCoopers      
| | Certified Public Accountants
|
| | Hong Kong, March 31, 2003   

F-2



---



##### Table of Contents






PETROCHINA COMPANY LIMITED

CONSOLIDATED STATEMENTS OF INCOME

For the Years Ended December 31, 2000,
2001 and 2002


(Amounts in millions except for per share
data)


|                                                   |                                                                     |      |    |                         |  |          |          |         |   |      |          |         |   |  |          |         |   |  |         |        |  
|-------------------------------------------------- | ------------------------------------------------------------------- | ---- | -- | ----------------------- |  | -------- | -------- | ------- | - | ---- | -------- | ------- | - |  | -------- | ------- | - |  | ------- | ------ | -
|                                                   |                                                                     |      |    |                        
|                                                   |                                                                     |      |    | Year Ended December 31,
|                                                   |                                                                     |      |    |                        
|                                                   |                                                                     |      |    | 2000                    |  | 2001     |          |         |   |     
|                                                   |                                                                     | Note |    | (Note 2)                |  | (Note 2) |          | 2002    |   | 2002
|                                                   |                                                                     |      |    |                         |  |          |          |         |   |     
|                                                   |                                                                     |      |    | RMB                     |  | RMB      |          | RMB     |   | US$ 
|REVENUES                                           |                                                                     |      |    |                         |  |          |          |         |   |      |          |         |   |  |          |         |   |  |         |       
|                                                   | Sales and other operating revenues                                  |      |    |                         |  |          |          | 245,279 |   |      |          | 241,320 |   |  |          | 244,424 |   |  |         | 29,520 |  
|                                                   |                                                                     |      |    |                         |  |          |          |         |   |      |          |         |   |  |          |         |   |  |         |       
|OPERATING EXPENSES                                 |                                                                     |      |    |                         |  |          |          |         |   |      |          |         |   |  |          |         |   |  |         |       
|                                                   | Purchases, services and other                                       |      |    |                         |  |          |          | (64,251 | ) |      |          | (78,529 | ) |  |          | (71,690 | ) |  |         | (8,658 | )
|                                                   | Employee compensation costs                                         |      |    | 4                       |  |          |          | (15,129 | ) |      |          | (14,608 | ) |  |          | (16,248 | ) |  |         | (1,962 | )
|                                                   | Exploration expenses, including exploratory dry
    holes           |      |    |                         |  |          |          | (8,680  | ) |      |          | (7,344  | ) |  |          | (8,095  | ) |  |         | (978   | )
|                                                   | Depreciation, depletion and amortization                            |      |    |                         |  |          |          | (34,209 | ) |      |          | (33,615 | ) |  |          | (36,782 | ) |  |         | (4,443 | )
|                                                   | Selling, general and administrative expenses                        |      |    |                         |  |          |          | (17,621 | ) |      |          | (21,735 | ) |  |          | (22,474 | ) |  |         | (2,714 | )
|                                                   | Employee separation costs and shut down of
    manufacturing assets |      |    | 5                       |  |          |          | (6,579  | ) |      |          | (487    | ) |  |          | (2,121  | ) |  |         | (256   | )
|                                                   | Taxes other than income taxes                                       |      |    |                         |  |          |          | (13,258 | ) |      |          | (13,951 | ) |  |          | (14,613 | ) |  |         | (1,765 | )
|                                                   | Other (expense)/income, net                                         |      |    |                         |  |          |          | (119    | ) |      |          | 88      |   |  |          | (60     | ) |  |         | (7     | )
|                                                   |                                                                     |      |    |                         |  |          |          |         |   |      |          |         |   |  |          |         |   |  |         |       
|TOTAL OPERATING EXPENSES                           |                                                                     |      |    |                         |  |          | (159,846 | )       |   |      | (170,181 | )       |   |  | (172,083 | )       |   |  | (20,783 | )     
|                                                   |                                                                     |      |    |                         |  |          |          |         |   |      |          |         |   |  |          |         |   |  |         |       
|INCOME FROM OPERATIONS                             |                                                                     |      |    |                         |  |          | 85,433   |         |   |      | 71,139   |         |   |  | 72,341   |         |   |  | 8,737   |       
|                                                   |                                                                     |      |    |                         |  |          |          |         |   |      |          |         |   |  |          |         |   |  |         |       
|FINANCE COSTS                                      |                                                                     |      |    |                         |  |          |          |         |   |      |          |         |   |  |          |         |   |  |         |       
|                                                   | Exchange gain                                                       |      |    |                         |  |          |          | 1,406   |   |      |          | 390     |   |  |          | 133     |   |  |         | 16     |  
|                                                   | Exchange loss                                                       |      |    |                         |  |          |          | (234    | ) |      |          | (140    | ) |  |          | (449    | ) |  |         | (54    | )
|                                                   | Interest income                                                     |      |    |                         |  |          |          | 591     |   |      |          | 809     |   |  |          | 463     |   |  |         | 56     |  
|                                                   | Interest expense                                                    |      |    | 6                       |  |          |          | (6,286  | ) |      |          | (4,408  | ) |  |          | (3,516  | ) |  |         | (425   | )
|                                                   |                                                                     |      |    |                         |  |          |          |         |   |      |          |         |   |  |          |         |   |  |         |       
|TOTAL FINANCE COSTS                                |                                                                     |      |    |                         |  |          | (4,523   | )       |   |      | (3,349   | )       |   |  | (3,369   | )       |   |  | (407    | )     
|                                                   |                                                                     |      |    |                         |  |          |          |         |   |      |          |         |   |  |          |         |   |  |         |       
|INCOME FROM EQUITY AFFILIATES                      |                                                                     |      | 17 |                         |  |          | 584      |         |   |      | 341      |         |   |  | 268      |         |   |  | 32      |       
|                                                   |                                                                     |      |    |                         |  |          |          |         |   |      |          |         |   |  |          |         |   |  |         |       
|INCOME BEFORE INCOME TAXES                         |                                                                     |      |    |                         |  |          | 81,494   |         |   |      | 68,131   |         |   |  | 69,240   |         |   |  | 8,362   |       
|INCOME TAXES                                       |                                                                     |      | 7  |                         |  |          | (27,014  | )       |   |      | (23,066  | )       |   |  | (22,231  | )       |   |  | (2,685  | )     
|                                                   |                                                                     |      |    |                         |  |          |          |         |   |      |          |         |   |  |          |         |   |  |         |       
|INCOME BEFORE MINORITY INTERESTS                   |                                                                     |      |    |                         |  |          | 54,480   |         |   |      | 45,065   |         |   |  | 47,009   |         |   |  | 5,677   |       
|LOSS/(INCOME) APPLICABLE TO MINORITY
    INTERESTS |                                                                     |      |    |                         |  |          | 165      |         |   |      | 404      |         |   |  | (99      | )       |   |  | (12     | )     
|                                                   |                                                                     |      |    |                         |  |          |          |         |   |      |          |         |   |  |          |         |   |  |         |       
|NET INCOME                                         |                                                                     |      |    |                         |  |          | 54,645   |         |   |      | 45,469   |         |   |  | 46,910   |         |   |  | 5,665   |       
|                                                   |                                                                     |      |    |                         |  |          |          |         |   |      |          |         |   |  |          |         |   |  |         |       
|BASIC AND DILUTED NET INCOME
    PER SHARE         |                                                                     |      | 8  |                         |  |          | 0.32     |         |   |      | 0.26     |         |   |  | 0.27     |         |   |  | 0.03    |       
|                                                   |                                                                     |      |    |                         |  |          |          |         |   |      |          |         |   |  |          |         |   |  |         |       
|NUMBER OF SHARES                                   |                                                                     |      | 8  |                         |  |          | 171,630  |         |   |      | 175,824  |         |   |  | 175,824  |         |   |  | 175,824 |       
|                                                   |                                                                     |      |    |                         |  |          |          |         |   |      |          |         |   |  |          |         |   |  |         |       

The accompanying notes are an integral part of
these financial statements.

F-3



---



##### Table of Contents



PETROCHINA COMPANY LIMITED






CONSOLIDATED BALANCE SHEETS


As of December 31, 2001 and
2002


(Amounts in millions)


|                                                                                             |                                                                       |      |    |                 |  |      |         |        |  |  |         |        |  |  |        |       | 
|-------------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | ---- | -- | --------------- |  | ---- | ------- | ------ |  |  | ------- | ------ |  |  | ------ | ----- | 
|                                                                                             |                                                                       |      |    |                
|                                                                                             |                                                                       |      |    | At December 31,
|                                                                                             |                                                                       |      |    |                
|                                                                                             |                                                                       |      |    | 2001            |  |      |         |       
|                                                                                             |                                                                       | Note |    | (Note 2)        |  | 2002 |         | 2002  
|                                                                                             |                                                                       |      |    |                 |  |      |         |       
|                                                                                             |                                                                       |      |    | RMB             |  | RMB  |         | US$   
|ASSETS                                                                                       |                                                                       |      |    |                 |  |      |         |        |  |  |         |        |  |  |        |      
|Current assets                                                                               |                                                                       |      |    |                 |  |      |         |        |  |  |         |        |  |  |        |      
|                                                                                             | Cash and cash equivalents                                             |      |    | 10              |  |      |         | 11,127 |  |  |         | 9,977  |  |  |        | 1,205 | 
|                                                                                             | Time deposits with maturities over three months                       |      |    |                 |  |      |         | 3,253  |  |  |         | 2,612  |  |  |        | 315   | 
|                                                                                             | Receivables under resale agreements                                   |      |    | 11              |  |      |         | 11,505 |  |  |         | 9,786  |  |  |        | 1,182 | 
|                                                                                             | Notes receivable                                                      |      |    | 12              |  |      |         | 2,361  |  |  |         | 2,540  |  |  |        | 307   | 
|                                                                                             | Accounts receivable, less allowance for
    impairment of receivables |      |    | 13              |  |      |         | 7,392  |  |  |         | 6,079  |  |  |        | 734   | 
|                                                                                             | Inventories                                                           |      |    | 14              |  |      |         | 28,313 |  |  |         | 28,441 |  |  |        | 3,435 | 
|                                                                                             | Prepaid expenses and other current assets                             |      |    | 15              |  |      |         | 22,066 |  |  |         | 15,729 |  |  |        | 1,900 | 
|                                                                                             |                                                                       |      |    |                 |  |      |         |        |  |  |         |        |  |  |        |      
|TOTAL CURRENT ASSETS                                                                         |                                                                       |      |    |                 |  |      | 86,017  |        |  |  | 75,164  |        |  |  | 9,078  |      
|Property, plant and equipment, less accumulated
    depreciation, depletion and amortization |                                                                       |      | 16 |                 |  |      | 366,970 |        |  |  | 397,798 |        |  |  | 48,043 |      
|Long term investments                                                                        |                                                                       |      | 17 |                 |  |      | 5,530   |        |  |  | 5,680   |        |  |  | 686    |      
|Intangible and other assets                                                                  |                                                                       |      | 18 |                 |  |      | 4,148   |        |  |  | 4,507   |        |  |  | 544    |      
|                                                                                             |                                                                       |      |    |                 |  |      |         |        |  |  |         |        |  |  |        |      
|TOTAL ASSETS                                                                                 |                                                                       |      |    |                 |  |      | 462,665 |        |  |  | 483,149 |        |  |  | 58,351 |      
|                                                                                             |                                                                       |      |    |                 |  |      |         |        |  |  |         |        |  |  |        |      
|LIABILITIES AND SHAREHOLDERS
    EQUITY                                                     |                                                                       |      |    |                 |  |      |         |        |  |  |         |        |  |  |        |      
|Current liabilities                                                                          |                                                                       |      |    |                 |  |      |         |        |  |  |         |        |  |  |        |      
|                                                                                             | Short-term debt                                                       |      |    | 20              |  |      |         | 25,323 |  |  |         | 20,633 |  |  |        | 2,492 | 
|                                                                                             | Accounts payable and accrued liabilities                              |      |    | 19              |  |      |         | 53,210 |  |  |         | 57,793 |  |  |        | 6,980 | 
|                                                                                             | Income tax payable                                                    |      |    |                 |  |      |         | 5,672  |  |  |         | 5,412  |  |  |        | 654   | 
|                                                                                             | Other taxes payable                                                   |      |    |                 |  |      |         | 8,762  |  |  |         | 5,515  |  |  |        | 666   | 
|                                                                                             |                                                                       |      |    |                 |  |      |         |        |  |  |         |        |  |  |        |      
|TOTAL CURRENT LIABILITIES                                                                    |                                                                       |      |    |                 |  |      | 92,967  |        |  |  | 89,353  |        |  |  | 10,792 |      
|Long-term debt                                                                               |                                                                       |      | 20 |                 |  |      | 65,546  |        |  |  | 60,655  |        |  |  | 7,325  |      
|Deferred credits and other long-term obligations                                             |                                                                       |      |    |                 |  |      | 1,380   |        |  |  | 1,684   |        |  |  | 203    |      
|Deferred income taxes                                                                        |                                                                       |      | 21 |                 |  |      | 7,030   |        |  |  | 9,927   |        |  |  | 1,199  |      
|                                                                                             |                                                                       |      |    |                 |  |      |         |        |  |  |         |        |  |  |        |      
|TOTAL LIABILITIES                                                                            |                                                                       |      |    |                 |  |      | 166,923 |        |  |  | 161,619 |        |  |  | 19,519 |      
|                                                                                             |                                                                       |      |    |                 |  |      |         |        |  |  |         |        |  |  |        |      
|MINORITY INTERESTS                                                                           |                                                                       |      |    |                 |  |      | 5,136   |        |  |  | 4,854   |        |  |  | 586    |      
|                                                                                             |                                                                       |      |    |                 |  |      |         |        |  |  |         |        |  |  |        |      
|SHAREHOLDERS EQUITY                                                                         |                                                                       |      |    |                 |  |      |         |        |  |  |         |        |  |  |        |      
|State-owned shares                                                                           |                                                                       |      | 22 |                 |  |      | 158,242 |        |  |  | 158,242 |        |  |  | 19,112 |      
|H shares                                                                                     |                                                                       |      | 22 |                 |  |      | 17,582  |        |  |  | 17,582  |        |  |  | 2,123  |      
|                                                                                             |                                                                       |      |    |                 |  |      |         |        |  |  |         |        |  |  |        |      
|Share capital, issued and outstanding, RMB 1.00
    par value                                |                                                                       |      |    |                 |  |      | 175,824 |        |  |  | 175,824 |        |  |  | 21,235 |      
|Retained earnings                                                                            |                                                                       |      |    |                 |  |      | 35,607  |        |  |  | 59,004  |        |  |  | 7,126  |      
|Capital reserve                                                                              |                                                                       |      | 23 |                 |  |      | (28,567 | )      |  |  | (28,557 | )      |  |  | (3,449 | )    
|Revaluation reserve                                                                          |                                                                       |      | 23 |                 |  |      | 79,945  |        |  |  | 79,945  |        |  |  | 9,655  |      
|Statutory common reserve fund                                                                |                                                                       |      | 23 |                 |  |      | 16,219  |        |  |  | 20,128  |        |  |  | 2,431  |      
|Statutory common welfare fund                                                                |                                                                       |      | 23 |                 |  |      | 11,578  |        |  |  | 13,532  |        |  |  | 1,634  |      
|Other reserves                                                                               |                                                                       |      | 23 |                 |  |      |        |        |  |  | (3,200  | )      |  |  | (386   | )    
|                                                                                             |                                                                       |      |    |                 |  |      |         |        |  |  |         |        |  |  |        |      
|SHAREHOLDERS EQUITY                                                                         |                                                                       |      |    |                 |  |      | 290,606 |        |  |  | 316,676 |        |  |  | 38,246 |      
|                                                                                             |                                                                       |      |    |                 |  |      |         |        |  |  |         |        |  |  |        |      
|TOTAL LIABILITIES AND SHAREHOLDERS
    EQUITY                                               |                                                                       |      |    |                 |  |      | 462,665 |        |  |  | 483,149 |        |  |  | 58,351 |      
|                                                                                             |                                                                       |      |    |                 |  |      |         |        |  |  |         |        |  |  |        |      

The accompanying notes are an integral part of
these financial statements.

F-4



---



##### Table of Contents



PETROCHINA COMPANY LIMITED






CONSOLIDATED STATEMENTS OF CASH
FLOWS


For the Years Ended December 31, 2000,
2001 and 2002


(Amounts in millions)


|                                              |                             |                                                                        |  |                         |        |          |         |         |         |      |         |         |        |   |         |         |        |   |        |        |       |  
|--------------------------------------------- | --------------------------- | ---------------------------------------------------------------------- |  | ----------------------- | ------ | -------- | ------- | ------- | ------- | ---- | ------- | ------- | ------ | - | ------- | ------- | ------ | - | ------ | ------ | ----- | -
|                                              |                             |                                                                        |  |                        
|                                              |                             |                                                                        |  | Year Ended December 31,
|                                              |                             |                                                                        |  |                        
|                                              |                             |                                                                        |  | 2000                    |        | 2001     |         |         |         |     
|                                              |                             | Note                                                                   |  | (Note 2)                |        | (Note 2) |         | 2002    |         | 2002
|                                              |                             |                                                                        |  |                         |        |          |         |         |         |     
|                                              |                             |                                                                        |  | RMB                     |        | RMB      |         | RMB     |         | US$ 
|CASH FLOWS FROM OPERATING ACTIVITIES          |                             |                                                                        |  |                         |        |          |         |         |         |      |         |         |        |   |         |         |        |   |        |       
|                                              | Net income                  |                                                                        |  |                         |        |          |         | 54,645  |         |      |         | 45,469  |        |   |         | 46,910  |        |   |        | 5,665  |      
|                                              | Adjustments for:            |                                                                        |  |                         |        |          |         |         |         |      |         |         |        |   |         |         |        |   |        |        |      
|                                              |                             | Income/(loss) applicable to minority interests                         |  |                         |        |          |         |         | (165    | )    |         |         | (404   | ) |         |         | 99     |   |        |        | 12    |  
|                                              |                             | Income taxes                                                           |  |                         | 7      |          |         |         | 27,014  |      |         |         | 23,066 |   |         |         | 22,231 |   |        |        | 2,685 |  
|                                              |                             | Depreciation, depletion and amortization                               |  |                         |        |          |         |         | 34,209  |      |         |         | 33,615 |   |         |         | 36,782 |   |        |        | 4,443 |  
|                                              |                             | Provision for shut down of manufacturing assets                        |  |                         | 5      |          |         |         | 2,364   |      |         |         |       |   |         |         | 2,121  |   |        |        | 256   |  
|                                              |                             | Dry hole cost                                                          |  |                         |        |          |         |         | 4,367   |      |         |         | 3,422  |   |         |         | 3,527  |   |        |        | 425   |  
|                                              |                             | Income from equity affiliates                                          |  |                         | 17     |          |         |         | (584    | )    |         |         | (341   | ) |         |         | (268   | ) |        |        | (32   | )
|                                              |                             | Impairment of receivables                                              |  |                         | 13, 15 |          |         |         | 1,569   |      |         |         | 1,347  |   |         |         | 284    |   |        |        | 34    |  
|                                              |                             | Write down in inventories, net                                         |  |                         | 14     |          |         |         | 1,286   |      |         |         | (614   | ) |         |         | (122   | ) |        |        | (15   | )
|                                              |                             | Impairment of investments                                              |  |                         | 17     |          |         |         | 23      |      |         |         | 34     |   |         |         | 4      |   |        |        | 1     |  
|                                              |                             | Loss on disposal of property, plant and equipment                      |  |                         |        |          |         |         | 401     |      |         |         | 288    |   |         |         | 647    |   |        |        | 78    |  
|                                              |                             | Loss on disposal of available-for-sale investments                     |  |                         |        |          |         |         |        |      |         |         | 20     |   |         |         | 21     |   |        |        | 3     |  
|                                              |                             | Loss on disposal of intangible and other assets                        |  |                         |        |          |         |         | 11      |      |         |         | 13     |   |         |         | 17     |   |        |        | 2     |  
|                                              |                             | Dividend income                                                        |  |                         | 17     |          |         |         | (33     | )    |         |         | (123   | ) |         |         | (60    | ) |        |        | (7    | )
|                                              |                             | Interest income                                                        |  |                         |        |          |         |         | (591    | )    |         |         | (809   | ) |         |         | (463   | ) |        |        | (56   | )
|                                              |                             | Interest expense                                                       |  |                         | 6      |          |         |         | 6,286   |      |         |         | 4,408  |   |         |         | 3,516  |   |        |        | 425   |  
|                                              | Changes in working capital: |                                                                        |  |                         |        |          |         |         |         |      |         |         |        |   |         |         |        |   |        |        |      
|                                              |                             |  accounts receivable and prepaid
    expense and other current assets |  |                         |        |          |         |         | 17,726  |      |         |         | (8,467 | ) |         |         | 4,554  |   |        |        | 550   |  
|                                              |                             |  inventories                                                          |  |                         |        |          |         |         | (15,389 | )    |         |         | 4,800  |   |         |         | 157    |   |        |        | 19    |  
|                                              |                             |  accounts payables and accrued
    liabilities                        |  |                         |        |          |         |         | (4,890  | )    |         |         | 5,519  |   |         |         | 2,047  |   |        |        | 247   |  
|                                              |                             |                                                                        |  |                         |        |          |         |         |         |      |         |         |        |   |         |         |        |   |        |       
|CASH GENERATED FROM OPERATIONS                |                             |                                                                        |  |                         |        |          | 128,249 |         |         |      | 111,243 |         |        |   | 122,004 |         |        |   | 14,735 |       
|                                              | Interest received           |                                                                        |  |                         |        |          |         | 591     |         |      |         | 809     |        |   |         | 463     |        |   |        | 56     |      
|                                              | Interest paid               |                                                                        |  |                         |        |          |         | (8,930  | )       |      |         | (4,720  | )      |   |         | (4,564  | )      |   |        | (551   | )    
|                                              | Income taxes paid           |                                                                        |  |                         |        |          |         | (16,601 | )       |      |         | (22,893 | )      |   |         | (19,562 | )      |   |        | (2,363 | )    
|                                              |                             |                                                                        |  |                         |        |          |         |         |         |      |         |         |        |   |         |         |        |   |        |       
|NET CASH PROVIDED BY OPERATING
    ACTIVITIES |                             |                                                                        |  |                         |        |          | 103,309 |         |         |      | 84,439  |         |        |   | 98,341  |         |        |   | 11,877 |       
|                                              |                             |                                                                        |  |                         |        |          |         |         |         |      |         |         |        |   |         |         |        |   |        |       

The accompanying notes are an integral part of
these financial statements.

F-5



---



##### Table of Contents



PETROCHINA COMPANY LIMITED






CONSOLIDATED STATEMENTS OF CASH
FLOWS  (Continued)


For the Years Ended December 31, 2000,
2001 and 2002


(Amounts in millions)


|                                               |                                                                            |      |    |                         |  |          |         |         |   |      |         |         |   |  |         |         |   |  |        |        |  
|---------------------------------------------- | -------------------------------------------------------------------------- | ---- | -- | ----------------------- |  | -------- | ------- | ------- | - | ---- | ------- | ------- | - |  | ------- | ------- | - |  | ------ | ------ | -
|                                               |                                                                            |      |    |                        
|                                               |                                                                            |      |    | Year Ended December 31,
|                                               |                                                                            |      |    |                        
|                                               |                                                                            |      |    | 2000                    |  | 2001     |         |         |   |     
|                                               |                                                                            | Note |    | (Note 2)                |  | (Note 2) |         | 2002    |   | 2002
|                                               |                                                                            |      |    |                         |  |          |         |         |   |     
|                                               |                                                                            |      |    | RMB                     |  | RMB      |         | RMB     |   | US$ 
|CASH FLOWS FROM INVESTING ACTIVITIES           |                                                                            |      |    |                         |  |          |         |         |   |      |         |         |   |  |         |         |   |  |        |       
|                                               | Capital expenditures                                                       |      |    |                         |  |          |         | (57,228 | ) |      |         | (51,486 | ) |  |         | (70,699 | ) |  |        | (8,538 | )
|                                               | Acquisition of subsidiaries                                                |      |    | 28                      |  |          |         |        |   |      |         |        |   |  |         | (2,150  | ) |  |        | (260   | )
|                                               | Acquisition of equity affiliates                                           |      |    |                         |  |          |         | (498    | ) |      |         | (942    | ) |  |         | (1,119  | ) |  |        | (135   | )
|                                               | Repayment of capital by equity affiliates                                  |      |    |                         |  |          |         | 278     |   |      |         | 275     |   |  |         | 301     |   |  |        | 36     |  
|                                               | Acquisition of available-for-sale investments                              |      |    |                         |  |          |         | (947    | ) |      |         | (176    | ) |  |         | (231    | ) |  |        | (28    | )
|                                               | Acquisition of intangible assets                                           |      |    |                         |  |          |         | (249    | ) |      |         | (412    | ) |  |         | (666    | ) |  |        | (80    | )
|                                               | Acquisition of other non-current assets                                    |      |    |                         |  |          |         | (934    | ) |      |         | (1,605  | ) |  |         | (386    | ) |  |        | (47    | )
|                                               | Proceeds from disposal of property, plant and
    equipment                |      |    |                         |  |          |         | 3,427   |   |      |         | 1,110   |   |  |         | 497     |   |  |        | 60     |  
|                                               | Proceeds from disposal of equity affiliates                                |      |    |                         |  |          |         |        |   |      |         | 295     |   |  |         | 243     |   |  |        | 29     |  
|                                               | Proceeds from disposal of available-for-sale
    investments               |      |    |                         |  |          |         |        |   |      |         | 99      |   |  |         | 97      |   |  |        | 12     |  
|                                               | Dividends received                                                         |      |    |                         |  |          |         | 353     |   |      |         | 294     |   |  |         | 91      |   |  |        | 11     |  
|                                               | Decrease/(Increase) in receivable under resale
    agreement               |      |    |                         |  |          |         | (4,328  | ) |      |         | (5,690  | ) |  |         | 1,719   |   |  |        | 208    |  
|                                               | Decrease/(Increase) in time deposits with
    maturities over three months |      |    |                         |  |          |         |        |   |      |         | (3,253  | ) |  |         | 641     |   |  |        | 77     |  
|                                               |                                                                            |      |    |                         |  |          |         |         |   |      |         |         |   |  |         |         |   |  |        |       
|NET CASH USED FOR INVESTING
    ACTIVITIES     |                                                                            |      |    |                         |  |          | (60,126 | )       |   |      | (61,491 | )       |   |  | (71,662 | )       |   |  | (8,655 | )     
|                                               |                                                                            |      |    |                         |  |          |         |         |   |      |         |         |   |  |         |         |   |  |        |       
|CASH FLOWS FROM FINANCING ACTIVITIES           |                                                                            |      |    |                         |  |          |         |         |   |      |         |         |   |  |         |         |   |  |        |       
|                                               | New short-term debt                                                        |      |    |                         |  |          |         | 27,141  |   |      |         | 24,949  |   |  |         | 28,728  |   |  |        | 3,470  |  
|                                               | Repayments of short-term debt                                              |      |    |                         |  |          |         | (38,387 | ) |      |         | (36,402 | ) |  |         | (34,550 | ) |  |        | (4,173 | )
|                                               | New long-term debt                                                         |      |    |                         |  |          |         | 45,215  |   |      |         | 21,255  |   |  |         | 9,885   |   |  |        | 1,194  |  
|                                               | Repayments of long-term debt                                               |      |    |                         |  |          |         | (85,471 | ) |      |         | (13,692 | ) |  |         | (13,944 | ) |  |        | (1,684 | )
|                                               | Principal payment on capital lease obligations                             |      |    |                         |  |          |         | (141    | ) |      |         | (167    | ) |  |         | (104    | ) |  |        | (13    | )
|                                               | Dividends paid to minority interests                                       |      |    |                         |  |          |         | (33     | ) |      |         | (60     | ) |  |         | (135    | ) |  |        | (16    | )
|                                               | Capital contribution from minority interests                               |      |    |                         |  |          |         | 1,132   |   |      |         | 592     |   |  |         | 57      |   |  |        | 7      |  
|                                               | Cash proceeds on issue of shares                                           |      |    |                         |  |          |         | 20,336  |   |      |         |        |   |  |         |        |   |  |        |       |  
|                                               | Distribution to CNPC                                                       |      |    | 9                       |  |          |         | (2,640  | ) |      |         |        |   |  |         |        |   |  |        |       |  
|                                               | Contribution from CNPC to marketing enterprises                            |      |    | 23                      |  |          |         |        |   |      |         | 134     |   |  |         | 10      |   |  |        | 1      |  
|                                               | Dividends paid                                                             |      |    | 9                       |  |          |         | (10,381 | ) |      |         | (26,699 | ) |  |         | (17,650 | ) |  |        | (2,132 | )
|                                               | Change in deferred credits and other long-term
    obligations             |      |    |                         |  |          |         | 41      |   |      |         | 184     |   |  |         | 304     |   |  |        | 37     |  
|                                               | Cash payment for acquisition of CNPC marketing
    enterprises             |      |    | 2                       |  |          |         |        |   |      |         |        |   |  |         | (430    | ) |  |        | (52    | )
|                                               |                                                                            |      |    |                         |  |          |         |         |   |      |         |         |   |  |         |         |   |  |        |       
|NET CASH USED FOR FINANCING
    ACTIVITIES     |                                                                            |      |    |                         |  |          | (43,188 | )       |   |      | (29,906 | )       |   |  | (27,829 | )       |   |  | (3,361 | )     
|                                               |                                                                            |      |    |                         |  |          |         |         |   |      |         |         |   |  |         |         |   |  |        |       
|Decrease in cash and cash equivalents          |                                                                            |      |    |                         |  |          | (5      | )       |   |      | (6,958  | )       |   |  | (1,150  | )       |   |  | (139   | )     
|Cash and cash equivalents at beginning of year |                                                                            |      | 10 |                         |  |          | 18,090  |         |   |      | 18,085  |         |   |  | 11,127  |         |   |  | 1,344  |       
|                                               |                                                                            |      |    |                         |  |          |         |         |   |      |         |         |   |  |         |         |   |  |        |       
|Cash and cash equivalents at end of year       |                                                                            |      | 10 |                         |  |          | 18,085  |         |   |      | 11,127  |         |   |  | 9,977   |         |   |  | 1,205  |       
|                                               |                                                                            |      |    |                         |  |          |         |         |   |      |         |         |   |  |         |         |   |  |        |       

The accompanying notes are an integral part of
these financial statements.

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##### Table of Contents






PETROCHINA COMPANY LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS EQUITY

For the Years Ended December 31, 2000,
2001 and 2002


(Amounts in millions)


|                                                                                                          |  |           |         |          |  |           |         |       |  |  |        |   |  |  |         |  
|--------------------------------------------------------------------------------------------------------- |  | --------- | ------- | -------- |  | --------- | ------- | ----- |  |  | ------ | - |  |  | ------- | -
|                                                                                                          |  | Share     |         |          |  |           |         |      
|                                                                                                          |  | Capital   |         | Retained |  | Reserves  |         |      
|                                                                                                          |  | (Note 22) |         | Earnings |  | (Note 23) |         | Total
|                                                                                                          |  |           |         |          |  |           |         |      
|                                                                                                          |  | RMB       |         | RMB      |  | RMB       |         | RMB  
|Balance at January 1, 2000 before adjusting
    for the acquisition of the marketing enterprises (Note 2) |  |           | 160,000 |          |  |           | 3,326   |       |  |  | 47,085 |   |  |  | 210,411 |  
|Adjustment for the acquisition of the marketing
    enterprises (Note 2)                                  |  |           |        |          |  |           | (3,192  | )     |  |  | 2,467  |   |  |  | (725    | )
|                                                                                                          |  |           |         |          |  |           |         |       |  |  |        |   |  |  |         |  
|Balance at January 1, 2000 
    adjusted for the acquisition of the marketing enterprises
    (Note 2)   |  |           | 160,000 |          |  |           | 134     |       |  |  | 49,552 |   |  |  | 209,686 |  
|Net income for the year ended December 31,
    2000                                                       |  |           |        |          |  |           | 54,645  |       |  |  |       |   |  |  | 54,645  |  
|Issue of shares (Note 22)                                                                                 |  |           | 15,824  |          |  |           |        |       |  |  | 4,512  |   |  |  | 20,336  |  
|Transfer to reserves                                                                                      |  |           |        |          |  |           | (15,119 | )     |  |  | 15,119 |   |  |  |        |  
|Distribution to CNPC (Note 9)                                                                             |  |           |        |          |  |           |        |       |  |  | (2,640 | ) |  |  | (2,640  | )
|Interim dividend (Note 9)                                                                                 |  |           |        |          |  |           | (10,381 | )     |  |  |       |   |  |  | (10,381 | )
|                                                                                                          |  |           |         |          |  |           |         |       |  |  |        |   |  |  |         |  
|Balance at December 31, 2000                                                                              |  |           | 175,824 |          |  |           | 29,279  |       |  |  | 66,543 |   |  |  | 271,646 |  
|Net income for the year ended December 31,
    2001                                                       |  |           |        |          |  |           | 45,469  |       |  |  |       |   |  |  | 45,469  |  
|Premium arising from issue of shares by an equity
    affiliate (Note 23)                                 |  |           |        |          |  |           |        |       |  |  | 56     |   |  |  | 56      |  
|Transfer to reserves (Note 23)                                                                            |  |           |        |          |  |           | (12,442 | )     |  |  | 12,442 |   |  |  |        |  
|Final dividend for 2000 (Note 9)                                                                          |  |           |        |          |  |           | (14,473 | )     |  |  |       |   |  |  | (14,473 | )
|Interim dividend for 2001 (Note 9)                                                                        |  |           |        |          |  |           | (12,226 | )     |  |  |       |   |  |  | (12,226 | )
|Contribution from CNPC to marketing enterprises                                                           |  |           |        |          |  |           |        |       |  |  | 134    |   |  |  | 134     |  
|                                                                                                          |  |           |         |          |  |           |         |       |  |  |        |   |  |  |         |  
|Balance at December 31, 2001                                                                              |  |           | 175,824 |          |  |           | 35,607  |       |  |  | 79,175 |   |  |  | 290,606 |  
|                                                                                                          |  |           |         |          |  |           |         |       |  |  |        |   |  |  |         |  
|Net income for the year ended December 31,
    2002                                                       |  |           |        |          |  |           | 46,910  |       |  |  |       |   |  |  | 46,910  |  
|Transfer to reserves (Note 23)                                                                            |  |           |        |          |  |           | (5,863  | )     |  |  | 5,863  |   |  |  |        |  
|Final dividend for 2001 (Note 9)                                                                          |  |           |        |          |  |           | (8,839  | )     |  |  |       |   |  |  | (8,839  | )
|Interim dividend for 2002 (Note 9)                                                                        |  |           |        |          |  |           | (8,811  | )     |  |  |       |   |  |  | (8,811  | )
|Contribution from CNPC to marketing enterprises
    (Note 2)                                              |  |           |        |          |  |           |        |       |  |  | 10     |   |  |  | 10      |  
|Payment to CNPC for acquisition of marketing
    enterprises (Note 2)                                     |  |           |        |          |  |           |        |       |  |  | (3,200 | ) |  |  | (3,200  | )
|                                                                                                          |  |           |         |          |  |           |         |       |  |  |        |   |  |  |         |  
|Balance at December 31, 2002                                                                              |  |           | 175,824 |          |  |           | 59,004  |       |  |  | 81,848 |   |  |  | 316,676 |  
|                                                                                                          |  |           |         |          |  |           |         |       |  |  |        |   |  |  |         |  
|Balance at December 31, 2002 in US$                                                                       |  |           | 21,235  |          |  |           | 7,126   |       |  |  | 9,885  |   |  |  | 38,246  |  
|                                                                                                          |  |           |         |          |  |           |         |       |  |  |        |   |  |  |         |  

The accompanying notes are an integral part of
these financial statements.

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##### Table of Contents






PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS

(Amounts in millions except per share data or
unless otherwise stated)


1     ORGANIZATION
AND PRINCIPAL ACTIVITIES

PetroChina Company Limited (the
Company) was established in the Peoples
Republic of China (the PRC or China) on
November 5, 1999 as a joint stock company with limited
liability as a result of a group restructuring (the
Restructuring) of China National Petroleum
Corporation (CNPC) prior to the listing of the
Companys shares on the New York Stock Exchange and
The Stock Exchange of Hong Kong Limited.

China National Petroleum Company (the predecessor
of CNPC) was established in 1988 to take over the onshore oil
and gas exploration and production entities formerly under the
administration of the Ministry of Petroleum Industry and in 1998
the State Council approved a comprehensive restructuring plan
for Chinas oil and gas industry to form CNPC.

In accordance with the restructuring agreement
between CNPC and the Company effective as of November 5,
1999, the Company issued 160,000 shares in exchange for the
assets and liabilities transferred to the Company by CNPC. The
160,000 shares were the initial registered capital of the
Company with a par value of RMB1.00 per share.

CNPC transferred to the Company certain assets,
liabilities and interests in China 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, (iii) the
production and sale of chemicals, and (iv) the
transmission, marketing and sale of natural gas. CNPC retained
certain chemical production facilities and certain other assets,
liabilities and interests relating to its remaining business and
operations, as well as certain domestic and all foreign
subsidiaries and joint ventures.

2     BASIS OF
PREPARATION

The consolidated financial statements have been
prepared in accordance with International Financial Reporting
Standards issued by the International Accounting Standard Board.
This basis of accounting differs from the accounting principles
generally accepted in the United States of America
(US GAAP) (see Note 33). The statements
are prepared on the historical cost convention as modified by
the revaluation of certain property, plant and equipment.

The preparation of financial statements in
conformity with generally accepted accounting principles
requires the use of estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Although these estimates are based
on managements best knowledge of current events and
actions, actual results ultimately may differ from those
estimates.

In accordance with the acquisition agreement
between the Company and CNPC dated September 26, 2002, the
Company acquired from CNPC the assets, liabilities and interests
related to CNPCs refined products marketing enterprises
comprising primarily of service stations and related facilities
for RMB 3,200. The acquisition price was determined on the
basis of independent valuation and appraisals of the assets and
liabilities of these marketing enterprises under applicable
rules and regulations promulgated in PRC. Of the RMB 3,200
purchase price, RMB 430 was paid in cash, RMB 1,124
was set off against receivables from CNPC, and the remaining
balance of RMB 1,646 was included as payables to CNPC at
December 31, 2002.

The acquisition is a combination of entities
under common control since the Company and the CNPCs
refined products marketing enterprises are under the common
control of CNPC. As a result,

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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


the Company has accounted for the acquisition in
a manner similar to a uniting of interests, whereby the assets
and liabilities of the marketing enterprises acquired are
accounted for at historical cost to CNPC (net liabilities of RMB
2,956 at the effective date). The consolidated financial
statements have been restated to give effect to the acquisition
with all periods presented as if the operations of the Company
and these marketing enterprises have always been combined. The
difference between RMB 3,200 paid and the net liabilities
transferred from CNPC has been adjusted against equity.

The summarized results of operations for the
years ended December 31, 2000 and 2001 and the financial
position as at December 31, 2001 for the separate entities
and on a consolidated basis are set out below:

|                                     |                                        |            |  |             |  |              |  |        |   |  |  |         | 
|------------------------------------ | -------------------------------------- | ---------- |  | ----------- |  | ------------ |  | ------ | - |  |  | ------- | 
|                                     |                                        |            |  | Marketing   |  |             
|                                     |                                        | PetroChina |  | enterprises |  | Consolidated
|                                     |                                        |            |  |             |  |             
|                                     |                                        | RMB        |  | RMB         |  | RMB         
|Results of operations of 2000:       |                                        |            |  |             |  |              |  |        |   |  |  |        
|                                     | Revenues                               |            |  | 241,992     |  |              |  | 16,079 |   |  |  | 245,279 | 
|                                     | Net income/(loss)                      |            |  | 55,231      |  |              |  | (586   | ) |  |  | 54,645  | 
|                                     | Basic and diluted net income per share |            |  | 0.32        |  |              |  | 0      |   |  |  | 0.32    | 
|Results of operations of 2001:       |                                        |            |  |             |  |              |  |        |   |  |  |        
|                                     | Revenues                               |            |  | 238,893     |  |              |  | 12,354 |   |  |  | 241,320 | 
|                                     | Net income/(loss)                      |            |  | 46,808      |  |              |  | (1,339 | ) |  |  | 45,469  | 
|                                     | Basic and diluted net income per share |            |  | 0.27        |  |              |  | (0.01  | ) |  |  | 0.26    | 
|Financial position at year end 2001: |                                        |            |  |             |  |              |  |        |   |  |  |        
|                                     | Current assets                         |            |  | 86,412      |  |              |  | 981    |   |  |  | 86,017  | 
|                                     | Total assets                           |            |  | 460,874     |  |              |  | 3,167  |   |  |  | 462,665 | 
|                                     | Current liabilities                    |            |  | 88,748      |  |              |  | 5,595  |   |  |  | 92,967  | 
|                                     | Total liabilities                      |            |  | 162,616     |  |              |  | 5,683  |   |  |  | 166,923 | 
|                                     | Net assets/(liabilities)               |            |  | 293,122     |  |              |  | (2,516 | ) |  |  | 290,606 | 

The consolidated financial statements are
expressed in Renminbi (RMB), the national currency
of the PRC. Solely for the convenience of the reader, the
December 31, 2002 financial statements have been translated
into United States dollars at the noon buying rate in New York
City on December 31, 2002 for cable transfers in Renminbi
as certified for customs purposes by the Federal Reserve Bank of
New York of US$1.00 = RMB 8.2800. No
representation is made that the Renminbi amounts could have
been, or could be, converted into United States dollars at that
rate or at any other certain rate on December 31, 2002, or
at any other date.

3     SUMMARY OF
PRINCIPAL ACCOUNTING POLICIES

(a) Basis
of consolidation

The consolidated financial statements include the
financial statements of the Company and the subsidiaries.
Subsidiaries are those entities in which the Group has an
interest of more than one half of the voting rights or otherwise
has power to govern the financial and operating policies.

Subsidiaries are consolidated from the date on
which controls is transferred to the Group and are no longer
consolidated from the date that control ceases. The purchase
method of accounting is used to account for the acquisition of
subsidiaries. The cost of an acquisition is measured as the fair
value of the assets given up, shares issued or liabilities
undertaken at the date of acquisition plus costs directly
attributable to the acquisition. The excess of the cost of
acquisition over the fair value

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PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


of the net assets of the subsidiary acquired is
recorded as goodwill. Intercompany transactions, balances and
unrealized gains on transactions between group companies are
eliminated; unrealized losses are also eliminated unless cost
cannot be recovered. Where necessary, accounting policies of
subsidiaries have been changed to ensure consistency with the
policies adopted by the Group.

A listing of the Groups principal
subsidiaries is set out in Note 34.

(b) Investments
in equity affiliates

Investments in equity affiliates are accounted
for by the equity method of accounting. Under this method the
companys share of the post-acquisition profits or losses
of equity affiliates is recognized in the income statement and
its share of post-acquisition movements in reserves is
recognized in reserves. The cumulative post-acquisition
movements are adjusted against the cost of the investment.
Equity affiliates are entities over which the Group generally
has between 20% and 50% of the voting rights, or over which the
Group has significant influence, but which it does not control.
Unrealized gains on transactions between the Group and its
equity affiliates are eliminated to the extent of the
Groups interest in the equity affiliates; unrealized
losses are also eliminated unless the transaction provides
evidence of an impairment of the asset transferred. The
Groups investment in equity affiliates includes goodwill
(net of accumulated amortization) on acquisition. When the
Groups share of losses in an equity affiliate equals or
exceeds its interest in the equity affiliates, the Group does
not recognize further losses, unless the Group has incurred
obligations or made payments on behalf of the equity affiliates.

A listing of the Groups principal equity
affiliates is shown in Note 17.

(c) Foreign
currencies

Items included in the financial statements of
each entity in the Group are measured using the currency that
best reflects the economic substance of the underlying events
and circumstances relevant to that entity. Substantially all
assets and operations of the Group are located in the PRC, and
the measurement currency is RMB. In addition to its operations
in the PRC, as disclosed in Note 28, the Group had acquired
all the share capital of Devon Energy Indonesia Ltd., a company
engaging in the exploration and production of crude oil and
natural gas in Indonesia, whose measurement currency is US
dollars. The consolidated financial statements are presented in
RMB, which is the measurement currency of the parent and most of
the consolidated entities.

Foreign currency transactions of the Group are
accounted for at the exchange rates prevailing at the date of
the transactions; gains and losses resulting from the settlement
of such transactions and from the translation of monetary assets
and liabilities denominated in foreign currencies are recognized
in the consolidated income statement. Monetary assets and
liabilities are translated at balance sheet date exchange rates.

Income statement and cash flows of the foreign
entities are translated into the Groups reporting currency
at average exchange rates for the year and their balance sheets
are translated at the exchange rates at year end. Currency
translation differences are recognized in shareholders
equity.

The Group did not enter into any hedge contracts
during any of the periods presented. No foreign currency
exchange gains or losses were capitalized for any periods
presented.

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PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


(d) Financial
instruments

Financial instruments carried at the balance
sheet date include cash and bank balances, investments,
receivables, accounts payable, leases and borrowings. Where
necessary the particular recognition methods adopted are
disclosed in the individual policy statements associated with
each item.

The Group had no derivative financial instruments
in any of the years presented.

(e) Investments

The Group classified its investments into the
following categories: trading, held-to-maturity and
available-for-sale. Investments that are acquired principally
for the purpose of generating a profit from short-term
fluctuations in price are classified as trading investments and
included in current assets; during the year the Group did not
hold any investments in this category. Investments with fixed
maturity that the management has the intent and ability to hold
to maturity are classified as held-to-maturity and are included
in current assets if their respective maturity dates are twelve
months or less from balance sheet date, or in non-current assets
if their respective maturity dates are more than twelve months
from balance sheet date; during the year the Group did not hold
any investments in this category. Investments intended to be
held for an indefinite period of time, which may be sold in
response to needs for liquidity or changes in interest rates,
are classified as available-for-sale; these are included in
non-current assets unless management has the express intention
of holding the investment for less than 12 months from the
balance sheet date or unless they will need to be sold to raise
operating capital, in which case they are included in current
assets. Management determines the appropriate classification of
its investments at the time of the purchase and re-evaluates
such designation on a regular basis.

All purchases and sales of investments are
recognized on the effective acquisition or sale date. Cost of
purchase includes transaction costs. Available-for-sale
investments are not subsequently fair-valued because they do not
have quoted market prices in active markets and whose fair
values cannot be reliably measured. These investments are
carried at cost, and are subject to review for impairments.

(f) Property,
plant and equipment

Property, plant and equipment, including oil and
gas properties (Note 3(g)), are initially recorded at cost
less accumulated depreciation, depletion and amortization. Cost
represents the purchase price of the asset and other costs
incurred to bring the asset into existing use. Subsequent to
their initial recognition, property, plant and equipment are
carried at revalued amount. Revaluations are performed by
independent qualified valuers on a regular basis. As disclosed
in Note 16, property, plant and equipment, excluding oil
and gas reserves, were revalued as of June 30, 1999.

Depreciation, depletion and amortization to write
off the cost or valuation of each asset, other than oil and gas
properties, to their residual values over their estimated useful
lives is calculated using the straight-line method.

The Group uses the following useful lives for
depreciation, depletion and amortization purposes:

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

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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


No depreciation is provided for construction in
progress until they are completed and ready for use.

Property, plant and equipment are reviewed for
possible impairment by evaluating whether the carrying amount of
a cash generating unit exceeds the higher of its net selling
price and its value in use, which is the estimated net present
value of future cash flows to be derived from the continuing use
of the asset and from its ultimate disposal.

Gains and losses on disposal of property, plant
and equipment are determined by reference to their carrying
amount and are taken into account in determining net income.

Revaluation surpluses pertaining to revalued
assets depreciated or disposed of are retained in the
revaluation reserve and will not be available to offset against
possible future revaluation losses.

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

(g) Oil
and gas properties

The successful efforts method of accounting is
used for oil and gas exploration and production activities.
Under this method, all costs for development wells, support
equipment and facilities, and proved mineral interests in oil
and gas properties are capitalized. Costs of exploratory wells
are capitalized as construction in progress pending
determination of whether the wells find proved reserves. Proved
oil and gas reserves are the estimated quantities of crude oil,
natural gas and natural gas liquids which geological and
engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing
economic and operating conditions, i.e., prices and costs as of
the date the estimate is made. Prices include consideration of
changes in existing prices provided only by contractual
arrangements, but not on escalations based upon future
conditions. Costs of wells with proved reserves remain
capitalized. All other exploratory wells and geological and
geophysical costs are expensed. The Group has no costs of
unproved properties capitalized in oil and gas properties.

The Ministry of Land and Resources in China
issues production licenses to applicants on the basis of the
reserve reports approved by relevant authorities. Administrative
rules issued by the State Council provide that the maximum term
of a production license is 30 years. However, in accordance
with a special approval from the State Council, the Ministry of
Land and Resources has issued production licenses effective
March 2000 to the Group for all of its crude oil and
natural gas reservoirs with terms coextensive with the projected
production life of those reservoirs, ranging up to
55 years. Production licenses to be issued to the Group in
the future will be subject to the 30-year maximum unless
additional special approvals can be obtained from the State
Council. Each of the Groups production licenses is
renewable upon application by the Group 30 days prior to
expiration. Future oil and gas price increases may extend the
productive lives of crude oil and natural gas reservoirs beyond
the current terms of the relevant production licenses. Payments
on such licenses are made annually and are expensed as incurred.
The cost of oil and gas properties is amortized at the field
level on the unit of production method. Unit of production rates
are based on oil and gas reserves estimated to be recoverable
from existing facilities based on the current terms of the
Groups production licenses. The Groups reserve
estimates include only crude oil and natural gas

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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


which management believes can be reasonably
produced within the current terms of these production licenses.
The Group did not incur and does not anticipate to incur any
material dismantlement, restoration or abandonment cost given
the nature of its onshore producing activities and current PRC
regulations governing such activities.

(h) Intangible
assets

Expenditure on acquired patents, trademarks,
technical know-hows and licenses is capitalized and amortized
using the straight-line method over their useful lives,
generally over 14 to 20 years. Intangible assets are not
revalued. The Group does not capitalize internally generated
intangible assets. The carrying amount of each intangible asset
is reviewed annually and adjusted for impairment where it is
considered necessary. An impairment loss is recognized whenever
the carrying amount of an asset exceeds its recoverable amount.
The impairment loss is recognized in the consolidated income
statement. The recoverable amount is measured as the higher of
net selling price and value in use, which is the present value
of estimated future cash flows to be derived from continuing use
of the asset and from its ultimate disposal.

(i) Leases

Leases of property, plant and equipment where the
Group assumes substantially all the benefits and risks of
ownership are classified as capital leases. Capital leases are
capitalized at the inception of the leases at the lower of the
fair value of the leased property or the estimated present value
of the underlying lease payments. Each lease payment is
allocated between the liability and finance charges so as to
achieve a constant rate on the finance balance outstanding.
Property, plant and equipment acquired under capital lease are
generally depreciated over the useful life of the asset as the
Group usually obtains ownership of such leased assets by the end
of the leased term.

Leases of assets under which all the risks and
benefits of ownership are effectively retained by the lessor are
classified as operating leases. Payments made under operating
leases are expensed on the straight-line basis over the lease
term.

(j) Related
parties

Related parties are corporations in which CNPC is
a major shareholder and is able to control or exercise
significant influence.

(k) Inventories

Inventories are oil products, chemical products,
and materials and supplies, which are stated at the lower of
cost or net realizable value. Cost is determined by the weighted
average cost method. The cost of finished goods comprises raw
materials, direct labor, other direct costs and related
production overheads, but excludes interest expense. Net
realizable value is the estimate of the selling price in the
ordinary course of business, less the cost of completion and
selling expenses.

(l) Trade
receivables

Trade receivables are carried at original invoice
amount less provision made for impairment of these receivables.
Such provision for impairment of trade receivables is
established if there is objective evidence that the Group will
not be able to collect all amounts due according to the original
terms of receivables. The amount of the provision is the
difference between the carrying amount and

F-13



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


the recoverable amount, being the present value
of expected cash flows, discounted at the market rate of
interest for similar borrowers.

(m) Cash
and cash equivalents

Cash and cash equivalents are carried in the
balance sheet at cost and comprise cash in hand and investments
with maturities of three months or less from the time of
purchase.

(n) Debts

Debts are recognized initially at the proceeds
received, net of transaction costs incurred. In subsequent
periods, debts are stated at amortized cost using the effective
yield method; except for the portion eligible for
capitalization, any difference between proceeds (net of
transaction costs) and the redemption value is recognized in the
income statement over the period of the debts.

(o) Taxation

Approval was obtained from the State
Administration for Taxation to report taxable income on a
consolidated basis commencing from the formation of the Company.

Deferred income tax is provided, using the
liability method, for temporary differences arising between the
tax bases of assets and liabilities and their carrying values
for financial reporting purposes. Currently enacted tax rates
are used to determine deferred income tax.

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

The Group also incurs various other taxes which
are not income taxes. Taxes other than income taxes, which form
part of the operating expenses, primarily comprise consumption
tax, resource tax, urban construction tax, education surcharges
and business tax.

(p) Revenue
recognition

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

(q) Provisions

Provisions are recognized when the Group has a
present legal or constructive obligation as a result of past
events, it is probable that an outflow of resources will be
required to settle the obligation, and a reliable estimate of
the amount can be made.

(r) Research
and development expenses

Research expenditure incurred is recognized as an
expense. Costs incurred on development projects are recognized
as intangible assets to the extent that such expenditure is
expected to

F-14



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


generate future economic benefits. Research and
development expenses were RMB 1,751, RMB 1,896 and
RMB 1,806 for the years ended December 31, 2000, 2001
and 2002, respectively.

(s) Retirement
benefit plans

The Group contributes to various employee
retirement benefit plans organized by municipal and provincial
governments under which it is required to make monthly
contributions to these plans at rates prescribed by the related
municipal and provincial governments. The municipal and
provincial governments undertake to assume the retirement
benefit obligations of existing and future retired employees of
the Group. Contributions to these plans are charged to expense
as incurred.

(t) New
accounting developments

IASCs Standing Interpretations Committee
(SIC) issued SIC-30 Reporting
Currency-Translation from Measurement Currency to Presentation
Currency and SIC-33 Consolidation and Equity
Method-Potential Voting Rights and Allocation of Ownership
Interests, effective for annual financial periods
beginning on or after January 1, 2002. The Group has
implemented these interpretations in 2002. The adoption of these
new interpretations did not have a material impact on the
reported financial position or results of the Group.

4     EMPLOYEE
COMPENSATION COSTS

|                      |  |                         |        |      |  |      |        |  |  |  |        | 
|--------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                      |  |                        
|                      |  | Year Ended December 31,
|                      |  |                        
|                      |  | 2000                    |        | 2001 |  | 2002
|                      |  |                         |        |      |  |     
|                      |  | RMB                     |        | RMB  |  | RMB 
|Wages and salaries    |  |                         | 9,536  |      |  |      | 9,625  |  |  |  | 10,631 | 
|Social security costs |  |                         | 5,593  |      |  |      | 4,983  |  |  |  | 5,617  | 
|                      |  |                         |        |      |  |      |        |  |  |  |        | 
|                      |  |                         | 15,129 |      |  |      | 14,608 |  |  |  | 16,248 | 
|                      |  |                         |        |      |  |      |        |  |  |  |        | 

(i) Social
security costs

The amounts represent contributions to funds for
staff welfare organized by the municipal and provincial
governments including contributions to the retirement benefit
plans (Note 24).

(ii) One
time remedial payments for staff housing

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

The restructuring that resulted in the formation
of the Group took place in November 1999. As such, the one-time
remedial housing payments payable to the eligible employees of
the Group are to be borne by the state shareholder of the Group.

During the year ended December 31, 2002, the
Group and CNPC, the state shareholder of the Group, completed
the process of estimating the amount that are payable to
individual employees.

F-15



---



##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


The amount applicable to the employees of the
Group was determined to be approximately RMB 2,553. CNPC
funded this estimated payment through a portion of the 2002
interim dividend paid by the Group.



|  |                                                                    
|- | -------------------------------------------------------------------
|5 | EMPLOYEE SEPARATION COSTS AND SHUT DOWN OF
    MANUFACTURING ASSETS

During the year ended December 31, 2000 the
Group recorded direct charges totalling RMB 6,579 directly
related to management decisions to implement group-wide
productivity improvement initiatives and write-down of certain
less efficient manufacturing facilities in the following
segments: Exploration and Production  RMB 2,694;
Refining and Marketing  RMB 1,918; Chemicals and
Marketing  RMB 1,922; Natural Gas 
RMB 45.

These charges included RMB 4,215 related to
employee separation costs payable at the time of completion of
separation procedures for approximately 52,300 employees. As of
December 31, 2000, approximately 38,400 employees have been
separated with payments totalling RMB 3,180. The remaining
13,900 separations were processed in 2001 at payments of
approximately RMB 1,035.

The remaining charge of RMB 2,364 related to
the write-down of certain less efficient operating facilities in
the refining (RMB 945) and chemical (RMB 1,419)
manufacturing plants. The charge of RMB 2,364 represented
the net book value of the facilities. Both the amounts of
estimated dismantlement and removal costs and estimated proceeds
from the sale of equipment and scrap are not expected to be
significant.

During the year ended December 31, 2001, in
addition to the above-mentioned employee separation program for
2000, the Group recorded another direct charge of RMB 487
for the separation of 6,020 employees.

During the year ended December 31, 2002, the
Group recorded RMB 2,121 for the shut down of certain less
efficient operating facilities in the refining (RMB 1,179)
and chemical (RMB 942) manufacturing plants. The charge of
RMB 2,121 represented the net book value of the facilities.

6     INTEREST
EXPENSE

|                          |                  |                         |       |       |  |      |       |       |  |  |       |       | 
|------------------------- | ---------------- | ----------------------- | ----- | ----- |  | ---- | ----- | ----- |  |  | ----- | ----- | 
|                          |                  |                        
|                          |                  | Year Ended December 31,
|                          |                  |                        
|                          |                  | 2000                    |       | 2001  |  | 2002
|                          |                  |                         |       |       |  |     
|                          |                  | RMB                     |       | RMB   |  | RMB 
|Interest on               |                  |                         |       |       |  |      |       |       |  |  |       |      
|                          |  loans          |                         |       | 6,767 |  |      |       | 5,034 |  |  |       | 4,402 | 
|                          |  capital leases |                         |       | 27    |  |      |       | 27    |  |  |       | 10    | 
|Less: amounts capitalized |                  |                         | (508  | )     |  |      | (653  | )     |  |  | (896  | )    
|                          |                  |                         |       |       |  |      |       |       |  |  |       |      
|                          |                  |                         | 6,286 |       |  |      | 4,408 |       |  |  | 3,516 |      
|                          |                  |                         |       |       |  |      |       |       |  |  |       |      

Amounts capitalized are borrowing costs related
to funds borrowed specifically for the purpose of acquiring
qualifying assets. Interest rates on such capitalized borrowings
ranged from 5.54% to 7.94% in 2000, 5.43% in 2001 and 5.02% to
5.43% in 2002.

F-16



---



##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


7     INCOME
TAXES

|                                  |  |                         |        |      |  |      |        |  |  |  |        | 
|--------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                                  |  |                        
|                                  |  | Year Ended December 31,
|                                  |  |                        
|                                  |  | 2000                    |        | 2001 |  | 2002
|                                  |  |                         |        |      |  |     
|                                  |  | RMB                     |        | RMB  |  | RMB 
|Current tax                       |  |                         | 24,866 |      |  |      | 19,166 |  |  |  | 19,289 | 
|Deferred tax (Note 21)            |  |                         | 1,987  |      |  |      | 3,861  |  |  |  | 2,897  | 
|Share of tax of equity affiliates |  |                         | 161    |      |  |      | 39     |  |  |  | 45     | 
|                                  |  |                         |        |      |  |      |        |  |  |  |        | 
|                                  |  |                         | 27,014 |      |  |      | 23,066 |  |  |  | 22,231 | 
|                                  |  |                         |        |      |  |      |        |  |  |  |        | 

In accordance with the relevant PRC income tax
rules and regulations, the enacted PRC income tax rate
applicable to the Group is principally 33% (2001: 33%; 2000
33%). The Group in the year 2002 obtained approvals from several
provincial and local tax authorities whereby a portion of the
taxable income of the Groups qualifying operations in
these locales are assessed income tax at a reduced rate of 15%
instead of the statutory rate of 33%.

The tax on the Groups income before income
taxes differs from the theoretical amount that would arise using
the basic tax rate in the PRC applicable to the Group as follows:

|                                         |  |                         |        |      |  |      |        |   |  |  |        |  
|---------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  |  | ------ | -
|                                         |  |                        
|                                         |  | Year Ended December 31,
|                                         |  |                        
|                                         |  | 2000                    |        | 2001 |  | 2002
|                                         |  |                         |        |      |  |     
|                                         |  | RMB                     |        | RMB  |  | RMB 
|Income before income taxes               |  |                         | 81,494 |      |  |      | 68,131 |   |  |  | 69,240 |  
|                                         |  |                         |        |      |  |      |        |   |  |  |        |  
|Tax calculated at a tax rate of 33%      |  |                         | 26,893 |      |  |      | 22,483 |   |  |  | 22,849 |  
|Prior year tax return adjustment         |  |                         |       |      |  |      |       |   |  |  | 618    |  
|Effect of preferential tax rate          |  |                         |       |      |  |      |       |   |  |  | (2,377 | )
|Income not subject to tax                |  |                         |       |      |  |      | (140   | ) |  |  | (93    | )
|Expenses not deductible for tax purposes |  |                         | 213    |      |  |      | 723    |   |  |  | 1,234  |  
|Other (Note (i))                         |  |                         | (92    | )    |  |      |       |   |  |  |       |  
|                                         |  |                         |        |      |  |      |        |   |  |  |        |  
|Tax charge                               |  |                         | 27,014 |      |  |      | 23,066 |   |  |  | 22,231 |  
|                                         |  |                         |        |      |  |      |        |   |  |  |        |  



---



|    |                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | Other primarily represents depreciation on asset
    base adjustment under PRC accounting regulations not recognized
    in the IFRS financial statements but deductible for tax purposes.

8     BASIC AND
DILUTED NET INCOME PER SHARE

Basic and diluted net income per share for the
year ended December 31, 2000 have been computed by dividing
net income by the weighted average number of 171,630 shares
issued and outstanding for the year.

Basic and diluted net income per share for the
years ended December 31, 2001 and 2002 have been computed
by dividing net income by the number of 175,824 shares issued
and outstanding for the respective years.

There are no dilutive potential ordinary shares.

F-17



---



##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


9     DIVIDENDS

|                                      |  |                         |        |      |  |      |        |  |  |  |        | 
|------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                                      |  |                        
|                                      |  | Year Ended December 31,
|                                      |  |                        
|                                      |  | 2000                    |        | 2001 |  | 2002
|                                      |  |                         |        |      |  |     
|                                      |  | RMB                     |        | RMB  |  | RMB 
|Distribution to CNPC (Note (i))       |  |                         | 2,640  |      |  |      |       |  |  |  |       | 
|Interim dividend for 2000 (Note (ii)) |  |                         | 10,381 |      |  |      |       |  |  |  |       | 
|Final dividend for 2000 (Note (iii))  |  |                         |       |      |  |      | 14,473 |  |  |  |       | 
|Interim dividend for 2001 (Note (iv)) |  |                         |       |      |  |      | 12,226 |  |  |  |       | 
|Final dividend for 2001 (Note (v))    |  |                         |       |      |  |      |       |  |  |  | 8,839  | 
|Interim dividend for 2002 (Note (vi)) |  |                         |       |      |  |      |       |  |  |  | 8,811  | 
|                                      |  |                         |        |      |  |      |        |  |  |  |        | 
|                                      |  |                         | 13,021 |      |  |      | 26,699 |  |  |  | 17,650 | 
|                                      |  |                         |        |      |  |      |        |  |  |  |        | 




|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)   | In accordance with the restructuring agreement
    entered into between the Company and CNPC, during the year ended
    December 31, 2000 the Company paid a distribution to CNPC
    of RMB 2,640, which represents the net income for the
    period from October 1, 1999 to November 4, 1999
    determined in accordance with the PRC accounting regulations.
    Accordingly, this distribution was recorded as a reduction to
    capital reserve.                       
|     
|(ii)  | An interim dividend of RMB 0.059042 per share,
    totalling RMB 10,381 was paid on October 5, 2000, and was
    accounted for in shareholders equity as an appropriation
    of retained earnings in the year ended December 31, 2000.                                                                                                                                                                                                                                       
|     
|(iii) | A final dividend in respect of 2000 of
    RMB 0.082315 per share amounting to a total of
    RMB 14,473 was paid on June 22, 2001, and was
    accounted for in shareholders equity as an appropriation
    of retained earnings in the year ended December 31, 2001.                                                                                                                                                                                                        
|     
|(iv)  | An interim dividend in respect of 2001 of
    RMB 0.069535 per share amounting to RMB 12,226 was
    paid on October 8, 2001, and was accounted for in
    shareholders equity as an appropriation of retained
    earnings in the year ended December 31, 2001.                                                                                                                                                                                                              
|     
|(v)   | A final dividend in respect of 2001 of
    RMB 0.050272 per share amounting to a total of
    RMB 8,839 was paid on June 21, 2002, and was accounted
    for in shareholders equity as an appropriation of retained
    earnings in the year ended December 31, 2002.                                                                                                                                                                                                         
|     
|(vi)  | As authorized by shareholders in the Annual
    General Meeting on June 6, 2002, the Board of Directors, in
    a meeting held on August 29, 2002, resolved to distribute
    an interim dividend in respect of 2002 of RMB 0.050113 per
    share amounting to a total of RMB 8,811. The interim
    dividend was paid on October 8, 2002, and was accounted for
    in shareholders equity as an appropriation of retained
    earnings in the year ended December 31, 2002.
|     
|(vii) | At the meeting on March 31, 2003, the Board
    of Directors proposed a final dividend in respect of 2002 of
    RMB 0.069951 per share amounting to a total of RMB12,299.
    These financial statements do not reflect this dividend payable,
    which will be accounted for in shareholders equity as a
    reduction of retained earnings in the year ending
    December 31, 2003.                                                                                      

F-18



---



##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


10     CASH AND CASH
EQUIVALENTS

|                         |  |                 |        |      |  |  |       | 
|------------------------ |  | --------------- | ------ | ---- |  |  | ----- | 
|                         |  |                
|                         |  | At December 31,
|                         |  |                
|                         |  | 2001            |        | 2002
|                         |  |                 |        |     
|                         |  | RMB             |        | RMB 
|Cash at bank and in hand |  |                 | 11,127 |      |  |  | 9,977 | 
|                         |  |                 |        |      |  |  |       | 

The weighted average effective interest rates on
bank deposits were 2.88% and 2.53% for the years ended
December 31, 2001 and 2002, respectively.

11     RECEIVABLES
UNDER RESALE AGREEMENTS

Securities purchased under agreements to resell
(resale agreements) are recorded as receivables
under resale agreements. The difference between purchase and
resell prices is treated as interest income and accrued over the
life of resale agreements using the effective yield method.

Resale agreements are accounted for as
collateralized financing transactions and are recorded at their
contractual amounts plus interest accrued. The underlying
collaterals are principally the PRC government bonds.

12     NOTES
RECEIVABLE

Notes receivable represents mainly the bills of
acceptance issued by banks for sales of goods and produces. All
notes receivable are due within one year.

13     ACCOUNTS
RECEIVABLE

|                                             |                       |                 |        |       |  |  |        |     | 
|-------------------------------------------- | --------------------- | --------------- | ------ | ----- |  |  | ------ | --- | 
|                                             |                       |                
|                                             |                       | At December 31,
|                                             |                       |                
|                                             |                       | 2001            |        | 2002 
|                                             |                       |                 |        |      
|                                             |                       | RMB             |        | RMB  
|Accounts receivable due from third parties   |                       |                 | 12,901 |       |  |  | 11,504 |    
|Less: Impairment of receivables              |                       |                 | (6,663 | )     |  |  | (6,356 | )  
|                                             |                       |                 |        |       |  |  |        |    
|                                             |                       |                 | 6,238  |       |  |  | 5,148  |    
|Accounts receivable due from related parties |                       |                 |        |       |  |  |        |    
|                                             |  Fellow subsidiaries |                 |        | 1,097 |  |  |        | 789 | 
|                                             |  Equity affiliates   |                 |        | 57    |  |  |        | 142 | 
|                                             |                       |                 |        |       |  |  |        |    
|                                             |                       |                 | 7,392  |       |  |  | 6,079  |    
|                                             |                       |                 |        |       |  |  |        |    

Movement in allowance for impairment of
receivables are as follows:

|                                     |  |                         |       |      |  |      |       |   |  |  |       |  
|------------------------------------ |  | ----------------------- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                     |  |                        
|                                     |  | Year Ended December 31,
|                                     |  |                        
|                                     |  | 2000                    |       | 2001 |  | 2002
|                                     |  |                         |       |      |  |     
|                                     |  | RMB                     |       | RMB  |  | RMB 
|Balance at beginning of year         |  |                         | 5,610 |      |  |      | 6,000 |   |  |  | 6,663 |  
|Provision/(Write back)               |  |                         | 765   |      |  |      | 1,367 |   |  |  | (45   | )
|Amount written off against provision |  |                         | (375  | )    |  |      | (704  | ) |  |  | (262  | )
|                                     |  |                         |       |      |  |      |       |   |  |  |       |  
|Balance at end of year               |  |                         | 6,000 |      |  |      | 6,663 |   |  |  | 6,356 |  
|                                     |  |                         |       |      |  |      |       |   |  |  |       |  

Amounts due from related parties are interest
free, unsecured and repayable in accordance with normal
commercial terms.

F-19



---



##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


14     INVENTORIES

|                                  |  |                 |        |      |  |  |        |  
|--------------------------------- |  | --------------- | ------ | ---- |  |  | ------ | -
|                                  |  |                
|                                  |  | At December 31,
|                                  |  |                
|                                  |  | 2001            |        | 2002
|                                  |  |                 |        |     
|                                  |  | RMB             |        | RMB 
|Crude oil and other raw materials |  |                 | 7,774  |      |  |  | 8,987  |  
|Work in progress                  |  |                 | 4,043  |      |  |  | 3,787  |  
|Finished goods                    |  |                 | 17,199 |      |  |  | 16,253 |  
|Spare parts and consumables       |  |                 | 97     |      |  |  | 67     |  
|                                  |  |                 |        |      |  |  |        |  
|                                  |  |                 | 29,113 |      |  |  | 29,094 |  
|Less: Write down in inventories   |  |                 | (800   | )    |  |  | (653   | )
|                                  |  |                 |        |      |  |  |        |  
|                                  |  |                 | 28,313 |      |  |  | 28,441 |  
|                                  |  |                 |        |      |  |  |        |  

Movements in allowance for write down in
inventories, which relate primarily to oil and chemical
products, are as follows:

|                                     |  |                         |       |      |  |      |       |   |  |  |      |  
|------------------------------------ |  | ----------------------- | ----- | ---- |  | ---- | ----- | - |  |  | ---- | -
|                                     |  |                        
|                                     |  | Year Ended December 31,
|                                     |  |                        
|                                     |  | 2000                    |       | 2001 |  | 2002
|                                     |  |                         |       |      |  |     
|                                     |  | RMB                     |       | RMB  |  | RMB 
|Balance at beginning of year         |  |                         | 466   |      |  |      | 1,521 |   |  |  | 800  |  
|Provision/ (Write back)              |  |                         | 1,286 |      |  |      | (614  | ) |  |  | (122 | )
|Amount written off against provision |  |                         | (231  | )    |  |      | (107  | ) |  |  | (25  | )
|                                     |  |                         |       |      |  |      |       |   |  |  |      |  
|Balance at end of year               |  |                         | 1,521 |      |  |      | 800   |   |  |  | 653  |  
|                                     |  |                         |       |      |  |      |       |   |  |  |      |  

Cost of inventory (approximates cost of goods
sold) recognized as expense amounted to RMB 119,441 and RMB
125,534, RMB 112,986 for the years ended December 31, 2000,
2001 and 2002, respectively.

Inventories of the Group carried at net
realizable value amounted to RMB 2,519 and RMB 2,780 at
December 31, 2001 and 2002, respectively.

No inventories were pledged as security for
borrowings at December 31, 2001 and 2002.



15     PREPAID
EXPENSES AND OTHER CURRENT ASSETS

|                                     |  |                 |        |      |  |  |        |  
|------------------------------------ |  | --------------- | ------ | ---- |  |  | ------ | -
|                                     |  |                
|                                     |  | At December 31,
|                                     |  |                
|                                     |  | 2001            |        | 2002
|                                     |  |                 |        |     
|                                     |  | RMB             |        | RMB 
|Other receivables                    |  |                 | 12,443 |      |  |  | 9,626  |  
|Less: Impairment of receivables      |  |                 | (5,074 | )    |  |  | (5,313 | )
|                                     |  |                 |        |      |  |  |        |  
|                                     |  |                 | 7,369  |      |  |  | 4,313  |  
|Amounts due from CNPC                |  |                 | 4,536  |      |  |  | 2,135  |  
|Amounts due from fellow subsidiaries |  |                 | 7,972  |      |  |  | 5,419  |  
|Advances to suppliers                |  |                 | 1,582  |      |  |  | 3,209  |  
|Prepaid expenses                     |  |                 | 272    |      |  |  | 123    |  
|Other current assets                 |  |                 | 335    |      |  |  | 530    |  
|                                     |  |                 |        |      |  |  |        |  
|                                     |  |                 | 22,066 |      |  |  | 15,729 |  
|                                     |  |                 |        |      |  |  |        |  

F-20



---



##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


Other receivables consist primarily of taxes
other than income taxes refund receivables, subsidies
receivable, and receivables for the sale of materials and scrap.

Amounts due from CNPC and fellow subsidiaries are
interest free, unsecured and repayable in accordance with normal
commercial terms.

Movements in allowance for impairment of other
receivables are as follows:

|                                     |  |                         |       |      |  |      |       |   |  |  |       |  
|------------------------------------ |  | ----------------------- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                     |  |                        
|                                     |  | Year Ended December 31,
|                                     |  |                        
|                                     |  | 2000                    |       | 2001 |  | 2002
|                                     |  |                         |       |      |  |     
|                                     |  | RMB                     |       | RMB  |  | RMB 
|Balance at beginning of year         |  |                         | 4,881 |      |  |      | 5,525 |   |  |  | 5,074 |  
|Provision/(Write back)               |  |                         | 804   |      |  |      | (20   | ) |  |  | 329   |  
|Amount written off against provision |  |                         | (160  | )    |  |      | (431  | ) |  |  | (90   | )
|                                     |  |                         |       |      |  |      |       |   |  |  |       |  
|Balance at end of year               |  |                         | 5,525 |      |  |      | 5,074 |   |  |  | 5,313 |  
|                                     |  |                         |       |      |  |      |       |   |  |  |       |  

16     PROPERTY,
PLANT AND EQUIPMENT

|                                                                                                  |  |           |        |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|------------------------------------------------------------------------------------------------- |  | --------- | ------ | ----------- |  | --------- | -------- | -------- |  | ----- | ------- | ------------ |  | ----- | ------ | - |  |  | ------ | - |  |  | ------- | - |  |  | -------- | -
|Year Ended                                                                                        |  | Land and  |        | Oil and Gas |  | Plant and |          | Motor    |  |       |         | Construction |  |      
|December 31, 2001                                                                                 |  | Buildings |        | Property    |  | Equipment |          | Vehicles |  | Other |         | in Progress  |  | Total
|                                                                                                  |  |           |        |             |  |           |          |          |  |       |         |              |  |      
|                                                                                                  |  | RMB       |        | RMB         |  | RMB       |          | RMB      |  | RMB   |         | RMB          |  | RMB  
|Cost or valuation                                                                                 |  |           |        |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|At beginning of the year                                                                          |  |           | 38,815 |             |  |           | 285,074  |          |  |       | 183,338 |              |  |       | 6,649  |   |  |  | 3,911  |   |  |  | 24,184  |   |  |  | 541,971  |  
|Additions                                                                                         |  |           | 1,273  |             |  |           | 733      |          |  |       | 560     |              |  |       | 239    |   |  |  | 224    |   |  |  | 58,520  |   |  |  | 61,549   |  
|Transfers                                                                                         |  |           | 10,521 |             |  |           | 33,500   |          |  |       | 10,200  |              |  |       | 646    |   |  |  | 1,232  |   |  |  | (56,099 | ) |  |  |         |  
|Disposals or write off                                                                            |  |           | (877   | )           |  |           | (14,208  | )        |  |       | (908    | )            |  |       | (657   | ) |  |  | (254   | ) |  |  | (12     | ) |  |  | (16,916  | )
|                                                                                                  |  |           |        |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|At end of the year                                                                                |  |           | 49,732 |             |  |           | 305,099  |          |  |       | 193,190 |              |  |       | 6,877  |   |  |  | 5,113  |   |  |  | 26,593  |   |  |  | 586,604  |  
|                                                                                                  |  |           |        |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|Accumulated depreciation                                                                          |  |           |        |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|At beginning of the year                                                                          |  |           | (8,510 | )           |  |           | (116,925 | )        |  |       | (69,291 | )            |  |       | (2,947 | ) |  |  | (979   | ) |  |  |        |   |  |  | (198,652 | )
|Charge for the year                                                                               |  |           | (2,000 | )           |  |           | (18,423  | )        |  |       | (11,455 | )            |  |       | (625   | ) |  |  | (575   | ) |  |  |        |   |  |  | (33,078  | )
|Disposals or write off                                                                            |  |           | 561    |             |  |           | 10,736   |          |  |       | 358     |              |  |       | 308    |   |  |  | 133    |   |  |  |        |   |  |  | 12,096   |  
|                                                                                                  |  |           |        |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|At end of the year                                                                                |  |           | (9,949 | )           |  |           | (124,612 | )        |  |       | (80,388 | )            |  |       | (3,264 | ) |  |  | (1,421 | ) |  |  |        |   |  |  | (219,634 | )
|                                                                                                  |  |           |        |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|Net book value                                                                                    |  |           |        |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|At end of the year                                                                                |  |           | 39,783 |             |  |           | 180,487  |          |  |       | 112,802 |              |  |       | 3,613  |   |  |  | 3,692  |   |  |  | 26,593  |   |  |  | 366,970  |  
|                                                                                                  |  |           |        |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|Carrying value of the fixed assets had they been
    stated at cost less accumulated depreciation |  |           | 34,557 |             |  |           | 156,018  |          |  |       | 85,555  |              |  |       | 2,885  |   |  |  | 2,890  |   |  |  | 26,593  |   |  |  | 308,498  |  
|                                                                                                  |  |           |        |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  

F-21



---



##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


|                                                                                                  |  |           |         |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|------------------------------------------------------------------------------------------------- |  | --------- | ------- | ----------- |  | --------- | -------- | -------- |  | ----- | ------- | ------------ |  | ----- | ------ | - |  |  | ------ | - |  |  | ------- | - |  |  | -------- | -
|Year Ended                                                                                        |  | Land and  |         | Oil and Gas |  | Plant and |          | Motor    |  |       |         | Construction |  |      
|December 31, 2002                                                                                 |  | Buildings |         | Property    |  | Equipment |          | Vehicles |  | Other |         | in Progress  |  | Total
|                                                                                                  |  |           |         |             |  |           |          |          |  |       |         |              |  |      
|                                                                                                  |  | RMB       |         | RMB         |  | RMB       |          | RMB      |  | RMB   |         | RMB          |  | RMB  
|Cost or valuation                                                                                 |  |           |         |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|At beginning of the year                                                                          |  |           | 49,732  |             |  |           | 305,099  |          |  |       | 193,190 |              |  |       | 6,877  |   |  |  | 5,113  |   |  |  | 26,593  |   |  |  | 586,604  |  
|Additions                                                                                         |  |           | 1,514   |             |  |           | 401      |          |  |       | 654     |              |  |       | 123    |   |  |  | 165    |   |  |  | 67,739  |   |  |  | 70,596   |  
|Acquisition (Note 28)                                                                             |  |           | 240     |             |  |           | 1,709    |          |  |       | 1,891   |              |  |       | 92     |   |  |  | 71     |   |  |  |        |   |  |  | 4,003    |  
|Transfers                                                                                         |  |           | 5,381   |             |  |           | 39,332   |          |  |       | 18,106  |              |  |       | 690    |   |  |  | 229    |   |  |  | (63,738 | ) |  |  |         |  
|Disposals or write off                                                                            |  |           | (1,533  | )           |  |           | (8,543   | )        |  |       | (7,920  | )            |  |       | (398   | ) |  |  | (306   | ) |  |  |        |   |  |  | (18,700  | )
|                                                                                                  |  |           |         |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|At end of the year                                                                                |  |           | 55,334  |             |  |           | 337,998  |          |  |       | 205,921 |              |  |       | 7,384  |   |  |  | 5,272  |   |  |  | 30,594  |   |  |  | 642,503  |  
|                                                                                                  |  |           |         |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|Accumulated depreciation                                                                          |  |           |         |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|At beginning of the year                                                                          |  |           | (9,949  | )           |  |           | (124,612 | )        |  |       | (80,388 | )            |  |       | (3,264 | ) |  |  | (1,421 | ) |  |  |        |   |  |  | (219,634 | )
|Charge for the year                                                                               |  |           | (1,684  | )           |  |           | (18,302  | )        |  |       | (14,864 | )            |  |       | (685   | ) |  |  | (571   | ) |  |  |        |   |  |  | (36,106  | )
|Acquisition (Note 28)                                                                             |  |           | (55     | )           |  |           |         |          |  |       | (748    | )            |  |       | (33    | ) |  |  | (37    | ) |  |  |        |   |  |  | (873     | )
|Disposals or write off                                                                            |  |           | 530     |             |  |           | 5,261    |          |  |       | 5,538   |              |  |       | 333    |   |  |  | 246    |   |  |  |        |   |  |  | 11,908   |  
|                                                                                                  |  |           |         |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|At end of the year                                                                                |  |           | (11,158 | )           |  |           | (137,653 | )        |  |       | (90,462 | )            |  |       | (3,649 | ) |  |  | (1,783 | ) |  |  |        |   |  |  | (244,705 | )
|                                                                                                  |  |           |         |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|Net book value                                                                                    |  |           |         |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|At end of the year                                                                                |  |           | 44,176  |             |  |           | 200,345  |          |  |       | 115,459 |              |  |       | 3,735  |   |  |  | 3,489  |   |  |  | 30,594  |   |  |  | 397,798  |  
|                                                                                                  |  |           |         |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|Carrying value of the fixed assets had they been
    stated at cost less accumulated depreciation |  |           | 39,065  |             |  |           | 179,713  |          |  |       | 92,383  |              |  |       | 3,102  |   |  |  | 2,738  |   |  |  | 30,594  |   |  |  | 347,595  |  
|                                                                                                  |  |           |         |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  

Property, plant and equipment under capital
leases at the end of year are as follows:

|                         |  |                 |     |      |  |  |      |  
|------------------------ |  | --------------- | --- | ---- |  |  | ---- | -
|                         |  |                
|                         |  | At December 31,
|                         |  |                
|                         |  | 2001            |     | 2002
|                         |  |                 |     |     
|                         |  | RMB             |     | RMB 
|Refining and Marketing   |  |                 | 88  |      |  |  | 88   |  
|Chemicals and Marketing  |  |                 | 433 |      |  |  | 431  |  
|Accumulated depreciation |  |                 | (93 | )    |  |  | (120 | )
|                         |  |                 |     |      |  |  |      |  
|                         |  |                 | 428 |      |  |  | 399  |  
|                         |  |                 |     |      |  |  |      |  

All capital leases are related to plant and
equipment and generally contain purchase options at the end of
the lease term.

Depreciation expenses on property, plant and
equipment are as follows:

|                           |  |                        |        |      |  |      |        |  |  |  |        | 
|-------------------------- |  | ---------------------- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                           |  |                       
|                           |  | Year Ended December 31
|                           |  |                       
|                           |  | 2000                   |        | 2001 |  | 2002
|                           |  |                        |        |      |  |     
|                           |  | RMB                    |        | RMB  |  | RMB 
|Owned assets               |  |                        | 33,675 |      |  |      | 33,056 |  |  |  | 36,079 | 
|Assets under capital lease |  |                        | 26     |      |  |      | 22     |  |  |  | 27     | 

The depreciation charge of the Group for the year
ended December 31, 2002 included RMB 1,753 relating to
impairment provision for plant and equipment held for use. Of
this amount, RMB 1,384 was related to the Chemicals and
Marketing segment and RMB 369 was for the Refining and
Marketing segment.

F-22



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


Repair and maintenance costs were RMB 4,974,
RMB 4,334 and RMB 5,060 for the years ended
December 31, 2000, 2001 and 2002, respectively.

Bank borrowings are secured on properties at net
book value of RMB 1,024 and RMB 426 at
December 31, 2001 and 2002, respectively.

A valuation of the Groups property, plant
and equipment, excluding oil and gas reserves, was carried out
during 1999 by independent valuers. The valuation was based on
depreciated replacement costs, which will be carried out
periodically in the future. The revaluation surplus was credited
to revaluation reserve in shareholders equity.

17     LONG TERM
INVESTMENTS

|                                              |                                    |              |       |       |  |  |       |       | 
|--------------------------------------------- | ---------------------------------- | ------------ | ----- | ----- |  |  | ----- | ----- | 
|                                              |                                    |             
|                                              |                                    | At          
|                                              |                                    | December 31,
|                                              |                                    |             
|                                              |                                    | 2001         |       | 2002 
|                                              |                                    |              |       |      
|                                              |                                    | RMB          |       | RMB  
|Investments in equity affiliates              |                                    |              |       |       |  |  |       |      
|                                              | Share of net assets at end of year |              |       | 4,083 |  |  |       | 4,145 | 
|Unlisted available-for-sale investments       |                                    |              | 2,112 |       |  |  | 2,195 |      
|                                              |                                    |              |       |       |  |  |       |      
|                                              |                                    |              | 6,195 |       |  |  | 6,340 |      
|Less: Provision for impairment of investments |                                    |              | (665  | )     |  |  | (660  | )    
|                                              |                                    |              |       |       |  |  |       |      
|Total                                         |                                    |              | 5,530 |       |  |  | 5,680 |      
|                                              |                                    |              |       |       |  |  |       |      

Movements in provision for impairment of
investments are as follows:

|                                     |  |                         |     |      |  |      |     |  |  |  |     |  
|------------------------------------ |  | ----------------------- | --- | ---- |  | ---- | --- |  |  |  | --- | -
|                                     |  |                        
|                                     |  | Year Ended December 31,
|                                     |  |                        
|                                     |  | 2000                    |     | 2001 |  | 2002
|                                     |  |                         |     |      |  |     
|                                     |  | RMB                     |     | RMB  |  | RMB 
|Balance at beginning of year         |  |                         | 622 |      |  |      | 631 |  |  |  | 665 |  
|Provision                            |  |                         | 23  |      |  |      | 34  |  |  |  | 4   |  
|Amount written off against provision |  |                         | (14 | )    |  |      |    |  |  |  | (9  | )
|                                     |  |                         |     |      |  |      |     |  |  |  |     |  
|Balance at end of year               |  |                         | 631 |      |  |      | 665 |  |  |  | 660 |  
|                                     |  |                         |     |      |  |      |     |  |  |  |     |  

Principal affiliates accounted for under equity
method are:

|                                            |  |                |     |            |  |          |        |                      |  |  |      |  |  |                                                              
|------------------------------------------- |  | -------------- | --- | ---------- |  | -------- | ------ | -------------------- |  |  | ---- |  |  | -------------------------------------------------------------
|                                            |  | Country of     |     | Paid-up/   |  | Equity   |        |                     
|                                            |  | Establishment  |     | Registered |  | Interest |        |                     
|Company Name                                |  | and operations |     | Capital    |  | Held (%) |        | Principal Activities
|                                            |  |                |     |            |  |          |        |                     
|Dalian West Pacific Petrochemical Co., Ltd. |  |                | PRC |            |  |          | US$258 |                      |  |  | 25.7 |  |  | Production and sale of refined and petrochemical
    products

Share of income of equity affiliates included in
the statements of income of the Group was RMB 584,
RMB 341 and RMB 268 for the year ended
December 31, 2000, 2001 and 2002, respectively.

Share of net loss of equity affiliates included
in retained earnings of the Group was RMB 136 (2001:
RMB 260) at December 31, 2002. Dividends received and
receivable from equity affiliates were RMB 99 (2001:
RMB 171) in 2002.

F-23



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


Available-for-sale investments, comprising
principally unlisted equity securities, are classified as
non-current assets, unless they are expected to be realized
within twelve months of the balance sheet date or unless they
will need to be sold to raise operating capital.

Dividend income from available-for-sale was
RMB 33, RMB 123 and RMB 60 for the years ended
December 31, 2000, 2001 and 2002, respectively.

18     INTANGIBLE AND
OTHER ASSETS

Intangible and other assets consist of the
following:

|                   |  |                 |       |              |  |     |      |      |  |              |       |     |  |  |       |  |  |  |        |   |  |  |       | 
|------------------ |  | --------------- | ----- | ------------ |  | --- | ---- | ---- |  | ------------ | ----- | --- |  |  | ----- |  |  |  | ------ | - |  |  | ----- | 
|                   |  |                
|                   |  | At December 31,
|                   |  |                
|                   |  |                 |       |             
|                   |  | 2001            |       | 2002        
|                   |  |                 |       |             
|                   |  |                 |       | Accumulated  |  |     |      |      |  | Accumulated  |       |    
|                   |  | Cost            |       | Amortization |  | Net |      | Cost |  | Amortization |       | Net
|                   |  |                 |       |              |  |     |      |      |  |              |       |    
|                   |  | RMB             |       | RMB          |  | RMB |      | RMB  |  | RMB          |       | RMB
|Patents            |  |                 | 2,063 |              |  |     | (758 | )    |  |              | 1,305 |     |  |  | 2,591 |  |  |  | (1,006 | ) |  |  | 1,585 | 
|Technical know-how |  |                 | 507   |              |  |     | (175 | )    |  |              | 332   |     |  |  | 637   |  |  |  | (232   | ) |  |  | 405   | 
|                   |  |                 |       |              |  |     |      |      |  |              |       |     |  |  |       |  |  |  |        |   |  |  |       | 
|Intangible assets  |  |                 | 2,570 |              |  |     | (933 | )    |  |              | 1,637 |     |  |  | 3,228 |  |  |  | (1,238 | ) |  |  | 1,990 | 
|                   |  |                 |       |              |  |     |      |      |  |              |       |     |  |  |       |  |  |  |        |   |  |  |       | 
|Other assets       |  |                 |       |              |  |     |      |      |  |              | 2,511 |     |  |  |       |  |  |  |        |   |  |  | 2,517 | 
|                   |  |                 |       |              |  |     |      |      |  |              |       |     |  |  |       |  |  |  |        |   |  |  |       | 
|                   |  |                 |       |              |  |     |      |      |  |              | 4,148 |     |  |  |       |  |  |  |        |   |  |  | 4,507 | 
|                   |  |                 |       |              |  |     |      |      |  |              |       |     |  |  |       |  |  |  |        |   |  |  |       | 

Amortization on intangible assets was
RMB 508, RMB 537 and RMB 676 for the years ended
December 31, 2000, 2001 and 2002, respectively.

Patents principally represent expenditure
incurred in acquiring processes and techniques that are
generally protected by government authorities. Technical
know-how amounts are attributable to operational technology
acquired in connection with purchase of equipment. The technical
know-how costs are included as part of the purchase price by
contracts and are distinguishable.

Other assets primarily consisted of long-term
prepaid expenses to service providers.

F-24



---



##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


19     ACCOUNTS
PAYABLE AND ACCRUED LIABILITIES

|                                                               |                       |                 |        |        |  |  |        |        | 
|-------------------------------------------------------------- | --------------------- | --------------- | ------ | ------ |  |  | ------ | ------ | 
|                                                               |                       |                
|                                                               |                       | At December 31,
|                                                               |                       |                
|                                                               |                       | 2001            |        | 2002  
|                                                               |                       |                 |        |       
|                                                               |                       | RMB             |        | RMB   
|Trade payables                                                 |                       |                 | 5,093  |        |  |  | 8,153  |       
|Advances from customers                                        |                       |                 | 2,916  |        |  |  | 4,690  |       
|Salaries and welfare payable                                   |                       |                 | 3,604  |        |  |  | 3,915  |       
|Accrued expenses                                               |                       |                 | 28     |        |  |  | 8      |       
|Dividends payable by subsidiaries to minority
    shareholders |                       |                 | 50     |        |  |  | 34     |       
|Interest payable                                               |                       |                 | 385    |        |  |  | 233    |       
|Construction fee and equipment cost payables                   |                       |                 | 13,520 |        |  |  | 12,521 |       
|Payable to Sinopec                                             |                       |                 | 1,710  |        |  |  | 539    |       
|Advances from Sinopec                                          |                       |                 | 128    |        |  |  | 80     |       
|Other payables                                                 |                       |                 | 10,270 |        |  |  | 13,058 |       
|Amounts due to related parties                                 |                       |                 |        |        |  |  |        |       
|                                                               |  CNPC                |                 |        | 87     |  |  |        | 1,702  | 
|                                                               |  Fellow subsidiaries |                 |        | 14,891 |  |  |        | 11,581 | 
|                                                               |  Equity affiliates   |                 |        | 528    |  |  |        | 1,279  | 
|                                                               |                       |                 |        |        |  |  |        |       
|                                                               |                       |                 | 53,210 |        |  |  | 57,793 |       
|                                                               |                       |                 |        |        |  |  |        |       

Other payables consist primarily of one-time
remedial payment payable and payables for received deposit and
earnest money.

Amounts due to related parties are interest-free,
unsecured and repayable in accordance with normal commercial
terms.

20     DEBT

(a) Short-term
debt

|                                  |             |                 |        |        |  |  |        |        | 
|--------------------------------- | ----------- | --------------- | ------ | ------ |  |  | ------ | ------ | 
|                                  |             |                
|                                  |             | At December 31,
|                                  |             |                
|                                  |             | 2001            |        | 2002  
|                                  |             |                 |        |       
|                                  |             | RMB             |        | RMB   
|Bank loans                        |             |                 |        |        |  |  |        |       
|                                  |  secured   |                 |        | 1,129  |  |  |        | 274    | 
|                                  |  unsecured |                 |        | 17,625 |  |  |        | 13,576 | 
|Loans from fellow subsidiaries    |             |                 | 1,268  |        |  |  | 570    |       
|Other                             |             |                 | 128    |        |  |  | 4      |       
|                                  |             |                 |        |        |  |  |        |       
|                                  |             |                 | 20,150 |        |  |  | 14,424 |       
|Current portion of long-term debt |             |                 | 5,173  |        |  |  | 6,209  |       
|                                  |             |                 |        |        |  |  |        |       
|                                  |             |                 | 25,323 |        |  |  | 20,633 |       
|                                  |             |                 |        |        |  |  |        |       

F-25



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


(b) Long-term
debt

|                                                                                                     |  |                                                                                                                                                                                 |  |                 |  |       
|---------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- |  | ------
|                                                                                                     |  |                                                                                                                                                                                 |  |                
|                                                                                                     |  |                                                                                                                                                                                 |  | At December 31,
|                                                                                                     |  |                                                                                                                                                                                 |  |                
|                                                                                                     |  | Interest Rate and Final Maturity                                                                                                                                                |  | 2001            |  | 2002  
|                                                                                                     |  |                                                                                                                                                                                 |  |                 |  |       
|                                                                                                     |  |                                                                                                                                                                                 |  | RMB             |  | RMB   
|Renminbi-denominated loans:                                                                          |  |                                                                                                                                                                                 |  |                
|Bank loans for the development of oil fields and
    construction of refining plants                 |  | Majority variable interest rates ranging from
    interest free to 6.21% per annum as of December 31, 2002,
    with maturities through 2010                                    |  | 27,073          |  | 23,580
|Bank loans for working capital                                                                       |  | Majority variable interest rates ranging from
    interest free to 6.33% per annum as of December 31, 2002,
    with maturities through 2004                                    |  | 6,393           |  | 6,189 
|Loans from related parties for the development of
    oil fields and construction of refining plants |  | Floating interest rates ranging from 4.61% to
    5.18% per annum as of December 31, 2002, with maturities
    through 2032                                                     |  | 13,120          |  | 15,956
|Working capital loans from related parties                                                           |  | Floating interest rate at 4.94% per annum as of
    December 31, 2002, with maturity through 2004                                                                               |  | 4,000           |  | 4,000 
|Working capital loans                                                                                |  | Fixed interest rates ranging from interest free
    to 6.32% per annum as of December 31, 2002, with maturities
    through 2003, including a loan with no fixed repayment term |  | 329             |  | 11    
|US Dollar-denominated loans:                                                                         |  |                                                                                                                                                                                 |  |                 |  |       
|Bank loans for the development of oil fields and
    construction of refining plants                 |  | Fixed interest rates ranging from free to 8.66%
    per annum as of December 31, 2002, with maturities through
    2038                                                         |  | 7,688           |  | 4,801 
|Bank loans for the development of oil fields and
    construction of refining plants                 |  | Floating interest rates ranging from 1.63% to
    5.58% per annum as of December 31, 2002, with maturities
    through 2015                                                     |  | 2,853           |  | 1,763 
|Bank loans for acquisition of overseas oil and
    gas properties                                    |  | Floating interest rate at LIBOR plus 0.60% per
    annum as of December 31, 2002, with maturities through 2005                                                                  |  |                |  | 1,490 
|Loans from related parties for the development of
    oil fields and construction of refining plants |  | Floating interest rate at LIBOR minus 0.25% per
    annum as of December 31, 2002, with maturities through 2005                                                                 |  | 3,633           |  | 3,633 
|Loans from related parties for working capital                                                       |  | Floating interest rate at LIBOR plus 0.40% per
    annum as of December 31, 2002, with maturities through 2005                                                                  |  |                |  | 543   
|Loans for the development of oil fields and
    construction of refining plants                      |  | Fixed interest rate at 1.55% per annum as of
    December 31, 2002, with maturities through 2022                                                                                |  | 654             |  | 618   

F-26



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


|                                                                                     |           |                                                                                                                                   |  |                 |         |        |        
|------------------------------------------------------------------------------------ | --------- | --------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | ------- | ------ | -------
|                                                                                     |           |                                                                                                                                   |  |                
|                                                                                     |           |                                                                                                                                   |  | At December 31,
|                                                                                     |           |                                                                                                                                   |  |                
|                                                                                     |           | Interest Rate and Final Maturity                                                                                                  |  | 2001            |         | 2002  
|                                                                                     |           |                                                                                                                                   |  |                 |         |       
|                                                                                     |           |                                                                                                                                   |  | RMB             |         | RMB   
|Japanese Yen-denominated loans:                                                      |           |                                                                                                                                   |  |                 |         |       
|Bank loans for the development of oil fields and
    construction of refining plants |           | Majority fixed interest rates ranging from 2.00%
    to 5.30% per annum as of December 31, 2002, with maturities
    through 2010 |  | 917             |         | 723   
|Euro-denominated loans:                                                              |           |                                                                                                                                   |  |                 |         |       
|Bank loans for the development of oil fields and
    construction of refining plants |           | Majority fixed interest rates ranging from 1.80%
    to 8.50% per annum as of December 31, 2002, with maturities
    through 2023 |  | 792             |         | 463   
|British Pound-denominated loans:                                                     |           |                                                                                                                                   |  |                 |         |       
|Bank loans for the development of oil fields and
    construction of refining plants |           | Fixed interest rate at 2.85% per annum as of
    December 31, 2002, with maturities through 2007                                  |  | 603             |         | 538   
|Loans for the development of oil fields and
    construction of refining plants      |           | Fixed interest rate at 5.17% per annum as of
    December 31, 2002, with maturities through 2011                                  |  | 788             |         | 784   
|                                                                                     |           |                                                                                                                                   |  |                 |         |       
|                                                                                     |           |                                                                                                                                   |  | 68,843          |         | 65,092
|Debentures                                                                           |           |                                                                                                                                   |  | 1,650           |         | 1,650 
|Capital lease obligations                                                            |           |                                                                                                                                   |  | 226             |         | 122   
|                                                                                     |           |                                                                                                                                   |  |                 |         |       
|Total long-term debt                                                                 |           |                                                                                                                                   |  | 70,719          |         | 66,864
|Less: current portion of long-                                                       |           |                                                                                                                                   |  |                 |         |       
|                                                                                     | term debt |                                                                                                                                   |  |                 | (5,173) |        | (6,209)
|                                                                                     |           |                                                                                                                                   |  |                 |         |       
|                                                                                     |           |                                                                                                                                   |  | 65,546          |         | 60,655
|                                                                                     |           |                                                                                                                                   |  |                 |         |       

For loans denominated in RMB with floating rates,
the rates are re-set annually on the respective anniversary
dates based on rates announced by the Peoples Bank of
China. For loans denominated in currencies other than RMB with
floating rates, the rates are re-set quarterly or semi-annually
as stipulated in the respective agreements. Debentures were
issued at fixed interest rates ranging from 4.50% to 9.00% per
annum with maturities through 2007. Other loans represent loans
from independent third parties other than banks with interest
rates ranging from interest free to 6.32% per annum. Interest
free loans amounted to RMB 726 and RMB 353 at
December 31, 2001 and 2002, respectively. Interest free
loans were treated as government assistance and no imputation of
interest expense on such loans was recognized in the
Groups consolidated financial statements.

Bank borrowings of RMB 1,697 and RMB 939 were
guaranteed by CNPC and its subsidiaries at December 31,
2001 and 2002, respectively.

The Groups borrowings include secured
liabilities (leases and bank borrowings) totalling
RMB 1,357 and RMB 398, respectively, at
December 31, 2001, and 2002. Bank borrowings are secured
over certain of the Groups property, plant and equipment
(see Note 16). Lease liabilities are effectively secured as
the rights to the leased assets revert to the lessor in the
event of default.

F-27



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


|                                           |                              |                 |        |        |   |  |        |        |  
|------------------------------------------ | ---------------------------- | --------------- | ------ | ------ | - |  | ------ | ------ | -
|                                           |                              |                
|                                           |                              | At December 31,
|                                           |                              |                
|                                           |                              | 2001            |        | 2002  
|                                           |                              |                 |        |       
|                                           |                              | RMB             |        | RMB   
|Total debt:                                |                              |                 |        |        |   |  |        |       
|                                           |  at fixed rates             |                 |        | 37,319 |   |  |        | 24,056 |  
|                                           |  at variable rates          |                 |        | 53,550 |   |  |        | 57,232 |  
|                                           |                              |                 |        |        |   |  |        |       
|                                           |                              |                 | 90,869 |        |   |  | 81,288 |       
|                                           |                              |                 |        |        |   |  |        |       
|Weighted average effective interest rates: |                              |                 |        |        |   |  |        |       
|                                           |  bank loans                 |                 |        | 5.66   | % |  |        | 4.92   | %
|                                           |  loans from related parties |                 |        | 4.82   | % |  |        | 4.33   | %
|                                           |  loans from third parties   |                 |        | 3.13   | % |  |        | 3.58   | %
|                                           |  debentures                 |                 |        | 5.32   | % |  |        | 5.32   | %
|                                           |  capital lease obligations  |                 |        | 3.98   | % |  |        | 3.38   | %

The carrying amounts and fair values of long-term
debt (excluding capital lease obligations) are as follows:

|                           |  |                  |        |      |  |  |        | 
|-------------------------- |  | ---------------- | ------ | ---- |  |  | ------ | 
|                           |  |                 
|                           |  | Carrying amounts
|                           |  | At December 31, 
|                           |  |                 
|                           |  | 2001             |        | 2002
|                           |  |                  |        |     
|                           |  | RMB              |        | RMB 
|Bank loans                 |  |                  | 46,319 |      |  |  | 39,547 | 
|Loans from related parties |  |                  | 20,753 |      |  |  | 24,132 | 
|Debentures                 |  |                  | 1,650  |      |  |  | 1,650  | 
|Other                      |  |                  | 1,771  |      |  |  | 1,413  | 
|                           |  |                  |        |      |  |  |        | 
|                           |  |                  | 70,493 |      |  |  | 66,742 | 
|                           |  |                  |        |      |  |  |        | 

|                           |  |                 |        |      |  |  |        | 
|-------------------------- |  | --------------- | ------ | ---- |  |  | ------ | 
|                           |  |                
|                           |  | Fair values    
|                           |  | At December 31,
|                           |  |                
|                           |  | 2001            |        | 2002
|                           |  |                 |        |     
|                           |  | RMB             |        | RMB 
|Bank loans                 |  |                 | 46,542 |      |  |  | 39,413 | 
|Loans from related parties |  |                 | 20,752 |      |  |  | 24,133 | 
|Debentures                 |  |                 | 1,604  |      |  |  | 1,646  | 
|Other                      |  |                 | 1,588  |      |  |  | 1,203  | 
|                           |  |                 |        |      |  |  |        | 
|                           |  |                 | 70,486 |      |  |  | 66,395 | 
|                           |  |                 |        |      |  |  |        | 

The fair values are based on discounted cash
flows using applicable discount rates based upon the prevailing
market rates of interest available to the Group for financial
instruments with substantially the same terms and
characteristics at the balance sheet dates. Such discount rates
ranged from 0.81% to 7.62% per annum as of December 31,
2002 depending on the type of the debt. The carrying amounts of
short-term debt and capital lease obligations approximate their
fair value.

F-28



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


Maturities of long-term debt (excluding capital
lease obligations) at the dates indicated below are as follows:

|            |  |                 |        |      |  |  |        | 
|----------- |  | --------------- | ------ | ---- |  |  | ------ | 
|            |  |                
|            |  | At December 31,
|            |  |                
|            |  | 2001            |        | 2002
|            |  |                 |        |     
|            |  | RMB             |        | RMB 
|First year  |  |                 | 5,069  |      |  |  | 6,143  | 
|Second year |  |                 | 6,190  |      |  |  | 19,541 | 
|Third year  |  |                 | 22,064 |      |  |  | 16,322 | 
|Fourth year |  |                 | 13,864 |      |  |  | 9,700  | 
|Fifth year  |  |                 | 7,926  |      |  |  | 5,935  | 
|Thereafter  |  |                 | 15,380 |      |  |  | 9,101  | 
|            |  |                 |        |      |  |  |        | 
|            |  |                 | 70,493 |      |  |  | 66,742 | 
|            |  |                 |        |      |  |  |        | 

Future minimum payments on capital lease
obligations at the dates indicated below are as follows:

|                                                                               |  |                 |     |      |  |  |     |  
|------------------------------------------------------------------------------ |  | --------------- | --- | ---- |  |  | --- | -
|                                                                               |  |                
|                                                                               |  | At December 31,
|                                                                               |  |                
|                                                                               |  | 2001            |     | 2002
|                                                                               |  |                 |     |     
|                                                                               |  | RMB             |     | RMB 
|First year                                                                     |  |                 | 112 |      |  |  | 70  |  
|Second year                                                                    |  |                 | 70  |      |  |  | 41  |  
|Third year                                                                     |  |                 | 41  |      |  |  | 17  |  
|Fourth year                                                                    |  |                 | 17  |      |  |  |    |  
|                                                                               |  |                 |     |      |  |  |     |  
|                                                                               |  |                 | 240 |      |  |  | 128 |  
|Future finance charges on capital lease
    obligations                        |  |                 | (14 | )    |  |  | (6  | )
|                                                                               |  |                 |     |      |  |  |     |  
|Present value of capital lease obligations                                     |  |                 | 226 |      |  |  | 122 |  
|                                                                               |  |                 |     |      |  |  |     |  
|The present value of capital lease obligations
    can be analyzed as follows: |  |                 |     |      |  |  |     |  
|First year                                                                     |  |                 | 104 |      |  |  | 66  |  
|Second year                                                                    |  |                 | 66  |      |  |  | 39  |  
|Third year                                                                     |  |                 | 39  |      |  |  | 17  |  
|Fourth year                                                                    |  |                 | 17  |      |  |  |    |  
|                                                                               |  |                 |     |      |  |  |     |  
|                                                                               |  |                 | 226 |      |  |  | 122 |  
|                                                                               |  |                 |     |      |  |  |     |  

21     DEFERRED
INCOME TAXES

Deferred income taxes are calculated on temporary
differences under the liability method using a principal tax
rate of 33%.

F-29



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


The movements in the deferred income tax account
are as follows:

|                                 |  |                        |       |      |  |      |       |  |  |  |       | 
|-------------------------------- |  | ---------------------- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                                 |  |                       
|                                 |  | Year Ended December 31
|                                 |  |                       
|                                 |  | 2000                   |       | 2001 |  | 2002
|                                 |  |                        |       |      |  |     
|                                 |  | RMB                    |       | RMB  |  | RMB 
|At beginning of year             |  |                        | 1,182 |      |  |      | 3,169 |  |  |  | 7,030 | 
|Income statement charge (Note 7) |  |                        | 1,987 |      |  |      | 3,861 |  |  |  | 2,897 | 
|                                 |  |                        |       |      |  |      |       |  |  |  |       | 
|At end of year                   |  |                        | 3,169 |      |  |      | 7,030 |  |  |  | 9,927 | 
|                                 |  |                        |       |      |  |      |       |  |  |  |       | 

Deferred tax balances are attributable to the
following items:

|                               |             |                                                                          |        |      |       |  |        |  |        | 
|------------------------------ | ----------- | ------------------------------------------------------------------------ | ------ | ---- | ----- |  | ------ |  | ------ | 
|                               |             |                                                                         
|                               |             | At December 31,                                                         
|                               |             |                                                                         
|                               |             | 2001                                                                     |        | 2002
|                               |             |                                                                          |        |     
|                               |             | RMB                                                                      |        | RMB 
|Deferred tax assets            |             |                                                                          |        |      |       |  |        | 
|                               | Current     |                                                                          |        |      |       |  |        |  |       
|                               |             | Provisions, primarily for receivables and
    inventories                |        |      | 3,471 |  |        |  | 3,568  | 
|                               |             | Tax losses of subsidiaries                                               |        |      | 111   |  |        |  | 111    | 
|                               | Non current |                                                                          |        |      |       |  |        |  |       
|                               |             | Shut down of manufacturing assets and impairment
    of long-term assets |        |      | 643   |  |        |  | 613    | 
|                               |             | Other                                                                    |        |      | 182   |  |        |  | 182    | 
|                               |             |                                                                          |        |      |       |  |        | 
|Total deferred tax assets      |             |                                                                          | 4,407  |      |       |  | 4,474  | 
|                               |             |                                                                          |        |      |       |  |        | 
|Deferred tax liabilities       |             |                                                                          |        |      |       |  |        | 
|                               | Current     |                                                                          |        |      |       |  |        |  |       
|                               |             | Sales (note (i))                                                         |        |      | 4,401 |  |        |  | 4,401  | 
|                               | Non current |                                                                          |        |      |       |  |        |  |       
|                               |             | Accelerated depreciation                                                 |        |      | 7,036 |  |        |  | 10,000 | 
|                               |             |                                                                          |        |      |       |  |        | 
|Total deferred tax liabilities |             |                                                                          | 11,437 |      |       |  | 14,401 | 
|                               |             |                                                                          |        |      |       |  |        | 
|Net deferred tax liabilities   |             |                                                                          | 7,030  |      |       |  | 9,927  | 
|                               |             |                                                                          |        |      |       |  |        | 




|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)  | Prior to the formation of the Company in November
    1999, certain crude oil sales were exempted from income tax
    purposes. Upon formation of the Company, such exemption ceased
    to be available. A portion of the previously exempted items may
    become taxable at a later date in certain circumstances at the
    discretion of the tax authorities.                                                                                                                 
|    
|(ii) | The Group has an unrecognised tax loss of
    RMB 1,748 (2001: RMB 1,439) at December 31, 2002,
    arising from a subsidiary which files separate tax returns and
    has provided a valuation allowance for this amount. The
    unrecognised tax loss may be carried forward by the subsidiary
    through years ending December 31, 2007. No valuation
    allowances were recognised on other deferred tax assets as the
    Company anticipates to fully realise such assets.

F-30



---



##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


22     SHARE
CAPITAL

|                                   |                    |                 |         |         |  |  |         |         | 
|---------------------------------- | ------------------ | --------------- | ------- | ------- |  |  | ------- | ------- | 
|                                   |                    |                
|                                   |                    | At December 31,
|                                   |                    |                
|                                   |                    | 2001            |         | 2002   
|                                   |                    |                 |         |        
|                                   |                    | RMB             |         | RMB    
|Registered, issued and fully paid: |                    |                 |         |         |  |  |         |        
|                                   | State-owned shares |                 |         | 158,242 |  |  |         | 158,242 | 
|                                   | H shares           |                 |         | 17,582  |  |  |         | 17,582  | 
|                                   |                    |                 |         |         |  |  |         |        
|                                   |                    |                 | 175,824 |         |  |  | 175,824 |        
|                                   |                    |                 |         |         |  |  |         |        

As at December 31, 1999, the registered
capital of the Company was RMB 160,000 consisting of
160 billion state-owned shares of RMB 1.00 each. Such
shares were issued to CNPC, credited as fully paid in
consideration for the transfer of the relevant assets and
liabilities by CNPC.

On April 7, 2000, the Company completed a
global initial public offering (Global Offering)
pursuant to which 17,582,418,000 shares of RMB 1.00 each,
representing 13,447,897,000 H shares and 41,345,210
American Depositary Shares (ADSs, each representing
100 H shares), were issued at prices of HK$1.28 per
H share and US$16.44 per ADS, respectively, for which the
net proceeds to the Company were approximately
RMB 20 billion. The shares issued pursuant to the
Global Offering rank equally with existing shares. The
H shares and ADSs were listed on The Stock Exchange of Hong
Kong Limited and the New York Stock Exchange on April 7,
2000 and April 6, 2000, respectively.

The 17,582,418,000 H shares issued by the
Company comprise 15,824,176,000 shares offered by the Company,
and 1,758,242,000 shares offered by CNPC pursuant to an approval
from China Securities Regulatory Commission to convert the
state-owned shares owned by CNPC.

Shareholders rights are governed by the PRC
Company Law that requires an increase in registered capital to
be approved by the shareholders in general meeting and the
relevant PRC Government and regulatory authorities.

F-31



---



##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


23     RESERVES

|                                                                      |  |             |         |      |  |  |         |  
|--------------------------------------------------------------------- |  | ----------- | ------- | ---- |  |  | ------- | -
|                                                                      |  |            
|                                                                      |  | Year Ended 
|                                                                      |  | December 31
|                                                                      |  |            
|                                                                      |  | 2001        |         | 2002
|                                                                      |  |             |         |     
|                                                                      |  | RMB         |         | RMB 
|Revaluation Reserve                                                   |  |             |         |      |  |  |         |  
|Beginning balance                                                     |  |             | 79,945  |      |  |  | 79,945  |  
|                                                                      |  |             |         |      |  |  |         |  
|Ending balance                                                        |  |             | 79,945  |      |  |  | 79,945  |  
|Capital Reserve                                                       |  |             |         |      |  |  |         |  
|Beginning balance                                                     |  |             | (28,757 | )    |  |  | (28,567 | )
|Premium arising from issue of shares by an equity
    affiliate       |  |             | 56      |      |  |  |        |  
|Contribution from CNPC to marketing enterprises                       |  |             | 134     |      |  |  | 10      |  
|                                                                      |  |             |         |      |  |  |         |  
|Ending balance                                                        |  |             | (28,567 | )    |  |  | (28,557 | )
|Statutory Common Reserve Fund
    (Note a)                            |  |             |         |      |  |  |         |  
|Beginning balance                                                     |  |             | 8,948   |      |  |  | 16,219  |  
|Transfer from retained earnings to reserves                           |  |             | 7,271   |      |  |  | 3,909   |  
|                                                                      |  |             |         |      |  |  |         |  
|Ending balance                                                        |  |             | 16,219  |      |  |  | 20,128  |  
|Statutory Common Welfare Fund
    (Note b)                            |  |             |         |      |  |  |         |  
|Beginning balance                                                     |  |             | 6,407   |      |  |  | 11,578  |  
|Transfer from retained earnings to reserves                           |  |             | 5,171   |      |  |  | 1,954   |  
|                                                                      |  |             |         |      |  |  |         |  
|Ending balance                                                        |  |             | 11,578  |      |  |  | 13,532  |  
|Other Reserves                                                        |  |             |         |      |  |  |         |  
|Beginning balance                                                     |  |             |        |      |  |  |        |  
|Payment to CNPC for acquisition of marketing
    enterprises (Note 2) |  |             |        |      |  |  | (3,200  | )
|                                                                      |  |             |         |      |  |  |         |  
|Ending balance                                                        |  |             |        |      |  |  | (3,200  | )
|                                                                      |  |             |         |      |  |  |         |  
|                                                                      |  |             | 79,175  |      |  |  | 81,848  |  
|                                                                      |  |             |         |      |  |  |         |  




|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Pursuant to PRC regulations and the
    Companys Articles of Association, the Company is required
    to transfer 10% of its net income, as determined under the PRC
    accounting regulations, to statutory common reserve fund until
    the fund aggregates to 50% of the Companys registered
    capital. The transfer to this reserve must be made before
    distribution of dividends to shareholders.                                                                                                                                                                                                                                            
|   
|    |  | The statutory common reserve fund shall only be
    used to make good previous years losses, to expand
    the Companys production operations, or to increase the
    capital of the Company. Upon approval by a resolution of
    shareholders general meeting, the Company may convert its
    statutory common reserve fund into share capital and issue bonus
    shares to existing shareholders in proportion to their original
    shareholdings or to increase the nominal value of each share
    currently held by them, provided that the balance of the reserve
    fund after such issue is not less than 25% of the registered
    capital.
|   
|(b) |  | Pursuant to the PRC regulations and the
    Companys Articles of Association, the Company is required
    to transfer 5% to 10% of its net income, as determined under the
    PRC accounting regulations, to the statutory common welfare
    fund. This fund can only be used to provide staff                                                                                                                                                                                                                                                                                                                                                           

F-32



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


welfare facilities and other collective benefits
to the Companys employees. This fund is non-distributable
other than in liquidation. The directors have proposed to
transfer 5% (2001: 9%) of the net income, as determined
under the PRC accounting regulations, for the year ended
December 31, 2002 to the statutory common welfare fund.



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(c) |  | The Companys distributable reserve is the
    retained earnings computed under the PRC accounting regulations,
    which amounted to RMB 37,374 (2001: RMB 25,258) as of
    December 31, 2002. The distributable reserve computed under
    the PRC accounting regulations at December 31, 2002 had
    been arrived at after the accrual for the proposed final
    dividend in respect of year 2002 of RMB 12,299
    (Note 9 (vii)).
|   
|(d) |  | As of December 31, 2002, revaluation
    surpluses relating to depreciation and disposals amounted to
    approximately RMB 29,560 (2001: RMB 21,179).                                                                                                                                                                                                                                                                                   

24     PENSIONS

The Group participates in various retirement
benefit plans organized by municipal and provincial governments
under which it is required to make monthly contributions to
these plans at rates ranging from 16% to 22% of the
employees basic salary for the relevant periods. The Group
currently has no additional cost for the payment of retirement
and other post-retirement benefits of employees other than the
monthly contributions described above. Expenses incurred by the
Group in connection with the retirement benefit plans were
RMB 1,907, RMB 1,893 and RMB 2,109, respectively,
for the years ended December 31, 2000, 2001 and 2002.

25     FINANCIAL
INSTRUMENTS

The Group holds or issues various financial
instruments which expose it to credit, interest rate, foreign
exchange rate and fair value risks. In addition, the
Groups operations are affected by certain commodity price
movements. The Group historically has not used derivative
instruments for hedging or trading purposes. Such activities are
subject to policies approved by the Groups senior
management. Substantially all of the financial instruments the
Group holds is for purposes other than trading. The Group
regards an effective market risk system as an important element
of the Groups treasury function and is continuously
enhancing its systems. A primary objective is to implement
certain methodologies to better measure and monitor risk
exposures.

(a) Credit
risk

The carrying amounts of accounts receivable
included in the balance sheet represent the Groups maximum
exposure to credit risk in relation to its financial assets. No
other financial assets carry a significant exposure to credit
risk.

The Group has no significant concentration of
credit risk. Cash is placed with state-owned banks and financial
institutions.

(b) Interest
rate risk

The Group is exposed to the risk arising from
changing interest rates. A detail analysis of the Groups
borrowings, together with their respective interest rates and
maturity dates, are included in Note 20.

F-33



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


(c) Foreign
exchange rate risk

The Renminbi is not freely convertible and its
value is subject to changes in the PRC Governments
policies and depends to a large extent on Chinas domestic
and international economic and political developments, as well
as supply and demand in the local market. The official exchange
rate for the conversion of Renminbi to US dollars has generally
been stable recently. Because prices for the Groups crude
oil and refined products are set generally with reference to
US dollar-denominated international prices, a devaluation
of the Renminbi may not have a negative impact on the
Groups overall operations. Results of operations and the
financial condition of the Group may also be affected by changes
in the value of certain currencies other than the Renminbi in
which the Groups earnings and obligations are denominated.
In particular, a devaluation of the Renminbi is likely to
increase the portion of the Groups cash flow required to
satisfy its foreign currency-denominated obligations. On the
other hand, an appreciation of the Renminbi against the US
dollar may decrease the Groups revenues without a
corresponding decrease in the Groups operating expenses.

(d) Commodity
price risk

The Group is engaged in a broad range of
petroleum related activities. The hydrocarbon commodity markets
are influenced by global as well as regional supply and demand
conditions. The PRC government currently publishes prices for
onshore crude oil, gasoline and diesel according to
international benchmark prices. A decline in prices of crude oil
and refined products could adversely affect its financial
performance. The Group historically has not used commodity
derivative instruments to hedge the potential price fluctuations
of crude oil and other refined products. Therefore, during 2002
and 2001, the Group was exposed to the general price
fluctuations of broadly traded oil and gas commodities.

(e) Fair
values

The carrying amounts of the following financial
assets and financial liabilities approximate their fair value:
cash, short-term investments, trade receivables and payables,
other receivables and payables, lease obligations, short-term
debt and floating rate long-term debt. The fair value of the
fixed rate long-term debt is likely to be different from their
carrying amounts, but the amounts borrowed at fixed rates are
not significant; the difference between fair value and carrying
amounts is likely to be immaterial.

26     CONTINGENT
LIABILITIES

(a) Bank
and other guarantees

At December 31, 2002, the Group had
contingent liabilities in respect of bank and other guarantees
and other matters arising in the ordinary course of business
from which it is anticipated that no material liabilities will
arise.

(b) Environmental
liabilities

CNPC and the Group have operated in China for
many years and certain environmental problems have developed.
China has adopted extensive environmental laws and regulations
that affect the operation of the oil and gas industry. The
outcome of environmental liabilities under proposed or future
environmental legislation cannot reasonably be estimated at
present, and could be material. Under existing legislation,
however, management believes that there are no probable

F-34



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


liabilities that are in addition to amounts,
which have already been reflected in the financial statements,
that will have a material adverse effect on the financial
position of the Group.

(c) Legal
contingencies

The Group is the named defendant in certain
insignificant lawsuits as well as the named party in other
proceedings arising in the ordinary course of business. While
the outcomes of such contingencies, lawsuits or other
proceedings cannot be determined at present, management believes
that any resulting liabilities will not have a material adverse
effect on the financial position of the Group.

(d) Leasing
of roads, land and buildings

According to the Restructuring Agreement entered
into between the Company and CNPC in 1999 upon the formation of
the Company, CNPC has undertaken to the Company the following:



| |   |                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | CNPC will use its best endeavors to obtain formal
    land use right certificates to replace the entitlement
    certificates in relation to the 28,649 parcels of land which
    were leased or transferred to the Company from CNPC, within one
    year from August, September and October 1999 when the relevant
    entitlement certificates were issued;
|
| |  | CNPC will complete, within one year from
    November 5, 1999, the necessary governmental procedures for
    the requisition of the collectively-owned land on which 116
    service stations owned by the Company are located; and                                                                                                                           
|
| |  | CNPC will obtain individual building ownership
    certificates in the name of the Company for all of the 57,482
    buildings transferred to the Company by CNPC, before
    November 5, 2000.                                                                                                                                                               

As at December 31, 2002, CNPC has obtained
formal land use right certificates in relation to 22,670 out of
the above-mentioned 28,649 parcels of land, some building
ownership certificates for the above-mentioned buildings, but
has completed none of the necessary governmental procedures for
the above-mentioned service stations located on
collectively-owned land. The Directors of the Company confirm
that the use of and the conduct of relevant activities at the
above-mentioned parcels of land, service stations and buildings
are not affected by the fact that the relevant land use right
certificates or individual building ownership certificates have
not been obtained or the fact that the relevant governmental
procedures have not been completed. In managements
opinion, the outcome of the above events will not have a
material adverse effect on the results of operations or the
financial position of the Group.

(e) Group
insurance

Except for limited insurance coverage for
vehicles and certain assets subject to significant operating
risks, the Group does not carry any other insurance for
property, facilities or equipment with respect to its business
operations. In addition, the Group does not carry any
third-party liability insurance against claims relating to
personal injury, property and environmental damages or business
interruption insurance since such insurance coverage is not
customary in China. While the effect of under-insurance on
future incidents cannot be reasonably assessed at present,
management believes it could have a material impact on the
operating results and would not have a material adverse effect
on the financial position of the Group.

F-35



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


(f) Cost
reduction measures

The Company may further streamline production
facilities within the next several years to further improve the
operating efficiency and competitiveness of the Group.
Management has not approved all significant actions to be taken
to complete such plan. Management does not believe it will have
a material adverse impact on the Groups financial
position, but it could have a material adverse effect on the
Groups results of operations.

27     COMMITMENTS

(a) Operating
lease commitments

Operating lease commitments of the Group are
mainly for leasing of land and buildings and equipment. Leases
range from one to fifty years and usually do not contain renewal
options. Future minimum lease payments as of December 31,
2001 and 2002 under non-cancelable operating leases are as
follows:

|            |  |                 |        |      |  |  |        | 
|----------- |  | --------------- | ------ | ---- |  |  | ------ | 
|            |  |                
|            |  | At December 31,
|            |  |                
|            |  | 2001            |        | 2002
|            |  |                 |        |     
|            |  | RMB             |        | RMB 
|First year  |  |                 | 2,421  |      |  |  | 2,403  | 
|Second year |  |                 | 2,139  |      |  |  | 2,265  | 
|Third year  |  |                 | 2,083  |      |  |  | 2,255  | 
|Fourth year |  |                 | 2,077  |      |  |  | 2,246  | 
|Fifth year  |  |                 | 2,093  |      |  |  | 2,248  | 
|Thereafter  |  |                 | 86,793 |      |  |  | 86,682 | 
|            |  |                 |        |      |  |  |        | 
|            |  |                 | 97,606 |      |  |  | 98,099 | 
|            |  |                 |        |      |  |  |        | 

Operating lease expenses for land and buildings
and equipment were RMB 2,536, RMB 2,928 and RMB 2,942 for the
years ended December 31, 2000, 2001 and 2002 respectively.

(b) Capital
commitments

|                                                                                                                                   |                        |                 |     |      |  |  |       |       | 
|---------------------------------------------------------------------------------------------------------------------------------- | ---------------------- | --------------- | --- | ---- |  |  | ----- | ----- | 
|                                                                                                                                   |                        |                
|                                                                                                                                   |                        | At December 31,
|                                                                                                                                   |                        |                
|                                                                                                                                   |                        | 2001            |     | 2002
|                                                                                                                                   |                        |                 |     |     
|                                                                                                                                   |                        | RMB             |     | RMB 
|Capital expenditure contracted for at the balance
    sheet date but not recognized in the financial statements is as
    follows: |                        |                 |     |      |  |  |       |      
|                                                                                                                                   | Oil and gas properties |                 |     | 539  |  |  |       | 180   | 
|                                                                                                                                   | Plant and equipment    |                 |     | 54   |  |  |       | 2,898 | 
|                                                                                                                                   | Other                  |                 |     | 89   |  |  |       | 198   | 
|                                                                                                                                   |                        |                 |     |      |  |  |       |      
|                                                                                                                                   |                        |                 | 682 |      |  |  | 3,276 |      
|                                                                                                                                   |                        |                 |     |      |  |  |       |      

(c) Exploration
and production licenses

The Company is obligated to make annual payments
with respect to its exploration and production licenses to the
Ministry of Land and Resources. Payments incurred were
approximately RMB 126, RMB 130 and RMB 202 for the years ended
December 31, 2000, 2001 and 2002 respectively.

F-36



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


Estimated annual payments in the future are as
follows:

|                    |  |     |     | 
|------------------- |  | --- | --- | 
|                    |  | RMB
|                    |  |    
|2003                |  |     | 382 | 
|2004                |  |     | 515 | 
|2005                |  |     | 618 | 
|2006                |  |     | 681 | 
|2007 and thereafter |  |     | 840 | 

(d) Dividends

Dividends received from the Company are likely to
be one of the principal sources of funding for CNPC. Subject to
the relevant provisions of the PRC Company Law and the Articles
of Association of the Company, CNPC, as the major shareholder of
the Company, may seek to influence the determination of the
amount of dividends paid by the Company with a view to
satisfying its cash flow requirements including those relating
to its obligations to provide supplementary social services to
its employees and a limited number of third parties. The
Ministry of Finance has committed to provide subsidies to enable
CNPC to fund a portion of future operating shortfalls arising
out of CNPCs obligations to provide social services. The
directors believe that these subsidies will substantially reduce
CNPCs reliance on dividends from the Company.

28     ACQUISITION

On April 22, 2002 the Group acquired all of
the share capital of PetroChina International Indonesia Limited
(formerly Devon Energy Indonesia Ltd.) (Devon). This
company is engaged in the exploration and production of crude
oil and natural gas in Indonesia. The acquired business
contributed turnover of RMB 632 and operating profit of
RMB 132 to the Group for the year ended December 31,
2002, and its assets and liabilities at December 31, 2002
were respectively RMB 2,276 and RMB 76.

In addition, the Group increased its equity
interests in PetroChina Tarim Oil (Gas) Transportation Limited
(Tashu) and Jilian (Jilin) Petrochemicals Limited
(Jilian) respectively by 53.1% in November and 35%
in December 2002, and the two entities became the subsidiaries
of the Company at the respective dates of acquisitions. The
acquired business did not contribute significant turnover and
operating profit to the Group for the year ended
December 31, 2002.

Other than for land and buildings, the fair value
of the net assets approximated the book value of the net assets
acquired, and no plant closure provisions or other restructuring
provisions were required.

Details of net assets acquired are as follows:

|                                  |  |       |       |        |  |       |     |       |  |  |     |  |  |  |       | 
|--------------------------------- |  | ----- | ----- | ------ |  | ----- | --- | ----- |  |  | --- |  |  |  | ----- | 
|                                  |  | Devon |       | Jilian |  | Tashu |     | Total
|                                  |  |       |       |        |  |       |     |      
|                                  |  | RMB   |       | RMB    |  | RMB   |     | RMB  
|Purchase consideration            |  |       | 2,068 |        |  |       | 135 |       |  |  | 337 |  |  |  | 2,540 | 
|                                  |  |       |       |        |  |       |     |       |  |  |     |  |  |  |       | 
|Fair value of net assets acquired |  |       | 2,068 |        |  |       | 135 |       |  |  | 337 |  |  |  | 2,540 | 
|                                  |  |       |       |        |  |       |     |       |  |  |     |  |  |  |       | 

F-37



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


The assets and liabilities arising from the
acquisition are as follows:

|                                          |  |       |        |        |  |       |       |       |  |  |       |   |  |  |       |  
|----------------------------------------- |  | ----- | ------ | ------ |  | ----- | ----- | ----- |  |  | ----- | - |  |  | ----- | -
|                                          |  | Devon |        | Jilian |  | Tashu |       | Total
|                                          |  |       |        |        |  |       |       |      
|                                          |  | RMB   |        | RMB    |  | RMB   |       | RMB  
|Cash and cash equivalents                 |  |       | 64     |        |  |       | 8     |       |  |  | 264   |   |  |  | 336   |  
|Property, plant and equipment (Note 16)   |  |       | 1,709  |        |  |       | 808   |       |  |  | 613   |   |  |  | 3,130 |  
|Inventories                               |  |       | 4      |        |  |       | 157   |       |  |  | 2     |   |  |  | 163   |  
|Accounts receivable                       |  |       | 132    |        |  |       | 53    |       |  |  | 18    |   |  |  | 203   |  
|Prepaid expenses and other current assets |  |       | 236    |        |  |       | 24    |       |  |  |      |   |  |  | 260   |  
|Accounts payable and accrued liabilities  |  |       | (64    | )      |  |       | (260  | )     |  |  | (262  | ) |  |  | (586  | )
|Short-term debt                           |  |       |       |        |  |       | (96   | )     |  |  |      |   |  |  | (96   | )
|Long-term debt                            |  |       |       |        |  |       | (308  | )     |  |  |      |   |  |  | (308  | )
|Income tax payable                        |  |       | (13    | )      |  |       |      |       |  |  |      |   |  |  | (13   | )
|                                          |  |       |        |        |  |       |       |       |  |  |       |   |  |  |       |  
|                                          |  |       | 2,068  |        |  |       | 386   |       |  |  | 635   |   |  |  | 3,089 |  
|Equity interest acquired                  |  |       | 100.0% |        |  |       | 35.0% |       |  |  | 53.1% |   |  |  |       |  
|Fair value of net assets acquired         |  |       | 2,068  |        |  |       | 135   |       |  |  | 337   |   |  |  | 2,540 |  
|Less: Cash and cash equivalents acquired  |  |       | (64    | )      |  |       | (8    | )     |  |  | (264  | ) |  |  | (336  | )
|Consideration not yet settled             |  |       |       |        |  |       | (54   | )     |  |  |      |   |  |  | (54   | )
|                                          |  |       |        |        |  |       |       |       |  |  |       |   |  |  |       |  
|Cash outflow on acquisition               |  |       | 2,004  |        |  |       | 73    |       |  |  | 73    |   |  |  | 2,150 |  
|                                          |  |       |        |        |  |       |       |       |  |  |       |   |  |  |       |  

29     MAJOR
CUSTOMERS

The Groups major customers are as follows:

|        |  |                         |        |         |  |         |    |         |  |         |        |         |  |  |    |  |  |  |        |  |  |  |    | 
|------- |  | ----------------------- | ------ | ------- |  | ------- | -- | ------- |  | ------- | ------ | ------- |  |  | -- |  |  |  | ------ |  |  |  | -- | 
|        |  |                        
|        |  | Year Ended December 31,
|        |  |                        
|        |  |                         |        |         |  |        
|        |  | 2000                    |        | 2001    |  | 2002   
|        |  |                         |        |         |  |        
|        |  |                         |        | % to    |  |         |    | % to    |  |         |        | % to   
|        |  |                         |        | Total   |  |         |    | Total   |  |         |        | Total  
|        |  | Revenue                 |        | Revenue |  | Revenue |    | Revenue |  | Revenue |        | Revenue
|        |  |                         |        |         |  |         |    |         |  |         |        |        
|        |  | RMB                     |        | %       |  | RMB     |    | %       |  | RMB     |        | %      
|Sinopec |  |                         | 36,587 |         |  |         | 15 |         |  |         | 26,046 |         |  |  | 11 |  |  |  | 26,497 |  |  |  | 11 | 
|CNPC    |  |                         | 10,630 |         |  |         | 4  |         |  |         | 8,769  |         |  |  | 4  |  |  |  | 7,772  |  |  |  | 3  | 
|        |  |                         |        |         |  |         |    |         |  |         |        |         |  |  |    |  |  |  |        |  |  |  |    | 
|        |  |                         | 47,217 |         |  |         | 19 |         |  |         | 34,815 |         |  |  | 15 |  |  |  | 34,269 |  |  |  | 14 | 
|        |  |                         |        |         |  |         |    |         |  |         |        |         |  |  |    |  |  |  |        |  |  |  |    | 

30     RELATED PARTY
TRANSACTIONS

The Group is part of a larger group of companies
under CNPC and has extensive transactions and relationships with
members of the CNPC group. Because of these relationships, it is
possible that the terms of these transactions are not the same
as those that would result from transactions among wholly
unrelated parties. Related parties refer to corporations in
which CNPC is a major shareholder and is able to control or
exercise significant influence.

CNPC itself is a state-owned enterprise. In
accordance with a specific exemption in IAS 24, the Group
does not accumulate or disclose transactions with other
state-owned enterprises as related party transactions, other
than those with other CNPC group companies and significant
customers as described in Note 29.

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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


The majority of the Groups business
activities are conducted with state-owned enterprises. Sale of
certain products to these state-owned enterprises are at
state-prescribed prices. The Group considers that these sales
are activities in the ordinary course of business and has not
accumulated or disclosed such related party transactions.

As a result of the Restructuring (Note 1),
the Company and CNPC entered into a Comprehensive Products and
Services Agreement for a range of products and services which
may be required and requested by either party; a Land Use Rights
Leasing Contract (Note 26(d)) under which CNPC leases
42,476 parcels of land located throughout the PRC to the
Company; and a Buildings Leasing Contract under which CNPC
leases 191 buildings, located throughout the PRC to the Company.

The term of the Comprehensive Products and
Services Agreement is 10 years commencing from
November 5, 1999. The products and services to be provided
by the CNPC group to the Company under the Comprehensive
Products and Services Agreement include construction and
technical services, production services, supply of material
services, social services, ancillary services, and financial
services. The products and services are provided in accordance
with (1) state-prescribed prices; or (2) where there
is no state-prescribed price, relevant market prices; or
(3) where neither (1) nor (2) is applicable,
actual cost incurred; or the agreed contractual price, being the
actual cost plus a margin of no more than 15% for certain
construction and technical services, and 3% for all other types
of services.

The Land Use Rights Contract provides for the
lease of an aggregate area of approximately 1,145 million
square meters of land located throughout the PRC to members of
the Company for a term of 50 years at an annual fee of
RMB 2,000. The total fee payable for the lease of all such
property may, after the expiration of 10 years, be adjusted
by agreement between the Company and CNPC.

Under the Buildings Leasing Contract, 191
buildings covering an aggregate area of 269,770 square
meters located throughout the PRC are leased at an aggregate
annual fee of RMB 39 for a term of 20 years.

The Company also entered into a Supplemental
Buildings Leasing Agreement with CNPC in September 2002 to lease
an additional 404 buildings covering an aggregate of
approximately 442,730 square meters at annual rental of
RMB 157. The Supplemental Buildings Agreement will expire
at the same time as the Building Leasing Agreement.

Prior to the establishment of the Company,
allocation of costs from companies and operating units retained
by CNPC primarily represented direct costs of exploration,
drilling, production, construction, maintenance, procurement and
other services. Following the establishment of the Company,
costs are based on the terms of the agreements entered into with
CNPC as described above.

F-39



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


In addition to the related party information
shown elsewhere in the financial statements, the following is a
summary of significant related party transactions entered into
in the ordinary course of business between the Group and
entities controlled by CNPC during the periods indicated below:

|                                                  |                                                 |       |    |                         |   |      |        |        |  |  |        |        |  |  |        |        | 
|------------------------------------------------- | ----------------------------------------------- | ----- | -- | ----------------------- | - | ---- | ------ | ------ |  |  | ------ | ------ |  |  | ------ | ------ | 
|                                                  |                                                 |       |    |                        
|                                                  |                                                 | Notes |    | Year Ended December 31,
|                                                  |                                                 |       |    |                        
|                                                  |                                                 |       |    | 2000                    |   | 2001 |        | 2002  
|                                                  |                                                 |       |    |                         |   |      |        |       
|                                                  |                                                 |       |    | RMB                     |   | RMB  |        | RMB   
|Sale of goods                                     |                                                 |       | (a | )                       |   |      | 10,630 |        |  |  | 8,769  |        |  |  | 7,772  |       
|Fees paid for construction and technical services |                                                 |       | (b | )                       |   |      |        |        |  |  |        |        |  |  |        |       
|                                                  |  Exploration and development services          |       |    | (c                      | ) |      |        | 21,007 |  |  |        | 20,570 |  |  |        | 21,781 | 
|                                                  |  Other construction and technical
    services |       |    | (d                      | ) |      |        | 15,453 |  |  |        | 14,592 |  |  |        | 16,324 | 
|Fees for production services                      |                                                 |       | (e | )                       |   |      | 15,007 |        |  |  | 15,581 |        |  |  | 15,743 |       
|Social services charge                            |                                                 |       | (f | )                       |   |      | 1,352  |        |  |  | 1,261  |        |  |  | 1,243  |       
|Ancillary service charges                         |                                                 |       | (g | )                       |   |      | 2,145  |        |  |  | 2,087  |        |  |  | 1,713  |       
|Interest income                                   |                                                 |       | (h | )                       |   |      | 42     |        |  |  | 26     |        |  |  | 25     |       
|Interest expense                                  |                                                 |       | (i | )                       |   |      | 940    |        |  |  | 1,112  |        |  |  | 1,086  |       
|Rental expense                                    |                                                 |       | (j | )                       |   |      | 2,048  |        |  |  | 1,968  |        |  |  | 1,916  |       
|Commission expense and other charges              |                                                 |       | (k | )                       |   |      | 1,087  |        |  |  | 977    |        |  |  | 936    |       




Notes:


|    |                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Represents sale of crude oil, refined and
    chemical products conducted principally at market prices.                                                                                                                                                                                                                                                                                  
|   
|(b) | Under the Comprehensive Products and Services
    Agreement entered into between CNPC and the Company, certain
    construction and technical services provided by CNPC are charged
    at cost plus an additional cost of no more than 15%, including
    exploration and development services and oilfield construction
    services.                                                  
|   
|(c) | Direct costs for exploration and development
    services comprise geophysical survey, drilling, well cementing,
    logging, and well testing.                                                                                                                                                                                                                                          
|   
|(d) | The fees paid for other construction and
    technical services comprise fees for construction of refineries
    and chemical plants and technical services in connection with
    oil and gas exploration and production activities such as
    oilfield construction, technology research, engineering and
    design, etc.                                                            
|   
|(e) | The fees paid for production services comprise
    fees for the repair of machinery, supply of water, electricity
    and gas, provision of services such as communications,
    transportation, fire fighting, asset leasing, environmental
    protection and sanitation, maintenance of roads, manufacture of
    replacement parts and machinery.                                    
|   
|(f) | These represent expenditures for social welfare
    and support services which are charged at cost.                                                                                                                                                                                                                                                                                      
|   
|(g) | Ancillary service charges represent mainly fees
    for property management, the provision of training centers,
    guesthouses, canteens, public shower rooms, etc.                                                                                                                                                                                                                     
|   
|(h) | The Group had deposits placed with China
    Petroleum Finance Company Limited (CP Finance),
    a subsidiary of CNPC and a non-bank financial institution
    approved by the Peoples Bank of China, amounting to
    RMB 1,018, RMB 1,239 and RMB 2,861 as of
    December 31, 2000, 2001 and 2002 respectively. The deposits
    yield interest at prevailing saving deposit rates.

F-40



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)




|    |                                                                                                                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | The Group had unsecured short-term and long-term
    loans from CP Finance amounting to RMB 23,896,
    RMB 22,021 and RMB 24,702 as of December 31,
    2000, 2001 and 2002 respectively, included under loans from
    related parties. The loans were interested bearing at market
    rates.
|   
|(j) | Rental expenses are calculated in accordance with
    the lease agreements entered into between the Company and CNPC.                                                                                                                                                                           
|   
|(k) | CNPC purchases materials on behalf of the Company
    and charges commission thereon. The commission is calculated at
    rates ranging from 1% to 5% of the goods purchased.                                                                                                                   
|   
|(l) | The Group had a 4.73% equity interest in
    CP Finance at a book value of RMB 94 as of
    December 31, 2000, 2001 and 2002.                                                                                                                                                                   

31     EMOLUMENTS OF
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT

Details of the directors and
supervisors emoluments are as follows:

|                                          |  |                        |       |         |  |         |       |  |  |  |       | 
|----------------------------------------- |  | ---------------------- | ----- | ------- |  | ------- | ----- |  |  |  | ----- | 
|                                          |  |                       
|                                          |  | Year Ended December 31
|                                          |  |                       
|                                          |  | 2000                   |       | 2001    |  | 2002   
|                                          |  |                        |       |         |  |        
|                                          |  | RMB000                |       | RMB000 |  | RMB000
|Fee for directors and supervisors         |  |                        | 140   |         |  |         | 170   |  |  |  | 128   | 
|Salaries, allowances and other benefits   |  |                        | 972   |         |  |         | 1,104 |  |  |  | 1,042 | 
|Contribution to retirement benefit scheme |  |                        | 27    |         |  |         | 23    |  |  |  | 25    | 
|                                          |  |                        |       |         |  |         |       |  |  |  |       | 
|                                          |  |                        | 1,139 |         |  |         | 1,297 |  |  |  | 1,195 | 
|                                          |  |                        |       |         |  |         |       |  |  |  |       | 

The emoluments of the directors and supervisors
fall within the following bands:

|            |  |                        |    |        |  |        |    |  |  |  |    | 
|----------- |  | ---------------------- | -- | ------ |  | ------ | -- |  |  |  | -- | 
|            |  |                       
|            |  | Year Ended December 31
|            |  |                       
|            |  | 2000                   |    | 2001   |  | 2002  
|            |  |                        |    |        |  |       
|            |  | Number                 |    | Number |  | Number
|Nil  RMB 1 |  |                        | 12 |        |  |        | 12 |  |  |  | 13 | 
|            |  |                        |    |        |  |        |    |  |  |  |    | 

Fee for directors and supervisors disclosed above
included RMB 66 thousand for the year ended
December 31, 2002, (RMB 95 thousand in 2000 and
RMB 108 thousand in 2001) paid to independent
non-executive directors.

None of the directors and supervisors has waived
their remuneration during the periods indicated above.

The five highest paid individuals in the Group
for each of the periods indicated above were also directors or
supervisors and their emoluments are reflected in the analysis
presented above.

The Company has adopted a share option scheme,
which is a share appreciation right arrangement payable in cash
to the recipient upon exercise of the rights, which become
effective on the initial public offering of the H shares of the
Company on April 7, 2000. The directors, supervisors and
senior executives of the Company are eligible for the scheme.
35,000,000 units of share appreciation rights were granted to
the directors and supervisors and 87,000,000 units of share
appreciation rights were granted to senior executives.

The rights can be exercised on or after the third
anniversary of the grant, i.e. on or after April 8, 2003 up
to April 7, 2008. The exercise price is the price as at the
initial public offering being HK$1.28 per share or approximately
RMB 1.36 per share.

F-41



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


At December 31, 2002 the liability for the
units awarded under the scheme has been recognized in the
financial statements. It has been calculated based on the
difference between the exercise price and the market price of
the shares and amounted to approximately RMB 34.

32     SEGMENT
INFORMATION

The Group is engaged in a broad range of
petroleum related activities through its four major business
segments: Exploration and Production, Refining and Marketing,
Chemicals and Marketing and Natural Gas and Pipeline.

The Exploration and Production segment is engaged
in the exploration, development, production and sales of crude
oil and natural gas.

The Refining and Marketing segment is engaged in
the refining, transportation, storage and marketing of crude oil
and petroleum products.

The Chemicals and Marketing segment is engaged in
the production and sale of basic petrochemical products,
derivative petrochemical products, and other chemical products.

The Natural Gas and Pipeline segment is engaged
in the transmission of crude oil and natural gas, and the sale
of natural gas.

In addition to these four major business
segments, the other segment includes the assets, income and
expenses relating to cash management, financing activities, the
corporate centre, research and development, and other business
services to the operating segments of the Group.

Substantially all assets and operations of the
Group are located in the PRC, which is considered as one
geographic location in an economic environment with similar
risks and returns. In addition to its operations in the PRC, as
disclosed in Note 28, the Group had acquired all the share
capital of Devon Energy Indonesia Ltd., a company engaging in
the exploration and production of crude oil and natural gas in
Indonesia.

The accounting policies of the operating segments
are the same as those described in Note 3 
Summary of Principal Accounting Policies.

Operating segment information for the years ended
December 31, 2000, 2001 and 2002 is presented below:

Primary reporting format  business
segments

|                                                                     |  |             |          |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |      |   |  |  |          |  
|-------------------------------------------------------------------- |  | ----------- | -------- | --------- |  | --------- | ------- | ------- |  | ----- | ------ | ----- |  |  | ----- | - |  |  | ---- | - |  |  | -------- | -
|                                                                     |  | Exploration |          | Refining  |  | Chemicals |         |         |  |       |        |      
|                                                                     |  | and         |          | and       |  | and       |         | Natural |  |       |        |      
|Year Ended December 31, 2000                                         |  | Production  |          | Marketing |  | Marketing |         | Gas     |  | Other |        | Total
|                                                                     |  |             |          |           |  |           |         |         |  |       |        |      
|                                                                     |  | RMB         |          | RMB       |  | RMB       |         | RMB     |  | RMB   |        | RMB  
|Sales and other operating revenues (including
    inter-segment)     |  |             | 170,928  |           |  |           | 164,435 |         |  |       | 33,364 |       |  |  | 7,163 |   |  |  |     |   |  |  | 375,890  |  
|Less: Inter-segment sales                                            |  |             | (121,265 | )         |  |           | (8,176  | )       |  |       | (355   | )     |  |  | (815  | ) |  |  |     |   |  |  | (130,611 | )
|                                                                     |  |             |          |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |      |   |  |  |          |  
|Total sales and other operating revenues from
    external customers |  |             | 49,663   |           |  |           | 156,259 |         |  |       | 33,009 |       |  |  | 6,348 |   |  |  |     |   |  |  | 245,279  |  
|                                                                     |  |             |          |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |      |   |  |  |          |  
|Depreciation, depletion and amortization                             |  |             | (21,354  | )         |  |           | (6,376  | )       |  |       | (5,728 | )     |  |  | (624  | ) |  |  | (127 | ) |  |  | (34,209  | )

F-42



---



##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


|                                                                    |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|------------------------------------------------------------------- |  | ----------- | ------- | --------- |  | --------- | ------- | ------- |  | ----- | ------ | ----- |  |  | ------ | - |  |  | ------- | - |  |  | -------- | -
|                                                                    |  | Exploration |         | Refining  |  | Chemicals |         |         |  |       |        |      
|                                                                    |  | and         |         | and       |  | and       |         | Natural |  |       |        |      
|Year Ended December 31, 2000                                        |  | Production  |         | Marketing |  | Marketing |         | Gas     |  | Other |        | Total
|                                                                    |  |             |         |           |  |           |         |         |  |       |        |      
|                                                                    |  | RMB         |         | RMB       |  | RMB       |         | RMB     |  | RMB   |        | RMB  
|Segment result                                                      |  |             | 99,375  |           |  |           | 2,205   |         |  |       | 2,004  |       |  |  | 89     |   |  |  | (500    | ) |  |  | 103,173  |  
|Other costs                                                         |  |             | (4,232  | )         |  |           | (11,273 | )       |  |       | (1,934 | )     |  |  | (75    | ) |  |  | (226    | ) |  |  | (17,740  | )
|                                                                    |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Income/(loss) from operations                                       |  |             | 95,143  |           |  |           | (9,068  | )       |  |       | 70     |       |  |  | 14     |   |  |  | (726    | ) |  |  | 85,433   |  
|                                                                    |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Finance costs                                                       |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  | (4,523   | )
|Equity in income of affiliates accounted for by
    equity method   |  |             | 280     |           |  |           | 143     |         |  |       | 51     |       |  |  |       |   |  |  | 110     |   |  |  | 584      |  
|                                                                    |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Income before income taxes                                          |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  | 81,494   |  
|Income taxes                                                        |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  | (27,014  | )
|Minority interests                                                  |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  | 165      |  
|                                                                    |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Net income                                                          |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  | 54,645   |  
|                                                                    |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Interest income                                                     |  |             | 914     |           |  |           | 497     |         |  |       | 959    |       |  |  | 70     |   |  |  | 1,234   |   |  |  | 3,674    |  
|Less:                                                               |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Inter-segment interest income                                       |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  | (3,083   | )
|                                                                    |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Interest income from external sources                               |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  | 591      |  
|                                                                    |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Interest expense                                                    |  |             | (3,412  | )         |  |           | (1,950  | )       |  |       | (2,523 | )     |  |  | (226   | ) |  |  | (1,258  | ) |  |  | (9,369   | )
|Less:                                                               |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Inter-segment interest expense                                      |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  | 3,083    |  
|                                                                    |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Interest expense to external sources                                |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  | (6,286   | )
|                                                                    |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Segment assets                                                      |  |             | 257,706 |           |  |           | 117,209 |         |  |       | 76,434 |       |  |  | 11,990 |   |  |  | 355,014 |   |  |  | 818,353  |  
|Elimination of inter-segment balances                               |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  | (389,466 | )
|Investments in equity affiliates                                    |  |             | 809     |           |  |           | 1,520   |         |  |       | 385    |       |  |  | 5      |   |  |  | 440     |   |  |  | 3,159    |  
|                                                                    |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Total assets                                                        |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  | 432,046  |  
|                                                                    |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Segment capital expenditure
     for property, plant and equipment |  |             | 38,654  |           |  |           | 13,595  |         |  |       | 4,104  |       |  |  | 3,214  |   |  |  | 563     |   |  |  | 60,130   |  
|Segment liabilities                                                 |  |             | 92,421  |           |  |           | 67,130  |         |  |       | 52,426 |       |  |  | 7,688  |   |  |  | 83,694  |   |  |  | 303,359  |  
|Other liabilities                                                   |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  | 19,961   |  
|Elimination of inter-segment balances                               |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  | (167,909 | )
|                                                                    |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Total liabilities                                                   |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  | 155,411  |  
|                                                                    |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  

F-43



---



##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


|                                                                         |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|------------------------------------------------------------------------ |  | ----------- | -------- | --------- |  | --------- | ------- | ------- |  | ----- | ------ | ----- |  |  | ------ | - |  |  | ------- | - |  |  | -------- | -
|                                                                         |  | Exploration |          | Refining  |  | Chemicals |         |         |  |       |        |      
|                                                                         |  | and         |          | and       |  | and       |         | Natural |  |       |        |      
|Year Ended December 31, 2001                                             |  | Production  |          | Marketing |  | Marketing |         | Gas     |  | Other |        | Total
|                                                                         |  |             |          |           |  |           |         |         |  |       |        |      
|                                                                         |  | RMB         |          | RMB       |  | RMB       |         | RMB     |  | RMB   |        | RMB  
|Sales and other operating revenues (including
    inter-segment)         |  |             | 148,277  |           |  |           | 171,961 |         |  |       | 31,776 |       |  |  | 11,321 |   |  |  |        |   |  |  | 363,335  |  
|Less: Inter-segment sales                                                |  |             | (110,738 | )         |  |           | (8,436  | )       |  |       | (462   | )     |  |  | (2,379 | ) |  |  |        |   |  |  | (122,015 | )
|                                                                         |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Total sales and other operating revenues from
    external customers     |  |             | 37,539   |           |  |           | 163,525 |         |  |       | 31,314 |       |  |  | 8,942  |   |  |  |        |   |  |  | 241,320  |  
|                                                                         |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Depreciation, depletion and Amortization                                 |  |             | (21,419  | )         |  |           | (5,804  | )       |  |       | (5,171 | )     |  |  | (1,113 | ) |  |  | (108    | ) |  |  | (33,615  | )
|Segment result                                                           |  |             | 81,679   |           |  |           | 10,214  |         |  |       | 129    |       |  |  | 1,142  |   |  |  | (378    | ) |  |  | 92,786   |  
|Other costs                                                              |  |             | (4,747   | )         |  |           | (13,538 | )       |  |       | (2,503 | )     |  |  | (420   | ) |  |  | (439    | ) |  |  | (21,647  | )
|                                                                         |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Income/(loss) from operations                                            |  |             | 76,932   |           |  |           | (3,324  | )       |  |       | (2,374 | )     |  |  | 722    |   |  |  | (817    | ) |  |  | 71,139   |  
|                                                                         |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Finance costs                                                            |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  | (3,349   | )
|Equity in income/(loss) of affiliates accounted
    for by equity method |  |             | 162      |           |  |           | 38      |         |  |       | 29     |       |  |  | (9     | ) |  |  | 121     |   |  |  | 341      |  
|                                                                         |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Income before income taxes                                               |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  | 68,131   |  
|Income taxes                                                             |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  | (23,066  | )
|Minority interests                                                       |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  | 404      |  
|                                                                         |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Net income                                                               |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  | 45,469   |  
|                                                                         |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Interest income                                                          |  |             | 1,893    |           |  |           | 1,191   |         |  |       | 493    |       |  |  | 104    |   |  |  | 4,955   |   |  |  | 8,636    |  
|Less:                                                                    |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Inter-segment interest income                                            |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  | (7,827   | )
|                                                                         |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Interest income from external sources                                    |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  | 809      |  
|                                                                         |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Interest expense                                                         |  |             | (2,896   | )         |  |           | (2,667  | )       |  |       | (1,991 | )     |  |  | (310   | ) |  |  | (4,371  | ) |  |  | (12,235  | )
|Less:                                                                    |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Inter-segment interest expense                                           |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  | 7,827    |  
|                                                                         |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Interest expense to external sources                                     |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  | (4,408   | )
|                                                                         |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Segment assets                                                           |  |             | 268,955  |           |  |           | 118,154 |         |  |       | 73,341 |       |  |  | 22,370 |   |  |  | 412,684 |   |  |  | 895,504  |  
|Elimination of inter-segment balances                                    |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  | (436,922 | )
|Investments in equity affiliates                                         |  |             | 1,194    |           |  |           | 1,080   |         |  |       | 590    |       |  |  | 627    |   |  |  | 592     |   |  |  | 4,083    |  
|                                                                         |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Total assets                                                             |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  | 462,665  |  
|                                                                         |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  

F-44



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


|                                                                    |  |             |        |           |  |           |        |         |  |       |        |       |  |  |        |  |  |  |         |  |  |  |          |  
|------------------------------------------------------------------- |  | ----------- | ------ | --------- |  | --------- | ------ | ------- |  | ----- | ------ | ----- |  |  | ------ |  |  |  | ------- |  |  |  | -------- | -
|                                                                    |  | Exploration |        | Refining  |  | Chemicals |        |         |  |       |        |      
|                                                                    |  | and         |        | and       |  | and       |        | Natural |  |       |        |      
|Year Ended December 31, 2001                                        |  | Production  |        | Marketing |  | Marketing |        | Gas     |  | Other |        | Total
|                                                                    |  |             |        |           |  |           |        |         |  |       |        |      
|                                                                    |  | RMB         |        | RMB       |  | RMB       |        | RMB     |  | RMB   |        | RMB  
|Segment capital expenditure
     for property, plant and equipment |  |             | 41,193 |           |  |           | 11,416 |         |  |       | 4,062  |       |  |  | 4,557  |  |  |  | 321     |  |  |  | 61,549   |  
|Segment liabilities                                                 |  |             | 84,369 |           |  |           | 70,182 |         |  |       | 49,526 |       |  |  | 11,547 |  |  |  | 115,097 |  |  |  | 330,721  |  
|Other liabilities                                                   |  |             |        |           |  |           |        |         |  |       |        |       |  |  |        |  |  |  |         |  |  |  | 21,564   |  
|Elimination of inter-segment balances                               |  |             |        |           |  |           |        |         |  |       |        |       |  |  |        |  |  |  |         |  |  |  | (185,362 | )
|                                                                    |  |             |        |           |  |           |        |         |  |       |        |       |  |  |        |  |  |  |         |  |  |  |          |  
|Total liabilities                                                   |  |             |        |           |  |           |        |         |  |       |        |       |  |  |        |  |  |  |         |  |  |  | 166,923  |  
|                                                                    |  |             |        |           |  |           |        |         |  |       |        |       |  |  |        |  |  |  |         |  |  |  |          |  

|                                                                         |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |        |   |  |  |          |  
|------------------------------------------------------------------------ |  | ----------- | -------- | --------- |  | --------- | ------- | ------- |  | ----- | ------ | ----- |  |  | ------ | - |  |  | ------ | - |  |  | -------- | -
|                                                                         |  | Exploration |          | Refining  |  | Chemicals |         |         |  |       |        |      
|                                                                         |  | and         |          | and       |  | and       |         | Natural |  |       |        |      
|Year Ended December 31, 2002                                             |  | Production  |          | Marketing |  | Marketing |         | Gas     |  | Other |        | Total
|                                                                         |  |             |          |           |  |           |         |         |  |       |        |      
|                                                                         |  | RMB         |          | RMB       |  | RMB       |         | RMB     |  | RMB   |        | RMB  
|Sales and other operating revenues
    (including inter-segment)         |  |             | 147,308  |           |  |           | 174,621 |         |  |       | 29,661 |       |  |  | 12,733 |   |  |  |       |   |  |  | 364,323  |  
|Less: Inter-segment sales                                                |  |             | (106,266 | )         |  |           | (9,988  | )       |  |       | (1,093 | )     |  |  | (2,552 | ) |  |  |       |   |  |  | (119,899 | )
|                                                                         |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |        |   |  |  |          |  
|Total sales and other operating revenues from
    external customers     |  |             | 41,042   |           |  |           | 164,633 |         |  |       | 28,568 |       |  |  | 10,181 |   |  |  |       |   |  |  | 244,424  |  
|                                                                         |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |        |   |  |  |          |  
|Depreciation, depletion and Amortization                                 |  |             | (21,972  | )         |  |           | (7,144  | )       |  |       | (6,336 | )     |  |  | (1,213 | ) |  |  | (117   | ) |  |  | (36,782  | )
|Segment result                                                           |  |             | 76,943   |           |  |           | 17,815  |         |  |       | (1,217 | )     |  |  | 1,796  |   |  |  | (462   | ) |  |  | 94,875   |  
|Other costs                                                              |  |             | (4,804   | )         |  |           | (14,997 | )       |  |       | (1,945 | )     |  |  | (244   | ) |  |  | (544   | ) |  |  | (22,534  | )
|                                                                         |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |        |   |  |  |          |  
|Income/(loss) from operations                                            |  |             | 72,139   |           |  |           | 2,818   |         |  |       | (3,162 | )     |  |  | 1,552  |   |  |  | (1,006 | ) |  |  | 72,341   |  
|                                                                         |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |        |   |  |  |          |  
|Finance costs                                                            |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |        |   |  |  | (3,369   | )
|Equity in income/(loss) of affiliates accounted
    for by equity method |  |             | (38      | )         |  |           | 12      |         |  |       | (8     | )     |  |  | 71     |   |  |  | 231    |   |  |  | 268      |  
|                                                                         |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |        |   |  |  |          |  
|Income before income taxes                                               |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |        |   |  |  | 69,240   |  
|Income taxes                                                             |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |        |   |  |  | (22,231  | )
|Minority interests                                                       |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |        |   |  |  | (99      | )
|                                                                         |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |        |   |  |  |          |  
|Net income                                                               |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |        |   |  |  | 46,910   |  
|                                                                         |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |        |   |  |  |          |  
|Interest income                                                          |  |             | 1,942    |           |  |           | 1,061   |         |  |       | 1,136  |       |  |  | 109    |   |  |  | 4,499  |   |  |  | 8,747    |  
|Less:                                                                    |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |        |   |  |  |          |  
|Inter-segment interest income                                            |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |        |   |  |  | (8,284   | )
|                                                                         |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |        |   |  |  |          |  
|Interest income from external sources                                    |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |        |   |  |  | 463      |  
|                                                                         |  |             |          |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |        |   |  |  |          |  

F-45



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


|                                                                    |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|------------------------------------------------------------------- |  | ----------- | ------- | --------- |  | --------- | ------- | ------- |  | ----- | ------ | ----- |  |  | ------ | - |  |  | ------- | - |  |  | -------- | -
|                                                                    |  | Exploration |         | Refining  |  | Chemicals |         |         |  |       |        |      
|                                                                    |  | and         |         | and       |  | and       |         | Natural |  |       |        |      
|Year Ended December 31, 2002                                        |  | Production  |         | Marketing |  | Marketing |         | Gas     |  | Other |        | Total
|                                                                    |  |             |         |           |  |           |         |         |  |       |        |      
|                                                                    |  | RMB         |         | RMB       |  | RMB       |         | RMB     |  | RMB   |        | RMB  
|Interest expense                                                    |  |             | (2,979  | )         |  |           | (2,516  | )       |  |       | (1,810 | )     |  |  | (263   | ) |  |  | (4,232  | ) |  |  | (11,800  | )
|Less:                                                               |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Inter-segment interest expense                                      |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  | 8,284    |  
|                                                                    |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Interest expense to external sources                                |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  | (3,516   | )
|                                                                    |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Segment assets                                                      |  |             | 289,277 |           |  |           | 113,751 |         |  |       | 64,169 |       |  |  | 33,740 |   |  |  | 427,709 |   |  |  | 928,646  |  
|Elimination of inter-segment balances                               |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  | (449,642 | )
|Investments in equity affiliates                                    |  |             | 1,422   |           |  |           | 1,774   |         |  |       | 178    |       |  |  | 6      |   |  |  | 765     |   |  |  | 4,145    |  
|                                                                    |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Total assets                                                        |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  | 483,149  |  
|                                                                    |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Segment capital expenditure
     for property, plant and equipment |  |             | 46,078  |           |  |           | 11,327  |         |  |       | 3,175  |       |  |  | 13,013 |   |  |  | 133     |   |  |  | 73,726   |  
|Segment liabilities                                                 |  |             | 89,663  |           |  |           | 68,701  |         |  |       | 44,318 |       |  |  | 22,488 |   |  |  | 113,236 |   |  |  | 338,406  |  
|Other liabilities                                                   |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  | 20,927   |  
|Elimination of inter-segment balances                               |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  | (197,714 | )
|                                                                    |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Total liabilities                                                   |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  | 161,619  |  
|                                                                    |  |             |         |           |  |           |         |         |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  




|           |                                                                                                                                                                      
|---------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note (a)  | Intersegment sales are conducted principally at
    market price.                                                                                                    
|          
|Note (b)  | Segment result is income from operations before
    other costs. Other costs include selling, general and
    administrative expenses and other net (expense)/income.



|           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|---------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note (c)  | Segment results for the year ended
    December 31, 2000 included the effect of employee
    separation costs and shut down of manufacturing assets
    (Note 5); segment results for the year ended
    December 31, 2001 included the effect of employee
    separation costs (Note 5); the segment results for the year
    ended December 31, 2002 included impairment provision for
    property, plant and equipment (Note 16) and shut down of
    manufacturing assets (Note 5).



|           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|---------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note (d)  | Elimination of intersegment balances are
    elimination of intersegment current accounts and investments.                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|          
|Note (e)  | Effective January 1, 2001, the results of
    operations, together with the corresponding assets and
    liabilities, of certain pipeline operations of the Group are
    reclassified from the Refining and Marketing Segment to the
    Natural Gas and Pipeline Segment to reflect the changes in the
    manner under which these operations are managed. The results of
    operations, together with the corresponding assets and
    liabilities, of these pipeline operations were included in the
    Refining and Marketing Segment in the segment

F-46



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)




| |                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | information for the year ended December 31,
    2000. Selected financial data of these pipeline operations as of
    and for the year ended December 31,2000 is as follows:

|                                                                     |  |      |       | 
|-------------------------------------------------------------------- |  | ---- | ----- | 
|                                                                     |  | 2000
|                                                                     |  |     
|                                                                     |  | RMB 
|Sales and other operating revenues (including
    inter-segment)     |  |      | 2,506 | 
|Total sales and other operating revenues from
    external customers |  |      | 976   | 
|Depreciation, depletion and amortization                             |  |      | 539   | 
|Segment result                                                       |  |      | 166   | 
|Other costs                                                          |  |      | 137   | 
|Income from operations                                               |  |      | 29    | 
|Equity in income of affiliates accounted for by
    equity method    |  |      | 60    | 
|Interest income                                                      |  |      | 4     | 
|Interest expense                                                     |  |      | 91    | 
|Segment assets                                                       |  |      | 7,789 | 
|Segment liabilities                                                  |  |      | 2,653 | 

Secondary reporting format 
geographical segments

|                                    |  |          |         |        |  |             |         |  |  |  |        | 
|----------------------------------- |  | -------- | ------- | ------ |  | ----------- | ------- |  |  |  | ------ | 
|                                    |  |          |         | Total  |  | Capital    
|Year Ended December 31, 2002        |  | Turnover |         | assets |  | expenditure
|                                    |  |          |         |        |  |            
|                                    |  | RMB      |         | RMB    |  | RMB        
|PRC                                 |  |          | 243,792 |        |  |             | 480,873 |  |  |  | 71,774 | 
|Others (Exploration and Production) |  |          | 632     |        |  |             | 2,276   |  |  |  | 1,952  | 
|                                    |  |          |         |        |  |             |         |  |  |  |        | 
|                                    |  |          | 244,424 |        |  |             | 483,149 |  |  |  | 73,726 | 
|                                    |  |          |         |        |  |             |         |  |  |  |        | 

33     SIGNIFICANT
DIFFERENCES BETWEEN IFRS AND US GAAP

The consolidated financial statements have been
prepared in accordance with International Financial Reporting
Standards (IFRS), which may differ in certain material respects
from the accounting principles generally accepted in the United
States of America (US GAAP). Such differences involve
methods for measuring the amounts shown in the financial
statements, as well as additional disclosures required by
US GAAP.

F-47



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


Effect on net income of significant differences
between IFRS and US GAAP is as follows:

|                                       |                                                           |                        |        |        |   |      |        |        |   |  |        |        |   |  |       |      |  
|-------------------------------------- | --------------------------------------------------------- | ---------------------- | ------ | ------ | - | ---- | ------ | ------ | - |  | ------ | ------ | - |  | ----- | ---- | -
|                                       |                                                           |                       
|                                       |                                                           | Year Ended December 31
|                                       |                                                           |                       
|                                       |                                                           | 2000                   |        | 2001   |   | 2002 |        | 2002  
|                                       |                                                           |                        |        |        |   |      |        |       
|                                       |                                                           | RMB                    |        | RMB    |   | RMB  |        | US$   
|Net income under IFRS                  |                                                           |                        | 54,645 |        |   |      | 45,469 |        |   |  | 46,910 |        |   |  | 5,665 |     
|US GAAP adjustments:                   |                                                           |                        |        |        |   |      |        |        |   |  |        |        |   |  |       |     
|                                       | Depreciation charges on fixed assets revaluation
    gain |                        |        | 8,483  |   |      |        | 8,305  |   |  |        | 8,157  |   |  |       | 985  |  
|                                       | Depreciation charges on fixed assets revaluation
    loss |                        |        | (112   | ) |      |        | (112   | ) |  |        | (112   | ) |  |       | (14  | )
|                                       | Loss on disposal of fixed assets                          |                        |        | 63     |   |      |        | 53     |   |  |        | 224    |   |  |       | 27   |  
|                                       | Income tax effect                                         |                        |        | (2,783 | ) |      |        | (2,721 | ) |  |        | (2,729 | ) |  |       | (329 | )
|                                       | Minority interests                                        |                        |        | (60    | ) |      |        | (60    | ) |  |        | (60    | ) |  |       | (7   | )
|                                       | One time remedial payments for staff housing              |                        |        |       |   |      |        |       |   |  |        | (2,553 | ) |  |       | (308 | )
|                                       |                                                           |                        |        |        |   |      |        |        |   |  |        |        |   |  |       |     
|Net income under US GAAP               |                                                           |                        | 60,236 |        |   |      | 50,934 |        |   |  | 49,837 |        |   |  | 6,019 |     
|                                       |                                                           |                        |        |        |   |      |        |        |   |  |        |        |   |  |       |     
|Basic and diluted net income per share |                                                           |                        | 0.35   |        |   |      | 0.29   |        |   |  | 0.28   |        |   |  | 0.03  |     
|                                       |                                                           |                        |        |        |   |      |        |        |   |  |        |        |   |  |       |     

Effect on shareholders equity of
significant differences between IFRS and US GAAP is as follows:

|                                   |                                                                                                                                                                      |                |         |         |   |      |         |         |   |  |        |        |  
|---------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------- | ------- | - | ---- | ------- | ------- | - |  | ------ | ------ | -
|                                   |                                                                                                                                                                      |               
|                                   |                                                                                                                                                                      | At December 31
|                                   |                                                                                                                                                                      |               
|                                   |                                                                                                                                                                      | 2001           |         | 2002    |   | 2002
|                                   |                                                                                                                                                                      |                |         |         |   |     
|                                   |                                                                                                                                                                      | RMB            |         | RMB     |   | US$ 
|Shareholders equity under IFRS    |                                                                                                                                                                      |                | 290,606 |         |   |      | 316,676 |         |   |  | 38,246 |       
|US GAAP adjustments:               |                                                                                                                                                                      |                |         |         |   |      |         |         |   |  |        |       
|                                   | Reversal of fixed assets revaluation gain                                                                                                                            |                |         | (80,549 | ) |      |         | (80,549 | ) |  |        | (9,728 | )
|                                   | Depreciation charges on fixed assets revaluation
    gain                                                                                                            |                |         | 21,063  |   |      |         | 29,220  |   |  |        | 3,529  |  
|                                   | Reversal of fixed assets revaluation loss                                                                                                                            |                |         | 1,122   |   |      |         | 1,122   |   |  |        | 136    |  
|                                   | Depreciation charges on fixed assets revaluation
    loss                                                                                                            |                |         | (224    | ) |      |         | (336    | ) |  |        | (41    | )
|                                   | Loss on disposal of fixed assets                                                                                                                                     |                |         | 116     |   |      |         | 340     |   |  |        | 41     |  
|                                   | Deferred tax assets on revaluation                                                                                                                                   |                |         | 19,296  |   |      |         | 16,567  |   |  |        | 2,001  |  
|                                   | Minority interests                                                                                                                                                   |                |         | 484     |   |      |         | 424     |   |  |        | 51     |  
|                                   | Effect on the retained earnings from the one time
    remedial payments for staff housing borne by the state
    shareholder of the Company                          |                |         |        |   |      |         | (2,553  | ) |  |        | (308   | )
|                                   | Effect on the other reserves of the
    shareholders equity from the one time remedial payments
    for staff housing borne by the state shareholder of the Company |                |         |        |   |      |         | 2,553   |   |  |        | 308    |  
|                                   |                                                                                                                                                                      |                |         |         |   |      |         |         |   |  |        |       
|Shareholders equity under US GAAP |                                                                                                                                                                      |                | 251,914 |         |   |      | 283,464 |         |   |  | 34,235 |       
|                                   |                                                                                                                                                                      |                |         |         |   |      |         |         |   |  |        |       

In preparing the summary of differences between
IFRS and US GAAP, management is required to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and
liabilities, and the estimates of revenues and expenses.
Accounting estimates have been employed in these financial
statements to determine reported

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PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


amounts, including realizability, useful lives of
tangible and intangible assets, income taxes and other areas.
Actual results could differ from those estimates.

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

(a) Revaluation
of fixed assets



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As described in Note 16, the fixed assets,
    excluding oil and gas reserves, transferred to the Company by
    CNPC were appraised as of June 30, 1999, as required by the
    relevant PRC regulations, by a firm of independent valuers
    registered in the PRC, China Enterprise Appraisal. The
    revaluation of the fixed assets transferred resulted in
    RMB 80,549 in excess of the prior carrying value and a
    revaluation loss of RMB 1,122 on certain fixed asset items.
    The depreciation charge on the revaluation surplus from
    January 1, 2000 to December 31, 2000 was
    RMB 8,483, from January 1, 2001 to December 31,
    2001 was 8,305, and from January 1, 2002 to
    December 31, 2002 was RMB 8,157.
|
| | For purposes of reconciling to the US GAAP
    financial data, the effect of the revaluation and the related
    depreciation charges is reversed. A deferred tax asset relating
    to the reversal of the revaluation effect is established,
    together with a corresponding increase in the shareholders
    equity. Under a special approval granted by the Ministry of
    Finance, the effect of the revaluation is available as
    additional depreciation base for purposes of determining taxable
    income.                                                                                                                                                                                                                     

(b) Related
party transactions



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Group has disclosed in Note 29
    transactions with significant customers and in Notes 13,
    15, 19, 20 and 30 transactions and balances with its immediate
    parent, CNPC, and related companies. CNPC is owned by the PRC
    government, which also owns a significant portion of the
    productive assets in the PRC. IFRS exempts state controlled
    enterprises from disclosing transactions with other state
    controlled enterprises. IFRS also excludes from related parties
    government departments and agencies to the extent that such
    dealings are in the normal course of business. US GAAP contains
    no similar exemptions but requires disclosure of material
    related party transactions. The Group believes that it has
    provided meaningful disclosures of related party transactions
    through the major customer disclosures in Note 29 and the
    transactions with the CNPC Group disclosed in Note 30.
    Although the majority of the Groups activities are with
    PRC government authorities and affiliates and other state
    controlled enterprises, none individually constitutes a major
    customer or supplier other than those disclosed.

(c) One-time
remedial payments for staff housing



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As disclosed in Note 4, certain employees of
    the Group who joined the workforce prior to December 31,
    1998 and have housing conditions below local standards are to be
    reimbursed for such differentials. These one-time remedial
    payments are to be borne by the state-owner of the Company,
    CNPC. Under IFRS, such direct payments to employees or
    reimbursements will not be recorded through the consolidated
    income statement of the Group. US GAAP contains no such
    exemption but requires this principal shareholders action
    on behalf of the Company to be recorded in the consolidated
    income statement. During the year ended December 31, 2002,
    the Group and CNPC completed the process of estimating the
    amount that are payable to qualified employees of the Group.
    This amount, RMB 2,553, has been reflected in determining
    net income of the Group for the year ended December 31,
    2002, under US GAAP. Since this

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PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)




| |                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------
| | amount is borne by CNPC, a corresponding amount
    has been included as an addition to the other reserves in the
    shareholders equity of the Group.

(d) Recent
US accounting pronouncements



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In August 2001, FASB issued Statement of
    Financial Accounting Standards No. 143 (FAS 143),
    Accounting for Asset Retirement Obligations.
    FAS 143 establishes accounting standards for recognition
    and measurement of a liability for an asset retirement
    obligation and the associated asset retirement cost.
    FAS 143 is effective for financial statements issued for
    fiscal years beginning after June 15, 2002. The Group is
    evaluating the effect of adoption of FAS 143.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | In June 2002, the FASB issued SFAS No. 146,
    Accounting for Costs Associated with Exit or Disposal
    Activities (FAS 146). This Standard requires
    companies to recognize costs associated with exit or disposal
    activities when they are incurred rather than at the date of
    commitment to an exit or disposal plan. Examples of costs
    covered by the standard include lease termination costs and
    certain employee severance costs that are associated with a
    restructuring, discontinued operations, plant closing, or other
    exit or disposal activity. Previous accounting guidance was
    provided by EITF Issue No. 94-3, Liability
    Recognition for Certain Costs, Employee Termination Benefits and
    Other Costs to Exit an Activity (including Certain Costs
    Incurred in a Restructuring). SFAS No. 146 replaces
    EITF 94-3 and is to be applied prospectively to exit or
    disposal activities initiated after December 31, 2002. The
    Group will comply with FAS 146 beginning in 2003.           
|
| | FASB issued Interpretation (FIN) 45,
    Guarantor  Accounting and Disclosure
    Requirements for Guarantees, Including Indirect Guarantees of
    Indebtedness of Others, in November 2002. FIN 45
    elaborates on the disclosures to be made by a guarantor about
    its obligations under certain guarantees that it has issued. It
    also clarifies that a guarantor is required to recognize, at the
    inception of a guarantee, a liability for the fair value of the
    obligation undertaken in issuing the guarantee. The initial
    recognition and initial measurement provisions under FIN 45
    are applicable prospectively to guarantees issued or modified
    after December 31, 2002. The adoption of disclosure
    requirements that are effective for the year ended
    December 31, 2002, did not have a material effect on the
    consolidated financial statements of the Group.                                                                                                                                            
|
| | Issued in January 2003, FIN 46,
    Consolidation of Variable Interest Entities,
    provides guidance on the identification of and financial
    reporting for entities over which control is achieved through
    means other than voting rights. This Interpretation requires
    existing unconsolidated variable interest entities to be
    consolidated by their primary beneficiaries if the entities do
    not effectively disperse risks among parties involved. The
    Interpretation applies immediately to variable interest entities
    created after January 31, 2003, and to variable interest
    entities in which an enterprise obtains an interest after that
    date. It applies in the first fiscal year or interim period
    beginning after June 15, 2003, to variable interest
    entities in which an enterprise holds a variable interest that
    it acquired before February 1, 2003. The Company has not
    yet completed its assessment of the accounting effects from this
    new accounting interpretation upon adoption.

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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


34     PRINCIPAL
SUBSIDIARIES

|                                            |  |                        |         |         |         |         |          |              |     |                      |     |  |        |  |        |                                                                            |  |                                                                                                               
|------------------------------------------- |  | ---------------------- | ------- | ------- | ------- | ------- | -------- | ------------ | --- | -------------------- | --- |  | ------ |  | ------ | -------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------
|                                            |  | Country of             |         |         |         | Type of |          | Attributable |     |                     
|                                            |  | Incorporation          |         | Paid-up |         | Legal   |          | Equity       |     |                     
|Company Name                                |  | and Operation          |         | Capital |         | Entity  |          | Interest     |     | Principal Activities
|                                            |  |                        |         |         |         |         |          |              |     |                     
|                                            |  |                        |         | RMB     |         |         |          | %            |     |                     
|*Daqing Oilfield Company
    Limited (Note) |  |                        | PRC     |         |         |         | 47,500   |              |     |                      | phi |  |        |  | 100.00 |                                                                            |  | Exploration, production and the sale of crude oil
    and natural gas; production and sale of refined products
|*Jinzhou Petrochemical Co., Ltd.            |  |                        | PRC     |         |         |         | 788      |              |     |                      | psi |  |        |  | 80.95  |                                                                            |  | Production and sale of oil and chemical products                                                              
|*Jilin Chemical Industrial Company Limited  |  |                        | PRC     |         |         |         | 3,561    |              |     |                      | psi |  |        |  | 67.29  |                                                                            |  | Production and sale of chemical products                                                                      
|Daqing Yu Shu Lin Oilfield Company Limited  |  |                        | PRC     |         |         |         | 1,272    |              |     |                      | phi |  |        |  | 88.16  |                                                                            |  | Exploration and production of crude oil and
    natural gas                                                   
|*Liaohe Jinma Oilfield Company Limited      |  |                        | PRC     |         |         |         | 1,100    |              |     |                      | psi |  |        |  | 81.82  |                                                                            |  | Exploration, production, transportation and sale
    of crude oil and natural gas                             
|*PetroChina International Limited           |  | British Virgin Islands |         |         | USD 0.9 |         |          |              | phi |                      |     |  | 100.00 |  |        | Exploration and production of crude oil and
    natural gas outside of PRC
|PetroChina International Indonesia Limited  |  |                        | Bahamas |         |         |         | USD0.005 |              |     |                      | phi |  |        |  | 100.00 |                                                                            |  | Exploration and production of crude oil and
    natural gas in Indonesia                                      




|      |                                            
|----- | -------------------------------------------
|phi  | Limited liability company.                 
|     
|psi  | Joint stock company with limited liability.



|  |                                                                       
|- | ----------------------------------------------------------------------
|* | Subsidiaries directly held by the Company as of
    December 31, 2002.

Note  Daqing Oilfield Company
Limited, previously operated as a branch of the Company, was
incorporated on January 1, 2000. The assets and liabilities
of the branch were transferred to Daqing Oilfield Company
Limited on January 1, 2000 at their then carrying values.

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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions except per share data or
unless otherwise stated)


35     APPROVAL OF
FINANCIAL STATEMENTS

The financial statements were approved by the
board of directors on March 31, 2003 and will be submitted
to the shareholders for approval at the annual general meeting
to be held on May 28, 2003.

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PETROCHINA COMPANY LIMITED






SUPPLEMENTARY INFORMATION ON OIL AND GAS
EXPLORATION


AND PRODUCTION ACTIVITIES
(UNAUDITED)


(Amounts in millions unless otherwise
stated)


Results of Operations

|                                                                                   |                        |                        |         |         |  |      |         |         |  |  |         |         | 
|---------------------------------------------------------------------------------- | ---------------------- | ---------------------- | ------- | ------- |  | ---- | ------- | ------- |  |  | ------- | ------- | 
|                                                                                   |                        |                       
|                                                                                   |                        | Year Ended December 31
|                                                                                   |                        |                       
|                                                                                   |                        | 2000                   |         | 2001    |  | 2002
|                                                                                   |                        |                        |         |         |  |     
|                                                                                   |                        | RMB                    |         | RMB     |  | RMB 
|Sales and other operating revenues                                                 |                        |                        |         |         |  |      |         |         |  |  |         |        
|                                                                                   | Sales to third parties |                        |         | 49,663  |  |      |         | 37,539  |  |  |         | 41,042  | 
|                                                                                   | Inter-segment sales    |                        |         | 121,265 |  |      |         | 110,738 |  |  |         | 106,266 | 
|                                                                                   |                        |                        |         |         |  |      |         |         |  |  |         |        
|                                                                                   |                        |                        | 170,928 |         |  |      | 148,277 |         |  |  | 147,308 |        
|Production costs excluding taxes                                                   |                        |                        | (31,237 | )       |  |      | (29,224 | )       |  |  | (29,913 | )      
|Exploration expenses                                                               |                        |                        | (8,680  | )       |  |      | (7,344  | )       |  |  | (8,095  | )      
|Depreciation, depletion and amortization                                           |                        |                        | (17,716 | )       |  |      | (18,423 | )       |  |  | (18,302 | )      
|Taxes other than income taxes                                                      |                        |                        | (4,758  | )       |  |      | (4,921  | )       |  |  | (5,299  | )      
|                                                                                   |                        |                        |         |         |  |      |         |         |  |  |         |        
|Income before income taxes                                                         |                        |                        | 108,537 |         |  |      | 88,365  |         |  |  | 85,699  |        
|Income taxes                                                                       |                        |                        | (35,817 | )       |  |      | (29,160 | )       |  |  | (25,958 | )      
|                                                                                   |                        |                        |         |         |  |      |         |         |  |  |         |        
|Results of operations from producing activities                                    |                        |                        | 72,720  |         |  |      | 59,205  |         |  |  | 59,741  |        
|                                                                                   |                        |                        |         |         |  |      |         |         |  |  |         |        
|Income from equity affiliates results of
    operations from producing activities |                        |                        | 174     |         |  |      | 178     |         |  |  | 132     |        
|                                                                                   |                        |                        |         |         |  |      |         |         |  |  |         |        

Capitalized Costs

|                                                         |  |                        |          |      |  |      |          |   |  |  |          |  
|-------------------------------------------------------- |  | ---------------------- | -------- | ---- |  | ---- | -------- | - |  |  | -------- | -
|                                                         |  |                       
|                                                         |  | Year Ended December 31
|                                                         |  |                       
|                                                         |  | 2000                   |          | 2001 |  | 2002
|                                                         |  |                        |          |      |  |     
|                                                         |  | RMB                    |          | RMB  |  | RMB 
|Property costs                                           |  |                        |         |      |  |      |         |   |  |  |         |  
|Producing assets                                         |  |                        | 198,266  |      |  |      | 212,526  |   |  |  | 236,856  |  
|Support facilities                                       |  |                        | 86,808   |      |  |      | 92,573   |   |  |  | 101,142  |  
|Construction-in-progress                                 |  |                        | 9,775    |      |  |      | 9,755    |   |  |  | 7,895    |  
|                                                         |  |                        |          |      |  |      |          |   |  |  |          |  
|Total capitalized costs                                  |  |                        | 294,849  |      |  |      | 314,854  |   |  |  | 345,893  |  
|Accumulated depreciation, depletion
    and amortization |  |                        | (116,925 | )    |  |      | (124,612 | ) |  |  | (137,653 | )
|                                                         |  |                        |          |      |  |      |          |   |  |  |          |  
|Net capitalized costs                                    |  |                        | 177,924  |      |  |      | 190,242  |   |  |  | 208,240  |  
|                                                         |  |                        |          |      |  |      |          |   |  |  |          |  
|Share of equity affiliates net capitalized
    costs    |  |                        | 772      |      |  |      | 813      |   |  |  | 815      |  
|                                                         |  |                        |          |      |  |      |          |   |  |  |          |  

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##### Table of Contents



PETROCHINA COMPANY LIMITED


SUPPLEMENTARY INFORMATION ON OIL AND GAS
EXPLORATION

AND PRODUCTION ACTIVITIES
(UNAUDITED)  (Continued)


(Amounts in millions unless otherwise
stated)


Costs Incurred in Property Acquisitions,
Exploration and Development Activities

|                                                                                            |  |                        |        |      |  |      |        |  |  |  |        | 
|------------------------------------------------------------------------------------------- |  | ---------------------- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                                                                                            |  |                       
|                                                                                            |  | Year Ended December 31
|                                                                                            |  |                       
|                                                                                            |  | 2000                   |        | 2001 |  | 2002
|                                                                                            |  |                        |        |      |  |     
|                                                                                            |  | RMB                    |        | RMB  |  | RMB 
|Property acquisition costs                                                                  |  |                        |       |      |  |      |       |  |  |  |       | 
|Exploration costs                                                                           |  |                        | 10,856 |      |  |      | 10,146 |  |  |  | 10,704 | 
|Development costs                                                                           |  |                        | 27,764 |      |  |      | 29,445 |  |  |  | 35,558 | 
|                                                                                            |  |                        |        |      |  |      |        |  |  |  |        | 
|Total                                                                                       |  |                        | 38,620 |      |  |      | 39,591 |  |  |  | 46,262 | 
|                                                                                            |  |                        |        |      |  |      |        |  |  |  |        | 
|Share of equity affiliates costs of
    property acquisition, exploration, and development |  |                        | 100    |      |  |      | 303    |  |  |  | 228    | 
|                                                                                            |  |                        |        |      |  |      |        |  |  |  |        | 

Proved Reserve Estimates

Oil and gas proved reserves cannot be measured
exactly. Reserve estimates are based on many factors related to
reservoir performance that require evaluation by the engineers
interpreting the available data, as well as price and other
economic factors. The reliability of these estimates at any
point in time depends on both the quality and quantity of the
technical and economic data, and the production performance of
the reservoirs as well as engineering judgment. Consequently,
reserve estimates are subject to revision as additional data
become available during the producing life of a reservoir. When
a commercial reservoir is discovered, proved reserves are
initially determined based on limited data from the first well
or wells. Subsequent data may better define the extent of the
reservoir and additional production performance, well tests and
engineering studies will likely improve the reliability of the
reserve estimate. The evolution of technology may also result in
the application of improved recovery techniques such as
supplemental or enhanced recovery projects, or both, which have
the potential to increase reserves beyond those envisioned
during the early years of a reservoirs producing life.

Proved oil and gas reserves are the estimated
quantities of crude oil, natural gas and natural gas liquids
which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating
conditions, i.e., prices and costs as of the date the estimate
is made. Prices include consideration of changes in existing
prices provided only by contractual arrangements, but not on
escalations based upon future conditions. Proved developed
reserves are those reserves, which can be expected to be
recovered through existing wells with existing equipment and
operating methods. Proved undeveloped reserves are those
reserves, which are expected to be recovered from new wells on
undrilled acreage, or from existing wells where relatively major
expenditure is required.

The Ministry of Land and Resources in China
issues production licenses to applicants on the basis of the
reserve reports approved by relevant authorities. Administrative
rules issued by the State Council provide that the maximum term
of a production license is 30 years. However, in accordance
with a special approval from the State Council, the Ministry of
Land and Resources has issued production licenses effective
March 2000 to the Group for all of its crude oil and natural gas
reservoirs with terms coextensive with the projected productive
life of those reservoirs, ranging up to 55 years.
Production licenses to be issued to the Group in the future will
be subject to the 30-year maximum unless additional special
approvals can be obtained from the State Council. Each of the
Groups production licenses is renewable upon application
by the Group 30 days prior to expiration.

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##### Table of Contents



PETROCHINA COMPANY LIMITED


SUPPLEMENTARY INFORMATION ON OIL AND GAS
EXPLORATION

AND PRODUCTION ACTIVITIES
(UNAUDITED)  (Continued)


(Amounts in millions unless otherwise
stated)


Oil and gas price increases may extend the
productive lives of crude oil and natural gas reservoirs beyond
the current terms of the relevant production licenses.

Proved reserve estimates as of December 31,
2000, 2001 and 2002 were based on a report prepared by DeGolyer
and MacNaughton, independent engineering consultants. These
reserve estimates were prepared for each oil and gas region (as
opposed to individual fields within a region) and adjusted for
the estimated effects of using prices and costs prevailing at
the end of the period. The Companys reserve estimates
include only crude oil and natural gas, which the Company
believes can be reasonably produced within the current terms of
production licenses.

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##### Table of Contents



PETROCHINA COMPANY LIMITED


SUPPLEMENTARY INFORMATION ON OIL AND GAS
EXPLORATION

AND PRODUCTION ACTIVITIES
(UNAUDITED)  (Continued)


(Amounts in millions unless otherwise
stated)


Estimated quantities of net proved oil and
condensate and natural gas reserves and of changes in net
quantities of proved developed and undeveloped reserves for each
of the period indicated are as follows:

|                                 |                                                                   |                         |                                 |              |       |      |   |        |        |       |  
|-------------------------------- | ----------------------------------------------------------------- | ----------------------- | ------------------------------- | ------------ | ----- | ---- | - | ------ | ------ | ----- | -
|                                 |                                                                   | Crude Oil and           |                                 |             
|                                 |                                                                   | Condensate              |                                 | Natural Gas 
|                                 |                                                                   |                         |                                 |             
|                                 |                                                                   | (millions of            |                                 | (billions of
|                                 |                                                                   | barrels)                |                                 | cubic feet) 
|Proved developed and undeveloped |                                                                   |                         |                                 |              |       |      |   |       
|                                 | Reserves at January 1, 2000                                       |                         |                                 | 10,999       |       |      |   | 24,603 |       
|                                 |                                                                   | Changes resulting from: |                                 |              |       |      |   |        |        |      
|                                 |                                                                   |                         | Revisions of previous estimates |              |       | 138  |   |        |        | 340   |  
|                                 |                                                                   |                         | Improved recovery               |              |       | 363  |   |        |        |      |  
|                                 |                                                                   |                         | Extensions and discoveries      |              |       | 297  |   |        |        | 8,237 |  
|                                 |                                                                   |                         | Production                      |              |       | (765 | ) |        |        | (647  | )
|                                 |                                                                   |                         |                                 |              |       |      |   |       
|                                 | Reserves at December 31, 2000                                     |                         |                                 | 11,032       |       |      |   | 32,533 |       
|                                 |                                                                   |                         |                                 |              |       |      |   |       
|                                 |                                                                   | Changes resulting from: |                                 |              |       |      |   |        |        |      
|                                 |                                                                   |                         | Revisions of previous estimates |              |       | 189  |   |        |        | 488   |  
|                                 |                                                                   |                         | Improved recovery               |              |       | 141  |   |        |        | 36    |  
|                                 |                                                                   |                         | Extensions and discoveries      |              |       | 360  |   |        |        | 3,773 |  
|                                 |                                                                   |                         | Production                      |              |       | (763 | ) |        |        | (727  | )
|                                 |                                                                   |                         |                                 |              |       |      |   |       
|                                 | Reserves at December 31, 2001                                     |                         |                                 | 10,959       |       |      |   | 36,103 |       
|                                 |                                                                   |                         |                                 |              |       |      |   |       
|                                 |                                                                   | Changes resulting from: |                                 |              |       |      |   |        |        |      
|                                 |                                                                   |                         | Revisions of previous estimates |              |       | 349  |   |        |        | (225  | )
|                                 |                                                                   |                         | Improved recovery               |              |       | 31   |   |        |        |      |  
|                                 |                                                                   |                         | Extensions and discoveries      |              |       | 330  |   |        |        | 3,540 |  
|                                 |                                                                   |                         | Purchases of Minerals in Place  |              |       | 38   |   |        |        | 193   |  
|                                 |                                                                   |                         | Production                      |              |       | (770 | ) |        |        | (794  | )
|                                 |                                                                   |                         |                                 |              |       |      |   |       
|                                 | Reserves at December 31, 2002                                     |                         |                                 | 10,937       |       |      |   | 38,817 |       
|                                 |                                                                   |                         |                                 |              |       |      |   |       
|                                 | Proved developed reserves at:                                     |                         |                                 |              |       |      |   |        |       
|                                 |                                                                   | December 31, 2000       |                                 |              | 9,546 |      |   |        | 12,503 |      
|                                 |                                                                   | December 31, 2001       |                                 |              | 9,309 |      |   |        | 12,946 |      
|                                 |                                                                   | December 31, 2002       |                                 |              | 9,198 |      |   |        | 11,921 |      
|                                 | Proportional interest in proved reserves of
    equity affiliates |                         |                                 |              |       |      |   |        |       
|                                 |                                                                   | December 31, 2000       |                                 |              | 61    |      |   |        | 2      |      
|                                 |                                                                   | December 31, 2001       |                                 |              | 62    |      |   |        | 1      |      
|                                 |                                                                   | December 31, 2002       |                                 |              | 62    |      |   |        | 2      |      

At December 31, 2002, 10,903 million
barrels of crude oil and condensate and 38,624 billion
cubic feet of nature gas proved developed and undeveloped
reserves are located within China, and 34 million barrels
of crude oil and condensate and 193 billion cubic feet of
nature gas proved developed and undeveloped reserves are located
in Indonesia.

F-56



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##### Table of Contents



PETROCHINA COMPANY LIMITED


SUPPLEMENTARY INFORMATION ON OIL AND GAS
EXPLORATION

AND PRODUCTION ACTIVITIES
(UNAUDITED)  (Continued)


(Amounts in millions unless otherwise
stated)


Standardized Measure

The following disclosures concerning the
standardized measure of future cash flows from proved oil and
gas reserves are presented in accordance with the US Statement
of Financial Accounting Standards No. 69. The amounts shown
are based on prices and costs at the end of each period,
currently enacted tax rates and a 10 percent annual
discount factor. Since prices and costs do not remain static,
and no price or cost changes have been considered, the results
are not necessarily indicative of the fair market value of
estimated proved reserves, but they do provide a common
benchmark which may enhance the users ability to project
future cash flows.

F-57



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##### Table of Contents



PETROCHINA COMPANY LIMITED


SUPPLEMENTARY INFORMATION ON OIL AND GAS
EXPLORATION

AND PRODUCTION ACTIVITIES
(UNAUDITED)  (Continued)


(Amounts in millions unless otherwise
stated)


The standardized measure of discounted future net
cash flows related to proved oil and gas reserves at the end of
each of the three years in the period ended December 31,
2000, 2001 and 2002 is as follows (in millions of RMB):

|                                                                                         |                      |  |           |       | 
|---------------------------------------------------------------------------------------- | -------------------- |  | --------- | ----- | 
|At December 31, 2000                                                                     |                      |  |           |      
|Future cash inflows                                                                      |                      |  | 3,067,191 |      
|Future production costs                                                                  |                      |  | (713,176  | )    
|Future development costs                                                                 |                      |  | (95,226   | )    
|Future income tax expense                                                                |                      |  | (693,910  | )    
|                                                                                         |                      |  |           |      
|Future net cash flows                                                                    |                      |  | 1,564,879 |      
|Discount at 10% for estimated timing of
    cash flows                                   |                      |  | (825,992  | )    
|                                                                                         |                      |  |           |      
|Standardized measure of discounted future net
    cash flows                             |                      |  | 738,887   |      
|                                                                                         |                      |  |           |      
|At December 31, 2001                                                                     |                      |  |           |      
|Future cash inflows                                                                      |                      |  | 2,049,110 |      
|Future production costs                                                                  |                      |  | (695,859  | )    
|Future development costs                                                                 |                      |  | (50,996   | )    
|Future income tax expense                                                                |                      |  | (422,453  | )    
|                                                                                         |                      |  |           |      
|Future net cash flows                                                                    |                      |  | 879,802   |      
|Discount at 10% for estimated timing of
    cash flows                                   |                      |  | (473,803  | )    
|                                                                                         |                      |  |           |      
|Standardized measure of discounted future net
    cash flows                             |                      |  | 405,999   |      
|                                                                                         |                      |  |           |      
|At December 31, 2002                                                                     |                      |  |           |      
|Future cash inflows                                                                      |                      |  | 2,710,152 |      
|Future production costs                                                                  |                      |  | (745,866  | )    
|Future development costs                                                                 |                      |  | (73,344   | )    
|Future income tax expense                                                                |                      |  | (562,289  | )    
|                                                                                         |                      |  |           |      
|Future net cash flows                                                                    |                      |  | 1,328,653 |      
|Discount at 10% for estimated timing of
    cash flows                                   |                      |  | (713,267  | )    
|                                                                                         |                      |  |           |      
|Standardized measure of discounted future net
    cash flows                             |                      |  | 615,386   |      
|                                                                                         |                      |  |           |      
|Share of equity affiliates standardized
    measure of discounted future net cash flows |                      |  |           |      
|                                                                                         | At December 31, 2000 |  |           | 3,979 | 
|                                                                                         | At December 31, 2001 |  |           | 2,013 | 
|                                                                                         | At December 31, 2002 |  |           | 2,612 | 

Future net cash flows were estimated using
period-end prices and costs, and currently enacted tax rates.

F-58



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##### Table of Contents



PETROCHINA COMPANY LIMITED


SUPPLEMENTARY INFORMATION ON OIL AND GAS
EXPLORATION

AND PRODUCTION ACTIVITIES
(UNAUDITED)  (Continued)


(Amounts in millions unless otherwise
stated)


Changes in the standardized measure of discounted
net cash flows for the Group for each of the three years in the
period ended December 31, 2000, 2001 and 2002 are as
follows:

|                                                                    |                                                                          |                         |  |          |   |      |  |          |   |  |  |          |  
|------------------------------------------------------------------- | ------------------------------------------------------------------------ | ----------------------- |  | -------- | - | ---- |  | -------- | - |  |  | -------- | -
|                                                                    |                                                                          |                        
|                                                                    |                                                                          | Year Ended December 31,
|                                                                    |                                                                          |                        
|                                                                    |                                                                          | 2000                    |  | 2001     |   | 2002
|                                                                    |                                                                          |                         |  |          |   |     
|                                                                    |                                                                          | RMB                     |  | RMB      |   | RMB 
|CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED
    FUTURE CASH FLOWS |                                                                          |                         |  |          |   |      |  |          |   |  |  |         
|                                                                    | Beginning of year                                                        |                         |  | 527,090  |   |      |  | 738,887  |   |  |  | 405,999  |  
|                                                                    | Sales and transfers of oil and gas produced, net
    of production costs |                         |  | (139,501 | ) |      |  | (119,053 | ) |  |  | (116,977 | )
|                                                                    | Net changes in prices and production costs
    and other                 |                         |  | 205,555  |   |      |  | (539,088 | ) |  |  | 259,016  |  
|                                                                    | Extensions, discoveries and improved recovery                            |                         |  | 144,041  |   |      |  | 43,916   |   |  |  | 53,024   |  
|                                                                    | Development costs incurred                                               |                         |  | 15,878   |   |      |  | 31,518   |   |  |  | (1,983   | )
|                                                                    | Revisions of previous quantity estimates                                 |                         |  | 14,217   |   |      |  | 10,472   |   |  |  | 17,364   |  
|                                                                    | Accretion of discount                                                    |                         |  | 75,122   |   |      |  | 106,653  |   |  |  | 60,095   |  
|                                                                    | Purchases of Minerals in Place                                           |                         |  |         |   |      |  |         |   |  |  | 2,351    |  
|                                                                    | Net change in income taxes                                               |                         |  | (103,515 | ) |      |  | 132,694  |   |  |  | (63,503  | )
|                                                                    |                                                                          |                         |  |          |   |      |  |          |   |  |  |         
|                                                                    | End of year                                                              |                         |  | 738,887  |   |      |  | 405,999  |   |  |  | 615,386  |  
|                                                                    |                                                                          |                         |  |          |   |      |  |          |   |  |  |         

F-59



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##### Table of Contents






EXHIBIT INDEX

|        |         |                         |  |                                                                                                                                                      
|------- | ------- | ----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |                        
|Number  |         | Description of Exhibits
|        |         |                        
|        | 1.1     |                         |  | Articles of Association (as amended) (English
    translation). (1)                                                                                  
|        | 4.1     |                         |  | 2003 Performance Contract between Chen Geng and
    PetroChina (English translation).                                                                
|        | 4.2     |                         |  | 2003 Performance Contract between Su Shulin and
    PetroChina (English translation).                                                                
|        | 4.3     |                         |  | 2003 Performance Contract between Wang Fucheng
    and PetroChina (English translation).                                                             
|        | 4.4     |                         |  | 2003 Performance Contract between Wang Guoliang
    and PetroChina (English translation).                                                            
|        | 4.5     |                         |  | 2003 Performance Contract between Liu Baohe and
    PetroChina (English translation).                                                                
|        | 4.6     |                         |  | 2003 Performance Contract between Duan Wende and
    PetroChina (English translation).                                                               
|        | 4.7     |                         |  | 2003 Performance Contract between Jia Chengzao
    and PetroChina (English translation).                                                             
|        | 4.8     |                         |  | Crude Oil Mutual Supply Framework Agreement,
    December 30, 2002, between China Petrochemical Corporation
    and PetroChina (English translation).
|        | 8.1     |                         |  | List of major subsidiaries.                                                                                                                          
|        | 12(a).1 |                         |  | Certification pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.                      



---

|    |                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to our Annual Report on
    Form 20-F for the fiscal year ended December 31, 2001
    (File No. 1-15006) filed with the U.S. Securities and
    Exchange Commission.